317
‘‘(4) FAILURE TO CORRECT.—If, after receiving a
notice under paragraph (1), a financial holding com-
pany does not—
‘‘(A) execute and implement an agreement
in accordance with paragraph (2);
‘‘(B) comply with any limitations imposed
under paragraph (3);
‘‘(C) in the case of a notice of failure to
comply with subsection (b)(1)(A), restore each
depository institution subsidiary to well capital-
ized status before the end of the 180-day period
beginning on the date such notice is received by
the company (or such other period permitted by
the Board); or
‘‘(D) in the case of a notice of failure to
comply with subparagraph (B) or (D) of sub-
section (b)(1), restore compliance with any such
subparagraph on or before the date on which the
next examination of the depository institution
subsidiary is completed or by the end of such
other period as the Board determines to be ap-
propriate,
the Board may require such company, under such
terms and conditions as may be imposed by the
Board and subject to such extension of time as may
318
be granted in the Board’s discretion, to divest control
of any depository institution subsidiary or, at the
election of the financial holding company, instead to
cease to engage in any activity conducted by such
company or its subsidiaries pursuant to this section.
‘‘(5) CONSULTATION.—In taking any action
under this subsection, the Board shall consult with all
relevant Federal and State regulatory agencies.
‘‘(e) SAFEGUARDS FOR BANK SUBSIDIARIES.—A fi-
nancial holding company shall assure that—
‘‘(1) the procedures of the holding company for
identifying and managing financial and operational
risks within the company, and the subsidiaries of
such company, adequately protect the subsidiaries of
such company which are insured depository institu-
tions from such risks;
‘‘(2) the holding company has reasonable policies
and procedures to preserve the separate corporate
identity and limited liability of such company and
the subsidiaries of such company, for the protection of
the company’s subsidiary insured depository institu-
tions; and
‘‘(3) the holding company complies with this sec-
tion.
319
‘‘(f) AUTHORITY TO RETAIN LIMITED NONFINANCIAL
ACTIVITIES AND AFFILIATIONS.—
‘‘(1) IN
GENERAL.—Notwithstanding section
4(a), a company that is not a bank holding company
or a foreign bank (as defined in section 1(b)(7) of the
International Banking Act of 1978) and becomes a fi-
nancial holding company after the date of the enact-
ment of the Financial Services Act of 1998 may con-
tinue to engage in any activity and retain direct or
indirect ownership or control of shares of a company
engaged in any activity if—
‘‘(A) the holding company lawfully was en-
gaged in the activity or held the shares of such
company on September 30, 1997;
‘‘(B) the holding company is predominantly
engaged in financial activities as defined in
paragraph (2); and
‘‘(C) the company engaged in such activity
continues to engage only in the same activities
that such company conducted on September 30,
1997, and other activities permissible under this
Act.
‘‘(2) PREDOMINANTLY FINANCIAL.—For purposes
of this subsection, a company is predominantly en-
gaged in financial activities if the annual gross reve-
320
nues derived by the holding company and all subsidi-
aries of the holding company (excluding revenues de-
rived from subsidiary depository institutions), on a
consolidated basis, from engaging in activities that
are financial in nature or are incidental to activities
that are financial in nature under subsection (c) rep-
resent at least 85 percent of the consolidated annual
gross revenues of the company.
‘‘(3) NO EXPANSION OF GRANDFATHERED COM-
MERCIAL ACTIVITIES THROUGH MERGER OR CONSOLI-
DATION.—A financial holding company that engages
in activities or holds shares pursuant to this sub-
section, or a subsidiary of such financial holding
company, may not acquire, in any merger, consolida-
tion, or other type of business combination, assets of
any other company which is engaged in any activity
which the Board has not determined to be financial
in nature or incidental to activities that are financial
in nature under subsection (c).
‘‘(4) CONTINUING
REVENUE
LIMITATION
ON
GRANDFATHERED
COMMERCIAL
ACTIVITIES.—Not-
withstanding any other provision of this subsection, a
financial holding company may continue to engage in
activities or hold shares in companies pursuant to
this subsection only to the extent that the aggregate
321
annual gross revenues derived from all such activities
and all such companies does not exceed 15 percent
of the consolidated annual gross revenues of the finan-
cial holding company (excluding revenues derived
from subsidiary depository institutions).
‘‘(5) CROSS MARKETING RESTRICTIONS APPLICA-
BLE TO COMMERCIAL ACTIVITIES.—A depository in-
stitution controlled by a financial holding company
shall not—
‘‘(A) offer or market, directly or through
any arrangement, any product or service of a
company whose activities are conducted or whose
shares are owned or controlled by the financial
holding company pursuant to this subsection or
subparagraph (H) or (I) of subsection (c)(3); or
‘‘(B) permit any of its products or services
to be offered or marketed, directly or through any
arrangement, by or through any company de-
scribed in subparagraph (A).
‘‘(6) TRANSACTIONS WITH NONFINANCIAL AFFILI-
ATES.—An insured depository institution controlled
by a financial holding company or wholesale finan-
cial holding company may not engage in a covered
transaction (as defined by section 23A(b)(7) of the
Federal Reserve Act) with any affiliate controlled by
322
the company pursuant to section 10(c), this sub-
section, or subparagraph (H) or (I) of subsection
(c)(3).
‘‘(7) SUNSET
OF
GRANDFATHER.—A financial
holding company engaged in any activity, or retain-
ing direct or indirect ownership or control of shares
of a company, pursuant to this subsection, shall ter-
minate such activity and divest ownership or control
of the shares of such company before the end of the
10-year period beginning on the date of the enactment
of the Financial Services Act of 1998. The Board
may, upon application by a financial holding com-
pany, extend such 10-year period by not to exceed an
additional 5 years if such extension would not be det-
rimental to the public interest.
‘‘(g) DEVELOPING ACTIVITIES.—A financial holding
company and a wholesale financial holding company may
engage directly or indirectly, or acquire shares of any com-
pany engaged, in any activity that the Board has not deter-
mined to be financial in nature or incidental to financial
activities under subsection (c) if—
‘‘(1) the holding company reasonably concludes
that the activity is financial in nature or incidental
to financial activities;
323
‘‘(2) the gross revenues from all activities con-
ducted under this subsection represent less than 5 per-
cent of the consolidated gross revenues of the holding
company;
‘‘(3) the aggregate total assets of all companies
the shares of which are held under this subsection do
not exceed 5 percent of the holding company’s consoli-
dated total assets;
‘‘(4) the total capital invested in activities con-
ducted under this subsection represents less than 5
percent of the consolidated total capital of the holding
company;
‘‘(5) the Board has not determined that the ac-
tivity is not financial in nature or incidental to fi-
nancial activities under subsection (c);
‘‘(6) the holding company is not required to pro-
vide prior written notice of the transaction to the
Board under subsection (c)(6); and
‘‘(7) the holding company provides written noti-
fication to the Board describing the activity com-
menced or conducted by the company acquired no
later than 10 business days after commencing the ac-
tivity or consummating the acquisition.’’.
SEC. 104. OPERATION OF STATE LAW.
(a) AFFILIATIONS.—
325
ation referred to in this subparagraph is to
be effected (hereafter in this subparagraph
referred to as the ‘‘acquiring party’’);
(ii) if the acquiring party is an indi-
vidual, his or her principal occupation and
all offices and positions held during the 5
years preceding the date of notification, and
any conviction of crimes other than minor
traffic violations during the 10 years pre-
ceding the date of notification;
(iii) if the acquiring party is not an
individual—
(I) a report of the nature of its
business operations during the 5 years
preceding the date of notification, or
for such shorter period as such person
and any predecessors thereof shall have
been in existence;
(II) an informative description of
the business intended to be done by the
acquiring party and any subsidiary
thereof; and
(III) a list of all individuals who
are, or who have been selected to be-
come, directors or executive officers of
326
the acquiring party or who perform, or
will perform, functions appropriate to
such positions, including, for each such
individual, the information required
by clause (ii);
(iv) the source, nature, and amount of
the consideration used, or to be used, in ef-
fecting the merger or other acquisition of
control, a description of any transaction
wherein funds were, or are to be, obtained
for any such purpose, and the identity of
persons furnishing such consideration, ex-
cept that, if a source of such consideration
is a loan made in the lender’s ordinary
course of business, the identity of the lender
shall remain confidential if the person fil-
ing such statement so requests;
(v) fully audited financial information
as to the earnings and financial condition
of each acquiring party for the 5 fiscal
years preceding the date of notification of
each such acquiring party, or for such lesser
period as such acquiring party and any
predecessors thereof shall have been in exist-
ence, and similar unaudited information as
327
of a date not earlier than 90 days before the
date of notification, except that, in the case
of an acquiring party that is an insurer ac-
tively engaged in the business of insurance,
the financial statements of such insurer
need not be audited, but such audit may be
required if the need therefor is determined
by the insurance regulatory authority of the
State;
(vi) any plans or proposals that each
acquiring party may have to liquidate such
insurer, to sell its assets, or to merge or con-
solidate it with any person or to make any
other material change in its business or cor-
porate structure or management;
(vii) the number of shares of any secu-
rity of the insurer that each acquiring
party proposes to acquire, the terms of any
offer, request, invitation, agreement, or ac-
quisition, and a statement as to the method
by which the fairness of the proposal was
arrived at;
(viii) the amount of each class of any
security of the insurer that is beneficially
owned or concerning which there is a right
328
to acquire beneficial ownership by each ac-
quiring party;
(ix) a full description of any contracts,
arrangements, or understandings with re-
spect to any security of the insurer in which
any acquiring party is involved, including
transfer of any of the securities, joint ven-
tures, loan or option arrangements, puts or
calls, 
guarantees 
of 
loans, 
guarantees
against loss or guarantees of profits, divi-
sion of losses or profits, or the giving or
withholding of proxies, and identification of
the persons with whom such contracts, ar-
rangements, or understandings have been
entered into;
(x) a description of the purchase of
any security of the insurer during the 12-
month period preceding the date of notifica-
tion by any acquiring party, including the
dates of purchase, names of the purchasers,
and consideration paid, or agreed to be
paid, therefor;
(xi) a description of any recommenda-
tions to purchase any security of the insurer
made during the 12-month period preceding
329
the date of notification by any acquiring
party or by any person based upon inter-
views or at the suggestion of such acquiring
party;
(xii) copies of all tender offers for, re-
quests or invitations for tenders of, exchange
offers for and agreements to acquire or ex-
change any securities of the insurer and, if
distributed, of additional soliciting material
relating thereto; and
(xiii) the terms of any agreement, con-
tract, or understanding made with any
broker-dealer as to solicitation of securities
of the insurer for tender and the amount of
any fees, commissions, or other compensa-
tion to be paid to broker-dealers with regard
thereto;
(B) requiring an entity that is acquiring
control of an entity that is engaged in the busi-
ness of insurance and domiciled in that State to
maintain or restore the capital requirements of
that insurance entity to the level required under
the capital regulations of general applicability
in that State to avoid the requirement of prepar-
ing and filing with the insurance regulatory au-
331
ability of an insured depository institution or
wholesale financial institution, or a subsidiary
or affiliate thereof, to engage, directly or indi-
rectly, either by itself or in conjunction with a
subsidiary, affiliate, or any other party, in any
insurance sales, solicitation, or cross-marketing
activity.
(B) CERTAIN STATE LAWS PRESERVED.—
Notwithstanding subparagraph (A), a State may
impose—
(i) restrictions prohibiting the rejection
of an insurance policy solely because the
policy has been issued or underwritten by
any person who is not associated with such
insured depository institution or wholesale
financial institution, or any subsidiary or
affiliate thereof, when such insurance is re-
quired in connection with a loan or exten-
sion of credit;
(ii) restrictions prohibiting a require-
ment for any debtor, insurer, or insurance
agent or broker to pay a separate charge in
connection with the handling of insurance
that is required in connection with a loan
or other extension of credit or the provision
332
of another traditional banking product, un-
less such charge would be required when the
insured depository institution or wholesale
financial institution, or any subsidiary or
affiliate thereof, is the licensed insurance
agent or broker providing the insurance;
(iii) restrictions prohibiting the use of
any advertisement or other insurance pro-
motional material by an insured depository
institution or wholesale financial institu-
tion, or any subsidiary or affiliate thereof,
that would cause a reasonable person to be-
lieve mistakenly that—
(I) a State or the Federal Govern-
ment is responsible for the insurance
sales activities of, or stands behind the
credit of, the institution, affiliate, or
subsidiary; or
(II) a State, or the Federal Gov-
ernment guarantees any returns on in-
surance products, or is a source of pay-
ment on any insurance obligation of or
sold by the institution, affiliate, or
subsidiary;
333
(iv) restrictions prohibiting the pay-
ment or receipt of any commission or bro-
kerage fee for services as a licensed agent or
broker to or by any person, unless such per-
son holds a valid State license regarding the
applicable class of insurance at the time at
which the services are performed, except
that, in this clause, the term ‘‘services as a
licensed agent or broker’’ does not include a
referral by an unlicensed person of a cus-
tomer or potential customer to a licensed
insurance agent or broker that does not in-
clude a discussion of specific insurance pol-
icy terms and conditions;
(v) restrictions prohibiting any com-
pensation paid to or received by any indi-
vidual who is not licensed to sell insurance,
for the referral of a customer that seeks to
purchase, or seeks an opinion or advice on,
any insurance product to a person that sells
or provides opinions or advice on such
product, based on the purchase of insurance
by the customer;
(vi) restrictions prohibiting the release
of the insurance information of a customer
334
(defined as information concerning the pre-
miums, terms, and conditions of insurance
coverage, including expiration dates and
rates, and insurance claims of a customer
contained in the records of the insured de-
pository institution or wholesale financial
institution, or a subsidiary or affiliate
thereof) to any person or entity other than
an officer, director, employee, agent, sub-
sidiary, or affiliate of an insured depository
institution or a wholesale financial institu-
tion, for the purpose of soliciting or selling
insurance, without the express consent of the
customer, other than a provision that pro-
hibits—
(I) a transfer of insurance infor-
mation to an unaffiliated insurance
company, agent, or broker in connec-
tion with transferring insurance in
force on existing insureds of the in-
sured depository institution or whole-
sale financial institution, or subsidi-
ary or affiliate thereof, or in connec-
tion with a merger with or acquisition
335
of an unaffiliated insurance company,
agent, or broker; or
(II) the release of information as
otherwise authorized by State or Fed-
eral law;
(vii) restrictions prohibiting the use of
health information obtained from the insur-
ance records of a customer for any purpose,
other than for its activities as a licensed
agent or broker, without the express consent
of the customer;
(viii) restrictions prohibiting the exten-
sion of credit or any product or service that
is equivalent to an extension of credit, or
fixing or varying the consideration for any
such extension of credit, on the condition or
requirement that the customer obtain insur-
ance from the insured depository institu-
tion, wholesale financial institution, a sub-
sidiary or affiliate thereof, or a particular
insurer, agent, or broker, other than a pro-
hibition that would prevent any insured de-
pository institution or wholesale financial
institution, or any subsidiary or affiliate
thereof—
336
(I) from engaging in any activity
that would not violate section 106 of
the 
Bank 
Holding 
Company 
Act
Amendments of 1970, as interpreted by
the Board of Governors of the Federal
Reserve System; or
(II) from informing a customer or
prospective customer that insurance is
required in order to obtain a loan or
credit, that loan or credit approval is
contingent upon the procurement by
the customer of acceptable insurance,
or that insurance is available from the
insured 
depository 
institution 
or
wholesale financial institution, or any
subsidiary or affiliate thereof;
(ix) restrictions requiring, when an
application by a consumer for a loan or
other extension of credit from an insured
depository institution or wholesale financial
institution is pending, and insurance is of-
fered to the consumer or is required in con-
nection with the loan or extension of credit
by the insured depository institution or
wholesale financial institution, that a writ-
337
ten disclosure be provided to the consumer
indicating that his or her choice of an in-
surance provider will not affect the credit
decision or credit terms in any way, except
that the insured depository institution or
wholesale financial institution, or subsidi-
ary or affiliate thereof, may impose reason-
able requirements concerning the credit-
worthiness of the insurance provider and
scope of coverage chosen;
(x) restrictions requiring clear and
conspicuous disclosure, in writing, where
practicable, to the customer prior to the sale
of any insurance policy that such policy—
(I) is not a deposit;
(II) is not insured by the Federal
Deposit Insurance Corporation;
(III) is not guaranteed by the in-
sured depository institution or whole-
sale financial institution or, if appro-
priate, its subsidiaries or affiliates or
any person soliciting the purchase of
or selling insurance on the premises
thereof; and
338
(IV) where appropriate, involves
investment risk, including potential
loss of principal;
(xi) restrictions requiring that, when a
customer obtains insurance (other than
credit insurance or flood insurance) and
credit from an insured depository institu-
tion or wholesale financial institution, or
any subsidiary or affiliate thereof, or any
person soliciting the purchase of or selling
insurance on the premises thereof, the credit
and insurance transactions be completed
through separate documents;
(xii) restrictions prohibiting, when a
customer obtains insurance (other than
credit insurance or flood insurance) and
credit from an insured depository institu-
tion or wholesale financial institution or its
subsidiaries or affiliates, or any person so-
liciting the purchase of or selling insurance
on the premises thereof, inclusion of the ex-
pense of insurance premiums in the pri-
mary credit transaction without the express
written consent of the customer; and
339
(xiii) restrictions requiring mainte-
nance of separate and distinct books and
records relating to insurance transactions,
including all files relating to and reflecting
consumer complaints, and requiring that
such insurance books and records be made
available to the appropriate State insurance
regulator for inspection upon reasonable no-
tice.
