114
shares of any company engaged in such ac-
tivity; and
‘‘(ii) the company engaged in such ac-
tivity continues to engage only in the same
activities that such company conducted on
the date of the enactment of the Financial
Services Act of 1998, and other activities
permissible under this Act.
‘‘(B) NO EXPANSION OF GRANDFATHERED
COMMERCIAL ACTIVITIES THROUGH MERGER OR
CONSOLIDATION.—A wholesale financial holding
company that engages in activities or holds
shares pursuant to this paragraph, or a subsidi-
ary of such wholesale financial holding com-
pany, may not acquire, in any merger, consoli-
dation, or other type of business combination,
assets of any other company which is engaged
in any activity which the Board has not deter-
mined to be financial in nature or incidental to
activities that are financial in nature under sec-
tion 6(c).
‘‘(C) LIMITATION
TO
SINGLE
EXEMP-
TION.—No company that engages in any activ-
ity or controls any shares under subsection (f)
115
of section 6 may engage in any activity or own
any shares pursuant to this paragraph.
‘‘(2) COMMODITIES.—
‘‘(A) IN GENERAL.—Notwithstanding sec-
tion 4(a), a wholesale financial holding company
which was predominately engaged as of Janu-
ary 1, 1997, in financial activities in the United
States (or any successor to any such company)
may engage in, or directly or indirectly own or
control shares of a company engaged in, activi-
ties related to the trading, sale, or investment
in commodities and underlying physical prop-
erties that were not permissible for bank hold-
ing companies to conduct in the United States
as of January 1, 1997, if such wholesale finan-
cial holding company, or any subsidiary of such
holding company, was engaged directly, indi-
rectly, or through any such company in any of
such activities as of January 1, 1997, in the
United States.
‘‘(B) LIMITATION.—The attributed aggre-
gate consolidated assets of a wholesale financial
holding company held under the authority
granted under this paragraph and not otherwise
permitted to be held by all wholesale financial
116
holding companies under this section may not
exceed 5 percent of the total consolidated assets
of the wholesale financial holding company, ex-
cept that the Board may increase such percent-
age of total consolidated assets by such
amounts and under such circumstances as the
Board considers appropriate, consistent with
the purposes of this Act.
‘‘(3) CROSS
MARKETING
RESTRICTIONS.—A
wholesale financial holding company shall not
permit—
‘‘(A) any company whose shares it owns or
controls pursuant to paragraph (1) or (2) to
offer or market any product or service of an af-
filiated wholesale financial institution; or
‘‘(B) any affiliated wholesale financial in-
stitution to offer or market any product or serv-
ice of any company whose shares are owned or
controlled by such wholesale financial holding
company pursuant to such paragraphs.
‘‘(d) QUALIFICATION OF FOREIGN BANK AS WHOLE-
SALE FINANCIAL HOLDING COMPANY.—
‘‘(1) IN GENERAL.—Any foreign bank, or any
company that owns or controls a foreign bank, that
operates a branch, agency, or commercial lending
117
company in the United States, including a foreign
bank or company that owns or controls a wholesale
financial institution, may request a determination
from the Board that such bank or company be treat-
ed as a wholesale financial holding company (other
than for purposes of subsection (c)), subject to such
conditions as the Board deems appropriate, giving
due regard to the principle of national treatment
and equality of competitive opportunity and the re-
quirements imposed on domestic banks and compa-
nies.
‘‘(2) CONDITIONS
FOR
TREATMENT
AS
A
WHOLESALE FINANCIAL HOLDING COMPANY.—A for-
eign bank and a company that owns or controls a
foreign bank may not be treated as a wholesale fi-
nancial holding company unless the bank and com-
pany meet and continue to meet the following cri-
teria:
‘‘(A) NO INSURED DEPOSITS.—No deposits
held directly by a foreign bank or through an
affiliate (other than an institution described in
subparagraph (D) or (F) of section 2(c)(2)) are
insured under the Federal Deposit Insurance
Act.
118
‘‘(B) CAPITAL
STANDARDS.—The foreign
bank meets risk-based capital standards com-
parable to the capital standards required for a
wholesale financial institution, giving due re-
gard to the principle of national treatment and
equality of competitive opportunity.
‘‘(C) TRANSACTION
WITH
AFFILIATES.—
Transactions between a branch, agency, or com-
mercial lending company subsidiary of the for-
eign bank in the United States, and any securi-
ties affiliate or company in which the foreign
bank (or any company that owns or controls
such foreign bank), has invested and which en-
gages in any activity authorized only as a result
of the application of subsection (c) or (g) of
section 6, comply with the provisions of sections
23A and 23B of the Federal Reserve Act in the
same manner and to the same extent as such
transactions would be required to comply with
such sections if the foreign bank were a mem-
ber bank.
‘‘(3) TREATMENT AS A WHOLESALE FINANCIAL
INSTITUTION.—Any foreign bank which is, or is af-
filiated with a company which is, treated as a whole-
sale financial holding company under this subsection
119
shall be treated as a wholesale financial institution
for purposes of paragraphs (1)(C) and (3) of section
9B(c) of the Federal Reserve Act, and any such for-
eign bank or company shall be subject to paragraphs
(3), (4), and (5) of section 9B(d) of the Federal Re-
serve Act, except that the Board may adopt such
modifications, conditions, or exemptions as the
Board deems appropriate, giving due regard to the
principle of national treatment and equality of com-
petitive opportunity.
‘‘(4) SUPERVISION OF FOREIGN BANK WHICH
MAINTAINS
NO
BANKING
PRESENCE
OTHER
THAN
CONTROL
OF
A
WHOLESALE
FINANCIAL
INSTITU-
TION.—A foreign bank that owns or controls a
wholesale financial institution but does not operate
a branch, agency, or commercial lending company in
the United States (and any company that owns or
controls such foreign bank) may request a deter-
mination from the Board that such bank or com-
pany be treated as a wholesale financial holding
company, except that such bank or company shall be
subject to the restrictions of paragraphs (2)(A) and
(3) of this subsection.
‘‘(5) NO EFFECT ON OTHER PROVISIONS.—This
section shall not be construed as limiting the author-
121
amination or other confidential supervisory information
concerning State member banks or any other entities ex-
amined under any other authority of the Board to any
Federal or State authorities with supervisory or regulatory
authority over the examined entity, to officers, directors,
or receivers of the examined entity, and to any other per-
son that the Board determines to be proper.’’.
(b) COMMODITY FUTURES TRADING COMMISSION.—
The Right to Financial Privacy Act of 1978 (12 U.S.C.
3401 et seq.) is amended—
(1) in section 1101(7) (12 U.S.C. 3401(7))—
(A) by redesignating subparagraphs (G)
and (H) as subparagraphs (H) and (I), respec-
tively; and
(B) by inserting after subparagraph (F)
the following new subparagraph:
‘‘(G) the Commodity Futures Trading
Commission; or’’; and
(2) in section 1112(e) (12 U.S.C. 3412(e)), by
striking ‘‘and the Securities and Exchange Commis-
sion’’ and inserting ‘‘, the Securities and Exchange
Commission, and the Commodity Futures Trading
Commission’’.
SEC. 133. CONFORMING AMENDMENTS.
(a) BANK HOLDING COMPANY ACT OF 1956.—
122
(1) DEFINITIONS.—Section 2 of the Bank
Holding Company Act of 1956 (12 U.S.C. 1842) is
amended by adding at the end the following new
subsections:
‘‘(p) WHOLESALE FINANCIAL INSTITUTION.—The
term ‘wholesale financial institution’ means a wholesale fi-
nancial institution subject to section 9B of the Federal
Reserve Act.
‘‘(q) COMMISSION.—The term ‘Commission’ means
the Securities and Exchange Commission.
‘‘(r) DEPOSITORY INSTITUTION.—The term ‘deposi-
tory institution’—
‘‘(1) has the same meaning as in section 3 of
the Federal Deposit Insurance Act; and
‘‘(2) includes a wholesale financial institution.’’.
(2) DEFINITION OF BANK INCLUDES WHOLE-
SALE FINANCIAL INSTITUTION.—Section 2(c)(1) of
the Bank Holding Company Act of 1956 (12 U.S.C.
1841(c)(1)) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(C) A wholesale financial institution.’’.
(3) 
INCORPORATED
DEFINITIONS.—Section
2(n) of the Bank Holding Company Act of 1956 (12
U.S.C. 1841(n)) is amended by inserting ‘‘ ‘insured
bank’,’’ after ‘‘ ‘in danger of default’,’’.
123
(4) EXCEPTION
TO
DEPOSIT
INSURANCE
RE-
QUIREMENT.—Section 3(e) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1842(e)) is
amended by adding at the end the following: ‘‘This
subsection shall not apply to a wholesale financial
institution.’’.
(b) FEDERAL DEPOSIT INSURANCE ACT.—Section
3(q)(2)(A) of the Federal Deposit Insurance Act (12
U.S.C. 1813(q)(2)(A)) is amended to read as follows:
‘‘(A) any State member insured bank (ex-
cept a District bank) and any wholesale finan-
cial institution as authorized pursuant to sec-
tion 9B of the Federal Reserve Act;’’.
CHAPTER 2—WHOLESALE FINANCIAL
INSTITUTIONS
SEC. 136. WHOLESALE FINANCIAL INSTITUTIONS.
(a) NATIONAL WHOLESALE FINANCIAL INSTITU-
TIONS.—
(1) IN GENERAL.—Chapter one of title LXII of
the Revised Statutes of the United States (12
U.S.C. 21 et seq.) is amended by inserting after sec-
tion 5136A (as added by section 121(a) of this title)
the following new section:
124
‘‘SEC. 5136B. NATIONAL WHOLESALE FINANCIAL INSTITU-
TIONS.
‘‘(a) AUTHORIZATION OF THE COMPTROLLER RE-
QUIRED.—A national bank may apply to the Comptroller
on such forms and in accordance with such regulations
as the Comptroller may prescribe, for permission to oper-
ate as a national wholesale financial institution.
‘‘(b) REGULATION.—A national wholesale financial
institution may exercise, in accordance with such institu-
tion’s articles of incorporation and regulations issued by
the Comptroller, all the powers and privileges of a national
bank formed in accordance with section 5133 of the Re-
vised Statutes of the United States, subject to section 9B
of the Federal Reserve Act and the limitations and restric-
tions contained therein.
‘‘(c) COMMUNITY REINVESTMENT ACT OF 1977.—A
national wholesale financial institution shall be subject to
the Community Reinvestment Act of 1977, only if the
wholesale financial institution has an affiliate that is an
insured depository institution or that operates an insured
branch, as those terms are defined in section 3 of the Fed-
eral Deposit Insurance Act.’’.
(2) CLERICAL AMENDMENT.—The table of sec-
tions for chapter one of title LXII of the Revised
Statutes of the United States is amended by insert-
ing after the item relating to section 5136A (as
125
added by section 121(d) of this title) the following
new item:
‘‘5136B. National wholesale financial institutions.’’.
(b) STATE WHOLESALE FINANCIAL INSTITUTIONS.—
The Federal Reserve Act (12 U.S.C. 221 et seq.) is
amended by inserting after section 9A the following new
section:
‘‘SEC. 9B. WHOLESALE FINANCIAL INSTITUTIONS.
‘‘(a) APPLICATION FOR MEMBERSHIP AS WHOLE-
SALE FINANCIAL INSTITUTION.—
‘‘(1) APPLICATION REQUIRED.—
‘‘(A) IN GENERAL.—Any bank may apply
to the Board of Governors of the Federal Re-
serve System to become a wholesale financial
institution and, as a wholesale financial institu-
tion, to subscribe to the stock of the Federal re-
serve bank organized within the district where
the applying bank is located.
‘‘(B) TREATMENT
AS
MEMBER
BANK.—
Any application under subparagraph (A) shall
be treated as an application under, and shall be
subject to the provisions of, section 9.
‘‘(2) INSURANCE TERMINATION.—No bank the
deposits of which are insured under the Federal De-
posit Insurance Act may become a wholesale finan-
cial institution unless it has met all requirements
126
under that Act for voluntary termination of deposit
insurance.
‘‘(b) GENERAL
REQUIREMENTS
APPLICABLE
TO
WHOLESALE FINANCIAL INSTITUTIONS.—
‘‘(1) FEDERAL RESERVE ACT.—Except as oth-
erwise provided in this section, wholesale financial
institutions shall be member banks and shall be sub-
ject to the provisions of this Act that apply to mem-
ber banks to the same extent and in the same man-
ner as State member insured banks, except that a
wholesale financial institution may terminate mem-
bership under this Act only with the prior written
approval of the Board and on terms and conditions
that the Board determines are appropriate to carry
out the purposes of this Act.
