[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1062 Introduced in House (IH)]
104th CONGRESS
1st Session
H. R. 1062
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.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
February 27, 1995
Mr. Leach introduced the following bill; which was referred to the
Committee on Banking and Financial Services and, in addition, to the
Committee on Commerce, for a period to be subsequently determined by
the Speaker, in each case for consideration of such provisions as fall
within the jurisdiction of the committee concerned
_______________________________________________________________________
A BILL
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.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Financial Services
Competitiveness Act of 1995''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
TITLE I--BANK SECURITIES ACTIVITIES AND AFFILIATIONS WITH SECURITIES
FIRMS AND OTHER FINANCIAL COMPANIES
Subtitle A--Securities Activities
Sec. 101. Anti-affiliation provision of Glass-Steagall Act repealed.
Sec. 102. Financial services holding companies authorized to have
securities affiliates.
Sec. 103. Establishment and operations of securities affiliates.
Sec. 104. Unitary thrift holding companies.
Sec. 105. Securities company affiliations of FDIC-insured banks.
Sec. 106. Authority to terminate grandfather rights under the
International Banking Act of 1978.
Sec. 107. Effect on State laws prohibiting the affiliation of banks and
securities companies.
Sec. 108. Municipal securities.
Sec. 109. Investment bank holding companies.
Sec. 110. Conforming amendments for investment bank holding companies.
Sec. 111. Effective date.
Subtitle B--Brokers and Dealers
Sec. 120. Definition of broker.
Sec. 121. Definition of dealer.
Sec. 122. Power to exempt from the definitions of broker and dealer.
Sec. 123. Margin requirements.
Sec. 124. Effective date.
Subtitle C--Bank Investment Company Activities
Sec. 130. Custody of investment company assets by affiliated bank.
Sec. 131. Affiliated transactions.
Sec. 132. Borrowing from an affiliated bank.
Sec. 133. Independent directors.
Sec. 134. Additional SEC disclosure authority.
Sec. 135. Definition of broker under the Investment Company Act of
1940.
Sec. 136. Definition of dealer under the Investment Company Act of
1940.
Sec. 137. Removal of the exclusion from the definition of investment
adviser for banks that advise investment
companies.
Sec. 138. Definition of broker under the Investment Advisers Act of
1940.
Sec. 139. Definition of dealer under the Investment Advisers Act of
1940.
Sec. 140. Interagency consultation.
Sec. 141. Treatment of bank common trust funds.
Sec. 142. Investment advisers prohibited from having controlling
interest in registered investment company.
Sec. 143. Purchase of investment company securities as fiduciary.
Sec. 144. Conforming change in definition.
Sec. 145. Effective date.
Subtitle D--Financial Activities
Sec. 150. Financial activities.
Sec. 151. No prior approval required for well capitalized and well
managed financial services holding
companies.
Sec. 152. Conforming amendment to the Bank Holding Company Act.
Sec. 153. Conforming amendment to the Bank Holding Company Act
Amendments of 1970.
Sec. 154. Elimination of duplicative applications.
TITLE I--BANK SECURITIES ACTIVITIES AND AFFILIATIONS WITH SECURITIES
FIRMS AND OTHER FINANCIAL COMPANIES
Subtitle A--Securities Activities
SEC. 101. ANTI-AFFILIATION PROVISION OF GLASS-STEAGALL ACT REPEALED.
(a) Section 20 Repealed.--Section 20 (12 U.S.C. 377) of the Banking
Act of 1933 is repealed.
(b) Conforming Amendment to Section 32.--Section 32 (12 U.S.C. 78)
of the Banking Act of 1933 is amended by adding at the end the
following sentence: ``This section does not prohibit an officer,
director, or employee of a securities affiliate (as defined in section
2 of the Bank Holding Company Act of 1956) from serving at the same
time as an officer, director, or employee of a member bank affiliated
with that securities affiliate under section 10 of the Bank Holding
Company Act of 1956.''.
SEC. 102. FINANCIAL SERVICES HOLDING COMPANIES AUTHORIZED TO HAVE
SECURITIES AFFILIATES.
Section 4(c) of the Bank Holding Company Act of 1956 (12 U.S.C.
1943(c)) is amended--
(1) by striking ``or'' at the end of paragraph (13);
(2) by striking the period at the end of paragraph (14) and
inserting ``; or''; and
(3) by adding after paragraph (14) the following new
paragraph:
``(15) shares of a securities affiliate in accordance with
section 10.''.
SEC. 103. ESTABLISHMENT AND OPERATIONS OF SECURITIES AFFILIATES.
(a) In General.--Section 10 of the Bank Holding Company Act of 1956
(12 U.S.C. 1841 et seq.) is amended to read as follows:
``SEC. 10. SECURITIES ACTIVITIES.
``(a) Activities Permissible for Securities Affiliates.--A
securities affiliate may engage in 1 or more of the following
activities:
``(1) Underwrite, deal in, broker, place, or distribute
securities of any type, provide investment advice regarding
securities of any type, and engage in other securities
activities as determined by the Board.
``(2) Sponsor, organize, control, manage, and act as
investment adviser to an investment company.
``(3) Engage in, or acquire the shares of a company engaged
in any activity if--
``(A) a provision of section 4(c) permits financial
services holding companies generally to engage in that
activity or acquire those shares; and
``(B) either--
``(i) the Board permits the financial
services holding company to engage in that
activity or acquire those shares through the
securities affiliate; or
``(ii) that provision permits the financial
services holding company to engage in that
activity or acquire those shares without the
Board's approval.
``(b) Acquiring Interest in Securities Affiliate.--
``(1) Notice required.--A financial services holding
company shall not, without complying with and receiving
approval pursuant to the notice procedure in section 4(j)(1),
directly or indirectly acquire or retain more than 5 percent of
the voting shares of, or all or substantially all of the assets
of, a securities affiliate (or a company that would be a
securities affiliate if the Board permitted the financial
services holding company to acquire that company).
``(2) Criteria for approval.--The Board shall disapprove a
notice required under paragraph (1) unless the Board determines
that all of the following are satisfied:
``(A) Capital.--
``(i) Insured depository institutions.--
``(I) The lead insured depository
institution of the financial services
holding company is well capitalized.
``(II) Well capitalized insured
depository institutions control at
least 80 percent of the aggregate total
risk-weighted assets of insured depository institutions controlled by
the financial services holding company.
``(III) All insured depository
institutions controlled by the
financial services holding company are
well capitalized or adequately
capitalized.
``(ii) Financial services holding
company.--The financial services holding
company is (and immediately after the
acquisition would continue to be) adequately
capitalized.
``(iii) Foreign banks and companies.--The
Board shall establish and apply comparable
capital standards for the ownership or control
of a securities affiliate in the United States
by a foreign bank (as defined in section 1(b)
of the International Banking Act of 1978),
giving due regard to the principle of national
treatment and equality of competitive
opportunity in the United States.
``(B) Managerial resources.--
``(i) In general.--The financial services
holding company and each of its subsidiary
insured depository institutions--
``(I) are well managed; and
``(II) were well managed during the
preceding 12-month period (but for
purposes of this subparagraph the Board
may disregard any insured depository
institution acquired by the financial
services holding company during that
period).
``(ii) Securities activities.--The
financial services holding company has the
managerial resources to conduct the proposed
securities activities safely and soundly.
``(C) Internal controls.--The financial services
holding company has established adequate policies and
procedures to manage financial and operational risks
and to provide reasonable assurance of compliance with
this section and other applicable laws.
``(D) No detrimental effect on financial services
holding company or its subsidiary insured depository
institutions.--The acquisition would not adversely
affect the safety and soundness of--
``(i) the financial services holding
company; or
``(ii) any insured depository institution
subsidiary of the financial services holding
company.
``(E) Concentration of resources.--The acquisition
would not result in an undue concentration of resources
in the commercial banking and investment banking
business.
``(3) No notice for proposals by well- capitalized and
well-managed companies to acquire additional securities
affiliates.--
``(A) Additional securities affiliates.--A
financial services holding company may, without
providing the notice required under subsection (b),
directly or indirectly acquire the shares or
substantially all of the assets of any company that is
engaged in activities described in subsection (a) (1)
and (2), if--
``(i) the financial services holding
company previously received the Board's
approval under subsection (b) to control a
securities affiliate and continues to control
the securities affiliate pursuant to that
approval; and
``(ii) the acquisition proposal qualifies
under section 4(j)(4), and the financial
services holding company provides the written
notification required in section 4(j)(5).
``(c) Additional Investment in Securities Affiliate.--
``(1) Prior notice required.--A financial services holding
company that has acquired control of a securities affiliate
under this section shall not, directly or indirectly, make any
additional investment in the securities affiliate that is
considered capital for purposes of any capital requirement
imposed on the securities affiliate under the Securities
Exchange Act of 1934 (other than an extension of credit under a
revolving credit agreement approved by the Board), unless the
financial services holding company gives the Board prior
written notice of the proposed investment and--
``(A) the Board issues a written statement of its
intent not to disapprove the notice; or
``(B) the Board does not disapprove the notice
within 30 days after the notice is filed.
``(2) No prior notice required for certain financial
services holding companies.--A financial services holding
company is not required to provide prior notice under paragraph
(1) if after making any investment described in paragraph (1)--
``(A) the financial services holding company would
be adequately capitalized and each of the financial
services holding company's subsidiary insured
depository institutions would be well capitalized; and
``(B) the financial services holding company and
each of its subsidiary insured depository institutions
are well managed (but for purposes of this clause the
Board may disregard any insured depository institution
acquired by the financial services holding company
during the previous 12-month period).
``A financial services holding company that makes an investment
pursuant to this paragraph shall provide written notice to the
Board of the additional investment within 10 days after making
the investment.
``(3) Criteria for disapproving notice.--The Board may
disapprove a notice filed under paragraph (1) if any insured
depository institution affiliate of the securities affiliate is
undercapitalized, or if the Board determines that the financial
services holding company would be undercapitalized after making
the investment or that the investment would otherwise be unsafe
or unsound.
``(4) Emergency approval.--Notwithstanding any provision of
this subsection, in the event of adverse market conditions, or
concerns regarding the financial or operational condition of
the securities affiliate, the Board may approve any additional
investment in the securities affiliate on an emergency basis.
``(d) Provisions Applicable if Affiliated Insured Depository
Institution Ceases To Be Well Capitalized.--
``(1) Certain securities activities restricted unless
affiliated institutions are well capitalized.--
``(A) Applicability.--This paragraph shall apply to
a securities affiliate if--
``(i) the lead insured depository
institution of the financial services holding
company is not well capitalized, or
``(ii) well capitalized insured depository
institutions do not control at least 80 percent
of the assets of insured depository
institutions affiliated with the securities
affiliate.
``(B) In general.--Except as provided in
subparagraph (C), the securities affiliate shall not,
beginning 180 days after subparagraph (A) applies,
agree to underwrite or deal in any securities other
than--
``(i) securities expressly specified by
section 5136 of the Revised Statutes as
permissible for a national bank to underwrite
or deal in;
``(ii) securities backed by or representing
interests in notes, drafts, acceptances, loans,
leases, receivables, other obligations, or
pools of any such obligations; or
``(iii) securities issued by an open-end
investment company registered under the
Investment Company Act of 1940.
``(C) Exception.--The Board may permit the
securities affiliate to underwrite or deal in
securities not described in clauses (i) through (iii)
of subparagraph (B) for a period of 1 year from the
date on which subparagraph (A) applies, if--
``(i) the financial services holding
company submits a capital restoration plan to
the Board specifying the steps the financial
services holding company will take to meet the
requirements of section 10(b)(2)(A), and
containing such other information as the Board
may require; and
``(ii) the Board approves the plan.
``(D) Extension of period.--Upon application by the
financial services holding company, the Board may
extend, for not more than one year at a time, the
period provided in subparagraph (C), but no such
extension under this subparagraph shall in the
aggregate exceed two years.
``(2) Divestiture.--
``(A) In general.--The financial services holding
company shall divest itself of the securities affiliate
if any of the financial services holding company's
subsidiary insured depository institutions has been
undercapitalized for more than 6 months.
``(B) Extending time.--The Board may provide
additional time for divestiture not exceeding 30 months
if--
``(i) the appropriate Federal banking
agency has approved the undercapitalized
institution's capital restoration plan under
section 38(e) of the Federal Deposit Insurance
Act; and
``(ii) the Board determines that the
securities affiliate poses no significant risk
to any affiliated insured depository
institution.
``(e) Securities Affiliate Excluded in Determining Whether
Financial Services Holding Company Is Adequately Capitalized.--
``(1) In general.--In determining whether a financial
services holding company is adequately capitalized--
``(A) the financial services holding company's
capital and total assets shall each be reduced by--
``(i) an amount equal to the amount of the
financial services holding company's equity
investment in any securities affiliate; and
``(ii) an amount equal to the amount of any
extensions of credit by the financial services
holding company to any securities affiliate
that are considered capital for purposes of any
capital requirement imposed on the securities
affiliate under section 15(c)(3) of the
Securities Exchange Act of 1934; and
``(B) the securities affiliate's assets and
liabilities shall not be consolidated with those of the
financial services holding company.
``(2) Exception for nonsecurities activities.--Paragraph
(1) does not apply to the extent that the Board determines by
regulation or order that--
``(A) an item described in that paragraph relates
to activities that are not described in paragraph (1)
or (2) of subsection (a); or
``(B) the calculation in paragraph (1) is not
required or appropriate, or another method of adjusting
capital is more appropriate, to ensure the safety and
soundness of insured depository institutions.
``(f) Safeguards Relating to Securities Affiliates.--
``(1) Extensions of credit and asset purchases
restricted.--
``(A) In general.--No insured depository
institution affiliated with a securities affiliate
shall, directly or indirectly, do any of the following:
``(i) Extend credit in any manner to the
securities affiliate.
``(ii) Issue a guarantee, acceptance, or
letter of credit, including an endorsement or a
standby letter of credit, for the benefit of
the securities affiliate.
``(iii) Purchase for its own account
financial assets of the securities affiliate,
except to the extent permitted by the Board
with respect to purchasing at the current
market value (based on reliable and regularly
available price quotations)--
``(I) securities expressly
specified by section 5136 of the
Revised Statutes as permissible for a
national bank to underwrite or deal in;
or
``(II) securities that--
``(aa) the securities
affiliate has been marking to
market daily; and
``(bb) are rated investment
grade by at least 1 nationally
recognized statistical rating
organization.
