[Congressional Record Volume 140, Number 29 (Wednesday, March 16, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]
[Congressional Record: March 16, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]
COMMUNITY DEVELOPMENT BANKING AND FINANCIAL INSTITUTIONS ACT OF 1993
The PRESIDING OFFICER. Under the previous order the clerk will now
report Calendar No. 259.
The legislative clerk read as follows:
A bill (S. 1275) to facilitate the establishment of
community development financial institutions.
The Senate proceeded to consider the bill which had been reported
from the Committee on Banking, Housing, and Urban Affairs, with an
amendment to strike all after the enacting clause and inserting in lieu
thereof the following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Community
Development, Credit Enhancement, and Regulatory Improvement
Act of 1993''.
(b) Table of Contents.--The table of contents for this Act
is as follows:
Sec. 1. Short title; table of contents.
TITLE I--COMMUNITY DEVELOPMENT AND CONSUMER PROTECTION
Subtitle A--Community Development Banking and Financial Institutions
Act
Sec. 101. Short title.
Sec. 102. Findings and purposes.
Sec. 103. Definitions.
Sec. 104. Establishment of national fund for community development
banking.
Sec. 105. Applications for assistance.
Sec. 106. Community partnerships.
Sec. 107. Selection of institutions.
Sec. 108. Assistance provided by the Fund.
Sec. 109. Community development training.
Sec. 110. Encouragement of private entities.
Sec. 111. Clearinghouse function.
Sec. 112. Recordkeeping, reports, and audits.
Sec. 113. Investment of receipts and proceeds.
Sec. 114. Inspector General.
Sec. 115. Capitalization assistance to enhance liquidity.
Sec. 116. Community development revolving loan fund for credit unions.
Sec. 117. Study of community development credit unions.
Sec. 118. Regulations.
Sec. 119. Authorization of appropriations.
Subtitle B--Home Ownership and Equity Protection
Sec. 151. Consumer protections for high cost mortgages.
Sec. 152. Civil liability.
Sec. 153. Regulations; effective date.
TITLE II--SMALL BUSINESS CAPITAL FORMATION
Subtitle A--Small Business Loan Securitization
Sec. 201. Short title.
Sec. 202. Small business related security.
Sec. 203. Applicability of margin requirements.
Sec. 204. Borrowing in the course of business.
Sec. 205. Small business related securities as collateral.
Sec. 206. Investment by depository institutions.
Sec. 207. Preemption of State law.
Sec. 208. Insured depository institution capital requirements for
transfers of small business loans.
Sec. 209. Transactions in small business related securities by employee
benefit plans.
Sec. 210. Taxation of small business loan investment conduits.
Subtitle B--Small Business Capital Enhancement
Sec. 251. Findings and purposes.
Sec. 252. Definitions.
Sec. 253. Approving States for participation.
Sec. 254. Participation agreements.
Sec. 255. Terms of participation agreements.
Sec. 256. Reports.
Sec. 257. Reimbursement by the Secretary.
Sec. 258. Reimbursement to the Secretary.
Sec. 259. Regulations.
Sec. 260. Authorization of appropriations.
TITLE III--PAPERWORK REDUCTION AND REGULATORY IMPROVEMENT
Sec. 301. Incorporated definitions.
Sec. 302. Administrative consideration of burden with new regulations.
Sec. 303. Streamlining of regulatory requirements.
Sec. 304. Elimination of duplicative filings.
Sec. 305. Coordinated and unified examinations.
Sec. 306. Eighteen-month examination rule for certain small
institutions.
Sec. 307. Call report simplification.
Sec. 308. Repeal of publication requirements.
Sec. 309. Regulatory appeals process.
Sec. 310. Electronic filing of currency transaction reports.
Sec. 311. Bank Secrecy Act publication requirements.
Sec. 312. Exemption of business loans from Real Estate Settlement
Procedures Act requirements.
Sec. 313. Flexibility in choosing boards of directors.
Sec. 314. Holding company audit requirements.
Sec. 315. State regulation of real estate appraisals.
Sec. 316. Acceleration of effective date for interaffiliate
transactions.
Sec. 317. Collateralization of public deposits.
Sec. 318. Elimination of stock valuation provision.
Sec. 319. Expedited procedures for forming a bank holding company.
Sec. 320. Exemption of certain holding company formations from
registration under the Securities Act of 1933.
Sec. 321. Reduction of post-approval waiting period for bank holding
company acquisitions.
Sec. 322. Reduction of post-approval waiting period for bank mergers.
Sec. 323. Bankers' banks.
Sec. 324. Bank Service Corporation Act amendment.
Sec. 325. Merger transaction reports.
Sec. 326. Credit card accounts receivable sales.
Sec. 327. Limiting potential liability on foreign accounts.
Sec. 328. Amendments to outdated dividend provisions.
Sec. 329. Elimination of duplicative disclosures for home equity loans.
Sec. 330. Report on capital standards and their impact on the economy.
Sec. 331. Studies on the impact of the payment of interest on reserves.
Sec. 332. Study and report on streamlined lending process for consumer
benefit.
Sec. 333. Repeal of outdated charter requirement for national banks.
TITLE I--COMMUNITY DEVELOPMENT AND CONSUMER PROTECTION
Subtitle A--Community Development Banking and Financial Institutions
Act
SEC. 101. SHORT TITLE.
This subtitle may be cited as the ``Community Development
Banking and Financial Institutions Act of 1993''.
SEC. 102. FINDINGS AND PURPOSES.
(a) Findings.--The Congress finds that--
(1) many of the Nation's urban, rural, and Native American
communities face critical social and economic problems
arising in part from the lack of economic growth, people
living in poverty, and the lack of employment and other
opportunities;
(2) the restoration and maintenance of the economies of
these communities will require coordinated development
strategies, intensive supportive services, and increased
access to equity investments and loans for development
activities, including investment in businesses, housing,
commercial real estate, human development, and other
activities that promote the long-term economic and social
viability of the community; and
(3) community development financial institutions have
proven their ability to identify and respond to community
needs for equity investments, loans, and development
services.
(b) Purpose.--The purpose of this subtitle is to create a
Community Development Financial Institutions Fund that will
promote economic revitalization and community development
through a program of investment in and assistance to
community development financial institutions, including
enhancing the liquidity of community development financial
institutions.
SEC. 103. DEFINITIONS.
For purposes of this subtitle, the following definitions
shall apply:
(1) Appropriate federal banking agency.--The term
``appropriate Federal banking agency'' has the same meaning
as in section 3 of the Federal Deposit Insurance Act, and
also includes the National Credit Union Administration Board
with respect to insured credit unions.
(2) Affiliate.--The term ``affiliate'' has the same meaning
as in section 2(k) of the Bank Holding Company Act of 1956.
(3) Community development financial institution.--
(A) In general.--The term ``community development financial
institution'' means a person (other than an individual)
that--
(i) has a primary mission of promoting community
development;
(ii) serves an investment area or targeted population;
(iii) directly, through an affiliate, or through a
community partnership, provides development services and
equity investments or loans;
(iv) maintains, through representation on its governing
board or otherwise, accountability to residents of its
investment area or targeted population; and
(v) is not an agency or instrumentality of the United
States, or of any State or political subdivision of a State.
(B) Qualification of affiliates.--A subsidiary may only
qualify as a community development financial institution if
its parent company and the subsidiaries thereof (on a
consolidated basis) also qualify as community development
financial institutions.
(4) Community partner.--The term ``community partner''
means a person (other than an individual) that provides
loans, equity investments, or development services, including
a depository institution holding company, an insured
depository institution, an insured credit union, a nonprofit
organization, a State or local government agency, and an
investment company authorized to operate pursuant to the
Small Business Investment Act of 1958.
(5) Community partnership.--The term ``community
partnership'' means an agreement between a community
development financial institution and a community partner to
provide development services and loans or equity investments
to an investment area or targeted population.
(6) Depository institution holding company.--The term
``depository institution holding company'' has the same
meaning as in section 3 of the Federal Deposit Insurance Act.
(7) Development services.--The term ``development
services'' means activities that promote community
development and are integral to lending or investment
activities, including--
(A) business planning;
(B) financial and credit counseling; and
(C) marketing and management assistance.
(8) Insured community development financial institution.--
The term ``insured community development financial
institution'' means any community development financial
institution that is an insured depository institution or an
insured credit union.
(9) Insured credit union.--The term ``insured credit
union'' has the same meaning as in section 101(7) of the
Federal Credit Union Act.
(10) Insured depository institution.--The term ``insured
depository institution'' has the same meaning as in section 3
of the Federal Deposit Insurance Act.
(11) Investment area.--The term ``investment area'' means a
geographic area that--
(A)(i) meets objective criteria of economic distress
developed by the Community Development Financial Institutions
Fund, which may include the percentage of low-income families
or the extent of poverty, the rate of unemployment or
underemployment, lag in population growth, and extent of
blight and disinvestment; and
(ii) has significant unmet needs for loans or equity
investments;
(B) is located in an empowerment zone or enterprise
community designated under section 1391 of the Internal
Revenue Code of 1986; or
(C) is located on an Indian reservation, as defined in
section 3(d) of the Indian Financing Act of 1974 or section
4(10) of the Indian Child Welfare Act of 1978.
(12) Low-income.--The term ``low-income'' means having an
income, adjusted for family size, of not more than--
(A) for metropolitan areas, 80 percent of the area median
income; and
(B) for nonmetropolitan areas, the greater of--
(i) 80 percent of the area median income; and
(ii) 80 percent of the statewide nonmetropolitan area
median income.
(13) Parent company.--The term ``parent company'' means any
company that directly or indirectly controls another company.
(14) Subsidiary.--The term ``subsidiary'' has the same
meaning as in section 3 of the Federal Deposit Insurance Act,
except that a community development financial institution
that is a corporation shall not be considered to be a
subsidiary of any insured depository institution or
depository institution holding company that controls less
than 25 percent of the voting shares of the corporation.
(15) Targeted population.--The term ``targeted population''
means low-income persons or persons who otherwise lack
adequate access to loans or equity investments.
SEC. 104. ESTABLISHMENT OF NATIONAL FUND FOR COMMUNITY
DEVELOPMENT BANKING.
(a) Establishment.--
(1) In general.--There is established a corporation to be
known as the Community Development Financial Institutions
Fund (hereafter in this subtitle referred to as the ``Fund'')
that shall have the duties and responsibilities specified by
this subtitle. The Fund shall have succession until
dissolved. The offices of the Fund shall be in Washington,
D.C. The Fund shall not be affiliated with or be within any
other agency or department of the Federal Government.
(2) Wholly owned government corporation.--The Fund shall be
a wholly owned Government corporation in the executive branch
and shall be treated in all respects as an agency of the
United States, except as otherwise provided in this subtitle.
(b) Management of Fund.--
(1) Appointment of administrator and deputy
administrator.--The management of the Fund shall be vested in
an Administrator, who shall be appointed by the President, by
and with the advice and consent of the Senate. The
Administrator shall not engage in any other business or
employment during service as the Administrator. The President
may appoint a Deputy Administrator by and with the advice and
consent of the Senate. The Deputy Administrator shall serve
as the acting Administrator of the Fund during the absence or
disability of the Administrator or in the event of a vacancy
in the office of the Administrator.
(2) Chief financial officer.--The Administrator shall
appoint a chief financial officer who shall oversee the
financial management activities of the Fund.
(3) Other officers.--The Administrator may appoint such
other officers and employees of the Fund as the Administrator
determines to be necessary or appropriate.
(c) General Powers.--In carrying out the functions of the
Fund, the Administrator--
(1) shall have all necessary and proper authority to carry
out this subtitle;
(2) shall have the power to adopt, alter, and use a
corporate seal for the Fund, which shall be judicially
noticed;
(3) may adopt, amend, and repeal bylaws, rules, and
regulations governing the manner in which business of the
Fund may be conducted and such rules and regulations as may
be necessary or appropriate to implement this subtitle;
(4) may enter into, perform, and enforce such agreements,
contracts, and transactions as may be deemed necessary or
appropriate to the conduct of activities authorized under
this subtitle;
(5) may determine the character of and necessity for
expenditures of the Fund and the manner in which they shall
be incurred, allowed, and paid;
(6) may utilize or employ the services of personnel of any
agency or instrumentality of the United States with the
consent of the agency or instrumentality concerned on a
reimbursable or nonreimbursable basis; and
(7) may execute all instruments necessary or appropriate in
the exercise of any of the functions of the Fund under this
subtitle and may delegate to the officers of the Fund such of
the powers and responsibilities of the Administrator as the
Administrator deems necessary or appropriate for the
administration of the Fund.
(d) Advisory Board.--
(1) Establishment.--The Administrator shall establish an
advisory board to be known as the Community Development
Advisory Board (hereafter in this subtitle referred to as the
``Board'') in accordance with the provisions of the Federal
Advisory Committee Act.
(2) Membership.--
(A) In general.--The Board shall consist of 5 private
citizens who, collectively--
(i) represent community groups whose constituencies include
targeted populations or residents of investment areas;
(ii) represent local or regional government interests;
(iii) have expertise in the operations and activities of
insured depository institutions; and
(iv) have expertise in community development and lending.
(B) Representation.--Each of the categories described in
clauses (i) through (iv) of subparagraph (A) shall be
represented by not less than 1 member of the Board.
(3) Board function.--It shall be the function of the Board
to advise the Administrator on the policies of the Fund. The
Board shall not advise the Administrator on the granting or
denial of any particular application.
(4) Terms of members.--
(A) In general.--Each member of the Board shall serve for a
term of 4 years.
(B) Vacancies.--Any member appointed to fill a vacancy
occurring prior to the expiration of the term for which the
previous member was appointed shall be appointed for the
remainder of such term. Members may continue to serve
following the expiration of their terms until a successor is
appointed and qualified.
(5) Chairperson.--The Administrator shall appoint a
chairperson from among the members of the Board.
(6) Meetings.--The Board shall meet at least annually and
at such other times as requested by the Administrator or the
chairperson. A majority of the members of the Board shall
constitute a quorum.
(7) Reimbursement for expenses.--The members of the Board
may receive reimbursement for travel, per diem, and other
necessary expenses incurred in the performance of their
duties, in accordance with the Federal Advisory Committee
Act.
(8) Costs and expenses.--The Fund shall provide to the
Board all necessary staff and facilities.
(e) Conforming Amendments.--Section 9101(3) of title 31,
United States Code, is amended--
(1) by redesignating subparagraphs (B) through (M) as
subparagraphs (C) through (N), respectively; and
(2) by inserting after subparagraph (A) the following new
subparagraph:
``(B) the Community Development Financial Institutions
Fund;''.
(f) Government Corporation Control Act Exemption.--Section
9107(b) of title 31, United States Code, shall not apply to
deposits of the Fund made pursuant to section 108.
(g) Limitation of Fund and Federal Liability.--The
liability of the Fund and the United States Government
arising out of any investment in a community development
financial institution in accordance with this subtitle shall
be limited to the amount of the investment. The Fund shall be
exempt from any assessments and other liabilities that may be
imposed on controlling or principal shareholders by any
Federal law or the law of any State, Territory, or the
District of Columbia.
(h) Prohibition on Issuance of Securities.--The Fund may
not issue stock, bonds, debentures, notes, or other
securities.
(i) Compensation.--Title 5, United States Code, is
amended--
(1) in section 5314, by adding at the end the following:
``Administrator of the Community Development Financial
Institutions Fund.''; and
(2) in section 5315, by adding at the end the following:
``Deputy Administrator of the Community Development
Financial Institutions Fund.''.
(j) Assisted Institutions Not United States
Instrumentalities.--A community development financial
institution or other organization that receives assistance
pursuant to this subtitle shall not be deemed to be an
agency, department, or instrumentality of the United States.
SEC. 105. APPLICATIONS FOR ASSISTANCE.
(a) Form and Procedures.--An application for assistance
under this subtitle shall be submitted in such form and in
accordance with such procedures as the Fund shall establish.
(b) Minimum Requirements.--Except as provided in sections
106 and 115, the Fund shall require an application--
(1) to establish that the applicant is, or will be, a
community development financial institution;
(2) to include a comprehensive strategic plan for the
organization that contains--
(A) a business plan of not less than 5 years in duration
that demonstrates that the applicant will be properly managed
and will have the capacity to operate a community development
financial institution that will not be dependent upon
assistance from the Fund for continued viability;
(B) an analysis of the needs of the investment area or
targeted population and a strategy for how the applicant will
attempt to meet those needs;
(C) a plan to coordinate use of assistance from the Fund
with existing Federal, State, and local assistance programs,
and private sector financial services;
(D) an explanation of how the proposed activities of the
applicant are consistent with existing economic, community,
and housing development plans adopted by or applicable to an
investment area; and
(E) a description of how the applicant will coordinate with
community organizations and financial institutions which will
provide equity investments, loans, secondary markets, or
other services to investment areas or targeted populations;
(3) to include a detailed description of the applicant's
plans and likely sources of funds to match the amount of
assistance requested from the Fund;
(4) in the case of an applicant that has previously
received assistance under this subtitle, to demonstrate that
the applicant--
(A) has substantially met its performance goals and
otherwise carried out its responsibilities under this
subtitle and the assistance agreement; and
(B) will expand its operations into a new investment area
or to serve a new targeted population, offer more services,
or increase the volume of its business;
(5) in the case of an applicant with a prior history of
serving investment areas or targeted populations, to
demonstrate that the applicant--
(A) has a record of success in serving investment areas or
targeted populations;
(B) will expand its operations into a new investment area
or to serve a new targeted population, offer more services,
or increase the volume of its current business; and
(6) to include such other information as the Fund deems
appropriate.
(c) Preapplication Outreach Program.--The Fund may operate
an outreach program to identify and provide information to
potential applicants.
SEC. 106. COMMUNITY PARTNERSHIPS.
(a) Application.--An application for assistance may be
filed jointly by a community development financial
institution and a community partner to carry out a community
partnership.