(C) LIMITATIONS.—
(i) OCC DEFERENCE.—Section 307(e)
does not apply with respect to any State
statute, regulation, order, interpretation, or
other action regarding insurance sales, so-
licitation, or cross marketing activities de-
scribed in subparagraph (A) that was
issued, adopted, or enacted before September
3, 1998, and that is not described in sub-
paragraph (B).
(ii) NONDISCRIMINATION.—Subsection
(c) does not apply with respect to any State
statute, regulation, order, interpretation, or
other action regarding insurance sales, so-
licitation, or cross marketing activities de-
scribed in subparagraph (A) that was
340
issued, adopted, or enacted before September
3, 1998, and that is not described in sub-
paragraph (B).
(iii) CONSTRUCTION.—Nothing in this
paragraph shall be construed to limit the
applicability of the decision of the Supreme
Court in Barnett Bank of Marion County
N.A. v. Nelson, 116 S. Ct. 1103 (1996) with
respect to a State statute, regulation, order,
interpretation, or other action that is not
described in subparagraph (B).
(iv) LIMITATION
ON
INFERENCES.—
Nothing in this paragraph shall be con-
strued to create any inference with respect
to any State statute, regulation, order, in-
terpretation, or other action that is not re-
ferred to or described in this paragraph.
(3) 
INSURANCE
ACTIVITIES
OTHER
THAN
SALES.—State statutes, regulations, interpretations,
orders, and other actions shall not be preempted
under subsection (b)(1) to the extent that they—
(A) relate to, or are issued, adopted, or en-
acted for the purpose of regulating the business
of insurance in accordance with the Act of March
341
9, 1945 (commonly known as the ‘‘McCarran-
Ferguson Act’’);
(B) apply only to entities that are not in-
sured depository institutions or wholesale finan-
cial institutions, but that are directly engaged in
the business of insurance (except that they may
apply to depository institutions engaged in pro-
viding savings bank life insurance as principal
to the extent of regulating such insurance);
(C) do not relate to or directly or indirectly
regulate insurance sales, solicitations, or cross-
marketing activities; and
(D) are not prohibited under subsection (c).
(c) NONDISCRIMINATION.—Except as provided in any
restrictions described in subsection (b)(2)(B), no State may,
by statute, regulation, order, interpretation, or other action,
regulate the insurance activities authorized or permitted
under this Act or any other provision of Federal law of an
insured depository institution or wholesale financial insti-
tution, or subsidiary or affiliate thereof, to the extent that
such statute, regulation, order, interpretation, or other ac-
tion—
(1) distinguishes by its terms between insured
depository institutions or wholesale financial institu-
tions, or subsidiaries or affiliates thereof, and other
342
persons or entities engaged in such activities, in a
manner that is in any way adverse to any such in-
sured depository institution or wholesale financial in-
stitution, or subsidiary or affiliate thereof;
(2) as interpreted or applied, has or will have an
impact on depository institutions or wholesale finan-
cial institutions, or subsidiaries or affiliates thereof,
that is substantially more adverse than its impact on
other persons or entities providing the same products
or services or engaged in the same activities that are
not insured depository institutions, wholesale finan-
cial institutions, or subsidiaries or affiliates thereof,
or persons or entities affiliated therewith;
(3) effectively prevents a depository institution
or wholesale financial institution, or subsidiary or af-
filiate thereof, from engaging in insurance activities
authorized or permitted by this Act or any other pro-
vision of Federal law; or
(4) conflicts with the intent of this Act generally
to permit affiliations that are authorized or permitted
by Federal law between insured depository institu-
tions or wholesale financial institutions, or subsidi-
aries or affiliates thereof, and persons and entities en-
gaged in the business of insurance.
343
(d) DEFINITION.—For purposes of this section, the
term ‘‘State’’ means any State of the United States, the Dis-
trict of Columbia, any territory of the United States, Puerto
Rico, Guam, American Samoa, the Trust Territory of the
Pacific Islands, the Virgin Islands, and the Northern Mari-
ana Islands.
SEC. 105. MUTUAL BANK HOLDING COMPANIES AUTHOR-
IZED.
Section 3(g)(2) of the Bank Holding Company Act of
1956 (12 U.S.C. 1842(g)(2)) is amended to read as follows:
‘‘(2) REGULATIONS.—A bank holding company
organized as a mutual holding company shall be reg-
ulated on terms, and shall be subject to limitations,
comparable to those applicable to any other bank
holding company.’’.
SEC. 106. PROHIBITION ON DEPOSIT PRODUCTION OF-
FICES.
(a) IN GENERAL.—Section 109(d) of the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994
(12 U.S.C. 1835a(d)) is amended—
(1) by inserting ‘‘, the Financial Services Act of
1998,’’ after ‘‘pursuant to this title’’; and
(2) by inserting ‘‘or such Act’’ after ‘‘made by
this title’’.
344
(b) TECHNICAL AND CONFORMING AMENDMENT.—Sec-
tion 109(e)(4) of the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (12 U.S.C. 1835a(e)(4))
is amended by inserting ‘‘and any branch of a bank con-
trolled by an out-of-State bank holding company (as defined
in section 2(o)(7) of the Bank Holding Company Act of
1956)’’ before the period.
SEC. 107. CLARIFICATION OF BRANCH CLOSURE REQUIRE-
MENTS.
Section 42(d)(4)(A) of the Federal Deposit Insurance
Act (12 U.S.C. 1831r–1(d)(4)(A)) is amended by inserting
‘‘and any bank controlled by an out-of-State bank holding
company (as defined in section 2(o)(7) of the Bank Holding
Company Act of 1956)’’ before the period.
SEC. 108. AMENDMENTS RELATING TO LIMITED PURPOSE
BANKS.
(a) IN GENERAL.—Section 4(f) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1843(f)) is amended—
(1) in paragraph (2)(A)(ii)—
(A) by striking ‘‘and’’ at the end of sub-
clause (IX);
(B) by inserting ‘‘and’’ after the semicolon
at the end of subclause (X); and
(C) by inserting after subclause (X) the fol-
lowing new subclause:
345
‘‘(XI) consumer loan assets that
are derived from or incidental to ac-
tivities in which institutions described
in subparagraph (F) or (H) of section
2(c)(2) are permitted to engage;’’;
(2) in paragraph (2), by striking subparagraph
(B) and inserting the following new subparagraphs:
‘‘(B) any bank subsidiary of such company
engages in any activity in which the bank was
not lawfully engaged as of March 5, 1987, unless
the bank is well managed and well capitalized;
‘‘(C) any bank subsidiary of such company
both—
‘‘(i) accepts demand deposits or depos-
its that the depositor may withdraw by
check or similar means for payment to
third parties; and
‘‘(ii) engages in the business of making
commercial loans (and, for purposes of this
clause, loans made in the ordinary course of
a credit card operation shall not be treated
as commercial loans); or
‘‘(D) after the date of the enactment of the
Competitive Equality Amendments of 1987, any
bank subsidiary of such company permits any
346
overdraft (including any intraday overdraft), or
incurs any such overdraft in such bank’s account
at a Federal reserve bank, on behalf of an affili-
ate, other than an overdraft described in para-
graph (3).’’; and
(3) by striking paragraphs (3) and (4) and in-
serting the following new paragraphs:
‘‘(3) PERMISSIBLE OVERDRAFTS DESCRIBED.—
For purposes of paragraph (2)(D), an overdraft is de-
scribed in this paragraph if—
‘‘(A) such overdraft results from an inad-
vertent computer or accounting error that is be-
yond the control of both the bank and the affili-
ate; or
‘‘(B) such overdraft—
‘‘(i) is permitted or incurred on behalf
of an affiliate which is monitored by, re-
ports to, and is recognized as a primary
dealer by the Federal Reserve Bank of New
York; and
‘‘(ii) is fully secured, as required by
the Board, by bonds, notes, or other obliga-
tions which are direct obligations of the
United States or on which the principal
and interest are fully guaranteed by the
347
United States or by securities and obliga-
tions eligible for settlement on the Federal
Reserve book entry system.
‘‘(4) DIVESTITURE IN CASE OF LOSS OF EXEMP-
TION.—If any company described in paragraph (1)
fails to qualify for the exemption provided under such
paragraph by operation of paragraph (2), such ex-
emption shall cease to apply to such company and
such company shall divest control of each bank it con-
trols before the end of the 180-day period beginning
on the date that the company receives notice from the
Board that the company has failed to continue to
qualify for such exemption, unless before the end of
such 180-day period, the company has—
‘‘(A) corrected the condition or ceased the
activity that caused the company to fail to con-
tinue to qualify for the exemption; and
‘‘(B) implemented procedures that are rea-
sonably adapted to avoid the reoccurrence of such
condition or activity.’’.
(b) INDUSTRIAL LOAN COMPANIES AFFILIATE OVER-
DRAFTS.—Section 2(c)(2)(H) of the Bank Holding Com-
pany Act of 1956 (12 U.S.C. 1841(c)(2)(H)) is amended
by inserting before the period at the end ‘‘, or that is other-
348
wise permissible for a bank controlled by a company de-
scribed in section 4(f)(1)’’.
SEC. 109. REPORTS ON ONGOING FTC STUDY OF CONSUMER
PRIVACY ISSUES.
With respect to the ongoing multistage study being
conducted by the Federal Trade Commission on consumer
privacy issues, the Commission shall submit to the Congress
an interim report on the findings and conclusions of the
Commission, together with such recommendations for legis-
lative and administrative action as the Commission deter-
mines to be appropriate, at the conclusion of each stage of
such study and a final report at the conclusion of the study.
SEC. 110. GAO STUDY OF ECONOMIC IMPACT ON COMMU-
NITY BANKS AND OTHER SMALL FINANCIAL
INSTITUTIONS.
(a) STUDY REQUIRED.—The Comptroller General of
the United States shall conduct a study of the projected eco-
nomic impact that the enactment of this Act will have on
financial 
institutions 
which 
have 
total 
assets 
of
$100,000,000 or less.
(b) REPORT TO THE CONGRESS.—The Comptroller
General of the United States shall submit a report to the
Congress before the end of the 6-month period beginning on
the date of the date of the enactment of this Act containing
the findings and conclusions of the Comptroller General
349
with regard to the study required under subsection (a) and
such recommendations for legislative or administrative ac-
tion as the Comptroller General may determine to be appro-
priate.
Subtitle 
B—Streamlining 
Super-
vision 
of 
Financial 
Holding
Companies
SEC. 111. STREAMLINING FINANCIAL HOLDING COMPANY
SUPERVISION.
Section 5(c) of the Bank Holding Company Act of
1956 (12 U.S.C. 1844(c)) is amended to read as follows:
‘‘(c) REPORTS AND EXAMINATIONS.—
‘‘(1) REPORTS.—
‘‘(A) IN GENERAL.—The Board from time to
time may require any bank holding company
and any subsidiary of such company to submit
reports under oath to keep the Board informed as
to—
‘‘(i) its financial condition, systems for
monitoring and controlling financial and
operating risks, and transactions with de-
pository institution subsidiaries of the hold-
ing company; and
350
‘‘(ii) compliance by the company or
subsidiary with applicable provisions of
this Act.
‘‘(B) USE OF EXISTING REPORTS.—
‘‘(i) IN GENERAL.—The Board shall, to
the fullest extent possible, accept reports in
fulfillment of the Board’s reporting require-
ments under this paragraph that a bank
holding company or any subsidiary of such
company has provided or been required to
provide to other Federal and State super-
visors or to appropriate self-regulatory or-
ganizations.
‘‘(ii) AVAILABILITY.—A bank holding
company or a subsidiary of such company
shall provide to the Board, at the request of
the Board, a report referred to in clause (i).
‘‘(iii) REQUIRED
USE
OF
PUBLICLY
REPORTED
INFORMATION.—The 
Board
shall, to the fullest extent possible, accept in
fulfillment of any reporting or record-
keeping requirements under this Act infor-
mation that is otherwise required to be re-
ported publicly and externally audited fi-
nancial statements.
