I
105TH CONGRESS
1ST SESSION
H. R. 10
To enhance competition in the financial services industry by providing a
prudential framework for the affiliation of banks, securities firms, and
other financial service providers, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 7, 1997
Mr. LEACH (for himself, Mrs. ROUKEMA, Mr. CASTLE, and Mr. LAZIO of New
York) 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 juris-
diction of the committee concerned
A BILL
To enhance competition in the financial services industry
by providing a prudential framework for the affiliation
of banks, securities firms, and other financial service
providers, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Financial Services Competitiveness Act of 1997’’.
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(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Section 1. Short title; table of contents.
TITLE I—BANK SECURITIES ACTIVITIES AND AFFILIATIONS
WITH SECURITIES FIRMS AND OTHER FINANCIAL COMPANIES
Subtitle A—Securities Activities
Sec. 101. Anti-affiliation provision of the Banking Act of 1933 repealed.
Sec. 102. Financial services holding companies authorized to have securities af-
filiates.
Sec. 103. Establishment and operations of securities affiliates.
Sec. 104. Safeguards relating to securities affiliates.
Sec. 105. Ownership of shares of certain companies by financial services hold-
ing companies.
Sec. 106. Provisions applicable to limited purpose banks.
Sec. 107. Securities company affiliations of FDIC-insured banks.
Sec. 108. Authority to terminate grandfather rights under the International
Banking Act of 1978.
Sec. 109. Effect on State laws prohibiting the affiliation of bank, securities and
insurance companies.
Sec. 110. National Bank special operating subsidiaries.
Sec. 111. Interagency agreement relating to retail sales of certain nondeposit
investment products.
Sec. 112. Effective date.
Subtitle B—Investment Bank Holding Companies
Sec. 116. Investment bank holding companies.
Sec. 117. Wholesale financial institutions.
Subtitle C—Financial Activities
Sec. 121. Financial activities.
Sec. 122. Reserved.
Sec. 123. Streamlined examination and reporting requirements for all financial
services holding companies.
Sec. 124. Holding company supervision for financial services holding companies
engaged primarily in nonbanking activities.
Sec. 125. Conversion of unitary savings and loan holding companies to financial
services holding companies.
Sec. 126. Reserved.
Sec. 127. Coordination with State law.
Sec. 128. Conforming amendments to the Bank Holding Company Act of 1956.
Sec. 129. Conforming amendments to the Bank Holding Company Act Amend-
ments of 1970.
Sec. 130. Credit cards for business purposes.
Subtitle D—Interagency Banking and Financial Services Advisory Committee
Sec. 141. Interagency banking and financial services advisory committee.
Subtitle E—Application and Registration Fees
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Sec. 151. Authority to impose fees.
TITLE II—FUNCTIONAL REGULATIONS
Subtitle A—Brokers and Dealers
Sec. 201. Definition of broker.
Sec. 202. Definition of dealer.
Sec. 203. Power to exempt from the definitions of broker and dealer.
Sec. 204. Effective date.
Subtitle B—Bank Investment Company Activities
Sec. 211. Custody of investment company assets by affiliated bank.
Sec. 212. Lending to an affiliated investment company.
Sec. 213. Independent directors.
Sec. 214. Additional SEC disclosure authority.
Sec. 215. Definition of broker under the Investment Company Act of 1940.
Sec. 216. Definition of dealer under the Investment Company Act of 1940.
Sec. 217. Removal of the exclusion from the definition of investment adviser for
banks that advise investment companies.
Sec. 218. Definition of broker under the Investment Advisers Act of 1940.
Sec. 219. Definition of dealer under the Investment Advisers Act of 1940.
Sec. 220. Interagency consultation.
Sec. 221. Treatment of bank common trust funds.
Sec. 222. Investment advisers prohibited from having controlling interest in
registered investment company.
Sec. 223. Conforming change in definition.
Sec. 224. Effective date.
TITLE III—BANK INSURANCE ACTIVITIES
Sec. 301. National bank and holding company insurance activities.
Sec. 302. National bank community development insurance activities.
Sec. 303. Redomestication of mutual life insurers.
TITLE IV—THRIFT CHARTER CONVERSION
Subtitle A—Status of Banks and Savings Associations
Sec. 400. Short title.
Sec. 401. Termination of Federal savings associations; Treatment of State sav-
ings associations as banks for purposes of Federal banking law.
Sec. 402. Treatment of certain activities and affiliations of bank holding com-
panies resulting from this Act.
Sec. 403. Transition provisions for activities of savings associations which con-
vert into or become treated as banks.
Sec. 404. Registration of bank holding companies resulting from conversions of
savings associations to banks or treatment of savings associa-
tions as banks.
Sec. 405. Additional transition provisions and special rules.
Sec. 406. Technical and conforming amendments.
Sec. 407. References to savings associations and State banks in Federal law.
Sec. 408. Repeal of Home Owner’s Loan Act.
Sec. 409. Effective date; definitions.
Subtitle B—Transfer of Functions, Personnel, and Property
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Sec. 421. Reorganization of OTS into OCC.
Sec. 422. Savings provision.
Sec. 423. Cost of funds indexes.
Sec. 424. References in Federal law to Director of the Office of Thrift Super-
vision.
Sec. 425. Reconfiguration of FDIC Board of Directors as a result of removal
of Director of the Office of Thrift Supervision.
Subtitle C—Merger of Deposit Insurance Funds
Sec. 431. Merger of the BIF and SAIF.
TITLE V—TECHNICAL CORRECTIONS
Sec. 501. Foreign bank residency requirements.
Sec. 502. Interstate branching.
TITLE I—BANK SECURITIES AC-
TIVITIES AND AFFILIATIONS
WITH SECURITIES FIRMS AND
OTHER 
FINANCIAL 
COMPA-
NIES
Subtitle A—Securities Activities
SEC. 101. ANTI-AFFILIATION PROVISION OF THE BANKING
ACT OF 1933 REPEALED.
(a) SECTION 20 REPEALED.—Section 20 (12 U.S.C.
377) of the Banking Act of 1933 (commonly referred to
as the ‘‘Glass-Steagall Act’’) is repealed.
(b) CONFORMING AMENDMENT TO SECTION 32.—
Section 32 (12 U.S.C. 78) of the Banking Act of 1933
is amended by adding at the end the following sentence:
‘‘This section shall not apply so as to prohibit an officer,
director, or employee of a securities affiliate (as defined
in section 2 of the Financial Services Holding Company
Act of 1997) or a special operating subsidiary (as defined
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in section 5136D of Revised Statutes or referenced in un-
designated paragraph 20 of section 9 of the Federal Re-
serve Act) that is subject to the Financial Services Hold-
ing Company Act from serving at the same time as an
officer, director, or employee of a member bank affiliated
with that securities affiliate pursuant to section 10 of such
Act or with that special operating subsidiary as defined
in section 5136D of the Revised Statutes or referenced
in undesignated paragraph 20 of section 9 of the Federal
Reserve Act. This section shall not apply so as to prohibit
an officer, director, or employee of an investment company
registered under the Investment Company Act of 1940 or
an investment adviser registered under the Investment Ad-
visers Act of 1940 from serving at the same time as an
officer, director, or employee of a member bank.’’.
SEC. 102. FINANCIAL SERVICES HOLDING COMPANIES AU-
THORIZED TO HAVE SECURITIES AFFILIATES.
Section 4(c) of the Bank Holding Company Act of
1956 (12 U.S.C. 1843(c)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(13);
(2) by striking the period at the end of para-
graph (14) and inserting ‘‘; or ‘‘; and
(3) by adding after paragraph (14) the follow-
ing new paragraph:
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‘‘(15) shares of a securities affiliate in accord-
ance with section 10.’’.
SEC. 103. ESTABLISHMENT AND OPERATIONS OF SECURI-
TIES AFFILIATES.
(a) IN GENERAL.—Section 10 of the Bank Holding
Company Act of 1956 (12 U.S.C. 1841 et seq.) is amend-
ed to read as follows:
‘‘§ 10. Securities activities
‘‘(a) ACTIVITIES PERMISSIBLE FOR SECURITIES AF-
FILIATES.—
‘‘(1) IN GENERAL.—A securities affiliate may
engage in one or more of the following activities:
‘‘(A) Underwrite, deal in, broker, place, or
distribute securities of any type, provide invest-
ment advice regarding securities of any type,
and engage in other securities activities.
‘‘(B) Sponsor, organize, control, manage,
and act as investment adviser to an investment
company.
‘‘(C) Engage in, or acquire the shares of a
company engaged in any activity if—
‘‘(i) a provision of section 4(c) permits
financial services holding companies gen-
erally to engage in that activity or acquire
those shares; and
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‘‘(ii) either—
‘‘(I) the Board permits the finan-
cial services holding company to en-
gage in that activity or acquire those
shares through the securities affiliate;
or
‘‘(II) a provision of section 4(c)
permits the financial services holding
company to engage in such activity or
acquire such shares without the
Board’s approval.
‘‘(2) FACTOR TO BE CONSIDERED.—In making
determinations pursuant to this section, the Board
shall take into account the need for securities firms
affiliated with banks to be innovative and competi-
tive.
‘‘(b) ACQUIRING INTEREST IN SECURITIES AFFILI-
ATE.—
‘‘(1) NOTICE REQUIRED.—A financial services
holding company shall not, without complying with
and receiving approval pursuant to the notice proce-
dure in section 4(j)(1), directly or indirectly acquire
or retain more than 5 percent of the voting shares
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of, or all or substantially all of the assets of, a secu-
rities affiliate (or a company that would be a securi-
ties affiliate if the Board permitted the financial
services holding company to acquire that company).
‘‘(2) CRITERIA
FOR
APPROVAL.—The Board
shall disapprove a notice required under paragraph
(1) unless the Board determines that the require-
ments of the following subparagraphs have been
met:
‘‘(A) CAPITAL.—
‘‘(i) DEPOSITORY INSTITUTIONS.—
‘‘(I) The lead depository institu-
tion of the financial services holding
company is well capitalized.
‘‘(II) Well capitalized depository
institutions control at least 80 percent
of the aggregate total risk-weighted
assets of depository institutions con-
trolled by the financial services hold-
ing company.
‘‘(III) All depository institutions
controlled by the financial services
holding company are well capitalized
or adequately capitalized.
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‘‘(ii) RECENTLY
ACQUIRED
DEPOSI-
TORY
INSTITUTIONS.—Depository institu-
tions acquired by a financial services hold-
ing company during the 12-month period
preceding the submission of a notice under
paragraph (1) may be excluded for pur-
poses of clause (i)(II) if—
‘‘(I) the financial services holding
company has submitted a plan to the
appropriate Federal banking agency
to restore the capital of the institution
and the plan has been accepted by
such agency; and
‘‘(II) all such institutions that
are excluded for the purposes of
clause (i)(II) represent, in the aggre-
gate, less than 25 percent of the ag-
gregate total risk-weighted assets of
all depository institutions controlled
by the financial services holding com-
pany.
‘‘(iii) FINANCIAL SERVICES HOLDING
COMPANY.—The financial services holding
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company is (and immediately after the ac-
quisition of a securities affiliate would con-
tinue to be) adequately capitalized under
the capital standards applicable, if any, to
such financial services holding company.
‘‘(iv) FOREIGN
BANKS
AND
COMPA-
NIES.—For purposes of applying this sub-
section and other provisions of this section,
the Board shall establish and apply com-
parable capital standards for the acquisi-
tion retention, and operation of a securities
affiliate in the United States by a foreign
bank that operates a branch or agency or
owns or controls a bank or commercial
lending company in the United States, and
any company that owns or controls such a
foreign bank, giving due regard to the
principle of national treatment and equal-
ity of competitive opportunity.
‘‘(B) ALTERNATIVE CAPITAL TREATMENT
FOR WELL CAPITALIZED FINANCIAL SERVICES
HOLDING COMPANIES.—
‘‘(i) IN GENERAL.—A financial serv-
ices holding company and the depository
institution subsidiaries of such company
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shall be deemed to have met the capital re-
quirements set forth in subparagraph (A)
if—
‘‘(I) the holding company files a
written notice with the Board of such
company’s election to meet such cap-
ital requirements in the manner pro-
vided in this subparagraph;
‘‘(II) all depository institutions
controlled by the financial services
holding company are at least ade-
quately capitalized; and
‘‘(III) the financial services hold-
ing company is (and immediately after
the acquisition of a securities affiliate
would continue to be) well capitalized.
‘‘(ii) LOSSES INCURRED BY FDIC.—A
financial services holding company which
makes an election under clause (i) in con-
nection with the acquisition of control of
any securities affiliate shall be liable for
any loss incurred by the Federal Deposit
Insurance Corporation, or any loss which
the Federal Deposit Insurance Corporation
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reasonably anticipates incurring in connec-
tion with—
‘‘(I) the default of any insured
depository institution controlled by
the financial services holding com-
pany; or
‘‘(II) any assistance provided by
the Corporation to any insured deposi-
tory institution in danger of default
that is controlled by the financial
services holding company.
‘‘(C) MANAGERIAL RESOURCES.—
‘‘(i) 
IN
GENERAL.—The 
financial
services holding company and each deposi-
tory institution subsidiary of such com-
pany—
‘‘(I) are well managed; and
‘‘(II) were well managed during
the 12-month period preceding the ac-
quisition of a securities affiliate (but
for purposes of this subparagraph the
Board may disregard any depository
institution acquired by the financial
services holding company during that
period).
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‘‘(ii) SECURITIES
ACTIVITIES.—The
financial services holding company has the
managerial resources to conduct the pro-
posed securities activities safely and sound-
ly.
‘‘(D) INTERNAL CONTROLS.—The financial
services holding company has established ade-
quate policies and procedures to manage finan-
cial and operational risks, to provide reasonable
assurance of compliance with this section and
other applicable laws, and to provide reasonable
assurance of maintenance of corporate sepa-
rateness within the financial services holding
company.
‘‘(E) NO
DETRIMENTAL
EFFECT
ON
FI-
NANCIAL SERVICES HOLDING COMPANY OR ITS
SUBSIDIARY
DEPOSITORY
INSTITUTIONS.—The
acquisition of a securities affiliate would not ad-
versely affect the safety and soundness of—
‘‘(i) the financial services holding
company; or
‘‘(ii) any depository institution sub-
sidiary of the financial services holding
company.
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‘‘(F) CONCENTRATION
OF
RESOURCES.—
The acquisition of a securities affiliate would
not result in an undue concentration of re-
sources in the financial services business.
