I
104TH CONGRESS
2D SESSION
H. R. 4318
To provide for a system of guaranteeing the deposits and certain other
liabilities of depository institutions through a self-regulating system of
cross-guarantees, to protect taxpayers against deposit insurance losses,
and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 28, 1996
Mr. PETRI introduced the following bill; which was referred to the Committee
on Banking and Financial Services, and in addition to the Committee on
the Judiciary, 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 provide for a system of guaranteeing the deposits and
certain other liabilities of depository institutions through
a self-regulating system of cross-guarantees, to protect
taxpayers against deposit insurance losses, 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
‘‘Deposit Insurance Reform, Regulatory Modernization,
and Taxpayer Protection Act of 1996’’.
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(b) TABLE OF CONTENTS.—
Sec. 1. Short title; table of contents.
TITLE I—100-PERCENT CROSS-GUARANTEES
Subtitle A—Definitions
Sec. 101. Definitions.
Sec. 102. Rules of construction.
Subtitle B—Cross-Guarantee Process
Sec. 111. Depository institutions prohibited from operating without a cross-
guarantee contract.
Sec. 112. Parties to cross-guarantee and stop-loss contracts.
Sec. 113. Requirements common to cross-guarantee and stop-loss contracts.
Sec. 114. Requirements applicable only to cross-guarantee contracts.
Sec. 115. Requirements applicable only to stop-loss contracts.
Sec. 116. Eligibility and requirements for direct guarantors.
Sec. 117. Provisions relating to cross-guarantee and stop-loss syndicates.
Sec. 118. Assumption of control of a guaranteed company by a cross-guarantee
syndicate.
Sec. 119. Judicial review of contracts and related actions.
Subtitle C—Powers and Duties of the CGRC
CHAPTER 1—CROSS-GUARANTEE PROCESS
Sec. 121. Cross-Guarantee Regulation Corporation.
Sec. 122. Regulation of the cross-guarantee process.
Sec. 123. Approval process for cross-guarantee, stop-loss, and group cross-guar-
antee contracts.
Sec. 124. Central electronic repository.
Sec. 125. Restriction on closed loops.
Sec. 126. Treasury oversight of the Cross-Guarantee Regulation Corporation.
CHAPTER 2—PROTECTION OF INSURED DEPOSITS
Sec. 128. Backup insurance for deposits in guaranteed depository institutions.
Subtitle D—Miscellaneous Provisions
Sec. 131. Institutions offering uninsured deposits.
Sec. 132. Federal Reserve lending.
Sec. 133. Advertising by guaranteed financial groups.
Sec. 134. Guaranteed depository institutions remain federally insured deposi-
tories for purposes of state or federal law.
Subtitle E—Transition to 100 Percent Cross-Guarantee Process
Sec. 141. Effective date of system based on minimum number of guaranteed
depository institutions and amount of total assets.
Sec. 142. Mandatory date on which depository institutions must become guar-
anteed.
Sec. 143. Appointment of receiver for institutions which fail to comply with
transition requirements.
Sec. 144. Funding the cross-guarantee backup fund.
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(4) BUSINESS DAY.—The term ‘‘business day’’
means any day other than a Saturday, Sunday, or
legal holiday for the Federal Government.
(5) CENTRAL ELECTRONIC REPOSITORY.—The
term ‘‘central electronic repository’’ means the re-
pository established under section 124(a)(1).
(6) CLOSED
LOOP.—The term ‘‘closed loop’’
means a set of cross-guarantee and stop-loss con-
tracts in which each direct guarantor under the set
of contracts also is a guaranteed party under one
contract within the set of contracts.
(7) COMPANY.—The term ‘‘company’’—
(A) means any corporation, limited liability
company, partnership, business trust, associa-
tion, or similar organization; and
(B) does not include a branch or agency,
or a group of branches and agencies, of a for-
eign bank.
(8) CONTROL.—
(A) IN
GENERAL.—The term ‘‘control’’
means, with respect to one company’s relation-
ship to another company, one company’s owner-
ship or power to, directly or indirectly, vote an
aggregate of 5 percent or more of any class or
classes of the securities which separately or to-
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gether, taking into account the relative voting
weight of different shares, have the power to
elect a majority of the members of such other
company’s board of directors.
(B) RULE.—The Corporation may pre-
scribe rules to implement the intent of this
paragraph.
(9) CORPORATION.—The term ‘‘Corporation’’
means the Cross-Guarantee Regulation Corporation.
(10) CROSS-GUARANTEE
ACTIVATION
DATE.—
The term ‘‘cross-guarantee activation date’’ means
the date on which the first cross-guarantee contracts
become effective under section 141(a).
(11) CROSS-GUARANTEE BACKUP FUND.—The
term ‘‘cross-guarantee backup fund’’ means the fund
established pursuant to section 128(a).
(12) CROSS-GUARANTEE CONTRACT.—The term
‘‘cross-guarantee 
contract’’ 
means 
a 
contract
which—
(A) is entered into between—
(i) one or more companies, at least
one of which is a depository institution;
and
(ii) a cross-guarantee syndicate;
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(B) is approved by the Corporation under
section 123;
(C) has become effective in accordance
with the contract’s terms; and
(D) 
is 
not 
enjoined 
under 
section
123(e)(2)(B).
(13) 
CROSS-GUARANTEE
OBLIGATION.—The
term ‘‘cross-guarantee obligation’’ means an obliga-
tion of a direct guarantor arising out of a cross-
guarantee or stop-loss contract, and includes the ob-
ligations of such guarantor under section 125(c)(2)
of this title and sections 321 and 355 of title III.
(14) 
CROSS-GUARANTEE
SYNDICATE.—The
term ‘‘cross-guarantee syndicate’’ means any group
of direct guarantors which has entered into a cross-
guarantee contract with a guaranteed financial
group.
(15) DEPOSIT.—
(A) IN
GENERAL.—The term ‘‘deposit’’
means—
(i) any obligation within the meaning
given the term in paragraphs (1) through
(4) of section 3(l) of the Federal Deposit
Insurance Act; and
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(ii) any other obligation that the Cor-
poration determines is a deposit-like obli-
gation by general usage.
