[Congressional Record Volume 144, Number 60 (Wednesday, May 13, 1998)]
[House]
[Pages H3132-H3201]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                              {time}  1255


                     In the Committee of the Whole

  Accordingly, the House resolved itself into the Committee of the 
Whole House on the State of the Union for the consideration of the bill 
(H.R. 10) to enhance competition in the financial services industry by 
providing a prudential framework for the affiliation of banks, 
securities firms, and other financial service providers, and for other 
purposes, with Mrs. Emerson in the chair.
  The Clerk read the title of the bill.
  The CHAIRMAN. Pursuant to the rule, the bill is considered as having 
been read the first time.
  Under the rule, the gentleman from Iowa (Mr. Leach), the gentleman 
from New York (Mr. LaFalce), the gentleman from Virginia (Mr. Bliley), 
and the gentleman from Michigan (Mr. Dingell) each will control 15 
minutes.
  The Chair recognizes the gentleman from Iowa (Mr. Leach).
  Mr. LEACH. Madam chairman, I yield myself such time as I may consume.
  (Mr. LEACH asked and was given permission to revise and extend his 
remarks.)
  Mr. LEACH. Madam Chairman, we come to the Congress today to deal with 
truly historic legislation. Everybody knows there are massive changes 
underway in the financial landscape. Not all of us like all of these 
changes. In fact, I would suspect the majority of the country and the 
majority of this body have serious doubts. But the bill we are bringing 
before the Congress is about the question of whether we want to have a 
government of laws or of men, whether we want to have laws shaped and 
constrained to defend the financial system for the benefit of the 
public.
  What we really have before us as we deal with issues of this nature 
are differences between and within industrial groupings, differences 
between and within regulatory bodies, and questions of the public 
interest.
  In my view, the principal issue is the latter, what is in the public 
interest. What we have in the bill that is being brought before us is a 
bill designed to be pro-competitive. In its broadest outlines, there is 
enormous support in the administration, both sides of Congress, both 
committees for the principle that we ought to have more competition 
within financial services; banks being allowed to offer more securities 
and insurance services, insurance companies more banking and securities 
products, securities firms more insurance and banking products. That is 
a pro-competitive circumstance.
  Now, there are many differences of judgment on the subtleties: who 
regulates, who gets what powers relative to what other institutions. My 
view is very simple. We ought to put a great emphasis on antitrust, we 
ought to put a great emphasis and decide as many issues as possible on 
what is the most pro-competitive option, and we ought to be, most of 
all, concerned for small individuals and small institutions.

                              {time}  1300

  Here let me just stress from the perspective of a Midwesterner, for 
the first time we have historic new powers granted to community banks 
to allow them to offer lower-cost services for small business and for 
agriculture based on access to capital from a government-sponsored 
enterprise, the Federal Home Loan Bank system. We also have the 
capacity of the consumers to get services from more sources in a single 
moment, what is called one-stop shopping. That is the framework of the 
bill. I think it makes sense.
  There are different subtleties that we will get into and certainly an 
amendment that I will be offering that I feel is of enormous 
consequence. Having said that, let me turn for a moment to the 
regulatory situation.
  What this bill does is establish functional regulation with a bit of 
a tilt to the Federal Reserve Board. The Department of the Treasury has 
some objection to this tilt.
  I would only say for Members of this body that the Federal Reserve 
Board is the only institution of the United States Government that has 
significant experience in the holding company regulatory area, which is 
what we are really getting into with this legislation.
  It is also the only institution that has resources available in a 
time of emergency, absolutely extraordinary and stunning resources that 
can be brought to bear in an instantaneous time period. It also has the 
greatest reputation for being a nonpoliticized institution of the 
government.
  These are reasons that this Congress has historically tilted, not 
just this legislative body, but historically tilted to the Fed. My own 
view is, the Department of the Treasury has some reasonable positions 
that this Congress is going to have to take into consideration. The 
gentleman from New York (Mr. LaFalce) will offer an amendment tilting 
in that direction, I think, fractionally too far, but in any regard, 
tilting in that direction.
  Certainly, whatever happens on this floor, if this bill passes, if we 
go to conference, I would expect the Treasury to have a seat at the 
table, and we will certainly take into consideration their views. But I 
would simply say to my friends and colleagues that have listened to the 
Department of the Treasury about certain concerns, I would hope that 
the Department of the Treasury would recognize that the major issue is 
what is in the public interest, not what is in the parochial interests 
of any particular institution of government.
  We have to be enormously cautious as we proceed that, as new powers 
are undertaken, as new changes occur in the marketplace, that we have a 
credible regulatory framework set in place. That is what I believe this 
bill in its final measure accomplishes. Certainly, there are nuanced 
changes that can occur without great damage to that structure, but I 
would hope very much that the administration and the other side would 
recognize that these are honest differences of opinion that this body 
will have to deal with over time.
  Madam Chairman, In this context, H.R. 10, the Financial Services Act, 
references a historic effort to modernize the basic laws governing the 
financial services sector of the economy so that our banks, securities 
and insurance firms can better serve customers in the United States and 
remain world leaders as financial services providers.
  The Glass-Steagall Act, which has separated commercial banking from 
investment banking, turns 65 years old this year. During these past six 
decades, financial services has proved to be one of the fastest 
evolving sectors of the economy, yet it continues to be governed by 
legislation that is antiquated.
  H.R. 10 has been several years in the making, and has involved 
negotiations and compromises: between different congressional 
committees, different political parties, different industrial groupings 
and different regulators. No single individual or group got all--or 
even most--of what it wanted.

[[Page H3133]]

  But it should be remembered that while the work of Congress 
inevitably involves adjudicating regulatory turf battles and refereeing 
industrial groups fighting for their piece of the pie, the principal 
work of Congress in the work of the people. To ensure that citizens 
have access to the widest range of products at the lowest possible 
price; that taxpayers are not threatened by institutions that take 
unacceptable risks; that institutions are able to compete against their 
international rivals, which far outweigh even our largest financial 
services groups.
  The trick in crafting financial services legislation that works to 
the public interest is to enhance competitiveness abroad, while 
advancing competition here at home. In this contest, H.R. 10 
strengthens the competitive position of America's financial services 
sector internationally and at some time empowers community banks and 
small financial institutions to ensure competition and consumer choice.
  We address this legislation, of course, in the shadow of large 
mergers that have been announced in the financial services sector. Many 
of us have concerns about certain trends in finances. The key, whether 
one likes or dislikes what is happening in the market place, is to 
ensure that appropriate regulation is in place--anti-trust, consumer, 
and perhaps, most critically regulation related to derivatives always 
and other complex financial products. In this regard, this bill opts 
for functional regulations and for the primary of non-politicized 
Federal Reverse supervision.
  Here it deserves stressing that amid all the publicity about large 
financial institutions, the true beneficiaries of this legislation are 
small community banks and the ordinary citizens and small businesses 
they serve. This bill is opposed by many of the largest banks in the 
country, because they can already take part in most of the activities 
the bill permits.
  Americans have long held concerns about bigness in the economy. As we 
have seen in other countries, concentration of economic power does not 
lead to increased competition, innovation or customer service.
  But the solution to the problem of concentration of economic power is 
not to deny small banks the new powers included in H.R. 10. It is to 
empower them to compete against large institutions, combining the new 
powers granted in this legislation with their personal service and 
local knowledge in order to maintain and increase their market share.
  In order to compete against large regional institutions or new 
technologies like Internet banking, community based institutions need 
new powers like the ones granted in H.R. 10. Banks which stick with 
offering the same old accounts and services in the same old ways will 
find their viability threatened.
  For many communities, retaining their local, independent bank depends 
upon granting that bank the power to compete against mega-giants which 
are being formed under the current regulatory and legal framework. In a 
David versus Goliath circumstance, H.R. 10 is the small banks' 
slingshot.
  H.R. 10 provides community banks with the tools to compete, not only 
against large mega-banks but also against new technologies such as 
Internet banking.
  First, H.R. 10 gives community banks the ability to offer ``one stop 
shopping,'' so that they can attract new individual and business 
customers and retain customers who might otherwise feel they have 
outgrown a community institution. Large financial institutions can 
already offer a variety of services. But community banks are usually 
not large enough to utilize legal loopholes like Section 20 affiliates 
or creation of the unitary thrift holding company which large 
institutions--commercial as well as financial--have turned to.
  Second, H.R. 10 gives community banks access to low cost federal 
funds through the Home Loan Bank System, letting small banks compete 
against the Farm Credit System in providing credit for agricultural and 
rural development projects. Not only will community banks benefit from 
this provision, but increased competition in rural lending will lower 
costs to farmers.
  Third, H.R. 10 prohibits what are called ``deposit production 
offices''--that is, offices which are designed to gather up deposits in 
communities without lending out money to people in these communities. 
This provision helps ensure that deposits made by members of a 
community stay in the community, thereby creating economic growth and 
opportunity.