‘‘(2) PROMPT CORRECTIVE ACTION.—A whole-
sale financial institution shall be deemed to be an in-
sured depository institution for purposes of section
38 of the Federal Deposit Insurance Act except
that—
‘‘(A) the relevant capital levels and capital
measures for each capital category shall be the
levels specified by the Board for wholesale fi-
nancial institutions; and
127
‘‘(B) all references to the appropriate Fed-
eral banking agency or to the Corporation in
that section shall be deemed to be references to
the Board.
‘‘(3) ENFORCEMENT AUTHORITY.—Subsections
(j) and (k) of section 7, subsections (b) through (n),
(s), and (v) of section 8, and section 19 of the Fed-
eral Deposit Insurance Act shall apply to a wholesale
financial institution in the same manner and to the
same extent as such provisions apply to State mem-
ber insured banks and any reference in such sections
to an insured depository institution shall be deemed
to include a reference to a wholesale financial insti-
tution.
‘‘(4) CERTAIN
OTHER
STATUTES
APPLICA-
BLE.—A wholesale financial institution shall be
deemed to be a banking institution, and the Board
shall be the appropriate Federal banking agency for
such bank and all such bank’s affiliates, for pur-
poses of the International Lending Supervision Act.
‘‘(5) BANK MERGER ACT.—A wholesale finan-
cial institution shall be subject to sections 18(c) and
44 of the Federal Deposit Insurance Act in the same
manner and to the same extent the wholesale finan-
128
cial institution would be subject to such sections if
the institution were a State member insured bank.
‘‘(6) BRANCHING.—Notwithstanding any other
provision of law, a wholesale financial institution
may establish and operate a branch at any location
on such terms and conditions as established by the
Board and, in the case of a State-chartered whole-
sale financial institution, with the approval of the
Board, and, in the case of a national bank wholesale
financial institution, with the approval of the Comp-
troller of the Currency.
‘‘(7) ACTIVITIES OF OUT-OF-STATE BRANCHES
OF WHOLESALE FINANCIAL INSTITUTIONS.—
‘‘(A) GENERAL.—A State-chartered whole-
sale financial institution shall be deemed to be
a State bank and an insured State bank for
purposes of paragraphs (1), (2), and (3) of sec-
tion 24(j) of the Federal Deposit Insurance
Act, and a national wholesale financial institu-
tion shall be deemed to be a national bank for
purposes of section 5155(f) of the Revised Stat-
utes of the United States.
‘‘(B) DEFINITIONS.—The following defini-
tions shall apply solely for purposes of applying
paragraph (1):
129
‘‘(i) HOME STATE.—The term ‘home
State’ means—
‘‘(I) with respect to a national
wholesale financial institution, the
State in which the main office of the
institution is located; and
‘‘(II) with respect to a State-
chartered wholesale financial institu-
tion, the State by which the institu-
tion is chartered.
‘‘(ii) HOST
STATE.—The term ‘host
State’ means a State, other than the home
State of the wholesale financial institution,
in which the institution maintains, or seeks
to establish and maintain, a branch.
‘‘(iii) 
OUT-OF-STATE
BANK.—The
term ‘out-of-State bank’ means, with re-
spect to any State, a wholesale financial
institution whose home State is another
State.
‘‘(8) DISCRIMINATION
REGARDING
INTEREST
RATES.—Section 27 of the Federal Deposit Insur-
ance Act shall apply to State-chartered wholesale fi-
nancial institutions in the same manner and to the
same extent as such provisions apply to State mem-
130
ber insured banks and any reference in such section
to a State-chartered insured depository institution
shall be deemed to include a reference to a State-
chartered wholesale financial institution.
‘‘(9) PREEMPTION OF STATE LAWS REQUIRING
DEPOSIT
INSURANCE
FOR
WHOLESALE
FINANCIAL
INSTITUTIONS.—The appropriate State banking au-
thority may grant a charter to a wholesale financial
institution notwithstanding any State constitution or
statute requiring that the institution obtain insur-
ance of its deposits and any such State constitution
or statute is hereby preempted solely for purposes of
this paragraph.
‘‘(10) PARITY FOR WHOLESALE FINANCIAL IN-
STITUTIONS.—A State bank that is a wholesale fi-
nancial institution under this section shall have all
of the rights, powers, privileges, and immunities (in-
cluding those derived from status as a federally
chartered institution) of and as if it were a national
bank, subject to such terms and conditions as estab-
lished by the Board.
‘‘(11) COMMUNITY
REINVESTMENT
ACT
OF
1977.—A State wholesale financial institution shall
be subject to the Community Reinvestment Act of
1977, only if the wholesale financial institution has
131
an affiliate that is an insured depository institution
or that operates an insured branch, as those terms
are defined in section 3 of the Federal Deposit In-
surance Act.
‘‘(c) SPECIFIC
REQUIREMENTS
APPLICABLE
TO
WHOLESALE FINANCIAL INSTITUTIONS.—
‘‘(1) LIMITATIONS ON DEPOSITS.—
‘‘(A) MINIMUM AMOUNT.—
‘‘(i) IN GENERAL.—No wholesale fi-
nancial institution may receive initial de-
posits of $100,000 or less, other than on
an incidental and occasional basis.
‘‘(ii) LIMITATION
ON
DEPOSITS
OF
LESS THAN $100,000.—No wholesale finan-
cial institution may receive initial deposits
of $100,000 or less if such deposits con-
stitute more than 5 percent of the institu-
tion’s total deposits.
‘‘(B) NO DEPOSIT INSURANCE.—Except as
otherwise provided in section 8A(f) of the Fed-
eral Deposit Insurance Act, no deposits held by
a wholesale financial institution shall be insured
deposits under the Federal Deposit Insurance
Act.
132
‘‘(C) ADVERTISING
AND
DISCLOSURE.—
The Board shall prescribe regulations pertain-
ing to advertising and disclosure by wholesale
financial institutions to ensure that each deposi-
tor is notified that deposits at the wholesale fi-
nancial institution are not federally insured or
otherwise guaranteed by the United States Gov-
ernment.
‘‘(2) MINIMUM
CAPITAL
LEVELS
APPLICABLE
TO
WHOLESALE
FINANCIAL
INSTITUTIONS.—The
Board shall, by regulation, adopt capital require-
ments for wholesale financial institutions—
‘‘(A) to account for the status of wholesale
financial institutions as institutions that accept
deposits that are not insured under the Federal
Deposit Insurance Act; and
‘‘(B) to provide for the safe and sound op-
eration of the wholesale financial institution
without undue risk to creditors or other per-
sons, including Federal reserve banks, engaged
in transactions with the bank.
‘‘(3) ADDITIONAL REQUIREMENTS APPLICABLE
TO WHOLESALE FINANCIAL INSTITUTIONS.—In addi-
tion to any requirement otherwise applicable to State
member insured banks or applicable, under this sec-
133
tion, to wholesale financial institutions, the Board
may impose, by regulation or order, upon wholesale
financial institutions—
‘‘(A) limitations on transactions, direct or
indirect, with affiliates to prevent—
‘‘(i) the transfer of risk to the deposit
insurance funds; or
‘‘(ii) an affiliate from gaining access
to, or the benefits of, credit from a Federal
reserve bank, including overdrafts at a
Federal reserve bank;
‘‘(B) special clearing balance requirements;
and
‘‘(C) any additional requirements that the
Board determines to be appropriate or nec-
essary to—
‘‘(i) promote the safety and soundness
of the wholesale financial institution or any
insured depository institution affiliate of
the wholesale financial institution;
‘‘(ii) prevent the transfer of risk to
the deposit insurance funds; or
‘‘(iii) protect creditors and other per-
sons, including Federal reserve banks, en-
134
gaged in transactions with the wholesale fi-
nancial institution.
‘‘(4) EXEMPTIONS FOR WHOLESALE FINANCIAL
INSTITUTIONS.—The Board may, by regulation or
order, exempt any wholesale financial institution
from any provision applicable to a member bank
that is not a wholesale financial institution, if the
Board finds that such exemption is not inconsistent
with—
‘‘(A) the promotion of the safety and
soundness of the wholesale financial institution
or any insured depository institution affiliate of
the wholesale financial institution;
‘‘(B) the protection of the deposit insur-
ance funds; and
‘‘(C) the protection of creditors and other
persons, including Federal reserve banks, en-
gaged in transactions with the wholesale finan-
cial institution.
‘‘(5) LIMITATION ON TRANSACTIONS BETWEEN
A WHOLESALE FINANCIAL INSTITUTION AND AN IN-
SURED BANK.—For purposes of section 23A(d)(1) of
the Federal Reserve Act, a wholesale financial insti-
tution that is affiliated with an insured bank shall
not be a bank.
135
‘‘(6) NO EFFECT ON OTHER PROVISIONS.—This
section shall not be construed as limiting the
Board’s authority over member banks under any
other provision of law, or to create any obligation for
any Federal Reserve bank to make, increase, renew,
or extend any advance or discount under this Act to
any member bank or other depository institution.
‘‘(d) CAPITAL AND MANAGERIAL REQUIREMENTS.—
‘‘(1) IN GENERAL.—A wholesale financial insti-
tution shall be well capitalized and well managed.
‘‘(2) NOTICE TO COMPANY.—The Board shall
promptly provide notice to a company that controls
a wholesale financial institution whenever such
wholesale financial institution is not well capitalized
or well managed.
‘‘(3) AGREEMENT TO RESTORE INSTITUTION.—
Not later than 45 days after the date of receipt of
a notice under paragraph (2) (or such additional pe-
riod not to exceed 90 days as the Board may per-
mit), the company shall execute an agreement ac-
ceptable to the Board to restore the wholesale finan-
cial institution to compliance with all of the require-
ments of paragraph (1).
‘‘(4) LIMITATIONS
UNTIL
INSTITUTION
RE-
STORED.—Until the wholesale financial institution is
136
restored to compliance with all of the requirements
of paragraph (1), the Board may impose such limi-
tations on the conduct or activities of the company
or any affiliate of the company as the Board deter-
mines to be appropriate under the circumstances.
‘‘(5) FAILURE TO RESTORE.—If the company
does not execute and implement an agreement in ac-
cordance with paragraph (3), comply with any limi-
tation imposed under paragraph (4), restore the
wholesale financial institution to well capitalized sta-
tus not later than 180 days after the date of receipt
by the company of the notice described in paragraph
(2), or restore the wholesale financial institution to
well managed status within such period as the Board
may permit, the company shall, under such terms
and conditions as may be imposed by the Board and
subject to such extension of time as may be granted
in the Board’s discretion, divest control of its sub-
sidiary depository institutions.
‘‘(6) WELL MANAGED DEFINED.—For purposes
of this subsection, the term ‘well managed’ has the
same meaning as in section 2 of the Bank Holding
Company Act of 1956.
‘‘(e) RESOLUTION OF WHOLESALE FINANCIAL INSTI-
TUTIONS.—
137
‘‘(1) CONSERVATORSHIP OR RECEIVERSHIP.—
‘‘(A) APPOINTMENT.—The Board may ap-
point a conservator or receiver for a wholesale
financial institution to the same extent and in
the same manner as the Comptroller of the
Currency may appoint a conservator or receiver
for a national bank.
‘‘(B) POWERS.—The conservator or re-
ceiver for a wholesale financial institution shall
exercise the same powers, functions, and duties,
subject to the same limitations, as a conserva-
tor or receiver for a national bank.
‘‘(2) BOARD
AUTHORITY.—The Board shall
have the same authority with respect to any con-
servator or receiver appointed for a wholesale finan-
cial institution under paragraph (1), and the whole-
sale financial institution for which it has been ap-
pointed, as the Comptroller of the Currency has with
respect to a conservator or receiver for a national
bank and the national bank for which the conserva-
tor or receiver has been appointed.
‘‘(3) BANKRUPTCY PROCEEDINGS.—The Comp-
troller of the Currency (in the case of a national
wholesale financial institution) and the Board may
direct the conservator or receiver of a wholesale fi-
138
nancial institution to file a petition pursuant to title
11, United States Code, in which case, title 11,
United States Code, shall apply to the wholesale fi-
nancial institution in lieu of otherwise applicable
Federal or State insolvency law.
‘‘(f) EXCLUSIVE JURISDICTION.—Subsections (c) and
(e) of section 43 of the Federal Deposit Insurance Act
shall not apply to any wholesale financial institution.’’.
(c) VOLUNTARY TERMINATION OF INSURED STATUS
BY CERTAIN INSTITUTIONS.—
(1) SECTION 8 DESIGNATIONS.—Section 8(a) of
the Federal Deposit Insurance Act (12 U.S.C.