(B) DEPOSITS INCLUDE OBLIGATIONS PAY-
ABLE
OUTSIDE
THE
UNITED
STATES.—The
term ‘‘deposit’’ includes any obligation de-
scribed in subparagraph (A) without regard to
whether the obligation is payable within or
without the United States.
(C) EXCLUSION FOR CHECKABLE SUBOR-
DINATED DEBT.—The term ‘‘deposit’’ shall not
include any obligation which, under section
114(a)(2)(A), may not be a guaranteed obliga-
tion.
(16) DEPOSITORY
INSTITUTION.—The term
‘‘depository institution’’ has the meaning given to
such term in section 3(c) of the Federal Deposit In-
surance Act.
(17) DIRECT GUARANTOR.—The term ‘‘direct
guarantor’’ means a member of a cross-guarantee or
stop-loss syndicate which has entered into a cross-
guarantee or stop-loss contract with a guaranteed fi-
nancial group or nondepository guarantor.
(18) EQUITY CAPITAL.—The term ‘‘equity cap-
ital’’ means, with respect to any guaranteed finan-
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cial group, the amount, as valued pursuant to sec-
tion 114(c), which is equal to—
(A) the consolidated assets of the guaran-
teed financial group; minus
(B) the consolidated liabilities, including
the estimated liquidation value of contingent li-
abilities, of the guaranteed financial group.
(19) FAILED DEPOSITORY INSTITUTION.—The
term ‘‘failed depository institution’’ means any de-
pository institution for which a conservator or re-
ceiver has been appointed by the Federal Deposit In-
surance Corporation.
(20) FOREIGN
BANK.—The term ‘‘foreign
bank’’ has the same meaning given to such term in
section 1(b) of the International Banking Act of
1978, except that such term shall not include any
bank organized under the laws of Puerto Rico,
Guam, American Samoa, the Virgin Islands, or any
territory of the United States.
(21) GROUP
CROSS-GUARANTEE
CONTRACT.—
The term ‘‘group cross-guarantee contract’’ means a
contract which—
(A) is entered into between two or more
guaranteed financial groups and a cross-guar-
antee syndicate;
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(B) is approved by the Corporation under
section 123;
(C) has become effective in accordance
with the contract’s terms; and
(D) 
is 
not 
enjoined 
under 
section
123(e)(2)(B).
(22) GUARANTEED
BANKING
OFFICE.—The
term ‘‘guaranteed banking office’’ means any branch
or agency of a foreign bank where—
(A) the foreign bank is a guaranteed com-
pany pursuant to section 112(e); or
(B) the branch or agency has entered into
a cross-guarantee contract with a cross-guaran-
tee syndicate.
(23) GUARANTEED COMPANY.—
(A) IN GENERAL.—The term ‘‘guaranteed
company’’ means any company which has en-
tered into a cross-guarantee contract with a
cross-guarantee syndicate.
(B) FOREIGN BANKS.—
(i) IN
GENERAL.—Notwithstanding
subparagraph (A), a foreign bank shall not
be a guaranteed company solely because a
branch or agency of such bank is a guar-
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anteed banking office under a cross-guar-
antee contract.
(ii) EXCEPTION FOR FOREIGN BANKS
WHICH ARE SUBSIDIARIES.—Notwithstand-
ing clause (i), a foreign bank may be a
guaranteed company, if such bank is guar-
anteed under a cross-guarantee contract
under section 112(e).
(24) 
GUARANTEED
DEPOSITORY
INSTITU-
TION.—The term ‘‘guaranteed depository institu-
tion’’ means a depository institution which is a guar-
anteed company.
(25) GUARANTEED
FINANCIAL
GROUP.—The
term ‘‘guaranteed financial group’’ means one or
more guaranteed companies or guaranteed banking
offices guaranteed under the same cross-guarantee
contract.
(26) GUARANTEED OBLIGATION.—
(A) IN GENERAL.—The term ‘‘guaranteed
obligation’’ means an obligation of a guaranteed
party the performance of which has been guar-
anteed by a cross-guarantee or stop-loss syn-
dicate.
(B) RULE OF CONSTRUCTION.—The term
‘‘performance’’ under subparagraph (A) in-
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cludes timely payment of any deposit or other
obligation, including interest, if failure to pay in
a timely manner would constitute a breach of
contract.
(27) GUARANTEED PARTY.—The term ‘‘guaran-
teed party’’ means any guaranteed company, guar-
anteed banking office, or nondepository guarantor.
(28) INSURED
DEPOSIT.—The term ‘‘insured
deposit’’ means any deposit of a guaranteed deposi-
tory institution which is insured against loss by the
cross-guarantee backup fund under section 128.
(29) NET WORTH.—The term ‘‘net worth’’—
(A) means, with respect to a nondepository
guarantor, the amount which is equal to the
stockholders’ equity, the partnership equity, the
net worth, or the fund balance of the guarantor,
as the case may be, as determined in accord-
ance with generally accepted accounting prin-
ciples;
(B) does not include any equitable interest
or liability which the Corporation determines
should not be treated as net worth for purposes
of this title; and
(C) in the case of any nondepository guar-
antor which controls another nondepository
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guarantor or a guaranteed financial group, does
not include the net worth or equity capital of
the subsidiary guarantor or group.
(30) NONDEPOSITORY GUARANTOR.—The term
‘‘nondepository guarantor’’ means any person which
has entered into a stop-loss contract with a stop-loss
syndicate.
(31) PREMIUM INCOME.—The term ‘‘premium
income’’ means any income accrued by a direct guar-
antor under any cross-guarantee or stop-loss con-
tract.
(32) 
PROJECTED
ANNUAL
PREMIUM.—The
term ‘‘projected annual premium’’ means the
amount calculated under section 116(d)(2).
