I
104TH CONGRESS
1ST SESSION
H. R. 1062
To enhance competition in the financial services industry by providing a
prudential framework for the affiliation of banks, securities firms, and
other financial service providers.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 27, 1995
Mr. LEACH introduced the following bill; which was referred to the Committee
on Banking and Financial Services and, in addition, to the Committee
on Commerce, for a period to be subsequently determined by the Speaker,
in each case for consideration of such provisions as fall within the juris-
diction of the committee concerned
A BILL
To enhance competition in the financial services industry
by providing a prudential framework for the affiliation
of banks, securities firms, and other financial service
providers.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Financial Services Competitiveness Act of 1995’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
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TITLE I—BANK SECURITIES ACTIVITIES AND AFFILIATIONS
WITH SECURITIES FIRMS AND OTHER FINANCIAL COMPANIES
Subtitle A—Securities Activities
Sec. 101. Anti-affiliation provision of Glass-Steagall Act repealed.
Sec. 102. Financial services holding companies authorized to have securities
affiliates.
Sec. 103. Establishment and operations of securities affiliates.
Sec. 104. Unitary thrift holding companies.
Sec. 105. Securities company affiliations of FDIC-insured banks.
Sec. 106. Authority to terminate grandfather rights under the International
Banking Act of 1978.
Sec. 107. Effect on State laws prohibiting the affiliation of banks and securities
companies.
Sec. 108. Municipal securities.
Sec. 109. Investment bank holding companies.
Sec. 110. Conforming amendments for investment bank holding companies.
Sec. 111. Effective date.
Subtitle B—Brokers and Dealers
Sec. 120. Definition of broker.
Sec. 121. Definition of dealer.
Sec. 122. Power to exempt from the definitions of broker and dealer.
Sec. 123. Margin requirements.
Sec. 124. Effective date.
Subtitle C—Bank Investment Company Activities
Sec. 130. Custody of investment company assets by affiliated bank.
Sec. 131. Affiliated transactions.
Sec. 132. Borrowing from an affiliated bank.
Sec. 133. Independent directors.
Sec. 134. Additional SEC disclosure authority.
Sec. 135. Definition of broker under the Investment Company Act of 1940.
Sec. 136. Definition of dealer under the Investment Company Act of 1940.
Sec. 137. Removal of the exclusion from the definition of investment adviser for
banks that advise investment companies.
Sec. 138. Definition of broker under the Investment Advisers Act of 1940.
Sec. 139. Definition of dealer under the Investment Advisers Act of 1940.
Sec. 140. Interagency consultation.
Sec. 141. Treatment of bank common trust funds.
Sec. 142. Investment advisers prohibited from having controlling interest in
registered investment company.
Sec. 143. Purchase of investment company securities as fiduciary.
Sec. 144. Conforming change in definition.
Sec. 145. Effective date.
Subtitle D—Financial Activities
Sec. 150. Financial activities.
Sec. 151. No prior approval required for well capitalized and well managed
financial services holding companies.
Sec. 152. Conforming amendment to the Bank Holding Company Act.
Sec. 153. Conforming amendment to the Bank Holding Company Act Amend-
ments of 1970.
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Sec. 154. Elimination of duplicative applications.
TITLE I—BANK SECURITIES ACTIVITIES
AND AFFILIATIONS WITH SECURITIES
FIRMS AND OTHER FINANCIAL COM-
PANIES
Subtitle A—Securities Activities
SEC. 
101. 
ANTI-AFFILIATION 
PROVISION 
OF 
GLASS-
STEAGALL ACT REPEALED.
(a) SECTION 20 REPEALED.—Section 20 (12 U.S.C.
377) of the Banking Act of 1933 is repealed.
(b) CONFORMING AMENDMENT TO SECTION 32.—
Section 32 (12 U.S.C. 78) of the Banking Act of 1933
is amended by adding at the end the following sentence:
‘‘This section does not prohibit an officer, director, or em-
ployee of a securities affiliate (as defined in section 2 of
the Bank Holding Company Act of 1956) from serving
at the same time as an officer, director, or employee of
a member bank affiliated with that securities affiliate
under section 10 of the Bank Holding Company Act of
1956.’’.
SEC. 102. FINANCIAL SERVICES HOLDING COMPANIES AU-
THORIZED TO HAVE SECURITIES AFFILIATES.
Section 4(c) of the Bank Holding Company Act of
1956 (12 U.S.C. 1943(c)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(13);
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(2) by striking the period at the end of para-
graph (14) and inserting ‘‘; or’’; and
(3) by adding after paragraph (14) the follow-
ing new paragraph:
‘‘(15) shares of a securities affiliate in accord-
ance with section 10.’’.