351
‘‘(iv) REPORTS
FILED
WITH
OTHER
AGENCIES.—In the event the Board requires
a report from a functionally regulated non-
depository institution subsidiary of a bank
holding company of a kind that is not re-
quired by another Federal or State regu-
lator or appropriate self-regulatory organi-
zation, the Board shall request that the ap-
propriate regulator or self-regulatory orga-
nization obtain such report. If the report is
not made available to the Board, and the
report is necessary to assess a material risk
to the bank holding company or its subsidi-
ary depository institution or compliance
with this Act, the Board may require such
subsidiary to provide such a report to the
Board.
‘‘(C) DEFINITION.—For purposes of this
subsection, the term ‘functionally regulated non-
depository institution’ means—
‘‘(i) a broker or dealer registered under
the Securities Exchange Act of 1934;
‘‘(ii) an investment adviser registered
under the Investment Advisers Act of 1940,
or with any State, with respect to the in-
352
vestment advisory activities of such invest-
ment adviser and activities incidental to
such investment advisory activities;
‘‘(iii) an insurance company subject to
supervision by a State insurance commis-
sion, agency, or similar authority; and
‘‘(iv) an entity subject to regulation by
the Commodity Futures Trading Commis-
sion, with respect to the commodities activi-
ties of such entity and activities incidental
to such commodities activities.
‘‘(2) EXAMINATIONS.—
‘‘(A) EXAMINATION AUTHORITY.—
‘‘(i) IN
GENERAL.—The Board may
make examinations of each bank holding
company and each subsidiary of a bank
holding company.
‘‘(ii) FUNCTIONALLY REGULATED NON-
DEPOSITORY INSTITUTION SUBSIDIARIES.—
Notwithstanding clause (i), the Board may
make examinations of a functionally regu-
lated nondepository institution subsidiary
of a bank holding company only if—
‘‘(I) the Board has reasonable
cause to believe that such subsidiary is
353
engaged in activities that pose a mate-
rial risk to an affiliated depository in-
stitution, or
‘‘(II) based on reports and other
available information, the Board has
reasonable cause to believe that a sub-
sidiary is not in compliance with this
Act or with provisions relating to
transactions with an affiliated deposi-
tory institution and the Board cannot
make such determination through ex-
amination of the affiliated depository
institution or bank holding company.
‘‘(B) LIMITATIONS
ON
EXAMINATION
AU-
THORITY FOR BANK HOLDING COMPANIES AND
SUBSIDIARIES.—Subject to subparagraph (A)(ii),
the Board may make examinations under sub-
paragraph (A)(i) of each bank holding company
and each subsidiary of such holding company in
order to—
‘‘(i) inform the Board of the nature of
the operations and financial condition of
the holding company and such subsidiaries;
‘‘(ii) inform the Board of—
354
‘‘(I) the financial and operational
risks within the holding company sys-
tem that may pose a threat to the safe-
ty and soundness of any subsidiary de-
pository institution of such holding
company; and
‘‘(II) the systems for monitoring
and controlling such risks; and
‘‘(iii) monitor compliance with the
provisions of this Act and those governing
transactions and relationships between any
subsidiary depository institution and its af-
filiates.
‘‘(C) RESTRICTED
FOCUS
OF
EXAMINA-
TIONS.—The Board shall, to the fullest extent
possible, limit the focus and scope of any exam-
ination of a bank holding company to—
‘‘(i) the bank holding company; and
‘‘(ii) any subsidiary of the holding
company that, because of—
‘‘(I) the size, condition, or activi-
ties of the subsidiary;
‘‘(II) the nature or size of trans-
actions between such subsidiary and
any depository institution which is
355
also a subsidiary of such holding com-
pany; or
‘‘(III) the centralization of func-
tions within the holding company sys-
tem,
could have a materially adverse effect on the
safety and soundness of any depository in-
stitution affiliate of the holding company.
‘‘(D) DEFERENCE
TO
BANK
EXAMINA-
TIONS.—The Board shall, to the fullest extent
possible, use, for the purposes of this paragraph,
the reports of examinations of depository institu-
tions made by the appropriate Federal and State
depository institution supervisory authority.
‘‘(E) DEFERENCE
TO
OTHER
EXAMINA-
TIONS.—The Board shall, to the fullest extent
possible, address the circumstances which might
otherwise permit or require an examination by
the Board by forgoing an examination and in-
stead reviewing the reports of examination made
of—
‘‘(i) any registered broker or dealer by
or on behalf of the Securities and Exchange
Commission;
356
‘‘(ii) any registered investment adviser
properly registered by or on behalf of either
the Securities and Exchange Commission or
any State;
‘‘(iii) any licensed insurance company
by or on behalf of any state regulatory au-
thority responsible for the supervision of in-
surance companies; and
‘‘(iv) any other subsidiary that the
Board finds to be comprehensively super-
vised by a Federal or State authority.
‘‘(3) CAPITAL.—
‘‘(A) IN GENERAL.—The Board shall not, by
regulation, guideline, order or otherwise, pre-
scribe or impose any capital or capital adequacy
rules, guidelines, standards, or requirements on
any subsidiary of a financial holding company
that is not a depository institution and—
‘‘(i) is in compliance with applicable
capital requirements of another Federal reg-
ulatory authority (including the Securities
and Exchange Commission) or State insur-
ance authority; or
357
‘‘(ii) is properly registered as an in-
vestment adviser under the Investment Ad-
visers Act of 1940, or with any State.
‘‘(B) RULE OF CONSTRUCTION.—Subpara-
graph (A) shall not be construed as preventing
the Board from imposing capital or capital ade-
quacy rules, guidelines, standards, or require-
ments with respect to activities of a registered
investment adviser other than investment advi-
sory activities or activities incidental to invest-
ment advisory activities.
‘‘(C) LIMITATIONS ON INDIRECT ACTION.—
In developing, establishing, or assessing holding
company capital or capital adequacy rules,
guidelines, standards, or requirements for pur-
poses of this paragraph, the Board shall not take
into account the activities, operations, or invest-
ments of an affiliated investment company reg-
istered under the Investment Company Act of
1940, if the investment company is not—
‘‘(i) a bank holding company; or
‘‘(ii) controlled by a bank holding com-
pany by reason of ownership by the bank
holding company (including through all of
its affiliates) of 25 percent or more of the
358
shares of the investment company, where the
shares owned by the bank holding company
have a market value equal to more than
$1,000,000.
‘‘(4) TRANSFER OF BOARD AUTHORITY TO AP-
PROPRIATE FEDERAL BANKING AGENCY.—
‘‘(A) IN GENERAL.—In the case of any bank
holding company which is not significantly en-
gaged in nonbanking activities, the Board, in
consultation with the appropriate Federal bank-
ing agency, may designate the appropriate Fed-
eral banking agency of the lead insured deposi-
tory institution subsidiary of such holding com-
pany as the appropriate Federal banking agency
for the bank holding company.
‘‘(B) AUTHORITY TRANSFERRED.—An agen-
cy designated by the Board under subparagraph
(A) shall have the same authority as the Board
under this Act to—
‘‘(i) examine and require reports from
the bank holding company and any affiliate
of such company (other than a depository
institution) under section 5;
‘‘(ii) approve or disapprove applica-
tions or transactions under section 3;
359
‘‘(iii) take actions and impose pen-
alties under subsections (e) and (f) of sec-
tion 5 and section 8; and
‘‘(iv) take actions regarding the hold-
ing company, any affiliate of the holding
company (other than a depository institu-
tion), or any institution-affiliated party of
such company or affiliate under the Federal
Deposit Insurance Act and any other stat-
ute which the Board may designate.
‘‘(C) AGENCY ORDERS.—Section 9 (of this
Act) and section 105 of the Bank Holding Com-
pany Act Amendments of 1970 shall apply to or-
ders issued by an agency designated under sub-
paragraph (A) in the same manner such sections
apply to orders issued by the Board.
‘‘(5) FUNCTIONAL REGULATION OF SECURITIES
AND INSURANCE ACTIVITIES.—The Board shall defer
to—
‘‘(A) the Securities and Exchange Commis-
sion with regard to all interpretations of, and
the enforcement of, applicable Federal securities
laws (and rules, regulations, orders, and other
directives issued thereunder) relating to the ac-
tivities, conduct, and operations of registered
362
SEC. 113. AUTHORITY OF STATE INSURANCE REGULATOR
AND SECURITIES AND EXCHANGE COMMIS-
SION.
Section 5 of the Bank Holding Company Act of 1956
(12 U.S.C. 1844) is amended by adding at the end the fol-
lowing new subsection:
‘‘(g) AUTHORITY OF STATE INSURANCE REGULATOR
AND THE SECURITIES AND EXCHANGE COMMISSION.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of law, any regulation, order, or other ac-
tion of the Board which requires a bank holding com-
pany to provide funds or other assets to a subsidiary
insured depository institution shall not be effective
nor enforceable if—
‘‘(A) such funds or assets are to be provided
by—
‘‘(i) a bank holding company that is
an insurance company or is a broker or
dealer registered under the Securities Ex-
change Act of 1934; or
‘‘(ii) an affiliate of the depository in-
stitution which is an insurance company or
a broker or dealer registered under such Act;
and
‘‘(B) the State insurance authority for the
insurance company or the Securities and Ex-
363
change Commission for the registered broker or
dealer, as the case may be, determines in writing
sent to the holding company and the Board that
the holding company shall not provide such
funds or assets because such action would have
a material adverse effect on the financial condi-
tion of the insurance company or the broker or
dealer, as the case may be.
‘‘(2) NOTICE TO STATE INSURANCE AUTHORITY
OR SEC REQUIRED.—If the Board requires a bank
holding company, or an affiliate of a bank holding
company, which is an insurance company or a broker
or dealer described in paragraph (1)(A) to provide
funds or assets to an insured depository institution
subsidiary of the holding company pursuant to any
regulation, order, or other action of the Board referred
to in paragraph (1), the Board shall promptly notify
the State insurance authority for the insurance com-
pany or the Securities and Exchange Commission, as
the case may be, of such requirement.
‘‘(3) DIVESTITURE IN LIEU OF OTHER ACTION.—
If the Board receives a notice described in paragraph
(1)(B) from a State insurance authority or the Secu-
rities and Exchange Commission with regard to a
bank holding company or affiliate referred to in that
364
paragraph, the Board may order the bank holding
company to divest the insured depository institution
not later than 180 days after receiving the notice, or
such longer period as the Board determines consistent
with the safe and sound operation of the insured de-
pository institution.
‘‘(4) CONDITIONS BEFORE DIVESTITURE.—Dur-
ing the period beginning on the date an order to di-
vest is issued by the Board under paragraph (3) to
a bank holding company and ending on the date the
divestiture is completed, the Board may impose any
conditions or restrictions on the holding company’s
ownership or operation of the insured depository in-
stitution, including restricting or prohibiting trans-
actions between the insured depository institution and
any affiliate of the institution, as are appropriate
under the circumstances.’’.
SEC. 114. PRUDENTIAL SAFEGUARDS.
Section 5 of the Bank Holding Company Act of 1956
(12 U.S.C. 1844) is amended by inserting after subsection
(g) (as added by section 113 of this subtitle) the following
new subsection:
‘‘(h) PRUDENTIAL SAFEGUARDS.—
‘‘(1) IN GENERAL.—The Board may, by regula-
tion or order, impose restrictions or requirements on
365
relationships or transactions between a depository in-
stitution subsidiary of a bank holding company and
any affiliate of such depository institution (other
than a subsidiary of such institution) which the
Board finds is consistent with the public interest, the
purposes of this Act, the Financial Services Act of
1998, the Federal Reserve Act, and other Federal law
applicable to depository institution subsidiaries of
bank holding companies and the standards in para-
graph (2).
‘‘(2) STANDARDS.—The Board may exercise au-
thority under paragraph (1) if the Board finds that
such action would—
‘‘(A) avoid any significant risk to the safety
and soundness of depository institutions or any
Federal deposit insurance fund;
‘‘(B) enhance the financial stability of bank
holding companies;
‘‘(C) avoid conflicts of interest or other
abuses;
‘‘(D) enhance the privacy of customers of
depository institutions; or
‘‘(E) promote the application of national
treatment and equality of competitive oppor-
tunity between nonbank affiliates owned or con-
366
trolled by domestic bank holding companies and
nonbank affiliates owned or controlled by foreign
banks operating in the United States.
‘‘(3) REVIEW.—The Board shall regularly—
‘‘(A) review all restrictions or requirements
established pursuant to paragraph (1) to deter-
mine whether there is a continuing need for any
such restriction or requirement to carry out the
purposes of the Act, including any purpose de-
scribed in paragraph (2); and
‘‘(B) modify or eliminate any restriction or
requirement the Board finds is no longer re-
quired for such purposes.
‘‘(4) FOREIGN BANKS.—The Board may, by reg-
ulation or order, impose restrictions or requirements
on relationships or transactions between a foreign
bank and any affiliate in the United States of such
foreign bank that the Board finds are consistent with
the public interest, the purposes of this Act, the Fi-
nancial Services Act of 1998, the Federal Reserve Act,
and other Federal law applicable to foreign banks and
their affiliates in the United States, and the stand-
ards in paragraphs (2) and (3).’’.
SEC. 115. EXAMINATION OF INVESTMENT COMPANIES.
(a) EXCLUSIVE COMMISSION AUTHORITY.—
367
(1) IN GENERAL.—The Commission shall be the
sole Federal agency with authority to inspect and ex-
amine any registered investment company that is not
a bank holding company.
(2) PROHIBITION
ON
BANKING
AGENCIES.—A
Federal banking agency may not inspect or examine
any registered investment company that is not a bank
holding company.
(b) EXAMINATION RESULTS AND OTHER INFORMA-
TION.—The Commission shall provide to any Federal bank-
ing agency, upon request, the results of any examination,
reports, records, or other information with respect to any
registered investment company to the extent necessary for
the agency to carry out its statutory responsibilities.
(c) DEFINITIONS.—For purposes of this section, the fol-
lowing definitions shall apply:
(1) BANK HOLDING COMPANY.—The term ‘‘bank
holding company’’ has the same meaning as in sec-
tion 2 of the Bank Holding Company Act of 1956.
(2) 
COMMISSION.—The 
term 
‘‘Commission’’
means the Securities and Exchange Commission.
(3) FEDERAL
BANKING
AGENCY.—The term
‘‘Federal banking agency’’ has the same meaning as
in section 3(z) of the Federal Deposit Insurance Act.
368
(4) REGISTERED
INVESTMENT
COMPANY.—The
term ‘‘registered investment company’’ means an in-
vestment company which is registered with the Com-
mission under the Investment Company Act of 1940.
SEC. 116. LIMITATION ON RULEMAKING, PRUDENTIAL, SU-
PERVISORY, AND ENFORCEMENT AUTHORITY
OF THE BOARD.
The Bank Holding Company Act of 1956 (12 U.S.C.
1841 et seq.) is amended by inserting after section 10 the
following new section:
‘‘SEC. 10A. LIMITATION ON RULEMAKING, PRUDENTIAL, SU-
PERVISORY, AND ENFORCEMENT AUTHORITY
OF THE BOARD.
