of such company (other than a depository
institution) under section 5;
‘‘(ii) approve or disapprove applica-
tions or transactions under section 3;
‘‘(iii) take actions and impose pen-
alties under subsections (e) and (f) of sec-
tion 5 and section 8; and
‘‘(iv) take actions regarding the hold-
ing company, any affiliate of the holding
company (other than a depository institu-
tion), or any institution-affiliated party of
such company or affiliate under the Fed-
eral Deposit Insurance Act and any other
statute which the Board may designate.
‘‘(C) AGENCY ORDERS.—Section 9 of this
Act and section 105 of the Bank Holding Com-
pany Act Amendments of 1970 shall apply to
orders issued by an agency designated under
subparagraph (A) in the same manner such sec-
tions apply to orders issued by the Board.’’.
SEC. 112. AUTHORITY OF STATE INSURANCE REGULATOR
AND SECURITIES AND EXCHANGE COMMIS-
SION.
Section 5 of the Bank Holding Company Act of 1956
(12 U.S.C. 1844) is amended by adding at the end the
following new subsection:
‘‘(g) AUTHORITY OF STATE INSURANCE REGULATOR
AND THE SECURITIES AND EXCHANGE COMMISSION.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of law, any regulation, order, or other ac-
tion of the Board which requires a bank holding
company to provide funds or other assets to a sub-
sidiary insured depository institution shall not be ef-
fective nor enforceable if—
‘‘(A) such funds or assets are to be pro-
vided by—
‘‘(i) a bank holding company that is
an insurance company or is a broker or
dealer registered under the Securities Ex-
change Act of 1934; or
‘‘(ii) an affiliate of the depository in-
stitution which is an insurance company or
a broker or dealer registered under such
Act; and
‘‘(B) the State insurance authority for the
insurance company or the Securities and Ex-
change Commission for the registered broker or
dealer, as the case may be, determines in writ-
ing sent to the holding company and the Board
that the holding company shall not provide such
funds or assets because such action would have
a material adverse effect on the financial condi-
tion of the insurance company or the broker or
dealer, as the case may be.
‘‘(2) NOTICE TO STATE INSURANCE AUTHORITY
OR SEC REQUIRED.—If the Board requires a bank
holding company, or an affiliate of a bank holding
company, which is an insurance company or a
broker or dealer described in paragraph (1)(A) to
provide funds or assets to an insured depository in-
stitution subsidiary of the holding company pursuant
to any regulation, order, or other action of the
Board referred to in paragraph (1), the Board shall
promptly notify the State insurance authority for the
insurance company or the Securities and Exchange
Commission, as the case may be, of such require-
ment.
‘‘(3) DIVESTITURE
IN
LIEU
OF
OTHER
AC-
TION.—If the Board receives a notice described in
paragraph (1)(B) from a State insurance authority
or the Securities and Exchange Commission with re-
gard to a bank holding company or affiliate referred
to in such paragraph, the Board may order the bank
holding company to divest the insured depository in-
stitution within 180 days of receiving notice or such
longer period as the Board determines consistent
with the safe and sound operation of the insured de-
pository institution.
‘‘(4) CONDITIONS BEFORE DIVESTITURE.—Dur-
ing the period beginning on the date an order to di-
vest is issued by the Board under paragraph (3) to
a bank holding company and ending on the date the
divestiture is completed, the Board may impose any
conditions or restrictions on the holding company’s
ownership or operation of the insured depository in-
stitution, including restricting or prohibiting trans-
actions between the insured depository institution
and any affiliate of the institution, as are appro-
priate under the circumstances.’’.
SEC. 113. LIMITATION ON RULEMAKING, PRUDENTIAL, SU-
PERVISORY, AND ENFORCEMENT AUTHORITY
OF THE BOARD.
The Bank Holding Company Act of 1956 (12 U.S.C.
1841 et seq.) is amended by inserting after section 10 the
following new section:
‘‘SEC. 10A. LIMITATION ON RULEMAKING, PRUDENTIAL, SU-
PERVISORY, AND ENFORCEMENT AUTHORITY
OF THE BOARD.
‘‘(a) LIMITATION ON DIRECT ACTION.—
‘‘(1) IN GENERAL.—The Board may not pre-
scribe regulations, issue or seek entry of orders, im-
pose restraints, restrictions, guidelines, require-
ments, safeguards, or standards, or otherwise take
any action under or pursuant to any provision of
this Act or section 8 of the Federal Deposit Insur-
ance Act against or with respect to a regulated sub-
sidiary of a bank holding company unless the action
is necessary to prevent or redress an unsafe or un-
sound practice or breach of fiduciary duty by such
subsidiary that poses a material risk to—
‘‘(A) the financial safety, soundness, or
stability of an affiliated depository institution;
or
‘‘(B) the domestic or international pay-
ment system.
‘‘(2) CRITERIA
FOR
BOARD
ACTION.—The
Board shall not take action otherwise permitted
under paragraph (1) unless the Board finds that it
is not reasonably possible to effectively protect
against the material risk at issue through action di-
rected at or against the affiliated depository institu-
tion or against depository institutions generally.
‘‘(b) LIMITATION ON INDIRECT ACTION.—The Board
may not prescribe regulations, issue or seek entry of or-
ders, impose restraints, restrictions, guidelines, require-
ments, safeguards, or standards, or otherwise take any ac-
tion under or pursuant to any provision of this Act or sec-
tion 8 of the Federal Deposit Insurance Act against or
with respect to a bank holding company where the purpose
or effect of doing so would be to take action indirectly
against or with respect to a regulated subsidiary that may
not be taken directly against or with respect to such sub-
sidiary in accordance with subsection (a).
‘‘(c) ACTIONS SPECIFICALLY AUTHORIZED.—Not-
withstanding subsection (a), the Board may take action
under this Act or section 8 of the Federal Deposit Insur-
ance Act to enforce compliance by a regulated subsidiary
with Federal law that the Board has specific jurisdiction
to enforce against such subsidiary.
‘‘(d) REGULATED SUBSIDIARY DEFINED.—For pur-
poses of this section, the term ‘regulated subsidiary’
means any company that is not a bank holding company
and is—
‘‘(1) a broker or dealer registered under the Se-
curities Exchange Act of 1934;
‘‘(2) an investment adviser registered under the
Investment Advisers Act of 1940, with respect to the
investment advisory activities of such investment ad-
viser and activities incidental to such investment ad-
visory activities;
‘‘(3) an investment company registered under
the Investment Company Act of 1940;
‘‘(4) an insurance company or an insurance
agency subject to supervision by a State insurance
commission, agency, or similar authority; or
‘‘(5) an entity subject to regulation by the Com-
modity Futures Trading Commission, with respect
to the commodities activities of such entity and ac-
tivities incidental to such commodities activities.’’.
SEC. 114. EXAMINATION OF INVESTMENT COMPANIES.
(a) EXCLUSIVE COMMISSION AUTHORITY.—
(1) IN GENERAL.—Except as provided in para-
graph (3), the Commission shall be the sole Federal
agency with authority to inspect and examine any
registered investment company that is not a bank
holding company or a savings and loan holding com-
pany.
(2) PROHIBITION ON BANKING AGENCIES.—Ex-
cept as provided in paragraph (3), a Federal bank-
ing agency may not inspect or examine any reg-
istered investment company that is not a bank hold-
ing company or a savings and loan holding company.
(3) CERTAIN
EXAMINATIONS
AUTHORIZED.—
Nothing in this subsection prevents the Federal De-
posit Insurance Corporation, if the Corporation finds
it necessary to determine the condition of an insured
depository institution for insurance purposes, from
examining an affiliate of any insured depository in-
stitution, pursuant to its authority under section
10(b)(4) of the Federal Deposit Insurance Act, as
may be necessary to disclose fully the relationship
between the depository institution and the affiliate,
and the effect of such relationship on the depository
institution.
(b) EXAMINATION RESULTS AND OTHER INFORMA-
TION.—The Commission shall provide to any Federal
banking agency, upon request, the results of any examina-
tion, reports, records, or other information with respect
to any registered investment company to the extent nec-
essary for the agency to carry out its statutory responsibil-
ities.
(c) DEFINITIONS.—For purposes of this section, the
following definitions shall apply:
(1) BANK
HOLDING
COMPANY.—The term
‘‘bank holding company’’ has the same meaning as
in section 2 of the Bank Holding Company Act of
1956.
(2) COMMISSION.—The term ‘‘Commission’’
means the Securities and Exchange Commission.
(3) FEDERAL
BANKING
AGENCY.—The term
‘‘Federal banking agency’’ has the same meaning as
in section 3(z) of the Federal Deposit Insurance Act.
(4) REGISTERED INVESTMENT COMPANY.—The
term ‘‘registered investment company’’ means an in-
vestment company which is registered with the Com-
mission under the Investment Company Act of 1940.
(5) SAVINGS AND LOAN HOLDING COMPANY.—
The term ‘‘savings and loan holding company’’ has
the same meaning as in section 10(a)(1)(D) of the
Home Owners’ Loan Act.
SEC. 115. EQUIVALENT REGULATION AND SUPERVISION.
(a) IN GENERAL.—Notwithstanding any other provi-
sion of law, the provisions of—
(1) section 5(c) of the Bank Holding Company
Act of 1956 (as amended by this Act) that limit the
authority of the Board of Governors of the Federal
Reserve System to require reports from, to make ex-
aminations of, or to impose capital requirements on
bank holding companies and their nonbank subsidi-
aries; and
(2) section 10A of the Bank Holding Company
Act of 1956 (as added by this Act) that limit what-
ever authority the Board might otherwise have to
take direct or indirect action with respect to bank
holding companies and their nonbank subsidiaries,
shall also limit whatever authority that the Federal De-
posit Insurance Corporation might otherwise have under
any statute to require reports, make examinations, impose
capital requirements or take any other direct or indirect
action with respect to bank holding companies and their
nonbank subsidiaries (including nonbank subsidiaries of
depository institutions), subject to the same standards and
requirements as are applicable to the Board under such
provisions.
(b) CERTAIN EXAMINATIONS AUTHORIZED.—Noth-
ing in this section shall prevent the Federal Deposit Insur-
ance Corporation, if the Corporation finds it necessary to
determine the condition of an insured depository institu-
tion for insurance purposes, from examining an affiliate
of any insured depository institution, pursuant to its au-
thority under section 10(b)(4) of the Federal Deposit In-
surance Act, as may be necessary to disclose fully the rela-
tionship between the depository institution and the affili-
ate, and the effect of such relationship on the depository
institution.