(33) PROJECTED
ANNUAL
PREMIUM
CAPAC-
ITY.—The term ‘‘projected annual premium capac-
ity’’ means the amount which is equal to—
(A) in the case of a guaranteed company,
3 percent of the equity capital of the guaran-
teed financial group guaranteed under the same
cross-guarantee contract under which such com-
pany is a guaranteed company; or
(B) in the case of a nondepository guaran-
tor, 3 percent of the net worth of the non-
depository guarantor.
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(34) PROJECTED
ANNUAL
PREMIUM
LIMIT.—
The term ‘‘projected annual premium limit’’ means
the amount which is equal to 3 percent of projected
annual premium capacity.
(35) SECOND-TIER
GUARANTOR.—The term
‘‘second-tier guarantor’’ means a direct guarantor of
a direct guarantor.
(36) STATE
DEPOSITORY
INSTITUTION.—The
term ‘‘state depository institution’’ has the meaning
given to such term in section 3(c)(5) of the Federal
Deposit Insurance Act.
(37) STOP-LOSS CONTRACT.—The term ‘‘stop-
loss contract’’ means a contract which—
(A) is entered into between a person and
a stop-loss syndicate;
(B) is approved by the Corporation under
section 123;
(C) has become effective in accordance
with the contract’s terms; and
(D) 
is 
not 
enjoined 
under 
section
123(e)(2)(B).
(38) STOP-LOSS SYNDICATE.—The term ‘‘stop-
loss syndicate’’ means any group of direct guaran-
tors which has entered into a stop-loss contract with
a nondepository guarantor.
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(39) SUBORDINATED DEBT.—
(A) IN
GENERAL.—The term ‘‘subordi-
nated debt’’ means an obligation assumed by a
guaranteed company or guaranteed banking of-
fice which is subordinate in right of payment to
any general creditor of the company or office.
(B) GENERAL
CREDITOR.—For purposes
of this paragraph, the term ‘‘general creditor’’
means—
(i) any creditor to which a guaranteed
company or guaranteed banking office has
an obligation which is a guaranteed obliga-
tion under the cross-guarantee contract for
such company or office, unless that credi-
tor is otherwise specifically secured by one
or more assets of the company or office;
and
(ii) any creditor of the guaranteed
company or guaranteed banking office
which is—
(I) not protected under the con-
tract; and
(II) not subordinated to the claims of
other creditors or treated as a preference
in a bankruptcy proceeding.
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(40) 
SUBSIDIARY.—The 
term 
‘‘subsidiary’’
means, with reference to a company, any company
which such company controls.
(41) SYNDICATE AGENT.—The term ‘‘syndicate
agent’’ means any person which acts as the agent
for the direct guarantors under any cross-guarantee
or stop-loss contract.
SEC. 102. RULES OF CONSTRUCTION.
(a) GENERAL RULES OF CONSTRUCTION.—
(1) IN GENERAL.—This title shall be liberally
construed and applied to promote its underlying pur-
poses and policies.
(2) PURPOSES OF THIS TITLE.—The purposes
of this title are—
(A) to create and maintain a private, com-
petitive deposit insurance marketplace;
(B) to require each bank and savings asso-
ciation which accepts deposits to protect the full
amount of such deposits, along with most other
nondeposit liabilities, by obtaining cross-guar-
antee contracts from syndicates of direct guar-
antors;
(C) to induce depository institutions to
lend and invest wisely by authorizing direct
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guarantors which issue cross-guarantee con-
tracts to—
(i) charge risk-sensitive premiums for
the guarantees provided; and
(ii) negotiate with the banks and sav-
ings associations which enter into such
contracts all other terms and conditions, to
the extent such terms and conditions are
not inconsistent with this Act or other pro-
visions of law;
(D) to make the cross-guarantee process as
self-regulating as possible by establishing nu-
merous constructive tensions among the partici-
pants in the system;
(E) to establish a closed system of guaran-
tors with tier after tier of guarantors to stand
behind a guarantee and a ‘‘stop-loss’’ mecha-
nism to spread large losses as widely as possible
to ensure that no guaranteed obligation will
ever go unpaid;
(F) to force guarantors to pay promptly
for any losses that do occur and to prevent
guarantors from using legal actions to recover
any losses from other persons, except under
highly exceptional circumstances; and
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(G) to regulate the cross-guarantee mar-
ketplace only to the extent necessary to main-
tain the safety, soundness, and viability of the
entire cross-guarantee process and not the sol-
vency of any individual bank or savings associa-
tion regardless of its size.
(b) SPECIFIC RULES OF CONSTRUCTION.—In this
title—
(1) the terms ‘‘guaranteed company,’’ ‘‘guaran-
teed depository institution,’’ ‘‘guaranteed financial
group,’’ ‘‘guaranteed party,’’ and ‘‘nondepository
guarantor’’ refer to those parties in their capacity as
parties guaranteed under a cross-guarantee or stop-
loss contract;
(2) the term ‘‘direct guarantor’’ refers to a
party in such party’s capacity as a guarantor under
a cross-guarantee or stop-loss contract;
(3) the term ‘‘control’’ in such phrases as ‘‘as-
sumption of control’’ or ‘‘assumes control’’ shall not
have the meaning given the term under section
101(8);
(4) ‘‘including’’ shall not be construed more re-
strictively than the ordinary usage of such term so
as to exclude any other thing not referred to or de-
scribed; and
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(5) the phrases ‘‘has entered into a cross-guar-
antee contract’’ and ‘‘has entered into a stop-loss
contract,’’ as used in sections 101(22), 101(23), and
101(30), shall not be construed to refer to a con-
tract which is no longer in effect.
Subtitle B—Cross-Guarantee Process
SEC. 111. DEPOSITORY INSTITUTIONS PROHIBITED FROM
OPERATING WITHOUT A CROSS-GUARANTEE
CONTRACT.
After the applicable effective date under section 142,
a depository institution shall be a guaranteed depository
institution or guaranteed banking office unless the deposi-
tory institution—
(a) is a Federal branch that is not an insured
branch (as the terms ‘‘Federal branch’’ and ‘‘in-
sured branch’’ are defined in sections 3(r) and 3(s)
of the Federal Deposit Insurance Act); or
(b) is a failed depository institution.
