II
Calendar No. 588
105TH CONGRESS
2D SESSION
H. R. 10
[Report No. 105–336]
IN THE SENATE OF THE UNITED STATES
MAY 14, 1998
Received; read twice and referred to the Committee on Banking, Housing, and
Urban Affairs
SEPTEMBER 18, 1998
Reported by Mr. D’AMATO, with an amendment
[Strike out all after the enacting clause and insert the part printed in italic]
AN ACT
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, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION
1.
SHORT
TITLE;
PURPOSES;
TABLE
OF
CON-
TENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Financial Services Act of 1998’’.
(b) PURPOSES.—The purposes of this Act are as fol-
lows:
(1) To enhance competition in the financial
services industry, in order to foster innovation and
efficiency.
(2) To ensure the continued safety and sound-
ness of depository institutions.
(3) To provide necessary and appropriate pro-
tections for investors and ensure fair and honest
markets in the delivery of financial services.
(4) To provide for appropriate functional regu-
lation of insurance activities.
(5) To reduce and, to the maximum extent
practicable, to eliminate the legal barriers preventing
affiliation among depository institutions, securities
firms, insurance companies, and other financial serv-
ice providers and to provide a prudential framework
for achieving that result.
(6) To enhance the availability of financial serv-
ices to citizens of all economic circumstances and in
all geographic areas.
(7) To enhance the competitiveness of United
States financial service providers internationally.
(8) To ensure compliance by depository institu-
tions with the provisions of the Community Rein-
vestment Act of 1977 and enhance the ability of de-
pository institutions to meet the capital and credit
needs of all citizens and communities, including un-
derserved communities and populations.
(c) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; purposes; table of contents.
TITLE I—FACILITATING AFFILIATION AMONG SECURITIES FIRMS,
INSURANCE COMPANIES, AND DEPOSITORY INSTITUTIONS
Subtitle A—Affiliations
Sec. 101. Glass-Steagall Act reformed.
Sec. 102. Activity restrictions applicable to bank holding companies which are
not financial holding companies.
Sec. 103. Financial holding companies.
Sec. 104. Certain State laws preempted.
Sec. 105. Mutual bank holding companies authorized.
Sec. 106. Prohibition on deposit production offices.
Sec. 107. Clarification of branch closure requirements.
Sec. 108. Amendments relating to limited purpose banks.
Sec. 109. Responsiveness to community needs for financial services.
Sec. 110. Reports on ongoing FTC study of consumer privacy issues.
Sec. 110A. GAO study of economic impact on community banks and other
small financial institutions.
Subtitle B—Streamlining Supervision of Financial Holding Companies
Sec. 111. Streamlining financial holding company supervision.
Sec. 112. Elimination of application requirement for financial holding compa-
nies.
Sec. 113. Authority of State insurance regulator and Securities and Exchange
Commission.
Sec. 114. Prudential safeguards.
Sec. 115. Examination of investment companies.
Sec. 116. Limitation on rulemaking, prudential, supervisory, and enforcement
authority of the Board.
Sec. 117. Interagency consultation.
Subtitle C—Subsidiaries of National Banks
Sec. 121. Permissible activities for subsidiaries of national banks.
Sec. 122. Misrepresentations regarding depository institution liability for obli-
gations of affiliates.
Sec. 123. Repeal of stock loan limit in Federal Reserve Act.
Subtitle D—Wholesale Financial Holding Companies; Wholesale Financial
Institutions
CHAPTER 1—WHOLESALE FINANCIAL HOLDING COMPANIES
Sec. 131. Wholesale financial holding companies established.
Sec. 132. Authorization to release reports.
Sec. 133. Conforming amendments.
CHAPTER 2—WHOLESALE FINANCIAL INSTITUTIONS
Sec. 136. Wholesale financial institutions.
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 section 3
transactions.
Sec. 142. Interagency data sharing.
Sec. 143. Clarification of status of subsidiaries and affiliates.
Sec. 144. Annual GAO report.
Subtitle F—Applying the Principles of National Treatment and Equality of
Competitive Opportunity to Foreign Banks and Foreign Financial Institutions
Sec. 151. Applying the principles of national treatment and equality of competi-
tive opportunity to foreign banks that are financial holding
companies.
