[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 298 Introduced in Senate (IS)]







105th CONGRESS
  1st Session
                                 S. 298

To enhance competition in the financial services sector, and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           February 11, 1997

   Mr. D'Amato (for himself, Mr. Grams, Mr. Gramm, and Mr. Bennett) 
introduced the following bill; which was read twice and referred to the 
            Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
To enhance competition in the financial services sector, and for other 
                               purposes.

    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 ``Depository 
Institution Affiliation Act''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings and purposes.
 TITLE I--CREATION AND CONTROL OF FINANCIAL SERVICES HOLDING COMPANIES

Sec. 101. Definitions.
Sec. 102. Amendments to the Bank Holding Company Act of 1956.
Sec. 103. Amendments to the Federal Reserve Act.
Sec. 104. Amendments to the Banking Act of 1933.
Sec. 105. Amendments to the Federal Deposit Insurance Act.
Sec. 106. Amendments to the Securities Exchange Act of 1934.
Sec. 107. Amendment to the Home Owners' Loan Act.
Sec. 108. Amendments to the Community Reinvestment Act.
                   TITLE II--SUPERVISORY IMPROVEMENTS

Sec. 201. National Financial Services Committee.

SEC. 2. FINDINGS AND PURPOSES.

    (a) Findings.--The Congress finds that--
            (1) current laws and regulations restrain efficiency, 
        competition, and innovation in the design and delivery of 
        financial services to the disadvantage of consumers;
            (2) restrictions on ownership of depository institutions 
        and affiliations with other business organizations interfere 
        with their ability to attract and retain capital and managerial 
        resources;
            (3) the vulnerability of the financial system and its 
        discrete components is increased and effective monitoring, 
        supervision, and coordination of actions during periods of 
        stress is impeded by fragmented and disparate regulation; and
            (4) current laws inhibit the ability of domestic financial 
        markets and intermediaries to respond to the serious 
        competitive challenges presented by foreign intermediaries and 
        the globalization of markets.
    (b) Purposes.--The purposes of this Act are to promote the safety 
and soundness of the Nation's financial system, enhance the quality of 
regulation and supervision of financial intermediaries, and achieve a 
more efficient market and effective regulatory structure by--
            (1) establishing an alternative and comprehensive 
        legislative framework for the creation and regulation of 
        financial services holding companies;
            (2) increasing the capital adequacy of commercial banks, 
        brokers and dealers, and savings and loan associations and 
        other financial companies by eliminating restrictions on common 
        ownership and affiliation within a financial services holding 
        company;
            (3) permitting affiliates to engage in any activity subject 
        to functional and equal regulation by the appropriate Federal 
        or State regulator;
            (4) insulating and protecting insured depository 
        institutions through higher capital requirements, expanded 
        restrictions on relationships with affiliates, broader 
        examination and enforcement authority and increased civil and 
        criminal penalties;
            (5) permitting the efficient marketing and distribution of 
        financial services to consumers subject to safeguards against 
        coercive tie-ins and other unfair and abusive practices; and
            (6) establishing the National Financial Services Committee 
        to oversee the evolution and supervision of the financial 
        services industry and to report to the Congress.

 TITLE I--CREATION AND CONTROL OF FINANCIAL SERVICES HOLDING COMPANIES

SEC. 101. DEFINITIONS.