``(B) Exception for clearing securities.--
Subparagraph (A)(i) does not prohibit an extension of
credit by a well capitalized insured depository
institution made to acquire or sell securities if--
``(i) the extension of credit is incidental
to clearing transactions in those securities
through that insured depository institution;
``(ii) both the principal of and the
interest on the extension of credit are fully
secured by those securities;
``(iii) either--
``(I) the extension of credit is to
be repaid on the same calendar day; or
``(II) all of the following
conditions are satisfied:
``(aa) the securities
cannot, in the ordinary course
of business, be cleared on that
calendar day;
``(bb) the extension of
credit is to be repaid before
the close of business on the
next calendar day; and
``(cc) extensions of credit
under this subclause, when
aggregated with all other
covered transactions between
the institution and all
affiliated securities
affiliates do not exceed 10
percent of the institution's
capital stock and surplus; and
``(iv) either--
``(I) the securities are securities
expressly specified by section 5136 of
the Revised Statutes as permissible for
a national bank to underwrite or deal
in; or
``(II) to the extent that the Board
permits transactions under this
paragraph in securities not described
in subclause (I), the securities
affiliate provides the insured
depository institution such additional
security or other assurance of
performance, if any, as the Board shall
require to prevent such transactions
from posing any appreciable risk to the
institution.
``(C) Other exceptions.--The Board may make
exceptions to subparagraph (A) for well capitalized
insured depository institutions if--
``(i) the transaction is fully secured in
accordance with section 23A(c) of the Federal
Reserve Act; and
``(ii) the aggregate amount of covered
transactions between the institution and all
securities affiliates of the financial services
holding company, excluding transactions
permitted under subparagraph (A)(iii)(I) or
(B)(iii)(I), does not exceed 10 percent of the
institution's capital stock and surplus.
``(2) Credit enhancement restricted.--
``(A) In general.--No insured depository
institution affiliated with a securities affiliate
shall, directly or indirectly, extend credit, or issue
or enter into a standby letter of credit, asset
purchase agreement, indemnity, guarantee, insurance, or
other facility, for the purpose of enhancing the
marketability of a securities issue underwritten by the
securities affiliate.
``(B) Exceptions.--The Board may make exceptions to
subparagraph (A)--
``(i) for well capitalized insured
depository institutions if--
``(I) the insured depository
institution has adopted appropriate
limits on exposure on a consolidated
basis to any single customer whose
securities are underwritten by the
securities affiliate; and
``(II) the institution and its
securities affiliate have adopted
appropriate procedures, including
maintenance of necessary documentary
records, to assure that any such
extension of credit, standby letter of
credit, asset purchase agreement,
indemnity, guarantee, insurance or
other facility, is on an arm's length
basis. An extension of credit is
considered to be on an arm's length
basis if the terms and conditions are
substantially the same as those
prevailing at the time for comparable
transactions involving securities that
are not underwritten by the securities
affiliate; or
``(ii) for securities expressly specified
by section 5136 of the Revised Statutes as
permissible for a national bank to underwrite
or deal in.
``(3) Prohibition on financing purchase of security being
underwritten.--
``(A) In general.--No financial services holding
company or subsidiary of a financial services holding
company (other than a securities affiliate) shall
knowingly extend or arrange for the extension of
credit, directly or indirectly, secured by or for the
purpose of purchasing any security while, or for 30
days after, that security is the subject of a
distribution in which a securities affiliate of that
financial services holding company participates as an
underwriter or a member of a selling group. For
purposes of this subparagraph, a financial services
holding company or subsidiary may rely on an express
written acknowledgement signed by the borrower that the
credit is not secured by or for the purpose of
purchasing a security described in this subparagraph.
``(B) Exceptions.--The Board may make exceptions to
subparagraph (A)--
``(i) for extensions of credit if the
securities are securities expressly specified
by section 5136 of the Revised Statutes as
permissible for a national bank to underwrite
or deal in;
``(ii) for any other extension of credit,
after consultation with and considering the
views of the Securities and Exchange
Commission, if--
``(I) the financial services
holding company is adequately
capitalized,
``(II) the financial services
holding company's lead insured
depository institution is well
capitalized, and
``(III) well capitalized insured
depository institutions control at
least 80 percent of the assets of
insured depository institutions
controlled by the financial services
holding company and all insured
depository institutions controlled by
the financial services holding company
are well capitalized or adequately
capitalized.
``(C) Consistency with the federal securities
laws.--Nothing in this paragraph shall permit a
securities affiliate to extend or maintain credit or
arrange for an extension of credit except in compliance
with applicable provisions of the Securities Exchange
Act of 1934 and the rules and interpretations
thereunder.
``(4) Restrictions on extending credit to make payments on
securities.--
``(A) In general.--No insured depository
institution affiliated with a securities affiliate
shall, directly or indirectly, extend credit to an
issuer of securities underwritten by the securities
affiliated for the purpose of paying the principal of
those securities or interest or dividends on those
securities. This subparagraph does not apply to an
extension of credit for a documented purpose (other
than paying principal, interest, or dividends) if the
timing, maturity, and other terms of the credit, taken
as a whole, are substantially different from those of
the underwritten securities.
``(B) Exceptions.--The Board may make exceptions to
subparagraph (A) for well capitalized insured
depository institutions if--
``(i)(I) the insured depository institution
has adopted appropriate limits on exposure on a
consolidated basis to any single customer whose
securities are underwritten by the securities
affiliate; and
``(II) the insured depository institution
has adopted appropriate procedures, including
maintenance of necessary documentary records,
to assure that any extension of credit by the
depository institution to an issuer for the
purpose of paying the principal, interest or
dividends on securities underwritten by the
securities affiliate is on an arm's length
basis. An extension of credit is considered to
be on an arm's length basis if the terms and
conditions are substantially the same as those
prevailing at the time for comparable
transactions with issuers whose securities are
not underwritten by the securities affiliate;
or
``(ii) the securities are securities
expressly specified by section 5136 of the
Revised Statutes as permissible for a national
bank to underwrite to deal in.''.
``(5) Director and senior executive officer interlocks
restricted.--
``(A) In general.--No director or senior executive
officer of a securities affiliate shall serve at the
same time as a director or senior executive officer of any affiliated
insured depository institution.
``(B) Exception for small financial services
holding companies.--Notwithstanding subparagraph (A), a
director or senior executive officer of a securities
affiliate may serve at the same time as a director or
senior executive officer of an affiliated insured
depository institution if that institution and all
affiliated insured depository institutions have, in the
aggregate, total assets of not more than $500,000,000.
The dollar limitation in the preceding sentence shall
be adjusted annually after December 31, 1995, by the
annual percentage increase in the Consumer Price Index
for Urban Wage Earners and Clerical Workers published
by the Bureau of Labor Statistics.
``(C) Board's authority to make exceptions.--
``(i) In general.--The Board may, by
regulation or order, make exceptions to
subparagraph (A).
``(ii) Standards.--The Board--
``(I) shall, in determining whether
to make such exceptions, consider the
size of the financial services holding
companies, insured depository
institutions, and securities affiliates
involved, any burdens that may be
imposed by subparagraph (A), the safety
and soundness of the insured depository
institutions and securities affiliates,
and other appropriate factors,
including unfair competition in
securities activities or the improper
exchange of nonpublic customer
information; and
``(II) shall not permit--
``(aa) more than half of
the insured depository
institution's directors to be
directors or senior executive
officers of the securities
affiliate; or
``(bb) more than half of
the securities affiliate's
directors to be directors or
senior executive officers of
the insured depository
institution.
``(D) Senior executive officer defined.--For
purposes of this paragraph, the term `senior executive
officer' has the same meaning as the term `executive
officer' has in section 22(h) of the Federal Reserve
Act.
``(6) Disclosure required by securities affiliate.--At the
time a securities account is opened, a securities affiliate
shall conspicuously disclose in writing to each of its
customers that--
``(A) securities sold, offered, or recommended by
the securities affiliate are not deposits, are not
insured by the Federal Deposit Insurance Corporation,
are not guaranteed by an affiliate insured depository
institution, and are not otherwise an obligation of an
insured depository institution (unless such is the
case);
``(B) the securities affiliate is not an insured
depository institution, and is a corporation separate
from any insured depository institution; and
``(C) the securities affiliate may be underwriting
or dealing in the securities being sold, offered or
recommended, and if so, would have a financial interest
in the transaction.
``(7) Disclosure required by insured depository
institutions.--No insured depository institution shall
knowingly express any opinion on the value of, or the
advisability of purchasing or selling, non-deposit investment
products being underwritten or dealt in by the insured
depository institution or any affiliate thereof unless the
insured depository institution conspicuously discloses in
writing to the customer that--
``(A) the insured depository institution or
affiliate (whichever is applicable) is underwriting or
dealing in the non-deposit investment product and has a
financial interest in the transaction;
``(B) the non-deposit investment products are not
deposits, are not insured by the Federal Deposit
Insurance Corporation, are not guaranteed by the
institution or any other affiliated insured depository
institution, and are not otherwise an obligation of an
insured depository institution (unless such is the
case), and, with regard to any non-deposit investment
product that includes any investment component, are
subject to investment risks including possible loss of
principal invested; and
``(C) an affiliate, if involved, is not an insured
depository institution (unless such is the case), and
is a corporation separate from any insured depository
institution (unless such is the case).
``(8) Improper disclosure of confidential customer
information prohibited--
``(A) In general.--No insured depository
institution subsidiary of a financial services holding
company shall disclose to a securities affiliate of
that financial services holding company, nor shall a
securities affiliate disclose to any affiliated insured
depository institution or subsidiary of such an
institution, any nonpublic customer information
(including an evaluation of the creditworthiness of an
issuer or other customer of that institution or
securities affiliate), unless it is clearly and
conspicuously disclosed that such information may be
communicated among such persons and the customer is
given the opportunity, prior to the time that the
information is initially communicated, to direct that
such information not be communicated among such
persons.
``(B) Definition.--For purposes of subparagraph
(A), the term `nonpublic customer information' does not
include--
``(i) customers' names and addresses
(unless a customer has specified otherwise);
``(ii) information that could be obtained
from unaffiliated credit bureaus or similar
companies in the ordinary course of business;
or
``(iii) information that is customarily
provided to unaffiliated credit bureaus or
similar companies in the ordinary course of
business by--
``(I) insured depository
institutions not affiliated with
securities affiliates; or
``(II) brokers and dealers not
affiliated with insured depository
institutions.
``(9) Underwriting securities representing obligations
originated by affiliate restricted.--A securities affiliate
shall not underwrite securities secured by or representing an
interest in mortgages or other obligations originated or
purchased by an affiliated insured depository institution or
subsidiary of such an institution--
``(A) unless those securities--
``(i) are rated by at least 1 unaffiliated,
nationally recognized statistical rating
organization;
``(ii) are issued or guaranteed by the
Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, or the
Government National Mortgage Association; or
``(iii) represent interests in securities
described in clause (ii); or
``(B) except as permitted by the Board.
``(10) Reciprocal arrangements prohibited.--No financial
services holding company and no subsidiary of a financial
services holding company may enter into any agreement,
understanding, or other arrangement under which--
``(A) one financial services holding company (or
subsidiary of that financial services holding company)
agrees to engage in a transaction with, or in behalf
of, another financial services holding company (or
subsidiary of that financial services holding company),
in exchange for
``(B) the agreement of the second financial
services holding company referred to in subparagraph
(A) (or a subsidiary of that financial services holding
company) to engage in any transaction with, or on
behalf of, the first financial services holding company
referred to in that subparagraph (or any subsidiary of
that financial services holding company), for the
purpose of evading any requirement or restriction of
Federal law on transactions between, or for the benefit
of, affiliates of financial services holding companies.
``(11) Safeguards apply to certain subsidiaries.--Except as
provided in this subsection:
``(A) Securities affiliate.--No subsidiary of a
securities affiliate may do anything that this
subsection prohibits the securities affiliate from
doing.
``(B) Depository institution.--No subsidiary of an
insured depository institution or of a wholesale
financial institution may do anything that this
subsection prohibits the institution from doing.
``(12) Authority to modify and impose additional
safeguards; interpretive authority.--
``(A) In general.--The Board may, by regulation or
order--
``(i) adopt additional limitations,
restrictions or conditions on relationships or
transactions among insured depository
institutions, their affiliates, and their
customers; and
``(ii) make any modification to any
limitation, restriction or condition on
relationships or transactions among insured depository institutions,
their affiliates and their customers imposed under this subsection,
including modifications in addition to those expressly provided for in
this subsection.
``(B) Standards.--The Board may not exercise
authority under subparagraph (A)(i) or subparagraph
(A)(ii) unless the Board finds that such action is
consistent with the purposes of this Act, including the
avoidance of any significant risk to the safety and
soundness of insured depository institutions or the
federal deposit insurance funds, enhancement of the
financial stability of financial services holding
companies, prevention of the subsidization of
securities affiliates by insured depository
institutions, avoidance of conflicts of interest or
other abuses, and application of the principle of
national treatment and equality of competitive
opportunity between securities affiliates owned or
controlled by domestic financial services holding
companies and securities affiliates owned or controlled
by foreign banks operating in the United States.
``(13) Compliance programs required.--
``(A) In general.--Each appropriate Federal banking
agency and the Securities and Exchange Commission shall
establish a program for--
``(i) sharing information concerning
compliance with subtitles A, B, or C of title I
of the Financial Services Competitiveness Act
of 1995 by--
``(I) entities that are brokers,
dealers, investment advisers or
investment companies registered with
the Securities and Exchange Commission
that are affiliated with insured
depository institutions, or are
separately identifiable departments or
divisions of insured depository
institutions registered as investment
advisers; and
``(II) such insured depository
institutions and their affiliates;
``(ii) enforcing compliance with subtitle A
of title I of the Financial Services
Competitiveness Act of 1995 and section 3(a)(4)
and 3(a)(5) of the Securities Exchange Act of
1934 by entities under its supervision; and
``(iii) responding to any complaints from
customers about inappropriate cross-marketing
of securities products or inadequate
disclosure.
