. thus, the bill would allow the commercial and retail firms that acquired an ilc before october 1, 2003, to transform the institution into the functional equivalent of a full - service insured bank. the bill also would allow any ilc that was established or acquired after october 1, 2003, to offer business now accounts so long as the ilc ’ s appropriate state supervisor determined that the companies controlling the ilc derived at least 85 percent of their annual gross revenues from activities that are “ financial in nature or incidental to a financial activity. ” importantly, the bill does not define these terms by reference to the glb act or otherwise establish any standards for a state authority to use in determining what activities are “ financial in nature or incidental to a financial activity. ” instead, the bill leaves this important determination - which has the potential to undermine the nation ’ s longstanding policy of maintaining the separation of banking and commerce - to the discretion of the ilc ’ s state supervisor. moreover, unlike the grandfather provisions of the glb act on which the ilc provisions of the bill purportedly are based ( see 12 u. s. c. § 1843 ( n ) ), h. r. 1224 would not require a company that acquires an ilc after october 1, 2003, to divest its non - financial, commercial activities within a specified period of time. the limits contained in h. r. 1224 also do not address the other risks and issues presented by ilcs. for example, the bill fails to address the supervisory issues associated with allowing domestic firms or foreign banks that are not subject to consolidated supervision to own and control the functional equivalent of a full - service insured bank. let me be clear. the board does not oppose granting ilcs the ability to offer business now accounts or open de novo branches if the corporate owners of ilcs engaged in these expanded activities are covered by the same supervisory and regulatory framework that applies to the owners of other fullservice insured banks. stated simply, if ilcs want to benefit from expanded powers and become functionally indistinguishable from other insured banks, then they and their corporate parents should be subject to the same rules that apply to the owners of other full - service insured banks. the board believes that important principles governing the structure of the nation ’ s banking system such as consolidated supervision, the separation of banking and commerce, and the maintenance of a level playing field for all competitors in

legislation, while twenty - nine states continue to require interstate entry through the acquisition of an existing bank. this limitation on de novo branching is an obstacle to interstate entry for all banks and also creates special problems for small banks seeking to operate across state lines. moreover, it creates an unlevel playing field between banks and federal savings associations, which have long been allowed to establish de novo branches on an interstate basis. the board ’ s proposed amendment would remove this last obstacle to full interstate branching for banks and level the playing field between banks and thrifts. the amendment also would remove the parallel provision that allows states to impose a minimum requirement on the age of banks that are acquired by an out - of - state banking organization. these changes would allow banks, including in particular small banks near state borders, to better serve their customers by establishing new interstate branches and acquiring newly chartered banks across state lines. it also would increase competition by providing banks a less costly method for offering their services at new locations. the establishment and operation of any new interstate branches would continue to be subject to the other regulatory provisions and conditions established by congress for de novo interstate branches, including the financial, managerial, and community reinvestment requirements set forth in the riegleneal act. small bank examination flexibility another amendment that the board has supported would expand the number of small institutions that qualify for an extended examination cycle. federal law currently mandates that the appropriate federal banking agency conduct an on - site examination of each insured depository institution at least once every twelve months. the statute, however, permits institutions that have $ 250 million or less in assets and that meet certain capital, managerial, and other criteria to be examined on an eighteen - month cycle. as the primary federal supervisors for state - chartered banks, the board and federal deposit insurance corporation ( fdic ) may alternate responsibility for conducting these examinations with the appropriate state supervisory authority if the board or fdic determines that the state examination carries out the purposes of the statute. the $ 250 million asset cutoff for an eighteen - month examination cycle has not been raised since 1994. the board ’ s proposed amendment would raise this asset cap from $ 250 million to $ 500 million, thus potentially allowing approximately an additional 1, 100 insured depository institutions to qualify for an eighteen - month examination cycle. the proposed amendment would provide meaningful relief to small institutions without jeopardizing the safety and soundness of insured depository institutions. under the proposed amendment, an institution with less than