1818(a)) is amended—
(A) by striking paragraph (1); and
(B) 
by 
redesignating 
paragraphs 
(2)
through (10) as paragraphs (1) through (9), re-
spectively.
(2) VOLUNTARY
TERMINATION
OF
INSURED
STATUS.—The Federal Deposit Insurance Act (12
U.S.C. 1811 et seq.) is amended by inserting after
section 8 the following new section:
‘‘SEC. 8A. VOLUNTARY TERMINATION OF STATUS AS IN-
SURED DEPOSITORY INSTITUTION.
‘‘(a) IN GENERAL.—Except as provided in subsection
(b), an insured State bank or a national bank may volun-
139
tarily terminate such bank’s status as an insured deposi-
tory institution in accordance with regulations of the Cor-
poration if—
‘‘(1) the bank provides written notice of the
bank’s intent to terminate such insured status—
‘‘(A) to the Corporation and the Board of
Governors of the Federal Reserve System not
less than 6 months before the effective date of
such termination; and
‘‘(B) to all depositors at such bank, not
less than 6 months before the effective date of
the termination of such status; and
‘‘(2) either—
‘‘(A) the deposit insurance fund of which
such bank is a member equals or exceeds the
fund’s designated reserve ratio as of the date
the bank provides a written notice under para-
graph (1) and the Corporation determines that
the fund will equal or exceed the applicable des-
ignated reserve ratio for the 2 semiannual as-
sessment periods immediately following such
date; or
‘‘(B) the Corporation and the Board of
Governors of the Federal Reserve System ap-
proved the termination of the bank’s insured
140
status and the bank pays an exit fee in accord-
ance with subsection (e).
‘‘(b) EXCEPTION.—Subsection (a) shall not apply
with respect to—
‘‘(1) an insured savings association; or
‘‘(2) an insured branch that is required to be
insured under subsection (a) or (b) of section 6 of
the International Banking Act of 1978.
‘‘(c) ELIGIBILITY FOR INSURANCE TERMINATED.—
Any bank that voluntarily elects to terminate the bank’s
insured status under subsection (a) shall not be eligible
for insurance on any deposits or any assistance authorized
under this Act after the period specified in subsection
(f)(1).
‘‘(d) INSTITUTION MUST BECOME WHOLESALE FI-
NANCIAL INSTITUTION OR TERMINATE DEPOSIT-TAKING
ACTIVITIES.—Any depository institution which voluntarily
terminates such institution’s status as an insured deposi-
tory institution under this section may not, upon termi-
nation of insurance, accept any deposits unless the institu-
tion is a wholesale financial institution subject to section
9B of the Federal Reserve Act.
‘‘(e) EXIT FEES.—
‘‘(1) IN GENERAL.—Any bank that voluntarily
terminates such bank’s status as an insured deposi-
141
tory institution under this section shall pay an exit
fee in an amount that the Corporation determines is
sufficient to account for the institution’s pro rata
share of the amount (if any) which would be re-
quired to restore the relevant deposit insurance fund
to the fund’s designated reserve ratio as of the date
the bank provides a written notice under subsection
(a)(1).
‘‘(2) PROCEDURES.—The Corporation shall pre-
scribe, by regulation, procedures for assessing any
exit fee under this subsection.
‘‘(f) TEMPORARY INSURANCE OF DEPOSITS INSURED
AS OF TERMINATION.—
‘‘(1) TRANSITION PERIOD.—The insured depos-
its of each depositor in a State bank or a national
bank on the effective date of the voluntary termi-
nation of the bank’s insured status, less all subse-
quent withdrawals from any deposits of such deposi-
tor, shall continue to be insured for a period of not
less than 6 months and not more than 2 years, as
determined by the Corporation. During such period,
no additions to any such deposits, and no new de-
posits in the depository institution made after the ef-
fective date of such termination shall be insured by
the Corporation.
142
‘‘(2) TEMPORARY ASSESSMENTS; OBLIGATIONS
AND DUTIES.—During the period specified in para-
graph (1) with respect to any bank, the bank shall
continue to pay assessments under section 7 as if
the bank were an insured depository institution. The
bank shall, in all other respects, be subject to the
authority of the Corporation and the duties and obli-
gations of an insured depository institution under
this Act during such period, and in the event that
the bank is closed due to an inability to meet the de-
mands of the bank’s depositors during such period,
the Corporation shall have the same powers and
rights with respect to such bank as in the case of
an insured depository institution.
‘‘(g) ADVERTISEMENTS.—
‘‘(1) IN
GENERAL.—A bank that voluntarily
terminates the bank’s insured status under this sec-
tion shall not advertise or hold itself out as having
insured deposits, except that the bank may advertise
the temporary insurance of deposits under sub-
section (f) if, in connection with any such advertise-
ment, the advertisement also states with equal prom-
inence that additions to deposits and new deposits
made after the effective date of the termination are
not insured.
143
‘‘(2) CERTIFICATES OF DEPOSIT, OBLIGATIONS,
AND
SECURITIES.—Any certificate of deposit or
other obligation or security issued by a State bank
or a national bank after the effective date of the vol-
untary termination of the bank’s insured status
under this section shall be accompanied by a con-
spicuous, prominently displayed notice that such cer-
tificate of deposit or other obligation or security is
not insured under this Act.
‘‘(h) NOTICE REQUIREMENTS.—
‘‘(1) NOTICE TO THE CORPORATION.—The no-
tice required under subsection (a)(1)(A) shall be in
such form as the Corporation may require.
‘‘(2) NOTICE TO DEPOSITORS.—The notice re-
quired under subsection (a)(1)(B) shall be—
‘‘(A) sent to each depositor’s last address
of record with the bank; and
‘‘(B) in such manner and form as the Cor-
poration finds to be necessary and appropriate
for the protection of depositors.’’.
(3) DEFINITION.—Section 19(b)(1)(A)(i) of the
Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i)) is
amended by inserting ‘‘, or any wholesale financial
institution subject to section 9B of this Act’’ after
‘‘such Act’’.
144
(d) TECHNICAL AND CONFORMING AMENDMENTS TO
THE BANKRUPTCY CODE.—
(1) BANKRUPTCY
CODE
DEBTORS.—Section
109(b)(2) of title 11, United States Code, is amend-
ed by striking ‘‘; or’’ and inserting the following: ‘‘,
except that—
‘‘(A) a wholesale financial institution es-
tablished under section 5136B of the Revised
Statutes of the United States or section 9B of
the Federal Reserve Act may be a debtor if a
petition is filed at the direction of the Comp-
troller of the Currency (in the case of a whole-
sale financial institution established under sec-
tion 5136B of the Revised Statutes of the
United States) or the Board of Governors of
the Federal Reserve System (in the case of any
wholesale financial institution); and
‘‘(B) a corporation organized under section
25A of the Federal Reserve Act may be a debt-
or if a petition is filed at the direction of the
Board of Governors of the Federal Reserve Sys-
tem; or’’.
(2) CHAPTER 7 DEBTORS.—Section 109(d) of
title 11, United States Code, is amended to read as
follows:
145
‘‘(d) Only a railroad and a person that may be a debt-
or under chapter 7 of this title, except that a stockbroker,
a wholesale financial institution established under section
5136B of the Revised Statutes of the United States or
section 9B of the Federal Reserve Act, a corporation orga-
nized under section 25A of the Federal Reserve Act, or
a commodity broker, may be a debtor under chapter 11
of this title.’’.
(3) DEFINITION OF FINANCIAL INSTITUTION.—
Section 101(22) of title 11, United States Code, is
amended to read as follows:
‘‘(22) ‘financial institution’ means a person that
is a commercial or savings bank, industrial savings
bank, savings and loan association, trust company,
wholesale financial institution established under sec-
tion 5136B of the Revised Statutes of the United
States or section 9B of the Federal Reserve Act, or
corporation organized under section 25A of the Fed-
eral Reserve Act and, when any such person is act-
ing as agent or custodian for a customer in connec-
tion with a securities contract, as defined in section
741 of this title, such customer,’’.
(4) SUBCHAPTER V OF CHAPTER 7.—
(A) IN GENERAL.—Section 103 of title 11,
United States Code, is amended—
146
(i) by redesignating subsections (e)
through (i) as subsections (f) through (j),
respectively; and
(ii) by inserting after subsection (d)
the following:
‘‘(e) Subchapter V of chapter 7 of this title applies
only in a case under such chapter concerning the liquida-
tion of a wholesale financial institution established under
section 5136B of the Revised Statutes of the United
States or section 9B of the Federal Reserve Act, or a cor-
poration organized under section 25A of the Federal Re-
serve Act.’’.
(B) WHOLESALE
BANK
LIQUIDATION.—
Chapter 7 of title 11, United States Code, is
amended by adding at the end the following:
‘‘SUBCHAPTER V—WHOLESALE BANK
LIQUIDATION
‘‘§ 781. Definitions for subchapter
‘‘In this subchapter—
‘‘(1) the term ‘Board’ means the Board of Gov-
ernors of the Federal Reserve System;
‘‘(2) the term ‘depository institution’ has the
same meaning as in section 3 of the Federal Deposit
Insurance Act, and includes any wholesale bank;
147
‘‘(3) the term ‘national wholesale financial insti-
tution’ means a wholesale financial institution estab-
lished under section 5136B of the Revised Statutes
of the United States; and
‘‘(4) the term ‘wholesale bank’ means a na-
tional wholesale financial institution, a wholesale fi-
nancial institution established under section 9B of
the Federal Reserve Act, or a corporation organized
under section 25A of the Federal Reserve Act.
‘‘§ 782. Selection of trustee
‘‘Notwithstanding any other provision of this title,
the conservator or receiver who files the petition shall be
the trustee under this chapter, unless the Comptroller of
the Currency (in the case of a national wholesale financial
institution for which it appointed the conservator or re-
ceiver) or the Board (in the case of any wholesale bank
for which it appointed the conservator or receiver) des-
ignates an alternative trustee. The Comptroller of the Cur-
rency or the Board (as applicable) may designate a succes-
sor trustee, if required.
‘‘§ 783. Additional powers of trustee
‘‘(a) The trustee under this subchapter has power,
with permission of the court—
‘‘(1) to sell the wholesale bank to a depository
institution or consortium of depository institutions
148
(which consortium may agree on the allocation of
the wholesale bank among the consortium);
‘‘(2) to merge the wholesale bank with a deposi-
tory institution;
‘‘(3) to transfer contracts to the same extent as
could a receiver for a depository institution under
paragraphs (9) and (10) of section 11(e) of the Fed-
eral Deposit Insurance Act;
‘‘(4) to transfer assets or liabilities to a deposi-
tory institution;
‘‘(5) to distribute property not of the estate, in-
cluding distributions to customers that are man-
dated by subchapters III and IV of this chapter; or
‘‘(6) to transfer assets and liabilities to a bridge
bank as provided in paragraphs (1), (3)(A), (5), (6),
and (9) through (13), and subparagraphs (A)
through (H) and (K) of paragraph (4) of section
11(n) of the Federal Deposit Insurance Act, except
that—
‘‘(A) the bridge bank shall be treated as a
wholesale bank for the purpose of this sub-
section; and
‘‘(B) any references in any such provision
of law to the Federal Deposit Insurance Cor-
poration shall be construed to be references to
149
the appointing agency and that references to
deposit insurance shall be omitted.
‘‘(b) Any reference in this section to transfers of li-
abilities includes a ratable transfer of liabilities within a
priority class.
‘‘§ 784. Right to be heard
‘‘The Comptroller of the Currency (in the case of a
national wholesale financial institution), the Board (in the
case of any wholesale bank), or a Federal Reserve bank
(in the case of a wholesale bank that is a member of that
bank) may raise and may appear and be heard on any
issue in a case under this subchapter.
‘‘§ 785. Expedited transfers
‘‘The trustee may make a transfer pursuant to sec-
tion 783 without prior judicial approval, if the Comptroller
of the Currency (in the case of a national wholesale finan-
cial institution for which it appointed the conservator or
receiver) or the Board (in the case of any wholesale bank
for which it appointed the conservator or receiver) deter-
mines that the transfer would be necessary to avert serious
adverse effects on economic conditions or financial stabil-
ity.’’.
(C) 
CONFORMING
AMENDMENT.—The
table of sections for chapter 7 of title 11,
United States Code, is amended by adding at
150
the end the following:
‘‘781. Definitions for subchapter.
‘‘782. Selection of trustee.
‘‘783. Additional powers of trustee.
‘‘784. Right to be heard.
‘‘785. Expedited transfers.’’.
