113 S985 IS: Return to Prudent Banking Act of 2013 U.S. Senate 2013-05-16 text/xml EN Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.

II 113th CONGRESS 1st Session S. 985 IN THE SENATE OF THE UNITED STATES May 16, 2013 Mr. Harkin introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To repeal certain provisions of the Gramm-Leach-Bliley Act and revive the separation between commercial banking and the securities business, in the manner provided in the Banking Act of 1933, the so-called Glass-Steagall Act, and for other purposes.

1.

Short title

This Act may be cited as the Return to Prudent Banking Act of 2013.

2.

Glass-Steagall revived

(a)

Wall between commercial banks and securities activities reestablished

Section 18 of the Federal Deposit Insurance Act (12 U.S.C. 1828), as amended by section 615(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is amended by adding at the end the following new subsection: (aa)

Limitations on security affiliations

(1)

Prohibition on affiliation between insured depository institutions and investment banks or securities firms

An insured depository institution may not be or become an affiliate of any broker or dealer, any investment adviser, any investment company, or any other person engaged principally in the issue, flotation, underwriting, public sale, or distribution at wholesale or retail or through syndicate participation of stocks, bonds, debentures, notes, or other securities. (2)

Prohibition on officers, directors and employees of securities firms service on boards of depository institutions

(A)

In general

An individual who is an officer, director, partner, or employee of any broker or dealer, any investment adviser, any investment company, or any other person engaged principally in the issue, flotation, underwriting, public sale, or distribution at wholesale or retail or through syndicate participation of stocks, bonds, debentures, notes, or other securities may not serve at the same time as an officer, director, employee, or other institution-affiliated party of any insured depository institution. (B)

Exception

Subparagraph (A) shall not apply with respect to service by any individual which is otherwise prohibited under such subparagraph if the appropriate Federal banking agency determines, by regulation with respect to a limited number of cases, that service by such individual as an officer, director, employee, or other institution-affiliated party of any insured depository institution would not unduly influence the investment policies of the depository institution or the advice the institution provides to customers. (C)

Termination of service

Subject to a determination under subparagraph (B), any individual described in subparagraph (A) who, as of the date of enactment of the Return to Prudent Banking Act of 2013, is serving as an officer, director, employee, or other institution-affiliated party of any insured depository institution shall terminate such service as soon as practicable after such date of enactment and no later than the end of the 60-day period beginning on such date. (3)

Termination of existing affiliation

(A)

Orderly wind-down of existing affiliation

Any affiliation of an insured depository institution with any broker or dealer, any investment adviser, any investment company, or any other person, as of the date of enactment of the Return to Prudent Banking Act of 2013, which is prohibited under paragraph (1) shall be terminated as soon as practicable and in any event no later than the end of the 2-year period beginning on such date of enactment. (B)

Early termination

The appropriate Federal banking agency, after opportunity for hearing, may terminate, at any time, the authority conferred by the preceding subparagraph to continue any affiliation subject to such subparagraph until the end of the period referred to in such subparagraph if the agency determines, having due regard for the purposes of this subsection and the Return to Prudent Banking Act of 2013, that such action is necessary to prevent undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices and is in the public interest. (C)

Extension

Subject to a determination under subparagraph (B), an appropriate Federal banking agency may extend the 2-year period referred to in subparagraph (A) from time to time as to any particular insured depository institution for not more than 6 months at a time, if, in the judgment of the agency, such an extension would not be detrimental to the public interest, but no such extensions shall in the aggregate exceed 1 year. (4)

Definitions

For purposes of this subsection— (A)the terms broker and dealer have the same meanings as in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)); and (B)the terms investment adviser and investment company have the same meanings as in section 202 of the Investment Advisers Act of 1940 (15 U.S.C. 80b–2) and section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a–3), respectively. . (b)

Prohibition on banking activities by securities firms clarified

Section 21 of the Banking Act of 1933 (12 U.S.C. 378) is amended by adding at the end the following new subsection: (c)

Business of receiving deposits

For purposes of this section, the term business of receiving deposits includes the establishment and maintenance of any transaction account (as defined in section 19(b)(1)(C) of the Federal Reserve Act). . (c)

Continued applicability of ICI vs. Camp

(1)

