Short title

This Act may be cited as the

Mutual Community Bank Competitive Equality Act

Findings

Congress finds the following: (1)Mutual financial institutions have been an integral part of the American banking landscape for almost 200 years. (2)Such institutions operate for the purpose of serving the local depositors and borrowers and the communities in which they operate. (3)Mutual banks play a critical role in encouraging thrift, providing home loans and loans for small businesses. (4)Mutual banks are among the strongest financial institutions in the country and are characterized by high capital ratios and conservative, community-focused management. (5)Congress deems it necessary to provide for the support and continued development of these vital community financial institutions.

Mutual national banks authorized

Chapter one of title XII of the Revised Statutes of the United States (12 U.S.C. 21 et seq.) is amended by inserting after section 5133 the following new section:

5133A.

Mutual national banks

(a)

In general

Notwithstanding the section designated the Third of section 5134, in order to provide mutual institutions for the deposit of funds, the extension of credit, and provision of other services, the Comptroller of the Currency may charter mutual national banks either de novo or through a conversion of any insured depository institution or any State mutual bank or credit union, subject to regulations prescribed by the Comptroller of the Currency in accordance with this section. The powers conferred by this section are intended to provide for the creation and maintenance of mutual national banks as bodies corporate existing in perpetuity for the benefit of their depositors and the communities in which they operate. (b)

Regulations

(1)

Regulations of the comptroller

The Comptroller of the Currency is authorized to prescribe appropriate regulations for the organization, incorporation, governance, conversion, examination, operation, supervision, and regulation of mutual national banks. (2)

Applicability of capital stock requirements

The Comptroller of the Currency shall prescribe regulations regarding appropriate capital substitutes for the requirements of this title with respect to capital stock, and limitations imposed on national banks under this title based on capital stock, as such requirements shall apply to mutual national banks. (c)

De novo charters

(1)The Comptroller of the Currency is authorized to issue a certificate of authority to commence the business of banking to a mutual national bank in accordance with the requirements set forth in section 5169, provided that references to capital stock shall mean pledged accounts, nonwithdrawable investment certificates, or similar instruments by the incorporators. (2)Upon the issuance of the certificate required by paragraph (1), the mutual national bank shall become a body corporate and the incorporators shall become the first board of directors, with the power and authority to manage the affairs of the bank as herein set forth. (d)

Conversions

(1)

Conversion of a mutual depository to a mutual national bank

Subject to such regulations as the Comptroller of the Currency may prescribe, any mutual depository may convert to a mutual national bank by filing with the Comptroller of the Currency a notice of its election to convert on a specified date that is not earlier than 30 days after the date on which the notice is filed, and the mutual depository shall be converted to a mutual national bank charter on the date specified in the notice. (2)

Conversion to stock national bank

Subject to such regulations as the Comptroller of the Currency may prescribe for the protection of depositors’ rights and for any other purpose the Comptroller of the Currency may consider appropriate, any national bank that is organized in the mutual form under subsection (a) may reorganize on an equitable basis as a stock national bank. (3)

Conversion to state banks

Any national mutual bank may convert to a State bank charter in accordance with regulations prescribed by the Comptroller of the Currency and applicable State law. (e)

Terminating mutuality

If a mutual national bank elects to terminate mutuality, it must do so by— (1)liquidating; or (2)converting on an equitable basis to a national banking association operating in stock form. (f)

Status and rights of members

(1)

In general

In general, the status of a member is primarily that of a depositor and secondarily that of a holder of an inchoate right to participate in the equity of a mutual national bank upon a liquidation or conversion in accordance with regulations prescribed by the Comptroller of the Currency. (2)