(e) RESOLUTION OF EDGE CORPORATIONS.—Section
25A(16) of the Federal Reserve Act (12 U.S.C. 624(16))
is amended to read as follows:
‘‘(16) APPOINTMENT
OF
RECEIVER
OR
CON-
SERVATOR.—
‘‘(A) IN GENERAL.—The Board may ap-
point a conservator or receiver for a corporation
organized under the provisions of this section to
the same extent and in the same manner as the
Comptroller of the Currency may appoint a con-
servator or receiver for a national bank, and the
conservator or receiver for such corporation
shall exercise the same powers, functions, and
duties, subject to the same limitations, as a
conservator or receiver for a national bank.
‘‘(B) 
EQUIVALENT
AUTHORITY.—The
Board shall have the same authority with re-
spect to any conservator or receiver appointed
for a corporation organized under the provisions
of this section under this paragraph and any
such corporation as the Comptroller of the Cur-
rency has with respect to a conservator or re-
151
ceiver of a national bank and the national bank
for which a conservator or receiver has been ap-
pointed.
‘‘(C) TITLE
PETITIONS.—The Board
may direct the conservator or receiver of a cor-
poration organized under the provisions of this
section to file a petition pursuant to title 11,
United States Code, in which case, title 11,
United States Code, shall apply to the corpora-
tion in lieu of otherwise applicable Federal or
State insolvency law.’’.
Subtitle E—Preservation of FTC
Authority
SEC. 141. AMENDMENT TO THE BANK HOLDING COMPANY
ACT OF 1956 TO MODIFY NOTIFICATION AND
POST-APPROVAL WAITING PERIOD FOR SEC-
TION 3 TRANSACTIONS.
Section 11(b)(1) of the Bank Holding Company Act
of 1956 (12 U.S.C. 1849(b)(1)) is amended by inserting
‘‘and, if the transaction also involves an acquisition under
section 4 or section 6, the Board shall also notify the Fed-
eral Trade Commission of such approval’’ before the pe-
riod at the end of the first sentence.
152
SEC. 142. INTERAGENCY DATA SHARING.
To the extent not prohibited by other law, the Comp-
troller of the Currency, the Director of the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation,
and the Board of Governors of the Federal Reserve Sys-
tem shall make available to the Attorney General and the
Federal Trade Commission any data in the possession of
any such banking agency that the antitrust agency deems
necessary for antitrust review of any transaction requiring
notice to any such antitrust agency or the approval of such
agency under section 3, 4, or 6 of the Bank Holding Com-
pany Act of 1956, section 18(c) of the Federal Deposit
Insurance Act, the National Bank Consolidation and
Merger Act, section 10 of the Home Owners’ Loan Act,
or the antitrust laws.
SEC. 143. CLARIFICATION OF STATUS OF SUBSIDIARIES
AND AFFILIATES.
(a) CLARIFICATION OF FEDERAL TRADE COMMIS-
SION JURISDICTION.—Any person which directly or indi-
rectly controls, is controlled directly or indirectly by, or
is directly or indirectly under common control with, any
bank or savings association (as such terms are defined in
section 3 of the Federal Deposit Insurance Act) and is
not itself a bank or savings association shall not be
deemed to be a bank or savings association for purposes
153
of the Federal Trade Commission Act or any other law
enforced by the Federal Trade Commission.
(b) SAVINGS PROVISION.—No provision of this sec-
tion shall be construed as restricting the authority of any
Federal banking agency (as defined in section 3 of the
Federal Deposit Insurance Act) under any Federal bank-
ing law, including section 8 of the Federal Deposit Insur-
ance Act.
(c) 
HART-SCOTT-RODINO
AMENDMENT.—Section
7A(c)(7) of the Clayton Act (15 U.S.C. 18a(c)(7)) is
amended by inserting before the semicolon at the end
thereof the following: ‘‘, except that a portion of a trans-
action is not exempt under this paragraph if such portion
of the transaction (A) requires notice under section 6 of
the Bank Holding Company Act of 1956; and (B) does
not require approval under section 3 or 4 of the Bank
Holding Company Act of 1956’’.
SEC. 144. ANNUAL GAO REPORT.
(a) IN GENERAL.—By the end of the 1-year period
beginning on the date of the enactment of this Act and
annually thereafter, the Comptroller General of the United
States shall submit a report to the Congress on market
concentration in the financial services industry and its im-
pact on consumers.
154
(b) ANALYSIS.—Each report submitted under sub-
section (a) shall contain an analysis of—
(1) the positive and negative effects of affili-
ations between various types of financial companies,
and of acquisitions pursuant to this Act and the
amendments made by this Act to other provisions of
law, including any positive or negative effects on
consumers, area markets, and submarkets thereof or
on registered securities brokers and dealers which
have been purchased by depository institutions or
depository institution holding companies;
(2) the changes in business practices and the
effects of any such changes on the availability of
venture capital, consumer credit, and other financial
services or products and the availability of capital
and credit for small businesses; and
(3) the acquisition patterns among depository
institutions, depository institution holding compa-
nies, securities firms, and insurance companies in-
cluding acquisitions among the largest 20 percent of
firms and acquisitions within regions or other lim-
ited geographical areas.
155
Subtitle F—Applying the Principles
of 
National 
Treatment 
and
Equality of Competitive Oppor-
tunity to Foreign Banks and
Foreign Financial Institutions
SEC. 151. APPLYING THE PRINCIPLES OF NATIONAL TREAT-
MENT AND EQUALITY OF COMPETITIVE OP-
PORTUNITY TO FOREIGN BANKS THAT ARE
FINANCIAL HOLDING COMPANIES.
Section 8(c) of the International Banking Act of
1978 (12 U.S.C. 3106(c)) is amended by adding at the
end the following new paragraph:
‘‘(3) 
TERMINATION
OF
GRANDFATHERED
RIGHTS.—
‘‘(A) IN GENERAL.—If any foreign bank or
foreign company files a declaration under sec-
tion 6(b)(1) (D) of the Bank Holding Company
Act of 1956, or receives a determination under
section 10(d)(1) of the Bank Holding Company
Act of 1956, any authority conferred by this
subsection on any foreign bank or company to
engage in any activity which the Board has de-
termined to be permissible for financial holding
companies under section 6 of such Act shall ter-
minate immediately.
156
‘‘(B) RESTRICTIONS AND REQUIREMENTS
AUTHORIZED.—If a foreign bank or company
that engages, directly or through an affiliate
pursuant to paragraph (1), in an activity which
the Board has determined to be permissible for
financial holding companies under section 6 of
the Bank Holding Company Act of 1956 has
not filed a declaration with the Board of its sta-
tus as a financial holding company under such
section or received a determination under sec-
tion 10(d)(1) by the end of the 2-year period
beginning on the date of enactment of the Fi-
nancial Services Act of 1998, the Board, giving
due regard to the principle of national treat-
ment and equality of competitive opportunity,
may impose such restrictions and requirements
on the conduct of such activities by such foreign
bank or company as are comparable to those
imposed on a financial holding company orga-
nized under the laws of the United States, in-
cluding a requirement to conduct such activities
in compliance with any prudential safeguards
established under section 5(h) of the Bank
Holding Company Act of 1956.’’.
157
SEC. 152. APPLYING THE PRINCIPLES OF NATIONAL TREAT-
MENT AND EQUALITY OF COMPETITIVE OP-
PORTUNITY TO FOREIGN BANKS AND FOR-
EIGN FINANCIAL INSTITUTIONS THAT ARE
WHOLESALE FINANCIAL INSTITUTIONS.
Section 8A of the Federal Deposit Insurance Act (as
added by section 136(c)(2) of this Act) is amended by add-
ing at the end the following new subsection:
‘‘(i) VOLUNTARY TERMINATION OF DEPOSIT INSUR-
ANCE.—The provisions on voluntary termination of insur-
ance in this section shall apply to an insured branch of
a foreign bank (including a Federal branch) in the same
manner and to the same extent as they apply to an insured
State bank or a national bank.’’.
SEC. 153. REPRESENTATIVE OFFICES.
(a) DEFINITION OF ‘‘REPRESENTATIVE OFFICE’’.—
Section 1(b)(15) of the International Banking Act of 1978
(12 U.S.C. 3101(15)) is amended by striking ‘‘State agen-
cy, or subsidiary of a foreign bank’’ and inserting ‘‘or
State agency’’.
(b) EXAMINATIONS.—Section 10(c) of the Inter-
national Banking Act of 1978 (12 U.S.C. 3107(c)) is
amended by adding at the end the following: ‘‘The Board
may also make examinations of any affiliate of a foreign
bank conducting business in any State if the Board deems
it necessary to determine and enforce compliance with this
158
Act, the Bank Holding Company Act of 1956 (12 U.S.C.
1841 et seq.), or other applicable Federal banking law.’’.
Subtitle G—Federal Home Loan
Bank System Modernization
SEC. 161. SHORT TITLE.
This subtitle may be cited as the ‘‘Federal Home
Loan Bank System Modernization Act of 1998’’.
SEC. 162. DEFINITIONS.
Section 2 of the Federal Home Loan Bank Act (12
U.S.C. 1422) is amended—
(1) in paragraph (1), by striking ‘‘term ‘Board’
means’’ and inserting ‘‘terms ‘Finance Board’ and
‘Board’ mean’’;
(2) by striking paragraph (3) and inserting the
following:
‘‘(3) STATE.—The term ‘State’, in addition to
the States of the United States, includes the District
of Columbia, Guam, Puerto Rico, the United States
Virgin Islands, American Samoa, and the Common-
wealth of the Northern Mariana Islands.’’; and
(3) by adding at the end the following new
paragraph:
‘‘(13) COMMUNITY FINANCIAL INSTITUTION.—
‘‘(A) IN GENERAL.—The term ‘community
financial institution’ means a member—
159
‘‘(i) the deposits of which are insured
under the Federal Deposit Insurance Act;
and
‘‘(ii) that has, as of the date of the
transaction 
at 
issue, 
less 
than
$500,000,000 in average total assets,
based on an average of total assets over
the 3 years preceding that date.
‘‘(B) ADJUSTMENTS.—The $500,000,000
limit referred to in subparagraph (A)(ii) shall
be adjusted annually by the Finance Board,
based on the annual percentage increase, if any,
in the Consumer Price Index for all urban con-
sumers, as published by the Department of
Labor.’’.
SEC. 163. SAVINGS ASSOCIATION MEMBERSHIP.
(a) FEDERAL HOME LOAN BANK MEMBERSHIP.—
Section 5(f) of the Home Owners’ Loan Act (12 U.S.C.
1464(f)) is amended to read as follows:
‘‘(f) FEDERAL HOME LOAN BANK MEMBERSHIP.—
On and after January 1, 1999, a Federal savings associa-
tion may become a member of the Federal Home Loan
Bank System, and shall qualify for such membership in
the manner provided by the Federal Home Loan Bank
Act.’’.
160
(b) WITHDRAWAL.—Section 6(e) of the Federal
Home Loan Bank Act (12 U.S.C. 1426(e)) is amended
by striking ‘‘Any member other than a Federal savings
and loan association may withdraw’’ and inserting ‘‘Any
member may withdraw’’.
SEC. 164. ADVANCES TO MEMBERS; COLLATERAL.
(a) IN GENERAL.—Section 10(a) of the Federal
Home Loan Bank Act (12 U.S.C. 1430(a)) is amended—
(1) by redesignating paragraphs (1) through
(4) as subparagraphs (A) through (D), respectively,
and indenting appropriately;
(2) by striking ‘‘(a) Each’’ and inserting the
following:
‘‘(a) IN GENERAL.—
‘‘(1) ALL ADVANCES.—Each’’;
(3) by striking the second sentence and insert-
ing the following:
‘‘(2) PURPOSES
OF
ADVANCES.—A long-term
advance may only be made for the purposes of—
‘‘(A) providing funds to any member for
residential housing finance; and
‘‘(B) providing funds to any community fi-
nancial institution for small businesses, agricul-
tural, rural development, or low-income commu-
nity development lending.’’;
161
(4) by striking ‘‘A Bank’’ and inserting the fol-
lowing:
‘‘(3) COLLATERAL.—A Bank’’;
(5) in paragraph (3) (as so designated by para-
graph (4) of this subsection)—
(A) in subparagraph (C) (as so redesig-
nated by paragraph (1) of this subsection) by
striking ‘‘Deposits’’ and inserting ‘‘Cash or de-
posits’’;
(B) in subparagraph (D) (as so redesig-
nated by paragraph (1) of this subsection), by
striking the second sentence; and
(C) by inserting after subparagraph (D)
(as so redesignated by paragraph (1) of this
subsection) the following new subparagraph:
‘‘(E) Secured loans for small business, ag-
riculture, rural development, or low-income
community development, or securities represent-
ing a whole interest in such secured loans, in
the case of any community financial institu-
tion.’’;
(6) in paragraph (5)—
(A) in the second sentence, by striking
‘‘and the Board’’;
162
(B) in the third sentence, by striking
‘‘Board’’ and inserting ‘‘Federal home loan
bank’’; and
(C) by striking ‘‘(5) Paragraphs (1)
through (4)’’ and inserting the following:
‘‘(4) ADDITIONAL BANK AUTHORITY.—Subpara-
graphs (A) through (E) of paragraph (3)’’; and
(7) by adding at the end the following:
‘‘(5) REVIEW OF CERTAIN COLLATERAL STAND-
ARDS.—The Board may review the collateral stand-
ards applicable to each Federal home loan bank for
the classes of collateral described in subparagraphs
(D) and (E) of paragraph (3), and may, if necessary
for safety and soundness purposes, require an in-
crease in the collateral standards for any or all of
those classes of collateral.