  By bolstering the viability of community-based institutions and 
providing greater flexibility to them, H.R. 10 increases the percentage 
of dollars retained in local communities.
  It should be our goal to approve a bill that first of all gives 
greater choice and lowers prices to the consumers of financial 
services; second, protects the taxpayer; and third, is balanced between 
the various industrial and commercial interests.
  As we all know, there are complex issues involved in this 
legislation, and there will be differing judgments on major issues by 
members. One thing we all may agree upon, however, is that Congress 
needs to reassert its Constitutional role in determining what should be 
the laws governing financial services, instead of allowing the 
regulators and courts to usurp this responsibility.
  If Congress turns its back on financial services modernization, we 
should not fool ourselves that rapid evolution in the fields of 
banking, securities and insurance will cease. It will not. Financial 
services modernization will take place with or without Congressional 
approval. Without this legislation, however, changes in financial 
services will continue unabated, but they will take place in an ad hoc 
manner through the courts and through regulatory fiat, and will not be 
subject to the safeguards and prudential parameters established in this 
legislation.
  Now is the time for Congress, not the regulators and the courts, to 
step up to the challenge of modernizing our nation's financial services 
sector for the 21st century, to ensure that it remains competitive 
internationally, that it is stable and poses no threat to the taxpayer, 
and that it provides quality service to all our citizens and 
communities.
  Madam Chairman, I reserve the balance of my time.
  Mr. LaFALCE. Madam Chairman, I yield myself such time as I may 
consume.
  First of all, I want to acknowledge the fact that it has been a 
pleasure to work with the chairman of the Committee on Banking and 
Financial Services, the gentleman from Iowa (Mr. Leach), and the 
chairman of the Committee on Commerce and the ranking Democrat, the 
gentleman from Virginia (Mr. Bliley) and the gentleman from Michigan 
(Mr. Dingell).
  We have some differences of opinion. There are some very good 
provisions within the most recent iteration of H.R. 10, but in my 
judgment there are some very, very bad provisions that take significant 
steps backward. The issue is, how do we best advance the cause of the 
American consumer? How do we best protect the cause of the American 
consumer?
  Every consumer group in America that I am aware of opposes H.R. 10, 
even with the manager's amendment. The administration opposes it, even 
with the manager's amendment, to such an extent that the Secretary of 
the Treasury had a press conference yesterday, appeared before Congress 
today, and indicated that he would strongly recommend a veto of it 
because it is not in the public interest.
  I side with all of these consumer organizations. I side with the 
administration. I also side on these issues with the State banking 
regulators and the chairman of the FDIC, the insurance fund.
  Now, in its current form, unfortunately, this bill reduces 
competition; it does not enhance competition. It fuels concentration. I 
think that is why most of the bigger banks and bigger insurance 
companies and bigger securities firms are for it, but the smaller banks 
of America, for example, and the consumers are opposed to it. It leaves 
smaller and medium-size banks at a serious competitive disadvantage, 
and it flatly discriminates against national banks as providers of new 
financial services.
  Perhaps most importantly, the bill requires national banks to move 
assets out of institutions covered by the Community Reinvestment Act in 
order to offer new products and services.
  We Democrats have worked hard for years to ensure that banks actively 
invest in the communities from which they draw their funds. No such 
requirements apply to the new conglomerates that will be created as the 
result of this bill. Only banks are covered by the CRA, and traditional 
banking institutions are put at a competitive disadvantage under this 
bill.
  The strength of CRA is substantially dependent on the strength of the 
national bank system. This bill undermines both. For this and a number 
of other reasons, consumer and community groups generally oppose this 
legislation.
  The creation of large, diversified financial institutions that can 
compete in global markets must be a part of financial modernization, 
but there must be room in this country and in this bill for the 
community-based institutions that we so heavily rely on to provide 
credit to consumers and local businesses and to fuel community 
development.
  Many Members have also asked me whether this bill is good for 
consumers and good for their communities. Consumers benefit from 
innovation and

[[Page H3134]]

competition. Communities benefit from investment in their citizens and 
businesses that can spur economic development. This bill, 
unfortunately, would impede innovation by preventing national banks 
from offering new products and services within their existing 
structure. It would reduce competition by eliminating the historical 
tension between different bank charters and different bank regulators, 
forcing all institutions into one mold governed by one regulator. For 
those who fear the power of the Federal Reserve Board, this is not a 
slight tilt in the Federal Reserve Board's direction; this is a massive 
shift.
  It virtually compels smaller banks to become part of a larger-scale 
conglomerate in order to compete. It forces assets out of banks and, 
therefore, out of the reach of the CRA. I cannot honestly say that any 
one of these things is good for either consumers or communities.
  The gentleman from Minnesota (Mr. Vento) and I will be offering an 
amendment to cure many of these defects. I would urge Members' strong 
support of our amendment to cure so many of these defects.
  If our amendment should not pass, I would be constrained to oppose 
the bill as the consumer groups of America do, as this administration 
does.
  Madam Chairman, I reserve the balance of my time.
  Mr. BLILEY. Madam Chairman, I yield myself such time as I may 
consume.
  I would like to begin by thanking my good friend and ranking 
Democratic member on the Committee on Commerce, the gentleman from 
Michigan (Mr. Dingell), as well as the gentleman from Ohio (Mr. Oxley), 
the gentleman from New York (Mr. Manton), the gentleman from Ohio (Mr. 
Boehner), and the gentleman from Iowa (Mr. Leach), who have spent 
hundreds of hours in meetings and negotiations working on a bipartisan 
basis to create our best opportunity in 65 years to modernize our 
financial system.
  Every step of the way we were opposed by lobbyists and special 
interest groups who said it could not be done. But we heard the 
concerns of the American people about all of these megamergers. We 
heard the concerns of the local businessmen who want to better compete 
but have one hand tied behind their backs by the archaic Glass-Steagall 
restrictions that current law imposes. And we heard from the Federal 
and State financial regulators who expressed concern about the safety 
and soundness of the financial system and their consumer protections as 
we enter into the 21st century if we do not enact reform.
  It is a testament to the will of the American people that we have 
heard your concerns and are here today to pass legislation to protect 
your future and that of your children.
  I have a grandson who is almost 2 years old, Thomas J. Bliley, the 
4th. When our committee heard from the OCC bank regulator that they 
considered critical securities and insurance consumer protection 
regulations to be only guidelines that banks may or may not have to 
comply with, I worried about his future. This bill protects us.
  Last year, the citizens of Illinois encouraged their legislature to 
sign a comprehensive law governing bank insurance sales. It was a 
bipartisan consensus, worked out with the support of all the affected 
industries. We have taken this great compromise from Illinois and made 
it one of the central keys to this legislation. We have protected or 
safe-harbored any State consumer protection law which is no more 
restrictive than the Illinois consensus.
  This means that if my grandson, TJ, goes into a bank in New York, the 
New York law guaranteeing consumers information that their choice of 
insurance providers will not affect the loan application will be a 
requirement, not a guideline. It means if he goes into a financial 
institution in Florida, that that State's laws providing disclosures 
will be requirements, not guidelines. And if he goes to Louisiana, 
which has a law protecting the confidentiality of a consumer's 
insurance history, something very important to all of us, that such 
privacy protections will be a requirement that banks have to follow, 
not just a guideline. But even if those State laws are protected, how 
much competition will be left by the time he grows up?
  Our committee has been inundated with letters and calls by consumers 
worried about the ongoing megamergers, such as First Union bank's 
purchase of CoreStates Bank in Pennsylvania, which included plans to 
cut 4,400 jobs, close 172 bank branches and turn Philadelphia into the 
top 10 market most dominated by a single bank at an amazing 53 percent 
of the market. If we do not remove the government restrictions 
preventing new competition in the banking industry, consumers will 
continue to face higher fees and increased charges into the future.
  This bill immediately triples the number of providers that can 
potentially offer competing products and will ensure new competition to 
reduce prices and surcharges.
  And banks are not the only ones abusing the protectionist loopholes 
in the current system. Our committee has investigated extensive fraud 
by insurance agents who have swindled consumers out of huge premiums 
for little to no extra policy benefits. H.R. 10 would not only let 
insurance companies bring competition into the banking industry, but it 
also allows banks the ability to offer competing insurance products in 
every branch and location and at a huge potential savings for 
customers.
  I happen to be a friend of both my local bank and my insurance agent. 
Both are honest and hard-working individuals. But would I like to see 
them compete to see who can offer me the lowest price for my business? 
Absolutely. Do I want American consumers to have the same savings? Yes, 
absolutely yes.
  Last month we all heard about the Travelers-Citibank merger which 
created the biggest corporation in the Nation. I am told that they 
cannot do this under current law, that we have restrictions in place 
against this sort of thing, but they did it and more companies will do 
it, and we do not have the framework in place to regulate it. This bill 
creates that framework.
  With H.R. 10 we create a standard for protecting consumer laws and 
the safety of our country's finances. Without H.R. 10, we are diving 
into a river of uncertainty at night hoping what somehow we will make 
it to the opposite shore in one piece.
  I have heard from the administration and the Treasury Department that 
they oppose this bill because it hurts the national bank charter. Do 
not be fooled. They are simply losing a turf battle between two 
agencies, the OCC and the Federal Reserve, over who gets control over 
these megamergers.
  If I have to choose between a Federal Reserve Board that has kept 
inflation at a long-term low, made the American dollar the envy of the 
world and strengthened our financial payment system into the best shape 
it has ever been in versus the OCC bureaucrats that go around 
threatening to preempt State consumer protection laws and then join 
political fund-raisers to solicit campaign money from the affected 
institutions, then I choose the Federal Reserve.