‘‘(a) LIMITATION ON DIRECT ACTION.—
‘‘(1) IN
GENERAL.—The Board may not pre-
scribe regulations, issue or seek entry of orders, im-
pose restraints, restrictions, guidelines, requirements,
safeguards, or standards, or otherwise take any action
under or pursuant to any provision of this Act or sec-
tion 8 of the Federal Deposit Insurance Act against
or with respect to a regulated subsidiary of a bank
holding company unless the action is necessary to
prevent or redress an unsafe or unsound practice or
breach of fiduciary duty by such subsidiary that poses
a material risk to—
369
‘‘(A) the financial safety, soundness, or sta-
bility of an affiliated depository institution; or
‘‘(B) the domestic or international payment
system.
‘‘(2) CRITERIA FOR BOARD ACTION.—The Board
shall not take action otherwise permitted under para-
graph (1) unless the Board finds that it is not reason-
ably possible to effectively protect against the material
risk at issue through action directed at or against the
affiliated depository institution or against depository
institutions generally.
‘‘(b) LIMITATION ON INDIRECT ACTION.—The Board
may not prescribe regulations, issue or seek entry of orders,
impose restraints, restrictions, guidelines, requirements,
safeguards, or standards, or otherwise take any action
under or pursuant to any provision of this Act or section
8 of the Federal Deposit Insurance Act against or with re-
spect to a financial holding company or a wholesale finan-
cial holding company where the purpose or effect of doing
so would be to take action indirectly against or with respect
to a regulated subsidiary that may not be taken directly
against or with respect to such subsidiary in accordance
with subsection (a).
‘‘(c) ACTIONS SPECIFICALLY AUTHORIZED.—Notwith-
standing subsection (a), the Board may take action under
370
this Act or section 8 of the Federal Deposit Insurance Act
to enforce compliance by a regulated subsidiary with Fed-
eral law that the Board has specific jurisdiction to enforce
against such subsidiary.
‘‘(d) REGULATED SUBSIDIARY DEFINED.—For pur-
poses of this section, the term ‘regulated subsidiary’ means
any company that is not a bank holding company and is—
‘‘(1) a broker or dealer registered under the Secu-
rities Exchange Act of 1934;
‘‘(2) a registered investment adviser, properly
registered by or on behalf of either the Securities and
Exchange Commission or any State, with respect to
the investment advisory activities of such investment
adviser and activities incidental to such investment
advisory activities;
‘‘(3) an investment company registered under the
Investment Company Act of 1940;
‘‘(4) an insurance company or an insurance
agency subject to supervision by a State insurance
commission, agency, or similar authority; or
‘‘(5) an entity subject to regulation by the Com-
modity Futures Trading Commission, with respect to
the commodities activities of such entity and activi-
ties incidental to such commodities activities.’’.
371
SEC. 117. INTERAGENCY CONSULTATION.
(a) PURPOSE.—It is the intention of Congress that the
Board of Governors of the Federal Reserve System, as the
umbrella supervisor for financial holding companies, and
the State insurance regulators, as the functional regulators
of companies engaged in insurance activities, coordinate ef-
forts to supervise companies that control both a depository
institution and a company engaged in insurance activities
regulated under State law. In particular, Congress believes
that the Board and the State insurance regulators should
share, on a confidential basis, information relevant to the
supervision of companies that control both a depository in-
stitution and a company engaged in insurance activities,
including information regarding the financial health of the
consolidated organization and information regarding trans-
actions and relationships between insurance companies and
affiliated depository institutions. The appropriate Federal
banking agencies for depository institutions should also
share, on a confidential basis, information with the relevant
State insurance regulators regarding transactions and rela-
tionships between depository institutions and affiliated
companies engaged in insurance activities. The purpose of
this section is to encourage this coordination and confiden-
tial sharing of information, and to thereby improve both
the efficiency and the quality of the supervision of financial
372
holding companies and their affiliated depository institu-
tions and companies engaged in insurance activities.
(b) EXAMINATION RESULTS AND OTHER INFORMA-
TION.—
(1) INFORMATION OF THE BOARD.—Upon the re-
quest of the appropriate insurance regulator of any
State, the Board may provide any information of the
Board regarding the financial condition, risk man-
agement policies, and operations of any financial
holding company that controls a company that is en-
gaged in insurance activities and is regulated by such
State insurance regulator, and regarding any trans-
action or relationship between such an insurance
company and any affiliated depository institution.
The Board may provide any other information to the
appropriate State insurance regulator that the Board
believes is necessary or appropriate to permit the
State insurance regulator to administer and enforce
applicable State insurance laws.
(2) BANKING AGENCY INFORMATION.—Upon the
request of the appropriate insurance regulator of any
State, the appropriate Federal banking agency may
provide any information of the agency regarding any
transaction or relationship between a depository in-
stitution supervised by such Federal banking agency
373
and any affiliated company that is engaged in insur-
ance activities regulated by such State insurance reg-
ulator. The appropriate Federal banking agency may
provide any other information to the appropriate
State insurance regulator that the agency believes is
necessary or appropriate to permit the State insur-
ance regulator to administer and enforce applicable
State insurance laws.
(3) STATE
INSURANCE
REGULATOR
INFORMA-
TION.—Upon the request of the Board or the appro-
priate Federal banking agency, a State insurance reg-
ulator may provide any examination or other reports,
records, or other information to which such insurance
regulator may have access with respect to a company
which—
(A) is engaged in insurance activities and
regulated by such insurance regulator; and
(B) is an affiliate of an insured depository
institution, wholesale financial institution, or fi-
nancial holding company.
(c) CONSULTATION.—Before making any determina-
tion relating to the initial affiliation of, or the continuing
affiliation of, an insured depository institution, wholesale
financial institution, or financial holding company with
a company engaged in insurance activities, the appropriate
374
Federal banking agency shall consult with the appropriate
State insurance regulator of such company and take the
views of such insurance regulator into account in making
such determination.
(d) EFFECT ON OTHER AUTHORITY.—Nothing in this
section shall limit in any respect the authority of the appro-
priate Federal banking agency with respect to an insured
depository institution, wholesale financial institution, or
bank holding company or any affiliate thereof under any
provision of law.
(e) CONFIDENTIALITY AND PRIVILEGE.—
(1) CONFIDENTIALITY.—The appropriate Federal
banking agency shall not provide any information or
material that is entitled to confidential treatment
under applicable Federal banking agency regulations,
or other applicable law, to a State insurance regu-
lator unless such regulator agrees to maintain the in-
formation or material in confidence and to take all
reasonable steps to oppose any effort to secure disclo-
sure of the information or material by the regulator.
The appropriate Federal banking agency shall treat
as confidential any information or material obtained
from a State insurance regulator that is entitled to
confidential treatment under applicable State regula-
tions, or other applicable law, and take all reasonable
375
steps to oppose any effort to secure disclosure of the
information or material by the Federal banking agen-
cy.
(2) PRIVILEGE.—The provision pursuant to this
section of information or material by a Federal bank-
ing agency or State insurance regulator shall not con-
stitute a waiver of, or otherwise affect, any privilege
to which the information or material is otherwise sub-
ject.
(f) DEFINITIONS.—For purposes of this section, the fol-
lowing definitions shall apply:
(1) APPROPRIATE
FEDERAL
BANKING
AGENCY;
INSURED DEPOSITORY INSTITUTION.—The terms ‘‘ap-
propriate Federal banking agency’’ and ‘‘insured de-
pository institution’’ have the same meanings as in
section 3 of the Federal Deposit Insurance Act.
(2) BOARD; FINANCIAL HOLDING COMPANY; AND
WHOLESALE
FINANCIAL
INSTITUTION.—The terms
‘‘Board’’, ‘‘financial holding company’’, and ‘‘whole-
sale financial institution’’ have the same meanings as
in section 2 of the Bank Holding Company Act of
1956.
SEC. 118. EQUIVALENT REGULATION AND SUPERVISION.
Notwithstanding any other provision of law, the provi-
sions of—
376
(1) section 5(c) of the Bank Holding Company
Act of 1956 (as amended by this Act) that limit the
authority of the Board of Governors of the Federal
Reserve System to require reports from, to make ex-
aminations of, or to impose capital requirements on
bank holding companies and their nonbank subsidi-
aries; and
(2) section 10A of the Bank Holding Company
Act of 1956 (as added by this Act) that limit what-
ever authority the Board might otherwise have to take
direct or indirect action with respect to bank holding
companies and their nonbank subsidiaries,
shall also limit whatever authority that the Comptroller of
the Currency and the Director of the Office of Thrift Super-
vision might otherwise have under any statute to require
reports, make examinations, impose capital requirements or
take any other direct or indirect action with respect to bank
holding companies and their nonbank subsidiaries (includ-
ing nonbank subsidiaries of depository institutions), subject
to the same standards and requirements as are applicable
to the Board under such provisions.
SEC. 119. PROHIBITION ON FDIC ASSISTANCE TO AFFILI-
ATES AND SUBSIDIARIES.
Section 11(a)(4)(B) of the Federal Deposit Insurance
Act (12 U.S.C. 1821(a)(4)(B)) is amended by striking ‘‘to
377
benefit any shareholder of’’ and inserting ‘‘to benefit any
shareholder, affiliate (other than an insured depository in-
stitution that receives assistance in accordance with the
provision of this Act), or subsidiary of’’.
Subtitle C—Subsidiaries of
National Banks
SEC. 121. PERMISSIBLE ACTIVITIES FOR SUBSIDIARIES OF
NATIONAL BANKS.
(a) FINANCIAL SUBSIDIARIES OF NATIONAL BANKS.—
Chapter one of title LXII of the Revised Statutes of United
States (12 U.S.C. 21 et seq.) is amended—
(1) by redesignating section 5136A as section
5136C; and
(2) by inserting after section 5136 (12 U.S.C.
24) the following new section:
‘‘SEC. 5136A. SUBSIDIARIES OF NATIONAL BANKS.
‘‘(a) SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED
TO ENGAGE IN FINANCIAL ACTIVITIES.—
‘‘(1) EXCLUSIVE AUTHORITY.—No provision of
section 5136 or any other provision of this title LXII
of the Revised Statutes shall be construed as authoriz-
ing a subsidiary of a national bank to engage in, or
own any share of or any other interest in any com-
pany engaged in, any activity that—
378
‘‘(A) is not permissible for a national bank
to engage in directly; or
‘‘(B) is conducted under terms or conditions
other than those that would govern the conduct
of such activity by a national bank,
unless a national bank is specifically authorized by
the express terms of a Federal statute and not by im-
plication or interpretation to acquire shares of or an
interest in, or to control, such subsidiary, such as by
paragraph (2) of this subsection and section 25A of
the Federal Reserve Act.
‘‘(2) SPECIFIC
AUTHORIZATION
TO
CONDUCT
AGENCY
ACTIVITIES
WHICH
ARE
FINANCIAL
IN
NA-
TURE.—A national bank may control a company that
engages in agency activities that have been deter-
mined to be financial in nature or incidental to such
financial activities pursuant to and in accordance
with section 6(c) of the Bank Holding Company Act
of 1956 if—
‘‘(A) the company engages in such activities
solely as agent and not directly or indirectly as
principal;
‘‘(B) the national bank is well capitalized
and well managed, and has achieved a rating of
satisfactory or better at the most recent examina-
379
tion of the bank under the Community Reinvest-
ment Act of 1977;
‘‘(C) all depository institution affiliates of
the national bank are well capitalized and well
managed, and have achieved a rating of satisfac-
tory or better at the most recent examination of
each such depository institution under the Com-
munity Reinvestment Act of 1977; and
‘‘(D) the bank has received the approval of
the Comptroller of the Currency.
‘‘(3) RATING
DOES
NOT
REQUIRE
DIVESTI-
TURE.—A national bank shall not be required to di-
vest any subsidiary held pursuant to paragraph (2)
solely based on a rating described in subparagraph
(B) or (C) of paragraph (2), other than a rating de-
scribed in paragraph (4)(C).
‘‘(4) DEFINITIONS.—For purposes of this section,
the following definitions shall apply:
‘‘(A) COMPANY; CONTROL; AFFILIATE; SUB-
SIDIARY.—The terms ‘company’, ‘control’, ‘affili-
ate’, and ‘subsidiary’ have the same meanings as
in section 2 of the Bank Holding Company Act
of 1956.
‘‘(B) WELL CAPITALIZED.—The term ‘well
capitalized’ has the same meaning as in section
380
38 of the Federal Deposit Insurance Act and, for
purposes of this section, the Comptroller shall
have exclusive jurisdiction to determine whether
a national bank is well capitalized.
‘‘(C) WELL
MANAGED.—The term ‘well
managed’ means—
‘‘(i) in the case of a depository institu-
tion that has been examined, unless other-
wise determined in writing by the appro-
priate Federal banking agency—
‘‘(I) the achievement of a compos-
ite rating of 1 or 2 under the Uniform
Financial Institutions Rating System
(or an equivalent rating under an
equivalent rating system) in connec-
tion with the most recent examination
or subsequent review of the depository
institution; and
‘‘(II) at least a rating of 2 for
management, if that rating is given; or
‘‘(ii) in the case of any depository in-
stitution that has not been examined, the
existence and use of managerial resources
that the appropriate Federal banking agen-
cy determines are satisfactory.
381
‘‘(D) 
INCORPORATED
DEFINITIONS.—The
terms ‘appropriate Federal banking agency’ and
‘depository institution’ have the same meanings
as in section 3 of the Federal Deposit Insurance
Act.
‘‘(b) LIMITED EXCLUSIONS FROM COMMUNITY NEEDS
REQUIREMENTS FOR NEWLY ACQUIRED DEPOSITORY IN-
STITUTIONS.—Any depository institution which becomes af-
filiated with a national bank during the 24-month period
preceding the submission of an application to acquire a
subsidiary under subsection (a)(2), and any depository in-
stitution which becomes so affiliated after the approval of
such application, may be excluded for purposes of subsection
(a)(2)(C) during the 24-month period beginning on the date
of such acquisition if—
‘‘(1) the depository institution has submitted an
affirmative plan to the appropriate Federal banking
agency (as defined in section 3 of the Federal Deposit
Insurance Act) to take such action as may be nec-
essary in order for such institution to achieve a ‘satis-
factory record of meeting community credit needs’, or
better, at the next examination of the institution
under the Community Reinvestment Act of 1977; and
‘‘(2) the plan has been approved by the appro-
priate Federal banking agency.’’.
382
(b) LIMITATION ON CERTAIN ACTIVITIES IN SUBSIDI-
ARIES.—Section 21(a)(1) of the Banking Act of 1933 (12
U.S.C. 378(a)(1)) is amended—
(1) by inserting ‘‘, or to be a subsidiary of any
person, firm, corporation, association, business trust,
or similar organization engaged (unless such subsidi-
ary (A) was engaged in such securities activities as
of September 15, 1997, or (B) is a nondepository sub-
sidiary of (i) a foreign bank and is not also a sub-
sidiary of a domestic depository institution, or (ii)
an unincorporated private bank that is not insured
under the Federal Deposit Insurance Act),’’ after ‘‘to
engage at the same time’’; and
(2) by inserting ‘‘or any subsidiary of such bank,
company, or institution’’ after ‘‘or private bankers’’.