SEC. 112. PARTIES TO CROSS-GUARANTEE AND STOP-LOSS
CONTRACTS.
(a) CROSS-GUARANTEE CONTRACTS.—
(1) SCOPE OF CROSS-GUARANTEE SYSTEM.—
(A) LIMIT ON GUARANTEED COMPANIES.—
Subject to section 112(e), no company which is
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not a depository institution may be a guaran-
teed company.
(B) LIMIT ON THE NUMBER OF GUARAN-
TEED PARTIES WITHIN A GUARANTEED FINAN-
CIAL GROUP.—Subject to sections 112(d) and
112(e), no guaranteed company or guaranteed
banking office shall be guaranteed under the
same cross-guarantee contract as another guar-
anteed company or guaranteed banking office.
(2) NECESSARY PARTIES.—Each cross-guaran-
tee contract shall have the following parties:
(A) A guaranteed financial group consist-
ing of the party or parties guaranteed under
the contract.
(B) The direct guarantors of the guaran-
teed financial group.
(C) A syndicate agent acting on behalf of
the direct guarantors.
(3) AFFILIATE GUARANTEE.—Any affiliate of a
depository institution may guarantee the perform-
ance of such institution’s guaranteed obligations
under a cross-guarantee contract.
(b) STOP-LOSS CONTRACTS.—
(1) IN GENERAL.—Each stop-loss contract shall
have the following parties:
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(A) A nondepository guarantor as the
party guaranteed under the contract.
(B) The direct guarantors of the non-
depository guarantor.
(C) A syndicate agent acting on behalf of
the direct guarantors.
(2) AFFILIATE GUARANTEE.—Any affiliate of a
nondepository guarantor may guarantee the per-
formance of the guaranteed obligations of such non-
depository guarantor.
(c) GROUP CROSS-GUARANTEE CONTRACTS.—
(1) IN GENERAL.—
(A) POOLING
OF
RISK.—Subject to the
provisions of this subsection, the cross-guaran-
tee contracts of two or more guaranteed finan-
cial groups may be pooled for syndication.
(B) SEPARATE
CONTRACT
FOR
A
SYN-
DICATE
OF
POOLED
CONTRACTS.—The direct
guarantors comprising the cross-guarantee syn-
dicate for a group of cross-guarantee contracts
may enter into a separate contract (hereinafter
‘‘group cross-guarantee contract’’) under which
the cross-guaranteed contracts pooled under
such contract shall be incorporated by ref-
erence.
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(C) PROPORTIONAL
RISK.—Each direct
guarantor under a group cross-guarantee con-
tract shall have the same proportional rights,
privileges, duties, and obligations in each cross-
guarantee contract incorporated by reference in
the syndicate contract as such guarantor has in
the syndicate contract.
(2) APPROVAL
OF
GROUP
CROSS-GUARANTEE
CONTRACT
AND
ITS
POOL
OF
CROSS-GUARANTEE
CONTRACTS.—The Corporation shall approve or re-
ject, as a group, a proposed group cross-guarantee
contract and the cross-guarantee contracts pooled
under that contract.
(3) AGGREGATION OF ASSETS FOR PURPOSES
OF RISK DIVERSIFICATION.—The assets of all guar-
anteed parties pooled under a group cross-guarantee
contract shall be aggregated for purposes of apply-
ing the risk diversification requirement established
in section 114(b).
(4) NO CROSS LIABILITY OF GUARANTEED PAR-
TIES.—No guaranteed party under any cross-guar-
antee contract shall be liable for any portion of the
guaranteed obligations of a guaranteed party under
any other cross-guarantee contract which is pooled
under the same group cross-guarantee contract.
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(5) INDIVIDUAL
TERMS
AND
RATES.—The
terms, conditions, and premium rates of a cross-
guarantee contract pooled under a group cross-guar-
antee contract may differ from the terms, condi-
tions, and premium rates under any other cross-
guarantee contract pooled under the syndicate con-
tract.
(6) PARTIES TO INDIVIDUAL CROSS-GUARANTEE
CONTRACTS RETAIN SAME RIGHTS AND DUTIES.—No
right, privilege, duty, or obligation that applies
under this title to any party to a cross-guarantee
contract shall be affected by the pooling of the cross-
guarantee contract with other contracts covered by
a group cross-guarantee contract.
(7) ADDITIONAL GUARANTEED PARTIES UNDER
A GROUP CROSS-GUARANTEE CONTRACT.—A group
cross-guarantee contract may be amended under sec-
tion 123 to add a guaranteed financial group or a
depository institution with a proposed cross-guaran-
tee contract to the existing syndicate contract if—
(A) the syndicate contract remains in com-
pliance with all of the provisions of this title
after the addition of the institution to the syn-
dicate contract; and
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(B) the term of the syndicate contract is
not extended beyond the original term of any
cross-guarantee contract already pooled under
the syndicate contract by the addition of the in-
stitution.
(8) TERM OF A GROUP CROSS-GUARANTEE CON-
TRACT.—A group cross-guarantee contract shall con-
tinue in force until each guaranteed party which is
guaranteed under the syndicate contract has ceased
to be a guaranteed party under a cross-guarantee
contract pooled under the syndicate contract.
(9) LENGTH OF CROSS-GUARANTEE CONTRACT
POOLED
UNDER
A
SYNDICATE
CONTRACT.—No
cross-guarantee contract pooled under a group cross-
guarantee contract shall have a term longer than the
remaining term of the syndicate contract.
(10) RULE
OF
CONSTRUCTION.—Nothing in
this subsection shall be construed as preventing a
cross-guarantee or stop-loss syndicate from becom-
ing a syndicate under two or more cross-guarantee
or stop-loss contracts without including such con-
tracts under a group cross-guarantee contract.