                              {time}  1315

  If we do not care more about protecting the American people than 
protecting a bank charter, then we should turn in our election 
certificates and find someone who can better represent our country.
  Vote ``yes'' on H.R. 10 to ensure that my grandson TJ and millions of 
other Americans do not lose the protection of our securities and 
insurance laws. Vote ``yes'' on H.R. 10 because it opens up competition 
and protects consumers from these mega-mergers. Vote ``yes'' because, 
after all, there are millions of industry lobbying dollars spent to 
defeat this bill every year. Our country needs reform, and they are 
depending on us to do the right thing.
  Madam Chairman, I reserve the balance of my time.
  The CHAIRMAN. Without objection, the gentleman from New York (Mr. 
Manton) will control the time.
  There was no objection.
  Mr. MANTON. Madam Chairman, I yield myself 2 minutes.
  Today we have before us legislation involving the reform of our 
financial services marketplace. As the ranking member of the 
Subcomittee on Finance and Hazardous Materials of the Committee on 
Commerce, and having seen this particular financial services bill

[[Page H3135]]

die and resurrect itself several times over the last year, I fully 
appreciate that simply getting this far is quite a feat.
  This legislation is very complex and will dramatically affect both 
financial and nonfinancial companies in the way they do business in the 
future. There is little disagreement as to the need for reform, the 
problem is just how to go about it. I believe the package we have 
before us today, while not perfect, is an excellent step in the right 
direction and will significantly move this process forward.
  This legislation repeals the anti-affiliation provisions of the 
Glass-Steagall Act that have kept various financial industries from 
affiliating with one another for the last 65 years. While this 
restriction may have been a good idea in the 1930's, the landscape has 
so significantly changed since that time that maintaining such a 
limitation no longer makes sense.
  With an increasingly global marketplace, and consolidation within the 
industry, the need for this regulation legislation is abundantly clear. 
Within the last year alone we have witnessed the merging of large 
financial institutions at an unprecedented rate, especially banks 
buying up securities firms, while the same securities firms are unable 
to acquire banks. Rapdily evolving banking laws have allowed for such 
combinations, while potential competitors are still stuck under the 
restrictions of Glass-Steagall.
  I believe this legislation will create competitive parity and thereby 
level the playing field between banks and other financial providers. 
The ultimate beneficiaries of this increased competition will be 
consumers; who will have a greater number of products and services to 
choose from, in a more convenient forum, and at lower prices.
  I would like to to take a moment to thank the chairman of the 
Committee on Commerce, the gentleman from Virginia (Mr. Bliley), and 
the full committee ranking member, the gentleman from Michigan (Mr. 
Dingell) for all of their hard work and diligence in ensuring that 
adequate consumer and investor protection provisions be built into the 
manager's amendment which we will consider later today.
  The manager's amendment ensures that consumers will be true 
beneficiaries of the increased competition this legislation seeks to 
promote. I believe this overall package is a good one, and I urge my 
colleagues to support it.
  Madam Chairman, I reserve the balance of my time.
  Mr. LEACH. Madam Chairman, I yield 2 minutes to the gentleman from 
New York (Mr. Lazio), our distinguished colleague and close friend.
  Mr. LAZIO of New York. Madam Chairman, I thank the gentleman for 
yielding me this time, and I want to begin by complimenting the 
chairman, the gentleman from Iowa (Mr. Leach), the chairman, the 
gentleman from Virginia (Mr. Bliley), the chairman, the gentleman from 
Ohio (Mr. Oxley), and the chairman, the gentleman from New York (Mr. 
Manton) for their extraordinary work in moving this forward. This was 
never inevitable. Only because of the hard work and the consensus 
building that they were able to achieve are we here today.
  Let us go back to the early 1930's, Madam Chairman, and the movie the 
``Wizard of Oz''. The stock market collapsed. The Securities and 
Exchange Commission did not exist and few securities laws were enacted. 
Between 1930 and 1933, 8,000 banks with $5 billion of deposits, an 
enormous sum at the time, went bankrupt. American families suffered. 
Their life's savings, money for food and shelter was lost.
  To restore American confidence in our banks, Glass-Steagall erected a 
wall between commercial banks and investment banks. Deposit insurance 
was created so American families knew their financial nest egg was 
safe. In the fragile days of the Great Depression, Glass-Steagall made 
sense.
  Years ago, families kept the bulk of their savings in banks, earning 
low rates of interest. Today, families invest in the stock market. In 
the last 7 years stock ownership has doubled. Now, 43 percent of 
adults' own them. Americans are seeking higher returns.
  Consumer behavior changed because stocks and mutual funds achieved 
superior long-term results. People began managing their own retirement 
funds. In short, Americans are no longer hiding their savings in their 
mattresses.
  Today, we stand at the center of an electronic revolution; computer 
banking, cash management accounts, on-line mutual fund investing, 
moving money to Tokyo and back again in an instant. We can pay our 
bills through TV, and a customer can see and speak to a teller via the 
Internet. We simply no longer live in the depression era that gave 
birth to Glass-Steagall.
  Madam Chairman, this bill rids us of the inefficiencies of the 
financial services system. American families and small businesses 
should have the same investment and borrowing choices that have been 
enjoyed for years by large businesses, foreigners and millionaires.
  Each year we spend $300 billion for brokerage, insurance and banking 
services. Some of that money belongs in the pockets of folks living in 
places like Bayshore, Long Island.
  Families go to one place to open a checking account, to another to 
invest in a mutual fund, then to a third to get an annuity for their 
retirement. At each of these stops a transaction fee, or a cost, is 
charged.
  Mr. BLILEY. Madam Chairman, I yield 2 minutes to the gentleman from 
New York (Mr. Lazio).
  Mr. LAZIO of New York. Madam Chairman, I thank the distinguished 
gentleman for yielding me this time.
  While millionaires have been getting the best service at the best 
price, one-stop shopping is still not available to working families. 
Financial modernization will give families greater choices where and 
how to invest their hard-earned savings. Make no mistake, the positive 
impact of this bill will stretch from Wall Street to Main Street to M 
Street, from the cradle to the wedding to retirement.
  This bill breaks the chains of Glass-Steagall that no longer serve 
the interests of American families without sweeping us away in the tide 
of economic euphoria. This bill sustains us as the caretakers of senior 
citizens' nest eggs and ensures that the life savings of working 
families are not lost in economic downturns.
  We, as legislators, do not know what financial products and services 
will be demanded by the public in the future, but we should break down 
barriers and encourage competition creating environments for more 
innovative products and better prices. A vibrant financial base is at 
the core of a healthy economy.
  Without this bill, ominous news is in store for some American 
financial institutions and thousands of their workers. We risk trapping 
some of them by barring them from competition. The United States should 
make its destiny. We should not stand on the sidelines while foreign 
banks take over America's oldest securities firms.
  Madam Chairman, the Congress has tried time and time again to 
modernize our financial services laws. I am not certain that we will 
get another chance, and we certainly cannot afford to standstill. I 
urge my colleagues, Republican and Democrat, to let American finance 
step into the future. Support this fine bill, because it will be a 
positive, constructive part of America's financial services history.
  Mr. LaFALCE. Madam Chairman, I yield 4 minutes to the gentleman from 
Minnesota (Mr. Vento), the distinguished ranking Democrat on the 
Subcommittee on Financial Institutions and Consumer Credit of the 
Committee on Banking and Financial Services.
  (Mr. VENTO asked and was given permission to revise and extend his 
remarks.)
  Mr. VENTO. Madam Chairman, I rise in opposition to H.R. 10. This rule 
that has structured our consideration of this bill will, hopefully, 
make improvements to the bill, but for now I am opposed to the 
substance of this so-called modernization bill.
  As I stated earlier, I do not believe it is worthy of its name. This 
is sort of a one-size-fits-all bill, forcing, or trying to superimpose 
upon the dynamic U.S. marketplace in our economy, probably the most 
advanced economy that the world has ever seen, this sort of convoluted 
regulatory structure. As I said in the consideration of the rule, our 
banks provide the foundation of this dynamic economy.
  A bill worthy of the name modernization ought to, in fact, eliminate 
some of the barriers. The fact is these barriers have never been black 
and white