SEC. 103. ESTABLISHMENT AND OPERATIONS OF SECURI-
TIES AFFILIATES.
(a) IN GENERAL.—Section 10 of the Bank Holding
Company Act of 1956 (12 U.S.C. 1841 et seq.) is amend-
ed to read as follows:
‘‘SEC. 10. SECURITIES ACTIVITIES.
‘‘(a) ACTIVITIES PERMISSIBLE FOR SECURITIES AF-
FILIATES.—A securities affiliate may engage in 1 or more
of the following activities:
‘‘(1) Underwrite, deal in, broker, place, or dis-
tribute securities of any type, provide investment ad-
vice regarding securities of any type, and engage in
other securities activities as determined by the
Board.
‘‘(2) Sponsor, organize, control, manage, and
act as investment adviser to an investment company.
‘‘(3) Engage in, or acquire the shares of a com-
pany engaged in any activity if—
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‘‘(A) a provision of section 4(c) permits fi-
nancial services holding companies generally to
engage in that activity or acquire those shares;
and
‘‘(B) either—
‘‘(i) the Board permits the financial
services holding company to engage in that
activity or acquire those shares through
the securities affiliate; or
‘‘(ii) that provision permits the finan-
cial services holding company to engage in
that activity or acquire those shares with-
out the Board’s approval.
‘‘(b) ACQUIRING INTEREST IN SECURITIES AFFILI-
ATE.—
‘‘(1) NOTICE REQUIRED.—A financial services
holding company shall not, without complying with
and receiving approval pursuant to the notice proce-
dure in section 4(j)(1), directly or indirectly acquire
or retain more than 5 percent of the voting shares
of, or all or substantially all of the assets of, a secu-
rities affiliate (or a company that would be a securi-
ties affiliate if the Board permitted the financial
services holding company to acquire that company).
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‘‘(2) CRITERIA
FOR
APPROVAL.—The Board
shall disapprove a notice required under paragraph
(1) unless the Board determines that all of the fol-
lowing are satisfied:
‘‘(A) CAPITAL.—
‘‘(i) INSURED
DEPOSITORY
INSTITU-
TIONS.—
‘‘(I) The lead insured depository
institution of the financial services
holding company is well capitalized.
‘‘(II) Well capitalized insured de-
pository institutions control at least
80 percent of the aggregate total risk-
weighted assets of insured depository
institutions controlled by the financial
services holding company.
‘‘(III) All insured depository in-
stitutions controlled by the financial
services holding company are well cap-
italized or adequately capitalized.
‘‘(ii) FINANCIAL
SERVICES
HOLDING
COMPANY.—The financial services holding
company is (and immediately after the ac-
quisition would continue to be) adequately
capitalized.
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‘‘(iii) FOREIGN
BANKS
AND
COMPA-
NIES.—The Board shall establish and
apply comparable capital standards for the
ownership or control of a securities affili-
ate in the United States by a foreign bank
(as defined in section 1(b) of the Inter-
national Banking Act of 1978), giving due
regard to the principle of national treat-
ment and equality of competitive oppor-
tunity in the United States.
‘‘(B) MANAGERIAL RESOURCES.—
‘‘(i) 
IN
GENERAL.—The 
financial
services holding company and each of its
subsidiary 
insured 
depository 
institu-
tions—
‘‘(I) are well managed; and
‘‘(II) were well managed during
the preceding 12-month period (but
for purposes of this subparagraph the
Board may disregard any insured de-
pository institution acquired by the fi-
nancial services holding company dur-
ing that period).
‘‘(ii) SECURITIES
ACTIVITIES.—The
financial services holding company has the
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managerial resources to conduct the pro-
posed securities activities safely and sound-
ly.
‘‘(C) INTERNAL CONTROLS.—The financial
services holding company has established ade-
quate policies and procedures to manage finan-
cial and operational risks and to provide rea-
sonable assurance of compliance with this sec-
tion and other applicable laws.
‘‘(D) NO
DETRIMENTAL
EFFECT
ON
FI-
NANCIAL SERVICES HOLDING COMPANY OR ITS
SUBSIDIARY
INSURED
DEPOSITORY
INSTITU-
TIONS.—The acquisition would not adversely af-
fect the safety and soundness of—
‘‘(i) the financial services holding
company; or
‘‘(ii) any insured depository institu-
tion subsidiary of the financial services
holding company.