‘‘(G) RESPONSIVENESS
TO
COMMUNITY
NEEDS.—The lead insured depository institu-
tion subsidiary of the financial services holding
company and insured depository institutions
controlling at least 80 percent of the aggregate
total risk-weighted assets of insured depository
institutions controlled by the financial services
holding company have achieved a ‘satisfactory
record of meeting community credit needs’, or
better, during the most recent examination of
such insured depository institutions.
‘‘(3) LIMITED NOTICE PROCEDURES FOR PRO-
POSALS BY WELL CAPITALIZED AND WELL MANAGED
COMPANIES
TO
ACQUIRE
ADDITIONAL
SECURITIES
AFFILIATES.—A financial services holding company
may, without providing the notice required under
paragraph (1), directly or indirectly acquire the
shares or substantially all of the assets of any com-
pany that is engaged in activities described in sub-
paragraph (A) or (B) of subsection (a)(1), if—
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‘‘(A) the financial services holding com-
pany previously received the Board’s approval
under paragraph (1) to control a securities af-
filiate and continues to control the securities af-
filiate pursuant to that approval;
‘‘(B) the acquisition proposal qualifies
under section 4(j)(4);
‘‘(C) the financial services holding com-
pany provides the written notification required
in section 4(j)(5); and
‘‘(D) the acquisition would not result in an
undue concentration of resources in the finan-
cial services business.
‘‘(4) APPLICATION FEE.—Notwithstanding any
other provision of this Act, no financial services
holding company may acquire any securities affiliate
or make any additional investment in a securities af-
filiate in accordance with subsection (c) unless the
Board has received, from the company, full payment
of a fee which the Board shall impose in accordance
with section 5(h).
‘‘(c) ADDITIONAL INVESTMENT IN SECURITIES AF-
FILIATE.—
‘‘(1) PRIOR
NOTICE
REQUIRED.—A financial
services holding company that has acquired control
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of a securities affiliate under this section shall not,
directly or indirectly, make any additional invest-
ment in the securities affiliate that is considered
capital for purposes of any capital requirement im-
posed on the securities affiliate under the Securities
Exchange Act of 1934 (other than an extension of
credit under a revolving credit agreement approved
by the Board), unless the financial services holding
company gives the Board prior written notice of the
proposed investment and the Board—
‘‘(A) issues a written statement of the
Board’s intent not to disapprove the notice; or
‘‘(B) does not disapprove the notice within
30 days after the notice is filed.
‘‘(2) NO PRIOR NOTICE REQUIRED FOR CER-
TAIN FINANCIAL SERVICES HOLDING COMPANIES.—
‘‘(A) IN
GENERAL.—A financial services
holding company shall not be required to pro-
vide prior notice under paragraph (1) if after
making any investment described in paragraph
(1)—
‘‘(i) the financial services holding
company would be adequately capitalized
under the capital standards applicable, if
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any, to such financial services holding com-
pany and each of the financial services
holding company’s subsidiary depository
institutions would be well capitalized; and
‘‘(ii) the financial services holding
company and each of its subsidiary deposi-
tory institutions are well managed (but for
purposes of this clause the Board may dis-
regard any depository institution acquired
by the financial services holding company
during the previous 12-month period).
‘‘(B) SUBSEQUENT
NOTICE.—A financial
services holding company that makes an invest-
ment pursuant to subparagraph (A) shall pro-
vide written notice to the Board of the addi-
tional investment within 10 days after making
the investment.
‘‘(3) CRITERIA FOR DISAPPROVING NOTICE.—
The Board may disapprove a notice filed under
paragraph (1) if—
‘‘(A) any depository institution affiliate of
the securities affiliate is undercapitalized; or
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‘‘(1) HOLDING COMPANY ACTION REQUIRED IF
AFFILIATED INSTITUTIONS ARE NOT WELL CAPITAL-
IZED.—
‘‘(A) 
APPLICABILITY.—This 
paragraph
shall apply if—
‘‘(i) the lead depository institution of
the financial services holding company is
not well capitalized, or
‘‘(ii) well capitalized depository insti-
tutions do not control at least 80 percent
of the aggregate total risk-weighted assets
of depository institutions affiliated with the
securities affiliate.
‘‘(B) 
CAPITAL
MAINTENANCE
AGREE-
MENT.—Within 30 days after subparagraph (A)
becomes applicable with respect to any financial
services holding company, such company shall
execute an agreement with the Board—
‘‘(i) to meet the capital requirements
of subparagraph (A) within a reasonable
period of time; or
‘‘(ii) to divest control of the depository
institution in an orderly manner within
180 days, or within such additional period
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of time as the Board may determine is rea-
sonably required in order to effect such di-
vestiture.
‘‘(C) RESTRICTIONS ON CERTAIN SECURI-
TIES ACTIVITIES.—If a financial services hold-
ing company fails to meet the requirements of,
or comply with the agreement executed pursu-
ant to, subparagraph (B), a securities affiliate
of such financial services holding company shall
not, beginning 180 days after subparagraph (A)
becomes applicable with respect to such com-
pany, agree to underwite or deal in, any securi-
ties other than—
‘‘(i) securities expressly authorized by
section 5136 of the Revised Statutes of the
United States as permissible for a national
bank to underwrite or deal in;
‘‘(ii) securities backed by or represent-
ing interests in notes, drafts, acceptances,
loans, leases, receivables, other obligations,
or pools of any such obligations; or
‘‘(iii) securities issued by an open-end
investment company registered under the
Investment Company Act of 1940.
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‘‘(D) EXCEPTION.—The Board may permit
the securities affiliate of a financial services
holding company described in subparagraph (C)
to underwrite or deal in securities not described
in clauses (i) through (iii) of such subparagraph
for a period of 1 year from the date on which
subparagraph (A) first becomes applicable with
respect to such company, if—
‘‘(i) the financial services holding
company submits a capital restoration plan
to the Board specifying the steps the fi-
nancial services holding holding company
will take to meet the requirements of sub-
section (b)(2)(A), and containing such
other information as the Board may re-
quire; and
‘‘(ii) the Board approves the plan.
‘‘(E) EXTENSION OF PERIOD.—
‘‘(i) IN GENERAL.—Upon application
by a financial services holding company,
the Board may extend, for not more than
1 year at a time, the period provided in
subparagraph (C).
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‘‘(ii) MAXIMUM EXTENSION.—No ex-
tension under clause (i) of the period pro-
vided in subparagraph (C) shall, in the ag-
gregate, exceed 2 years.
‘‘(2) DIVESTITURE
OF
SECURITIES
AFFILI-
ATE.—
‘‘(A) IN
GENERAL.—A financial services
holding company shall divest itself of the securi-
ties affiliate if any of the financial services
holding company’s subsidiary depository institu-
tions has been undercapitalized for more than 6
months.
‘‘(B) EXTENDING TIME.—The Board may
provide additional time, not exceeding 18
months, for a divestiture under subparagraph
(A) if—
‘‘(i) the appropriate Federal banking
agency or, in the case of a foreign bank or
company that owns or controls a foreign
bank, the Board, has approved the under-
capitalized institution’s capital restoration
plan; and
‘‘(ii) the Board determines that the
securities affiliate poses no significant risk
to any affiliated depository institution.
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‘‘(e) SECURITIES AFFILIATE EXCLUDED IN DETER-
MINING WHETHER FINANCIAL SERVICES HOLDING COM-
PANY IS ADEQUATELY CAPITALIZED.—
‘‘(1) IN GENERAL.—In determining whether a
financial services holding company is adequately cap-
italized—
‘‘(A) the financial services holding compa-
ny’s capital and total assets shall each be re-
duced by—
‘‘(i) an amount equal to the amount
of the financial services holding company’s
equity investment in any securities affili-
ate; and
‘‘(ii) an amount equal to the amount
of any extensions of credit by the financial
services holding company to any securities
affiliate that are considered capital for
purposes of any capital requirement im-
posed on the securities affiliate under sec-
tion 15(c)(3) of the Securities Exchange
Act of 1934; and
‘‘(B) the securities affiliate’s assets and li-
abilities shall not be consolidated with those of
the financial services holding company.
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‘‘(2) EXCEPTION FOR NONSECURITIES ACTIVI-
TIES.—Paragraph (1) shall not apply to the extent
that the Board determines by regulation or order
that—
‘‘(A) an item described in such paragraph
relates to activities which are not described in
subparagraph (A) or (B) of subsection (a)(1);
or
‘‘(B) another method of adjusting capital
is more appropriate to ensure the safety and
soundness of depository institutions.
‘‘(3) EXCEPTION
FOR
COMPANIES
ENGAGED
PREDOMINANTLY IN SECURITIES ACTIVITIES.—Para-
graph (1) shall not apply to an investment bank
holding company which is predominantly engaged in
securities activities on a consolidated basis.
‘‘(f) SAFEGUARDS.—Each financial services holding
company and each subsidiary of any such company shall
comply with all applicable safeguard requirements of sec-
tion 11.
‘‘(g) ACTIVITIES NOT PERMISSIBLE FOR DEPOSI-
TORY INSTITUTIONS.—
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‘‘(1) IN GENERAL.—A financial services holding
company that acquires control of a securities affili-
ate shall not, after the end of the 1-year period be-
ginning on the date of such acquisition, permit any
depository institution or any subsidiary (except a
special operating subsidiary as defined in section
5136D of the Revised Statutes or referenced in un-
designated paragraph 20 of section 9 of the Federal
Reserve Act or section 24(d)(1)(C) of the Federal
Deposit Insurance Act), of any depository institu-
tion, which is controlled by such holding company—
‘‘(A) to engage, directly or indirectly, in
the United States—
‘‘(i) in underwriting securities backed
by or representing interests in notes,
drafts, acceptances, loans, leases, receiv-
ables, other obligations, or pools of any
such obligations originated or purchased by
the institution or its affiliates; or
‘‘(ii) in underwriting or dealing in any
other securities, except securities expressly
authorized by section 5136 of the Revised
Statutes of the United States as permis-
sible for a national bank to underwrite or
deal in; or
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‘‘(B) to make an equity investment in any
securities affiliate.
‘‘(2) EXCEPTION FOR CERTAIN EDGE ACT AND
AGREEMENT
CORPORATIONS.—The limitations in
paragraph (1)(A) shall not apply with respect to ac-
tivities conducted by a subsidiary of a financial serv-
ices holding company which is held pursuant to sec-
tion 25 or 25A of the Federal Reserve Act or section
4(c)(13) of this Act.
‘‘(3) RULE OF CONSTRUCTION.—No provision
of this subsection shall be construed as permitting a
securities affiliate to accept deposits in contravention
of section 21 of the Banking Act of 1933.
‘‘(h) APPROVAL OF SECURITIES ACTIVITIES UNDER
SECTION 4(C)(8) RESTRICTED.—The Board shall deny
any notice or application by a financial services holding
company under authority of section 4(c)(8) to engage in,
or acquire the shares of a company engaged in, underwrit-
ing or dealing in securities in the United States, other
than securities expressly authorized by section 5136 of the
Revised Statutes of the United States as permissible for
a national bank to underwrite or deal in.
‘‘(i) BANKERS’ BANKS.—
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‘‘(1) IN GENERAL.—For purposes of this sec-
tion, each shareholder of or participant in a com-
pany that controls a depository institution described
in section 5169(b)(1) of the Revised Statutes of the
United States or in a similar statute of any State,
and each subsidiary of such a shareholder or partici-
pant, shall be treated as if such shareholder, partici-
pant, or subsidiary were a subsidiary of that com-
pany.
‘‘(2) EXCEPTION.—This subsection shall not
apply with respect to a shareholder or participant in
a company described in subparagraph (A) (or any
subsidiary of such shareholder or participant) if the
shareholder or participant, and the affiliates of any
such shareholder or participant, do not, in the ag-
gregate, control more than 5 percent of any class of
voting shares of such company.
‘‘(j) SHARES ACQUIRED IN CONNECTION WITH UN-
DERWRITING AND INVESTMENT BANKING ACTIVITIES.—
‘‘(1) IN
GENERAL.—Notwithstanding section
4(a), a financial services holding company may di-
rectly or indirectly acquire or control, whether as
principal, on behalf of one or more entities (includ-
ing entities, other than a depository institution or
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subsidiary of a depository institution, that the finan-
cial services holding company controls), or otherwise,
shares, assets, or ownership interests (including
without limitation debt or equity securities, partner-
ship interests, trust certificates, or other instru-
ments representing ownership) of a company or
other entity, whether or not constituting control of
such company or entity, engaged in activities not au-
thorized pursuant to section 4 if—
‘‘(A) the shares, assets, or ownership inter-
ests are not acquired or held by a depository in-
stitution or a subsidiary of a depositary institu-
tion;
‘‘(B) such shares, assets, or ownership in-
terests are acquired and held by a securities af-
filiate or an affiliate of a securities affiliate as
part of a bona fide underwriting or investment
banking activity, which includes investment ac-
tivities engaged in for the purpose of apprecia-
tion and ultimate resale or other disposition of
the investment, and such shares, assets, or own-
ership interests are held for such a period of
time as will permit the sale or disposition there-
of on a reasonable basis consistent with the na-
ture of such activities; and
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‘‘(C) during the period such shares, assets,
or ownership interests are held, the financial
services holding company does not actively man-
age or operate the company or entity except in-
sofar as necessary to achieve the objectives of
subparagraph (B).
‘‘(2) NO EXPANSION OF UNDERWRITING ACTIVI-
TIES.—No provision of this subsection shall be con-
strued as authorizing any financial services holding
company, or any subsidiary of any such company, to
underwrite or deal in any security.
‘‘(3) ACQUISITION FEE.—No financial services
holding company may acquire any company or other
entity under paragraph (1) unless the Board has re-
ceived, from the holding company, full payment of a
fee which the Board shall impose in accordance with
section 5(h).
‘‘(k) REGISTRATION FEES.—In the case of any finan-
cial services holding company which controls—
‘‘(1) a securities affiliate; or
‘‘(2) any company or entity pursuant to sub-
section (j), the Board shall assess an annual reg-
istration fee in accordance with section 5(h) on such
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holding company with respect to each affiliate, com-
pany, or other entity referred to in paragraph (1) or
(2) which is controlled by such holding company.
‘‘(l) DEFINITIONS.—For purposes of this section and
sections 11 and 12, the following definitions shall apply:
‘‘(1) CAPITAL STOCK AND SURPLUS.—The term
‘capital stock and surplus’ has the same meaning as
in section 23A of the Federal Reserve Act.