Sec. 152. Applying the principles of national treatment and equality of competi-
tive opportunity to foreign banks and foreign financial institu-
tions that are wholesale financial institutions.
Subtitle G—Federal Home Loan Bank System
Sec. 161. Federal home loan banks–
Sec. 162. Membership and collateral.
Sec. 163. The Office of Finance.
Sec. 164. Management of banks.
Sec. 165. Advances to nonmember borrowers.
Sec. 166. Powers and duties of banks.
Sec. 167. Mergers and consolidations of Federal home loan banks.
Sec. 168. Technical amendments.
Sec. 169. Definitions.
Sec. 170. Resolution funding corporation
Sec. 171. Capital structure of the Federal home loan banks.
Sec. 172. Investments.
Sec. 173. Federal Housing Finance Board.
Subtitle H—Direct Activities of Banks
Sec. 181. Authority of national banks to underwrite certain municipal bonds
Subtitle I—Deposit Insurance Funds
Sec. 186. Study of safety and soundness of funds.
Subtitle J—Effective Date of Title
Sec. 191. Effective date.
TITLE II—FUNCTIONAL REGULATION
Subtitle A—Brokers and Dealers
Sec. 201. Definition of broker.
Sec. 202. Definition of dealer.
Sec. 203. Registration for sales of private securities offerings.
Sec. 204. Sales practices and complaint procedures.
Sec. 205. Information sharing.
Sec. 206. Definition and treatment of banking products.
Sec. 207. Derivative instrument and qualified investor defined.
Sec. 208. Government securities defined.
Sec. 209. Effective date.
Sec. 210. Rule of construction.
Subtitle B—Bank Investment Company Activities
Sec. 211. Custody of investment company assets by affiliated bank.
Sec. 212. Lending to an affiliated investment company.
Sec. 213. Independent directors.
Sec. 214. Additional SEC disclosure authority.
Sec. 215. Definition of broker under the Investment Company Act of 1940.
Sec. 216. Definition of dealer under the Investment Company Act of 1940.
Sec. 217. Removal of the exclusion from the definition of investment adviser for
banks that advise investment companies.
Sec. 218. Definition of broker under the Investment Advisers Act of 1940.
Sec. 219. Definition of dealer under the Investment Advisers Act of 1940.
Sec. 220. Interagency consultation.
Sec. 221. Treatment of bank common trust funds.
Sec. 222. Investment advisers prohibited from having controlling interest in
registered investment company.
Sec. 223. Conforming change in definition.
Sec. 224. Conforming amendment.
Sec. 225. Effective date.
Subtitle C—Securities and Exchange Commission Supervision of Investment
Bank Holding Companies
Sec. 231. Supervision of investment bank holding companies by the Securities
and Exchange Commission.
Subtitle D—Study
Sec. 241. Study of methods to inform investors and consumers of uninsured
products.
Sec. 242. Study of limitation on fees associated with acquiring financial prod-
ucts.
Subtitle E—Disclosure of Customer Costs of Acquiring Financial Products
Sec. 251. Improved and consistent disclosure.
TITLE III—INSURANCE
Subtitle A—State Regulation of Insurance
Sec. 301. State regulation of the business of insurance.
Sec. 302. Mandatory insurance licensing requirements.
Sec. 303. Functional regulation of insurance.
Sec. 304. Insurance underwriting in national banks.
conditions contained in such regulation, unless modi-
fied by the Board);’’.
(b) CONFORMING CHANGES TO OTHER STATUTES.—
(1) AMENDMENT TO THE BANK HOLDING COM-
PANY ACT AMENDMENTS OF 1970.—Section 105 of
the Bank Holding Company Act Amendments of
1970 (12 U.S.C. 1850) is amended by striking ‘‘, to
engage directly or indirectly in a nonbanking activity
pursuant to section 4 of such Act,’’.
(2) AMENDMENT TO THE BANK SERVICE COM-
PANY ACT.—Section 4(f) of the Bank Service Com-
pany Act (12 U.S.C. 1864(f)) is amended by strik-
ing the period and adding at the end the following:
‘‘as of the day before the date of enactment of the
Financial Services Act of 1998.’’.