Subtitle C—Subsidiaries of
National Banks
SEC. 121. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED
TO ENGAGE IN FINANCIAL ACTIVITIES.
Chapter one of title LXII of the revised statutes of
United States (12 U.S.C. 21 et seq.) is amended—
(1) by redesignating section 5136A (12 U.S.C.
25a) as section 5136C; and
(2) by inserting after section 5136 (12 U.S.C.
24) the following new section:
‘‘SEC. 5136A. SUBSIDIARIES OF NATIONAL BANKS.
‘‘(a) ACTIVITIES PERMISSIBLE.—
‘‘(1) IN GENERAL.—A subsidiary of a national
bank may—
‘‘(A) engage in any activity that is permis-
sible for the parent national bank; and
‘‘(B) engage in any activity permissible for
a bank holding company under any provision of
section 4(k) of the Bank Holding Company Act
of 1956 other than—
‘‘(i) paragraph (3)(B) of such section
(relating to insurance activities) insofar as
such paragraph permits a bank holding
company to engage as principal in insur-
ing, guaranteeing, or indemnifying against
loss, harm, damage, illness, disability, or
death, on in providing or issuing annuities;
and
‘‘(ii) paragraph (3)(I) of such section
(relating to insurance company invest-
ments).
‘‘(2) LIMITATIONS.—A subsidiary of a national
bank—
‘‘(A) may not, pursuant to subparagraph
(C) of paragraph (1)—
‘‘(i) underwrite insurance other than
credit-related insurance;
‘‘(ii) engage in real estate investment
or development activities (except to the ex-
tent that a Federal statute expressly au-
thorizes a national bank to engage directly
in such an activity); and
‘‘(B) may not engage in any activity
not permissible under paragraph (1).
‘‘(b) REQUIREMENTS APPLICABLE
TO NATIONAL
BANKS WITH FINANCIAL SUBSIDIARIES.—
‘‘(1) IN GENERAL.—A financial subsidiary of a
national bank may engage in activities pursuant to
subsection (a)(1)(C) only if—
‘‘(A) the national bank is well capitalized,
is well managed, and achieved the rating de-
scribed in section 4(l)(3) of the Bank Holding
Company Act of 1956 during the most recent
examination of the bank by the Comptroller of
the Currency;
‘‘(B) each insured depository institution
affiliate of the national bank is well capitalized,
is well managed, and achieved the rating de-
scribed in section 4(1)(3) of the Bank Holding
Company Act of 1956 during the most recent
examination of the institution by the appro-
priate Federal banking agency; and
‘‘(C) the national bank has received the
approval of the Comptroller of the Currency by
regulation or order.
‘‘(2) CORRECTIVE PROCEDURES.—
‘‘(A) IN
GENERAL.—The Comptroller of
the Currency shall, by regulation prescribe pro-
cedures to enforce paragraph (1).
‘‘(B) STRINGENCY.—The regulation pre-
scribed under subparagraph (A) shall be no less
stringent than the corresponding restrictions
and requirements of section 4(m) of the Bank
Holding Company Act of 1956.
‘‘(c) DEFINITIONS.—For purposes of this section, the
following definitions shall apply:
‘‘(1) AFFILIATE.—The term ‘affiliate’ has the
same meaning in section 3 of the Federal Deposit
Insurance Act.
‘‘(2) FINANCIAL
SUBSIDIARY.—The term ‘fi-
nancial subsidiary’ means a company that—
‘‘(A) is a subsidiary of an insured bank;
and
‘‘(B) is engaged as principal in any finan-
cial activity that is not permissible under sub-
paragraph (A) or (B) of subsection (a)(1) of
this section.
‘‘(3) SUBSIDIARY.—The term ‘subsidiary’ has
the same meaning as in section 2 of the Bank Hold-
ing Company Act of 1956.
‘‘(4) WELL CAPITALIZED.—The term ‘well cap-
italized’ has the same meaning as in section 38 of
the Federal Deposit Insurance Act.
‘‘(5) WELL MANAGED.—The term ‘well man-
aged’ means—
‘‘(A) in the case of an insured depository
institution that has been examined, the achieve-
ment of—
‘‘(i) a composite rating of 1 or 2
under the Uniform Financial Institutions
Rating System (or an equivalent rating
under an equivalent rating system) in con-
nection with the most recent examination
or subsequent review of the insured deposi-
tory institution; and
‘‘(ii) at least a rating of 2 for man-
agement, if that rating is given; or
‘‘(B) in the case of an insured depository
institution that has not been examined, the ex-
istence and use of managerial resources that
the appropriate Federal banking agency deter-
mines are satisfactory.
‘‘(d) RULE OF CONSTRUCTION.—No provision of this
section shall be construed so as to prohibit national banks
from owning or controlling subsidiaries pursuant to sec-
tion 25 or 25A of the Federal Reserve Act, the Bank Serv-
ice Company Act, or any other Federal statute that ex-
pressly by its terms authorizes national banks to own or
control subsidiaries.’’.
SEC. 122. SAFETY AND SOUNDNESS FIREWALLS BETWEEN
BANKS AND THEIR FINANCIAL SUBSIDIARIES.
(a) PURPOSES.—The purposes of this section are—
(1) to protect the safety and soundness of any
insured bank that has a financial subsidiary;
(2) to apply to any transaction between the
bank and the financial subsidiary (including a loan,
extension of credit, guarantee, or purchase of as-
sets), other than an equity investment, the same re-
strictions and requirements as would apply if the fi-
nancial subsidiary were a subsidiary of a bank hold-
ing company having control of the bank; and
(3) to apply to any equity investment of the
bank in the financial subsidiary restrictions and re-
quirements equivalent to those that would apply if—
(A) the bank paid a dividend in the same
dollar amount to a bank holding company hav-
ing control of the bank; and
(B) the bank holding company used the
proceeds of the dividend to make an equity in-
vestment in a subsidiary that was engaged in
the same activities as the financial subsidiary of
the bank.
(b) SAFETY AND SOUNDNESS FIREWALLS APPLICA-
BLE TO SUBSIDIARIES OF BANKS.—The Federal Deposit
Insurance Act (12 U.S.C. 1811 et seq.) is amended by
adding at the end the following new section:
‘‘SEC. 45. SAFETY AND SOUNDNESS FIREWALLS APPLICA-
BLE TO SUBSIDIARIES OF BANKS.
‘‘(a) LIMITING THE EQUITY INVESTMENT OF A BANK
IN A SUBSIDIARY.—
‘‘(1) CAPITAL
DEDUCTION.—In determining
whether an insured bank complies with applicable
regulatory capital standards—
‘‘(A) the appropriate Federal banking
agency shall deduct from the assets and tan-
gible equity of the bank the aggregate amount
of the outstanding equity investments of the
bank in financial subsidiaries of the bank; and
‘‘(B) the assets and liabilities of such fi-
nancial subsidiaries shall not be consolidated
with those of the bank.
‘‘(2) INVESTMENT
LIMITATION.—An insured
bank shall not, without the prior approval of the ap-
propriate Federal banking agency, make any equity
investment in a financial subsidiary of the bank if
that investment would, when made, exceed the
amount that the bank could pay as a dividend with-
out obtaining prior regulatory approval.
‘‘(b) OPERATIONAL
AND FINANCIAL SAFEGUARDS
FOR THE BANK.—An insured bank that has a financial
subsidiary shall maintain procedures for identifying and
managing any financial and operational risks posed by the
financial subsidiary.
‘‘(c) MAINTENANCE
OF
SEPARATE
CORPORATE
IDENTITY AND SEPARATE LEGAL STATUS.—
‘‘(1) IN
GENERAL.—Each insured bank shall
ensure that the bank maintains and complies with
reasonable policies and procedures to preserve the
separate corporate identity and legal status of the
bank and any financial subsidiary or affiliate of the
bank.
‘‘(2) EXAMINATIONS.—The appropriate Federal
banking agency, as part of each examination, shall
review whether an insured bank is observing the sep-
arate corporate identity and separate legal status of
any subsidiaries and affiliates of the bank.
‘‘(d) FINANCIAL SUBSIDIARY DEFINED.—For pur-
poses of this section, the term ‘financial subsidiary’ has
the same meaning as section 5136A(c)(2)(B) of the Re-
vised Statutes of the United States.
‘‘(e) REGULATIONS.—The appropriate Federal bank-
ing agencies shall jointly prescribe regulations implement-
ing this section.’’.
(c) LIMITING A BANK’S CREDIT EXPOSURE TO A FI-
NANCIAL SUBSIDIARY TO THE AMOUNT OF PERMISSIBLE
CREDIT EXPOSURE TO AN AFFILIATE.—Section 23A of
the Federal Reserve Act (12 U.S.C. 371c) is amended—
(1) by redesignating subsection (e) as sub-
section (f); and
(2) by inserting after subsection (d), the follow-
ing new subsection:
‘‘(e) RULES RELATING TO BANKS WITH FINANCIAL
SUBSIDIARIES.—
‘‘(1) FINANCIAL
SUBSIDIARY
DEFINED.—For
purposes of this section and section 23B, the term
‘financial subsidiary’ has the same meaning as sec-
tion 5136A(c)(2)(B) of the revised statutes of the
United States.
‘‘(2) APPLICATION TO TRANSACTIONS BETWEEN
A
FINANCIAL
SUBSIDIARY
OF
A
BANK
AND
THE
BANK.—For purposes of applying this section and
section 23B to a transaction between a financial
subsidiary of a bank and the bank (or between such
financial subsidiary and any other subsidiary of the
bank that is not a financial subsidiary), and not-
withstanding 
subsection 
(b)(2) 
and 
section
23B(d)(1)—
‘‘(A) the financial subsidiary of the bank—
‘‘(i) shall be deemed to be an affiliate
of the bank and of any other subsidiary of
the bank that is not a financial subsidiary;
and
‘‘(ii) shall not be deemed a subsidiary
of the bank; and
‘‘(B) a purchase of or investment in equity
securities issued by the financial subsidiary
shall not be deemed to be a covered transaction.