‘‘(2) COVERED TRANSACTION.—The term ‘cov-
ered transaction’ has the same meaning as in section
23A of the Federal Reserve Act.
‘‘(3) SECURITY.—
‘‘(A) IN
GENERAL.—The term ‘security’
has the meaning given to such term in section
3(a)(10) of the Securities Exchange Act of
1934.
‘‘(B) EXCEPTIONS.—Notwithstanding any
other provision of law, the term ‘security’ does
not include any of the following for purposes of
this section other than subsection (a):
‘‘(i) A contract of insurance.
‘‘(ii) A deposit account, savings ac-
count, certificate of deposit, or other de-
posit instrument issued by a depository in-
stitution.
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‘‘(iii) A share account issued by a sav-
ings association if the account is insured
by the Federal Deposit Insurance Corpora-
tion.
‘‘(iv) A banker’s acceptance.
‘‘(v) A letter of credit issued by a de-
pository institution.
‘‘(vi) A debit account at a depository
institution arising from a credit card or
similar arrangement.
‘‘(vii) A loan or loan participation (as
determined by the Board), including any
debt security issued in connection with sov-
ereign debt restructuring which a bank
purchases and sells pursuant to such
bank’s lending authority.
‘‘(viii) A qualified financial contract
(as defined in section 11(e)(8)(D)(i) of the
Federal Deposit Insurance Act), as deter-
mined by the Board, after consultation
with and consideration of the views of the
Securities and Exchange Commission, ex-
cept that, for purposes of this section other
than subsection (a), such term does not in-
clude—
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‘‘(I) any securities contract (as
defined in section 11(e)(8)(D)(ii) of
such Act) that is based on or directly
relates to a security that is not ex-
pressly authorized by section 5136 of
the Revised Statutes of the United
States as permissible for a national
bank to underwrite or deal in unless
the Board determines, after consulta-
tion with and consideration of the
views of the Securities and Exchange
Commission, that such securities con-
tract is appropriate for a bank to un-
derwrite or deal in, taking into ac-
count other qualified financial con-
tracts which a bank is permitted to
underwrite or deal in; and
‘‘(II) any agreement, contract, or
transaction which is determined by
the Federal Deposit Insurance Cor-
poration in a regulation prescribed
after the date of the enactment of the
Financial 
Services 
Competitiveness
Act of 1997 to be a qualified financial
contract unless the Board determines,
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this section shall not be construed as finding or
implying that such instrument is or is not a se-
curity for purposes of Federal securities laws.
‘‘(E) RESERVATION
OF
AUTHORITY
TO
CHARTERING AUTHORITY.—A determination by
the Board under this paragraph shall not be
construed in any way as authorizing a bank to
provide any product or service that the bank is
not otherwise authorized to provide under rel-
evant law governing the activities and powers of
the bank.
‘‘(F) CONSULTATION WITH COMMISSION.—
‘‘(i) NOTICE AND CONSULTATION RE-
QUIRED.—In determining whether to ex-
empt a banking product pursuant to sub-
paragraph (C), the Board shall provide
written notice to, consult with, and con-
sider the views of the Securities and Ex-
change Commission.
‘‘(ii) RESPONSE AND PUBLICATION.—
If the Securities and Exchange Commis-
sion comments in writing on a proposed
determination of the Board, the Board
shall—
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‘‘(I) respond in writing to such
written comment; and
‘‘(II) at the request of such com-
mission, publish such comment and
response in the FEDERAL REGISTER
at the time the determination becomes
effective.’’.
(b) TRANSITION RULE FOR SECURITIES AFFILIATES
APPROVED UNDER SECTION 4(c)(8).—
(1) CONVERSION TO (4)(c)(15) SUBSIDIARY.—
(A) IN GENERAL.—Except as provided in
subparagraph (B) and paragraphs (3) and (4),
effective 18 months after the date of enactment
of this Act, no financial services holding com-
pany may engage in, or retain the shares of any
company engaged in, underwriting or dealing in
securities based on the approval of an applica-
tion under section 4(c)(8) of the Bank Holding
Company Act of 1956 (as in effect before the
date of the enactment of the Financial Services
Competitiveness Act of 1997) unless the finan-
cial services holding company has obtained the
Board’s approval to retain the shares of that
company under section 10.
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(B) EXCEPTION FOR BANK ELIGIBLE SE-
CURITIES.—Subparagraph (A) shall not apply
with respect to underwriting or dealing in—
(i) securities expressly authorized by
section 5136 of the Revised Statutes of the
United States as permissible for a national
bank to underwrite or deal in; and
(ii) municipal securities.
(2) EXTENDING TIME.—
(A) IN
GENERAL.—The Board may, for
good cause shown, extend the time provided
under paragraph (1) for not more than 18
months.
(B) PENDING
NOTICES.—If a financial
services holding company has filed a notice
under section 10(b) of the Bank Holding Com-
pany Act of 1956 not later than 180 days after
the date of enactment of this Act, paragraph
(1) shall not apply with respect to the company
engaged in such underwriting or dealing until
180 days after the Board has acted on the no-
tice.
(3) CONVERSION PROCEDURES FOR COMPANIES
PREVIOUSLY AUTHORIZED TO CONDUCT SECURITIES
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ACTIVITIES.—Any financial services holding com-
pany that controls a company engaged in underwrit-
ing and dealing in corporate debt and equity securi-
ties pursuant to an order issued by the Board under
section 4(c)(8) of the Bank Holding Company Act of
1956 before the date of enactment of the Financial
Services Competitiveness Act of 1997 shall be treat-
ed as follows:
(A) REVENUE TEST AND CERTAIN OTHER
RESTRICTIONS.—Upon filing the notice required
under section 10(b) of the Financial Services
Holding Company Act of 1997, the financial
services holding company shall be relieved
from—
(i) the limitation contained in such
order on the amount of revenue that may
be derived from securities underwriting
and dealing activities; and
(ii) any other restriction contained in
such order that would not be required
under section 11 of such Act, as permitted
by the Board.
(B) EXAMINATION
OF
INTERNAL
CON-
TROLS.—The financial services holding com-
pany shall not, in connection with action on the
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notice submitted under section 10(b)(1) of the
Financial Services Holding Company Act of
1997, be subject to an examination of internal
controls under section 10(b)(2)(D) of such Act.
(4) RETENTION
OF
COMPANIES
CONDUCTING
LIMITED SECURITIES ACTIVITIES.—Notwithstanding
paragraph (1), any financial services holding com-
pany that controls a company engaged in underwrit-
ing and dealing in securities (other than corporate
debt or equity securities) pursuant to an order is-
sued by the Board under section 4(c)(8) of the Bank
Holding Company Act of 1956 before the date of en-
actment of the Financial Services Competitiveness
Act of 1997 may retain control of such company, so
long as such company complies with all of the limita-
tions, restrictions and conditions, including the limi-
tation on the revenue that may be derived from such
underwriting or dealing activities contained in such
order.
SEC. 104. SAFEGUARDS RELATING TO SECURITIES AFFILI-
ATES.
(a) IN GENERAL.—The Bank Holding Company Act
of 1956 (12 U.S.C. 1841 et seq.) is amended—
(1) by redesignating sections 11 and 12 as sec-
tions 13 and 14, respectively; and
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(2) by inserting after section 10 (as added by
section 103 of this Act) the following new section:
‘‘§ 11. Safeguards relating to securities affiliates
‘‘(a) EXTENSIONS
OF CREDIT
AND ASSET PUR-
CHASES RESTRICTED.—
‘‘(1) IN
GENERAL.—No depository institution
affiliated with a securities affiliate shall, directly or
indirectly, do any of the following:
‘‘(A) Extend credit in any manner to the
securities affiliate.
‘‘(B) Issue a guarantee, acceptance, or let-
ter of credit, including an endorsement or a
standby letter of credit, for the benefit of the
securities affiliate.
‘‘(C) Except as provided in paragraph (3),
purchase for its own account, or for the account
of any subsidiary of such institution, financial
assets of the securities affiliate.
‘‘(2) EXCEPTION FOR CLEARING SECURITIES.—
Paragraph (1)(A) shall not apply with respect to an
extension of credit by a well capitalized depository
institution to acquire or sell securities if the follow-
ing conditions are met:
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‘‘(A) The extension of credit is incidental
to clearing transactions in those securities
through that depository institution.
‘‘(B) Both the principal of and the interest
on the extension of credit are fully secured by
those securities.
‘‘(C) Either—
‘‘(i) the extension of credit is to be re-
paid before the close of business on the
same business day; or
‘‘(ii) all of the following conditions are
satisfied:
‘‘(I) The securities cannot, in the
ordinary course of business, be cleared
on that business day.
‘‘(II) The extension of credit is to
be repaid before the close of business
on the next business day.
‘‘(III) Extensions of credit sub-
ject to this clause, when aggregated
with all other covered transactions be-
tween the institution and all affiliated
securities affiliates do not exceed 10
percent of the institution’s capital
stock and surplus.
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‘‘(D) Either—
‘‘(i) the securities are securities ex-
pressly authorized by section 5136 of the
Revised Statutes of the United States as
permissible for a national bank to under-
write or deal in; or
‘‘(ii) the Board permits transactions
under this paragraph in securities not de-
scribed in clause (i) and the securities af-
filiate provides the depository institution
with such additional security or other as-
surance of performance, if any, as the
Board shall require to prevent such trans-
actions from posing any appreciable risk to
the institution.
‘‘(3) EXCEPTIONS
FOR
CERTAIN
SECURITIES
PURCHASED FOR A DEPOSITORY INSTITUTION’S OWN
ACCOUNT.—Paragraph (1)(C) shall not apply with
respect to purchases at the current market value
(based on reliable and regularly available price
quotations) of—
‘‘(A) securities expressly authorized by sec-
tion 5136 of the Revised Statutes of the United
States as permissible for a national bank to un-
derwrite or deal in; or
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‘‘(B) securities that—
‘‘(i) the securities affiliate has been
marking to market daily; and
‘‘(ii) are rated investment grade by at
least one nationally recognized statistical
rating organization.
‘‘(4) OTHER EXCEPTIONS.—A well capitalized
depository institution may engage in a transaction
described in paragraph (1), if—
‘‘(A) the transaction is fully secured in ac-
cordance with section 23A(c) of the Federal Re-
serve Act; and
‘‘(B) the aggregate amount of covered
transactions between the institution and all se-
curities affiliates of the financial services hold-
ing company, excluding transactions permitted
under paragraph (2)(C)(i) or (3)(A), does not
exceed 10 percent of the institution’s capital
stock and surplus.
‘‘(b) CREDIT ENHANCEMENT RESTRICTED.—
‘‘(1) IN
GENERAL.—No depository institution
affiliated with a securities affiliate shall, directly or
indirectly, extend credit, or issue or enter into a
standby letter of credit, asset purchase agreement,
indemnity, guarantee, insurance, or other facility,
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for the purpose of enhancing the marketability of a
securities issue underwritten by the securities affili-
ate.
‘‘(2) DEFINITION OF TERM BY BOARD.—The
Board shall prescribe a definition for the term ‘for
the purpose of enhancing the marketability of a se-
curities issue’ for purposes of paragraph (1).
‘‘(3) EXCEPTION FOR BANK ELIGIBLE SECURI-
TIES.—Paragraph (1) shall not apply with regard to
securities expressly authorized by section 5136 of
the Revised Statutes of the United States as permis-
sible for a national bank to underwrite or deal in.
‘‘(4) APPLICATION TO WELL CAPITALIZED DE-
POSITORY INSTITUTIONS.—
‘‘(A) IN GENERAL.—A well capitalized de-
pository institution may engage in a transaction
described in paragraph (1) if—
‘‘(i) the depository institution has
adopted appropriate limits on exposure on
a consolidated basis to any single customer
whose securities are underwritten by the
securities affiliate; and
‘‘(ii) the institution and its securities
affiliate have adopted appropriate proce-
dures, including maintenance of necessary
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documentary records, to assure than any
such extension of credit, standby letter of
credit, asset purchase agreement, indem-
nity, guarantee, insurance or other facility,
is on an arm’s length basis.
‘‘(B) ARM’S
LENGTH
TRANSACTION
DE-
SCRIBED.—An extension of credit may be con-
sidered to be on an arm’s length basis if the
terms and conditions are substantially the same
as those prevailing at the time for comparable
transactions involving securities that are not
underwritten by the securities affiliate.
‘‘(C) COMPLIANCE WITH PARAGRAPH (1).—
The Board may require, by regulation or order,
compliance with paragraph (1) by well capital-
ized depository institutions exempt under this
paragraph in order to achieve any purpose spec-
ified in subsection (1).
‘‘(c) RESTRICTION ON EXTENDING CREDIT TO MAKE
PAYMENTS ON SECURITIES.—
‘‘(1) IN
GENERAL.—No depository institution
affiliated with a securities affiliate shall, directly or
indirectly, extend credit to an issuer of securities un-
derwritten by the securities affiliate for the purpose
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of paying the principal of those securities or interest
or dividends on those securities.
‘‘(2) EXCEPTIONS
FOR
CERTAIN
EXTENSIONS
OF CREDIT.—Paragraph (1) shall not apply to an
extension of credit for a documented purpose (other
than paying principal, interest, or dividends) if the
timing, maturity, and other terms of the credit,
taken as a whole, are substantially different from
those of the underwritten securities.
‘‘(3) EXCEPTIONS FOR BANK ELIGIBLE SECURI-
TIES.—Paragraph (1) shall not apply with respect to
any security expressly authorized by section 5136 of
the Revised Statutes of the United States as permis-
sible for a national bank to underwrite or deal in.
‘‘(4) APPLICATION TO WELL CAPITALIZED DE-
POSITORY INSTITUTIONS.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply with respect to well capitalized depos-
itory institutions if—
‘‘(i) the depository institution has
adopted appropriate limits on exposure on
a consolidated basis to any single customer
whose securities are underwritten by the
securities affiliate; and
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‘‘(ii) the depository institution has
adopted appropriate procedures, including
maintenance of necessary documentary
records, to assure that any extension of
credit by the depository institution to an
issuer for the purpose of paying the prin-
cipal, interest or dividends on securities
underwritten by the securities affiliate is
on an arm’s length basis.
‘‘(B) ARM’S
LENGTH
TRANSACTION
DE-
SCRIBED.—An extension of credit may be con-
sidered to have been made on an arm’s length
basis if the terms and conditions are substan-
tially the same as those prevailing at the time
for comparable transactions with issuers whose
securities are not underwritten by the securities
affiliate.
