[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3968 Introduced in House (IH)]

111th CONGRESS
  1st Session
                                H. R. 3968

 To amend the Bank Holding Company Act of 1956 to require the Board of 
   Governors of the Federal Reserve System to take prompt corrective 
         action to resolve problems of bank holding companies.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            October 29, 2009

 Mr. Ellison introduced the following bill; which was referred to the 
                    Committee on Financial Services

_______________________________________________________________________

                                 A BILL


 
 To amend the Bank Holding Company Act of 1956 to require the Board of 
   Governors of the Federal Reserve System to take prompt corrective 
         action to resolve problems of bank holding companies.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. PROMPT CORRECTIVE ACTION FOR BANK HOLDING COMPANIES.

    Section 6 of the Bank Holding Company Act of 1956 is amended to 
read as follows:

``SEC. 6. PROMPT CORRECTIVE ACTION FOR BANK HOLDING COMPANIES.

    ``(a) Prompt Corrective Action Required.--The Board shall take 
prompt corrective action to resolve the problems of a bank holding 
company.
    ``(b) Definitions.--For purposes of this section:
            ``(1) Capital categories.--
                    ``(A) Well capitalized.--A bank holding company is 
                `well capitalized' if it exceeds the required minimum 
                level for each relevant capital measure.
                    ``(B) Undercapitalized.--A bank holding company is 
                `undercapitalized' if it fails to meet the required 
                minimum level for any relevant capital measure.
                    ``(C) Significantly undercapitalized.--A bank 
                holding company is `significantly undercapitalized' if 
                it is significantly below the required minimum level 
                for any relevant capital measure.
                    ``(D) Critically undercapitalized.--A bank holding 
                company is `critically undercapitalized' if it fails to 
                meet any level specified in subsection (c)(3)(A).
            ``(2) Other definitions.--
                    ``(A) Average.--The `average' of an accounting item 
                during a given period means the sum of that item at the 
                close of business on each business day during that 
                period divided by the total number of business days in 
                that period.
                    ``(B) Capital distribution.--The term `capital 
                distribution' means--
                            ``(i) a distribution of cash or other 
                        property by a bank holding company to its 
                        owners made on account of that ownership, but 
                        not including any dividend consisting only of 
                        shares of the bank holding company or rights to 
                        purchase such shares;
                            ``(ii) a payment by a bank holding company 
                        to repurchase, redeem, retire, or otherwise 
                        acquire any of its shares or other ownership 
                        interests, including any extension of credit to 
                        finance any person's acquisition of those 
                        shares or interests; or
                            ``(iii) a transaction that the Board 
                        determines, by order or regulation, to be in 
                        substance a distribution of capital to the 
                        owners of the bank holding company.
                    ``(C) Capital restoration plan.--The term `capital 
                restoration plan' means a plan submitted under 
                subsection (e)(2).
                    ``(D) Compensation.--The term `compensation' 
                includes any payment of money or provision of any other 
                thing of value in consideration of employment.
                    ``(E) Relevant capital measure.--The term `relevant 
                capital measure' means the measures described in 
                subsection (c).
                    ``(F) Required minimum level.--The term `required 
                minimum level' means, with respect to each relevant 
                capital measure, the minimum acceptable capital level 
                specified by the Board by regulation.
                    ``(G) Senior executive officer.--The term `senior 
                executive officer' has the same meaning as the term 
                `executive officer' in section 22(h) of the Federal 
                Reserve Act (12 U.S.C. 375b).
    ``(c) Capital Standards.--
            ``(1) Relevant capital measures.--
                    ``(A) In general.--The Board shall prescribe 
                capital standards for bank holding companies, which 
                shall include--
                            ``(i) a leverage limit; and
                            ``(ii) a risk-based capital requirement.
                    ``(B) Other capital measures.--The Board may by 
                regulation--
                            ``(i) establish any additional relevant 
                        capital measures to carry out this section; or
                            ``(ii) rescind any relevant capital 
                        measures prescribed under subparagraph (A) upon 
                        determining that the measure is no longer an 
                        appropriate means for carrying out this 
                        section.
            ``(2) Capital categories generally.--The Board shall, by 
        regulation, specify for each relevant capital measure the 
        levels at which a bank holding company is well capitalized, 
        undercapitalized, and significantly undercapitalized.
            ``(3) Critical capital.--
                    ``(A) Board to specify level.--
                            ``(i) Leverage limit.--The Board shall, by 
                        regulation, specify the ratio of tangible 
                        equity to total assets at which a bank holding 
                        company is critically undercapitalized.
                            ``(ii) Other relevant capital measures.--
                        The Board may, by regulation, specify for 1 or 
                        more other relevant capital measures, the level 