[[Page H3136]]

with regard to the Glass-Steagall laws. There have been many gray 
areas. Banks have been involved in insurance, banks have been involved 
in the sale of insurance, they have been involved in the sale of 
securities.
  We have seen the regulators move banking financial institutions 
forward to try and address the reality of the marketplace. And rather 
than try and get out in front of that and rationalize that process in 
this bill, as my colleague from Texas (Mr. Bentsen) pointed out, this 
bill moves to balkanize those issues and to limit financial 
institutions, especially the national banks, in terms of the exercise 
of those responsibilities and such powers.
  The bill in its current form is a step backwards. It denies the 
benefits of financial modernization not just to the medium and small 
banks that we are talking about but also to the communities that, after 
all, are the true beneficiaries, and stacks the deck against these 
financial institutions by forcing them to give up profitable, existing, 
valid and workable lines of business for no compelling public policy 
reasons.
  Our national banks have been and remain a source of economic strength 
and a solid foundation on which to construct an economic framework for 
growth. This bill changes the balance between national and State bank 
charters. It will likely result in some charters flipping. If it is all 
right for a State bank to conduct an activity in an operating 
subsidiary, and it is appropriate for an international U.S. bank to 
function in an operating subsidiary, why do we then limit national 
banks in that very function and corporate structure, within the 
national U.S. economy.
  This so-called modernization bill should, in fact, restore 
competitive balance, but this bill, at every turn in the policy 
decision, fences in activities and tries to protect and insulate and 
balkanize what is becoming apparent to all of us, and that is that the 
lines of business of insurance, the line of business of securitization 
of banking loans is something that has, in fact, greatly changed. These 
financial instruments have become a distinction but they really look 
and perform no different.
  These new limits and proposed law comes with few, if any, competitive 
gain for a small or medium sized bank. I hope we can correct that with 
the LaFalce-Vento amendment and help consumers and help institutions.
  Furthermore, Madam Chairman, the commercial basket in this bill which 
again discriminates against banks. I think that a reasonable, a level 
playing field with regards to commercial basket should be included. And 
I am pleased to have joined in sponsorship of an amendment with the 
gentlewoman from New Jersey (Mrs. Roukema), the chairwoman of the 
subcommittee, in sponsoring such amendments to this measure.
  The bill has any number of flaws that need to be corrected. Clearly, 
I think reading the litany of groups against this bill, I think, would 
astound the Members, looking at the banking institutions, the consumer 
groups, Acorn, many of the other groups that are against the bill. The 
fact is, who is for it also tells us or suggests what this bill does. 
Obviously, those that need to be for this measure are the Citibanks and 
Travelers that have basically entered into agreements which are not 
permitted under current law. Therefore, the bill is a must pass measure 
for such institutions.
  As we see the bill grow, we should also put in place the safeguards 
that are absolutely necessary so that the consumer and so that the 
economy and the government and the deposit insurance programs are 
protected.
  Madam Chairman, I rise in opposition to H.R. 10. The rule that 
structured our consideration of this bill will hopefully help make 
improvements to the bill, but for now I am opposed to the substance of 
this so-called ``modernization'' bill.
  I would like to be making a statement in strong support of financial 
services modernization legislation this afternoon. Our laws need to 
catch up with reality by mapping a path of true modernization for 
financial institutions in the financial services marketplace for today 
and tomorrow. We need to enhance the competitiveness of our financial 
services sector and to move forward with predictable, certain, logical, 
and uniform regulation.
  As written today, H.R. 10 would force banks to move financial 
innovation out of the bank, a loss of diversity that is disadvantageous 
for many reasons. Structurally, banks would fundamentally be forced to 
choose a holding company structure in order to participate in a 
meaningful way in the 21st Century financial services landscape. This 
is essentially a business decision that should be made on a business 
basis, not because options have been closed down by this 
``modernization'' bill.
  The bill in its current form is a step backwards because it denies 
the benefits of financial modernization to communities and consumers, 
and stacks the deck against many financial institutions by forcing them 
to give up profitable existing, valid and workable lines of business 
for no compelling public policy reasons.
  Our national banks have been and should remain a source of economic 
strength and a solid foundation to construct an economic framework of 
growth. This bill changes the balance between the national bank and 
state bank charters and may push banks to charter flip to state banks 
where flexibility will remain.
  True financial reform need not play off one segment of the financial 
services industry against another. Rather it should provide competitive 
balance. H.R. 10 plainly discriminates against national banks by taking 
away existing powers and creating uncertainty in the conduct of their 
business. These limits come with few, if any, competitive gains for 
small- or medium-sized national banks which today ironically have more 
options and exercise more powers than they would under this H.R. 10.
  The commercial basket in this bill is not level between banks and 
other financial services companies as the bill envisions a limited 5% 
basket for financial service holding companies affiliated with banks 
and a 15% basket for securities and insurance firms that become 
financial holding companies. There is no reason for the competitive 
inequity for banks other than it fits with the entire bill in its 
antagonism towards banks and their future options.
  Furthermore, H.R. 10 would undermine the Community Reinvestment Act 
(CRA) by requiring that new financial products and services be offered 
outside of banks and their subsidiaries and only in holding company 
affiliates. Of course, these concerns could be remedied by adopting the 
LaFalce-Vento operating subsidiary amendment and the Roukema-Vento-
Baker-McCollum-LaFalce basket amendment. At this point, however, their 
success is not preordained.
  This bill has a number of other flaws. It will undermine our federal 
banking regulator in the courts by altering the deference standard. If 
H.R. 10 were to pass as written now, the precedent could be detrimental 
to other areas of law as well. The complex provisions regarding the 
interface of state and federal law on insurance have become confusing 
at best. I would prefer that the bill return to the Banking Committee's 
balanced provision in Section 104 that would have clarified that no 
state, by statute, regulation, or order, could prevent or restrict 
affiliations between financial companies, nor prevent or restrict 
activities authorized under this Act. H.R. 10 now only serves to 
confuse the issue and could no doubt send everyone back to the courts 
for decades to come.
  Financial services modernization must do far more than just pave the 
road with a Congressional stamp of approval on the acquisition and 
merger phenomena. As I said in the Banking Committee hearing on bank 
mergers a couple of weeks ago, we need to be vigilant and the 
regulators need to be vigorous in applying the laws we have today. I do 
not find heartening, for example, the Federal Reserve Board's current 
laissez faire attitude with regard to the Citicorp/Travelers merger. In 
fact, I find it less than comforting that the Fed is coming out so 
strong in support of the holding company model (as opposed to an op sub 
option) when they seem sanguine about this pre-modernization merger.
  Nonetheless, these are not mere matters of turf. They are not just 
matters of committee jurisdiction. Our nation and economy demands a 
strong national bank charter today and tomorrow. Without changes in 
this bill to ensure strong national banks, this ``modernization'' 
initiative will atrophy bank powers that are being employed today. It 
will not be worthy of its name or the positive support of Congress.
  Madam Chairman, while some of the laws governing the financial 
services sector are overdue for reform, we should not be replacing old 
law with bad law. Moving the process forward is not enough for this 
Member because I cannot logically defend this bill as it is not 
written. There must be some reason, some fair rationale.
  Financial services modernization for the future should be balanced; 
should enhance competition, and should not foster industry 
concentration and corporate restructuring at the expense of consumers 
and communities. Mr. Chairman, the Administration has made their 
concerns known throughout this process. Unfortunately, their input has 
been largely ignored and this has resulted in a veto threat for

[[Page H3137]]

this bill. I urge Members to keep these fundamentals in mind as we move 
to the amendments on H.R. 10 and to oppose this bill without passage of 
LaFalce-Vento and other parity amendments.
  Mr. BLILEY. Madam Chairman, I yield 3 minutes to the gentleman from 
Ohio (Mr. Oxley), the very able chairman of the subcommittee.
  (Mr. OXLEY asked and was given permission to revise and extend his 
remarks.)
  Mr. OXLEY. Madam Chairman, first I would like to thank the chairman 
of the full committee, the gentleman from Virginia (Mr. Bliley), as 
well as the ranking member, the gentleman from Michigan (Mr. Dingell), 
and my good friend the gentleman from New York (Mr. Manton), the 
ranking member of our subcommittee, for their good work in bringing 
this bill to the floor today.
  We have reached a critical watershed in the evolution of the 
financial services industry. Congress has been trying for 63 years to 
modernize our financial markets; trying for 63 years to allow banks to 
diversify their portfolios, to protect the solvency of the banking 
industry, to provide our American companies with some abilities that 
their foreign competitors already have, and to provide a fair and 
comprehensive system of functional regulation to protect consumers and 
the American taxpayer.
  When my subcommittee began work on H.R. 10, we focused on three 
fundamental goals: Protect consumers, increase competition and maintain 
the safety and soundness of our Nation's financial system. This 
legislation, H.R. 10, achieves those goals.
  H.R. 10 establishes full functional regulation of financial 
activities, balancing Federal and State regulations to ensure maximum 
protection to consumers. It repeals the depression era 1930's 
restrictions on competition so that banks will no longer be forced to 
make riskier and riskier investments to hang on to a dwindling share of 
consumer savings. And it brings our American financial industry into 
the 21st century on an even footing with our foreign competitors with 
full competition and consumer choice.
  When H.R. 10 came to our committee, it was opposed by almost every 
regulator and industry group. Now, after months of hard work by 
Republican and Democrat bipartisan committee staff, we have a bill that 
has the support of the Federal Reserve and Chairman Greenspan, 
Securities and Exchange Commission, Chairman Arthur Levitt, Consumers 
First, the National Association of Home Builders, insurance agents, 
insurance underwriters, securities firms, mutual funds and banks 
representing a quarter of their market.
  Most importantly, this bill helps advance the interests of consumers. 
Consumers want to be able to go to a financial planner or investment 
adviser and take care of all their financial needs. They want to be 
able to have the opportunity to choose from a variety of hybrid 
products without artificial limits placed on their choices. And they 
want to take advantage of the $15 billion per year in consumer savings 
that would result from repealing the inefficient and archaic Glass-
Steagall bill.