‘‘(3) APPLICATION TO TRANSACTIONS BETWEEN
FINANCIAL
SUBSIDIARY
AND
NONBANK
AFFILI-
ATES.—
‘‘(A) IN GENERAL.—A transaction between
a financial subsidiary and an affiliate of the fi-
nancial subsidiary (that is not a subsidiary of
a bank) shall not be deemed to be a transaction
between a subsidiary of a bank and an affiliate
of the bank for purposes of section 23A or sec-
tion 23B of this Act.
‘‘(B) CERTAIN AFFILIATES EXCLUDED.—
For purposes of this paragraph, the term ‘affili-
ate’ shall not include a bank, or a subsidiary of
a bank that is engaged exclusively in activities
permissible for a national bank to engage in di-
rectly or activities described in clause (ii) of
paragraph (1)(B).’’.
SEC. 123. FUNCTIONAL REGULATION.
(a) PURPOSE.—The purpose of this section is to en-
sure that—
(1) securities activities conducted in a subsidi-
ary of a bank are functionally regulated by the Secu-
rities and Exchange Commission to the same extent
as if they were conducted in a nondepository subsidi-
ary of a bank holding company; and
(2) insurance agency and brokerage activities
conducted in a subsidiary of a bank are functionally
regulated by a State insurance authority to the same
extent as if they were conducted in a nondepository
subsidiary of a bank holding company.
(b) FUNCTIONAL REGULATION OF FINANCIAL SUB-
SIDIARIES.—The Federal Deposit Insurance Act (12
U.S.C. 1811 et seq.), is amended by inserting after section
45 (as added by section 122 of this subtitle) the following
new section:
‘‘SEC. 46. FUNCTIONAL REGULATION OF SECURITIES SUB-
SIDIARIES AND INSURANCE AGENCY SUBSIDI-
ARIES OF INSURED DEPOSITORY INSTITU-
TIONS.
‘‘(a) BROKER OR DEALER SUBSIDIARY.—A broker or
dealer that is a subsidiary of an insured depository institu-
tion shall be subject to regulation under the Securities Ex-
change Act of 1934 in the same manner and to the same
extent as a broker or dealer that—
‘‘(1) is controlled by the same bank holding
company as controls the insured depository institu-
tion; and
‘‘(2) is not an insured depository institution or
a subsidiary of an insured depository institution.
‘‘(b) INSURANCE AGENCY SUBSIDIARY.—An insur-
ance agency or brokerage that is a subsidiary of an in-
sured depository institution shall be subject to regulation
by a State insurance authority in the same manner and
to the same extent as an insurance agency or brokerage
that—
‘‘(1) is controlled by the same bank holding
company as controls the insured depository institu-
tion; and
‘‘(2) is not an insured depository institution or
a subsidiary of an insured depository institution.
‘‘(c) DEFINITIONS.—For purposes of this section, the
terms ‘broker’ and ‘dealer’ have the same meanings as in
section 3 of the Securities Exchange Act of 1934.’’.
Subtitle D—Review of Bank
Mergers and Acquisitions
SEC. 131. AMENDMENT TO THE BANK HOLDING COMPANY
ACT OF 1956 TO MODIFY NOTIFICATION AND
POST-APPROVAL WAITING PERIOD FOR SEC-
TION 3 TRANSACTIONS.
Section 11(b)(1) of the Bank Holding Company Act
of 1956 (12 U.S.C. 1849(b)(1)) is amended by inserting
‘‘and, if the transaction also involves an acquisition under
section 4 or section 6, the Board shall also notify the Fed-
eral Trade Commission of such approval’’ before the pe-
riod at the end of the first sentence.
SEC. 132. INTERAGENCY DATA SHARING.
To the extent not prohibited by other law, the Comp-
troller of the Currency, the Director of the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation,
and the Board of Governors of the Federal Reserve Sys-
tem shall make available to the Attorney General and the
Federal Trade Commission any data in the possession of
any such banking agency that the antitrust agency deems
necessary for antitrust review of any transaction requiring
notice to any such antitrust agency or the approval of such
agency under section 3, 4, or 6 of the Bank Holding Com-
pany Act of 1956, section 18(c) of the Federal Deposit
Insurance Act, the National Bank Consolidation and
Merger Act, section 10 of the Home Owners’ Loan Act,
or the antitrust laws.
SEC. 133. CLARIFICATION OF STATUS OF SUBSIDIARIES
AND AFFILIATES.
(a) CLARIFICATION OF FEDERAL TRADE COMMIS-
SION JURISDICTION.—Any person which directly or indi-
rectly controls, is controlled directly or indirectly by, or
is directly or indirectly under common control with, any
bank or savings association (as such terms are defined in
section 3 of the Federal Deposit Insurance Act) and is
not itself a bank or savings association shall not be
deemed to be a bank or savings association for purposes
of the Federal Trade Commission Act or any other law
enforced by the Federal Trade Commission.
(b) SAVINGS PROVISION.—No provision of this sec-
tion shall be construed as restricting the authority of any
Federal banking agency (as defined in section 3 of the
Federal Deposit Insurance Act) under any Federal bank-
ing law, including section 8 of the Federal Deposit Insur-
ance Act.
(c) 
HART-SCOTT-RODINO
AMENDMENT.—Section
7A(c)(7) of the Clayton Act (15 U.S.C. 18a(c)) is amend-
ed by inserting before the semicolon at the end the follow-
ing: ‘‘, except that a portion of a transaction is not exempt
under this paragraph if such portion of the transaction
(A) requires notice under section 4 of the Bank Holding
Company Act of 1956; and (B) does not require approval
under section 3 or 4 of the Bank Holding Company Act
of 1956’’.
SEC. 134. ANNUAL GAO REPORT.
(a) IN GENERAL.—By the end of the 1-year period
beginning on the date of the enactment of this Act and
annually thereafter, the Comptroller General of the United
States shall submit a report to the Congress on market
concentration in the financial services industry and its im-
pact on consumers.
(b) ANALYSIS.—Each report submitted under sub-
section (a) shall contain an analysis of—
(1) the positive and negative effects of affili-
ations between various types of financial companies,
and of acquisitions pursuant to this Act and the
amendments made by this Act to other provisions of
law, including any positive or negative effects on
consumers, area markets, and submarkets thereof or
on registered securities brokers and dealers which
have been purchased by depository institutions or
depository institution holding companies;
(2) the changes in business practices and the
effects of any such changes on the availability of
venture capital, consumer credit, and other financial
services or products and the availability of capital
and credit for small businesses; and
(3) the acquisition patterns among depository
institutions, depository institution holding compa-
nies, securities firms, and insurance companies in-
cluding acquisitions among the largest 20 percent of
firms and acquisitions within regions or other lim-
ited geographical areas.
Subtitle E—Direct Activities of
Banks
SEC. 141. AUTHORITY OF NATIONAL BANKS TO UNDER-
WRITE CERTAIN MUNICIPAL BONDS.
The paragraph designated the Seventh of section
5136 of the Revised Statutes of the United States (12
U.S.C. 24(7)) is amended by adding at the end the follow-
ing new sentence: ‘‘In addition to the provisions in this
paragraph for dealing in, underwriting or purchasing secu-
rities, the limitations and restrictions contained in this
paragraph as to dealing in, underwriting, and purchasing
investment securities for the national bank’s own account
shall not apply to obligations (including limited obligation
bonds, revenue bonds, and obligations that satisfy the re-
quirements of section 142(b)(1) of the Internal Revenue
Code of 1986) issued by or on behalf of any state or politi-
cal subdivision of a state, including any municipal cor-
porate instrumentality of 1 or more states, or any public
agency or authority of any state or political subdivision
of a state, if the national banking association is well cap-
italized (as defined in section 38 of the Federal Deposit
Insurance Act).’’.
TITLE II—FUNCTIONAL
REGULATION
Subtitle A—Brokers and Dealers
SEC. 201. DEFINITION OF BROKER.
Section 3(a)(4) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(4)) is amended to read as follows:
‘‘(4) BROKER.—
‘‘(A) IN
GENERAL.—The term ‘broker’
means any person engaged in the business of
effecting transactions in securities for the ac-
count of others.
‘‘(B) EXCEPTION FOR CERTAIN BANK AC-
TIVITIES.—A bank shall not be considered to be
a broker because the bank engages in any of
the following activities under the conditions de-
scribed:
‘‘(i) THIRD
PARTY
BROKERAGE
AR-
RANGEMENTS.—The bank enters into a
contractual or other arrangement with a
broker or dealer registered under this title
under which the broker or dealer offers
brokerage services on or off the premises
of the bank if—
‘‘(I) such broker or dealer is
clearly identified as the person per-
forming the brokerage services;
‘‘(II) the broker or dealer per-
forms brokerage services in an area
that is clearly marked and, to the ex-
tent practicable, physically separate
from the routine deposit-taking activi-
ties of the bank;
‘‘(III) any materials used by the
bank to advertise or promote generally
the availability of brokerage services
under the contractual or other ar-
rangement clearly indicate that the
brokerage services are being provided
by the broker or dealer and not by the
bank;
‘‘(IV) any materials used by the
bank to advertise or promote generally
the availability of brokerage services
under the contractual or other ar-
rangement are in compliance with the
Federal securities laws before dis-
tribution;
‘‘(V) bank employees (other than
associated persons of a broker or deal-
er who are qualified pursuant to the
rules of a self-regulatory organization)
perform only clerical or ministerial
functions in connection with broker-
age transactions including scheduling
appointments with the associated per-
sons of a broker or dealer, except that
bank employees may forward cus-
tomer funds or securities and may de-
scribe in general terms the range of
investment vehicles available from the
bank and the broker or dealer under
the contractual or other arrangement;
‘‘(VI) bank employees do not di-
rectly receive incentive compensation
for any brokerage transaction unless
such employees are associated persons
of a broker or dealer and are qualified
pursuant to the rules of a self-regu-
latory organization, except that the
bank employees may receive com-
pensation for the referral of any cus-
tomer if the compensation is a nomi-
nal one-time cash fee of a fixed dollar
amount and the payment of the fee is
not contingent on whether the referral
results in a transaction;
‘‘(VII) such services are provided
by the broker or dealer on a basis in
which all customers which receive any
services are fully disclosed to the
broker or dealer;
‘‘(VIII) the bank does not carry
a securities account of the customer
except in a customary custodian or
trustee capacity; and
‘‘(IX) the bank, broker, or dealer
informs each customer that the bro-
kerage services are provided by the
broker or dealer and not by the bank
and that the securities are not depos-
its or other obligations of the bank,
are not guaranteed by the bank, and
are not insured by the Federal De-
posit Insurance Corporation.