‘‘(6) DEFINITIONS.—For purposes of this sub-
section, the terms ‘small business’, ‘agriculture’,
‘rural development’, and ‘low-income community de-
velopment’ shall have the meanings given those
terms by rule or regulation of the Finance Board.’’.
(b) CLERICAL AMENDMENT.—The section heading
for section 10 of the Federal Home Loan Bank Act (12
U.S.C. 1430) is amended to read as follows:
163
‘‘SEC. 10. ADVANCES TO MEMBERS.’’.
(c) CONFORMING AMENDMENTS RELATING TO MEM-
BERS WHICH ARE NOT QUALIFIED THRIFT LENDERS—
Section 10(e)(1) of the Federal Home Loan Bank Act (12
U.S.C. 1430(e)(1)) is amended in the second sentence, by
inserting before the period ‘‘or, in the case of any commu-
nity financial institution, for the purposes described in
subsection (a)(2)’’.
SEC. 165. ELIGIBILITY CRITERIA.
Section 4(a) of the Federal Home Loan Bank Act
(12 U.S.C. 1424(a)) is amended—
(1) in paragraph (2)(A), by inserting, ‘‘(other
than a community financial institution)’’ after ‘‘in-
stitution’’; and
(2) by adding at the end the following new
paragraph:
‘‘(3) LIMITED EXEMPTION FOR COMMUNITY FI-
NANCIAL INSTITUTIONS.—A community financial in-
stitution that otherwise meets the requirements of
paragraph (2) may become a member without regard
to the percentage of its total assets that is rep-
resented by residential mortgage loans, as described
in subparagraph (A) of paragraph (2).’’.
164
SEC. 166. MANAGEMENT OF BANKS.
(a) BOARD OF DIRECTORS.—Section 7(d) of the Fed-
eral Home Loan Bank Act (12 U.S.C. 1427(d)) is
amended—
(1) by striking ‘‘(d) The term’’ and inserting
the following:
‘‘(d) TERMS OF OFFICE.—The term’’; and
(2) by striking ‘‘shall be two years’’.
(b) COMPENSATION.—Section 7(i) of the Federal
Home Loan Bank Act (12 U.S.C. 1427(i)) is amended by
striking ‘‘, subject to the approval of the board’’.
(c) REPEAL OF SECTIONS 22A AND 27.—The Fed-
eral Home Loan Bank Act (12 U.S.C. 1421 et seq.) is
amended by striking sections 22A (12 U.S.C. 1442a) and
27 (12 U.S.C. 1447).
(d) SECTION 12.—Section 12 of the Federal Home
Loan Bank Act (12 U.S.C. 1432) is amended—
(1) in subsection (a)—
(A) by striking ‘‘, but, except’’ and all that
follows through ‘‘ten years’’;
(B) by striking ‘‘, subject to the approval
of the Board’’ each place that term appears;
(C) by striking ‘‘and, by its Board of direc-
tors,’’ and all that follows through ‘‘agent of
such bank,’’ and inserting ‘‘and, by the board
of directors of the bank, to prescribe, amend,
165
and repeal by-laws governing the manner in
which its affairs may be administered, consist-
ent with applicable laws and regulations, as ad-
ministered by the Finance Board. No officer,
employee, attorney, or agent of a Federal home
loan bank’’; and
(D) by striking ‘‘Board of directors’’ each
place that term appears and inserting ‘‘board of
directors’’; and
(2) in subsection (b), by striking ‘‘loans banks’’
and inserting ‘‘loan banks’’.
(e) POWERS AND DUTIES OF FEDERAL HOUSING FI-
NANCE BOARD.—
(1) ISSUANCE OF NOTICES OF VIOLATIONS.—
Section 2B(a) of the Federal Home Loan Bank Act
(12 U.S.C. 1422b(a)) is amended by adding at the
end the following new paragraphs:
‘‘(5) To issue and serve a notice of charges
upon a Federal home loan bank or upon any execu-
tive officer or director of a Federal home loan bank
if, in the determination of the Finance Board, the
bank, executive officer, or director is engaging or
has engaged in, or the Finance Board has reason-
able cause to believe that the bank, executive officer,
or director is about to engage in, any conduct that
166
violates any provision of this Act or any law, order,
rule, or regulation or any condition imposed in writ-
ing by the Finance Board in connection with the
granting of any application or other request by the
bank, or any written agreement entered into by the
bank with the agency, in accordance with the proce-
dures provided in section 1371(c) of the Federal
Housing Enterprises Financial Safety and Sound-
ness Act of 1992. Such authority includes the same
authority to take affirmative action to correct condi-
tions resulting from violations or practices or to
limit activities of a bank or any executive officer or
director of a bank as appropriate Federal banking
agencies have to take with respect to insured deposi-
tory institutions under paragraphs (6) and (7) of
section 8(b) of the Federal Deposit Insurance Act,
and to have all other powers, rights, and duties to
enforce this Act with respect to the Federal home
loan banks and their executive officers and directors
as the Office of Federal Housing Enterprise Over-
sight has to enforce the Federal Housing Enter-
prises Financial Safety and Soundness Act of 1992,
the Federal National Mortgage Association Charter
Act, or the Federal Home Loan Mortgage Corpora-
tion Act with respect to the Federal housing enter-
167
prises under the Federal Housing Enterprises Fi-
nancial Safety and Soundness Act of 1992.
‘‘(6) To address any insufficiencies in capital
levels resulting from the application of section 5(f)
of the Home Owners’ Loan Act.
‘‘(7) To sue and be sued, by and through its
own attorneys.’’.
(2) TECHNICAL AMENDMENT.—Section 111 of
Public Law 93–495 (12 U.S.C. 250) is amended by
inserting ‘‘Federal Housing Finance Board,’’ after
‘‘Director of the Office of Thrift Supervision,’’.
(f) ELIGIBILITY TO SECURE ADVANCES.—
(1) SECTION
9.—Section 9 of the Federal
Home Loan Bank Act (12 U.S.C. 1429) is
amended—
(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.—Section 10 of the Federal
Home Loan Bank Act (12 U.S.C. 1430) is
amended—
(A) in subsection (c)—
168
(i) in the first sentence, by striking
‘‘Board’’ and inserting ‘‘Federal home loan
bank’’; and
(ii) in the second sentence, by striking
‘‘held by’’ and all that follows before the
period;
(B) in subsection (d)—
(i) in the first sentence, by striking
‘‘and the approval of the Board’’; and
(ii) by striking ‘‘Subject to the ap-
proval of the Board, any’’ and inserting
‘‘Any’’; and
(C) in subsection (j)(1)—
(i) by striking ‘‘to subsidize the inter-
est rate on advances’’ and inserting ‘‘to
provide subsidies, including subsidized in-
terest rates on advances’’;
(ii) by striking ‘‘Pursuant’’ and in-
serting the following:
‘‘(A) ESTABLISHMENT.—Pursuant’’; and
(iii) by adding at the end the follow-
ing new subparagraph:
‘‘(B) NONDELEGATION OF APPROVAL AU-
THORITY.—Subject to such regulations as the
Finance Board may prescribe, the board of di-
169
rectors of each Federal home loan bank may
approve or disapprove requests from members
for Affordable Housing Program subsidies, and
may not delegate such authority.’’.
(g) SECTION 16.—Section 16(a) of the Federal Home
Loan Bank Act (12 U.S.C. 1436(a)) is amended—
(1) in the third sentence—
(A) by striking ‘‘net earnings’’ and insert-
ing ‘‘previously retained earnings or current net
earnings’’; and
(B) by striking ‘‘, and then only with the
approval of the Federal Housing Finance
Board’’; and
(2) by striking the fourth sentence.
(h) SECTION 18.—Section 18(b) of the Federal Home
Loan Bank Act (12 U.S.C. 1438(b)) is amended by strik-
ing paragraph (4).
SEC. 167. 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.—
‘‘(i) IN GENERAL.—To the extent that
the amounts available pursuant to sub-
170
paragraphs (A) and (B) are insufficient to
cover the amount of interest payments,
each Federal home loan bank shall pay to
the Funding Corporation in each calendar
year, 20.75 percent of the net earnings of
that bank (after deducting expenses relat-
ing to section 10(j) and operating ex-
penses).
‘‘(ii) ANNUAL DETERMINATION.—The
Board annually shall determine the extent
to which the value of the aggregate
amounts paid by the Federal home loan
banks exceeds or falls short of the value of
an annuity of $300,000,000 per year that
commences on the issuance date and ends
on the final scheduled maturity date of the
obligations, and shall select appropriate
present value factors for making such de-
terminations.
‘‘(iii) 
PAYMENT
TERM
ALTER-
ATIONS.—The Board shall extend or short-
en the term of the payment obligations of
a Federal home loan bank under this sub-
paragraph as necessary to ensure that the
value of all payments made by the banks
171
is equivalent to the value of an annuity re-
ferred to in clause (ii).
‘‘(iv) TERM
BEYOND
MATURITY.—If
the Board extends the term of payments
beyond the final scheduled maturity date
for the obligations, each Federal home loan
bank shall continue to pay 20.75 percent
of its net earnings (after deducting ex-
penses relating to section 10(j) and operat-
ing expenses) to the Treasury of the
United States until the value of all such
payments by the Federal home loan banks
is equivalent to the value of an annuity re-
ferred to in clause (ii). In the final year in
which the Federal home loan banks are re-
quired to make any payment to the Treas-
ury under this subparagraph, if the dollar
amount represented by 20.75 percent of
the net earnings of the Federal home loan
banks exceeds the remaining obligation of
the banks to the Treasury, the Finance
Board shall reduce the percentage pro rata
to a level sufficient to pay the remaining
obligation.’’.
172
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall become effective on January 1, 1999.
Payments made by a Federal home loan bank before that
effective date shall be counted toward the total obligation
of that bank under section 21B(f)(2)(C) of the Federal
Home Loan Bank Act, as amended by this section.
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
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
173
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) SAFETY AND SOUNDNESS.—The safety and
soundness of the funds and the adequacy of the re-
serve 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
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.
174
(2) CONCENTRATION LEVELS.—The concentra-
tion levels of the funds, taking into account the
number of members of each fund and the geographic
distribution of such members, and the extent to
which either fund is exposed to higher risks due to
a regional concentration of members or an insuffi-
cient membership base relative to the size of member
institutions.
(3) MERGER
ISSUES.—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).
(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);
175
(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 same
meaning as in section 3(c) of the Federal Deposit
Insurance Act.
(2) BIF AND
SAIF
MEMBERS.—The terms
‘‘Bank Insurance Fund member’’ and ‘‘Savings As-
sociation Insurance Fund member’’ have the same
meanings as in section 7(l) of the Federal Deposit
Insurance Act.
176
SEC. 187. ELIMINATION OF SAIF AND DIF SPECIAL RE-
SERVES.
(a) SAIF SPECIAL RESERVES.—Section 11(a)(6) of
the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(6))
is amended by striking subparagraph (L).
(b) DIF SPECIAL RESERVES.—Section 2704 of the
Deposit Insurance Funds Act of 1996 (12 U.S.C. 1821
note) is amended—
(1) by striking subsection (b); and
(2) in subsection (d)—
(A) by striking paragraph (4);
(B) in paragraph (6)(C)(i), by striking
‘‘(6) and (7)’’ and inserting ‘‘(5), (6), and (7)’’;
and
(C) in paragraph (6)(C), by striking clause
(ii) and inserting the following:
‘‘(ii) by redesignating paragraph (8)
as paragraph (5).’’.
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.
177
TITLE II—FUNCTIONAL
REGULATION
Subtitle A—Brokers and Dealers
SEC. 201. DEFINITION OF BROKER.