In general

The Congress ratifies the interpretation of the paragraph designated the Seventh of section 5136 of the Revised Statutes of the United States (12 U.S.C. 24, as amended by section 16 of the Banking Act of 1933 and subsequent amendments) and section 21 of the Banking Act of 1933 (12 U.S.C. 378) by the Supreme Court of the United States in the case of Investment Company Institute v. Camp (401 U.S. 617 et seq. (1971)) with regard to the permissible activities of banks and securities firms, except to the extent expressly prescribed otherwise by this section. (2)

Applicability of reasoning

The reasoning of the Supreme Court of the United States in the case referred to in paragraph (1) with respect to sections 20 and 32 of the Banking Act of 1933 (as in effect prior to the date of enactment of the Gramm-Leach-Bliley Act) shall continue to apply to subsection (aa) of section 18 of the Federal Deposit Insurance Act (as added by subsection (a) of this section) except to the extent the scope and application of such subsection as enacted exceed the scope and application of such sections 20 and 32. (3)

Limitation on agency interpretation or judicial construction

No appropriate Federal banking agency, as defined in section 3 of the Federal Deposit Insurance Act, by regulation, order, interpretation, or other action, and no court within the United States may construe the paragraph designated the Seventh of section 5136 of the Revised Statutes of the United States (12 U.S.C. 24, as amended by section 16 of the Banking Act of 1933 and subsequent amendments), section 21 of the Banking Act of 1933, or section 18(aa) of the Federal Deposit Insurance Act more narrowly than the reasoning of the Supreme Court of the United States in the case of Investment Company Institute v. Camp (401 U.S. 617 et seq. (1971)) as to the construction and the purposes of such provisions.

3.

Repeal of Gramm-Leach-Bliley Act provisions

(a)

Financial holding company

(1)

In general

Section 4 of the Bank Holding Company Act of 1956 (12 U.S.C. 1843) is amended by striking subsections (k), (l), (m), (n), and (o). (2)

Transition

(A)

Orderly wind-down of existing affiliation

In the case of a bank holding company which, pursuant to the amendments made by paragraph (1), is no longer authorized to control or be affiliated with any entity that was permissible for a financial holding company as of the date of enactment of this Act, any affiliation by the bank holding company which is not permitted for a bank holding company shall be terminated as soon as is practicable, and in no event later than the end of the 2-year period beginning on that date of enactment. (B)

Early termination

The Board of Governors of the Federal Reserve System (in this Act referred to as the Board), after opportunity for hearing, may terminate, at any time, the authority conferred by subparagraph (A) to continue any affiliation subject to such subparagraph until the end of the period referred to in such subparagraph, if the Board determines, having due regard to the purposes of this Act, that such action is necessary to prevent undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices, and is in the public interest. (C)

Extension

Subject to a determination under subparagraph (B), the Board may extend the 2-year period referred to in subparagraph (A) from time to time as to any particular bank holding company for not more than 6 months at a time, if, in the judgment of the Board, such an extension would not be detrimental to the public interest, except that no such extensions shall in the aggregate exceed 1 year. (3)

Technical and conforming amendments

(A)

Bank Holding Company Act of 1956

The Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.) is amended— (i)in section 2 (12 U.S.C. 1841)— (I)by striking subsection (p); and (II)by redesignating subsection (q) as subsection (p); (ii)in section 5 (12 U.S.C. 1844)— (I)in subsection (c)— (aa)in paragraph (2), by striking subparagraph (E); and (bb)by striking paragraphs (3), (4), and (5); and (II)by striking subsection (g); and (iii)by striking section 10A (12 U.S.C. 1848a). (B)

Federal Deposit Insurance Act

The Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amended by striking section 45 (12 U.S.C. 1831v) and inserting the following:

45.

[Repealed]

. (C)

Gramm-Leach-Bliley Act

Sub­ti­tle B of title I of the Gramm-Leach-Bliley Act is amended— (i)by striking section 114 (12 U.S.C. 1828a) and inserting the following:

14.

[Repealed]

; and(ii)by striking section 115 (12 U.S.C. 1820a) and inserting the following:

15.

[Repealed]

. (b)

Financial subsidiaries repealed

(1)

In general

Section 5136A of the Revised Statutes of the United States (12 U.S.C. 24a) is amended to read as follows:

5136A.

