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governing the manner in which its affairs may
be administered, consistent with applicable stat-
ute and regulation, as administered by the Fi-
nance Board. No officer, employee, attorney, or
agent of a Federal home loan bank’’.
(2) Section 12 of the Federal Home Loan Bank
Act (12 U.S.C. 1432) is amended by inserting after
subsection (b) the following new subsection:
‘‘(c) PROHIBITION ON EXCESSIVE COMPENSATION.—
‘‘(1) IN GENERAL.—The Finance Board shall
prohibit the Federal home loan banks from provid-
ing compensation to any officer, director, or em-
ployee that is not reasonable and comparable with
the compensation for employment in other similar
businesses involving similar duties and responsibil-
ities. However, the Finance Board may not prescribe
or set a specific level or range of compensation for
any officer, director, or employee.
‘‘(2) REGULATIONS.—The Finance Board, by
regulation, may provide for the requirements of
paragraph (1) to be phased-in over a period not to
exceed 3 years.
‘‘(3) EXCEPTION FOR EXISTING CONTRACTS.—
Paragraph (1) shall not apply to any contract en-
tered into before June 1, 1997.’’.
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(c) POWERS AND DUTIES OF FEDERAL HOUSING FI-
NANCE BOARD.—
(1) Subsection (a)(1) of section 2B of the Fed-
eral Home Loan Bank Act (12 U.S.C. 1422b(a)(1))
is amended by striking the period at the end of the
sentence and inserting ‘‘; and to have the same pow-
ers, rights, and duties to enforce this Act with re-
spect to the Federal home loan banks and the senior
officers and directors of such banks as the Office of
Federal Housing Enterprise Oversight has over the
Federal housing enterprises and the senior officers
and directors of such enterprises under the Federal
Housing Enterprises Financial Safety and Sound-
ness Act of 1992.’’.
(2) Subsection (b) of section 2B of the Federal
Home Loan Bank Act (12 U.S.C. 1422b(b)) is
amended—
(A) by striking ‘‘(1) BOARD STAFF.—’’;
(B) by striking ‘‘function to any employee,
administrative unit’’ and inserting ‘‘function to
any employee or administrative unit’’;
(C) by striking the second sentence in
paragraph (1); and
(D) by striking paragraph (2).
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(3) Section 111 of Public Law 93–495 (12
U.S.C. 250) is amended by striking ‘‘Federal Home
Loan Bank Board’’ and inserting ‘‘Federal Housing
Finance Board’’.
(d) ELIGIBILITY TO SECURE ADVANCES.—
(1) SECTION
9.—Section 9 of the Federal
Home Loan Bank Act (12 U.S.C. 1429) is amend-
ed—
(A) in the second sentence, by striking
‘‘with the approval of the Board’’; and
(B) in the third sentence, by striking ‘‘,
subject to the approval of the Board,’’.
(2) SECTION 10.—
(A) Subsection (a) of section 10 of the
Federal Home Loan Bank Act (12 U.S.C.
1430(a)) is amended in paragraph (3), by strik-
ing ‘‘Deposits’’ and inserting ‘‘Cash or depos-
its’’.
(B) Subsection (c) of section 10 of the
Federal Home Loan Bank Act (12 U.S.C.
1430(c)) is amended—
(i) in the first sentence by striking
‘‘Board’’ and inserting ‘‘Federal home loan
bank’’; and
(ii) by striking the second sentence.
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(C) Subsection (d) of section 10 of the
Federal Home Loan Bank Act (12 U.S.C.
1430(d)) is amended—
(i) in the first sentence, by striking
‘‘and the approval of the Board’’; and
(ii) in the last sentence, by striking
‘‘Subject to the approval of the Board,
any’’ and inserting ‘‘Any’’.