(b) Application Requirements.--The Fund shall require a
community partnership application--
(1) to meet the minimum requirements established for
community development financial institutions under section
105(b), except that the criteria specified in paragraphs (1)
and (2)(A) of section 105(b) shall not apply to the community
partner;
(2) to describe how each coapplicant will participate in
carrying out the community partnership and how the
partnership will enhance activities serving the investment
area or targeted population; and
(3) to demonstrate that the community partnership
activities are consistent with the strategic plan submitted
by the community development financial institution
coapplicant.
(c) Selection Criteria.--The Fund shall consider a
community partnership application based on the selection
criteria set out in section 107.
(d) Limitation on Distribution of Assistance.--Assistance
provided upon approval of an application under this section
shall be distributed only to the community development
financial institution coapplicant, and shall not be used to
fund any activities carried out directly by the community
partner or an affiliate thereof.
(e) Other Requirements and Limitations.--All other
requirements and limitations imposed by this subtitle on a
community development financial institution assisted under
this subtitle shall apply (in the manner that the Fund
determines to be appropriate) to assistance provided to carry
out community partnerships. The Fund may establish additional
guidelines and restrictions on the use of Federal funds to
carry out community partnerships.
SEC. 107. SELECTION OF INSTITUTIONS.
(a) Selection Criteria.--Except as provided in section 115,
the Fund shall, in its sole discretion, select applicants for
assistance based on--
(1) the likelihood of success of the applicant in meeting
the goals of its comprehensive strategic plan;
(2) the experience and background of the proposed
management team;
(3) the extent of need for equity investments, loans, and
development services within the investment areas or targeted
populations;
(4) the extent of economic distress within the investment
areas or the extent of need within the targeted populations,
as those factors are measured by objective criteria;
(5) the extent to which the applicant will concentrate its
activities on serving its investment areas or targeted
populations;
(6) the amount of firm commitments to meet or exceed the
matching requirements and the likely success of the plan for
raising the balance of the match;
(7) the extent to which the proposed activities will expand
economic opportunities within the investment areas or the
targeted populations;
(8) whether the applicant is, or will become, an insured
depository institution or an insured credit union;
(9) whether the applicant is, or will be, located--
(A) in an empowerment zone or enterprise community
designated under section 1391 of the Internal Revenue Code of
1986; or
(B) on an Indian reservation, as defined in section 3(d) of
the Indian Financing Act of 1974 or section 4(10) of the
Indian Child Welfare Act of 1978;
(10) the extent to which the applicant will increase its
resources through coordination with other institutions or
participation in a secondary market;
(11) in the case of an applicant with a prior history of
serving investment areas or targeted populations, the extent
of success in serving them; and
(12) other factors (such as the extent to which the
applicant has strong ties to the community that it will
serve) deemed to be appropriate by the Fund.
(b) Geographic Diversity.--The Fund shall assist a
geographically diverse group of applicants, including an
appropriate mix of applicants from urban, rural, and Native
American communities.
SEC. 108. ASSISTANCE PROVIDED BY THE FUND.
(a) Forms of Assistance.--
(1) In general.--The Fund may provide--
(A) financial assistance through equity investments,
deposits, credit union shares, loans, and grants; and
(B) technical assistance--
(i) directly;
(ii) through grants; or
(iii) by contracting with organizations that possess
expertise in community development, without regard to whether
the organizations receive or are eligible to receive
assistance under this subtitle.
(2) Equity investments.--The Fund shall not own more than
50 percent of the equity of a community development financial
institution and may not control the operations of such
institution. The Fund may hold only transferable, nonvoting
equity investments. Such equity investments may provide for
convertibility to voting stock upon transfer by the Fund.
(3) Deposits.--Deposits made pursuant to this section in an
insured community development financial institution shall not
be subject to any requirement for collateral or security.
(4) Limitations on obligations.--Direct loan obligations
may be incurred by the Fund only to the extent that
appropriations of budget authority to cover their costs, as
defined in section 502 of the Congressional Budget Act of
1974, are made in advance.
(b) Uses of Financial Assistance.--
(1) In general.--Financial assistance made available under
this subtitle may be used by assisted institutions to serve
investment areas or targeted populations by developing or
supporting--
(A) commercial facilities that promote revitalization,
community stability, or job creation or retention;
(B) businesses that--
(i) provide jobs for low-income people or are owned by low-
income people; or
(ii) enhance the availability of products and services to
low-income people;
(C) community facilities;
(D) the provision of basic financial services;
(E) housing that is principally affordable to low-income
people, except that assistance used to facilitate
homeownership opportunities shall only be used for activities
and lending products that serve low-income people and are not
offered by other lenders in the area; and
(F) other businesses and activities deemed appropriate by
the Fund.
(2) Limitations.--No assistance made available under this
subtitle may be expended by a community development financial
institution (or an organization receiving assistance under
section 115) to pay any person to influence or attempt to
influence any agency, elected official, officer, or employee
of a State or local government in connection with the making,
award, extension, continuation, renewal, amendment, or
modification of any State or local government contract,
grant, loan, or cooperative agreement (as such terms are
defined in section 1352 of title 31, United States Code).
(c) Uses of Technical Assistance.--Technical assistance may
be used for activities that enhance the capacity of a
community development financial institution, such as training
of management and other personnel and development of programs
and investment or loan products.
(d) Amount of Assistance.--
(1) In general.--The Fund may provide not more than
$5,000,000 of assistance, in the aggregate, during any 3-year
period to any 1 community development financial institution
and its affiliates.
(2) Exception.--Notwithstanding the limitations in
paragraph (1), in the case of an existing community
development financial institution that proposes to serve an
investment area or targeted population outside of any State
and outside of any metropolitan area presently served by the
institution, the Fund may provide not more than $7,500,000 of
assistance to a community development financial institution,
in the aggregate, during any 3-year period, of which not less
than $2,500,000 shall be used to establish affiliates to
serve the new investment area or targeted population.
(3) Timing of assistance.--Assistance may be provided as
described in paragraphs (1) and (2) in a lump sum or over a
period of time, as determined by the Fund.
(e) Matching Requirements.--Assistance other than technical
assistance shall be matched with funds from sources other
than the Federal Government on the basis of not less than 1
dollar for each dollar provided by the Fund. Such matching
funds shall be at least comparable in form and value to the
assistance provided by the Fund. The Fund may reduce by up to
50 percent the matching requirements for applicants with
severe constraints on available sources of matching funds,
except that in any fiscal year, not more than 25 percent of
funds disbursed by the Fund may have a reduced match. The
Fund shall provide no assistance (other than technical
assistance) until a community development financial
institution has secured firm commitments for the matching
funds required.
(f) Terms and Conditions.--
(1) Soundness of unregulated institutions.--The Fund
shall--
(A) ensure, to the maximum extent practicable, that each
community development financial institution (other than an
insured community development financial institution or
depository institution holding company) assisted under this
subtitle is financially and managerially sound and maintains
appropriate internal controls; and
(B) require such institution to submit, not less than once
during each 18-month period, a statement of financial
condition audited by an independent certified public
accountant as part of the report required by section
112(a)(4).
(2) Consultation with the appropriate banking regulator.--
Prior to providing assistance to an insured community
development financial institution, the Fund shall consult
with the appropriate Federal banking agency.
(3) Assistance agreement.--
(A) In general.--Before providing any assistance under this
subtitle, the Fund and each community development financial
institution to be assisted shall enter into an agreement that
requires the institution to comply with performance goals and
abide by other terms and conditions pertinent to assistance
received under this subtitle.
(B) Performance goals.--Performance goals shall be
negotiated between the Fund and each community development
financial institution receiving assistance based upon the
strategic plan submitted pursuant to section 105(b)(2). Such
goals may be modified with the consent of the parties, or as
provided in subparagraph (C). Performance goals for insured
community development financial institutions shall be
determined in consultation with the appropriate Federal
banking agency.
(C) Sanctions.--The agreement shall provide that, in the
event of fraud, mismanagement, noncompliance with this
subtitle, or noncompliance with the terms of the agreement,
the Fund, in its discretion, may--
(i) revoke approval of the application;
(ii) terminate or reduce future assistance;
(iii) require repayment of assistance;
(iv) require changes to the performance goals imposed
pursuant to subparagraph (B);
(v) bar an applicant from reapplying for assistance from
the Fund;
(vi) require changes to the strategic plan submitted
pursuant to section 105(b)(2); and
(vii) take such other actions as the Fund deems
appropriate.
(D) Insured community development financial institutions.--
In the case of an insured community development financial
institution, the Fund shall notify the appropriate Federal
banking agency not less than 15 days before imposing
sanctions pursuant to this paragraph and shall not impose
such sanctions if the agency disapproves, with an explanation
in writing, during that 15-day period.
(g) Authority To Sell Equity Investments and Loans.--The
Fund may, at any time, sell its equity investments and loans,
but the Fund shall retain the power to enforce limitations on
assistance entered into in accordance with the requirements
of this subtitle until the performance goals related to the
investment or loan have been met.
(h) No Authority To Limit Supervision and Regulation.--
Nothing in this subtitle shall affect any authority of the
appropriate Federal banking agency to supervise and regulate
any institution or company.
SEC. 109. COMMUNITY DEVELOPMENT TRAINING.
(a) In General.--The Fund may operate a training program to
increase the capacity and expertise of community development
financial institutions and other members of the financial
services industry to undertake community development
activities (hereafter in this subtitle referred to as the
``training program'').
(b) Program Activities.--The training program shall provide
educational programs to assist community development
financial institutions and other members of the financial
services industry in developing lending and investment
products, underwriting and servicing loans, managing equity
investments, and implementing development services targeted
to areas of economic distress, low-income persons, and
persons who lack adequate access to loans and equity
investments.
(c) Participation.--The training program shall be made
available to community development financial institutions and
other members of the financial services industry that serve
or seek to serve areas of economic distress, low-income
persons, and persons who lack adequate access to loans and
equity investments.
(d) Contracting.--The Fund may offer the training described
in this section directly or through a contract with other
organizations. The Fund may contract to provide the training
with organizations that possess special expertise in
community development, without regard to whether the
organizations receive or are eligible to receive assistance
under this subtitle.
(e) Fees.--The Fund, as it deems appropriate, may charge
fees for participation in training services to offset the
cost of providing the services.
SEC. 110. ENCOURAGEMENT OF PRIVATE ENTITIES.
The Fund may facilitate the organization of corporations in
which the Federal Government has no ownership interest that
will complement the activities of the Fund in carrying out
the purpose of this subtitle. The purpose of any such entity
shall be to assist community development financial
institutions in a manner that is complementary to the
activities of the Fund under this subtitle. Any such entity
shall be managed exclusively by persons not employed by the
Federal Government or any agency or instrumentality thereof.
SEC. 111. CLEARINGHOUSE FUNCTION.
(a) Establishment.--The Fund may establish and maintain an
information clearinghouse in coordination with other Federal
departments or agencies and community development financial
institutions to--
(1) collect, compile, and analyze information pertinent to
community development financial institutions that will assist
in creating, developing, expanding, and preserving these
institutions; and
(2) provide information on financial, technical, and
management assistance, data on the activities of community
development financial institutions, regulations, and other
information that may promote the purposes of this subtitle.
(b) Costs.--The cost of maintaining the clearinghouse shall
be shared equally by the Fund and each department or agency
involved in maintaining the clearinghouse.
SEC. 112. RECORDKEEPING, REPORTS, AND AUDITS.
(a) Recordkeeping.--
(1) In general.--A community development financial
institution receiving assistance from the Fund shall keep
such records, for such periods as may be prescribed, as may
be necessary to disclose the manner in which any assistance
under this subtitle is used and to demonstrate compliance
with the requirements of this subtitle.
(2) Access to records.--The Fund shall have access on
demand, for the purpose of determining compliance with this
subtitle, to any records of a community development financial
institution that receives assistance from the Fund.
(3) Review.--Not less than annually, the Fund shall review
the progress of each assisted community development financial
institution in carrying out its strategic plan, meeting its
performance goals, and satisfying the terms and conditions of
its assistance agreement.
(4) Reporting.--
(A) Annual reports.--The Fund shall require each community
development financial institution receiving assistance under
this subtitle to submit an annual report to the Fund on its
activities, its financial condition, and its success in
meeting performance goals, in satisfying the terms and
conditions of its assistance agreement, and in complying with
other requirements of this subtitle in such form and manner
as the Fund shall specify.
(B) Availability of reports.--The Fund, after deleting or
redacting any material, as appropriate to protect privacy or
proprietary interests, shall make such reports available for
public inspection.
(b) Annual Report by the Fund.--The Fund shall conduct an
annual evaluation of the activities carried out by the Fund
and the community development financial institutions assisted
pursuant to this subtitle, and shall submit a report of its
findings to the President and the Congress not later than 120
days after the end of each fiscal year of the Fund. The
report shall include financial statements audited in
accordance with subsection (d).
(c) Studies.--
(1) Optional studies.--The Fund may conduct such studies as
the Fund determines necessary to further the purpose of this
subtitle and to facilitate investment in distressed
communities. The findings of any studies conducted pursuant
to this paragraph shall be included in the report required by
subsection (b).
(2) Investment, governance, and role of fund.--Thirty
months after the appointment and qualification of the
Administrator, the Comptroller General shall submit to the
President and the Congress a study evaluating the structure,
governance, and performance of the Fund.
(d) Examination and Audit.--The financial statements of the
Fund shall be audited in accordance with section 9105 of
title 31, United States Code, except that audits required by
section 9105(a) of such title shall be performed annually.
SEC. 113. INVESTMENT OF RECEIPTS AND PROCEEDS.
(a) Establishment of Account.--Any dividends on equity
investments and proceeds from the disposition of investments,
deposits, or credit union shares that are received by the
Fund as a result of assistance provided pursuant to section
108, and any fees received pursuant to section 109(e) shall
be deposited and accredited to an account of the Fund in the
United States Treasury (hereafter in this section referred to
as ``the account'') established to carry out the purpose of
this subtitle.
(b) Investments.--Upon request of the Administrator, the
Secretary of the Treasury shall invest amounts deposited in
the account in public debt securities with maturities
suitable to the needs of the Fund, as determined by the
Administrator, and bearing interest at rates determined by
the Secretary of the Treasury, comparable to current market
yields on outstanding marketable obligations of the United
States of similar maturities.
(c) Availability.--Amounts deposited into the account and
interest earned on such amounts pursuant to this section
shall be available to the Fund until expended.
SEC. 114. INSPECTOR GENERAL.
(a) Establishment.--Section 11 of the Inspector General Act
of 1978 (5 U.S.C. App. 11) is amended--
(1) in paragraph (1), by inserting ``; the Administrator of
the Community Development Financial Institutions Fund;''
before ``and the chief''; and
(2) in paragraph (2), by inserting ``the Community
Development Financial Institutions Fund,'' after ``the Agency
for International Development,''.
(b) Authorization of Appropriations.--There are authorized
to be appropriated such sums as may be necessary for the
operation of the Office of Inspector General established by
the amendments made by subsection (a).
SEC. 115. CAPITALIZATION ASSISTANCE TO ENHANCE LIQUIDITY.
(a) Assistance.--
(1) In general.--The Fund may provide assistance for the
purpose of providing capital to organizations that will
purchase loans or otherwise enhance the liquidity of
community development financial institutions if--
(A) the primary purpose of such organizations is to promote
community development; and
(B) any assistance received is matched with funds--
(i) from sources other than the Federal Government;
(ii) on the basis of not less than $1 for each dollar
provided by the Fund; and
(iii) that are comparable in form and value to the
assistance provided by the Fund.
(2) Limitation on other assistance.--An organization that
receives assistance under this section may not receive other
financial or technical assistance under this subtitle.
(b) Selection.--The selection of organizations to receive
assistance under this section shall be at the discretion of
the Fund and in accordance with criteria established by the
Fund. In establishing such criteria, the Fund shall take into
account the criteria contained in sections 105(b) and 107, as
appropriate.
(c) Amount of Assistance.--The Fund may provide a total of
not more than $5,000,000 of assistance to an organization
under this section during any 3-year period. Assistance may
be provided in a lump sum or over a period of time, as
determined by the Fund.
(d) Audit and Report Requirements.--
(1) In general.--Organizations that receive assistance from
the Fund in accordance with this section shall--
(A) submit to the Fund not less than once in every 18-month
period, financial statements audited by an independent
certified public accountant;
(B) submit an annual report on its activities; and
(C) keep such records as may be necessary to disclose the
manner in which any assistance under this section is used.
(2) Access.--The Fund shall have access on demand, for the
purposes of determining compliance with this section, to any
records of such organizations.
(e) Limitations on Liability.--
(1) Liability of fund.--The liability of the Fund and the
United States Government arising out of the provision of
assistance to any organization in accordance with this
section shall be limited to the amount of such assistance.
The Fund shall be exempt from any assessments and any other
liabilities that may be imposed on controlling or principal
shareholders by any Federal law or the law of any State,
territory, or the District of Columbia.
(2) Liability of government.--This section does not oblige
the Federal Government, either directly or indirectly, to
provide any funds to any organization assisted pursuant to
this section, or to honor, reimburse, or otherwise guarantee
any obligation or liability of such an organization. This
section shall not be construed to imply that any such
organization or any obligations or securities of any such
organization are backed by the full faith and credit of the
United States.
(f) Use of Proceeds.--Any proceeds from the sale of loans
to an organization assisted under this section shall be used
by the seller for community development purposes.
SEC. 116. COMMUNITY DEVELOPMENT REVOLVING LOAN FUND FOR
CREDIT UNIONS.
(a) Repeal.--Section 120 of the Federal Credit Union Act
(12 U.S.C. 1766) is amended by striking subsection (k).
(b) Revolving Loan Fund.--The Federal Credit Union Act (12
U.S.C. 1751 et seq.) is amended by inserting after section
129 the following new section:
``SEC. 130. COMMUNITY DEVELOPMENT REVOLVING LOAN FUND FOR
CREDIT UNIONS.