Section 3(a)(4) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(4)) is amended to read as follows:
‘‘(4) BROKER.—
‘‘(A) IN
GENERAL.—The term ‘broker’
means any person engaged in the business of
effecting transactions in securities for the ac-
count of others.
‘‘(B) EXCEPTION FOR CERTAIN BANK AC-
TIVITIES.—A bank shall not be considered to be
a broker because the bank engages in any of
the following activities under the conditions de-
scribed:
‘‘(i) THIRD
PARTY
BROKERAGE
AR-
RANGEMENTS.—The bank enters into a
contractual or other arrangement with a
broker or dealer registered under this title
under which the broker or dealer offers
brokerage services on or off the premises
of the bank if—
178
‘‘(I) such broker or dealer is
clearly identified as the person per-
forming the brokerage services;
‘‘(II) the broker or dealer per-
forms brokerage services in an area
that is clearly marked and, to the ex-
tent practicable, physically separate
from the routine deposit-taking activi-
ties of the bank;
‘‘(III) any materials used by the
bank to advertise or promote generally
the availability of brokerage services
under the contractual or other ar-
rangement clearly indicate that the
brokerage services are being provided
by the broker or dealer and not by the
bank;
‘‘(IV) any materials used by the
bank to advertise or promote generally
the availability of brokerage services
under the contractual or other ar-
rangement are in compliance with the
Federal securities laws before dis-
tribution;
179
‘‘(V) bank employees (other than
associated persons of a broker or deal-
er who are qualified pursuant to the
rules of a self-regulatory organization)
perform only clerical or ministerial
functions in connection with broker-
age transactions including scheduling
appointments with the associated per-
sons of a broker or dealer, except that
bank employees may forward cus-
tomer funds or securities and may de-
scribe in general terms the range of
investment vehicles available from the
bank and the broker or dealer under
the contractual or other arrangement;
‘‘(VI) bank employees do not di-
rectly receive incentive compensation
for any brokerage transaction unless
such employees are associated persons
of a broker or dealer and are qualified
pursuant to the rules of a self-regu-
latory organization, except that the
bank employees may receive com-
pensation for the referral of any cus-
tomer if the compensation is a nomi-
180
nal one-time cash fee of a fixed dollar
amount and the payment of the fee is
not contingent on whether the referral
results in a transaction;
‘‘(VII) such services are provided
by the broker or dealer on a basis in
which all customers which receive any
services are fully disclosed to the
broker or dealer;
‘‘(VIII) the bank does not carry
a securities account of the customer
except in a customary custodian or
trustee capacity; and
‘‘(IX) the bank, broker, or dealer
informs each customer that the bro-
kerage services are provided by the
broker or dealer and not by the bank
and that the securities are not depos-
its or other obligations of the bank,
are not guaranteed by the bank, and
are not insured by the Federal De-
posit Insurance Corporation.
‘‘(ii) TRUST
ACTIVITIES.—The bank
effects transactions in a trustee capacity,
or effects transactions in a fiduciary capac-
181
ity in its trust department or other depart-
ment that is regularly examined by bank
examiners for compliance with fiduciary
principles and standards, and (in either
case)—
‘‘(I) is primarily compensated for
such transactions on the basis of an
administration or annual fee (payable
on a monthly, quarterly, or other
basis), a percentage of assets under
management, or a flat or capped per
order processing fee equal to not more
than the cost incurred by the bank in
connection with executing securities
transactions for trustee and fiduciary
customers, or any combination of such
fees, consistent with fiduciary prin-
ciples and standards; and
‘‘(II) does not publicly solicit bro-
kerage business, other than by adver-
tising that it effects transactions in
securities in conjunction with advertis-
ing its other trust activities.
182
‘‘(iii) 
PERMISSIBLE
SECURITIES
TRANSACTIONS.—The bank effects trans-
actions in—
‘‘(I) commercial paper, bankers
acceptances, or commercial bills;
‘‘(II) exempted securities;
‘‘(III) qualified Canadian govern-
ment obligations as defined in section
5136 of the Revised Statutes, in con-
formity with section 15C of this title
and the rules and regulations there-
under, or obligations of the North
American Development Bank; or
‘‘(IV) any standardized, credit
enhanced debt security issued by a
foreign government pursuant to the
March 1989 plan of then Secretary of
the Treasury Brady, used by such for-
eign government to retire outstanding
commercial bank loans.
‘‘(iv) 
CERTAIN
STOCK
PURCHASE
PLANS.—
‘‘(I) 
EMPLOYEE
BENEFIT
PLANS.—The 
bank 
effects 
trans-
actions, as part of its transfer agency
183
activities, in the securities of an issuer
as part of any pension, retirement,
profit-sharing, bonus, thrift, savings,
incentive, or other similar benefit plan
for the employees of that issuer or its
subsidiaries, if—
(aa) the bank does not so-
licit transactions or provide in-
vestment advice with respect to
the purchase or sale of securities
in connection with the plan; and
‘‘(bb) the bank’s compensa-
tion for such plan or program
consists primarily of administra-
tion fees, or flat or capped per
order processing fees, or both.
‘‘(II) DIVIDEND
REINVESTMENT
PLANS.—The 
bank 
effects 
trans-
actions, as part of its transfer agency
activities, in the securities of an issuer
as part of that issuer’s dividend rein-
vestment plan, if—
‘‘(aa) the bank does not so-
licit transactions or provide in-
vestment advice with respect to
184
the purchase or sale of securities
in connection with the plan;
‘‘(bb) the bank does not net
shareholders’ buy and sell orders,
other than for programs for odd-
lot holders or plans registered
with the Commission; and
‘‘(cc) the bank’s compensa-
tion for such plan or program
consists primarily of administra-
tion fees, or flat or capped per
order processing fees, or both.
‘‘(III) ISSUER PLANS.—The bank
effects transactions, as part of its
transfer agency activities, in the secu-
rities of an issuer as part of a plan or
program for the purchase or sale of
that issuer’s shares, if—
‘‘(aa) the bank does not so-
licit transactions or provide in-
vestment advice with respect to
the purchase or sale of securities
in connection with the plan or
program;
185
‘‘(bb) the bank does not net
shareholders’ buy and sell orders,
other than for programs for odd-
lot holders or plans registered
with the Commission; and
‘‘(cc) the bank’s compensa-
tion for such plan or program
consists primarily of administra-
tion fees, or flat or capped per
order processing fees, or both.
‘‘(IV) PERMISSIBLE
DELIVERY
OF
MATERIALS.—The exception to
being considered a broker for a bank
engaged in activities described in sub-
clauses (I), (II), and (III) will not be
affected by a bank’s delivery of writ-
ten or electronic plan materials to em-
ployees of the issuer, shareholders of
the issuer, or members of affinity
groups of the issuer, so long as such
materials are—
‘‘(aa) comparable in scope or
nature to that permitted by the
Commission as of the date of the
186
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—
‘‘(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—
187
‘‘(I) effects sales as part of a pri-
mary offering of securities not involv-
ing a public offering, pursuant to sec-
tion 3(b), 4(2), or 4(6) of the Securi-
ties Act of 1933 or the rules and reg-
ulations issued thereunder;
‘‘(II) at any time after the date
that is 1 year after the date of enact-
ment of the Financial Services Act of
1998, is not affiliated with a broker
or dealer that has been registered for
more than 1 year in accordance with
this Act, and engages in dealing, mar-
ket making, or underwriting activities,
other than with respect to exempted
securities; and
‘‘(III) effects transactions exclu-
sively with qualified investors.
‘‘(viii) SAFEKEEPING
AND
CUSTODY
ACTIVITIES.—
‘‘(I) IN GENERAL.—The bank, as
part of customary banking activities—
‘‘(aa) provides safekeeping
or custody services with respect
to securities, including the exer-
188
cise of warrants and other rights
on behalf of customers;
‘‘(bb) facilitates the transfer
of funds or securities, as a custo-
dian or a clearing agency, in con-
nection with the clearance and
settlement 
of 
its 
customers’
transactions in securities;
‘‘(cc) effects securities lend-
ing or borrowing transactions
with or on behalf of customers as
part of services provided to cus-
tomers pursuant to division (aa)
or (bb) or invests cash collateral
pledged in connection with such
transactions; or
‘‘(dd) 
holds 
securities
pledged by a customer to another
person or securities subject to
purchase or resale agreements in-
volving a customer, or facilitates
the pledging or transfer of such
securities by book entry or as
otherwise provided under applica-
ble law.
189
‘‘(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.
‘‘(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
190
are not effected by an employee of the
bank who is also an employee of a broker
or dealer.
‘‘(C) BROKER DEALER EXECUTION.—The
exception to being considered a broker for a
bank engaged in activities described in clauses
(ii), (iv), and (viii) of subparagraph (B) shall
not apply if the activities described in such pro-
visions result in the trade in the United States
of any security that is a publicly traded security
in the United States, unless—
‘‘(i) the bank directs such trade to a
registered broker or dealer for execution;
‘‘(ii) the trade is a cross trade or
other substantially similar trade of a secu-
rity that—
‘‘(I) is made by the bank or be-
tween the bank and an affiliated fidu-
ciary; and
‘‘(II) is not in contravention of
fiduciary principles established under
applicable Federal or State law; or
‘‘(iii) the trade is conducted in some
other manner permitted under rules, regu-
191
lations, or orders as the Commission may
prescribe or issue.
‘‘(D) NO EFFECT OF BANK EXEMPTIONS
ON OTHER COMMISSION AUTHORITY.—The ex-
ception to being considered a broker for a bank
engaged in activities described in subpara-
graphs (B) and (C) shall not affect the author-
ity of the Commission under any other provi-
sion of this Act or any other securities law.
‘‘(E) FIDUCIARY CAPACITY.—For purposes
of subparagraph (B)(ii), the term ‘fiduciary ca-
pacity’ means—
‘‘(i) in the capacity as trustee, execu-
tor, administrator, registrar of stocks and
bonds, transfer agent, guardian, assignee,
receiver, or custodian under a uniform gift
to minor act, or as an investment adviser
if the bank receives a fee for its investment
advice;
‘‘(ii) in any capacity in which the
bank possesses investment discretion on
behalf of another; or
‘‘(iii) in any other similar capacity.
192
‘‘(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
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
193
a dealer because the bank engages in any of the
following activities under the conditions de-
scribed:
‘‘(i) PERMISSIBLE SECURITIES TRANS-
ACTIONS.—The bank buys or sells—
‘‘(I) commercial paper, bankers
acceptances, or commercial bills;
‘‘(II) exempted securities;
‘‘(III) qualified Canadian govern-
ment obligations as defined in section
5136 of the Revised Statutes of the
United States, in conformity with sec-
tion 15C of this title and the rules
and regulations thereunder, or obliga-
tions of the North American Develop-
ment Bank; or
‘‘(IV) any standardized, credit
enhanced debt security issued by a
foreign government pursuant to the
March 1989 plan of then Secretary of
the Treasury Brady, used by such for-
eign government to retire outstanding
commercial bank loans.
‘‘(ii) INVESTMENT, TRUSTEE, AND FI-
DUCIARY TRANSACTIONS.—The bank buys
194
or 
sells 
securities 
for 
investment
purposes—
‘‘(I) for the bank; or
‘‘(II) for accounts for which the
bank acts as a trustee or fiduciary.
‘‘(iii) 
ASSET-BACKED
TRANS-
ACTIONS.—The 
bank 
engages 
in 
the
issuance or sale to qualified investors,
through a grantor trust or otherwise, of se-
curities backed by or representing an inter-
est in notes, drafts, acceptances, loans,
leases, receivables, other obligations, or
pools of any such obligations predomi-
nantly originated by the bank, or a syn-
dicate of banks of which the bank is a
member, or an affiliate of any such bank
other than a broker or dealer.
‘‘(iv) BANKING PRODUCTS.—The bank
buys or sells traditional banking products,
as defined in section 206(a) of the Finan-
cial Services Act of 1998.
‘‘(v) DERIVATIVE
INSTRUMENTS.—
The bank issues, buys, or sells any deriva-
tive instrument to which the bank is a
party—
195
‘‘(I) to or from a qualified inves-
tor, except that if the instrument pro-
vides for the delivery of one or more
securities (other than a derivative in-
strument or government security), the
transaction shall be effected with or
through a registered broker or dealer;
‘‘(II) to or from other persons,
except that if the derivative instru-
ment provides for the delivery of one
or more securities (other than a deriv-
ative instrument or government secu-
rity), or is a security (other than a
government security), the transaction
shall be effected with or through a
registered broker or dealer; or
‘‘(III) to or from any person if
the instrument is neither a security
nor provides for the delivery of one or
more securities (other than a deriva-
tive instrument).’’.
