[Congressional Record Volume 142, Number 135 (Thursday, September 26, 1996)]
[Extensions of Remarks]
[Pages E1718-E1719]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     THE DEPOSITORY INSTITUTIONS AND THRIFT CHARTER CONVERSION ACT

                                 ______
                                 

                           HON. MARGE ROUKEMA

                             of new jersey

                    in the house of representatives

                     Wednesday, September 25, 1996

  Mrs. ROUKEMA, Mr. Speaker, today, I am introducing the Depository 
Institution Affiliation and Thrift Charter Conversion Act, legislation 
that represents the first step toward crafting meaningful financial 
reform legislation that will take us into the 21st century and put us 
on sound footing to compete in the global market place.
  The issues surrounding financial modernization have been long 
standing issues that the Banking Committee has been grappling with over 
time. As chairwoman of the Financial Institutions and Consumer Credit 
Subcommittee, I have been more than a little bit preoccupied with this 
subject during the 104th Congress. Unfortunately, efforts to pass 
meaningful reform this Congress have been unsuccessful. With the 
introduction of this legislation today, I believe we are laying the 
groundwork to begin discussions before the start of the 105th Congress. 
This legislation is a comprehensive approach that addresses affiliation 
issues, Glass-Steagall reform, functional regulation, insurance issues 
and thrift charter conversion by melding together key elements of the 
major reform bills introduced previously in Congress.
  As many of you are aware, I have been a strong supporter of resolving 
the BIF/SAIF issue including addressing the larger question of charter 
merger. That is why my Subcommittee on Financial Institutions in 1995 
dealt with not only SAIF/BIF funding, but with restructuring issues as 
well. My subcommittee considered and reported out H.R. 2363, the Thrift 
Charter Conversion Act, and it was subsequently included in the House-
passed reconciliation bill. Even though I strongly supported a more 
comprehensive approach to resolving the BIF/SAIF problem, time 
constraints and political realities made passage of a comprehensive 
charter merger bill impossible this year. The legislation that we are 
introducing here today deals with many of the same issues addressed in 
my legislation, H.R. 2363--like eliminating the thrift charter. Thrifts 
would be required to convert to banks by January 1, 1998, with a 3-year 
transition provision to allow institutions adequate time to comply with 
existing national bank laws. Unitary thrift holding companies would be 
required to convert to either a bank holding company or a financial 
services company. The other charter conversion provisions included in 
this bill are the same as those included in my thrift charter 
conversion bill (H.R. 2363) which was subsequently included as part of 
the House-passed budget reconciliation bill.
  In addition to the thrift charter provisions, the other key elements 
of the bill include:
  Creation of a new, optional structure allowing financial companies to 
affiliate with banks similar to the D'Amato-Baker approach but modified 
to restrict ownership of insured banks by commercial firms. This 
particular provision of the bill is one that is open to further 
analysis. Consequently, it is one area that I will pay particular 
attention to with the express purpose of making sure that the safety 
and soundness of our financial institutions are adequately preserved, 
and that regulatory authority is adequate.
  The regulation and oversight of holding companies would be based on 
current requirements similar to the structure currently applied to 
unitary thrift holding companies. As we consider provisions that 
address the regulation of various institutions, I will be taking 
special care to assure that all institutions are regulated in such a 
way as to preserve the safety and soundness and the integrity of the 
insurance funds.


                           Section-By-Section

       The Draft Bill is an effort to break the current logjam 
     that is blocking financial services reform legislation. It is 
     a comprehensive approach that addresses affiliation issues, 
     Glass-Steagal reform, functional regulation, insurance 
     issues, and thrift charter conversion. It does this by 
     melding together key elements of the major reform bills that 
     are currently pending in Congress. The purposes of this 
     approach are to (1) build on the constructive efforts of 
     Chairmen D'Amato and Leach and Representatives McCollum, 
     Baker, and Roukema, among others, during the past two years; 
     (2) provide a comprehensive framework for addressing the 
     major concerns of the broadest possible range of industry 
     participants; and (3) address legitimate concerns of the 
     regulators that were reflected in both legislative and 
     regulatory proposals that emerged during the last several 
     years.