                        at which a bank holding company is critically 
                        undercapitalized.
                    ``(B) Leverage limit range.--The level specified 
                under subparagraph (A)(i) shall require tangible equity 
                in an amount--
                            ``(i) not less than 2 percent of total 
                        assets; and
                            ``(ii) except as provided in clause (i), 
                        not more than 65 percent of the required 
                        minimum level of capital under the leverage 
                        limit.
    ``(d) Capital Distributions Restricted.--
            ``(1) In general.--A bank holding company shall make no 
        capital distribution if, after making the distribution, the 
        bank holding company would be undercapitalized.
            ``(2) Exception.--Notwithstanding paragraph (1), the Board 
        may permit a bank holding company to repurchase, redeem, 
        retire, or otherwise acquire shares or ownership interests if 
        the repurchase, redemption, retirement, or other acquisition--
                    ``(A) is made in connection with the issuance of 
                additional shares or obligations of the bank holding 
                company in at least an equivalent amount; and
                    ``(B) will reduce the bank holding company's 
                financial obligations or otherwise improve the bank 
                holding company's financial condition.
    ``(e) Provisions Applicable to Undercapitalized Bank Holding 
Companies.--
            ``(1) Monitoring required.--The Board shall--
                    ``(A) closely monitor the condition of any 
                undercapitalized bank holding company;
                    ``(B) closely monitor compliance by any 
                undercapitalized bank holding company with capital 
                restoration plans, restrictions, and requirements 
                imposed under this section; and
                    ``(C) periodically review the plan, restrictions, 
                and requirements applicable to any undercapitalized 
                bank holding company to determine whether the plan, 
                restrictions, and requirements are effective.
            ``(2) Capital restoration plan required.--
                    ``(A) In general.--An undercapitalized bank holding 
                company shall submit an acceptable capital restoration 
                plan to the Board within the time allowed by the Board 
                under subparagraph (D).
                    ``(B) Contents of plan.--The capital restoration 
                plan shall--
                            ``(i) specify--
                                    ``(I) the steps the bank holding 
                                company will take to become well 
                                capitalized;
                                    ``(II) the levels of capital to be 
                                attained by the bank holding company 
                                during each year in which the plan will 
                                be in effect;
                                    ``(III) how the bank holding 
                                company will comply with the 
                                restrictions or requirements then in 
                                effect under this section; and
                                    ``(IV) the types and levels of 
                                activities in which the bank holding 
                                company will engage; and
                            ``(ii) contain such other information that 
                        the Board may require.
                    ``(C) Criteria for accepting plan.--The Board shall 
                not accept a capital restoration plan unless it 
                determines that the plan--
                            ``(i) complies with subparagraph (B);
                            ``(ii) is based on realistic assumptions, 
                        and is likely to succeed in restoring the bank 
                        holding company's capital; and
                            ``(iii) would not appreciably increase the 
                        risk (including credit risk, interest-rate 
                        risk, and other types of risk) to which the 
                        bank holding company is exposed.
                    ``(D) Deadlines for submission and review of 
                plans.--The Board shall, by regulation, establish 
                deadlines that--
                            ``(i) provide bank holding companies with 
                        reasonable time to submit capital restoration 
                        plans, and generally require a bank holding 
                        company to submit a plan not later than 45 days 
                        after it becomes undercapitalized; and
                            ``(ii) require the Board to act on capital 
                        restoration plans expeditiously, and generally 
                        not later than 60 days after the plan is 
                        submitted.
            ``(3) Asset growth restricted.--An undercapitalized bank 
        holding company shall not permit its average total assets 
        during any calendar quarter to exceed its average total assets 
        during the preceding calendar quarter unless--
                    ``(A) the Board has accepted the bank holding 
                company's capital restoration plan;
                    ``(B) any increase in total assets is consistent 
                with the plan; and
                    ``(C) the bank holding company's ratio of tangible 
                equity to total assets increases during the calendar 
                quarter at a rate sufficient to enable it to become 
                well capitalized within a reasonable time.
            ``(4) Prior approval required for acquisitions and new 
        lines of business.--An undercapitalized bank holding company 
        shall not, directly or indirectly, acquire any interest in any 
        company or insured depository institution, or engage in any new 
        line of business, unless--
                    ``(A) the Board has accepted the bank holding 
                company's capital restoration plan, the bank holding 
                company is implementing the plan, and the Board 
                determines that the proposed action is consistent with 