(c) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) ANTITYING.—Section 106(a) of the Bank
Holding Company Act Amendments of 1970 is
amended by adding at the end the following new sen-
tence: ‘‘For purposes of this section, a subsidiary of
a national bank which engages in activities as an
agent pursuant to section 5136A(a)(2) shall be
deemed to be a subsidiary of a bank holding com-
pany, and not a subsidiary of a bank.’’.
383
(2) SECTION 23B.—Section 23B(a) of the Federal
Reserve Act (12 U.S.C. 371c–1(a)) is amended by
adding at the end the following new paragraph:
‘‘(4) SUBSIDIARY OF NATIONAL BANK.—For pur-
poses of this section, a subsidiary of a national bank
which engages in activities as an agent pursuant to
section 5136A(a)(2) shall be deemed to be an affiliate
of the national bank and not a subsidiary of the
bank.’’.
(d) CLERICAL AMENDMENT.—The table of sections for
chapter one of title LXII of the Revised Statutes of the
United States is amended—
(1) by redesignating the item relating to section
5136A as section 5136C; and
(2) by inserting after the item relating to section
5136 the following new item:
‘‘5136A. Financial subsidiaries of national banks.’’.
SEC. 122. MISREPRESENTATIONS REGARDING DEPOSITORY
INSTITUTION LIABILITY FOR OBLIGATIONS
OF AFFILIATES.
(a) IN GENERAL.—Chapter 47 of title 18, United
States Code, is amended by inserting after section 1007 the
following new section:
384
‘‘§ 1008. Misrepresentations regarding financial insti-
tution liability for obligations of affiliates
‘‘(a) IN GENERAL.—No institution-affiliated party of
an insured depository institution or institution-affiliated
party of a subsidiary or affiliate of an insured depository
institution shall fraudulently represent that the institution
is or will be liable for any obligation of a subsidiary or
other affiliate of the institution.
‘‘(b) CRIMINAL PENALTY.—Whoever violates subsection
(a) shall be fined under this title, imprisoned for not more
than 1 year, or both.
‘‘(c) INSTITUTION-AFFILIATED PARTY DEFINED.—For
purposes of this section, the term ‘institution-affiliated
party’ with respect to a subsidiary or affiliate has the same
meaning as in section 3 of the Federal Deposit Insurance
Act, except that references to an insured depository institu-
tion shall be deemed to be references to a subsidiary or affil-
iate of an insured depository institution.
‘‘(d) OTHER DEFINITIONS.—For purposes of this sec-
tion, the terms ‘affiliate’, ‘insured depository institution’,
and ‘subsidiary’ have same meanings as in section 3 of the
Federal Deposit Insurance Act.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
chapter 47 of title 18, United States Code, is amended by
inserting after the item relating to section 1007 the follow-
ing new item:
385
‘‘1008. Misrepresentations regarding financial institution liability for obligations
of affiliates.’’.
SEC. 123. REPEAL OF STOCK LOAN LIMIT IN FEDERAL RE-
SERVE ACT.
Section 11 of the Federal Reserve Act (12 U.S.C. 248)
is amended by striking the paragraph designated as ‘‘(m)’’
and inserting ‘‘(m) [Repealed]’’.
Subtitle 
D—Wholesale 
Financial
Holding Companies; Wholesale
Financial Institutions
CHAPTER 1—WHOLESALE FINANCIAL
HOLDING COMPANIES
SEC. 131. WHOLESALE FINANCIAL HOLDING COMPANIES ES-
TABLISHED.
(a) DEFINITION AND SUPERVISION.—Section 10 of the
Bank Holding Company Act of 1956 (12 U.S.C. 1841 et
seq.) is amended to read as follows:
‘‘SEC. 10. WHOLESALE FINANCIAL HOLDING COMPANIES.
‘‘(a) COMPANIES THAT CONTROL WHOLESALE FINAN-
CIAL INSTITUTIONS.—
‘‘(1) WHOLESALE FINANCIAL HOLDING COMPANY
DEFINED.—The term ‘wholesale financial holding
company’ means any company that—
‘‘(A) is registered as a bank holding com-
pany;
386
‘‘(B) is predominantly engaged in financial
activities as defined in section 6(g)(2);
‘‘(C) controls 1 or more wholesale financial
institutions;
‘‘(D) does not control—
‘‘(i) a bank other than a wholesale fi-
nancial institution;
‘‘(ii) an insured bank other than an
institution permitted under subparagraph
(D), (F), or (G) of section 2(c)(2); or
‘‘(iii) a savings association; and
‘‘(E) is not a foreign bank (as defined in
section 1(b)(7) of the International Banking Act
of 1978).
‘‘(2) SAVINGS
ASSOCIATION
TRANSITION
PE-
RIOD.—Notwithstanding paragraph (1)(D)(iii), the
Board may permit a company that controls a savings
association and that otherwise meets the requirements
of paragraph (1) to become supervised under para-
graph (1), if the company divests control of any such
savings association within such period, not to exceed
5 years after becoming supervised under paragraph
(1), as permitted by the Board.
‘‘(b) SUPERVISION BY THE BOARD.—
387
‘‘(1) IN GENERAL.—The provisions of this section
shall govern the reporting, examination, and capital
requirements of wholesale financial holding compa-
nies.
‘‘(2) REPORTS.—
‘‘(A) IN GENERAL.—The Board from time to
time may require any wholesale financial hold-
ing company and any subsidiary of such com-
pany to submit reports under oath to keep the
Board informed as to—
‘‘(i) the company’s or subsidiary’s ac-
tivities, financial condition, policies, sys-
tems for monitoring and controlling finan-
cial and operational risks, and transactions
with depository institution subsidiaries of
the holding company; and
‘‘(ii) the extent to which the company
or subsidiary has complied with the provi-
sions of this Act and regulations prescribed
and orders issued under this Act.
‘‘(B) USE OF EXISTING REPORTS.—
‘‘(i) IN GENERAL.—The Board shall, to
the fullest extent possible, accept reports in
fulfillment of the Board’s reporting require-
ments under this paragraph that the whole-
388
sale financial holding company or any sub-
sidiary of such company has provided or
been required to provide to other Federal
and State supervisors or to appropriate self-
regulatory organizations.
‘‘(ii) AVAILABILITY.—A wholesale fi-
nancial holding company or a subsidiary of
such company shall provide to the Board, at
the request of the Board, a report referred to
in clause (i).
‘‘(C) EXEMPTIONS
FROM
REPORTING
RE-
QUIREMENTS.—
‘‘(i) IN GENERAL.—The Board may, by
regulation or order, exempt any company
or class of companies, under such terms and
conditions and for such periods as the
Board shall provide in such regulation or
order, from the provisions of this paragraph
and any regulation prescribed under this
paragraph.
‘‘(ii) CRITERIA FOR CONSIDERATION.—
In making any determination under clause
(i) with regard to any exemption under
such clause, the Board shall consider,
among such other factors as the Board may
389
determine to be appropriate, the following
factors:
‘‘(I) Whether information of the
type required under this paragraph is
available from a supervisory agency
(as defined in section 1101(7) of the
Right to Financial Privacy Act of
1978) or a foreign regulatory authority
of a similar type.
‘‘(II) The primary business of the
company.
‘‘(III) The nature and extent of
the domestic and foreign regulation of
the activities of the company.
‘‘(3) EXAMINATIONS.—
‘‘(A) LIMITED
USE
OF
EXAMINATION
AU-
THORITY.—The Board may make examinations
of each wholesale financial holding company and
each subsidiary of such company in order to—
‘‘(i) inform the Board regarding the
nature of the operations and financial con-
dition of the wholesale financial holding
company and its subsidiaries;
‘‘(ii) inform the Board regarding—
390
‘‘(I) the financial and operational
risks within the wholesale financial
holding company system that may af-
fect any depository institution owned
by such holding company; and
‘‘(II) the systems of the holding
company and its subsidiaries for mon-
itoring and controlling those risks; and
‘‘(iii) monitor compliance with the
provisions of this Act and those governing
transactions and relationships between any
depository institution controlled by the
wholesale financial holding company and
any of the company’s other subsidiaries.
‘‘(B) RESTRICTED
FOCUS
OF
EXAMINA-
TIONS.—The Board shall, to the fullest extent
possible, limit the focus and scope of any exam-
ination of a wholesale financial holding com-
pany under this paragraph to—
‘‘(i) the holding company; and
‘‘(ii) any subsidiary (other than an in-
sured depository institution subsidiary) of
the holding company that, because of the
size, condition, or activities of the subsidi-
ary, the nature or size of transactions be-
391
tween such subsidiary and any affiliated
depository institution, or the centralization
of functions within the holding company
system, could have a materially adverse ef-
fect on the safety and soundness of any de-
pository institution affiliate of the holding
company.
‘‘(C) 
DEFERENCE
TO
BANK
EXAMINA-
TIONS.—The Board shall, to the fullest extent
possible, use the reports of examination of depos-
itory institutions made by the Comptroller of the
Currency, the Federal Deposit Insurance Cor-
poration, the Director of the Office of Thrift Su-
pervision or the appropriate State depository in-
stitution supervisory authority for the purposes
of this section.
‘‘(D) DEFERENCE
TO
OTHER
EXAMINA-
TIONS.—The Board shall, to the fullest extent
possible, address the circumstances which might
otherwise permit or require an examination by
the Board by forgoing an examination and by
instead reviewing the reports of examination
made of—
392
‘‘(i) any registered broker or dealer or
any registered investment adviser by or on
behalf of the Commission; and
‘‘(ii) any licensed insurance company
by or on behalf of any State government in-
surance agency responsible for the super-
vision of the insurance company.
‘‘(E) CONFIDENTIALITY OF REPORTED IN-
FORMATION.—
‘‘(i) IN
GENERAL.—Notwithstanding
any other provision of law, the Board shall
not be compelled to disclose any nonpublic
information required to be reported under
this paragraph, or any information sup-
plied to the Board by any domestic or for-
eign regulatory agency, that relates to the
financial or operational condition of any
wholesale financial holding company or any
subsidiary of such company.
‘‘(ii) COMPLIANCE
WITH
REQUESTS
FOR
INFORMATION.—No provision of this
subparagraph shall be construed as author-
izing the Board to withhold information
from the Congress, or preventing the Board
from complying with a request for informa-
393
tion from any other Federal department or
agency for purposes within the scope of such
department’s or agency’s jurisdiction, or
from complying with any order of a court
of competent jurisdiction in an action
brought by the United States or the Board.
‘‘(iii) COORDINATION
WITH
OTHER
LAW.—For purposes of section 552 of title 5,
United States Code, this subparagraph shall
be considered to be a statute described in
subsection (b)(3)(B) of such section.
‘‘(iv) DESIGNATION OF CONFIDENTIAL
INFORMATION.—In prescribing regulations
to carry out the requirements of this sub-
section, the Board shall designate informa-
tion described in or obtained pursuant to
this paragraph as confidential information.
‘‘(F) COSTS.—The cost of any examination
conducted by the Board under this section may
be assessed against, and made payable by, the
wholesale financial holding company.
‘‘(4) CAPITAL ADEQUACY GUIDELINES.—
‘‘(A) CAPITAL
ADEQUACY
PROVISIONS.—
Subject to the requirements of, and solely in ac-
cordance with, the terms of this paragraph, the
394
Board may adopt capital adequacy rules or
guidelines for wholesale financial holding compa-
nies.
‘‘(B) METHOD OF CALCULATION.—In devel-
oping rules or guidelines under this paragraph,
the following provisions shall apply:
‘‘(i) FOCUS ON DOUBLE LEVERAGE.—
The Board shall focus on the use by whole-
sale financial holding companies of debt
and other liabilities to fund capital invest-
ments in subsidiaries.
‘‘(ii) 
NO
UNWEIGHTED
CAPITAL
RATIO.—The Board shall not, by regulation,
guideline, order, or otherwise, impose under
this section a capital ratio that is not based
on appropriate risk-weighting consider-
ations.
‘‘(iii) NO CAPITAL REQUIREMENT ON
REGULATED
ENTITIES.—The Board shall
not, by regulation, guideline, order or other-
wise, prescribe or impose any capital or
capital adequacy rules, standards, guide-
lines, or requirements upon any subsidiary
that—
395
‘‘(I) is not a depository institu-
tion; and
‘‘(II) is in compliance with appli-
cable capital requirements of another
Federal regulatory authority (includ-
ing the Securities and Exchange Com-
mission) or State insurance authority.
‘‘(iv) 
CERTAIN
SUBSIDIARIES.—The
Board shall not, by regulation, guideline,
order or otherwise, prescribe or impose any
capital or capital adequacy rules, stand-
ards, guidelines, or requirements upon any
subsidiary that is not a depository institu-
tion and that is registered as an investment
adviser under the Investment Advisers Act
of 1940, except that this clause shall not be
construed as preventing the Board from im-
posing capital or capital adequacy rules,
guidelines, standards, or requirements with
respect to activities of a registered invest-
ment adviser other than investment advi-
sory activities or activities incidental to in-
vestment advisory activities.
‘‘(v) LIMITATIONS
ON
INDIRECT
AC-
TION.—In developing, establishing, or as-
396
sessing holding company capital or capital
adequacy rules, guidelines, standards, or re-
quirements for purposes of this paragraph,
the Board shall not take into account the
activities, operations, or investments of an
affiliated investment company registered
under the Investment Company Act of 1940,
if the investment company is not—
‘‘(I) a bank holding company; or
‘‘(II) controlled by a bank holding
company by reason of ownership by the
bank 
holding 
company 
(including
through all of its affiliates) of 25 per-
cent or more of the shares of the invest-
ment company, where the shares owned
by the bank holding company have a
market value equal to more than
$1,000,000.
‘‘(vi) APPROPRIATE EXCLUSIONS.—The
Board shall take full account of—
‘‘(I) 
the 
capital 
requirements
made applicable to any subsidiary that
is not a depository institution by an-
other Federal regulatory authority or
State insurance authority; and
397
‘‘(II) industry norms for capital-
ization of a company’s unregulated
subsidiaries and activities.
‘‘(vii) INTERNAL
RISK
MANAGEMENT
MODELS.—The Board may incorporate in-
ternal risk management models of wholesale
financial holding companies into its capital
adequacy guidelines or rules and may take
account of the extent to which resources of
a subsidiary depository institution may be
used to service the debt or other liabilities of
the wholesale financial holding company.