(D) Section 10(j) of the Federal Home
Loan Bank Act (12 U.S.C. 1430(j)) is amend-
ed—
(i) in the first sentence of paragraph
(1) by striking ‘‘to subsidize the interest
rate on advances’’ and inserting ‘‘to pro-
vide subsidies, including subsidized interest
rates on advances’’;
(ii) in paragraphs (2), (3), (4), (5),
(9), (11), and (12) by striking ‘‘advances’’
and ‘‘subsidized advances’’ each place such
terms appear and inserting ‘‘subsidies, in-
cluding subsidized advances’’;
(iii) in paragraph (1), by inserting
‘‘(A)’’ before the first sentence, and insert-
ing the following at the end of the para-
graph:
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‘‘(B) Subject to such regulations as the Fi-
nance Board may prescribe, the board of direc-
tors of each Federal home loan bank may ap-
prove or disapprove requests from members for
Affordable Housing Program subsidies, and
may not delegate such authority.’’;
(iv) in paragraph (2), by striking sub-
paragraph (B) and inserting the following
new subparagraph:
‘‘(B) finance the purchase, construction or
rehabilitation of rental housing if, for a period
of at least 15 years, either 20 percent or more
of the units in such housing are occupied by
and affordable for households whose income is
50 percent or less of area median income (as
determined by the Secretary of Housing and
Urban Development, and as adjusted for family
size); or 40 percent or more of the units in such
housing are occupied by and affordable for
households whose income is 60 percent or less
of area median income (as determined by the
Secretary of Housing and Urban Development,
and as adjusted for family size).’’;
(v) in paragraph (5)—
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(I) by striking the colon after
‘‘Affordable Housing Program’’;
(II) by striking subparagraphs
(A) and (B); and
(III) by striking ‘‘(C) In 1995,
and subsequent years,’’;
(vi) in paragraph (11)—
(I) by inserting ‘‘, pursuant to a
nomination process that is as broad
and as participatory as possible, and
giving consideration to the size of the
District and the diversity of low- and
moderate-income housing needs and
activities within the District,’’ after
‘‘Advisory Council of 7 to 15 per-
sons’’;
(II) by inserting ‘‘a diverse range
of’’ before ‘‘community and nonprofit
organizations’’; and
(III) by inserting after the first
sentence, the following new sentence:
‘‘Representatives of no one group
shall constitute an undue proportion
of the membership of the Advisory
Council.’’; and
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(vii) in paragraph (13), by striking
subparagraph (D) and inserting the follow-
ing new subparagraph:
‘‘(D) 
AFFORDABLE.—For 
purposes 
of
paragraph (2)(B), the term ‘‘affordable’’ means
that the rent with respect to a unit shall not ex-
ceed 30 percent of the income limitation under
paragraph (2)(B) applicable to occupants of
such unit.’’.
(e) SECTION 16.—Subsection (a) of section 16 of the
Federal Home Loan Bank Act (12 U.S.C. 1436) is
amended in the third sentence by striking ‘‘net earnings’’
and inserting ‘‘previously retained earnings or current net
earnings’’; by striking ‘‘, and then only with the approval
of the Federal Housing Finance Board’’; and by striking
the fourth sentence.
(f) SECTION 18.—Subsection (b) of section 18 of the
Federal Home Loan Bank Act (12 U.S.C. 1438) is
amended by striking paragraph (4).
(g) SECTION 11.—Section 11 of the Federal Home
Loan Bank Act (12 U.S.C. 1431) is amended by inserting
after subsection (j) (as so redesignated by section 166(e)
of this subtitle) the following subsection:
‘‘(k) PROHIBITION ON OTHER ACTIVITIES.—
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‘‘(1) A Federal home loan bank may not engage
in any activity other than the activities authorized
under this Act and activities incidental to such au-
thorized activities.
‘‘(2) All activities specified in paragraph (1) are
subject to Finance Board approval.’’.
SEC. 169. DEFINITIONS.
Paragraph (3) of section 2 of the Federal Home Loan
Bank Act (12 U.S.C. 1422(3)) is amended to read as fol-
lows:
‘‘(3) The term ‘‘State’’ in addition to the states
of the United States, includes the District of Colum-
bia, Guam, Puerto Rico, the United States Virgin
Islands, American Samoa, and the Commonwealth of
the Northern Mariana Islands.’’.
SEC. 170. RESOLUTION FUNDING CORPORATION.