‘‘(C) COMPLIANCE
WITH
SUBPARAGRAPH
(A).—The Board may require, by regulation or
order, compliance with paragraph (1) by well
capitalized depository institutions exempt under
this paragraph in order to achieve any purpose
specified in subsection (1).
‘‘(d) COMMON DIRECTORS AND SENIOR EXECUTIVE
OFFICERS.—
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‘‘(1) IN GENERAL.—The Board shall, by regula-
tion or order, prescribe the circumstances under
which directors and senior executive officers of a se-
curities affiliate may serve at the same time as di-
rectors or senior executive officers of any affiliated
depository institutions.
‘‘(2) STANDARDS.—The Board, in issuing any
regulation or order pursuant to paragraph (1), shall
consider appropriate factors including—
‘‘(A) any burdens imposed by restrictions
on director and senior executive officer inter-
locks; and
‘‘(B) the safety and soundness of deposi-
tory institutions and securities affiliates.
‘‘(3) EXCEPTION FOR SMALL FINANCIAL SERV-
ICES HOLDING COMPANIES.—
‘‘(A) IN GENERAL.—Notwithstanding para-
graph (1), a director or senior executive officer
of a securities affiliate may serve at the same
time as a director or senior executive officer of
an affiliated depository institution if that insti-
tution and all affiliated depository institutions
have, in the aggregate, total assets of not more
than $500,000,000.
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‘‘(B) INFLATION ADJUSTMENT.—The dol-
lar limitation contained in subparagraph (A)
shall be adjusted annually after December 31,
1997, by the annual percentage increase in the
Consumer Price Index for Urban Wage Earners
and Clerical Workers published by the Bureau
of Labor Statistics.
‘‘(4) EXCEPTION FOR CERTAIN REGULATION K
AFFILIATES.—Paragraph (1) shall not prohibit a di-
rector or senior executive officer of a securities affili-
ate from serving at the same time as a director or
senior executive officer of a depository institution
which—
‘‘(A) is organized under section 25 or 25A
of the Federal Reserve Act;
‘‘(B) is an affiliate of such securities affili-
ate; and
‘‘(C) principally engages in business out-
side the United States.
‘‘(e) DISCLOSURE REQUIRED BY SECURITIES AFFILI-
ATE.—
‘‘(1) IN GENERAL.—At the time a securities ac-
count is opened, a securities affiliate shall conspicu-
ously disclose in writing to each of its customers
that—
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‘‘(A) securities sold, offered, or rec-
ommended by the securities affiliate—
‘‘(i) are not deposits;
‘‘(ii) are not insured by the Federal
Deposit Insurance Corporation;
‘‘(iii) are not guaranteed by an affili-
ated insured depository institution;
‘‘(iv) are not otherwise an obligation
of an insured depository institution (unless
such is the case); and
‘‘(v) with regard to any product that
includes any investment component, are
subject to investment risks including pos-
sible loss of principal invested;
‘‘(B) the securities affiliate is not an in-
sured depository institution, and is a corpora-
tion separate from any insured depository insti-
tution; and
‘‘(C) the securities affiliate may be under-
writing or dealing in the securities being sold,
offered or recommended, and if so, would have
a financial interest in the transaction.
‘‘(2) FORM OF DISCLOSURE.—The disclosures
required by paragraph (1) shall be made in clear
and concise language that—
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‘‘(A) is readily comprehensible to cus-
tomers of the securities affiliate, and
‘‘(B) is designed to promote customer un-
derstanding that uninsured investment products
are not deposits insured by the Federal Deposit
Insurance Corporation.
‘‘(3) BOARD
AUTHORITY.—Subject to para-
graph (2), the Board may, in the Board’s discretion,
prescribe disclosures in addition to the disclosures
prescribed by paragraph (1).
‘‘(f) DISCLOSURE REQUIRED BY INSURED DEPOSI-
TORY INSTITUTIONS.—
‘‘(1) IN GENERAL.—No insured depository in-
stitution shall knowingly express any opinion on the
value of, or the advisability of purchasing or selling,
nonbanking products (as defined by the Board) sold
by the insured depository institution or any affiliate
of an insured depository institution unless the in-
sured depository institution conspicuously discloses
in writing to the customer at the time the type of
product is first sold to the customer that—
‘‘(A) the insured depository institution or
affiliate (whichever is applicable) is selling the
nonbanking product and has a financial interest
in the transaction (if such is the case);
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‘‘(B) the nonbanking products—
‘‘(i) are not deposits;
‘‘(ii) are not insured by the Federal
Deposit Insurance Corporation;
‘‘(iii) are not guaranteed by the insti-
tution or any other affiliated insured de-
pository institution;
‘‘(iv) are not otherwise an obligation
of an insured depository institution (unless
such is the case); and
‘‘(v) with regard to any nonbanking
product that includes any investment com-
ponent, are subject to investment risks in-
cluding possible loss of principal invested;
and
‘‘(C) an affiliate, if involved, is not an in-
sured depository institution (unless such is the
case), and is a corporation separate from any
insured depository institution (unless such is
not the case).
‘‘(2) FORM OF DISCLOSURE.—The disclosures
required by paragraph (1) shall be made in clear
and concise language that—
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‘‘(A) is readily comprehensible to cus-
tomers of the insured depository institution,
and
‘‘(B) is designed to promote customer un-
derstanding that nonbanking products are not
deposits insured by the Federal Deposit Insur-
ance Corporation.
‘‘(3) CUSTOMER
ACKNOWLEDGMENT
OF
DIS-
CLOSURE.—
‘‘(A) IN GENERAL.—Whenever any insured
depository institution or securities affiliate
opens an account for the purpose of selling a
nondeposit investment product or products to a
customer, such insured depository institution or
securities affiliate as the case may be, shall ob-
tain a one-time acknowledgment of receipt by
the customer or such disclosures, including the
date of receipt with the customer’s name, ad-
dress, and the account number.
‘‘(B) SPECIAL RULE FOR ACCREDITED IN-
VESTORS.—In the case of any customer who is,
or meets the requirements for, an accredited in-
vestor (as defined in section 2(15) of the Secu-
rities Act of 1993), the acknowledgment of the
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receipt of any disclosure described in subpara-
graph (A) may be obtained by the insured de-
pository institution or securities affiliate at the
time any account is opened by such customer.
‘‘(4) BOARD
AUTHORITY.—Subject to para-
graph (2), the Board, after consultation with the
other appropriate Federal banking agencies, may
prescribe disclosures in addition to the disclosures
required by paragraph (1).
‘‘(g) IMPROPER
DISCLOSURE
OF
CONFIDENTIAL
CUSTOMER INFORMATION PROHIBITED.—
‘‘(1) IN
GENERAL.—No depository institution
subsidiary of a financial services holding company
shall disclose to any affiliate of such institution
which is not a depository institution, and no affiliate
of such company which is not a depository institu-
tion shall disclose to any other affiliate which is a
depository institution or a subsidiary of such an in-
stitution, any nonpublic customer information (in-
cluding an evaluation of the creditworthiness of an
issuer or other customer of that institution or secu-
rities affiliate), unless it is clearly and conspicuously
disclosed that such information may be commu-
nicated among such persons and the customer is
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given the opportunity, before the time that the infor-
mation is initially communicated, to direct that such
information not be communicated among such per-
sons.
‘‘(2) DEFINITION.—For purposes of paragraph
(1), the term ‘nonpublic customer information’ does
not include—
‘‘(A) customers’ names and addresses (un-
less a customer has specified otherwise);
‘‘(B) information that could be obtained
from unaffiliated credit bureaus or similar com-
panies in the ordinary course of business; or
‘‘(C) information that is customarily pro-
vided to unaffiliated credit bureaus or similar
companies in the ordinary course of business
by—
‘‘(i) depository institutions not affili-
ated with securities affiliates; or
‘‘(ii) brokers and dealers not affiliated
with depository institutions.
‘‘(h) RECIPROCAL ARRANGEMENTS PROHIBITED.—
No financial services holding company and no subsidiary
of a financial services holding company may enter into any
agreement, understanding, or other arrangement under
which—
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‘‘(1) a financial services holding company (or
subsidiary of that financial services holding com-
pany) agrees to engage in a transaction with, or on
behalf of, another financial services holding company
(or subsidiary of that financial services holding com-
pany), in exchange for
‘‘(2) the agreement of the second financial serv-
ices holding company referred to in paragraph (1)
(or a subsidiary of that financial services holding
company) to engage in any transaction with, or on
behalf of, the first financial services holding com-
pany referred to in such paragraph (or any subsidi-
ary of that financial services holding company), for
the purpose of evading any requirement or restric-
tion of Federal law on transactions between, or for
the benefit of, affiliates of financial services holding
companies.
‘‘(i) SAFEGUARDS APPLY
TO CERTAIN SUBSIDI-
ARIES.—Except as provided in this section—
‘‘(1) SECURITIES AFFILIATE.—No subsidiary of
a securities affiliate may do anything that this sec-
tion prohibits the securities affiliate from doing.
‘‘(2) DEPOSITORY
INSTITUTION.—No subsidi-
ary of a depository institution (other than a special
operating subsidiary as defined in section 5136D of
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the Revised Statutes or referenced in undesignated
paragraph 20 of section 9 of the Federal Reserve
Act or section 24(d)(1)(C) of the Federal Deposit
Insurance Act) may do anything that this section
prohibits the institution from doing.
‘‘(j) AUTHORITY TO MODIFY AND IMPOSE ADDI-
TIONAL SAFEGUARDS; INTERPRETIVE AUTHORITY.—
‘‘(1) IN GENERAL.—The Board may, by regula-
tion or order—
‘‘(A) adopt additional limitations, restric-
tions or conditions on relationships or trans-
actions among depository institutions, their af-
filiates, and their customers; and
‘‘(B) make any modification to any limita-
tion, restriction, or condition imposed under
this section on relationships or transactions
among depository institutions, the affiliates of
insured depository institutions, and the cus-
tomers of such institutions or affiliates, includ-
ing modifications in addition to those expressly
provided for in this section.
‘‘(2) STANDARDS.—The Board may not exercise
authority under paragraph (1) unless the Board
finds that such action is consistent with the pur-
poses of this Act, including—
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‘‘(A) the avoidance of any significant risk
to the safety and soundness of depository insti-
tutions or the Federal deposit insurance funds;
‘‘(B) the enhancement of the financial sta-
bility of financial services holding companies;
‘‘(C) the prevention of the subsidization of
securities affiliates by depository institutions;
‘‘(D) the avoidance of conflicts of interests
or other abuses; and
‘‘(E) the application of the principle of na-
tional treatment and equality of competitive op-
portunity between securities affiliates owned or
controlled by domestic financial services holding
companies and securities affiliates owned or
controlled by foreign banks operating in the
United States.
‘‘(3) BIENNIAL
REVIEW.—Beginning 2 years
after the date of enactment of the Financial Services
Competitiveness Act of 1997, the Board shall, on a
biennial basis—
‘‘(A) review all restrictions established pur-
suant to paragraph (1) to determine whether
any such restrictions are required any longer to
carry out the purposes of this Act; and
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‘‘(B) modify or eliminate any such restric-
tion that the Board determines is no longer re-
quired to carry out the purposes of this Act.
‘‘(k) COMPLIANCE PROGRAMS REQUIRED.—
‘‘(1) IN GENERAL.—Each appropriate Federal
banking agency and the Securities and Exchange
Commission shall establish a program for—
‘‘(A) sharing information, including reports
of examinations, concerning compliance with
subtitle A of title I or subtitle A or B of title
II of the Financial Services Competitiveness
Act of 1997, and the amendments made by
such subtitles, by—
‘‘(i) brokers, dealers, investment ad-
visers, or investment companies that are
registered with the Securities and Ex-
change Commission that are affiliated with
depository institutions, or are separately
identifiable departments or divisions of de-
pository institutions registered as invest-
ment advisers; and
‘‘(ii) depository institutions and their
affiliates;
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‘‘(B) enforcing compliance with subtitle A
of title I of the Financial Services Competitive-
ness Act of 1997, and the amendments made by
such subtitle and paragraphs (4) and (5) of sec-
tion 3(a) of the Securities Exchange Act of
1934 by entities under its supervision; and
‘‘(C) responding to any complaints from
customers about inappropriate cross-marketing
of securities products or inadequate disclosure.
‘‘(2) DATA COLLECTION.—
‘‘(A) IN GENERAL.—The appropriate Fed-
eral banking agencies, after consultation with
and consideration of the views of the Securities
and Exchange Commission, shall (except as oth-
erwise provided by the appropriate Federal
banking agency after such consultation) require
any depository institution that has affected se-
curities transactions pursuant to any exception
enumerated in paragraphs (4) and (5) of sec-
tion 3(a) of the Securities Exchange Act of
1934 to identify the exceptions relied upon and
to submit such information necessary to mon-
itor compliance under such paragraphs.
‘‘(B) COMMISSION
ACCESS.—The appro-
priate Federal banking agency shall make any
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information referred to in subparagraph (A)
available to the Securities and Exchange Com-
mission, upon the request of the Commission.
‘‘(C) COMPLIANCE.—In implementing the
provisions of this paragraph, the appropriate
Federal banking agencies shall ensure that any
information requests to depository institutions
take into account the size and activities of the
institutions and do not cause undue reporting
burdens.
‘‘(3) COMMISSION’S
ENFORCEMENT
AUTHOR-
ITY.—Without limiting in any way the authority of
the appropriate Federal banking agencies under this
section, the Securities and Exchange Commission
shall have the authority to enforce any subsection of
this section against a securities affiliate as if such
subsection were a provision of the Securities Ex-
change Act of 1934 to the extent that the subsection
applies with respect to the conduct or activities of
the securities affiliate.
‘‘(4) EXAMINATION REPORTS.—
‘‘(A) IN GENERAL.—The appropriate Fed-
eral banking agencies shall, to the fullest extent
possible, use the reports of examination of any
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broker, dealer, investment adviser, or invest-
ment company made by or on behalf of the Se-
curities and Exchange Commission and reports
made by or on behalf of a registered securities
association or national securities exchange, and
shall defer to such examinations for compliance
with the Federal securities laws.
‘‘(B) COMPLIANCE WITH SECTION 11 SAFE-
GUARDS.—The appropriate Federal banking
agencies shall—
‘‘(i) to the fullest extent possible, use
the reports of examination of any securi-
ties affiliate made by the appropriate Fed-
eral banking agency for such affiliate; and
‘‘(ii) defer to such examinations for
compliance with the provisions of this sec-
tion.
