To enhance competition in the financial services in- 105 purposes. other financial service providers, and for other the affiliation of banks, securities firms, and dustry by providing a prudential framework for 2 TH DS CONGRESS ESSION AN ACT H. R. 10 105TH CONGRESS 2D SESSION H. R. 10 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. 1 Be it enacted by the Senate and House of Representa- 2 tives of the United States of America in Congress assembled, 2 1 SECTION 1. SHORT TITLE; PURPOSES; TABLE OF CON- 2 TENTS. 3 (a) SHORT TITLE.-This Act may be cited as the 4 ``Financial Services Act of 1998''. 5 (b) PURPOSES.-The purposes of this Act are as fol- 6 lows: 7 (1) To enhance competition in the financial 8 services industry, in order to foster innovation and 9 efficiency. 10 (2) To ensure the continued safety and sound- 11 ness of depository institutions. 12 (3) To provide necessary and appropriate pro- 13 tections for investors and ensure fair and honest 14 markets in the delivery of financial services. 15 (4) To provide for appropriate functional regu- 16 lation of insurance activities. 17 (5) To reduce and, to the maximum extent 18 practicable, to eliminate the legal barriers preventing 19 affiliation among depository institutions, securities 20 firms, insurance companies, and other financial serv- 21 ice providers and to provide a prudential framework 22 for achieving that result. 23 (6) To enhance the availability of financial serv- 24 ices to citizens of all economic circumstances and in 25 all geographic areas. *HR 10 EH 3 1 (7) To enhance the competitiveness of United 2 States financial service providers internationally. 3 (8) To ensure compliance by depository institu- 4 tions with the provisions of the Community Rein- 5 vestment Act of 1977 and enhance the ability of de- 6 pository institutions to meet the capital and credit 7 needs of all citizens and communities, including un- 8 derserved communities and populations. 9 (c) TABLE OF CONTENTS.-The table of contents for 10 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 *HR 10 EH 4 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 *HR 10 EH 5 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. *HR 10 EH 6 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. Sec. 305. New bank agency activities only through acquisition of existing li- censed agents. Sec. 306. Title insurance activities of national banks and their affiliates. Sec. 307. Expedited and equalized dispute resolution for financial regulators. Sec. 308. Consumer protection regulations. Sec. 309. Certain State affiliation laws preempted for insurance companies and affiliates. Subtitle B-Redomestication of Mutual Insurers Sec. 311. General application. Sec. 312. Redomestication of mutual insurers. Sec. 313. Effect on State laws restricting redomestication. Sec. 314. Other provisions. Sec. 315. Definitions. Sec. 316. Effective date. Subtitle C-National Association of Registered Agents and Brokers Sec. 321. State flexibility in multistate licensing reforms. Sec. 322. National Association of Registered Agents and Brokers. Sec. 323. Purpose. Sec. 324. Relationship to the Federal Government. Sec. 325. Membership. Sec. 326. Board of directors. Sec. 327. Officers. Sec. 328. Bylaws, rules, and disciplinary action. Sec. 329. Assessments. Sec. 330. Functions of the NAIC. Sec. 331. Liability of the Association and the directors, officers, and employees of the Association. Sec. 332. Elimination of NAIC oversight. Sec. 333. Relationship to State law. Sec. 334. Coordination with other regulators. Sec. 335. Judicial review. Sec. 336. Definitions. TITLE IV-UNITARY SAVINGS AND LOAN HOLDING COMPANIES Sec. 401. Termination of expanded powers for new unitary S&L holding compa- nies. Sec. 402. Retention of ``Federal'' in name of converted Federal savings associa- tion. *HR 10 EH 7 1 TITLE I-FACILITATING AFFILI- 2 ATION AMONG SECURITIES 3 FIRMS, INSURANCE COMPA- 4 NIES, AND DEPOSITORY IN- 5 STITUTIONS 6 Subtitle A-Affiliations 7 SEC. 101. GLASS-STEAGALL ACT REFORMED. 8 (a) SECTION 20 REPEALED.-Section 20 (12 U.S.C. 9 377) of the Banking Act of 1933 (commonly referred to 10 as the ``Glass-Steagall Act'') is repealed. 11 (b) SECTION 32 REPEALED.-Section 32 (12 U.S.C. 12 78) of the Banking Act of 1933 is repealed. 13 SEC. 102. ACTIVITY RESTRICTIONS APPLICABLE TO BANK 14 HOLDING COMPANIES WHICH ARE NOT FI- 15 NANCIAL HOLDING COMPANIES. 16 (a) IN GENERAL.-Section 4(c)(8) of the Bank Hold- 17 ing Company Act of 1956 (12 U.S.C. 1843(c)(8)) is 18 amended to read as follows: 19 ``(8) shares of any company the activities of 20 which had been determined by the Board by regula- 21 tion under this paragraph as of the day before the 22 date of the enactment of the Financial Services Act 23 of 1998, to be so closely related to banking as to be 24 a proper incident thereto (subject to such terms and *HR 10 EH 8 1 conditions contained in such regulation, unless modi- 2 fied by the Board);''. 3 (b) CONFORMING CHANGES TO OTHER STATUTES.- 4 (1) AMENDMENT TO THE BANK HOLDING COM- 5 PANY ACT AMENDMENTS OF 1970.-Section 105 of 6 the Bank Holding Company Act Amendments of 7 1970 (12 U.S.C. 1850) is amended by striking ``, to 8 engage directly or indirectly in a nonbanking activity 9 pursuant to section 4 of such Act,''. 10 (2) AMENDMENT TO THE BANK SERVICE COM- 11 PANY ACT.-Section 4(f) of the Bank Service Com- 12 pany Act (12 U.S.C. 1864(f)) is amended by strik- 13 ing the period and adding at the end the following: 14 ``as of the day before the date of enactment of the 15 Financial Services Act of 1998.''. 16 SEC. 103. FINANCIAL HOLDING COMPANIES. 17 (a) IN GENERAL.-The Bank Holding Company Act 18 of 1956 is amended by inserting after section 5 (12 U.S.C. 19 1844) the following new section: 20 ``SEC. 6. FINANCIAL HOLDING COMPANIES. 21 ``(a) FINANCIAL HOLDING COMPANY DEFINED.- 22 For purposes of this section, the term `financial holding 23 company' means a bank holding company which meets the 24 requirements of subsection (b). *HR 10 EH 9 1 ``(b) ELIGIBILITY REQUIREMENTS FOR FINANCIAL 2 HOLDING COMPANIES.- 3 ``(1) IN GENERAL.-No bank holding company 4 may engage in any activity or directly or indirectly 5 acquire or retain shares of any company under this 6 section unless the bank holding company meets the 7 following requirements: 8 ``(A) All of the subsidiary depository insti- 9 tutions of the bank holding company are well 10 capitalized. 11 ``(B) All of the subsidiary depository insti- 12 tutions of the bank holding company are well 13 managed. 14 ``(C) All of the subsidiary depository insti- 15 tutions of the bank holding company have 16 achieved a rating of `satisfactory record of 17 meeting community credit needs', or better, at 18 the most recent examination of each such insti- 19 tution under the Community Reinvestment Act 20 of 1977. 21 ``(D) All of the subsidiary insured deposi- 22 tory institutions of the bank holding company 23 (other than any such depository institution 24 which does not, in the ordinary course of the 25 business of the depository institution, offer con- *HR 10 EH 10 1 sumer transaction accounts to the general pub- 2 lic) offer and maintain low-cost basic banking 3 accounts. 4 ``(E) The company has filed with the 5 Board a declaration that the company elects to 6 be a financial holding company and certifying 7 that the company meets the requirements of 8 subparagraphs (A) through (D). 9 ``(2) FOREIGN BANKS AND COMPANIES.-For 10 purposes of paragraph (1), the Board shall establish 11 and apply comparable capital standards to a foreign 12 bank that operates a branch or agency or owns or 13 controls a bank or commercial lending company in 14 the United States, and any company that owns or 15 controls such foreign bank, giving due regard to the 16 principle of national treatment and equality of com- 17 petitive opportunity. 18 ``(3) LIMITED EXCLUSIONS FROM COMMUNITY 19 NEEDS REQUIREMENTS FOR NEWLY ACQUIRED DE- 20 POSITORY INSTITUTIONS.- 21 ``(A) IN GENERAL.-If the requirements of 22 subparagraph (B) are met, any depository insti- 23 tution acquired by a bank holding company 24 during the 24-month period preceding the sub- 25 mission of a declaration under paragraph *HR 10 EH 11 1 (1)(E) and any depository institution acquired 2 after the submission of such declaration may be 3 excluded for purposes of paragraph (1)(C) until 4 the later of- 5 ``(i) the end of the 24-month period 6 beginning on the date the acquisition of 7 the depository institution by such company 8 is consummated; or 9 ``(ii) the date of completion of the 10 first examination of such depository insti- 11 tution under the Community Reinvestment 12 Act of 1977 which is conducted after the 13 date of the acquisition of the depository in- 14 stitution. 15 ``(B) REQUIREMENTS.-The requirements 16 of this subparagraph are met with respect to 17 any bank holding company referred to in sub- 18 paragraph (A) if- 19 ``(i) the bank holding company has 20 submitted an affirmative plan to the ap- 21 propriate Federal banking agency to take 22 such action as may be necessary in order 23 for such institution to achieve a rating of 24 `satisfactory record of meeting community 25 credit needs', or better, at the next exam- *HR 10 EH 12 1 ination of the institution under the Com- 2 munity Reinvestment Act of 1977; and 3 ``(ii) the plan has been approved by 4 such agency. 5 ``(c) ENGAGING IN ACTIVITIES FINANCIAL IN NA- 6 TURE.- 7 ``(1) IN GENERAL.-Notwithstanding section 8 4(a), a financial holding company and a wholesale fi- 9 nancial holding company may engage in any activity, 10 and acquire and retain the shares of any company 11 engaged in any activity, which the Board has deter- 12 mined (by regulation or order) to be financial in na- 13 ture or incidental to such financial activities. 14 ``(2) FACTORS TO BE CONSIDERED.-In deter- 15 mining whether an activity is financial in nature or 16 incidental to financial activities, the Board shall take 17 into account- 18 ``(A) the purposes of this Act and the Fi- 19 nancial Services Act of 1998; 20 ``(B) changes or reasonably expected 21 changes in the marketplace in which bank hold- 22 ing companies compete; 23 ``(C) changes or reasonably expected 24 changes in the technology for delivering finan- 25 cial services; and *HR 10 EH 13 1 ``(D) whether such activity is necessary or 2 appropriate to allow a bank holding company 3 and the affiliates of a bank holding company 4 to- 5 ``(i) compete effectively with any com- 6 pany seeking to provide financial services 7 in the United States; 8 ``(ii) use any available or emerging 9 technological means, including any applica- 10 tion necessary to protect the security or ef- 11 ficacy of systems for the transmission of 12 data or financial transactions, in providing 13 financial services; and 14 ``(iii) offer customers any available or 15 emerging technological means for using fi- 16 nancial services. 17 ``(3) ACTIVITIES THAT ARE FINANCIAL IN NA- 18 TURE.-The following activities shall be considered 19 to be financial in nature: 20 ``(A) Lending, exchanging, transferring, in- 21 vesting for others, or safeguarding money or se- 22 curities. 23 ``(B) Insuring, guaranteeing, or indemnify- 24 ing against loss, harm, damage, illness, disabil- 25 ity, or death, or providing and issuing annu- *HR 10 EH 14 1 ities, and acting as principal, agent, or broker 2 for purposes of the foregoing. 3 ``(C) Providing financial, investment, or 4 economic advisory services, including advising 5 an investment company (as defined in section 3 6 of the Investment Company Act of 1940). 7 ``(D) Issuing or selling instruments rep- 8 resenting interests in pools of assets permissible 9 for a bank to hold directly. 10 ``(E) Underwriting, dealing in, or making 11 a market in securities. 12 ``(F) Engaging in any activity that the 13 Board has determined, by order or regulation 14 that is in effect on the date of enactment of the 15 Financial Services Act of 1998, to be so closely 16 related to banking or managing or controlling 17 banks as to be a proper incident thereto (sub- 18 ject to the same terms and conditions contained 19 in such order or regulation, unless modified by 20 the Board). 21 ``(G) Engaging, in the United States, in 22 any activity that- 23 ``(i) a bank holding company may en- 24 gage in outside the United States; and *HR 10 EH 15 1 ``(ii) the Board has determined, under 2 regulations issued pursuant to section 3 4(c)(13) of this Act (as in effect on the 4 day before the date of enactment of the Fi- 5 nancial Services Act of 1998) to be usual 6 in connection with the transaction of bank- 7 ing or other financial operations abroad. 8 ``(H) Directly or indirectly acquiring or 9 controlling, whether as principal, on behalf of 1 10 or more entities (including entities, other than 11 a depository institution or subsidiary of a de- 12 pository institution, that the bank holding com- 13 pany controls) or otherwise, shares, assets, or 14 ownership interests (including without limita- 15 tion debt or equity securities, partnership inter- 16 ests, trust certificates or other instruments rep- 17 resenting ownership) of a company or other en- 18 tity, whether or not constituting control of such 19 company or entity, engaged in any activity not 20 authorized pursuant to this section if- 21 ``(i) the shares, assets, or ownership 22 interests are not acquired or held by a de- 23 pository institution or subsidiary of a de- 24 pository institution; *HR 10 EH 16 1 ``(ii) such shares, assets, or ownership 2 interests are acquired and held by a securi- 3 ties affiliate or an affiliate thereof as part 4 of a bona fide underwriting or merchant 5 banking activity, including investment ac- 6 tivities engaged in for the purpose of ap- 7 preciation and ultimate resale or disposi- 8 tion of the investment; 9 ``(iii) such shares, assets, or owner- 10 ship interests, are held only for such a pe- 11 riod of time as will permit the sale or dis- 12 position thereof on a reasonable basis con- 13 sistent with the nature of the activities de- 14 scribed in clause (ii); and 15 ``(iv) during the period such shares, 16 assets, or ownership interests are held, the 17 bank holding company does not actively 18 participate in the day to day management 19 or operation of such company or entity, ex- 20 cept insofar as necessary to achieve the ob- 21 jectives of clause (ii). 22 ``(I) Directly or indirectly acquiring or con- 23 trolling, whether as principal, on behalf of 1 or 24 more entities (including entities, other than a 25 depository institution or subsidiary of a deposi- *HR 10 EH 17 1 tory institution, that the bank holding company 2 controls) or otherwise, shares, assets, or owner- 3 ship interests (including without limitation debt 4 or equity securities, partnership interests, trust 5 certificates or other instruments representing 6 ownership) of a company or other entity, wheth- 7 er or not constituting control of such company 8 or entity, engaged in any activity not authorized 9 pursuant to this section if- 10 ``(i) the shares, assets, or ownership 11 interests are not acquired or held by a de- 12 pository institution or a subsidiary of a de- 13 pository institution; 14 ``(ii) such shares, assets, or ownership 15 interests are acquired and held by an in- 16 surance company that is predominantly en- 17 gaged in underwriting life, accident and 18 health, or property and casualty insurance 19 (other than credit-related insurance); 20 ``(iii) such shares, assets, or owner- 21 ship interests represent an investment 22 made in the ordinary course of business of 23 such insurance company in accordance 24 with relevant State law governing such in- 25 vestments; and *HR 10 EH 18 1 ``(iv) during the period such shares, 2 assets, or ownership interests are held, the 3 bank holding company does not directly or 4 indirectly participate in the day-to-day 5 management or operation of the company 6 or entity except insofar as necessary to 7 achieve the objectives of clauses (ii) and 8 (iii). 9 ``(4) ACTIONS REQUIRED.-The Board shall, by 10 regulation or order, define, consistent with the pur- 11 poses of this Act, the following activities as, and the 12 extent to which such activities are, financial in na- 13 ture or incidental to activities which are financial in 14 nature: 15 ``(A) Lending, exchanging, transferring, in- 16 vesting for others, or safeguarding financial as- 17 sets other than money or securities. 18 ``(B) Providing any device or other instru- 19 mentality for transferring money or other finan- 20 cial assets; 21 ``(C) Arranging, effecting, or facilitating fi- 22 nancial transactions for the account of third 23 parties. 24 ``(5) POST CONSUMMATION NOTIFICATION.- *HR 10 EH 19 1 ``(A) IN GENERAL.-A financial holding 2 company and a wholesale financial holding com- 3 pany that acquires any company, or commences 4 any activity, pursuant to this subsection shall 5 provide written notice to the Board describing 6 the activity commenced or conducted by the 7 company acquired no later than 30 calendar 8 days after commencing the activity or con- 9 summating the acquisition. 10 ``(B) APPROVAL NOT REQUIRED FOR CER- 11 TAIN FINANCIAL ACTIVITIES.-Except as pro- 12 vided in section 4(j) with regard to the acquisi- 13 tion of a savings association, a financial holding 14 company and a wholesale financial holding com- 15 pany may commence any activity, or acquire 16 any company, pursuant to paragraph (3) or any 17 regulation prescribed or order issued under 18 paragraph (4), without prior approval of the 19 Board. 20 ``(d) PROVISIONS APPLICABLE TO FINANCIAL HOLD- 21 ING COMPANIES THAT FAIL TO MEET REQUIREMENTS.- 22 ``(1) IN GENERAL.-If the Board finds that a 23 financial holding company is not in compliance with 24 the requirements of subparagraph (A), (B), (C), or *HR 10 EH 20 1 (D) of subsection (b)(1), the Board shall give notice 2 of such finding to the company. 3 ``(2) AGREEMENT TO CORRECT CONDITIONS RE- 4 QUIRED.-Within 45 days of receipt by a financial 5 holding company of a notice given under paragraph 6 (1) (or such additional period as the Board may per- 7 mit), the company shall execute an agreement ac- 8 ceptable to the Board to comply with the require- 9 ments applicable to a financial holding company. 10 ``(3) BOARD MAY IMPOSE LIMITATIONS.-Until 11 the conditions described in a notice to a financial 12 holding company under paragraph (1) are corrected, 13 the Board may impose such limitations on the con- 14 duct or activities of the company or any affiliate of 15 the company as the Board determines to be appro- 16 priate under the circumstances. 17 ``(4) FAILURE TO CORRECT.-If, after receiving 18 a notice under paragraph (1), a financial holding 19 company does not- 20 ``(A) execute and implement an agreement 21 in accordance with paragraph (2); 22 ``(B) comply with any limitations imposed 23 under paragraph (3); 24 ``(C) in the case of a notice of failure to 25 comply with subsection (b)(1)(A), restore each *HR 10 EH 21 1 depository institution subsidiary to well capital- 2 ized status before the end of the 180-day period 3 beginning on the date such notice is received by 4 the company (or such other period permitted by 5 the Board); or 6 ``(D) in the case of a notice of failure to 7 comply with subparagraph (B), (C), or (D) of 8 subsection (b)(1), restore compliance with any 9 such subparagraph by the date the next exam- 10 ination of the depository institution subsidiary 11 is completed or by the end of such other period 12 as the Board determines to be appropriate, 13 the Board may require such company, under such 14 terms and conditions as may be imposed by the 15 Board and subject to such extension of time as may 16 be granted in the Board's discretion, to divest con- 17 trol of any depository institution subsidiary or, at 18 the election of the financial holding company, in- 19 stead to cease to engage in any activity conducted by 20 such company or its subsidiaries pursuant to this 21 section. 22 ``(5) CONSULTATION.-In taking any action 23 under this subsection, the Board shall consult with 24 all relevant Federal and State regulatory agencies. *HR 10 EH 22 1 ``(e) SAFEGUARDS FOR BANK SUBSIDIARIES.-A fi- 2 nancial holding company shall assure that- 3 ``(1) the procedures of the holding company for 4 identifying and managing financial and operational 5 risks within the company, and the subsidiaries of 6 such company, adequately protect the subsidiaries of 7 such company which are insured depository institu- 8 tions from such risks; 9 ``(2) the holding company has reasonable poli- 10 cies and procedures to preserve the separate cor- 11 porate identity and limited liability of such company 12 and the subsidiaries of such company, for the pro- 13 tection of the company's subsidiary insured deposi- 14 tory institutions; and 15 ``(3) the holding company complies with this 16 section. 17 ``(f) AUTHORITY TO RETAIN LIMITED NON- 18 FINANCIAL ACTIVITIES AND AFFILIATIONS.- 19 ``(1) IN GENERAL.-Notwithstanding section 20 4(a), a company that is not a bank holding company 21 or a foreign bank (as defined in section 1(b)(7) of 22 the International Banking Act of 1978) and becomes 23 a financial holding company after the date of the en- 24 actment of the Financial Services Act of 1998 may 25 continue to engage in any activity and retain direct *HR 10 EH 23 1 or indirect ownership or control of shares of a com- 2 pany engaged in any activity if- 3 ``(A) the holding company lawfully was en- 4 gaged in the activity or held the shares of such 5 company on September 30, 1997; 6 ``(B) the holding company is predomi- 7 nantly engaged in financial activities as defined 8 in paragraph (2); and 9 ``(C) the company engaged in such activity 10 continues to engage only in the same activities 11 that such company conducted on September 30, 12 1997, and other activities permissible under 13 this Act. 14 ``(2) PREDOMINANTLY FINANCIAL.-For pur- 15 poses of this subsection, a company is predominantly 16 engaged in financial activities if the annual gross 17 revenues derived by the holding company and all 18 subsidiaries of the holding company (excluding reve- 19 nues derived from subsidiary depository institu- 20 tions), on a consolidated basis, from engaging in ac- 21 tivities that are financial in nature or are incidental 22 to activities that are financial in nature under sub- 23 section (c) represent at least 85 percent of the con- 24 solidated annual gross revenues of the company. *HR 10 EH 24 1 ``(3) NO EXPANSION OF GRANDFATHERED COM- 2 MERCIAL ACTIVITIES THROUGH MERGER OR CON- 3 SOLIDATION.-A financial holding company that en- 4 gages in activities or holds shares pursuant to this 5 subsection, or a subsidiary of such financial holding 6 company, may not acquire, in any merger, consolida- 7 tion, or other type of business combination, assets of 8 any other company which is engaged in any activity 9 which the Board has not determined to be financial 10 in nature or incidental to activities that are financial 11 in nature under subsection (c). 12 ``(4) CONTINUING REVENUE LIMITATION ON 13 GRANDFATHERED COMMERCIAL ACTIVITIES.-Not- 14 withstanding any other provision of this subsection, 15 a financial holding company may continue to engage 16 in activities or hold shares in companies pursuant to 17 this subsection only to the extent that the aggregate 18 annual gross revenues derived from all such activi- 19 ties and all such companies does not exceed 15 per- 20 cent of the consolidated annual gross revenues of the 21 financial holding company (excluding revenues de- 22 rived from subsidiary depository institutions). 23 ``(5) CROSS MARKETING RESTRICTIONS APPLI- 24 CABLE TO COMMERCIAL ACTIVITIES.-A depository *HR 10 EH 25 1 institution controlled by a financial holding company 2 shall not- 3 ``(A) offer or market, directly or through 4 any arrangement, any product or service of a 5 company whose activities are conducted or 6 whose shares are owned or controlled by the fi- 7 nancial holding company pursuant to this sub- 8 section or subparagraph (H) or (I) of sub- 9 section (c)(3); or 10 ``(B) permit any of its products or services 11 to be offered or marketed, directly or through 12 any arrangement, by or through any company 13 described in subparagraph (A). 14 ``(6) TRANSACTIONS WITH NONFINANCIAL AF- 15 FILIATES.-An insured depository institution con- 16 trolled by a financial holding company may not en- 17 gage in a covered transaction (as defined by section 18 23A(b)(7) of the Federal Reserve Act) with any af- 19 filiate controlled by the company pursuant to this 20 subsection or subparagraph (H) or (I) of subsection 21 (c)(3). 22 ``(7) SUNSET OF GRANDFATHER.-A financial 23 holding company engaged in any activity, or retain- 24 ing direct or indirect ownership or control of shares 25 of a company, pursuant to this subsection, shall ter- *HR 10 EH 26 1 minate such activity and divest ownership or control 2 of the shares of such company before the end of the 3 10-year period beginning on the date of the enact- 4 ment of the Financial Services Act of 1998. The 5 Board may, upon application by a financial holding 6 company, extend such 10-year period by not to ex- 7 ceed an additional 5 years if such extension would 8 not be detrimental to the public interest. 9 ``(g) DEVELOPING ACTIVITIES.-A financial holding 10 company and a wholesale financial holding company may 11 engage directly or indirectly, or acquire shares of any com- 12 pany engaged, in any activity that the Board has not de- 13 termined to be financial in nature or incidental to financial 14 activities under subsection (c) if- 15 ``(1) the holding company reasonably concludes 16 that the activity is financial in nature or incidental 17 to financial activities; 18 ``(2) the gross revenues from all activities con- 19 ducted under this subsection represent less than 5 20 percent of the consolidated gross revenues of the 21 holding company; 22 ``(3) the aggregate total assets of all companies 23 the shares of which are held under this subsection 24 do not exceed 5 percent of the holding company's 25 consolidated total assets; *HR 10 EH 27 1 ``(4) the total capital invested in activities con- 2 ducted under this subsection represents less than 5 3 percent of the consolidated total capital of the hold- 4 ing company; 5 ``(5) the Board has not determined that the ac- 6 tivity is not financial in nature or incidental to fi- 7 nancial activities under subsection (c); and 8 ``(6) the holding company provides written noti- 9 fication to the Board describing the activity com- 10 menced or conducted by the company acquired no 11 later than 10 business days after commencing the 12 activity or consummating the acquisition.''. 13 SEC. 104. CERTAIN STATE LAWS PREEMPTED. 14 (a) AFFILIATIONS.-No State may by statute, regula- 15 tion, order, interpretation, or otherwise, prevent or signifi- 16 cantly interfere with the ability of an insured depository 17 institution or a wholesale financial institution to be affili- 18 ated with an entity (including an entity engaged in insur- 19 ance activities) as authorized by this Act or any other pro- 20 vision of Federal law. 21 (b) ACTIVITIES.- 22 (1) Except as provided in paragraphs (2), (3), 23 and (4), no State may by statute, regulation, order, 24 interpretation, or otherwise, prevent or significantly 25 interfere with the ability of an insured depository in- *HR 10 EH 28 1 stitution or a wholesale financial institution to en- 2 gage, directly or indirectly or in conjunction with an 3 affiliate, in any activity authorized under this Act or 4 any other provision of Federal law. 5 (2) In accordance with the decision of the Su- 6 preme Court of the United States in Barnett Bank 7 of Marion County, N.A. v. Nelson, 116 S.Ct. 1103 8 (1996), no State may, by statute, regulation, order, 9 interpretation, or otherwise, prevent or significantly 10 interfere with the ability of an insured depository in- 11 stitution or wholesale financial institution to engage, 12 directly or indirectly, or in conjunction with an affili- 13 ate, in any insurance sales or solicitation activity, 14 except that- 15 (A) State statutes and regulations govern- 16 ing insurance sales and solicitations which are 17 no more restrictive than provisions in the Illi- 18 nois ``Act Authorizing and Regulating the Sale 19 of Insurance by Financial Institutions, Public 20 Act 90­41'' (215 ILCS 5/1400­1416), as in ef- 21 fect on October 1, 1997, shall not be deemed to 22 prevent or significantly interfere with the ability 23 of an insured depository institution or wholesale 24 financial institution to engage, directly or indi- *HR 10 EH 29 1 rectly, or in conjunction with an affiliate, in any 2 insurance sales or solicitation activity; and 3 (B) subparagraph (A) shall not create any 4 inference regarding State statutes and regula- 5 tions governing insurance sales and solicitations 6 other than State statutes and regulations de- 7 scribed in subparagraph (A). 8 (3) State statutes, regulations, orders, and in- 9 terpretations or otherwise shall not be preempted 10 under paragraph (1) if they- 11 (A) relate to, or are enacted or issued for 12 the purpose of regulating, the business of insur- 13 ance in accordance with the McCarran-Fer- 14 guson Act; 15 (B) apply only to entities that are not in- 16 sured depository institutions or wholesale finan- 17 cial institutions but which are engaged in the 18 business of insurance; 19 (C) do not relate to, and are not enacted 20 or issued for the purpose of regulating- 21 (i) cross-marketing; or 22 (ii) activities, including cross-market- 23 ing, which are subject to paragraph (2); 24 (D) are applicable to and are applied in 25 the same manner with respect to an affiliate of *HR 10 EH 30 1 an insured depository institution or a wholesale 2 financial institution as they are applicable to 3 and are applied to those entities that are not 4 affiliated with an insured depository institution 5 or a wholesale financial institution; and 6 (E) do not prevent or significantly inter- 7 fere with the ability of an insured depository in- 8 stitution or wholesale financial institution to en- 9 gage in activities authorized for such institution 10 under this Act or any other provision of Federal 11 law. 12 (4) Paragraphs (1) and (2) shall not be con- 13 strued as affecting the jurisdiction of the securities 14 commission (or any agency or office performing like 15 functions) of any State, under the laws of such 16 State, to investigate and bring enforcement actions, 17 consistent with section 18(c) of the Securities Act of 18 1933, with respect to fraud or deceit or unlawful 19 conduct by any person, in connection with securities 20 or securities transactions. 21 SEC. 105. MUTUAL BANK HOLDING COMPANIES AUTHOR- 22 IZED. 23 (a) IN GENERAL.-Section 3(g)(2) of the Bank Hold- 24 ing Company Act of 1956 (12 U.S.C. 1842(g)(2)) is 25 amended to read as follows: *HR 10 EH 31 1 ``(2) REGULATIONS.-A bank holding company 2 organized as a mutual holding company shall be reg- 3 ulated on terms, and shall be subject to limitations, 4 comparable to those applicable to any other bank 5 holding company.''. 6 SEC. 106. PROHIBITION ON DEPOSIT PRODUCTION OF- 7 FICES. 8 (a) IN GENERAL.-Section 109(d) of the Riegle-Neal 9 Interstate Banking and Branching Efficiency Act of 1994 10 (12 U.S.C. 1835a(d)) is amended- 11 (1) by inserting ``, the Financial Services Act of 12 1998,'' after ``pursuant to this title''; and 13 (2) by inserting ``or such Act'' after ``made by 14 this title''. 15 (b) TECHNICAL AND CONFORMING AMENDMENT.- 16 Section 109(e)(4) of the Riegle-Neal Interstate Banking 17 and Branching Efficiency Act of 1994 (12 U.S.C. 18 1835a(e)(4)) is amended by inserting ``and any branch of 19 a bank controlled by an out-of-State bank holding com- 20 pany (as defined in section 2(o)(7) of the Bank Holding 21 Company Act of 1956)'' before the period. 22 SEC. 107. CLARIFICATION OF BRANCH CLOSURE REQUIRE- 23 MENTS. 24 Section 42(d)(4)(A) of the Federal Deposit Insurance 25 Act (12 U.S.C. 1831r­1(d)(4)(A)) is amended by inserting *HR 10 EH 32 1 ``and any bank controlled by an out-of-State bank holding 2 company (as defined in section 2(o)(7) of the Bank Hold- 3 ing Company Act of 1956)'' before the period. 4 SEC. 108. AMENDMENTS RELATING TO LIMITED PURPOSE 5 BANKS. 6 Section 4(f) of the Bank Holding Company Act of 7 1956 (12 U.S.C. 1843(f)) is amended- 8 (1) in paragraph (2)(A)(ii)- 9 (A) by striking ``and'' at the end of sub- 10 clause (IX); 11 (B) by inserting ``and'' after the semicolon 12 at the end of subclause (X); and 13 (C) by inserting after subclause (X) the 14 following new subclause: 15 ``(XI) assets that are derived 16 from, or are incidental to, activities in 17 which institutions described in section 18 2(c)(2)(F) are permitted to engage,''; 19 (2) in paragraph (2), by striking subparagraph 20 (B) and inserting the following new subparagraphs: 21 ``(B) any bank subsidiary of such company 22 engages in any activity in which the bank was 23 not lawfully engaged as of March 5, 1987, un- 24 less the bank is well managed and well capital- 25 ized; *HR 10 EH 33 1 ``(C) any bank subsidiary of such company 2 both- 3 ``(i) accepts demand deposits or de- 4 posits that the depositor may withdraw by 5 check or similar means for payment to 6 third parties; and 7 ``(ii) engages in the business of mak- 8 ing commercial loans (and, for purposes of 9 this clause, loans made in the ordinary 10 course of a credit card operation shall not 11 be treated as commercial loans); or 12 ``(D) after the date of the enactment of the 13 Competitive Equality Amendments of 1987, any 14 bank subsidiary of such company permits any 15 overdraft (including any intraday overdraft), or 16 incurs any such overdraft in such bank's ac- 17 count at a Federal reserve bank, on behalf of 18 an affiliate, other than an overdraft described 19 in paragraph (3).''; and 20 (3) by striking paragraphs (3) and (4) and in- 21 serting the following new paragraphs: 22 ``(3) PERMISSIBLE OVERDRAFTS DESCRIBED.- 23 For purposes of paragraph (2)(D), an overdraft is 24 described in this paragraph if- *HR 10 EH 34 1 ``(A) such overdraft results from an inad- 2 vertent computer or accounting error that is be- 3 yond the control of both the bank and the affili- 4 ate; or 5 ``(B) such overdraft- 6 ``(i) is permitted or incurred on behalf 7 of an affiliate which is monitored by, re- 8 ports to, and is recognized as a primary 9 dealer by the Federal Reserve Bank of 10 New York; and 11 ``(ii) is fully secured, as required by 12 the Board, by bonds, notes, or other obli- 13 gations which are direct obligations of the 14 United States or on which the principal 15 and interest are fully guaranteed by the 16 United States or by securities and obliga- 17 tions eligible for settlement on the Federal 18 Reserve book entry system. 19 ``(4) DIVESTITURE IN CASE OF LOSS OF EX- 20 EMPTION.-If any company described in paragraph 21 (1) fails to qualify for the exemption provided under 22 such paragraph by operation of paragraph (2), such 23 exemption shall cease to apply to such company and 24 such company shall divest control of each bank it 25 controls before the end of the 180-day period begin- *HR 10 EH 35 1 ning on the date that the company receives notice 2 from the Board that the company has failed to con- 3 tinue to qualify for such exemption, unless before 4 the end of such 180-day period, the company has- 5 ``(A) corrected the condition or ceased the 6 activity that caused the company to fail to con- 7 tinue to qualify for the exemption; and 8 ``(B) implemented procedures that are rea- 9 sonably adapted to avoid the reoccurrence of 10 such condition or activity.''. 11 SEC. 109. RESPONSIVENESS TO COMMUNITY NEEDS FOR FI- 12 NANCIAL SERVICES. 13 (a) STUDY.-The Secretary of the Treasury, in con- 14 sultation with the Federal banking agencies (as defined 15 in section 3(z) of the Federal Deposit Insurance Act) and 16 the Securities and Exchange Commission, shall conduct 17 a study of the extent to which adequate services are being 18 provided as intended by the Community Reinvestment Act 19 of 1977, including services in low- and moderate-income 20 neighborhoods and for persons of modest means, as a re- 21 sult of the enactment of this Act. 22 (b) REPORT.-Before the end of the 2-year period be- 23 ginning on the date of the enactment of this Act, the Sec- 24 retary of the Treasury, in consultation with the Federal 25 banking agencies and the Securities and Exchange Com- *HR 10 EH 36 1 mission, shall submit a report to the Congress on the 2 study conducted pursuant to subsection (a) and shall in- 3 clude such recommendations as the Secretary determines 4 to be appropriate for administrative and legislative action 5 with respect to institutions covered under the Community 6 Reinvestment Act of 1977. 7 SEC. 110. REPORTS ON ONGOING FTC STUDY OF CON- 8 SUMER PRIVACY ISSUES. 9 With respect to the ongoing multistage study being 10 conducted by the Federal Trade Commission on consumer 11 privacy issues, the Commission shall submit to the Con- 12 gress an interim report on the findings and conclusions 13 of the Commission, together with such recommendations 14 for legislative and administrative action as the Commis- 15 sion determines to be appropriate, at the conclusion of 16 each stage of such study and a final report at the conclu- 17 sion of the study. 18 SEC. 110A. GAO STUDY OF ECONOMIC IMPACT ON COMMU- 19 NITY BANKS AND OTHER SMALL FINANCIAL 20 INSTITUTIONS. 21 (a) STUDY REQUIRED.-The Comptroller General of 22 the United States shall conduct a study of the projected 23 economic impact that the enactment of this Act will have 24 on financial institutions which have total assets of 25 $100,000,000 or less. *HR 10 EH 37 1 (b) REPORT TO THE CONGRESS.-The Comptroller 2 General of the United States shall submit a report to the 3 Congress before the end of the 6-month period beginning 4 on the date of the date of the enactment of this Act con- 5 taining the findings and conclusions of the Comptroller 6 General with regard to the study required under sub- 7 section (a) and such recommendations for legislative or 8 administrative action as the Comptroller General may de- 9 termine to be appropriate. 10 Subtitle B-Streamlining Super- 11 vision of Financial Holding 12 Companies 13 SEC. 111. STREAMLINING FINANCIAL HOLDING COMPANY 14 SUPERVISION. 15 Section 5(c) of the Bank Holding Company Act of 16 1956 (12 U.S.C. 1844(c)) is amended to read as follows: 17 ``(c) REPORTS AND EXAMINATIONS.- 18 ``(1) REPORTS.- 19 ``(A) IN GENERAL.-The Board from time 20 to time may require any bank holding company 21 and any subsidiary of such company to submit 22 reports under oath to keep the Board informed 23 as to- 24 ``(i) its financial condition, systems 25 for monitoring and controlling financial *HR 10 EH 38 1 and operating risks, and transactions with 2 depository institution subsidiaries of the 3 holding company; and 4 ``(ii) compliance by the company or 5 subsidiary with applicable provisions of 6 this Act. 7 ``(B) USE OF EXISTING REPORTS.- 8 ``(i) IN GENERAL.-The Board shall, 9 to the fullest extent possible, accept re- 10 ports in fulfillment of the Board's report- 11 ing requirements under this paragraph 12 that a bank holding company or any sub- 13 sidiary of such company has provided or 14 been required to provide to other Federal 15 and State supervisors or to appropriate 16 self-regulatory organizations. 17 ``(ii) AVAILABILITY.-A bank holding 18 company or a subsidiary of such company 19 shall provide to the Board, at the request 20 of the Board, a report referred to in clause 21 (i). 22 ``(iii) REQUIRED USE OF PUBLICLY 23 REPORTED INFORMATION.-The Board 24 shall, to the fullest extent possible, accept 25 in fulfillment of any reporting or record- *HR 10 EH 39 1 keeping requirements under this Act infor- 2 mation that is otherwise required to be re- 3 ported publicly and externally audited fi- 4 nancial statements. 5 ``(iv) REPORTS FILED WITH OTHER 6 AGENCIES.