‘‘(E) CONCENTRATION OF RESOURCES.—
The acquisition would not result in an undue
concentration of resources in the commercial
banking and investment banking business.
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‘‘(3) NO
NOTICE
FOR
PROPOSALS
BY
WELL-
CAPITALIZED AND WELL-MANAGED COMPANIES TO
ACQUIRE ADDITIONAL SECURITIES AFFILIATES.—
‘‘(A) ADDITIONAL
SECURITIES
AFFILI-
ATES.—A financial services holding company
may, without providing the notice required
under subsection (b), directly or indirectly ac-
quire the shares or substantially all of the as-
sets of any company that is engaged in activi-
ties described in subsection (a) (1) and (2), if—
‘‘(i) the financial services holding
company previously received the Board’s
approval under subsection (b) to control a
securities affiliate and continues to control
the securities affiliate pursuant to that ap-
proval; and
‘‘(ii) the acquisition proposal qualifies
under section 4(j)(4), and the financial
services holding company provides the writ-
ten notification required in section 4(j)(5).
‘‘(c) ADDITIONAL INVESTMENT IN SECURITIES AF-
FILIATE.—
‘‘(1) PRIOR
NOTICE
REQUIRED.—A financial
services holding company that has acquired control
of a securities affiliate under this section shall not,
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directly or indirectly, make any additional invest-
ment in the securities affiliate that is considered
capital for purposes of any capital requirement im-
posed on the securities affiliate under the Securities
Exchange Act of 1934 (other than an extension of
credit under a revolving credit agreement approved
by the Board), unless the financial services holding
company gives the Board prior written notice of the
proposed investment and—
‘‘(A) the Board issues a written statement
of its intent not to disapprove the notice; or
‘‘(B) the Board does not disapprove the
notice within 30 days after the notice is filed.
‘‘(2) NO PRIOR NOTICE REQUIRED FOR CER-
TAIN FINANCIAL SERVICES HOLDING COMPANIES.—
A financial services holding company is not required
to provide prior notice under paragraph (1) if after
making any investment described in paragraph (1)—
‘‘(A) the financial services holding com-
pany would be adequately capitalized and each
of the financial services holding company’s sub-
sidiary insured depository institutions would be
well capitalized; and
‘‘(B) the financial services holding com-
pany and each of its subsidiary insured deposi-
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‘‘(d) PROVISIONS APPLICABLE IF AFFILIATED IN-
SURED DEPOSITORY INSTITUTION CEASES TO BE WELL
CAPITALIZED.—
‘‘(1) CERTAIN
SECURITIES
ACTIVITIES
RE-
STRICTED UNLESS AFFILIATED INSTITUTIONS ARE
WELL CAPITALIZED.—
‘‘(A) 
APPLICABILITY.—This 
paragraph
shall apply to a securities affiliate if—
‘‘(i) the lead insured depository insti-
tution of the financial services holding
company is not well capitalized, or
‘‘(ii) well capitalized insured deposi-
tory institutions do not control at least 80
percent of the assets of insured depository
institutions affiliated with the securities af-
filiate.
‘‘(B) IN GENERAL.—Except as provided in
subparagraph (C), the securities affiliate shall
not, beginning 180 days after subparagraph (A)
applies, agree to underwrite or deal in any secu-
rities other than—
‘‘(i) securities expressly specified by
section 5136 of the Revised Statutes as
permissible for a national bank to under-
write or deal in;
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‘‘(ii) securities backed by or represent-
ing interests in notes, drafts, acceptances,
loans, leases, receivables, other obligations,
or pools of any such obligations; or
‘‘(iii) securities issued by an open-end
investment company registered under the
Investment Company Act of 1940.
‘‘(C) EXCEPTION.—The Board may permit
the securities affiliate to underwrite or deal in
securities not described in clauses (i) through
(iii) of subparagraph (B) for a period of 1 year
from the date on which subparagraph (A) ap-
plies, if—
‘‘(i) the financial services holding
company submits a capital restoration plan
to the Board specifying the steps the fi-
nancial services holding company will take
to meet the requirements of section
10(b)(2)(A), and containing such other in-
formation as the Board may require; and
‘‘(ii) the Board approves the plan.
‘‘(D) EXTENSION OF PERIOD.—Upon ap-
plication by the financial services holding com-
pany, the Board may extend, for not more than
one year at a time, the period provided in sub-
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paragraph (C), but no such extension under
this subparagraph shall in the aggregate exceed
two years.