196
SEC. 203. REGISTRATION FOR SALES OF PRIVATE SECURI-
TIES OFFERINGS.
Section 15A of the Securities Exchange Act of 1934
(15 U.S.C. 78o–3) is amended by inserting after sub-
section (i) the following new subsection:
‘‘(j) REGISTRATION FOR SALES OF PRIVATE SECURI-
TIES OFFERINGS.—A registered securities association
shall create a limited qualification category for any associ-
ated person of a member who effects sales as part of a
primary offering of securities not involving a public offer-
ing, pursuant to section 3(b), 4(2), or 4(6) of the Securi-
ties Act of 1933 and the rules and regulations thereunder,
and shall deem qualified in such limited qualification cat-
egory, without testing, any bank employee who, in the six
month period preceding the date of enactment of this Act,
engaged in effecting such sales.’’.
SEC. 204. 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
197
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
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
198
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:
‘‘(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;
199
‘‘(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.
‘‘(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
subsection—
‘‘(A) the term ‘security’ has the same
meaning as in section 3(a)(10) of the Securities
Exchange Act of 1934;
200
‘‘(B) the term ‘registered broker or dealer’
has the same meaning as in section 3(a)(48) of
the Securities Exchange Act of 1934; and
‘‘(C) the term ‘associated person’ has the
same meaning as in section 3(a)(18) of the Se-
curities Exchange Act of 1934.’’.
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
(5) of section 3(a) of the Securities Exchange Act of
1934. Such recordkeeping requirements shall be suf-
ficient to demonstrate compliance with the terms of
such exceptions and be designed to facilitate compli-
ance with such exceptions. Each appropriate Federal
banking agency shall make any such information
available to the Commission upon request.
201
‘‘(2) DEFINITIONS.—As used in this subsection
the term ‘Commission’ means the Securities and Ex-
change Commission.’’.
SEC. 206. DEFINITION AND TREATMENT OF BANKING PROD-
UCTS.
(a) DEFINITION OF TRADITIONAL BANKING PROD-
UCT.—For purposes of paragraphs (4) and (5) of section
3(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a) (4), (5)), the term ‘‘traditional banking product’’
means—
(1) a deposit account, savings account, certifi-
cate of deposit, or other deposit instrument issued
by a bank;
(2) a banker’s acceptance;
(3) a letter of credit issued or loan made by a
bank;
(4) a debit account at a bank arising from a
credit card or similar arrangement;
(5) a participation in a loan which the bank or
an affiliate of the bank (other than a broker or deal-
er) funds, participates in, or owns that is sold—
(A) to qualified investors; or
(B) to other persons that—
(i) have the opportunity to review and
assess any material information, including
202
information regarding the borrower’s cred-
itworthiness; and
(ii) based on such factors as financial
sophistication, net worth, and knowledge
and experience in financial matters, have
the capability to evaluate the information
available, as determined under generally
applicable banking standards or guidelines;
and
(6) any derivative instrument, whether or not
individually negotiated, involving or relating to—
(A) foreign currencies, except options on
foreign currencies that trade on a national se-
curities exchange;
(B) interest rates, except interest rate de-
rivative instruments that—
(i) are based on a security or a group
or index of securities (other than govern-
ment securities or a group or index of gov-
ernment securities);
(ii) provide for the delivery of one or
more securities (other than government se-
curities); or
(iii) trade on a national securities ex-
change; or
203
(C) commodities, other rates, indices, or
other assets, except derivative instruments
that—
(i) are securities or that are based on
a group or index of securities (other than
government securities or a group or index
of government securities);
(ii) provide for the delivery of one or
more securities (other than government se-
curities); or
(iii) trade on a national securities ex-
change.
(b) AMENDMENT TO THE SECURITIES EXCHANGE
ACT OF 1934.—Section 15 of the Securities Exchange Act
of 1934 (15 U.S.C. 78o) is amended by adding at the end
the following new subsection:
‘‘(i) TRANSACTIONS
INVOLVING
HYBRID
PROD-
UCTS.—
‘‘(1) COMMISSION AUTHORITY.—
‘‘(A) IN GENERAL.—The Commission may,
after consultation with the Board, determine,
by regulation published in the Federal Register,
that a bank that effects transactions in, or buys
or sells, a new product should be subject to the
registration requirements of this section.
204
‘‘(B) LIMITATION.—The Commission may
not impose the registration requirements of this
section on any bank that effects transactions in,
or buys or sells, a product under this subsection
unless the Commission determines in the regu-
lations described in subparagraph (A) that—
‘‘(i) the subject product is a new prod-
uct;
‘‘(ii) the subject product is a security;
and
‘‘(iii) imposing the registration re-
quirements of this section is necessary or
appropriate in the public interest and for
the protection of investors.
‘‘(2) OBJECTION
TO
COMMISSION
REGULA-
TION.—
‘‘(A) FILING OF PETITION FOR REVIEW.—
The Board, or any aggrieved party, may obtain
review of any final regulation described in para-
graph (1) in the United States Court of Ap-
peals for the District of Columbia Circuit by fil-
ing in such court, not later than 60 days after
the date of publication of the final regulation,
a written petition requesting that the regulation
be set aside.
205
‘‘(B) TRANSMITTAL
OF
PETITION
AND
RECORD.—A copy of a petition described in
subparagraph (A) shall be transmitted as soon
as possible by the Clerk of the Court to an offi-
cer or employee of the Commission designated
for that purpose. Upon receipt of the petition,
the Commission shall file with the court the
regulation under review and any documents re-
ferred to therein, and any other relevant mate-
rials prescribed by the court.
‘‘(C) EXCLUSIVE JURISDICTION.—On the
date of the filing of the petition under subpara-
graph (A), the court has jurisdiction, which be-
comes exclusive on the filing of the materials
set forth in subparagraph (B), to affirm and
enforce or to set aside the regulation at issue.
‘‘(D) STANDARD OF REVIEW.—
‘‘(i) IN
GENERAL.—The court shall
determine to affirm and enforce or set
aside a regulation of the Commission
under this subsection, based on the deter-
mination of the court as to whether the
subject product—
‘‘(I) is a new product, as defined
in this subsection;
206
‘‘(II) is a security; and
‘‘(III) would be more appro-
priately regulated under the Federal
securities laws or the Federal banking
laws, giving equal deference to the
views of the Commission and the
Board.
‘‘(ii) CONSIDERATIONS.—In making a
determination under clause (i)(III), the
court shall consider—
‘‘(I) the nature of the subject
new product;
‘‘(II) the history, purpose, extent,
and appropriateness of the regulation
of the new product under the Federal
securities laws; and
‘‘(III) the history, purpose, ex-
tent, and appropriateness of the regu-
lation of the new product under the
Federal banking laws.
‘‘(E) JUDICIAL STAY.—The filing of a peti-
tion by the Board or an aggrieved party pursu-
ant to subparagraph (A) shall operate as a judi-
cial stay, until the date on which the court
207
makes a final determination under this para-
graph, of—
‘‘(i) any Commission requirement that
a bank register as a broker or dealer under
this section, because the bank engages in
any transaction in, or buys or sells, the
new product that is the subject of the peti-
tion; and
‘‘(ii) any Commission action against a
bank for a failure to comply with a re-
quirement described in clause (i).
‘‘(3) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) the term ‘Board’ means the Board of
Governors of the Federal Reserve System; and
‘‘(B) the term ‘new product’ means a prod-
uct or instrument offered or provided by a bank
that—
‘‘(i) was not subject to regulation by
the Commission as a security under this
Act before the date of enactment of this
subsection; and
‘‘(ii) is not a traditional banking prod-
uct, as defined in paragraphs (1) through
208
(6) of section 206(a) of the Financial Serv-
ices Act of 1998.’’.
(c) CLASSIFICATION LIMITED.—Classification of a
particular product or instrument as a traditional banking
product pursuant to this section or the amendments made
by this section shall not be construed as finding or imply-
ing that such product or instrument is or is not a security
for any purpose under the securities laws, or is or is not
an account, agreement, contract, or transaction for any
purpose under the Commodity Exchange Act.
(d) NO LIMITATION
ON OTHER AUTHORITY TO
CHALLENGE.—Nothing in this section or the amendments
made by this section shall affect the right or authority
of the Board of Governors of the Federal Reserve System,
any appropriate Federal banking agency, or any interested
party under any other provision of law to object to or seek
judicial review as to whether a product or instrument is
or is not appropriately classified as a traditional banking
product under paragraphs (1) through (6) of section
206(a).
(e) INCORPORATED DEFINITIONS.—For purposes of
this section—
(1) the term ‘‘appropriate Federal banking
agency’’ has the same meaning as in section 3 of the
Federal Deposit Insurance Act;
209
(2) the term ‘‘bank’’ has the same meaning as
in section 3(a)(6) of the Securities Exchange Act of
1934;
(3) the term ‘‘Board’’ means the Board of Gov-
ernors of the Federal Reserve System;
(4) the term ‘‘government securities’’ has the
same meaning as in section 3(a)(42) of the Securi-
ties Exchange Act of 1934, and, for purposes of this
subsection, commercial paper, bankers acceptances,
and commercial bills shall be treated in the same
manner as government securities; and
(5) the term ‘‘qualified investor’’ has the same
meaning as in section 3(a)(55) of the Securities Ex-
change Act of 1934, as amended by this Act.
SEC. 207. DERIVATIVE INSTRUMENT AND QUALIFIED IN-
VESTOR DEFINED.
Section 3(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)) is amended by adding at the end the
following new paragraphs:
‘‘(54) DERIVATIVE INSTRUMENT.—
‘‘(A) DEFINITION.—The term ‘derivative
instrument’ means any individually negotiated
contract, agreement, warrant, note, or option
that is based, in whole or in part, on the value
of, any interest in, or any quantitative measure
210
or the occurrence of any event relating to, one
or more commodities, securities, currencies, in-
terest or other rates, indices, or other assets,
but does not include a traditional banking prod-
uct, as defined in section 206(a) of the Finan-
cial Services Act of 1998.
‘‘(B) CLASSIFICATION LIMITED.— Classi-
fication of a particular contract as a derivative
instrument pursuant to this paragraph shall not
be construed as finding or implying that such
instrument is or is not a security for any pur-
pose under the securities laws, or is or is not
an account, agreement, contract, or transaction
for any purpose under the Commodity Ex-
change Act.
‘‘(55) QUALIFIED INVESTOR.—
‘‘(A) DEFINITION.—For purposes of this
title, the term ‘qualified investor’ means—
‘‘(i) any investment company reg-
istered with the Commission under section
8 of the Investment Company Act of 1940;
‘‘(ii) any issuer eligible for an exclu-
sion from the definition of investment com-
pany pursuant to section 3(c)(7) of the In-
vestment Company Act of 1940;
211
‘‘(iii) any bank (as defined in para-
graph (6) of this subsection), savings asso-
ciation (as defined in section 3(b) of the
Federal Deposit Insurance Act), broker,
dealer, insurance company (as defined in
section 2(a)(13) of the Securities Act of
1933), or business development company
(as defined in section 2(a)(48) of the In-
vestment Company Act of 1940);
‘‘(iv) any small business investment
company licensed by the United States
Small Business Administration under sec-
tion 301 (c) or (d) of the Small Business
Investment Act of 1958;
‘‘(v) any State sponsored employee
benefit plan, or any other employee benefit
plan, within the meaning of the Employee
Retirement Income Security Act of 1974,
other than an individual retirement ac-
count, if the investment decisions are made
by a plan fiduciary, as defined in section
3(21) of that Act, which is either a bank,
savings and loan association, insurance
company, or registered investment adviser;
212
‘‘(vi) any trust whose purchases of se-
curities are directed by a person described
in clauses (i) through (v) of this subpara-
graph;
‘‘(vii) any market intermediary ex-
empt under section 3(c)(2) of the Invest-
ment Company Act of 1940;
‘‘(viii) any associated person of a
broker or dealer other than a natural per-
son;
‘‘(ix) any foreign bank (as defined in
section 1(b)(7) of the International Bank-
ing Act of 1978);
‘‘(x) the government of any foreign
country;
‘‘(xi) any corporation, company, or
partnership that owns and invests on a dis-
cretionary basis, not less than $10,000,000
in investments;
‘‘(xii) any natural person who owns
and invests on a discretionary basis, not
less than $10,000,000 in investments;
‘‘(xiii) any government or political
subdivision, agency, or instrumentality of a
government who owns and invests on a dis-
213
cretionary basis not less than $50,000,000
in investments; or
‘‘(xiv) any multinational or supra-
national entity or any agency or instru-
mentality thereof.