                              {time}  1330

  The Washington lobbyists and the media have panned this bill from day 
one. They said it could not be done. They said the Congress will not 
have the will to buck the tide and pass a bill that does not have the 
unanimous support of all segments of the financial industry. Each step 
of the way we have proved them wrong. We are going to prove them wrong 
again today.
  Congress will not be paralyzed by lobbyists who get paid to stop good 
legislation. At the beginning of this year, the gentleman from Ohio 
(Mr. Boehner) and I decided to go around the lobbyists and convened a 
meeting with top CEOs of the financial industry for their commitment to 
getting financial reform.
  Some lawyers are continuing to try to pick apart our efforts. Some 
companies do not want to face increased competition and are afraid of 
H.R. 10's brave new financial world that forces them to be more 
responsive to their consumers. But the leaders of American business 
know this bill is good for their shareholders and good for their 
country. Eventually they came to us and said, we will support your 
efforts.
  Let us support H.R. 10. It is a well-balanced and well-crafted piece 
of legislation.
  Mr. MANTON. Madam Chairman, I yield 2 minutes to the gentlewoman from 
Colorado (Ms. DeGette).
  Ms. DeGETTE. Madam Chairman, I thank the gentleman for yielding.
  I rise in support of H.R. 10, the Financial Services Competitiveness 
Act. We have an opportunity today to modernize financial laws that have 
not changed since the 1930s. This legislation takes some important 
steps to modernize Depression-era banking laws that no longer reflect 
the reality of today's marketplace.
  I know there are fears about the complexity of this legislation. I 
know that those changes make everybody nervous. But this is a complex 
issue and it demands a complex solution. The good news is the bill has 
the potential to foster free-market competition and protect the 
interests of the public with the consumer protections included in the 
managers' amendment.
  Supporters of this bill have heralded how much it will benefit 
consumers. And it will if we pass the managers' amendment, which 
includes the very important Bliley-Dingell consumer protection 
language.
  There is an additional consumer protection that is included in the 
underlying bill and deserves recognition. Buried in H.R. 10 is the 
first-ever Federal protection aimed at preventing property, casualty 
and life insurers from discriminating against survivors of domestic 
violence.
  I first raised this issue last October during the Committee on 
Commerce consideration of H.R. 10. Many of my colleagues on both sides 
of the aisle were stunned to learn that insurers routinely use domestic 
violence as an underwriting criterion. Many insurers treat a person's 
history of abuse as if it were a life-style choice like skydiving or 
car racing. Domestic violence is indeed dangerous, but it is in no way 
a life-style choice.
  During the intense and often acrimonious negotiations over this 
legislation, the chairman and ranking member of the Committee on 
Commerce did not lose sight of the importance of this issue. I am 
grateful to the gentleman from Virginia (Mr. Bliley), the gentleman 
from Ohio (Mr. Oxley), the gentleman from Michigan (Mr. Dingell), and 
the gentleman from New York (Mr. Manton) for their steadfast commitment 
to including these important protections in the underlying bill.
  I would also like to thank the gentlewoman from Maryland (Mrs. 
Morella) and the gentleman from Vermont (Mr. Sanders), who are the 
original sponsors of the legislation upon which the amendment was built 
and whose leadership has been instrumental in pushing this issue to the 
forefront of debate.
  While 23 States have passed this protection, H.R. 10 will help all 
victims of domestic abuse. It will also help consumers. I urge support 
of the managers' amendment. I urge support of the legislation.
  Mr. LEACH. Madam Chairman, I yield 3 minutes to the gentlewoman from 
New Jersey (Mrs. Roukema), distinguished chairman of the Subcommittee 
on Financial Institutions and Consumer Credit.
  (Mrs. ROUKEMA asked and was given permission to revise and extend her 
remarks.)
  Mrs. ROUKEMA. Madam Chairman, I rise in strong support of this 
legislation.
  I base my support for this bill on some very fundamental principles. 
One, it must preserve the safety and soundness of our Federal deposit 
system and the rest of the Federal safety net and protect the 
taxpayers. This bill does that. It must protect against concentration 
of economic power. And I believe that H.R. 10 maintains both these 
fundamental principles.
  The bill permits banks, security firms, and insurance companies to 
affiliate under one holding company, and the bill grants bank holding 
companies the authority to engage in virtually any activity financial 
in nature. It grants holding companies the authority it make modest 
amounts of investment in commercial activities. And the bill grants 
authority to banks to deal in insurance activities while assuring, and 
I stress that, assuring that the consumers will be protected.

[[Page H3138]]