SEC. 103. FINANCIAL HOLDING COMPANIES.
(a) IN GENERAL.—The Bank Holding Company Act
of 1956 is amended by inserting after section 5 (12 U.S.C.
1844) the following new section:
‘‘SEC. 6. FINANCIAL HOLDING COMPANIES.
‘‘(a) FINANCIAL HOLDING COMPANY DEFINED.—
For purposes of this section, the term ‘financial holding
company’ means a bank holding company which meets the
requirements of subsection (b).
‘‘(b) ELIGIBILITY REQUIREMENTS FOR FINANCIAL
HOLDING COMPANIES.—
‘‘(1) IN GENERAL.—No bank holding company
may engage in any activity or directly or indirectly
acquire or retain shares of any company under this
section unless the bank holding company meets the
following requirements:
‘‘(A) All of the subsidiary depository insti-
tutions of the bank holding company are well
capitalized.
‘‘(B) All of the subsidiary depository insti-
tutions of the bank holding company are well
managed.
‘‘(C) All of the subsidiary depository insti-
tutions of the bank holding company have
achieved a rating of ‘satisfactory record of
meeting community credit needs’, or better, at
the most recent examination of each such insti-
tution under the Community Reinvestment Act
of 1977.
‘‘(D) All of the subsidiary insured deposi-
tory institutions of the bank holding company
(other than any such depository institution
which does not, in the ordinary course of the
business of the depository institution, offer con-
sumer transaction accounts to the general pub-
lic) offer and maintain low-cost basic banking
accounts.
‘‘(E) The company has filed with the
Board a declaration that the company elects to
be a financial holding company and certifying
that the company meets the requirements of
subparagraphs (A) through (D).
‘‘(2) FOREIGN
BANKS
AND
COMPANIES.—For
purposes of paragraph (1), the Board shall establish
and apply comparable capital standards to a foreign
bank that operates a branch or agency or owns or
controls a bank or commercial lending company in
the United States, and any company that owns or
controls such foreign bank, giving due regard to the
principle of national treatment and equality of com-
petitive opportunity.
‘‘(3) LIMITED EXCLUSIONS FROM COMMUNITY
NEEDS REQUIREMENTS FOR NEWLY ACQUIRED DE-
POSITORY INSTITUTIONS.—
‘‘(A) IN GENERAL.—If the requirements of
subparagraph (B) are met, any depository insti-
tution acquired by a bank holding company
during the 24-month period preceding the sub-
mission
of
a
declaration
under
paragraph
(1)(E) and any depository institution acquired
after the submission of such declaration may be
excluded for purposes of paragraph (1)(C) until
the later of—
‘‘(i) the end of the 24-month period
beginning on the date the acquisition of
the depository institution by such company
is consummated; or
‘‘(ii) the date of completion of the
first examination of such depository insti-
tution under the Community Reinvestment
Act of 1977 which is conducted after the
date of the acquisition of the depository in-
stitution.
‘‘(B) REQUIREMENTS.—The requirements
of this subparagraph are met with respect to
any bank holding company referred to in sub-
paragraph (A) if—
‘‘(i) the bank holding company has
submitted an affirmative plan to the ap-
propriate Federal banking agency to take
such action as may be necessary in order
for such institution to achieve a rating of
‘satisfactory record of meeting community
credit needs’, or better, at the next exam-
ination of the institution under the Com-
munity Reinvestment Act of 1977; and
‘‘(ii) the plan has been approved by
such agency.
‘‘(c) ENGAGING IN ACTIVITIES FINANCIAL IN NA-
TURE.—
‘‘(1)
IN
GENERAL.—Notwithstanding
section
4(a), a financial holding company and a wholesale fi-
nancial holding company may engage in any activity,
and acquire and retain the shares of any company
engaged in any activity, which the Board has deter-
mined (by regulation or order) to be financial in na-
ture or incidental to such financial activities.