‘‘(c) NONFINANCIAL ACTIVITIES AND INVESTMENTS.—
‘‘(1) GRANDFATHERED ACTIVITIES.—
‘‘(A) IN
GENERAL.—Notwithstanding sec-
tion 4(a), a company that becomes a wholesale
financial holding company may continue to en-
gage, directly or indirectly, in any activity and
may retain ownership and control of shares of a
company engaged in any activity if—
‘‘(i) on the date of the enactment of the
Financial Services Act of 1998, such whole-
sale financial holding company was law-
fully engaged in that nonfinancial activity,
held the shares of such company, or had en-
398
tered into a contract to acquire shares of
any company engaged in such activity; 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 company,
may not acquire, in any merger, consolidation,
or other type of business combination, assets of
any other company which is engaged in any ac-
tivity which the Board has not determined to be
financial in nature or incidental to activities
that are financial in nature under section 6(c).
‘‘(C) LIMITATION TO SINGLE EXEMPTION.—
No company that engages in any activity or con-
trols any shares under subsection (f) of section 6
may engage in any activity or own any shares
pursuant to this paragraph.
399
‘‘(2) COMMODITIES.—
‘‘(A) IN
GENERAL.—Notwithstanding sec-
tion 4(a), a wholesale financial holding company
which was predominately engaged as of January
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 properties
that were not permissible for bank holding com-
panies to conduct in the United States as of
January 1, 1997, if such wholesale financial
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 grant-
ed under this paragraph and not otherwise per-
mitted to be held by all wholesale financial hold-
ing companies under this section may not exceed
5 percent of the total consolidated assets of the
400
wholesale financial holding company, except that
the Board may increase such percentage of total
consolidated assets by such amounts and under
such circumstances as the Board considers ap-
propriate, consistent with the purposes of this
Act.
‘‘(3) 
CROSS
MARKETING
RESTRICTIONS.—A
wholesale financial holding company shall not per-
mit—
‘‘(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
company in the United States, including a foreign
bank or company that owns or controls a wholesale
401
financial institution, may request a determination
from the Board that such bank or company be treated
as a wholesale financial holding company (other than
for purposes of subsection (c)), subject to such condi-
tions as the Board deems appropriate, giving due re-
gard to the principle of national treatment and equal-
ity of competitive opportunity and the requirements
imposed on domestic banks and companies.
‘‘(2) CONDITIONS FOR TREATMENT AS A WHOLE-
SALE FINANCIAL HOLDING COMPANY.—A foreign bank
and a company that owns or controls a foreign bank
may not be treated as a wholesale financial holding
company unless the bank and company meet and con-
tinue to meet the following criteria:
‘‘(A) NO INSURED DEPOSITS.—No deposits
held directly by a foreign bank or through an af-
filiate (other than an institution described in
subparagraph (D) or (F) of section 2(c)(2)) are
insured under the Federal Deposit Insurance
Act.
‘‘(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-
402
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), that engages 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 Fed-
eral Reserve Act in the same manner and to the
same extent as such transactions would be re-
quired to comply with such sections if the foreign
bank were a member bank.
‘‘(3) TREATMENT AS A WHOLESALE FINANCIAL
INSTITUTION.—Any foreign bank which is, or is affili-
ated with a company which is, treated as a wholesale
financial holding company under this subsection 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-
403
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 competitive op-
portunity.
‘‘(4) SUPERVISION
OF
FOREIGN
BANK
WHICH
MAINTAINS NO BANKING PRESENCE OTHER THAN CON-
TROL OF A WHOLESALE FINANCIAL INSTITUTION.—A
foreign bank that owns or controls a wholesale finan-
cial 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 determination from the Board
that such bank or company be treated as a wholesale
financial holding company, except that such bank or
company shall be subject to the restrictions of para-
graphs (2)(A) and (3) of this subsection.
‘‘(5) NO EFFECT ON OTHER PROVISIONS.—This
section shall not be construed as limiting the author-
ity of the Board under the International Banking Act
of 1978 with respect to the regulation, supervision, or
examination of foreign banks and their offices and af-
filiates in the United States.’’.
404
(b) UNINSURED STATE BANKS.—Section 9 of the Fed-
eral Reserve Act (U.S.C. 321 et seq.) is amended by adding
at the end the following new paragraph:
‘‘(24) ENFORCEMENT
AUTHORITY
OVER
UNIN-
SURED STATE MEMBER BANKS.—Section 3(u) of the
Federal Deposit Insurance Act, subsections (j) and (k)
of section 7 of such Act, and subsections (b) through
(n), (s), (u), and (v) of section 8 of such Act shall
apply to an uninsured State member bank in the
same manner and to the same extent such provisions
apply to an insured State member bank and any ref-
erence in any such provision to ‘insured depository
institution’ shall be deemed to be a reference to ‘unin-
sured State member bank’ for purposes of this para-
graph.’’.
SEC. 132. AUTHORIZATION TO RELEASE REPORTS.
(a) FEDERAL RESERVE ACT.—The last sentence of the
eighth undesignated paragraph of section 9 of the Federal
Reserve Act (12 U.S.C. 326) is amended to read as follows:
‘‘The Board of Governors of the Federal Reserve System,
at its discretion, may furnish reports of examination or
other confidential supervisory information concerning State
member banks or any other entities examined under any
other authority of the Board to any Federal or State au-
thorities with supervisory or regulatory authority over the
405
examined entity, to officers, directors, or receivers of the ex-
amined entity, and to any other person that the Board de-
termines 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 Com-
mission; 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.—
(1) DEFINITIONS.—Section 2 of the Bank Hold-
ing Company Act of 1956 (12 U.S.C. 1842) is amend-
ed by adding at the end the following new subsections:
406
‘‘(p) WHOLESALE FINANCIAL INSTITUTION.—The term
‘wholesale financial institution’ means a wholesale finan-
cial 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 ‘depository
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 WHOLESALE
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 following 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’,’’.
(4) EXCEPTION
TO
DEPOSIT
INSURANCE
RE-
QUIREMENT.—Section 3(e) of the Bank Holding Com-
pany Act of 1956 (12 U.S.C. 1842(e)) is amended by
407
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 section
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 section
5136A (as added by section 121(a) of this title) the
following new section:
‘‘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
408
the Comptroller may prescribe, for permission to operate
as a national wholesale financial institution.
‘‘(b) REGULATION.—A national wholesale financial in-
stitution 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 Revised
Statutes of the United States, subject to section 9B of the
Federal Reserve Act and the limitations and restrictions
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 Stat-
utes of the United States is amended by inserting
after the item relating to section 5136A (as 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:
409
‘‘SEC. 9B. WHOLESALE FINANCIAL INSTITUTIONS.
‘‘(a) APPLICATION FOR MEMBERSHIP AS WHOLESALE
FINANCIAL INSTITUTION.—
‘‘(1) APPLICATION REQUIRED.—
‘‘(A) IN GENERAL.—Any bank may apply
to the Board of Governors of the Federal Reserve
System to become a wholesale financial institu-
tion and, as a wholesale financial institution, to
subscribe to the stock of the Federal reserve 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 de-
posits of which are insured under the Federal Deposit
Insurance Act may become a wholesale financial in-
stitution unless it has met all requirements under
that Act for voluntary termination of deposit insur-
ance.
‘‘(b) GENERAL
REQUIREMENTS
APPLICABLE
TO
WHOLESALE FINANCIAL INSTITUTIONS.—
‘‘(1) FEDERAL RESERVE ACT.—Except as other-
wise provided in this section, wholesale financial in-
stitutions shall be member banks and shall be subject
410
to the provisions of this Act that apply to member
banks to the same extent and in the same manner as
State member insured banks, except that a wholesale
financial institution may terminate membership
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 wholesale
financial institution shall be deemed to be an insured
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 finan-
cial institutions; and
‘‘(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 Federal
Deposit Insurance Act shall apply to a wholesale fi-
nancial institution in the same manner and to the
412
cial institution, with the approval of the Comptroller
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 pur-
poses of paragraphs (1), (2), and (3) of section
24(j) of the Federal Deposit Insurance Act, and
a national wholesale financial institution shall
be deemed to be a national bank for purposes of
section 5155(f) of the Revised Statutes of the
United States.
‘‘(B) DEFINITIONS.—The following defini-
tions shall apply solely for purposes of applying
paragraph (1):
‘‘(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-char-
tered wholesale financial institution,
413
the State by which the institution 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 respect to
any State, a wholesale financial institution
whose home State is another State.
‘‘(8) DISCRIMINATION
REGARDING
INTEREST
RATES.—Section 27 of the Federal Deposit Insurance
Act shall apply to State-chartered wholesale financial
institutions in the same manner and to the same ex-
tent as such provisions apply to State member in-
sured 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 IN-
STITUTIONS.—The appropriate State banking author-
ity may grant a charter to a wholesale financial in-
stitution notwithstanding any State constitution or
414
statute requiring that the institution obtain insurance
of its deposits and any such State constitution or
statute is hereby preempted solely for purposes of this
paragraph.
‘‘(10) PARITY FOR WHOLESALE FINANCIAL INSTI-
TUTIONS.—A State bank that is a wholesale financial
institution under this section shall have all of the
rights, powers, privileges, and immunities (including
those derived from status as a federally chartered in-
stitution) of and as if it were a national bank, subject
to such terms and conditions as established 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 an af-
filiate that is an insured depository institution or
that operates an insured branch, as those terms are
defined in section 3 of the Federal Deposit Insurance
Act.
‘‘(c) 
SPECIFIC
REQUIREMENTS
APPLICABLE
TO
WHOLESALE FINANCIAL INSTITUTIONS.—
‘‘(1) LIMITATIONS ON DEPOSITS.—
‘‘(A) MINIMUM AMOUNT.—
415
‘‘(i) IN GENERAL.—No wholesale finan-
cial institution may receive initial deposits
of $100,000 or less, other than on an inci-
dental 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 Federal
Deposit Insurance Act, no deposits held by a
wholesale financial institution shall be insured
deposits under the Federal Deposit Insurance
Act.
‘‘(C) ADVERTISING AND DISCLOSURE.—The
Board shall prescribe regulations pertaining to
advertising and disclosure by wholesale financial
institutions to ensure that each depositor is noti-
fied that deposits at the wholesale financial in-
stitution are not federally insured or otherwise
guaranteed by the United States Government.
‘‘(2) MINIMUM CAPITAL LEVELS APPLICABLE TO
WHOLESALE
FINANCIAL
INSTITUTIONS.—The Board
416
shall, by regulation, adopt capital requirements 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 oper-
ation of the wholesale financial institution with-
out undue risk to creditors or other persons, in-
cluding Federal reserve banks, engaged in trans-
actions 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-
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
417
reserve bank, including overdrafts at a Fed-
eral reserve bank;
‘‘(B) special clearing balance requirements;
and
‘‘(C) any additional requirements that the
Board determines to be appropriate or necessary
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-
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 sound-
ness of the wholesale financial institution or any
418
insured depository institution affiliate of the
wholesale financial institution;
‘‘(B) the protection of the deposit insurance
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 institu-
tion that is affiliated with an insured bank shall not
be a bank.
‘‘(6) NO EFFECT ON OTHER PROVISIONS.—This
section shall not be construed as limiting the Board’s
authority over member banks under any other provi-
sion of law, or to create any obligation for any Fed-
eral reserve bank to make, increase, renew, or extend
any advance or discount under this Act to any mem-
ber 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.
419
‘‘(2) NOTICE
TO
COMPANY.—The Board shall
promptly provide notice to a company that controls
a wholesale financial institution whenever such whole-
sale 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 permit),
the company shall execute an agreement acceptable to
the Board to restore the wholesale financial institu-
tion to compliance with all of the requirements of
paragraph (1).
‘‘(4) 
LIMITATIONS
UNTIL
INSTITUTION
RE-
STORED.—Until the wholesale financial institution is
restored to compliance with all of the requirements of
paragraph (1), the Board may impose such limita-
tions on the conduct or activities of the company or
any affiliate of the company as the Board determines
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-
420
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 subsidi-
ary 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 Com-
pany Act of 1956.
‘‘(e) RESOLUTION OF WHOLESALE FINANCIAL INSTI-
TUTIONS.—
‘‘(1) CONSERVATORSHIP OR RECEIVERSHIP.—
‘‘(A) APPOINTMENT.—The Board may ap-
point a conservator or receiver for a wholesale fi-
nancial institution to the same extent and in the
same manner as the Comptroller of the Currency
may appoint a conservator or receiver for a na-
tional bank.
‘‘(B) POWERS.—The conservator or receiver
for a wholesale financial institution shall exer-
cise the same powers, functions, and duties, sub-
421
ject to the same limitations, as a conservator or
receiver for a national bank.
‘‘(2) BOARD AUTHORITY.—The Board shall have
the same authority with respect to any conservator or
receiver appointed for a wholesale financial institu-
tion under paragraph (1), and the wholesale financial
institution for which it has been appointed, 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 conservator 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 finan-
cial 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 financial in-
stitution 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.—
422
(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 STA-
TUS.—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-
tarily terminate such bank’s status as an insured depository
institution in accordance with regulations of the Corpora-
tion 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
423
‘‘(B) to all depositors at such bank, not less
than 6 months before the effective date of the ter-
mination 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 paragraph
(1) and the Corporation determines that the fund
will equal or exceed the applicable designated re-
serve ratio for the 2 semiannual assessment peri-
ods immediately following such date; or
‘‘(B) the Corporation and the Board of Gov-
ernors of the Federal Reserve System approved
the termination of the bank’s insured status and
the bank pays an exit fee in accordance 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 in-
sured 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
424
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 FINAN-
CIAL INSTITUTION OR TERMINATE DEPOSIT-TAKING AC-
TIVITIES.—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-
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 required
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.
425
‘‘(f) TEMPORARY INSURANCE OF DEPOSITS INSURED
AS OF TERMINATION.—
‘‘(1) TRANSITION PERIOD.—The insured deposits
of each depositor in a State bank or a national bank
on the effective date of the voluntary termination of
the bank’s insured status, less all subsequent with-
drawals from any deposits of such depositor, 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 deposits in the de-
pository institution made after the effective date of
such termination shall be insured by the Corporation.
‘‘(2) TEMPORARY
ASSESSMENTS; OBLIGATIONS
AND DUTIES.—During the period specified in para-
graph (1) with respect to any bank, the bank shall
continue to pay assessments under section 7 as if the
bank were an insured depository institution. The
bank shall, in all other respects, be subject to the au-
thority of the Corporation and the duties and obliga-
tions 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
426
rights with respect to such bank as in the case of an
insured depository institution.
‘‘(g) ADVERTISEMENTS.—
‘‘(1) IN GENERAL.—A bank that voluntarily ter-
minates the bank’s insured status under this section
shall not advertise or hold itself out as having insured
deposits, except that the bank may advertise the tem-
porary insurance of deposits under subsection (f) if,
in connection with any such advertisement, the adver-
tisement also states with equal prominence that addi-
tions to deposits and new deposits made after the ef-
fective date of the termination are not insured.