(B) Data collection.--
``(i) In general.--The appropriate Federal
banking agencies, after consultation with and
consideration of the views of the Securities
and Exchange Commission, may require any
depository institution that has effected
securities transactions pursuant to any
exception enumerated in sections 3(a)(4)(C) and
3(a)(5) of the Securities Exchange Act of 1934
to identify the exceptions relied upon and to
submit such information necessary to monitor
compliance under sections 3(a)(4)(C) and
3(a)(5) of the Securities Exchange Act of 1934.
``(ii) Commission access.--The appropriate
Federal banking agency shall make any such
information available to the commission upon
request.
``(iii) Compliance.--In implementing the
provisions of this subparagraph, the
appropriate Federal banking agencies shall
ensure that any information requests to insured
depository institutions take into account the
size and activities of the institutions and do
not cause undue reporting burdens.
``(C) Commission's enforcement authority.--Without
limiting in any way the authority of the appropriate
Federal banking agencies under this subsection, the
Securities and Exchange Commission shall have the
authority to enforce the provisions of this subsection
against a securities affiliate to the extent that those
provisions govern the conduct or activities of the
securities affiliate as if they were provisions of the
Securities Exchange Act of 1934.
``(D) Examination reports.--The appropriate Federal
banking agencies shall, to the extent practicable, use
the reports of examination of any broker, dealer,
investment adviser, or investment company made by or on
behalf of the Securities and Exchange Commission and
reports made by or on behalf of a registered securities
association or national securities exchange, and shall
defer to such examinations for compliance with the
federal securities laws.
``(E) Interpretations of the federal securities
laws.--The appropriate Federal banking agencies shall
defer to the Securities and Exchange Commission regarding all
interpretations and enforcement of the Federal securities laws relating
to the application of the Federal securities laws to the activities and
conduct of brokers, dealers, investment advisers, and investment
companies.
``(F) Notice of certain actions.--
``(i) Securities and exchange commission.--
The Securities and Exchange Commission shall
give notice to the appropriate Federal banking
agency upon the entry of an order of
investigation of, or the commencement of any
disciplinary or law enforcement proceedings by
the Commission and a copy of any order entered
by the Commission against--
``(I) any broker, dealer, or
investment adviser that--
``(aa) is registered with
the Securities and Exchange
Commission; and
``(bb) is affiliated with
or is a separately identifiable
department or division of an
insured depository institution;
``(II) any investment company
registered with the Securities and
Exchange Commission that is an
affiliate of or is advised by an
investment adviser affiliated with an
insured depository institution or by a
separately identifiable department or
division of an insured depository
institution that is a registered
investment adviser; or
``(III) any financial services
holding company, insured depository
institution, or subsidiary of such
company or institution, if the proposed
action relates to subtitles A, B, or C
of title I of the Financial Services
Competitiveness Act of 1995.
``(ii) Appropriate federal banking
agencies.--Upon the entry of an order of
investigation of, or the commencement of any
disciplinary or law enforcement proceedings to
enforce the provisions of subtitle A of title I
of the Financial Services Competitiveness Act
of 1995 by an appropriate Federal banking
agency against any broker, dealer, investment
adviser, or investment company that is
registered under the Federal securities laws
and is affiliated with an insured depository
institution, the appropriate Federal banking
agency shall give notice to the Securities and
Exchange Commission of the proposed action.
``(iii) Extension.--The notice required
under clause (i) or (ii) may be provided
promptly after action by the Securities and
Exchange Commission or the appropriate Federal
banking agency, if--
``(I) the Commission determines
that the protection of investors
requires immediate action by the
Commission and prior notice under
clause (i) is not practical under the
circumstances; or
``(II) the appropriate Federal
banking agency determines that concerns
for the safety and soundness of an
insured depository institution or its
affiliate require immediate action by
the agency and prior notice under
clause (ii) is not practical under the
circumstances.
``(G) Coordinated enforcement actions.--The
Securities and Exchange Commission and the appropriate
Federal banking agencies shall, to the extent
practicable, coordinate supervisory actions based on
applicable law where the actions are based on the same
or related events or practices.
``(H) Investment companies not affiliated with an
insured depository institution.--The appropriate
Federal banking agency shall not have authority under
this title or any other provision of law to inspect or
examine any investment company registered under the
Federal securities laws that is not--
``(i) affiliated with an insured depository
institution; or
``(ii) advised by an investment adviser
affiliated with an insured depository
institution or by a separately identifiable
department or division of an insured depository
institution that is a registered investment
adviser.
``(I) Definition.--For purposes of this paragraph,
the term `Federal securities laws' shall mean the
provisions of Federal law governing securities
activities that are within the jurisdiction of the
Securities and Exchange Commission as set forth in the
Securities Act of 1933, the Securities Exchange Act of
1934, the Investment Company Act of 1940, the
Investment Advisers Act of 1940, and the Trust
Indenture Act of 1939.
``(g) Activities Not Permissible for Depository Institutions or
Securities Affiliates.--
``(1) A financial services holding company that acquires
control of a securities affiliate shall not, beginning 1 year
after the date of that acquisition, permit any depository
institution (as defined in section 3 of the Federal Deposit
Insurance Act) of which it has control or any subsidiary of
that institution--
``(A) to engage, directly or indirectly, in the
United States--
``(i) in underwriting securities backed by
or representing interests in notes, drafts,
acceptances, loans, leases, receivables, other
obligations, or pools of any such obligations,
originated or purchased by the institution or
its affiliates;
``(ii) in underwriting or dealing in any
other securities, except securities expressly
specified by section 5136 of the Revised
Statutes as permissible for a national bank to
underwrite or deal in; or
``(iii) in effecting sales as part of a
primary offering to an accredited investor (as
defined in section 2 of the Securities Act of
1933) of securities of an issuer, not involving
a public offering, pursuant to section 3(b),
4(2), or 4(6) of the Securities Act of 1933 and
the rules and regulations issued thereunder; or
``(B) to make an equity investment in any
securities affiliate.
``(2) For purposes of this subsection, the term `depository
institution' shall include any state branch or agency of a
foreign bank, as those terms are defined in section 1(b) of the
International Banking Act of 1978.
``(3) The limitations in paragraph (1)(A) shall not apply
to activities conducted by a subsidiary held pursuant to
section 25 or 25A of the Federal Reserve Act of section
4(c)(13) of this Act.
``(4) Nothing in this section shall permit a securities
affiliate to accept deposits in contravention of section 21 of
the Banking Act of 1933 (12 U.S.C. 378(a)).
``(h) Approval of Securities Activities Under Section 4(c)(8)
Restricted.--The Board shall deny any notice or application by a
financial services holding company under authority of section 4(c)(8)
to engage in, or acquire the shares of a company engaged in,
underwriting or dealing in securities in the United States, except
securities expressly specified by section 5136 of the Revised Statutes
as permissible for a national bank to underwrite or deal in.
``(i) Bankers' Banks.--For purposes of this section, each
shareholder of or participant in a company that controls a depository
institution described in section 5169(b)(1) of the Revised Statutes or
in a similar statute of any State, and each subsidiary of that company.
This subsection shall not apply to a shareholder or participant in that
company (or subsidiary of that shareholder or participant) if the
shareholder or participant and its affiliates do not, in the aggregate,
control more than 5 percent of any class of voting shares of that
company.
``(j) Shares Acquired in Connection With Underwriting and
Investment Banking Activities.--
``(1) In general.--Notwithstanding section 4(a), a
financial services holding company may directly or indirectly
own or control shares of any company engaged in activities not
authorized pursuant to section 4 of this Act if--
``(A) the shares are acquired and held by a
securities affiliate as part of a bona fide
underwriting or investment banking activity and such
shares are held only for such period of time as will
permit the sale thereof on a reasonable basis
consistent with the nature of such activity; and
``(B) during the period such shares are held, the
financial services holding company does not directly or
indirectly participate in the day to day management or
operation of the company.
``(2) Board rules.--The Board may establish rules governing
the acquisition and retention of shares under this subsection,
including limitations governing the circumstances and time
period such shares may be held, in order to assure compliance
with the purposes of this Act, including the protection of
insured depository institutions and the separation of banking
and commerce.
``(k) Definitions.--For purposes of this section:
``(1) Capital stock and surplus.--The term `capital stock
and surplus' has the same meaning as in section 23A of the
Federal Reserve Act.
``(2) Covered transaction.--The term `covered transaction'
has the same meaning as in section 23A of the Federal Reserve
Act.
``(3) Security.--
``(A) In general.--The term `security' has the
meaning given to that term in section 3(a)(10) of the
Securities Exchange Act of 1934.
``(B) Exceptions.--For purposes of this section,
other than subsection (a), the term `security' does not
include any of the following:
``(i) A contract of insurance.
``(ii) A deposit account, savings account,
certificate of deposit, or other deposit
instrument issued by a depository institution.
``(iii) A share account issued by a savings
association if the account is insured by the
Federal Deposit Insurance Corporation.
``(iv) A banker's acceptance.
``(v) A letter of credit issued by a
depository institution.
``(vi) A debit account at a depository
institution arising from a credit card or
similar arrangement.
``(vii) A traditional loan or loan
participation (as determined by the Board).
``(C) Board's authority to exempt traditional
banking products.--The Board may, after consultation
and consideration of the views of the Securities and
Exchange Commission, by regulation exempt from the
definition of `security' a banking product that
national banks have traditionally and customarily
originated or handled (such as mortgage notes) if the
exemption is consistent with the purposes of this
section.
``(D) Definition for limited purpose.--The fact
that a particular instrument is excluded pursuant to
subparagraphs (B) or (C) from the definition of
`security' for purposes of this section shall not be
construed as finding or implying that such instrument
is or is not a `security' for purposes of section
3(a)(10) of the Securities Exchange Act of 1934.''.
(b) Transition Rule for Securities Affiliates Approved Under
Section 4(c)(8).--
(1) In general.--Effective 18 months after the date of
enactment of this Act, no financial services holding company
may engage in, or retain the shares of any company engaged in,
underwriting or dealing in securities based on the approval of
an application under section 4(c)(8) of the Bank Holding
Company Act of 1956--
(A) unless the financial services holding company
has obtained the Board's approval to retain the shares
of that company under section 10; or
(B) except underwriting or dealing in securities
expressly specified by section 5136 of the Revised
Statutes as permissible for a national bank to
underwrite or deal in.
(2) Extending time.--
(A) In general.--The Board may, for good cause
shown, extend the time provided under paragraph (1) for
not more than 18 months.
(B) Pending notices.--If a financial services
holding company has filed a notice under section 10(b)
of the Bank Holding Company Act of 1956 not later than
180 days after the date of enactment of this Act,
paragraph (1) shall not apply with respect to the
company engaged in such underwriting or dealing until
180 days after the Board has acted on the notice.
(c) Conforming Amendments.--
(1) Definitions.--Section 2 of the Bank Holding Company Act
of 1956 (12 U.S.C. 1841) is amended by adding at the end the
following new subsections:
``(n) Securities Affiliate.--The term `securities affiliate' means
any company--
``(1) that is (or is required to be) registered under the
Securities Exchange Act of 1934 as a broker or dealer; and
``(2) the acquisition or retention of the shares or assets
of which the Board has approved under section 10.
``(o) Insured Depository Institution.--The term `insured depository
institution' has the meaning given to that term in section 3 of the
Federal Deposit Insurance Act.
``(p) Lead Insured Depository Institution.--The term `lead insured
depository institution' shall mean the largest insured depository
institution controlled by the financial services holding company, based
on a comparison of the average total assets controlled by each insured
depository institution during the previous 12-month period.
``(q) Appropriate Federal Banking Agency.--The term `appropriate
Federal banking agency' has the same meaning as in section 3(q) of the
Federal Deposit Insurance Act.
``(r) Capital Terms.--
``(1) Insured depository institutions.--With respect to
insured depository institutions, the terms `well-capitalized,'
`adequately capitalized' and `undercapitalized' have the
meaning given those terms in section 38(b) of the Federal
Deposit Insurance Act.
``(2) Financial services holding company.--
``(A) Adequately capitalized.--A financial services
holding company is `adequately capitalized' if it meets
the required minimum level for each relevant capital
measure established by the Board for financial services
holding companies;
``(B) Well capitalized.--A financial services
holding company is `well capitalized' if it meets the
required capital levels for well capitalized financial
services holding companies established by the Board.
``(3) Other capital terms.--The terms `Tier 1' and `risk-
weighted assets' have the meaning given those terms in the
capital guidelines or regulations established by the Board for
financial services holding companies.
``(s) Insured Depository Institution for Certain Sections.--For
purposes of section 2(p), section 4(j)(4), and section 10, the term
`insured depository institution' includes any branch, agency or
commercial lending company operated in the United States by a foreign
bank (as the terms `agency', `branch', `commercial lending company',
and `foreign bank' are defined in section 1 of the International
Banking Act of 1978).
``(t) Well Managed.--A company or depository institution is `well
managed' if--
``(1) at its most recent examination or subsequent review,
the company or institution received--
``(A) one of the highest two composite ratings; and
``(B) at least a satisfactory rating for
management, if such rating is given; or
``(2) in the case of a company or depository institution
that has not received an examination rating, the Board
determines that the managerial resources of the company or
depository institution are satisfactory.''.
(2) Amendment regarding conditional approval of notices.--
Section 4(a)(2) of the Bank Holding Company Act of 1956 (12
U.S.C. 1843(a)(2)) is amended by striking ``paragraph (8)'' and
all that follows through ``issued by the Board under such
paragraph'' and inserting ``section 10, subsection (l) or
subsection (c)(8), subject to all the conditions specified in
those provisions or in any order or regulation issued by the
Board under those provisions''.
(3) Amendment to notice procedures.--Section 4(j) of the
Bank Holding Company Act of 1956 (12 U.S.C. 1843(j)) is
amended--
(A) in paragraph (1)(A) by striking ``subsection
(c)(8) or (a)(2)'' and inserting in its place
``subsection (c)(8), (c)(15), (l), or (a)(2)'';
(B) in paragraph (1)(E) by striking ``subsection
(c)(8) or (a)(2)'' and inserting in its place
``subsection (c)(8), (c)(15), (l), or (a)(2)'';
(C) by redesignating paragraphs (2)(B) and (2)(C)
as paragraphs (2)(C) and (2)(D) respectively, and
inserting a new paragraph (2)(B) as follows:
``(B) Criteria for notices involving securities
affiliates.--In considering any notice that involves
the acquisition of shares of a securities affiliate
pursuant to section 4(c)(15), the Board shall apply the
criteria and safeguards contained in this paragraph and
in section 10.''