                1. financial services holding companies

       Using modified language from the D'Amato-Baker bills, the 
     draft bill creates a new and entirely optional structure for 
     financial companies to affiliate with banks. A company would 
     choose to own a bank through a new ``financial services 
     holding company'' that would not be subject to the Bank 
     Holding Company Act. Instead, the financial services holding 
     company would be subject to a new regulatory structure 
     established by a newly-created section of financial services 
     law called the ``Financial Services Company Act.'' Any 
     company that owns a bank but chooses not to form a financial 
     services holding company would remain subject to the Bank 
     Holding Company Act to the same extent and in the same manner 
     as it is under existing law. However, an affiliate of a bank 
     that is not part of a financial services holding company 
     generally could not engage in securities activities to a 
     greater extent than has been permitted under existing law.
       Permissible Affiliations. A financial services holding 
     company could own or affiliate with companies engaged in a 
     much broader range of activities than is permitted for bank 
     holding companies under current law (with contrary state law 
     preempted). The bill would not, however, eliminate all 
     current restrictions on affiliations between banks and 
     commercial firms. A financial services holding company would 
     have to maintain at least 75 percent of its business in 
     financial activities or financial services institutions, 
     which would include such institutions as banks, insurance 
     companies, securities broker dealers, and wholesale financial 
     institutions. In addition, a bank holding company that became 
     a financial services holding company could not enter the 
     insurance agency business through a new affiliate unless it 
     bought an insurance agency that had been in business for at 
     least two years. Finally, foreign banks could also choose to 
     become financial services holding companies.
       The bill includes lists of activities that are deemed to be 
     ``financial'' and entities that are deemed to be ``financial 
     services institutions.'' A new National Financial Services 
     Committee, which would be chaired by the Treasury Department 
     and include the bank regulators and the SEC, would (1) 
     determine whether additional activities should be deemed to 
     be ``financial'' or additional types of companies should be 
     deemed to be ``financial services institutions''; and (2) 
     issue regulations describing the methods for calculating 
     compliance with the 75 percent test. Other than these limited 
     circumstances, a financial services holding company would not 
     be subject to the cumbersome application and prior approval 
     process that currently applies to bank holding companies.
       Holding Company Oversight. Because it would own a bank, a 
     financial services holding company would be subject to 
     examination and reporting requirements, but only to the 
     extent necessary to protect the safety and soundness of 
     the bank. These examination and reporting requirements are 
     modeled on those currently in place for unitary thrift 
     holding companies. To the extent that certain elements of 
     the so-called ``Fed Lite'' provisions of H.R. 2520, the 
     most recently introduced version of the Leach bill, are 
     consistent with the unitary thrift holding company model, 
     they, too, have been included. While the National 
     Financial Services Committee would establish uniform 
     standards for these requirements, the appropriate Federal 
     banking agency that regulates the lead depository 
     institution of the financial services holding company 
     would implement and enforce them.
       Apart from these general requirements, financial services 
     holding companies would not be subject to the bank-like 
     regulation that currently applies to the capital and 
     activities of bank holding companies. However, as in the 
     D'Amato-Baker bills, financial services holding companies 
     would be subject to the following additional safety and 
     soundness requirements:
       Affiliate transaction restrictions, including but not 
     limited to the requirements of

[[Page E1719]]

     Sections 23A and 23B of the Federal Reserve Act.
       Prohibition on credit extensions to nonfinancial 
     affiliates.
       Change in Control Act restrictions.
       Insider lending restrictions.
       A ``well-capitalized'' requirement for subsidiary banks.
       Civil money penalties, cease-and-desist authority, and 
     similar banking law enforcement provisions applicable to 
     violations of the new statute.
       New criminal law penalty provisions for knowing violations 
     of the new statute.
       Divestiture requirement applicable to banks within any 
     financial services holding company that fails to satisfy 
     certain safety and soundness standards.
       Anti-Tying and Cross-Marketing Provisions. As with the 
     D'Amato-Baker bills, (1) anti-tying restrictions would apply 
     to a financial services holding company as if it were a bank 
     holding company, but (2) the bill would preempt cross-
     marketing restrictions imposed on financial services holding 
     companies by state law or any other federal law.
       Securities Activities. The draft bill includes principal 
     elements of the most recently introduced version of the Leach 
     bill, H.R. 2520, as it relates to Glass-Steagall issues. 
     These include statutory firewall, ``push-out,'' and 
     ``functional regulation'' provisions, with some 
     modifications. These new restrictions would apply only to 
     financial services holding companies; they would not apply to 
     the securities or investment company activities of banks that 
     remained part of bank holding companies.
       Wholesale Financial Institutions. Financial services 
     holding companies (but not bank holding companies) could also 
     form uninsured bank subsidiaries called wholesale financial 
     institutions or ``WFIs.'' Unlike the Leach bill, such WFIs 
     could be either state or nationally chartered, and there 
     would be no restrictions on the ability of a WFI to affiliate 
     with an insured bank. A WFI would not be subject to the 
     statutory securities firewalls applicable to insured banks 
     and their securities affiliates, but the WFI could not be 
     used to evade such statutory firewalls.