(d) AFFILIATES AND OTHER PARTIES RELATED TO
A DEPOSITORY INSTITUTION WHICH SHALL BE GUARAN-
TEED UNDER ONE CONTRACT.—
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(1) IN GENERAL.—Subject to paragraph (4), a
guaranteed depository institution shall be guaran-
teed under the same cross-guarantee contract with
all other affiliated guaranteed depository institu-
tions.
(2) CHAIN BANKS.—Subject to paragraph (4),
if more than two-thirds of the shares of any deposi-
tory institution are directly or indirectly under com-
mon ownership with more than two-thirds of the
shares of any other depository institution, such de-
pository institutions shall be guaranteed depository
institutions under the same cross-guarantee con-
tract.
(3) DOMESTIC
BRANCHES
AND
AGENCIES
OF
FOREIGN BANKS.—
(A) IN GENERAL.—If any branch of a for-
eign bank is a guaranteed banking office, all
branches and agencies of such foreign bank
shall be guaranteed banking offices under the
same cross-guarantee contract.
(B) BRANCHES
AND
AGENCIES
AFFILI-
ATED WITH GUARANTEED DEPOSITORY INSTI-
TUTIONS.—
(i) IN GENERAL.—A guaranteed bank-
ing office shall be guaranteed under the
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same cross-guarantee contract as any af-
filiated guaranteed depository institution.
(ii) DEFINITION OF AFFILIATION.—
(I) IN GENERAL.—For purposes
of this subparagraph, the term ‘‘affili-
ate’’ shall have the same meaning as
defined in section 101(1) except that
‘‘control’’ shall mean the ownership or
power to, directly or indirectly, vote
an aggregate of 50 percent or more of
any class or classes of the securities
which separately or together, taking
into account the relative voting weight
of different shares, have the power to
elect a majority of the members of the
company’s board of directors.
(II) RULES.—The Corporation
shall prescribe rules to implement the
intent of this subparagraph.
(4) RULES.—For cases under this subsection in
which a guaranteed depository institution may be re-
quired to be guaranteed under more than one con-
tract, the Corporation shall prescribe rules for deter-
mining which cross-guarantee contract shall guaran-
tee such a depository institution’s obligations.
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(e) NONDEPOSITORY INSTITUTIONS WHICH MAY BE-
COME GUARANTEED COMPANIES.—
(1) SUBSIDIARIES.—
(A) IN GENERAL.—A company controlled
by a guaranteed depository institution may be
a guaranteed company under the same cross-
guarantee contract under which the guaranteed
depository institution is guaranteed.
(B) DEFINITION OF CONTROL.—
(i) IN
GENERAL.—For purposes of
this paragraph, the term ‘‘control’’ means,
with respect to one company’s relationship
to another company, one company’s owner-
ship or power to, directly or indirectly, vote
an aggregate of 50 percent or more of any
class or classes of the securities which sep-
arately or together, taking into account the
relative voting weight of different shares,
have the power to elect a majority of the
members of such other company’s board of
directors.
(ii) RULES.—The Corporation shall
prescribe rules to implement the intent of
this paragraph.
(2) AFFILIATED FOREIGN BANKS.—
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(A) IN GENERAL.—A foreign bank affili-
ated to a guaranteed depository institution may
be guaranteed under the same cross-guarantee
contract under which the guaranteed depository
institution is guaranteed.
(B) DEFINITION OF AFFILIATION.—
(i) IN
GENERAL.—For purposes of
this subparagraph, the term ‘‘affiliate’’
shall have the same meaning as defined in
section 101(1) except that ‘‘control’’ shall
mean the ownership or power to, directly
or indirectly, vote an aggregate of 50 per-
cent or more of any class or classes of the
securities which separately or together,
taking into account the relative voting
weight of different shares, have the power
to elect a majority of the members of the
company’s board of directors.
(ii) RULES.—The Corporation shall
prescribe rules to implement the intent of
this paragraph.
(f) 
PROVISIONS
RELATING
TO
SYNDICATE
AGENTS.—
(1) ANTI-AFFILIATION
RULES.—A syndicate
agent may not—
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(A) be an affiliate of any guaranteed party
under any cross-guarantee or stop-loss contract;
or
(B) acquire or retain any ownership inter-
est in any guaranteed party under any cross-
guarantee or stop-loss contract.
(2) NO
DEPOSITORY
INSTITUTION, FOREIGN
BANK, OR NONDEPOSITORY GUARANTOR MAY BE A
SYNDICATE AGENT.—No depository institution, for-
eign bank, or nondepository guarantor may be a
syndicate agent under any cross-guarantee or stop-
loss contract.
(3) PROHIBITIONS ON INTERLOCKS.—
(A) IN GENERAL.—No owner, director, of-
ficer, employee, agent, or partner of a syndicate
agent may be an owner, director, officer, em-
ployee, agent, or partner of any guaranteed
party or other syndicate agent under any cross-
guarantee or stop-loss contract.
(B) SUBCONTRACTORS.—
(i) IN GENERAL.—A subcontractor of
a syndicate agent may be a subcontractor
to any guaranteed party or other syndicate
agent under any cross-guarantee or stop-
loss contract.
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(ii) PERSONNEL OVERLAPS.—
(I) IN
GENERAL.—Subject to
subclause (II), an owner, director, of-
ficer, employee, agent, or partner of a
subcontractor of a syndicate agent
may be an owner, director, officer,
employee, agent, or partner of any
guaranteed party or other syndicate
agent under any cross-guarantee or
stop-loss contract.
(II) EXCEPTION
FOR
GUARAN-
TEED PARTY UNDER THE SAME CON-
TRACT.—An owner, director, officer,
employee, agent, or partner of a sub-
contractor of a syndicate agent per-
forming monitoring work on a guaran-
teed party under a cross-guarantee or
stop-loss contract may not be an
owner, director, officer, employee,
agent, or partner of the guaranteed
party under the contract.
(C) DEFINITION
OF
OWNER.—For pur-
poses of this paragraph, the term ‘‘owner’’
means, with respect to any company, a person
who controls the company.
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SEC. 113. REQUIREMENTS COMMON TO CROSS-GUARANTEE
AND STOP-LOSS CONTRACTS.