[Repealed]

. (2)

Transition

(A)

Orderly wind-down of existing affiliation

In the case of a national bank which, pursuant to the amendments made by paragraph (1), is no longer authorized to control or be affiliated with a financial subsidiary as of the date of enactment of this Act, such affiliation shall be terminated as soon as is practicable, and in no event later than the end of the 2-year period beginning on that date of enactment. (B)

Early termination

The Comptroller of the Currency, after opportunity for hearing, may terminate, at any time, the authority conferred by subparagraph (A) to continue any affiliation subject to such subparagraph until the end of the period referred to in such subparagraph, if the Comptroller determines, having due regard for the purposes of this Act, that such action is necessary to prevent undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices, and is in the public interest. (C)

Extension

Subject to a determination under subparagraph (B), the Comptroller of the Currency may extend the 2-year period referred to in subparagraph (A) from time to time as to any particular national bank for not more than 6 months at a time, if, in the judgment of the Comptroller, such an extension would not be detrimental to the public interest, except that no such extensions shall in the aggregate exceed 1 year. (3)

Technical and conforming amendments

(A)

Federal Reserve Act

The 20th un­des­ig­nat­ed paragraph of section 9 of the Federal Reserve Act (12 U.S.C. 335) is amended by striking the last sentence. (B)

Federal Deposit Insurance Act

The Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amended by striking section 46 (12 U.S.C. 1831w) and inserting the following:

46.

[Repealed]

. (C)

Clerical amendment

The table of sections for chapter one of title LXII of the Revised Statutes of the United States is amended by striking the item relating to section 5136A. (c)

Definition of broker

Section 3(a)(4)(B) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)(B)) is amended— (1)by striking clauses (i), (iii), (v), (vii), (x), and (xi); and (2)by redesignating clauses (ii), (iv), (vi), (viii), and (ix) as clauses (i), (ii), (iii), (iv), and (v), respectively. (d)

Definition of dealer

Section 3(a)(5)(C) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(5)(C)) is amended— (1)by striking clauses (i) and (iii); and (2)by redesignating clauses (ii) and (iv) as clauses (i) and (ii), respectively. (e)

Definition of identified banking product

Section 206(a) of the Gramm-Leach-Bliley Act (15 U.S.C. 78c note) is amended— (1)in paragraph (4), by inserting and after the semicolon at the end; (2)in paragraph (5)(B)(ii), by striking ; or and inserting a period; and (3)by striking paragraph (6) and all that follows through the end of the subsection. (f)

Definition of activities closely related to banking

(1)

In general

Section 4(c)(8) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(c)(8)) is amended by striking the day before the date of the enactment of the Gramm-Leach-Bliley Act and inserting January 1, 1970. (2)

Provision allowing for exceptions after report to Congress

Section 4(j) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(j)) is amended to read as follows: (j)

Approval for certain post-1970 subsection (c)(8) activities

(1)

In general

Notwithstanding the limitation of the January 1, 1970, approval deadline in subsection (c)(8), the Board may determine an activity to be so closely related to banking as to be a proper incident thereto for purposes of such subsection, subject to the requirements of this subsection and such terms and conditions as the Board may require. (2)

General standards

In making any determination under paragraph (1), the Board shall consider whether performance of the activity by a bank holding company or a subsidiary of such company can reasonably be expected to result in a violation of section 18(aa) of the Federal Deposit Insurance Act, section 21 of the Banking Act of 1933, or the spirit of section 2(c) of the Return to Prudent Banking Act of 2013, and other possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices. (3)

Report and wait

No determination of the Board under paragraph (1) may take effect before the end of the 180-day period beginning on the date by which notice of the determination has been submitted to both Houses of the Congress together with a detailed explanation of the activities to which the determination relates and the basis for the determination, unless before the end of such period, such activities have been approved by an Act of Congress. . (g)

Repeal of provision relating to foreign banks filing as financial holding companies

Section 8(c) of the International Banking Act of 1978 (12 U.S.C. 3106(c)) is amended by striking paragraph (3).

4.

Reports to Congress

(a)

Reports required

Each time the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, or another appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act) makes a determination or an extension under subparagraph (B) or (C) of paragraph (2) or (3) of section 18(aa) of the Federal Deposit Insurance Act (as added by section 2(a)) or subparagraph (B) or (C) of subsection (a)(2) or (b)(2) of section 3 of this Act, as the case may be, the Board, Comptroller, or agency shall promptly submit a report of such determination or extension to the Congress. (b)

Contents

Each report submitted to Congress under subsection (a) shall contain a detailed description of the basis for the determination or extension.