‘‘(ii) TRUST
ACTIVITIES.—The bank
effects transactions in a trustee capacity,
or effects transactions in a fiduciary capac-
ity in its trust department or other depart-
ment that is regularly examined by bank
examiners for compliance with fiduciary
principles and standards, and (in either
case)—
‘‘(I) is primarily compensated for
such transactions on the basis of an
administration or annual fee (payable
on a monthly, quarterly, or other
basis), a percentage of assets under
management, or a flat or capped per
order processing fee equal to not more
than the cost incurred by the bank in
connection with executing securities
transactions for trustee and fiduciary
customers, or any combination of such
fees, consistent with fiduciary prin-
ciples and standards; and
‘‘(II) does not publicly solicit bro-
kerage business, other than by adver-
tising that it effects transactions in
securities in conjunction with advertis-
ing its other trust activities.
‘‘(iii) 
PERMISSIBLE
SECURITIES
TRANSACTIONS.—The bank effects trans-
actions in—
‘‘(I) commercial paper, bankers
acceptances, or commercial bills;
‘‘(II) exempted securities;
‘‘(III) qualified Canadian govern-
ment obligations as defined in section
5136 of the Revised Statutes, in con-
formity with section 15C of this title
and the rules and regulations there-
under, or obligations of the North
American Development Bank; or
‘‘(IV) any standardized, credit
enhanced debt security issued by a
foreign government pursuant to the
March 1989 plan of then Secretary of
the Treasury Brady, used by such for-
eign government to retire outstanding
commercial bank loans.
‘‘(iv) 
CERTAIN
STOCK
PURCHASE
PLANS.—
‘‘(I) 
EMPLOYEE
BENEFIT
PLANS.—The 
bank 
effects 
trans-
actions, as part of its transfer agency
activities, in the securities of an issuer
as part of any pension, retirement,
profit-sharing, bonus, thrift, savings,
incentive, or other similar benefit plan
for the employees of that issuer or its
subsidiaries, if—
‘‘(aa) the bank does not so-
licit transactions or provide in-
vestment advice with respect to
the purchase or sale of securities
in connection with the plan; and
‘‘(bb) the bank’s compensa-
tion for such plan or program
consists primarily of administra-
tion fees, or flat or capped per
order processing fees, or both.
‘‘(II) DIVIDEND
REINVESTMENT
PLANS.—The 
bank 
effects 
trans-
actions, as part of its transfer agency
activities, in the securities of an issuer
as part of that issuer’s dividend rein-
vestment plan, if—
‘‘(aa) the bank does not so-
licit transactions or provide in-
vestment advice with respect to
the purchase or sale of securities
in connection with the plan;
‘‘(bb) the bank does not net
shareholders’ buy and sell orders,
other than for programs for odd-
lot holders or plans registered
with the Commission; and
‘‘(cc) the bank’s compensa-
tion for such plan or program
consists primarily of administra-
tion fees, or flat or capped per
order processing fees, or both.
‘‘(III) ISSUER PLANS.—The bank
effects transactions, as part of its
transfer agency activities, in the secu-
rities of an issuer as part of a plan or
program for the purchase or sale of
that issuer’s shares, if—
‘‘(aa) the bank does not so-
licit transactions or provide in-
vestment advice with respect to
the purchase or sale of securities
in connection with the plan or
program;
‘‘(bb) the bank does not net
shareholders’ buy and sell orders,
other than for programs for odd-
lot holders or plans registered
with the Commission; and
‘‘(cc) the bank’s compensa-
tion for such plan or program
consists primarily of administra-
tion fees, or flat or capped per
order processing fees, or both.
‘‘(IV) PERMISSIBLE
DELIVERY
OF
MATERIALS.—The exception to
being considered a broker for a bank
engaged in activities described in sub-
clauses (I), (II), and (III) will not be
affected by a bank’s delivery of writ-
ten or electronic plan materials to em-
ployees of the issuer, shareholders of
the issuer, or members of affinity
groups of the issuer, so long as such
materials are—
‘‘(aa) comparable in scope or
nature to that permitted by the
Commission as of the date of the
enactment of the Financial Serv-
ices Modernization Act of 1999;
or
‘‘(bb) otherwise permitted by
the Commission.
‘‘(v) SWEEP
ACCOUNTS.—The bank
effects transactions as part of a program
for the investment or reinvestment of bank
deposit funds into any no-load, open-end
management investment company reg-
istered under the Investment Company Act
of 1940 that holds itself out as a money
market fund.
‘‘(vi) 
AFFILIATE
TRANSACTIONS.—
The bank effects transactions for the ac-
count of any affiliate of the bank (as de-
fined in section 2 of the Bank Holding
Company Act of 1956) other than—
‘‘(I) a registered broker or deal-
er; or
‘‘(II) an affiliate that is engaged
in merchant banking, as described in
section 6(c)(3)(H) of the Bank Hold-
ing Company Act of 1956.
‘‘(vii) PRIVATE
SECURITIES
OFFER-
INGS.—The bank—
‘‘(I) effects sales as part of a pri-
mary offering of securities not involv-
ing a public offering, pursuant to sec-
tion 3(b), 4(2), or 4(6) of the Securi-
ties Act of 1933 or the rules and reg-
ulations issued thereunder;
‘‘(II) at any time after the date
that is 1 year after the date of enact-
ment of the Financial Services Mod-
ernization Act of 1999, is not affili-
ated with a broker or dealer that has
been registered for more than 1 year
in accordance with this Act, and en-
gages in dealing, market making, or
underwriting activities, other than
with respect to exempted securities;
and
‘‘(III) effects transactions exclu-
sively with qualified investors.
‘‘(viii) SAFEKEEPING
AND
CUSTODY
ACTIVITIES.—
‘‘(I) IN GENERAL.—The bank, as
part of customary banking activities—
‘‘(aa) provides safekeeping
or custody services with respect
to securities, including the exer-
cise of warrants and other rights
on behalf of customers;
‘‘(bb) facilitates the transfer
of funds or securities, as a custo-
dian or a clearing agency, in con-
nection with the clearance and
settlement 
of 
its 
customers’
transactions in securities;
‘‘(cc) effects securities lend-
ing or borrowing transactions
with or on behalf of customers as
part of services provided to cus-
tomers pursuant to division (aa)
or (bb) or invests cash collateral
pledged in connection with such
transactions; or
‘‘(dd) 
holds 
securities
pledged by a customer to another
person or securities subject to
purchase or resale agreements in-
volving a customer, or facilitates
the pledging or transfer of such
securities by book entry or as
otherwise provided under applica-
ble law.
‘‘(II) EXCEPTION FOR CARRYING
BROKER
ACTIVITIES.—The exception
to being considered a broker for a
bank engaged in activities described in
subclause (I) shall not apply if the
bank, in connection with such activi-
ties, acts in the United States as a
carrying broker (as such term, and
different formulations thereof, are
used in section 15(c)(3) and the rules
and regulations thereunder) for any
broker or dealer, unless such carrying
broker activities are engaged in with
respect to government securities (as
defined in paragraph (42) of this sub-
section).
‘‘(ix) BANKING PRODUCTS.—The bank
effects transactions in traditional banking
products, as defined in section 205(a) of
the Financial Services Modernization Act
of 1999.
‘‘(x) DE
MINIMIS
EXCEPTION.—The
bank effects, other than in transactions re-
ferred to in clauses (i) through (ix), not
more than 500 transactions in securities in
any calendar year, and such transactions
are not effected by an employee of the
bank who is also an employee of a broker
or dealer.
‘‘(C) BROKER DEALER EXECUTION.—The
exception to being considered a broker for a
bank engaged in activities described in clauses
(ii), (iv), and (viii) of subparagraph (B) shall
not apply if the activities described in such pro-
visions result in the trade in the United States
of any security that is a publicly traded security
in the United States, unless—
‘‘(i) the bank directs such trade to a
registered broker or dealer for execution;
‘‘(ii) the trade is a cross trade or
other substantially similar trade of a secu-
rity that—
‘‘(I) is made by the bank or be-
tween the bank and an affiliated fidu-
ciary; and
‘‘(II) is not in contravention of
fiduciary principles established under
applicable Federal or State law; or
‘‘(iii) the trade is conducted in some
other manner permitted under rules, regu-
lations, or orders as the Commission may
prescribe or issue.
‘‘(D) NO EFFECT OF BANK EXEMPTIONS
ON OTHER COMMISSION AUTHORITY.—The ex-
ception to being considered a broker for a bank
engaged in activities described in subpara-
graphs (B) and (C) shall not affect the author-
ity of the Commission under any other provi-
sion of this Act or any other securities law.
‘‘(E) FIDUCIARY CAPACITY.—For purposes
of subparagraph (B)(ii), the term ‘fiduciary ca-
pacity’ means—
‘‘(i) in the capacity as trustee, execu-
tor, administrator, registrar of stocks and
bonds, transfer agent, guardian, assignee,
receiver, or custodian under a uniform gift
to minor act, or as an investment adviser
if the bank receives a fee for its investment
advice;
‘‘(ii) in any capacity in which the
bank possesses investment discretion on
behalf of another; or
‘‘(iii) in any other similar capacity.
‘‘(F) EXCEPTION FOR ENTITIES SUBJECT
TO SECTION 15(e).—The term ‘broker’ does not
include a bank that—
‘‘(i) was, immediately prior to the en-
actment of the Financial Services Mod-
ernization Act of 1999, subject to section
15(e); and
‘‘(ii) is subject to such restrictions
and requirements as the Commission con-
siders appropriate.’’.
SEC. 202. DEFINITION OF DEALER.
Section 3(a)(5) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(5)) is amended to read as follows:
‘‘(5) DEALER.—
‘‘(A) IN
GENERAL.—The term ‘dealer’
means any person engaged in the business of
buying and selling securities for such person’s
own account through a broker or otherwise.
‘‘(B) EXCEPTION
FOR
PERSON
NOT
EN-
GAGED IN THE BUSINESS OF DEALING.—The
term ‘dealer’ does not include a person that
buys or sells securities for such person’s own
account, either individually or in a fiduciary ca-
pacity, but not as a part of a regular business.