Mandatory rights

Each member of a mutual national bank shall have the following rights: (A)Such rights as may be agreed upon, by contract, between the member and the mutual national bank. (B)In the event the board of directors, in its sole discretion, determines a conversion of a mutual national bank to a national banking association operating in stock form is in the best interests of the community in which the bank operates, then the members as of a record date set by the board of directors shall have the first right to subscribe for and purchase stock in the converted bank, on an equitable basis based on the amount of the deposit held by such member as of the record date. (C)In the event— (i)the board of directors, in its sole discretion, determines a liquidation of the mutual national bank is in the best interests of the community in which the bank operates, and such board of directors has adopted a plan of liquidation in accordance with regulations proscribed by the Comptroller of the Currency, and the Comptroller of the Currency has approved if such plan; or (ii)if for any other reason the bank is liquidated by operation of law,

then the members as of the date of liquidation shall have the right to have credited to their accounts, on a pro rata basis, any residual assets left after the payment of all liabilities and expenses, including expenses of liquidation of the mutual national bank.

(g)

Management of the bank

The board of directors shall have the entire management and control of the affairs of the mutual national bank. No depositor or borrower shall have the right to vote on any matter relating to the mutual national bank. Any voting rights of members prior to a conversion to a mutual national bank shall be extinguished upon a conversion to a mutual national bank. (h)

Mutual holding company formation

A mutual national bank may reorganize into the mutual holding company form of organization in accordance with regulations promulgated by the Comptroller of the Currency. (i)

Definitions

For purposes of this section, the following definitions shall apply: (1)

Insured depository institution

The term insured depository institution has the same meaning as in section 3 of the Federal Deposit Insurance Act. (2)

Mutual national bank

The term mutual national bank means a national banking association that operates in mutual form and is chartered by the Comptroller of the Currency under this section. (3)

Mutual depository

The term mutual depository means a depository institution that is organized in nonstock form, including a Federal non-stock depository and any form of nonstock depository provided for under State law, the deposits of which are insured by an instrumentality of the Federal Government. (4)

Mutuality

The term mutuality means the quality of being an insured depository institution organized under a Federal or State law providing for the organization of nonstock depository institutions, or a holding company organized under a Federal or State law providing for the organization of nonstock entities that control one or more depository institutions. (5)

Member

The term member means each insured account holder in a mutual depository’s savings, demand, or other authorized depository accounts and each insured account holder in such an account in a depository subsidiary of a mutual bank holding company. The board of directors may adopt a bylaw setting a minimum dollar threshold to qualify as a member up to $1,000. (6)

Membership rights

The term membership rights means the rights of each member under this section. (j)

Conforming references

Unless otherwise provided by the Comptroller of the Currency— (1)any reference in any Federal law to a national bank operating in stock form, including a reference to the term national banking association, member bank, national bank, national association, bank, insured bank, insured depository institution, or depository institution, shall be deemed to refer also to a mutual national bank; (2)any reference in any Federal law to the term board of directors, director, or directors of a national bank operating in stock form shall be deemed to refer also to the board of a mutual national bank; and (3)any terms in Federal law that may apply only to a national bank operating in stock form, including the terms stock, shares, shares of stock, capital stock, common stock, stock certificate, stock certificates, certificates representing shares of stock, stock dividend, transferable stock, each class of stock, cumulate such shares, par value, preferred stock shall not apply to a mutual national bank, unless the Comptroller of the Currency determines that the context requires otherwise.

Mutual investment certificates authorized

Section 38(c)(1) of the Federal Deposit Insurance Act (12 U.S.C. § 1831o(c)(1)) is hereby amended by deleting subparagraph (B)(ii) in paragraph (A) and inserting subparagraph (B)(ii) and paragraph (C) and by adding at the end of subparagraph (B)(ii) the following:

(C)(i)Notwithstanding any other provision of law, a mutual depository, as defined in (12 U.S.C. 5133A(h)(3)), is authorized to issue Mutual Investment Certificates, which shall be included as Tier 1 capital for purposes of any capital standards issued by an appropriate Federal banking agency, provided that such certificates must be— (I)nonvoting, except that the issuing mutual depository institution may permit voting in the event that— (aa)the mutual depository institution fails to pay dividends for a minimum of three consecutive dividend periods, and then the holders of the class or classes of Mutual Investment Certificates granted such voting rights, and voting as a single class, with one vote for each outstanding certificate, may elect by a majority vote a maximum of one-third of the institution's board of directors, the directors so elected to serve until the next annual meeting of the institution succeeding the payment of all current and past dividends; (bb)any merger, consolidation, or reorganization (except in a supervisory case) is sought to be authorized, where the issuing institution is not the survivor, provided that the regulatory capital of the resulting institution available for payment of any class of Mutual Investment Certificates on liquidation is less than the regulatory capital available for such class prior to the merger, consolidation, or reorganization; (cc)any action is sought to be authorized which would create any class of Mutual Investment Certificates having a preference or priority over an outstanding class or classes of Mutual Investment Certificates; (dd)any action is sought to be authorized which would adversely change the specific terms of any class of Mutual Investment Certificates; (ee)action is sought to be authorized which would increase the number of a class of Mutual Investment Certificates, or the number of a class of Mutual Investment Certificates ranking prior to or on parity with another class of Mutual Investment Certificates; or (ff)action is sought which would authorize the issuance of an additional class or classes of Mutual Investment Certificates without the institution having met specific financial standards; (II)redeemable at the sole discretion of the Board of Directors of the mutual depository; and (III)provide that any dividends paid must be non-cumulative. (ii)Notwithstanding any other provision of law, nonwithdrawable accounts, pledged accounts, mutual capital certificates, or similar instruments, authorized as of the date of the enactment of the Mutual Community Bank Equity Act, shall be included as Tier 1 capital for purposes of any capital standards issued by an appropriate Federal banking agency. (iii)The appropriate Federal banking agencies are hereby authorized to prescribe appropriate regulations to implement these provisions.

Protection of mutual depositories

(a)

In general

Subsection (h) of section 10 of the Home Owners’ Loan Act (12 U.S.C. 1467a(h)) is amended— (1)by striking or after the semicolon at the end of paragraph (2); (2)by striking the period at the end of paragraph (3) and inserting ; or; and (3)by inserting after paragraph (3), the following new paragraph:

(4)any company or any subsidiary of any company, any director, officer, employee, or person owning, controlling, or holding with the power to vote, or holding proxies representing more than 25 percent of the voting shares, of such company or subsidiary, or any director, officer, employee, or person acting in concert with such company or subsidiary, to hold, solicit, or exercise any proxies in respect of a savings association which is a mutual association, with the view or intention to, directly or indirectly, control or attempt to control the mutual association.

(b)

Enforcement action

Subsection (i) of section 10 of the Home Owners’ Loan Act (12 U.S.C. 1467a(i)) is amended by inserting after paragraph (3) the following new paragraph:

(4)

Civil actions by association

(A)

Equitable relief

Any aggrieved mutual savings association may bring a civil action in a court of appropriate jurisdiction and may recover such equitable relief, including injunctive relief, and reasonable attorney’s fees, as determined by the court for any violation or attempted violation of paragraph (1) or (4) of subsection (h). (B)

Proxies null and void

In addition to any damages or relief under paragraph (1), any proxy held or exercised by any party the holding or exercise of which has been determined to be a violation of paragraph (1) or (4) of subsection (h) shall be deemed null and void, as of the inception of such proxy, and shall not be counted for purposes of determining a quorum at any meeting of such aggrieved mutual association. (C)

Statute of limitation

(i)

In general

An action may not be brought under subparagraph (A) after the end of the 180-day period beginning on the later of— (I)the date of the discovery of the alleged violation by the aggrieved mutual savings association; or (II)the date of the enactment of the Mutual Savings Association Preservation Act. (ii)

No attribution rule

For purposes of clause (i)(I), the knowledge of the facts and circumstances giving rise to an alleged violation by any party to the violation shall not be attributed to the savings association.