(a) IN GENERAL.—Section 21B(f)(2)(C) of the Fed-
eral Home Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is
amended to read as follows:
‘‘(C) PAYMENTS BY FEDERAL HOME LOAN
BANKS.—To the extent the amounts available
pursuant to subparagraphs (A) and (B) are in-
sufficient to cover the amount of interest pay-
ments, each Federal home loan bank shall pay
to the Funding Corporation each calendar year
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20.75 percent of the net earnings of such bank
(after deducting expenses relating to subsection
(j) of section 10 and operating expenses).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on January 1, 1999.
SEC. 171. CAPITAL STRUCTURE OF THE FEDERAL HOME
LOAN BANKS.
(a) IN GENERAL.—Section 6 of the Federal Home
Loan Bank Act (12 U.S.C. 1426) is amended to read as
follows:
‘‘SEC. 6. CAPITAL STRUCTURE OF FEDERAL HOME LOAN
BANKS.
‘‘(a) CAPITAL STRUCTURE PLAN.—On or before Jan-
uary 1, 1999, the board of directors of each Federal home
loan bank shall submit for Finance Board approval a plan
establishing and implementing a capital structure for such
bank which—
‘‘(1) the board of directors determines is the
best suited for the condition and operation of the
bank and the interests of the shareholders of the
bank;
‘‘(2) meets the requirements of subsection (b);
and
‘‘(3) meets the minimum capital standards and
requirements established under subsection (c) and
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any regulations prescribed by the Finance Board
pursuant to such subsection.
‘‘(b) CONTENTS OF PLAN.—The capital structure
plan of each Federal home loan bank shall meet the follow-
ing requirements:
‘‘(1) STOCK PURCHASE REQUIREMENTS.—
‘‘(A) IN GENERAL.—Each capital structure
plan of a Federal home loan bank shall require
the shareholders of the bank to maintain an in-
vestment in the stock of the bank in amount
not less than—
‘‘(i) a minimum percentage of the
total assets of the shareholder; and
‘‘(ii) a minimum percentage of the
outstanding advances from the bank to the
shareholder.
‘‘(B) MINIMUM
PERCENTAGE
LEVELS.—
The minimum percentages established pursuant
to subparagraph (A) shall be set at levels suffi-
cient to meet the bank’s minimum capital re-
quirements established by the Finance Board
under subsection (c).
‘‘(C) MAXIMUM ASSET BASED CAPITAL RE-
QUIREMENT.—The asset-based capital require-
ment applicable to any shareholder of a Federal
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home loan bank in any year shall not exceed the
lesser of—
‘‘(i) 0.6 percent of a shareholder’s
total assets at the close of the preceding
year; or
‘‘(ii) $300,000,000.
‘‘(D) MAXIMUM ADVANCE-BASED REQUIRE-
MENT.—The advance-based capital requirement
applicable to any shareholder of a Federal home
loan bank shall not exceed 6 percent of the
total outstanding advances from the bank to the
shareholder.
‘‘(E) MINIMUM
STOCK
PURCHASE
RE-
QUIREMENT AUTHORIZED.—A capital structure
plan may establish a minimum dollar amount of
stock of a Federal home loan bank in which a
shareholder shall be required to invest.
‘‘(2) ADJUSTMENTS TO STOCK PURCHASE RE-
QUIREMENTS.—The capital structure plan adopted
by each Federal home loan bank shall impose a con-
tinuing obligation on the board of directors of the
bank to review and adjust as necessary member
stock purchase requirements in order to ensure that
the bank remains in compliance with applicable min-
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imum capital levels established by the Finance
Board.
‘‘(3) TRANSITION RULE FOR STOCK PURCHASE
REQUIREMENTS.—
‘‘(A) IN
GENERAL.—A capital structure
plan may allow shareholders who were members
of a Federal home loan bank on the date of the
enactment of the Financial Services Act of
1998 to come into compliance with the asset-
based stock purchase requirement established
under paragraph (1) during a transition period
established under the plan of not more than 3
years, if such requirement exceeds the asset-
based stock purchase requirement in effect on
such date of enactment.
‘‘(B) 
INTERIM
PURCHASE
REQUIRE-
MENTS.—A capital structure plan may establish
interim asset-based stock purchase require-
ments applicable to members referred to in sub-
paragraph (A) during a transition period estab-
lished under subparagraph (A).