(a) STOP-LOSS LIMIT FOR LOSSES OF A GUARAN-
TEED PARTY AS A DIRECT GUARANTOR OF OTHER GUAR-
ANTEED PARTIES.—
(1) DEFINITIONS.—For purposes of this sub-
section:
(A) LEVEL 1 PARTY.—The term ‘‘level 1
party’’ means a guaranteed party under any
cross-guarantee or stop-loss contract.
(B) LEVEL 2 PARTY.—The term ‘‘level 2
party’’ means a direct guarantor of a level 1
party.
(C) LEVEL 3 PARTY.—The term ‘‘level 3
party’’ means a direct guarantor of a level 2
party.
(D) LOSS.—The term ‘‘loss’’ means the
present value, as of the date of a loss event, of
the cash outlays, including administrative ex-
penses, required to fulfill a level 2 party’s cross-
guarantee obligations to a level 1 party due to
the occurrence of such loss event, using as a
discount rate the sum of—
(i) 2 percent; and
(ii) the average annual percentage
yield on 3-month bills issued by the Sec-
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retary of the Treasury under section
3104(a) of title 31, United States Code, as
determined by the Corporation as of the
most recent issue date preceding the date
of the loss event.
(E) LOSS EVENT.—The term ‘‘loss event’’
means an event described in paragraph (3).
(F) 
STOP-LOSS
LIABILITY.—The 
term
‘‘stop-loss liability’’ means an obligation ac-
crued by a level 3 party to a level 2 party under
paragraph (2).
(G) STOP-LOSS
RECOVERY.—The term
‘‘stop-loss recovery’’ means the amount accrued
by a level 2 party due to the obligation of a
level 3 party under paragraph (2).
(2) STOP-LOSS OBLIGATION OF DIRECT GUAR-
ANTORS.—
(A) STOP-LOSS RECOVERY.—For any 12-
calendar month period in which a cross-guaran-
tee or stop-loss contract exists between level 3
parties and a level 2 party as of the first day
of the first calendar month of such period, the
level 3 parties shall be obligated to pay to the
level 2 party an amount equal to the total
amount of losses accrued by the level 2 party
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in such party’s capacity as a direct guarantor
of level 1 parties during such 12-calendar-
month period, minus the sum of—
(i) the greater of—
(I) the amount equal to 5 times
the total amount of cross-guarantee
and stop-loss premium income accru-
ing to the level 2 party in such party’s
capacity as a direct guarantor of level
1 parties during such 12-calendar-
month period;
(II) the amount equal to 5 times
the total amount of cross-guarantee
and stop-loss premium income accru-
ing to the level 2 party in such party’s
capacity as a direct guarantor of level
1 parties during the 12-calendar-
month period preceding such 12-cal-
endar-month period;
(III) in the case of a 12-cal-
endar-month period ending in a
month which is among the first 11
calendar months that the level 2 party
has ever been a party guaranteed
under a cross-guarantee or stop-loss
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contract, the amount equal to the av-
erage monthly cross-guarantee and
stop-loss premium income accruing to
the level 2 party in such party’s ca-
pacity as a direct guarantor of level 1
parties since first becoming a party
guaranteed under a cross-guarantee
or stop-loss contract, multiplied by 60;
or
(IV) in the case of a 12-calendar-
month period ending in a month
which is among the first 23 calendar
months that the level 2 party has ever
been a party guaranteed under a
cross-guarantee or stop-loss contract,
the amount equal to 5 times the total
amount of cross-guarantee and stop-
loss premium income accruing to the
level 2 party in such party’s capacity
as a direct guarantor of level 1 par-
ties, without taking into account any
reduction in premium income due to
the transfer, under section 113(m), of
the level 2 party’s interest in any
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cross-guarantee or stop-loss syndicate;
and
(ii) recoveries accrued under this
paragraph by the level 2 party for each 12-
calendar-month period ending at the end of
each of the first 11 calendar months in
such 12-calendar-month period.
(B) CARRYOVER
FROM
PREVIOUS
CON-
TRACTS.—The amounts calculated in subpara-
graph (A) shall include all losses, premium in-
come, and stop-loss recoveries of the level 2
party under any cross-guarantee or stop-loss
contracts under which the level 2 party was a
party guaranteed during such 12-calendar-
month period.
(C) MERGER OR CONSOLIDATION OF TWO
OR MORE GUARANTEED PARTIES.—In the case
of any level 2 party which merged or consoli-
dated with any other party which was a level 2
party guaranteed under another cross-guaran-
tee or stop-loss contract, the amounts cal-
culated in subparagraph (A) shall include all
losses, premium income, and stop-loss recover-
ies of both of the parties prior to the merger or
consolidation.
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(D) OTHER GUARANTEED PARTIES UNDER
THE CONTRACT WHICH WERE PREVIOUSLY DI-
RECT
GUARANTORS.—The amounts calculated
in subparagraph (A) for the level 2 party shall
include all losses, premium income, and stop-
loss recoveries of any other party guaranteed
under the same cross-guarantee contract as the
level 2 party, which occurred while such other
party was a level 2 party while guaranteed
under the same or another cross-guarantee or
stop-loss contract.
(E) TIMING OF STOP-LOSS RECOVERY.—A
stop-loss recovery shall accrue as of the last day
of the last calendar month of the 12-calendar-
month period under which the stop-loss recov-
ery was calculated.
(F) ADJUSTMENT
FOR
CATASTROPHIC
LOSSES.—
(i) IN GENERAL.—If, for any calendar
month, a closed loop exists in which every
direct guarantor under the contracts in the
closed loop accrues a stop-loss recovery for
such month, then the calculation of stop-
loss recovery for the 12-calendar-month pe-
riod ending in such month for all the con-
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tracts in the closed loop shall be adjusted
as required under clauses (ii) and (iii).