‘‘(2) FACTORS TO BE CONSIDERED.—In deter-
mining whether an activity is financial in nature or
incidental to financial activities, the Board shall take
into account—
‘‘(A) the purposes of this Act and the Fi-
nancial Services Act of 1998;
‘‘(B)
changes
or
reasonably
expected
changes in the marketplace in which bank hold-
ing companies compete;
‘‘(C)
changes
or
reasonably
expected
changes in the technology for delivering finan-
cial services; and
‘‘(D) whether such activity is necessary or
appropriate to allow a bank holding company
and the affiliates of a bank holding company
to—
‘‘(i) compete effectively with any com-
pany seeking to provide financial services
in the United States;
‘‘(ii) use any available or emerging
technological means, including any applica-
tion necessary to protect the security or ef-
ficacy of systems for the transmission of
data or financial transactions, in providing
financial services; and
‘‘(iii) offer customers any available or
emerging technological means for using fi-
nancial services.
‘‘(3) ACTIVITIES THAT ARE FINANCIAL IN NA-
TURE.—The following activities shall be considered
to be financial in nature:
‘‘(A) Lending, exchanging, transferring, in-
vesting for others, or safeguarding money or se-
curities.
‘‘(B) Insuring, guaranteeing, or indemnify-
ing against loss, harm, damage, illness, disabil-
ity, or death, or providing and issuing annu-
ities, and acting as principal, agent, or broker
for purposes of the foregoing.
‘‘(C) Providing financial, investment, or
economic advisory services, including advising
an investment company (as defined in section 3
of the Investment Company Act of 1940).
‘‘(D) Issuing or selling instruments rep-
resenting interests in pools of assets permissible
for a bank to hold directly.
‘‘(E) Underwriting, dealing in, or making
a market in securities.
‘‘(F) Engaging in any activity that the
Board has determined, by order or regulation
that is in effect on the date of enactment of the
Financial Services Act of 1998, to be so closely
related to banking or managing or controlling
banks as to be a proper incident thereto (sub-
ject to the same terms and conditions contained
in such order or regulation, unless modified by
the Board).
‘‘(G) Engaging, in the United States, in
any activity that—
‘‘(i) a bank holding company may en-
gage in outside the United States; and
‘‘(ii) the Board has determined, under
regulations
issued
pursuant
to
section
4(c)(13) of this Act (as in effect on the
day before the date of enactment of the Fi-
nancial Services Act of 1998) to be usual
in connection with the transaction of bank-
ing or other financial operations abroad.
‘‘(H) Directly or indirectly acquiring or
controlling, whether as principal, on behalf of 1
or more entities (including entities, other than
a depository institution or subsidiary of a de-
pository institution, that the bank holding com-
pany controls) or otherwise, shares, assets, or
ownership interests (including without limita-
tion debt or equity securities, partnership inter-
ests, trust certificates or other instruments rep-
resenting ownership) of a company or other en-
tity, whether or not constituting control of such
company or entity, engaged in any activity not
authorized pursuant to this section if—
‘‘(i) the shares, assets, or ownership
interests are not acquired or held by a de-
pository institution or subsidiary of a de-
pository institution;
‘‘(ii) such shares, assets, or ownership
interests are acquired and held by a securi-
ties affiliate or an affiliate thereof as part
of a bona fide underwriting or merchant
banking activity, including investment ac-
tivities engaged in for the purpose of ap-
preciation and ultimate resale or disposi-
tion of the investment;
‘‘(iii) such shares, assets, or owner-
ship interests, are held only for such a pe-
riod of time as will permit the sale or dis-
position thereof on a reasonable basis con-
sistent with the nature of the activities de-
scribed in clause (ii); and
‘‘(iv) during the period such shares,
assets, or ownership interests are held, the
bank holding company does not actively
participate in the day to day management
or operation of such company or entity, ex-
cept insofar as necessary to achieve the ob-
jectives of clause (ii).