‘‘(B) ADDITIONAL AUTHORITY.—The Com-
mission may, by rule or order, define a ‘quali-
fied investor’ as any other person, taking into
consideration such factors as the financial so-
phistication of the person, net worth, and
knowledge and experience in financial mat-
ters.’’.
SEC. 208. GOVERNMENT SECURITIES DEFINED.
Section 3(a)(42) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(42)) is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(C);
(2) by striking the period at the end of sub-
paragraph (D) and inserting ‘‘; or’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(E) for purposes of section 15C as ap-
plied to a bank, a qualified Canadian govern-
ment obligation as defined in section 5136 of
the Revised Statutes.’’.
214
SEC. 209. EFFECTIVE DATE.
This subtitle shall take effect at the end of the 270-
day period beginning on the date of the enactment of this
Act.
SEC. 210. RULE OF CONSTRUCTION.
Nothing in this Act shall supersede, affect, or other-
wise limit the scope and applicability of the Commodity
Exchange Act (7 U.S.C. 1 et seq.).
Subtitle B—Bank Investment
Company Activities
SEC. 211. CUSTODY OF INVESTMENT COMPANY ASSETS BY
AFFILIATED BANK.
(a) MANAGEMENT COMPANIES.—Section 17(f) of the
Investment Company Act of 1940 (15 U.S.C. 80a–17(f))
is amended—
(1) by redesignating paragraphs (1), (2), and
(3) as subparagraphs (A), (B), and (C), respectively;
(2) by striking ‘‘(f) Every registered’’ and in-
serting the following:
‘‘(f) CUSTODY OF SECURITIES.—
‘‘(1) Every registered’’;
(3) by redesignating the second, third, fourth,
and fifth sentences of such subsection as paragraphs
(2) through (5), respectively, and indenting the left
margin of such paragraphs appropriately; and
215
(4) by adding at the end the following new
paragraph:
‘‘(6) SERVICES AS TRUSTEE OR CUSTODIAN.—
The Commission may adopt rules and regulations,
and issue orders, consistent with the protection of
investors, prescribing the conditions under which a
bank, or an affiliated person of a bank, either of
which is an affiliated person, promoter, organizer, or
sponsor of, or principal underwriter for, a registered
management company may serve as custodian of
that registered management company.’’.
(b) UNIT INVESTMENT TRUSTS.—Section 26 of the
Investment Company Act of 1940 (15 U.S.C. 80a–26) is
amended—
(1) by redesignating subsections (b) through (e)
as subsections (c) through (f), respectively; and
(2) by inserting after subsection (a) the follow-
ing new subsection:
‘‘(b) The Commission may adopt rules and regula-
tions, and issue orders, consistent with the protection of
investors, prescribing the conditions under which a bank,
or an affiliated person of a bank, either of which is an
affiliated person of a principal underwriter for, or deposi-
tor of, a registered unit investment trust, may serve as
trustee or custodian under subsection (a)(1).’’.
216
(c) FIDUCIARY DUTY OF CUSTODIAN.—Section 36(a)
of the Investment Company Act of 1940 (15 U.S.C. 80a–
35(a)) is amended—
(1) in paragraph (1), by striking ‘‘or’’ at the
end;
(2) in paragraph (2), by striking the period at
the end and inserting ‘‘; or’’; and
(3) by inserting after paragraph (2) the follow-
ing:
‘‘(3) as custodian.’’.
SEC. 212. LENDING TO AN AFFILIATED INVESTMENT COM-
PANY.
Section 17(a) of the Investment Company Act of
1940 (15 U.S.C. 80a–17(a)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(2);
(2) by striking the period at the end of para-
graph (3) and inserting ‘‘; or’’; and
(3) by adding at the end the following new
paragraph:
‘‘(4) to loan money or other property to such
registered company, or to any company controlled by
such registered company, in contravention of such
rules, regulations, or orders as the Commission may
217
prescribe or issue consistent with the protection of
investors.’’.
SEC. 213. INDEPENDENT DIRECTORS.
(a) IN GENERAL.—Section 2(a)(19)(A) of the Invest-
ment Company Act of 1940 (15 U.S.C. 80a–2(a)(19)(A))
is amended—
(1) by striking clause (v) and inserting the fol-
lowing new clause:
‘‘(v) any person or any affiliated per-
son of a person (other than a registered in-
vestment company) that, at any time dur-
ing the 6-month period preceding the date
of the determination of whether that per-
son or affiliated person is an interested
person, has executed any portfolio trans-
actions for, engaged in any principal trans-
actions with, or distributed shares for—
‘‘(I) the investment company;
‘‘(II) any other investment com-
pany having the same investment ad-
viser as such investment company or
holding itself out to investors as a re-
lated company for purposes of invest-
ment or investor services; or
218
‘‘(III) any account over which the
investment company’s investment ad-
viser has brokerage placement discre-
tion,’’;
(2) by redesignating clause (vi) as clause (vii);
and
(3) by inserting after clause (v) the following
new clause:
‘‘(vi) any person or any affiliated per-
son of a person (other than a registered in-
vestment company) that, at any time dur-
ing the 6-month period preceding the date
of the determination of whether that per-
son or affiliated person is an interested
person, has loaned money or other prop-
erty to—
‘‘(I) the investment company;
‘‘(II) any other investment com-
pany having the same investment ad-
viser as such investment company or
holding itself out to investors as a re-
lated company for purposes of invest-
ment or investor services; or
219
‘‘(III) any account for which the
investment company’s investment ad-
viser has borrowing authority,’’.
(b) 
CONFORMING
AMENDMENT.—Section
2(a)(19)(B) of the Investment Company Act of 1940 (15
U.S.C. 80a–2(a)(19)(B)) is amended—
(1) by striking clause (v) and inserting the fol-
lowing new clause:
‘‘(v) any person or any affiliated per-
son of a person (other than a registered in-
vestment company) that, at any time dur-
ing the 6-month period preceding the date
of the determination of whether that per-
son or affiliated person is an interested
person, has executed any portfolio trans-
actions for, engaged in any principal trans-
actions with, or distributed shares for—
‘‘(I) any investment company for
which the investment adviser or prin-
cipal underwriter serves as such;
‘‘(II) any investment company
holding itself out to investors, for pur-
poses of investment or investor serv-
ices, as a company related to any in-
vestment company for which the in-
220
vestment adviser or principal under-
writer serves as such; or
‘‘(III) any account over which the
investment 
adviser 
has 
brokerage
placement discretion,’’;
(2) by redesignating clause (vi) as clause (vii);
and
(3) by inserting after clause (v) the following
new clause:
‘‘(vi) any person or any affiliated per-
son of a person (other than a registered in-
vestment company) that, at any time dur-
ing the 6-month period preceding the date
of the determination of whether that per-
son or affiliated person is an interested
person, has loaned money or other prop-
erty to—
‘‘(I) any investment company for
which the investment adviser or prin-
cipal underwriter serves as such;
‘‘(II) any investment company
holding itself out to investors, for pur-
poses of investment or investor serv-
ices, as a company related to any in-
vestment company for which the in-
221
vestment adviser or principal under-
writer serves as such; or
‘‘(III) any account for which the
investment adviser has borrowing au-
thority,’’.
(c) AFFILIATION OF DIRECTORS.—Section 10(c) of
the Investment Company Act of 1940 (15 U.S.C. 80a–
10(c)) is amended by striking ‘‘bank, except’’ and insert-
ing ‘‘bank (together with its affiliates and subsidiaries) or
any one bank holding company (together with its affiliates
and subsidiaries) (as such terms are defined in section 2
of the Bank Holding Company Act of 1956), except’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall take effect at the end of the 1-year period
beginning on the date of enactment of this subtitle.
SEC. 214. ADDITIONAL SEC DISCLOSURE AUTHORITY.
Section 35(a) of the Investment Company Act of
1940 (15 U.S.C. 80a–34(a)) is amended to read as fol-
lows:
‘‘(a) MISREPRESENTATION OF GUARANTEES.—
‘‘(1) IN GENERAL.—It shall be unlawful for any
person, issuing or selling any security of which a
registered investment company is the issuer, to rep-
resent or imply in any manner whatsoever that such
security or company—
222
‘‘(A) has been guaranteed, sponsored, rec-
ommended, or approved by the United States,
or any agency, instrumentality or officer of the
United States;
‘‘(B) has been insured by the Federal De-
posit Insurance Corporation; or
‘‘(C) is guaranteed by or is otherwise an
obligation of any bank or insured depository in-
stitution.
‘‘(2) DISCLOSURES.—Any person issuing or
selling the securities of a registered investment com-
pany that is advised by, or sold through, a bank
shall prominently disclose that an investment in the
company is not insured by the Federal Deposit In-
surance Corporation or any other government agen-
cy. The Commission may adopt rules and regula-
tions, and issue orders, consistent with the protec-
tion of investors, prescribing the manner in which
the disclosure under this paragraph shall be pro-
vided.
‘‘(3) DEFINITIONS.—The terms ‘insured deposi-
tory institution’ and ‘appropriate Federal banking
agency’ have the same meanings as in section 3 of
the Federal Deposit Insurance Act.’’.
223
SEC. 215. DEFINITION OF BROKER UNDER THE INVEST-
MENT COMPANY ACT OF 1940.
Section 2(a)(6) of the Investment Company Act of
1940 (15 U.S.C. 80a–2(a)(6)) is amended to read as fol-
lows:
‘‘(6) The term ‘broker’ has the same meaning
as in section 3 of the Securities Exchange Act of
1934, except that such term does not include any
person solely by reason of the fact that such person
is an underwriter for one or more investment compa-
nies.’’.
SEC. 216. DEFINITION OF DEALER UNDER THE INVEST-
MENT COMPANY ACT OF 1940.
Section 2(a)(11) of the Investment Company Act of
1940 (15 U.S.C. 80a–2(a)(11)) is amended to read as fol-
lows:
‘‘(11) The term ‘dealer’ has the same meaning
as in section 3 of the Securities Exchange Act of
1934, but does not include an insurance company or
investment company.’’.
SEC. 217. REMOVAL OF THE EXCLUSION FROM THE DEFINI-
TION OF INVESTMENT ADVISER FOR BANKS
THAT ADVISE INVESTMENT COMPANIES.
(a) INVESTMENT ADVISER.—Section 202(a)(11) of
the Investment Advisers Act of 1940 (15 U.S.C. 80b–
2(a)(11)) is amended in subparagraph (A), by striking
224
‘‘investment company’’ and inserting ‘‘investment com-
pany, except that the term ‘investment adviser’ includes
any bank or bank holding company to the extent that such
bank or bank holding company serves or acts as an invest-
ment adviser to a registered investment company, but if,
in the case of a bank, such services or actions are per-
formed through a separately identifiable department or di-
vision, the department or division, and not the bank itself,
shall be deemed to be the investment adviser’’.
(b) SEPARATELY IDENTIFIABLE DEPARTMENT
OR
DIVISION.—Section 202(a) of the Investment Advisers Act
of 1940 (15 U.S.C. 80b–2(a)) is amended by adding at
the end the following:
‘‘(26) The term ‘separately identifiable depart-
ment or division’ of a bank means a unit—
‘‘(A) that is under the direct supervision of
an officer or officers designated by the board of
directors of the bank as responsible for the day-
to-day conduct of the bank’s investment adviser
activities for one or more investment companies,
including the supervision of all bank employees
engaged in the performance of such activities;
and
‘‘(B) for which all of the records relating
to its investment adviser activities are sepa-
225
rately maintained in or extractable from such
unit’s own facilities or the facilities of the bank,
and such records are so maintained or other-
wise accessible as to permit independent exam-
ination and enforcement by the Commission of
this Act or the Investment Company Act of
1940 and rules and regulations promulgated
under this Act or the Investment Company Act
of 1940.’’.
SEC. 218. DEFINITION OF BROKER UNDER THE INVEST-
MENT ADVISERS ACT OF 1940.
Section 202(a)(3) of the Investment Advisers Act of
1940 (15 U.S.C. 80b–2(a)(3)) is amended to read as fol-
lows:
‘‘(3) The term ‘broker’ has the same meaning
as in section 3 of the Securities Exchange Act of
1934.’’.
SEC. 219. DEFINITION OF DEALER UNDER THE INVEST-
MENT ADVISERS ACT OF 1940.
Section 202(a)(7) of the Investment Advisers Act of
1940 (15 U.S.C. 80b–2(a)(7)) is amended to read as fol-
lows:
‘‘(7) The term ‘dealer’ has the same meaning as
in section 3 of the Securities Exchange Act of 1934,