‘‘(5) INTERPRETATIONS OF THE FEDERAL SE-
CURITIES LAWS.—The appropriate Federal banking
agencies shall defer to the Securities and Exchange
Commission regarding all interpretations and en-
forcement of the Federal securities laws relating to
the application of the Federal securities laws to the
activities and conduct of brokers, dealers, investment
advisers, and investment companies.
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‘‘(6) NOTICE OF CERTAIN ACTIONS BY SEC.—
The Securities and Exchange Commission shall give
notice to the appropriate Federal banking agency
upon the commencement of any disciplinary or law
enforcement proceedings by the Commission and a
copy of any order entered by the Commission
against—
‘‘(A) any broker, dealer, or investment ad-
viser that—
‘‘(i) is registered with the Securities
and Exchange Commission; and
‘‘(ii) is affiliated with, or is a sepa-
rately identifiable department or division
of, a depository institution;
‘‘(B) any investment company registered
with the Securities and Exchange Commission
that is an affiliate of or is advised by an invest-
ment adviser affiliated with a depository institu-
tion or by a separately identifiable department
or division of a depository institution that is a
registered investment adviser; or
‘‘(C) any financial services holding com-
pany, depository institution, or subsidiary of
such company or institution, if the proposed ac-
tion relates to subtitle A of title I or subtitle A
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or B of title II of the Financial Services Com-
petitiveness Act of 1997.
‘‘(7) NOTICE OF CERTAIN ACTIONS BY APPRO-
PRIATE
FEDERAL
BANKING
AGENCIES.—Upon the
commencement of any disciplinary or law enforce-
ment proceedings to enforce the provisions of sub-
title A of title I of the Financial Services Competi-
tiveness Act of 1997, or any amendment made by
such subtitle, by an appropriate Federal banking
agency against any broker, dealer, investment ad-
viser, or investment company that is registered
under the Federal securities laws and is affiliated
with a depository institution or is a separately iden-
tifiable department or division of a depository insti-
tution, the appropriate Federal banking agency shall
give notice to the Securities and Exchange Commis-
sion of the proposed action.
‘‘(8) IMMEDIATE
ACTION
ALLOWED
BEFORE
NOTICE.—The notice required under paragraph (6)
or (7) may be provided promptly after action by the
Securities and Exchange Commission or the appro-
priate Federal banking agency, if—
‘‘(A) the Commission determines that the
protection of investors requires immediate ac-
tion by the Commission and prior notice under
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separately identifiable department or division of
a depository institution that is a registered in-
vestment adviser.
‘‘(11) USE
OF
EXAMINATION
REPORTS.—The
appropriate Federal banking agencies shall—
‘‘(A) to the fullest extent possible, use the
reports of examination of any investment ad-
viser or investment company made by or on be-
half of the Securities and Exchange Commis-
sion; and
‘‘(B) defer to such examinations for com-
pliance with the Federal securities laws.
‘‘(12) DEFINITION.—For purposes of this sub-
section, the term ‘Federal securities laws’ means the
provisions of Federal law governing securities activi-
ties that are within the jurisdiction of the Securities
and Exchange Commission under the Securities Act
of 1933, the Securities Exchange Act of 1934, the
Investment Company Act of 1940, the Investment
Advisers Act of 1940, and the Trust Indenture Act
of 1939.
‘‘(l) FOREIGN BANK FIREWALLS.—
‘‘(1) IN GENERAL.—A foreign bank that oper-
ates a branch, agency, or commercial lending com-
pany in the United States and accepts no deposits
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in the United States, either directly or through an
affiliate, that are insured under the Federal Deposit
Insurance Act, and any affiliate of such foreign
bank, shall not be subject to the restrictions of any
subsection of this section, other than subsections (j)
and (k), if the conditions described in paragraph (2)
are met.
‘‘(2) CONDITIONS FOR APPLICABILITY OF EX-
CEPTION.—The conditions of this paragraph have
been met with respect to any foreign bank referred
to in paragraph (1) if—
‘‘(A) transactions between a securities af-
filiate of such foreign bank and any branch,
agency or commercial lending company oper-
ated in the United States by such foreign bank
comply with the provisions of sections 23A and
23B of the Federal Reserve Act as if the for-
eign bank were a member bank; and
‘‘(B) such foreign bank has received a de-
termination from the Board that the bank
meets capital standards comparable to those es-
tablished by the Board for well capitalized fi-
nancial services holding companies, giving due
regard to the principle of national treatment
and equality of competitive opportunity, subject
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to any changes the Board may adopt with re-
spect to such standards.
‘‘(3) APPLICABILITY
OF
SUBSECTION
(1)
TO
FOREIGN BANKS.—Any limitation, restriction, condi-
tion, or modification adopted by the Board under
subsection (j) may be applied by the Board to—
‘‘(A) a foreign bank described in para-
graph (1) (and any company that owns or con-
trols such foreign bank);
‘‘(B) any branch, agency or commercial
lending company operated by such foreign bank
in the United States; or
‘‘(C) any other affiliate of such foreign
bank in the United States, if such limitation,
restriction, condition, or modification is applied
by regulation or order of general applicability
under section 12(a)(2)(B)(ii) to wholesale fi-
nancial institutions and securities affiliates con-
trolled by investment bank holding companies,
subject to such modifications, conditions, or ex-
emptions as the Board deems appropriate, giv-
ing due regard to the principle of national
treatment and equality of competitive oppor-
tunity.’’.
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(b) AMENDMENT TO THE FEDERAL RESERVE ACT.—
Section 23B(b)(1)(B) of the Federal Reserve Act (12
U.S.C. 371c–1(b)(1)(B)) is amended by inserting ‘‘and for
30 days thereafter’’ after ‘‘during the existence of any un-
derwriting or selling syndicate’’.
(c) EXEMPTION FROM SECTION 305(b) OF THE FED-
ERAL POWER ACT.—Section 305(b) of the Federal Power
Act shall not apply to any person now holding, or propos-
ing to hold, at the same time the position of officer or
director of a public utility and the position of officer or
director of a bank, trust company, banking association,
or firm permitted by section 10 of the Financial Services
Holding Company Act of 1997 (as amended by section
103(a) of this Act) to underwrite or participate in the
marketing of securities (including commercial paper) of a
public utility, if that bank, trust company, banking asso-
ciation, or firm does not underwrite or participate in the
marketing of securities of the public utility for which the
person serves, or proposes to serve, as an officer or direc-
tor.
(d) AMENDMENT TO THE RIGHT TO FINANCIAL PRI-
VACY ACT.—Section 1112(e) of the Right to Financial
Privacy Act (12 U.S.C. 3412(e)) is amended as follows—
(1) by striking ‘‘this title’’ and inserting ‘‘law’’;
and
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(2) by inserting ‘‘, examination reports,’’ after
‘‘financial records’’.
‘‘(e) REGULATIONS TO PRESERVE SEPARATION OF
BANKING AND COMMERCE.—Section 5(b) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1844(b)) is
amended by inserting ‘‘, including the protection of deposi-
tory institutions and the separation of banking and com-
merce,’’ after ‘‘purposes of this Act’’.
SEC. 105. OWNERSHIP OF SHARES OF CERTAIN COMPANIES
BY FINANCIAL SERVICES HOLDING COMPA-
NIES.
Section 4 of the Bank Holding Company Act of 1956
(12 U.S.C. 1843) is amended by adding at the end the
following new subsections:
‘‘(k) OWNERSHIP OF SHARES OF CERTAIN COMPA-
NIES BY FINANCIAL SERVICES HOLDING COMPANIES.—
‘‘(1) 
NONCONFORMING
FINANCIAL
COMPA-
NIES.—Notwithstanding subsection (a), a financial
services holding company may retain direct or indi-
rect ownership or control of voting shares of any
company that engages in activities not authorized
under this section if—
‘‘(A) the financial services holding com-
pany held the shares of any company engaged
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in such activities as of the date of the enact-
ment of the Financial Services Competitiveness
Act of 1997 and the financial services holding
company was then exempt from the provisions
of this section pursuant to subsection (d) as of
such date;
‘‘(B) the company engaged in such activi-
ties continues to engage only in the same gen-
eral lines of business and related activities that
such company conducted as of the date of the
enactment of the Financial Services Competi-
tiveness Act of 1997 (or other activities per-
mitted under subsection (c) or section 10); and
‘‘(C) 80 percent of the aggregate gross rev-
enues of the financial services holding company
and the subsidiaries of such holding company
as of the date of the enactment of the Financial
Services Competitiveness Act of 1997 was at-
tributable to—
‘‘(i) ownership and operation of depos-
itory institutions;
‘‘(ii) activities that are financial in na-
ture as determined by the Board pursuant
to subsection (c)(8);
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‘‘(iii) activities permissible under sec-
tion 10; and
‘‘(iv) such other activities that would
be permissible generally for the holding
company as a financial services holding
company (other than as an investment
bank holding company).
‘‘(2) NONFINANCIAL COMPANIES.—
‘‘(A) IN GENERAL.—Notwithstanding sub-
section (a), a financial services holding company
engaged predominantly in activities described in
section 10(a)(1) or 4(c) that becomes a finan-
cial services holding company may, during the
5-year period beginning on the date that the
company becomes a financial services holding
company, retain direct or indirect ownership or
control of voting shares of any company that
the financial services holding company owns or
controls on the date such holding company be-
comes a financial services holding company.
‘‘(B) EXTENSION
OF
DIVESTITURE
PE-
RIOD.—The Board may extend the period de-
scribed in subparagraph (A) for an additional
period not to exceed 5 years if the Board—
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‘‘(i) determines that such extension is
necessary to avert substantial loss to the
financial services holding company; and
‘‘(ii) finds that the financial services
holding company has made good faith ef-
forts to divest such shares.
‘‘(C) NO
EXPANSION
OF
NONFINANCIAL
COMPANIES PRIOR TO DIVERSTITUTE.—Unless
an acquisition or activity is permitted in accord-
ance with subsection (c) or section 3—
‘‘(i) no financial services holding com-
pany, and no company whose shares are
owned or controlled by a financial services
holding company in accordance with this
paragraph, may acquire any interest in or
assets of any other company, and
‘‘(ii) no company whose shares are
owned or controlled by a financial services
holding company pursuant to this para-
graph may engage directly or indirectly in
any activity that the company did not con-
duct on the day before the financial serv-
ices holding company registered as a finan-
cial services holding company.
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‘‘(3) RESTRICTIONS ON JOINT MARKETING.—
No depository institution (and no subsidiary of such
institution) shall—
‘‘(A) offer or market, directly or indirectly
through any arrangement, any product or serv-
ice of any affiliate whose share are owned or
controlled by the financial services holding com-
pany pursuant to this subsection or section
10(j); or
‘‘(B) permit any of such depository institu-
tion’s or subsidiary’s products or services to be
offered or marketed, directly or indirectly
through any arrangement, by or through any
affiliate whose shares are owned or controlled
by the financial services holding company pur-
suant to this subsection, section 10(j), or sub-
section (l) unless, in a case involving an affiliate
held under this subsection, the product or serv-
ice is permissible or authorized for financial
services holding companies to provide under
subsection (c)(8) or section 10.
‘‘(4) DEPOSITORY INSTITUTION DEFINED.—For
purposes of paragraph (3), the term ‘depository in-
stitution’ includes a foreign bank.
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‘‘(l) SHARES ACQUIRED IN CONNECTION WITH IN-
SURANCE COMPANY INVESTMENT ACTIVITIES.—
‘‘(1) IN
GENERAL.—Notwithstanding subsection
(a), a financial services holding company may ac-
quire or control, directly or indirectly, whether as
principal, on behalf of one or more entities (includ-
ing any subsidiary of the holding company which is
not a depository institution or a subsidiary of a de-
pository institution), or otherwise, shares, assets, or
ownership interests (including debt or equity securi-
ties, partnership interests, trust certificates, or other
instruments representing ownership) of a company
or other entity, whether or not constituting control
of such company or entity, engaged in activities not
authorized pursuant to this section if—
‘‘(A) the shares, assets, or ownership inter-
ests are not acquired or held by a depository in-
stitution or a subsidiary of a depository institu-
tion;
‘‘(B) such shares, assets, or ownership in-
terests are acquired and held by an insurance
affiliate that is predominantly engaged in un-
derwriting life, accident and health, or property
and casualty insurance (other than credit-relat-
ed insurance);
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‘‘(C) such shares, assets, or ownership in-
terests represent an investment made in the or-
dinary course of business of such insurance af-
filiate in accordance with relevant State law
governing such investments; and
‘‘(D) during the period such shares, assets,
or ownership interests are held, the financial
services holding company does not directly or
indirectly participate in the day-to-day manage-
ment or operation of the company or entity ex-
cept insofar as necessary to achieve the objec-
tives of subparagraphs (B) and (C).
‘‘(2) NO EXPANSION OF UNDERWRITING ACTIVI-
TIES.—No provision of this subsection shall be con-
strued as authorizing any financial services holding
company, or any subsidiary of any such company, to
underwrite or deal in any security.’’.
SEC. 106. PROVISIONS APPLICABLE TO LIMITED PURPOSE
BANKS.
(a) EXCEPTION
TO RESTRICTIONS
ON NONBANK
BANKS.—
(1) IN GENERAL.—Section 4(f)(3) of the Bank
Holding 
Company 
Act 
of 
1956 
(12 
U.S.C.
1843(f)(3)) is amended by adding at the end the fol-
lowing new subparagraph:
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‘‘(D) EXCEPTION TO RESTRICTION ON AC-
TIVITIES, AND CERTAIN CROSS-MARKETING RE-
STRICTIONS.—
‘‘(i) QUALIFICATION FOR EXCEPTION
FROM ACTIVITIES RESTRICTION.—Notwith-
standing subparagraph (B)(i), a bank con-
trolled by a company described in para-
graph (1) that meets the requirements of
paragraph (14) may engage in an activity
authorized under applicable law (other
than an activity that would have resulted
in the institution being a bank for pur-
poses of this Act, as in effect on the day
before the date of the enactment of the
Competitive Equality Banking Act of
1987, based on the activities each bank
conducted on March 5, 1987, as reported
to the Board) if such bank, at least 60
days before commencing such activity, has
notified the Board of the bank’s intention
to commence such activity and either—
‘‘(I) the Board has notified such
bank that the Board will not dis-
approve the proposed activity as un-
safe or unsound; or
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‘‘(II) the Board has not, within
60 days after receiving such notice,
disapproved the proposal on the basis
of such criteria.