‘‘(4) CLASSES OF STOCK.—
‘‘(A) IN GENERAL.—Each capital structure
plan shall afford each shareholder of a Federal
home loan bank the option of meeting the
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shareholder’s 
stock 
purchase 
requirements
through the purchase of any combination of
Class A or Class B stock.
‘‘(B) CLASS A STOCK.—Class A stock shall
be stock of a Federal home loan bank that shall
be redeemed in cash and at par by the bank no
later than 12 months following submission of a
written notice by a shareholder of the share-
holder’s intention to divest all shares of stock in
the bank.
‘‘(C) CLASS B STOCK.—Class B stock shall
be stock of a Federal home loan bank that shall
be redeemed in cash and at par by the bank no
later than 5 years following submission of a
written notice by a shareholder of the share-
holder’s intention to divest all shares of stock in
the bank.
‘‘(D) RIGHTS REQUIREMENT.—The Class
B stock of a Federal home loan bank may re-
ceive a dividend premium over that paid on
Class A stock, and may have preferential voting
rights in the election of Federal home loan bank
directors.
‘‘(E) LOWER STOCK PURCHASE REQUIRE-
MENTS FOR CLASS B STOCK.—A capital struc-
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ture plan may provide for lower stock purchase
requirements with respect to those sharehold-
er’s that elect to purchase Class B stock in a
manner that is consistent with meeting the
bank’s own minimum capital requirements as
established by the Finance Board.
‘‘(F) NO OTHER CLASSES OF STOCK PER-
MITTED.—No class of stock other than the
Class A and Class B stock described in sub-
paragraphs (B) and (C) may be issued by a
Federal home loan bank.
‘‘(5) LIMITED TRANSFERABILITY OF STOCK.—
Each capital structure plan shall provide that any
equity securities issued by the bank shall be avail-
able only to, held only by, and tradable only among
shareholders of the bank.
‘‘(c) CAPITAL STANDARDS.—
‘‘(1) IN GENERAL.—The Finance Board shall
prescribe, by regulation, uniform capital standards
applicable to each Federal home loan bank which
shall include—
‘‘(A) a leverage limit in accordance with
paragraph (2); and
‘‘(B) a risk-based capital requirement in
accordance with paragraph (3).
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‘‘(2) MINIMUM LEVERAGE LIMIT.—The leverage
limit established by the Finance Board shall require
each Federal home loan bank to maintain total cap-
ital in an amount not less than 5 percent of the total
assets of the bank. In determining compliance with
the minimum leverage ratio, the amount of retained
earnings and the paid-in value of Class B stock, if
any, shall be multiplied by 1.5 and such higher
amount shall be deemed to be capital for purposes
of meeting the 5 percent minimum leverage ratio.
‘‘(3) RISK-BASED
CAPITAL
STANDARD.—The
risk-based capital requirement shall be composed of
the following components:
‘‘(A) Capital sufficient to meet the credit
risk to which a Federal home loan bank is sub-
ject, based on an amount which is not less than
the amount of tier 1, risk-based capital required
by regulations prescribed, or guidelines issued
under section 38 of the Federal Deposit Insur-
ance Act for a well capitalized insured deposi-
tory institution.
‘‘(B) Capital sufficient to meet the interest
rate risk to which a Federal home loan bank is
subject, based on an interest rate stress test ap-
plied by the Finance Board that rigorously tests
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for changes in interest rates, rate volatility, and
changes in the shape of the yield curve.
‘‘(d) REDEMPTION OF CAPITAL.—
‘‘(1) IN GENERAL.—Any shareholder of a Fed-
eral home loan bank shall have the right to withdraw
the shareholder’s membership from a Federal home
loan bank and to redeem the shareholder’s stock in
accordance with the redemption rights associated
with the class of stock the shareholder holds, if—
‘‘(A) such shareholder has filed a written
notice of an intention to redeem all such shares;
and
‘‘(B) the shareholder has no outstanding
advances from any Federal home loan bank at
the time of such redemption.
‘‘(2) PARTIAL
REDEMPTION.—A shareholder
who files notice of intention to redeem all shares of
stock in a Federal home loan bank may redeem not
more than 1/2 of all such shares, in cash and at par,
6 months before the date by which the bank is re-
quired to redeem such stock pursuant to subpara-
graph (B) or (C) of subsection (b)(4).