  But the bill does not permit underwriting of insurance and real 
estate investments in the holding company. The bill sets up a nuclear 
regulatory structure. And, my colleagues, this is fundamental to 
understanding why I support this bill. We are adopting functional 
regulation here. While banks, security firms, and insurance companies 
will be permitted to affiliate, the banking securities and insurance 
regulators will continue to regulate and supervise these entities. This 
will provide the so-called level playing field, and it will be level 
for all participants in a particular area of financial services 
regardless of what that corporate structure may be.
  But here I want to get to the safety and soundness question and I 
want to stress that the affiliation will not undermine safety and 
soundness. The bill protects the Federal deposit system so that it will 
not be used to bail out securities or insurance affiliates of the 
banks. The transaction with affiliates' ``restrictions'' found in 
sections 23(a) and 23(b) will continue to apply to insurance and 
securities affiliates in this holding company structure. I stress, 
these types of fire walls are absolutely essential to protect the 
consumers and the taxpayers.
  I would like to tangentially make the point that I oppose the 
operating subsidiary amendments which will be offered later, but we 
will debate that at the appropriate time.
  This legislation is also necessary, absolutely necessary, to keep us 
competitive with our foreign competition. Outdated laws need to be 
updated, and this bill does that; but as well as protecting us in world 
markets, it also protects us here at home.
  I want, in conclusion, to say that we need this legislation to set a 
statutory framework to direct the regulators who have, I am afraid, in 
the absence of congressional action, taken arbitrary and ad hoc actions 
and have rewritten the rules. But they are not directly accountable to 
the voters, my colleagues. I want to repeat that. The regulators are 
not accountable to the voters and the taxpayers. We are.
  Today we must take action, act now, and take this away from those 
regulators who have been acting in the absence of our action.
  Mr. LaFALCE. Madam Chairman, I yield 1 minute to the gentleman from 
Florida (Mr. McCollum).
  (Mr. McCOLLUM asked and was given permission to revise and extend his 
remarks.)
  Mr. McCOLLUM. Madam Chairman, today I very reluctantly rise in 
opposition to the bill in its present form. Like every other member, I 
think, of the Committee on Banking and Financial Services, on both 
sides of the aisle, I want very badly to see modernization. But I do 
not believe that this bill fulfills the flexibility test that I wish 
that it did. And unless we amend it in significant ways that I do not 
expect today, I am going to have to vote against it.
  I am afraid that it will destroy flexibility in the banking system 
and will not allow the innovation that we need to have going into the 
21st century. I am worried that it increases the amount of regulation, 
rather than decreasing it, on our financial services system. I am 
concerned that the bill does not provide, as the committee bills did 
out of both Banking and Commerce, for the merger of the bank and thrift 
insurance funds, which very much needs to be done for safety and 
soundness; and frankly, it is very disappointing we are not doing that 
here today. And I am fearful that we will invite more litigation 
because of the vague standards that are in this bill. For those 
reasons, I am opposed to the bill.
  I am not speaking to it for any other reason than to lay out the 
predicate for it today. It is a sad moment for me to be here opposing 
my chairman on this issue. I respect him a great deal. I respect all of 
the people who worked hard on this bill. And I truly hope that we get 
to a flexible, innovative financial services modernization piece of 
legislation.
  Mr. BLILEY. Madam Chairman, I reserve the balance of my time.
  Mr. MANTON. Madam Chairman, I yield 4 minutes to the gentleman from 
Massachusetts (Mr. Markey).
  Mr. MARKEY. Madam Chairman, I thank the gentleman from New York for 
yielding me the time, and I want to congratulate him and the gentleman 
from Ohio (Mr. Oxley) along with the chairman of the full committee, 
the gentleman from Virginia (Mr. Bliley) and the ranking Democrat for 
the full committee, the gentleman from Michigan (Mr. Dingell) for their 
excellent work on this bill; and all the other members, the gentleman 
from New York (Mr. LaFalce) and the gentleman from Iowa (Mr. Leach) and 
everyone else who has worked on this bill.
  Banking, insurance, securities. Now, to the ordinary person listening 
to this debate, it sounds like a struggle between the very rich and the 
extremely wealthy. ``What is my stake in this debate?'' the ordinary 
person says. Well, it is really a debate about investors and depositors 
and businesses and consumers. And, in fact, it is a debate about a 
fundamental change being proposed in the capital formation system in 
the United States that is the very engine which drives capitalism in 
the United States.
  Now, back in 1933, when Glass-Steagall was put on the books, it was 
in the aftermath of a great economic collapse in the United States, and 
there was great concern about the mixture of investment banking with 
ordinary banking.
  Now many people argue times have changed. And they have. But 
something has not changed. That is human nature. It is still the same. 
And the very same forces of greed and fear which existed in 1929, 1930, 
1931, and 1932, throughout the 1930s, still exists today.
  Now, tearing down Glass-Steagall is a good idea if we build in the 
proper safeguards, fire walls to protect investors and depositors and 
taxpayers. If we do not, it is a disaster for this country and it would 
be a great mistake for us to pass legislation here today.
  We have tried to pass legislation for the last 15 years or so in this 
area. But like the character created by Albert Camus in his famous 
novel, ``The Myth of Sisyphus,'' in 1942, Congress has pretty much 
engaged in an exercise where we gain great satisfaction from just 
trying to get the boulder up to the top of the mountain but never 
successfully making it. And in fact, that is how this whole exercise 
may actually end. But it is worth the effort.
  Over the years, however, it has foundered because, while banks have 
wanted the extra powers that would come with repealing Glass-Steagall, 
they have always wanted to do so without the requisite safeguards being 
put into place so that we do not repeat the past.
  The bill before us now has good and bad and ugly, like that old Clint 
Eastwood spaghetti western. The good is that we keep out Op-subs. We 
will keep hearing that. It will be defined to us as an operating 
subsidiary. What Op-sub really stands for is ``ordinary people 
subsidizing'' banks. That is what Op-sub means, spreading the Federal 
protection for banking activities over into securities, over into 
insurance areas. Ordinary people subsidizing risky business, that is 
bad. It is not in the bill.
  However there are some things in the bill which are bad and ugly. The 
Leach amendment seeks to deal with the mixture of commerce and banking. 
I support that amendment. It is a good amendment. The Bliley-Dingell 
amendment seeks to deal with the deficiencies which exist in the 
protections for depositors and investors, and I support that amendment. 
They should both be adopted if our goal is to form a more perfect 
version of what this legislation should be so that we can move to a 
future without Glass-Steagall, but at the same time give the 
protections to investors, to depositors, to taxpayers which they 
deserve.

                              {time}  1345

  Mr. LEACH. Madam Chairman, I yield 2 minutes to the gentleman from 
Delaware (Mr. Castle), my distinguished friend and colleague, the 
subcommittee chairman.
  Mr. CASTLE. Madam Chairman, I thank the gentleman for yielding.
  Madam Chairman, I, too, like most of the other speakers here, rise in 
support of the repeal of Glass-Steagall and the modernization of 
financial institutions across the United States of America. I think 
this is very, very important to do.
  I will submit a fuller statement for the Record, but I would just 
like to take the little bit of time I have, to first of all, thank all 
those who put

[[Page H3139]]

this together, there is too many to mention in 2 minutes, and to state 
that the most important reason for supporting this legislation that I 
can find and I hope others can find is that it will benefit every 
American seeking to improve their family's financial security by saving 
and investing more.
  This legislation will help them achieve that goal by making more 
savings and investment products available in one-stop shopping at 
competitive prices. In addition, the bill contains important disclosure 
and sales standards that protect consumers as they shop for these 
products.
  The legislation will help consumers, but it will also benefit the 
businesses seeking to provide these financial products. It will enable 
banks, insurance companies, and securities firms to affiliate and 
operate more competitively, which is good for all of us on a level 
playing field.
  It will expand the products that these financial services can offer 
to their customers while maintaining adequate regulation to preserve 
the safety and soundness of the system. That is what it is all about.
  We needed to find a piece of legislation after 60 years, and Glass-
Steagall was questioned almost on the day it passed, I might add, but 
we needed to find something which we had proper regulation, good 
capital requirements, the fire walls that we are concerned about in 
order to move it forward.
  In my judgment, this piece of legislation does that. H.R. 10 meets 
those standards. I am supportive of a number of the amendments which 
are going to come up, because I feel it should be tilted a little bit 
one way or the other, as others may feel, too. But in the long run, I 
intend to support this legislation regardless of how these amendments 
may come out.
  I must say I have a sense of deja vu about all this. My State went 
through this in the 1980s. We liberalized our banking laws a great 
deal. Our banks were among the first in the country which were allowed 
to do a number of things that are being talked about in this 
legislation when the States were allowed to regulate it.
  I cannot tell my colleagues how well it has worked. We have regulated 
well. We have been careful about what they could do. We have made sure 
the capital requirements were high. Delaware has prospered mightily as 
a part of all of this.
  I would also say that there are many banks who are opposed to this 
legislation, and I think we will find in the long run, when we are 
through in the House and the Senate, that they will be pleased. So 
support the legislation.
  Madam Chairman, I rise in support of H.R. 10, the Financial Services 
Competition Act. This legislation is long-overdue to modernize our 
Nation's banking, securities and insurance laws. While the bill before 
us is not perfect, it does represent a fair compromise on important 
issues. As is the case with any compromise, not every group is happy. 
Banking is very important to my State of Delaware and our banks are 
split over the bill. I will support several of the key amendments to 
the bill, in an effort to improve some provisions, but regardless of 
what happens on those amendments, I believe this legislation is a step 
forward and should be passed today.
  As a member of the House Banking Committee, I have been directly 
involved in the work to modernize our financial services laws since I 
came to Congress in 1993. It has been a difficult struggle to update 
our laws to keep pace with and manage what is happening in the market 
place, while seeking to balance the competing interests of the banking, 
securities and insurance industries.
  Now is the time to act. We must do this to benefit consumers who need 
a variety of financial products to help them plan for their economic 
futures. In addition, we must update these laws to allow our financial 
services providers to compete effectively in the next century.
  The most important reason for supporting this legislation is that it 
will benefit every American seeking to improve their family's financial 
security by saving and investing more. This legislation will help them 
achieve that goal by making more savings and investment products 
available in one-stop shopping at competitive prices. In addition, the 
bill contains important disclosure and sales standards to protect 
consumers as they shop for these products.
  This legislation will help consumers, but it will also benefit the 
businesses seeking to provide these financial products. It will enable 
banks, insurance companies and securities firms to affiliate and 
operate more competitively on a level playing field. It will expand the 
products that these financial services firms can offer to their 
customers, while maintaining adequate regulation to preserve the safety 
and soundness of the system.
  Madam Chairman, as part of the long deliberations seeking to treat 
all financial services providers fairly, I have been particularly 
interested in assuring that national banks are permitted to compete 
fairly in selling and underwriting insurance products. Bank sales and 
underwriting of insurance will be good for competition and good for 
American consumers.
  To be candid, in my view the provisions in this legislation regarding 
banking and insurance are not perfect. I believe the language that was 
contained in the Banking Committee's version of H.R. 10 is superior. 
The improved compromise language is adequate in protecting the right of 
national banks to participate in the insurance business, but it has 
been asserted that section 104 could leave some chance that a State 
could attempt to treat banks less fairly than other providers of 
insurance. We should continue to work to further clarify this provision 
in a potential conference on the bill before it becomes law. I am 
committed to working toward that goal.
  Finally, Madam Chairman, I say to my colleagues that this is historic 
legislation that has been a long-time in coming and it has been an 
extremely difficult effort to balance all the competing interests 
affected by H.R. 10. As I noted, I am not entirely happy with every 
provision in this bill, and I will work to improve those provisions 
before it becomes law. But overall, H.R. 10 is a well-crafted effort to 
make our financial services system ready for the 21st century and to 
meet the needs of American consumers and business. I urge my colleagues 
to keep this effort alive and pass H.R. 10 today.
  Mr. LaFALCE. Madam Chairman, I yield 2 minutes to the gentlewoman 
from California (Ms. Waters).
  (Ms. WATERS asked and was given permission to revise and extend her 
remarks.)
  Ms. WATERS. Madam Chairman, I rise in opposition to the Financial 
Services Act of 1998. I am not opposed to the reform of our banking 
laws. However, I oppose this bill because it sacrifices the needs of 
the American consumer and underserved communities in order to benefit 
our Nation's huge banking securities and insurance industries.
  H.R. 10 undermines the Community Reinvestment Act. Many of us inside 
and outside of Congress have struggled to make financial institutions 
more accountable to the communities they serve. This bill weakens the 
CRA by allowing banks to shift assets to affiliates with no CRA 
obligation.
  H.R. 10 does not adequately protect consumers. The bill permits the 
unprecedented preemption of stronger State consumer protection laws. 
State banking laws that prohibit ATM surcharges or require the 
provision of low-cost bank accounts would be subject to Federal 
preemption.
  H.R. 10 allows the dangerous mixing of banking and commerce. H.R. 10 
permits banks to merge with retail and manufacturing companies. This 
would undermine the critical role of banks as the impartial providers 
of credit and concentrate economic power in the hands of just a few 
institutions.
  None of the national consumer organizations support this bill, and 
neither do I. I urge my colleagues to vote against H.R. 10.
  Mr. BLILEY. Madam Chairman, I yield 2 minutes to the gentleman from 
Ohio (Mr. Boehner), the chairman of the Republican Conference.
  Mr. BOEHNER. Madam Chairman, let me first begin by congratulating the 
Members from both the Committee on Banking and Financial Services and 
the Committee on Commerce from the Democrat and Republican side of the 
aisles for their outstanding work in bringing this piece of legislation 
to this floor today.
  Once again, I think that Congress is about to make history. Despite 
countless changes in our economy, there has been no significant reform 
of America's financial service laws since the Great Depression, but we 
have never been closer to making these changes than we are now. There 
is today a broad bipartisan consensus that the time to move forward has 
finally come.