``(a) In General.--The Board may exercise the authority
granted to it by the Community Development Credit Union
Revolving Loan Fund Transfer Act, including any additional
appropriation made or earnings accrued, subject only to this
section and to regulations prescribed by the Board.
``(b) Investment.--The Board may invest any idle Fund
moneys in United States Treasury securities. Any interest
accrued on such securities shall become a part of the Fund.
``(c) Loans.--The Board may require that any loans made
from the Fund be matched by increased shares in the borrower
credit union.
``(d) Interest.--Interest earned by the Fund may be
allocated by the Board for technical assistance to community
development credit unions, subject to an appropriations Act.
``(e) Definition.--As used in this section, the term `Fund'
means the Community Development Credit Union Revolving Loan
Fund.''.
SEC. 117. STUDY OF COMMUNITY DEVELOPMENT CREDIT UNIONS.
(a) In General.--The National Credit Union Administration
Board, in consultation with representatives of the credit
union industry, shall conduct a study of community
development credit activities by credit unions. In conducting
the study, the Board shall consider--
(1) the role of such institutions in providing credit and
related financial services to inner city and rural areas;
(2) the failure rate of such institutions in the past;
(3) the desirability of establishing a special examination
force for community development credit unions and mentor
programs;
(4) the desirability of establishing a clearinghouse for
the recirculation of startup equipment and furniture for
community development credit unions; and
(5) appropriate startup and permanent financing programs
for such credit unions.
(b) Report.--Not later than October 1, 1994, the National
Credit Union Administration Board shall issue a report to the
Committee on Banking, Housing, and Urban Affairs of the
Senate and the Committee on Banking, Finance and Urban
Affairs of the House of Representatives on the study
conducted under subsection (a) and the regulatory and
legislative changes that may be necessary to ensure that
community development activity by credit unions becomes and
remains viable and productive.
SEC. 118. REGULATIONS.
Not later than 180 days after the appointment and
qualification of the Administrator, the Fund shall issue such
regulations as may be necessary to carry out this subtitle.
SEC. 119. AUTHORIZATION OF APPROPRIATIONS.
(a) In General.--To carry out this subtitle, there are
authorized to be appropriated to the Fund, to remain
available until expended--
(1) $60,000,000 for fiscal year 1994;
(2) $104,000,000 for fiscal year 1995;
(3) $107,000,000 for fiscal year 1996; and
(4) $111,000,000 for fiscal year 1997.
(b) Administrative Expenses.--Of amounts authorized to be
appropriated to the Fund--
(1) not more than $5,500,000 may be used by the Fund in
each fiscal year to pay the administrative costs and expenses
of the Fund; and
(2) not more than $50,000 may be used by the Fund in each
fiscal year to provide for administrative costs and expenses
described in section 104(d)(8).
(c) Community Development Credit Union Revolving Loan
Fund.--There are authorized to be appropriated for the
purposes of the Community Development Credit Union Revolving
Loan Fund--
(1) $2,000,000 for fiscal year 1994;
(2) $1,000,000 for fiscal year 1995;
(3) $1,000,000 for fiscal year 1996; and
(4) $1,000,000 for fiscal year 1997.
(d) Capitalization Assistance.--Not more than 5 percent of
the amounts authorized to be appropriated under subsection
(a) may be used as provided in section 115.
(e) Budgetary Treatment.--Amounts authorized to be
appropriated under this section shall be subject to
discretionary spending caps, as provided in section 601 of
the Congressional Budget Act of 1974, and therefore shall
reduce by an equal amount funds made available for other
discretionary spending programs.
Subtitle B--Home Ownership and Equity Protection
SEC. 151. CONSUMER PROTECTIONS FOR HIGH COST MORTGAGES.
(a) Definition.--Section 103 of the Truth in Lending Act
(15 U.S.C. 1602) is amended by adding at the end the
following new subsection:
``(aa)(1) The term `high cost mortgage' means a consumer
credit transaction, other than a residential mortgage
transaction or a transaction under an open end credit plan,
that is secured by a consumer's principal dwelling, if--
``(A) the annual percentage rate at consummation of the
transaction will exceed by more than 10 percentage points the
rate of interest on Treasury securities having comparable
periods of maturity on the fifteenth day of the month
immediately preceding the month in which the loan is
consummated; or
``(B) the total points and fees payable by the consumer at
or before closing will exceed the greater of--
``(i) 8 percent of the total loan amount; or
``(ii) $400.
``(2) The amount specified in paragraph (1)(B)(ii) shall be
adjusted annually on January 1 by the annual percentage
change in the Consumer Price Index, as reported on June 1 of
the year preceding such adjustment.
``(3) For purposes of paragraph (1)(B), points and fees
shall include--
``(A) all items included in the finance charge except
interest and the time-price differential;
``(B) all compensation paid to mortgage brokers;
``(C) all direct and indirect compensation received by the
creditor in connection with credit insurance; and
``(D) each of the charges listed in section 106(e) (except
an escrow for future payment of taxes), unless--
``(i) the charge is reasonable;
``(ii) the creditor receives no direct or indirect
compensation; and
``(iii) the charge is paid to a third party unaffiliated
with the creditor.''.
(b) Material Disclosures.--Section 103(u) of the Truth in
Lending Act (15 U.S.C. 1602(u)) is amended--
(1) by striking ``and the due dates'' and inserting ``, the
due dates''; and
(2) by inserting before the period ``, and the disclosures
for high cost mortgages required by section 129(a)''.
(c) Definition of Creditor Clarified.--Section 103(f) of
the Truth in Lending Act (15 U.S.C. 1602(f)) is amended by
adding at the end the following: ``Any person who originates
2 or more high cost mortgages in any 12-month period or any
person who originates 1 or more high cost mortgages through a
mortgage broker shall be considered to be a creditor for
purposes of this title.''.
(d) Disclosures Required and Certain Terms Prohibited.--The
Truth in Lending Act (15 U.S.C. 1601 et seq.) is amended by
inserting after section 128 the following new section:
``SEC. 129. REQUIREMENTS FOR HIGH COST MORTGAGES.
``(a) Disclosures.--
``(1) Specific disclosures.--In addition to other
disclosures required under this title, for each high cost
mortgage, the creditor shall provide the following
disclosures in conspicuous type size:
``(A) `You are not required to complete this agreement
merely because you have received these disclosures or have
signed a loan application.'
``(B) `If you obtain this loan, the lender will have a
mortgage on your home. You could lose your home, and any
money you have put into it, if you do not meet your
obligations under the loan.'.
``(2) Annual percentage rate.--In addition to the
disclosures required under paragraph (1), the creditor shall
disclose--
``(A) the annual percentage rate of the loan and the amount
of the regular monthly payment; or
``(B) in the case of a variable rate loan, the annual
percentage rate of the loan, a statement that the interest
rate and monthly payment may increase, and the amount of the
maximum possible monthly payment.
``(b) Time of Disclosures.--
``(1) In general.--The disclosures required by this section
shall be given not less than 3 business days prior to
consummation of the transaction.
``(2) New disclosures required.--After providing the
disclosures required by this section, a creditor may not
change the terms of the loan if such changes make the
disclosures inaccurate, unless new disclosures are provided
that meet the requirements of this section.
``(3) Modifications.--The Board may, if it finds that such
action is necessary to permit homeowners to meet bona fide
personal financial emergencies, prescribe regulations
authorizing the modification or waiver of rights created
under this subsection, to the extent and under the
circumstances set forth in those regulations.
``(c) No Prepayment Penalty.--
``(1) In general.--Except as provided in paragraph (4), a
high cost mortgage may not contain terms under which a
consumer must pay a prepayment penalty for paying all or part
of the principal of the loan prior to the date on which such
principal is due. If the date of maturity of the high cost
mortgage is accelerated for any reason, and the consumer is
entitled to a rebate of interest, computation of the rebate
amount shall comply with paragraph (2). No high cost mortgage
shall provide for a default interest rate that is higher than
the interest rate provided by the note for the loan prior to
default.
``(2) Rebate computation.--For purposes of this subsection,
any method of computing rebates of interest that is less
favorable to the consumer than the actuarial method (as
defined in section 933 of the Housing and Community
Development Act of 1992) using simple interest is a
prepayment penalty.
``(3) Certain other fees prohibited.--An agreement to
refinance a high cost mortgage by the same creditor or an
affiliate of the creditor may not require the consumer to pay
points, discount fees, or prepaid finance charges on the
portion of the loan refinanced.
``(4) Exception.--A high cost mortgage may include terms
under which a consumer is required to pay not more than 1
month's interest as a penalty if the consumer prepays the
principal of the loan within 90 days of origination.
``(d) No Balloon Payments.--A high cost mortgage may not
include terms under which the aggregate amount of the regular
periodic payments would not fully amortize the outstanding
principal balance.
``(e) No Negative Amortization.--A high cost mortgage may
not include terms under which the outstanding principal
balance will increase at any time over the course of the loan
because the regular periodic payments do not cover the full
amount of interest due.
``(f) No Prepaid Payments.--A high cost mortgage may not
include terms under which more than 2 periodic payments
required under the loan are consolidated and paid in advance
from the loan proceeds provided to the consumer.
``(g) Consequence of Failure To Comply.--Any high cost
mortgage loan that contains a provision prohibited by this
section shall be deemed a failure to deliver the material
disclosures required under this title, for the purpose of
section 125.
``(h) Definition.--For purposes of this section, the term
`affiliate' has the same meaning as in section 2(k) of the
Bank Holding Company Act of 1956.
``(i) Discretionary Regulatory Authority of Board.--
``(1) Exemptions.--The Board may, by regulation or order,
exempt specific mortgage products or categories of mortgages
from any or all of the prohibitions specified in subsections
(c) through (f), if the Board finds that the exemption--
``(A) is in the interest of the borrowing public; and
``(B) will apply only to products that maintain and
strengthen home ownership and equity protection.
``(2) Prohibitions.--The Board, by regulation or order,
shall prohibit any specific acts or practices in connection
with high cost mortgages that the Board finds to be unfair,
deceptive, or designed to evade the provisions of this
section.''.
(e) Conforming Amendments.--
(1) Table of sections.--The table of sections at the
beginning of chapter 2 of the Truth in Lending Act is amended
by striking the item relating to section 129 and inserting
the following:
``129. Requirements for high cost mortgages.''.
(2) Truth in lending act.--Section 105(a) of the Truth in
Lending Act (15 U.S.C. 1604(a)) is amended in the second
sentence, by striking ``These'' and inserting ``Except in the
case of a high cost mortgage, as defined in section 103(aa),
these''.
SEC. 152. CIVIL LIABILITY.
(a) Damages.--Section 130(a) of the Truth in Lending Act
(15 U.S.C. 1640(a)) is amended--
(1) by striking ``and'' at the end of paragraph (2)(B);
(2) by striking the period at the end of paragraph (3) and
inserting ``; and''; and
(3) by inserting after paragraph (3) the following new
paragraph:
``(4) in the case of a failure to comply with any
requirement under section 129, an amount equal to the sum of
all finance charges and fees paid by the consumer, unless the
creditor demonstrates that the failure to comply is not
material.''.
(b) State Attorney General Enforcement.--Section 130(e) of
the Truth in Lending Act (15 U.S.C. 1640(e)) is amended by
adding at the end the following: ``An action to enforce a
violation of section 129 may also be brought by the
appropriate State attorney general in any appropriate United
States district court, or any other court of competent
jurisdiction, not later than 3 years after the date on which
the violation occurs. The State attorney general shall
provide prior written notice of any such civil action to the
Federal agency responsible for enforcement under section 108
and shall provide the agency with a copy of the complaint. If
prior notice is not feasible, the State attorney general
shall provide notice to such agency immediately upon
instituting the action. The Federal agency may--
``(1) intervene in the action;
``(2) upon intervening--
``(A) remove the action to the appropriate United States
district court, if it was not originally brought there; and
``(B) be heard on all matters arising in the action; and
``(3) file a petition for appeal.''.
(c) Assignee Liability.--Section 131 of the Truth in
Lending Act (15 U.S.C. 1641) is amended by adding at the end
the following new subsection:
``(d) High Cost Mortgages.--
``(1) In general.--In addition to any other liability
imposed under this title, any person who purchases or is
otherwise assigned a high cost mortgage shall be subject to
all claims and defenses with respect to the mortgage that the
consumer could assert against the creditor of the mortgage.
``(2) Damages.--Relief provided as a result of liability
imposed under paragraph (1) shall be limited to the sum of--
``(A) the amount of all remaining indebtedness; and
``(B) the total amount paid by the consumer in connection
with the transaction.
``(3) Notice.--Any person who sells or otherwise assigns a
high cost mortgage shall include a prominent notice of the
potential liability under this subsection as determined by
the Board.''.
SEC. 153. REGULATIONS; EFFECTIVE DATE.
(a) Regulations.--Not later than 180 days after the date of
enactment of this Act, the Board of Governors of the Federal
Reserve System shall issue such regulations as may be
necessary to carry out this subtitle.
(b) Effective Date.--This subtitle, and the amendments made
by this subtitle, shall apply to every high cost mortgage (as
defined in section 103(aa) of the Truth in Lending Act, as
added by section 151(a) of this Act) consummated on or after
the date which is 60 days after the promulgation of final
regulations under subsection (a).
TITLE II--SMALL BUSINESS CAPITAL FORMATION
Subtitle A--Small Business Loan Securitization
SEC. 201. SHORT TITLE.
This subtitle may be cited as the ``Small Business Loan
Securitization and Secondary Market Enhancement Act of
1993''.
SEC. 202. SMALL BUSINESS RELATED SECURITY.
(a) Definition.--Section 3(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a)) is amended by adding at the
end the following new paragraph:
``(53)(A) The term `small business related security' means
a security that is rated in 1 of the 4 highest rating
categories by at least 1 nationally recognized statistical
rating organization, and either--
``(i) represents an interest in 1 or more promissory notes
evidencing the indebtedness of a small business concern and
originated by an insured depository institution, insured
credit union, insurance company, or similar institution which
is supervised and examined by a Federal or State authority,
or a finance company; or
``(ii) is secured by an interest in 1 or more promissory
notes (with or without recourse to the issuer) and provides
for payments of principal in relation to payments, or
reasonable projections of payments, on notes described in
clause (i).
``(B) For purposes of this paragraph--
``(i) an `interest in a promissory note' includes ownership
rights, certificates of interest or participation in such
notes, and rights designed to assure servicing of such notes,
or the receipt or timely receipt of amounts payable under
such notes;
``(ii) the term `small business concern' has the same
meaning as in section 3 of the Small Business Act;
``(iii) the term `insured depository institution' has the
same meaning as in section 3 of the Federal Deposit Insurance
Act; and
``(iv) the term `insured credit union' has the same meaning
as in section 101 of the Federal Credit Union Act.''.
(b) Technical Amendment.--Section 3(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended by
redesignating paragraph (51) defining the term ``foreign
financial regulatory authority'' as paragraph (52) and
inserting such paragraph after paragraph (51), defining the
term ``penny stocks''.
SEC. 203. APPLICABILITY OF MARGIN REQUIREMENTS.
Section 7(g) of the Securities Exchange Act of 1934 (15
U.S.C. 78g(g)) is amended by inserting ``or a small business
related security'' after ``mortgage related security''.
SEC. 204. BORROWING IN THE COURSE OF BUSINESS.
Section 8(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78h(a)) is amended in the last sentence by inserting
``or a small business related security'' after ``mortgage
related security''.
SEC. 205. SMALL BUSINESS RELATED SECURITIES AS COLLATERAL.
Clause (ii) of section 11(d)(1) of the Securities Exchange
Act of 1934 (15 U.S.C. 78k(d)(1)) is amended by inserting
``or any small business related security'' after ``mortgage
related security''.
SEC. 206. INVESTMENT BY DEPOSITORY INSTITUTIONS.
(a) Home Owners' Loan Act Amendment.--Section 5(c)(1) of
the Home Owners' Loan Act (12 U.S.C. 1464(c)(1)) is amended
by adding at the end the following new subparagraph:
``(S) Small business related securities.--Investments in
small business related securities (as defined in section
3(a)(53) of the Securities Exchange Act of 1934), subject to
such regulations as the Director may prescribe, including
regulations concerning the minimum size of the issue (at the
time of the initial distribution), the minimum aggregate
sales price, or both.''.
(b) Credit Unions.--Section 107(15) of the Federal Credit
Union Act (12 U.S.C. 1757(15)) is amended--
(1) in subparagraph (A), by striking ``or'' at the end;
(2) in subparagraph (B), by inserting ``or'' at the end;
and
(3) by adding at the end the following new subparagraph:
``(C) are small business related securities (as defined in
section 3(a)(53) of the Securities Exchange Act of 1934),
subject to such regulations as the Board may prescribe,
including regulations prescribing the minimum size of the
issue (at the time of the initial distribution), the minimum
aggregate sales price, or both;''.
(c) National Banking Associations.--Section 5136 of the
Revised Statutes (12 U.S.C. 24) is amended in the last
sentence in the first full paragraph of paragraph Seventh, by
striking ``or (B) are mortgage related securities'' and
inserting the following: ``(B) are small business related
securities (as defined in section 3(a)(53) of the Securities
Exchange Act of 1934); or (C) are mortgage related
securities''.
SEC. 207. PREEMPTION OF STATE LAW.
(a) In General.--Section 106(a)(1) of the Secondary
Mortgage Market Enhancement Act of 1984 (15 U.S.C. 77r-
1(a)(1)) is amended--
(1) by striking ``or'' at the end of subparagraph (B);
(2) by redesignating subparagraph (C) as subparagraph (D);
and
(3) by inserting after subparagraph (B) the following new
subparagraph:
``(C) small business related securities (as defined in
section 3(a)(53) of the Securities Exchange Act of 1934),
or''.
(b) Obligations of the United States.--Section 106(a)(2) of
the Secondary Mortgage Market Enhancement Act of 1984 (15
U.S.C. 77r-1(a)(2)) is amended--
(1) by striking ``or'' at the end of subparagraph (B);
(2) by redesignating subparagraph (C) as subparagraph (D);
and
(3) by inserting after subparagraph (B) the following new
subparagraph:
``(C) small business related securities (as defined in
section 3(a)(53) of the Securities Exchange Act of 1934),
or''.