‘‘(3) DIVESTITURE.—The board of directors of
any Federal home loan bank may, after a hearing,
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order the divestiture by any shareholder of all own-
ership interests of such shareholder in the bank, if—
‘‘(A) in the opinion of the board of direc-
tors, such shareholder has failed to comply with
a provision of this Act or any regulation pre-
scribed under this Act; or
‘‘(B) the shareholder has been determined
to be insolvent, or otherwise subject to the ap-
pointment of a conservator, receiver, or other
legal custodian, by a State or Federal authority
with regulatory and supervisory responsibility
for such shareholder.
‘‘(4) RETIREMENT
OF
EXCESS
STOCK.—Any
shareholder may—
‘‘(A) retire shares of Class A stock or, at
the option of the shareholder, shares of Class B
stock, or any combination of Class A and Class
B stock, that are excess to the minimum stock
purchase requirements applicable to the share-
holder; and
‘‘(B) receive from the Federal home loan
bank a prompt payment in cash equal to the
par value of such stock.
‘‘(5) IMPAIRMENT OF CAPITAL.—If the Finance
Board or the board of directors of a Federal home
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loan bank determines that the paid-in capital of the
bank is, or is likely to be, impaired as a result of
losses in or depreciation of the assets of the bank,
the Federal home loan bank shall withhold that por-
tion of the amount due any shareholder with respect
to any redemption or retirement of any class of
stock which bears the same ratio to the total of such
amount as the amount of the impaired capital bears
to the total amount of capital allocable to such class
of stock.
‘‘(6) POLICIES.—Subject to the requirements of
this section, the board of directors of each Federal
home loan bank shall promptly establish policies,
consistent with this Act, governing the capital stock
of such bank and other provisions of this section.’’.
SEC. 172. INVESTMENTS.
Subsection (j) of section 11 of the Federal Home
Loan Bank Act (12 U.S.C. 1431) (as so redesignated by
section 166(e) of this subtitle) is amended to read as fol-
lows:
‘‘(j) INVESTMENTS.—Each bank shall reduce its in-
vestments to those necessary for liquidity purposes, for
safe and sound operation of the banks, or for housing fi-
nance, as administered by the Finance Board.’’.
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SEC. 173. FEDERAL HOUSING FINANCE BOARD.
Section 2A(b)(1) of the Federal Home Loan Bank
Act (12 U.S.C. 1422(b)(1)) is amended—
(1) by redesignating subparagraphs (A) and
(B) as subparagraphs (B) and (C), respectively;
(2) by inserting before subparagraph (B) (as so
redesignated by paragraph (1) of this section) the
following new subparagraph:
‘‘(A) The Secretary of the Treasury (or the
Secretary of the Treasury’s designee), who shall
serve without additional compensation.’’; and
(3) in subparagraph (C) (as so redesignated by
paragraph (1) of this section) by striking ‘‘Four’’
and inserting ‘‘3’’.
Subtitle H—Direct Activities of
Banks
SEC. 181. 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
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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).’’.
Subtitle I—Deposit Insurance
Funds
SEC. 186. STUDY OF SAFETY AND SOUNDNESS OF FUNDS.
(a) STUDY REQUIRED.—The Board of Directors of
the Federal Deposit Insurance Corporation shall conduct
a study of the following issues with regard to the Bank
Insurance Fund and the Savings Association Insurance
Fund:
(1) The safety and soundness of the funds and
the adequacy of the reserve requirements applicable
to the funds in light of—
(A) the size of the insured depository insti-
tutions which are resulting from mergers and
consolidations since the effective date of the
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Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994; and
(B) the affiliation of insured depository in-
stitutions with other financial institutions pur-
suant to this Act and the amendments made by
this Act.
(2) The concentration levels of the funds, tak-
ing into account the number of members of each
fund and the geographic distribution of such mem-
bers, and the extent to which either fund is exposed
to higher risks due to a regional concentration of
members or an insufficient membership base relative
to the size of member institutions.