[[Page H3140]]

  We have worked hard for a consensus bill that ensures that every 
American is a winner: consumers, bankers, insurers, brokers. American 
consumers deserve the freedom of one-stop shopping for inspection 
services which we believe will mean about $15 billion savings directly 
passed to themselves and to their families. But we should not forget 
that the financial sector of our economy is also the foundation of our 
country and the foundation of our economy today.
  Madam Chairman, America cannot meet the challenges of the 21st 
Century with financial service laws that are designed for the 1930s. 
Financial services reform is not about politics. It is about what is 
good for America. We are hopeful that the White House would join 
Chairman Greenspan, Republicans, Democrats together in this bipartisan 
reform of these financial service laws.
  Mr. MANTON. Madam Chairman, we have only one speaker left on our 
side, and we would inquire of the Chair who has the right to close.
  The CHAIRMAN. The gentleman from Iowa (Mr. Leach) has the right to 
close. The gentleman from New York (Mr. Manton) has 7 minutes 
remaining.
  Mr. MANTON. Madam Chairman, I reserve the balance of my time.
  Mr. LEACH. Madam Chairman, I yield 1 minute to the distinguished 
gentlewoman from New York (Mrs. Kelly).
  (Mrs. KELLY asked and was given permission to revise and extend her 
remarks.)
  Mrs. KELLY. Madam Chairman, one of the most important aspects of H.R. 
10 is that it is designed to enhance functional regulation of holding 
companies. As such, it is my understanding that insurance companies 
within the holding company structure will be regulated by the State 
insurance regulators, and securities firms will be regulated by the SCC 
and the State securities regulators.
  While the Federal Reserve Board will remain the umbrella supervisor, 
H.R. 10 will assure that firms within the holding company such as 
insurance companies will be able to continue to operate in the manner 
in which they operate today.
  Madam Chairman, I simply want to confirm with the gentleman from Iowa 
(Mr. Leach) that this is his understanding of the bill as well.
  Mr. LEACH. Madam Chairman, will the gentlewoman yield?
  Mrs. KELLY. I yield to the gentleman from Iowa.
  Mr. LEACH. Madam Chairman, the gentlewoman has precisely and 
correctly laid out the circumstances of the bill. This bill is designed 
to enhance functional regulation as she has described.
  Mrs. KELLY. Madam Chairman, I ask unanimous consent to incorporate a 
further explanation of this aspect of the bill after consultation with 
Chairman Leach.
  The CHAIRMAN. A colloquy may not be inserted into the official 
Record.
  Mr. LaFALCE. Madam Chairman, I yield 1 minute to the gentleman from 
Minnesota (Mr. Vento).
  Mr. VENTO. Madam Chairman, I thank the gentleman for yielding, and, 
again, I would reiterate my opposition. I think this bill, frankly, for 
many of us simply reregulates rather than unregulates what is portrayed 
as being a modernization bill.
  It is grudging in a sense to the point of fencing in many activities 
and not being responsive to the market. It tries to superimpose on the 
market something that will not work that will continue to frustrate the 
efforts of financial institutions to respond to the market.
  The opposition from the Clinton administration is very strong. It is 
not about turf. It is not about committee jurisdiction. It is about 
trying to write laws that make common sense that respond to today's 
marketplace and let these capital flows move forward, which, in the 
end, serve all the vital purposes of our economy.
  National banks functioning under the 1862 bank law which created the 
national bank charter, have been a great success and has led to and 
provided the economic foundation for today's economy. This bill, 
frankly, reneges on that. Again, I would reiterate the importance of 
acting on the LaFalce-Vento amendment in the amendment process to 
safeguard and preserve the national bank charter.
  Mr. BLILEY. Madam Chairman, how much time do I have remaining?
  The CHAIRMAN. The gentleman from Virginia (Mr. Bliley) has 2\1/4\ 
minutes remaining.
  Mr. BLILEY. Madam Chairman, I yield myself the balance of the time.
  Madam Chairman, I rise in strong support of this bill. The gentleman 
from Ohio (Mr. Boehner) who previously spoke in the well met with the 
banking industry this week and said, what is your bottom line? What do 
you want? The bottom line is they want no bill. Why do they want no 
bill? Because the OCC is giving them everything they want. Guess what. 
The OCC is leaving. Guess where the OCC is going. It is going to work 
for Banker's Trust in New York. Isn't that a surprise. And we will get 
a new one.
  If we defeat this bill, this issue will be dead in the House and in 
the Congress this year. When the Congress goes out this fall for the 
elections, and the new Congress between that time and the time the new 
Congress comes in, it is this gentleman's prediction that more 
authority will be given to the banks. Perhaps they will be allowed into 
real estate sales, and then try to move the legislation.
  My friends, there is never a perfect time. There is never such a 
thing as a perfect piece of legislation as complex as this issue. But 
the time is now. For 10 separate Congresses, we have wrestled with this 
issue to no avail. Today, we are further along then we have ever been.
  We hear that the other body will not take it up. We hear that the 
White House might veto it. We will never know until we send it to them. 
So let us do our duty. Let us send it to them.
  I say to those interested who feel that everything in this bill is 
not to their liking, go next-door. Make your case. Perhaps you will be 
successful. When we get to the conference, which I hope we will, as the 
gentleman from Iowa has so ably pointed out, the administration will 
have a seat at the table, and we will attempt to address their 
concerns. But the most important thing today is to pass this bill and 
send it to the other body.
  Mr. MANTON. Madam Chairman, we continue our reservation of time.
  Mr. LEACH. Madam Chairman, I would be happy to close, but were there 
other speakers that wish to speak to the subject?
  Mr. LaFALCE. Madam Chairman, I respect the gentleman's right to 
close, and I believe I have a right to speak immediately preceding him. 
Therefore, if there are going to be any other speakers from either the 
side of the gentleman from Virginia (Mr. Bliley) or the gentleman from 
New York (Mr. Manton), they should precede me.
  The CHAIRMAN. The gentleman from Virginia (Mr. Bliley) has no more 
time remaining. The gentleman from New York (Mr. Manton) has 7 minutes 
remaining.
  Mr. MANTON. Madam Chairman, does the gentleman from New York have any 
speakers besides himself?
  Mr. LaFALCE. Madam Chairman, how much time do I have remaining?
  The CHAIRMAN. The gentleman from New York (Mr. LaFalce) has 2 minutes 
remaining.
  Mr. LaFALCE. Madam Chairman, I will be using that 2 minutes.
  Mr. MANTON. Madam Chairman, I yield as much time as he may consume to 
the gentleman from Michigan (Mr. Dingell), the ranking member of the 
Committee on Commerce.
  (Mr. DINGELL asked and was given permission to revise and extend his 
remarks.)
  Mr. DINGELL. Madam Chairman, this is a remarkable day. I never 
thought I would live long enough to see us discuss this issue with such 
harmony on the House floor. We have a bipartisan bill. We have a 
bipartisan managers' amendment, and we have a result which is going to 
be in the public interest.
  I urge my colleagues to support the managers' amendment. I urge them 
to support the bill. This will resolve an issue which has cursed this 
Congress for better than 20 years, and it will do it on terms which 
meet the public interest.
  H.R. 10 provides a safe and sound framework for the financial 
services industries of this country. It does so in a way which protects 
consumers, which protects investors, and which protects the economy of 
this Nation.
  It also sees to it that the new global economy of the world is going 
to have

[[Page H3141]]

active, vigorous, capable American participants in it. The legislation 
will not spur megamergers. Passing it will mean that we will assure 
that, if such occurs, there will be reasonable protection for investors 
and for consumers.