                    2. elimination of thrift charter

       With the new financial services holding company structure 
     in place, the thrift charter would be eliminated; thrifts 
     would generally be required to convert to banks, with 
     grandfathering/transition provisions; and unitary thrift 
     holding companies would be required to convert to either bank 
     holding companies or financial services holding companies, 
     also with grandfathering/transition provisions. The statutory 
     language for the charter conversion is the same as the 
     language included in the last version of the Roukema bill, 
     which is the one that was used in the House's offer in the 
     Budget Reconciliation conference in late 1995.


             3. national market funded lending institutions

       Unlike the D'Amato-Baker bills, the draft bill generally 
     precludes a commercial firm from owning an insured depository 
     institution. However, the bill recognizes the important role 
     that nonfinancial companies play in other aspects of the 
     financial services industry by allowing such companies to own 
     ``national market funded lending institutions.'' This new 
     kind of OCC-regulated institution would have national bank 
     lending powers, but would have no access to the federal 
     safety net: it could not take deposits or receive federal 
     deposit insurance, and it would have no bank-like access to 
     the payments system or the Federal Reserve's discount window. 
     In addition, the institution could not use the term ``bank'' 
     in its name. By owning a national market funded lending 
     institution, a nonfinancial company could provide all types 
     of credit throughout the country using uniform lending rates 
     and terms.


                           4. effective date

       The bill's provisions would generally become effective on 
     January 1, 1997.
                                                                    ____


                        Structure of Draft Bill

       Title I. This title creates a new freestanding banking law 
     called the ``Financial Services Holding Company Act.''
       Subtitle A is the modified D'Amato/Baker bill (H.R. 814), 
     which provides companies the option of becoming ``financial 
     services holding companies.'' Only ``predominantly financial 
     companies'' may be financial services holding companies. The 
     holding company oversight provisions reflect the unitary 
     thrift holding company model and consistent aspects of ``Fed 
     lite'' from H.R. 2520, the most recent Glass Steagall bill 
     introduced by Chairman Leach. Companies that choose not to 
     become financial services holding companies remain subject to 
     existing law, subject to Title II's limits on affiliations 
     between banks and securities companies.
       Subtitle B includes H.R. 2520's statutory firewall and 
     baking law ``push-out'' provisions, with some modifications. 
     These apply to companies that choose to become financial 
     services holding companies.
       Subtitle C includes H.R. 814's requirement that any company 
     that enters the insurance agency business must do so by 
     acquiring an existing insurance agency that has been in 
     business for at least two years.
       Title II. This title includes conforming amendments to 
     other laws for financial services holding companies (taken 
     from H.R. 814 and H.R. 2520). It also includes a modified 
     version of H.R. 2520's FDI Act provision limiting 
     affiliations between banks and securities companies.
       Title III. This title includes H.R. 2520's ``functional 
     regulation/push-out'' amendments to the securities laws, with 
     some modifications. It applies only to financial services 
     holding companies.
       Title IV. This title includes H.R. 2520's ``wholesale 
     financial institution'' provisions for state member banks. It 
     adds a parallel provision for national banks. Only financial 
     services holding companies may own WFIs. Unlike H.R. 2520, 
     WFIs may affiliate with insured banks. The principal benefit 
     of the WFI is that it is not subject to statutory securities 
     firewalls.
       Title V. This title is the most recent version of Rep. 
     Roukema's Thrift Charter Conversion Act (taken from the House 
     offer in the 1995 reconciliation conference).
       Title VI. This title authorizes formation of ``national 
     market funded lending institutions.'' These OCC-regulated 
     institutions may not call themselves ``banks.'' take 
     deposits, or receive federal deposit insurance. They also may 
     not have access to the discount window or the payments 
     system. They do have national bank lending powers, which 
     allows them to lend at uniform rates throughout the country. 
     Because they have no access to the federal safety net, any 
     commercial firm may own a national market funded lending 
     institution without being treated as a bank holding company 
     or the new financial services holding company.
       Title VII. The bill's general effective date is January 1, 
     1997.

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