‘‘(ii) QUALIFICATION FOR EXCEPTION
FROM
CROSS-MARKETING
RESTRICTION.—
Notwithstanding subparagraph (B)(ii), a
bank controlled by a company described in
paragraph (1) that meets the requirements
of paragraph (14) may offer or market
products or services of an affiliate or per-
mit the bank’s products or services to be
offered or marketed in connection with
products or services of an affiliate if such
products or services are offered or mar-
keted only to the extent permissible for
banks or financial services holding compa-
nies to provide by law, regulation, or order
under paragraph (8) or (15) of subsection
(c).
‘‘(iii) EXCEPTION FROM DIVESTITURE
REQUIREMENT FOR BANKS RESTORED TO
WELL CAPITALIZED LEVEL.—If any bank
controlled by a company that meets the re-
quirements of paragraph (14) ceases to be
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well capitalized, the company shall divest
control of such bank in accordance with
paragraph (4) unless—
‘‘(I) within 12 months after the
date the bank ceases to be well cap-
italized, the capital of the bank is re-
stored to the well capitalized level;
and
‘‘(II) after the end of such 12-
month period, the bank remains well
capitalized, subject to the capital res-
toration requirements in subclause (I).
‘‘(iv) ACTION
REQUIRED
IF
BANK
CEASES
TO
BE
ADEQUATELY
CAPITAL-
IZED.—If any bank controlled by a com-
pany that meets the requirements of para-
graph (14) ceases to be adequately capital-
ized, the company shall, within 30 days
after the date as of which the bank ceases
to be adequately capitalized—
‘‘(I) execute an agreement with
the Board to divest control of such
bank in accordance with paragraph
(4); or
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‘‘(II) restore the capital of the
bank to at least the adequately cap-
italized level.’’.
(2) QUALIFICATIONS
FOR
COMPANIES
UNDER
PARAGRAPH (3)(d).—Section 4(f) of the Bank Hold-
ing Company Act of 1956 (12 U.S.C. 1843(f)) is
amended by adding at the end the following new
paragraph:
‘‘(14) QUALIFICATIONS FOR COMPANIES UNDER
PARAGRAPH (3)(d).—A company meets the require-
ments of this paragraph if—
‘‘(A) the company (based on consolidated
revenues) engages predominantly in—
‘‘(i) banking;
‘‘(ii) activities that the Board has de-
termined, or are specified, under sub-
section (c)(8) (regardless of the effective
date) to be financial in nature or incidental
to such financial activities;
‘‘(iii) activities permitted under sub-
paragraph (A) or (B) of section 10(a)(1);
and
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‘‘(iv) other activities that would be
permissible for such company as a finan-
cial services holding company (other than
as an investment bank holding company);
‘‘(B) all insured depository institutions
controlled by such company are well capitalized
and well managed;
‘‘(C) the bank and any affiliate of the bank
that is engaged in securities activities described
in section 10(a) comply with the safeguards
contained in section 11 as if that affiliate were
a securities affiliate; and
‘‘(D) the company has provided at least 60
days prior written notice to the Board and, dur-
ing that period, the Board has not disapproved
the proposal.’’.
(b) AMENDED DIVESTITURE PROCEDURE FOR CER-
TAIN COMPANIES.—Section 4(f)(4) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1843(f)(4)) is amended
by adding at the end of the following: ‘‘If any company
described in paragraph (1) which meets the requirements
of paragraph (14) fails to qualify for the exemption pro-
vided under paragraph (2), such company shall divest, in
accordance with this paragraph, control of each bank the
company controls unless, within 12 months after the date
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that the company fails to comply with the provisions of
paragraph (2), the company has corrected the condition
or ceased the activity that led to the failure to comply.’’.
(c) CONVERSION OF CERTAIN NONBANK HOLDING
COMPANIES TO FINANCIAL SERVICES HOLDING COMPA-
NIES.—Section 4(f) of the Bank Holding Company Act
of 1956 (12 U.S.C. 1843(f)) is amended by inserting after
paragraph (14) (as added by subsection (a)(2)) the follow-
ing new paragraph:
‘‘(15) CONVERSION OF CERTAIN COMPANIES TO
FINANCIAL SERVICES HOLDING COMPANIES.—
‘‘(A) IN GENERAL.—During the 18-month
period beginning on the date of the enactment
of the Financial Services Competitiveness Act
of 1977, any company described in paragraph
(1) may become a financial services holding
company if—
‘‘(i) the company (on a consolidated
basis) engages predominantly in—
‘‘(I) banking;
‘‘(II) activities that the Board
has determined, or are specified,
under subsection (c)(8) (regardless of
the effective date) to be financial in
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nature or incidental to such financial
activities;
‘‘(III) activities permitted under
subparagraph (A) or (B) of section
10(a)(1); and
‘‘(IV) other activities that would
be permissible for such company as a
financial services holding company
(other than an investment bank hold-
ing company);
‘‘(ii) all insured depository institutions
controlled by such company are well cap-
italized and well managed;
‘‘(iii) the company provides written
notice to the Board under sections 4 and
10 at least 60 days before the company be-
comes a financial services holding com-
pany;
‘‘(iv) the Board does not object to
such transaction before the end of such 60-
day period; and
‘‘(v) the Board has received, from the
company, full payment of a fee which the
Board shall impose in accordance with sec-
tion 5(h).
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‘‘(B) PERIOD TO CONFORM OTHER ACTIVI-
TIES.—Notwithstanding subsection (a), a com-
pany that becomes a financial services holding
company pursuant to subparagraph (A) may re-
tain direct or indirect ownership or control of
voting shares of any company not otherwise
permitted under this section for the period pro-
vided in, and subject to the conditions con-
tained in, paragraphs (2) and (3) of section
4(k).
‘‘(C) ELECTRON
FOR
REDUCED
SUPER-
VISION.—Any company that becomes a financial
services holding company pursuant to subpara-
graph (A) may elect to be governed by the pro-
visions of paragraphs (3), (4), (5), and (6) of
section 5(g), subject to the requirements of
such section, if—
‘‘(i) the company, and any insured de-
pository institution controlled by such com-
pany, meet the requirements of section
5(g) (other than the requirements of para-
graph (2)(A) of such section);
‘‘(ii) the company does not acquire
more than 5 percent of the shares of any
additional depository institution after the
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date that such company becomes a finan-
cial services holding company; and
‘‘(iii) no depository institution con-
trolled by such company acquires, estab-
lishes, or operates an additional branch of-
fice after the date that the company be-
comes a financial services holding com-
pany.’’.
SEC. 107. SECURITIES COMPANY AFFILIATIONS OF FDIC-IN-
SURED BANKS.
(a) IN GENERAL.—Section 18 of the Federal Deposit
Insurance Act (12 U.S.C. 1828) is amended by adding at
the end the following new subsections:
‘‘(s) SECURITIES AFFILIATIONS OF BANKS.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of law, a bank shall not be an affiliate of
any company that, directly or indirectly, acts as an
underwriter or dealer of any security, other than—
‘‘(A) a securities affiliate in accordance
with section 10 of the Financial Services Hold-
ing Company Act of 1997;
‘‘(B) a special operating subsidiary in ac-
cordance with section 5136D of the Revised
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Statutes or referenced in undesignated para-
graph 20 of section 9 of the Federal Reserve
Act or section 24(d)(1)(C); or
‘‘(C) a company that underwrites or deals
only in securities expressly authorized by sec-
tion 5136 of the Revised Statutes as permis-
sible for a national bank to underwrite or deal
in.
‘‘(2) EXCEPTIONS.—
‘‘(A) CERTAIN BANKS NOT INCLUDED.—
For purposes of this subsection, the term ‘bank’
does not include—
‘‘(i) an insured bank described in sub-
paragraph (D), (F), or (H) of section
2(c)(2) of the Financial Services Holding
Company Act of 1997; and
‘‘(ii) a Federal branch or an insured
branch (as defined in section 3 of the Fed-
eral Deposit Insurance Act).
‘‘(B) AFFILIATIONS WITH EDGE ACT AND
AGREEMENT
CORPORATIONS.—Paragraph (1)
shall not apply with respect to the affiliation of
a bank with a company held pursuant to section
25 or 25A of the Federal Reserve Act or section
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4(c)(13) of the Financial Services Holding
Company Act of 1997.
‘‘(3) GRANDFATHER
PROVISION.—This sub-
section shall not apply with respect to—
‘‘(A) an affiliation that existed on January
1, 1995; or
‘‘(B) any new affiliation by an insured
bank that has an affiliation that would be pro-
hibited if the affiliation were not covered by
subparagraph (A).
‘‘(4) DEFINITIONS.—For purposes of this sub-
section, the following definitions shall apply:
‘‘(A) BROKER.—The term ‘broker’ has the
meaning given to such term in section 3(a)(4)
of the Securities Exchange Act of 1934.
‘‘(B) DEALER.—The term ‘dealer’ has the
meaning given to such term in section 3(a)(5)
of the Securities Exchange Act of 1934.
‘‘(C) SECURITY.—The term ‘security’ has
the meaning given to such term in section 10(l)
of the Financial Services Holding Company Act
of 1997.
‘‘(D) UNDERWRITER.—The term ‘under-
writer’ has the meaning given to such term in
section 2(ll) of the Securities Act of 1933.
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‘‘(5) AFFILIATE.—For purposes of this sub-
section, a separately identifiable department or divi-
sion (as defined in section 3(a) of the Securities Ex-
change Act of 1934) of a bank shall be deemed to
be a company which is an affiliate of the bank.
‘‘(t) BROKER-DEALER REGISTRATION.—An insured
bank may not use the United States mails or any means
or instrumentality of interstate commerce to act as a
broker or dealer without registration under the Securities
Exchange Act of 1934—
‘‘(1) except to the extent permitted under the
circumstances described in paragraph (4) or (5) of
section 3(a) of such Act; or
‘‘(2) unless otherwise exempt from registrations
as a broker or dealer pursuant to regulations pre-
scribed by the Securities and Exchange Commission.
‘‘(u) EXAMINATION REPORTS.—The Federal banking
agencies shall, to the fullest extent possible, use the re-
ports of examination of any broker, dealer, investment ad-
viser, or investment company made by or on behalf of the
Securities and Exchange Commission and reports made
by or on behalf of a registered securities association or
national securities exchange and shall defer to such exam-
ination for compliance with Federal securities laws.
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‘‘(v) INTERPRETATIONS OF THE FEDERAL SECURI-
TIES LAWS.—The appropriate Federal banking agencies
shall defer to the Securities and Exchange Commission re-
garding all interpretations and enforcement of the Federal
securities laws relating to the application of the Federal
securities laws to the activities and conduct of brokers,
dealers, investment advisers, and investment companies.’’.
(b) STUDY OF RISKS TO DEPOSIT INSURANCE SYS-
TEM.—
(1) STUDY
REQUIRED.—During the 6-month
period beginning 18 months after the date of the en-
actment of the Financial Services Competitiveness
Act of 1997, the Federal Deposit Insurance Cor-
poration shall conduct a study of the risks posed to
the deposit insurance funds by—
(A) the affiliation of insured depository in-
stitutions with securities affiliates and other in-
stitutions described in subsection (s)(1) of sec-
tion 18 of the Federal Deposit Insurance Act
(as added by subsection (a) of this section); or
(B) any activity described in section 10(a)
(as added by section 103(a) of this Act) of the
Financial Services Holding Company Act of
1997 (as so redesignated by section 128(a) of
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this Act) in which insured depository institu-
tions may engage in accordance with any provi-
sion of Federal or State law.
(2) REPORT TO CONGRESS AND GAO.—
(A) IN GENERAL.—Before the end of the
6-month period described in paragraph (1), the
Federal Deposit Insurance Corporation shall
submit a report to the Congress on the findings
and conclusions of the Corporation with respect
to the study conducted under such paragraph,
together with such conclusions for administra-
tive or legislative action as the Corporation may
determine to be appropriate.
(B) DETAILS OF SPECIFIC RISKS.—If the
Federal Deposit Insurance Corporation con-
cludes that certain kinds of activities not spe-
cifically authorized by statute for insured de-
pository institutions before the date of the en-
actment of this Act, or the affiliation of insured
depository institutions with securities affiliates
engaged in certain kinds of securities activities,
pose a greater risk to the deposit insurance
funds than activities specifically authorized by
statute for national banks before January 1,
1995, the report submitted under subparagraph
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(A) shall contain a detailed explanation of the
basis for such conclusion.
(C) TRANSMITTAL TO GAO.—The Federal
Deposit Insurance Corporation shall transmit a
copy of the report referred to in paragraph (1)
to the Comptroller General.
(3) ACTION BY FDIC.—If the Federal Deposit
Insurance Corporation concludes that any activity or
affiliation with respect to insured depository institu-
tions poses a greater risk to any deposit insurance
fund than the risk posed by activities specifically au-
thorized by statute for national banks before Janu-
ary 1, 1995, the Federal Deposit Insurance Corpora-
tion shall treat such conclusion as a factor to be
considered in setting semiannual assessments under
section 7(b)(2)(A) of the Federal Deposit Insurance
Act.
(4) EVALUATION
OF
REPORT
BY
GAO.—The
Comptroller General shall—
(A) evaluate the report transmitted by the
Federal Deposit Insurance Corporation to the
Comptroller General under paragraph (2); and
(B) submit a report to the Congress on
such evaluation, including a discussion on the
methodology used by the Corporation to assess
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risks posed by nonbanking activities to the de-
posit insurance funds.
SEC. 108. AUTHORITY TO TERMINATE GRANDFATHER
RIGHTS UNDER THE INTERNATIONAL BANK-
ING ACT OF 1978.
Section 8(c) of the International Banking Act of
1978 (12 U.S.C. 3106(c)) is amended by adding at the
end the following new paragraph:
‘‘(3) PARITY IN CONDUCT OF AUTHORIZED SE-
CURITIES ACTIVITIES.—
‘‘(A) IN
GENERAL.—Notwithstanding the
provisions of paragraph (1) or any other provi-
sions of law, any authority conferred under this
subsection on any foreign bank or company
with respect to securities activities authorized
for financial services holding companies in the
United States shall terminate 30 days following
approval by the Board of an application by such
foreign bank or company under section 10 of
the Financial Services Holding Company Act of
1997.