‘‘(I) Directly or indirectly acquiring or con-
trolling, whether as principal, on behalf of 1 or
more entities (including entities, other than a
depository institution or subsidiary of a deposi-
tory institution, that the bank holding company
controls) or otherwise, shares, assets, or owner-
ship interests (including without limitation debt
or equity securities, partnership interests, trust
certificates or other instruments representing
ownership) of a company or other entity, wheth-
er or not constituting control of such company
or entity, engaged in any activity not authorized
pursuant to this section if—
‘‘(i) the shares, assets, or ownership
interests are not acquired or held by a de-
pository institution or a subsidiary of a de-
pository institution;
‘‘(ii) such shares, assets, or ownership
interests are acquired and held by an in-
surance company that is predominantly en-
gaged in underwriting life, accident and
health, or property and casualty insurance
(other than credit-related insurance);
‘‘(iii) such shares, assets, or owner-
ship
interests
represent
an
investment
made in the ordinary course of business of
such
insurance
company
in
accordance
with relevant State law governing such in-
vestments; and
‘‘(iv) during the period such shares,
assets, or ownership interests are held, the
bank holding company does not directly or
indirectly
participate
in
the
day-to-day
management or operation of the company
or entity except insofar as necessary to
achieve the objectives of clauses (ii) and
(iii).
‘‘(4) ACTIONS REQUIRED.—The Board shall, by
regulation or order, define, consistent with the pur-
poses of this Act, the following activities as, and the
extent to which such activities are, financial in na-
ture or incidental to activities which are financial in
nature:
‘‘(A) Lending, exchanging, transferring, in-
vesting for others, or safeguarding financial as-
sets other than money or securities.
‘‘(B) Providing any device or other instru-
mentality for transferring money or other finan-
cial assets;
‘‘(C) Arranging, effecting, or facilitating fi-
nancial transactions for the account of third
parties.
‘‘(5) POST CONSUMMATION NOTIFICATION.—
‘‘(A) IN
GENERAL.—A financial holding
company and a wholesale financial holding com-
pany that acquires any company, or commences
any activity, pursuant to this subsection shall
provide written notice to the Board describing
the activity commenced or conducted by the
company acquired no later than 30 calendar
days after commencing the activity or con-
summating the acquisition.
‘‘(B) APPROVAL NOT REQUIRED FOR CER-
TAIN FINANCIAL ACTIVITIES.—Except as pro-
vided in section 4(j) with regard to the acquisi-
tion of a savings association, a financial holding
company and a wholesale financial holding com-
pany may commence any activity, or acquire
any company, pursuant to paragraph (3) or any
regulation prescribed or order issued under
paragraph (4), without prior approval of the
Board.
‘‘(d) PROVISIONS APPLICABLE TO FINANCIAL HOLD-
ING COMPANIES THAT FAIL TO MEET REQUIREMENTS.—
‘‘(1) IN GENERAL.—If the Board finds that a
financial holding company is not in compliance with
the requirements of subparagraph (A), (B), (C), or
(D) of subsection (b)(1), the Board shall give notice
of such finding to the company.
‘‘(2) AGREEMENT TO CORRECT CONDITIONS RE-
QUIRED.—Within 45 days of receipt by a financial
holding company of a notice given under paragraph
(1) (or such additional period as the Board may per-
mit), the company shall execute an agreement ac-
ceptable to the Board to comply with the require-
ments applicable to a financial holding company.
‘‘(3) BOARD MAY IMPOSE LIMITATIONS.—Until
the conditions described in a notice to a financial
holding company under paragraph (1) are corrected,
the Board may impose such limitations on the con-
duct or activities of the company or any affiliate of
the company as the Board determines to be appro-
priate under the circumstances.
‘‘(4) FAILURE TO CORRECT.—If, after receiving
a notice under paragraph (1), a financial holding
company 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
or indirect ownership or control of shares of a com-
pany 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 predomi-
nantly 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 pur-
poses of this subsection, a company is predominantly
engaged in financial activities if the annual gross
revenues derived by the holding company and all
subsidiaries of the holding company (excluding reve-
nues derived from subsidiary depository institu-
tions), on a consolidated basis, from engaging in ac-
tivities that are financial in nature or are incidental
to activities that are financial in nature under sub-
section (c) represent at least 85 percent of the con-
solidated annual gross revenues of the company.
‘‘(3) NO EXPANSION OF GRANDFATHERED COM-
MERCIAL
ACTIVITIES
THROUGH
MERGER
OR
CON-
SOLIDATION.—A financial holding company that en-
gages in activities or holds shares pursuant to this
subsection, 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
annual gross revenues derived from all such activi-
ties and all such companies does not exceed 15 per-
cent of the consolidated annual gross revenues of the
financial holding company (excluding revenues de-
rived from subsidiary depository institutions).