(d) Amendment to the Federal Reserve Act.--Section 23B(b)(1)(B) of
the Federal Reserve Act (12 U.S.C. 371c-l(b)(1)(B)) is amended by
inserting ``and for 30 days thereafter'' after ``during the existence
of any underwriting or selling syndicate''.
(e) Exemption From Section 305(b) of the Federal Power Act.--
Section 305(b) of the Federal Power Act (16 U.S.C. 825d(b)) shall not
apply to any person now holding or proposing to hold the position of
officer or director of a public utility and officer or director of a
bank, trust company, banking association, or firm permitted by section
10 of the Bank Holding Company Act of 1956 (as amended by subsection
(a)) to underwrite or participate in the marketing of securities
(including commercial paper) of a public utility, if that bank, trust
company, banking association, or firm does not underwrite or
participate in the marketing of securities of the public utility for
which the person serves or proposes to serve as an officer or director.
(f) Retention of Certain Investments by Securities Companies
Affiliating With Insured Depository Institutions.--Section 4 of the
Bank Holding Company Act (12 U.S.C. 1843) is amended by adding at the
end the following new subsection:
``(k) Ownership of Shares of Certain Companies by Securities
Companies That Become Financial Services Holding Companies.--
``(1) Nonconforming financial companies.--Notwithstanding
subsection (a), a financial services holding company may retain
direct or indirect ownership or control of voting shares of any
company that engages solely in financial activities that the
Board has not authorized under this section (and such other
financial activities that the Board has authorized) if--
``(A) the financial services holding company
acquired the shares of such company or of each company
to which it is a successor more than two years prior to
the date that such financial services holding company
becomes a financial services holding company;
``(B) the aggregate investment by the financial
services holding company in shares of all such
companies does not exceed 10 percent of the total
consolidated capital and surplus of the financial
services holding company on the date that it becomes a
financial services holding company or on the date of
any additional investment by the financial services
holding company in such shares;
``(C) more than 50 percent of the business of the
financial services holding company for each of the two
calendar years prior to the date it becomes a financial
services holding company involved securities activities
described in sections 10(a)(1) and (2), excluding from
such calculation activities (other than securities
activities) in which financial services holding
companies were permitted to engage prior to the
enactment of the Financial Services Competitiveness Act
of 1995; and
``(D) such company continues to engage only in
activities that it conducted on the date that such
financial services holding company becomes a financial
services holding company (or other activities permitted
under subsection (c)(8) or section (10)).
``(2) Nonfinancial companies.--
``(A) In general.--Notwithstanding subsection (a),
a financial services holding company that is described
in paragraph (1)(C) may, for a period of 5 years from
the date that the company becomes a financial services
holding company, retain direct or indirect ownership or
control of voting shares of any company that the
financial services holding company owns or controls on
the date it becomes a financial services holding
company.
``(B) Extension of divestiture period.--The Board
may extend the period described in subparagraph (A) for
an additional period not to exceed 5 years if the Board
determines that such extension is necessary to avert
substantial loss to the financial services holding
company and finds that the financial services holding
company has made good faith efforts to divest such
shares.
``(C) No expansion of nonfinancial companies prior
to divestiture.--Unless such acquisition or activity is
permitted in accordance with section 4(c)--
``(i) no financial services holding company
or company whose shares are owned or controlled
by a financial services holding company
pursuant to this paragraph (2) may acquire any
interest in or assets of any company, and
``(ii) no company whose shares are owned or
controlled by a financial services holding
company pursuant to this paragraph (2) may
engage directly or indirectly in any activity
that the company did not conduct on the day
before the financial services holding company
registered as a financial services holding
company.
``(3) Restrictions on joint marketing.--No insured
depository institution (and no subsidiary of such institution)
shall--
``(A) offer or market, directly or indirectly
through any arrangement, any product or service of any
affiliate whose shares are owned or controlled by the
financial services holding company pursuant to this
subsection or section 10(j), or
``(B) permit any of its products or services to be
offered or marketed, directly or indirectly through any
arrangement, by or through any affiliate whose shares
are owned or controlled by the financial services
holding company pursuant to this subsection or section
10(j),
unless the product or service is permissible for financial
services holding companies to provide under section 10 or
section 4(c)(8).''.
(g) Amendment to the Right to Financial Privacy Act.--Section
1112(e) of the Right to Financial Privacy Act (12 U.S.C. 3412(e)) is
amended as follows--
(1) by deleting ``this chapter'' and inserting in its place
``law''; and
(2) by adding ``, examination reports'' after ``financial
records''.
(h) Exception to Restriction on Asset Growth of Nonbank Banks.--
Section 4(f)(3) of the Bank Holding Company Act of 1956 (12 U.S.C.
1843(f)(3)) is amended--
(1) in subparagraph (B)(iv), by inserting ``except as
provided in subparagraph (D),'' before ``increase its assets'';
and
(2) by adding at the end the following new subparagraph:
``(D) Exception to restriction on asset growth.--
``(i) Qualification for exception.--A bank
controlled by a company described in paragraph
(1) shall not be subject to the limitation
contained in subparagraph (B)(iv) if--
``(I) each insured depository
institution controlled by such company
is and remains well-capitalized; and
``(II) such company engages,
directly or indirectly, only in
activities--
``(aa) permitted pursuant
to subsections 4(c)(8) or (15);
and
``(bb) insurance
activities, subject to the
limitations contained in
subsections (k) (1) and (3) as
if the company were a financial
services holding company; and
``(III) the company has provided at
least 60 days prior written notice to
the Board and, during that period, the
Board has not disapproved the proposal
after applying the standards provided
in subsection (j)(2);
``(ii) Exception from divestiture
requirement.--If any bank controlled by a
company that qualifies under clause (i) ceases
to be well capitalized, the company shall
divest control of such bank it controls in
accordance with paragraph (4) unless--
``(I) within 12 months after the
date that the bank first ceases to be
well capitalized, the capital of the
bank is restored to the well
capitalized level; and
``(II) thereafter the bank remains
well capitalized.''.
(i) Application of Securities Firewalls to Nonbank Banks.--Section
4(f)(3)(B)(ii) of the Bank Holding Company Act of 1956 (12 U.S.C.
1843(f)(3)(B)(ii)) is amended--
(1) in subclause (II), by striking ``or'' as it appears
after the semicolon;
(2) in subclause (III), by inserting ``or'' after the
semicolon; and
(3) by adding at the end the following new subclause:
``(IV) each of the following
criteria are met:
``(aa) the bank is well
capitalized;
``(bb) more than 50 percent
of the consolidated business of
the company described in
paragraph (1) involved
securities activities described
in sections 10(a) (1) and (2)
for the preceding two calendar
years;
``(cc) such products or
services are offered or
marketed only to the extent
permissible for banks and
securities affiliates under
section 10; and
``(dd) the bank and any
affiliate of the bank that is
engaged in securities
activities described in section
10(a) comply with the
safeguards contained in section
10(f) as if that affiliate were
a securities affiliate.''.
SEC. 104. UNITARY THRIFT HOLDING COMPANIES.
Section 10(c)(3) of the Home Owners' Loan Act (12 U.S.C.
1467a(c)(3)) is amended--
(1) by inserting immediately before the first sentence the
following:
``(A) Unitary thrift holding companies.--'';
(2) by redesignating subparagraphs (A) and (B) as clauses
(i) and (ii) and redesignating other provisions of such
subparagraphs accordingly; and
(3) by adding the following new subparagraph (B):
``(B) Status as a unitary thrift holding company.--
The provisions of subparagraph (A) shall only be
applicable to savings and loan holding companies that
controlled savings associations pursuant to
subparagraph (A) as of January 4, 1995 and that
continue to control such savings associations.''.
SEC. 105. SECURITIES COMPANY AFFILIATIONS OF FDIC- INSURED BANKS.
Section 18 of the Federal Deposit Insurance Act (12 U.S.C. 1828) is
amended by adding at the end the following new subsections:
``(s) Securities Affiliations of Banks.--
``(1) In general.--A bank shall not be an affiliate of any
company that, directly or indirectly, acts as an underwriter or
dealer of any security, except--
``(A) as provided in section 10 of the Bank Holding
Company Act of 1956; or
``(B) A company that underwrites or deal only in
securities expressly specified by section 5136 of the
Revised Statutes as permissible for a national bank to
underwrite or deal in.
``(2) Exception.--This subsection does not apply to--
``(A) an insured bank described in subparagraph
(D), (F), or (H) of section 2(c)(2) of the Financial
Services Holding Company Act of 1995;
``(B) a company held pursuant to section 25 or 25A
of the Federal Reserve Act or section 4(c) (13) of the
Financial Services Holding Company Act; or
``(C) to a Federal branch or an insured branch, as
defined in section 3 of the Federal Deposit Insurance
Act.
``(3) Grandfather provision.--This subsection does not
prohibit--
``(A) the continuation of an affiliation that
existed on January 1, 1995; or
``(B) any new affiliation by an insured bank that
has an affiliation that would be prohibited if the
affiliation were not covered by subparagraph (A).
``(4) Definitions.--For purposes of this subsection:
``(A) Affiliate.--The term `affiliate' has the
meaning given to that term in section 2(k) of the Bank
Holding Company Act of 1956.
``(B) Company.--The term `company' has the meaning
given to that term in section 2(b) of the Bank Holding
Company Act of 1956.
``(C) Broker.--The term `broker' has the meaning
given to that term in section 3(a)(4) of the Securities
Exchange Act of 1934.
``(D) Dealer.--The term `dealer' has the meaning
given to that term in section 3(a)(5) of the Securities
Exchange Act of 1934.
``(E) Security.--
``(i) In general.--The term `security' has
the meaning given to that term in section
3(a)(10) of the Securities Exchange Act of
1934.
``(ii) Exceptions.--For purposes of this
subsection, the term `security' does not
include any of the following:
``(I) A contract of insurance.
``(II) A deposit account, savings
account, certificate of deposit, or
other deposit instrument issued by a
depository institution.
``(III) A share account issued by a
savings association if the account is
insured under the Federal Deposit
Insurance Act.
``(IV) A banker's acceptance.
``(V) A letter of Credit issued by
a depository institution.
``(VI) A debit account at a
depository institution arising from a
credit card or similar arrangement.
``(VII) A traditional loan or loan
participation (as determined by the
Board).
``(iii) Federal reserve board's authority
to exempt traditional banking products.--The
Board of Governors of the Federal Reserve
System may, after consultation with and
considering the views of the Securities and
Exchange Commission, by regulation exempt from
the definition of `security' a banking product
that national banks have traditionally and
customarily originated or handled (such as
mortgage notes) if the exemption is consistent
with the purposes of this subsection.
``(iv) Definition for limited purpose.--The
fact that a particular instrument is excluded
pursuant to clauses (ii) or (iii) from the
definition of `security' for purposes of this
subsection shall not be construed as finding or
implying that such instrument is or is not a
`security' for purposes of section 3(a)(10) of
the Securities Exchange Act of 1934.
``(E) Underwriter.--The term `underwriter' has the
meaning given to that term in section 2(11) of the
Securities Act of 1933.
``(t) Broker/Dealer Registration.--An insured bank may not use the
United States mails or any means or instrumentality of interstate
commerce to act as a broker or dealer without registration under the
Securities Exchange Act of 1934, except to the extent permitted under
section 3(a)(4) or 3(a)(5), or unless otherwise exempt pursuant to
rules promulgated by the Securities and Commission.''.
SEC. 106. AUTHORITY TO TERMINATE GRANDFATHER RIGHTS UNDER THE
INTERNATIONAL BANKING ACT OF 1978.
Section 8(c) of the International Banking Act of 1978 (12 U.S.C.
3106(c)) is amended by adding at the end the following new paragraph:
``(3) Parity in conduct of authorized securities
activities.--
``(A) In general.--Notwithstanding any provision of
paragraph (l) or any other provision of law, any
authority conferred under this subsection on any
foreign bank or company with respect to an activity of
an affiliate engaged in securities activities shall
terminate 18 months after the Board determines that
such activity is authorized for financial services
holding companies in the United States, except that--
``(i) the foreign bank or company may
retain the shares of an affiliate engaged in
securities activities if, prior to the
expiration of such 18 month period, the foreign
bank or company has obtained the Board's
approval under section 10 or section 4(c)(8) of
the Bank Holding Company Act to retain such
shares, and
``(ii) the Board, for good cause shown, may
extend the termination period for an additional
period not to exceed 18 months.
``(B) Extension to obtain required approval.--If
the foreign bank or company has filed a notice under
section 10(b) of the Bank Holding Company Act not later
than 180 days after the Board has made a determination
under subparagraph (A), the effective date of any
termination of authority for that foreign bank or
company under subparagraph (A) shall be 24 months after
the Board has acted on the notice.''.
SEC. 107. EFFECT ON STATE LAWS PROHIBITING THE AFFILIATION OF BANKS AND
SECURITIES COMPANIES.
Section 7 of the Bank Holding Company Act of 1956 (12 U.S.C. 1846)
is amended by inserting before the final period the following: ``,
except that no State may prohibit or limit the affiliation of a bank or
financial services holding company with a securities affiliate solely
because the securities affiliate is engaged in activities described in
paragraph (1) or (2) of section 10(a) of this Act.''.
SEC. 108. MUNICIPAL SECURITIES.
At the end of section 5136 of the Revised Statutes (12 U.S.C.
24(Seventh)), add the following new sentences: ``Notwithstanding any
other provision of this paragraph, a national banking association may
deal in, underwrite, and purchase for such association's own account
any obligation of, or obligation guaranteed as to principal or interest
by, a State or of any political subdivision thereof, or any agency or
instrumentality of a State or any political subdivision thereof, if the
association--
``(1) is well capitalized (as defined in section 38(b) of
the Federal Deposit Insurance Act),
``(2) engages in the business of banking,
``(3) has not been affiliated with a securities affiliate
under section 10 of the Bank Holding Company Act of 1956 for
more than 1 year, and
``(4) maintains its main office or any branch in such State
or political subdivision, or within 100 miles of such State or
political subdivision.''.
SEC. 109. INVESTMENT BANK HOLDING COMPANIES.
