147
loan bank determines that the paid-in capital of the
bank is, or is likely to be, impaired as a result of
losses in or depreciation of the assets of the bank,
the Federal home loan bank shall withhold that por-
tion of the amount due any shareholder with respect
to any redemption or retirement of any class of
stock which bears the same ratio to the total of such
amount as the amount of the impaired capital bears
to the total amount of capital allocable to such class
of stock.
‘‘(6) POLICIES.—Subject to the requirements of
this section, the board of directors of each Federal
home loan bank shall promptly establish policies,
consistent with this Act, governing the capital stock
of such bank and other provisions of this section.’’.
SEC. 172. INVESTMENTS.
Subsection (j) of section 11 of the Federal Home
Loan Bank Act (12 U.S.C. 1431) (as so redesignated by
section 166(e) of this subtitle) is amended to read as fol-
lows:
‘‘(j) INVESTMENTS.—Each bank shall reduce its in-
vestments to those necessary for liquidity purposes, for
safe and sound operation of the banks, or for housing fi-
nance, as administered by the Finance Board.’’.
148
SEC. 173. FEDERAL HOUSING FINANCE BOARD.
Section 2A(b)(1) of the Federal Home Loan Bank
Act (12 U.S.C. 1422(b)(1)) is amended—
(1) by redesignating subparagraphs (A) and
(B) as subparagraphs (B) and (C), respectively;
(2) by inserting before subparagraph (B) (as so
redesignated by paragraph (1) of this section) the
following new subparagraph:
‘‘(A) The Secretary of the Treasury (or the
Secretary of the Treasury’s designee), who shall
serve without additional compensation.’’; and
(3) in subparagraph (C) (as so redesignated by
paragraph (1) of this section) by striking ‘‘Four’’
and inserting ‘‘3’’.
Subtitle H—Direct Activities of
Banks
SEC. 181. AUTHORITY OF NATIONAL BANKS TO UNDER-
WRITE CERTAIN MUNICIPAL BONDS.
The paragraph designated the Seventh of section
5136 of the Revised Statutes of the United States (12
U.S.C. 24(7)) is amended by adding at the end the follow-
ing new sentence: ‘‘In addition to the provisions in this
paragraph for dealing in, underwriting or purchasing secu-
rities, the limitations and restrictions contained in this
paragraph as to dealing in, underwriting, and purchasing
investment securities for the national bank’s own account
149
shall not apply to obligations (including limited obligation
bonds, revenue bonds, and obligations that satisfy the re-
quirements of section 142(b)(1) of the Internal Revenue
Code of 1986) issued by or on behalf of any state or politi-
cal subdivision of a state, including any municipal cor-
porate instrumentality of 1 or more states, or any public
agency or authority of any state or political subdivision
of a state, if the national banking association is well cap-
italized (as defined in section 38 of the Federal Deposit
Insurance Act).’’.
Subtitle I—Deposit Insurance
Funds
SEC. 186. STUDY OF SAFETY AND SOUNDNESS OF FUNDS.
(a) STUDY REQUIRED.—The Board of Directors of
the Federal Deposit Insurance Corporation shall conduct
a study of the following issues with regard to the Bank
Insurance Fund and the Savings Association Insurance
Fund:
(1) The safety and soundness of the funds and
the adequacy of the reserve requirements applicable
to the funds in light of—
(A) the size of the insured depository insti-
tutions which are resulting from mergers and
consolidations since the effective date of the
150
Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994; and
(B) the affiliation of insured depository in-
stitutions with other financial institutions pur-
suant to this Act and the amendments made by
this Act.
(2) The concentration levels of the funds, tak-
ing into account the number of members of each
fund and the geographic distribution of such mem-
bers, and the extent to which either fund is exposed
to higher risks due to a regional concentration of
members or an insufficient membership base relative
to the size of member institutions.
(3) Issues relating to the planned merger of the
funds, including the cost of merging the funds and
the manner in which such costs will be distributed
among the members of the respective funds.
(b) REPORT REQUIRED.—
(1) IN GENERAL.—Before the end of the 9-
month period beginning on the date of the enact-
ment of this Act, the Board of Directors of the Fed-
eral Deposit Insurance Corporation shall submit a
report to the Congress on the study conducted pur-
suant to subsection (a).
151
(2) CONTENTS OF REPORT.—The report shall
include—
(A) detailed findings of the Board of Di-
rectors with regard to the issues described in
subsection (a);
(B) a description of the plans developed by
the Board of Directors for merging the Bank
Insurance Fund and the Savings Association
Insurance Fund, including an estimate of the
amount of the cost of such merger which would
be borne by Savings Association Insurance
Fund members; and
(C) such recommendations for legislative
and administrative action as the Board of Di-
rectors determines to be necessary or appro-
priate to preserve the safety and soundness of
the deposit insurance funds, reduce the risks to
such funds, provide for an efficient merger of
such funds, and for other purposes.
(c) DEFINITIONS.—For purposes of this section, the
following definitions shall apply:
(1) INSURED DEPOSITORY INSTITUTION.—The
term ‘‘insured depository institution’’ has the mean-
ing given to such term in section 3(c) of the Federal
Deposit Insurance Act.
152
(2)
BIF
AND
SAIF
MEMBERS.—The
terms
‘‘Bank Insurance Fund member’’ and ‘‘Savings As-
sociation Insurance Fund member’’ have the mean-
ing given to such terms in section 7(l) of the Federal
Deposit Insurance Act.
Subtitle J—Effective Date of Title
SEC. 191. EFFECTIVE DATE.