‘‘(5) CROSS MARKETING RESTRICTIONS APPLI-
CABLE TO COMMERCIAL ACTIVITIES.—A depository
institution 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 fi-
nancial holding company pursuant to this sub-
section or subparagraph (H) or (I) of sub-
section (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
described in subparagraph (A).
‘‘(6) TRANSACTIONS WITH NONFINANCIAL AF-
FILIATES.—An insured depository institution con-
trolled by a financial holding company may not en-
gage in a covered transaction (as defined by section
23A(b)(7) of the Federal Reserve Act) with any af-
filiate controlled by the company pursuant to this
subsection 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 enact-
ment of the Financial Services Act of 1998. The
Board may, upon application by a financial holding
company, extend such 10-year period by not to ex-
ceed an additional 5 years if such extension would
not be detrimental 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 de-
termined 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;
‘‘(2) the gross revenues from all activities con-
ducted under this subsection represent less than 5
percent 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
consolidated 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 hold-
ing 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); and
‘‘(6) 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
activity or consummating the acquisition.’’.
SEC. 104. CERTAIN STATE LAWS PREEMPTED.
(a) AFFILIATIONS.—No State may by statute, regula-
tion, order, interpretation, or otherwise, prevent or signifi-
cantly interfere with the ability of an insured depository
institution or a wholesale financial institution to be affili-
ated with an entity (including an entity engaged in insur-
ance activities) as authorized by this Act or any other pro-
vision of Federal law.
(b) ACTIVITIES.—
(1) Except as provided in paragraphs (2), (3),
and (4), no State may by statute, regulation, order,
interpretation, or otherwise, prevent or significantly
interfere with the ability of an insured depository in-
stitution or a wholesale financial institution to en-
gage, directly or indirectly or in conjunction with an
affiliate, in any activity authorized under this Act or
any other provision of Federal law.
(2) In accordance with the decision of the Su-
preme Court of the United States in Barnett Bank
of Marion County, N.A. v. Nelson, 116 S.Ct. 1103
(1996), no State may, by statute, regulation, order,
interpretation, or otherwise, prevent or significantly
interfere with the ability of an insured depository in-
stitution or wholesale financial institution to engage,
directly or indirectly, or in conjunction with an affili-
ate, in any insurance sales or solicitation activity,
except that—
(A) State statutes and regulations govern-
ing insurance sales and solicitations which are
no more restrictive than provisions in the Illi-
nois ‘‘Act Authorizing and Regulating the Sale
of Insurance by Financial Institutions, Public
Act 90–41’’ (215 ILCS 5/1400–1416), as in ef-
fect on October 1, 1997, shall not be deemed to
prevent or significantly interfere with the ability
of an insured depository institution or wholesale
financial institution to engage, directly or indi-
an insured depository institution or a wholesale
financial institution as they are applicable to
and are applied to those entities that are not
affiliated with an insured depository institution
or a wholesale financial institution; and
(E) do not prevent or significantly inter-
fere with the ability of an insured depository in-
stitution or wholesale financial institution to en-
gage in activities authorized for such institution
under this Act or any other provision of Federal
law.
(4) Paragraphs (1) and (2) shall not be con-
strued as affecting the jurisdiction of the securities
commission (or any agency or office performing like
functions) of any State, under the laws of such
State, to investigate and bring enforcement actions,
consistent with section 18(c) of the Securities Act of
1933, with respect to fraud or deceit or unlawful
conduct by any person, in connection with securities
or securities transactions.
SEC. 105. MUTUAL BANK HOLDING COMPANIES AUTHOR-
IZED.
(a) IN GENERAL.—Section 3(g)(2) of the Bank Hold-
ing 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’’.
(b) TECHNICAL AND CONFORMING AMENDMENT.—
Section 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 controlled by an out-of-State bank holding com-
pany (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 Hold-
ing Company Act of 1956)’’ before the period.
SEC. 108. AMENDMENTS RELATING TO LIMITED PURPOSE
BANKS.