                and will further the achievement of the plan;
                    ``(B) the Board determines that the specific 
                proposed action is appropriate; or
                    ``(C) the Board has exempted the bank holding 
                company from the requirements of this paragraph with 
                respect to the class of acquisitions that includes the 
                proposed action.
            ``(5) Discretionary safeguards.--The Board may, with 
        respect to any undercapitalized bank holding company, take 
        actions described in any subparagraph of subsection (f)(2) if 
        the Board determines that those actions are necessary.
    ``(f) Provisions Applicable to Significantly Undercapitalized Bank 
Holding Companies and Undercapitalized Bank Holding Companies That Fail 
To Submit and Implement Capital Restoration Plans.--
            ``(1) In general.--This subsection shall apply with respect 
        to any bank holding company that--
                    ``(A) is significantly undercapitalized; or
                    ``(B) is undercapitalized and--
                            ``(i) fails to submit an acceptable capital 
                        restoration plan within the time allowed by the 
                        Board under subsection (e)(2)(D); or
                            ``(ii) fails in any material respect to 
                        implement a capital restoration plan accepted 
                        by the Board.
            ``(2) Specific actions authorized.--With respect to a bank 
        holding company to which this subsection applies, the Board 
        shall take 1 or more of the following actions:
                    ``(A) Requiring recapitalization.--Doing one or 
                more of the following:
                            ``(i) Requiring the bank holding company to 
                        sell enough shares or obligations of the bank 
                        holding company so that the bank holding 
                        company will be well capitalized after the 
                        sale.
                            ``(ii) Further requiring that instruments 
                        sold under clause (i) be voting shares.
                            ``(iii) Requiring the bank holding company 
                        to be acquired by or combine with another 
                        company.
                    ``(B) Restricting transactions with affiliates.--
                            ``(i) Requiring the bank holding company to 
                        comply with section 23A of the Federal Reserve 
                        Act (12 U.S.C. 371(c)), as if it were a member 
                        bank.
                            ``(ii) Further restricting the bank holding 
                        company's transactions with affiliates and 
                        insiders.
                    ``(C) Restricting asset growth.--Restricting the 
                bank holding company's asset growth more stringently 
                than the requirements under subsection (e)(3), or 
                requiring the bank holding company to reduce its total 
                assets.
                    ``(D) Restricting activities.--Requiring the bank 
                holding company or any of its subsidiaries to alter, 
                reduce, or terminate any activity that the Board 
                determines poses excessive risk to the bank holding 
                company.
                    ``(E) Improving management.--Doing 1 or more of the 
                following:
                            ``(i) New election of directors.--Ordering 
                        a new election for the bank holding company's 
                        board of directors.
                            ``(ii) Dismissing directors or senior 
                        executive officers.--Requiring the bank holding 
                        company to dismiss from office any director or 
                        senior executive officer who had held office 
                        for more than 180 days immediately before the 
                        bank holding company became undercapitalized. 
                        Dismissal under this clause shall not be 
                        construed to be a removal under section 8 of 
                        the Federal Deposit Insurance Act (12 U.S.C. 
                        1818).
                            ``(iii) Employing qualified senior 
                        executive officers.--Requiring the bank holding 
                        company to employ qualified senior executive 
                        officers (who, if the Board so specifies, shall 
                        be subject to approval by the Board).
                    ``(F) Requiring divestiture.--Requiring the bank 
                holding company to divest itself of or liquidate any 
                subsidiary if the Board determines that the subsidiary 
                is in danger of becoming insolvent, poses a significant 
                risk to the bank holding company, or is likely to cause 
                a significant dissipation of the bank holding company's 
                assets or earnings.
                    ``(G) Requiring other action.--Requiring the bank 
                holding company to take any other action that the Board 
                determines will be better carry out the purpose of this 
                section than any of the actions described in this 
                paragraph.
            ``(3) Presumption in favor of certain actions.--In 
        complying with paragraph (2), the Board shall take the 
        following actions, unless the Board determines that the actions 
        would not be appropriate:
                    ``(A) The action described in clause (i) or (iii) 
                of paragraph (2)(A) (relating to requiring the sale of 
                shares or obligations, or requiring the bank holding 
                company to be acquired by or combine with another 
                company).
                    ``(B) The action described in paragraph (2)(B)(i) 
                (relating to restricting transactions with affiliates).
            ``(4) Senior executive officers' compensation restricted.--
                    ``(A) In general.--The bank holding company shall 
                not do any of the following without the prior written 
                approval of the Board:
                            ``(i) Pay any bonus to any senior executive 
                        officer.