-In the event the Board re- 7 quires a report from a functionally regu- 8 lated nondepository institution subsidiary 9 of a bank holding company of a kind that 10 is not required by another Federal or State 11 regulator or appropriate self-regulatory or- 12 ganization, the Board shall request that 13 the appropriate regulator or self-regulatory 14 organization obtain such report. If the re- 15 port is not made available to the Board, 16 and the report is necessary to assess a ma- 17 terial risk to the bank holding company or 18 its subsidiary depository institution or 19 compliance with this Act, the Board may 20 require such subsidiary to provide such a 21 report to the Board. 22 ``(C) DEFINITION.-For purposes of this 23 subsection, the term `functionally regulated 24 nondepository institution' means- *HR 10 EH 40 1 ``(i) a broker or dealer registered 2 under the Securities Exchange Act of 3 1934; 4 ``(ii) an investment adviser registered 5 under the Investment Advisers Act of 6 1940, with respect to the investment advi- 7 sory activities of such investment adviser 8 and activities incidental to such investment 9 advisory activities; 10 ``(iii) an insurance company subject to 11 supervision by a State insurance commis- 12 sion, agency, or similar authority; and 13 ``(iv) an entity subject to regulation 14 by the Commodity Futures Trading Com- 15 mission, with respect to the commodities 16 activities of such entity and activities inci- 17 dental to such commodities activities. 18 ``(2) EXAMINATIONS.- 19 ``(A) EXAMINATION AUTHORITY.- 20 ``(i) IN GENERAL.-The Board may 21 make examinations of each bank holding 22 company and each subsidiary of a bank 23 holding company. 24 ``(ii) FUNCTIONALLY REGULATED 25 NONDEPOSITORY INSTITUTION SUBSIDI- *HR 10 EH 41 1 ARIES.-Notwithstanding clause (i), the 2 Board may make examinations of a func- 3 tionally regulated nondepository institution 4 subsidiary of a bank holding company only 5 if- 6 ``(I) the Board has reasonable 7 cause to believe that such subsidiary 8 is engaged in activities that pose a 9 material risk to an affiliated deposi- 10 tory institution, or 11 ``(II) based on reports and other 12 available information, the Board has 13 reasonable cause to believe that a sub- 14 sidiary is not in compliance with this 15 Act or with provisions relating to 16 transactions with an affiliated deposi- 17 tory institution and the Board cannot 18 make such determination through ex- 19 amination of the affiliated depository 20 institution or bank holding company. 21 ``(B) LIMITATIONS ON EXAMINATION AU- 22 THORITY FOR BANK HOLDING COMPANIES AND 23 SUBSIDIARIES.-Subject to subparagraph 24 (A)(ii), the Board may make examinations 25 under subparagraph (A)(i) of each bank holding *HR 10 EH 42 1 company and each subsidiary of such holding 2 company in order to- 3 ``(i) inform the Board of the nature of 4 the operations and financial condition of 5 the holding company and such subsidiaries; 6 ``(ii) inform the Board of- 7 ``(I) the financial and operational 8 risks within the holding company sys- 9 tem that may pose a threat to the 10 safety and soundness of any subsidi- 11 ary depository institution of such 12 holding company; and 13 ``(II) the systems for monitoring 14 and controlling such risks; and 15 ``(iii) monitor compliance with the 16 provisions of this Act and those governing 17 transactions and relationships between any 18 subsidiary depository institution and its af- 19 filiates. 20 ``(C) RESTRICTED FOCUS OF EXAMINA- 21 TIONS.-The Board shall, to the fullest extent 22 possible, limit the focus and scope of any exam- 23 ination of a bank holding company to- 24 ``(i) the bank holding company; and *HR 10 EH 43 1 ``(ii) any subsidiary of the holding 2 company that, because of- 3 ``(I) the size, condition, or activi- 4 ties of the subsidiary; 5 ``(II) the nature or size of trans- 6 actions between such subsidiary and 7 any depository institution which is 8 also a subsidiary of such holding com- 9 pany; or 10 ``(III) the centralization of func- 11 tions within the holding company sys- 12 tem, 13 could have a materially adverse effect on 14 the safety and soundness of any depository 15 institution affiliate of the holding company. 16 ``(D) DEFERENCE TO BANK EXAMINA- 17 TIONS.-The Board shall, to the fullest extent 18 possible, use, for the purposes of this para- 19 graph, the reports of examinations of depository 20 institutions made by the appropriate Federal 21 and State depository institution supervisory au- 22 thority. 23 ``(E) DEFERENCE TO OTHER EXAMINA- 24 TIONS.-The Board shall, to the fullest extent 25 possible, address the circumstances which might *HR 10 EH 44 1 otherwise permit or require an examination by 2 the Board by forgoing an examination and in- 3 stead reviewing the reports of examination 4 made of- 5 ``(i) any registered broker or dealer or 6 registered investment adviser by or on be- 7 half of the Securities and Exchange Com- 8 mission; 9 ``(ii) any licensed insurance company 10 by or on behalf of any state regulatory au- 11 thority responsible for the supervision of 12 insurance companies; and 13 ``(iii) any other subsidiary that the 14 Board finds to be comprehensively super- 15 vised by a Federal or State authority. 16 ``(3) CAPITAL.- 17 ``(A) IN GENERAL.-The Board shall not, 18 by regulation, guideline, order or otherwise, pre- 19 scribe or impose any capital or capital adequacy 20 rules, guidelines, standards, or requirements on 21 any subsidiary of a financial holding company 22 that is not a depository institution and- 23 ``(i) is in compliance with applicable 24 capital requirements of another Federal 25 regulatory authority (including the Securi- *HR 10 EH 45 1 ties and Exchange Commission) or State 2 insurance authority; or 3 ``(ii) is registered as an investment 4 adviser under the Investment Advisers Act 5 of 1940. 6 ``(B) RULE OF CONSTRUCTION.-Subpara- 7 graph (A) shall not be construed as preventing 8 the Board from imposing capital or capital ade- 9 quacy rules, guidelines, standards, or require- 10 ments with respect to activities of a registered 11 investment adviser other than investment advi- 12 sory activities or activities incidental to invest- 13 ment advisory activities. 14 ``(4) TRANSFER OF BOARD AUTHORITY TO AP- 15 PROPRIATE FEDERAL BANKING AGENCY.- 16 ``(A) IN GENERAL.-In the case of any 17 bank holding company which is not significantly 18 engaged in nonbanking activities, the Board, in 19 consultation with the appropriate Federal bank- 20 ing agency, may designate the appropriate Fed- 21 eral banking agency of the lead insured deposi- 22 tory institution subsidiary of such holding com- 23 pany as the appropriate Federal banking agen- 24 cy for the bank holding company. *HR 10 EH 46 1 ``(B) AUTHORITY TRANSFERRED.-An 2 agency designated by the Board under subpara- 3 graph (A) shall have the same authority as the 4 Board under this Act to- 5 ``(i) examine and require reports from 6 the bank holding company and any affiliate 7 of such company (other than a depository 8 institution) under section 5; 9 ``(ii) approve or disapprove applica- 10 tions or transactions under section 3; 11 ``(iii) take actions and impose pen- 12 alties under subsections (e) and (f) of sec- 13 tion 5 and section 8; and 14 ``(iv) take actions regarding the hold- 15 ing company, any affiliate of the holding 16 company (other than a depository institu- 17 tion), or any institution-affiliated party of 18 such company or affiliate under the Fed- 19 eral Deposit Insurance Act and any other 20 statute which the Board may designate. 21 ``(C) AGENCY ORDERS.-Section 9 (of this 22 Act) and section 105 of the Bank Holding 23 Company Act Amendments of 1970 shall apply 24 to orders issued by an agency designated under *HR 10 EH 47 1 subparagraph (A) in the same manner such sec- 2 tions apply to orders issued by the Board. 3 ``(5) FUNCTIONAL REGULATION OF SECURITIES 4 AND INSURANCE ACTIVITIES.-The Board shall defer 5 to- 6 ``(A) the Securities and Exchange Commis- 7 sion with regard to all interpretations of, and 8 the enforcement of, applicable Federal securi- 9 ties laws relating to the activities, conduct, and 10 operations of registered brokers, dealers, invest- 11 ment advisers, and investment companies; and 12 ``(B) the relevant State insurance authori- 13 ties with regard to all interpretations of, and 14 the enforcement of, applicable State insurance 15 laws relating to the activities, conduct, and op- 16 erations of insurance companies and insurance 17 agents.''. 18 SEC. 112. ELIMINATION OF APPLICATION REQUIREMENT 19 FOR FINANCIAL HOLDING COMPANIES. 20 (a) PREVENTION OF DUPLICATIVE FILINGS.-Sec- 21 tion 5(a) of the Bank Holding Company Act of 1956 (12 22 U.S.C. 1844(a)) is amended by adding the following new 23 sentence at the end: ``A declaration filed in accordance 24 with section 6(b)(1)(E) shall satisfy the requirements of 25 this subsection with regard to the registration of a bank *HR 10 EH 48 1 holding company but not any requirement to file an appli- 2 cation to acquire a bank pursuant to section 3.''. 3 (b) DIVESTITURE PROCEDURES.-Section 5(e)(1) of 4 the Bank Holding Company Act of 1956 (12 U.S.C. 5 1844(e)(1)) is amended- 6 (1) by striking ``Financial Institutions Super- 7 visory Act of 1966, order'' and inserting ``Financial 8 Institutions Supervisory Act of 1966, at the election 9 of the bank holding company- 10 ``(A) order''; and 11 (2) by striking ``shareholders of the bank hold- 12 ing company. Such distribution'' and inserting 13 ``shareholders of the bank holding company; or 14 ``(B) order the bank holding company, after due 15 notice and opportunity for hearing, and after con- 16 sultation with the bank's primary supervisor, which 17 shall be the Comptroller of the Currency in the case 18 of a national bank, and the Federal Deposit Insur- 19 ance Corporation and the appropriate State super- 20 visor in the case of an insured nonmember bank, to 21 terminate (within 120 days or such longer period as 22 the Board may direct) the ownership or control of 23 any such bank by such company. 24 ``The distribution referred to in subparagraph (A)''. *HR 10 EH 49 1 SEC. 113. AUTHORITY OF STATE INSURANCE REGULATOR 2 AND SECURITIES AND EXCHANGE COMMIS- 3 SION. 4 Section 5 of the Bank Holding Company Act of 1956 5 (12 U.S.C. 1844) is amended by adding at the end the 6 following new subsection: 7 ``(g) AUTHORITY OF STATE INSURANCE REGULATOR 8 AND THE SECURITIES AND EXCHANGE COMMISSION.- 9 ``(1) IN GENERAL.-Notwithstanding any other 10 provision of law, any regulation, order, or other ac- 11 tion of the Board which requires a bank holding 12 company to provide funds or other assets to a sub- 13 sidiary insured depository institution shall not be ef- 14 fective nor enforceable if- 15 ``(A) such funds or assets are to be pro- 16 vided by- 17 ``(i) a bank holding company that is 18 an insurance company or is a broker or 19 dealer registered under the Securities Ex- 20 change Act of 1934; or 21 ``(ii) an affiliate of the depository in- 22 stitution which is an insurance company or 23 a broker or dealer registered under such 24 Act; and 25 ``(B) the State insurance authority for the 26 insurance company or the Securities and Ex- *HR 10 EH 50 1 change Commission for the registered broker or 2 dealer, as the case may be, determines in writ- 3 ing sent to the holding company and the Board 4 that the holding company shall not provide such 5 funds or assets because such action would have 6 a material adverse effect on the financial condi- 7 tion of the insurance company or the broker or 8 dealer, as the case may be. 9 ``(2) NOTICE TO STATE INSURANCE AUTHORITY 10 OR SEC REQUIRED.-If the Board requires a bank 11 holding company, or an affiliate of a bank holding 12 company, which is an insurance company or a 13 broker or dealer described in paragraph (1)(A) to 14 provide funds or assets to an insured depository in- 15 stitution subsidiary of the holding company pursuant 16 to any regulation, order, or other action of the 17 Board referred to in paragraph (1), the Board shall 18 promptly notify the State insurance authority for the 19 insurance company or the Securities and Exchange 20 Commission, as the case may be, of such require- 21 ment. 22 ``(3) DIVESTITURE IN LIEU OF OTHER AC- 23 TION.-If the Board receives a notice described in 24 paragraph (1)(B) from a State insurance authority 25 or the Securities and Exchange Commission with re- *HR 10 EH 51 1 gard to a bank holding company or affiliate referred 2 to in such paragraph, the Board may order the bank 3 holding company to divest the insured depository in- 4 stitution within 180 days of receiving notice or such 5 longer period as the Board determines consistent 6 with the safe and sound operation of the insured de- 7 pository institution. 8 ``(4) CONDITIONS BEFORE DIVESTITURE.-Dur- 9 ing the period beginning on the date an order to di- 10 vest is issued by the Board under paragraph (3) to 11 a bank holding company and ending on the date the 12 divestiture is completed, the Board may impose any 13 conditions or restrictions on the holding company's 14 ownership or operation of the insured depository in- 15 stitution, including restricting or prohibiting trans- 16 actions between the insured depository institution 17 and any affiliate of the institution, as are appro- 18 priate under the circumstances.''. 19 SEC. 114. PRUDENTIAL SAFEGUARDS. 20 Section 5 of the Bank Holding Company Act of 1956 21 (12 U.S.C. 1844) is amended by inserting after subsection 22 (g) (as added by section 113 of this subtitle) the following 23 new subsection: 24 ``(h) PRUDENTIAL SAFEGUARDS.- *HR 10 EH 52 1 ``(1) IN GENERAL.-The Board may, by regula- 2 tion or order, impose restrictions or requirements on 3 relationships or transactions between a depository 4 institution subsidiary of a bank holding company 5 and any affiliate of such depository institution (other 6 than a subsidiary of such institution) which the 7 Board finds is consistent with the public interest, 8 the purposes of this Act, the Financial Services Act 9 of 1998, the Federal Reserve Act, and other Federal 10 law applicable to depository institution subsidiaries 11 of bank holding companies and the standards in 12 paragraph (2). 13 ``(2) STANDARDS.-The Board may exercise au- 14 thority under paragraph (1) if the Board finds that 15 such action will have any of the following effects: 16 ``(A) Avoid any significant risk to the safe- 17 ty and soundness of depository institutions or 18 any Federal deposit insurance fund. 19 ``(B) Enhance the financial stability of 20 bank holding companies. 21 ``(C) Avoid conflicts of interest or other 22 abuses. 23 ``(D) Enhance the privacy of customers of 24 depository institutions. *HR 10 EH 53 1 ``(E) Promote the application of national 2 treatment and equality of competitive oppor- 3 tunity between nonbank affiliates owned or con- 4 trolled by domestic bank holding companies and 5 nonbank affiliates owned or controlled by for- 6 eign banks operating in the United States. 7 ``(3) REVIEW.-The Board shall regularly- 8 ``(A) review all restrictions or requirements 9 established pursuant to paragraph (1) to deter- 10 mine whether there is a continuing need for any 11 such restriction or requirement to carry out the 12 purposes of the Act, including any purpose de- 13 scribed in paragraph (2); and 14 ``(B) modify or eliminate any restriction or 15 requirement the Board finds is no longer re- 16 quired for such purposes.''. 17 SEC. 115. EXAMINATION OF INVESTMENT COMPANIES. 18 (a) EXCLUSIVE COMMISSION AUTHORITY.- 19 (1) IN GENERAL.-The Commission shall be the 20 sole Federal agency with authority to inspect and ex- 21 amine any registered investment company that is not 22 a bank holding company. 23 (2) PROHIBITION ON BANKING AGENCIES.-A 24 Federal banking agency may not inspect or examine *HR 10 EH 54 1 any registered investment company that is not a 2 bank holding company. 3 (b) EXAMINATION RESULTS AND OTHER INFORMA- 4 TION.-The Commission shall provide to any Federal 5 banking agency, upon request, the results of any examina- 6 tion, reports, records, or other information with respect 7 to any registered investment company to the extent nec- 8 essary for the agency to carry out its statutory responsibil- 9 ities. 10 (c) DEFINITIONS.-For purposes of this section, the 11 following definitions shall apply: 12 (1) BANK HOLDING COMPANY.-The term 13 ``bank holding company'' has the meaning given to 14 such term in section 2 of the Bank Holding Com- 15 pany Act of 1956. 16 (2) COMMISSION.-The term ``Commission'' 17 means the Securities and Exchange Commission. 18 (3) FEDERAL BANKING AGENCY.-The term 19 ``Federal banking agency'' has the meaning given to 20 such term in section 3(z) of the Federal Deposit In- 21 surance Act. 22 (4) REGISTERED INVESTMENT COMPANY.-The 23 term ``registered investment company'' means an in- 24 vestment company which is registered with the Com- 25 mission under the Investment Company Act of 1940. *HR 10 EH 55 1 SEC. 116. LIMITATION ON RULEMAKING, PRUDENTIAL, SU- 2 PERVISORY, AND ENFORCEMENT AUTHORITY 3 OF THE BOARD. 4 The Bank Holding Company Act of 1956 (12 U.S.C. 5 1841 et seq.) is amended by inserting after section 10 the 6 following new section: 7 ``SEC. 10A. LIMITATION ON RULEMAKING, PRUDENTIAL, SU- 8 PERVISORY, AND ENFORCEMENT AUTHORITY 9 OF THE BOARD. 10 ``(a) LIMITATION ON DIRECT ACTION.- 11 ``(1) IN GENERAL.-The Board may not pre- 12 scribe regulations, issue or seek entry of orders, im- 13 pose restraints, restrictions, guidelines, require- 14 ments, safeguards, or standards, or otherwise take 15 any action under or pursuant to any provision of 16 this Act or section 8 of the Federal Deposit Insur- 17 ance Act against or with respect to a regulated sub- 18 sidiary of a bank holding company unless the action 19 is necessary to prevent or redress an unsafe or un- 20 sound practice or breach of fiduciary duty by such 21 subsidiary that poses a material risk to- 22 ``(A) the financial safety, soundness, or 23 stability of an affiliated depository institution; 24 or 25 ``(B) the domestic or international pay- 26 ment system. *HR 10 EH 56 1 ``(2) CRITERIA FOR BOARD ACTION.-The 2 Board shall not take action otherwise permitted 3 under paragraph (1) unless the Board finds that it 4 is not reasonably possible to effectively protect 5 against the material risk at issue through action di- 6 rected at or against the affiliated depository institu- 7 tion or against depository institutions generally. 8 ``(b) LIMITATION ON INDIRECT ACTION.-The Board 9 may not prescribe regulations, issue or seek entry of or- 10 ders, impose restraints, restrictions, guidelines, require- 11 ments, safeguards, or standards, or otherwise take any ac- 12 tion under or pursuant to any provision of this Act or sec- 13 tion 8 of the Federal Deposit Insurance Act against or 14 with respect to a financial holding company or a wholesale 15 financial holding company where the purpose or effect of 16 doing so would be to take action indirectly against or with 17 respect to a regulated subsidiary that may not be taken 18 directly against or with respect to such subsidiary in ac- 19 cordance with subsection (a). 20 ``(c) ACTIONS SPECIFICALLY AUTHORIZED.-Not- 21 withstanding subsection (a), the Board may take action 22 under this Act or section 8 of the Federal Deposit Insur- 23 ance Act to enforce compliance by a regulated subsidiary 24 with Federal law that the Board has specific jurisdiction 25 to enforce against such subsidiary. *HR 10 EH 57 1 ``(d) REGULATED SUBSIDIARY DEFINED.-For pur- 2 poses of this section, the term `regulated subsidiary' 3 means any company that is not a bank holding company 4 and is- 5 ``(1) a broker or dealer registered under the Se- 6 curities Exchange Act of 1934; 7 ``(2) an investment adviser registered under the 8 Investment Advisers Act of 1940, with respect to the 9 investment advisory activities of such investment ad- 10 viser and activities incidental to such investment ad- 11 visory activities; 12 ``(3) an investment company registered under 13 the Investment Company Act of 1940; 14 ``(4) an insurance company or an insurance 15 agency subject to supervision by a State insurance 16 commission, agency, or similar authority; or 17 ``(5) an entity subject to regulation by the Com- 18 modity Futures Trading Commission, with respect 19 to the commodities activities of such entity and ac- 20 tivities incidental to such commodities activities.''. 21 SEC. 117. INTERAGENCY CONSULTATION. 22 (a) PURPOSE.-It is the intention of Congress that 23 the Board of Governors of the Federal Reserve System, 24 as the umbrella supervisor for financial holding compa- 25 nies, and the State insurance regulators, as the functional *HR 10 EH 58 1 regulators of companies engaged in insurance activities, 2 coordinate efforts to supervise companies that control both 3 a depository institution and a company engaged in insur- 4 ance activities regulated under State law. In particular, 5 Congress believes that the Board and the State insurance 6 regulators should share, on a confidential basis, informa- 7 tion relevant to the supervision of companies that control 8 both a depository institution and a company engaged in 9 insurance activities, including information regarding the 10 financial health of the consolidated organization and infor- 11 mation regarding transactions and relationships between 12 insurance companies and affiliated depository institutions. 13 The appropriate Federal banking agencies for depository 14 institutions should also share, on a confidential basis, in- 15 formation with the relevant State insurance regulators re- 16 garding transactions and relationships between depository 17 institutions and affiliated companies engaged in insurance 18 activities. The purpose of this section is to encourage this 19 coordination and confidential sharing of information, and 20 to thereby improve both the efficiency and the quality of 21 the supervision of financial holding companies and their 22 affiliated depository institutions and companies engaged 23 in insurance activities. 24 (b) EXAMINATION RESULTS AND OTHER INFORMA- 25 TION.- *HR 10 EH 59 1 (1) INFORMATION OF THE BOARD.-Upon the 2 request of the appropriate insurance regulator of 3 any State, the Board may provide any information 4 of the Board regarding the financial condition, risk 5 management policies, and operations of any financial 6 holding company that controls a company that is en- 7 gaged in insurance activities and is regulated by 8 such State insurance regulator, and regarding any 9 transaction or relationship between such an insur- 10 ance company and any affiliated depository institu- 11 tion. The Board may provide any other information 12 to the appropriate State insurance regulator that the 13 Board believes is necessary or appropriate to permit 14 the State insurance regulator to administer and en- 15 force applicable State insurance laws. 16 (2) BANKING AGENCY INFORMATION.-Upon 17 the request of the appropriate insurance regulator of 18 any State, the appropriate Federal banking agency 19 may provide any information of the agency regard- 20 ing any transaction or relationship between a deposi- 21 tory institution supervised by such Federal banking 22 agency and any affiliated company that is engaged 23 in insurance activities regulated by such State insur- 24 ance regulator. The appropriate Federal banking 25 agency may provide any other information to the ap- *HR 10 EH 60 1 propriate State insurance regulator that the agency 2 believes is necessary or appropriate to permit the 3 State insurance regulator to administer and enforce 4 applicable State insurance laws. 5 (3) STATE INSURANCE REGULATOR INFORMA- 6 TION.-Upon the request of the Board or the appro- 7 priate Federal banking agency, a State insurance 8 regulator may provide any examination or other re- 9 ports, records, or other information to which such 10 insurance regulator may have access with respect to 11 a company which- 12 (A) is engaged in insurance activities and 13 regulated by such insurance regulator; and 14 (B) is an affiliate of an insured depository 15 institution, wholesale financial institution, or fi- 16 nancial holding company. 17 (c) CONSULTATION.-Before making any determina- 18 tion relating to the initial affiliation of, or the continuing 19 affiliation of, an insured depository institution, wholesale 20 financial institution, or financial holding company with a 21 company engaged in insurance activities, the appropriate 22 Federal banking agency shall consult with the appropriate 23 State insurance regulator of such company and take the 24 views of such insurance regulator into account in making 25 such determination. *HR 10 EH 61 1 (d) EFFECT ON OTHER AUTHORITY.-Nothing in this 2 section shall limit in any respect the authority of the ap- 3 propriate Federal banking agency with respect to an in- 4 sured depository institution, wholesale financial institu- 5 tion, or bank holding company or any affiliate thereof 6 under any provision of law. 7 (e) CONFIDENTIALITY AND PRIVILEGE.- 8 (1) CONFIDENTIALITY.-The appropriate Fed- 9 eral banking agency shall not provide any informa- 10 tion or material that is entitled to confidential treat- 11 ment under applicable Federal banking agency regu- 12 lations, or other applicable law, to a State insurance 13 regulator unless such regulator agrees to maintain 14 the information or material in confidence and to 15 take all reasonable steps to oppose any effort to se- 16 cure disclosure of the information or material by the 17 regulator. The appropriate Federal banking agency 18 shall treat as confidential any information or mate- 19 rial obtained from a State insurance regulator that 20 is entitled to confidential treatment under applicable 21 State regulations, or other applicable law, and take 22 all reasonable steps to oppose any effort to secure 23 disclosure of the information or material by the Fed- 24 eral banking agency. *HR 10 EH 62 1 (2) PRIVILEGE.-The provision pursuant to this 2 section of information or material by a Federal 3 banking agency or State insurance regulator shall 4 not constitute a waiver of, or otherwise affect, any 5 privilege to which the information or material is oth- 6 erwise subject. 7 (f) DEFINITIONS.-For purposes of this section, the 8 following definitions shall apply: 9 (1) APPROPRIATE FEDERAL BANKING AGENCY; 10 INSURED DEPOSITORY INSTITUTION.-The terms 11 ``appropriate Federal banking agency'' and ``insured 12 depository institution'' shall have the same meanings 13 as in section 3 of the Federal Deposit Insurance 14 Act. 15 (2) BOARD; FINANCIAL HOLDING COMPANY; 16 AND WHOLESALE FINANCIAL INSTITUTION.-The 17 terms ``Board'', ``financial holding company'', and 18 ``wholesale financial institution'' shall have the same 19 meanings as in section 2 of the Bank Holding Com- 20 pany Act of 1956. *HR 10 EH 63 1 Subtitle C-Subsidiaries of 2 National Banks 3 SEC. 121. PERMISSIBLE ACTIVITIES FOR SUBSIDIARIES OF 4 NATIONAL BANKS. 5 (a) FINANCIAL SUBSIDIARIES OF NATIONAL 6 BANKS.-Chapter one of title LXII of the Revised Stat- 7 utes of United States (12 U.S.C. 21 et seq.) is amended- 8 (1) by redesignating section 5136A as section 9 5136C; and 10 (2) by inserting after section 5136 (12 U.S.C. 11 24) the following new section: 12 ``SEC. 5136A. SUBSIDIARIES OF NATIONAL BANKS. 13 ``(a) SUBSIDIARIES OF NATIONAL BANKS AUTHOR- 14 IZED TO ENGAGE IN FINANCIAL ACTIVITIES.- 15 ``(1) EXCLUSIVE AUTHORITY.-No provision of 16 section 5136 or any other provision of this title 17 LXII of the Revised Statutes shall be construed as 18 authorizing a subsidiary of a national bank to en- 19 gage in, or own any share of or any other interest 20 in any company engaged in, any activity that- 21 ``(A) is not permissible for a national bank 22 to engage in directly; or 23 ``(B) is conducted under terms or condi- 24 tions other than those that would govern the 25 conduct of such activity by a national bank, *HR 10 EH 64 1 unless a national bank is specifically authorized by 2 the express terms of a Federal statute and not by 3 implication or interpretation to acquire shares of or 4 an interest in, or to control, such subsidiary, such as 5 by paragraph (2) of this subsection and section 25A 6 of the Federal Reserve Act. 7 ``(2) SPECIFIC AUTHORIZATION TO CONDUCT 8 AGENCY ACTIVITIES WHICH ARE FINANCIAL IN NA- 9 TURE.-A national bank may control a company 10 that engages in agency activities that have been de- 11 termined to be financial in nature or incidental to 12 such financial activities pursuant to and in accord- 13 ance with section 6(c) of the Bank Holding Com- 14 pany Act of 1956 if- 15 ``(A) the company engages in such activi- 16 ties solely as agent and not directly or indirectly 17 as principal; 18 ``(B) the national bank is well capitalized 19 and well managed, and has achieved a rating of 20 satisfactory or better at the most recent exam- 21 ination of the bank under the Community Rein- 22 vestment Act of 1977; 23 ``(C) all depository institution affiliates of 24 the national bank are well capitalized and well 25 managed, and have achieved a rating of satis- *HR 10 EH 65 1 factory or better at the most recent examina- 2 tion of each such depository institution under 3 the Community Reinvestment Act of 1977; and 4 ``(D) the bank has received the approval of 5 the Comptroller of the Currency. 6 ``(3) DEFINITIONS.- 7 ``(A) COMPANY; CONTROL; SUBSIDIARY.- 8 The terms `company', `control', and `subsidiary' 9 have the meanings given to such terms in sec- 10 tion 2 of the Bank Holding Company Act of 11 1956. 12 ``(B) WELL CAPITALIZED.-The term `well 13 capitalized' has the same meaning as in section 14 38 of the Federal Deposit Insurance Act and, 15 for purposes of this section, the Comptroller 16 shall have exclusive jurisdiction to determine 17 whether a national bank is well capitalized. 18 ``(C) WELL MANAGED.-The term `well 19 managed' means- 20 ``(i) in the case of a bank that has 21 been examined, unless otherwise deter- 22 mined in writing by the Comptroller- 23 ``(I) the achievement of a com- 24 posite rating of 1 or 2 under the Uni- 25 form Financial Institutions Rating *HR 10 EH 66 1 System (or an equivalent rating under 2 an equivalent rating system) in con- 3 nection with the most recent examina- 4 tion or subsequent review of the bank; 5 and 6 ``(II) at least a rating of 2 for 7 management, if that rating is given; 8 or 9 ``(ii) in the case of any national bank 10 that has not been examined, the existence 11 and use of managerial resources that the 12 Comptroller determines are satisfactory. 13 ``(b) LIMITED EXCLUSIONS FROM COMMUNITY 14 NEEDS REQUIREMENTS FOR NEWLY ACQUIRED DEPOSI- 15 TORY INSTITUTIONS.-Any depository institution which 16 becomes affiliated with a national bank during the 24- 17 month period preceding the submission of an application 18 to acquire a subsidiary under subsection (a)(2), and any 19 depository institution which becomes so affiliated after the 20 approval of such application, may be excluded for purposes 21 of subsection (a)(2)(B) during the 24-month period begin- 22 ning on the date of such acquisition if- 23 ``(1) the depository institution has submitted an 24 affirmative plan to the appropriate Federal banking 25 agency (as defined in section 3 of the Federal De- *HR 10 EH 67 1 posit Insurance Act) to take such action as may be 2 necessary in order for such institution to achieve a 3 `satisfactory record of meeting community credit 4 needs', or better, at the next examination of the in- 5 stitution under the Community Reinvestment Act of 6 1977; and 7 ``(2) the plan has been approved by the appro- 8 priate Federal banking agency.''. 9 (b) LIMITATION ON CERTAIN ACTIVITIES IN SUB- 10 SIDIARIES.-Section 21(a)(1) of the Banking Act of 1933 11 (12 U.S.C. 378(a)(1)) is amended- 12 (1) by inserting ``, or to be a subsidiary of any 13 person, firm, corporation, association, business trust, 14 or similar organization engaged (unless such subsidi- 15 ary (A) was engaged in such securities activities as 16 of September 15, 1997, or (B) is a nondepository 17 subsidiary of a foreign bank and is not also a sub- 18 sidiary of a domestic depository institution),'' after 19 ``to engage at the same time''; and 20 (2) by inserting ``or any subsidiary of such 21 bank, company, or institution'' after ``or private 22 bankers''. 23 (c) TECHNICAL AND CONFORMING AMENDMENTS.- 24 (1) ANTITYING.-Section 106(a) of the Bank 25 Holding Company Act Amendments of 1970 is *HR 10 EH 68 1 amended by adding at the end the following new 2 sentence: ``For purposes of this section, a subsidiary 3 of a national bank which engages in activities as an 4 agent pursuant to section 5136A(a)(2) shall be 5 deemed to be a subsidiary of a bank holding com- 6 pany, and not a subsidiary of a bank.''. 7 (2) SECTION 23B.-Section 23B(a) of the Fed- 8 eral Reserve Act (12 U.S.C. 371c­1(a)) is amended 9 by adding at the end the following new paragraph: 10 ``(4) SUBSIDIARY OF NATIONAL BANK.-For 11 purposes of this section, a subsidiary of a national 12 bank which engages in activities as an agent pursu- 13 ant to section 5136A(a)(2) shall be deemed to be an 14 affiliate of the national bank and not a subsidiary of 15 the bank.''. 16 (d) CLERICAL AMENDMENT.-The table of sections 17 for chapter one of title LXII of the Revised Statutes of 18 the United States is amended- 19 (1) by redesignating the item relating to section 20 5136A as section 5136C; and 21 (2) by inserting after the item relating to sec- 22 tion 5136 the following new item: ``5136A. Financial subsidiaries of national banks.''. *HR 10 EH 69 1 SEC. 122. MISREPRESENTATIONS REGARDING DEPOSITORY 2 INSTITUTION LIABILITY FOR OBLIGATIONS 3 OF AFFILIATES. 4 (a) IN GENERAL.-Chapter 47 of title 18, United 5 States Code, is amended by inserting after section 1007 6 the following new section: 7 ``§ 1008. Misrepresentations regarding financial insti- 8 tution liability for obligations of affiliates 9 ``(a) IN GENERAL.-No institution-affiliated party of 10 an insured depository institution or institution-affiliated 11 party of a subsidiary or affiliate of an insured depository 12 institution shall fraudulently represent that the institution 13 is or will be liable for any obligation of a subsidiary or 14 other affiliate of the institution. 15 ``(b) CRIMINAL PENALTY.-Whoever violates sub- 16 section (a) shall be fined under this title, imprisoned for 17 not more than 1 year, or both. 18 ``(c) INSTITUTION-AFFILIATED PARTY DEFINED.- 19 For purposes of this section, the term `institution-affili- 20 ated party' with respect to a subsidiary or affiliate has 21 the same meaning as in section 3 except references to an 22 insured depository institution shall be deemed to be ref- 23 erences to a subsidiary or affiliate of an insured depository 24 institution. 25 ``(d) OTHER DEFINITIONS.-For purposes of this 26 section, the terms `affiliate', `insured depository institu- *HR 10 EH 70 1 tion', and `subsidiary' have same meanings as in section 2 3 of the Federal Deposit Insurance Act.''. 3 (b) CLERICAL AMENDMENT.-The table of sections 4 for chapter 47 of title 18, United States Code, is amended 5 by inserting after the item relating to section 1007 the 6 following new item: ``1008. Misrepresentations regarding financial institution liability for obligations of affiliates.''. 7 SEC. 123. REPEAL OF STOCK LOAN LIMIT IN FEDERAL RE- 8 SERVE ACT. 9 Section 11 of the Federal Reserve Act (12 U.S.C. 10 248) is amended by striking the paragraph designated as 11 ``(m)'' and inserting ``(m) [Repealed]''. 12 Subtitle D-Wholesale Financial 13 Holding Companies; Wholesale 14 Financial Institutions 15 CHAPTER 1-WHOLESALE FINANCIAL 16 HOLDING COMPANIES 17 SEC. 131. WHOLESALE FINANCIAL HOLDING COMPANIES 18 ESTABLISHED. 19 (a) DEFINITION AND SUPERVISION.-Section 10 of 20 the Bank Holding Company Act of 1956 (12 U.S.C. 1841 21 et seq.) is amended to read as follows: 22 ``SEC. 10. WHOLESALE FINANCIAL HOLDING COMPANIES. 23 ``(a) COMPANIES THAT CONTROL WHOLESALE FI- 24 NANCIAL INSTITUTIONS.- *HR 10 EH 71 1 ``(1) WHOLESALE FINANCIAL HOLDING COM- 2 PANY DEFINED.-The term `wholesale financial 3 holding company' means any company that- 4 ``(A) is registered as a bank holding com- 5 pany; 6 ``(B) is predominantly engaged in financial 7 activities as defined in section 6(g)(2); 8 ``(C) controls 1 or more wholesale financial 9 institutions; 10 ``(D) does not control- 11 ``(i) a bank other than a wholesale fi- 12 nancial institution; 13 ``(ii) an insured bank other than an 14 institution permitted under subparagraph 15 (D), (F), or (G) of section 2(c)(2); or 16 ``(iii) a savings association; and 17 ``(E) is not a foreign bank (as defined in 18 section 1(b)(7) of the International Banking 19 Act of 1978). 20 ``(2) SAVINGS ASSOCIATION TRANSITION PE- 21 RIOD.-Notwithstanding paragraph (1)(C)(iii), the 22 Board may permit a company that controls a sav- 23 ings association and that otherwise meets the re- 24 quirements of paragraph (1) to become supervised 25 under paragraph (1), if the company divests control *HR 10 EH 72 1 of any such savings association within such period 2 not to exceed 5 years after becoming supervised 3 under paragraph (1) as permitted by the Board. 4 ``(b) SUPERVISION BY THE BOARD.- 5 ``(1) IN GENERAL.-The provisions of this sec- 6 tion shall govern the reporting, examination, and 7 capital requirements of wholesale financial holding 8 companies. 9 ``(2) REPORTS.- 10 ``(A) IN GENERAL.-The Board from time 11 to time may require any wholesale financial 12 holding company and any subsidiary of such 13 company to submit reports under oath to keep 14 the Board informed as to- 15 ``(i) the company's or subsidiary's ac- 16 tivities, financial condition, policies, sys- 17 tems for monitoring and controlling finan- 18 cial and operational risks, and transactions 19 with depository institution subsidiaries of 20 the holding company; and 21 ``(ii) the extent to which the company 22 or subsidiary has complied with the provi- 23 sions of this Act and regulations prescribed 24 and orders issued under this Act. 25 ``(B) USE OF EXISTING REPORTS.- *HR 10 EH 73 1 ``(i) IN GENERAL.-The Board shall, 2 to the fullest extent possible, accept re- 3 ports in fulfillment of the Board's report- 4 ing requirements under this paragraph 5 that the wholesale financial holding com- 6 pany or any subsidiary of such company 7 has provided or been required to provide to 8 other Federal and State supervisors or to 9 appropriate self-regulatory organizations. 10 ``(ii) AVAILABILITY.-A wholesale fi- 11 nancial holding company or a subsidiary of 12 such company shall provide to the Board, 13 at the request of the Board, a report re- 14 ferred to in clause (i). 15 ``(C) EXEMPTIONS FROM REPORTING RE- 16 QUIREMENTS.- 17 ``(i) IN GENERAL.-The Board may, 18 by regulation or order, exempt any com- 19 pany or class of companies, under such 20 terms and conditions and for such periods 21 as the Board shall provide in such regula- 22 tion or order, from the provisions of this 23 paragraph and any regulation prescribed 24 under this paragraph. *HR 10 EH 74 1 ``(ii) CRITERIA FOR CONSIDER- 2 ATION.-In making any determination 3 under clause (i) with regard to any exemp- 4 tion under such clause, the Board shall 5 consider, among such other factors as the 6 Board may determine to be appropriate, 7 the following factors: 8 ``(I) Whether information of the 9 type required under this paragraph is 10 available from a supervisory agency 11 (as defined in section 1101(7) of the 12 Right to Financial Privacy Act of 13 1978) or a foreign regulatory author- 14 ity of a similar type. 15 ``(II) The primary business of the 16 company. 17 ``(III) The nature and extent of 18 the domestic and foreign regulation of 19 the activities of the company. 20 ``(3) EXAMINATIONS.- 21 ``(A) LIMITED USE OF EXAMINATION AU- 22 THORITY.