I 111th CONGRESS 1st Session H. R. 3968 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.
1.
Prompt corrective action for bank holding companies
Section 6 of the Bank Holding Company Act of 1956 is amended to read as follows:
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).
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