(a) Definitions.--Section 2 of the Bank Holding Company Act of 1956
(12 U.S.C. 1842) is amended by adding at the end the following new
subsections:
``(r) Wholesale Financial Institution.--The term `wholesale
financial institution' means any institution that is an uninsured state
member bank authorized pursuant to section 9B of the Federal Reserve
Act.
``(s) Investment Bank Holding Company.--The term `investment bank
holding company' means any financial services holding company that
controls or seeks to control--
``(1) a wholesale financial institution, and
``(2) a company engaged in securities activities pursuant
to section 10.''.
(b) Exemption.--Section 4 of the Bank Holding Company Act of 1956
(12 U.S.C. 1843) is amended by adding at the end the following new
subsection:
``(l) Permissible Affiliations for Investment Bank Holding
Companies.--
``(1) Financial activities.--
``(A) Activities authorized.--An investment bank
holding company may directly or indirectly own or
control shares of any company the activities of which
the Board has determined to be financial in nature
(other than activities expressly limited under
subsection (c)(8)), incidental to financial activity,
or any activity in compliance with subparagraph (B).
``(B) Incidental activities.--
``(i) In general.--Notwithstanding
subparagraph (A), the aggregate investment by
an investment bank holding company in shares of
any companies that engage in nonfinancial
activities and financial activities (other than
those otherwise permitted under this section)
shall not exceed 10 percent of the total
consolidated capital and surplus of the
investment bank holding company.
``(ii) Cross marketing restrictions.--A
wholesale financial institution shall not offer
or market products or services of an affiliate
that are part of any nonfinancial activities
conducted pursuant to subparagraph (B) or
permit its products or services to be offered
or marketed in connection with products and
services of an affiliate that are part of any
nonfinancial activities conducted pursuant to
subparagraph (B).
``(iii) Use of common name.--An investment
bank holding company shall not permit a
wholesale financial institution to adopt a name
which is the same as or similar to, or a
variation of, the name or title of an affiliate
engaged in nonfinancial activities pursuant to
subparagraph (B).
``(C) Special rule.--An investment bank holding
company that owns and controls shares of a company
pursuant to subparagraph (B) may not also own or
control shares of a company pursuant to subsection (k).
``(2) Securities activities.--
``(A) Institutions must be well-capitalized.--The
Board shall disapprove a notice under section 10 by an
investment bank holding company to acquire a securities
affiliate if any wholesale financial institution
controlled by the investment bank holding company is
not well capitalized or would not be well capitalized
following the transaction.
``(B) Transactions with affiliates.--
``(i) In general.--A wholesale financial
institution controlled by an investment bank
holding company shall be a `bank' for purposes
of the provisions of sections 23A and 23B of
the Federal Reserve Act.
``(ii) Other restrictions regarding
securities affiliates determined by the
board.--A securities affiliate and a wholesale
financial institution controlled by an
investment bank holding company shall not be
subject to the provisions of section 10(f),
except that the securities affiliate and
wholesale financial institution shall be
subject to paragraphs (12) and (13) of that
section as if the wholesale financial
institution were an insured depository
institution.
``(3) Limitation on affiliation with insured depository
institutions.--An investment bank holding company may not
directly or indirectly own or control--
``(A) any bank, other than a wholesale financial
institution;
``(B) any savings association;
``(C) any institution described in section 2(c)(2);
or
``(D) any institution that accepts--
``(i) initial deposits of $100,000 or less,
other than on an incidental or occasional
basis, or
``(ii) deposits that are insured under the
Federal Deposit Insurance Act.''.
(c) Conforming Amendments.--
(1) Insurance requirement in the bank holding company
act.--Section 3(e) of the Bank Holding Company Act of 1956 (12
U.S.C. 1842(e)) is amended by adding at the end the following:
``This subsection does not apply to a wholesale financial
institution that is controlled by an investment bank holding
company that controls no banks other than wholesale financial
institutions.''
(2) Appropriate federal banking agency.--Section 3(q)(2)(A)
of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)(2)(A))
is amended to read as follows:
``(A) any State member insured bank (except a
District bank) and wholesale financial institution as
authorized pursuant to section 9B of the Federal
Reserve Act,''.
SEC. 110. CONFORMING AMENDMENTS FOR INVESTMENT BANK HOLDING COMPANIES.
(a) Wholesale Financial Institutions.--The Federal Reserve Act (12
U.S.C. 221 et seq.) is amended by inserting after section 9A the
following new section:
``SEC. 9B. WHOLESALE FINANCIAL INSTITUTIONS.
``(a) Application for membership as Wholesale Financial
Institution.--
``(1) Application required.--Any bank incorporated by
special law of any State, or organized under the general laws
of any State, may apply to the Board of Governors of the
Federal Reserve System to subscribe to the stock of the Federal
Reserve bank organized within the district where the applying
bank is located as a wholesale financial institution. Such
application shall be treated as an application under, and shall
be subject to the provisions of, section 9.
``(2) Approval of membership.--No bank may become a
wholesale financial institution unless--
``(A) the Board has approved an application by the
bank, under such rules and regulations and subject to
such conditions and requirements as the Board may
prescribe, to be a wholesale financial institution; and
``(B) in the case of a bank that is insured under
the Federal Deposit Insurance Act, the bank has met all
requirements under that Act for voluntary termination
of deposit insurance.
``(b) General Requirements Applicable to Wholesale Financial
Institutions.--
``(1) Federal reserve act.--Except as otherwise provided in
this section, wholesale financial institutions shall be member
banks and shall be subject to the provisions of this Act that
apply to member banks to the same extent and in the same manner
as State member insured banks, except that a wholesale financial
institution may only terminate membership under this Act with the prior
written approval of the Board and on terms and conditions that the
Board determines are appropriate to carry out the purposes of this Act.
``(2) Prompt corrective action.--A wholesale financial
institution shall be deemed to be an insured depository
institution for purposes of section 38 of the Federal Deposit
Insurance Act except that--
``(A) the relevant capital levels and capital
measures for each capital category shall be the levels
specified by the Board for wholesale financial
institutions in accordance with subsection (c);
``(B) the provisions applicable to well capitalized
insured depository institutions shall be inapplicable
to wholesale financial institutions;
``(C) the provisions authorizing or requiring an
institution to be placed into receivership shall not
apply to a wholesale financial institution, and, in its
place, the Board is authorized or required, as the case
may be, to terminate the wholesale financial
institution's membership in the Federal Reserve System
or, where provided in section 38 of the Federal Deposit
Insurance Act, place the bank into conservatorship and,
in the Board's discretion, terminate the bank's
membership; and
``(D) for purposes of applying the provisions of
section 38 of the Federal Deposit Insurance Act to
wholesale financial institutions, all references to the
appropriate Federal banking agency or to the
Corporation in that section shall be deemed to be
references to the Board.
``(3) Enforcement authority.--Sections 7 (j) and (k),
subsections (b) through (n), (s), (u), and (v) of section 8,
and section 19 of the Federal Deposit Insurance Act shall apply
to a wholesale financial institution in the same manner and to
the same extent as they apply to State member insured banks and
any reference in such sections to an insured depository
institution shall also be deemed to be a reference to a
wholesale financial institution.
``(4) Certain other statutes applicable.--A wholesale
financial institution shall be deemed to be a banking
institution and the Board shall be the appropriate Federal
banking agency for such bank and all of its affiliates for
purposes of the International Lending Supervision Act.
``(5) Bank merger act.--A wholesale financial institution
shall be subject to the provisions of the Bank Merger Act in
the same manner as if the wholesale financial institution were
a State member insured bank for purposes of that Act.
``(c) Specific Requirements Applicable To Wholesale Financial
Institutions.--
``(1) Limitations on deposits.--
``(A) Minimum amount.--Pursuant to regulations of
the Board, no wholesale financial institution shall
receive initial deposits of $100,000 or less, other
than on an incidental and occasional basis and where
such deposits in no event represent more than 5 percent
of the institution's total deposits.
``(B) No deposit insurance.--No deposits held by a
wholesale financial institution shall be insured
deposits under the Federal Deposit Insurance Act.
``(C) Advertising and disclosure.--The Board shall
prescribe regulations pertaining to advertising and
disclosure by wholesale financial institutions to
ensure that each depositor is notified that deposits at
the wholesale financial institution are not federally
insured or otherwise guaranteed by the United States
Government.
``(2) Special capital requirements applicable to wholesale
financial institutions.--
``(A) Minimum capital levels.--
``(i) In general.--The Board shall, by
regulation, adopt capital requirements for
wholesale financial institutions--
``(I) to account for the status of
wholesale financial institutions as
institutions that accept deposits that
are not insured under the Federal
Deposit Insurance Act; and
``(II) to provide for the safe and
sound operation of the wholesale
financial institution without undue
risk to creditors or other persons,
including Federal Reserve banks,
engaged in transactions with the bank.
``(ii) Minimum leverage ratio.--The minimum
leverage ratio of tier one capital to total
assets of wholesale financial institutions
shall be not less than the level required for a
State member insured bank to be well
capitalized.
``(B) Capital categories for prompt corrective
action.--For purposes of applying the provisions of
section 38 of Federal Deposit Insurance Act, the Board
shall, by regulation, establish, for each relevant
capital measure specified by the Board under
subparagraph (A), the levels at which a wholesale
financial institution is adequately capitalized,
undercapitalized, significantly undercapitalized, and
critically undercapitalized.
``(3) Additional requirements applicable to wholesale
financial institutions.--In addition to any requirements
otherwise applicable to State member banks or otherwise
applicable under this section, the Board may prescribe, by rule
or order, for wholesale financial institutions--
``(A) limitations on transactions with affiliates
to prevent an affiliate from gaining access to, or the
benefits of, credit from a Federal Reserve bank,
including overdrafts at a Federal Reserve bank;
``(B) special clearing balance requirements; and
``(C) any additional requirements that the Board
determines to be appropriate or necessary to--
``(i) promote the safety and soundness of
the wholesale financial institution, or
``(ii) protect creditors and other persons,
including Federal Reserve banks, engaged in
transactions with the wholesale financial
institution.
``(4) Exemptions for wholesale financial institutions.--The
Board may, by rule or order, exempt any wholesale financial
institution from any provision applicable to a State member
bank that is not a wholesale financial institution, provided
that the Board finds that such exemption is not inconsistent
with--
``(A) the promotion of the safety and soundness of
the wholesale financial institution; and
``(B) the protection of creditors and other
persons, including Federal Reserve banks, engaged in
transactions with the wholesale financial institution.
``(5) No effect on other provisions.--This section shall
not be construed to limit the Board's authority over member
banks under any other provision of law, or to create any
obligation for any Federal Reserve bank to make, increase,
renew, or extend any advances or discount under this Act to any
member bank or other depository institution.
``(d) Conservatorship Authority.--The Board is authorized to
appoint a conservator to take possession and control of a wholesale
financial institution to the same extent and in the same manner as the
Comptroller of the Currency is authorized to appoint a conservator for
a national bank under section 203 of the Bank Conservation Act.
``(e) Definitions.--For purposes of this section--
``(1) the term `wholesale financial institution' means a
bank whose application to become an uninsured State member bank
has been approved by the Board of Governors of the Federal
Reserve System under this section;
``(2) the term `deposit' has the meaning given to such term
by the Board under the Federal Reserve Act; and
``(3) the term `State member insured bank' means a State
member bank, the deposits of which are insured under the
Federal Deposit Insurance Act.
``(f) Exclusive Jurisdiction.--Section 43 (c) and (e) of the
Federal Deposit Insurance Act (12 U.S.C. 1831t) shall not apply to
wholesale financial institutions.''.
(b) Voluntary Termination of Insured Status by Certain
Institutions.--
(1) Section 8 designations.--Section 8 of the Federal
Deposit Insurance Act (12 U.S.C. 1818) is amended--
(A) in the section heading, by inserting
``involuntary'' after ``sec. 8''; and
(B) in subsection (a)--
(i) by striking paragraph (1); and
(ii) by redesignating paragraphs (2)
through (9) as paragraphs (1) through (8),
respectively.
(2) Voluntary termination of insured status.--The Federal
Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amended by
inserting after section 8 the following new section:
``SEC. 8A. VOLUNTARY TERMINATION OF STATUS AS INSURED DEPOSITORY
INSTITUTION.
``(a) In General.--Except as provided in subsection (b), an insured
State-chartered bank or a national bank may voluntarily terminate its
status as an insured depository institution in accordance with
regulations of the Corporation if--
``(1) such institution provides written notice of its
intent to terminate its insured status--
``(A) to the Corporation and to the Board of
Governors of the Federal Reserve System, not less than
6 months before the effective date of such termination;
and
``(B) to its depositors, not less than 6 months
before the effective date of such termination; and
``(2) either--
``(A) the deposit insurance fund of which such bank
is a member equals or exceeds the fund's designated
reserve ratio as set forth in section 7(b)(2)(A)(iv) of
the Federal Deposit Insurance Act (12 U.S.C.
1817(b)(2)(A)(iv)) as of the date the bank provides a
written notice of its intent to terminate its insured
status and the Corporation determines that the fund
will equal or exceed its designated reserve ratio for
the two semiannual assessment periods immediately
following such date; or
``(B) the Corporation and the Board of Governors of
the Federal Reserve System approve termination of the
bank's insured status and such bank pays the exit fee
prescribed by paragraph (e) of this section.
``(b) Exception.--The option to terminate insured status under
subsection (a) shall not be available to--
``(1) an insured savings association;
``(2) an insured branch that is required to be insured
under subsection (a) or (b) of section 6 of the International
Banking Act of 1978; or
``(3) any institution described in section 2(c)(2) of the
Bank Holding Company Act of 1956.
``(c) Eligibility for Insurance Terminated.--A depository
institution that voluntarily elects to terminate its insured status
under subsection (a) shall not receive insurance of any of its deposits
or any other assistance authorized under this Act after the period
specified in subsection (f)(1).
``(d) Institution Must Become Wholesale Financial Institution or
Terminate Deposit-Taking Activities.--Any institution that voluntarily
terminates its status as an insured depository institution under this
section may not, upon termination of insurance, accept any deposits
unless the institution is a wholesale financial institution under
section 9B of the Federal Reserve Act.
``(e) Exit Fees.--
``(1) In general.--Any institution that voluntarily
terminates its status as an insured depository institution
under this section shall pay an exit fee in an amount that the
Corporation determines is sufficient to account for the
institution's pro rata share of the amount (if any) which would
be required to restore the relevant deposit insurance fund to
the fund's designated reserve ratio as set forth in section
7(b)(2)(A)(iv) of the Federal Deposit Insurance Act as of the
date the bank provides a written notice of its intent to
terminate its insured status.