-The Board may make examinations 23 of each wholesale financial holding company 24 and each subsidiary of such company in order 25 to- *HR 10 EH 75 1 ``(i) inform the Board regarding the 2 nature of the operations and financial con- 3 dition of the wholesale financial holding 4 company and its subsidiaries; 5 ``(ii) inform the Board regarding- 6 ``(I) the financial and operational 7 risks within the wholesale financial 8 holding company system that may af- 9 fect any depository institution owned 10 by such holding company; and 11 ``(II) the systems of the holding 12 company and its subsidiaries for mon- 13 itoring and controlling those risks; 14 and 15 ``(iii) monitor compliance with the 16 provisions of this Act and those governing 17 transactions and relationships between any 18 depository institution controlled by the 19 wholesale financial holding company and 20 any of the company's other subsidiaries. 21 ``(B) RESTRICTED FOCUS OF EXAMINA- 22 TIONS.-The Board shall, to the fullest extent 23 possible, limit the focus and scope of any exam- 24 ination of a wholesale financial holding com- 25 pany under this paragraph to- *HR 10 EH 76 1 ``(i) the holding company; and 2 ``(ii) any subsidiary (other than an in- 3 sured depository institution subsidiary) of 4 the holding company that, because of the 5 size, condition, or activities of the subsidi- 6 ary, the nature or size of transactions be- 7 tween such subsidiary and any affiliated 8 depository institution, or the centralization 9 of functions within the holding company 10 system, could have a materially adverse ef- 11 fect on the safety and soundness of any de- 12 pository institution affiliate of the holding 13 company. 14 ``(C) DEFERENCE TO BANK EXAMINA- 15 TIONS.-The Board shall, to the fullest extent 16 possible, use the reports of examination of de- 17 pository institutions made by the Comptroller of 18 the Currency, the Federal Deposit Insurance 19 Corporation, the Director of the Office of Thrift 20 Supervision or the appropriate State depository 21 institution supervisory authority for the pur- 22 poses of this section. 23 ``(D) DEFERENCE TO OTHER EXAMINA- 24 TIONS.-The Board shall, to the fullest extent 25 possible, address the circumstances which might *HR 10 EH 77 1 otherwise permit or require an examination by 2 the Board by forgoing an examination and by 3 instead reviewing the reports of examination 4 made of- 5 ``(i) any registered broker or dealer or 6 any registered investment adviser by or on 7 behalf of the Commission; and 8 ``(ii) any licensed insurance company 9 by or on behalf of any State government 10 insurance agency responsible for the super- 11 vision of the insurance company. 12 ``(E) CONFIDENTIALITY OF REPORTED IN- 13 FORMATION.- 14 ``(i) IN GENERAL.-Notwithstanding 15 any other provision of law, the Board shall 16 not be compelled to disclose any nonpublic 17 information required to be reported under 18 this paragraph, or any information sup- 19 plied to the Board by any domestic or for- 20 eign regulatory agency, that relates to the 21 financial or operational condition of any 22 wholesale financial holding company or any 23 subsidiary of such company. 24 ``(ii) COMPLIANCE WITH REQUESTS 25 FOR INFORMATION.-No provision of this *HR 10 EH 78 1 subparagraph shall be construed as author- 2 izing the Board to withhold information 3 from the Congress, or preventing the 4 Board from complying with a request for 5 information from any other Federal de- 6 partment or agency for purposes within the 7 scope of such department's or agency's ju- 8 risdiction, or from complying with any 9 order of a court of competent jurisdiction 10 in an action brought by the United States 11 or the Board. 12 ``(iii) COORDINATION WITH OTHER 13 LAW.-For purposes of section 552 of title 14 5, United States Code, this subparagraph 15 shall be considered to be a statute de- 16 scribed in subsection (b)(3)(B) of such sec- 17 tion. 18 ``(iv) DESIGNATION OF CONFIDENTIAL 19 INFORMATION.-In prescribing regulations 20 to carry out the requirements of this sub- 21 section, the Board shall designate informa- 22 tion described in or obtained pursuant to 23 this paragraph as confidential information. 24 ``(F) COSTS.-The cost of any examination 25 conducted by the Board under this section may *HR 10 EH 79 1 be assessed against, and made payable by, the 2 wholesale financial holding company. 3 ``(4) CAPITAL ADEQUACY GUIDELINES.- 4 ``(A) CAPITAL ADEQUACY PROVISIONS.- 5 Subject to the requirements of, and solely in ac- 6 cordance with, the terms of this paragraph, the 7 Board may adopt capital adequacy rules or 8 guidelines for wholesale financial holding com- 9 panies. 10 ``(B) METHOD OF CALCULATION.-In de- 11 veloping rules or guidelines under this para- 12 graph, the following provisions shall apply: 13 ``(i) FOCUS ON DOUBLE LEVERAGE.- 14 The Board shall focus on the use by whole- 15 sale financial holding companies of debt 16 and other liabilities to fund capital invest- 17 ments in subsidiaries. 18 ``(ii) NO UNWEIGHTED CAPITAL 19 RATIO.-The Board shall not, by regula- 20 tion, guideline, order, or otherwise, impose 21 under this section a capital ratio that is 22 not based on appropriate risk-weighting 23 considerations. 24 ``(iii) NO CAPITAL REQUIREMENT ON 25 REGULATED ENTITIES.-The Board shall *HR 10 EH 80 1 not, by regulation, guideline, order or oth- 2 erwise, prescribe or impose any capital or 3 capital adequacy rules, standards, guide- 4 lines, or requirements upon any subsidiary 5 that- 6 ``(I) is not a depository institu- 7 tion; and 8 ``(II) is in compliance with appli- 9 cable capital requirements of another 10 Federal regulatory authority (includ- 11 ing the Securities and Exchange Com- 12 mission) or State insurance authority. 13 ``(iv) LIMITATION.-The Board shall 14 not, by regulation, guideline, order or oth- 15 erwise, prescribe or impose any capital or 16 capital adequacy rules, standards, guide- 17 lines, or requirements upon any subsidiary 18 that is not a depository institution and 19 that is registered as an investment adviser 20 under the Investment Advisers Act of 21 1940, except that this clause shall not be 22 construed as preventing the Board from 23 imposing capital or capital adequacy rules, 24 guidelines, standards, or requirements with 25 respect to activities of a registered invest- *HR 10 EH 81 1 ment adviser other than investment advi- 2 sory activities or activities incidental to in- 3 vestment advisory activities. 4 ``(v) APPROPRIATE EXCLUSIONS.- 5 The Board shall take full account of- 6 ``(I) the capital requirements 7 made applicable to any subsidiary that 8 is not a depository institution by an- 9 other Federal regulatory authority or 10 State insurance authority; and 11 ``(II) industry norms for capital- 12 ization of a company's unregulated 13 subsidiaries and activities. 14 ``(vi) INTERNAL RISK MANAGEMENT 15 MODELS.-The Board may incorporate in- 16 ternal risk management models of whole- 17 sale financial holding companies into its 18 capital adequacy guidelines or rules and 19 may take account of the extent to which 20 resources of a subsidiary depository insti- 21 tution may be used to service the debt or 22 other liabilities of the wholesale financial 23 holding company. 24 ``(c) NONFINANCIAL ACTIVITIES AND INVEST- 25 MENTS.- *HR 10 EH 82 1 ``(1) GRANDFATHERED ACTIVITIES.- 2 ``(A) IN GENERAL.-Notwithstanding sec- 3 tion 4(a), a company that becomes a wholesale 4 financial holding company may continue to en- 5 gage, directly or indirectly, in any activity and 6 may retain ownership and control of shares of 7 a company engaged in any activity if- 8 ``(i) on the date of the enactment of 9 the Financial Services Act of 1998, such 10 wholesale financial holding company was 11 lawfully engaged in that nonfinancial activ- 12 ity, held the shares of such company, or 13 had entered into a contract to acquire 14 shares of any company engaged in such ac- 15 tivity; and 16 ``(ii) the company engaged in such ac- 17 tivity continues to engage only in the same 18 activities that such company conducted on 19 the date of the enactment of the Financial 20 Services Act of 1998, and other activities 21 permissible under this Act. 22 ``(B) NO EXPANSION OF GRANDFATHERED 23 COMMERCIAL ACTIVITIES THROUGH MERGER OR 24 CONSOLIDATION.-A wholesale financial holding 25 company that engages in activities or holds *HR 10 EH 83 1 shares pursuant to this paragraph, or a subsidi- 2 ary of such wholesale financial holding com- 3 pany, may not acquire, in any merger, consoli- 4 dation, or other type of business combination, 5 assets of any other company which is engaged 6 in any activity which the Board has not deter- 7 mined to be financial in nature or incidental to 8 activities that are financial in nature under sec- 9 tion 6(c). 10 ``(C) LIMITATION TO SINGLE EXEMP- 11 TION.-No company that engages in any activ- 12 ity or controls any shares under subsection (f) 13 of section 6 may engage in any activity or own 14 any shares pursuant to this paragraph or para- 15 graph (1). 16 ``(2) COMMODITIES.- 17 ``(A) IN GENERAL.-Notwithstanding sec- 18 tion 4(a), a wholesale financial holding company 19 which was predominately engaged as of Janu- 20 ary 1, 1997, in financial activities in the United 21 States (or any successor to any such company) 22 may engage in, or directly or indirectly own or 23 control shares of a company engaged in, activi- 24 ties related to the trading, sale, or investment 25 in commodities and underlying physical prop- *HR 10 EH 84 1 erties that were not permissible for bank hold- 2 ing companies to conduct in the United States 3 as of January 1, 1997, if such wholesale finan- 4 cial holding company, or any subsidiary of such 5 holding company, was engaged directly, indi- 6 rectly, or through any such company in any of 7 such activities as of January 1, 1997, in the 8 United States. 9 ``(B) LIMITATION.-The attributed aggre- 10 gate consolidated assets of a wholesale financial 11 holding company held under the authority 12 granted under this paragraph and not otherwise 13 permitted to be held by all wholesale financial 14 holding companies under this section may not 15 exceed 5 percent of the total consolidated assets 16 of the wholesale financial holding company, ex- 17 cept that the Board may increase such percent- 18 age of total consolidated assets by such 19 amounts and under such circumstances as the 20 Board considers appropriate, consistent with 21 the purposes of this Act. 22 ``(3) CROSS MARKETING RESTRICTIONS.-A 23 wholesale financial holding company shall not per- 24 mit- *HR 10 EH 85 1 ``(A) any company whose shares it owns or 2 controls pursuant to paragraph (1) or (2) to 3 offer or market any product or service of an af- 4 filiated wholesale financial institution; or 5 ``(B) any affiliated wholesale financial in- 6 stitution to offer or market any product or serv- 7 ice of any company whose shares are owned or 8 controlled by such wholesale financial holding 9 company pursuant to such paragraphs. 10 ``(d) QUALIFICATION OF FOREIGN BANK AS WHOLE- 11 SALE FINANCIAL HOLDING COMPANY.- 12 ``(1) IN GENERAL.-Any foreign bank, or any 13 company that owns or controls a foreign bank, 14 that- 15 ``(A) operates a branch, agency, or com- 16 mercial lending company in the United States, 17 including a foreign bank or company that owns 18 or controls a wholesale financial institution; and 19 ``(B) owns, controls, or is affiliated with a 20 security affiliate that engages in underwriting 21 corporate equity securities, 22 may request a determination from the Board that 23 such bank or company be treated as a wholesale fi- 24 nancial holding company for purposes of subsection 25 (c). *HR 10 EH 86 1 ``(2) CONDITIONS FOR TREATMENT AS A 2 WHOLESALE FINANCIAL HOLDING COMPANY.-A for- 3 eign bank and a company that owns or controls a 4 foreign bank may not be treated as a wholesale fi- 5 nancial holding company unless the bank and com- 6 pany meet and continue to meet the following cri- 7 teria: 8 ``(A) NO INSURED DEPOSITS.-No deposits 9 held directly by a foreign bank or through an 10 affiliate (other than an institution described in 11 subparagraph (D) or (F) of section 2(c)(2)) are 12 insured under the Federal Deposit Insurance 13 Act. 14 ``(B) CAPITAL STANDARDS.-The foreign 15 bank meets risk-based capital standards com- 16 parable to the capital standards required for a 17 wholesale financial institution, giving due re- 18 gard to the principle of national treatment and 19 equality of competitive opportunity. 20 ``(C) TRANSACTION WITH AFFILIATES.- 21 Transactions between a branch, agency, or com- 22 mercial lending company subsidiary of the for- 23 eign bank in the United States, and any securi- 24 ties affiliate or company in which the foreign 25 bank (or any company that owns or controls *HR 10 EH 87 1 such foreign bank) has invested pursuant to 2 subsection (d) comply with the provisions of 3 sections 23A and 23B of the Federal Reserve 4 Act in the same manner and to the same extent 5 as such transactions would be required to com- 6 ply with such sections if the bank were a mem- 7 ber bank. 8 ``(3) TREATMENT AS A WHOLESALE FINANCIAL 9 INSTITUTION.-Any foreign bank which is, or is af- 10 filiated with a company which is, treated as a whole- 11 sale financial holding company under this subsection 12 shall be treated as a wholesale financial institution 13 for purposes of subsection (c)(4) of this section and 14 subsections (c)(1)(C) and (c)(3) of section 9B of the 15 Federal Reserve Act, and any such foreign bank or 16 company shall be subject to paragraphs (3), (4), and 17 (5) of section 9B(d) of the Federal Reserve Act, ex- 18 cept that the Board may adopt such modifications, 19 conditions, or exemptions as the Board deems appro- 20 priate, giving due regard to the principle of national 21 treatment and equality of competitive opportunity. 22 ``(4) NONAPPLICABILITY OF OTHER EXEMP- 23 TION.-Any foreign bank or company which is treat- 24 ed as a wholesale financial holding company under *HR 10 EH 88 1 this subsection shall not be eligible for any exception 2 described in section 2(h). 3 ``(5) SUPERVISION OF FOREIGN BANK WHICH 4 MAINTAINS NO BANKING PRESENCE OTHER THAN 5 CONTROL OF A WHOLESALE FINANCIAL INSTITU- 6 TION.-A foreign bank that owns or controls a 7 wholesale financial institution but does not operate 8 a branch, agency, or commercial lending company in 9 the United States (and any company that owns or 10 controls such foreign bank) may request a deter- 11 mination from the Board that such bank or com- 12 pany be treated as a wholesale financial holding 13 company for purposes of subsection (c), except that 14 such bank or company shall be subject to the restric- 15 tions of paragraphs (2)(A), (3), and (4) of this sub- 16 section. 17 ``(6) NO EFFECT ON OTHER PROVISIONS.-This 18 section shall not be construed as limiting the author- 19 ity of the Board under the International Banking 20 Act of 1978 with respect to the regulation, super- 21 vision, or examination of foreign banks and their of- 22 fices and affiliates in the United States. 23 ``(7) APPLICABILITY OF COMMUNITY REINVEST- 24 MENT ACT OF 1977.-The branches in the United 25 States of a foreign bank that is, or is affiliated with *HR 10 EH 89 1 a company that is, treated as a wholesale financial 2 holding company shall be subject to section 3 9B(b)(11) of the Federal Reserve Act as if the for- 4 eign bank were a wholesale financial institution 5 under such section. The Board and the Comptroller 6 of the Currency shall apply the provisions of sections 7 803(2), 804, and 807(1) of the Community Rein- 8 vestment Act of 1977 to branches of foreign banks 9 which receive only such deposits as are permissible 10 for receipt by a corporation organized under section 11 25A of the Federal Reserve Act, in the same manner 12 and to the same extent such sections apply to such 13 a corporation.''. 14 (b) UNINSURED STATE BANKS.-Section 9 of the 15 Federal Reserve Act (U.S.C. 321 et seq.) is amended by 16 adding at the end the following new paragraph: 17 ``(24) ENFORCEMENT AUTHORITY OVER UNIN- 18 SURED STATE MEMBER BANKS.-Section 3(u) of the 19 Federal Deposit Insurance Act, subsections (j) and 20 (k) of section 7 of such Act, and subsections (b) 21 through (n), (s), (u), and (v) of section 8 of such 22 Act shall apply to an uninsured State member bank 23 in the same manner and to the same extent such 24 provisions apply to an insured State member bank 25 and any reference in any such provision to `insured *HR 10 EH 90 1 depository institution' shall be deemed to be a ref- 2 erence to `uninsured State member bank' for pur- 3 poses of this paragraph.''. 4 SEC. 132. AUTHORIZATION TO RELEASE REPORTS. 5 (a) FEDERAL RESERVE ACT.-The last sentence of 6 the eighth undesignated paragraph of section 9 of the 7 Federal Reserve Act (12 U.S.C. 326) is amended to read 8 as follows: ``The Board of Governors of the Federal Re- 9 serve System, at its discretion, may furnish reports of ex- 10 amination or other confidential supervisory information 11 concerning State member banks or any other entities ex- 12 amined under any other authority of the Board to any 13 Federal or State authorities with supervisory or regulatory 14 authority over the examined entity, to officers, directors, 15 or receivers of the examined entity, and to any other per- 16 son that the Board determines to be proper.''. 17 (b) COMMODITY FUTURES TRADING COMMISSION.- 18 (1) Section 1101(7) of the Right to Financial 19 Privacy Act of 1978 (12 U.S.C. 3401(7)) is amend- 20 ed- 21 (A) by redesignating subparagraphs (G) 22 and (H) as subparagraphs (H) and (I), respec- 23 tively; and 24 (B) by inserting after subparagraph (F) 25 the following new subparagraph: *HR 10 EH 91 1 ``(G) the Commodity Futures Trading 2 Commission; or'' and 3 (2) Section 1112(e) of the Right to Financial 4 Privacy Act (12 U.S.C. 3412(e)) is amended by 5 striking ``and the Securities and Exchange Commis- 6 sion'' and inserting ``, the Securities and Exchange 7 Commission, and the Commodity Futures Trading 8 Commission''. 9 SEC. 133. CONFORMING AMENDMENTS. 10 (a) BANK HOLDING COMPANY ACT OF 1956.- 11 (1) DEFINITIONS.-Section 2 of the Bank 12 Holding Company Act of 1956 (12 U.S.C. 1842) is 13 amended by adding at the end the following new 14 subsections: 15 ``(p) WHOLESALE FINANCIAL INSTITUTION.-The 16 term `wholesale financial institution' means a wholesale fi- 17 nancial institution subject to section 9B of the Federal 18 Reserve Act. 19 ``(q) COMMISSION.-The term `Commission' means 20 the Securities and Exchange Commission. 21 ``(r) DEPOSITORY INSTITUTION.-The term `deposi- 22 tory institution'- 23 ``(1) has the meaning given to such term in sec- 24 tion 3 of the Federal Deposit Insurance Act; and 25 ``(2) includes a wholesale financial institution.''. *HR 10 EH 92 1 (2) DEFINITION OF BANK INCLUDES WHOLE- 2 SALE FINANCIAL INSTITUTION.-Section 2(c)(1) of 3 the Bank Holding Company Act of 1956 (12 U.S.C. 4 1841(c)(1)) is amended by adding at the end the fol- 5 lowing new subparagraph: 6 ``(C) A wholesale financial institution.''. 7 (3) INCORPORATED DEFINITIONS.-Section 8 2(n) of the Bank Holding Company Act of 1956 (12 9 U.S.C. 1841(n)) is amended by inserting `` `insured 10 bank','' after `` `in danger of default',''. 11 (4) EXCEPTION TO DEPOSIT INSURANCE RE- 12 QUIREMENT.-Section 3(e) of the Bank Holding 13 Company Act of 1956 (12 U.S.C. 1842(e)) is 14 amended by adding at the end the following: ``This 15 subsection shall not apply to a wholesale financial 16 institution.''. 17 (b) FEDERAL DEPOSIT INSURANCE ACT.-Section 18 3(q)(2)(A) of the Federal Deposit Insurance Act (12 19 U.S.C. 1813(q)(2)(A)) is amended to read as follows: 20 ``(A) any State member insured bank (ex- 21 cept a District bank) and any wholesale finan- 22 cial institution as authorized pursuant to sec- 23 tion 9B of the Federal Reserve Act;''. *HR 10 EH 93 1 CHAPTER 2-WHOLESALE FINANCIAL 2 INSTITUTIONS 3 SEC. 136. WHOLESALE FINANCIAL INSTITUTIONS. 4 (a) NATIONAL WHOLESALE FINANCIAL INSTITU- 5 TIONS.- 6 (1) IN GENERAL.-Chapter one of title LXII of 7 the Revised Statutes of the United States (12 8 U.S.C. 21 et seq.) is amended by inserting after sec- 9 tion 5136A (as added by section 121(a) of this title) 10 the following new section: 11 ``SEC. 5136B. NATIONAL WHOLESALE FINANCIAL INSTITU- 12 TIONS. 13 ``(a) AUTHORIZATION OF THE COMPTROLLER RE- 14 QUIRED.-A national bank may apply to the Comptroller 15 on such forms and in accordance with such regulations 16 as the Comptroller may prescribe, for permission to oper- 17 ate as a national wholesale financial institution. 18 ``(b) REGULATION.-A national wholesale financial 19 institution may exercise, in accordance with such institu- 20 tion's articles of incorporation and regulations issued by 21 the Comptroller, all the powers and privileges of a national 22 bank formed in accordance with section 5133 of the Re- 23 vised Statutes of the United States, subject to section 9B 24 of the Federal Reserve Act and the limitations and restric- 25 tions contained therein. *HR 10 EH 94 1 ``(c) COMMUNITY REINVESTMENT ACT OF 1977.-A 2 national wholesale financial institution shall be subject to 3 the Community Reinvestment Act of 1977. 4 ``(d) EXAMINATION REPORTS.-The Comptroller of 5 the Currency shall, to the fullest extent possible, use the 6 report of examinations made by the Board of Governors 7 of the Federal Reserve System of a wholesale financial in- 8 stitution.''. 9 (2) CLERICAL AMENDMENT.-The table of sec- 10 tions for chapter one of title LXII of the Revised 11 Statutes of the United States is amended by insert- 12 ing after the item relating to section 5136A (as 13 added by section 121(d) of this title) the following 14 new item: ``5136B. National wholesale financial institutions.''. 15 (b) STATE WHOLESALE FINANCIAL INSTITUTIONS.- 16 The Federal Reserve Act (12 U.S.C. 221 et seq.) is 17 amended by inserting after section 9A the following new 18 section: 19 ``SEC. 9B. WHOLESALE FINANCIAL INSTITUTIONS. 20 ``(a) APPLICATION FOR MEMBERSHIP AS WHOLE- 21 SALE FINANCIAL INSTITUTION.- 22 ``(1) APPLICATION REQUIRED.- 23 ``(A) IN GENERAL.-Any bank may apply 24 to the Board of Governors of the Federal Re- 25 serve System to become a wholesale financial *HR 10 EH 95 1 institution and, as a wholesale financial institu- 2 tion, to subscribe to the stock of the Federal re- 3 serve bank organized within the district where 4 the applying bank is located. 5 ``(B) TREATMENT AS MEMBER BANK.- 6 Any application under subparagraph (A) shall 7 be treated as an application under, and shall be 8 subject to the provisions of section 9. 9 ``(2) INSURANCE TERMINATION.-No bank the 10 deposits of which are insured under the Federal De- 11 posit Insurance Act may become a wholesale finan- 12 cial institution unless it has met all requirements 13 under that Act for voluntary termination of deposit 14 insurance. 15 ``(b) GENERAL REQUIREMENTS APPLICABLE TO 16 WHOLESALE FINANCIAL INSTITUTIONS.- 17 ``(1) FEDERAL RESERVE ACT.-Except as oth- 18 erwise provided in this section, wholesale financial 19 institutions shall be member banks and shall be sub- 20 ject to the provisions of this Act that apply to mem- 21 ber banks to the same extent and in the same man- 22 ner as State member insured banks, except that a 23 wholesale financial institution may terminate mem- 24 bership under this Act only with the prior written 25 approval of the Board and on terms and conditions *HR 10 EH 96 1 that the Board determines are appropriate to carry 2 out the purposes of this Act. 3 ``(2) PROMPT CORRECTIVE ACTION.-A whole- 4 sale financial institution shall be deemed to be an in- 5 sured depository institution for purposes of section 6 38 of the Federal Deposit Insurance Act except 7 that- 8 ``(A) the relevant capital levels and capital 9 measures for each capital category shall be the 10 levels specified by the Board for wholesale fi- 11 nancial institutions; and 12 ``(B) all references to the appropriate Fed- 13 eral banking agency or to the Corporation in 14 that section shall be deemed to be references to 15 the Board. 16 ``(3) ENFORCEMENT AUTHORITY.-Subsections 17 (j) and (k) of section 7, subsections (b) through (n), 18 (s), and (v) of section 8, and section 19 of the Fed- 19 eral Deposit Insurance Act shall apply to a wholesale 20 financial institution in the same manner and to the 21 same extent as such provisions apply to State mem- 22 ber insured banks and any reference in such sections 23 to an insured depository institution shall be deemed 24 to include a reference to a wholesale financial insti- 25 tution. *HR 10 EH 97 1 ``(4) CERTAIN OTHER STATUTES APPLICA- 2 BLE.-A wholesale financial institution shall be 3 deemed to be a banking institution, and the Board 4 shall be the appropriate Federal banking agency for 5 such bank and all such bank's affiliates, for pur- 6 poses of the International Lending Supervision Act. 7 ``(5) BANK MERGER ACT.-A wholesale finan- 8 cial institution shall be subject to sections 18(c) and 9 44 of the Federal Deposit Insurance Act in the same 10 manner and to the same extent the wholesale finan- 11 cial institution would be subject to such sections if 12 the institution were a State member insured bank. 13 ``(6) BRANCHING.-Notwithstanding any other 14 provision of law, a wholesale financial institution 15 may establish and operate a branch at any location 16 on such terms and conditions as established by the 17 Board and, in the case of a State-chartered whole- 18 sale financial institution, with the approval of the 19 Board, and, in the case of a national bank wholesale 20 financial institution, with the approval of the Comp- 21 troller of the Currency. 22 ``(7) ACTIVITIES OF OUT-OF-STATE BRANCHES 23 OF WHOLESALE FINANCIAL INSTITUTIONS.- 24 ``(A) GENERAL.-A State-chartered whole- 25 sale financial institution shall be deemed a *HR 10 EH 98 1 State bank and an insured State bank and a 2 national wholesale financial institution shall be 3 deemed a national bank for purposes of para- 4 graphs (1), (2), and (3) of section 24(j) of the 5 Federal Deposit Insurance Act. 6 ``(B) DEFINITIONS.-The following defini- 7 tions shall apply solely for purposes of applying 8 paragraph (1): 9 ``(i) HOME STATE.-The term `home 10 State' means- 11 ``(I) with respect to a national 12 wholesale financial institution, the 13 State in which the main office of the 14 institution is located; and 15 ``(II) with respect to a State- 16 chartered wholesale financial institu- 17 tion, the State by which the institu- 18 tion is chartered. 19 ``(ii) HOST STATE.-The term `host 20 State' means a State, other than the home 21 State of the wholesale financial institution, 22 in which the institution maintains, or seeks 23 to establish and maintain, a branch. 24 ``(iii) OUT-OF-STATE BANK.-The 25 term `out-of-State bank' means, with re- *HR 10 EH 99 1 spect to any State, a wholesale financial 2 institution whose home State is another 3 State. 4 ``(8) DISCRIMINATION REGARDING INTEREST 5 RATES.-Section 27 of the Federal Deposit Insur- 6 ance Act shall apply to State-chartered wholesale fi- 7 nancial institutions in the same manner and to the 8 same extent as such provisions apply to State mem- 9 ber insured banks and any reference in such section 10 to a State-chartered insured depository institution 11 shall be deemed to include a reference to a State- 12 chartered wholesale financial institution. 13 ``(9) PREEMPTION OF STATE LAWS REQUIRING 14 DEPOSIT INSURANCE FOR WHOLESALE FINANCIAL 15 INSTITUTIONS.-The appropriate State banking au- 16 thority may grant a charter to a wholesale financial 17 institution notwithstanding any State constitution or 18 statute requiring that the institution obtain insur- 19 ance of its deposits and any such State constitution 20 or statute is hereby preempted solely for purposes of 21 this paragraph. 22 ``(10) PARITY FOR WHOLESALE FINANCIAL IN- 23 STITUTIONS.-A State bank that is a wholesale fi- 24 nancial institution under this section shall have all 25 of the rights, powers, privileges, and immunities (in- *HR 10 EH 100 1 cluding those derived from status as a federally 2 chartered institution) of and as if it were a national 3 bank, subject to such terms and conditions as estab- 4 lished by the Board. 5 ``(11) COMMUNITY REINVESTMENT ACT OF 6 1977.-A State wholesale financial institution shall 7 be subject to the Community Reinvestment Act of 8 1977. 9 ``(c) SPECIFIC REQUIREMENTS APPLICABLE TO 10 WHOLESALE FINANCIAL INSTITUTIONS.- 11 ``(1) LIMITATIONS ON DEPOSITS.- 12 ``(A) MINIMUM AMOUNT.- 13 ``(i) IN GENERAL.-No wholesale fi- 14 nancial institution may receive initial de- 15 posits of $100,000 or less, other than on 16 an incidental and occasional basis. 17 ``(ii) LIMITATION ON DEPOSITS OF 18 LESS THAN $100,000.-No wholesale finan- 19 cial institution may receive initial deposits 20 of $100,000 or less if such deposits con- 21 stitute more than 5 percent of the institu- 22 tion's total deposits. 23 ``(B) NO DEPOSIT INSURANCE.-No depos- 24 its held by a wholesale financial institution shall *HR 10 EH 101 1 be insured deposits under the Federal Deposit 2 Insurance Act. 3 ``(C) ADVERTISING AND DISCLOSURE.- 4 The Board shall prescribe regulations pertain- 5 ing to advertising and disclosure by wholesale 6 financial institutions to ensure that each deposi- 7 tor is notified that deposits at the wholesale fi- 8 nancial institution are not federally insured or 9 otherwise guaranteed by the United States Gov- 10 ernment. 11 ``(2) MINIMUM CAPITAL LEVELS APPLICABLE 12 TO WHOLESALE FINANCIAL INSTITUTIONS.-The 13 Board shall, by regulation, adopt capital require- 14 ments for wholesale financial institutions- 15 ``(A) to account for the status of wholesale 16 financial institutions as institutions that accept 17 deposits that are not insured under the Federal 18 Deposit Insurance Act; and 19 ``(B) to provide for the safe and sound op- 20 eration of the wholesale financial institution 21 without undue risk to creditors or other per- 22 sons, including Federal reserve banks, engaged 23 in transactions with the bank. 24 ``(3) ADDITIONAL REQUIREMENTS APPLICABLE 25 TO WHOLESALE FINANCIAL INSTITUTIONS.-In addi- *HR 10 EH 102 1 tion to any requirement otherwise applicable to State 2 member insured banks or applicable, under this sec- 3 tion, to wholesale financial institutions, the Board 4 may impose, by regulation or order, upon wholesale 5 financial institutions- 6 ``(A) limitations on transactions, direct or 7 indirect, with affiliates to prevent- 8 ``(i) the transfer of risk to the deposit 9 insurance funds; or 10 ``(ii) an affiliate from gaining access 11 to, or the benefits of, credit from a Federal 12 reserve bank, including overdrafts at a 13 Federal reserve bank; 14 ``(B) special clearing balance requirements; 15 and 16 ``(C) any additional requirements that the 17 Board determines to be appropriate or nec- 18 essary to- 19 ``(i) promote the safety and soundness 20 of the wholesale financial institution or any 21 insured depository institution affiliate of 22 the wholesale financial institution; 23 ``(ii) prevent the transfer of risk to 24 the deposit insurance funds; or *HR 10 EH 103 1 ``(iii) protect creditors and other per- 2 sons, including Federal reserve banks, en- 3 gaged in transactions with the wholesale fi- 4 nancial institution. 5 ``(4) EXEMPTIONS FOR WHOLESALE FINANCIAL 6 INSTITUTIONS.-The Board may, by regulation or 7 order, exempt any wholesale financial institution 8 from any provision applicable to a member bank 9 that is not a wholesale financial institution, if the 10 Board finds that such exemption is not inconsistent 11 with- 12 ``(A) the promotion of the safety and 13 soundness of the wholesale financial institution 14 or any insured depository institution affiliate of 15 the wholesale financial institution; 16 ``(B) the protection of the deposit insur- 17 ance funds; and 18 ``(C) the protection of creditors and other 19 persons, including Federal reserve banks, en- 20 gaged in transactions with the wholesale finan- 21 cial institution. 22 ``(5) LIMITATION ON TRANSACTIONS BETWEEN 23 A WHOLESALE FINANCIAL INSTITUTION AND AN IN- 24 SURED BANK.-For purposes of section 23A(d)(1) of 25 the Federal Reserve Act, a wholesale financial insti- *HR 10 EH 104 1 tution that is affiliated with an insured bank shall 2 not be a bank. 3 ``(6) NO EFFECT ON OTHER PROVISIONS.-This 4 section shall not be construed as limiting the 5 Board's authority over member banks under any 6 other provision of law, or to create any obligation for 7 any Federal reserve bank to make, increase, renew, 8 or extend any advance or discount under this Act to 9 any member bank or other depository institution. 10 ``(d) CAPITAL AND MANAGERIAL REQUIREMENTS.- 11 ``(1) IN GENERAL.-A wholesale financial insti- 12 tution shall be well capitalized and well managed. 13 ``(2) NOTICE TO COMPANY.-The Board shall 14 promptly provide notice to a company that controls 15 a wholesale financial institution whenever such 16 wholesale financial institution is not well capitalized 17 or well managed. 18 ``(3) AGREEMENT TO RESTORE INSTITUTION.- 19 Within 45 days of receipt of a notice under para- 20 graph (2) (or such additional period not to exceed 21 90 days as the Board may permit), the company 22 shall execute an agreement acceptable to the Board 23 to restore the wholesale financial institution to com- 24 pliance with all of the requirements of paragraph 25 (1). *HR 10 EH 105 1 ``(4) LIMITATIONS UNTIL INSTITUTION RE- 2 STORED.-Until the wholesale financial institution is 3 restored to compliance with all of the requirements 4 of paragraph (1), the Board may impose such limi- 5 tations on the conduct or activities of the company 6 or any affiliate of the company as the Board deter- 7 mines to be appropriate under the circumstances. 8 ``(5) FAILURE TO RESTORE.-If the company 9 does not execute and implement an agreement in ac- 10 cordance with paragraph (3), comply with any limi- 11 tation imposed under paragraph (4), restore the 12 wholesale financial institution to well capitalized sta- 13 tus within 180 days after receipt by the company of 14 the notice described in paragraph (2), or restore the 15 wholesale financial institution to well managed sta- 16 tus within such period as the Board may permit, the 17 company shall, under such terms and conditions as 18 may be imposed by the Board and subject to such 19 extension of time as may be granted in the Board's 20 discretion, divest control of its subsidiary depository 21 institutions. 22 ``(6) WELL MANAGED DEFINED.-For purposes 23 of this subsection, the term `well managed' has the 24 same meaning as in section 2 of the Bank Holding 25 Company Act of 1956. *HR 10 EH 106 1 ``(e) CONSERVATORSHIP AUTHORITY.- 2 ``(1) IN GENERAL.-The Board may appoint a 3 conservator to take possession and control of a 4 wholesale financial institution to the same extent 5 and in the same manner as the Comptroller of the 6 Currency may appoint a conservator for a national 7 bank under section 203 of the Bank Conservation 8 Act, and the conservator shall exercise the same 9 powers, functions, and duties, subject to the same 10 limitations, as are provided under such Act for con- 11 servators of national banks. 12 ``(2) BOARD AUTHORITY.-The Board shall 13 have the same authority with respect to any con- 14 servator appointed under paragraph (1) and the 15 wholesale financial institution for which such con- 16 servator has been appointed as the Comptroller of 17 the Currency has under the Bank Conservation Act 18 with respect to a conservator appointed under such 19 Act and a national bank for which the conservator 20 has been appointed. 21 ``(f) EXCLUSIVE JURISDICTION.-Subsections (c) and 22 (e) of section 43 of the Federal Deposit Insurance Act 23 shall not apply to any wholesale financial institution.''. 24 (c) VOLUNTARY TERMINATION OF INSURED STATUS 25 BY CERTAIN INSTITUTIONS.- *HR 10 EH 107 1 (1) SECTION 8 DESIGNATIONS.-Section 8(a) of 2 the Federal Deposit Insurance Act (12 U.S.C. 3 1818(a)) is amended- 4 (A) by striking paragraph (1); and 5 (B) by redesignating paragraphs (2) 6 through (10) as paragraphs (1) through (9), re- 7 spectively. 8 (2) VOLUNTARY TERMINATION OF INSURED 9 STATUS.-The Federal Deposit Insurance Act (12 10 U.S.C. 1811 et seq.) is amended by inserting after 11 section 8 the following new section: 12 ``SEC. 8A. VOLUNTARY TERMINATION OF STATUS AS IN- 13 SURED DEPOSITORY INSTITUTION. 14 ``(a) IN GENERAL.-Except as provided in subsection 15 (b), an insured State bank or a national bank may volun- 16 tarily terminate such bank's status as an insured deposi- 17 tory institution in accordance with regulations of the Cor- 18 poration if- 19 ``(1) the bank provides written notice of the 20 bank's intent to terminate such insured status- 21 ``(A) to the Corporation and the Board of 22 Governors of the Federal Reserve System not 23 less than 6 months before the effective date of 24 such termination; and *HR 10 EH 108 1 ``(B) to all depositors at such bank, not 2 less than 6 months before the effective date of 3 the termination of such status; and 4 ``(2) either- 5 ``(A) the deposit insurance fund of which 6 such bank is a member equals or exceeds the 7 fund's designated reserve ratio as of the date 8 the bank provides a written notice under para- 9 graph (1) and the Corporation determines that 10 the fund will equal or exceed the applicable des- 11 ignated reserve ratio for the 2 semiannual as- 12 sessment periods immediately following such 13 date; or 14 ``(B) the Corporation and the Board of 15 Governors of the Federal Reserve System ap- 16 proved the termination of the bank's insured 17 status and the bank pays an exit fee in accord- 18 ance with subsection (e). 19 ``(b) EXCEPTION.-Subsection (a) shall not apply 20 with respect to- 21 ``(1) an insured savings association; or 22 ``(2) an insured branch that is required to be 23 insured under subsection (a) or (b) of section 6 of 24 the International Banking Act of 1978. *HR 10 EH 109 1 ``(c) ELIGIBILITY FOR INSURANCE TERMINATED.- 2 Any bank that voluntarily elects to terminate the bank's 3 insured status under subsection (a) shall not be eligible 4 for insurance on any deposits or any assistance authorized 5 under this Act after the period specified in subsection 6 (f)(1). 7 ``(d) INSTITUTION MUST BECOME WHOLESALE FI- 8 NANCIAL INSTITUTION OR TERMINATE DEPOSIT-TAKING 9 ACTIVITIES.-Any depository institution which voluntarily 10 terminates such institution's status as an insured deposi- 11 tory institution under this section may not, upon termi- 12 nation of insurance, accept any deposits unless the institu- 13 tion is a wholesale financial institution subject to section 14 9B of the Federal Reserve Act. 15 ``(e) EXIT FEES.- 16 ``(1) IN GENERAL.-Any bank that voluntarily 17 terminates such bank's status as an insured deposi- 18 tory institution under this section shall pay an exit 19 fee in an amount that the Corporation determines is 20 sufficient to account for the institution's pro rata 21 share of the amount (if any) which would be re- 22 quired to restore the relevant deposit insurance fund 23 to the fund's designated reserve ratio as of the date 24 the bank provides a written notice under subsection 25 (a)(1). *HR 10 EH 110 1 ``(2) PROCEDURES.-The Corporation shall pre- 2 scribe, by regulation, procedures for assessing any 3 exit fee under this subsection. 4 ``(f) TEMPORARY INSURANCE OF DEPOSITS INSURED 5 AS OF TERMINATION.- 6 ``(1) TRANSITION PERIOD.-The insured depos- 7 its of each depositor in a State bank or a national 8 bank on the effective date of the voluntary termi- 9 nation of the bank's insured status, less all subse- 10 quent withdrawals from any deposits of such deposi- 11 tor, shall continue to be insured for a period of not 12 less than 6 months and not more than 2 years, as 13 determined by the Corporation. During such period, 14 no additions to any such deposits, and no new de- 15 posits in the depository institution made after the ef- 16 fective date of such termination shall be insured by 17 the Corporation. 18 ``(2) TEMPORARY ASSESSMENTS; OBLIGATIONS 19 AND DUTIES.-During the period specified in para- 20 graph (1) with respect to any bank, the bank shall 21 continue to pay assessments under section 7 as if 22 the bank were an insured depository institution. The 23 bank shall, in all other respects, be subject to the 24 authority of the Corporation and the duties and obli- 25 gations of an insured depository institution under *HR 10 EH 111 1 this Act during such period, and in the event that 2 the bank is closed due to an inability to meet the de- 3 mands of the bank's depositors during such period, 4 the Corporation shall have the same powers and 5 rights with respect to such bank as in the case of 6 an insured depository institution. 