‘‘(C) EXCEPTION FOR CERTAIN BANK AC-
TIVITIES.—A bank shall not be considered to be
a dealer because the bank engages in any of the
following activities under the conditions de-
scribed:
‘‘(i) PERMISSIBLE SECURITIES TRANS-
ACTIONS.—The bank buys or sells—
‘‘(I) commercial paper, bankers
acceptances, or commercial bills;
‘‘(II) exempted securities;
‘‘(III) qualified Canadian govern-
ment obligations as defined in section
5136 of the Revised Statutes of the
United States, in conformity with sec-
tion 15C of this title and the rules
and regulations thereunder, or obliga-
tions of the North American Develop-
ment Bank; or
‘‘(IV) any standardized, credit
enhanced debt security issued by a
foreign government pursuant to the
March 1989 plan of then Secretary of
the Treasury Brady, used by such for-
eign government to retire outstanding
commercial bank loans.
‘‘(ii) INVESTMENT, TRUSTEE, AND FI-
DUCIARY TRANSACTIONS.—The bank buys
or 
sells 
securities 
for 
investment
purposes—
‘‘(I) for the bank; or
‘‘(II) for accounts for which the
bank acts as a trustee or fiduciary.
‘‘(iii) 
ASSET-BACKED
TRANS-
ACTIONS.—The 
bank 
engages 
in 
the
issuance or sale to qualified investors,
through a grantor trust or otherwise, of se-
curities backed by or representing an inter-
est in notes, drafts, acceptances, loans,
leases, receivables, other obligations, or
pools of any such obligations predomi-
nantly originated by the bank, or a syn-
dicate of banks of which the bank is a
member, or an affiliate of any such bank
other than a broker or dealer.
‘‘(iv) BANKING PRODUCTS.—The bank
buys or sells traditional banking products,
as defined in section 205(a) of the Finan-
cial Services Modernization Act of 1999.
‘‘(v) DERIVATIVE
INSTRUMENTS.—
The bank issues, buys, or sells any deriva-
tive instrument to which the bank is a
party—
‘‘(I) to or from a qualified inves-
tor, except that if the instrument pro-
vides for the delivery of one or more
securities (other than a derivative in-
strument or government security), the
transaction shall be effected with or
through a registered broker or dealer;
‘‘(II) to or from other persons,
except that if the derivative instru-
ment provides for the delivery of one
or more securities (other than a deriv-
ative instrument or government secu-
rity), or is a security (other than a
government security), the transaction
shall be effected with or through a
registered broker or dealer; or
‘‘(III) to or from any person if
the instrument is neither a security
nor provides for the delivery of one or
more securities (other than a deriva-
tive instrument).’’.
SEC. 203. REGISTRATION FOR SALES OF PRIVATE SECURI-
TIES OFFERINGS.
Section 15A of the Securities Exchange Act of 1934
(15 U.S.C. 78o–3) is amended by inserting after sub-
section (i) the following new subsection:
‘‘(j) REGISTRATION FOR SALES OF PRIVATE SECURI-
TIES OFFERINGS.—A registered securities association
shall create a limited qualification category for any associ-
ated person of a member who effects sales as part of a
primary offering of securities not involving a public offer-
ing, pursuant to section 3(b), 4(2), or 4(6) of the Securi-
ties Act of 1933 and the rules and regulations thereunder,
and shall deem qualified in such limited qualification cat-
egory, without testing, any bank employee who, in the six
month period preceding the date of enactment of this Act,
engaged in effecting such sales.’’.
SEC. 204. INFORMATION SHARING.
Section 18 of the Federal Deposit Insurance Act is
amended by adding at the end the following new sub-
section:
‘‘(t) RECORDKEEPING REQUIREMENTS.—
‘‘(1) REQUIREMENTS.—Each appropriate Fed-
eral banking agency, after consultation with and
consideration of the views of the Commission, shall
establish recordkeeping requirements for banks rely-
ing on exceptions contained in paragraphs (4) and
(5) of section 3(a) of the Securities Exchange Act of
1934. Such recordkeeping requirements shall be suf-
ficient to demonstrate compliance with the terms of
such exceptions and be designed to facilitate compli-
ance with such exceptions. Each appropriate Federal
banking agency shall make any such information
available to the Commission upon request.
‘‘(2) DEFINITIONS.—As used in this subsection
the term ‘Commission’ means the Securities and Ex-
change Commission.’’.
SEC. 205. DEFINITION AND TREATMENT OF BANKING PROD-
UCTS.
(a) DEFINITION OF TRADITIONAL BANKING PROD-
UCT.—For purposes of paragraphs (4) and (5) of section
3(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a) (4), (5)), the term ‘‘traditional banking product’’
means—
(1) a deposit account, savings account, certifi-
cate of deposit, or other deposit instrument issued
by a bank;
(2) a banker’s acceptance;
(3) a letter of credit issued or loan made by a
bank;
(4) a debit account at a bank arising from a
credit card or similar arrangement;
(5) a participation in a loan which the bank or
an affiliate of the bank (other than a broker or deal-
er) funds, participates in, or owns that is sold—
(A) to qualified investors; or
(B) to other persons that—
(i) have the opportunity to review and
assess any material information, including
information regarding the borrower’s cred-
itworthiness; and
(ii) based on such factors as financial
sophistication, net worth, and knowledge
and experience in financial matters, have
the capability to evaluate the information
available, as determined under generally
applicable banking standards or guidelines;
and
(6) any derivative instrument, whether or not
individually negotiated, involving or relating to—
(A) foreign currencies, except options on
foreign currencies that trade on a national se-
curities exchange;
(B) interest rates, except interest rate de-
rivative instruments that—
(i) are based on a security or a group
or index of securities (other than govern-
ment securities or a group or index of gov-
ernment securities);
(ii) provide for the delivery of one or
more securities (other than government se-
curities); or
(iii) trade on a national securities ex-
change; or
(C) commodities, other rates, indices, or
other assets, except derivative instruments
that—
(i) are securities or that are based on
a group or index of securities (other than
government securities or a group or index
of government securities);
(ii) provide for the delivery of one or
more securities (other than government se-
curities); or
(iii) trade on a national securities ex-
change.
(b) AMENDMENT TO THE SECURITIES EXCHANGE
ACT OF 1934.—Section 15 of the Securities Exchange Act
of 1934 (15 U.S.C. 78o) is amended by adding at the end
the following new subsection:
‘‘(i) TRANSACTIONS
INVOLVING
HYBRID
PROD-
UCTS.—
‘‘(1) COMMISSION AUTHORITY.—
‘‘(A) IN GENERAL.—The Commission may,
after consultation with the Board, determine,
by regulation published in the Federal Register,
that a bank that effects transactions in, or buys
or sells, a new product should be subject to the
registration requirements of this section.
‘‘(B) LIMITATION.—The Commission may
not impose the registration requirements of this
section on any bank that effects transactions in,
or buys or sells, a product under this subsection
unless the Commission determines in the regu-
lations described in subparagraph (A) that—
‘‘(i) the subject product is a new prod-
uct;
‘‘(ii) the subject product is a security;
and
‘‘(iii) imposing the registration re-
quirements of this section is necessary or
appropriate in the public interest and for
the protection of investors.
‘‘(2) OBJECTION
TO
COMMISSION
REGULA-
TION.—
‘‘(A) FILING OF PETITION FOR REVIEW.—
The Board, or any aggrieved party, may obtain
review of any final regulation described in para-
graph (1) in the United States Court of Ap-
peals for the District of Columbia Circuit by fil-
ing in such court, not later than 60 days after
the date of publication of the final regulation,
a written petition requesting that the regulation
be set aside.
‘‘(B) TRANSMITTAL
OF
PETITION
AND
RECORD.—A copy of a petition described in
subparagraph (A) shall be transmitted as soon
as possible by the Clerk of the Court to an offi-
cer or employee of the Commission designated
for that purpose. Upon receipt of the petition,
the Commission shall file with the court the
regulation under review and any documents re-
ferred to therein, and any other relevant mate-
rials prescribed by the court.
‘‘(C) EXCLUSIVE JURISDICTION.—On the
date of the filing of the petition under subpara-
graph (A), the court has jurisdiction, which be-
comes exclusive on the filing of the materials
set forth in subparagraph (B), to affirm and
enforce or to set aside the regulation at issue.
‘‘(D) STANDARD OF REVIEW.—
‘‘(i) IN
GENERAL.—The court shall
determine to affirm and enforce or set
aside a regulation of the Commission
under this subsection, based on the deter-
mination of the court as to whether the
subject product—
‘‘(I) is a new product, as defined
in this subsection;
‘‘(II) is a security; and
‘‘(III) would be more appro-
priately regulated under the Federal
securities laws or the Federal banking
laws, giving equal deference to the
views of the Commission and the
Board.
‘‘(ii) CONSIDERATIONS.—In making a
determination under clause (i)(III), the
court shall consider—
‘‘(I) the nature of the subject
new product;
‘‘(II) the history, purpose, extent,
and appropriateness of the regulation
100
of the new product under the Federal
securities laws; and
‘‘(III) the history, purpose, ex-
tent, and appropriateness of the regu-
lation of the new product under the
Federal banking laws.
‘‘(E) JUDICIAL STAY.—The filing of a peti-
tion by the Board or an aggrieved party pursu-
ant to subparagraph (A) shall operate as a judi-
cial stay, until the date on which the court
makes a final determination under this para-
graph, of—
‘‘(i) any Commission requirement that
a bank register as a broker or dealer under
this section, because the bank engages in
any transaction in, or buys or sells, the
new product that is the subject of the peti-
tion; and
‘‘(ii) any Commission action against a
bank for a failure to comply with a re-
quirement described in clause (i).
‘‘(3) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) the term ‘Board’ means the Board of
Governors of the Federal Reserve System; and
101
‘‘(B) the term ‘new product’ means a prod-
uct or instrument offered or provided by a bank
that—
‘‘(i) was not subject to regulation by
the Commission as a security under this
Act before the date of enactment of this
subsection; and
‘‘(ii) is not a traditional banking prod-
uct, as defined in paragraphs (1) through
(6) of section 205(a) of the Financial Serv-
ices Modernization Act of 1999.’’.
(c) CLASSIFICATION LIMITED.—Classification of a
particular product or instrument as a traditional banking
product pursuant to this section or the amendments made
by this section shall not be construed as finding or imply-
ing that such product or instrument is or is not a security
for any purpose under the securities laws, or is or is not
an account, agreement, contract, or transaction for any
purpose under the Commodity Exchange Act.