Establishment of charitable foundations authorized

(a)Any mutual holding company or direct or indirect stock subsidiary of a mutual holding company may contribute or issue shares of such stock subsidiary to a charitable foundation established by the mutual holding company or any direct or indirect stock subsidiary of the mutual holding company, provided that— (1)the charitable foundation qualifies as a 501(c)(3) organization under the Internal Revenue Code, as amended; (2)the Foundation’s governance complies with regulations adopted by the appropriate Federal banking agency; (3)at the time of the contribution or issuance to the charitable foundation, no direct or indirect stock subsidiary of the mutual holding company, nor any affiliate thereof, has issued shares of common stock to any nonaffiliate of the direct or indirect stock subsidiary of the mutual holding company; (4)the value of the stock so contributed or issued by the direct or indirect stock subsidiary of the mutual holding company, as determined in accordance with subsection (b), shall not exceed more than 10 percent of the insured depository institution’s consolidated Tier 1 capital, as of the quarter end prior to the establishment of the charitable foundation; (5)the direct or indirect stock subsidiary of the mutual holding company that contributes or issues the shares to the charitable foundation must reasonably expect to utilize the tax deduction within the time period proscribed by the Internal Revenue Service for contributions to charitable foundations; and (6)the mutual holding company and each direct or indirect stock subsidiary of the mutual holding company will be “well capitalized” under the prompt corrective action regulations immediately following the contribution to the charitable foundation. (b)Prior to any contribution or issuance by a direct or indirect stock subsidiary of the mutual holding company to a charitable foundation pursuant to subsection (a), the mutual holding company shall obtain an appraisal, by an independent appraiser experienced in such matters, of the pro forma value of the stock so contributed on a fully converted basis. The value of the stock so contributed, as determined by the appraiser, shall be limited in accordance with paragraph (4) of subsection (b).

Dividends paid by subsidiaries of mutual holding companies

Section 10(o)(11)(B) of the Home Owners’ Loan Act (12 U.S.C. 1467a(o)(11)(B)) is amended by deleting or at the end of (i), deleting the period at the end of (ii) and inserting a semicolon at the end thereof, and adding the following:

(iii)a majority of the board of directors of the mutual holding company, or a committee thereof, consists of directors who are not affiliates of any stock subsidiary of the mutual holding company and who do not directly or indirectly own any shares of the stock to which the waiver would apply, and vote in favor of the waiver of the dividend; or (iv)an independent corporate committee consisting of persons who are not stockholders, affiliates, depositors, borrowers, or members of the mutual holding company or any stock subsidiary of the mutual holding company vote in favor of the waiver of the dividend.

Preserving mutuality bylaws authorized

(a)The Board of Directors of a mutual depository may adopt a bylaw to preserve the mutuality of a mutual depository. Such bylaw provisions may include— (1)supermajority voting requirements, up to 80 percent, by the members to approve a conversion to stock form; (2)a prohibition against any person from serving, or nominating a person to serve, on the Board of Directors of the mutual depository, if such person or nominee has an intention to propose a conversion from mutual to stock form; (3)a requirement that any person serving or nominated to serve on the Board of Directors may not propose a conversion from mutual to stock form for a period of time not exceeding five years, as determined by the Board, beginning on the later of the date such bylaw is adopted or such person is elected to serve on the Board; (4)a prohibition against any member from proposing a conversion to stock form at any annual or special meeting of members or by the written consent of members; and (5)a violation of one or more of the bylaw provisions adopted to preserve mutuality shall be a basis for termination as a member of the Board of Directors. (b)Notwithstanding the foregoing, in no event shall any bylaw adopted pursuant to section (a) have any force and effect in the event the mutual depository is not well capitalized in accordance with the rules established by such depositories appropriate Federal banking agency.

Applicability of small bank holding company policy statement to small mutual holding company

The Board of Governors of the Federal Reserve shall apply its Small Bank Holding Company Policy Statement to any mutual holding company that would otherwise qualify as a small bank holding company, if it were a bank holding company.