‘‘(2) CERTIFICATES OF DEPOSIT, OBLIGATIONS,
AND SECURITIES.—Any certificate of deposit or other
obligation or security issued by a State bank or a na-
tional bank after the effective date of the voluntary
termination of the bank’s insured status under this
section shall be accompanied by a conspicuous,
prominently displayed notice that such certificate of
deposit or other obligation or security is not insured
under this Act.
‘‘(h) NOTICE REQUIREMENTS.—
‘‘(1) NOTICE TO THE CORPORATION.—The notice
required under subsection (a)(1)(A) shall be in such
form as the Corporation may require.
427
‘‘(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’’.
(d) TECHNICAL AND CONFORMING AMENDMENTS TO
THE BANKRUPTCY CODE.—
(1) 
BANKRUPTCY
CODE
DEBTORS.—Section
109(b)(2) of title 11, United States Code, is amended
by striking ‘‘; or’’ and inserting the following: ‘‘, ex-
cept that—
‘‘(A) a wholesale financial institution estab-
lished under section 5136B of the Revised Stat-
utes of the United States or section 9B of the
Federal Reserve Act may be a debtor if a peti-
tion is filed at the direction of the Comptroller
of the Currency (in the case of a wholesale finan-
cial institution established under section 5136B
428
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 debtor
if a petition is filed at the direction of the Board
of Governors of the Federal Reserve System; or’’.
(2) CHAPTER
DEBTORS.—Section 109(d) of
title 11, United States Code, is amended to read as
follows:
‘‘(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 sec-
tion 9B of the Federal Reserve Act, a corporation organized
under section 25A of the Federal Reserve Act, or a commod-
ity 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-
429
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 acting
as agent or custodian for a customer in connection
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—
(i) by redesignating subsections (e)
through (i) as subsections (f) through (j), re-
spectively; 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 liquidation of
a wholesale financial institution established under section
5136B of the Revised Statutes of the United States or sec-
tion 9B of the Federal Reserve Act, or a corporation orga-
nized under section 25A of the Federal Reserve Act.’’.
(B) WHOLESALE
BANK
LIQUIDATION.—
Chapter 7 of title 11, United States Code, is
amended by adding at the end the following:
430
‘‘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;
‘‘(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 national
wholesale financial institution, a wholesale financial
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 in-
stitution for which it appointed the conservator or receiver)
or the Board (in the case of any wholesale bank for which
431
it appointed the conservator or receiver) designates an al-
ternative trustee. The Comptroller of the Currency or the
Board (as applicable) may designate a successor 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 in-
stitution or consortium of depository institutions
(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 mandated
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
433
ceiver) or the Board (in the case of any wholesale bank for
which it appointed the conservator or receiver) determines
that the transfer would be necessary to avert serious adverse
effects on economic conditions or financial stability.’’.
(C) CONFORMING AMENDMENT.—The table
of sections for chapter 7 of title 11, United States
Code, is amended by adding at the end the fol-
lowing:
‘‘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.
434
‘‘(B) EQUIVALENT AUTHORITY.—The Board
shall have the same authority with respect to any
conservator or receiver appointed for a corpora-
tion organized under the provisions of this sec-
tion under this paragraph and any such cor-
poration as the Comptroller of the Currency has
with respect to a conservator or receiver of a na-
tional bank and the national bank for which a
conservator or receiver has been appointed.
‘‘(C) TITLE 11 PETITIONS.—The Board may
direct the conservator or receiver of a corpora-
tion organized under the provisions of this sec-
tion 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
435
‘‘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 period
at the end of the first sentence.
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 System
shall make available to the Attorney General and the Fed-
eral Trade Commission any data in the possession of any
such banking agency that the antitrust agency deems nec-
essary for antitrust review of any transaction requiring no-
tice 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 In-
surance Act, the National Bank Consolidation and Merger
Act, section 10 of the Home Owners’ Loan Act, or the anti-
trust laws.
SEC. 143. CLARIFICATION OF STATUS OF SUBSIDIARIES
AND AFFILIATES.
(a) CLARIFICATION OF FEDERAL TRADE COMMISSION
JURISDICTION.—Any person which directly or indirectly
controls, is controlled directly or indirectly by, or is directly
or indirectly under common control with, any bank or sav-
436
ings association (as such terms are defined in section 3 of
the Federal Deposit Insurance Act) and is not itself a bank
or savings association shall not be deemed to be a bank or
savings association for purposes of the Federal Trade Com-
mission Act or any other law enforced by the Federal Trade
Commission.
(b) SAVINGS PROVISION.—No provision of this section
shall be construed as restricting the authority of any Fed-
eral banking agency (as defined in section 3 of the Federal
Deposit Insurance Act) under any Federal banking law, in-
cluding section 8 of the Federal Deposit Insurance Act.
(c) 
HART-SCOTT-RODINO
AMENDMENT.—Section
7A(c)(7) of the Clayton Act (15 U.S.C. 18a(c)(7)) is amend-
ed by inserting before the semicolon at the end thereof the
following: ‘‘, except that a portion of a transaction is not
exempt under this paragraph if such portion of the trans-
action (A) requires notice under section 6 of the Bank Hold-
ing Company Act of 1956; and (B) does not require ap-
proval 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 be-
ginning on the date of the enactment of this Act and annu-
ally thereafter, the Comptroller General of the United States
shall submit a report to the Congress on market concentra-
437
tion in the financial services industry and its impact on
consumers.
(b) ANALYSIS.—Each report submitted under sub-
section (a) shall contain an analysis of—
(1) the positive and negative effects of affiliations
between various types of financial companies, and of
acquisitions pursuant to this Act and the amend-
ments made by this Act to other provisions of law, in-
cluding any positive or negative effects on consumers,
area markets, and submarkets thereof or on registered
securities brokers and dealers which have been pur-
chased by depository institutions or depository insti-
tution holding companies;
(2) the changes in business practices and the ef-
fects of any such changes on the availability of ven-
ture 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 limited
geographical areas.
438
Subtitle F—Applying the Principles
of 
National 
Treatment 
and
Equality of Competitive Oppor-
tunity to Foreign Banks and For-
eign Financial Institutions
SEC. 151. APPLYING THE PRINCIPLES OF NATIONAL TREAT-
MENT AND EQUALITY OF COMPETITIVE OP-
PORTUNITY TO FOREIGN BANKS THAT ARE FI-
NANCIAL 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 section
6(b)(1)(E) or which 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 com-
pany to engage in any activity which the Board
has determined to be permissible for financial
holding companies under section 6 of such Act
shall terminate immediately.
439
‘‘(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 status
as a financial holding company under such sec-
tion or received a determination under section
10(d)(1) by the end of the 2-year period begin-
ning on the date of enactment of the Financial
Services Act of 1998, the Board, giving due re-
gard to the principle of national treatment and
equality of competitive opportunity, may impose
such restrictions and requirements on the con-
duct of such activities by such foreign bank or
company as are comparable to those imposed on
a financial holding company organized under
the laws of the United States, including a re-
quirement to conduct such activities in compli-
ance with any prudential safeguards established
under section 5(h) of the Bank Holding Com-
pany Act of 1956.’’.
440
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 agency,
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 in which the Board
deems it necessary to determine and enforce compliance
441
with this 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 para-
graph:
‘‘(13) COMMUNITY FINANCIAL INSTITUTION.—
442
‘‘(A) IN GENERAL.—The term ‘community
financial institution’ means a member—
‘‘(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 consumers,
as published by the Department of Labor.’’.
SEC. 163. SAVINGS ASSOCIATION MEMBERSHIP.
(a) FEDERAL HOME LOAN BANK MEMBERSHIP.—Sec-
tion 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 association
may become a member of the Federal Home Loan Bank
System, and shall qualify for such membership in the man-
ner provided by the Federal Home Loan Bank Act.’’.
443
(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 asso-
ciation 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 fol-
lowing:
‘‘(a) IN GENERAL.—
‘‘(1) ALL ADVANCES.—Each’’;
(3) by striking the second sentence and inserting
the following:
‘‘(2) PURPOSES OF ADVANCES.—A long-term ad-
vance 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.’’;
444
(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 redesignated
by paragraph (1) of this subsection) by striking
‘‘Deposits’’ and inserting ‘‘Cash or deposits’’;
(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 sub-
section) the following new subparagraph:
‘‘(E) Secured loans for small business, agri-
culture, rural development, or low-income com-
munity development, or securities representing a
whole interest in such secured loans, in the case
of any community financial institution.’’;
(6) in paragraph (5)—
(A) in the second sentence, by striking ‘‘and
the Board’’;
(B) in the third sentence, by striking
‘‘Board’’ and inserting ‘‘Federal home loan
bank’’; and
445
(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 increase
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 develop-
ment’ 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:
‘‘SEC. 10. ADVANCES TO MEMBERS.’’.
SEC. 165. ELIGIBILITY CRITERIA.
Section 4(a) of the Federal Home Loan Bank Act (12
U.S.C. 1424(a)) is amended—
446
(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 para-
graph:
‘‘(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 represented
by residential mortgage loans, as described in sub-
paragraph (A) of paragraph (2).’’.
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 amend-
ed—
(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 Federal
Home Loan Bank Act (12 U.S.C. 1421 et seq.) is amended
447
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 direc-
tors of the bank, to prescribe, amend, and repeal
by-laws governing the manner in which its af-
fairs may be administered, consistent with ap-
plicable laws and regulations, as administered
by the Finance Board. No officer, employee, at-
torney, 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’’.
448
(e) POWERS AND DUTIES OF FEDERAL HOUSING FI-
NANCE BOARD.—
(1) ISSUANCE OF NOTICES OF VIOLATIONS.—Sec-
tion 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 executive offi-
cer or director of a Federal home loan bank if, in the
determination of the Finance Board, the bank, execu-
tive officer, or director is engaging or has engaged in,
or the Finance Board has reasonable cause to believe
that the bank, executive officer, or director is about to
engage in, any conduct that violates any provision of
this Act or any law, order, rule, or regulation or any
condition imposed in writing 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 accord-
ance with the procedures provided in section 1371(c)
of the Federal Housing Enterprises Financial Safety
and Soundness Act of 1992. Such authority includes
the same authority to take affirmative action to cor-
rect conditions resulting from violations or practices
or to limit activities of a bank or any executive officer
449
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 sec-
tion 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 Oversight has to en-
force the Federal Housing Enterprises Financial
Safety and Soundness Act of 1992, the Federal Na-
tional Mortgage Association Charter Act, or the Fed-
eral Home Loan Mortgage Corporation Act with re-
spect to the Federal housing enterprises under the
Federal Housing Enterprises Financial 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.—
450
(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 ‘‘, sub-
ject 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)—
(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 pe-
riod;
(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 interest
rate on advances’’ and inserting ‘‘to provide
451
subsidies, including subsidized interest rates
on advances’’;
(ii) by striking ‘‘Pursuant’’ and insert-
ing the following:
‘‘(A) ESTABLISHMENT.—Pursuant’’; and
(iii) by adding at the end the following
new subparagraph:
‘‘(B) NONDELEGATION
OF
APPROVAL
AU-
THORITY.—Subject to such regulations as the Fi-
nance Board may prescribe, the board of direc-
tors of each Federal home loan bank may ap-
prove or disapprove requests from members for
Affordable Housing Program subsidies, and may
not delegate such authority.’’.
(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.
452
(h) SECTION 18.—Section 18(b) of the Federal Home
Loan Bank Act (12 U.S.C. 1438(b)) is amended by striking
paragraph (4).
SEC. 167. RESOLUTION FUNDING CORPORATION.
(a) IN GENERAL.—Section 21B(f)(2)(C) of the Federal
Home Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is amend-
ed to read as follows:
‘‘(C) PAYMENTS BY FEDERAL HOME LOAN
BANKS.—
‘‘(i) IN GENERAL.—To the extent that
the amounts available pursuant to subpara-
graphs (A) and (B) are insufficient to cover
the amount of interest payments, each Fed-
eral home loan bank shall pay to the Fund-
ing Corporation in each calendar year,
20.75 percent of the net earnings of that
bank (after deducting expenses relating to
section 10(j) and operating expenses).
‘‘(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 ex-
ceeds or falls short of the value of an annu-
ity of $300,000,000 per year that com-
mences on the issuance date and ends on the
453
final scheduled maturity date of the obliga-
tions, and shall select appropriate present
value factors for making such determina-
tions.
‘‘(iii) PAYMENT TERM ALTERATIONS.—
The Board shall extend or shorten the term
of the payment obligations of a Federal
home loan bank under this subparagraph as
necessary to ensure that the value of all
payments made by the banks is equivalent
to the value of an annuity referred to in
clause (ii).
‘‘(iv) TERM BEYOND MATURITY.—If the
Board extends the term of payments beyond
the final scheduled maturity date for the ob-
ligations, each Federal home loan bank shall
continue to pay 20.75 percent of its net
earnings (after deducting expenses relating
to section 10(j) and operating 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 referred to in clause (ii). In
the final year in which the Federal home
loan banks are required to make any pay-
454
ment to the Treasury under this subpara-
graph, if the dollar amount represented by
20.75 percent of the net earnings of the Fed-
eral 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 re-
maining obligation.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall become effective on January 1, 1999. Pay-
ments made by a Federal home loan bank before that effec-
tive 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 following new
sentence: ‘‘In addition to the provisions in this paragraph
for dealing in, underwriting or purchasing securities, the
limitations and restrictions contained in this paragraph as
to dealing in, underwriting, and purchasing investment se-
455
curities for the national bank’s own account shall not apply
to obligations (including limited obligation bonds, revenue
bonds, and obligations that satisfy the requirements of sec-
tion 142(b)(1) of the Internal Revenue Code of 1986) issued
by or on behalf of any state or political subdivision of a
state, including any municipal corporate instrumentality
of 1 or more states, or any public agency or authority of
any state or political subdivision of a state, if the national
banking association is well capitalized (as defined in sec-
tion 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 Insur-
ance Fund and the Savings Association Insurance Fund:
(1) SAFETY AND SOUNDNESS.—The safety and
soundness of the funds and the adequacy of the reserve
requirements applicable to the funds in light of—
(A) the size of the insured depository insti-
tutions which are resulting from mergers and
consolidations since the effective date of the Rie-
gle-Neal Interstate Banking and Branching Effi-
ciency Act of 1994; and
456
(B) the affiliation of insured depository in-
stitutions with other financial institutions pur-
suant to this Act and the amendments made by
this Act.
(2) CONCENTRATION
LEVELS.—The concentra-
tion levels of the funds, taking into account the num-
ber of members of each fund and the geographic dis-
tribution of such members, and the extent to which ei-
ther fund is exposed to higher risks due to a regional
concentration of members or an insufficient member-
ship 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 re-
spective funds.
(b) REPORT REQUIRED.—
(1) IN GENERAL.—Before the end of the 9-month
period beginning on the date of the enactment of this
Act, the Board of Directors of the Federal Deposit In-
surance Corporation shall submit a report to the Con-
gress on the study conducted pursuant to subsection
(a).