7 ``(g) ADVERTISEMENTS.- 8 ``(1) IN GENERAL.-A bank that voluntarily 9 terminates the bank's insured status under this sec- 10 tion shall not advertise or hold itself out as having 11 insured deposits, except that the bank may advertise 12 the temporary insurance of deposits under sub- 13 section (f) if, in connection with any such advertise- 14 ment, the advertisement also states with equal prom- 15 inence that additions to deposits and new deposits 16 made after the effective date of the termination are 17 not insured. 18 ``(2) CERTIFICATES OF DEPOSIT, OBLIGATIONS, 19 AND SECURITIES.-Any certificate of deposit or 20 other obligation or security issued by a State bank 21 or a national bank after the effective date of the vol- 22 untary termination of the bank's insured status 23 under this section shall be accompanied by a con- 24 spicuous, prominently displayed notice that such cer- *HR 10 EH 112 1 tificate of deposit or other obligation or security is 2 not insured under this Act. 3 ``(h) NOTICE REQUIREMENTS.- 4 ``(1) NOTICE TO THE CORPORATION.-The no- 5 tice required under subsection (a)(1)(A) shall be in 6 such form as the Corporation may require. 7 ``(2) NOTICE TO DEPOSITORS.-The notice re- 8 quired under subsection (a)(1)(B) shall be- 9 ``(A) sent to each depositor's last address 10 of record with the bank; and 11 ``(B) in such manner and form as the Cor- 12 poration finds to be necessary and appropriate 13 for the protection of depositors.''. 14 (3) DEFINITION.-Section 19(b)(1)(A)(i) of the 15 Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i)) is 16 amended by inserting ``, or any wholesale financial 17 institution subject to section 9B of this Act'' after 18 ``such Act''. *HR 10 EH 113 1 Subtitle E-Preservation of FTC 2 Authority 3 SEC. 141. AMENDMENT TO THE BANK HOLDING COMPANY 4 ACT OF 1956 TO MODIFY NOTIFICATION AND 5 POST-APPROVAL WAITING PERIOD FOR SEC- 6 TION 3 TRANSACTIONS. 7 Section 11(b)(1) of the Bank Holding Company Act 8 of 1956 (12 U.S.C. 1849(b)(1)) is amended by inserting 9 ``and, if the transaction also involves an acquisition under 10 section 4 or section 6, the Board shall also notify the Fed- 11 eral Trade Commission of such approval'' before the pe- 12 riod at the end of the first sentence. 13 SEC. 142. INTERAGENCY DATA SHARING. 14 To the extent not prohibited by other law, the Comp- 15 troller of the Currency, the Director of the Office of Thrift 16 Supervision, the Federal Deposit Insurance Corporation, 17 and the Board of Governors of the Federal Reserve Sys- 18 tem shall make available to the Attorney General and the 19 Federal Trade Commission any data in the possession of 20 any such banking agency that the antitrust agency deems 21 necessary for antitrust review of any transaction requiring 22 notice to any such antitrust agency or the approval of such 23 agency under section 3, 4, or 6 of the Bank Holding Com- 24 pany Act of 1956, section 18(c) of the Federal Deposit 25 Insurance Act, the National Bank Consolidation and *HR 10 EH 114 1 Merger Act, section 10 of the Home Owners' Loan Act, 2 or the antitrust laws. 3 SEC. 143. CLARIFICATION OF STATUS OF SUBSIDIARIES 4 AND AFFILIATES. 5 (a) CLARIFICATION OF FEDERAL TRADE COMMIS- 6 SION JURISDICTION.-Any person which directly or indi- 7 rectly controls, is controlled directly or indirectly by, or 8 is directly or indirectly under common control with, any 9 bank or savings association (as such terms are defined in 10 section 3 of the Federal Deposit Insurance Act) and is 11 not itself a bank or savings association shall not be 12 deemed to be a bank or savings association for purposes 13 of the Federal Trade Commission Act or any other law 14 enforced by the Federal Trade Commission. 15 (b) SAVINGS PROVISION.-No provision of this sec- 16 tion shall be construed as restricting the authority of any 17 Federal banking agency (as defined in section 3 of the 18 Federal Deposit Insurance Act) under any Federal bank- 19 ing law, including section 8 of the Federal Deposit Insur- 20 ance Act. 21 (c) HART­SCOTT­RODINO AMENDMENT.-Section 22 7A(c)(7) of the Clayton Act (15 U.S.C. 18a(c)(7)) is 23 amended by inserting before the semicolon at the end 24 thereof the following: ``, except that a portion of a trans- 25 action is not exempt under this paragraph if such portion *HR 10 EH 115 1 of the transaction (A) requires notice under section 6 of 2 the Bank Holding Company Act of 1956; and (B) does 3 not require approval under section 3 or 4 of the Bank 4 Holding Company Act of 1956''. 5 SEC. 144. ANNUAL GAO REPORT. 6 (a) IN GENERAL.-By the end of the 1-year period 7 beginning on the date of the enactment of this Act and 8 annually thereafter, the Comptroller General of the United 9 States shall submit a report to the Congress on market 10 concentration in the financial services industry and its im- 11 pact on consumers. 12 (b) ANALYSIS.-Each report submitted under sub- 13 section (a) shall contain an analysis of- 14 (1) the positive and negative effects of affili- 15 ations between various types of financial companies, 16 and of acquisitions pursuant to this Act and the 17 amendments made by this Act to other provisions of 18 law, including any positive or negative effects on 19 consumers, area markets, and submarkets thereof or 20 on registered securities brokers and dealers which 21 have been purchased by depository institutions or 22 depository institution holding companies; 23 (2) the changes in business practices and the 24 effects of any such changes on the availability of 25 venture capital, consumer credit, and other financial *HR 10 EH 116 1 services or products and the availability of capital 2 and credit for small businesses; and 3 (3) the acquisition patterns among depository 4 institutions, depository institution holding compa- 5 nies, securities firms, and insurance companies in- 6 cluding acquisitions among the largest 20 percent of 7 firms and acquisitions within regions or other lim- 8 ited geographical areas. 9 Subtitle F-Applying the Principles 10 of National Treatment and 11 Equality of Competitive Oppor- 12 tunity to Foreign Banks and 13 Foreign Financial Institutions 14 SEC. 151. APPLYING THE PRINCIPLES OF NATIONAL TREAT- 15 MENT AND EQUALITY OF COMPETITIVE OP- 16 PORTUNITY TO FOREIGN BANKS THAT ARE 17 FINANCIAL HOLDING COMPANIES. 18 Section 8(c) of the International Banking Act of 19 1978 (12 U.S.C. 3106(c)) is amended by adding at the 20 end the following new paragraph: 21 ``(3) TERMINATION OF GRANDFATHERED 22 RIGHTS.- 23 ``(A) IN GENERAL.-If any foreign bank or 24 foreign company files a declaration under sec- 25 tion 6(b)(1)(E) or which receives a determina- *HR 10 EH 117 1 tion under section 10(d)(1) of the Bank Hold- 2 ing Company Act of 1956, any authority con- 3 ferred by this subsection on any foreign bank or 4 company to engage in any activity which the 5 Board has determined to be permissible for fi- 6 nancial holding companies under section 6 of 7 such Act shall terminate immediately. 8 ``(B) RESTRICTIONS AND REQUIREMENTS 9 AUTHORIZED.-If a foreign bank or company 10 that engages, directly or through an affiliate 11 pursuant to paragraph (1), in an activity which 12 the Board has determined to be permissible for 13 financial holding companies under section 6 of 14 the Bank Holding Company Act of 1956 has 15 not filed a declaration with the Board of its sta- 16 tus as a financial holding company under such 17 section or received a determination under sec- 18 tion 10(d)(1) by the end of the 2-year period 19 beginning on the date of enactment of the Fi- 20 nancial Services Act of 1998, the Board, giving 21 due regard to the principle of national treat- 22 ment and equality of competitive opportunity, 23 may impose such restrictions and requirements 24 on the conduct of such activities by such foreign 25 bank or company as are comparable to those *HR 10 EH 118 1 imposed on a financial holding company orga- 2 nized under the laws of the United States, in- 3 cluding a requirement to conduct such activities 4 in compliance with any prudential safeguards 5 established under section 5(h) of the Bank 6 Holding Company Act of 1956.''. 7 SEC. 152. APPLYING THE PRINCIPLES OF NATIONAL TREAT- 8 MENT AND EQUALITY OF COMPETITIVE OP- 9 PORTUNITY TO FOREIGN BANKS AND FOR- 10 EIGN FINANCIAL INSTITUTIONS THAT ARE 11 WHOLESALE FINANCIAL INSTITUTIONS. 12 Section 8A of the Federal Deposit Insurance Act (as 13 added by section 136(c)(2) of this Act) is amended by add- 14 ing at the end the following new subsection: 15 ``(i) VOLUNTARY TERMINATION OF DEPOSIT INSUR- 16 ANCE.-The provisions on voluntary termination of insur- 17 ance in this section shall apply to an insured branch of 18 a foreign bank (including a Federal branch) in the same 19 manner and to the same extent as they apply to an insured 20 State bank or a national bank.''. 21 Subtitle G-Federal Home Loan 22 Bank System 23 SEC. 161. FEDERAL HOME LOAN BANKS. 24 The first sentence of section 3 of the Federal Home 25 Loan Bank Act (12 U.S.C. 1423) is amended- *HR 10 EH 119 1 (1) by striking ``the continental United States'' 2 and all that follows through the ``eight''; and 3 (2) by inserting ``the States into not less than 4 1'' before ``nor''. 5 SEC. 162. MEMBERSHIP AND COLLATERAL. 6 (a) Subsection (f) of section 5 of the Home Owners' 7 Loan Act (12 U.S.C. 1464) is amended to read as follows: 8 ``(f) FEDERAL HOME LOAN BANK MEMBERSHIP.- 9 A Federal savings association may become a member, of 10 the Federal Home Loan Bank System, and shall qualify 11 for such membership in the manner provided by the Fed- 12 eral Home Loan Bank Act, beginning January 1, 1999.''. 13 (b) Section 10(a)(5) of the Federal Home Loan Bank 14 Act (12 U.S.C. 1430(a)(5)) is amended- 15 (1) in the second sentence, by striking ``and the 16 Board''; and 17 (2) in the third sentence, by striking ``Board'' 18 and inserting ``Bank''. 19 (c) Section 10(a) of the Federal Home Loan Bank 20 Act (12 U.S.C. 1430(a)) is amended- 21 (1) in the second sentence, by striking ``All 22 long-term advances'' and inserting ``Except as pro- 23 vided in the succeeding sentence, all long-term ad- 24 vances''; *HR 10 EH 120 1 (2) by inserting after the second sentence, the 2 following sentence: ``Notwithstanding the preceding 3 sentence, long-term advances may be made to mem- 4 bers insured by the Federal Deposit Insurance Cor- 5 poration which have less than $500,000,000 in total 6 assets for the purpose of funding small businesses, 7 agriculture, rural development, or low-income com- 8 munity development (as defined by the Board).''; 9 and 10 (3) by redesignating paragraph (5) as para- 11 graph (6) and inserting after paragraph (4) the fol- 12 lowing new paragraph: 13 ``(5) In the case of any member insured by the 14 Federal Deposit Insurance Corporation which has 15 total assets of less than $500,000,000, secured loans 16 for small business, agriculture, rural development, or 17 low-income community development, or securities 18 representing a whole interest in such secured 19 loans.''. 20 (d) Section 4(a) of the Federal Home Loan Bank Act 21 (12 U.S.C. 1424(a)) is amended by adding at the end the 22 following new paragraph: 23 ``(3) ELIGIBILITY REQUIREMENTS FOR COMMU- 24 NITY FINANCIAL INSTITUTIONS.-The requirements 25 of paragraph (2) (other than subparagraph (B) of *HR 10 EH 121 1 such paragraph) shall not apply to any insured de- 2 pository institution which has total assets of less 3 than $500,000,000. 4 (e) Section 10 of the Federal Home Loan Bank Act 5 (12 U.S.C. 1430) is amended by striking the first of the 6 2 subsections designated as subsection (e) (relating to 7 qualified thrift lender status). 8 SEC. 163. THE OFFICE OF FINANCE. 9 The Federal Home Loan Bank Act (12 U.S.C. 1421) 10 is amended by inserting after section 4 the following new 11 section: 12 ``SEC. 5. THE OFFICE OF FINANCE. 13 ``(a) OPERATION.-The Federal home loan banks 14 shall operate jointly an office of finance (hereafter in this 15 section referred to as the `Office') to issue the notes, 16 bonds, and debentures of the Federal home loan banks 17 in accordance with this Act. 18 ``(b) POWERS.-Subject to the other provisions of 19 this Act and such safety and soundness regulations as the 20 Finance Board may prescribe, the Office shall be author- 21 ized by the Federal home loan banks to act as the agent 22 of such banks to issue Federal home loan bank notes, 23 bonds and debentures pursuant to section 11 of this Act 24 on behalf of the banks. 25 ``(c) CENTRAL BOARD OF DIRECTORS.- *HR 10 EH 122 1 ``(1) ESTABLISHMENT.-The Federal home 2 loan banks shall establish a central board of direc- 3 tors of the Office to administer the affairs of the Of- 4 fice in accordance with the provisions of this Act. 5 ``(2) COMPOSITION OF BOARD.-Each Federal 6 home loan bank shall annually select one individual 7 who, as of the time of the election, is an officer or 8 director of such bank to serve as a member of the 9 central board of directors of the Office. 10 ``(d) STATUS.-Except to the extent expressly pro- 11 vided in this Act, the Office shall be treated as a Federal 12 home loan bank for purposes of any law.''. 13 SEC. 164. MANAGEMENT OF BANKS. 14 (a) Subsections (a) and (b) of section 7 of the Federal 15 Home Loan Bank Act (12 U.S.C. 1427(a) and (b)) are 16 amended to read as follows: 17 ``(a) The management of each Federal home loan 18 bank shall be vested in a board of 15 directors, nine of 19 whom shall be elected by the members in accordance with 20 this section, six of whom shall be appointed by the Board 21 referred to in section 2A, and all of whom shall be citizens 22 of the United States and bona fide residents of the district 23 in which such bank is located. At least two of the Federal 24 home loan bank directors who are appointed by the Board 25 shall be representatives chosen from organizations with *HR 10 EH 123 1 more than a 2-year history of representing consumer or 2 community interests on banking services, credit needs, 3 housing, or financial consumer protections. No Federal 4 home loan bank director who is appointed pursuant to this 5 subsection may, during such bank director's term of office, 6 serve as an officer of any Federal home loan bank or a 7 director or officer of any member of a bank, or hold 8 shares, or any other financial interest in, any member of 9 a bank. 10 ``(b) The elective directors shall be divided into three 11 classes, designated as classes A, B, and C, as nearly equal 12 in number as possible. Each directorship shall be filled by 13 a person who is an officer or director of a member located 14 in that bank's district. Each class shall represent members 15 of similar asset size, and the Board shall, to the maximum 16 extent possible, seek to achieve geographic diversity. The 17 Finance Board shall establish the minimum and maximum 18 asset size for each class. Any member shall be entitled to 19 nominate and elect eligible persons for its class of director- 20 ship; such offices shall be filled from such nominees by 21 a plurality of the votes which members of each class may 22 cast for nominees in their corresponding class of directors 23 in an election held for the purpose of filling such offices. 24 Each member shall be permitted to cast one vote for each 25 share of Federal home loan bank stock owned by that *HR 10 EH 124 1 member. No person who is an officer or director of a mem- 2 ber that fails to meet any applicable capital requirement 3 is eligible to hold the office of Federal Home Loan Bank 4 director. As used in this subsection, the term ``member'' 5 means a member of a Federal home loan bank which was 6 a member of such Bank as of a record date established 7 by the Bank.''. 8 (b) Section 7 of the Federal Home Loan Bank Act 9 (12 U.S.C. 1427) is amended- 10 (1) by striking subsections (c) and (h); and 11 (2) by redesignating subsections (d), (e), (f), 12 (g), (i), (j), and (k) as subsections (c), (d), (e), (f), 13 (g), (h), and (i), respectively. 14 (c) Subsection (c) of section 7 of the Federal Home 15 Loan Bank Act (12 U.S.C. 1427(d)) (as so redesignated 16 by subsection (b) of this section) is amended by striking 17 the first and second sentences and inserting the following 18 two new sentences: ``The term of each position of director 19 shall be 3 years. No director serving for three consecutive 20 terms, nor any other officer, director or that member or 21 any affiliated depository institution, shall be eligible for 22 another term earlier than 3 years after the expiration of 23 the last expiring of said 3-year terms. Three elected direc- 24 tors of different classes as specified by the Finance Board 25 shall be elected by ballot annually.''. *HR 10 EH 125 1 (d) Subsection (d) of section 7 of the Federal Home 2 Loan Bank Act (12 U.S.C. 1427(e)) (as so redesignated 3 by subsection (b) of this section) is amended to read as 4 follows: 5 ``(d) TRANSITION PROVISION.-In the first election 6 after the date of the enactment of the Financial Services 7 Act of 1998, three directors shall be elected in each of 8 the 3 classes of elective directorship. The Finance Board 9 may, in the first election after such date of enactment, 10 designate the terms of each elected director in each class, 11 not to exceed 3 years, to assure that, in each subsequent 12 election, 3 directors from different classes of elective direc- 13 torships are elected each year.''. 14 (e) Subsection (g) of section 7 of the Federal Home 15 Loan Bank Act (12 U.S.C. 1427(i)) (as so redesignated 16 by subsection (b) of this section) is amended by striking 17 ``subject to the approval of the board''. 18 SEC. 165. ADVANCES TO NONMEMBER BORROWERS. 19 Section 10b of the Federal Home Loan Bank Act (12 20 U.S.C. 1430b) is amended- 21 (1) in subsection (a), by striking ``(a) IN GEN- 22 ERAL.-''; 23 (2) by striking the fourth sentence of subsection 24 (a), and inserting ``Notwithstanding the preceding 25 sentence, if an advance is made for the purpose of *HR 10 EH 126 1 facilitating mortgage lending that benefits individ- 2 uals and families that meet the income requirements 3 set forth in section 142(d) or 143(f) of the Internal 4 Revenue Code of 1986, the advance may be 5 collateralized as provided in section 10(a) of this 6 Act.''; and 7 (3) by striking subsection (b). 8 SEC. 166. POWERS AND DUTIES OF BANKS. 9 (a) Subsection (a) of section 11 of the Federal Home 10 Loan Bank Act (12 U.S.C. 1431(a)) is amended- 11 (1) by inserting ``through the Office of Fi- 12 nance'' after ``to issue''; and 13 (2) by striking ``Board'' after ``upon such terms 14 and conditions as the'' and inserting ``board of di- 15 rectors of the bank''. 16 (b) Subsection (b) of section 11 of the Federal Home 17 Loan Bank Act (12 U.S.C. 1431(b)) is amended to read 18 as follows: 19 ``(b) ISSUANCE OF FEDERAL HOME LOAN BANK 20 CONSOLIDATED BONDS.- 21 ``(1) IN GENERAL.- The Office of Finance may 22 issue consolidated Federal home loan bank bonds 23 and other consolidated obligations on behalf of the 24 banks. *HR 10 EH 127 1 ``(2) JOINT AND SEVERAL OBLIGATION; TERMS 2 AND CONDITIONS.-Consolidated obligations issued 3 by the Office of Finance under paragraph (1) 4 shall- 5 ``(A) be the joint and several obligations of 6 all the Federal home loan banks; and 7 ``(B) shall be issued upon such terms and 8 conditions as shall be established by the Office 9 of Finance subject to such rules and regulations 10 as the Finance Board may prescribe.''. 11 (c) Section 11(f) of the Federal Home Loan Bank 12 Act (12 U.S.C. 1430(f) (as designated before the redesig- 13 nation by subsection (e) of this section) is amended by 14 striking both commas immediately following ``permit'' and 15 inserting ``or''. 16 (d) Subsection (i) of section 11 of the Federal Home 17 Loan Bank Act (12 U.S.C. 1431(i)) is amended by strik- 18 ing the second undesignated paragraph. 19 (e) Section 11 of the Federal Home Loan Bank Act 20 (12 U.S.C. 1431) is amended- 21 (1) by striking subsection (c); and 22 (2) by redesignating subsections (d) through (k) 23 as subsections (c) through (j), respectively. *HR 10 EH 128 1 SEC. 167. MERGERS AND CONSOLIDATIONS OF FEDERAL 2 HOME LOAN BANKS. 3 Section 26 of the Federal Home Loan Bank Act (12 4 U.S.C. 1446) is amended by designating the current para- 5 graph as ``(a)'' and adding the following new sections: 6 ``(b) Nothing in this section shall preclude voluntary 7 mergers, combinations or consolidation by or among the 8 Federal home loan banks pursuant to such regulations as 9 the Finance Board may prescribe. 10 ``(c) NUMBER OF ELECTED DIRECTORS OF RESULT- 11 ING BANK.- Subject to section 7 of this Act, any bank 12 resulting from a merger, combination, or consolidation 13 pursuant to this section may have a number of elected di- 14 rectors equal to or less than the total number of elected 15 directors of all the banks which participated in such trans- 16 action (as determined immediately before such trans- 17 action). 18 ``(d) NUMBER OF APPOINTED DIRECTORS OF RE- 19 SULTING BANK.-The number of appointed directors of 20 any bank resulting from a merger, combination, or consoli- 21 dation pursuant to this section shall be a number that is 22 three less than the number of elected directors. 23 ``(e) ADJUSTMENT OF DISTRICT BOUNDARIES.- 24 After consummation of any merger, combination, or con- 25 solidation of two or more Federal home loan banks, the 26 Finance Board shall adjust the districts established in sec- *HR 10 EH 129 1 tion 3 of this Act to reflect such merger, combination, or 2 consolidation.''. 3 SEC. 168. TECHNICAL AMENDMENTS. 4 (a) REPEAL OF SECTIONS 22A AND 27.-The Fed- 5 eral Home Loan Bank Act (12 U.S.C. 1421 et seq.) is 6 amended by striking sections 22A (12 U.S.C. 1442a) and 7 27 (12 U.S.C. 1447). 8 (b) SECTION 12.- 9 (1) Section 12(a) of the Federal Home Loan 10 Bank Act (12 U.S.C. 1432(a)) is amended- 11 (A) by striking ``subject to the approval of 12 the Board'' immediately following ``transaction 13 of its business''; and 14 (B) by striking ``and, by its Board of di- 15 rectors, to prescribe, amend, and repeal by- 16 laws, rules, and regulations governing the man- 17 ner in which its affairs may be administered; 18 and the powers granted to it by law may be ex- 19 ercised and enjoyed subject to the approval of 20 the Board. The president of a Federal Home 21 Loan Bank may also be a member of the Board 22 of directors thereof, but no other officer, em- 23 ployee, attorney, or agent of such bank,'' and 24 inserting ``and, by the board of directors of the 25 bank, to prescribe, amend, and repeal by-laws *HR 10 EH 130 1 governing the manner in which its affairs may 2 be administered, consistent with applicable stat- 3 ute and regulation, as administered by the Fi- 4 nance Board. No officer, employee, attorney, or 5 agent of a Federal home loan bank''. 6 (2) Section 12 of the Federal Home Loan Bank 7 Act (12 U.S.C. 1432) is amended by inserting after 8 subsection (b) the following new subsection: 9 ``(c) PROHIBITION ON EXCESSIVE COMPENSATION.- 10 ``(1) IN GENERAL.-The Finance Board shall 11 prohibit the Federal home loan banks from provid- 12 ing compensation to any officer, director, or em- 13 ployee that is not reasonable and comparable with 14 the compensation for employment in other similar 15 businesses involving similar duties and responsibil- 16 ities. However, the Finance Board may not prescribe 17 or set a specific level or range of compensation for 18 any officer, director, or employee. 19 ``(2) REGULATIONS.-The Finance Board, by 20 regulation, may provide for the requirements of 21 paragraph (1) to be phased-in over a period not to 22 exceed 3 years. 23 ``(3) EXCEPTION FOR EXISTING CONTRACTS.- 24 Paragraph (1) shall not apply to any contract en- 25 tered into before June 1, 1997.''. *HR 10 EH 131 1 (c) POWERS AND DUTIES OF FEDERAL HOUSING FI- 2 NANCE BOARD.- 3 (1) Subsection (a)(1) of section 2B of the Fed- 4 eral Home Loan Bank Act (12 U.S.C. 1422b(a)(1)) 5 is amended by striking the period at the end of the 6 sentence and inserting ``; and to have the same pow- 7 ers, rights, and duties to enforce this Act with re- 8 spect to the Federal home loan banks and the senior 9 officers and directors of such banks as the Office of 10 Federal Housing Enterprise Oversight has over the 11 Federal housing enterprises and the senior officers 12 and directors of such enterprises under the Federal 13 Housing Enterprises Financial Safety and Sound- 14 ness Act of 1992.''. 15 (2) Subsection (b) of section 2B of the Federal 16 Home Loan Bank Act (12 U.S.C. 1422b(b)) is 17 amended- 18 (A) by striking ``(1) BOARD STAFF.-''; 19 (B) by striking ``function to any employee, 20 administrative unit'' and inserting ``function to 21 any employee or administrative unit''; 22 (C) by striking the second sentence in 23 paragraph (1); and 24 (D) by striking paragraph (2). *HR 10 EH 132 1 (3) Section 111 of Public Law 93­495 (12 2 U.S.C. 250) is amended by striking ``Federal Home 3 Loan Bank Board'' and inserting ``Federal Housing 4 Finance Board''. 5 (d) ELIGIBILITY TO SECURE ADVANCES.- 6 (1) SECTION 9.-Section 9 of the Federal 7 Home Loan Bank Act (12 U.S.C. 1429) is amend- 8 ed- 9 (A) in the second sentence, by striking 10 ``with the approval of the Board''; and 11 (B) in the third sentence, by striking ``, 12 subject to the approval of the Board,''. 13 (2) SECTION 10.- 14 (A) Subsection (a) of section 10 of the 15 Federal Home Loan Bank Act (12 U.S.C. 16 1430(a)) is amended in paragraph (3), by strik- 17 ing ``Deposits'' and inserting ``Cash or depos- 18 its''. 19 (B) Subsection (c) of section 10 of the 20 Federal Home Loan Bank Act (12 U.S.C. 21 1430(c)) is amended- 22 (i) in the first sentence by striking 23 ``Board'' and inserting ``Federal home loan 24 bank''; and 25 (ii) by striking the second sentence. *HR 10 EH 133 1 (C) Subsection (d) of section 10 of the 2 Federal Home Loan Bank Act (12 U.S.C. 3 1430(d)) is amended- 4 (i) in the first sentence, by striking 5 ``and the approval of the Board''; and 6 (ii) in the last sentence, by striking 7 ``Subject to the approval of the Board, 8 any'' and inserting ``Any''. 9 (D) Section 10(j) of the Federal Home 10 Loan Bank Act (12 U.S.C. 1430(j)) is amend- 11 ed- 12 (i) in the first sentence of paragraph 13 (1) by striking ``to subsidize the interest 14 rate on advances'' and inserting ``to pro- 15 vide subsidies, including subsidized interest 16 rates on advances''; 17 (ii) in paragraphs (2), (3), (4), (5), 18 (9), (11), and (12) by striking ``advances'' 19 and ``subsidized advances'' each place such 20 terms appear and inserting ``subsidies, in- 21 cluding subsidized advances''; 22 (iii) in paragraph (1), by inserting 23 ``(A)'' before the first sentence, and insert- 24 ing the following at the end of the para- 25 graph: *HR 10 EH 134 1 ``(B) Subject to such regulations as the Fi- 2 nance Board may prescribe, the board of direc- 3 tors of each Federal home loan bank may ap- 4 prove or disapprove requests from members for 5 Affordable Housing Program subsidies, and 6 may not delegate such authority.''; 7 (iv) in paragraph (2), by striking sub- 8 paragraph (B) and inserting the following 9 new subparagraph: 10 ``(B) finance the purchase, construction or 11 rehabilitation of rental housing if, for a period 12 of at least 15 years, either 20 percent or more 13 of the units in such housing are occupied by 14 and affordable for households whose income is 15 50 percent or less of area median income (as 16 determined by the Secretary of Housing and 17 Urban Development, and as adjusted for family 18 size); or 40 percent or more of the units in such 19 housing are occupied by and affordable for 20 households whose income is 60 percent or less 21 of area median income (as determined by the 22 Secretary of Housing and Urban Development, 23 and as adjusted for family size).''; 24 (v) in paragraph (5)- *HR 10 EH 135 1 (I) by striking the colon after 2 ``Affordable Housing Program''; 3 (II) by striking subparagraphs 4 (A) and (B); and 5 (III) by striking ``(C) In 1995, 6 and subsequent years,''; 7 (vi) in paragraph (11)- 8 (I) by inserting ``, pursuant to a 9 nomination process that is as broad 10 and as participatory as possible, and 11 giving consideration to the size of the 12 District and the diversity of low- and 13 moderate-income housing needs and 14 activities within the District,'' after 15 ``Advisory Council of 7 to 15 per- 16 sons''; 17 (II) by inserting ``a diverse range 18 of'' before ``community and nonprofit 19 organizations''; and 20 (III) by inserting after the first 21 sentence, the following new sentence: 22 ``Representatives of no one group 23 shall constitute an undue proportion 24 of the membership of the Advisory 25 Council.''; and *HR 10 EH 136 1 (vii) in paragraph (13), by striking 2 subparagraph (D) and inserting the follow- 3 ing new subparagraph: 4 ``(D) AFFORDABLE.-For purposes of 5 paragraph (2)(B), the term ``affordable'' means 6 that the rent with respect to a unit shall not ex- 7 ceed 30 percent of the income limitation under 8 paragraph (2)(B) applicable to occupants of 9 such unit.''. 10 (e) SECTION 16.-Subsection (a) of section 16 of the 11 Federal Home Loan Bank Act (12 U.S.C. 1436) is 12 amended in the third sentence by striking ``net earnings'' 13 and inserting ``previously retained earnings or current net 14 earnings''; by striking ``, and then only with the approval 15 of the Federal Housing Finance Board''; and by striking 16 the fourth sentence. 17 (f) SECTION 18.-Subsection (b) of section 18 of the 18 Federal Home Loan Bank Act (12 U.S.C. 1438) is 19 amended by striking paragraph (4). 20 (g) SECTION 11.-Section 11 of the Federal Home 21 Loan Bank Act (12 U.S.C. 1431) is amended by inserting 22 after subsection (j) (as so redesignated by section 166(e) 23 of this subtitle) the following subsection: 24 ``(k) PROHIBITION ON OTHER ACTIVITIES.- *HR 10 EH 137 1 ``(1) A Federal home loan bank may not engage 2 in any activity other than the activities authorized 3 under this Act and activities incidental to such au- 4 thorized activities. 5 ``(2) All activities specified in paragraph (1) are 6 subject to Finance Board approval.''. 7 SEC. 169. DEFINITIONS. 8 Paragraph (3) of section 2 of the Federal Home Loan 9 Bank Act (12 U.S.C. 1422(3)) is amended to read as fol- 10 lows: 11 ``(3) The term ``State'' in addition to the states 12 of the United States, includes the District of Colum- 13 bia, Guam, Puerto Rico, the United States Virgin 14 Islands, American Samoa, and the Commonwealth of 15 the Northern Mariana Islands.''. 16 SEC. 170. RESOLUTION FUNDING CORPORATION. 17 (a) IN GENERAL.-Section 21B(f)(2)(C) of the Fed- 18 eral Home Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is 19 amended to read as follows: 20 ``(C) PAYMENTS BY FEDERAL HOME LOAN 21 BANKS.-To the extent the amounts available 22 pursuant to subparagraphs (A) and (B) are in- 23 sufficient to cover the amount of interest pay- 24 ments, each Federal home loan bank shall pay 25 to the Funding Corporation each calendar year *HR 10 EH 138 1 20.75 percent of the net earnings of such bank 2 (after deducting expenses relating to subsection 3 (j) of section 10 and operating expenses).''. 4 (b) EFFECTIVE DATE.-The amendment made by 5 subsection (a) shall take effect on January 1, 1999. 6 SEC. 171. CAPITAL STRUCTURE OF THE FEDERAL HOME 7 LOAN BANKS. 8 (a) IN GENERAL.-Section 6 of the Federal Home 9 Loan Bank Act (12 U.S.C. 1426) is amended to read as 10 follows: 11 ``SEC. 6. CAPITAL STRUCTURE OF FEDERAL HOME LOAN 12 BANKS. 13 ``(a) CAPITAL STRUCTURE PLAN.-On or before Jan- 14 uary 1, 1999, the board of directors of each Federal home 15 loan bank shall submit for Finance Board approval a plan 16 establishing and implementing a capital structure for such 17 bank which- 18 ``(1) the board of directors determines is the 19 best suited for the condition and operation of the 20 bank and the interests of the shareholders of the 21 bank; 22 ``(2) meets the requirements of subsection (b); 23 and 24 ``(3) meets the minimum capital standards and 25 requirements established under subsection (c) and *HR 10 EH 139 1 any regulations prescribed by the Finance Board 2 pursuant to such subsection. 3 ``(b) CONTENTS OF PLAN.-The capital structure 4 plan of each Federal home loan bank shall meet the follow- 5 ing requirements: 6 ``(1) STOCK PURCHASE REQUIREMENTS.- 7 ``(A) IN GENERAL.-Each capital structure 8 plan of a Federal home loan bank shall require 9 the shareholders of the bank to maintain an in- 10 vestment in the stock of the bank in amount 11 not less than- 12 ``(i) a minimum percentage of the 13 total assets of the shareholder; and 14 ``(ii) a minimum percentage of the 15 outstanding advances from the bank to the 16 shareholder. 17 ``(B) MINIMUM PERCENTAGE LEVELS.- 18 The minimum percentages established pursuant 19 to subparagraph (A) shall be set at levels suffi- 20 cient to meet the bank's minimum capital re- 21 quirements established by the Finance Board 22 under subsection (c). 23 ``(C) MAXIMUM ASSET BASED CAPITAL RE- 24 QUIREMENT.-The asset-based capital require- 25 ment applicable to any shareholder of a Federal *HR 10 EH 140 1 home loan bank in any year shall not exceed the 2 lesser of- 3 ``(i) 0.6 percent of a shareholder's 4 total assets at the close of the preceding 5 year; or 6 ``(ii) $300,000,000. 7 ``(D) MAXIMUM ADVANCE-BASED REQUIRE- 8 MENT.-The advance-based capital requirement 9 applicable to any shareholder of a Federal home 10 loan bank shall not exceed 6 percent of the 11 total outstanding advances from the bank to the 12 shareholder. 13 ``(E) MINIMUM STOCK PURCHASE RE- 14 QUIREMENT AUTHORIZED.-A capital structure 15 plan may establish a minimum dollar amount of 16 stock of a Federal home loan bank in which a 17 shareholder shall be required to invest. 18 ``(2) ADJUSTMENTS TO STOCK PURCHASE RE- 19 QUIREMENTS.-The capital structure plan adopted 20 by each Federal home loan bank shall impose a con- 21 tinuing obligation on the board of directors of the 22 bank to review and adjust as necessary member 23 stock purchase requirements in order to ensure that 24 the bank remains in compliance with applicable min- *HR 10 EH 141 1 imum capital levels established by the Finance 2 Board. 3 ``(3) TRANSITION RULE FOR STOCK PURCHASE 4 REQUIREMENTS.- 5 ``(A) IN GENERAL.-A capital structure 6 plan may allow shareholders who were members 7 of a Federal home loan bank on the date of the 8 enactment of the Financial Services Act of 9 1998 to come into compliance with the asset- 10 based stock purchase requirement established 11 under paragraph (1) during a transition period 12 established under the plan of not more than 3 13 years, if such requirement exceeds the asset- 14 based stock purchase requirement in effect on 15 such date of enactment. 16 ``(B) INTERIM PURCHASE REQUIRE- 17 MENTS.-A capital structure plan may establish 18 interim asset-based stock purchase require- 19 ments applicable to members referred to in sub- 20 paragraph (A) during a transition period estab- 21 lished under subparagraph (A). 22 ``(4) CLASSES OF STOCK.- 23 ``(A) IN GENERAL.-Each capital structure 24 plan shall afford each shareholder of a Federal 25 home loan bank the option of meeting the *HR 10 EH 142 1 shareholder's stock purchase requirements 2 through the purchase of any combination of 3 Class A or Class B stock. 4 ``(B) CLASS A STOCK.-Class A stock shall 5 be stock of a Federal home loan bank that shall 6 be redeemed in cash and at par by the bank no 7 later than 12 months following submission of a 8 written notice by a shareholder of the share- 9 holder's intention to divest all shares of stock in 10 the bank. 11 ``(C) CLASS B STOCK.-Class B stock shall 12 be stock of a Federal home loan bank that shall 13 be redeemed in cash and at par by the bank no 14 later than 5 years following submission of a 15 written notice by a shareholder of the share- 16 holder's intention to divest all shares of stock in 17 the bank. 18 ``(D) RIGHTS REQUIREMENT.-The Class 19 B stock of a Federal home loan bank may re- 20 ceive a dividend premium over that paid on 21 Class A stock, and may have preferential voting 22 rights in the election of Federal home loan bank 23 directors. 24 ``(E) LOWER STOCK PURCHASE REQUIRE- 25 MENTS FOR CLASS B STOCK.-A capital struc- *HR 10 EH 143 1 ture plan may provide for lower stock purchase 2 requirements with respect to those sharehold- 3 er's that elect to purchase Class B stock in a 4 manner that is consistent with meeting the 5 bank's own minimum capital requirements as 6 established by the Finance Board. 7 ``(F) NO OTHER CLASSES OF STOCK PER- 8 MITTED.-No class of stock other than the 9 Class A and Class B stock described in sub- 10 paragraphs (B) and (C) may be issued by a 11 Federal home loan bank. 12 ``(5) LIMITED TRANSFERABILITY OF STOCK.- 13 Each capital structure plan shall provide that any 14 equity securities issued by the bank shall be avail- 15 able only to, held only by, and tradable only among 16 shareholders of the bank. 17 ``(c) CAPITAL STANDARDS.- 18 ``(1) IN GENERAL.-The Finance Board shall 19 prescribe, by regulation, uniform capital standards 20 applicable to each Federal home loan bank which 21 shall include- 22 ``(A) a leverage limit in accordance with 23 paragraph (2); and 24 ``(B) a risk-based capital requirement in 25 accordance with paragraph (3). *HR 10 EH 144 1 ``(2) MINIMUM LEVERAGE LIMIT.-The leverage 2 limit established by the Finance Board shall require 3 each Federal home loan bank to maintain total cap- 4 ital in an amount not less than 5 percent of the total 5 assets of the bank. In determining compliance with 6 the minimum leverage ratio, the amount of retained 7 earnings and the paid-in value of Class B stock, if 8 any, shall be multiplied by 1.5 and such higher 9 amount shall be deemed to be capital for purposes 10 of meeting the 5 percent minimum leverage ratio. 11 ``(3) RISK-BASED CAPITAL STANDARD.-The 12 risk-based capital requirement shall be composed of 13 the following components: 14 ``(A) Capital sufficient to meet the credit 15 risk to which a Federal home loan bank is sub- 16 ject, based on an amount which is not less than 17 the amount of tier 1, risk-based capital required 18 by regulations prescribed, or guidelines issued 19 under section 38 of the Federal Deposit Insur- 20 ance Act for a well capitalized insured deposi- 21 tory institution. 22 ``(B) Capital sufficient to meet the interest 23 rate risk to which a Federal home loan bank is 24 subject, based on an interest rate stress test ap- 25 plied by the Finance Board that rigorously tests *HR 10 EH 145 1 for changes in interest rates, rate volatility, and 2 changes in the shape of the yield curve. 3 ``(d) REDEMPTION OF CAPITAL.- 4 ``(1) IN GENERAL.-Any shareholder of a Fed- 5 eral home loan bank shall have the right to withdraw 6 the shareholder's membership from a Federal home 7 loan bank and to redeem the shareholder's stock in 8 accordance with the redemption rights associated 9 with the class of stock the shareholder holds, if- 10 ``(A) such shareholder has filed a written 11 notice of an intention to redeem all such shares; 12 and 13 ``(B) the shareholder has no outstanding 14 advances from any Federal home loan bank at 15 the time of such redemption. 16 ``(2) PARTIAL REDEMPTION.-A shareholder 17 who files notice of intention to redeem all shares of 18 stock in a Federal home loan bank may redeem not 19 more than 1/2 of all such shares, in cash and at par, 20 6 months before the date by which the bank is re- 21 quired to redeem such stock pursuant to subpara- 22 graph (B) or (C) of subsection (b)(4). 23 ``(3) DIVESTITURE.