(c) Preemption of State Laws.--Section 106(c) of the
Secondary Mortgage Market Enhancement Act of 1984 (15 U.S.C.
77r-1(c)) is amended--
(1) in the first sentence, by striking ``or that'' and
inserting ``, that''; and
(2) by inserting ``, or that are small business related
securities (as defined in section 3(a)(53) of the Securities
Exchange Act of 1934)'' before ``shall be exempt''.
(d) Implementation.--Section 106 of the Secondary Mortgage
Market Enhancement Act of 1984 (15 U.S.C. 77r-1) is amended
by adding at the end the following new subsection:
``(d) Implementation.--
``(1) Limitation.--The provisions of subsections (a) and
(b) concerning small business related securities shall not
apply with respect to a particular person, trust,
corporation, partnership, association, business trust, or
business entity or class thereof in any State that, prior to
the expiration of 7 years after the date of enactment of this
subsection, enacts a statute that specifically refers to this
section and either prohibits or provides for a more limited
authority to purchase, hold, or invest in such small business
related securities by any person, trust, corporation,
partnership, association, business trust, or business entity
or class thereof than is provided in this section. The
enactment by any State of any statute of the type described
in the preceding sentence shall not affect the validity of
any contractual commitment to purchase, hold, or invest that
was made prior to such enactment, and shall not require the
sale or other disposition of any small business related
securities acquired prior to the date of such enactment.
``(2) State registration or qualification requirements.--
Any State may, not later than 7 years after the date of
enactment of this subsection, enact a statute that
specifically refers to this section and requires registration
or qualification of any small business related securities on
terms that differ from those applicable to any obligation
issued by the United States.''.
SEC. 208. INSURED DEPOSITORY INSTITUTION CAPITAL REQUIREMENTS
FOR TRANSFERS OF SMALL BUSINESS LOANS.
(a) Accounting Principles.--The accounting principles
applicable to the transfer of a small business loan with
recourse contained in reports or statements required to be
filed with Federal banking agencies by a qualified insured
depository institution shall be consistent with generally
accepted accounting principles.
(b) Capital and Reserve Requirements.--With respect to the
transfer of a small business loan with recourse that is a
sale under generally accepted accounting principles, each
qualified insured depository institution shall--
(1) establish and maintain a reserve equal to an amount
sufficient to meet the reasonable estimated liability of the
institution under the recourse arrangement; and
(2) include, for purposes of applicable capital standards
and other capital measures, only the amount of the retained
recourse in the risk-weighted assets of the institution.
(c) Qualified Institutions Criteria.--An insured depository
institution is a qualified insured depository institution for
purposes of this section if, without regard to the accounting
principles or capital requirements referred to in subsections
(a) and (b), the institution is--
(1) well capitalized; or
(2) with the approval, by regulation or order, of the
appropriate Federal banking agency, adequately capitalized.
(d) Aggregate Amount of Recourse.--The total outstanding
amount of recourse retained by a qualified insured depository
institution with respect to transfers of small business loans
under subsections (a) and (b) shall not exceed--
(1) 15 percent of the risk-based capital of the
institution; or
(2) such greater amount, as established by the appropriate
Federal banking agency by regulation or order.
(e) Institutions That Cease To Be Qualified or Exceed
Aggregate Limits.--If an insured depository institution
ceases to be a qualified insured depository institution or
exceeds the limits under subsection (d), this section shall
remain applicable to any transfers of small business loans
that occurred during the time that the institution was
qualified and did not exceed such limit.
(f) Prompt Corrective Action Not Affected.--The capital of
an insured depository institution shall be computed without
regard to this section in determining whether the institution
is adequately capitalized, under capitalized,
significantly undercapitalized, or critically
undercapitalized under section 38 of the Federal Deposit
Insurance Act.
(g) Regulations Required.--Not later than 180 days after
the date of the enactment of this Act each appropriate
Federal banking agency shall promulgate final regulations
implementing this section.
(h) Alternative System Permitted.--
(1) In general.--At the discretion of the appropriate
Federal banking agency, this section shall not apply if the
regulations of the agency provide that the aggregate amount
of capital and reserves required with respect to the transfer
of small business loans with recourse does not exceed the
aggregate amount of capital and reserves that would be
required under subsection (b).
(2) Existing transactions not affected.--Notwithstanding
paragraph (1), this section shall remain in effect with
respect to transfers of small business loans with recourse by
qualified insured depository institutions occurring before
the effective date of regulations referred to in paragraph
(1).
(i) Definitions.--For purposes of this section--
(1) the term ``adequately capitalized'' has the same
meaning as in section 38(b) of the Federal Deposit Insurance
Act;
(2) the term ``appropriate Federal banking agency'' has the
same meaning as in section 3 of the Federal Deposit Insurance
Act;
(3) the term ``capital standards'' has the same meaning as
in section 38(c) of the Federal Deposit Insurance Act;
(4) the term ``Federal banking agencies'' has the same
meaning as in section 3 of the Federal Deposit Insurance Act;
(5) the term ``insured depository institution'' has the
same meaning as in section 3 of the Federal Deposit Insurance
Act;
(6) the term ``other capital measures'' has the meaning as
in section 38(c) of the Federal Deposit Insurance Act;
(7) the term ``recourse'' has the meaning given to such
term under generally accepted accounting principles;
(8) the term ``small business'' means a business that meets
the criteria for a small business concern established by the
Small Business Administration under section 3(a) of the Small
Business Act; and
(9) the term ``well capitalized'' has the same meaning as
in section 38(b) of the Federal Deposit Insurance Act.
SEC. 209. TRANSACTIONS IN SMALL BUSINESS RELATED SECURITIES
BY EMPLOYEE BENEFIT PLANS.
(a) Prohibited Transaction Exemption.--The Secretary of
Labor, in consultation with the Secretary of the Treasury,
shall exempt transactions involving small business related
securities (as defined in section 3(a)(53) of the Securities
Exchange Act of 1934 (as added by section 202 of this Act)),
either unconditionally or on stated terms and conditions,
from the restrictions of sections 406 and 407 of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1106, 1107)
and the taxes imposed under section 4975 of the Internal
Revenue Code of 1986 (26 U.S.C. 4975).
(b) Conditions.--In providing for the exemption required
under subsection (a), the Secretary of Labor shall consider--
(1) the importance of facilitating transactions in small
business related securities; and
(2) the necessity of imposing any term or condition to
protect the rights and interests of participants and
beneficiaries of employee benefit plans affected by the
exemption.
(c) Regulations.--Not later than 180 days after the date of
enactment of this Act, the Secretary of Labor shall
promulgate final regulations to carry out subsection (a).
SEC. 210. TAXATION OF SMALL BUSINESS LOAN INVESTMENT
CONDUITS.
(a) Taxation Similar to REMIC.--The Secretary of the
Treasury shall promulgate regulations providing for the
taxation of a small business loan investment conduit and the
holder of an interest therein similar to the taxation of a
real estate mortgage investment conduit and the holder of
interests therein under the Internal Revenue Code of 1986.
(b) Adjustment to REMIC Provisions.--In promulgating
regulations under subsection (a), the Secretary of the
Treasury shall make any necessary adjustments to the real
estate mortgage investment conduit provisions to take into
consideration--
(1) the purpose of facilitating the securitization of small
business loans through the use of small business loan
investment conduits and the development of a secondary market
in small business loans;
(2) differences in the nature of qualifying mortgages in a
real estate mortgage investment conduit and small business
loans and obligations; and
(3) differences in the practices of participants in the
securitization of real estate mortgages in a real estate
mortgage investment conduit and the securitization of other
assets.
(c) Small Business Loan Investment Conduit Defined.--For
purposes of this section, the term ``small business loan
investment conduit'' means any entity substantially all of
the assets of which consist of any obligation (including any
participation or certificate of beneficial ownership
therein)--
(1) of a business that meets the criteria for a small
business concern established under section 3(a) of the Small
Business Act; and
(2) that was originated by an insured depository
institution (as defined in section 3 of the Federal Deposit
Insurance Act), credit union, insurance company, or similar
institution or a finance company which is supervised and
examined by an appropriate Federal or State authority.
Subtitle B--Small Business Capital Enhancement
SEC. 251. FINDINGS AND PURPOSES.
(a) Findings.--The Congress finds that--
(1) small business concerns are a vital part of the
economy, accounting for the majority of new jobs, new
products, and new services created in the United States;
(2) adequate access to debt capital is a critical component
for small business development, productivity, expansion, and
success in the United States;
(3) commercial banks are the most important suppliers of
debt capital to small business concerns in the United States;
(4) commercial banks and other depository institutions have
various incentives to minimize their risk in financing small
business concerns;
(5) as a result of such incentives, many small business
concerns with economically sound financing needs are unable
to obtain access to needed debt capital;
(6) the small business capital access programs implemented
by certain States are a flexible and efficient tool to assist
financial institutions in providing access to needed debt
capital for many small business concerns in a manner
consistent with safety and soundness regulations;
(7) a small business capital access program would
complement other programs which assist small business
concerns in obtaining access to capital; and
(8) Federal policy can stimulate and accelerate efforts by
States to implement small business capital access programs by
providing an incentive to States, while leaving the
administration of such programs to each participating State.
(b) Purposes.--By encouraging States to implement
administratively efficient capital access programs that
encourage commercial banks and other depository institutions
to provide access to debt capital for a broad portfolio of
small business concerns, and thereby promote a more efficient
and effective debt market, the purposes of this subtitle
are--
(1) to promote economic opportunity and growth;
(2) to create jobs;
(3) to promote economic efficiency;
(4) to enhance productivity; and
(5) to spur innovation.
SEC. 252. DEFINITIONS.
For purposes of this subtitle--
(1) the term ``Secretary'' means the Secretary of Housing
and Urban Development;
(2) the term ``appropriate Federal banking agency''--
(A) has the same meaning as in section 3 of the Federal
Deposit Insurance Act; and
(B) includes the National Credit Union Administration Board
in the case of any credit union the deposits of which are
insured in accordance with the Federal Credit Union Act;
(3) the term ``early loan'' means a loan enrolled at a time
when the aggregate covered amount of loans previously
enrolled under the Program by a particular participating
financial institution is less than $5,000,000;
(4) the term ``enrolled loan'' means a loan made by a
participating financial institution that is enrolled by a
participating State in accordance with this subtitle;
(5) the term ``financial institution'' means any federally
chartered or State-chartered commercial bank, savings
association, savings bank, or credit union;
(6) the term ``participating financial institution'' means
any financial institution that has entered into a
participation agreement with a participating State in
accordance with section 254;
(7) the term ``participating State'' means any State that
has been approved for participation in the Program in
accordance with section 253;
(8) the term ``passive real estate ownership'' means
ownership of real estate for the purpose of deriving income
from speculation, trade, or rental, except that such term
shall not include--
(A) the ownership of that portion of real estate being used
or intended to be used for the operation of the business of
the owner of the real estate (other than the business of
passive ownership of real estate); or
(B) the ownership of real estate for the purpose of
construction or renovation, until the completion of the
construction or renovation phase;
(9) the term ``Program'' means the Small Business Capital
Enhancement Program established under this subtitle;
(10) the term ``reserve fund'' means a fund, established by
a participating State, earmarked for a particular
participating financial institution, for the purposes of--
(A) depositing all required premium charges paid by the
participating financial institution and by each borrower
receiving a loan under the Program from a participating
financial institution;
(B) depositing contributions made by the participating
State; and
(C) covering losses on enrolled loans by disbursing
accumulated funds; and
(11) the term ``State'' means the States of the United
States and the District of Columbia.
SEC. 253. APPROVING STATES FOR PARTICIPATION.
(a) Application.--Any State may apply to the Secretary for
approval to be a participating State under the Program and to
be eligible for reimbursement by the Secretary pursuant to
section 257.
(b) Approval Criteria.--The Secretary shall approve a State
to be a participating State, if--
(1) a specific department or agency of the State has been
designated to implement the Program;
(2) all legal actions necessary to enable such designated
department or agency to implement the Program have been
accomplished;
(3) funds in the amount of at least $1 for every 2 people
residing in the State (as of the last decennial census for
which data have been released) are available and have been
legally committed to contributions by the State to reserve
funds, with such funds being available without time limit and
without requiring additional legal action, except that such
requirements shall not be construed to limit the authority of
the State to take action at a later time that results in the
termination of its obligation to enroll loans and make
contributions to reserve funds;
(4) the State has prescribed a form of participation
agreement to be entered into between it and each
participating financial institution that is consistent with
the requirements and purposes of this subtitle; and
(5) the State and the Secretary have executed a
reimbursement agreement that conforms to the requirements of
this subtitle.
(c) Existing State Programs.--
(1) In general.--A State that is not a participating State,
but that has its own capital access program providing
portfolio insurance for business loans (based on a separate
loss reserve fund for each financial institution), may apply
at any time to the Secretary to be approved to be a
participating State. The Secretary shall approve such State
to be a participating State, and to be eligible for
reimbursements by the Secretary pursuant to section 257, if
the State--
(A) satisfies the requirements of subsections (a) and (b);
and
(B) certifies that each affected financial institution has
satisfied the requirements of section 254.
(2) Applicable terms of participation.--
(A) Status of institutions.--If a State is approved for
participation under paragraph (1), each financial institution
with a participation agreement in effect with the
participating State shall immediately be considered a
participating financial institution. Reimbursements may be
made under section 237 in connection with all contributions
made to the reserve fund by the State in connection with
lending that occurs on or after the date on which the
Secretary approves the State for participation.
(B) Effective date of participation.--If an amended
participation agreement that conforms with section 255 is
required in order to secure participation approval by the
Secretary, contributions subject to reimbursement under
section 257 shall include only those contributions made to a
reserve fund with respect to loans enrolled on or after the
date that an amended participation agreement between the
participating State and the participating financial
institution becomes effective.
(C) Use of accumulated reserve funds.--A State that is
approved for participation in accordance with this subsection
may continue to implement the program utilizing the reserve
funds accumulated under the State program.
(d) Prior Appropriations Requirement.--The Secretary shall
not approve a State for participation in the Program until at
least $50,000,000 has been appropriated to the Secretary
(subject to an appropriations Act), without fiscal year
limitation, for the purpose of making reimbursements pursuant
to section 257.
(e) Amendments to Agreements.--If a State that has been
approved to be a participating State wishes to amend its form
of participation agreement and continue to be a participating
State, such State shall submit such amendment for review by
the Secretary in accordance with subsection (b)(4). Any such
amendment shall become effective only after it has been
approved by the Secretary.
SEC. 254. PARTICIPATION AGREEMENTS.
(a) In General.--A participating State may enter into a
participation agreement with any financial institution
determined by the participating State, after consultation
with the appropriate Federal banking agency, to have
sufficient commercial lending experience and financial and
managerial capacity to participate in the Program. The
determination by the State shall not be reviewable by the
Secretary.
(b) Participating Financial Institutions.--Upon entering
into the participation agreement with the participating
State, the financial institution shall become a participating
financial institution eligible to enroll loans under the
Program.
SEC. 255. TERMS OF PARTICIPATION AGREEMENTS.
(a) In General.--The participation agreement to be entered
into by a participating State and a participating financial
institution shall include all provisions required by this
section, and shall not include any provisions inconsistent
with the provisions of this section.
(b) Establishment of Separate Reserve Funds.--A separate
reserve fund shall be established by the participating State
for each participating financial institution. All funds
credited to a reserve fund shall be subject to the control of
the participating State. Notwithstanding the preceding
sentence, the participating State may allow a participating
financial institution to treat the premium charges paid by
the institution and the borrower into the reserve fund, and
interest earned thereon, as assets of the institution for
accounting purposes. Each reserve fund shall be an
administrative account for the purposes of--
(1) receiving all required premium charges to be paid by
the borrower and participating financial institution and
contributions by the participating State; and
(2) disbursing funds, either to cover losses sustained by
the participating financial institution in connection with
loans made under the Program, or as contemplated by
subsections (d) and (r).
(c) Investment Authority.--Subject to applicable State law,
the participating State may invest, or cause to be invested,
funds held in a reserve fund by establishing a deposit
account at the participating financial institution in the
name of the participating State. In the event that funds in
the reserve fund are not deposited in such an account, such
funds shall be invested in a form that the participating
State determines is safe and liquid.
(d) Earned Income and Interest.--Interest or income earned
on the funds credited to a reserve fund shall be deemed to be
part of the reserve fund, except that a participating State
may, as further specified in the participation agreement--
(1) provide authority for the participating State to
withdraw some or all of such interest or income earned; and
(2) allow the participating financial institution, upon its
withdrawal from the Program, to withdraw interest or income
earned that is deemed to be attributable to the premium
charges paid by the institution and the borrower and that
remains in the reserve fund, if such withdrawal does not
expose the participating State to any greater risk of loss
than the risk of loss in the absence of such withdrawal.
(e) Loan Terms and Conditions.--
(1) In general.--A loan to be filed for enrollment under
the Program may be made with such interest rate, fees, and
other terms and conditions as agreed upon by the
participating financial institution and the borrower,
consistent with applicable law.
(2) Lines of credit.--If a loan to be filed for enrollment
is in the form of a line of credit, the amount of the loan
shall be considered to be the maximum amount that can be
drawn by the borrower against the line of credit.
(f) Enrollment Process.--
(1) Filing.--
(A) In general.--A participating financial institution
shall file each loan made under the Program for enrollment by
completing and submitting to the participating State a form
prescribed by the participating State.
(B) Form.--The form referred to in subparagraph (A) shall
include a representation by the participating financial
institution that it has complied with the participation
agreement in enrolling the loan with the State.
(C) Premium charges.--Accompanying the completed form shall
be the nonrefundable premium charges paid by the borrower and
the participating financial institution, or evidence that
such premium charges have been deposited into the deposit
account containing the reserve fund, if applicable.