Except with regard to any subtitle or other provision
of this title for which a specific effective date is provided,
this title and the amendments made by this title shall take
effect at the end of the 270-day period beginning on the
date of the enactment of this Act.
TITLE II—FUNCTIONAL
REGULATION
Subtitle A—Brokers and Dealers
SEC. 201. DEFINITION OF BROKER.
Section 3(a)(4) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(4)) is amended to read as follows:
‘‘(4) BROKER.—
‘‘(A)
IN
GENERAL.—The
term
‘broker’
means any person engaged in the business of
effecting transactions in securities for the ac-
count of others.
‘‘(B) EXCEPTION FOR CERTAIN BANK AC-
TIVITIES.—A bank shall not be considered to be
153
a broker because the bank engages in any of
the following activities under the conditions de-
scribed:
‘‘(i) THIRD
PARTY
BROKERAGE
AR-
RANGEMENTS.—The bank enters into a
contractual or other arrangement with a
broker or dealer registered under this title
under which the broker or dealer offers
brokerage services on or off the premises
of the bank if—
‘‘(I) such broker or dealer is
clearly identified as the person per-
forming the brokerage services;
‘‘(II) the broker or dealer per-
forms brokerage services in an area
that is clearly marked and, to the ex-
tent practicable, physically separate
from the routine deposit-taking activi-
ties of the bank;
‘‘(III) any materials used by the
bank to advertise or promote generally
the availability of brokerage services
under the contractual or other ar-
rangement clearly indicate that the
brokerage services are being provided
154
by the broker or dealer and not by the
bank;
‘‘(IV) any materials used by the
bank to advertise or promote generally
the availability of brokerage services
under the contractual or other ar-
rangement are in compliance with the
Federal
securities
laws
before
dis-
tribution;
‘‘(V) bank employees (other than
associated persons of a broker or deal-
er who are qualified pursuant to the
rules of a self-regulatory organization)
perform only clerical or ministerial
functions in connection with broker-
age transactions including scheduling
appointments with the associated per-
sons of a broker or dealer, except that
bank
employees
may
forward
cus-
tomer funds or securities and may de-
scribe in general terms the range of
investment vehicles available from the
bank and the broker or dealer under
the contractual or other arrangement;
155
‘‘(VI) bank employees do not di-
rectly receive incentive compensation
for any brokerage transaction unless
such employees are associated persons
of a broker or dealer and are qualified
pursuant to the rules of a self-regu-
latory organization, except that the
bank
employees
may
receive
com-
pensation for the referral of any cus-
tomer if the compensation is a nomi-
nal one-time cash fee of a fixed dollar
amount and the payment of the fee is
not contingent on whether the referral
results in a transaction;
‘‘(VII) such services are provided
by the broker or dealer on a basis in
which all customers which receive any
services
are
fully
disclosed
to
the
broker or dealer;
‘‘(VIII) the bank does not carry
a securities account of the customer
except in a customary custodian or
trustee capacity; and
‘‘(IX) the bank, broker, or dealer
informs each customer that the bro-
156
kerage services are provided by the
broker or dealer and not by the bank
and that the securities are not depos-
its or other obligations of the bank,
are not guaranteed by the bank, and
are not insured by the Federal De-
posit Insurance Corporation.
‘‘(ii) TRUST
ACTIVITIES.—The bank
effects transactions in a trustee capacity,
or effects transactions in a fiduciary capac-
ity in its trust department or other depart-
ment that is regularly examined by bank
examiners for compliance with fiduciary
principles and standards, and (in either
case)—
‘‘(I) is primarily compensated on
the basis of an administration or an-
nual fee (payable on a monthly, quar-
terly, or other basis), a percentage of
assets under management, or a flat or
capped per order processing fee, or
any combination of such fees, but
does not otherwise receive brokerage
commissions, or other similar remu-
neration
based
on
effecting
trans-
157
actions in securities, that exceed the
cost incurred by the bank in connec-
tion with executing securities trans-
actions for trustee or fiduciary cus-
tomers; and
‘‘(II) does not publicly solicit bro-
kerage business, other than by adver-
tising that it effects transactions in
securities in conjunction with advertis-
ing its other trust activities.
‘‘(iii)
PERMISSIBLE
SECURITIES
TRANSACTIONS.—The bank effects trans-
actions in—
‘‘(I) commercial paper, bankers
acceptances, or commercial bills;
‘‘(II) exempted securities;
‘‘(III) qualified Canadian govern-
ment obligations as defined in section
5136 of the Revised Statutes, in con-
formity with section 15C of this title
and the rules and regulations there-
under, or obligations of the North
American Development Bank; or
‘‘(IV)
any
standardized,
credit
enhanced debt security issued by a
158
foreign government pursuant to the
March 1989 plan of then Secretary of
the Treasury Brady, used by such for-
eign government to retire outstanding
commercial bank loans.
‘‘(iv)
CERTAIN
STOCK
PURCHASE
PLANS.—
‘‘(I)
EMPLOYEE
BENEFIT
PLANS.—The
bank
effects
trans-
actions, as part of its transfer agency
activities, in the securities of an issuer
as part of any pension, retirement,
profit-sharing, bonus, thrift, savings,
incentive, or other similar benefit plan
for the employees of that issuer or its
subsidiaries, if—
(aa) the bank does not so-
licit transactions or provide in-
vestment advice with respect to
the purchase or sale of securities
in connection with the plan; and
‘‘(bb) the bank’s compensa-
tion for such plan or program
consists of administration fees, or
flat or capped per order process-