    (a) Definitions.--For purposes of this Act--
            (1) the term ``financial services holding company'' means a 
        company that--
                    (A) has filed with the National Financial Services 
                Committee, established under section 201, a notice 
                stating such company's intent to comply with the 
                requirements of this Act and has not withdrawn such 
                notice; and
                    (B) controls an insured depository institution, or 
                either--
                            (i) has, within the preceding 12 months, 
                        filed a notice under subsection (b) to acquire 
                        control of an insured depository institution, a 
                        bank holding company, a savings and loan 
                        holding company, or a financial services 
                        holding company, which notice has not been 
                        disapproved; or
                            (ii) controls a depository institution 
                        which has, within the preceding 12 months, 
                        filed an application for deposit insurance 
                        under section 5 of the Federal Deposit 
                        Insurance Act which has not been disapproved,
                except that the filing of the notice described in 
                subparagraph (A) by a bank holding company that does 
                not control any bank, as defined in section 2(c) of the 
                Bank Holding Company Act of 1956, that is not an 
                insured depository institution, other than a bank that 
                has filed an application for deposit insurance under 
                section 5 of the Federal Deposit Insurance Act, that 
                has not been disapproved, shall result in immediate 
                termination of the status of such company as a bank 
                holding company, and the filing of the notice described 
                in subparagraph (A) by a savings and loan holding 
                company shall result in the immediate termination of 
                the status of such company as a savings and loan 
                holding company, except that, upon denial of any such 
                application for deposit insurance filed by a bank that 
                is controlled by a company, the status of which as a 
                bank holding company is terminated under this 
                subparagraph, such company shall resume its status as a 
                bank holding company;
            (2) the term ``bank holding company'' has the same meaning 
        as in section 2(a) of the Bank Holding Company Act of 1956;
            (3) the term ``savings and loan holding company'' has the 
        same meaning as in section 10(a) of the Home Owners' Loan Act;
            (4) except as provided in subsection (f)(5), the term 
        ``affiliate'' of a company means any other company which 
        controls, is controlled by, or is under common control with 
        such company;
            (5) the term ``appropriate Federal banking agency'' has the 
        same meaning as in section 3 of the Federal Deposit Insurance 
        Act;
            (6) the terms ``depository institution'' and ``insured 
        depository institution'' have the same meanings as in section 3 
        of the Federal Deposit Insurance Act;
            (7) the term ``State'' has the same meaning as in section 3 
        of the Federal Deposit Insurance Act;
            (8) the term ``company'' means any corporation, 
        partnership, business trust, association, or similar 
        organization, or any other trust unless by its terms it must 
        terminate within 25 years or not later than 21 years and 10 
months after the death of individuals living on the effective date of 
the trust, but shall not include any corporation the majority of the 
shares of which are owned by the United States or by any State;
            (9) the term ``control'' means the power, directly or 
        indirectly, to direct the management or policies of a company, 
        or to vote 25 percent or more of any class of voting securities 
        of a company, except that--
                    (A) no company shall be deemed to control or to 
                have acquired control of any other company by virtue of 
                its ownership of the voting securities of such other 
                company--
                            (i) acquired or held in an agency, trust, 
                        or other fiduciary capacity;
                            (ii) acquired or held in connection with or 
                        incidental to--
                                    (I) the underwriting of securities 
                                if such securities are held only for 
                                such period of time as will permit the 
                                sale thereof on a reasonable basis; or
                                    (II) market making, dealing, 
                                trading, brokerage, or other 
                                securities-related activities, and not 
                                with a view to acquiring, exercising, 
                                or transferring any control over the 
                                management or policies of such company; 
                                or
                            (iii) acquired in securing or collecting a 
                        debt previously contracted in good faith, until 
                        2 years after the date of acquisition or for 
                        such additional period of time as the 
                        appropriate Federal banking agency may permit; 
                        and
                    (B) no company formed for the sole purpose of 
                participating in a proxy solicitation is in control of 
                a company by virtue of its acquisition of voting rights 
                with respect to shares of such company acquired in the 
                course of such solicitation;
            (10) the term ``adequately capitalized'', with respect to 
        an insured depository institution, has the same meaning as in 
        section 38(b)(1) of the Federal Deposit Insurance Act;
            (11) the term ``well capitalized'' has the same meaning as 
        in section 38(b)(1) of the Federal Deposit Insurance Act;
            (12) the term ``minimum required capital'', with respect to 
        an insured depository institution, means the amount of capital 
        that is required for the institution to be adequately 
        capitalized; and
            (13) the term ``domestic branch'' has the same meaning as 
        in section 3(o) of the Federal Deposit Insurance Act.
    (b) Changes in Control of Insured Banks and Insured Institutions.--
No financial services holding company acting directly or indirectly, or 
through or in concert with one or more other persons, shall acquire 
control of an insured depository institution, a bank holding company, a 
savings and loan holding company, or a financial services holding 
company not controlled by such company on the date it became a 
financial services holding company, if such acquisition and control 
occurs through a purchase, assignment, transfer, pledge, or other 
disposition of voting stock of such insured depository institution, 
bank holding company, savings and loan holding company, or financial 
services holding company, unless the financial services holding company 
has complied with the requirements of section 7(j) of the Federal 
Deposit Insurance Act. Any failure to comply with the preceding 
requirements shall subject the relevant financial services holding 
company to the penalties and other procedures provided in subsections 
(i) through (m) of this section, in addition to otherwise applicable 
penalties.
    (c) Affiliate Transactions.--
            (1) In general.--The appropriate Federal banking agency 
        may--
                    (A) upon a finding of probable harm that cannot 
                adequately be prevented by less burdensome rules and 
                regulations, adopt such rules and regulations, 
                consistent with the purposes of this Act, as may be 
                necessary in order to prevent an insured depository 
                institution that is controlled by a financial services 