-The board of directors of 24 any Federal home loan bank may, after a hearing, *HR 10 EH 146 1 order the divestiture by any shareholder of all own- 2 ership interests of such shareholder in the bank, if- 3 ``(A) in the opinion of the board of direc- 4 tors, such shareholder has failed to comply with 5 a provision of this Act or any regulation pre- 6 scribed under this Act; or 7 ``(B) the shareholder has been determined 8 to be insolvent, or otherwise subject to the ap- 9 pointment of a conservator, receiver, or other 10 legal custodian, by a State or Federal authority 11 with regulatory and supervisory responsibility 12 for such shareholder. 13 ``(4) RETIREMENT OF EXCESS STOCK.-Any 14 shareholder may- 15 ``(A) retire shares of Class A stock or, at 16 the option of the shareholder, shares of Class B 17 stock, or any combination of Class A and Class 18 B stock, that are excess to the minimum stock 19 purchase requirements applicable to the share- 20 holder; and 21 ``(B) receive from the Federal home loan 22 bank a prompt payment in cash equal to the 23 par value of such stock. 24 ``(5) IMPAIRMENT OF CAPITAL.-If the Finance 25 Board or the board of directors of a Federal home *HR 10 EH 147 1 loan bank determines that the paid-in capital of the 2 bank is, or is likely to be, impaired as a result of 3 losses in or depreciation of the assets of the bank, 4 the Federal home loan bank shall withhold that por- 5 tion of the amount due any shareholder with respect 6 to any redemption or retirement of any class of 7 stock which bears the same ratio to the total of such 8 amount as the amount of the impaired capital bears 9 to the total amount of capital allocable to such class 10 of stock. 11 ``(6) POLICIES.-Subject to the requirements of 12 this section, the board of directors of each Federal 13 home loan bank shall promptly establish policies, 14 consistent with this Act, governing the capital stock 15 of such bank and other provisions of this section.''. 16 SEC. 172. INVESTMENTS. 17 Subsection (j) of section 11 of the Federal Home 18 Loan Bank Act (12 U.S.C. 1431) (as so redesignated by 19 section 166(e) of this subtitle) is amended to read as fol- 20 lows: 21 ``(j) INVESTMENTS.-Each bank shall reduce its in- 22 vestments to those necessary for liquidity purposes, for 23 safe and sound operation of the banks, or for housing fi- 24 nance, as administered by the Finance Board.''. *HR 10 EH 148 1 SEC. 173. FEDERAL HOUSING FINANCE BOARD. 2 Section 2A(b)(1) of the Federal Home Loan Bank 3 Act (12 U.S.C. 1422(b)(1)) is amended- 4 (1) by redesignating subparagraphs (A) and 5 (B) as subparagraphs (B) and (C), respectively; 6 (2) by inserting before subparagraph (B) (as so 7 redesignated by paragraph (1) of this section) the 8 following new subparagraph: 9 ``(A) The Secretary of the Treasury (or the 10 Secretary of the Treasury's designee), who shall 11 serve without additional compensation.''; and 12 (3) in subparagraph (C) (as so redesignated by 13 paragraph (1) of this section) by striking ``Four'' 14 and inserting ``3''. 15 Subtitle H-Direct Activities of 16 Banks 17 SEC. 181. AUTHORITY OF NATIONAL BANKS TO UNDER- 18 WRITE CERTAIN MUNICIPAL BONDS. 19 The paragraph designated the Seventh of section 20 5136 of the Revised Statutes of the United States (12 21 U.S.C. 24(7)) is amended by adding at the end the follow- 22 ing new sentence: ``In addition to the provisions in this 23 paragraph for dealing in, underwriting or purchasing secu- 24 rities, the limitations and restrictions contained in this 25 paragraph as to dealing in, underwriting, and purchasing 26 investment securities for the national bank's own account *HR 10 EH 149 1 shall not apply to obligations (including limited obligation 2 bonds, revenue bonds, and obligations that satisfy the re- 3 quirements of section 142(b)(1) of the Internal Revenue 4 Code of 1986) issued by or on behalf of any state or politi- 5 cal subdivision of a state, including any municipal cor- 6 porate instrumentality of 1 or more states, or any public 7 agency or authority of any state or political subdivision 8 of a state, if the national banking association is well cap- 9 italized (as defined in section 38 of the Federal Deposit 10 Insurance Act).''. 11 Subtitle I-Deposit Insurance 12 Funds 13 SEC. 186. STUDY OF SAFETY AND SOUNDNESS OF FUNDS. 14 (a) STUDY REQUIRED.-The Board of Directors of 15 the Federal Deposit Insurance Corporation shall conduct 16 a study of the following issues with regard to the Bank 17 Insurance Fund and the Savings Association Insurance 18 Fund: 19 (1) The safety and soundness of the funds and 20 the adequacy of the reserve requirements applicable 21 to the funds in light of- 22 (A) the size of the insured depository insti- 23 tutions which are resulting from mergers and 24 consolidations since the effective date of the *HR 10 EH 150 1 Riegle-Neal Interstate Banking and Branching 2 Efficiency Act of 1994; and 3 (B) the affiliation of insured depository in- 4 stitutions with other financial institutions pur- 5 suant to this Act and the amendments made by 6 this Act. 7 (2) The concentration levels of the funds, tak- 8 ing into account the number of members of each 9 fund and the geographic distribution of such mem- 10 bers, and the extent to which either fund is exposed 11 to higher risks due to a regional concentration of 12 members or an insufficient membership base relative 13 to the size of member institutions. 14 (3) Issues relating to the planned merger of the 15 funds, including the cost of merging the funds and 16 the manner in which such costs will be distributed 17 among the members of the respective funds. 18 (b) REPORT REQUIRED.- 19 (1) IN GENERAL.-Before the end of the 9- 20 month period beginning on the date of the enact- 21 ment of this Act, the Board of Directors of the Fed- 22 eral Deposit Insurance Corporation shall submit a 23 report to the Congress on the study conducted pur- 24 suant to subsection (a). *HR 10 EH 151 1 (2) CONTENTS OF REPORT.-The report shall 2 include- 3 (A) detailed findings of the Board of Di- 4 rectors with regard to the issues described in 5 subsection (a); 6 (B) a description of the plans developed by 7 the Board of Directors for merging the Bank 8 Insurance Fund and the Savings Association 9 Insurance Fund, including an estimate of the 10 amount of the cost of such merger which would 11 be borne by Savings Association Insurance 12 Fund members; and 13 (C) such recommendations for legislative 14 and administrative action as the Board of Di- 15 rectors determines to be necessary or appro- 16 priate to preserve the safety and soundness of 17 the deposit insurance funds, reduce the risks to 18 such funds, provide for an efficient merger of 19 such funds, and for other purposes. 20 (c) DEFINITIONS.-For purposes of this section, the 21 following definitions shall apply: 22 (1) INSURED DEPOSITORY INSTITUTION.-The 23 term ``insured depository institution'' has the mean- 24 ing given to such term in section 3(c) of the Federal 25 Deposit Insurance Act. *HR 10 EH 152 1 (2) BIF AND SAIF MEMBERS.-The terms 2 ``Bank Insurance Fund member'' and ``Savings As- 3 sociation Insurance Fund member'' have the mean- 4 ing given to such terms in section 7(l) of the Federal 5 Deposit Insurance Act. 6 Subtitle J-Effective Date of Title 7 SEC. 191. EFFECTIVE DATE. 8 Except with regard to any subtitle or other provision 9 of this title for which a specific effective date is provided, 10 this title and the amendments made by this title shall take 11 effect at the end of the 270-day period beginning on the 12 date of the enactment of this Act. 13 TITLE II-FUNCTIONAL 14 REGULATION 15 Subtitle A-Brokers and Dealers 16 SEC. 201. DEFINITION OF BROKER. 17 Section 3(a)(4) of the Securities Exchange Act of 18 1934 (15 U.S.C. 78c(a)(4)) is amended to read as follows: 19 ``(4) BROKER.- 20 ``(A) IN GENERAL.-The term `broker' 21 means any person engaged in the business of 22 effecting transactions in securities for the ac- 23 count of others. 24 ``(B) EXCEPTION FOR CERTAIN BANK AC- 25 TIVITIES.-A bank shall not be considered to be *HR 10 EH 153 1 a broker because the bank engages in any of 2 the following activities under the conditions de- 3 scribed: 4 ``(i) THIRD PARTY BROKERAGE AR- 5 RANGEMENTS.-The bank enters into a 6 contractual or other arrangement with a 7 broker or dealer registered under this title 8 under which the broker or dealer offers 9 brokerage services on or off the premises 10 of the bank if- 11 ``(I) such broker or dealer is 12 clearly identified as the person per- 13 forming the brokerage services; 14 ``(II) the broker or dealer per- 15 forms brokerage services in an area 16 that is clearly marked and, to the ex- 17 tent practicable, physically separate 18 from the routine deposit-taking activi- 19 ties of the bank; 20 ``(III) any materials used by the 21 bank to advertise or promote generally 22 the availability of brokerage services 23 under the contractual or other ar- 24 rangement clearly indicate that the 25 brokerage services are being provided *HR 10 EH 154 1 by the broker or dealer and not by the 2 bank; 3 ``(IV) any materials used by the 4 bank to advertise or promote generally 5 the availability of brokerage services 6 under the contractual or other ar- 7 rangement are in compliance with the 8 Federal securities laws before dis- 9 tribution; 10 ``(V) bank employees (other than 11 associated persons of a broker or deal- 12 er who are qualified pursuant to the 13 rules of a self-regulatory organization) 14 perform only clerical or ministerial 15 functions in connection with broker- 16 age transactions including scheduling 17 appointments with the associated per- 18 sons of a broker or dealer, except that 19 bank employees may forward cus- 20 tomer funds or securities and may de- 21 scribe in general terms the range of 22 investment vehicles available from the 23 bank and the broker or dealer under 24 the contractual or other arrangement; *HR 10 EH 155 1 ``(VI) bank employees do not di- 2 rectly receive incentive compensation 3 for any brokerage transaction unless 4 such employees are associated persons 5 of a broker or dealer and are qualified 6 pursuant to the rules of a self-regu- 7 latory organization, except that the 8 bank employees may receive com- 9 pensation for the referral of any cus- 10 tomer if the compensation is a nomi- 11 nal one-time cash fee of a fixed dollar 12 amount and the payment of the fee is 13 not contingent on whether the referral 14 results in a transaction; 15 ``(VII) such services are provided 16 by the broker or dealer on a basis in 17 which all customers which receive any 18 services are fully disclosed to the 19 broker or dealer; 20 ``(VIII) the bank does not carry 21 a securities account of the customer 22 except in a customary custodian or 23 trustee capacity; and 24 ``(IX) the bank, broker, or dealer 25 informs each customer that the bro- *HR 10 EH 156 1 kerage services are provided by the 2 broker or dealer and not by the bank 3 and that the securities are not depos- 4 its or other obligations of the bank, 5 are not guaranteed by the bank, and 6 are not insured by the Federal De- 7 posit Insurance Corporation. 8 ``(ii) TRUST ACTIVITIES.-The bank 9 effects transactions in a trustee capacity, 10 or effects transactions in a fiduciary capac- 11 ity in its trust department or other depart- 12 ment that is regularly examined by bank 13 examiners for compliance with fiduciary 14 principles and standards, and (in either 15 case)- 16 ``(I) is primarily compensated on 17 the basis of an administration or an- 18 nual fee (payable on a monthly, quar- 19 terly, or other basis), a percentage of 20 assets under management, or a flat or 21 capped per order processing fee, or 22 any combination of such fees, but 23 does not otherwise receive brokerage 24 commissions, or other similar remu- 25 neration based on effecting trans- *HR 10 EH 157 1 actions in securities, that exceed the 2 cost incurred by the bank in connec- 3 tion with executing securities trans- 4 actions for trustee or fiduciary cus- 5 tomers; and 6 ``(II) does not publicly solicit bro- 7 kerage business, other than by adver- 8 tising that it effects transactions in 9 securities in conjunction with advertis- 10 ing its other trust activities. 11 ``(iii) PERMISSIBLE SECURITIES 12 TRANSACTIONS.-The bank effects trans- 13 actions in- 14 ``(I) commercial paper, bankers 15 acceptances, or commercial bills; 16 ``(II) exempted securities; 17 ``(III) qualified Canadian govern- 18 ment obligations as defined in section 19 5136 of the Revised Statutes, in con- 20 formity with section 15C of this title 21 and the rules and regulations there- 22 under, or obligations of the North 23 American Development Bank; or 24 ``(IV) any standardized, credit 25 enhanced debt security issued by a *HR 10 EH 158 1 foreign government pursuant to the 2 March 1989 plan of then Secretary of 3 the Treasury Brady, used by such for- 4 eign government to retire outstanding 5 commercial bank loans. 6 ``(iv) CERTAIN STOCK PURCHASE 7 PLANS.- 8 ``(I) EMPLOYEE BENEFIT 9 PLANS.-The bank effects trans- 10 actions, as part of its transfer agency 11 activities, in the securities of an issuer 12 as part of any pension, retirement, 13 profit-sharing, bonus, thrift, savings, 14 incentive, or other similar benefit plan 15 for the employees of that issuer or its 16 subsidiaries, if- 17 (aa) the bank does not so- 18 licit transactions or provide in- 19 vestment advice with respect to 20 the purchase or sale of securities 21 in connection with the plan; and 22 ``(bb) the bank's compensa- 23 tion for such plan or program 24 consists of administration fees, or 25 flat or capped per order process- *HR 10 EH 159 1 ing fees, or both, but the bank 2 does not otherwise receive broker- 3 age commissions, or other similar 4 remuneration based on effecting 5 transactions in securities, that 6 exceed the cost incurred by the 7 bank in connection with execut- 8 ing securities transactions under 9 this subclause (I). 10 ``(II) DIVIDEND REINVESTMENT 11 PLANS.-The bank effects trans- 12 actions, as part of its transfer agency 13 activities, in the securities of an issuer 14 as part of that issuer's dividend rein- 15 vestment plan, if- 16 ``(aa) the bank does not so- 17 licit transactions or provide in- 18 vestment advice with respect to 19 the purchase or sale of securities 20 in connection with the plan; 21 ``(bb) the bank does not net 22 shareholders' buy and sell orders, 23 other than for programs for odd- 24 lot holders or plans registered 25 with the Commission; and *HR 10 EH 160 1 ``(cc) the bank's compensa- 2 tion for such plan or program 3 consists of administration fees, or 4 flat or capped per order process- 5 ing fees, or both, but the bank 6 does not otherwise receive broker- 7 age commissions, or other similar 8 remuneration based on effecting 9 transactions in securities, that 10 exceed the cost incurred by the 11 bank in connection with execut- 12 ing securities transactions under 13 this subclause (II). 14 ``(III) ISSUER PLANS.-The bank 15 effects transactions, as part of its 16 transfer agency activities, in the secu- 17 rities of an issuer as part of a plan or 18 program for the purchase or sale of 19 that issuer's shares, if- 20 ``(aa) the bank does not so- 21 licit transactions or provide in- 22 vestment advice with respect to 23 the purchase or sale of securities 24 in connection with the plan or 25 program; *HR 10 EH 161 1 ``(bb) the bank does not net 2 shareholders' buy and sell orders, 3 other than for programs for odd- 4 lot holders or plans registered 5 with the Commission; and 6 ``(cc) the bank's compensa- 7 tion for such plan or program 8 consists of administration fees, or 9 flat or capped per order process- 10 ing fees, or both, but the bank 11 does not otherwise receive broker- 12 age commissions, or other similar 13 remuneration based on effecting 14 transactions in securities, that 15 exceed the cost incurred by the 16 bank in connection with execut- 17 ing securities transactions under 18 this subclause (III). 19 ``(IV) PERMISSIBLE DELIVERY 20 OF MATERIALS.-The exception to 21 being considered a broker for a bank 22 engaged in activities described in sub- 23 clauses (I), (II), and (III) will not be 24 affected by a bank's delivery of writ- 25 ten or electronic plan materials to em- *HR 10 EH 162 1 ployees of the issuer, shareholders of 2 the issuer, or members of affinity 3 groups of the issuer, so long as such 4 materials are- 5 ``(aa) comparable in scope or 6 nature to that permitted by the 7 Commission as of the date of the 8 enactment of the Financial Serv- 9 ices Act of 1998; or 10 ``(bb) otherwise permitted by 11 the Commission. 12 ``(v) SWEEP ACCOUNTS.-The bank 13 effects transactions as part of a program 14 for the investment or reinvestment of bank 15 deposit funds into any no-load, open-end 16 management investment company reg- 17 istered under the Investment Company Act 18 of 1940 that holds itself out as a money 19 market fund. 20 ``(vi) AFFILIATE TRANSACTIONS.- 21 The bank effects transactions for the ac- 22 count of any affiliate of the bank (as de- 23 fined in section 2 of the Bank Holding 24 Company Act of 1956) other than- *HR 10 EH 163 1 ``(I) a registered broker or deal- 2 er; or 3 ``(II) an affiliate that is engaged 4 in merchant banking, as described in 5 section 6(c)(3)(H) of the Bank Hold- 6 ing company Act of 1956. 7 ``(vii) PRIVATE SECURITIES OFFER- 8 INGS.-The bank- 9 ``(I) effects sales as part of a pri- 10 mary offering of securities not involv- 11 ing a public offering, pursuant to sec- 12 tion 3(b), 4(2), or 4(6) of the Securi- 13 ties Act of 1933 or the rules and reg- 14 ulations issued thereunder; 15 ``(II) at any time after one year 16 after the date of enactment of the Fi- 17 nancial Services Act of 1998, is not 18 affiliated with a broker or dealer that 19 has been registered for more than one 20 year; and 21 ``(III) effects transactions exclu- 22 sively with qualified investors. 23 ``(viii) SAFEKEEPING AND CUSTODY 24 ACTIVITIES.- *HR 10 EH 164 1 ``(I) IN GENERAL.-The bank, as 2 part of customary banking activities- 3 ``(aa) provides safekeeping 4 or custody services with respect 5 to securities, including the exer- 6 cise of warrants and other rights 7 on behalf of customers; 8 ``(bb) facilitates the transfer 9 of funds or securities, as a custo- 10 dian or a clearing agency, in con- 11 nection with the clearance and 12 settlement of its customers' 13 transactions in securities; 14 ``(cc) effects securities lend- 15 ing or borrowing transactions 16 with or on behalf of customers as 17 part of services provided to cus- 18 tomers pursuant to division (aa) 19 or (bb) or invests cash collateral 20 pledged in connection with such 21 transactions; or 22 ``(dd) holds securities 23 pledged by a customer to another 24 person or securities subject to 25 purchase or resale agreements in- *HR 10 EH 165 1 volving a customer, or facilitates 2 the pledging or transfer of such 3 securities by book entry or as 4 otherwise provided under applica- 5 ble law. 6 ``(II) EXCEPTION FOR CARRYING 7 BROKER ACTIVITIES.-The exception 8 to being considered a broker for a 9 bank engaged in activities described in 10 subclause (I) shall not apply if the 11 bank, in connection with such activi- 12 ties, acts in the United States as a 13 carrying broker (as such term, and 14 different formulations thereof, are 15 used in section 15(c)(3) and the rules 16 and regulations thereunder) for any 17 broker or dealer, unless such carrying 18 broker activities are engaged in with 19 respect to government securities (as 20 defined in paragraph (42) of this sub- 21 section). 22 ``(ix) BANKING PRODUCTS.-The bank 23 effects transactions in traditional banking 24 products, as defined in section 206(a) of 25 the Financial Services Act of 1998. *HR 10 EH 166 1 ``(x) DE MINIMIS EXCEPTION.-The 2 bank effects, other than in transactions re- 3 ferred to in clauses (i) through (ix), not 4 more than 500 transactions in securities in 5 any calendar year, and such transactions 6 are not effected by an employee of the 7 bank who is also an employee of a broker 8 or dealer. 9 ``(C) BROKER DEALER EXECUTION.-The 10 exception to being considered a broker for a 11 bank engaged in activities described in clauses 12 (ii), (iv), and (viii) of subparagraph (B) shall 13 not apply if the activities described in such pro- 14 visions result in the trade in the United States 15 of any security that is a publicly traded security 16 in the United States, unless- 17 ``(i) the bank directs such trade to a 18 registered or broker dealer for execution; 19 ``(ii) the trade is a cross trade or 20 other substantially similar trade of a secu- 21 rity that- 22 ``(I) is made by the bank or be- 23 tween the bank and an affiliated fidu- 24 ciary; and *HR 10 EH 167 1 ``(II) is not in contravention of 2 fiduciary principles established under 3 applicable Federal or State law; or 4 ``(iii) the trade is conducted in some 5 other manner permitted under rules, regu- 6 lations, or orders as the Commission may 7 prescribe or issue. 8 ``(D) NO EFFECT OF BANK EXEMPTIONS 9 ON OTHER COMMISSION AUTHORITY.-The ex- 10 ception to being considered a broker for a bank 11 engaged in activities described in subpara- 12 graphs (B) and (C) shall not affect the commis- 13 sion's authority under any other provision of 14 this Act or any other securities law. 15 ``(E) FIDUCIARY CAPACITY.-For purposes 16 of subparagraph (B)(ii), the term `fiduciary ca- 17 pacity' means- 18 ``(i) in the capacity as trustee, execu- 19 tor, administrator, registrar of stocks and 20 bonds, transfer agent, guardian, assignee, 21 receiver, or custodian under a uniform gift 22 to minor act, or as an investment adviser 23 if the bank receives a fee for its investment 24 advice; *HR 10 EH 168 1 ``(ii) in any capacity in which the 2 bank possesses investment discretion on 3 behalf of another; or 4 ``(iii) in any other similar capacity. 5 ``(F) EXCEPTION FOR ENTITIES SUBJECT 6 TO SECTION 15(e).-The term `broker' does not 7 include a bank that- 8 ``(i) was, immediately prior to the en- 9 actment of the Financial Services Act of 10 1998, subject to section 15(e); and 11 ``(ii) is subject to such restrictions 12 and requirements as the Commission con- 13 siders appropriate.''. 14 SEC. 202. DEFINITION OF DEALER. 15 Section 3(a)(5) of the Securities Exchange Act of 16 1934 (15 U.S.C. 78c(a)(5)) is amended to read as follows: 17 ``(5) DEALER.- 18 ``(A) IN GENERAL.-The term `dealer' 19 means any person engaged in the business of 20 buying and selling securities for such person's 21 own account through a broker or otherwise. 22 ``(B) EXCEPTION FOR PERSON NOT EN- 23 GAGED IN THE BUSINESS OF DEALING.-The 24 term `dealer' does not include a person that 25 buys or sells securities for such person's own *HR 10 EH 169 1 account, either individually or in a fiduciary ca- 2 pacity, but not as a part of a regular business. 3 ``(C) EXCEPTION FOR CERTAIN BANK AC- 4 TIVITIES.-A bank shall not be considered to be 5 a dealer because the bank engages in any of the 6 following activities under the conditions de- 7 scribed: 8 ``(i) PERMISSIBLE SECURITIES TRANS- 9 ACTIONS.-The bank buys or sells- 10 ``(I) commercial paper, bankers 11 acceptances, or commercial bills; 12 ``(II) exempted securities; 13 ``(III) qualified Canadian govern- 14 ment obligations as defined in section 15 5136 of the Revised Statutes of the 16 United States, in conformity with sec- 17 tion 15C of this title and the rules 18 and regulations thereunder, or obliga- 19 tions of the North American Develop- 20 ment Bank; or 21 ``(IV) any standardized, credit 22 enhanced debt security issued by a 23 foreign government pursuant to the 24 March 1989 plan of then Secretary of 25 the Treasury Brady, used by such for- *HR 10 EH 170 1 eign government to retire outstanding 2 commercial bank loans. 3 ``(ii) INVESTMENT, TRUSTEE, AND FI- 4 DUCIARY TRANSACTIONS.-The bank buys 5 or sells securities for investment pur- 6 poses- 7 ``(I) for the bank; or 8 ``(II) for accounts for which the 9 bank acts as a trustee or fiduciary. 10 ``(iii) ASSET-BACKED TRANS- 11 ACTIONS.-The bank engages in the 12 issuance or sale to qualified investors, 13 through a grantor trust or otherwise, of se- 14 curities backed by or representing an inter- 15 est in notes, drafts, acceptances, loans, 16 leases, receivables, other obligations, or 17 pools of any such obligations predomi- 18 nantly originated by the bank, or a syn- 19 dicate of banks of which the bank is a 20 member, or an affiliate of any such bank 21 other than a broker or dealer. 22 ``(iv) BANKING PRODUCTS.-The bank 23 buys or sells traditional banking products, 24 as defined in section 206(a) of the Finan- 25 cial Services Act of 1998. *HR 10 EH 171 1 ``(v) DERIVATIVE INSTRUMENTS.- 2 The bank issues, buys, or sells any deriva- 3 tive instrument to which the bank is a 4 party- 5 ``(I) to or from a corporation, 6 limited liability company, or partner- 7 ship that owns and invests on a dis- 8 cretionary basis, not less than 9 $10,000,000 in investments, or to or 10 from a qualified investor, except that 11 if the instrument provides for the de- 12 livery of one or more securities (other 13 than a derivative instrument or gov- 14 ernment security), the transaction 15 shall be effected with or through a 16 registered broker or dealer; or 17 ``(II) to or from other persons, 18 except that if the derivative instru- 19 ment provides for the delivery of one 20 or more securities (other than a deriv- 21 ative instrument or government secu- 22 rity), or is a security (other than a 23 government security), the transaction 24 shall be effected with or through a 25 registered broker or dealer; or *HR 10 EH 172 1 ``(III) to or from any person if 2 the instrument is neither a security 3 nor provides for the delivery of one or 4 more securities (other than a deriva- 5 tive instrument).''. 6 SEC. 203. REGISTRATION FOR SALES OF PRIVATE SECURI- 7 TIES OFFERINGS. 8 Section 15A of the Securities Exchange Act of 1934 9 (15 U.S.C. 78o­3) is amended by inserting after sub- 10 section (i) the following new subsection: 11 ``(j) REGISTRATION FOR SALES OF PRIVATE SECURI- 12 TIES OFFERINGS.-A registered securities association 13 shall create a limited qualification category for any associ- 14 ated person of a member who effects sales as part of a 15 primary offering of securities not involving a public offer- 16 ing, pursuant to section 3(b), 4(2), or 4(6) of the Securi- 17 ties Act of 1933 and the rules and regulations thereunder, 18 and shall deem qualified in such limited qualification cat- 19 egory, without testing, any bank employee who, in the six 20 month period preceding the date of enactment of this Act, 21 engaged in effecting such sales.''. *HR 10 EH 173 1 SEC. 204. SALES PRACTICES AND COMPLAINT PROCE- 2 DURES. 3 Section 18 of the Federal Deposit Insurance Act is 4 amended by adding at the end the following new sub- 5 section: 6 ``(s) SALES PRACTICES AND COMPLAINT PROCE- 7 DURES WITH RESPECT TO BANK SECURITIES ACTIVI- 8 TIES.- 9 ``(1) REGULATIONS REQUIRED.-Each Federal 10 banking agency shall prescribe and publish in final 11 form, not later than 6 months after the date of en- 12 actment of the Financial Services Act of 1998, regu- 13 lations which apply to retail transactions, solicita- 14 tions, advertising, or offers of any security by any 15 insured depository institution or any affiliate thereof 16 other than a registered broker or dealer or an indi- 17 vidual acting on behalf of such a broker or dealer 18 who is an associated person of such broker or dealer. 19 Such regulations shall include- 20 ``(A) requirements that sales practices 21 comply with just and equitable principles of 22 trade that are substantially similar to the Rules 23 of Fair Practice of the National Association of 24 Securities Dealers; and 25 ``(B) requirements prohibiting (i) condi- 26 tioning an extension of credit on the purchase *HR 10 EH 174 1 or sale of a security; and (ii) any conduct lead- 2 ing a customer to believe that an extension of 3 credit is conditioned upon the purchase or sale 4 of a security. 5 ``(2) PROCEDURES REQUIRED.-The appro- 6 priate Federal banking agencies shall jointly estab- 7 lish procedures and facilities for receiving and expe- 8 ditiously processing complaints against any bank or 9 employee of a bank arising in connection with the 10 purchase or sale of a security by a customer, includ- 11 ing a complaint alleging a violation of the regula- 12 tions prescribed under paragraph (1), but excluding 13 a complaint involving an individual acting on behalf 14 of such a broker or dealer who is an associated per- 15 son of such broker or dealer. The use of any such 16 procedures and facilities by such a customer shall be 17 at the election of the customer. Such procedures 18 shall include provisions to refer a complaint alleging 19 fraud to the Securities and Exchange Commission 20 and appropriate State securities commissions. 21 ``(3) REQUIRED ACTIONS.-The actions re- 22 quired by the Federal banking agencies under para- 23 graph (2) shall include the following: *HR 10 EH 175 1 ``(A) establishing a group, unit, or bureau 2 within each such agency to receive such com- 3 plaints; 4 ``(B) developing and establishing proce- 5 dures for investigating, and permitting cus- 6 tomers to investigate, such complaints; 7 ``(C) developing and establishing proce- 8 dures for informing customers of the rights 9 they may have in connection with such com- 10 plaints; 11 ``(D) developing and establishing proce- 12 dures that allow customers a period of at least 13 6 years to make complaints and that do not re- 14 quire customers to pay the costs of the proceed- 15 ing; and 16 ``(E) developing and establishing proce- 17 dures for resolving such complaints, including 18 procedures for the recovery of losses to the ex- 19 tent appropriate. 20 ``(4) CONSULTATION AND JOINT REGULA- 21 TIONS.-The Federal banking agencies shall consult 22 with each other and prescribe joint regulations pur- 23 suant to paragraphs (1) and (2), after consultation 24 with the Securities and Exchange Commission. *HR 10 EH 176 1 ``(5) PROCEDURES IN ADDITION TO OTHER 2 REMEDIES.-The procedures and remedies provided 3 under this subsection shall be in addition to, and not 4 in lieu of, any other remedies available under law. 5 ``(6) DEFINITION.-As used in this sub- 6 section- 7 ``(A) the term `security' has the meaning 8 provided in section 3(a)(10) of the Securities 9 Exchange Act of 1934; 10 ``(B) the term `registered broker or dealer' 11 has the meaning provided in section 3(a)(48) of 12 such Act; and 13 ``(C) the term `associated person' has the 14 meaning provided in section 3(a)(18) of such 15 Act.''. 16 SEC. 205. INFORMATION SHARING. 17 Section 18 of the Federal Deposit Insurance Act is 18 amended by adding at the end the following new sub- 19 section: 20 ``(t) RECORDKEEPING REQUIREMENTS.- 21 ``(1) REQUIREMENTS.-Each appropriate Fed- 22 eral banking agency, after consultation with and 23 consideration of the views of the Commission, shall 24 establish recordkeeping requirements for banks rely- 25 ing on exceptions contained in paragraphs (4) and *HR 10 EH 177 1 (5) of section 3(a) of the Securities Exchange Act of 2 1934. Such recordkeeping requirements shall be suf- 3 ficient to demonstrate compliance with the terms of 4 such exceptions and be designed to facilitate compli- 5 ance with such exceptions. Each appropriate Federal 6 banking agency shall make any such information 7 available to the Commission upon request. 8 ``(2) DEFINITIONS.-As used in this subsection 9 the term `Commission' means the Securities and Ex- 10 change Commission.''. 11 SEC. 206. DEFINITION AND TREATMENT OF BANKING PROD- 12 UCTS. 13 (a) DEFINITION OF TRADITIONAL BANKING PROD- 14 UCT.- 15 (1) IN GENERAL.-For purposes of paragraphs 16 (4) and (5) of section 3(a) of the Securities Ex- 17 change Act of 1934 (15 U.S.C. 78c(a)(4), (5)), the 18 term `traditional banking product' means- 19 (A) a deposit account, savings account, 20 certificate of deposit, or other deposit instru- 21 ment issued by a bank; 22 (B) a banker's acceptance; 23 (C) a letter of credit issued or loan made 24 by a bank; *HR 10 EH 178 1 (D) a debit account at a bank arising from 2 a credit card or similar arrangement; 3 (E) a participation in a loan which the 4 bank or an affiliate of the bank (other than a 5 broker or dealer) funds, participates in, or owns 6 that is sold- 7 (i) to qualified investors; or 8 (ii) to other persons that- 9 ``(I) have the opportunity to re- 10 view and assess any material informa- 11 tion, including information regarding 12 the borrower's creditworthiness; and 13 ``(II) based on such factors as fi- 14 nancial sophistication, net worth, and 15 knowledge and experience in financial 16 matters, have the capability to evalu- 17 ate the information available, as de- 18 termined under generally applicable 19 banking standards or guidelines; or 20 (F) any derivative instrument, whether or 21 not individually negotiated, involving or relating 22 to- 23 (i) foreign currencies, except options 24 on foreign currencies that trade on a na- 25 tional securities exchange; *HR 10 EH 179 1 (ii) interest rates, except interest rate 2 derivative instruments: (I) that are based 3 on a security or a group or index of securi- 4 ties (other than government securities or a 5 group or index of government securities); 6 (II) that provide for the delivery of one or 7 more securities (other than government se- 8 curities); or (III) that trade on a national 9 securities exchange; or 10 (iii) commodities, other rates, indices, 11 or other assets, except derivative instru- 12 ments: (I) that are securities or that are 13 based on a group or index of securities 14 (other than government securities or a 15 group or index of government securities); 16 (II) that provide for the delivery of one or 17 more securities (other than government se- 18 curities); or (III) that trade on a national 19 securities exchange. 20 (2) CLASSIFICATION LIMITED.-Classification 21 of a particular product as a traditional banking 22 product pursuant to this subsection shall not be con- 23 strued as finding or implying that such product is 24 or is not a security for any purpose under the secu- 25 rities laws, or is or is not an account, agreement, *HR 10 EH 180 1 contract, or transaction for any purpose under the 2 Commodity Exchange Act. 3 (3) DEFINITIONS.-For purposes of this sub- 4 section- 5 (A) the term ``bank'' has the meaning pro- 6 vided in section 3(a)(6) of the Securities Ex- 7 change Act of 1934 (15 U.S.C. 78c(a)(6); 8 (B) the term ``qualified investor'' has the 9 meaning provided in section 3(a)(55) of such 10 Act; 11 (C) the term ``government securities'' has 12 the meaning provided in section 3(a)(42) of 13 such Act, and, for purposes of this subsection, 14 commercial paper, bankers acceptances, and 15 commercial bills shall be treated in the same 16 manner as government securities; and 17 (D) the term ``Federal banking agency'' 18 has the meaning provided in section 3(z) of the 19 Federal Deposit Insurance Act (12 U.S.C. 20 1813(z)). 21 (b) TREATMENT OF NEW BANKING PRODUCTS FOR 22 PURPOSES OF BROKER/DEALER REQUIREMENTS.-Sec- 23 tion 15 of the Securities Exchange Act of 1934 (15 U.S.C. 24 78o) is amended by adding at the end the following new 25 subsection: *HR 10 EH 181 1 ``(i) RULEMAKING TO EXTEND REQUIREMENTS TO 2 NEW BANKING PRODUCTS.- 3 ``(1) LIMITATION.-The Commission shall 4 not- 5 ``(A) require a bank to register as a broker 6 or dealer under this section because the bank 7 engages in any transaction in, or buys or sells, 8 a new banking product; or 9 ``(B) bring an action against a bank for a 10 failure to comply with a requirement described 11 in subparagraph (A); 12 unless the Commission has imposed such require- 13 ment by rule or regulation issued in accordance with 14 this section. 15 ``(2) CRITERIA FOR RULEMAKING.-The Com- 16 mission shall not impose a requirement under para- 17 graph (1) of this subsection with respect to any new 18 banking product unless the Commission determines 19 that- 20 ``(A) the new banking product is a secu- 21 rity; and 22 ``(B) imposing such requirement is nec- 23 essary or appropriate in the public interest and 24 for the protection of investors, consistent with 25 the requirements of section 3(f). *HR 10 EH 182 1 ``(3) NEW BANKING PRODUCT.-For purposes 2 of this subsection, the term `new banking product' 3 means a product that- 4 ``(A) was not subjected to regulation by 5 the Commission as a security prior to the date 6 of enactment of this subsection; and 7 ``(B) is not a traditional banking product, 8 as such term is defined in section 206(a) of the 9 Financial Services Act of 1998. 10 ``(4) CONSULTATION.-In promulgating rules 11 under this subsection, the Commission shall consult 12 with and consider the views of the appropriate regu- 13 latory agencies concerning the proposed rule and the 14 impact on the banking industry.''. 15 SEC. 207. DERIVATIVE INSTRUMENT AND QUALIFIED IN- 16 VESTOR DEFINED. 17 Section 3(a) of the Securities Exchange Act of 1934 18 is amended by adding at the end the following new para- 19 graphs: 20 ``(54) DERIVATIVE INSTRUMENT.- 21 ``(A) DEFINITION.-The term `derivative 22 instrument' means any individually negotiated 23 contract, agreement, warrant, note, or option 24 that is based, in whole or in part, on the value 25 of, any interest in, or any quantitative measure *HR 10 EH 183 1 or the occurrence of any event relating to, one 2 or more commodities, securities, currencies, in- 3 terest or other rates, indices, or other assets, 4 but does not include a traditional banking prod- 5 uct, as defined in section 206(a) of the Finan- 6 cial Services Act of 1998. 7 ``(B) CLASSIFICATION LIMITED.- Classi- 8 fication of a particular contract as a derivative 9 instrument pursuant to this paragraph shall not 10 be construed as finding or implying that such 11 instrument is or is not a security for any pur- 12 pose under the securities laws, or is or is not 13 an account, agreement, contract, or transaction 14 for any purpose under the Commodity Ex- 15 change Act. 16 ``(55) QUALIFIED INVESTOR.- 17 ``(A) DEFINITION.-For purposes of this 18 title and section 206(a)(1)(E) of the Financial 19 Services Act of 1998, the term `qualified inves- 20 tor' means- 21 ``(i) any investment company reg- 22 istered with the Commission under section 23 8 of the Investment Company Act of 1940; 24 ``(ii) any issuer eligible for an exclu- 25 sion from the definition of investment com- *HR 10 EH 184 1 pany pursuant to section 3(c)(7) of the In- 2 vestment Company Act of 1940; 3 ``(iii) any bank (as defined in para- 4 graph (6) of this subsection), savings and 5 loan association (as defined in section 3(b) 6 of the Federal Deposit Insurance Act), 7 broker, dealer, insurance company (as de- 8 fined in section 2(a)(13) of the Securities 9 Act of 1933), or business development 10 company (as defined in section 2(a)(48) of 11 the Investment Company Act of 1940); 12 ``(iv) any small business investment 13 company licensed by the United States 14 Small Business Administration under sec- 15 tion 301(c) or (d) of the Small Business 16 Investment Act of 1958; 17 ``(v) any State sponsored employee 18 benefit plan, or any other employee benefit 19 plan, within the meaning of the Employee 20 Retirement Income Security Act of 1974, 21 other than an individual retirement ac- 22 count, if the investment decisions are made 23 by a plan fiduciary, as defined in section 24 3(21) of that Act, which is either a bank, *HR 10 EH 185 1 savings and loan association, insurance 2 company, or registered investment adviser; 3 ``(vi) any trust whose purchases of se- 4 curities are directed by a person described 5 in clauses (i) through (v) of this subpara- 6 graph; 7 ``(vii) any market intermediary ex- 8 empt under section 3(c)(2) of the Invest- 9 ment Company Act of 1940; 10 ``(viii) any associated person of a 11 broker or dealer other than a natural per- 12 son; 13 ``(ix) any foreign bank (as defined in 14 section 1(b)(7) of the International Bank- 15 ing Act of 1978); or 16 ``(x) the government of any foreign 17 country. 18 ``(B) ADDITIONAL QUALIFICATIONS DE- 19 FINED.