(d) NO LIMITATION
ON OTHER AUTHORITY TO
CHALLENGE.—Nothing in this section or the amendments
made by this section shall affect the right or authority
of the Board of Governors of the Federal Reserve System,
any appropriate Federal banking agency, or any interested
party under any other provision of law to object to or seek
102
judicial review as to whether a product or instrument is
or is not appropriately classified as a traditional banking
product under paragraphs (1) through (6) of section
205(a).
(e) INCORPORATED DEFINITIONS.—For purposes of
this section—
(1) the term ‘‘appropriate Federal banking
agency’’ has the same meaning as in section 3 of the
Federal Deposit Insurance Act;
(2) the term ‘‘bank’’ has the same meaning as
in section 3(a)(6) of the Securities Exchange Act of
1934;
(3) the term ‘‘Board’’ means the Board of Gov-
ernors of the Federal Reserve System;
(4) the term ‘‘government securities’’ has the
same meaning as in section 3(a)(42) of the Securi-
ties Exchange Act of 1934, and, for purposes of this
subsection, commercial paper, bankers acceptances,
and commercial bills shall be treated in the same
manner as government securities; and
(5) the term ‘‘qualified investor’’ has the same
meaning as in section 3(a)(55) of the Securities Ex-
change Act of 1934, as amended by this Act.
103
SEC. 206. DERIVATIVE INSTRUMENT AND QUALIFIED IN-
VESTOR DEFINED.
Section 3(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)) is amended by adding at the end the
following new paragraphs:
‘‘(54) DERIVATIVE INSTRUMENT.—
‘‘(A) DEFINITION.—The term ‘derivative
instrument’ means any individually negotiated
contract, agreement, warrant, note, or option
that is based, in whole or in part, on the value
of, any interest in, or any quantitative measure
or the occurrence of any event relating to, one
or more commodities, securities, currencies, in-
terest or other rates, indices, or other assets,
but does not include a traditional banking prod-
uct, as defined in section 205(a) of the Finan-
cial Services Modernization Act of 1999.
‘‘(B) CLASSIFICATION
LIMITED.—Classi-
fication of a particular contract as a derivative
instrument pursuant to this paragraph shall not
be construed as finding or implying that such
instrument is or is not a security for any pur-
pose under the securities laws, or is or is not
an account, agreement, contract, or transaction
for any purpose under the Commodity Ex-
change Act.
104
‘‘(55) QUALIFIED INVESTOR.—
‘‘(A) DEFINITION.—For purposes of this
title, the term ‘qualified investor’ means—
‘‘(i) any investment company reg-
istered with the Commission under section
8 of the Investment Company Act of 1940;
‘‘(ii) any issuer eligible for an exclu-
sion from the definition of investment com-
pany pursuant to section 3(c)(7) of the In-
vestment Company Act of 1940;
‘‘(iii) any bank (as defined in para-
graph (6) of this subsection), savings asso-
ciation (as defined in section 3(b) of the
Federal Deposit Insurance Act), broker,
dealer, insurance company (as defined in
section 2(a)(13) of the Securities Act of
1933), or business development company
(as defined in section 2(a)(48) of the In-
vestment Company Act of 1940);
‘‘(iv) any small business investment
company licensed by the United States
Small Business Administration under sec-
tion 301 (c) or (d) of the Small Business
Investment Act of 1958;
105
‘‘(v) any State sponsored employee
benefit plan, or any other employee benefit
plan, within the meaning of the Employee
Retirement Income Security Act of 1974,
other than an individual retirement ac-
count, if the investment decisions are made
by a plan fiduciary, as defined in section
3(21) of that Act, which is either a bank,
savings and loan association, insurance
company, or registered investment adviser;
‘‘(vi) any trust whose purchases of se-
curities are directed by a person described
in clauses (i) through (v) of this subpara-
graph;
‘‘(vii) any market intermediary ex-
empt under section 3(c)(2) of the Invest-
ment Company Act of 1940;
‘‘(viii) any associated person of a
broker or dealer other than a natural per-
son;
‘‘(ix) any foreign bank (as defined in
section 1(b)(7) of the International Bank-
ing Act of 1978);
‘‘(x) the government of any foreign
country;
106
‘‘(xi) any corporation, company, or
partnership that owns and invests on a dis-
cretionary basis, not less than $10,000,000
in investments;
‘‘(xii) any natural person who owns
and invests on a discretionary basis, not
less than $10,000,000 in investments;
‘‘(xiii) any government or political
subdivision, agency, or instrumentality of a
government who owns and invests on a dis-
cretionary basis not less than $50,000,000
in investments; or
‘‘(xiv) any multinational or supra-
national entity or any agency or instru-
mentality thereof.
‘‘(B) ADDITIONAL AUTHORITY.—The Com-
mission may, by rule or order, define a ‘quali-
fied investor’ as any other person, taking into
consideration such factors as the financial so-
phistication of the person, net worth, and
knowledge and experience in financial mat-
ters.’’.
SEC. 207. GOVERNMENT SECURITIES DEFINED.
Section 3(a)(42) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(42)) is amended—
107
(1) by striking ‘‘or’’ at the end of subparagraph
(C);
(2) by striking the period at the end of sub-
paragraph (D) and inserting ‘‘; or’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(E) for purposes of section 15C as ap-
plied to a bank, a qualified Canadian govern-
ment obligation as defined in section 5136 of
the Revised Statutes.’’.
SEC. 208. EFFECTIVE DATE.
This subtitle shall take effect at the end of the 270-
day period beginning on the date of the enactment of this
Act.
SEC. 209. RULE OF CONSTRUCTION.
Nothing in this Act shall supersede, affect, or other-
wise limit the scope and applicability of the Commodity
Exchange Act (7 U.S.C. 1 et seq.).
Subtitle B—Bank Investment
Company Activities
SEC. 211. CUSTODY OF INVESTMENT COMPANY ASSETS BY
AFFILIATED BANK.
(a) MANAGEMENT COMPANIES.—Section 17(f) of the
Investment Company Act of 1940 (15 U.S.C. 80a–17(f))
is amended—
108
(1) by redesignating paragraphs (1), (2), and
(3) as subparagraphs (A), (B), and (C), respectively;
(2) by striking ‘‘(f) Every registered’’ and in-
serting the following:
‘‘(f) CUSTODY OF SECURITIES.—
‘‘(1) Every registered’’;
(3) by redesignating the second, third, fourth,
and fifth sentences of such subsection as paragraphs
(2) through (5), respectively, and indenting the left
margin of such paragraphs appropriately; and
(4) by adding at the end the following new
paragraph:
‘‘(6) SERVICES AS TRUSTEE OR CUSTODIAN.—
The Commission may adopt rules and regulations,
and issue orders, consistent with the protection of
investors, prescribing the conditions under which a
bank, or an affiliated person of a bank, either of
which is an affiliated person, promoter, organizer, or
sponsor of, or principal underwriter for, a registered
management company may serve as custodian of
that registered management company.’’.
(b) UNIT INVESTMENT TRUSTS.—Section 26 of the
Investment Company Act of 1940 (15 U.S.C. 80a–26) is
amended—
109
(1) by redesignating subsections (b) through (e)
as subsections (c) through (f), respectively; and
(2) by inserting after subsection (a) the follow-
ing new subsection:
‘‘(b) The Commission may adopt rules and regula-
tions, and issue orders, consistent with the protection of
investors, prescribing the conditions under which a bank,
or an affiliated person of a bank, either of which is an
affiliated person of a principal underwriter for, or deposi-
tor of, a registered unit investment trust, may serve as
trustee or custodian under subsection (a)(1).’’.
(c) FIDUCIARY DUTY OF CUSTODIAN.—Section 36(a)
of the Investment Company Act of 1940 (15 U.S.C. 80a–
35(a)) is amended—
(1) in paragraph (1), by striking ‘‘or’’ at the
end;
(2) in paragraph (2), by striking the period at
the end and inserting ‘‘; or’’; and
(3) by inserting after paragraph (2) the follow-
ing:
‘‘(3) as custodian.’’.
SEC. 212. LENDING TO AN AFFILIATED INVESTMENT COM-
PANY.
Section 17(a) of the Investment Company Act of
1940 (15 U.S.C. 80a–17(a)) is amended—
110
(1) by striking ‘‘or’’ at the end of paragraph
(2);
(2) by striking the period at the end of para-
graph (3) and inserting ‘‘; or’’; and
(3) by adding at the end the following new
paragraph:
‘‘(4) to loan money or other property to such
registered company, or to any company controlled by
such registered company, in contravention of such
rules, regulations, or orders as the Commission may
prescribe or issue consistent with the protection of
investors.’’.
SEC. 213. INDEPENDENT DIRECTORS.
(a) IN GENERAL.—Section 2(a)(19)(A) of the Invest-
ment Company Act of 1940 (15 U.S.C. 80a–2(a)(19)(A))
is amended—
(1) by striking clause (v) and inserting the fol-
lowing new clause:
‘‘(v) any person or any affiliated per-
son of a person (other than a registered in-
vestment company) that, at any time dur-
ing the 6-month period preceding the date
of the determination of whether that per-
son or affiliated person is an interested
person, has executed any portfolio trans-
111
actions for, engaged in any principal trans-
actions with, or distributed shares for—
‘‘(I) the investment company;
‘‘(II) any other investment com-
pany having the same investment ad-
viser as such investment company or
holding itself out to investors as a re-
lated company for purposes of invest-
ment or investor services; or
‘‘(III) any account over which the
investment company’s investment ad-
viser has brokerage placement discre-
tion,’’;
(2) by redesignating clause (vi) as clause (vii);
and
(3) by inserting after clause (v) the following
new clause:
‘‘(vi) any person or any affiliated per-
son of a person (other than a registered in-
vestment company) that, at any time dur-
ing the 6-month period preceding the date
of the determination of whether that per-
son or affiliated person is an interested
person, has loaned money or other prop-
erty to—
112
‘‘(I) the investment company;
‘‘(II) any other investment com-
pany having the same investment ad-
viser as such investment company or
holding itself out to investors as a re-
lated company for purposes of invest-
ment or investor services; or
‘‘(III) any account for which the
investment company’s investment ad-
viser has borrowing authority,’’.