                holding company from engaging in unsafe or unsound 
                practices that involve the financial services holding 
                company or any of its affiliates including, without 
                limitation, unsafe or unsound practices that involve 
                covered transactions, as defined in section 23A of the 
                Federal Reserve Act, and any transactions described in 
                section 23B(a)(2) of the Federal Reserve Act; and
                    (B) by rule, regulation or order, exempt any 
                insured depository institution that is controlled by a 
                financial services holding company or class of such 
                banks or institutions, or any transaction or class of 
                transactions, from any requirement under subparagraph 
                (A), or under section 23A or 23B of the Federal Reserve 
                Act, notwithstanding the provisions of any other law, 
                rule, regulation or order, if the appropriate Federal 
                banking agency deems such an exemption to be reasonable 
                and not inconsistent with the purposes of this Act and 
                in the public interest.
            (2) Regulatory activity.--Any rule or regulation adopted 
        pursuant to paragraph (1)(A) shall be adopted in accordance 
        with section 553 of title 5, United States Code, except that 
        the appropriate Federal banking agency shall give interested 
        persons an opportunity for oral presentations of data, views, 
        and arguments, in addition to written submissions.
            (3) Application to prior approved transactions.--Any 
        transaction that was approved by a Federal regulatory agency 
        before the date of enactment of this Act shall be exempt from 
        any rules or regulations adopted pursuant to paragraph (1)(A).
            (4) Federal reserve act treatment.--Subject to paragraph 
        (1)(B), the provisions of sections 23A and 23B of the Federal 
        Reserve Act shall be applicable to every insured depository 
        institution controlled by a financial services holding company 
        in the same manner and to the extent as if such insured 
        depository institution were a member bank; and for this 
        purpose, any company which would be an affiliate of an insured 
        depository institution for purposes of such sections 23A and 
        23B if such insured depository institution were a member bank 
        shall be deemed to be an affiliate of such insured depository 
        institution.
            (5) Limitations.--No insured depository institution that is 
        an affiliate of a financial services holding company shall, 
        directly or indirectly--
                    (A) extend credit in any manner to a securities 
                affiliate or a subsidiary thereof;
                    (B) purchase for its own account assets of a 
                securities affiliate or a subsidiary thereof;
                    (C) issue a guarantee, acceptance, or letter of 
                credit, including an endorsement or standby letter of 
                credit, for the benefit of a securities affiliate or a 
                subsidiary thereof; or
                    (D) extend credit in any manner to any investment 
                company advised by or the shares of which are 
                distributed by a securities affiliate.
            (6) Exception.--Subparagraphs (A) and (B) of paragraph (5) 
        do not apply to any extension of credit by an insured 
        depository institution made to acquire or sell any securities 
        of the United States if--
                    (A) the extension of credit is to be repaid on the 
                same calendar day;
                    (B) the extension of credit is incidental to the 
                clearing of transactions in those securities through 
                that insured depository institution; and
                    (C) both the principal of and the interest on the 
                extension of credit are fully secured by securities of 
                the United States.
            (7) Limitation on certain marketability activities.--No 
        insured depository institution that is an affiliate of a 
        financial services holding company 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 or distributed 
        by a securities affiliate.
            (8) Activities during securities distribution.--No insured 
        depository institution that is an affiliate of a financial 
        services holding company 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 insured depository 
        institution participates as an underwriter or a member of a 
        selling group.
            (9) Extensions of credit for payment of dividends.--No 
        depository institution that is an affiliate of a financial 
        services holding company shall, directly or indirectly, extend 
        credit to an issuer of securities underwritten by a securities 
        affiliate for the purpose of paying the principal of those 
        securities or interest for dividends on those securities.
            (10) ``Securities affiliate'' defined.--For purposes of 
        paragraphs (5) through (9), the term ``securities affiliate'' 
        means a company that engages in underwriting, distributing, or 
        dealing in securities of any type, except that such term shall 
        not include insurance products deemed to be securities, 
        including and without limitation variable annuities and 
        variable life insurance.
    (d) Capitalization.--
            (1) In general.--Each insured depository institution that 
        is controlled by a financial services holding company shall be 
        well capitalized.
            (2) Actions by federal regulators.--In the event of a 
        finding by the appropriate Federal banking agency that an 
        insured depository institution controlled by a financial 
        services holding company is not well capitalized, the financial 
        services holding company shall--
                    (A) execute an agreement with the appropriate 
                Federal banking agency within 30 days to return the 
                insured depository institution within a reasonable 
                period of time to being well capitalized; or
                    (B) divest control of the insured bank or insured 
                institution in an orderly manner within 180 days, or 
                such additional period of time as the appropriate 
                Federal banking agency may determine is reasonably 
                required in order to effect such divestiture.
            (3) Capital of holding company.--The appropriate Federal 
        banking agency may not impose by regulation, order, agreement, 
        or any other means, any requirement pertaining to the capital 
        of a financial services holding company.
    (e) Interstate Acquisitions and Activities of Insured Depository 
Institutions.--
            (1) Insured banks.--No financial services holding company 
        may acquire control of an additional insured bank (as such term 
        is defined in section 2(c) of the Bank Holding Company Act of 
        1956) if the acquisition could not be approved by the Board of 
Governors of the Federal Reserve System under section 3(d)(1)(B), 
3(d)(1)(C), 3(d)(1)(D), 3(d)(2), 3(d)(3), 3(d)(4) or 3(d)(5) of the 
Bank Holding Company Act of 1956, were such acquisition made by a bank 
holding company, except as otherwise authorized pursuant to section 
13(f) of the Federal Deposit Insurance Act.
            (2) Treatment of financial services holding companies and 
        subsidiaries.--A financial services holding company shall be 
        treated as a bank holding company, and any insured depository 
        institution affiliate of a financial services holding company 
        shall be treated as a bank subsidiary for purposes of section 
        18(r) of the Federal Deposit Insurance Act.
            (3) Savings associations.--No financial services holding 
        company may acquire control of an additional savings 
        association if the acquisition would be in violation of section 
        10(e)(3) of the Home Owners' Loan Act, were such acquisition 
        made by a savings and loan holding company, except as otherwise 
        authorized pursuant to section 13(k) of the Federal Deposit 