-For purposes of paragraphs 20 (4)(B)(vii) and (5)(C)(iii) of this subsection, 21 and section 206(a)(1)(E) of the Financial Serv- 22 ices Act of 1998, the term `qualified investor' 23 also means- 24 ``(i) any corporation, company, or 25 partnership that owns and invests on a dis- *HR 10 EH 186 1 cretionary basis, not less than $10,000,000 2 in investments; 3 ``(ii) any natural person who owns 4 and invests on a discretionary basis, not 5 less than $10,000,000 in investments; 6 ``(iii) any government or political sub- 7 division, agency, or instrumentality of a 8 government who owns and invests on a dis- 9 cretionary basis not less than $50,000,000 10 in investments; or 11 ``(iv) any multinational or supra- 12 national entity or any agency or instru- 13 mentality thereof. 14 ``(C) ADDITIONAL AUTHORITY.-The Com- 15 mission may, by rule or order, define a `quali- 16 fied investor' as any other person, other than a 17 natural person, taking into consideration such 18 factors as the person's financial sophistication, 19 net worth, and knowledge and experience in fi- 20 nancial matters.''. 21 SEC. 208. GOVERNMENT SECURITIES DEFINED. 22 Section 3(a)(42) of the Securities Exchange Act of 23 1934 (15 U.S.C. 78c(a)(42)) is amended- 24 (1) by striking ``or'' at the end of subparagraph 25 (C); *HR 10 EH 187 1 (2) by striking the period at the end of sub- 2 paragraph (D) and inserting ``; or''; and 3 (3) by adding at the end the following new sub- 4 paragraph: 5 ``(E) for purposes of section 15C as ap- 6 plied to a bank, a qualified Canadian govern- 7 ment obligation as defined in section 5136 of 8 the Revised Statutes.''. 9 SEC. 209. EFFECTIVE DATE. 10 This subtitle shall take effect at the end of the 270- 11 day period beginning on the date of the enactment of this 12 Act. 13 SEC. 210. RULE OF CONSTRUCTION. 14 Nothing in this Act shall supersede, affect, or other- 15 wise limit the scope and applicability of the Commodity 16 Exchange Act (7 U.S.C. 1 et seq.). 17 Subtitle B-Bank Investment 18 Company Activities 19 SEC. 211. CUSTODY OF INVESTMENT COMPANY ASSETS BY 20 AFFILIATED BANK. 21 (a) MANAGEMENT COMPANIES.-Section 17(f) of the 22 Investment Company Act of 1940 (15 U.S.C. 80a­17(f)) 23 is amended- 24 (1) by redesignating paragraphs (1), (2), and 25 (3) as subparagraphs (A), (B), and (C), respectively; *HR 10 EH 188 1 (2) by striking ``(f) Every registered'' and in- 2 serting the following: 3 ``(f) CUSTODY OF SECURITIES.- 4 ``(1) Every registered''; 5 (3) by redesignating the second, third, fourth, 6 and fifth sentences of such subsection as paragraphs 7 (2) through (5), respectively, and indenting the left 8 margin of such paragraphs appropriately; and 9 (4) by adding at the end the following new 10 paragraph: 11 ``(6) The Commission may adopt rules and reg- 12 ulations, and issue orders, consistent with the pro- 13 tection of investors, prescribing the conditions under 14 which a bank, or an affiliated person of a bank, ei- 15 ther of which is an affiliated person, promoter, orga- 16 nizer, or sponsor of, or principal underwriter for, a 17 registered management company may serve as custo- 18 dian of that registered management company.''. 19 (b) UNIT INVESTMENT TRUSTS.-Section 26 of the 20 Investment Company Act of 1940 (15 U.S.C. 80a­26) is 21 amended- 22 (1) by redesignating subsections (b) through (e) 23 as subsections (c) through (f), respectively; and 24 (2) by inserting after subsection (a) the follow- 25 ing new subsection: *HR 10 EH 189 1 ``(b) The Commission may adopt rules and regula- 2 tions, and issue orders, consistent with the protection of 3 investors, prescribing the conditions under which a bank, 4 or an affiliated person of a bank, either of which is an 5 affiliated person of a principal underwriter for, or deposi- 6 tor of, a registered unit investment trust, may serve as 7 trustee or custodian under subsection (a)(1).''. 8 (c) FIDUCIARY DUTY OF CUSTODIAN.-Section 36(a) 9 of the Investment Company Act of 1940 (15 U.S.C. 80a­ 10 35(a)) is amended- 11 (1) in paragraph (1), by striking ``or'' at the 12 end; 13 (2) in paragraph (2), by striking the period at 14 the end and inserting ``; or''; and 15 (3) by inserting after paragraph (2) the follow- 16 ing: 17 ``(3) as custodian.''. 18 SEC. 212. LENDING TO AN AFFILIATED INVESTMENT COM- 19 PANY. 20 Section 17(a) of the Investment Company Act of 21 1940 (15 U.S.C. 80a­17(a)) is amended- 22 (1) by striking ``or'' at the end of paragraph 23 (2); 24 (2) by striking the period at the end of para- 25 graph (3) and inserting ``; or''; and *HR 10 EH 190 1 (3) by adding at the end the following new 2 paragraph: 3 ``(4) to loan money or other property to such 4 registered company, or to any company controlled by 5 such registered company, in contravention of such 6 rules, regulations, or orders as the Commission may 7 prescribe or issue consistent with the protection of 8 investors.''. 9 SEC. 213. INDEPENDENT DIRECTORS. 10 (a) IN GENERAL.-Section 2(a)(19)(A) of the Invest- 11 ment Company Act of 1940 (15 U.S.C. 80a­2(a)(19)(A)) 12 is amended- 13 (1) by striking clause (v) and inserting the fol- 14 lowing new clause: 15 ``(v) any person or any affiliated per- 16 son of a person (other than a registered in- 17 vestment company) that, at any time dur- 18 ing the 6-month period preceding the date 19 of the determination of whether that per- 20 son or affiliated person is an interested 21 person, has executed any portfolio trans- 22 actions for, engaged in any principal trans- 23 actions with, or distributed shares for- 24 ``(I) the investment company; *HR 10 EH 191 1 ``(II) any other investment com- 2 pany having the same investment ad- 3 viser as such investment company or 4 holding itself out to investors as a re- 5 lated company for purposes of invest- 6 ment or investor services; or 7 ``(III) any account over which the 8 investment company's investment ad- 9 viser has brokerage placement discre- 10 tion,''; 11 (2) by redesignating clause (vi) as clause (vii); 12 and 13 (3) by inserting after clause (v) the following 14 new clause: 15 ``(vi) any person or any affiliated per- 16 son of a person (other than a registered in- 17 vestment company) that, at any time dur- 18 ing the 6-month period preceding the date 19 of the determination of whether that per- 20 son or affiliated person is an interested 21 person, has loaned money or other prop- 22 erty to- 23 ``(I) the investment company; 24 ``(II) any other investment com- 25 pany having the same investment ad- *HR 10 EH 192 1 viser as such investment company or 2 holding itself out to investors as a re- 3 lated company for purposes of invest- 4 ment or investor services; or 5 ``(III) any account for which the 6 investment company's investment ad- 7 viser has borrowing authority,''. 8 (b) CONFORMING AMENDMENT.-Section 9 2(a)(19)(B) of the Investment Company Act of 1940 (15 10 U.S.C. 80a­2(a)(19)(B)) is amended- 11 (1) by striking clause (v) and inserting the fol- 12 lowing new clause: 13 ``(v) any person or any affiliated per- 14 son of a person (other than a registered in- 15 vestment company) that, at any time dur- 16 ing the 6-month period preceding the date 17 of the determination of whether that per- 18 son or affiliated person is an interested 19 person, has executed any portfolio trans- 20 actions for, engaged in any principal trans- 21 actions with, or distributed shares for- 22 ``(I) any investment company for 23 which the investment adviser or prin- 24 cipal underwriter serves as such; *HR 10 EH 193 1 ``(II) any investment company 2 holding itself out to investors, for pur- 3 poses of investment or investor serv- 4 ices, as a company related to any in- 5 vestment company for which the in- 6 vestment adviser or principal under- 7 writer serves as such; or 8 ``(III) any account over which the 9 investment adviser has brokerage 10 placement discretion,''; 11 (2) by redesignating clause (vi) as clause (vii); 12 and 13 (3) by inserting after clause (v) the following 14 new clause: 15 ``(vi) any person or any affiliated per- 16 son of a person (other than a registered in- 17 vestment company) that, at any time dur- 18 ing the 6-month period preceding the date 19 of the determination of whether that per- 20 son or affiliated person is an interested 21 person, has loaned money or other prop- 22 erty to- 23 ``(I) any investment company for 24 which the investment adviser or prin- 25 cipal underwriter serves as such; *HR 10 EH 194 1 ``(II) any investment company 2 holding itself out to investors, for pur- 3 poses of investment or investor serv- 4 ices, as a company related to any in- 5 vestment company for which the in- 6 vestment adviser or principal under- 7 writer serves as such; or 8 ``(III) any account for which the 9 investment adviser has borrowing au- 10 thority,''. 11 (c) AFFILIATION OF DIRECTORS.-Section 10(c) of 12 the Investment Company Act of 1940 (15 U.S.C. 80a­ 13 10(c)) is amended by striking ``bank, except'' and insert- 14 ing ``bank (together with its affiliates and subsidiaries) or 15 any one bank holding company (together with its affiliates 16 and subsidiaries) (as such terms are defined in section 2 17 of the Bank Holding Company Act of 1956), except''. 18 (d) EFFECTIVE DATE.-The amendments made by 19 this section shall take effect at the end of the 1-year period 20 beginning on the date of enactment of this subtitle. 21 SEC. 214. ADDITIONAL SEC DISCLOSURE AUTHORITY. 22 Section 35(a) of the Investment Company Act of 23 1940 (15 U.S.C. 80a­34(a)) is amended to read as fol- 24 lows: 25 ``(a) MISREPRESENTATION OF GUARANTEES.- *HR 10 EH 195 1 ``(1) IN GENERAL.-It shall be unlawful for any 2 person, issuing or selling any security of which a 3 registered investment company is the issuer, to rep- 4 resent or imply in any manner whatsoever that such 5 security or company- 6 ``(A) has been guaranteed, sponsored, rec- 7 ommended, or approved by the United States, 8 or any agency, instrumentality or officer of the 9 United States; 10 ``(B) has been insured by the Federal De- 11 posit Insurance Corporation; or 12 ``(C) is guaranteed by or is otherwise an 13 obligation of any bank or insured depository in- 14 stitution. 15 ``(2) DISCLOSURES.-Any person issuing or 16 selling the securities of a registered investment com- 17 pany that is advised by, or sold through, a bank 18 shall prominently disclose that an investment in the 19 company is not insured by the Federal Deposit In- 20 surance Corporation or any other government agen- 21 cy. The Commission may adopt rules and regula- 22 tions, and issue orders, consistent with the protec- 23 tion of investors, prescribing the manner in which 24 the disclosure under this paragraph shall be pro- 25 vided. *HR 10 EH 196 1 ``(3) DEFINITIONS.-The terms `insured deposi- 2 tory institution' and `appropriate Federal banking 3 agency' have the meaning given to such terms in 4 section 3 of the Federal Deposit Insurance Act.''. 5 SEC. 215. DEFINITION OF BROKER UNDER THE INVEST- 6 MENT COMPANY ACT OF 1940. 7 Section 2(a)(6) of the Investment Company Act of 8 1940 (15 U.S.C. 80a­2(a)(6)) is amended to read as fol- 9 lows: 10 ``(6) The term `broker' has the same meaning 11 as in the Securities Exchange Act of 1934, except 12 that such term does not include any person solely by 13 reason of the fact that such person is an underwriter 14 for one or more investment companies.''. 15 SEC. 216. DEFINITION OF DEALER UNDER THE INVEST- 16 MENT COMPANY ACT OF 1940. 17 Section 2(a)(11) of the Investment Company Act of 18 1940 (15 U.S.C. 80a­2(a)(11)) is amended to read as fol- 19 lows: 20 ``(11) The term `dealer' has the same meaning 21 as in the Securities Exchange Act of 1934, but does 22 not include an insurance company or investment 23 company.''. *HR 10 EH 197 1 SEC. 217. REMOVAL OF THE EXCLUSION FROM THE DEFINI- 2 TION OF INVESTMENT ADVISER FOR BANKS 3 THAT ADVISE INVESTMENT COMPANIES. 4 (a) INVESTMENT ADVISER.-Section 202(a)(11) of 5 the Investment Advisers Act of 1940 (15 U.S.C. 80b­ 6 2(a)(11)) is amended in subparagraph (A), by striking 7 ``investment company'' and inserting ``investment com- 8 pany, except that the term `investment adviser' includes 9 any bank or bank holding company to the extent that such 10 bank or bank holding company serves or acts as an invest- 11 ment adviser to a registered investment company, but if, 12 in the case of a bank, such services or actions are per- 13 formed through a separately identifiable department or di- 14 vision, the department or division, and not the bank itself, 15 shall be deemed to be the investment adviser''. 16 (b) SEPARATELY IDENTIFIABLE DEPARTMENT OR 17 DIVISION.-Section 202(a) of the Investment Advisers Act 18 of 1940 (15 U.S.C. 80b­2(a)) is amended by adding at 19 the end the following: 20 ``(26) The term `separately identifiable depart- 21 ment or division' of a bank means a unit- 22 ``(A) that is under the direct supervision of 23 an officer or officers designated by the board of 24 directors of the bank as responsible for the day- 25 to-day conduct of the bank's investment adviser 26 activities for one or more investment companies, *HR 10 EH 198 1 including the supervision of all bank employees 2 engaged in the performance of such activities; 3 and 4 ``(B) for which all of the records relating 5 to its investment adviser activities are sepa- 6 rately maintained in or extractable from such 7 unit's own facilities or the facilities of the bank, 8 and such records are so maintained or other- 9 wise accessible as to permit independent exam- 10 ination and enforcement by the Commission of 11 this Act or the Investment Company Act of 12 1940 and rules and regulations promulgated 13 under this Act or the Investment Company Act 14 of 1940.''. 15 SEC. 218. DEFINITION OF BROKER UNDER THE INVEST- 16 MENT ADVISERS ACT OF 1940. 17 Section 202(a)(3) of the Investment Advisers Act of 18 1940 (15 U.S.C. 80b­2(a)(3)) is amended to read as fol- 19 lows: 20 ``(3) The term `broker' has the same meaning 21 as in the Securities Exchange Act of 1934.''. *HR 10 EH 199 1 SEC. 219. DEFINITION OF DEALER UNDER THE INVEST- 2 MENT ADVISERS ACT OF 1940. 3 Section 202(a)(7) of the Investment Advisers Act of 4 1940 (15 U.S.C. 80b­2(a)(7)) is amended to read as fol- 5 lows: 6 ``(7) The term `dealer' has the same meaning as 7 in the Securities Exchange Act of 1934, but does 8 not include an insurance company or investment 9 company.''. 10 SEC. 220. INTERAGENCY CONSULTATION. 11 The Investment Advisers Act of 1940 (15 U.S.C. 12 80b­1 et seq.) is amended by inserting after section 210 13 the following new section: 14 ``SEC. 210A. CONSULTATION. 15 ``(a) EXAMINATION RESULTS AND OTHER INFORMA- 16 TION.- 17 ``(1) The appropriate Federal banking agency 18 shall provide the Commission upon request the re- 19 sults of any examination, reports, records, or other 20 information to which such agency may have access 21 with respect to the investment advisory activities- 22 ``(A) of any- 23 ``(i) bank holding company; 24 ``(ii) bank; or 25 ``(iii) separately identifiable depart- 26 ment or division of a bank, *HR 10 EH 200 1 that is registered under section 203 of this title; 2 and 3 ``(B) in the case of a bank holding com- 4 pany or bank that has a subsidiary or a sepa- 5 rately identifiable department or division reg- 6 istered under that section, of such bank or bank 7 holding company. 8 ``(2) The Commission shall provide to the ap- 9 propriate Federal banking agency upon request the 10 results of any examination, reports, records, or other 11 information with respect to the investment advisory 12 activities of any bank holding company, bank, or 13 separately identifiable department or division of a 14 bank, any of which is registered under section 203 15 of this title. 16 ``(b) EFFECT ON OTHER AUTHORITY.-Nothing in 17 this section shall limit in any respect the authority of the 18 appropriate Federal banking agency with respect to such 19 bank holding company, bank, or department or division 20 under any provision of law. 21 ``(c) DEFINITION.-For purposes of this section, the 22 term `appropriate Federal banking agency' shall have the 23 same meaning as in section 3 of the Federal Deposit In- 24 surance Act.''. *HR 10 EH 201 1 SEC. 221. TREATMENT OF BANK COMMON TRUST FUNDS. 2 (a) SECURITIES ACT OF 1933.-Section 3(a)(2) of 3 the Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is 4 amended by striking ``or any interest or participation in 5 any common trust fund or similar fund maintained by a 6 bank exclusively for the collective investment and reinvest- 7 ment of assets contributed thereto by such bank in its ca- 8 pacity as trustee, executor, administrator, or guardian'' 9 and inserting ``or any interest or participation in any com- 10 mon trust fund or similar fund that is excluded from the 11 definition of the term `investment company' under section 12 3(c)(3) of the Investment Company Act of 1940''. 13 (b) SECURITIES EXCHANGE ACT OF 1934.-Section 14 3(a)(12)(A)(iii) of the Securities Exchange Act of 1934 15 (15 U.S.C. 78c(a)(12)(A)(iii)) is amended to read as fol- 16 lows: 17 ``(iii) any interest or participation in any 18 common trust fund or similar fund that is ex- 19 cluded from the definition of the term `invest- 20 ment company' under section 3(c)(3) of the In- 21 vestment Company Act of 1940;''. 22 (c) INVESTMENT COMPANY ACT OF 1940.-Section 23 3(c)(3) of the Investment Company Act of 1940 (15 24 U.S.C. 80a­3(c)(3)) is amended by inserting before the 25 period the following: ``, if- *HR 10 EH 202 1 ``(A) such fund is employed by the bank 2 solely as an aid to the administration of trusts, 3 estates, or other accounts created and main- 4 tained for a fiduciary purpose; 5 ``(B) except in connection with the ordi- 6 nary advertising of the bank's fiduciary serv- 7 ices, interests in such fund are not- 8 ``(i) advertised; or 9 ``(ii) offered for sale to the general 10 public; and 11 ``(C) fees and expenses charged by such 12 fund are not in contravention of fiduciary prin- 13 ciples established under applicable Federal or 14 State law''. 15 SEC. 222. INVESTMENT ADVISERS PROHIBITED FROM HAV- 16 ING CONTROLLING INTEREST IN REG- 17 ISTERED INVESTMENT COMPANY. 18 Section 15 of the Investment Company Act of 1940 19 (15 U.S.C. 80a­15) is amended by adding at the end the 20 following new subsection: 21 ``(g) CONTROLLING INTEREST IN INVESTMENT COM- 22 PANY PROHIBITED.- 23 ``(1) IN GENERAL.-If an investment adviser to 24 a registered investment company, or an affiliated 25 person of that investment adviser, holds a control- *HR 10 EH 203 1 ling interest in that registered investment company 2 in a trustee or fiduciary capacity, such person 3 shall- 4 ``(A) if it holds the shares in a trustee or 5 fiduciary capacity with respect to any employee 6 benefit plan subject to the Employee Retire- 7 ment Income Security Act of 1974, transfer the 8 power to vote the shares of the investment com- 9 pany through to another person acting in a fi- 10 duciary capacity with respect to the plan who is 11 not an affiliated person of that investment ad- 12 viser or any affiliated person thereof; or 13 ``(B) if it holds the shares in a trustee or 14 fiduciary capacity with respect to any person or 15 entity other than an employee benefit plan sub- 16 ject to the Employee Retirement Income Secu- 17 rity Act of 1974- 18 ``(i) transfer the power to vote the 19 shares of the investment company through 20 to- 21 ``(I) the beneficial owners of the 22 shares; 23 ``(II) another person acting in a 24 fiduciary capacity who is not an affili- *HR 10 EH 204 1 ated person of that investment adviser 2 or any affiliated person thereof; or 3 ``(III) any person authorized to 4 receive statements and information 5 with respect to the trust who is not an 6 affiliated person of that investment 7 adviser or any affiliated person there- 8 of; 9 ``(ii) vote the shares of the investment 10 company held by it in the same proportion 11 as shares held by all other shareholders of 12 the investment company; or 13 ``(iii) vote the shares of the invest- 14 ment company as otherwise permitted 15 under such rules, regulations, or orders as 16 the Commission may prescribe or issue 17 consistent with the protection of investors. 18 ``(2) EXEMPTION.-Paragraph (1) shall not 19 apply to any investment adviser to a registered in- 20 vestment company, or any affiliated person of that 21 investment adviser, that holds shares of the invest- 22 ment company in a trustee or fiduciary capacity if 23 that registered investment company consists solely of 24 assets held in such capacities. *HR 10 EH 205 1 ``(3) SAFE HARBOR.-No investment adviser to 2 a registered investment company or any affiliated 3 person of such investment adviser shall be deemed to 4 have acted unlawfully or to have breached a fidu- 5 ciary duty under State or Federal law solely by rea- 6 son of acting in accordance with clause (i), (ii), or 7 (iii) of paragraph (1)(B).''. 8 SEC. 223. CONFORMING CHANGE IN DEFINITION. 9 Section 2(a)(5) of the Investment Company Act of 10 1940 (15 U.S.C. 80a­2(a)(5)) is amended by striking 11 ``(A) a banking institution organized under the laws of the 12 United States'' and inserting ``(A) a depository institution 13 (as defined in section 3 of the Federal Deposit Insurance 14 Act) or a branch or agency of a foreign bank (as such 15 terms are defined in section 1(b) of the International 16 Banking Act of 1978)''. 17 SEC. 224. CONFORMING AMENDMENT. 18 Section 202 of the Investment Advisers Act of 1940 19 (15 U.S.C. 80b­2) is amended by adding at the end the 20 following new subsection: 21 ``(c) CONSIDERATION OF PROMOTION OF EFFI- 22 CIENCY, COMPETITION, AND CAPITAL FORMATION.- 23 Whenever pursuant to this title the Commission is en- 24 gaged in rulemaking and is required to consider or deter- 25 mine whether an action is necessary or appropriate in the *HR 10 EH 206 1 public interest, the Commission shall also consider, in ad- 2 dition to the protection of investors, whether the action 3 will promote efficiency, competition, and capital forma- 4 tion.''. 5 SEC. 225. EFFECTIVE DATE. 6 This subtitle shall take effect 90 days after the date 7 of the enactment of this Act. 8 Subtitle C-Securities and Ex- 9 change Commission Supervision 10 of Investment Bank Holding 11 Companies 12 SEC. 231. SUPERVISION OF INVESTMENT BANK HOLDING 13 COMPANIES BY THE SECURITIES AND EX- 14 CHANGE COMMISSION. 15 (a) AMENDMENT.-Section 17 of the Securities Ex- 16 change Act of 1934 (15 U.S.C. 78q) is amended- 17 (1) by redesignating subsection (i) as subsection 18 (l); and 19 (2) by inserting after subsection (h) the follow- 20 ing new subsections: 21 ``(i) INVESTMENT BANK HOLDING COMPANIES.- 22 ``(1) ELECTIVE SUPERVISION OF AN INVEST- 23 MENT BANK HOLDING COMPANY NOT HAVING A 24 BANK OR SAVINGS ASSOCIATION AFFILIATE.- *HR 10 EH 207 1 ``(A) IN GENERAL.-An investment bank 2 holding company that is not- 3 ``(i) an affiliate of a wholesale finan- 4 cial institution, an insured bank (other 5 than an institution described in subpara- 6 graph (D), (F), or (G) of section 2(c)(2), 7 or held under section 4(f), of the Bank 8 Holding Company Act of 1956), or a sav- 9 ings association; 10 ``(ii) a foreign bank, foreign company, 11 or company that is described in section 12 8(a) of the International Banking Act of 13 1978; or 14 ``(iii) a foreign bank that controls, di- 15 rectly or indirectly, a corporation chartered 16 under section 25A of the Federal Reserve 17 Act, 18 may elect to become supervised by filing with 19 the Commission a notice of intention to become 20 supervised, pursuant to subparagraph (B) of 21 this paragraph. Any investment bank holding 22 company filing such a notice shall be supervised 23 in accordance with this section and comply with 24 the rules promulgated by the Commission appli- *HR 10 EH 208 1 cable to supervised investment bank holding 2 companies. 3 ``(B) NOTIFICATION OF STATUS AS A SU- 4 PERVISED INVESTMENT BANK HOLDING COM- 5 PANY.-An investment bank holding company 6 that elects under subparagraph (A) to become 7 supervised by the Commission shall file with the 8 Commission a written notice of intention to be- 9 come supervised by the Commission in such 10 form and containing such information and doc- 11 uments concerning such investment bank hold- 12 ing company as the Commission, by rule, may 13 prescribe as necessary or appropriate in fur- 14 therance of the purposes of this section. Unless 15 the Commission finds that such supervision is 16 not necessary or appropriate in furtherance of 17 the purposes of this section, such supervision 18 shall become effective 45 days after receipt of 19 such written notice by the Commission or with- 20 in such shorter time period as the Commission, 21 by rule or order, may determine. 22 ``(2) ELECTION NOT TO BE SUPERVISED BY 23 THE COMMISSION AS AN INVESTMENT BANK HOLD- 24 ING COMPANY.- *HR 10 EH 209 1 ``(A) VOLUNTARY WITHDRAWAL.-A su- 2 pervised investment bank holding company that 3 is supervised pursuant to paragraph (1) may, 4 upon such terms and conditions as the Commis- 5 sion deems necessary or appropriate, elect not 6 to be supervised by the Commission by filing a 7 written notice of withdrawal from Commission 8 supervision. Such notice shall not become effec- 9 tive until one year after receipt by the Commis- 10 sion, or such shorter or longer period as the 11 Commission deems necessary or appropriate to 12 ensure effective supervision of the material 13 risks to the supervised investment bank holding 14 company and to the affiliated broker or dealer, 15 or to prevent evasion of the purposes of this 16 section. 17 ``(B) DISCONTINUATION OF COMMISSION 18 SUPERVISION.-If the Commission finds that 19 any supervised investment bank holding com- 20 pany that is supervised pursuant to paragraph 21 (1) is no longer in existence or has ceased to be 22 an investment bank holding company, or if the 23 Commission finds that continued supervision of 24 such a supervised investment bank holding com- 25 pany is not consistent with the purposes of this *HR 10 EH 210 1 section, the Commission may discontinue the 2 supervision pursuant to a rule or order, if any, 3 promulgated by the Commission under this sec- 4 tion. 5 ``(3) SUPERVISION OF INVESTMENT BANK 6 HOLDING COMPANIES.- 7 ``(A) RECORDKEEPING AND REPORTING.- 8 ``(i) IN GENERAL.-Every supervised 9 investment bank holding company and 10 each affiliate thereof shall make and keep 11 for prescribed periods such records, furnish 12 copies thereof, and make such reports, as 13 the Commission may require by rule, in 14 order to keep the Commission informed as 15 to- 16 ``(I) the company's or affiliate's 17 activities, financial condition, policies, 18 systems for monitoring and control- 19 ling financial and operational risks, 20 and transactions and relationships be- 21 tween any broker or dealer affiliate of 22 the supervised investment bank hold- 23 ing company; and 24 ``(II) the extent to which the 25 company or affiliate has complied with *HR 10 EH 211 1 the provisions of this Act and regula- 2 tions prescribed and orders issued 3 under this Act. 4 ``(ii) FORM AND CONTENTS.-Such 5 records and reports shall be prepared in 6 such form and according to such specifica- 7 tions (including certification by an inde- 8 pendent public accountant), as the Com- 9 mission may require and shall be provided 10 promptly at any time upon request by the 11 Commission. Such records and reports may 12 include- 13 ``(I) a balance sheet and income 14 statement; 15 ``(II) an assessment of the con- 16 solidated capital of the supervised in- 17 vestment bank holding company; 18 ``(III) an independent auditor's 19 report attesting to the supervised in- 20 vestment bank holding company's 21 compliance with its internal risk man- 22 agement and internal control objec- 23 tives; and 24 ``(IV) reports concerning the ex- 25 tent to which the company or affiliate *HR 10 EH 212 1 has complied with the provisions of 2 this title and any regulations pre- 3 scribed and orders issued under this 4 title. 5 ``(B) USE OF EXISTING REPORTS.- 6 ``(i) IN GENERAL.-The Commission 7 shall, to the fullest extent possible, accept 8 reports in fulfillment of the requirements 9 under this paragraph that the supervised 10 investment bank holding company or its af- 11 filiates have been required to provide to 12 another appropriate regulatory agency or 13 self-regulatory organization. 14 ``(ii) AVAILABILITY.-A supervised in- 15 vestment bank holding company or an af- 16 filiate of such company shall provide to the 17 Commission, at the request of the Commis- 18 sion, any report referred to in clause (i). 19 ``(C) EXAMINATION AUTHORITY.- 20 ``(i) FOCUS OF EXAMINATION AU- 21 THORITY.-The Commission may make ex- 22 aminations of any supervised investment 23 bank holding company and any affiliate of 24 such company in order to- *HR 10 EH 213 1 ``(I) inform the Commission re- 2 garding- 3 ``(aa) the nature of the oper- 4 ations and financial condition of 5 the supervised investment bank 6 holding company and its affili- 7 ates; 8 ``(bb) the financial and oper- 9 ational risks within the super- 10 vised investment bank holding 11 company that may affect any 12 broker or dealer controlled by 13 such supervised investment bank 14 holding company; and 15 ``(cc) the systems of the su- 16 pervised investment bank holding 17 company and its affiliates for 18 monitoring and controlling those 19 risks; and 20 ``(II) monitor compliance with 21 the provisions of this subsection, pro- 22 visions governing transactions and re- 23 lationships between any broker or 24 dealer affiliated with the supervised 25 investment bank holding company and *HR 10 EH 214 1 any of the company's other affiliates, 2 and applicable provisions of sub- 3 chapter II of chapter 53, title 31, 4 United States Code (commonly re- 5 ferred to as the `Bank Secrecy Act') 6 and regulations thereunder. 7 ``(ii) RESTRICTED FOCUS OF EXAMI- 8 NATIONS.-The Commission shall limit the 9 focus and scope of any examination of a 10 supervised investment bank holding com- 11 pany to- 12 ``(I) the company; and 13 ``(II) any affiliate of the company 14 that, because of its size, condition, or 15 activities, the nature or size of the 16 transactions between such affiliate 17 and any affiliated broker or dealer, or 18 the centralization of functions within 19 the holding company system, could, in 20 the discretion of the Commission, 21 have a materially adverse effect on the 22 operational or financial condition of 23 the broker or dealer. 24 ``(iii) DEFERENCE TO OTHER EXAMI- 25 NATIONS.-For purposes of this subpara- *HR 10 EH 215 1 graph, the Commission shall, to the fullest 2 extent possible, use the reports of examina- 3 tion of an institution described in subpara- 4 graph (D), (F), or (G) of section 2(c)(2), 5 or held under section 4(f), of the Bank 6 Holding Company Act of 1956 made by 7 the appropriate regulatory agency, or of a 8 licensed insurance company made by the 9 appropriate State insurance regulator. 10 ``(4) HOLDING COMPANY CAPITAL.- 11 ``(A) AUTHORITY.-If the Commission 12 finds that it is necessary to adequately super- 13 vise investment bank holding companies and 14 their broker or dealer affiliates consistent with 15 the purposes of this subsection, the Commission 16 may adopt capital adequacy rules for supervised 17 investment bank holding companies. 18 ``(B) METHOD OF CALCULATION.-In de- 19 veloping rules under this paragraph: 20 ``(i) DOUBLE LEVERAGE.-The Com- 21 mission shall consider the use by the su- 22 pervised investment bank holding company 23 of debt and other liabilities to fund capital 24 investments in affiliates. *HR 10 EH 216 1 ``(ii) NO UNWEIGHTED CAPITAL 2 RATIO.-The Commission shall not impose 3 under this section a capital ratio that is 4 not based on appropriate risk-weighting 5 considerations. 6 ``(iii) NO CAPITAL REQUIREMENT ON 7 REGULATED ENTITIES.-The Commission 8 shall not, by rule, regulation, guideline, 9 order or otherwise, impose any capital ade- 10 quacy provision on a nonbanking affiliate 11 (other than a broker or dealer) that is in 12 compliance with applicable capital require- 13 ments of another Federal regulatory au- 14 thority or State insurance authority. 15 ``(iv) APPROPRIATE EXCLUSIONS.- 16 The Commission shall take full account of 17 the applicable capital requirements of an- 18 other Federal regulatory authority or State 19 insurance regulator. 20 ``(C) INTERNAL RISK MANAGEMENT MOD- 21 ELS.-The Commission may incorporate inter- 22 nal risk management models into its capital 23 adequacy rules for supervised investment bank 24 holding companies. *HR 10 EH 217 1 ``(5) FUNCTIONAL REGULATION OF BANKING 2 AND INSURANCE ACTIVITIES OF SUPERVISED IN- 3 VESTMENT BANK HOLDING COMPANIES.-The Com- 4 mission shall defer to- 5 ``(A) the appropriate regulatory agency 6 with regard to all interpretations of, and the 7 enforcement of, applicable banking laws relating 8 to the activities, conduct, ownership, and oper- 9 ations of banks, and institutions described in 10 subparagraph (D), (F), and (G) of section 11 2(c)(2), or held under section 4(f), of the Bank 12 Holding Company Act of 1956; and 13 ``(B) the appropriate State insurance regu- 14 lators with regard to all interpretations of, and 15 the enforcement of, applicable State insurance 16 laws relating to the activities, conduct, and op- 17 erations of insurance companies and insurance 18 agents. 19 ``(6) DEFINITIONS.-For purposes of this sub- 20 section and subsection (j)- 21 ``(A) The term `investment bank holding 22 company' means- 23 ``(i) any person other than a natural 24 person that owns or controls one or more 25 brokers or dealers; and *HR 10 EH 218 1 ``(ii) the associated persons of the in- 2 vestment bank holding company. 3 ``(B) The term `supervised investment 4 bank holding company' means any investment 5 bank holding company that is supervised by the 6 Commission pursuant to this subsection. 7 ``(C) The terms `affiliate', `bank', `bank 8 holding company', `company', `control', and 9 `savings association' have the meanings given to 10 those terms in section 2 of the Bank Holding 11 Company Act of 1956 (12 U.S.C. 1841). 12 ``(D) The term `insured bank' has the 13 meaning given to that term in section 3 of the 14 Federal Deposit Insurance Act. 15 ``(E) The term `foreign bank' has the 16 meaning given to that term in section 1(b)(7) 17 of the International Banking Act of 1978. 18 ``(F) The terms ``person associated with an 19 investment bank holding company' and ``associ- 20 ated person of an investment bank holding com- 21 pany' means any person directly or indirectly 22 controlling, controlled by, or under common 23 control with, an investment bank holding com- 24 pany. 25 ``(j) COMMISSION BACKUP AUTHORITY.- *HR 10 EH 219 1 ``(1) AUTHORITY.-The Commission may make 2 inspections of any wholesale financial holding com- 3 pany that- 4 ``(A) controls a wholesale financial institu- 5 tion; 6 ``(B) is not a foreign bank; and 7 ``(C) does not control an insured bank 8 (other than an institution permitted under sub- 9 paragraph (D), (F), or (G) of section 2(c)(2), 10 or held under section 4(f), of the Bank Holding 11 Company Act of 1956) or a savings association, 12 and any affiliate of such company, for the purpose 13 of monitoring and enforcing compliance by the 14 wholesale financial holding company with the Fed- 15 eral securities laws. 16 ``(2) LIMITATION.-The Commission shall limit 17 the focus and scope of any inspection under para- 18 graph (1) to those transactions, policies, procedures, 19 or records that are reasonably necessary to monitor 20 and enforce compliance by the wholesale financial 21 holding company or any affiliate with the Federal 22 securities laws. 23 ``(3) DEFERENCE TO EXAMINATIONS.-To the 24 fullest extent possible, the Commission shall use, for *HR 10 EH 220 1 the purposes of this subsection, the reports of exami- 2 nations- 3 ``(A) made by the Board of Governors of 4 the Federal Reserve System of any wholesale fi- 5 nancial holding company that is supervised by 6 the Board; 7 ``(B) made by or on behalf of any State 8 regulatory agency responsible for the super- 9 vision of an insurance company of any licensed 10 insurance company; and 11 ``(C) made by any Federal or State bank- 12 ing agency of any bank or institution described 13 in subparagraph (D), (F), or (G) of section 14 2(c)(2), or held under section 4(f), of the Bank 15 Holding Company Act of 1956. 16 ``(4) NOTICE.-To the fullest extent possible, 17 the Commission shall notify the appropriate regu- 18 latory agency prior to conducting an inspection of a 19 wholesale financial institution or institution de- 20 scribed in subparagraph (D), (F), or (G) of section 21 2(c)(2), or held under section 4(f), of the Bank 22 Holding Company Act of 1956. 23 ``(k) AUTHORITY TO LIMIT DISCLOSURE OF INFOR- 24 MATION.-Notwithstanding any other provision of law, the 25 Commission shall not be compelled to disclose any infor- *HR 10 EH 221 1 mation required to be reported under subsection (h) or 2 (i) or any information supplied to the Commission by any 3 domestic or foreign regulatory agency that relates to the 4 financial or operational condition of any associated person 5 of a broker or dealer, investment bank holding company, 6 or any affiliate of an investment bank holding company. 7 Nothing in this subsection shall authorize the Commission 8 to withhold information from Congress, or prevent the 9 Commission from complying with a request for informa- 10 tion from any other Federal department or agency or any 11 self-regulatory organization requesting the information for 12 purposes within the scope of its jurisdiction, or complying 13 with an order of a court of the United States in an action 14 brought by the United States or the Commission. For pur- 15 poses of section 552 of title 5, United States Code, this 16 subsection shall be considered a statute described in sub- 17 section (b)(3)(B) of such section 552. In prescribing regu- 18 lations to carry out the requirements of this subsection, 19 the Commission shall designate information described in 20 or obtained pursuant to subparagraphs (A), (B), and (C) 21 of subsection (i)(5) as confidential information for pur- 22 poses of section 24(b)(2) of this title.''. 23 (b) CONFORMING AMENDMENTS.- *HR 10 EH 222 1 (1) Section 3(a)(34) of the Securities Exchange 2 Act of 1934 (15 U.S.C. 78c(a)(34)) is amended by 3 adding at the end the following new subparagraphs: 4 ``(H) When used with respect to an institu- 5 tion described in subparagraph (D), (F), or (G) 6 of section 2(c)(2), or held under section 4(f), of 7 the Bank Holding Company Act of 1956- 8 ``(i) the Comptroller of the Currency, 9 in the case of a national bank or a bank 10 in the District of Columbia examined by 11 the Comptroller of the Currency; 12 ``(ii) the Board of Governors of the 13 Federal Reserve System, in the case of a 14 State member bank of the Federal Reserve 15 System or any corporation chartered under 16 section 25A of the Federal Reserve Act; 17 ``(iii) the Federal Deposit Insurance 18 Corporation, in the case of any other bank 19 the deposits of which are insured in ac- 20 cordance with the Federal Deposit Insur- 21 ance Act; or 22 ``(iv) the Commission in the case of all 23 other such institutions.''. *HR 10 EH 223 1 (2) Section 1112(e) of the Right to Financial 2 Privacy Act of 1978 (12 U.S.C. 3412(e)) is amend- 3 ed- 4 (A) by striking ``this title'' and inserting 5 ``law''; and 6 (B) by inserting ``, examination reports'' 7 after ``financial records''. 8 Subtitle D-Study 9 SEC. 241. STUDY OF METHODS TO INFORM INVESTORS AND 10 CONSUMERS OF UNINSURED PRODUCTS. 11 Within one year after the date of enactment of this 12 Act, the Comptroller General of the United States shall 13 submit a report to the Congress regarding the efficacy, 14 costs, and benefits of requiring that any depository insti- 15 tution that accepts federally insured deposits and that, di- 16 rectly or through a contractual or other arrangement with 17 a broker, dealer, or agent, buys from, sells to, or effects 18 transactions for retail investors in securities or consumers 19 of insurance to inform such investors and consumers 20 through the use of a logo or seal that the security or insur- 21 ance is not insured by the Federal Deposit Insurance Cor- 22 poration. *HR 10 EH 224 1 SEC. 242. STUDY OF LIMITATION ON FEES ASSOCIATED 2 WITH ACQUIRING FINANCIAL PRODUCTS. 