(D) Submission.--The participation agreement shall require
that the items required by this subsection shall be submitted
to the participating State by the participating financial
institutions not later than 10 calendar days after a loan is
made.
(2) Enrollment by state.--Upon receipt by the participating
State of the filing submitted in accordance with paragraph
(1), the participating State shall promptly enroll the loan
and make a matching contribution to the reserve fund in
accordance with subsection (j), unless the information
submitted indicates that the participating financial
institution has not complied with the participation agreement
in enrolling the loan.
(g) Coverage Amount.--In filing a loan for enrollment under
the Program, the participating financial institution may
specify an amount to be covered under the Program that is
less than the full amount of the loan.
(h) Premium Charges.--
(1) Minimum and maximum amounts.--The premium charges
payable to the reserve fund by the borrower and the
participating financial institution shall be prescribed by
the participating financial institution, within minimum and
maximum limits set forth in the participation agreement. The
participation agreement shall establish minimum and maximum
limits whereby the sum of the premium charges paid in
connection with a loan by the borrower and the participating
financial institution is not less than 3 percent nor more
than 7 percent of the amount of the loan covered under the
Program.
(2) Allocation of premium charges.--The participation
agreement shall specify terms for allocating premium charges
between the borrower and the participating financial
institution. However, if the participating financial
institution is required to pay any of the premium charges,
the participation agreement shall authorize the participating
financial institution to recover from the borrower the cost
of the payment of the participating financial institution, in
any manner on which the participating financial institution
and the borrower agree.
(i) Restrictions.--
(1) Actions prohibited.--Except as provided in subsection
(h) and paragraph (2) of this subsection, the participating
State may not--
(A) impose any restrictions or requirements, relating to
the interest rate, fees, collateral, or other business terms
and conditions of the loan; or
(B) condition enrollment of a loan in the Program on the
review by the State of the risk or creditworthiness of a
loan.
(2) Effect on other law.--Nothing in this subtitle shall
affect the applicability of any other law to the conduct by a
participating financial institution of its business.
(j) State Contributions.--In enrolling a loan under the
Program, the participating State shall contribute to the
reserve fund an amount, as provided for in the participation
agreement, which shall not be less than the sum of the amount
of premium charges paid by the borrower and the participating
financial institution.
(k) Elements of Claims.--
(1) Filing.--If a participating financial institution
charges off all or part of an enrolled loan, such
participating financial institution may file a claim for
reimbursement with the participating State by submitting a
form that--
(A) includes the representation by the participating
financial institution that it is filing the claim in
accordance with the terms of the applicable participation
agreement; and
(B) contains such other information as may be required by
the participating State.
(2) Timing.--Any claim filed under paragraph (1) shall be
filed contemporaneously with the action of the participating
financial institution to charge off all or part of an
enrolled loan. The participating financial institution shall
determine when and how much to charge off on an enrolled
loan, in a manner consistent with its usual method for making
such determinations on business loans that are not enrolled
loans under this subtitle.
(l) Elements of Claims.--A claim filed by a participating
financial institution may include the amount of principal
charged off, not to exceed the covered amount of the loan.
Such claim may also include accrued interest and out-of-
pocket expenses, if and to the extent provided for under the
participation agreement.
(m) Payment of Claims.--
(1) In general.--Except as provided in subsection (n) and
paragraph (2) of this subsection, upon receipt of a claim
filed in accordance with this section and the participation
agreement, the participating State shall promptly pay to the
participating financial institution, from funds in the
reserve fund, the full amount of the claim as submitted.
(2) Insufficient reserve funds.--If there are insufficient
funds in the reserve fund to cover the entire amount of a
claim of a participating financial institution, the
participating State shall pay to the participating financial
institution an amount equal to the current balance in the
reserve fund. If the enrolled loan for which the claim has
been filed--
(A) is not an early loan, such payment shall be deemed
fully to satisfy the claim, and the participating financial
institution shall have no other or further right to receive
any amount from the reserve fund with respect to such claim;
or
(B) is an early loan, such payment shall not be deemed
fully to satisfy the claim of the participating financial
institution, and at such time as the remaining balance of the
claim does not exceed 75 percent of the balance in the
reserve fund, the participating State shall, upon the request
of the participating financial institution, pay any remaining
amount of the claim.
(n) Denial of Claims.--A participating State may deny a
claim if a representation or warranty made by the
participating financial institution to the participating
State at the time that the loan was filed for enrollment or
at the time that the claim was submitted was known by the
participating financial institution to be false.
(o) Subsequent Recovery of Claim Amount.--If, subsequent to
payment of a claim by the participating State, a
participating financial institution recovers from a borrower
any amount for which payment of the claim was made, the
participating financial institution shall promptly pay to the
participating State for deposit into the reserve fund the
amount recovered, less any expenses incurred by the
institution in collection of such amount.
(p) Participation Agreement Terms.--
(1) In general.--In connection with the filing of a loan
for enrollment in the Program, the participation agreement--
(A) shall require the participating financial institution
to obtain an assurance from each borrower that--
(i) the proceeds of the loan will be used for a business
purpose;
(ii) the loan will not be used to finance passive real
estate ownership; and
(iii) the borrower is not--
(I) an executive officer, director, or principal
shareholder of the participating financial institution;
(II) a member of the immediate family of an executive
officer, director, or principal shareholder of the
participating financial institution; or
(III) a related interest of any such executive officer,
director, principal shareholder, or member of the immediate
family;
(B) shall require the participating financial institution
to provide assurances to the participating State that the
loan has not been made in order to place under the protection
of the Program prior debt that is not covered under the
Program and that is or was owed by the borrower to the
participating financial institution or to an affiliate of the
participating financial institution;
(C) may provide that if--
(i) a participating financial institution makes a loan to a
borrower that is a refinancing of a loan previously made to
the borrower by the participating financial institution or an
affiliate of the participating financial institution;
(ii) such prior loan was not enrolled in the Program; and
(iii) additional or new financing is extended by the
participating financial institution as part of the
refinancing,
the participating financial institution may file the loan for
enrollment, with the amount to be covered under the Program
not to exceed the amount of any additional or new financing;
and
(D) may include additional restrictions on the eligibility
of loans or borrowers that are not inconsistent with the
provisions and purposes of this subtitle.
(2) Definitions.--For purposes of this subsection, the
terms ``executive officer'', ``director'', ``principal
shareholder'', ``immediate family'', and ``related interest''
refer to the same relationship to a participating financial
institution as the relationship described in part 215 of
title 12 of the Code of Federal Regulations, or any successor
to such part.
(q) Termination Clause.--In each participation agreement,
the participating State shall reserve for itself the ability
to terminate its obligation to enroll loans under the
Program. Any such termination shall be prospective only, and
shall not apply to amounts of loans enrolled under the
Program prior to such termination.
(r) Allowable Withdrawals From Fund.--
(1) Withdrawals based on outstanding balance.--The
participation agreement may provide that, if, for any
consecutive period of not less than 24 months, the aggregate
outstanding balance of all enrolled loans for a participating
financial institution is continually less than the
outstanding balance in the reserve fund for that
participating financial institution, the participating State,
in its discretion, may withdraw an amount from the reserve
fund to bring the balance in the reserve fund down to the
outstanding balance of all such enrolled loans.
(2) Withdrawals based on premium charges remaining in
fund.--Upon its withdrawal from the Program, a participating
financial institution may withdraw from the reserve fund an
amount that is equivalent to the premium charges paid into
the fund by the institution and the borrower that remain in
the reserve fund, if such withdrawal would not expose the
participating State to a greater risk of loss than the risk
of loss in the absence of such withdrawal.
SEC. 256. REPORTS.
(a) Reserve Funds Report.--On or before the last day of
each calendar quarter, a participating State shall submit to
the Secretary a report of contributions to reserve funds made
by the participating State during the previous calendar
quarter. If the participating State has made contributions to
one or more reserve funds during the previous quarter, the
report shall--
(1) indicate the total amount of such contributions;
(2) indicate the amount of contributions which is subject
to reimbursement, which shall be equal to the total amount of
contributions, unless one of the limitations contained in
section 257 is applicable;
(3) if one of the limitations in section 257 is applicable,
provide documentation of the applicability of such limitation
for each loan for which the limitation applies; and
(4) include a certification by the participating State
that--
(A) the information provided in accordance with paragraphs
(1), (2), and (3) is accurate;
(B) funds in an amount meeting the minimum requirements of
section 253(b)(3) continue to be available and legally
committed to contributions by the State to reserve funds,
less any amount that has been contributed by the State to
reserve funds subsequent to the State being approved for
participation in the Program;
(C) there has been no unapproved amendment to any
participation agreement or the form of participation
agreements; and
(D) the participating State is otherwise implementing the
Program in accordance with this subtitle and regulations
issued pursuant to section 259.
(b) Annual Data.--Not later than March 31 of each year,
each participating State shall submit to the Secretary annual
data indicating the number of borrowers financed under the
Program, the total amount of covered loans, and breakdowns by
industry type, loan size, annual sales, and number of
employees of the borrowers financed.
(c) Form.--The reports and data filed pursuant to
subsections (a) and (b) shall be in such form as the
Secretary may require.
SEC. 257. REIMBURSEMENT BY THE SECRETARY.
(a) Reimbursements.--Not later than 30 calendar days after
receiving a report filed in compliance with section 256, the
Secretary shall reimburse the participating State in an
amount equal to 50 percent of the amount of contributions by
the participating State to the reserve funds that are subject
to reimbursement by the Secretary pursuant to section 256 and
this section. The Secretary shall reimburse participating
States, as it receives reports pursuant to section 256(a),
until available funds are expended.
(b) Size of Assisted Borrower.--The Secretary shall not
provide any reimbursement to a participating State with
respect to an enrolled loan made to a borrower that has 500
or more employees at the time that the loan is enrolled in
the Program.
(c) Three-Year Maximum.--The amount of reimbursement to be
provided by the Secretary to a participating State over any
3-year period in connection with loans made to any single
borrower or any group of borrowers among which a common
enterprise exists shall not exceed $75,000. For purposes of
this subsection, ``common enterprise'' shall have the same
meaning as in part 32 of title 12 of the Code of Federal
Regulations, or any successor to that part.
(d) Loans Totaling Less Than $2,000,000.--In connection
with a loan in which the covered amount of the loan plus the
covered amount of all previous loans enrolled by a
participating financial institution does not exceed
$2,000,000, the amount of reimbursement by the Secretary to
the participating State shall not exceed the lesser of--
(1) 75 percent of the sum of the premium charges paid to
the reserve fund by the borrower and the participating
financial institution; or
(2) 5.25 percent of the covered amount of the loan.
(e) Loans Totaling More Than $2,000,000.--In connection
with a loan in which the sum of the covered amounts of all
previous loans enrolled by the participating financial
institution in the Program equals or exceeds $2,000,000, the
amount of reimbursement to be provided by the Secretary to
the participating State shall not exceed the lesser of--
(1) 50 percent of the sum of the premium charges paid by
the borrower and the participating financial institution; or
(2) 3.5 percent of the covered amount of the loan.
(f) Other Amounts.--In connection with the enrollment of a
loan that will cause the aggregate covered amount of all
enrolled loans to exceed $2,000,000, the amount of
reimbursement by the Secretary to the participating State
shall be determined--
(1) by applying subsection (d) to the portion of the loan,
which when added to the aggregate covered amount of all
previously enrolled loans equals $2,000,000; and
(2) by applying subsection (e) to the balance of the loan.
SEC. 258. REIMBURSEMENT TO THE SECRETARY.
(a) In General.--If a participating State withdraws funds
from a reserve fund pursuant to terms of the participation
agreement permitted by subsection (d) or (r) of section 255,
such participating State shall, not later than 15 calendar
days after such withdrawal, submit to the Secretary an amount
computed by multiplying the amount withdrawn by the
appropriate factor, as determined under subsection (b).
(b) Factor.--The appropriate factor shall be obtained by
dividing the total amount of contributions that have been
made by the participating State to all reserve funds which
were subject to reimbursement--
(1) by 2; and
(2) by the total amount of contributions made by the
participating State to all reserve funds, including if
applicable, contributions that have been made by the State
prior to becoming a participating State if the State
continued its own capital access program in accordance with
section 253(b).
(c) Use of Reimbursements.--The Secretary may use funds
reimbursed pursuant to this section to make reimbursements
under section 257.
SEC. 259. REGULATIONS.
The Secretary shall promulgate appropriate regulations to
implement this subtitle.
SEC. 260. AUTHORIZATION OF APPROPRIATIONS.
(a) Amount.--There are authorized to be appropriated to the
Secretary $50,000,000 to carry out this subtitle.
(b) Budgetary Treatment.--The amount authorized to be
appropriated under subsection (a) shall be subject to
discretionary spending caps, as provided in section 601 of
the Congressional Budget Act of 1974, and therefore shall
reduce by an equal amount funds made available for other
discretionary spending programs.
TITLE III--PAPERWORK REDUCTION AND REGULATORY IMPROVEMENT
SEC. 301. INCORPORATED DEFINITIONS.
Unless otherwise specifically provided in this title, for
purposes of this title--
(1) the terms ``appropriate Federal banking agency'',
``Federal banking agencies'', and ``insured depository
institution'' have the same meanings as in section 3 of the
Federal Deposit Insurance Act; and
(2) the term ``insured credit union'' has the same meaning
as in section 101 of the Federal Credit Union Act.
SEC. 302. ADMINISTRATIVE CONSIDERATION OF BURDEN WITH NEW
REGULATIONS.
In determining the effective date and administrative
compliance requirements for new regulations that impose
additional reporting, disclosure, or other requirements on
insured depository institutions, each Federal banking agency
shall consider, consistent with the principles of safety and
soundness and the public interest--
(1) any administrative burdens that such regulations would
place on depository institutions, including small depository
institutions, and customers of depository institutions; and
(2) the benefits of such regulations.
SEC. 303. STREAMLINING OF REGULATORY REQUIREMENTS.
(a) Review of Regulations; Regulatory Uniformity.--During
the 2-year period beginning on the date of enactment of this
Act, each Federal banking agency shall, consistent with
principles of safety and soundness and the public interest--
(1) conduct a review of the regulations and written
policies of that agency--
(A) to streamline those regulations and policies in order
to improve efficiency, reduce unnecessary costs, and
eliminate unwarranted constraints on credit availability; and
(B) to remove inconsistencies and outmoded and duplicative
requirements; and
(2) work jointly with the other Federal banking agencies to
make uniform all regulations and guidelines implementing
common statutory or supervisory policies.
(b) Report to Congress.--The Federal banking agencies shall
submit a joint report to the Congress annually for 2 years
following the date of enactment of this Act detailing the
progress of the agencies in carrying out the requirements of
subsection (a).
SEC. 304. ELIMINATION OF DUPLICATIVE FILINGS.
The Federal banking agencies shall work jointly--
(1) to eliminate, to the extent practicable, duplicative or
otherwise unnecessary requests for information in connection
with applications or notices to the agencies; and
(2) to harmonize, to the extent practicable, any
inconsistent publication and public notice requirements.
SEC. 305. COORDINATED AND UNIFIED EXAMINATIONS.
Section 10(d) of the Federal Deposit Insurance Act (12
U.S.C. 1820(d)) is amended by adding at the end the following
new paragraph:
``(6) Coordinated examinations.--To minimize the disruptive
effects of examinations on the operations of insured
depository institutions--
``(A) each appropriate Federal banking agency shall, to the
extent practicable and consistent with safety and soundness
principles and the public interest--
``(i) coordinate examinations to be conducted by that
agency at an insured depository institution and its
affiliates;
``(ii) coordinate with the other appropriate Federal
banking agencies in the conduct of such examinations; and
``(iii) work to coordinate the conduct of all examinations
made pursuant to this subsection with the appropriate State
bank supervisor; and
``(B) not later than 2 years after the date of enactment of
the Community Development, Credit Enhancement, and Regulatory
Improvement Act of 1993, the Federal banking agencies shall
jointly establish and implement a system for determining
which one of the Federal banking agencies shall conduct a
unified examination of each insured depository institution
and its affiliates, as required by this subsection, on behalf
of all Federal banking agencies.''.
SEC. 306. EIGHTEEN-MONTH EXAMINATION RULE FOR CERTAIN SMALL
INSTITUTIONS.
Section 10(d)(4) of the Federal Deposit Insurance Act (12
U.S.C. 1820(d)(4)) is amended--
(1) in subparagraph (A), by striking ``$100,000,000'' and
inserting ``$250,000,000'';
(2) in subparagraph (C), by striking ``and'' at the end;
(3) by redesignating subparagraph (D) as subparagraph (E);
and
(4) by inserting after subparagraph (C) the following new
subparagraph:
``(D) the insured institution is not currently subject to a
formal enforcement proceeding or order by the Corporation or
the appropriate Federal banking agency; and''.
SEC. 307. CALL REPORT SIMPLIFICATION.
(a) Modernization of Call Report Filing and Disclosure
System.--In order to reduce the administrative requirements
pertaining to bank reports of condition, savings association
financial reports, and bank holding company consolidated and
parent-only financial statements, and to improve the
timeliness of such reports and statements, the Federal
banking agencies shall--
(1) work jointly to develop a system under which--
(A) insured depository institutions and their affiliates
may file such reports and statements electronically; and
(B) the Federal banking agencies may make such reports and
statements available to the public electronically; and
(2) not later than 1 year after the date of enactment of
this Act, report to the Congress and make recommendations for
legislation that would enhance efficiency for filers and
users of such reports and statements.
(b) Uniform Reports and Simplification of Instructions.--
The Federal banking agencies shall, consistent with the
principles of safety and soundness, work jointly--
(1) to adopt a single form for the filing of core
information required to be submitted under Federal law to all
such agencies in the reports and statements referred to in
subsection (a); and
(2) to simplify instructions accompanying such reports and
statements and to provide an index to the instructions that
is adequate to meet the needs of both filers and users.
(c) Review of Call Report Schedule.--Each Federal banking
agency shall--
(1) review the information required by schedules
supplementing the core information referred to in subsection
(b); and
(2) eliminate requirements that are not warranted for
reasons of safety and soundness or other public purposes.