``(2) Procedures.--The Corporation shall prescribe, by
regulation, procedures for assessing any exit fee under this
subsection.
``(f) Temporary Insurance of Deposits Insured as of Termination.--
``(1) Transition period.--The insured deposits of each
depositor in a State-chartered bank or a national bank on the
effective date of the voluntary termination of the
institution's insured status, less all subsequent withdrawals
from any deposits of such depositor, shall continue to be
insured for a period of not less than 6 months nor more than 2
years, within the discretion of the Corporation. During such
period, no additions to any such deposits, and no new deposits
in the depository institution made after the effective date of
such termination shall be insured by the Corporation.
``(2) Temporary assessments; obligations and duties.--
During the period specified in paragraph (1), a depository
institution shall continue to pay assessments required under
this Act as if it were an insured depository institution. Such
depository institution shall, in all other respects, be subject
to the authority of the Corporation and the duties and
obligations of an insured depository institution during such
period as provided in this Act, and in the event that the
depository institution is closed due to an inability to meet
the demands of its depositors during such period, the
Corporation shall have the same powers and rights with respect
to such depository institution as in the case of an insured
depository institution.
``(g) Advertisements.--
``(1) In general.--A depository institution that
voluntarily terminates its insured status under this section
shall not advertise or hold itself out as having insured
deposits, except that it may advertise the temporary insurance
of deposits under subsection (f) if, in connection with any
such advertisement, it shall also state with equal prominence
that additions to deposits and new deposits made after the
effective date of the termination are not insured.
``(2) Certificates of deposit, obligations, and
securities.--Any certificate of deposit or other obligation or
security issued by a State-chartered bank or a national bank
after the effective date of the voluntary termination of its
insured status under this section shall be accompanied by a
conspicuous, prominently displayed notice that such certificate
of deposit or other obligation or security is not insured under
this Act.
``(h) Notice Requirements.--
``(1) Notice to the corporation.--The notice to the
Corporation of an institution's intent to terminate its insured
status required under subsection (a) shall be in such form as
the Corporation may require.
``(2) Notice to depositors.--The notice to depositors of an
institution's intent to terminate its insured status required
under subsection (a) shall be--
``(A) at such depositor's last address of record
with the institution; and
``(B) in such manner and form as the Corporation
finds to be necessary and appropriate for the
protection of depositors.''.
SEC. 111. EFFECTIVE DATE.
The amendments made by this subtitle shall become effective 90 days
after the date of enactment of this Act.
Subtitle B--Brokers and Dealers
SEC. 120. DEFINITION OF BROKER.
Section 3(a)(4) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(4)) is amended to read as follows:
``(4) `Broker'.--
``(A) In general.--The term `broker' means any
person engaged in the business of effecting
transactions in securities for the account of others.
``(B) Exclusion of banks.--The term `broker' does
not include a bank unless such bank publicly solicits
the business of effecting securities transactions for
the account of others or is compensated for such
business by the payment of commissions or similar
remuneration based on effecting transactions in
securities (other than fees calculated as a percentage
of assets under management) in excess of the bank's
incremental costs directly attributable to effecting
such transactions (hereafter referred to as `incentive
compensation').
``(C) Exemption for certain bank activities.--A
bank shall not be deemed to be a `broker' because it
engages in any of the following activities:
``(i) Third party brokerage arrangements.--
The bank enters into a contractual or other
arrangement with a broker or dealer registered
under this title under which the broker or
dealer offers brokerage services on or off the
premises of the bank if--
``(I) such broker or dealer is
clearly identified as the person
performing the brokerage services;
``(II) such broker or dealer
performs brokerage services in an area
that is clearly marked and physically
separate from the retail deposit-taking
activities of the bank;
``(III) any materials used to
advertise or promote the availability
of brokerage services under the
contractual or other arrangement are
approved by the broker or dealer for
compliance with the Federal securities
laws prior to distribution and are
deemed to be the materials of the
broker or dealer;
``(IV) bank employees perform only
clerical or ministerial functions in
connection with brokerage transactions,
unless such employees are associated
persons of a broker or dealer and are
qualified pursuant to the requirements
of a self-regulatory organization;
``(V) bank employees do not receive
incentive compensation for any
brokerage activities unless such
employees are associated persons of a
broker or dealer and are qualified
pursuant to the requirements of a self-
regulatory organization;
``(VI) such services are provided
by the broker or dealer on a basis in
which all customers that receive such
services are fully disclosed to that
broker or dealer; and
``(VII) the broker or dealer
informs each customer that the
brokerage services are provided by the
broker or dealer and not by the bank
and that the securities are not
guaranteed by the bank, the Federal
Deposit Insurance Corporation, or any
other Federal or State deposit
guarantee fund relating to banks.
``(ii) Trust activities.--The bank engages
in trust activities (including effecting
transactions in the course of such trust
activities) permissible for national banks
under the first section of the Act of September
28, 1962 or for State banks under relevant
State trust statutes or law (including
securities safekeeping, self-directed
individual retirement accounts, or managed
agency accounts or other functionally
equivalent accounts of a bank) unless the
bank--
``(I) publicly solicits brokerage
business, other than by advertising
that it effects transactions in
securities in conjunction with
advertising its other trust activities;
or
``(II) receives incentive
compensation for such brokerage
activities.
``(iii) Permissible securities
transactions.--The bank effects transactions in
exempted securities, other than municipal
securities, or in commercial paper, bankers
acceptances, commercial bills, qualified
Canadian Government obligations as defined in
section 5136 of the Revised Statutes,
obligations of the Washington Metropolitan Area
Transit Authority which are guaranteed by the
Secretary of Transportation under section 9 of
the National Capital Transportation Act of
1969, obligations of the North American
Development Bank, and obligations of any local
public agency (as defined in section 110(h) of
the Housing Act of 1949) or any public housing
agency (as defined in the United States Housing
Act of 1937) that are expressly specified by
section 5136 of the Revised Statutes as
permissible for a national bank to underwrite
or deal in.
``(iv) Municipal securities.--The bank
effects transactions in municipal securities,
and has not been affiliated with a securities
affiliate under section 10 of the Financial
Services Holding Company Act of 1995 for more
than 1 year.
``(v) Employee and shareholder benefit
plans.--The bank effects transactions as part
of any bonus, profit-sharing, pension,
retirement, thrift, savings, incentive, stock
purchase, stock ownership, stock appreciation,
stock option, dividend reinvestment, or similar
plan for employees or shareholders of an issuer
or its subsidiaries.
``(vi) Sweep accounts.--The bank effects
transactions as part of a program for the
investment or reinvestment of bank deposit
funds into any no-load, open-end management
investment company registered under the
Investment Company Act of 1940 that holds
itself out as a money market fund.
``(vii) Affiliate transactions.--The bank
effects transactions for the account of any
affiliate of the bank, as defined in section 2
of the Financial Services Holding Company Act
of 1995.
``(viii) Private securities offerings.--The
bank--
``(I) effects sales as part of a
primary offering of securities by an
issuer, not involving a public
offering, pursuant to section 3(b),
4(2), or 4(6) of the Securities Act of
1933 and the rules and regulations
issued thereunder, other than
securities backed by or representing an
interest in obligations originated or
purchased by the bank, its affiliates,
or its subsidiaries unless those
securities are described in section
3(a)(5)(B)(ii)(IV) (aa) or (bb);
``(II) effects such sales
exclusively to an accredited investor,
as defined in section 3 of the
Securities Act of 1933; and
``(III) if affiliated with a
securities affiliate, as provided under
section 10 of the Financial Services
Holding Company Act of 1995, has not
been so affiliated for more than 1
year.
``(ix) De minimis exemption.--If the bank
does not have a subsidiary or affiliate
registered as a broker or dealer under section
15, the bank effects, other than in transactions referenced in clauses
(i) through (viii), not more than--
``(I) 800 transactions in any
calendar year in securities for which a
ready market exists, and
``(II) 200 other transactions in
securities in any calendar year.
``(x) Safekeeping and custody services.--
The bank acts as an intermediary in the
safekeeping of securities or the provision of
custody services in respect of securities,
including the exercise of warrants or other
rights.
``(ix) Clearance and settlement.--The bank
acts as an intermediary in the clearance and
settlement of transactions in securities.
``(xii) Securities lending.--The bank acts
as an intermediary in the lending and borrowing
of securities or in the investment of cash
collateral pledged in connection with any
securities borrowing.
``(xiii) Collateral agency services.--The
bank acts as an intermediary in the pledging,
sale subject to a resale agreement of
securities.
``(D) Exemption for entities subject to section
15(e).--The term `broker' does not include a bank that
is subject to--
``(i) section 15(e); and
``(ii) such restrictions and requirements
as the Commission deems appropriate.''.
SEC. 121. DEFINITION OF DEALER.
Section 3(a)(5) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(5)) is amended to read as follows:
``(5) `Dealer'.--
``(A) In general.--The term `dealer' means any
person engaged in the business of buying and selling
securities for his own account through a broker or
otherwise.
``(B) Exceptions.--Such term does not include--
``(i) a person that buys or sells
securities for his or her own account, either
individually or in a fiduciary capacity, but
not as a part of a regular business; or
``(ii) a bank, to the extent that the
bank--
``(I) buys and sells commercial
paper, bankers acceptances, exempted
securities (other than municipal
securities), qualified Canadian
Government obligations as defined in
section 5136 of the Revised Statues,
obligations of the Washington
Metropolitan Area Transit Authority
which are guaranteed by the Secretary
of Transportation under section 9 of
the National Capital Transportation Act
of 1969, obligations of the North
American Development Bank, and
obligations of any local public agency
(as defined in section 110(h) of the
Housing Act of 1949) or any public
housing agency (as defined in the
United States Housing Act of 1937) that
are expressly specified by section 5136
of the Revised Statutes as permissible
for a national bank to underwrite or
deal in;
``(II) buys and sells municipal
securities and has not been affiliated
with a securities affiliate, as
provided under section 10 of the
Financial Services Holding Company Act
of 1995 for more than 1 year;
``(III) buys and sells securities
for investment purposes for the bank or
for accounts for which the bank acts as
a trustee or fiduciary; or
``(IV) has not been affiliated with
a securities affiliate under section 10
of the Financial Services Holding
Company Act of 1995 for more than 1
year and engages in the issuance or
sale through a grantor trust or
otherwise of--
``(aa) securities backed by
or representing an interest in
1-4 family residential
mortgages originated or
purchased by the bank, its
affiliates, or its
subsidiaries; or
``(bb) securities backed by
or representing an interest in
consumer receivables or
consumer leases originated or
purchased by the bank, its
affiliates, or its
subsidiaries.''.
SEC. 122. POWER TO EXEMPT FROM THE DEFINITIONS OF BROKER AND DEALER.
Section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)
is amended by adding at the end the following:
``(e) Exemption From Definition of Broker or Dealer.--The
Commission, by regulation or order, upon its own motion or upon
application, may conditionally or unconditionally exclude any person or
class of persons from the definitions of `broker' or `dealer', if the
Commission finds that such exclusion is consistent with the public
interest, the protection of investors, and the purposes of this
title.''.
SEC. 123. MARGIN REQUIREMENTS.
(a) Section 7(d) of the Securities Exchange Act of 1934 (15 U.S.C.
15g(d)) is amended by--
(1) deleting the word ``or'' after clause (D);
(2) redesignating clause (E) as clause (F); and
(3) inserting a new clause (E) as follows:
``(E) to a loan to a broker or dealer by a member
bank or any other person that has entered into an
agreement pursuant to section 8(a) hereof if the
proceeds of the loan are to be used in the ordinary
course of the broker's or dealer's business other than
for the purpose of funding the purchase of securities
for the account of such broker or dealer, or''.
(b) Section 8(a) of the Securities and Exchange Act of 1934 is
amended:
(1) by deleting the phrase ``nonmember bank'' in clause (2)
and replacing it with the phrase ``person other than a member
bank''; and
(2) by deleting the phrase ``such bank'' in the second
sentence and replacing it with the phrase ``such person''.
SEC. 124. EFFECTIVE DATE.
This subtitle shall become effective 270 days after the date of
enactment of this Act.
Subtitle C--Bank Investment Company Activities
SEC. 130. CUSTODY OF INVESTMENT COMPANY ASSETS BY AFFILIATED BANK.
(a) Management Companies.--Section 17(f) of the Investment Company
Act of 1940 (15 U.S.C. 80a-17(f)) is amended--
(1) by redesignating paragraphs (1), (2), and (3) as
subparagraphs (A), (B), and (C), respectively;
(2) by designating the five sentences of such subsection as
paragraphs (1) through (5), respectively, and by indenting
those paragraphs appropriately; and
(3) by adding at the end the following new paragraph:
``(6) Notwithstanding paragraph (l)(A), if a bank described
in paragraph (1) or an affiliated person of such bank is an
affiliated person, promoter, organizer, or sponsor of, or
principal underwriter for the registered company, such bank may
serve as custodian under this subsection in accordance with
such rules, regulations, or orders as the Commission may
prescribe, consistent with the protection of investors, after
consulting in writing with the appropriate Federal banking
agency, as defined in section 3 of Federal Deposit Insurance
Act.''.
(b) Unit Investment Trusts.--Section 26(a)(l) of the Investment
Company Act of 1940 (15 U.S.C. 80a-26(a)(l)) is amended by inserting
after ``bank'' the following: ``not affiliated with such underwriter or
depositor, or if such bank is so affiliated, only in accordance with
such regulations or orders as the Commission may prescribe, consistent
with the protection of investors, after consulting in writing with the
appropriate Federal banking agency, as defined in section 3 of the
Federal Deposit Insurance Act''.
(c) Fiduciary Duty of Custodian.--Section 36(a) of the Investment
Company Act of 1940 (15 U.S.C. 80a-35(a)) is amended--
(1) in paragraph (1), by striking ``or'' at the end;
(2) in paragraph (2), by striking the period at the end and
inserting ``; or''; and
(3) by inserting after paragraph (2) the following:
``(3) as custodian.''.
SEC. 131. AFFILIATED TRANSACTIONS.