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
following new subclause:
‘‘(XI)
assets
that
are
derived
from, or are incidental to, activities in
which institutions described in section
2(c)(2)(F) 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, un-
less the bank is well managed and well capital-
ized;
‘‘(C) any bank subsidiary of such company
both—
‘‘(i) accepts demand deposits or de-
posits that the depositor may withdraw by
check or similar means for payment to
third parties; and
‘‘(ii) engages in the business of mak-
ing 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
overdraft (including any intraday overdraft), or
incurs any such overdraft in such bank’s ac-
count at a Federal reserve bank, on behalf of
an affiliate, other than an overdraft described
in paragraph (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
described 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 obli-
gations which are direct obligations of the
United States or on which the principal
and interest are fully guaranteed by the
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 EX-
EMPTION.—If any company described in paragraph
(1) fails to qualify for the exemption provided under
such paragraph by operation of paragraph (2), such
exemption shall cease to apply to such company and
such company shall divest control of each bank it
controls before the end of the 180-day period begin-
ning on the date that the company receives notice
from the Board that the company has failed to con-
tinue 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.’’.
SEC. 109. RESPONSIVENESS TO COMMUNITY NEEDS FOR FI-
NANCIAL SERVICES.
(a) STUDY.—The Secretary of the Treasury, in con-
sultation with the Federal banking agencies (as defined
in section 3(z) of the Federal Deposit Insurance Act) and
the Securities and Exchange Commission, shall conduct
a study of the extent to which adequate services are being
provided as intended by the Community Reinvestment Act
of 1977, including services in low- and moderate-income
neighborhoods and for persons of modest means, as a re-
sult of the enactment of this Act.
(b) REPORT.—Before the end of the 2-year period be-
ginning on the date of the enactment of this Act, the Sec-
retary of the Treasury, in consultation with the Federal
banking agencies and the Securities and Exchange Com-
mission, shall submit a report to the Congress on the
study conducted pursuant to subsection (a) and shall in-
clude such recommendations as the Secretary determines
to be appropriate for administrative and legislative action
with respect to institutions covered under the Community
Reinvestment Act of 1977.
SEC. 110. REPORTS ON ONGOING FTC STUDY OF CON-
SUMER 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 Con-
gress an interim report on the findings and conclusions
of the Commission, together with such recommendations
for legislative and administrative action as the Commis-
sion determines to be appropriate, at the conclusion of
each stage of such study and a final report at the conclu-
sion of the study.
SEC. 110A. 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
economic 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 con-
taining the findings and conclusions of the Comptroller
General with regard to the study required under sub-
section (a) and such recommendations for legislative or
administrative action as the Comptroller General may de-
termine to be appropriate.
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
depository institution subsidiaries of the
holding company; and
‘‘(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 re-
ports in fulfillment of the Board’s report-
ing
requirements
under
this
paragraph
that a bank 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 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.
‘‘(iv) REPORTS
FILED
WITH
OTHER
AGENCIES.—In the event the Board re-
quires a report from a functionally regu-
lated nondepository institution subsidiary
of a bank holding company of a kind that
is not required by another Federal or State
regulator or appropriate self-regulatory or-
ganization, the Board shall request that
the appropriate regulator or self-regulatory
organization obtain such report. If the re-
port is not made available to the Board,
and the report is necessary to assess a ma-
terial risk to the bank holding company or
its
subsidiary
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
nondepository 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, with respect to the investment advi-
sory activities of such investment 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 Com-
mission, with respect to the commodities
activities of such entity and activities inci-
dental 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
NONDEPOSITORY
INSTITUTION
SUBSIDI-
ARIES.—Notwithstanding
clause
(i),
the
Board may make examinations of a func-
tionally regulated nondepository institution
subsidiary of a bank holding company only
if—
‘‘(I) the Board has reasonable
cause to believe that such subsidiary
is engaged in activities that pose a
material risk to an affiliated deposi-
tory institution, 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 subparagraph (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—
‘‘(I) the financial and operational
risks within the holding company sys-
tem that may pose a threat to the
safety and soundness of any subsidi-
ary
depository
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
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
institution 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 para-
graph, the reports of examinations of depository
institutions made by the appropriate Federal
and State depository institution supervisory au-
thority.