        Insurance Act.
    (f) Differential Treatment Prohibition; Laws Inconsistent With This 
Act.--
            (1) In general.--Notwithstanding any other Federal law, no 
        State, and no Federal or State regulatory agency, including the 
        appropriate Federal banking agency, may act by law, rule, 
        regulation, order, or otherwise if the effect of such action 
        would be to differentiate insured depository institutions 
        controlled by financial services holding companies from any 
        other insured depository institutions in a manner adverse to 
        insured depository institutions controlled by financial 
        services holding companies, or to differentiate financial 
        services holding companies or their affiliates from bank 
        holding companies or savings and loan holding companies and 
        their affiliates in a manner adverse to financial services 
        holding companies or their affiliates, except to the extent 
        that the appropriate Federal banking agency may act to 
        implement this Act as authorized herein.
            (2) Application of state laws.--
                    (A) Findings.--The Congress finds that--
                            (i) certain State laws and regulations have 
                        the purpose or effect of preventing insured 
                        depository institutions from being or becoming 
                        affiliated with, companies or persons engaged 
                        in nonbanking activities;
                            (ii) such laws restrain legitimate 
                        competition in interstate commerce and deny 
                        consumers freedom of choice in selecting 
                        financial services;
                            (iii) such restrictions also threaten the 
                        long-term safety and soundness of insured 
                        depository institutions by denying them access 
                        to capital;
                            (iv) given the preponderant Federal 
                        interest in ensuring competition in national 
                        markets for financial services and in ensuring 
                        the safety and soundness of the federally 
                        insured banking and thrift industries, it is 
                        necessary to preempt such anticompetitive State 
                        laws and regulations to the extent necessary to 
                        permit the formation and efficient operation of 
                        financial services holding companies;
                            (v) there is, however, a legitimate and 
                        traditional State interest in ensuring that 
                        State banks and other companies are operated in 
                        a safe and sound manner to serve the interests 
                        of the public and consumers; and
                            (vi) the preemption provided in 
                        subparagraph (B) is not intended to preempt 
                        State laws that concern the regulation, 
                        supervision, and examination of State chartered 
                        entities, and that are not inconsistent with 
                        the purposes of this Act.
                    (B) Preemption.--Any provision of Federal or State 
                law, rule, regulation, or order that is expressed or 
                implied inconsistent with the provisions and purposes 
                of this section is hereby preempted, including, without 
                limitation, State banking, savings and loan, insurance, 
                real estate, securities, finance company, retail, or 
                other laws which have the purpose or effect of--
                            (i) preventing or impeding insured 
                        depository institutions or affiliates, agents, 
                        principals, brokers, directors, officers, 
                        employees, or other representatives of such 
                        institutions or affiliates thereof from being 
                        owned or controlled by or from being affiliated 
                        in any way with a financial services holding 
                        company or any affiliate thereof as a result of 
                        the types of nonbanking activities engaged in 
                        directly or indirectly by such company or any 
                        affiliate thereof or by any agent, principal, 
                        solicitor, broker, director, officer, employee, 
                        or other representative of such company or 
                        affiliate thereof; or
                            (ii) preventing insured banks or insured 
                        institutions or affiliates, agents, principals, 
                        brokers, directors, officers, employees, or 
                        other representatives of such institutions or 
                        affiliates thereof from offering or marketing 
                        products or services of their affiliated 
                        financial services holding company or any 
                        affiliate thereof or from having their products 
                        or services offered or marketed by their 
                        affiliated financial services holding company 
                        or any affiliate thereof, or by any agent, 
                        principal, broker, director, officer, employee, 
                        or other representative of such company or 
                        affiliate thereof.
            (3) Laws affecting court actions.--
                    (A) In general.--No State or State regulatory 
                agency may act by law, rule, regulation, or order if 
                the effect of such action would be to impede or prevent 
                an insured bank or insured institution that is located 
                in another State from qualifying to maintain or defend 
                in court any action which could be maintained or 
                defended under similar circumstances by a company that 
                is located in such other State and that is not an 
                insured depository institution, if the insured 
                depository institution does not establish or operate in 
                that State a ``domestic branch''.
                    (B) Exception.--Where the maintenance or defense of 
                a court action referred to in subparagraph (A) by a 
                company that is located in such other State and that is 
                not an insured depository institution is subject to 
                certain conditions, the maintenance or defense of such 
                an action by an insured depository institution located 
                in such other State may be subject to those same 
                conditions, if such conditions are applied in a 
                nondiscriminatory manner to fulfill legitimate State 
                objectives and do not have the effect, directly or 
                indirectly, of denying insured depository institutions 
                located in other States the opportunity to maintain or 
                defend such actions.
            (4) Other restrictions.--Except for licensing, marketing, 
        compensation, employment, or other requirements applied in a 
nondiscriminatory manner to fulfill legitimate State regulatory 
objectives which are not inconsistent with the purposes of this Act, no 
State may, through legislative, administrative, executive, or judicial 
action, impede or prevent a financial services holding company or 
affiliate thereof from utilizing or compensating any agent (including 
an affiliated insured depository institution acting in accordance with 
section 18(r) of the Federal Deposit Insurance Act), solicitor, broker, 
employee, or other person located in that State and representing in any 
lawful capacity any insured depository institution or any such 
financial services holding company or such affiliate thereof, if, where 
any such person is being utilized or compensated for the performance of 
activities on behalf of an insured depository institution, such 
activities do not result in the establishment or operation by the 
insured depository institution of a domestic branch at any location 