‘‘(B) AUTHORITY
TO
IMPOSE
CONDI-
TIONS.—If a foreign bank or company that en-
gages directly or through an affiliate in any se-
curities activity pursuant to paragraph (1) has
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not received approval by the Board under sec-
tion 10 of the Financial Services Holding Com-
pany Act of 1997 to control a securities affiliate
by the end of the 3-year period beginning on
the effective date of such Act, the Board may
impose such limitations and restrictions, includ-
ing the termination of any activities conducted
under paragraph (1) or a requirement that such
activities be conducted in compliance with the
safeguards of section 11 of such Act, as the
Board considers appropriate consistent with the
purposes of this Act and the Financial Services
Holding Company Act of 1997.’’.
SEC. 109. EFFECT ON STATE LAWS PROHIBITING THE AF-
FILIATION OF BANK, SECURITIES, AND IN-
SURANCE COMPANIES.
(a) IN GENERAL.—Section 7 of the Bank Holding
Company Act of 1956 (12 U.S.C. 1846) is amended by
adding at the end the following new subsections:
‘‘(c) AFFILIATIONS AND ACTIVITIES.—No State may
prohibit or limit—
‘‘(1) the affiliation of a bank or financial serv-
ices holding company with a securities affiliate solely
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because the securities affiliate is engaged in activi-
ties described in subparagraph (A) or (B) of section
10(a)(1); or
‘‘(2) the insurance or other activities of a sub-
sidiary of a financial services holding company solely
because the financial services holding company is no
longer exempt under this Act pursuant to section
4(d).
‘‘(d) Consistent with section 4(c)(8)(H), any State
law is hereby preempted to the extent it—
‘‘(1) prevents, impedes or burdens any insurer,
or any affiliate of an insurer (whether such affiliate
is organized as a stock company, mutual holding
company or otherwise), from becoming a financial
services holding company or acquiring control of an
insured depository institution;
‘‘(2) limits the amount of an insurer’s assets
that may be invested in the voting securities of an
insured depository institution (or in the parent of
such an institution) (provided that the laws of an in-
surer’s State of domicile may limit such amount to
an amount that is not less than 5 percent of the in-
surer’s admitted assets); or
‘‘(3) prevents, impedes or burdens, or author-
izes the insurance regulatory or other authorities of
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a State other than the State in which an insurer
is domiciled to prevent, impede, burden or review a
plan of reorganization by which the insurer proposes
to reorganize from mutual form to become a stock
insurer whether as a direct or indirect subsidiary of
a mutual holding company or otherwise.’’.
(b) BANK ACTIVITIES.—No provision of this Act, and
no amendment by this Act to any other provision of law
(other than section 10 or 11 of the Financial Services
Holding Company Act of 1997 (as added by sections 103
and 104 of this Act), section 18(s) of the Federal Deposit
Insurance Act (as added by section 107 of this Act), or
any amendments made by title II of this Act), may be
construed as affecting the authority of any bank to engage
in any activity authorized for such bank under the law
of such bank’s home State (as defined in section 2(o)(4)
of the Financial Services Holding Company Act of 1997).
SEC. 110. NATIONAL BANK SPECIAL OPERATING SUBSIDI-
ARIES.
(a) IN GENERAL.—The Revised Statutes are amended
by adding, after section 5136C, the following new section:
‘‘§ 5136D.—Special operating subsidiaries
‘‘(a) SPECIAL OPERATING SUBSIDIARIES AUTHOR-
IZED.—A national bank may, acquire or establish a special
operating subsidiary as a subsidiary of that bank.
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‘‘(b) SPECIAL OPERATING SUBSIDIARY DEFINED.—
For purposes of this section, a ‘special operating subsidi-
ary’ means a subsidiary of a national bank that operates
in compliance with all of the requirements of this section.
‘‘(c) PERMISSIBLE ACTIVITIES.—A special operating
subsidiary of a national bank may, with the approval of
the Comptroller of the Currency, after notice and oppor-
tunity for comment, engage in activities that are part of
or incidental to the business of banking, or permissible
for national banks under other statutory authority, includ-
ing activities that the national bank is not permitted to
conduct directly, or conduct in that manner. Such permis-
sible activities include the authority to:
‘‘(1) Underwrite, deal in, broker, place, or dis-
tribute securities of any type, provide investment ad-
vice regarding securities of any type, and engage in
other securities activities;
‘‘(2) Sponsor, organize, control, manage, and
act as investment adviser to an investment company.
‘‘(d) INSURANCE UNDERWRITING AND DIRECT IN-
VESTMENT.—This section shall not be construed as au-
thorizing a special operating subsidiary to underwrite non-
credit related insurance or directly engage in real estate
investment or development, except as authorized for a na-
tional bank itself.
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‘‘(e) STANDARDS FOR APPROVAL.—The Comptroller
of the Currency may not approve a proposal by a national
bank to establish or acquire a special operating subsidiary
to engage in activities described in subsection (c) unless
the national bank—
‘‘(1) is well capitalized after taking account of
the deduction provided in subsection (f)(2)(A);
‘‘(2) has an ‘outstanding’ or ‘satisfactory’ rat-
ing for its record of performance under the Commu-
nity Reinvestment Act; and
‘‘(3) is well managed, as defined in section 2 of
the Financial Services Holding Company Act.
‘‘(f) FIREWALLS.—The Comptroller’s approval of a
special operating subsidiary under this section is subject
to the following requirements:
‘‘(1) CORPORATE REQUIREMENTS.—
‘‘(A) The special operating subsidiary shall
be physically separate and distinct in its oper-
ations from the parent bank, including ensuring
that the employees of the subsidiary are com-
pensated by the subsidiary (except this require-
ment shall not be construed to prohibit the par-
ent bank and the special operating subsidiary
from sharing the same facility, provided that
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any area in which the subsidiary conducts busi-
ness with the public is distinguishable, from the
area in which customers of the bank conduct
business with the bank);
‘‘(B) The subsidiary shall be held out as a
separate and distinct entity from the bank in
its written material and direct contact with out-
side parties and all written marketing material
shall clearly state that the subsidiary is a sepa-
rate entity from the bank and the obligations of
the subsidiary are not obligations of the bank;
‘‘(C) The subsidiary’s name shall not be the
same name as its parent bank, and a subsidiary
that has a name similar to its parent bank shall
take appropriate steps to minimize the risk of
customer confusion, including with respect to
the separate character of the two entities and
the extent to which their respective obligations
are insured or not insured by the Federal De-
posit Insurance Corporation;
‘‘(D) The subsidiary shall be adequately
capitalized according to relevant industry meas-
ures and shall maintain capital adequate to
support its activities and to cover reasonably
expected expenses and losses;
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‘‘(E) The subsidiary shall maintain sepa-
rate accounting and corporate records;
‘‘(F) The subsidiary shall conduct its oper-
ations pursuant to independent policies and
procedures that are also intended to inform cus-
tomers that the subsidiary is an organization
separate from the bank;
‘‘(G) Contracts between the subsidiary and
the bank for any services shall be on terms and
conditions substantially comparable to those
available to or from independent entities;
‘‘(H) The subsidiary shall observe appro-
priate separate corporate formalities, such as
separate board of directors’ meetings;
‘‘(I) The subsidiary shall maintain a board
of directors at least one-third of whom shall not
be directors of the bank and shall have relevant
expertise capable of overseeing the subsidiary’s
activities; and
‘‘(J) The subsidiary and the parent bank
shall have internal controls appropriate to man-
age the financial operational risks associated
with the subsidiary.
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‘‘(2) SUPERVISORY
REQUIREMENTS.—In any
case in which the special operating subsidiary is en-
gaging in activities as principal that are not permis-
sible for the parent bank to engage in directly:
‘‘(A) The bank’s capital and total assets
shall each be reduced by an amount equal to
the bank’s equity investment in the subsidiary
(for purposes of risk-based capital this deduc-
tion shall be made equally from tier 1 and tier
2 capital), and the subsidiary’s assets and li-
abilities shall not be consolidated with those of
the bank (except that the Comptroller may re-
quire the bank to calculate its capital on a con-
solidated basis for purposes of applying prompt
corrective action authorized under section 38 of
the Federal Deposit Insurance Act);
‘‘(B) The Comptroller must determine that
the bank is an eligible bank under the Comp-
troller’s regulations, both prior to establishing
or acquiring a special operating subsidiary and
thereafter, taking into account the capital de-
duction required under subparagraph (A);
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‘‘(C) If the bank ceases to be well capital-
ized for two consecutive quarters, it shall sub-
mit to the Comptroller, within the period speci-
fied by the Comptroller, an acceptable plan to
become well capitalized; and
‘‘(D) A special operating subsidiary en-
gaged in securities activities described in sec-
tion 10 of the Financial Services Holding Com-
pany Act shall be a securities affiliate for pur-
poses of section 11 of the Financial Services
Holding Company Act, and any special operat-
ing subsidiary and any insured depository insti-
tution affiliated with a special operating sub-
sidiary shall comply with the provisions of sec-
tion 11 of that Act.
‘‘(3) AUTHORITY TO MODIFY AND IMPOSE AD-
DITIONAL
SAFEGUARDS; 
INTERPRETIVE
AUTHOR-
ITY.—
‘‘(A) IN GENERAL.—The Comptroller may,
by regulation or order—
‘‘(i) adopt additional limitations, re-
strictions or conditions on relationships or
transactions among national banks, their
special operating subsidiaries, and their
customers; and
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‘‘(ii) make any modifications to any
limitations, restriction, or condition im-
posed under paragraph (1) on relationships
or transactions among national banks,
their special operating subsidiaries and the
customers of those banks or subsidiaries,
including modifications in addition to those
expressly provided for in paragraph (1).
‘‘(B) STANDARDS.—The Comptroller may
not exercise authority under subparagraph (A)
unless the Comptroller finds that the action is
consistent with the purposes of the National
Bank Act, including—
‘‘(i) the avoidance of any significant
risk to the safety and soundness of na-
tional banks or the Federal deposit insur-
ance funds;
‘‘(ii) the enhancement of the financial
stability of national banks;
‘‘(iii) the prevention of the subsidiza-
tion of special operating subsidiaries by
national banks;
‘‘(iv) the avoidance of conflicts of in-
terest or other abuses; and
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‘‘(v) the application of the principle of
national treatment and equality of com-
petitive opportunity between special operat-
ing subsidiaries owned or controlled by a
national bank and special operating sub-
sidiaries owned or controlled by foreign
banks operating in the United States.
‘‘(C) BIENNIAL
REVIEW.—Beginning two
years after the date of enactment of this sec-
tion, the Comptroller shall, on a biennial
basis—
‘‘(i) review all restrictions established
pursuant to subparagraph (A) to deter-
mine whether these restrictions are still re-
quired to carry out the purposes of this
section; and
‘‘(ii) modify or eliminate any such re-
striction that the Comptroller determines
is no longer required to carry out the pur-
poses of this section.
‘‘(g) Neither a national bank nor a special operating
subsidiary of a national bank may engage in activities de-
scribed in section 10(j) of the Financial Services Holding
Company Act.’’.
(b) TECHNICAL AND CONFORMING AMENDMENTS.—
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(1) Section 23A(b) of the Federal Reserve Act
(12 U.S.C. 371c(b)) is amended by redesignating
paragraphs (9) and (10) as paragraphs (10) and
(11), respectively, and inserting the following new
paragraph:
‘‘(9) notwithstanding paragraph (2) or section
23B(d)(1) (12 U.S.C. 371c–1(d)(1)), the term ‘affil-
iate’ shall include a special operating subsidiary (as
defined in section 5136D of the Revised Statutes or
referenced in undesignated paragraph 20 of section
9 of the Federal Reserve Act or section 24(d)(1)(C)
of the Federal Deposit Insurance Act) of a bank;’’;
(2) Section 106(a) of the 1970 Amendments to
the Bank Holding Company Act is amended by add-
ing at the end the following new sentence: ‘‘A special
operating subsidiary (as defined in section 5136D of
the Revised Statutes or referenced in undesignated
paragraph 20 of section 9 of the Federal Reserve
Act or section 24(d)(1)(C) of the Federal Deposit
Insurance Act) shall be deemed a subsidiary of a
bank holding company, and not a subsidiary of a
bank, for purposes of this Act.’’; and
(3) Undesignated paragraph 20 of section 9 of
the Federal Reserve Act is amended by adding at
the end of the following: ‘‘To the extent permitted
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under State law, a State member bank may acquire,
retain or establish a special operating subsidiary as
defined in section 5136D of the Revised Statutes,
except that all references in that section to the
Comptroller of the Currency, the Comptroller, or
rules or orders of the Comptroller shall be deemed
to be references to the Board or rules or orders of
the Board.’’.
(4) Section 24(d)(1) of the Federal Deposit In-
surance Act (12 U.S.C. 1831a(d)(1)) is amended as
follows:
(A) by deleting ‘‘and’’ at the end of sub-
paragraph (A); and
(B) by deleting the period at the end of the
subparagraph (B) and by adding the following:
‘‘; and
‘‘(C) if the subsidiary is engaged in securi-
ties activities described in section 10 of the Fi-
nancial Services Holding Company Act—
‘‘(i) the subsidiary meets the require-
ments applicable to a special operating
subsidiary in section 5136D of the Revised
Statutes except that all references to the
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Comptroller of the Currency, the Comp-
troller, or rules or orders of the Comptrol-
ler shall be deemed to be references to the
Corporation or rules or orders of the Cor-
poration, and
‘‘(ii) any insured depository institu-
tion affiliated with such subsidiary and the
subsidiary comply with section 11 of the
Financial Services Holding Company Act
as if the subsidiary were a securities affili-
ate for purposes of that Act.’’.
SEC. 111. INTERAGENCY AGREEMENT RELATING TO RETAIL
SALES OF CERTAIN NONDEPOSIT INVEST-
MENT PRODUCTS.
Section 18 of the Federal Deposit Insurance Act (12
U.S.C. 1828) is amended by inserting after subsection (u)
(as added by section 107 of this Act) the following new
subsection:
‘‘(v) JOINT STANDARDS RELATING TO RETAIL SALES
OF CERTAIN NONDEPOSIT INVESTMENT PRODUCTS.—
‘‘(1) SECURITIES.—The appropriate Federal
banking agencies shall jointly prescribe, after con-
sulting with and considering the views of the Securi-
ties and Exchange Commission, standards applicable
to any depository institution which—
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‘‘(A) is not registered as a broker under
the Securities Exchange Act of 1934; and
‘‘(B) effects transactions in securities, in-
cluding securities issued by an investment com-
pany, or annuities.