(3) Issues relating to the planned merger of the
funds, including the cost of merging the funds and
the manner in which such costs will be distributed
among the members of the respective funds.
(b) REPORT REQUIRED.—
(1) IN GENERAL.—Before the end of the 9-
month period beginning on the date of the enact-
ment of this Act, the Board of Directors of the Fed-
eral Deposit Insurance Corporation shall submit a
report to the Congress on the study conducted pur-
suant to subsection (a).
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(2) CONTENTS OF REPORT.—The report shall
include—
(A) detailed findings of the Board of Di-
rectors with regard to the issues described in
subsection (a);
(B) a description of the plans developed by
the Board of Directors for merging the Bank
Insurance Fund and the Savings Association
Insurance Fund, including an estimate of the
amount of the cost of such merger which would
be borne by Savings Association Insurance
Fund members; and
(C) such recommendations for legislative
and administrative action as the Board of Di-
rectors determines to be necessary or appro-
priate to preserve the safety and soundness of
the deposit insurance funds, reduce the risks to
such funds, provide for an efficient merger of
such funds, and for other purposes.
(c) DEFINITIONS.—For purposes of this section, the
following definitions shall apply:
(1) INSURED DEPOSITORY INSTITUTION.—The
term ‘‘insured depository institution’’ has the mean-
ing given to such term in section 3(c) of the Federal
Deposit Insurance Act.
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(2) BIF
AND
SAIF
MEMBERS.—The terms
‘‘Bank Insurance Fund member’’ and ‘‘Savings As-
sociation Insurance Fund member’’ have the mean-
ing given to such terms in section 7(l) of the Federal
Deposit Insurance Act.
Subtitle J—Effective Date of Title
SEC. 191. EFFECTIVE DATE.
Except with regard to any subtitle or other provision
of this title for which a specific effective date is provided,
this title and the amendments made by this title shall take
effect at the end of the 270-day period beginning on the
date of the enactment of this 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
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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
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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;
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‘‘(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-
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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 on
the basis of an administration or an-
nual fee (payable on a monthly, quar-
terly, or other basis), a percentage of
assets under management, or a flat or
capped per order processing fee, or
any combination of such fees, but
does not otherwise receive brokerage
commissions, or other similar remu-
neration based on effecting trans-
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actions in securities, that exceed the
cost incurred by the bank in connec-
tion with executing securities trans-
actions for trustee or fiduciary cus-
tomers; 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
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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 of administration fees, or
flat or capped per order process-
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ing fees, or both, but the bank
does not otherwise receive broker-
age commissions, or other similar
remuneration based on effecting
transactions in securities, that
exceed the cost incurred by the
bank in connection with execut-
ing securities transactions under
this subclause (I).
‘‘(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
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‘‘(cc) the bank’s compensa-
tion for such plan or program
consists of administration fees, or
flat or capped per order process-
ing fees, or both, but the bank
does not otherwise receive broker-
age commissions, or other similar
remuneration based on effecting
transactions in securities, that
exceed the cost incurred by the
bank in connection with execut-
ing securities transactions under
this subclause (II).
‘‘(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;
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‘‘(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 of administration fees, or
flat or capped per order process-
ing fees, or both, but the bank
does not otherwise receive broker-
age commissions, or other similar
remuneration based on effecting
transactions in securities, that
exceed the cost incurred by the
bank in connection with execut-
ing securities transactions under
this subclause (III).
‘‘(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-
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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 Act of 1998; 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—
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‘‘(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 one year
after the date of enactment of the Fi-
nancial Services Act of 1998, is not
affiliated with a broker or dealer that
has been registered for more than one
year; and
‘‘(III) effects transactions exclu-
sively with qualified investors.
‘‘(viii) SAFEKEEPING
AND
CUSTODY
ACTIVITIES.—
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‘‘(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-
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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 206(a) of
the Financial Services Act of 1998.
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‘‘(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 or broker 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
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‘‘(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 commis-
sion’s authority under any other provision 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;
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‘‘(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 Act of
1998, 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
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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-
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eign government to retire outstanding
commercial bank loans.
‘‘(ii) INVESTMENT, TRUSTEE, AND FI-
DUCIARY TRANSACTIONS.—The bank buys
or sells securities for investment pur-
poses—
‘‘(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 206(a) of the Finan-
cial Services Act of 1998.