3 Before the end of the 1-year period beginning on the 4 date of the enactment of this Act, the Comptroller General 5 of the United States shall submit a report to the Congress 6 regarding the efficacy and benefits of uniformly limiting 7 any commissions, fees, markups, or other costs incurred 8 by customers in the acquisition of financial products. 9 Subtitle E-Disclosure of Customer 10 Costs of Acquiring Financial 11 Products 12 SEC. 251. IMPROVED AND CONSISTENT DISCLOSURE. 13 (a) REVISED REGULATIONS REQUIRED.-Within one 14 year after the date of enactment of this Act, each Federal 15 financial regulatory authority shall prescribe rules, or revi- 16 sions to its rules, to improve the accuracy, simplicity, and 17 completeness, and to make more consistent, the disclosure 18 of information by persons subject to the jurisdiction of 19 such regulatory authority concerning any commissions, 20 fees, markups, or other costs incurred by customers in the 21 acquisition of financial products. 22 (b) CONSULTATION.-In prescribing rules and revi- 23 sions under subsection (a), the Federal financial regu- 24 latory authorities shall consult with each other and with 25 appropriate State financial regulatory authorities. *HR 10 EH 225 1 (c) CONSIDERATION OF EXISTING DISCLOSURES.- 2 In prescribing rules and revisions under subsection (a), 3 the Federal financial regulatory authorities shall consider 4 the sufficiency and appropriateness of then existing laws 5 and rules applicable to persons subject to their jurisdic- 6 tion, and may prescribe exemptions from the rules and re- 7 visions required by subsection (a) to the extent appro- 8 priate in light of the objective of this section to increase 9 the consistency of disclosure practices. 10 (d) ENFORCEMENT.-Any rule prescribed by a Fed- 11 eral financial regulatory authority pursuant to this section 12 shall, for purposes of enforcement, be treated as a rule 13 prescribed by such regulatory authority pursuant to the 14 statute establishing such regulatory authority's jurisdic- 15 tion over the persons to whom such rule applies. 16 (e) DEFINITION.-As used in this section, the term 17 ``Federal financial regulatory authority'' means the Board 18 of Governors of the Federal Reserve System, the Securi- 19 ties and Exchange Commission, the Comptroller of the 20 Currency, the Federal Deposit Insurance Corporation, the 21 Commodity Futures Trading Commission, and any self- 22 regulatory organization under the supervision of any of 23 the foregoing. *HR 10 EH 226 1 TITLE III-INSURANCE 2 Subtitle A-State Regulation of 3 Insurance 4 SEC. 301. STATE REGULATION OF THE BUSINESS OF INSUR- 5 ANCE. 6 The Act entitled ``An Act to express the intent of the 7 Congress with reference to the regulation of the business 8 of insurance'' and approved March 9, 1945 (15 U.S.C. 9 1011 et seq.), commonly referred to as the ``McCarran- 10 Ferguson Act'') remains the law of the United States. 11 SEC. 302. MANDATORY INSURANCE LICENSING REQUIRE- 12 MENTS. 13 No person or entity shall provide insurance in a State 14 as principal or agent unless such person or entity is li- 15 censed as required by the appropriate insurance regulator 16 of such State in accordance with the relevant State insur- 17 ance law, subject to section 104 of this Act. 18 SEC. 303. FUNCTIONAL REGULATION OF INSURANCE. 19 The insurance sales activity of any person or entity 20 shall be functionally regulated by the States, subject to 21 section 104 of this Act. 22 SEC. 304. INSURANCE UNDERWRITING IN NATIONAL 23 BANKS. 24 (a) IN GENERAL.-Except as provided in section 306, 25 a national bank and the subsidiaries of a national bank *HR 10 EH 227 1 may not provide insurance in a State as principal except 2 that this prohibition shall not apply to authorized prod- 3 ucts. 4 (b) AUTHORIZED PRODUCTS.-For the purposes of 5 this section, a product is authorized if- 6 (1) as of January 1, 1997, the Comptroller of 7 the Currency had determined in writing that na- 8 tional banks may provide such product as principal, 9 or national banks were in fact lawfully providing 10 such product as principal; 11 (2) no court of relevant jurisdiction had, by 12 final judgment, overturned a determination of the 13 Comptroller of the Currency that national banks 14 may provide such product as principal; and 15 (3) the product is not title insurance, or an an- 16 nuity contract the income of which is subject to tax 17 treatment under section 72 of the Internal Revenue 18 Code of 1986. 19 (c) DEFINITION.-For purposes of this section, the 20 term ``insurance'' means- 21 (1) any product regulated as insurance as of 22 January 1, 1997, in accordance with the relevant 23 State insurance law, in the State in which the prod- 24 uct is provided; *HR 10 EH 228 1 (2) any product first offered after January 1, 2 1997, which- 3 (A) a State insurance regulator determines 4 shall be regulated as insurance in the State in 5 which the product is provided because the prod- 6 uct insures, guarantees, or indemnifies against 7 liability, loss of life, loss of health, or loss 8 through damage to or destruction of property, 9 including, but not limited to, surety bonds, life 10 insurance, health insurance, title insurance, and 11 property and casualty insurance (such as pri- 12 vate passenger or commercial automobile, 13 homeowners, mortgage, commercial multiperil, 14 general liability, professional liability, workers' 15 compensation, fire and allied lines, farm owners 16 multiperil, aircraft, fidelity, surety, medical 17 malpractice, ocean marine, inland marine, and 18 boiler and machinery insurance); and 19 (B) is not a product or service of a bank 20 that is- 21 (i) a deposit product; 22 (ii) a loan, discount, letter of credit, 23 or other extension of credit; 24 (iii) a trust or other fiduciary service; *HR 10 EH 229 1 (iv) a qualified financial contract (as 2 defined in or determined pursuant to sec- 3 tion 11(e)(8)(D)(i) of the Federal Deposit 4 Insurance Act); or 5 (v) a financial guaranty, except that 6 this subparagraph (B) shall not apply to a 7 product that includes an insurance compo- 8 nent such that if the product is offered or 9 proposed to be offered by the bank as prin- 10 cipal- 11 (I) it would be treated as a life 12 insurance contract under section 7702 13 of the Internal Revenue Code of 1986, 14 as amended; or 15 (II) in the event that the product 16 is not a letter of credit or other simi- 17 lar extension of credit, a qualified fi- 18 nancial contract, or a financial guar- 19 anty, it would qualify for treatment 20 for losses incurred with respect to 21 such product under section 832(b)(5) 22 of the Internal Revenue Code of 1986, 23 as amended, if the bank were subject 24 to tax as an insurance company under 25 section 831 of such Code; or *HR 10 EH 230 1 (3) any annuity contract the income on which 2 is subject to tax treatment under section 72 of the 3 Internal Revenue Code of 1986, as amended. 4 SEC. 305. NEW BANK AGENCY ACTIVITIES ONLY THROUGH 5 ACQUISITION OF EXISTING LICENSED 6 AGENTS. 7 If a national bank or a subsidiary of a national bank 8 is not providing insurance as agent in a State as of the 9 date of the enactment of this Act, the national bank and 10 the subsidiary of the national bank may provide insurance 11 (which such bank or subsidiary is otherwise authorized to 12 provide) as agent in such State after such date only by 13 acquiring a company which has been licensed by the ap- 14 propriate State regulator to provide insurance as agent in 15 such State for not less than 2 years before such acquisi- 16 tion. This section shall cease to have effect 5 years after 17 the date of the enactment of this Act. 18 SEC. 306. TITLE INSURANCE ACTIVITIES OF NATIONAL 19 BANKS AND THEIR AFFILIATES. 20 (a) AUTHORITY.- 21 (1) IN GENERAL.-Notwithstanding any other 22 provision of this Act or any other law, no national 23 bank, and no subsidiary of a national bank, may en- 24 gage in any activity involving the underwriting or 25 sale of title insurance other than title insurance ac- *HR 10 EH 231 1 tivities in which such national bank or subsidiary 2 was actively and lawfully engaged before the date of 3 the enactment of this Act. 4 (2) INSURANCE AFFILIATE.-In the case of a 5 national bank which has an affiliate which provides 6 insurance as principal and is not a subsidiary of the 7 bank, the national bank and any subsidiary of the 8 national bank may not engage in any activity involv- 9 ing the underwriting or sale of title insurance pursu- 10 ant to paragraph (1). 11 (3) INSURANCE SUBSIDIARY.-In the case of a 12 national bank which has a subsidiary which provides 13 insurance as principal and has no affiliate which 14 provides insurance as principal and is not a subsidi- 15 ary, the national bank may not engage in any activ- 16 ity involving the underwriting or sale of title insur- 17 ance pursuant to paragraph (1). 18 (4) AFFILIATE AND SUBSIDIARY DEFINED.- 19 For purposes of this section, the terms ``affiliate'' 20 and ``subsidiary'' have the meaning given such terms 21 in section 2 of the Bank Holding Company Act of 22 1956. 23 (b) PARITY EXCEPTION.-Notwithstanding sub- 24 section (a), in the case of any State in which banks orga- 25 nized under the laws of such State were authorized to sell *HR 10 EH 232 1 title insurance as agent as of January 1, 1997, a national 2 bank and a subsidiary of a national bank may sell title 3 insurance as agent in such State in the same manner and 4 to the same extent such State banks are authorized to sell 5 title insurance as agent in such State. 6 SEC. 307. EXPEDITED AND EQUALIZED DISPUTE RESOLU- 7 TION FOR FINANCIAL REGULATORS. 8 (a) FILING IN COURT OF APPEAL.-In the case of 9 a regulatory conflict between a State insurance regulator 10 and a Federal regulator as to whether any product is or 11 is not insurance as defined in section 304(c) of this Act, 12 or whether a State statute, regulation, order, or interpre- 13 tation regarding any insurance sales or solicitation activity 14 is properly treated as preempted under Federal law, either 15 regulator may seek expedited judicial review of such deter- 16 mination by the United States Court of Appeals for the 17 circuit in which the State is located or in the United 18 States Court of Appeals for the District of Columbia Cir- 19 cuit by filing a petition for review in such court. 20 (b) EXPEDITED REVIEW.-The United States court 21 of appeals in which a petition for review is filed in accord- 22 ance with paragraph (1) shall complete all action on such 23 petition, including rendering a judgment, before the end 24 of the 60-day period beginning on the date such petition *HR 10 EH 233 1 is filed, unless all parties to such proceeding agree to any 2 extension of such period. 3 (c) SUPREME COURT REVIEW.-Any request for 4 certiori to the Supreme Court of the United States of any 5 judgment of a United States court of appeals with respect 6 to a petition for review under this section shall be filed 7 with the United States Supreme Court as soon as prac- 8 ticable after such judgment is issued. 9 (d) STATUTE OF LIMITATION.-No action may be 10 filed under this section challenging an order, ruling, deter- 11 mination, or other action of a Federal financial regulator 12 or State insurance regulator after the later of- 13 (1) the end of the 12-month period beginning 14 on the date the first public notice is made of such 15 order, ruling, or determination in its final form; or 16 (2) the end of the 6-month period beginning on 17 the date such order, ruling, or determination takes 18 effect. 19 (e) STANDARD OF REVIEW.-The court shall decide 20 an action filed under this section based on its review on 21 the merits of all questions presented under State and Fed- 22 eral law, including the nature of the product or activity 23 and the history and purpose of its regulation under State 24 and Federal law, without unequal deference. *HR 10 EH 234 1 SEC. 308. CONSUMER PROTECTION REGULATIONS. 2 (a) REGULATIONS REQUIRED.- 3 (1) IN GENERAL.-The Federal Deposit Insur- 4 ance Act (12 U.S.C. 1811 et seq.) is amended by 5 adding at the end the following new section: 6 ``SEC. 45. CONSUMER PROTECTION REGULATIONS. 7 ``(a) REGULATIONS REQUIRED.- 8 ``(1) IN GENERAL.-The Federal banking agen- 9 cies shall prescribe and publish in final form, before 10 the end of the 1-year period beginning on the date 11 of the enactment of this Act, consumer protection 12 regulations (which the agencies jointly determine to 13 be appropriate) that- 14 ``(A) apply to retail sales practices, solici- 15 tations, advertising, or offers of any insurance 16 product by any insured depository institution or 17 wholesale financial institution or any person 18 who is engaged in such activities at an office of 19 the institution or on behalf of the institution; 20 and 21 ``(B) are consistent with the requirements 22 of this Act and provide such additional protec- 23 tions for consumers to whom such sales, solici- 24 tations, advertising, or offers are directed as 25 the agency determines to be appropriate. *HR 10 EH 235 1 ``(2) APPLICABILITY TO SUBSIDIARIES.-The 2 regulations prescribed pursuant to paragraph (1) 3 shall extend such protections to any subsidiaries of 4 an insured depository institution, as deemed appro- 5 priate by the regulators referred to in paragraph (3), 6 where such extension is determined to be necessary 7 to ensure the consumer protections provided by this 8 section. 9 ``(3) CONSULTATION AND JOINT REGULA- 10 TIONS.-The Federal banking agencies shall consult 11 with each other and prescribe joint regulations pur- 12 suant to paragraph (1), after consultation with the 13 State insurance regulators, as appropriate. 14 ``(b) SALES PRACTICES.-The regulations prescribed 15 pursuant to subsection (a) shall include anticoercion rules 16 applicable to the sale of insurance products which prohibit 17 an insured depository institution from engaging in any 18 practice that would lead a consumer to believe an exten- 19 sion of credit, in violation of section 106(b) of the Bank 20 Holding Company Act Amendments of 1970, is condi- 21 tional upon- 22 ``(1) the purchase of an insurance product from 23 the institution or any of its affiliates or subsidiaries; 24 or *HR 10 EH 236 1 ``(2) an agreement by the consumer not to ob- 2 tain, or a prohibition on the consumer from obtain- 3 ing, an insurance product from an unaffiliated en- 4 tity. 5 ``(c) DISCLOSURES AND ADVERTISING.-The regula- 6 tions prescribed pursuant to subsection (a) shall include 7 the following provisions relating to disclosures and adver- 8 tising in connection with the initial purchase of an insur- 9 ance product: 10 ``(1) DISCLOSURES.- 11 ``(A) IN GENERAL.-Requirements that the 12 following disclosures be made orally and in writ- 13 ing before the completion of the initial sale and, 14 in the case of clause (iv), at the time of applica- 15 tion for an extension of credit: 16 ``(i) UNINSURED STATUS.-As appro- 17 priate, the product is not insured by the 18 Federal Deposit Insurance Corporation, 19 the United States Government, or the in- 20 sured depository institution. 21 ``(ii) INVESTMENT RISK.-In the case 22 of a variable annuity or other insurance 23 product which involves an investment risk, 24 that there is an investment risk associated *HR 10 EH 237 1 with the product, including possible loss of 2 value. 3 ``(iv) COERCION.-The approval of an 4 extension of credit may not be conditioned 5 on- 6 ``(I) the purchase of an insurance 7 product from the institution in which 8 the application for credit is pending or 9 any of its affiliates or subsidiaries; or 10 ``(II) an agreement by the con- 11 sumer not to obtain, or a prohibition 12 on the consumer from obtaining, an 13 insurance product from an unaffili- 14 ated entity. 15 ``(B) MAKING DISCLOSURE READILY UN- 16 DERSTANDABLE.-Regulations prescribed under 17 subparagraph (A) shall encourage the use of 18 disclosure that is conspicuous, simple, direct, 19 and readily understandable, such as the follow- 20 ing: 21 ``(i) `NOT FDIC­INSURED'. 22 ``(ii) `NOT GUARANTEED BY THE 23 BANK'. 24 ``(iii) `MAY GO DOWN IN VALUE'. *HR 10 EH 238 1 ``(C) ADJUSTMENTS FOR ALTERNATIVE 2 METHODS OF PURCHASE.-In prescribing the 3 requirements under subparagraphs (A) and 4 (D), necessary adjustments shall be made for 5 purchase in person, by telephone, or by elec- 6 tronic media to provide for the most appro- 7 priate and complete form of disclosure and ac- 8 knowledgments. 9 ``(D) CONSUMER ACKNOWLEDGMENT.-A 10 requirement that an insured depository institu- 11 tion shall require any person selling an insur- 12 ance product at any office of, or on behalf of, 13 the institution to obtain, at the time a con- 14 sumer receives the disclosures required under 15 this paragraph or at the time of the initial pur- 16 chase by the consumer of such product, an ac- 17 knowledgment by such consumer of the receipt 18 of the disclosure required under this subsection 19 with respect to such product. 20 ``(2) PROHIBITION ON MISREPRESENTA- 21 TIONS.-A prohibition on any practice, or any adver- 22 tising, at any office of, or on behalf of, the insured 23 depository institution, or any subsidiary as appro- 24 priate, which could mislead any person or otherwise *HR 10 EH 239 1 cause a reasonable person to reach an erroneous be- 2 lief with respect to- 3 ``(A) the uninsured nature of any insur- 4 ance product sold, or offered for sale, by the in- 5 stitution or any subsidiary of the institution; or 6 ``(B) in the case of a variable annuity or 7 other insurance product that involves an invest- 8 ment risk, the investment risk associated with 9 any such product. 10 ``(d) SEPARATION OF BANKING AND NONBANKING 11 ACTIVITIES.- 12 ``(1) REGULATIONS REQUIRED.-The regula- 13 tions prescribed pursuant to subsection (a) shall in- 14 clude such provisions as the Federal banking agen- 15 cies consider appropriate to ensure that the routine 16 acceptance of deposits and the making of loans is 17 kept, to the extent practicable, physically segregated 18 from insurance product activity. 19 ``(2) REQUIREMENTS.-Regulations prescribed 20 pursuant to paragraph (1) shall include the follow- 21 ing requirements: 22 ``(A) SEPARATE SETTING.-A clear delin- 23 eation of the setting in which, and the cir- 24 cumstances under which, transactions involving 25 insurance products should be conducted in a lo- *HR 10 EH 240 1 cation physically segregated from an area where 2 retail deposits are routinely accepted. 3 ``(B) REFERRALS.-Standards which per- 4 mit any person accepting deposits from, or 5 making loans to, the public in an area where 6 such transactions are routinely conducted in an 7 insured depository institution to refer a cus- 8 tomer who seeks to purchase any insurance 9 product to a qualified person who sells such 10 product, only if the person making the referral 11 receives no more than a one-time nominal fee of 12 a fixed dollar amount for each referral that 13 does not depend on whether the referral results 14 in a transaction. 15 ``(C) QUALIFICATION AND LICENSING RE- 16 QUIREMENTS.-Standards prohibiting any in- 17 sured depository institution from permitting 18 any person to sell or offer for sale any insur- 19 ance product in any part of any office of the in- 20 stitution, or on behalf of the institution, unless 21 such person is appropriately qualified and li- 22 censed. 23 ``(e) DOMESTIC VIOLENCE DISCRIMINATION PROHI- 24 BITION.- *HR 10 EH 241 1 ``(1) IN GENERAL.-In the case of an applicant 2 for, or an insured under, any insurance product de- 3 scribed in paragraph (2), the status of the applicant 4 or insured as a victim of domestic violence, or as a 5 provider of services to victims of domestic violence, 6 shall not be considered as a criterion in any decision 7 with regard to insurance underwriting, pricing, re- 8 newal, or scope of coverage of insurance policies, or 9 payment of insurance claims, except as required or 10 expressly permitted under State law. 11 ``(2) SCOPE OF APPLICATION.-The prohibition 12 contained in paragraph (1) shall apply to any insur- 13 ance product which is sold or offered for sale, as 14 principal, agent, or broker, by any insured deposi- 15 tory institution or any person who is engaged in 16 such activities at an office of the institution or on 17 behalf of the institution. 18 ``(3) SENSE OF THE CONGRESS.-It is the sense 19 of the Congress that, by the end of the 30-month pe- 20 riod beginning on the date of the enactment of this 21 Act, the States should enact prohibitions against dis- 22 crimination with respect to insurance products that 23 are at least as strict as the prohibitions contained in 24 paragraph (1). *HR 10 EH 242 1 ``(4) DOMESTIC VIOLENCE DEFINED.-For pur- 2 poses of this subsection, the term `domestic violence' 3 means the occurrence of 1 or more of the following 4 acts by a current or former family member, house- 5 hold member, intimate partner, or caretaker: 6 ``(A) Attempting to cause or causing or 7 threatening another person physical harm, se- 8 vere emotional distress, psychological trauma, 9 rape, or sexual assault. 10 ``(B) Engaging in a course of conduct or 11 repeatedly committing acts toward another per- 12 son, including following the person without 13 proper authority, under circumstances that 14 place the person in reasonable fear of bodily in- 15 jury or physical harm. 16 ``(C) Subjecting another person to false 17 imprisonment. 18 ``(D) Attempting to cause or cause damage 19 to property so as to intimidate or attempt to 20 control the behavior of another person. 21 ``(f) CONSUMER GRIEVANCE PROCESS.-The Federal 22 banking agencies shall jointly establish a consumer com- 23 plaint mechanism, for receiving and expeditiously address- 24 ing consumer complaints alleging a violation of regulations 25 issued under the section, which shall- *HR 10 EH 243 1 ``(1) establish a group within each regulatory 2 agency to receive such complaints; 3 ``(2) develop procedures for investigating such 4 complaints; 5 ``(3) develop procedures for informing consum- 6 ers of rights they may have in connection with such 7 complaints; and 8 ``(4) develop procedures for addressing concerns 9 raised by such complaints, as appropriate, including 10 procedures for the recovery of losses to the extent 11 appropriate. 12 ``(g) EFFECT ON OTHER AUTHORITY.- 13 ``(1) IN GENERAL.-No provision of this section 14 shall be construed as granting, limiting, or otherwise 15 affecting- 16 ``(A) any authority of the Securities and 17 Exchange Commission, any self-regulatory or- 18 ganization, the Municipal Securities Rule- 19 making Board, or the Secretary of the Treasury 20 under any Federal securities law; or 21 ``(B) except as provided in paragraph (2), 22 any authority of any State insurance commis- 23 sioner or other State authority under any State 24 law. 25 ``(2) COORDINATION WITH STATE LAW.- *HR 10 EH 244 1 ``(A) IN GENERAL.-Except as provided in 2 subparagraph (B), regulations prescribed by a 3 Federal banking agency under this section shall 4 not apply to retail sales, solicitations, advertis- 5 ing, or offers of any insurance product by any 6 insured depository institution or wholesale fi- 7 nancial institution or to any person who is en- 8 gaged in such activities at an office of such in- 9 stitution or on behalf of the institution, in a 10 State where the State has in effect statutes, 11 regulations, orders, or interpretations, that are 12 inconsistent with or contrary to the regulations 13 prescribed by the Federal banking agencies. 14 ``(B) PREEMPTION.-If, with respect to 15 any provision of the regulations prescribed 16 under this section, the Board of Governors of 17 the Federal Reserve System, the Comptroller of 18 the Currency, and the Board of Directors of the 19 Federal Deposit Insurance Corporation deter- 20 mine jointly that the protection afforded by 21 such provision for consumers is greater than 22 the protection provided by a comparable provi- 23 sion of the statutes, regulations, orders, or in- 24 terpretations referred to in subparagraph (A) of 25 any State, such provision of the regulations pre- *HR 10 EH 245 1 scribed under this section shall supersede the 2 comparable provision of such State statute, reg- 3 ulation, order, or interpretation. 4 ``(h) INSURANCE PRODUCT DEFINED.-For purposes 5 of this section, the term `insurance product' includes an 6 annuity contract the income of which is subject to tax 7 treatment under section 72 of the Internal Revenue Code 8 of 1986.''. 9 SEC. 309. CERTAIN STATE AFFILIATION LAWS PREEMPTED 10 FOR INSURANCE COMPANIES AND AFFILI- 11 ATES. 12 No State may, by law, regulation, order, interpreta- 13 tion, or otherwise- 14 (1) prevent or significantly interfere with the 15 ability of any insurer, or any affiliate of an insurer 16 (whether such affiliate is organized as a stock com- 17 pany, mutual holding company, or otherwise), to be- 18 come a financial holding company or to acquire con- 19 trol of an insured depository institution; 20 (2) limit the amount of an insurer's assets that 21 may be invested in the voting securities of an in- 22 sured depository institution (or any company which 23 controls such institution), except that the laws of an 24 insurer's State of domicile may limit the amount of *HR 10 EH 246 1 such investment to an amount that is not less than 2 5 percent of the insurer's admitted assets; or 3 (3) prevent, significantly interfere with, or have 4 the authority to review, approve, or disapprove a 5 plan of reorganization by which an insurer proposes 6 to reorganize from mutual form to become a stock 7 insurer (whether as a direct or indirect subsidiary of 8 a mutual holding company or otherwise) unless such 9 State is the State of domicile of the insurer. 10 Subtitle B-Redomestication of 11 Mutual Insurers 12 SEC. 311. GENERAL APPLICATION. 13 This subtitle shall only apply to a mutual insurance 14 company in a State which has not enacted a law which 15 expressly establishes reasonable terms and conditions for 16 a mutual insurance company domiciled in such State to 17 reorganize into a mutual holding company. 18 SEC. 312. REDOMESTICATION OF MUTUAL INSURERS. 19 (a) REDOMESTICATION.-A mutual insurer organized 20 under the laws of any State may transfer its domicile to 21 a transferee domicile as a step in a reorganization in 22 which, pursuant to the laws of the transferee domicile and 23 consistent with the standards in subsection (f), the mutual 24 insurer becomes a stock insurer that is a direct or indirect 25 subsidiary of a mutual holding company. *HR 10 EH 247 1 (b) RESULTING DOMICILE.-Upon complying with 2 the applicable law of the transferee domicile governing 3 transfers of domicile and completion of a transfer pursu- 4 ant to this section, the mutual insurer shall cease to be 5 a domestic insurer in the transferor domicile and, as a 6 continuation of its corporate existence, shall be a domestic 7 insurer of the transferee domicile. 8 (c) LICENSES PRESERVED.-The certificate of au- 9 thority, agents' appointments and licenses, rates, approv- 10 als and other items that a licensed State allows and that 11 are in existence immediately prior to the date that a re- 12 domesticating insurer transfers its domicile pursuant to 13 this subtitle shall continue in full force and effect upon 14 transfer, if the insurer remains duly qualified to transact 15 the business of insurance in such licensed State. 16 (d) EFFECTIVENESS OF OUTSTANDING POLICIES 17 AND CONTRACTS.- 18 (1) IN GENERAL.-All outstanding insurance 19 policies and annuities contracts of a redomesticating 20 insurer shall remain in full force and effect and need 21 not be endorsed as to the new domicile of the in- 22 surer, unless so ordered by the State insurance regu- 23 lator of a licensed State, and then only in the case 24 of outstanding policies and contracts whose owners 25 reside in such licensed State. *HR 10 EH 248 1 (2) FORMS.- 2 (A) Applicable State law may require a re- 3 domesticating insurer to file new policy forms 4 with the State insurance regulator of a licensed 5 State on or before the effective date of the 6 transfer. 7 (B) Notwithstanding subparagraph (A), a 8 redomesticating insurer may use existing policy 9 forms with appropriate endorsements to reflect 10 the new domicile of the redomesticating insurer 11 until the new policy forms are approved for use 12 by the State insurance regulator of such li- 13 censed State. 14 (e) NOTICE.-A redomesticating insurer shall give 15 notice of the proposed transfer to the State insurance reg- 16 ulator of each licensed State and shall file promptly any 17 resulting amendments to corporate documents required to 18 be filed by a foreign licensed mutual insurer with the in- 19 surance regulator of each such licensed State. 20 (f) PROCEDURAL REQUIREMENTS.-No mutual in- 21 surer may redomesticate to another State and reorganize 22 into a mutual holding company pursuant to this section 23 unless the State insurance regulator of the transferee 24 domicile determines that the plan of reorganization of the 25 insurer includes the following requirements: *HR 10 EH 249 1 (1) APPROVAL BY BOARD OF DIRECTORS AND 2 POLICYHOLDERS.-The reorganization is approved 3 by at least a majority of the board of directors of 4 the mutual insurer and at least a majority of the 5 policyholders who vote after notice, disclosure of the 6 reorganization and the effects of the transaction on 7 policyholder contractual rights, and reasonable op- 8 portunity to vote, in accordance with such notice, 9 disclosure, and voting procedures as are approved by 10 the State insurance regulator of the transferee domi- 11 cile. 12 (2) CONTINUED VOTING CONTROL BY POLICY- 13 HOLDERS; REVIEW OF PUBLIC STOCK OFFERING.- 14 After the consummation of a reorganization, the pol- 15 icyholders of the reorganized insurer shall have the 16 same voting rights with respect to the mutual hold- 17 ing company as they had before the reorganization 18 with respect to the mutual insurer. With respect to 19 an initial public offering of stock, the offering shall 20 be conducted in compliance with applicable securities 21 laws and in a manner approved by the State insur- 22 ance regulator of the transferee domicile. 23 (3) AWARD OF STOCK OR GRANT OF OPTIONS 24 TO OFFICERS AND DIRECTORS.-For a period of 6 25 months after completion of an initial public offering, *HR 10 EH 250 1 neither a stock holding company nor the converted 2 insurer shall award any stock options or stock 3 grants to persons who are elected officers or direc- 4 tors of the mutual holding company, the stock hold- 5 ing company, or the converted insurer, except with 6 respect to any such awards or options to which a 7 person is entitled as a policyholder and as approved 8 by the State insurance regulator of the transferee 9 domicile. 10 (4) CONTRACTUAL RIGHTS.-Upon reorganiza- 11 tion into a mutual holding company, the contractual 12 rights of the policyholders are preserved. 13 (5) FAIR AND EQUITABLE TREATMENT OF POL- 14 ICYHOLDERS.-The reorganization is approved as 15 fair and equitable to the policyholders by the insur- 16 ance regulator of the transferee domicile. 17 SEC. 313. EFFECT ON STATE LAWS RESTRICTING REDOMES- 18 TICATION. 19 (a) IN GENERAL.-Unless otherwise permitted by 20 this subtitle, State laws of any transferor domicile that 21 conflict with the purposes and intent of this subtitle are 22 preempted, including but not limited to- 23 (1) any law that has the purpose or effect of 24 impeding the activities of, taking any action against, 25 or applying any provision of law or regulation to, *HR 10 EH 251 1 any insurer or an affiliate of such insurer because 2 that insurer or any affiliate plans to redomesticate, 3 or has redomesticated, pursuant to this subtitle; 4 (2) any law that has the purpose or effect of 5 impeding the activities of, taking action against, or 6 applying any provision of law or regulation to, any 7 insured or any insurance licensee or other inter- 8 mediary because such person or entity has procured 9 insurance from or placed insurance with any insurer 10 or affiliate of such insurer that plans to redomes- 11 ticate, or has redomesticated, pursuant to this sub- 12 title, but only to the extent that such law would 13 treat such insured licensee or other intermediary dif- 14 ferently than if the person or entity procured insur- 15 ance from, or placed insurance with, an insured li- 16 censee or other intermediary which had not redomes- 17 ticated; 18 (3) any law that has the purpose or effect of 19 terminating, because of the redomestication of a mu- 20 tual insurer pursuant to this subtitle, any certificate 21 of authority, agent appointment or license, rate ap- 22 proval, or other approval, of any State insurance 23 regulator or other State authority in existence imme- 24 diately prior to the redomestication in any State 25 other than the transferee domicile. *HR 10 EH 252 1 (b) DIFFERENTIAL TREATMENT PROHIBITED.-No 2 State law, regulation, interpretation, or functional equiva- 3 lent thereof, of a State other than a transferee domicile 4 may treat a redomesticating or redomesticated insurer or 5 any affiliate thereof any differently than an insurer oper- 6 ating in that State that is not a redomesticating or re- 7 domesticated insurer. 8 (c) LAWS PROHIBITING OPERATIONS.-If any li- 9 censed State fails to issue, delays the issuance of, or seeks 10 to revoke an original or renewal certificate of authority 11 of a redomesticated insurer immediately following re- 12 domestication, except on grounds and in a manner consist- 13 ent with its past practices regarding the issuance of cer- 14 tificates of authority to foreign insurers that are not re- 15 domesticating, then the redomesticating insurer shall be 16 exempt from any State law of the licensed State to the 17 extent that such State law or the operation of such State 18 law would make unlawful, or regulate, directly or indi- 19 rectly, the operation of the redomesticated insurer, except 20 that such licensed State may require the redomesticated 21 insurer to- 22 (1) comply with the unfair claim settlement 23 practices law of the licensed State; 24 (2) pay, on a nondiscriminatory basis, applica- 25 ble premium and other taxes which are levied on li- *HR 10 EH 253 1 censed insurers or policyholders under the laws of 2 the licensed State; 3 (3) register with and designate the State insur- 4 ance regulator as its agent solely for the purpose of 5 receiving service of legal documents or process; 6 (4) submit to an examination by the State in- 7 surance regulator in any licensed state in which the 8 redomesticated insurer is doing business to deter- 9 mine the insurer's financial condition, if- 10 (A) the State insurance regulator of the 11 transferee domicile has not begun an examina- 12 tion of the redomesticated insurer and has not 13 scheduled such an examination to begin before 14 the end of the 1-year period beginning on the 15 date of the redomestication; and 16 (B) any such examination is coordinated to 17 avoid unjustified duplication and repetition; 18 (5) comply with a lawful order issued in- 19 (A) a delinquency proceeding commenced 20 by the State insurance regulator of any licensed 21 State if there has been a judicial finding of fi- 22 nancial impairment under paragraph (7); or 23 (B) a voluntary dissolution proceeding; 24 (6) comply with any State law regarding decep- 25 tive, false, or fraudulent acts or practices, except *HR 10 EH 254 1 that if the licensed State seeks an injunction regard- 2 ing the conduct described in this paragraph, such in- 3 junction must be obtained from a court of competent 4 jurisdiction as provided in section 314(a); 5 (7) comply with an injunction issued by a court 6 of competent jurisdiction, upon a petition by the 7 State insurance regulator alleging that the redomes- 8 ticating insurer is in hazardous financial condition 9 or is financially impaired; 10 (8) participate in any insurance insolvency 11 guaranty association on the same basis as any other 12 insurer licensed in the licensed State; and 13 (9) require a person acting, or offering to act, 14 as an insurance licensee for a redomesticated insurer 15 in the licensed State to obtain a license from that 16 State, except that such State may not impose any 17 qualification or requirement that discriminates 18 against a nonresident insurance licensee. 19 SEC. 314. OTHER PROVISIONS. 20 (a) JUDICIAL REVIEW.-The appropriate United 21 States district court shall have exclusive jurisdiction over 22 litigation arising under this section involving any redomes- 23 ticating or redomesticated insurer. 24 (b) SEVERABILITY.-If any provision of this section, 25 or the application thereof to any person or circumstances, *HR 10 EH 255 1 is held invalid, the remainder of the section, and the appli- 2 cation of such provision to other persons or circumstances, 3 shall not be affected thereby. 4 SEC. 315. DEFINITIONS. 5 For purposes of this subtitle, the following definitions 6 shall apply: 7 (1) COURT OF COMPETENT JURISDICTION.- 8 The term ``court of competent jurisdiction'' means a 9 court authorized pursuant to section 314(a) to adju- 10 dicate litigation arising under this subtitle. 11 (2) DOMICILE.-The term ``domicile'' means 12 the State in which an insurer is incorporated, char- 13 tered, or organized. 14 (3) INSURANCE LICENSEE.-The term ``insur- 15 ance licensee'' means any person holding a license 16 under State law to act as insurance agent, subagent, 17 broker, or consultant. 18 (4) INSTITUTION.-The term ``institution'' 19 means a corporation, joint stock company, limited li- 20 ability company, limited liability partnership, asso- 21 ciation, trust, partnership, or any similar entity. 22 (5) LICENSED STATE.-The term ``licensed 23 State'' means any State, the District of Columbia, 24 American Samoa, Guam, Puerto Rico, or the United 25 States Virgin Islands in which the redomesticating *HR 10 EH 256 1 insurer has a certificate of authority in effect imme- 2 diately prior to the redomestication. 3 (6) MUTUAL INSURER.-The term ``mutual in- 4 surer'' means a mutual insurer organized under the 5 laws of any State. 6 (7) PERSON.-The term ``person'' means an in- 7 dividual, institution, government or governmental 8 agency, State or political subdivision of a State, pub- 9 lic corporation, board, association, estate, trustee, or 10 fiduciary, or other similar entity. 11 (8) POLICYHOLDER.-The term ``policyholder'' 12 means the owner of a policy issued by a mutual in- 13 surer, except that, with respect to voting rights, the 14 term means a member of a mutual insurer or mu- 15 tual holding company granted the right to vote, as 16 determined under applicable State law. 17 (9) REDOMESTICATED INSURER.-The term 18 ``redomesticated insurer'' means a mutual insurer 19 that has redomesticated pursuant to this subtitle. 20 (10) REDOMESTICATING INSURER.-The term 21 ``redomesticating insurer'' means a mutual insurer 22 that is redomesticating pursuant to this subtitle. 23 (11) REDOMESTICATION OR TRANSFER.-The 24 terms ``redomestication'' and ``transfer'' mean the *HR 10 EH 257 1 transfer of the domicile of a mutual insurer from 2 one State to another State pursuant to this subtitle. 3 (12) STATE INSURANCE REGULATOR.-The 4 term ``State insurance regulator'' means the prin- 5 cipal insurance regulatory authority of a State, the 6 District of Columbia, American Samoa, Guam, 7 Puerto Rico, or the United States Virgin Islands. 8 (13) STATE LAW.-The term ``State law'' 9 means the statutes of any State, the District of Co- 10 lumbia, American Samoa, Guam, Puerto Rico, or the 11 United States Virgin Islands and any regulation, 12 order, or requirement prescribed pursuant to any 13 such statute. 14 (14) TRANSFEREE DOMICILE.-The term 15 ``transferee domicile'' means the State to which a 16 mutual insurer is redomesticating pursuant to this 17 subtitle. 18 (15) TRANSFEROR DOMICILE.-The term 19 ``transferor domicile'' means the State from which a 20 mutual insurer is redomesticating pursuant to this 21 subtitle. 22 SEC. 316. EFFECTIVE DATE. 23 This subtitle shall take effect on the date of the en- 24 actment of this Act. *HR 10 EH 258 1 Subtitle C-National Association of 2 Registered Agents and Brokers 3 SEC. 321. STATE FLEXIBILITY IN MULTISTATE LICENSING 4 REFORMS. 