‘‘(2) OTHER NONDEPOSIT INVESTMENT PROD-
UCTS.—The appropriate Federal banking agencies
shall jointly prescribe standards applicable to any
depository institution which effects transactions in
any nondeposit investment product not covered
under paragraph (1).
‘‘(3) SCOPE
OF
STANDARDS.—The standards
required under paragraph (1) with respect to securi-
ties and annuities referred to in such paragraph and
under paragraph (2) with respect to other non-
deposit investment products shall, at a minimum, es-
tablish requirements with respect to—
‘‘(A) sales practices;
‘‘(B) disclosures and advertising in connec-
tion with transactions in such securities, annu-
ities, and other nondeposit investment products,
including—
‘‘(i) the content, form, and timing of
any such disclosure; and
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‘‘(ii) disclaimers concerning the non-
insured status of the security, annuity, or
other nondeposit investment product;
‘‘(C) the compensation of sales personnel
with respect to referrals or transactions;
‘‘(D) the training of and qualifications for
personnel involved in such transactions, includ-
ing training in making an accurate judgment
about the suitability of a particular investment
product for a prospective customer; and
‘‘(E) the setting in which and the cir-
cumstances under which transactions may be
effected, and referrals made, by sales personnel
with respect to such securities, annuities, other
nondeposit investment products.
‘‘(4) 
COMPARABILITY
REQUIREMENT.—The
standards required under paragraph (1) shall be
comparable to the standards applicable to brokers
and dealers registered under the Securities Ex-
change Act of 1934 unless the appropriate Federal
banking agencies jointly determine that implementa-
tion of comparable standards is not necessary or ap-
propriate for the maintenance of fair and orderly
markets or the protection of investors or is not in
the public interest.’’.
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SEC. 112. EFFECTIVE DATE.
The amendments made by this subtitle shall take ef-
fect at the end of the 90-day period beginning on the date
of the enactment of this Act.
Subtitle B—Investment Bank
Holding Companies
SEC. 116. INVESTMENT BANK HOLDING COMPANIES.
(a) DEFINITIONS.—
(1) IN GENERAL.—Section 2 of the Bank Hold-
ing Company Act of 1956 (12 U.S.C. 1842) is
amended by adding at the end the following new
subsections:
‘‘(s) WHOLESALE FINANCIAL INSTITUTION.—The
term ‘wholesale financial institution’ means a wholesale fi-
nancial institution as defined in section 9B of the Federal
Reserve Act.
‘‘(t) INVESTMENT BANK HOLDING COMPANY.—The
term ‘investment bank holding company’ means any finan-
cial services holding company that—
‘‘(1) controls a company engaged in underwrit-
ing corporate equity securities pursuant to section
10;
‘‘(2) controls a wholesale financial institution;
and
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‘‘(3) if the company is a foreign bank that oper-
ates a branch, agency or commercial lending com-
pany in the United States, or is a company that con-
trols such foreign bank, is treated as an investment
bank holding company because such bank or com-
pany meets the criteria in section 12(b) and has re-
ceived the determination required by such section.’’.
(2) DEFINITION OF BANK INCLUDES WHOLE-
SALE FINANCIAL INSTITUTION.—Section 2(c)(1) of
the Bank Holding Company Act of 1956 (12 U.S.C.
1841(c)(1)) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(C) A wholesale financial institution.’’.
(b) INVESTMENT BANK HOLDING COMPANIES.—The
Bank Holding Company Act of 1956 (12 U.S.C. 1841 et
seq.) is amended by inserting after section 11 (as added
by section 104 of this Act) the following new section:
‘‘SEC. 12. INVESTMENT BANK HOLDING COMPANIES.
‘‘(a) PERMISSIBLE AFFILIATIONS FOR INVESTMENT
BANK HOLDING COMPANIES.—
‘‘(1) FINANCIAL ACTIVITIES.—
‘‘(A) ACTIVITIES
AUTHORIZED.—An in-
vestment bank holding company may directly or
indirectly own or control shares of any company
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engaged in any activity the Board has deter-
mined to be financial in nature or incidental to
a financial activity or any activity in compliance
with subparagraph (B) or (C).
‘‘(B) INCIDENTAL ACTIVITIES.—
‘‘(i) IN
GENERAL.—Notwithstanding
subparagraph (A), the aggregate invest-
ment by an investment bank holding com-
pany in shares of companies that engage in
nonfinancial activities shall not at any time
exceed 7.5 percent (or such greater per-
centage as the Board may determine to be
appropriate) of the consolidated total risk-
weighted assets of the investment bank
holding company (excluding assets of com-
panies held pursuant to this subpara-
graph), except that the amount invested by
the investment bank holding company in
any one company (including all affiliates of
such company other than preexisting affili-
ates of such investment bank holding com-
pany) may not exceed the amount which is
equal to 25 percent of the total capital and
surplus of such investment bank holding
company.
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‘‘(ii) APPLICABILITY
TO
SUCCESSOR
IN INTEREST.—Any successor to any in-
vestment bank holding company referred to
in clause (i) may retain any investments
made pursuant to this subparagraph—
‘‘(I) during the 5-year period be-
ginning on the date the succession is
consummated; and
‘‘(II) with the consent of the
Board, for an additional period not to
exceed 5 years after the 5-year period
referred to in subclause (I),
unless the Board determines that the re-
tention of such investment would jeopard-
ize the safety and soundness of any in-
sured depository institution any insured
depository institution affiliate of such suc-
cessor.
‘‘(iii) CROSS
MARKETING
RESTRIC-
TIONS.—A wholesale financial institution
shall not—
‘‘(I) offer or market, directly or
through any arrangement, any prod-
uct or service of an affiliate whose
shares are owned or controlled by the
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investment bank holding company
pursuant to this subparagraph or sub-
paragraph (C); or
‘‘(II) permit any of such whole-
sale financial institution’s or subsidi-
ary’s products or services to be of-
fered or marketed, directly or through
any arrangement, by or through any
such affiliate.
‘‘(iv) USE OF COMMON NAME.—An in-
vestment bank holding company shall not
permit a wholesale financial institution to
adopt a name which is the same as or
similar to, or a variation of, the name or
title of an affiliate engaged in activities
pursuant to subparagraph (B).
‘‘(C) COMMODITIES.—
‘‘(i) IN
GENERAL.—An investment
bank holding company predominately en-
gaged as of January 1, 1995, in securities
activities in the United States (or any suc-
cessor to any such company) may engage
in, or directly or indirectly own or control
shares of a company engaged in, activities
related to the trading, sale, or investment
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in commodities and underlying physical
properties that were not permissible for
bank holding companies to conduct in the
United States as of January 1, 1995, pro-
vided such investment bank holding com-
pany, or any subsidiary of such holding
company, was engaged directly, indirectly,
or through any such company in any of
such activities as of January 1, 1995, in
the United States.
‘‘(ii) 
LIMITATION.—Notwithstanding
subparagraphs (A) and (B), the aggregate
investment by an investment bank holding
company in activities under this subpara-
graph (other than those otherwise per-
mitted under this section) shall not at any
time exceed 5 percent of the total consoli-
dated assets of the investment bank hold-
ing company.
‘‘(iii) 
SUCCESSOR
DEFINED.—For
purposes of this subparagraph and sub-
paragraph (B), the term ‘successor’ means,
with respect to any investment bank hold-
ing company described in clause (i), any
company that merges with, or acquires
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control of, such investment bank holding
company.
‘‘(D) QUALIFIED INVESTOR IN AN INVEST-
MENT BANK HOLDING COMPANY.—
‘‘(i) IN
GENERAL.—Notwithstanding
any other provision of Federal or State
law, a qualified investor—
‘‘(I) shall not be, or be deemed to
be, an investment bank holding com-
pany, a financial services holding com-
pany, a bank holding company, or any
similar organization; and
‘‘(II) shall not be deemed to con-
trol or be affiliated with any such
company or organization or any sub-
sidiary of any such company or orga-
nization (other than for purposes of
section 23A and 23B of the Federal
Reserve Act),
by virtue of the investor’s ownership or
control of shares of an investment bank
holding company.
‘‘(ii) 
QUALIFIED
INVESTOR
DE-
FINED.—For purposes of this subpara-
graph, the term ‘qualified investor’ means
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any United States company (including a
parent company and all subsidiaries of
which the parent company holds at least
80 percent of the total voting equity secu-
rities) which since February 27, 1995, has
directly or indirectly owned or controlled
shares of capital stock representing at
least 10 percent, and not more than 45
percent, of the outstanding voting shares
or voting power of a company that—
‘‘(I) becomes an investment bank
holding company or a subsidiary of an
investment bank holding company;
and
‘‘(II) before such company be-
came an investment bank holding
company or a subsidiary of an invest-
ment bank holding company, had
more than 50 percent of the compa-
ny’s assets employed directly or indi-
rectly in securities activities.
‘‘(iii) CROSS-MARKETING
AND
COM-
MON NAME.—A wholesale financial institu-
tion shall not—
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‘‘(I) offer or market products or
services of a qualified investor in the
investment bank holding company of
which the wholesale financial institu-
tion is an affiliate;
‘‘(II) permit the institution’s
products or services to be offered or
marketed in connection with products
or services of such qualified investor;
or
‘‘(III) adopt a name which is the
same as or similar to, or a variation
of, the name or title of such qualified
investor.
‘‘(iv) EXAMINATION
AND
REPORT-
ING.—Notwithstanding any other provision
of law, the Board may conduct examina-
tions of, or require reports from, a quali-
fied investor only to the extent that the
Board reasonably determines that such ex-
aminations or reports are necessary—
‘‘(I) to ensure compliance with
this subparagraph; or
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‘‘(II) to the extent that the quali-
fied investor is an affiliate of a whole-
sale financial institution for purposes
of section 23A of the Federal Reserve
Act, to ensure compliance with restric-
tions imposed by law or regulation on
transactions between the qualified in-
vestor and such wholesale financial in-
stitution.
‘‘(E) CONSOLIDATED TOTAL RISK-WEIGHT-
ED ASSETS.—For purposes of this paragraph,
the following definitions shall apply:
‘‘(i) IN GENERAL.—The term ‘consoli-
dated total risk-weighted assets’ shall have
the meaning given to such term in regula-
tions prescribed by the Board as in effect
on the date of the enactment of the Finan-
cial Services Competitiveness Act of 1997.
‘‘(ii) 
APPLICATION
TO
FOREIGN
BANKS.—In the case of a foreign bank or
a company that owns or controls a foreign
bank, the term ‘consolidated total risk-
weighted assets’ means total risk-weighted
assets held by the foreign bank or company
in the United States in any Untied States
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branch, agency, or commercial lending
company subsidiary, any depository institu-
tion controlled by the foreign bank or com-
pany, any subsidiary held under the au-
thority of this section, section 3, 4, or 10
(other than paragraph (9) or (13) or sec-
tion 4(c)), or section 25 or 25A of the
Federal Reserve Act.
‘‘(2) SECURITIES ACTIVITIES.—
‘‘(A) INSTITUTIONS MUST BE WELL CAP-
ITALIZED.—The Board shall disapprove a no-
tice under section 10 by an investment bank
holding company (or a company seeking to be-
come an investment bank holding company) to
acquire a securities affiliate if any wholesale fi-
nancial institution controlled by the investment
bank holding company is not well capitalized or
would not be well capitalized following the
transaction.
‘‘(B) TRANSACTIONS WITH AFFILIATES.—
‘‘(i) IN GENERAL.—A wholesale finan-
cial institution controlled by an investment
bank holding company shall be treated as
a bank for purposes of the provisions of
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sections 23A and 23B of the Federal Re-
serve Act.
‘‘(ii) OTHER RESTRICTIONS REGARD-
ING SECURITIES AFFILIATES DETERMINED
BY THE BOARD.—A securities affiliate of
an investment bank holding company, and
a wholesale financial institution controlled
by an investment bank holding company,
shall not be subject to the provisions of
section 11, except that the securities affili-
ate and wholesale financial institution shall
be subject to subsections (j) and (k) of
such section in the same manner and to
the same extent such paragraphs would
apply if the wholesale financial institution
were an insured depository institution.
‘‘(3) LIMITATION
ON
AFFILIATION
WITH
IN-
SURED DEPOSITORY INSTITUTIONS.—An investment
bank holding company may not, directly or indi-
rectly, own or control—
‘‘(A) any bank, other than a wholesale fi-
nancial institution;
‘‘(B) any savings association;
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the bank provides a written notice under subsection
(a)(1).
‘‘(2) PROCEDURES.—The Corporation shall pre-
scribe, by regulation, procedures for assessing any
exit fee under this subsection.
‘‘(f) TEMPORARY INSURANCE OF DEPOSITS INSURED
AS OF TERMINATION.—
‘‘(1) TRANSITION PERIOD.—The insured depos-
its of each depositor in a State bank or a national
bank on the effective date of the voluntary termi-
nation of the bank’s insured status, less all subse-
quent withdrawals from any deposits of such deposi-
tor, shall continue to be insured for a period of not
less than 6 months and not more than 2 years, as
determined by the Corporation. During such period,
no additions to any such deposits, and no new de-
posits in the depository institution made after the ef-
fective date of such termination shall be insured by
the Corporation.
‘‘(2) TEMPORARY ASSESSMENTS; OBLIGATIONS
AND DUTIES.—During the period specified in para-
graph (1) with respect to any bank, the bank shall
continue to pay assessments under section 7 as if
the bank were an insured depository institution. The
bank shall, in all other respects, be subject to the
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(D) submit to an examination by the State
insurance regulatory in any licensed State in
which the redomesticated insurer is doing busi-
ness to determine the insurer’s financial condi-
tion, if (A) the State insurance regulator of the
transferee domicile has not begun and has re-
fused to initiate an examination of the redomes-
ticated insurer, and (B) any such examination
is coordinated to avoid unjustified duplication
and repetition;
(E) comply with a lawful order issued in
(A) a delinquency proceeding commenced by the
State insurance regulator of any licensed State
if there has been a judicial finding of financial
impairment under paragraph (g) below, or (B)
a voluntary dissolution proceeding;
(F) comply with any State law regarding
deceptive, false or fraudulent acts or practices,
except that if the licensed State seeks an in-
junction regarding the conduct described in this
paragraph, such injunction must be obtained
from a court of competent jurisdiction as pro-
vided in subsection (d).
(G) comply with an injunction issued by a
court of competent jurisdiction, upon a petition