(ii) ADJUSTMENT.—If, for any cal-
endar month, a closed loop meets the con-
ditions of clause (i), the amounts cal-
culated in subparagraph (A) shall, for the
12-calendar month period in which such
calendar month is the last month, be ad-
justed by increasing from 5 to 6, under
clauses (i)(I) and (i)(II) of subparagraph
(A), the amount multiplied by the premium
income accruing to a level 2 party and by
increasing from 60 to 72, under clause
(i)(III) of subparagraph (A), the amount
multiplied by the average monthly pre-
mium accruing to the level 2 party.
(iii) 
FURTHER
ADJUSTMENT.—If,
after making the adjustments to the cal-
culation of stop-loss recovery under clause
(ii), every contract in the closed loop under
clause (i) still accrues a stop-loss recovery,
the amounts under clauses (i)(I) and
(i)(II) of subparagraph (A) shall be in-
creased by 1 and the amount under clause
(i)(III) of subparagraph (A) shall be in-
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creased by 12, until at least one direct
guarantor under a contract in such closed
loop is not accruing a stop-loss recovery
for the calendar month in clause (i).
(3) DETERMINATION
OF
TIME
OF
LOSS.—A
level 2 party shall accrue a loss as the direct guaran-
tor of a Level 1 party as of—
(A) the last day of the calendar month in
which the level 1 party accrues a stop-loss re-
covery; or
(B) the day on which, with respect to a
level 1 party which is a guaranteed company,
the earliest of the following occurs:
(i) Notice is filed with the Corporation
under section 118(d)(2)(D) by the cross-
guarantee syndicate of which the level 2
party is a member that the syndicate has
assumed control of the level 1 party.
(ii) A transaction is completed which
the Corporation, upon request by the syn-
dicate agent under the contract and pursu-
ant to paragraph (9), determines—
(I) involves the acquisition of the
level 1 party or a significant portion
of the party’s assets, the merger or
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consolidation of the level 1 party with
any other party, the liquidation of the
level 1 party, or any other similar
transaction involving the level 1 party;
and
(II) results proximately in a loss
for the level 2 parties in their capacity
as guarantors under the cross-guaran-
tee contract.
(iii) The level 1 party becomes a debt-
or in a case under title 11, United States
Code.
(4) PREPARATION OF ORIGINAL LOSS ESTIMATE
BY SYNDICATE AGENT.—The syndicate agent for the
cross-guarantee contract under which a level 2 party
is a direct guarantor shall, whenever a loss event
under subparagraph (3)(B) occurs under such con-
tract—
(A) estimate the loss for such loss event;
and
(B) by the 15th day of the calendar month
following the calendar month in which such loss
event occurs, notify the central electronic repos-
itory of the estimate of the loss under subpara-
graph (A).
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(5) REVISION
OF
LOSS
ESTIMATE
BY
SYN-
DICATE AGENT.—The syndicate agent for the cross-
guarantee contract under which a level 2 party is a
direct guarantor shall, whenever a loss event under
subparagraph (3)(B) occurs under such contract—
(A) revise the original estimate of the loss
for such loss event and notify the central elec-
tronic repository of such revised estimate at
least as often as the 15th day of—
(i) the third calendar month following
the calendar month in which the loss event
took place;
(ii) the twelfth calendar month follow-
ing the calendar month in which the loss
event took place; and
(iii) every twelfth month after the cal-
endar month in clause (ii); and
(B) for each estimate of the loss described
in clauses (A)(ii) and (A)(iii), obtain from a
third party a confirmation of the reasonableness
of the revised estimate of the loss.
(6) COMPLETION OF CASH OUTLAYS BECOMES
FINAL
AMOUNT.—Notwithstanding paragraph (5),
once a level 2 party has made the final cash dis-
bursement to fulfill such party’s cross-guarantee ob-
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ligations due to any loss event under subparagraph
(3)(B)—
(A) the syndicate agent for the cross-guar-
antee contract under which the level 2 party is
a direct guarantor shall calculate the loss from
such loss event (subject to the third party con-
firmation in subparagraph (5)(B)) and notify
the central electronic repository of this calcula-
tion; and
(B) no further revisions of the loss from
such loss event shall be permitted.
(7) CALCULATION
AND
CLEARINGHOUSE
DU-
TIES OF CENTRAL ELECTRONIC REPOSITORY.—
(A) CALCULATION OF STOP-LOSS LIABIL-
ITY.—After notification under paragraphs (4),
(5), and (6), the central electronic repository
shall calculate the stop-loss recovery for every
level 2 party for every 12-month calendar pe-
riod affected by the initial estimate, revised es-
timates, and final loss amounts.
(B) ADJUSTMENT FOR INTEREST.—Upon
completing the calculations under subparagraph
(A), the central electronic repository shall then
adjust the amounts owed between level 2 and
level 3 parties as specified in paragraph (8).
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(C) NETTING CALCULATION.—Upon com-
pleting the calculations under subparagraph
(B), the central electronic repository shall, for
each person that is a direct guarantor or guar-
anteed party, net the amounts owed by such
person in its capacity as a level 3 party with
the amount such person is entitled to receive in
its capacity as a level 2 party to determine the
overall liability or right to payment for such
person.
(D) NOTIFICATION
OF
PARTIES.—Within
five business days after receiving notification
under paragraphs (4), (5), and (6), the central
electronic repository shall notify any level 2
party or level 3 party of the results of the cal-
culations under subparagraphs (A), (B), and
(C).
(E) SETTLEMENT.—
(i) PAYMENTS TO BE MADE.—Within
three business days after receiving notifica-
tion under subparagraph (D), each party
which, given the calculations under sub-
paragraph (C), has a net liability shall pay
the amount of such liability to the central
electronic repository.
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(ii) DISBURSEMENT OF PAYMENTS.—
Upon receiving all payments under clause
(i), the central electronic repository shall
promptly disburse to each party which has
a right to payment, given the calculations
under subparagraph (C), the amount owed
such party.
(iii) PENALTIES
FOR
LATE
PAY-
MENT.—If an obligation under clause (i) is
not paid in a timely manner, any party
which fails to perform its obligation under
this title to pay the balance owed under
clause (i), including the guarantors of the
specific party most directly liable under
clause (i), shall be liable to the Corporation
for damages of 10 percent of the unpaid
amount for which the party is obligated,
plus interest at the rate specified under
subparagraph (C) of paragraph (8).