SEC. 308. REPEAL OF PUBLICATION REQUIREMENTS.
(a) Revised Statutes.--Section 5211 of the Revised Statutes
(12 U.S.C. 161) is amended--
(1) in the fifth sentence of subsection (a), by striking
``; and the statement of resources'' and all that follows
through ``as may be required by the Comptroller''; and
(2) in subsection (c), by striking the fourth sentence.
(b) FDIA.--Section 7(a)(1) of the Federal Deposit Insurance
Act (12 U.S.C. 1817(a)(1)) is amended by striking the fourth
sentence.
(c) Federal Reserve Act.--Section 9 of the Federal Reserve
Act (12 U.S.C. 324) is amended in the last sentence of the
sixth undesignated paragraph, by striking ``and shall be
published'' and all that follows through the end of the
sentence and inserting a period.
SEC. 309. REGULATORY APPEALS PROCESS.
(a) In General.--Not later than 180 days after the date of
enactment of this Act, each appropriate Federal banking
agency and the National Credit Union Administration Board
shall establish an independent intra-agency appellate
process. The process shall be available to review material
supervisory determinations made at insured depository
institutions or at insured credit unions that the agency
supervises.
(b) Review Process.--In establishing the independent
appellate process under subsection (a), each agency shall
ensure--
(1) that any appeal of a material supervisory determination
by an insured depository institution or credit union is heard
and decided expeditiously; and
(2) that appropriate safeguards exist for protecting the
appellant from retaliation by agency examiners.
(c) Comment Period.--Not later than 90 days after the date
of enactment of this Act, each appropriate Federal banking
agency and the National Credit Union Administration shall
provide public notice and opportunity for comment on proposed
guidelines for the establishment of an appellate process
under this section.
(d) Definitions.--For purposes of this section--
(1) the term ``material supervisory determinations''
includes determinations relating to--
(A) examination ratings;
(B) the adequacy of loan loss reserve provisions; and
(C) loan classifications on loans that are significant to
the institution; and
(2) the term ``independent appellate process'' means a
review by an agency official who does not directly or
indirectly report to the agency official who made the
material supervisory determination under review.
(e) Effect on Other Authority.--Nothing in this section
shall affect the authority of an appropriate Federal banking
agency or the National Credit Union Association Board to take
enforcement or supervisory action against an institution.
SEC. 310. ELECTRONIC FILING OF CURRENCY TRANSACTION REPORTS.
Section 123 of the Bank Secrecy Act (12 U.S.C. 1953) is
amended by adding at the end the following new subsection:
``(c) Acceptance of Automated Records.--The Secretary shall
permit an uninsured bank or financial institution to retain
or maintain records referred to in subsection (a) in
electronic or automated form, subject to terms and conditions
established by the Secretary.''.
SEC. 311. BANK SECRECY ACT PUBLICATION REQUIREMENTS.
Chapter 53 of title 31, United States Code, is amended by
adding at the end the following new section:
``SEC. 5329. STAFF COMMENTARIES.
``The Secretary shall--
``(1) publish all written rulings interpreting this
chapter; and
``(2) annually issue a staff commentary on the regulations
issued under this chapter.''.
SEC. 312. EXEMPTION OF BUSINESS LOANS FROM REAL ESTATE
SETTLEMENT PROCEDURES ACT REQUIREMENTS.
The Real Estate Settlement Procedures Act of 1974 (12
U.S.C. 2601 et seq.) is amended by inserting after section 6
the following new section:
``SEC. 7. EXEMPTED TRANSACTIONS.
``This Act does not apply to credit transactions involving
extensions of credit--
``(1) primarily for business, commercial, or agricultural
purposes; or
``(2) to government or governmental agencies or
instrumentalities.''.
SEC. 313. FLEXIBILITY IN CHOOSING BOARDS OF DIRECTORS.
Section 5146 of the Revised Statutes (12 U.S.C. 72) is
amended in the first sentence, by striking ``two thirds'' and
inserting ``a majority''.
SEC. 314. HOLDING COMPANY AUDIT REQUIREMENTS.
Section 36(i) of the Federal Deposit Insurance Act (12
U.S.C. 1831m(i)) is amended by striking paragraph (2) and
inserting the following:
``(2) the institution--
``(A) has total assets, as of the beginning of such fiscal
year, of less than $5,000,000,000;
``(B) has--
``(i) total assets, as of the beginning of such fiscal
year, of more than $5,000,000,000 and less than
$9,000,000,000; and
``(ii) a CAMEL composite rating of 1 or 2 under the Uniform
Financial Institutions Rating System (or an equivalent rating
by any such agency under a comparable rating system) as of
the most recent examination of such institution by the
Corporation or the appropriate Federal banking agency; or
``(C) has--
``(i) total assets, as of the beginning of such fiscal
year, of more than $9,000,000,000; and
``(ii) a CAMEL composite rating of 1 under the Uniform
Financial Institutions Rating System (or an equivalent rating
by any such agency under a comparable rating system) as of
the most recent examination of such institution by the
Corporation or the appropriate Federal banking agency.
Notwithstanding paragraph (2)(C), in the case of an insured
depository institution that the Corporation determines to be
a large institution, the audit committee of the holding
company of such an institution shall not include any large
customers of the institution.''.
SEC. 315. STATE REGULATION OF REAL ESTATE APPRAISALS.
Section 1122 of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (12 U.S.C. 3351) is
amended--
(1) by redesignating subsections (b) through (e) as
subsections (c) through (f), respectively;
(2) by inserting after subsection (a) the following new
subsection:
``(b) Reciprocity.--The Appraisal Subcommittee shall
encourage the States to develop reciprocity agreements that
readily authorize appraisers who are licensed or certified in
one State (and who are in good standing with their State
appraiser certifying or licensing agency) to perform
appraisals in other States.''; and
(3) in subsection (a)--
(A) by redesignating paragraphs (1) through (3) as
subparagraphs (A) through (C);
(B) by striking ``A State'' and inserting the following:
``(1) In general.--A State''; and
(C) by adding at the end the following new paragraph:
``(2) Fees for temporary practice.--A State appraiser
certifying or licensing agency shall not impose excessive
fees or burdensome requirements, as determined by the
Appraisal Subcommittee, for temporary practice under this
subsection.''.
SEC. 316. ACCELERATION OF EFFECTIVE DATE FOR INTERAFFILIATE
TRANSACTIONS.
(a) Home Owners' Loan Act Amendment.--Section 11(a)(2) of
the Home Owners' Loan Act (12 U.S.C. 1468(a)(2)) is amended
by adding at the end the following new subparagraph:
``(C) Transition rule for well capitalized savings
associations.--
``(i) In general.--A savings association that is well
capitalized (as defined in section 38 of the Federal Deposit
Insurance Act), as determined without including goodwill in
calculating core capital, shall be treated as a bank for
purposes of section 23A(d)(1) and section 23B of the Federal
Reserve Act.
``(ii) Liability of commonly controlled depository
institutions.--Any savings association that engages under
clause (i) in a transaction that would not otherwise be
permissible under this subsection, and any affiliated insured
bank that is commonly controlled (as defined in section
5(e)(9) of the Federal Deposit Insurance Act), shall be
subject to subsection (e) of section 5 of the Federal Deposit
Insurance Act as if paragraph (6) of that subsection did not
apply.''.
(b) Repeal Provision.--Effective on January 1, 1995,
subparagraph (C) of section 11(a)(2) of the Home Owners' Loan
Act (12 U.S.C. 1468(a)(2)) (as added by subsection (a) of
this section) is repealed.
SEC. 317. COLLATERALIZATION OF PUBLIC DEPOSITS.
Section 13(e) of the Federal Deposit Insurance Act (12
U.S.C. 1823(e)) is amended--
(1) by redesignating paragraphs (1) through (4) as
subparagraphs (A) through (D), respectively;
(2) by striking ``No agreement'' and inserting the
following:
``(1) In general.--No agreement''; and
(3) by adding at the end the following new paragraph:
``(2) Public deposits.--An agreement to provide for the
lawful collateralization of deposits of a Federal, State, or
local governmental entity or of any depositor referred to in
section 11(a)(2) shall not be deemed to be invalid pursuant
to paragraph (1)(B) solely because of changes in the
collateral made in accordance with such agreement.''.
SEC. 318. ELIMINATION OF STOCK VALUATION PROVISION.
(a) In General.--Section 39(b)(1) of the Federal Deposit
Insurance Act (12 U.S.C. 1831p-1(b)(1), as added by section
132(a) of the Federal Deposit Insurance Corporation
Improvements Act of 1991) is amended--
(1) in subparagraph (A), by adding ``and'' at the end; and
(2) by striking subparagraph (C).
(b) Effective Date.--The amendments made by subsection (a)
shall be construed to have the same effective date as section
39 of the Federal Deposit Insurance Act, as provided in
section 132(c) of the Federal Deposit Insurance Corporation
Improvements Act of 1991.
SEC. 319. EXPEDITED PROCEDURES FOR FORMING A BANK HOLDING
COMPANY.
Section 3(a) of the Bank Holding Company Act of 1956 (12
U.S.C. 1842(a)) is amended--
(1) in the second sentence, by striking ``or (B)'' and
inserting ``(B)''; and
(2) in the second sentence, by inserting before the period
the following: ``; or (C) with 30 days prior notification to
the Board, the acquisition by a company of control of a bank
in a reorganization in which a person or group of persons
exchanges its shares of the bank for shares of a newly formed
bank holding company and receives, after the reorganization,
substantially the same proportional share interest in the
holding company as it held in the bank (except for changes in
shareholders' interests resulting from the exercise of
dissenting shareholders' rights under State or Federal law)
if, immediately following the acquisition, (i) the bank
holding company meets the capital and other financial
standards prescribed by the Board by regulation for such a
bank holding company; (ii) the bank is adequately capitalized
(as defined in section 38 of the Federal Deposit Insurance
Act); and (iii) the holding company does not engage in any
activities other than those of banking or managing and
controlling banks''.
SEC. 320. EXEMPTION OF CERTAIN HOLDING COMPANY FORMATIONS
FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933.
Section 4 of the Securities Act of 1933 (15 U.S.C. 77d) is
amended by adding at the end the following new paragraph:
``(7) transactions involving offers or sales of equity
securities, in connection with the acquisition of a bank by a
company under section 3(a) of the Bank Holding Company Act of
1956, if--
``(A) the acquisition occurs solely as part of a
reorganization in which a person or group of persons
exchanges its shares of a bank for shares of a newly formed
bank holding company with no significant assets other than
securities of the bank and the existing subsidiaries of the
bank;
``(B) the shareholders receive, after that reorganization,
substantially the same proportional share interests in the
bank holding company as they held in the bank, except for
changes in shareholders' interests resulting from lawful
elimination of fractional interests and the exercise of
dissenting shareholders' rights under State or Federal law;
``(C) the rights and interests of security holders in the
bank holding company are substantially the same as those in
the bank prior to the transaction, other than as may be
required by law; and
``(D) the bank holding company has substantially the same
assets and liabilities as the bank had prior to the
transaction.''.
SEC. 321. REDUCTION OF POST-APPROVAL WAITING PERIOD FOR BANK
HOLDING COMPANY ACQUISITIONS.
Section 11(b)(1) of the Bank Holding Company Act of 1956
(12 U.S.C. 1849(b)(1)) is amended by inserting before the
period at the end of the fourth sentence the following: ``or,
if the Board has not received any adverse comment from the
Attorney General of the United States relating to competitive
factors, such shorter period of time as may be prescribed by
the Board with the concurrence of the Attorney General, but
in no event less than 15 calendar days after the date of
approval''.
SEC. 322. REDUCTION OF POST-APPROVAL WAITING PERIOD FOR BANK
MERGERS.
Section 18(c)(6) of the Federal Deposit Insurance Act (12
U.S.C. 1828(c)(6)) is amended by inserting before the period
at the end of the last sentence the following: ``or, if the
agency has not received any adverse comment from the Attorney
General of the United States relating to competitive factors,
such shorter period of time as may be prescribed by the
agency with the concurrence of the Attorney General, but in
no event less than 15 calendar days after the date of
approval''.
SEC. 323. BANKERS' BANKS.
(a) Ownership by Bankers' Banks.--
(1) Paragraph Seventh of section 5136 of the Revised
Statutes (12 U.S.C. 24) is amended in the eleventh sentence--
(A) by inserting ``or depository institution holding
companies (as defined in section 3 of the Federal Deposit
Insurance Act)'' after ``(except to the extent directors'
qualifying shares are required by law) by depository
institutions''; and
(B) by striking ``employees'' and inserting ``employees
(also referred to as a `bankers' bank')''.
(2) Section 5169(b)(1) of the Revised Statutes (12 U.S.C.
27(b)(1)) is amended--
(A) by inserting ``or depository institution holding
companies'' after ``(except to the extent directors'
qualifying shares are required by law) by other depository
institutions''; and
(B) by striking ``employees'' and inserting ``employees
(also referred to as a `bankers' bank')''.
(b) Ownership by Savings Associations.--Section 5(c)(4) of
the Home Owners' Loan Act (12 U.S.C. 1464(c)(4)) is amended
by adding at the end the following new subparagraph:
``(E) Bankers' Banks.--A Federal savings association may
purchase for its own account shares of stock of a bankers'
bank, described in Paragraph Seventh of section 5136 of the
Revised Statutes or in section 5169(b) of the Revised
Statutes, on the same terms and conditions as a national bank
may purchase such shares.''.
(c) Technical and Conforming Amendments.--
(1) Bank holding company act.--Section 3(e) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1842(e)) is amended by
striking the second sentence.
(2) Management interlocks act.--Section 202(3)(D) of the
Depository Institution Management Interlocks Act (12 U.S.C.
3201(3)(D)) is amended by striking ``the voting securities''
and all that follows through the end of the subparagraph and
inserting ``and is a bankers' bank, described in Paragraph
Seventh of section 5136 of the Revised Statutes; or''.
SEC. 324. BANK SERVICE CORPORATION ACT AMENDMENT.
Section 5 of the Bank Service Corporation Act (12 U.S.C.
1865) is amended--
(1) in subsection (a), by striking ``the prior approval
of'' and inserting ``prior notice, as determined by''; and
(2) in subsection (c), by inserting ``or whether to approve
or disapprove any notice'' after ``approval''.
SEC. 325. MERGER TRANSACTION REPORTS.
Section 18(c) of the Federal Deposit Insurance Act (12
U.S.C. 1828(c)) is amended--
(1) in paragraph (4)--
(A) in the first sentence--
(i) by striking ``General and the other two'' and inserting
``General, who shall promptly notify the other''; and
(ii) by inserting before the period ``of any such proposed
transaction that raises a significant competitiveness
issue''; and
(B) in the second sentence, by striking ``and the other two
banking agencies''; and
(2) in paragraph (6), by striking ``and the other two
banking agencies''.
SEC. 326. CREDIT CARD ACCOUNTS RECEIVABLE SALES.
Section 11(e) of the Federal Deposit Insurance Act (12
U.S.C. 1821(e)) is amended by adding at the end the following
new paragraphs:
``(14) Selling credit card accounts receivable.--
``(A) Notification required.--An undercapitalized insured
depository institution (as defined in section 38) shall
notify the Corporation in writing before entering into an
agreement to sell credit card accounts receivable.
``(B) Waiver by corporation.--The Corporation may at any
time, in its sole discretion and upon such terms as it may
prescribe, waive its right to repudiate an agreement to sell
credit card accounts receivable if the Corporation--
``(i) determines that the waiver is in the best interests
of the deposit insurance fund; and
``(ii) provides a written waiver to the selling
institution.
``(C) Effect of waiver on successors.--
``(i) In general.--If, under subparagraph (B), the
Corporation has waived its right to repudiate an agreement to
sell credit card accounts receivable--
``(I) any provision of the agreement that restricts
solicitation of a credit card customer of the selling
institution, or the use of a credit card customer list of the
institution, shall bind any receiver or conservator of the
institution; and
``(II) the Corporation shall require any acquirer of the
selling institution, or of substantially all of the selling
institution's assets or liabilities, to agree to be bound by
a provision described in subclause (I) as if the acquirer
were the selling institution.
``(ii) Exception.--Clause (i)(II) does not--
``(I) restrict the acquirer's authority to offer any
product or service to any person identified without using a
list of the selling institution's customers in violation of
the agreement;
``(II) require the acquirer to restrict any preexisting
relationship between the acquirer and a customer; or
``(III) apply to any transaction in which the acquirer
acquires only insured deposits.
``(D) Waiver not actionable.--The Corporation shall not, in
any capacity, be liable to any person for damages resulting
from the waiver of or failure to waive the Corporation's
right under this section to repudiate any contract or lease,
including an agreement to sell credit card accounts
receivable. No court shall issue any order affecting any such
waiver or failure to waive.
``(E) Other authority not affected.--This paragraph does
not limit any other authority of the Corporation to waive the
Corporation's right to repudiate an agreement or lease under
this section.
``(15) Certain credit card customer lists protected.--
``(A) In general.--If any insured depository institution
sells credit card accounts receivable under an agreement
negotiated at arm's length that provides for the sale of the
institution's credit card customer list, the Corporation
shall prohibit any party to a transaction with respect to the
institution under this section or section 13 from using the
list except as permitted under the agreement.
``(B) Fraudulent transactions excluded.--Subparagraph (A)
does not limit the Corporation's authority to repudiate any
agreement entered into with the intent to hinder, delay, or
defraud the institution, the institution's creditors, or the
Corporation.''.
SEC. 327. LIMITING POTENTIAL LIABILITY ON FOREIGN ACCOUNTS.
(a) Amendment to the Federal Reserve Act.--The Federal
Reserve Act (12 U.S.C. 221 et seq.) is amended by inserting
after section 25B the following new section:
``SEC. 25C. POTENTIAL LIABILITY ON FOREIGN ACCOUNTS.