other than the main or branch offices of such depository institution.
            (5) Definitions.--As used in paragraphs (2) through (4) 
        only--
                    (A) the term ``affiliate'' means a person that 
                directly or indirectly controls or is controlled by, or 
                is under common control with the person specified; and
                    (B) the term ``control'', including the terms 
                ``controlled by'' and ``under common control with'', 
                means the power, directly or indirectly, to direct the 
                management or policies of a person and shall be 
                presumed to exist if any person, directly or 
                indirectly, owns, controls, or holds with power to vote 
                10 percent or more of the voting securities of any 
                other person.
    (g) Securities, Insurance, and Real Estate Activities of Insured 
Banks and Insured Institutions.--
            (1) In general.--No insured depository institution that is 
        an affiliate of a financial services holding company shall 
        directly engage in--
                    (A) dealing in or underwriting securities, or 
                purchasing or selling securities as agent, except to 
                the extent that such activities are performed only with 
                regard to obligations of the United States or would be 
                authorized for a national bank under the first section 
                of the Act of September 28, 1962 (12 U.S.C. 92a);
                    (B) insurance underwriting; or
                    (C) real estate investment or development, except 
                to the extent that such activities are performed in 
                relation to the premises of the insured depository 
                institution or in connection with securing or 
                collecting a debt previously contracted in good faith, 
                or would be authorized for a national bank under the 
                first section of the Act of September 28, 1962 (12 
                U.S.C. 92a).
            (2) Construction.--Nothing contained in this subsection 
        shall be construed to prohibit or impede--
                    (A) a financial services holding company or any 
                affiliate of a financial services holding company other 
                than an insured depository institution from engaging in 
                any of the activities set forth in paragraph (1); or
                    (B) any employee of an insured depository 
                institution that is an affiliate of a financial 
                services holding company from promoting or advertising 
                products or services of an affiliate of such insured 
                depository institution that engages in any of such 
                activities.
            (3) Insurance and real estate activities.--No bank holding 
        company which becomes a financial services holding company and 
no financial services holding company which did not at any time prior 
to becoming such a holding company may, directly or indirectly, engage 
in insurance agency or real estate brokerage activities shall commence 
any insurance agency or real estate brokerage activities not 
permissible for bank holding companies under section 4(c)(8) of the 
Bank Holding Company Act of 1956, unless such activities are conducted 
through an existing insurance agency or real estate brokerage firm, as 
the case may be, acquired directly or indirectly by such financial 
services holding company or through any successor to such insurance 
agency or real estate brokerage, and unless such acquired insurance 
agency or real estate brokerage firm shall have been actively engaged 
in such insurance or real estate agency activities during the 2-year 
period preceding the date of enactment of this Act.
            (4) Existing contracts.--Nothing in this subsection shall 
        require the breach of any contract entered into before the date 
        of enactment of this Act.
    (h) Tying and Insider Lending Provisions.--
            (1) In general.--A financial services holding company shall 
        be treated as a bank holding company for purposes of section 
        106 of the Bank Holding Company Act Amendments of 1970 and 
        section 22(h) of the Federal Reserve Act and any regulation 
        prescribed under any such section.
            (2) Treatment under bank holding company act.--A financial 
        services holding company and any of such company's other 
        affiliates shall be subject to section 106 of the Bank Holding 
        Company Act Amendments of 1970, in connection with any 
        transaction involving the products or services of such company 
        or affiliate and those of an insured depository institution 
        affiliate, as if such company or any such company's other 
        affiliates were an insured depository institution and such 
        insured depository institution were a subsidiary of a bank 
        holding company.
            (3) Regulatory authority.--For purposes of this subsection, 
        the appropriate Federal banking agency shall exercise the 
        authority provided to the Board of Governors of the Federal 
        Reserve System under section 106 of the Bank Holding Company 
        Act Amendments of 1970 and section 22(h) of the Federal Reserve 
        Act.
    (i) Examination and Enforcement.--
            (1) Appropriate federal banking agency actions.--The 
        appropriate Federal banking agency shall enforce the provisions 
        of this section and any regulations adopted under the authority 
        conferred in this section by using its examination and 
        supervisory powers to ensure that each insured depository 
        institution under its supervision is in compliance with the 
        limitations of this section.
            (2) No extension of insurance coverage.--In no instance 
        shall the benefits of Federal deposit insurance coverage 
        applicable to an insured depository institution that is 
        controlled by a financial services holding company be extended 
        to either such financial services holding company or to any 
        other company controlled by such financial services holding 
        company that is not an insured depository institution.
            (3) Agency review of records.--The appropriate Federal 
        banking agency may examine the books, records and affairs of, 
        or require reports from, any affiliate of an insured depository 
        institution controlled by a financial services holding company 
        in order to ensure compliance with the limitations of this 
        section.
            (4) Enforcement of violations.--Whenever it appears to the 
        appropriate Federal banking agency that any financial services 
        holding company is violating, has violated, or is about to 
        violate any provision of this section or any regulation 
        prescribed under this section, such agency may, in its 
        discretion, apply to the appropriate district court of the 
        United States or the United States court of any territory for--
                    (A) a temporary or permanent injunction or 
                restraining order enjoining such financial services 
                holding company from violating this section or any 
                regulation prescribed under this section; or
                    (B) such other equitable relief, including 
                divestiture, as may be necessary to prevent such 
                violation.
            (5) Court jurisdiction.--The district courts of the United 
        States and the United States court in any territory shall have 
        jurisdiction and power to issue any injunction or restraining 
        order or grant any other relief described in paragraph (3). 
        When appropriate, any injunction, order, or other equitable 
        relief granted under this subparagraph shall be granted without 
        requiring the posting of any bond.
            (6) Notice of violations.--Whenever it appears to a Federal 
        or State official or agency with supervisory or examination 
        authority over any affiliate of a financial services holding 
        company that such affiliate or such financial services holding 
        company is violating, has violated, or is about to violate any 
        provision of this section or any regulation prescribed under 