(a) Indebtedness to Affiliated Person.--Section 10(f) of the
Investment Company Act of 1940 (15 U.S.C. 80a-10(f) is amended in the
first sentence--
(1) by inserting ``(1)'' before ``a principal
underwriter''; and
(2) by inserting before the period ``, or (2) the proceeds
of which will be used to retire an indebtedness owed to an
affiliated person of such registered company''.
(b) Affiliated Person of Investment Company.--Section 10(f) of the
Investment Company Act of 1940 is amended by adding at the end the
following: ``For purposes of this subsection, a person that is under
common control with an investment adviser shall be deemed to be an
affiliated person of the registered investment company advised by such
investment adviser.''.
SEC. 132. BORROWING FROM AN AFFILIATED BANK.
Section 18(f) of the Investment Company Act of 1940 (15 U.S.C. 80a-
18(f)) is amended by adding at the end the following:
``(3) Notwithstanding the provisions of paragraph (1), it shall be
unlawful for any registered investment company to borrow from any bank
if such bank or any affiliated person thereof is an affiliated person,
promotor, organizer, or sponsor of, or principal underwriter for, such
company, except that the Commission may, by rule, regulation, or order,
permit such borrowing that the Commission finds to be in the public
interest and consistent with the protection of investors.''.
SEC. 133. INDEPENDENT DIRECTORS.
(a) Interested Person.--Section 2(a)(19)(A)(v) of the Investment
Company Act of 1940 (15 U.S.C. 80a-2(a)(19)(A)(v)) is amended by
striking ``1934 or any affiliated person of such a broker or dealer,
and'' and inserting ``1934 or any person that, at any time during the
preceding 6 months, has acted as custodian or transfer agent or has
executed any portfolio transactions for, engaged in any principal
transactions with, or loaned money to, the investment company, or any
other investment company having the same investment adviser, principal
underwriter, sponsor, or promoter, or any affiliated person of such a
broker, dealer, or person, and''.
(b) Affiliation of Directors.--Section 10(c) of the Investment
Company Act of 1940 (15 U.S.C. 80a-10(c)) is amended by striking
``bank, except'' and inserting ``bank (and its subsidiaries) or any
single financial services holding company (and its affiliates and
subsidiaries), as those terms are defined in the Financial Services
Holding Company Act of 1995, except''.
(c) Effective Date.--The provisions of subsection (a) of this
section shall become effective 1 year after the date of enactment of
this subtitle.
SEC. 134. ADDITIONAL SEC DISCLOSURE AUTHORITY.
(a) Misrepresentation.--Section 35(a) of the Investment Company Act
of 1940 (15 U.S.C. 80a-34(a)) is amended to read as follows:
``SEC. 35. MISREPRESENTATIONS.
``(a) Misrepresentation of Guarantees.--
``(1) In general.--It shall be unlawful for any person, in
issuing or selling any security of which a registered company
is the issuer, to represent or imply in any manner whatsoever
that such security or company--
``(A) has been guaranteed, sponsored, recommended,
or approved by the United States, or any agency,
instrumentality or officer thereof,
``(B) has been insured by the Federal Deposit
Insurance Corporation; or
``(C) is guaranteed by or is otherwise an
obligation of any bank or insured institution.
``(2) Disclosures.--The Commission shall require the person
issuing or selling the securities of a registered investment
company to prominently disclose, in writing or orally, as
appropriate, that the investment company or any security issued
by it is not insured by the Federal Deposit Insurance
Corporation and is not guaranteed by an affiliated depository
institution, and is not otherwise an obligation of such a bank
or insured institution, in any case where--
``(A) a financial services holding company, bank,
or separately identifiable division or department of a
bank, or any affiliate or subsidiary thereof is an
investment adviser, organizer, sponsor, promoter,
principal underwriter, or an affiliated person of the
investment company; or
``(B) a bank or an affiliated person of a bank is
offering or selling securities of the investment
company.
``The requirement of any disclosures referred to above shall be
subject to regulations adopted by the Commission, after
consultation with the appropriate Federal banking agencies (as defined
in section 3 of the Federal Deposit Insurance Act).''.
(b) Deceptive Use of Names.--Section 35(d) of the Investment
Company Act of 1940 (15 U.S.C. 80a-34(d)) is amended by inserting after
the first sentence the following: ``It shall be deceptive and
misleading for any registered investment company which has an insured
depository institution (as defined in section 3 of the Federal Deposit
Insurance Act) or any affiliated person thereof as an affiliated
person, promoter, or principal underwriter, to adopt, as part of the
name or title of such company, or of any security of which it is the
issuer, any word which is the same as or similar to, or a variation of,
the name or title of such insured depository institution or affiliate
thereof. The Commission, by rules or regulations upon its own motion or
by order upon application, may conditionally or unconditionally exempt
an investment company from the preceding sentence if the Commission
finds that such exemption is consistent with the public interest, the
protection of investors, and the purposes of this title.''.
SEC. 135. DEFINITION OF BROKER UNDER THE INVESTMENT COMPANY ACT OF
1940.
Section 2(a)(6) of the Investment Company Act of 1940 (15 U.S.C.
80a-2(a)(6)) is amended to read as follows:
``(6) `Broker' has the same meaning as in the Securities
Exchange Act of 1934, except that it does not include any
person solely by reason of the fact that such person is an
underwriter for 1 or more investment companies.''.
SEC. 136. DEFINITION OF DEALER UNDER THE INVESTMENT COMPANY ACT OF
1940.
Section 2(a)(11) of the Investment Company Act of 1940 (15 U.S.C.
80a-2(a)(11)) is amended to read as follows:
``(11) `Dealer' has the same meaning as in the Securities
Exchange Act of 1934, but does not include an insurance company
or investment company.''.
SEC. 137. REMOVAL OF THE EXCLUSION FROM THE DEFINITION OF INVESTMENT
ADVISER FOR BANKS THAT ADVISE INVESTMENT COMPANIES.
(a) Investment Adviser.--Section 202(a)(11) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b-2(a)(11)) is amended in
subparagraph (A), by striking ``investment company'' and inserting
``investment company, except that the term `investment adviser'
includes any bank or financial services holding company to the extent
that such bank or financial services holding company acts as an
investment adviser to a registered investment company, or if, in the
case of a bank, such services are performed through a separately
identifiable department or division, the department or division, and
not the bank itself shall be deemed to be the `investment adviser''';
and
(b) Separately Identifiable Department or Division.--Section 202(a)
of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)) is amended
by adding at the end the following:
``(25) `Separately identifiable department or division' of
a bank means a unit--
``(A) that is under the direct supervision of an
officer or officers designated by the board of
directors of the bank as responsible for the day-to-day
conduct of the bank's investment adviser activities for
1 or more investment companies, including the
supervision of all bank employees engaged in the
performance of such activities; and
``(B) for which all of the records relating to its
investment adviser activities, are separately
maintained in or extractable from such unit's own
facilities or the facilities of the bank, and such
records are so maintained or otherwise accessible as to
permit independent examination and enforcement of this
Act and rules and regulations promulgated under this
Act.''.
SEC. 138. DEFINITION OF BROKER UNDER THE INVESTMENT ADVISERS ACT OF
1940.
Section 202(a)(3) of the Investment Advisers Act of 1940 (15 U.S.C.
80b-2(a)(3)) is amended to read as follows:
``(3) `Broker' has the same meaning as in the Securities
Exchange Act of 1934.''.
SEC. 139. DEFINITION OF DEALER UNDER THE INVESTMENT ADVISERS ACT OF
1940.
Section 202(a)(7) of the Investment Advisers Act of 1940 (15 U.S.C.
80b-2(a)(7)) is amended to read as follows:
``(7) `Dealer' has the same meaning as in the Securities
Exchange Act of 1934, but does not include an insurance company
or investment company.''.
SEC. 140. INTERAGENCY CONSULTATION.
The Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) is
amended by inserting after section 210 the following new section:
``SEC. 210A. CONSULTATION.
``(a) Examination Results and Other Information.--
``(1) The appropriate Federal banking agency shall provide
the Commission upon request the results of any examination,
reports, records, or other information as each may have with
respect to the investment advisory activities of any financial
services holding company, bank, or department or division of a
bank, any of which is registered under section 203 of this
title, or, in the case of a financial services holding company
or bank, has a subsidiary, department, or division registered
under that section, to the extent necessary for the Commission
to carry out its statutory responsibilities.
``(2) The Commission shall provide to the appropriate
Federal banking agency upon request the results of any
examination, reports, records, or other information with
respect to the investment advisory activities of any financial
services holding company, bank, or department or division of a
bank, any of which is registered under section 203 of this
title, to the extent necessary for the agency to carry out its
statutory responsibilities.
``(b) Effect on Other Authority.--Nothing herein shall limit in any
respect the authority of the appropriate Federal banking agency with
respect to such financial services holding company, bank, or department
or division under any provision of law.
``(c) Definition.--For purposes of this section, the term
`appropriate Federal banking agency' shall have the same meaning as in
section 3 of the Federal Deposit Insurance Act.''.
SEC. 141. TREATMENT OF BANK COMMON TRUST FUNDS.
(a) Securities Act of 1933.--Section 3(a)(2) of the Securities Act
of 1933 (15 U.S.C. 77c(a)(2)) is amended by striking ``or any interest
or participation in any common trust fund or similar fund maintained by
a bank exclusively for the collective investment and reinvestment of
assets contributed thereto by a bank in its capacity as trustee,
executor, administrator, or guardian'' and inserting ``or any interest
of participation in any common trust fund or similar fund that is
excluded from the definition of the term `investment company' under
section 3(c)(3) of the Investment Company Act of 1940''.
(b) Securities Exchange Act of 1934.--Section 3(a)(12)(A)(iii) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)(A)(iii)) is
amended to read as follows:
``(iii) any interest or participation in
any common trust fund or similar fund that is
excluded from the definition of the term
`investment company' under section 3(c)(3) of
the Investment Company Act of 1940.''.
(c) Investment Company Act of 1940.--Section 3(c)(3) of the
Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(3)) is amended by
inserting before the period the following: ``, if--
``(A) such fund is employed by the bank solely as
an aid to the administration of trusts, estates, or
other accounts created and maintained for a fidiciary
purpose;
``(B) except in connection with the ordinary
advertising of the bank's fidiciary services, interests
in such fund are not--
``(i) advertised; or
``(ii) offered for sale to the general
public; and
``(C) such fund is not charged any fees or expenses
that, when added to any other compensation charged by
the bank to a participant account, would exceed the
total amount of compensation that would have been
charged to such participant account if no assets of the
account had been invested in interests in the fund,
except that any reasonable and necessary expenses
related to the prudent operation of the fund, as
determined by the appropriate Federal banking agency
(as defined in section 3(q) of the Federal Deposit
Insurance Act), shall be permitted to be charged
directly to the fund.''
``(d) Tax Effect.--It is the sense of the Congress that the public
interest would be furthered by enacting legislation to amend section
584 of the Internal Revenue Code of 1986 by inserting after subsection
(g) the following new subsection:
``(h) Conversion, Mergers, or Reorganization of Common Trust
Funds.--Notwithstanding any other provision of the Internal Revenue
Code, any transfer of all or substantially all of the assets of a
common trust fund taxable under this section to a registered investment
company taxable under subchapter M shall not result in a gain or loss
to the participants in such common trust fund where the transfer is a
result of a merger, conversion, reorganization, transfer, or other
similar transaction or series of transactions.''.
SEC. 142. INVESTMENT ADVISERS PROHIBITED FROM HAVING CONTROLLING
INTEREST IN REGISTERED INVESTMENT COMPANY.
Section 15 of the Investment Company Act of 1940 (15 U.S.C. 80a-15)
is amended by adding at the end the following new subsection:
``(g) Controlling Interest in Investment Company Prohibited.--
``(1) In general.--If any investment adviser to a
registered investment company, or an affiliated person of that
investment adviser, also holds shares of the investment company
in a trustee or fiduciary capacity, that investment adviser or
affiliated person may own, directly or indirectly, a
controlling interest in that registered investment company
only--
``(A) if it passes the power to vote the shares of
the investment company through to--
``(i) the beneficial owners of the shares;
``(ii) any person acting in a fiduciary
capacity who is not an affiliated person of
that investment adviser or any affiliated
person thereof; or
``(iii) any person authorized to receive
statements and information with respect to the
trust who is not an affiliated person of that
investment adviser or any affiliated person
thereof;
``(B) if it votes the shares of the investment
company held by it in the same proportion as shares
held by all other shareholders of the investment
company; or
``(C) as otherwise permitted under such rules,
regulations, or orders as the Commission may prescribe
for the protection of investors.
``(2) Exemption.--Paragraph (1) shall not apply to any
investment adviser to a registered investment company, or an
affiliated person of that investment adviser, holding shares of
the investment company in a trustee or fiduciary capacity if
that registered investment company consists solely of assets
of--
``(A) any common trust fund or similar fund
described in section 3(c)(3) of the Investment Company
Act of 1940;
``(B) any employees' stock bonus, pension, or
profit-sharing trust that qualifies under section 401
of the Internal Revenue Code of 1986;
``(C) any governmental plan described in section
3(a)(2)(C) of the Securities Act of 1933; or
``(D) any collective trust fund maintained by a
bank and consisting solely of assets of trusts or
governmental plans described in subparagraph (B) or
(C).''.
SEC. 143. PURCHASE OF INVESTMENT COMPANY SECURITIES AS FIDUCIARY.
(a) In General.--Section 17 of the Investment Company Act of 1940
(15 U.S.C. 80a-17) is amended by adding at the end the following:
``(k) Purchase of Investment Company Securities as Fiduciary.--
``(1) In general.--An investment adviser to a registered
investment company, or an affiliated person of the investment
adviser, promoter, organizer, or sponsor of the registered
investment company, or principal underwriter for the registered
company may purchase securities issued by such investment
company for the account of a beneficiary as fiduciary, only if
disclosure of such information as the Commission shall
prescribe under paragraph (2) has been provided to the person
(other than to the investment advisor to the registered
investment company, or an affiliated person of the investment
advisor, promoter, organizer, or sponsor of the registered
investment company, or principal underwriter for the registered
company who may purchase securities of the registered company
as fiduciary for the account) to whom periodic financial
statements are customarily provided.
``(2) Disclosure rules.--The Commission shall prescribe, by
rule, regulation, or order, the manner, form, and content of
the information required to be disclosed under paragraph (1),
as the Commission determines necessary or appropriate in the
public interest and for the protection of investors.