``A member bank shall not be required to repay any deposit
made at a foreign branch of the bank if the branch cannot
repay the deposit due to--
``(1) an act of war, insurrection or civil strife; or
``(2) an action by a foreign government or instrumentality
(whether de jure or de facto) in the country in which the
branch is located,
unless the member bank has expressly agreed in writing to
repay the deposit under those circumstances. The Board may
prescribe such regulations as it deems necessary to implement
this section.''.
(b) Conforming Amendments to the Federal Deposit Insurance
Act.--
(1) In general.--Section 18 of the Federal Deposit
Insurance Act (12 U.S.C. 1828) is amended by adding at the
end the following new subsection:
``(q) Sovereign Risk.--Section 25C of the Federal Reserve
Act shall apply to every nonmember insured bank in the same
manner and to the same extent as if the nonmember insured
bank were a member bank.''.
(2) Conforming amendment.--Subparagraph (A) of section
3(l)(5) of the Federal Deposit Insurance Act (12 U.S.C.
1813(l)(5)) is amended to read as follows:
``(A) any obligation of a depository institution which is
carried on the books and records of an office of such bank or
savings association located outside of any State, unless--
``(i) such obligation would be a deposit if it were carried
on the books and records of the depository institution, and
would be payable at, an office located in any State; and
``(ii) the contract evidencing the obligation provides by
express terms, and not by implication, for payment at an
office of the depository institution located in any State;
and''.
(c) Existing Claims Not Affected--Section 25C of the
Federal Reserve Act (as added by subsection (a)) shall not be
applied retroactively and shall not be construed to affect or
apply to any claim or cause of action addressed by that
section arising from events or circumstances that occurred
before the date of enactment of this Act.
SEC. 328. AMENDMENTS TO OUTDATED DIVIDEND PROVISIONS.
(a) Withdrawal of Capital.--Section 5204 of the Revised
Statutes (12 U.S.C. 56) is amended--
(1) in the second sentence, by striking ``net profits then
on hand, deducting therefrom its losses and bad debts'' and
inserting ``undivided profits, subject to other applicable
provisions of law''; and
(2) by striking the third sentence.
(b) Declaration of Dividends.--Section 5199 of the Revised
Statutes (12 U.S.C. 60) is amended--
(1) in the first sentence, by striking ``net profits of the
association'' and inserting ``undivided profits of the
association, subject to the limitations in subsection (b),'';
(2) by striking ``net profits'' each subsequent place such
term appears and inserting ``net income''; and
(3) by striking subsection (c).
SEC. 329. ELIMINATION OF DUPLICATIVE DISCLOSURES FOR HOME
EQUITY LOANS.
Section 4(a) of the Real Estate Settlement Procedures Act
(12 U.S.C. 2603(a)) is amended by adding at the end the
following: ``In the case of a federally related mortgage loan
secured by a subordinate lien on residential property,
disclosures made under section 127A(a) of the Truth in
Lending Act may be used in lieu of the disclosures required
under this section if--
``(1) the disclosures made pursuant to such section 127A(a)
contain all of the information that is required under this
section; and
``(2) the information is disclosed in a manner that is no
less conspicuous than is required under this section.''.
SEC. 330. REPORT ON CAPITAL STANDARDS AND THEIR IMPACT ON THE
ECONOMY.
(a) In General.--Not later than 1 year after the date of
enactment of this Act, the Secretary of the Treasury, after
consultation with the Federal banking agencies, shall report
to the Committee on Banking, Housing, and Urban Affairs of
the Senate and the Committee on Banking, Finance and Urban
Affairs of the House of Representatives on the effect of the
implementation of risk-based capital standards on--
(1) the safety and soundness of insured depository
institutions; and
(2) the availability of credit, particularly to consumers
and small business concerns.
(b) Recommendations.--The report required by subsection (a)
shall contain any recommendations that the Secretary of the
Treasury considers relevant.
SEC. 331. STUDIES ON THE IMPACT OF THE PAYMENT OF INTEREST ON
RESERVES.
(a) Federal Reserve Study.--Not later than 180 days after
the date of enactment of this Act, the Board of Governors of
the Federal Reserve System, in consultation with the Federal
Deposit Insurance Corporation, shall conduct a study and
report to Congress on--
(1) the necessity, for monetary policy purposes, of
continuing to require insured depository institutions to
maintain sterile reserves;
(2) the appropriateness of paying a market rate of interest
to insured depository institutions on sterile reserves or, in
the alternative, providing for payment of such interest into
the appropriate deposit insurance fund;
(3) the monetary impact that the failure to pay interest on
sterile reserves has had on insured depository institutions,
including an estimate of the total dollar amount of interest
and the potential income lost by insured depository
institutions; and
(4) the impact that the failure to pay interest on sterile
reserves has had on the ability of the banking industry to
compete with nonbanking providers of financial services and
with foreign banks.
(b) Budgetary Impact Study.--Not later than 180 days after
the date of enactment of this Act, the Director of the Office
of Management and Budget and the Director of the
Congressional Budget Office, in consultation with the
Committees on the Budget of the Senate and the House of
Representatives, shall jointly conduct a study and report to
the Congress on the budgetary impact of--
(1) paying a market rate of interest to insured depository
institutions on sterile reserves; and
(2) paying such interest into the respective deposit
insurance funds.
SEC. 332. STUDY AND REPORT ON STREAMLINED LENDING PROCESS FOR
CONSUMER BENEFIT.
(a) Study.--During the 12-month period beginning on the
date of enactment of this Act, the Board of Governors of the
Federal Reserve System, the Comptroller of the Currency, and
the Secretary of Housing and Urban Development shall conduct
a study of ways to improve the home mortgage, small business,
and consumer lending processes, consistent with the
principles of safety and soundness, so as to--
(1) reduce consumer burdens, inconvenience, cost, and
delay; and
(2) minimize cost and burdens on insured depository
institutions, credit unions, and other lenders.
(b) Comments.--In conducting the study under subsection
(a), comments shall be solicited from consumer groups,
insured depository institutions, other lenders, and any other
interested parties.
(c) Report.--Not later than 12 months after the date of
enactment of this Act, the Board of Governors of the Federal
Reserve System, the Comptroller of the Currency, and the
Secretary of Housing and Urban Development shall submit a
joint report to the Congress indicating any legislative
changes necessary to improve the home mortgage, small
business, and consumer lending processes and including a
summary of comments received pursuant to subsection (b).
SEC. 333. REPEAL OF OUTDATED CHARTER REQUIREMENT FOR NATIONAL
BANKS.
Section 5170 of the Revised Statutes (12 U.S.C. 28) is
repealed.
Amend the title so as read: ``A bill to facilitate the
establishment of community development financial
institutions, to provide consumer protections for high cost
mortgages, to encourage investment in and lending to small
businesses, to improve the regulation of depository
institutions, and for other purposes.''.
The PRESIDING OFFICER. Who seeks recognition?
The Chair recognizes the Senator from Michigan [Mr. Riegle].
Mr. RIEGLE. Mr. President, under the standing order we are now moving
to S. 1275, the Community Development, Credit Enhancement, and
Regulatory Improvement Act of 1995.
I will shortly begin a description of that bill. At the end of my
remarks I will ask unanimous consent to have a letter from Treasury
Secretary Bentsen and other supplementary materials printed in the
Record.
This is an important day for the country, that we have a chance to
bring this bill to the Senate floor. I thank the majority leader for
allowing us this spot in the schedule, to be able to present it to the
Senate and move it through, I hope, quite expeditiously so we can get
into conference and get this into law before this year is over.
The bill we have before the Senate now incorporates a number of
provisions that are designed to foster community development, such as
we have just heard; to also, importantly, encourage lending to small
business, because we know that is such an important engine of growth in
this country, and of job creation. And also to target and eliminate
unnecessary paperwork and redundancy within our financial system. Also
in order to deal with some specific problems, to put in place some
consumer protections that are also needed to prevent some abuses we
have uncovered that we think need to be dealt with directly.
As I have said, the committee worked together in a bipartisan fashion
to craft this bill. We have also worked closely with the Clinton
administration, and I thank them for their cooperation. I think this
teamwork effort is reflected in the overwhelming bipartisan support
that this bill received in the Banking, Housing, and Urban Affairs
Committee. We reported this bill out favorably by a vote of 18 to 1. I
repeat that, by a vote of 18 to 1. I am very proud of the strength of
the bipartisan support it achieved.
I particularly commend Senator D'Amato, the ranking Republican, for
his leadership and input in developing this legislation. We have worked
together on a vast number of issues in the committee. That is the
approach we take. We have done that here. We have crafted a bill we
both strongly support and I thank him for his leadership, and his staff
as well.
Let me now briefly describe the provisions of the bill. Let me start
with community development.
The first title of the bill addresses the issue of community
development and consumer protection. It is aimed at revitalizing
distressed communities by helping to enlarge and strengthen the
capacity of local community development institutions and to improve the
access of capital into these institutions. It will create the community
development financial institutions fund. That fund will promote
revitalization of our distressed communities by providing financial and
technical assistance to new and to existing community development
financial institutions.
The fund will be directed by an administrator appointed by the
President and confirmed by the Senate. A 5-member advisory board will
consist of representatives of community groups, local and regional
governments, community development organizations, and the banking
industry itself.
The bill authorizes $382 million over 4 years to carry out this
program. The money can be used for small business, commercial, and
community facilities, basic financial services where they do now not
exist or are very expensive and out of the reach of many people, and
also low-income housing, if that is not provided by other area housing
lenders.
Banks and other financial institutions and Government entities will
be able to play a very important role in this initiative. Together with
community development financial institutions, existing commercial banks
and others will be able to submit joint applications for assistance
called community partnerships. Federal funds, however, may only go to
the community development financial institution itself.
A community development subsidiary owned by banks or by thrifts or
both may qualify, provided that no one company owns more than 25
percent of its voting shares.
So we facilitate a partnership arrangement with the existing
financial system, to the extent they want to participate in this way,
but it reaches out to those community entities like the one that
brought into being the South Shore Bank in Chicago and others, to
enable an additional level of infusion of financial activity and
capital down to the grassroots where it is so badly needed.
I might just say, I believe strongly in the free enterprise system. I
have seen it work any number of times. But in order for it to work you
have to be able to take a good idea and a good team of people and to be
able to get access to capital so you can actually put your idea to
work.
If the credit facilities are such that you are strangled before you
ever start because you cannot establish a normal financial
relationship, particularly with a startup entity, very often,
particularly in depressed areas, inner-city urban areas, and even rural
areas, you have ideas that could take hold and create new economic
activity and job creation, but they never happen because of the absence
of credit facilities and the absence of financing.
We want to change that. We want to take and infuse more capital into
areas where capital has been missing.
Another part of this bill that I will describe in a minute has to do
with the securitization of small business loans. That is aimed at
exactly the same problem because we feel--and Senator D'Amato has led
this particular effort--but if we can find a way to take and make more
small business loans, securitize those loans, and sell them off in a
secondary market, we can hook up a source of investment capital and
bring that in to underserved areas and to give the free enterprise and
the capitalistic system a chance to work because people will be able to
have the money they need to actually put good ideas to work. So this is
something that is very important. It goes right to the center of
validating our entire economic system.
Title I, as I mentioned, also includes a provision amending the Truth
in Lending Act to provide new consumer protections for certain second
mortgages that have carried with them exceptionally high fees or
interest rates. The bill defines these second mortgages that fall into
that category as ``high-cost mortgages.''
On February 17 of this year, we had a hearing in the Banking
Committee, and witnesses then testified that homeowners in low-income
minority communities have been deliberately targeted for abusive
lending practices. Our legislation requires lenders to make a separate
disclosure when they are offering high-cost mortgages that contain
annual interest rates, monthly payments and a warning that the borrower
could lose his or her home.
What this deals with is what is called reverse redlining where some
unscrupulous lenders were going into areas, offering second mortgages
at rates as high as 17 percent, or higher, knowing full well that the
person taking that loan could never pay it back and, in due course,
would have to default on the loan and enable them, the lender, to take
that property in foreclosure and make a huge profit.
We do not want the system operating that way. So this is an effort to
try to, in a balanced fashion, deal with that abuse with respect to
high-cost second mortgages.
So the disclosure would have to be provided at least 3 days before
the settlement, creating an additional cooling-off period so that
consumers have an opportunity to see what is involved here and not get
swept up in a high-pressure sales pitch and, the next thing they know,
be locked into a financial arrangement that will devastate them and
literally take their home right out from under them.
The bill generally prevents lenders from including certain terms that
have caused problems, such as prepayment penalties, in these high-cost
mortgages. The Federal Reserve has given authority to exempt loans from
these provisions, however, if, in their view, it is in the interest of
the borrowing public.
Finally, the bill transfers liability in connection with high-cost
mortgages from the originator to any subsequent purchaser of the loan.
This provision is essential to make the market police itself.
Next, let me move to the small business section which is contained in
title II. The small business capital formation section contains two
provisions designed to ensure that small businesses will have access to
the credit that they need to come into existence, grow, and create
jobs.
First, title II includes S. 384. That is a bill introduced by Senator
D'Amato to facilitate the securitization of small business loans. Back
in 1984, Congress enacted legislation to promote the securitization of
home mortgages. Most observers now believe that securitization of
residential mortgages has served over the intervening years to increase
the supply of capital to home buyers, ensuring a continuous supply of
that capital and also bringing down the cost. It is a more efficient
market and is a way for capital to get to that kind of investment form.
And so people wanting to have home mortgages have greatly benefited in
the process.
Senator D'Amato, and other Senators, introduced a bill intended to
develop a secondary market for small business loans similar to that for
these residential mortgages. This provision, with modifications, is now
incorporated in the bill.
Under this legislation, financial institutions can originate loans to
small businesses and then sell them to an entity that would issue
securities to investors. The bill makes changes to Federal securities
laws that parallel the 1984 statute. These would allow issuers
sufficient time to pool and sell securities and to file a single
registration statement with the SEC.
The bill also changes bank capital requirements for small business
loans to ``without recourse.'' That is, where the bank remains liable
for a portion of any losses on the loan.
The committee worked with the Federal bank regulators and the
Treasury Department to develop an approach that will facilitate
securitization of small business loans while maintaining bank safety
and soundness.
In fashioning this legislation, the committee was mindful that banks
are losing market share in the area of small business lending, and that
is not helping anyone. A Government-sponsored enterprise to securitize
small business loans could lead to a standardization of product and
that could further move business out of the banking industry.
The legislation approved by the Banking Committee does not create
such a Government-sponsored enterprise. Instead, it removes a number of
regulatory impediments to the development of a secondary market by the
private sector. While standards may converge as the market develops,
the committee has not sanctioned--I emphasize, has not sanctioned--any
Government-sponsored uniformity in small business lending. We realize
how crucial bank financing is to small and startup businesses, and we
want commercial banks to continue to be players in this market. This is
designed to help them do exactly that.
Title II also includes S. 478. That is a measure providing Federal
assistance for State capital access programs. Fourteen States have
adopted capital access programs. These programs encourage banks to make
loans to small- and medium-size businesses that they might not
otherwise make. Lenders may choose to participate in a program. For
each loan enrolled in a program, the bank and the borrower contribute
to a loan reserve fund. The State then matches the contribution of the
bank and the borrower. The loan loss reserve fund protects the lender
against loss on the loan. Participating lenders assume the risk of loss
on their loans if the losses exceed the total contribution to the
reserve funds.
Unlike a guarantee program, the Government is not exposed to the risk
of the entire loan. The bill authorizes $50 million in Federal funds to
match State contributions to capital access programs. This will help
States that already have such programs and encourage other States to
adopt such programs. The Federal role would be limited to certifying
State programs for participation, receiving reports and matching State
contributions.
Finally, title III of this bill contains a number of directives to
the bank regulatory agencies to require them to improve the way they
carry out their functions. Our goal is to harmonize and to simplify the
regulatory mandates that are now imposed by multiple bank regulatory
agencies.
Under this bill, for example, within 2 years, examinations will be
coordinated and each institution and its affiliates will receive a
unified exam conducted by just one regulator.
Now we have a situation where as many as four regulators are in the
act. I have been told stories of individual institutions where you have
three different regulators all on site at the same time, all doing
different kinds of examinations according to different standards. It is
costly, it is time consuming, it is confusing, it is burdensome and it
is time to change it, and we change it in this respect in this bill.
We think that that is going to eliminate the cost to banks of these
duplicative exams. Each agency has to establish a regulatory appeals
process. Also within 2 years, the Federal banking agencies must conduct
a top-to-bottom review of regulations, removing inconsistent, outmoded
and duplicative mandates. New regulations will not be issued without
the scrutiny of the administrative burden that they may create, and
this is particularly a problem for smaller institutions who just do not
have the margins to carry a lot of burdensome regulatory requirements
that, in the end, are not needed.
The current system of four different agencies adopting four different
guidelines on the same subject will come to an end. I happen to think
we also ought to consolidate those agencies into a single entity. We
are doing that on a separate track, coming down that track with a
proposal within the committee. That would be a major institutional
advance with respect to consolidation. But until we achieve that goal,
and even with whatever final form we get there, it is very important
this administrative simplification and streamlining take place.
The bill also contains numerous amendments to existing laws that will
reduce the paperwork and unnecessary regulatory burden with which banks
must now cope. For example, institutions with assets of less than $100
million are currently exempt from the requirement of annual inspection
and instead may be examined on an 18-month cycle. Title III raises that
threshold from $100 million to $250 million. Call reports no longer
need to be published in local newspapers. Loans that are made for
commercial, agriculture, and governmental purposes are exempted from
the forms required under the Real Estate Settlement Practices Act.
In addition, title III calls for study of risk-based capital
standards, sterile reserves, and burden in the consumer loan process. A
number of these provisions are drawn from Senate bills 265 and 1124
introduced by Senators Shelby, Mack, D'Amato, Dole, Bryan, Sasser, and
others.
It is fair to say that virtually all the members of the committee
have had input into these provisions. The package has, as I said
earlier, the full support of the Clinton administration. Secretary of
the Treasury Bentsen applauded the regulatory reform provisions of the
bill as a very reasonable and sensible approach and one that does not
go overboard. As he noted, the aim of these provisions is to remove
outmoded and outdated and sometimes excessive restrictions on our
financial system.