        this section, such official or agency shall promptly notify the 
        appropriate Federal regulatory authority in order that the 
        appropriate Federal regulatory authority in consultation with 
        the notifying agency may determine whether action under this 
        subsection is appropriate.
    (j) Divestiture.--
            (1) In general.--In addition to all of its other regulatory 
        and supervisory powers, if the appropriate Federal banking 
        agency determines that an insured depository institution under 
        its supervision has engaged in a continuing course of conduct 
        involving its financial services holding company or any 
        affiliate of such holding company which has had, or has a 
        significant probability of having, the effect of causing such 
        insured depository institution to be in an unsafe or unsound 
        condition, it may make an initial finding that the financial 
        services holding company should be required to terminate its 
        control of the insured depository institution. If the 
        appropriate Federal banking agency makes such an initial 
        finding, it shall within 3 days so notify the financial 
        services holding company controlling the insured depository 
        institution and the National Financial Services Committee. Such 
        notice shall provide a statement for the basis of the 
        appropriate Federal banking agency's action.
            (2) Hearing procedures.--Not later than 30 days after 
        receipt of the notice described in paragraph (1), the financial 
        services holding company receiving such notice may request an 
        agency hearing before the appropriate Federal banking agency. 
        In such hearing, all issues shall be determined pursuant to 
        section 554 of title 5, United States Code. The length of the 
        hearing shall be determined by the appropriate Federal banking 
        agency, and such hearing may be before a hearing examiner 
        appointed by such agency. At the conclusion thereof, the 
        appropriate Federal banking agency shall issue a final order, 
        on the basis of the record made at such hearing, affirming or 
        reversing the initial finding of the appropriate Federal 
        banking agency. A company that fails to request an agency 
        hearing under this paragraph shall be deemed to have consented 
to the issuance of a final order affirming the initial finding without 
the necessity of the hearing provided for in this paragraph.
            (3) Termination of control.--If such final order affirms 
        the initial finding, the financial services holding company 
        shall, upon completion of the judicial review, if any, of the 
        appropriate Federal banking agency's final order as provided 
        for in subsection (m), terminate its control of the insured 
        depository institution involved within 1 year.
    (k) Criminal Penalties.--
            (1) Willful violations.--Any company or insured depository 
        institution which knowingly and willfully violates or knowingly 
        and willfully participates in a violation of any provision of 
        this section, or any rule, regulation, or order issued by an 
        appropriate Federal banking agency pursuant thereto, shall, 
        upon conviction, be fined for each violation not more than the 
        greater of $250,000 or an amount equal to \1/100\ of 1 percent 
        of the minimum required capital of the relevant insured 
        depository institution for each day during which the violation 
        continues, except that in no case shall any such amount for any 
        violation or related series of violations exceed 1 percent of 
        the minimum required capital of the relevant insured depository 
        institution.
            (2) Enforcement against individuals.--Any officer, 
        director, employee, or agent of any company, insured depository 
        institution, and any other natural person who knowingly and 
        willfully participates in a violation of any provision of this 
        section or any rule, regulation, or order issued pursuant 
        thereto, shall upon conviction be imprisoned not less than 5 
        years and fined for each violation not more than the greater of 
        $250,000 or double the individual's annual compensation at the 
        time the violation occurred.
            (3) Enforceability against officers and employees.--Every 
        officer, director, employee, and agent of a financial services 
        holding company or insured depository institution also shall be 
        subject to the same penalties for false entries in any book, 
        report, or statement of such company or insured depository 
        institution as are applicable to officers, directors, 
        employees, and agents of member banks for false entries in any 
        books, reports, or statements of member banks under section 
        1005 of title 18, United States Code.
            (4) Enforceability against holding companies.--A financial 
        services holding company and its affiliates shall be subject to 
        the provisions of title 18, United States Code, to the same 
        extent as a registered bank holding company or savings and loan 
        holding company or any affiliate of such a company.
    (l) Civil Enforcement, Cease-and-Desist Orders, Civil Money 
Penalties, Removal, and Prohibition Authority.--Subsections (b) through 
(s) and subsection (u) of section 8 of the Federal Deposit Insurance 
Act shall apply to any financial services holding company in the same 
manner as they apply to an insured depository institution. Nothing in 
subsection (b) or (c) of that section 8 shall authorize any Federal 
banking agency, other than the appropriate Federal banking agency, to 
issue a notice of charges or cease-and-desist order against a financial 
services holding company.
    (m) Civil Money Penalties.--
            (1) In general.--The appropriate Federal banking agency 
        shall have authority to assess such a civil money penalty, 
        after giving notice and an opportunity to the company or 
        insured depository institution, officer, director, employee, 
        agent, or other natural person to submit data, views, and 
        arguments, and after giving due consideration to the 
        appropriateness of the penalty with respect to the size of 
        financial resources and good faith of the company, insured 
        depository institution, or natural person charged, the gravity 
        of the violation, the history of previous violations, and any 
        data, views, and arguments submitted.
            (2) Collection of Penalties.--The appropriate Federal 
        banking agency may, in its discretion, compromise, modify, or 
        remit any civil money penalty which is subject to imposition or 
        has been imposed. The appropriate Federal banking agency may 
        collect such civil money penalty by agreement with the company, 
        insured bank or insured institution, or person, or by bringing 
        an action in the appropriate United States district court, 
        except that in any such action, the company, insured depository 
        institution or person against whom the penalty has been 
        assessed shall have a right to trial de novo.
    (n) Judicial Review.--Any party aggrieved by an appropriate Federal 
banking agency's findings or other actions under this Act may obtain 
review by the United States court of appeals of the circuit wherein 
such party has its principal place of business or the United States 
Court of Appeals for the District of Columbia Circuit, by filing a 
Notice of Appeal in such court within 30 days from the date of such 
action, and simultaneously sending a copy of such notice by registered 
or certified mail to the appropriate Federal banking agency. The 
appropriate Federal banking agency shall promptly certify and file in 
such court the record upon which such action or finding was based. The 
actions or findings of the appropriate Federal banking agency shall be 
set aside if not supported by substantial evidence or if found to 
violate procedures established by this Act. An initial finding by the 
appropriate Federal banking agency under subsection (j) shall be 
subject to judicial review only in the context of review of a final 
order under paragraph (2) of subsection (j).