                            ``(ii) Provide compensation to any senior 
                        executive officer at a rate exceeding that 
                        officer's average rate of compensation 
                        (excluding bonuses, stock options, and profit-
                        sharing) during the 12 calendar months 
                        preceding the calendar month in which the bank 
                        holding company became undercapitalized.
                    ``(B) Failing to submit plan.--The Board shall not 
                grant any approval under subparagraph (A) with respect 
                to a Bank holding company that has failed to submit an 
                acceptable capital restoration plan.
            ``(5) Consultation with other regulators.--Before the Board 
        makes a determination under paragraph (2)(F) with respect to a 
        subsidiary that is a broker, dealer, government securities 
        broker, government securities dealer, investment company, or 
        investment adviser, the Board shall consult with the Securities 
        and Exchange Commission and, in the case of any other 
        subsidiary which is subject to any financial responsibility or 
        capital requirement, any other appropriate regulator of such 
        subsidiary with respect to the proposed determination of the 
        Board and actions pursuant to such determination.
    ``(g) More Stringent Treatment Based on Other Supervisory 
Criteria.--
            ``(1) In general.--If the Board determines (after notice 
        and an opportunity for hearing) that a bank holding company is 
        in an unsafe or unsound condition or, pursuant to section 
        8(b)(8) of the Federal Deposit Insurance Act (12 U.S.C. 
        1818(b)(8)), deems the bank holding company to be engaging in 
        an unsafe or unsound practice, the Board may--
                    ``(A) if the bank holding company is well 
                capitalized, require the bank holding company to comply 
                with one or more provisions of subsections (d) or (e), 
                as if the institution were undercapitalized; or
                    ``(B) if the bank holding company is 
                undercapitalized, take any one or more actions 
                authorized under subsection (f)(2) as if the bank 
                holding company were significantly undercapitalized.
            ``(2) Contents of plan.--A plan that may be required 
        pursuant to paragraph (1) shall additionally specify the steps 
        that the bank holding company will take to correct the unsafe 
        or unsound condition or practice.
    ``(h) Mandatory Bankruptcy Petition for Critically Undercapitalized 
Bank Holding Companies.--The Board shall, not later than 90 days after 
a Bank holding company becomes critically undercapitalized--
            ``(1) require the bank holding company to file a petition 
        for bankruptcy under section 301 of title 11, United States 
        Code; or
            ``(2) file a petition for bankruptcy against the bank 
        holding company under section 303 of title 11, United States 
        Code.
    ``(i) Implementation.--The Board shall prescribe such regulations, 
issue such orders, and take such other actions as the Board determines 
necessary to carry out this section.
    ``(j) Other Authority Not Affected.--This section does not limit 
the authority of the Board, any other Federal regulatory agency, or a 
State to take action in addition to (but not in derogation of) that 
required under this section.
    ``(k) Considerations With Regard to Foreign Bank Holding 
Companies.--In its regulation and supervision of bank holding companies 
incorporated or organized in a country other than the United States, 
the Board shall take into account the extent to which such companies 
are subject to standards in their country of incorporation or 
organization that are comparable to those standards applied to United 
States bank holding companies.
    ``(l) Administrative Review of Dismissal Orders.--
            ``(1) Timely petition required.--A director or senior 
        executive officer dismissed pursuant to an order under 
        subsection (f)(2)(E)(ii) may obtain review of that order by 
        filing a written petition for reinstatement with the Board not 
        later than 10 days after receiving notice of the dismissal.
            ``(2) Procedure.--
                    ``(A) Hearing required.--The Board shall give the 
                petitioner an opportunity to--
                            ``(i) submit written materials in support 
                        of the petition; and
                            ``(ii) appear, personally or through 
                        counsel, before 1 or more members of the Board 
                        or designated employees of the Board.
                    ``(B) Deadline for hearing.--The Board shall--
                            ``(i) schedule the hearing referred to in 
                        subparagraph (A)(ii) promptly after the 
                        petition is filed; and
                            ``(ii) hold the hearing not later than 30 
                        days after the petition is filed, unless the 
                        petitioner requests that the hearing be held at 
                        a later time.
                    ``(C) Deadline for decision.--Not later than 60 
                days after the date of the hearing, the Board shall--
                            ``(i) by order, grant or deny the petition;
                            ``(ii) if the order is adverse to the 
                        petitioner, set forth the basis for the order; 
                        and
                            ``(iii) notify the petitioner of the order.
            ``(3) Standard for review of dismissal orders.--The 
        petitioner shall bear the burden of proving that the 
        petitioner's continued employment would materially strengthen 
        the bank holding company's ability--
                    ``(A) to become well capitalized, to the extent 
                that the order is based on the bank holding company's 
                capital level or failure to submit or implement a 
                capital restoration plan; and
                    ``(B) to correct the unsafe or unsound condition or 
                unsafe or unsound practice, to the extent that the 
                order is based on subsection (g)(1).''.
                                 <all>