5 (a) IN GENERAL.-The provisions of this subtitle 6 shall take effect unless by the end of the 3-year period 7 beginning on the date of the enactment of this Act at least 8 a majority of the States- 9 (1) have enacted uniform laws and regulations 10 governing the licensure of individuals and entities 11 authorized to sell and solicit the purchase of insur- 12 ance within the State; or 13 (2) have enacted reciprocity laws and regula- 14 tions governing the licensure of nonresident individ- 15 uals and entities authorized to sell and solicit insur- 16 ance within those States. 17 (b) UNIFORMITY REQUIRED.-States shall be deemed 18 to have established the uniformity necessary to satisfy 19 subsection (a)(1) if the States- 20 (1) establish uniform criteria regarding the in- 21 tegrity, personal qualifications, education, training, 22 and experience of licensed insurance producers, in- 23 cluding the qualification and training of sales per- 24 sonnel in ascertaining the appropriateness of a par- 25 ticular insurance product for a prospective customer; *HR 10 EH 259 1 (2) establish uniform continuing education re- 2 quirements for licensed insurance producers; 3 (3) establish uniform ethics course require- 4 ments for licensed insurance producers in conjunc- 5 tion with the continuing education requirements 6 under paragraph (2); 7 (4) establish uniform criteria to ensure that an 8 insurance product, including any annuity contract, 9 sold to a consumer is suitable and appropriate for 10 the consumer based on financial information dis- 11 closed by the consumer; and 12 (5) do not impose any requirement upon any in- 13 surance producer to be licensed or otherwise quali- 14 fied to do business as a nonresident that has the ef- 15 fect of limiting or conditioning that producer's ac- 16 tivities because of its residence or place of oper- 17 ations, except that counter-signature requirements 18 imposed on nonresident producers shall not be 19 deemed to have the effect of limiting or conditioning 20 a producer's activities because of its residence or 21 place of operations under this section. 22 (c) RECIPROCITY REQUIRED.-States shall be 23 deemed to have established the reciprocity required to sat- 24 isfy subsection (a)(2) if the following conditions are met: *HR 10 EH 260 1 (1) ADMINISTRATIVE LICENSING PROCE- 2 DURES.-At least a majority of the States permit a 3 producer that has a resident license for selling or so- 4 liciting the purchase of insurance in its home State 5 to receive a license to sell or solicit the purchase of 6 insurance in such majority of States as a non- 7 resident to the same extent such producer is per- 8 mitted to sell or solicit the purchase of insurance in 9 its State, without satisfying any additional require- 10 ments other than submitting- 11 (A) a request for licensure; 12 (B) the application for licensure that the 13 producer submitted to its home State; 14 (C) proof that the producer is licensed and 15 in good standing in its home State; and 16 (D) the payment of any requisite fee to the 17 appropriate authority, 18 if the producer's home State also awards such li- 19 censes on such a reciprocal basis. 20 (2) CONTINUING EDUCATION REQUIRE- 21 MENTS.-A majority of the States accept an insur- 22 ance producer's satisfaction of its home State's con- 23 tinuing education requirements for licensed insur- 24 ance producers to satisfy the States' own continuing 25 education requirements if the producer's home State *HR 10 EH 261 1 also recognizes the satisfaction of continuing edu- 2 cation requirements on such a reciprocal basis. 3 (3) NO LIMITING NONRESIDENT REQUIRE- 4 MENTS.-A majority of the States do not impose 5 any requirement upon any insurance producer to be 6 licensed or otherwise qualified to do business as a 7 nonresident that has the effect of limiting or condi- 8 tioning that producer's activities because of its resi- 9 dence or place of operations, except that 10 countersignature requirements imposed on non- 11 resident producers shall not be deemed to have the 12 effect of limiting or conditioning a producer's activi- 13 ties because of its residence or place of operations 14 under this section. 15 (4) RECIPROCAL RECIPROCITY.-Each of the 16 States that satisfies paragraphs (1), (2), and (3) 17 grants reciprocity to residents of all of the other 18 States that satisfy such paragraphs. 19 (d) DETERMINATION.- 20 (1) NAIC DETERMINATION.-At the end of the 21 3-year period beginning on the date of the enact- 22 ment of this Act, the National Association of Insur- 23 ance Commissioners shall determine, in consultation 24 with the insurance commissioners or chief insurance 25 regulatory officials of the States, whether the uni- *HR 10 EH 262 1 formity or reciprocity required by subsections (b) 2 and (c) has been achieved. 3 (2) JUDICIAL REVIEW.-The appropriate 4 United States district court shall have exclusive ju- 5 risdiction over any challenge to the National Asso- 6 ciation of Insurance Commissioners' determination 7 under this section and such court shall apply the 8 standards set forth in section 706 of title 5, United 9 States Code, when reviewing any such challenge. 10 (e) CONTINUED APPLICATION.-If, at any time, the 11 uniformity or reciprocity required by subsections (b) and 12 (c) no longer exists, the provisions of this subtitle shall 13 take effect within 2 years, unless the uniformity or reci- 14 procity required by those provisions is satisfied before the 15 expiration of that 2-year period. 16 (f) SAVINGS PROVISION.-No provision of this sec- 17 tion shall be construed as requiring that any law, regula- 18 tion, provision, or action of any State which purports to 19 regulate insurance producers, including any such law, reg- 20 ulation, provision, or action which purports to regulate un- 21 fair trade practices or establish consumer protections, in- 22 cluding countersignature laws, be altered or amended in 23 order to satisfy the uniformity or reciprocity required by 24 subsections (b) and (c), unless any such law, regulation, 25 provision, or action is inconsistent with a specific require- *HR 10 EH 263 1 ment of any such subsection and then only to the extent 2 of such inconsistency. 3 SEC. 322. NATIONAL ASSOCIATION OF REGISTERED 4 AGENTS AND BROKERS. 5 (a) ESTABLISHMENT.-There is established the Na- 6 tional Association of Registered Agents and Brokers 7 (hereafter in this subtitle referred to as the ``Associa- 8 tion''). 9 (b) STATUS.-The Association shall- 10 (1) be a nonprofit corporation; 11 (2) have succession until dissolved by an Act of 12 Congress; 13 (3) not be an agency or establishment of the 14 United States Government; and 15 (4) except as otherwise provided in this Act, be 16 subject to, and have all the powers conferred upon 17 a nonprofit corporation by the District of Columbia 18 Nonprofit Corporation Act (D.C. Code, sec. 29y­ 19 1001 et seq.). 20 SEC. 323. PURPOSE. 21 The purpose of the Association shall be to provide 22 a mechanism through which uniform licensing, appoint- 23 ment, continuing education, and other insurance producer 24 sales qualification requirements and conditions can be 25 adopted and applied on a multistate basis, while preserv- *HR 10 EH 264 1 ing the right of States to license, supervise, and discipline 2 insurance producers and to prescribe and enforce laws and 3 regulations with regard to insurance-related consumer 4 protection and unfair trade practices. 5 SEC. 324. RELATIONSHIP TO THE FEDERAL GOVERNMENT. 6 The Association shall be subject to the supervision 7 and oversight of the National Association of Insurance 8 Commissioners (hereafter in this subtitle referred to as the 9 ``NAIC'') and shall not be an agency or an instrumentality 10 of the United States Government. 11 SEC. 325. MEMBERSHIP. 12 (a) ELIGIBILITY.- 13 (1) IN GENERAL.-Any State-licensed insurance 14 producer shall be eligible to become a member in the 15 Association. 16 (2) INELIGIBILITY FOR SUSPENSION OR REV- 17 OCATION OF LICENSE.-Notwithstanding paragraph 18 (1), a State-licensed insurance producer shall not be 19 eligible to become a member if a State insurance 20 regulator has suspended or revoked such producer's 21 license in that State during the 3-year preceding the 22 date such producer applies for membership. 23 (3) RESUMPTION OF ELIGIBILITY.-Paragraph 24 (2) shall cease to apply to any insurance producer 25 if- *HR 10 EH 265 1 (A) the State insurance regulator renews 2 the license of such producer in the State in 3 which the license was suspended or revoked; or 4 (B) the suspension or revocation is subse- 5 quently overturned. 6 (b) AUTHORITY TO ESTABLISH MEMBERSHIP CRI- 7 TERIA.-The Association shall have the authority to estab- 8 lish membership criteria that- 9 (1) bear a reasonable relationship to the pur- 10 poses for which the Association was established; and 11 (2) do not unfairly limit the access of smaller 12 agencies to the Association membership. 13 (c) ESTABLISHMENT OF CLASSES AND CAT- 14 EGORIES.- 15 (1) CLASSES OF MEMBERSHIP.-The Associa- 16 tion may establish separate classes of membership, 17 with separate criteria, if the Association reasonably 18 determines that performance of different duties re- 19 quires different levels of education, training, or expe- 20 rience. 21 (2) CATEGORIES.-The Association may estab- 22 lish separate categories of membership for individ- 23 uals and for other persons. The establishment of any 24 such categories of membership shall be based either 25 on the types of licensing categories that exist under *HR 10 EH 266 1 State laws or on the aggregate amount of business 2 handled by an insurance producer. No special cat- 3 egories of membership, and no distinct membership 4 criteria, shall be established for members which are 5 insured depository institutions or wholesale financial 6 institutions or for their employees, agents, or affili- 7 ates. 8 (d) MEMBERSHIP CRITERIA.- 9 (1) IN GENERAL.-The Association may estab- 10 lish criteria for membership which shall include 11 standards for integrity, personal qualifications, edu- 12 cation, training, and experience. 13 (2) MINIMUM STANDARD.-In establishing cri- 14 teria under paragraph (1), the Association shall con- 15 sider the highest levels of insurance producer quali- 16 fications established under the licensing laws of the 17 States. 18 (e) EFFECT OF MEMBERSHIP.-Membership in the 19 Association shall entitle the member to licensure in each 20 State for which the member pays the requisite fees, includ- 21 ing licensing fees and, where applicable, bonding require- 22 ments, set by such State. 23 (f) ANNUAL RENEWAL.-Membership in the Associa- 24 tion shall be renewed on an annual basis. *HR 10 EH 267 1 (g) CONTINUING EDUCATION.-The Association shall 2 establish, as a condition of membership, continuing edu- 3 cation requirements which shall be comparable to or great- 4 er than the continuing education requirements under the 5 licensing laws of a majority of the States. 6 (h) SUSPENSION AND REVOCATION.-The Associa- 7 tion may- 8 (1) inspect and examine the records and offices 9 of the members of the Association to determine com- 10 pliance with the criteria for membership established 11 by the Association; and 12 (2) suspend or revoke the membership of an in- 13 surance producer if- 14 (A) the producer fails to meet the applica- 15 ble membership criteria of the Association; or 16 (B) the producer has been subject to dis- 17 ciplinary action pursuant to a final adjudicatory 18 proceeding under the jurisdiction of a State in- 19 surance regulator, and the Association con- 20 cludes that retention of membership in the As- 21 sociation would not be in the public interest. 22 (i) OFFICE OF CONSUMER COMPLAINTS.- 23 (1) IN GENERAL.-The Association shall estab- 24 lish an office of consumer complaints that shall- *HR 10 EH 268 1 (A) receive and investigate complaints 2 from both consumers and State insurance regu- 3 lators related to members of the Association; 4 and 5 (B) recommend to the Association any dis- 6 ciplinary actions that the office considers appro- 7 priate, to the extent that any such rec- 8 ommendation is not inconsistent with State law. 9 (2) RECORDS AND REFERRALS.-The office of 10 consumer complaints of the Association shall- 11 (A) maintain records of all complaints re- 12 ceived in accordance with paragraph (1) and 13 make such records available to the NAIC and 14 to each State insurance regulator for the State 15 of residence of the consumer who filed the com- 16 plaint; and 17 (B) refer, when appropriate, any such com- 18 plaint to any appropriate State insurance regu- 19 lator. 20 (3) TELEPHONE AND OTHER ACCESS.-The of- 21 fice of consumer complaints shall maintain a toll-free 22 telephone number for the purpose of this subsection 23 and, as practicable, other alternative means of com- 24 munication with consumers, such as an Internet 25 home page. *HR 10 EH 269 1 SEC. 326. BOARD OF DIRECTORS. 2 (a) ESTABLISHMENT.-There is established the 3 board of directors of the Association (hereafter in this sub- 4 title referred to as the ``Board'') for the purpose of govern- 5 ing and supervising the activities of the Association and 6 the members of the Association. 7 (b) POWERS.-The Board shall have such powers and 8 authority as may be specified in the bylaws of the Associa- 9 tion. 10 (c) COMPOSITION.- 11 (1) MEMBERS.-The Board shall be composed 12 of 7 members appointed by the NAIC. 13 (2) REQUIREMENT.-At least 4 of the members 14 of the Board shall have significant experience with 15 the regulation of commercial lines of insurance in at 16 least 1 of the 20 States in which the greatest total 17 dollar amount of commercial-lines insurance is 18 placed in the United States. 19 (3) INITIAL BOARD MEMBERSHIP.- 20 (A) IN GENERAL.-If, by the end of the 2- 21 year period beginning on the date of the enact- 22 ment of this Act, the NAIC has not appointed 23 the initial 7 members of the Board of the Asso- 24 ciation, the initial Board shall consist of the 7 25 State insurance regulators of the 7 States with 26 the greatest total dollar amount of commercial- *HR 10 EH 270 1 lines insurance in place as of the end of such 2 period. 3 (B) ALTERNATE COMPOSITION.-If any of 4 the State insurance regulators described in sub- 5 paragraph (A) declines to serve on the Board, 6 the State insurance regulator with the next 7 greatest total dollar amount of commercial-lines 8 insurance in place, as determined by the NAIC 9 as of the end of such period, shall serve as a 10 member of the Board. 11 (C) INOPERABILITY.-If fewer than 7 12 State insurance regulators accept appointment 13 to the Board, the Association shall be estab- 14 lished without NAIC oversight pursuant to sec- 15 tion 332. 16 (d) TERMS.-The term of each director shall, after 17 the initial appointment of the members of the Board, be 18 for 3 years, with 1 3 of the directors to be appointed each 19 year. 20 (e) BOARD VACANCIES.-A vacancy on the Board 21 shall be filled in the same manner as the original appoint- 22 ment of the initial Board for the remainder of the term 23 of the vacating member. *HR 10 EH 271 1 (f) MEETINGS.-The Board shall meet at the call of 2 the chairperson, or as otherwise provided by the bylaws 3 of the Association. 4 SEC. 327. OFFICERS. 5 (a) IN GENERAL.- 6 (1) POSITIONS.-The officers of the Association 7 shall consist of a chairperson and a vice chairperson 8 of the Board, a president, secretary, and treasurer 9 of the Association, and such other officers and as- 10 sistant officers as may be deemed necessary. 11 (2) MANNER OF SELECTION.-Each officer of 12 the Board and the Association shall be elected or ap- 13 pointed at such time and in such manner and for 14 such terms not exceeding 3 years as may be pre- 15 scribed in the bylaws of the Association. 16 (b) CRITERIA FOR CHAIRPERSON.- Only individuals 17 who are members of the National Association of Insurance 18 Commissioners shall be eligible to serve as the chairperson 19 of the board of directors. 20 SEC. 328. BYLAWS, RULES, AND DISCIPLINARY ACTION. 21 (a) ADOPTION AND AMENDMENT OF BYLAWS.- 22 (1) COPY REQUIRED TO BE FILED WITH THE 23 NAIC.-The board of directors of the Association 24 shall file with the NAIC a copy of the proposed by- 25 laws or any proposed amendment to the bylaws, ac- *HR 10 EH 272 1 companied by a concise general statement of the 2 basis and purpose of such proposal. 3 (2) EFFECTIVE DATE.-Except as provided in 4 paragraph (3), any proposed bylaw or proposed 5 amendment shall take effect- 6 (A) 30 days after the date of the filing of 7 a copy with the NAIC; 8 (B) upon such later date as the Associa- 9 tion may designate; or 10 (C) such earlier date as the NAIC may de- 11 termine. 12 (3) DISAPPROVAL BY THE NAIC.-Notwith- 13 standing paragraph (2), a proposed bylaw or amend- 14 ment shall not take effect if, after public notice and 15 opportunity to participate in a public hearing- 16 (A) the NAIC disapproves such proposal as 17 being contrary to the public interest or contrary 18 to the purposes of this subtitle and provides no- 19 tice to the Association setting forth the reasons 20 for such disapproval; or 21 (B) the NAIC finds that such proposal in- 22 volves a matter of such significant public inter- 23 est that public comment should be obtained, in 24 which case it may, after notifying the Associa- 25 tion in writing of such finding, require that the *HR 10 EH 273 1 procedures set forth in subsection (b) be fol- 2 lowed with respect to such proposal, in the 3 same manner as if such proposed bylaw change 4 were a proposed rule change within the mean- 5 ing of such paragraph. 6 (b) ADOPTION AND AMENDMENT OF RULES.- 7 (1) FILING PROPOSED REGULATIONS WITH THE 8 NAIC.- 9 (A) IN GENERAL.-The board of directors 10 of the Association shall file with the NAIC a 11 copy of any proposed rule or any proposed 12 amendment to a rule of the Association which 13 shall be accompanied by a concise general state- 14 ment of the basis and purpose of such proposal. 15 (B) OTHER RULES AND AMENDMENTS IN- 16 EFFECTIVE.-No proposed rule or amendment 17 shall take effect unless approved by the NAIC 18 or otherwise permitted in accordance with this 19 paragraph. 20 (2) INITIAL CONSIDERATION BY THE NAIC.- 21 Within 35 days after the date of publication of no- 22 tice of filing of a proposal, or before the end of such 23 longer period not to exceed 90 days as the NAIC 24 may designate after such date if the NAIC finds 25 such longer period to be appropriate and sets forth *HR 10 EH 274 1 its reasons for so finding, or as to which the Asso- 2 ciation consents, the NAIC shall- 3 (A) by order approve such proposed rule or 4 amendment; or 5 (B) institute proceedings to determine 6 whether such proposed rule or amendment 7 should be modified or disapproved. 8 (3) NAIC PROCEEDINGS.- 9 (A) IN GENERAL.-Proceedings instituted 10 by the NAIC with respect to a proposed rule or 11 amendment pursuant to paragraph (2) shall- 12 (i) include notice of the grounds for 13 disapproval under consideration; 14 (ii) provide opportunity for hearing; 15 and 16 (iii) be concluded within 180 days 17 after the date of the Association's filing of 18 such proposed rule or amendment. 19 (B) DISPOSITION OF PROPOSAL.-At the 20 conclusion of any proceeding under subpara- 21 graph (A), the NAIC shall, by order, approve or 22 disapprove the proposed rule or amendment. 23 (C) EXTENSION OF TIME FOR CONSIDER- 24 ATION.-The NAIC may extend the time for *HR 10 EH 275 1 concluding any proceeding under subparagraph 2 (A) for- 3 (i) not more than 60 days if the 4 NAIC finds good cause for such extension 5 and sets forth its reasons for so finding; or 6 (ii) for such longer period as to which 7 the Association consents. 8 (4) STANDARDS FOR REVIEW.- 9 (A) GROUNDS FOR APPROVAL.-The NAIC 10 shall approve a proposed rule or amendment if 11 the NAIC finds that the rule or amendment is 12 in the public interest and is consistent with the 13 purposes of this Act. 14 (B) APPROVAL BEFORE END OF NOTICE 15 PERIOD.-The NAIC shall not approve any pro- 16 posed rule before the end of the 30-day period 17 beginning on the date the Association files pro- 18 posed rules or amendments in accordance with 19 paragraph (1) unless the NAIC finds good 20 cause for so doing and sets forth the reasons 21 for so finding. 22 (5) ALTERNATE PROCEDURE.- 23 (A) IN GENERAL.-Notwithstanding any 24 provision of this subsection other than subpara- 25 graph (B), a proposed rule or amendment relat- *HR 10 EH 276 1 ing to the administration or organization of the 2 Association may take effect- 3 (i) upon the date of filing with the 4 NAIC, if such proposed rule or amendment 5 is designated by the Association as relating 6 solely to matters which the NAIC, consist- 7 ent with the public interest and the pur- 8 poses of this subsection, determines by rule 9 do not require the procedures set forth in 10 this paragraph; or 11 (ii) upon such date as the NAIC shall 12 for good cause determine. 13 (B) ABROGATION BY THE NAIC.- 14 (i) IN GENERAL.-At any time within 15 60 days after the date of filing of any pro- 16 posed rule or amendment under subpara- 17 graph (A)(i) or (B)(ii), the NAIC may re- 18 peal such rule or amendment and require 19 that the rule or amendment be refiled and 20 reviewed in accordance with this para- 21 graph, if the NAIC finds that such action 22 is necessary or appropriate in the public 23 interest, for the protection of insurance 24 producers or policyholders, or otherwise in 25 furtherance of the purposes of this subtitle. *HR 10 EH 277 1 (ii) EFFECT OF RECONSIDERATION BY 2 THE NAIC.-Any action of the NAIC pur- 3 suant to clause (i) shall- 4 (I) not affect the validity or force 5 of a rule change during the period 6 such rule or amendment was in effect; 7 and 8 (II) not be considered to be final 9 action. 10 (c) ACTION REQUIRED BY THE NAIC.-The NAIC 11 may, in accordance with such rules as the NAIC deter- 12 mines to be necessary or appropriate to the public interest 13 or to carry out the purposes of this subtitle, require the 14 Association to adopt, amend, or repeal any bylaw, rule or 15 amendment of the Association, whenever adopted. 16 (d) DISCIPLINARY ACTION BY THE ASSOCIATION.- 17 (1) SPECIFICATION OF CHARGES.-In any pro- 18 ceeding to determine whether membership shall be 19 denied, suspended, revoked, and not renewed (here- 20 after in this section referred to as a ``disciplinary ac- 21 tion''), the Association shall bring specific charges, 22 notify such member of such charges and give the 23 member an opportunity to defend against the 24 charges, and keep a record. *HR 10 EH 278 1 (2) SUPPORTING STATEMENT.-A determina- 2 tion to take disciplinary action shall be supported by 3 a statement setting forth- 4 (A) any act or practice in which such 5 member has been found to have been engaged; 6 (B) the specific provision of this subtitle, 7 the rules or regulations under this subtitle, or 8 the rules of the Association which any such act 9 or practice is deemed to violate; and 10 (C) the sanction imposed and the reason 11 for such sanction. 12 (e) NAIC REVIEW OF DISCIPLINARY ACTION.- 13 (1) NOTICE TO THE NAIC.-If the Association 14 orders any disciplinary action, the Association shall 15 promptly notify the NAIC of such action. 16 (2) REVIEW BY THE NAIC.-Any disciplinary 17 action taken by the Association shall be subject to 18 review by the NAIC- 19 (A) on the NAIC's own motion; or 20 (B) upon application by any person ag- 21 grieved by such action if such application is 22 filed with the NAIC not more than 30 days 23 after the later of- 24 (i) the date the notice was filed with 25 the NAIC pursuant to paragraph (1); or *HR 10 EH 279 1 (ii) the date the notice of the discipli- 2 nary action was received by such aggrieved 3 person. 4 (f) EFFECT OF REVIEW.-The filing of an applica- 5 tion to the NAIC for review of a disciplinary action, or 6 the institution of review by the NAIC on the NAIC's own 7 motion, shall not operate as a stay of disciplinary action 8 unless the NAIC otherwise orders. 9 (g) SCOPE OF REVIEW.- 10 (A) IN GENERAL.-In any proceeding to 11 review such action, after notice and the oppor- 12 tunity for hearing, the NAIC shall- 13 (i) determine whether the action 14 should be taken; 15 (ii) affirm, modify, or rescind the dis- 16 ciplinary sanction; or 17 (iii) remand to the Association for 18 further proceedings. 19 (B) DISMISSAL OF REVIEW.-The NAIC 20 may dismiss a proceeding to review disciplinary 21 action if the NAIC finds that- 22 (i) the specific grounds on which the 23 action is based exist in fact; 24 (ii) the action is in accordance with 25 applicable rules and regulations; and *HR 10 EH 280 1 (iii) such rules and regulations are, 2 and were, applied in a manner consistent 3 with the purposes of this Act. 4 SEC. 329. ASSESSMENTS. 5 (a) INSURANCE PRODUCERS SUBJECT TO ASSESS- 6 MENT.-The Association may establish such application 7 and membership fees as the Association finds necessary 8 to cover the costs of its operations, including fees made 9 reimbursable to the NAIC under subsection (b), except 10 that, in setting such fees, the Association may not dis- 11 criminate against smaller insurance producers. 12 (b) NAIC ASSESSMENTS.-The NAIC may assess the 13 Association for any costs it incurs under this subtitle. 14 SEC. 330. FUNCTIONS OF THE NAIC. 15 (a) ADMINISTRATIVE PROCEDURE.-Determinations 16 of the NAIC, for purposes of making rules pursuant to 17 section 328, shall be made after appropriate notice and 18 opportunity for a hearing and for submission of views of 19 interested persons. 20 (b) EXAMINATIONS AND REPORTS.- 21 (1) The NAIC may make such examinations 22 and inspections of the Association and require the 23 Association to furnish it with such reports and 24 records or copies thereof as the NAIC may consider *HR 10 EH 281 1 necessary or appropriate in the public interest or to 2 effectuate the purposes of this subtitle. 3 (2) As soon as practicable after the close of 4 each fiscal year, the Association shall submit to the 5 NAIC a written report regarding the conduct of its 6 business, and the exercise of the other rights and 7 powers granted by this subtitle, during such fiscal 8 year. Such report shall include financial statements 9 setting forth the financial position of the Association 10 at the end of such fiscal year and the results of its 11 operations (including the source and application of 12 its funds) for such fiscal year. The NAIC shall 13 transmit such report to the President and the Con- 14 gress with such comment thereon as the NAIC de- 15 termines to be appropriate. 16 SEC. 331. LIABILITY OF THE ASSOCIATION AND THE DIREC- 17 TORS, OFFICERS, AND EMPLOYEES OF THE 18 ASSOCIATION. 19 (a) IN GENERAL.-The Association shall not be 20 deemed to be an insurer or insurance producer within the 21 meaning of any State law, rule, regulation, or order regu- 22 lating or taxing insurers, insurance producers, or other en- 23 tities engaged in the business of insurance, including pro- 24 visions imposing premium taxes, regulating insurer sol- 25 vency or financial condition, establishing guaranty funds *HR 10 EH 282 1 and levying assessments, or requiring claims settlement 2 practices. 3 (b) LIABILITY OF THE ASSOCIATION, ITS DIREC- 4 TORS, OFFICERS, AND EMPLOYEES.-Neither the Associa- 5 tion nor any of its directors, officers, or employees shall 6 have any liability to any person for any action taken or 7 omitted in good faith under or in connection with any mat- 8 ter subject to this subtitle. 9 SEC. 332. ELIMINATION OF NAIC OVERSIGHT. 10 (a) IN GENERAL.-The Association shall be estab- 11 lished without NAIC oversight and the provisions set forth 12 in section 324, subsections (a), (b), (c), and (e) of section 13 328, and sections 329(b) and 330 of this subtitle shall 14 cease to be effective if, at the end of the 2-year period 15 after the date on which the provisions of this subtitle take 16 effect pursuant to section 321- 17 (1) at least a majority of the States represent- 18 ing at least 50 percent of the total United States 19 commercial-lines insurance premiums have not satis- 20 fied the uniformity or reciprocity requirements of 21 subsections (a) and (b) of section 321; and 22 (2) the NAIC has not approved the Associa- 23 tion's bylaws as required by section 328, the NAIC 24 is unable to operate or supervise the Association, or *HR 10 EH 283 1 the Association is not conducting its activities as re- 2 quired under this Act. 3 (b) BOARD APPOINTMENTS.-If the repeals required 4 by subsection (a) are implemented- 5 (1) GENERAL APPOINTMENT POWER.-The 6 President, with the advice and consent of the United 7 States Senate, shall appoint the members of the As- 8 sociation's Board established under section 326 from 9 lists of candidates recommended to the President by 10 the National Association of Insurance Commis- 11 sioners. 12 (2) PROCEDURES FOR OBTAINING NATIONAL 13 ASSOCIATION OF INSURANCE COMMISSIONERS AP- 14 POINTMENT RECOMMENDATIONS.- 15 (A) INITIAL DETERMINATION AND REC- 16 OMMENDATIONS.-After the date on which the 17 provisions of part a of this section take effect, 18 then the National Association of Insurance 19 Commissioners shall have 60 days to provide a 20 list of recommended candidates to the Presi- 21 dent. If the National Association of Insurance 22 Commissioners fails to provide a list by that 23 date, or if any list that is provided does not in- 24 clude at least 14 recommended candidates or 25 comply with the requirements of section 326(c), *HR 10 EH 284 1 the President shall, with the advice and consent 2 of the United States Senate, make the requisite 3 appointments without considering the views of 4 the NAIC. 5 (B) SUBSEQUENT APPOINTMENTS.-After 6 the initial appointments, the National Associa- 7 tion of Insurance Commissioners shall provide a 8 list of at least 6 recommended candidates for 9 the Board to the President by January 15 of 10 each subsequent year. If the National Associa- 11 tion of Insurance Commissioners fails to pro- 12 vide a list by that date, or if any list that is 13 provided does not include at least 6 rec- 14 ommended candidates or comply with the re- 15 quirements of section 326(c), the President, 16 with the advice and consent of the Senate, shall 17 make the requisite appointments without con- 18 sidering the views of the NAIC. 19 (C) PRESIDENTIAL OVERSIGHT.- 20 (i) REMOVAL.-If the President deter- 21 mines that the Association is not acting in 22 the interests of the public, the President 23 may remove the entire existing Board for 24 the remainder of the term to which the 25 members of the Board were appointed and *HR 10 EH 285 1 appoint, with the advice and consent of the 2 Senate, new members to fill the vacancies 3 on the Board for the remainder of such 4 terms. 5 (ii) SUSPENSION OF RULES OR AC- 6 TIONS.-The President, or a person des- 7 ignated by the President for such purpose, 8 may suspend the effectiveness of any rule, 9 or prohibit any action, of the Association 10 which the President or the designee deter- 11 mines is contrary to the public interest. 12 (d) ANNUAL REPORT.-As soon as practicable after 13 the close of each fiscal year, the Association shall submit 14 to the President and to Congress a written report relative 15 to the conduct of its business, and the exercise of the other 16 rights and powers granted by this subtitle, during such 17 fiscal year. Such report shall include financial statements 18 setting forth the financial position of the Association at 19 the end of such fiscal year and the results of its operations 20 (including the source and application of its funds) for such 21 fiscal year. 22 SEC. 333. RELATIONSHIP TO STATE LAW. 23 (a) PREEMPTION OF STATE LAWS.-State laws, reg- 24 ulations, provisions, or actions purporting to regulate in- *HR 10 EH 286 1 surance producers shall be preempted in the following in- 2 stances: 3 (1) No State shall impede the activities of, take 4 any action against, or apply any provision of law or 5 regulation to, any insurance producer because that 6 insurance producer or any affiliate plans to become, 7 has applied to become, or is a member of the Asso- 8 ciation. 9 (2) No State shall impose any requirement 10 upon a member of the Association that it pay dif- 11 ferent fees to be licensed or otherwise qualified to do 12 business in that State, including bonding require- 13 ments, based on its residency. 14 (3) No State shall impose any licensing, ap- 15 pointment, integrity, personal or corporate qualifica- 16 tions, education, training, experience, residency, or 17 continuing education requirement upon a member of 18 the Association that is different than the criteria for 19 membership in the Association or renewal of such 20 membership, except that counter-signature require- 21 ments imposed on nonresident producers shall not be 22 deemed to have the effect of limiting or conditioning 23 a producer's activities because of its residence or 24 place of operations under this section. *HR 10 EH 287 1 (4) No State shall implement the procedures of 2 such State's system of licensing or renewing the li- 3 censes of insurance producers in a manner different 4 from the authority of the Association under section 5 325. 6 (b) SAVINGS PROVISION.-Except as provided in sub- 7 section (a), no provision of this section shall be construed 8 as altering or affecting the continuing effectiveness of any 9 law, regulation, provision, or action of any State which 10 purports to regulate insurance producers, including any 11 such law, regulation, provision, or action which purports 12 to regulate unfair trade practices or establish consumer 13 protections, including, but not limited to, countersignature 14 laws. 15 SEC. 334. COORDINATION WITH OTHER REGULATORS. 16 (a) COORDINATION WITH STATE INSURANCE REGU- 17 LATORS.-The Association shall have the authority to- 18 (1) issue uniform insurance producer applica- 19 tions and renewal applications that may be used to 20 apply for the issuance or removal of State licenses, 21 while preserving the ability of each State to impose 22 such conditions on the issuance or renewal of a li- 23 cense as are consistent with section 333; 24 (2) establish a central clearinghouse through 25 which members of the Association may apply for the *HR 10 EH 288 1 issuance or renewal of licenses in multiple States; 2 and 3 (3) establish or utilize a national database for 4 the collection of regulatory information concerning 5 the activities of insurance producers. 6 (b) COORDINATION WITH THE NATIONAL ASSOCIA- 7 TION OF SECURITIES DEALERS.-The Association shall 8 coordinate with the National Association of Securities 9 Dealers in order to ease any administrative burdens that 10 fall on persons that are members of both associations, con- 11 sistent with the purposes of this subtitle and the Federal 12 securities laws. 13 SEC. 335. JUDICIAL REVIEW. 14 (a) JURISDICTION.-The appropriate United States 15 district court shall have exclusive jurisdiction over litiga- 16 tion involving the Association, including disputes between 17 the Association and its members that arise under this sub- 18 title. Suits brought in State court involving the Associa- 19 tion shall be deemed to have arisen under Federal law and 20 therefore be subject to jurisdiction in the appropriate 21 United States district court. 22 (b) EXHAUSTION OF REMEDIES.-An aggrieved per- 23 son must exhaust all available administrative remedies be- 24 fore the Association and the NAIC before it may seek judi- 25 cial review of an Association decision. *HR 10 EH 289 1 (c) STANDARDS OF REVIEW.-The standards set 2 forth in section 553 of title 5, United States Code, shall 3 be applied whenever a rule or bylaw of the Association is 4 under judicial review, and the standards set forth in sec- 5 tion 554 of title 5, United States Code, shall be applied 6 whenever a disciplinary action of the Association is judi- 7 cially reviewed. 8 SEC. 336. DEFINITIONS. 9 For purposes of this subtitle, the following definitions 10 shall apply: 11 (1) INSURANCE.-The term ``insurance'' means 12 any product defined or regulated as insurance by the 13 appropriate State insurance regulatory authority. 14 (2) INSURANCE PRODUCER.-The term ``insur- 15 ance producer'' means any insurance agent or 16 broker, surplus lines broker, insurance consultant, 17 limited insurance representative, and any other per- 18 son that solicits, negotiates, effects, procures, deliv- 19 ers, renews, continues or binds policies of insurance 20 or offers advice, counsel, opinions or services related 21 to insurance. 22 (3) STATE LAW.-The term ``State law'' in- 23 cludes all laws, decisions, rules, regulations, or other 24 State action having the effect of law, of any State. 25 A law of the United States applicable only to the *HR 10 EH 290 1 District of Columbia shall be treated as a State law 2 rather than a law of the United States. 3 (4) STATE.-The term ``State'' includes any 4 State, the District of Columbia, American Samoa, 5 Guam, Puerto Rico, and the United States Virgin 6 Islands. 7 (5) HOME STATE.-The term ``home State'' 8 means the State in which the insurance producer 9 maintains its principal place of residence and is li- 10 censed to act as an insurance producer. 11 TITLE IV-UNITARY SAVINGS 12 AND LOAN HOLDING COMPA- 13 NIES 14 SEC. 401. TERMINATION OF EXPANDED POWERS FOR NEW 15 UNITARY S&L HOLDING COMPANIES. 16 (a) IN GENERAL.-Section 10(c) of the Home Own- 17 ers' Loan Act (12 U.S.C. 1467a(c)) is amended by adding 18 at the end the following new paragraph: 19 ``(9) TERMINATION OF EXPANDED POWERS FOR 20 NEW UNITARY S&L HOLDING COMPANY.- 21 ``(A) IN GENERAL.-Subject to subpara- 22 graph (B), paragraph (3) shall not apply with 23 respect to any company that becomes a savings 24 and loan holding company pursuant to an appli- 25 cation filed after March 31, 1998. *HR 10 EH 291 1 ``(B) EXISTING UNITARY S&L HOLDING 2 COMPANIES AND THE SUCCESSORS TO SUCH 3 COMPANIES.-Subparagraph (A) shall not 4 apply, and paragraph (3) shall continue to 5 apply, to a company (or any subsidiary of such 6 company) that- 7 ``(i) either- 8 ``(I) acquired 1 or more savings 9 associations described in paragraph 10 (3) pursuant to applications at least 1 11 of which was filed before April 1, 12 1998; or 13 ``(II) became a savings and loan 14 holding company by acquiring owner- 15 ship or control of the company de- 16 scribed in subclause (I); and 17 ``(ii) continues to control the savings 18 associations referred to in clause (i)(I) or 19 the successor to any such savings associa- 20 tion.''. 21 (b) TECHNICAL AND CONFORMING AMENDMENT.- 22 Section 10(c)(3) of the Home Owners' Loan Act (12 23 U.S.C. 1467a(c)(3)) is amended by striking ``Notwith- 24 standing'' and inserting ``Except as provided in paragraph 25 (9) and notwithstanding''. *HR 10 EH 292 1 SEC. 402. RETENTION OF ``FEDERAL'' IN NAME OF CON- 2 VERTED FEDERAL SAVINGS ASSOCIATION. 3 Section 2 of the Act entitled ``An Act to enable na- 4 tional banking associations to increase their capital stock 5 and to change their names or locations.'' and approved 6 May 1, 1886 (12 U.S.C. 30) is amended by adding at the 7 end the following new subsection: 8 ``(d) RETENTION OF `FEDERAL' IN NAME OF CON- 9 VERTED FEDERAL SAVINGS ASSOCIATION.- 10 ``(1) IN GENERAL.-Notwithstanding subsection 11 (a) or any other provision of law, any depository in- 12 stitution the charter of which is converted from that 13 of a Federal savings association to a national bank 14 or a State bank after the date of the enactment of 15 the Financial Services Act of 1998 may retain the 16 term `Federal' in the name of such institution so 17 long as such depository institution remains an in- 18 sured depository institution. 19 ``(2) DEFINITIONS.-For purposes of this sub- 20 section, the terms `depository institution', `insured 21 depository institution', `national bank', and `State *HR 10 EH 293 1 bank' have the same meanings given to such terms 2 in section 3 of the Federal Deposit Insurance Act.''. Passed the House of Representatives May 13, 1998. Attest: Clerk. *HR 10 EH