(b) 
CONFORMING
AMENDMENT.—Section
2(a)(19)(B) of the Investment Company Act of 1940 (15
U.S.C. 80a–2(a)(19)(B)) is amended—
(1) by striking clause (v) and inserting the fol-
lowing new clause:
‘‘(v) any person or any affiliated per-
son of a person (other than a registered in-
vestment company) that, at any time dur-
ing the 6-month period preceding the date
of the determination of whether that per-
son or affiliated person is an interested
person, has executed any portfolio trans-
actions for, engaged in any principal trans-
actions with, or distributed shares for—
113
‘‘(I) any investment company for
which the investment adviser or prin-
cipal underwriter serves as such;
‘‘(II) any investment company
holding itself out to investors, for pur-
poses of investment or investor serv-
ices, as a company related to any in-
vestment company for which the in-
vestment adviser or principal under-
writer serves as such; or
‘‘(III) any account over which the
investment 
adviser 
has 
brokerage
placement discretion,’’;
(2) by redesignating clause (vi) as clause (vii);
and
(3) by inserting after clause (v) the following
new clause:
‘‘(vi) any person or any affiliated per-
son of a person (other than a registered in-
vestment company) that, at any time dur-
ing the 6-month period preceding the date
of the determination of whether that per-
son or affiliated person is an interested
person, has loaned money or other prop-
erty to—
114
‘‘(I) any investment company for
which the investment adviser or prin-
cipal underwriter serves as such;
‘‘(II) any investment company
holding itself out to investors, for pur-
poses of investment or investor serv-
ices, as a company related to any in-
vestment company for which the in-
vestment adviser or principal under-
writer serves as such; or
‘‘(III) any account for which the
investment adviser has borrowing au-
thority,’’.
(c) AFFILIATION OF DIRECTORS.—Section 10(c) of
the Investment Company Act of 1940 (15 U.S.C. 80a–
10(c)) is amended by striking ‘‘bank, except’’ and insert-
ing ‘‘bank (together with its affiliates and subsidiaries) or
any one bank holding company (together with its affiliates
and subsidiaries) (as such terms are defined in section 2
of the Bank Holding Company Act of 1956), except’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall take effect at the end of the 1-year period
beginning on the date of enactment of this subtitle.
115
SEC. 214. ADDITIONAL SEC DISCLOSURE AUTHORITY.
Section 35(a) of the Investment Company Act of
1940 (15 U.S.C. 80a–34(a)) is amended to read as fol-
lows:
‘‘(a) MISREPRESENTATION OF GUARANTEES.—
‘‘(1) IN GENERAL.—It shall be unlawful for any
person, issuing or selling any security of which a
registered investment company is the issuer, to rep-
resent or imply in any manner whatsoever that such
security or company—
‘‘(A) has been guaranteed, sponsored, rec-
ommended, or approved by the United States,
or any agency, instrumentality or officer of the
United States;
‘‘(B) has been insured by the Federal De-
posit Insurance Corporation; or
‘‘(C) is guaranteed by or is otherwise an
obligation of any bank or insured depository in-
stitution.
‘‘(2) DISCLOSURES.—Any person issuing or
selling the securities of a registered investment com-
pany that is advised by, or sold through, a bank
shall prominently disclose that an investment in the
company is not insured by the Federal Deposit In-
surance Corporation or any other government agen-
cy. The Commission may adopt rules and regula-
116
tions, and issue orders, consistent with the protec-
tion of investors, prescribing the manner in which
the disclosure under this paragraph shall be pro-
vided.
‘‘(3) DEFINITIONS.—The terms ‘insured deposi-
tory institution’ and ‘appropriate Federal banking
agency’ have the same meanings as in section 3 of
the Federal Deposit Insurance Act.’’.
SEC. 215. DEFINITION OF BROKER UNDER THE INVEST-
MENT COMPANY ACT OF 1940.
Section 2(a)(6) of the Investment Company Act of
1940 (15 U.S.C. 80a–2(a)(6)) is amended to read as fol-
lows:
‘‘(6) The term ‘broker’ has the same meaning
as in section 3 of the Securities Exchange Act of
1934, except that such term does not include any
person solely by reason of the fact that such person
is an underwriter for one or more investment compa-
nies.’’.
SEC. 216. DEFINITION OF DEALER UNDER THE INVEST-
MENT COMPANY ACT OF 1940.
Section 2(a)(11) of the Investment Company Act of
1940 (15 U.S.C. 80a–2(a)(11)) is amended to read as fol-
lows:
117
‘‘(11) The term ‘dealer’ has the same meaning
as in section 3 of the Securities Exchange Act of
1934, but does not include an insurance company or
investment company.’’.
SEC. 217. REMOVAL OF THE EXCLUSION FROM THE DEFINI-
TION OF INVESTMENT ADVISER FOR BANKS
THAT ADVISE INVESTMENT COMPANIES.
(a) INVESTMENT ADVISER.—Section 202(a)(11) of
the Investment Advisers Act of 1940 (15 U.S.C. 80b–
2(a)(11)) is amended in subparagraph (A), by striking
‘‘investment company’’ and inserting ‘‘investment com-
pany, except that the term ‘investment adviser’ includes
any bank or bank holding company to the extent that such
bank or bank holding company serves or acts as an invest-
ment adviser to a registered investment company, but if,
in the case of a bank, such services or actions are per-
formed through a separately identifiable department or di-
vision, the department or division, and not the bank itself,
shall be deemed to be the investment adviser’’.
(b) SEPARATELY IDENTIFIABLE DEPARTMENT
OR
DIVISION.—Section 202(a) of the Investment Advisers Act
of 1940 (15 U.S.C. 80b–2(a)) is amended by adding at
the end the following:
‘‘(26) The term ‘separately identifiable depart-
ment or division’ of a bank means a unit—
118
‘‘(A) that is under the direct supervision of
an officer or officers designated by the board of
directors of the bank as responsible for the day-
to-day conduct of the bank’s investment adviser
activities for one or more investment companies,
including the supervision of all bank employees
engaged in the performance of such activities;
and
‘‘(B) for which all of the records relating
to its investment adviser activities are sepa-
rately maintained in or extractable from such
unit’s own facilities or the facilities of the bank,
and such records are so maintained or other-
wise accessible as to permit independent exam-
ination and enforcement by the Commission of
this Act or the Investment Company Act of
1940 and rules and regulations promulgated
under this Act or the Investment Company Act
of 1940.’’.
SEC. 218. DEFINITION OF BROKER UNDER THE INVEST-
MENT ADVISERS ACT OF 1940.
Section 202(a)(3) of the Investment Advisers Act of
1940 (15 U.S.C. 80b–2(a)(3)) is amended to read as fol-
lows:
119
‘‘(3) The term ‘broker’ has the same meaning
as in section 3 of the Securities Exchange Act of
1934.’’.
SEC. 219. DEFINITION OF DEALER UNDER THE INVEST-
MENT ADVISERS ACT OF 1940.
Section 202(a)(7) of the Investment Advisers Act of
1940 (15 U.S.C. 80b–2(a)(7)) is amended to read as fol-
lows:
‘‘(7) The term ‘dealer’ has the same meaning as
in section 3 of the Securities Exchange Act of 1934,
but does not include an insurance company or in-
vestment company.’’.
SEC. 220. INTERAGENCY CONSULTATION.
The Investment Advisers Act of 1940 (15 U.S.C.
80b–1 et seq.) is amended by inserting after section 210
the following new section:
‘‘SEC. 210A. CONSULTATION.
‘‘(a) EXAMINATION RESULTS AND OTHER INFORMA-
TION.—
‘‘(1) The appropriate Federal banking agency
shall provide the Commission upon request the re-
sults of any examination, reports, records, or other
information to which such agency may have access
with respect to the investment advisory activities—
‘‘(A) of any—
120
‘‘(i) bank holding company;
‘‘(ii) bank; or
‘‘(iii) separately identifiable depart-
ment or division of a bank, that is reg-
istered under section 203 of this title; and
‘‘(B) in the case of a bank holding com-
pany or bank that has a subsidiary or a sepa-
rately identifiable department or division reg-
istered under that section, of such bank or bank
holding company.
‘‘(2) The Commission shall provide to the ap-
propriate Federal banking agency upon request the
results of any examination, reports, records, or other
information with respect to the investment advisory
activities of any bank holding company, bank, or
separately identifiable department or division of a
bank, any of which is registered under section 203
of this title.
‘‘(b) EFFECT ON OTHER AUTHORITY.—Nothing in
this section shall limit in any respect the authority of the
appropriate Federal banking agency with respect to such
bank holding company, bank, or department or division
under any provision of law.
‘‘(c) DEFINITION.—For purposes of this section, the
term ‘appropriate Federal banking agency’ has the same
121
meaning as in section 3 of the Federal Deposit Insurance
Act.’’.
SEC. 221. TREATMENT OF BANK COMMON TRUST FUNDS.
(a) SECURITIES ACT OF 1933.—Section 3(a)(2) of
the Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is
amended by striking ‘‘or any interest or participation in
any common trust fund or similar fund maintained by a
bank exclusively for the collective investment and reinvest-
ment of assets contributed thereto by such bank in its ca-
pacity as trustee, executor, administrator, or guardian’’
and inserting ‘‘or any interest or participation in any com-
mon trust fund or similar fund that is excluded from the
definition of the term ‘investment company’ under section
3(c)(3) of the Investment Company Act of 1940’’.
(b) SECURITIES EXCHANGE ACT OF 1934.—Section
3(a)(12)(A)(iii) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(12)(A)(iii)) is amended to read as fol-
lows:
‘‘(iii) any interest or participation in any
common trust fund or similar fund that is ex-
cluded from the definition of the term ‘invest-
ment company’ under section 3(c)(3) of the In-
vestment Company Act of 1940;’’.
(c) INVESTMENT COMPANY ACT OF 1940.—Section
3(c)(3) of the Investment Company Act of 1940 (15
122
U.S.C. 80a–3(c)(3)) is amended by inserting before the
period the following: ‘‘, if—
‘‘(A) such fund is employed by the bank
solely as an aid to the administration of trusts,
estates, or other accounts created and main-
tained for a fiduciary purpose;
‘‘(B) except in connection with the ordi-
nary advertising of the bank’s fiduciary serv-
ices, interests in such fund are not—
‘‘(i) advertised; or
‘‘(ii) offered for sale to the general
public; and
‘‘(C) fees and expenses charged by such
fund are not in contravention of fiduciary prin-
ciples established under applicable Federal or
State law’’.
SEC. 222. INVESTMENT ADVISERS PROHIBITED FROM HAV-
ING 
CONTROLLING 
INTEREST 
IN 
REG-
ISTERED INVESTMENT COMPANY.