‘‘(2) DIVESTITURE.—
‘‘(A) IN GENERAL.—The financial services
holding company shall divest itself of the securi-
ties affiliate if any of the financial services
holding company’s subsidiary insured depository
institutions has been undercapitalized for more
than 6 months.
‘‘(B) EXTENDING TIME.—The Board may
provide additional time for divestiture not ex-
ceeding 30 months if—
‘‘(i) the appropriate Federal banking
agency has approved the undercapitalized
institution’s capital restoration plan under
section 38(e) of the Federal Deposit Insur-
ance Act; and
‘‘(ii) the Board determines that the
securities affiliate poses no significant risk
to any affiliated insured depository institu-
tion.
‘‘(e) SECURITIES AFFILIATE EXCLUDED IN DETER-
MINING WHETHER FINANCIAL SERVICES HOLDING COM-
PANY IS ADEQUATELY CAPITALIZED.—
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‘‘(1) IN GENERAL.—In determining whether a
financial services holding company is adequately cap-
italized—
‘‘(A) the financial services holding compa-
ny’s capital and total assets shall each be re-
duced by—
‘‘(i) an amount equal to the amount
of the financial services holding company’s
equity investment in any securities affili-
ate; and
‘‘(ii) an amount equal to the amount
of any extensions of credit by the financial
services holding company to any securities
affiliate that are considered capital for
purposes of any capital requirement im-
posed on the securities affiliate under sec-
tion 15(c)(3) of the Securities Exchange
Act of 1934; and
‘‘(B) the securities affiliate’s assets and li-
abilities shall not be consolidated with those of
the financial services holding company.
‘‘(2) EXCEPTION FOR NONSECURITIES ACTIVI-
TIES.—Paragraph (1) does not apply to the extent
that the Board determines by regulation or order
that—
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‘‘(A) an item described in that paragraph
relates to activities that are not described in
paragraph (1) or (2) of subsection (a); or
‘‘(B) the calculation in paragraph (1) is
not required or appropriate, or another method
of adjusting capital is more appropriate, to en-
sure the safety and soundness of insured depos-
itory institutions.
‘‘(f) SAFEGUARDS RELATING TO SECURITIES AFFILI-
ATES.—
‘‘(1) EXTENSIONS OF CREDIT AND ASSET PUR-
CHASES RESTRICTED.—
‘‘(A) IN GENERAL.—No insured depository
institution affiliated with a securities affiliate
shall, directly or indirectly, do any of the follow-
ing:
‘‘(i) Extend credit in any manner to
the securities affiliate.
‘‘(ii) Issue a guarantee, acceptance, or
letter of credit, including an endorsement
or a standby letter of credit, for the benefit
of the securities affiliate.
‘‘(iii) Purchase for its own account fi-
nancial assets of the securities affiliate, ex-
cept to the extent permitted by the Board
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with respect to purchasing at the current
market value (based on reliable and regu-
larly available price quotations)—
‘‘(I) securities expressly specified
by section 5136 of the Revised Stat-
utes as permissible for a national
bank to underwrite or deal in; or
‘‘(II) securities that—
‘‘(aa) the securities affiliate
has been marking to market
daily; and
‘‘(bb) are rated investment
grade by at least 1 nationally
recognized statistical rating orga-
nization.
‘‘(B) EXCEPTION FOR CLEARING SECURI-
TIES.—Subparagraph (A)(i) does not prohibit
an extension of credit by a well capitalized in-
sured depository institution made to acquire or
sell securities if—
‘‘(i) the extension of credit is inciden-
tal to clearing transactions in those securi-
ties through that insured depository insti-
tution;
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‘‘(A) IN GENERAL.—No insured depository
institution affiliated with a securities affiliate
shall, directly or indirectly, extend credit to an
issuer of securities underwritten by the securi-
ties affiliated for the purpose of paying the
principal of those securities or interest or divi-
dends on those securities. This subparagraph
does not apply to an extension of credit for a
documented purpose (other than paying prin-
cipal, interest, or dividends) if the timing, ma-
turity, and other terms of the credit, taken as
a whole, are substantially different from those
of the underwritten securities.
‘‘(B) EXCEPTIONS.—The Board may make
exceptions to subparagraph (A) for well capital-
ized insured depository institutions if—
‘‘(i)(I) the insured depository institu-
tion has adopted appropriate limits on ex-
posure on a consolidated basis to any sin-
gle customer whose securities are under-
written by the securities affiliate; and
‘‘(II) the insured depository institu-
tion has adopted appropriate procedures,
including maintenance of necessary docu-
mentary records, to assure that any exten-