(2) CONTENTS OF REPORT.—The report shall in-
clude—
457
(A) detailed findings of the Board of Direc-
tors with regard to the issues described in sub-
section (a);
(B) a description of the plans developed by
the Board of Directors for merging the Bank In-
surance Fund and the Savings Association In-
surance 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 Direc-
tors determines to be necessary or appropriate 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 fol-
lowing 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 In-
surance Act.
(2) BIF AND SAIF MEMBERS.—The terms ‘‘Bank
Insurance Fund member’’ and ‘‘Savings Association
458
Insurance Fund member’’ have the same meanings as
in section 7(l) of the Federal Deposit Insurance Act.
Subtitle J—Effective Date of Title
SEC. 191. EFFECTIVE DATE.
Except with regard to any subtitle or other provision
of this title for which a specific effective date is provided,
this title and the amendments made by this title shall take
effect at the end of the 270-day period beginning on the
date of the enactment of this Act.
TITLE II—FUNCTIONAL
REGULATION
Subtitle A—Brokers and Dealers
SEC. 201. DEFINITION OF BROKER.
Section 3(a)(4) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(4)) is amended to read as follows:
‘‘(4) BROKER.—
‘‘(A) IN
GENERAL.—The term ‘broker’
means any person engaged in the business of ef-
fecting transactions in securities for the account
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:
459
‘‘(i) THIRD
PARTY
BROKERAGE
AR-
RANGEMENTS.—The bank enters into a con-
tractual or other arrangement with a broker
or dealer registered under this title under
which the broker or dealer offers brokerage
services on or off the premises of the bank
if—
‘‘(I) such broker or dealer is clear-
ly identified as the person performing
the brokerage services;
‘‘(II) the broker or dealer performs
brokerage services in an area that is
clearly marked and, to the extent prac-
ticable, physically separate from the
routine deposit-taking activities 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 arrange-
ment clearly indicate that the broker-
age 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
460
the availability of brokerage services
under the contractual or other arrange-
ment are in compliance with the Fed-
eral securities laws before distribution;
‘‘(V) bank employees (other than
associated persons of a broker or dealer
who are qualified pursuant to the rules
of a self-regulatory organization) per-
form only clerical or ministerial func-
tions in connection with brokerage
transactions including scheduling ap-
pointments with the associated persons
of a broker or dealer, except that bank
employees may forward customer funds
or securities and may describe in gen-
eral terms the range of investment ve-
hicles 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-
461
latory organization, except that the
bank employees may receive compensa-
tion for the referral of any customer if
the compensation is a nominal one-
time cash fee of a fixed dollar amount
and the payment of the fee is not con-
tingent 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 ex-
cept in a customary custodian or trust-
ee capacity; and
‘‘(IX) the bank, broker, or dealer
informs each customer that the broker-
age services are provided by the broker
or dealer and not by the bank and that
the securities are not deposits or other
obligations of the bank, are not guar-
anteed by the bank, and are not in-
462
sured by the Federal Deposit Insurance
Corporation.
‘‘(ii) TRUST ACTIVITIES.—The bank ef-
fects transactions in a trustee capacity, or
effects transactions in a fiduciary capacity
in its trust department or other department
that is regularly examined by bank examin-
ers 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 advertis-
ing that it effects transactions in secu-
463
rities in conjunction with advertising
its other trust activities.
‘‘(iii) 
PERMISSIBLE
SECURITIES
TRANSACTIONS.—The bank effects trans-
actions in—
‘‘(I) commercial paper, bankers
acceptances, or commercial bills;
‘‘(II) exempted securities;
‘‘(III) qualified Canadian govern-
ment obligations as defined in section
5136 of the Revised Statutes, in con-
formity with section 15C of this title
and the rules and regulations there-
under, or obligations of the North
American Development Bank; or
‘‘(IV) any standardized, credit en-
hanced debt security issued by a for-
eign 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.—
464
‘‘(I) 
EMPLOYEE
BENEFIT
PLANS.—The bank effects transactions,
as part of its transfer agency activities,
in the securities of an issuer as part of
any pension, retirement, profit-shar-
ing, bonus, thrift, savings, incentive, or
other similar benefit plan for the em-
ployees of that issuer or its subsidi-
aries, if—
(aa) the bank does not solicit
transactions or provide invest-
ment 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 transactions,
as part of its transfer agency activities,
in the securities of an issuer as part of
that issuer’s dividend reinvestment
plan, if—
465
‘‘(aa) the bank does not so-
licit transactions or provide in-
vestment advice with respect to
the purchase or sale of securities
in connection with the plan;
‘‘(bb) the bank does not net
shareholders’ buy and sell orders,
other than for programs for odd-
lot holders or plans registered
with the Commission; and
‘‘(cc) the bank’s compensa-
tion for such plan or program
consists primarily of administra-
tion fees, or flat or capped per
order processing fees, or both.
‘‘(III) ISSUER PLANS.—The bank
effects transactions, as part of its
transfer agency activities, in the secu-
rities of an issuer as part of a plan or
program for the purchase or sale of
that issuer’s shares, if—
‘‘(aa) the bank does not so-
licit transactions or provide in-
vestment advice with respect to
the purchase or sale of securities
466
in connection with the plan or
program;
‘‘(bb) the bank does not net
shareholders’ buy and sell orders,
other than for programs for odd-
lot holders or plans registered
with the Commission; and
‘‘(cc) the bank’s compensa-
tion for such plan or program
consists primarily of administra-
tion fees, or flat or capped per
order processing fees, or both.
‘‘(IV) PERMISSIBLE DELIVERY OF
MATERIALS.—The exception to being
considered a broker for a bank engaged
in activities described in subclauses
(I), (II), and (III) will not be affected
by a bank’s delivery of written or elec-
tronic plan materials to employees 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
467
enactment of the Financial Serv-
ices Act of 1998; or
‘‘(bb) otherwise permitted by
the Commission.
‘‘(v) SWEEP ACCOUNTS.—The bank ef-
fects transactions as part of a program for
the investment or reinvestment of bank de-
posit funds into any no-load, open-end
management investment company registered
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 account of
any affiliate of the bank (as defined in sec-
tion 2 of the Bank Holding Company Act
of 1956) other than—
‘‘(I) a registered broker or dealer;
or
‘‘(II) an affiliate that is engaged
in merchant banking, as described in
section 6(c)(3)(H) of the Bank Holding
Company Act of 1956.
‘‘(vii) PRIVATE
SECURITIES
OFFER-
INGS.—The bank—
468
‘‘(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 Securities
Act of 1933 or the rules and regula-
tions issued thereunder; and
‘‘(II) 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 se-
curities, including the exercise of
warrants and other rights on be-
half 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’ trans-
actions in securities;
‘‘(cc) effects securities lending
or borrowing transactions with or
469
on behalf of customers as part of
services provided to customers
pursuant to division (aa) or (bb)
or invests cash collateral pledged
in connection with such trans-
actions; or
‘‘(dd) holds securities pledged
by a customer to another person
or securities subject to purchase or
resale agreements involving a cus-
tomer, or facilitates the pledging
or transfer of such securities by
book entry or as otherwise pro-
vided under applicable law.
‘‘(II) EXCEPTION
FOR
CARRYING
BROKER ACTIVITIES.—The exception to
being considered a broker for a bank
engaged in activities described in sub-
clause (I) shall not apply if the bank,
in connection with such activities, acts
in the United States as a carrying
broker (as such term, and different for-
mulations thereof, are used in section
15(c)(3) and the rules and regulations
thereunder) for any broker or dealer,
470
unless such carrying broker activities
are engaged in with respect to govern-
ment securities (as defined in para-
graph (42) of this subsection).
‘‘(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
are not effected by an employee of the bank
who is also an employee of a broker or deal-
er.
‘‘(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 provi-
sions result in the trade in the United States of
any security that is a publicly traded security in
the United States, unless—
471
‘‘(i) the bank directs such trade to a
registered or broker dealer for execution;
‘‘(ii) the trade is a cross trade or other
substantially similar trade of a security
that—
‘‘(I) is made by the bank or be-
tween the bank and an affiliated fidu-
ciary; and
‘‘(II) is not in contravention of fi-
duciary principles established under
applicable Federal or State law; or
‘‘(iii) the trade is conducted in some
other manner permitted under rules, regula-
tions, or orders as the Commission may
prescribe or issue.
‘‘(D) NO EFFECT OF BANK EXEMPTIONS ON
OTHER COMMISSION AUTHORITY.—The exception
to being considered a broker for a bank engaged
in activities described in subparagraphs (B) and
(C) shall not affect the commission’s authority
under any other provision of this Act or any
other securities law.
‘‘(E) FIDUCIARY CAPACITY.—For purposes
of subparagraph (B)(ii), the term ‘fiduciary ca-
pacity’ means—
472
‘‘(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 ad-
vice;
‘‘(ii) in any capacity in which the
bank possesses investment discretion on be-
half of another; or
‘‘(iii) in any other similar capacity.
‘‘(F) EXCEPTION FOR ENTITIES SUBJECT TO
SECTION 15(e).—The term ‘broker’ does not in-
clude 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 considers
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.—
473
‘‘(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 capacity,
but not as a part of a regular business.
‘‘(C) EXCEPTION
FOR
CERTAIN
BANK
AC-
TIVITIES.—A bank shall not be considered to be
a dealer because the bank engages in any of the
following activities under the conditions de-
scribed:
‘‘(i) PERMISSIBLE SECURITIES TRANS-
ACTIONS.—The bank buys or sells—
‘‘(I) commercial paper, bankers
acceptances, or commercial bills;
‘‘(II) exempted securities;
‘‘(III) qualified Canadian govern-
ment obligations as defined in section
5136 of the Revised Statutes of the
United States, in conformity with sec-
tion 15C of this title and the rules and
474
regulations thereunder, or obligations
of the North American Development
Bank; or
‘‘(IV) any standardized, credit en-
hanced debt security issued by a for-
eign government pursuant to the
March 1989 plan of then Secretary of
the Treasury Brady, used by such for-
eign government to retire outstanding
commercial bank loans.
‘‘(ii) INVESTMENT, TRUSTEE, AND FI-
DUCIARY TRANSACTIONS.—The bank buys or
sells securities for investment purposes—
‘‘(I) for the bank; or
‘‘(II) for accounts for which the
bank acts as a trustee or fiduciary.
‘‘(iii) 
ASSET-BACKED
TRANS-
ACTIONS.—The bank engages in the issuance
or sale to qualified investors, through a
grantor trust or otherwise, of securities
backed by or representing an interest in
notes, drafts, acceptances, loans, leases, re-
ceivables, other obligations, or pools of any
such obligations predominantly originated
by the bank, or a syndicate of banks of
475
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 derivative in-
strument to which the bank is a party—
‘‘(I) to or from a qualified inves-
tor, except that if the instrument pro-
vides for the delivery of one or more se-
curities (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, ex-
cept that if the derivative instrument
provides for the delivery of one or more
securities (other than a derivative in-
strument or government security), or is
a security (other than a government se-
curity), the transaction shall be effected
476
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 derivative in-
strument).’’.
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 subsection
(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 associated
person of a member who effects sales as part of a primary
offering of securities not involving a public offering, pursu-
ant to section 3(b), 4(2), or 4(6) of the Securities Act of
1933 and the rules and regulations thereunder, and shall
deem qualified in such limited qualification category, with-
out testing, any bank employee who, in the six month period
preceding the date of enactment of this Act, engaged in ef-
fecting such sales.’’.
477
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 subsection:
‘‘(s) SALES PRACTICES AND COMPLAINT PROCEDURES
WITH RESPECT TO BANK SECURITIES ACTIVITIES.—
‘‘(1) REGULATIONS
REQUIRED.—Each Federal
banking agency shall prescribe and publish in final
form, not later than 6 months after the date of enact-
ment of the Financial Services Act of 1998, regula-
tions which apply to retail transactions, solicitations,
advertising, or offers of any security by any insured
depository institution or any affiliate thereof other
than a registered broker or dealer or an individual
acting on behalf of such a broker or dealer who is an
associated person of such broker or dealer. Such regu-
lations shall include—
‘‘(A) requirements that sales practices com-
ply with just and equitable principles of trade
that are substantially similar to the Rules of
Fair Practice of the National Association of Se-
curities Dealers; and
‘‘(B) requirements prohibiting (i) condi-
tioning an extension of credit on the purchase or
sale of a security; and (ii) any conduct leading
a customer to believe that an extension of credit
478
is conditioned upon the purchase or sale of a se-
curity.
‘‘(2) PROCEDURES REQUIRED.—The appropriate
Federal banking agencies shall jointly establish proce-
dures and facilities for receiving and expeditiously
processing complaints against any bank or employee
of a bank arising in connection with the purchase or
sale of a security by a customer, including a com-
plaint alleging a violation of the regulations pre-
scribed under paragraph (1), but excluding a com-
plaint involving an individual acting on behalf of
such a broker or dealer who is an associated person
of such broker or dealer. The use of any such proce-
dures 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 appro-
priate State securities commissions.
‘‘(3) REQUIRED ACTIONS.—The actions required
by the Federal banking agencies under paragraph (2)
shall include the following:
‘‘(A) establishing a group, unit, or bureau
within each such agency to receive such com-
plaints;
479
‘‘(B) developing and establishing procedures
for investigating, and permitting customers to
investigate, such complaints;
‘‘(C) developing and establishing procedures
for informing customers of the rights they may
have in connection with such complaints;
‘‘(D) developing and establishing procedures
that allow customers a period of at least 6 years
to make complaints and that do not require cus-
tomers to pay the costs of the proceeding; and
‘‘(E) developing and establishing procedures
for resolving such complaints, including proce-
dures for the recovery of losses to the extent ap-
propriate.
‘‘(4) CONSULTATION AND JOINT REGULATIONS.—
The Federal banking agencies shall consult with each
other and prescribe joint regulations pursuant to
paragraphs (1) and (2), after consultation with the
Securities and Exchange Commission.
‘‘(5) PROCEDURES IN ADDITION TO OTHER REM-
EDIES.—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—
480
‘‘(A) the term ‘security’ has the same mean-
ing as in section 3(a)(10) of the Securities Ex-
change Act of 1934;
‘‘(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 Secu-
rities 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 subsection:
‘‘(t) RECORDKEEPING REQUIREMENTS.—
‘‘(1) REQUIREMENTS.—Each appropriate Fed-
eral banking agency, after consultation with and con-
sideration of the views of the Commission, shall estab-
lish recordkeeping requirements for banks relying on
exceptions contained in paragraphs (4) and (5) of
section 3(a) of the Securities Exchange Act of 1934.
Such recordkeeping requirements shall be sufficient to
demonstrate compliance with the terms of such excep-
tions and be designed to facilitate compliance with
such exceptions. Each appropriate Federal banking
agency shall make any such information available to
the Commission upon request.