``(3) Prospective effect.--This subsection shall be
effective for purchase for fiduciary accounts made after the
effective date of this subtitle.''.
(b) Examination of Trust Department Securities Purchases.--Section
10(d) of the Federal Deposit Insurance Act (12 U.S.C. 1820(d)) is
amended by adding at the end the following:
``(6) Trust department examination.--In performing an
examination under this subsection, the appropriate Federal
banking agency shall examine purchases by an insured depository
institution's trust department or division of the securities of
an affiliated investment company, or an investment company that
is an affiliated person of an affiliated person of the
institution (as those terms are defined in sections 2 and 3 of
the Investment Company Act of 1940), to assure compliance with
applicable Federal and State trust laws.''.
SEC. 144. CONFORMING CHANGE IN DEFINITION.
Section 2(a)(5) of the Investment Company Act of 1940 (15 U.S.C.
80a-2(a)(5)) is amended by striking ``(A) a banking organization
organized under the laws of the United States'' and inserting ``(A) a
depository institution, as that term is defined in section 3 of the
Federal Deposit Insurance Act or a United States branch or agency of a
foreign bank''.
SEC. 145. EFFECTIVE DATE.
This subtitle shall become effective 270 days after the date of
enactment of this Act.
Subtitle D--Financial Activities
SEC. 150. FINANCIAL ACTIVITIES.
Section 4(c)(8) of the Bank Holding Company Act (12 U.S.C.
1843(c)(8)) is amended--
(1) by striking the text beginning with ``shares of any
company'' through ``for a bank holding company to provide'' and
inserting instead the following: ``shares of any company the
activities of which the Board after due notice has determined
(by order, regulation, or advisory opinion) to be financial in
nature or incidental to such financial activities. Any activity
that the Board has determined, by order or regulation that is
in effect on the date of enactment of the Financial Services
Competitiveness Act of 1995, to be so closely related to
banking or managing or controlling banks as to be a proper
incident thereto shall be deemed to be of a financial nature
for purposes of this paragraph without further action by the
Board (subject to the same terms and conditions contained in
such order or regulation, unless modified by the Board), but
for purposes of this subsection it is not closely related to
banking or managing or controlling banks or financial in nature
or incidental to a financial activity for a financial services
holding company to provide'';
(2) by inserting before the period at the end of the third
sentence thereof the following: ``and between activities
commenced by affiliates of different classes of banks.''; and
(3) by striking the second sentence.
SEC. 151. NO PRIOR APPROVAL REQUIRED FOR WELL CAPITALIZED AND WELL
MANAGED FINANCIAL SERVICES HOLDING COMPANIES.
(a) Permissible Nonbanking Activities.--Section 4(j) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1843(j)) is amended--
(1) in paragraph (1), by striking ``No'' and inserting in
its place ``Except as provided in paragraph (3), no''; and
(2) by adding at the end the following new paragraphs:
``(3) No notice required for certain transactions.--No
notice under paragraph (1) or subsections (c)(8) or (a)(2)(B)
is required for a proposal by a financial services holding
company to engage in any activity or acquire the shares or
assets of any company if the proposal qualifies under paragraph
(4).
``(4) Criteria for statutory approval.--A proposal
qualifies under this paragraph if all of the following criteria
are met:
``(A) Financial criteria.--Both before and
immediately after the proposed transaction:
``(i) the acquiring financial services
holding company is well capitalized;
``(ii) the lead insured depository
institution of such holding company is well
capitalized;
``(iii) well capitalized insured depository
institutions control at least 80 percent of the
aggregate total risk-weighted assets of insured
depository institutions controlled by such
holding company; and
``(iv) no insured depository institution
controlled by such holding company is
undercapitalized.
``(B) Managerial criteria.--
``(i) Well managed.--At the time of the
transaction, the acquiring financial services
holding company, its lead insured depository
institution, and insured depository
institutions that control at least 80 percent
of the aggregate total risk-weighted assets of
insured depository institutions controlled by
such holding company are well managed;
``(ii) Limitation on poorly managed
institutions.--
``(I) In general.--No insured
depository institution controlled by
the acquiring financial services
holding company has received one of the
lowest two composite ratings at the
later of the institution's most recent
examination or subsequent review;
``(II) Recently acquired
institutions.--Insured depository
institutions acquired by the financial
services holding company within the
previous 12 months may be excluded for
purposes of subclause (I) if--
``(aa) the financial
services holding company has
developed a plan acceptable to
the appropriate Federal banking
agency (as defined in section 3
of the Federal Deposit
Insurance Act) for the
institution to restore the
capital and management of the
institution; and
``(bb) all such insured
depository institutions
represent, in the aggregate,
less than 25 percent of the
aggregate total risk-weighted
assets of all insured
depository institutions
controlled by the financial
services holding company.
``(C) Activities permissible.--Following
consummation of the proposal, the financial services
holding company engages directly or through a
subsidiary solely in:
``(i) activities that are permissible under
subsection (c)(8), as determined by the Board
by regulation, order, or advisory opinion
thereunder, subject to all of the restrictions,
terms and conditions of such subsection and
such regulation, order, or advisory opinion;
and
``(ii) such other activities as are
otherwise permissible under another subsection
of this Act, subject to the restrictions, terms
and conditions, including any prior notice or
approval requirements, provided in this Act.
``(D) Size of acquisition.--
``(i) Asset size.--The book value of the
total risk-weighted assets acquired does not
exceed 10 percent of the consolidated total
risk-weighted assets of the acquiring financial
services holding company.
``(ii) Consideration.--The gross
consideration to be paid for the securities or
assets does not exceed 15 percent of the
consolidated Tier 1 capital of the acquiring
financial services holding company.
``(E) Notice not otherwise warranted.--For
proposals described in paragraph (5)(B), the Board has
not, prior to the conclusion of the period provided in
paragraph (5)(B), advised the financial services
holding company that a notice under paragraph (1) is
required.
``(5) Notification.--
``(A) Commencement of activities approved by
rule.--A financial services holding company that
qualifies under paragraph (4) and that proposes to
engage de novo, directly or through a subsidiary, in
any activity that is permissible under subsection
(c)(8), as determined by the Board by regulation, may
commence that activity without prior notice to the
Board and must provide written notification to the
Board no later than 10 business days after commencing
the activity.
``(B) Activities permitted by order and
acquisitions.--At least 12 business days prior to
commencing any activity (other than an activity
described in subparagraph (A)) or acquiring shares or
assets of any company in a proposal that qualifies
under paragraph (4), the financial services holding
company must provide the Board written notification of
the proposal, unless the Board determines that no
notice or a shorter notice period is appropriate. A
notification under this subparagraph must include a
description of the proposed activities and the terms of
any proposed acquisition.
``(6) Adjustment of amounts.--The Board may by regulation
adjust the amounts and the manner in which the percentage of
insured depository institutions is calculated under paragraph
(4)(B)(i), paragraph (4)(B)(ii)(II)(bb), and paragraph (4)(D)
if the Board determines that any such adjustment is consistent
with safety and soundness and the purposes of this Act.
``(7) Expedited procedure for new activities.--
``(A) Expedited pre-acquisition review.--A
financial services holding company may, at the end of
the period provided in paragraph (5)(B) and subject to
a final ruling as provided in subparagraph (B), acquire
a company engaged in activities that the Board has not
previously determined to be financial in nature if--
``(i) the proposal qualifies under all of
the criteria in paragraph (4) except paragraph
(4)(C);
``(ii) the financial services holding
company provides the notification required
under paragraph (5)(B), and includes in that
notification an explanation of the facts and
circumstances that provide a reasonable basis
for concluding that the proposed activities are
financial in nature or incidental to such
financial activities; and
``(iii) prior to the end of the
notification period in paragraph (5)(B), the
Board has not required a notice under paragraph
(1) or advised the financial services holding
company that the company has failed to provide
a reasonable basis for concluding that the
proposed activities are financial in nature or
incidental to such financial activities. A
decision by the Board not to require a notice
under paragraph (1) during this period does not prejudice the Board's
decision under subparagraphs (B) and (C).
``(B) Post-acquisition review.--
``(i) Notice procedure.--A financial
services holding company that is permitted to
make an acquisition under this paragraph must,
within 30 days following consummation of the
acquisition, file a notice with the Board in
accordance with paragraph (1).
``(ii) Limited review.--The Board's review
of a post-consummation notice required under
this subparagraph shall be limited to
determining whether the proposed activities are
permissible under subsection (c)(8).
``(C) Conditional action.--Nothing in this
paragraph shall limit in any way the authority of the
Board under this section to impose conditions on the
conduct of any activity or the ownership of any
company.
``(D) Divestiture of impermissible activities.--If
the Board finds that any activity proposed is not
permissible under subsection (c)(8), the financial
services holding company must, within two years of the
date of such determination, terminate the activity or
divest the company acquired in reliance on this
paragraph.''.
SEC. 152. CONFORMING AMENDMENTS TO THE BANK HOLDING COMPANY ACT.
(a) Elimination of Obsolete Provisions.--The Bank Holding Company
Act of 1956 (12 U.S.C. 1841 through 1849) is amended:
(1) in section 4(a)(2)--
(A) by striking the phrase beginning ``or in the
case of a company'' and ending ``after December 31,
1980,''; and
(B) by striking the sentence beginning
``Notwithstanding any other provision'';
(2) in section 4(b), by striking ``After two years from May
9, 1956, no'' and inserting in its place ``No''; and
(3) in section 5--
(A) by striking ``Within one hundred and eighty
days after May 9, 1956, or within'' and inserting in
its place ``Within''; and
(B) by striking ``whichever is later,''.
(b) Conforming Amendments.--The Bank Holding Company Act of 1956
(12 U.S.C. 1841 through 1849) is amended:
(1) in section 3(c)(4), by striking ``one-bank holding
company'' each place it appears and inserting in its place
``one-bank financial services holding company'';
(2) in section 3(f)(5), by striking ``bank holding
company'' the first and second time it appears and inserting in
each place ``financial services holding company'';
(3) in section 4(i)(3)(A), by striking ``is acquired'' and
inserting in its place ``was acquired'';
(4) by striking ``bank holding companies'' each place it
appears in the following sections and inserting in each place
``financial services holding companies''--
(A) Section 3(d);
(B) Section 3(f);
(C) Section 4(f); and
(D) Section 7(a);
(5) by striking ``bank holding company's'' each place it
appears in the following sections and inserting in each place
``financial services holding company's''--
(A) Section 2(d); and
(B) Section 4(c)(14);
(6) by striking ``bank holding company'' each place it
appears in the following sections and inserting in each place
``financial services holding company''--
(A) Section 2(a);
(B) Section 2(d);
(C) Section 2(e);
(D) Section 2(g);
(E) Section 2(h);
(F) Section 2(o);
(G) Section 3(a);
(H) Section 3(b);
(I) Section 3(d);
(J) Section 3(f)(1);
(K) Section 3(f)(2);
(L) Section 3(f)(3);
(M) Section 4(a);
(N) Section 4(c)(ii);
(O) Section 4(c)(1);
(P) Section 4(c)(2);
(Q) Section 4(c)(3);
(R) Section 4(c)(7);
(S) Section 4(c)(8);
(T) Section 4(c)(10);
(U) Section 4(c)(11);
(V) Section 4(c)(12)(A);
(W) Section 4(c)(14);
(X) Section 4(d);
(Y) Section 4(e);
(Z) Section 4(f)(4);
(AA) Section 4(f)(5);
(BB) Section 4(f)(9);
(CC) Section 4(g);
(DD) Section 4(h);
(EE) Section 4(i)(1);
(FF) Section 4(i)(2);
(GG) Section 4(j);
(HH) Section 5;
(II) Section 7(b);
(JJ) Section 8; and
(KK) Section 11;
(7) in section 4(f)(1), by striking ``bank holding
company'' the second place it appears and inserting in its
place ``financial services holding company''; and
(8) in section 4(i)(3), by striking ``is acquired'' and
inserting in its place ``was acquired''.
(c) Treatment of Existing Bank Holding Companies.--Section 2(a)(6)
of the Bank Holding Company Act of 1956 (12 U.S.C. 1841(a)(6)) is
amended by inserting at the end the following: ``Any company that was a
bank holding company on the day before the date of enactment of the
Financial Services Competitiveness Act of 1995 shall, for purposes of
this chapter, be deemed to have been a financial services holding
company from the date on which the company became a bank holding
company.''
(d) Short Title.--Section 1 of the Bank Holding Company Act of 1956
shall be amended to read as follows:
``This Act may be cited as the `Financial Services Holding Company
Act of 1995', and any reference in any Federal or State law to a
provision of the Bank Holding Company Act of 1956 shall be deemed to be
a reference to the corresponding provision of the Financial Services
Holding Company Act of 1995.''.
(e) Other References.--Any reference in Federal law to ``bank
holding company'' or ``bank holding companies'' as those terms were
defined under the Bank Holding Company Act of 1956 prior to the
enactment of this Act shall be deemed to include a reference to
``financial services holding company'' and ``financial services holding
companies'', respectively, as those terms are defined under the
Financial Services Holding Company Act of 1995.
SEC. 153. CONFORMING AMENDMENTS TO THE BANK HOLDING COMPANY ACT
AMENDMENTS OF 1970.
Section 106 of the Bank Holding Company Act Amendments of 1970 (12
U.S.C. 1971 through 1978) is amended by striking ``bank holding
company'' each place it appears and inserting in its place ``financial
services holding company''.
SEC. 154. ELIMINATION OF DUPLICATIVE APPLICATIONS.
Section 18(c) of the Federal Deposit Insurance Act (12 U.S.C.
1828(c)) is amended by adding at the end the following new paragraph:
``(12) The provisions of this subsection do not apply to
any merger, consolidation, acquisition of assets or assumption
of liabilities involving only insured depository institutions
that are subsidiaries of the same depository institution
holding company if--
``(A) the responsible agency would not be
prohibited from approving the transaction under section
44 of this Act;
``(B) the acquiring, assuming, or resulting
institution complies with all applicable provisions of
section 44 as if the merger, consolidation or
acquisition was approved under this subsection; and
``(C) the acquiring, assuming, or resulting
institution provides written notification of the
transaction to the appropriate Federal banking agency
for the institution at least 10 days prior to
consummation of the transaction.''.
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