SEC. 102. AMENDMENTS TO THE BANK HOLDING COMPANY ACT OF 1956.

    Section 2(c)(2) of the Bank Holding Company Act of 1956 (12 U.S.C. 
1841(c)(2)) is amended by adding at the end the following new 
subparagraph:
                    ``(K) An insured bank, as defined in section 3 of 
                the Federal Deposit Insurance Act, that is controlled 
                by no company other than a financial services holding 
                company, as defined in section 101 of the Depository 
                Institution Affiliation Act.''.

SEC. 103. AMENDMENTS TO THE FEDERAL RESERVE ACT.

    Section 23A(a)(2) of the Federal Reserve Act (12 U.S.C. 371c(a)(2)) 
is amended by adding at the end the following: ``Notwithstanding the 
foregoing, a loan or extension of credit shall not be deemed to be made 
to an affiliate if--
            ``(A) the member bank approves such loan or extension of 
        credit in accordance with substantially the same standards and 
        procedures and on substantially the same terms that it applies 
        to similar loans or extensions of credit the proceeds of which 
        are not transferred to or for the benefit of an affiliate; and
            ``(B) such loan or extension of credit is not made for the 
        purposes of evading any of the requirements of this section.''.

SEC. 104. AMENDMENTS TO THE BANKING ACT OF 1933.

    (a) Section 20.--Section 20 of the Banking Act of 1933 (12 U.S.C. 
377) is amended by inserting after the first undesignated paragraph the 
following:
            ``The provisions of this section shall not apply to the 
        affiliation of any bank that is an affiliate of a financial 
        services holding company as defined in the Depository 
        Institution Affiliation Act with the financial services holding 
        company or any other affiliate of the financial services 
        holding company.''.
    (b) Section 32.--Section 32 of the Banking Act of 1933 (12 U.S.C. 
78) is amended by adding at the end the following: ``The provisions of 
this section shall not apply to relationships involving an affiliate of 
a financial services holding company, as defined in section 101 of the 
Depository Institution Affiliation Act, and either that financial 
services holding company or any other affiliate of that financial 
services holding company.''.

SEC. 105. AMENDMENTS TO THE FEDERAL DEPOSIT INSURANCE ACT.

    (a) Section 7.--Section 7(j) of the Federal Deposit Insurance Act 
(12 U.S.C. 1817(j)) is amended--
            (1) in paragraph (8), by striking subparagraph (B) and 
        inserting the following:
                    ``(B) the term `control' means the power, directly 
                or indirectly, to direct the management or policies of 
                a company, or to vote 25 percent or more of any class 
                of voting securities of a company, except that no 
                company shall be deemed to control or to have acquired 
                control of any other company by virtue of its ownership 
                of the voting securities of such other company--
                            ``(i) acquired or held in an agency, trust, 
                        or other fiduciary capacity;
                            ``(ii) acquired or held in connection with 
                        or incidental to--
                                    ``(I) the underwriting of 
                                securities if such securities are held 
                                only for such period of time as will 
                                permit the sale thereof on a reasonable 
                                basis; or
                                    ``(II) market making, dealing, 
                                trading, brokerage, or other 
                                securities-related activities and not 
                                with a view to acquiring, exercising, 
                                or transferring any control over the 
                                management or policies of such company; 
                                or
                            ``(iii) acquired in securing or collecting 
                        a debt previously contracted in good faith, 
                        until 2 years after the date of acquisition, 
                        except that no company formed for the sole 
                        purpose of participating in a proxy 
                        solicitation is in control of a company by 
                        virtue of its acquisition of voting rights with 
                        respect to shares of such company acquired in 
                        the course of such solicitation.''; and
            (2) by adding at the end the following new paragraph:
            ``(18) Definition.--For purposes of this subsection, the 
        term `insured depository institution' shall include--
                    ``(A) any `bank holding company', as that term is 
                defined in section 2 of the Bank Holding Company Act of 
                1956, which has control of any insured bank (as defined 
                in that section 2), and the appropriate Federal banking 
                agency in the case of a bank holding company shall be 
                the Board of Governors of the Federal Reserve System;
                    ``(B) any `savings and loan holding company', as 
                that term is defined in section 10 of the Home Owners' 
                Loan Act, which has control of any insured savings 
                association (as defined in that section 10), and the 
                appropriate Federal banking agency, in the case of a 
                savings and loan holding company shall be the Office of 
                Thrift Supervision; and
                    ``(C) any `financial services holding company', as 
                that term is defined in section 101(a)(1) of the 
                Depository Institution Affiliation Act, which has 
                control of any such insured bank, and the appropriate 
                Federal banking agency in the case of a financial 
                services holding company shall be the appropriate 
                Federal banking agency, as defined in section 101(a)(5) 
                of the Depository Institution Affiliation Act, of such 
                insured bank, or each such agency, if more than one, in 
                the case of a financial services holding company which 
                has control of more than one such insured bank.''.
    (b) Section 18.--Section 18(j)(1)(A) of the Federal Deposit 
Insurance Act (12 U.S.C. 1828(j)(1)(A)) is amended by striking 
``Sections'' and inserting ``Subject to section 101(c)(1)(B) of the 
Depository Institution Affiliation Act, sections''.

SEC. 106. AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF 1934.