(F) RULES.—The Corporation may pre-
scribe such rules as may be necessary to imple-
ment this paragraph.
(8) CALCULATION
OF
STOP-LOSS
PAYMENTS
PLUS INTEREST.—
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(A) ORIGINAL ESTIMATE.—If a determina-
tion under subparagraph (7)(A) is based on the
original estimate of loss under paragraph (4)
and results in a stop-loss recovery for a level 2
party, each level 3 party shall owe to the level
2 party the amount of the stop-loss liability for
such level 3 party plus interest on the amount
of such liability from the last day of the month
in which the loss occurred to the date of pay-
ment under this subparagraph.
(B) REVISION OF ESTIMATES.—If a deter-
mination under subparagraph (7)(A) results
in—
(i) an increase from the previous esti-
mate of the stop-loss recovery for a par-
ticular month, then each level 3 party shall
owe to the level 2 party the amount of the
increase in the level 3 party’s stop-loss li-
ability plus interest on the amount of the
increase in such liability from the last day
of such month until payment is made
under this clause; or
(ii) a decrease from the previous esti-
mate of the stop-loss recovery for a par-
ticular month, then the level 2 party shall
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owe each level 3 party the amount of the
decrease in such level 3 party’s stop-loss
liability plus interest on the amount of the
decrease in such liability from the last day
of such month until payment is made
under this clause.
(C) INTEREST RATE.—The parties to any
cross-guarantee or stop-loss contract shall agree
to the interest rate to be used for the calcula-
tion of interest under subparagraphs (A) and
(B).
(9) CGRC ADJUDICATION OF TIMING OF LOSS
EVENTS.—
(A) INFORMAL CGRC ADJUDICATION.—The
Corporation shall establish procedures to deter-
mine the timing of loss events under paragraph
(3)(B)(ii).
(B) JUDICIAL
REVIEW.—Any guaranteed
party may seek judicial review of any deter-
mination under subparagraph (A).
(b) DIRECT GUARANTOR’S CROSS-GUARANTEE OBLI-
GATIONS UNDER
THE CONTRACT
ARE INDEPENDENT
FROM OTHER PARTIES’ OBLIGATIONS.—The cross-guar-
antee obligations of a direct guarantor under any cross-
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guarantee or stop-loss contract shall be independent of
any obligation of any other party under the contract.
(c) GUARANTEED PARTY CANNOT
BE
A DIRECT
GUARANTOR UNDER THE SAME CONTRACT.—No guaran-
teed party may be a direct guarantor under the cross-
guarantee or stop-loss contract under which such party is
a guaranteed party.
(d) DIRECT GUARANTORS PROHIBITED FROM OB-
TAINING COLLATERAL FOR CROSS-GUARANTEE OBLIGA-
TIONS.—No direct guarantor under any cross-guarantee
or stop-loss contract may obtain or retain a lien or security
interest in a guaranteed party under the contract, or in
any assets of the guaranteed party, in connection with
such guarantor’s cross-guarantee obligations under the
contract, unless the guaranteed party is a guaranteed
banking office.
(e) PROVISIONS OF CONTRACT REGARDING DIVISION
OF LIABILITY.—
(1) SEVERAL LIABILITY.—No direct guarantor
under any cross-guarantee or stop-loss contract shall
be jointly liable for the cross-guarantee obligations
of any other direct guarantor under the contract.
(2) DIVISION OF LIABILITY.—
(A) DETERMINED BY CONTRACT.—Subject
to section 116(d), the terms of a cross-guaran-
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tee or stop-loss contract shall establish the divi-
sion of liability among the direct guarantors
under the contract.
(B) ADJUSTMENT.—If the division of li-
ability under a cross-guarantee or stop-loss con-
tract does not equal 100 percent, each direct
guarantor’s assigned liability under the contract
shall be adjusted proportionately so that the di-
vision of liability equals 100 percent.
(3) LIABILITY OF DIRECT GUARANTOR PROPOR-
TIONATE TO INTEREST IN SYNDICATE.—The rights,
privileges, duties, and obligations of a direct guaran-
tor under a cross-guarantee or stop-loss contract
shall be proportionate to such guarantor’s interest in
the syndicate.
(4) SYNDICATES NOT PARTNERSHIPS OR JOINT
VENTURES.—Notwithstanding any state law, a
cross-guarantee or stop-loss syndicate is not a part-
nership or joint venture, except for purposes of sec-
tion 117(c)(1).
(f) PREMIUM REQUIREMENTS.—Each cross-guaran-
tee and stop-loss contract shall describe the method for
calculating, and the timing of payment, for any premium
payable to the direct guarantors under the contract.
(g) MAXIMUM TERM OF CONTRACTS.—
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(b) THIRD PARTY BENEFICIARY ACTIONS.—
(1) RESTRICTIONS
ON
THIRD
PARTY
BENE-
FICIARY ACTIONS.—Notwithstanding any State law,
no creditor of any guaranteed party under any cross-
guarantee contract may bring an action against the
cross-guarantee syndicate under such contract for
failure to perform any cross-guarantee obligation
under the contract without first having obtained a
judgment against the guaranteed party for failure to
perform such obligation, unless the direct guarantors
have assumed control of the guaranteed party under
section 118(a).
(2) INTERVENTION BY SYNDICATE.—
(A) IN
GENERAL.—A cross-guarantee or
stop-loss syndicate under any cross-guarantee
or stop-loss contract may intervene in any ac-
tion brought by one or more creditors against
a guaranteed party under the contract if any
judgment against the guaranteed party in such
action could affect the potential liabilities of the
direct guarantors under the contract.
(B) RIGHT
OF
INTERVENTION
BELONGS
TO THE SYNDICATE AS A WHOLE.—Any inter-
vention under subparagraph (A) shall be exer-
cised by a cross-guarantee or stop-loss syn-