‘‘(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 or
registered investment adviser by or on be-
half of the Securities and Exchange Com-
mission;
‘‘(ii) any licensed insurance company
by or on behalf of any state regulatory au-
thority responsible for the supervision of
insurance companies; and
‘‘(iii) 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
regulatory authority (including the Securi-
ties and Exchange Commission) or State
insurance authority; or
‘‘(ii) is registered as an investment
adviser under the Investment Advisers Act
of 1940.
‘‘(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.
‘‘(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
engaged 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 agen-
cy for the bank holding company.
‘‘(B)
AUTHORITY
TRANSFERRED.—An
agency designated by the Board under subpara-
graph (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;
‘‘(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 Fed-
eral Deposit Insurance Act and any other
statute which the Board may designate.
‘‘(C) AGENCY ORDERS.—Section 9 (of this
Act) and section 105 of the Bank Holding
Company Act Amendments of 1970 shall apply
to orders issued by an agency designated under
subparagraph (A) in the same manner such sec-
tions 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 securi-
ties laws relating to the activities, conduct, and
operations of registered brokers, dealers, invest-
ment advisers, and investment companies; and
‘‘(B) the relevant State insurance authori-
ties with regard to all interpretations of, and
the enforcement of, applicable State insurance
laws relating to the activities, conduct, and op-
erations of insurance companies and insurance
agents.’’.
SEC. 112. ELIMINATION OF APPLICATION REQUIREMENT
FOR FINANCIAL HOLDING COMPANIES.
(a) PREVENTION OF DUPLICATIVE FILINGS.—Sec-
tion 5(a) of the Bank Holding Company Act of 1956 (12
U.S.C. 1844(a)) is amended by adding the following new
sentence at the end: ‘‘A declaration filed in accordance
with section 6(b)(1)(E) shall satisfy the requirements of
this subsection with regard to the registration of a bank
holding company but not any requirement to file an appli-
cation to acquire a bank pursuant to section 3.’’.
(b) DIVESTITURE PROCEDURES.—Section 5(e)(1) of
the Bank Holding Company Act of 1956 (12 U.S.C.
1844(e)(1)) is amended—
(1) by striking ‘‘Financial Institutions Super-
visory Act of 1966, order’’ and inserting ‘‘Financial
Institutions Supervisory Act of 1966, at the election
of the bank holding company—
‘‘(A) order’’; and
(2) by striking ‘‘shareholders of the bank hold-
ing
company.
Such
distribution’’
and
inserting
‘‘shareholders of the bank holding company; or
‘‘(B) order the bank holding company, after due
notice and opportunity for hearing, and after con-
sultation with the bank’s primary supervisor, which
shall be the Comptroller of the Currency in the case
of a national bank, and the Federal Deposit Insur-
ance Corporation and the appropriate State super-
visor in the case of an insured nonmember bank, to
terminate (within 120 days or such longer period as
the Board may direct) the ownership or control of
any such bank by such company.
‘‘The distribution referred to in subparagraph (A)’’.
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
following 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
company to provide funds or other assets to a sub-
sidiary insured depository institution shall not be ef-
fective nor enforceable if—
‘‘(A) such funds or assets are to be pro-
vided 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-
change Commission for the registered broker or
dealer, as the case may be, determines in writ-
ing 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 in-
stitution 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 company or the Securities and Exchange
Commission, as the case may be, of such require-
ment.
‘‘(3) DIVESTITURE
IN
LIEU
OF
OTHER
AC-
TION.—If the Board receives a notice described in
paragraph (1)(B) from a State insurance authority
or the Securities and Exchange Commission with re-
gard to a bank holding company or affiliate referred
to in such paragraph, the Board may order the bank
holding company to divest the insured depository in-
stitution within 180 days of receiving 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 appro-
priate 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
relationships or transactions between a depository
institution 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
paragraph (2).
‘‘(2) STANDARDS.—The Board may exercise au-
thority under paragraph (1) if the Board finds that
such action will have any of the following effects:
‘‘(A) Avoid any significant risk to the safe-
ty 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.