    (a) Registration of Brokers and Dealers.--Section 15 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o) is amended by adding at 
the end the following new subsection:
    ``(i) Adherence to Other Laws.--The Commission shall not grant 
registration to any broker or dealer unless such broker or dealer 
establishes to the satisfaction of the Commission that all requirements 
established by the Depository Institution Affiliation Act in connection 
with the activities of such broker or dealer (including any capital 
adequacy requirement) have been met.''.
    (b) Regulation of Brokers and Dealers.--Section 15(b)(4) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o(b)(4)) is amended--
            (1) in subparagraph (D), by inserting ``the Depository 
        Institution Affiliation Act,'' after ``the Commodity Exchange 
        Act,''; and
            (2) in subparagraph (E), by inserting ``the Depository 
        Institution Affiliation Act,'' after ``the Commodity Exchange 
        Act,''.

SEC. 107. AMENDMENT TO THE HOME OWNERS' LOAN ACT.

    Section 11(a)(1) of the Home Owners' Loan Act (12 U.S.C. 
1468(a)(1)) is amended by striking ``Sections'' and inserting ``Subject 
to section 101(c)(1)(B) of the Depository Institution Affiliation Act, 
sections''.

SEC. 108. AMENDMENT TO THE COMMUNITY REINVESTMENT ACT.

    Section 803(3) of the Community Reinvestment Act of 1977 (12 U.S.C. 
2902(3)) is amended--
            (1) by inserting ``or notice, as appropriate'' after ``an 
        application'';
            (2) in subparagraph (E), by striking ``or'' at the end;
            (3) in subparagraph (F), by striking the period at the end 
        and inserting ``; or''; and
            (4) by adding at the end the following new subparagraph:
                    ``(G) the acquisition of an insured depository 
                institution requiring prior notice under section 101(b) 
                of the Depository Institution Affiliation Act.''.

                   TITLE II--SUPERVISORY IMPROVEMENTS

SEC. 201. NATIONAL FINANCIAL SERVICES COMMITTEE.

    (a) Establishment of National Financial Services Oversight 
Committee.--There is established a National Financial Services 
Oversight Committee which shall consist of--
            (1) the Secretary of the Treasury;
            (2) the Chairman of the Board of Governors of the Federal 
        Reserve System;
            (3) the Chairman of the Board of Directors of the Federal 
        Deposit Insurance Corporation;
            (4) the Director of the Office of Thrift Supervision;
            (5) the Comptroller of the Currency;
            (6) the Secretary of Commerce;
            (7) the Attorney General;
            (8) the Chairman of the Securities and Exchange Commission; 
        and
            (9) the Chairman of the Commodities Futures Trading 
        Commission.
    (b) Member Agencies.--For purposes of this Act, the agencies or 
departments headed by members of the committee shall be referred to as 
``member agencies''.
    (c) Chair.--The chair of the committee shall be the Secretary of 
the Treasury.
    (d) Compensation.--Each member of the committee shall serve without 
additional compensation, but shall be entitled to reasonable expenses 
incurred in carrying out the official duties as such a member.
    (e) Public Meetings.--The committee shall hold public meetings at 
least annually. All meetings of the committee shall be conducted in 
conformity with the provisions of section 3(a) of the Government in the 
Sunshine Act (5 U.S.C. 552b). The committee may not take any action 
unless such action is approved by a vote of two-thirds of the members 
of the committee.
    (f) Secretariat.--The Department of the Treasury shall provide the 
secretariat for the committee and shall assume any expenses arising for 
execution of the responsibilities of the committee.
    (g) Access to Records.--For the purpose of carrying out this 
section, the committee shall have access to all books, accounts, 
records, reports, files, memoranda, papers, things, and property 
belonging to or in use by any appropriate Federal banking agency.
    (h) Functions of the Committee.--
            (1) Uniform principles and standards.--The committee shall, 
        insofar as is practicable, establish uniform principles and 
        standards for the examination and supervision of financial 
        institutions and other providers of financial services, which 
        shall be applied by the member agencies.
            (2) Recommendations.--The committee shall make 
        recommendations for uniformity in other supervisory matters, 
        such as, but not limited to, identifying financial institutions 
        and other providers of financial services in need of special 
        supervisory attention, the adequacy of supervisory tools for 
        determining the impact of affiliate operations on insured 
        depository institutions and the ability of the member agencies 
        to discover possible fraud or questionable practices.
            (3) Recommendations to congress.--The committee shall, from 
        time to time, recommend to the Congress additional measures to 
        strengthen the separation between insured depository 
        institutions controlled by depository institutions holding 
        companies from the activities of any of their affiliates 
        including, the imposition of additional restrictions on 
        interaffiliate transactions and the strict application of 
        Federal deposit insurance coverage only for the benefit of 
        depositors of insured depository institutions that are 
        controlled by a financial services holding company.
    (i) Consultation With State Regulators.--The committee shall 
consult with the appropriate organizations representing the State 
regulators of banks, savings and loan associations, savings banks, 
securities firms, insurance companies, and other providers of financial 
services, and as deemed appropriate, meet with such State regulators. 
The committee shall invite to each public meeting of the committee 
representatives of such organizations.
    (j) Studies and Recommendations.--The committee may conduct or 
authorize studies to carry out the purposes of this Act. On the basis 
of such studies, the committee may make recommendations to the Congress 
and member agencies concerning the implementation of this Act and 
changes in statutes and regulations necessary to promote the strength 
and stability of the Nation's financial system and financial 
institutions, the competitiveness of providers of financial services in 
domestic and international markets and the purposes of this Act. Not 
later than 1 year after the date of enactment of this Act, the 
committee shall report to the Congress on proposals for legislative or 
regulatory actions that will improve the examination process to permit 
better oversight of all insured depository institutions. In particular, 
the committee shall consider whether the number of or compensation for 
examiners employed by the appropriate Federal regulatory agencies 
should be increased.
                                 <all>