The measures in the bill reflect a thorough review and balancing to
eliminate unnecessary restrictions while at the same time maintaining
effective supervision--most importantly, the safety and soundness of
the banking system, protection of the bank insurance fund, and
appropriate consumer protections.
Any actions that hinder effective bank regulation or undermine bank
safety and soundness may save the banks some money today but at the
risk of causing potentially severe losses to the insurance fund
tomorrow, and we draw that line very clearly, and we do not want to
cross that line.
This bill is a major step toward eliminating the duplicative and
inconsistent regulation that increases costs for consumers and
undermines support for essential regulation in this area.
Again, I wish to thank all the members of the committee for their
cooperation, particularly my ranking member, Senator D'Amato, for their
very solid bipartisan cooperation in drafting and reporting out this
legislation.
I will shortly yield to my colleague from New York. After he has
spoken, I will seek recognition for the purpose of describing and
moving the adoption of a managers' amendment. The managers' amendment
contains a number of improvements to the bill agreed to by Senator
D'Amato and myself as well as other Senators.
Mr. President, I yield the floor at this point.
The PRESIDING OFFICER. Who seeks recognition?
Mr. D'AMATO addressed the Chair.
The PRESIDING OFFICER. The Chair recognizes the Senator from New York
[Mr. D'Amato].
Mr. D'AMATO. Mr. President, I am going to open with a short statement
as it relates to this bill, and then I am going to speak to another
subject that literally has come to my attention just this morning but
obviously concerns banking, banking institutions, regulatory
authorities, and the appropriateness of the conduct of the Treasury
Department and maybe others as it relates to the responsibility of
these independent agencies.
Mr. President, I rise today in support of S. 1275, the Community
Development, Credit Enhancement, and Regulatory Improvement Act.
Throughout our country there are communities in decline because of a
lack of capital and credit. In hearings before the Banking Committee
last year, we heard testimony that community development banks can
provide a powerful tool to reestablish neighborhoods and turn decay
into prosperity by providing a combination of loans, seed capital, and
technical assistance.
Rural farm communities can also benefit from community development
financial institutions through the provisions of farm loans and
development capital.
Title I of this legislation is designed to assist in the
establishment and funding of community development financial
institutions. It establishes a community development financial
institutions fund that will make grants, loans, and technical
assistance to local financial institutions. These local institutions
can be insured banks, savings and loans, low-income credit unions, or
other community lending organizations. However, in all cases, the
institution must have, as its primary mission, the promotion of
community development.
Assistance given by the fund, other than technical assistance, must
be matched by non-Federal dollars. Generally, except for certain
hardship instances, the matching requirement will require $1 of non-
Federal funds for each $1 of Federal assistance.
This matching requirement is an extremely important safeguard. It
ensures that the private sector or local Government agency is willing
to risk its own resources on the viability of the institution selected
for Federal funding. The matching requirement provides a second opinion
as to the need for and likely success of the institution's planned use
of the Federal assistance. The matching requirement should go a long
way toward eliminating some of the waste associated with prior efforts
to revitalize our distressed communities.
Under the bill as reported, a traditional bank or savings association
may become a partner with a community development financial
institution, or it may hold up to a 25 percent interest in such an
institution. However, a traditional bank or savings association may not
apply directly or have a wholly owned subsidiary that qualifies for
this program. However, a traditional bank or thrift association may
control up to 25 percent of the voting shares of a community
development financial institution that qualifies for assistance under
this act.
Title I of the bill also contains provisions relating to mortgage
lending practices that in certain circumstances have lead to consumer
abuses. The Banking Committee held hearings on the reverse redlining
problem--unscrupulous lenders who were targeting the poorest consumers
for high interest rate home equity loans. We heard from witnesses who
were tricked into taking high interest rate loans, often with large up
front fees. Many of these consumers were elderly people who were facing
the loss of their homes due to these high cost mortgages.
Last year, Senator Riegle and I introduced the Home Ownership and
Equity Protection Act of 1993, to deal with this problem. That bill has
largely been incorporated into this legislation as subtitle B of title
I.
Subtitle B provides additional consumer protection for nonpurchase
money mortgage loans that either has an interest rate of 10 points or
more above comparable Treasury rates, or that involves the payment of
up front fees of 8 percent or more.
Before the consumer goes to settlement on a mortgage that meets
either of these tests, the lender must make certain disclosures,
including the fact that the borrower may lose his or her home. These
disclosures must come at least 3 days before settlement.
One important feature of the bill provides that if a loan is sold,
the consumer may raise the same legal defenses against the buyer of the
loan that he or she could have raised against the original lender.
Hopefully, this will force the secondary market to refuse to deal with
unscrupulous lenders who engage in fraudulent practices, or who do not
make the required disclosures.
Subtitle B also provides the Federal Reserve Board with some
flexibility to make exceptions from the prohibitions in the bill.
However, exceptions may only be made if the Fed finds that it is in the
interest of the borrowing public and will only apply to products that
strengthen home ownership and equity protection.
The Federal Reserve Board is required to prohibit any act or practice
in connection with these mortgages that the Board finds to be unfair,
deceptive, or designed to evade the act. I expect that the Board will
use this authority to restrict or prohibit lending practices associated
with these loans that have led to abuses in the marketplace.
Subtitle A of title II of this legislation contains the Small
Business Loan Securitization and Secondary Market Enhancement Act of
1994. I introduced this bill (S. 384) last year with strong bipartisan
support from my colleagues who recognize the importance of facilitating
the flow of credit to our Nation's small businesses.
Over the past several months, Chairman Riegle and I have worked
together along with the administration and the bank regulators to
improve this legislation. As a result, the small business loan
securitization bill has the support of the administration, the bank
regulators, and the banking and securities industries.
While small businesses have been starved for credit, there is no
credit crunch for home buyers. This is because we have a strong
secondary market in residential mortgages that facilitates the flow of
credit from the capital markets to those who want to finance a home.
In 1984, Congress removed regulatory impediments to selling
securities backed by pools of residential mortgages by enacting the
Secondary Mortgage Market Enhancement Act [SMMEA].
The Small Business Loan Securitization and Secondary Market
Enhancement Act of 1994 extends the 1984 law to small business loans
and encourages capital market investment in securities backed by small
business loans. Title II simply removes unnecessary legal barriers in
the securities, banking, pension and tax laws to facilitate the sale of
securities backed by small business loans.
The development of a secondary market in small business loans will
help bankers, small business borrowers, and investors alike.
Banks will be able to originate more small business loans without
having to raise additional capital because the loans will be sold to
investors rather than kept on the bank's books.
Small businesses will gain access to the capital markets--making more
credit available at lower prices.
Institutional and individual investors will be able to fund small
businesses by purchasing investment grade securities backed by small
business loans.
I want to stress that this legislation does not create a new Federal
agency to guarantee these securities and does not put the taxpayers on
the hook for potential losses on these securities. Instead, these
securities will be sold by the private sector and will be backed by the
pools of small business loans and other credit enhancements provided by
the issuer of the securities.
Subtitle B of title II also encourages small business lending by
providing for Federal funds to be devoted to State capital access
programs. These capital access programs give banks flexibility to make
riskier--but prudent--loans to small businesses. The program provides
for a reserve fund, consisting of payments made by the borrower, the
lender and the State, to protect the bank against losses on the loan.
To help States that already have capital enhancement programs in place
and to encourage other States to develop these programs, the bill
provides that States will be reimbursed for 50 percent of their
payment.
I am particularly pleased to have been able to ensure that a highly
successful program in New York City, the Small Business Reserve Fund,
will also be entitled to participate in this program. It is my
understanding that the Small Business Reserve Fund has helped disburse
at least 56 loans for a total of $2.9 million since its inception in
January 1993. I expect that S. 1275 will go a long way toward enabling
the Small Business Reserve Fund, and other similar programs, to greatly
increase their loan disbursements.
Title III of this legislation incorporates provisions from a number
of bills that had been introduced concerning the regulatory burden
currently placed on our insured financial institutions, as well as
recommendations made by the Federal banking agencies and the Federal
financial institutions examination committee's study on regulatory
burden. These changes should significantly lower the costs of doing
business for financial institutions while maintaining the safety and
soundness of our regulatory system. The costs saved by this title
should result in increased lending by our insured institutions,
especially for the consumer and small business sectors of our economy.
Mr. President, in summary, this bill contains many important
provisions that will provide meaningful assistance to disadvantaged
urban and rural communities, small businesses, and consumers. The other
body has already acted on a companion bill, and I hope that we can pass
this measure out of the Senate and proceed to a conference as soon as
possible. This legislation is important to our country and to our
economy. It should not be delayed.
Mr. President, I think this is a good bill. There may be certain
aspects of the bill that Members may not be entirely pleased with, but
I say to those of my colleagues on the Republican side who are
concerned that this is more Federal spending, that they will lose these
dollars, that they will not be administered well as it relates to
community development facilities, there has been an attempt to deal
with that by requiring a local match, dollar for dollar, so that there
will be accountability and, hopefully, with proper supervision we can
create opportunity for growth in communities that do not ordinarily get
an opportunity for capital when it is so badly needed, capital that is
the engine of economic growth in this country, capital that should be
made available to minority communities and the small business community
that is often difficult, if not impossible, to get.
Second, I think probably that area of the bill which gives deep
concern to me is the fact that we do not have adequate markets for
capital to the small business community and, therefore, by the
securitization of small business loans, we will make available capital
to small businesses throughout America that heretofore has not been
made available. Without spending one penny of taxpayers' dollars, we
really have the opportunity to leverage the amount of money that banks
are putting out now to small businesses by six to seven times, at no
risk to the Federal Treasury, by permitting securitization. We did that
back in 1984 with home mortgages, and to date people can get mortgages
because of the securitization.
We are doing the same thing here. We will provide an opportunity for
the marketplace to work and to create dollars that otherwise would not
flow.
If anyone goes in, and, yes, if it is empirical or anecdotal
information, you will find that small business loans are difficult, if
not impossible, to get today. If you want to get jobs and the creation
of jobs for people, I would suggest to you let us give the fuel to the
engine of economic growth, and that fuel is capital that is now being
denied and not available because banks are just simply not going to do
it because of the cost and time, et cetera. Let them be able to
securitize that, pool these loans, sell them on the secondary market,
and I think you will see a tremendous increase in jobs in this country
next year, absolutely, just through this technique. So I commend it to
my colleagues.
Let me say I wish to thank Senator Riegle in using his position to
craft together a bill that I think really makes a lot of sense, and
this was a bipartisan effort. I commend the Senator for helping us to
achieve this, and also Senators Shelby, Mack, and others who have
encouraged important paperwork reduction to get the monkey off the
backs of business, in this case the banks, that are being impeded by
unnecessary regulations.
Mr. BRADLEY. Mr. President, barely a year has passed since I rose on
this floor to introduce my urban community-building initiative, eight
bills designed to give creative people in communities at the heart of
the turmoil the tools to rebuild strong, supportive communities. We
sought to give children a safe and nurturing environment, to help
communities repair themselves, to help individuals find and get to
jobs, to help poor people develop assets for the future, and to restore
strong financial institutions that help communities save their own
money, invest, borrow, and grow.
A year later, we are beginning to see communities pull together
around their applications to become empowerment zones and enterprise
communities, through which we will invest $1 billion for six of the
innovative programs I proposed. One of the programs to give children a
better chance in life, Community Schools, passed the Senate in the
crime bill and is progressing through the House. And today we are
finally passing legislation to bring basic financial institutions back
to impoverished cities and rural areas, along the lines of the
Community Capital Partnership Act that I introduced a year ago.
Most of us take basic financial institutions for granted. We have
savings and checking accounts, our bank lends our money to businesses
in our communities, and we borrow ourselves when it comes time to buy a
home or we have an inspiration to start a new business. But in most
American cities, the only financial institution they know is the check-
cashing cubicle, which charges up to 5 percent just to cash a
government check, and takes the money back out of the community. People
who want to save have nowhere to go and businesses have no access to
capital. Within the 165 squares miles that make up the areas most
affected by the disorders in Los Angeles in 1992, there are 19 bank
branches, as compared to 135 check cashing establishments.
People who want to borrow have even fewer opportunities. They can buy
a car or furniture on time, or on a rent-to-own plan, but if they want
to borrow to get ahead by starting a small service business or a store,
they are out of luck.
The McNeil-Lehrer Newshour recently interviewed some ambitious
entrepreneurs in rural Arkansas, one of them a woman named Jesse Pearl
Jackson, who owns a beauty salon. She needed a loan for new equipment,
and when she went to a bank, she says the loan officer--
laughed me clean out the door. She said, ``You want money for
what?'' She said, ``You don't walk in here and ask me for an
application for a loan. That's not the way you do it.'' I
said, ``Well, if you'll tell me what to do, then I'll come
back, and I'll do it right the next time.'' She was laughing
so hard and making fun of me so bad I never went back.
There is money to be made here, for any bank willing to take
entrepreneurs like Ms. Jackson seriously, but large financial
institutions without roots in the community are unlikely to see those
opportunities.
But there are islands of hope for people who want to save and invest
in troubled communities. Last year, I visited La Casa de Don Pedro,
which operates a credit union in a very poor section of Newark. La Casa
is a multipurpose community organization that just happens to have a
credit union. While I was there, a stream of members poured into the
small building which houses the credit union, day care center, and
other programs, depositing $20, $50, and $100 at a time. I did not see
any banks in the vicinity of La Casa. If it were not for the credit
union, many of the community's residents would have no place to deposit
their money, secure small loans, or take advantage of other services we
often take for granted.
Community credit unions and banks may start small, but they don't
have to stay small. Over the last 20 years, Shorebank of Chicago has
shown the world that a financial institution that is committed to
community development can lead a community back from the brink of
economic and social decline. Since 1973, it has made $340 million in
development financing, mainly for the purchase or rehabilitation of
housing units in Chicago's South Shore neighborhood. Through its
various subsidiaries and affiliates, it has been an active force in the
revitalization of the South Shore. Shorebank has used a subsidiary,
City Lands Corp., to make high-risk loans for housing development. It
has used a nonprofit affiliate, the Neighborhood Institute, to help
disadvantaged residents achieve their GED's, start up small businesses,
and train for jobs available in the community. It has used its
depository institution, South Shore Bank, to make loans to people
seeking to renovate apartment buildings and establish small businesses
that generate jobs in the community.
Full-fledged banks like Shorebank are the best-known of the community
development financial institutions, but we cannot expect that every
community will grow an institution as large and well-capitalized as
Shorebank and do so over night. At my urging, this legislation not only
addresses banks, but also community development credit unions,
revolving loan funds, micro-loan funds, and community development
corporations. All these emerging institutions would be eligible for
assistance under this bill, and I am pleased and I salute the chairman,
Senator Riegle, for his agreement to increase funding for a revolving
loan fund for Community Development Credit Unions, giving them
immediate access to capital so they can grow.
One of the best examples of a community-building institution that is
not a bank, but has nonetheless responded to the need for capital and
savings, is New Community Corp. in Newark, NJ. New Community Corp. was
formed in the wake of the Newark riots of 1967. Over the last 25 years,
it and its subsidiaries have developed over 2,500 housing units, 25,000
square feet of office space, and an $11 million extended care facility.
New Community has also built a $15 million shopping center, which
contains Central Newark's only major grocery store built since 1967.
New Community's founder, Msgr. William Linder, testified last year
before Congress:
I have seen bank branch after bank branch close because the
bank did not find serving our community profitable. There was
always the same trend. Managers were frequently changed,
service became poor, the facility was always dirty. Frankly,
no one in authority cared about our community.
But instead of giving up hope, Monsignor Linder and others started a
credit union. He now presides over a credit union with about $1.7
million in assets that provides basic banking services to community
residents. Last year, New Community's credit union made 165 loans,
mainly to poor residents of Newark's Central Ward. Basic banking
services like check cashing, consumer loans, and savings accounts are
taken for granted by a lot of people, but in places like the central
ward of Newark they have become scarce and prized resources. Like
Shorebank, New Community, in its own way, has recreated opportunities
for its community.
This bill does not, and should not, seek to create organizations that
will be perpetually dependent on government for support. Instead, it
seeks to reach in at a point of leverage in capital-starved communities
and get them started. It does not set development strategies for either
the institutions or the communities they serve. Instead, it lets those
involved in the struggle for economic recovery find their own path.
I am pleased that there has been such widespread support for the idea
of expanding community financial institutions, even though it is a
relatively new idea to many people. I still hear some wariness, though,
about this investment from people who argue that poor people do not
save and that distressed communities do not have the resources to
support economic development.
The evidence contradicts this cynical view. In Paterson, NJ, last
year, I visited one of the few banks that had not left that city. I
struck up a conversation with a customer, who volunteered that she was
depositing $100. Surprised, I asked her how much she generally saved in
a week. She told me that she and her husband had five children and
earned $20,000 last year, below the poverty line. But even on this
income, they saved $3,000 that year, for health emergencies, for
college, or to give their children a chance at a better life. Their
experience tells me that saving for the future is a fundamental value
of our country, not limited to the middle class, and that if we all had
access to the institutions that make capitalism work, we could all be a
part of vital, self-sufficient communities.
Mr. RIEGLE. Mr. President, I appreciate the statement of the Senator
from New Jersey, [Mr. Bradley] for his interest and leadership in this
area. We have made very good progress, but with the help of a number of
Senators on a bipartisan basis, and particularly my ranking minority
member, Senator D'Amato. I will have more to say about that shortly.
I acknowledge and thank Senator Bradley for his important
contribution in this area.
privilege of the floor--s. 1275
Mr. BRADLEY. Mr. President, I ask unanimous consent that privilege of
the floor be granted to the following member of the chairman of the
Banking Committee's staff: Kay Bondehagen, during the pendency of S.
1275.
The PRESIDING OFFICER. Without objection, it is so ordered.
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