Section 15 of the Investment Company Act of 1940
(15 U.S.C. 80a–15) is amended by adding at the end the
following new subsection:
‘‘(g) CONTROLLING INTEREST IN INVESTMENT COM-
PANY PROHIBITED.—
123
‘‘(1) IN GENERAL.—If an investment adviser to
a registered investment company, or an affiliated
person of that investment adviser, holds a control-
ling interest in that registered investment company
in a trustee or fiduciary capacity, such person
shall—
‘‘(A) if it holds the shares in a trustee or
fiduciary capacity with respect to any employee
benefit plan subject to the Employee Retire-
ment Income Security Act of 1974, transfer the
power to vote the shares of the investment com-
pany through to another person acting in a fi-
duciary capacity with respect to the plan who is
not an affiliated person of that investment ad-
viser or any affiliated person thereof; or
‘‘(B) if it holds the shares in a trustee or
fiduciary capacity with respect to any person or
entity other than an employee benefit plan sub-
ject to the Employee Retirement Income Secu-
rity Act of 1974—
‘‘(i) transfer the power to vote the
shares of the investment company through
to—
‘‘(I) the beneficial owners of the
shares;
124
‘‘(II) another person acting in a
fiduciary capacity who is not an affili-
ated person of that investment adviser
or any affiliated person thereof; or
‘‘(III) any person authorized to
receive statements and information
with respect to the trust who is not an
affiliated person of that investment
adviser or any affiliated person there-
of;
‘‘(ii) vote the shares of the investment
company held by it in the same proportion
as shares held by all other shareholders of
the investment company; or
‘‘(iii) vote the shares of the invest-
ment company as otherwise permitted
under such rules, regulations, or orders as
the Commission may prescribe or issue
consistent with the protection of investors.
‘‘(2) EXEMPTION.—Paragraph (1) shall not
apply to any investment adviser to a registered in-
vestment company, or any affiliated person of that
investment adviser, that holds shares of the invest-
ment company in a trustee or fiduciary capacity if
125
that registered investment company consists solely of
assets held in such capacities.
‘‘(3) SAFE HARBOR.—No investment adviser to
a registered investment company or any affiliated
person of such investment adviser shall be deemed to
have acted unlawfully or to have breached a fidu-
ciary duty under State or Federal law solely by rea-
son of acting in accordance with clause (i), (ii), or
(iii) of paragraph (1)(B).’’.
SEC. 223. CONFORMING CHANGE IN DEFINITION.
Section 2(a)(5) of the Investment Company Act of
1940 (15 U.S.C. 80a–2(a)(5)) is amended by striking
‘‘(A) a banking institution organized under the laws of the
United States’’ and inserting ‘‘(A) a depository institution
(as defined in section 3 of the Federal Deposit Insurance
Act) or a branch or agency of a foreign bank (as such
terms are defined in section 1(b) of the International
Banking Act of 1978)’’.
SEC. 224. CONFORMING AMENDMENT.
Section 202 of the Investment Advisers Act of 1940
(15 U.S.C. 80b–2) is amended by adding at the end the
following new subsection:
‘‘(c) CONSIDERATION
OF
PROMOTION
OF
EFFI-
CIENCY, COMPETITION, AND
CAPITAL
FORMATION.—
Whenever pursuant to this title the Commission is en-
126
gaged in rulemaking and is required to consider or deter-
mine whether an action is necessary or appropriate in the
public interest, the Commission shall also consider, in ad-
dition to the protection of investors, whether the action
will promote efficiency, competition, and capital forma-
tion.’’.
SEC. 225. EFFECTIVE DATE.
This subtitle shall take effect 90 days after the date
of the enactment of this Act.
Subtitle 
C—Securities 
and 
Ex-
change Commission Supervision
of 
Investment 
Bank 
Holding
Companies
SEC. 231. SUPERVISION OF INVESTMENT BANK HOLDING
COMPANIES BY THE SECURITIES AND EX-
CHANGE COMMISSION.
(a) AMENDMENT.—Section 17 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78q) is amended—
(1) by redesignating subsection (i) as subsection
(k); and
(2) by inserting after subsection (h) the follow-
ing new subsections:
‘‘(i) INVESTMENT BANK HOLDING COMPANIES.—
127
‘‘(1) ELECTIVE
SUPERVISION
OF
AN
INVEST-
MENT
BANK
HOLDING
COMPANY
NOT
HAVING
A
BANK OR SAVINGS ASSOCIATION AFFILIATE.—
‘‘(A) IN GENERAL.—An investment bank
holding company that is not—
‘‘(i) an affiliate of an insured bank
(other than an institution described in sub-
paragraph (D), (F), or (G) of section
2(c)(2), or held under section 4(f), of the
Bank Holding Company Act of 1956) or a
savings association;
‘‘(ii) a foreign bank, foreign company,
or company that is described in section
8(a) of the International Banking Act of
1978; or
‘‘(iii) a foreign bank that controls, di-
rectly or indirectly, a corporation chartered
under section 25A of the Federal Reserve
Act,
may elect to become supervised by filing with
the Commission a notice of intention to become
supervised, pursuant to subparagraph (B) of
this paragraph. Any investment bank holding
company filing such a notice shall be supervised
in accordance with this section and comply with
128
the rules promulgated by the Commission appli-
cable to supervised investment bank holding
companies.
‘‘(B) NOTIFICATION OF STATUS AS A SU-
PERVISED
INVESTMENT
BANK
HOLDING
COM-
PANY.—An investment bank holding company
that elects under subparagraph (A) to become
supervised by the Commission shall file with the
Commission a written notice of intention to be-
come supervised by the Commission in such
form and containing such information and doc-
uments concerning such investment bank hold-
ing company as the Commission, by rule, may
prescribe as necessary or appropriate in fur-
therance of the purposes of this section. Unless
the Commission finds that such supervision is
not necessary or appropriate in furtherance of
the purposes of this section, such supervision
shall become effective 45 days after the date of
receipt of such written notice by the Commis-
sion, or within such shorter time period as the
Commission, by rule or order, may determine.
‘‘(2) ELECTION
NOT
TO
BE
SUPERVISED
BY
THE COMMISSION AS AN INVESTMENT BANK HOLD-
ING COMPANY.—
129
‘‘(A) VOLUNTARY
WITHDRAWAL.—A su-
pervised investment bank holding company that
is supervised pursuant to paragraph (1) may,
upon such terms and conditions as the Commis-
sion deems necessary or appropriate, elect not
to be supervised by the Commission by filing a
written notice of withdrawal from Commission
supervision. Such notice shall not become effec-
tive until one year after receipt by the Commis-
sion, or such shorter or longer period as the
Commission deems necessary or appropriate to
ensure effective supervision of the material
risks to the supervised investment bank holding
company and to the affiliated broker or dealer,
or to prevent evasion of the purposes of this
section.
‘‘(B) DISCONTINUATION
OF
COMMISSION
SUPERVISION.—If the Commission finds that
any supervised investment bank holding com-
pany that is supervised pursuant to paragraph
(1) is no longer in existence or has ceased to be
an investment bank holding company, or if the
Commission finds that continued supervision of
such a supervised investment bank holding com-
pany is not consistent with the purposes of this
130
section, the Commission may discontinue the
supervision pursuant to a rule or order, if any,
promulgated by the Commission under this sec-
tion.
‘‘(3) SUPERVISION
OF
INVESTMENT
BANK
HOLDING COMPANIES.—
‘‘(A) RECORDKEEPING AND REPORTING.—
‘‘(i) IN GENERAL.—Every supervised
investment bank holding company and
each affiliate thereof shall make and keep
for prescribed periods such records, furnish
copies thereof, and make such reports, as
the Commission may require by rule, in
order to keep the Commission informed as
to—
‘‘(I) the company’s or affiliate’s
activities, financial condition, policies,
systems for monitoring and control-
ling financial and operational risks,
and transactions and relationships be-
tween any broker or dealer affiliate of
the supervised investment bank hold-
ing company; and
‘‘(II) the extent to which the
company or affiliate has complied with
131
the provisions of this Act and regula-
tions prescribed and orders issued
under this Act.
‘‘(ii) FORM
AND
CONTENTS.—Such
records and reports shall be prepared in
such form and according to such specifica-
tions (including certification by an inde-
pendent public accountant), as the Com-
mission may require and shall be provided
promptly at any time upon request by the
Commission. Such records and reports may
include—
‘‘(I) a balance sheet and income
statement;
‘‘(II) an assessment of the con-
solidated capital of the supervised in-
vestment bank holding company;
‘‘(III) an independent auditor’s
report attesting to the supervised in-
vestment bank holding company’s
compliance with its internal risk man-
agement and internal control objec-
tives; and
‘‘(IV) reports concerning the ex-
tent to which the company or affiliate
132
has complied with the provisions of
this title and any regulations pre-
scribed and orders issued under this
title.
‘‘(B) USE OF EXISTING REPORTS.—
‘‘(i) IN GENERAL.—The Commission
shall, to the fullest extent possible, accept
reports in fulfillment of the requirements
under this paragraph that the supervised
investment bank holding company or its af-
filiates have been required to provide to
another appropriate regulatory agency or
self-regulatory organization.
‘‘(ii) AVAILABILITY.—A supervised in-
vestment bank holding company or an af-
filiate of such company shall provide to the
Commission, at the request of the Commis-
sion, any report referred to in clause (i).
‘‘(C) EXAMINATION AUTHORITY.—
‘‘(i) FOCUS
OF
EXAMINATION
AU-
THORITY.—The Commission may make ex-
aminations of any supervised investment
bank holding company and any affiliate of
such company in order to—
145
(B) is not a product or service of a bank
that is—
(i) a deposit product;
(ii) a loan, discount, letter of credit,
or other extension of credit;
(iii) a trust or other fiduciary service;
(iv) a qualified financial contract (as
defined in or determined pursuant to sec-
tion 11(e)(8)(D)(i) of the Federal Deposit
Insurance Act); or
(v) a financial guaranty, except that
this subparagraph (B) shall not apply to a
product that includes an insurance compo-
nent such that if the product is offered or
proposed to be offered by the bank as
principal—
(I) it would be treated as a life
insurance contract under section 7702
of the Internal Revenue Code of 1986;
or
(II) in the event that the product
is not a letter of credit or other simi-
lar extension of credit, a qualified fi-
nancial contract, or a financial guar-
anty, it would qualify for treatment