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‘‘(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 corporation,
limited liability company, or partner-
ship that owns and invests on a dis-
cretionary 
basis, 
not 
less 
than
$10,000,000 in investments, or to or
from a qualified investor, except that
if the instrument provides for the de-
livery of one or more securities (other
than a derivative instrument or gov-
ernment security), the transaction
shall be effected with or through a
registered broker or dealer; or
‘‘(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
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‘‘(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.’’.
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SEC. 204. SALES PRACTICES AND COMPLAINT PROCE-
DURES.
Section 18 of the Federal Deposit Insurance Act is
amended by adding at the end the following new sub-
section:
‘‘(s) SALES PRACTICES
AND COMPLAINT PROCE-
DURES WITH RESPECT TO BANK SECURITIES ACTIVI-
TIES.—
‘‘(1) REGULATIONS REQUIRED.—Each Federal
banking agency shall prescribe and publish in final
form, not later than 6 months after the date of en-
actment of the Financial Services Act of 1998, regu-
lations which apply to retail transactions, solicita-
tions, advertising, or offers of any security by any
insured depository institution or any affiliate thereof
other than a registered broker or dealer or an indi-
vidual acting on behalf of such a broker or dealer
who is an associated person of such broker or dealer.
Such regulations shall include—
‘‘(A) requirements that sales practices
comply with just and equitable principles of
trade that are substantially similar to the Rules
of Fair Practice of the National Association of
Securities Dealers; and
‘‘(B) requirements prohibiting (i) condi-
tioning an extension of credit on the purchase
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or sale of a security; and (ii) any conduct lead-
ing a customer to believe that an extension of
credit is conditioned upon the purchase or sale
of a security.
‘‘(2) PROCEDURES
REQUIRED.—The appro-
priate Federal banking agencies shall jointly estab-
lish procedures and facilities for receiving and expe-
ditiously processing complaints against any bank or
employee of a bank arising in connection with the
purchase or sale of a security by a customer, includ-
ing a complaint alleging a violation of the regula-
tions prescribed under paragraph (1), but excluding
a complaint involving an individual acting on behalf
of such a broker or dealer who is an associated per-
son of such broker or dealer. The use of any such
procedures and facilities by such a customer shall be
at the election of the customer. Such procedures
shall include provisions to refer a complaint alleging
fraud to the Securities and Exchange Commission
and appropriate State securities commissions.
‘‘(3) REQUIRED
ACTIONS.—The actions re-
quired by the Federal banking agencies under para-
graph (2) shall include the following:
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‘‘(A) establishing a group, unit, or bureau
within each such agency to receive such com-
plaints;
‘‘(B) developing and establishing proce-
dures for investigating, and permitting cus-
tomers to investigate, such complaints;
‘‘(C) developing and establishing proce-
dures for informing customers of the rights
they may have in connection with such com-
plaints;
‘‘(D) developing and establishing proce-
dures that allow customers a period of at least
6 years to make complaints and that do not re-
quire customers to pay the costs of the proceed-
ing; and
‘‘(E) developing and establishing proce-
dures for resolving such complaints, including
procedures for the recovery of losses to the ex-
tent appropriate.
‘‘(4) CONSULTATION
AND
JOINT
REGULA-
TIONS.—The Federal banking agencies shall consult
with each other and prescribe joint regulations pur-
suant to paragraphs (1) and (2), after consultation
with the Securities and Exchange Commission.
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‘‘(5) PROCEDURES
IN
ADDITION
TO
OTHER
REMEDIES.—The procedures and remedies provided
under this subsection shall be in addition to, and not
in lieu of, any other remedies available under law.
‘‘(6) DEFINITION.—As used in this sub-
section—
‘‘(A) the term ‘security’ has the meaning
provided in section 3(a)(10) of the Securities
Exchange Act of 1934;
‘‘(B) the term ‘registered broker or dealer’
has the meaning provided in section 3(a)(48) of
such Act; and
‘‘(C) the term ‘associated person’ has the
meaning provided in section 3(a)(18) of such
Act.’’.
SEC. 205. 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