                              {time}  1400

  H.R. 10 draws a clear line between bank activities, those which are 
going to be insured and subsidized by the taxpayers, and far riskier 
exercises, such as the sale of securities and other activities of that 
sort.
  H.R. 10, along with the managers' amendment, protects the consumer. 
Just last week NationsBank paid a large fine because their employees 
sold risky uninsured derivative securities to elderly holders of 
securities of deposit, telling them that their money was as safe as the 
Capitol of the United States.
  H.R. 10, along with the managers' amendment, protects the investor. 
It says you are not going to sell stocks or bonds or other instruments 
under conditions which are going to hurt the consumers, and you are 
going to have to make, if you do so, the same disclosures and satisfy 
the same regulatory requirements as everyone else in the business.
  It also says some other things which are important. With the 
managers' amendment, it will protect the taxpayer. It prevents FDIC 
insurance, which is paid for by the taxpayer, from being extended to 
cover the losses that might come from risky, speculative activities.
  I would remind my colleagues that not long back we passed legislation 
which unleashed the savings & loan industry, and that led to the 
problem which was called the savings & loan debacle, which cost the 
taxpayers of this country better than $500 billion. This will protect 
against that kind of exercise by bank management.
  It promotes fair competition. Banks have lower costs of capital. Why? 
Because they are taxpayer insured. That is an effective taxpayer 
subsidy. In fact, it might even be called corporate welfare. But, if it 
is, and if banks are going to function, they should see to it that that 
kind of exercise is kept separate from their other activities, so that 
they cannot use taxpayer subsidies to compete with others in the 
financial services industry, and also to see to it, as the Congress 
acted back in the thirties, to assure that banks do not put at risk 
Federal taxpayer financed insurance of their activities.
  H.R. 10, with the managers' amendment, will prevent an Asian banking 
crisis from spreading like Asian flu to the United States, by putting 
intelligent limits on the mixing of banking and commerce.
  Finally, H.R. 10, with the managers' amendment, does nothing to hurt 
the banks. It expands the range of allowable bank activities. Any bank 
can engage in any financial activity, so long as it sets up a separate 
affiliate. It creates, insofar as humanly possible, a fair, two-way 
street for all players. And it does something else: It sees to it that 
when bankers are engaged in these kinds of activities, they play by the 
same rules that everybody else does.
  It does not undermine the Community Reinvestment Act. That is left as 
it is. I would urge my colleagues to recognize that that is a good 
thing.
  The choice is clear. I intend to vote for the managers' amendment; I 
intend to vote against other amendments. I intend to try and see to it 
that we do not expand high risk activities of banks. I intend to try to 
see that we do not include operating subsidies inside the banks which 
can pervert the purposes of the managers' amendment or indeed to put at 
risk taxpayers' guarantees of bank deposits.
  I urge my colleagues to support the managers' amendment and to oppose 
other amendments.
  Madam Chairman, this is good legislation. With the managers' 
amendment, it is an excellent piece of legislation. It resolves the 
problems which banks complain about. To the degree that it is proper to 
do so, it protects competition inside the financial services industry. 
It protects investors, it protects consumers.
  I would point out that the bankers have said they are going to oppose 
this legislation, regardless of how amended, whether the amendment 
offered by my dear friend the gentleman from New York (Mr. LaFalce) is 
included or not. I would point out that the consumers of this country, 
through the Consumers Union, have said that they support the managers' 
amendment.
  I would urge my colleagues to vote for the bipartisan legislation and 
the bipartisan amendment. It is an opportunity to resolve a long-
standing problem in honorable, effective, decent, public serving, and 
public interest ways.
  Mr. LaFALCE. Madam Chairman, I yield myself such time as I may 
consume.
  Madam Chairman, the gentleman from Michigan (Mr. Dingell) said that 
today is a remarkable day, and I concur with him. The gentleman comes 
before us today and he advocates repeal of Glass-Stegall and 
significant changes in the Bank Holding Company Act. You think that is 
remarkable, and I concur with him.
  This is something I have fought for for 20 years. But, unfortunately, 
the bill makes not only those changes; the bill makes significant other 
changes. It is those other changes that I am concerned about.
  Now, the managers' amendment will add consumer protections that the 
gentleman from Michigan (Mr. Dingell) and I were fighting for a month 
or so ago as part of the Dingell-LaFalce amendment, but there are 
significant other provisions that I wanted addressed that are not 
addressed, and that is the way in which the bill undermines the 
national bank charter.
  National banks have existed within the United States for over 100 
years. They have always been controversial. But, thankfully, we have 
always been able to preserve their vitality and their viability, and I 
think it has been the vitality of our national bank system that has 
contributed to the economic growth of the United States of America.
  Every administration has wanted to preserve that economic viability 
of our national bank system. In our most recent tenure, whether it is 
the Carter administration, or the Reagan administration, or the Bush 
administration, or now the Clinton administration, they have said do 
not undermine the national bank charter; do not undermine the regulator 
of the national banks.
  This bill does that. It undermines the national bank regulator, it 
undermines the national bank charter. That is the principal reason that 
the administration says they would veto the bill in its present form, 
unless the LaFalce-Vento amendment passes.
  The by-product of that, the fact that so many assets would 
potentially be removed from the jurisdiction of the Community 
Reinvestment Act, is why every consumer group that I am aware of, in 
any event, opposes the bill also, or at least the principal reason.
  I will offer an amendment to cure these defects. If it goes down, I 
will also offer a motion to recommit that would continue the essence of 
the bill, the repeal of Glass-Stegall and the changes in the Bank 
Holding Company Act and the consumer protections that we all want, but 
would not deal with this undermining of the national bank charter.
  Mr. LEACH. Madam Chairman, I yield myself such time as I may consume.
  Madam Chairman, first I would like to thank my good friend the 
gentleman from Virginia (Mr. Bliley) for his leadership, and also the 
gentleman from Michigan (Mr. Dingell), the gentleman from New York (Mr. 
Manton), and my distinguished friend in dissent, the gentleman from New 
York (Mr. LaFalce).
  To my colleagues who oppose the bill because they are concerned about 
consumers, I ask you, what happens if the bill does not pass? This bill 
contains new Federal consumer and CRA protections that are not now the 
law of the land. Inaction is anti-consumer.
  To my colleagues who object to megamerger trends, I ask, what happens 
if the bill does not pass? The mergers will continue, but under a 
regulatory regime with undefined cracks and competitive bureaucratic 
instincts to regulate weakly. Inaction is simply imprudent.
  To my colleagues who, like myself, worry about rural community banks, 
I ask what happens if the bill does not pass? Small banks will be 
saddled with competition from mega-businesses likely to sweep money 
from small communities, unless small institutions are given new powers, 
such as access to the

[[Page H3142]]

Federal Home Loan Bank for small business and agricultural lending, and 
new restraints on the so-called unitary thrifts that merge so ignobly 
commerce and banking.
  Simply put, inaction is the friend of the big, not the small. 
Inaction puts the taxpayer at grave risk. That is why we need this bill 
at this time, and I would urge sympathetic consideration by my 
colleagues.
  Mr. HASTINGS of Washington. Madam Chairman, I appreciate the 
opportunity to share my views on this legislation.
  As my colleagues know, this legislation has supporters and 
detractors. Several hundred of my own constituents have contacted me on 
this issue over the past several months. And while many support our 
efforts here today, others, particularly small banks in my district, 
are concerned that the legislation does not do enough to assist their 
industry.
  In particular, I strongly share their concerns about the lack of 
relief from the burdensome Community Reinvestment Act. Let me share a 
few statistics.
  The CRA, first passed in 1977, took only two pages of bill language 
when first authored by former Senator William Proxmire. Yet our federal 
regulators have now promulgated more than 275 pages of regulations--in 
microscopic government type, mind you--governing this provision. As a 
result, what was meant to be a community based, largely voluntary 
program to infuse private capital into struggling areas has now become 
a massive, burdensome, and counterproductive federal mandate.
  According to one study, our financial community spends more than $1 
billion each year, and 15 million man hours, complying with the CRA. 
The impact is particularly hard on smaller banks, which incur three 
times the compliance costs of larger institutions.
  Some had suggested that CRA requirements be reformed to bring them 
back in line with the original intent of the 1977 law. One proposal 
would have provided relief for all banks smaller than $100 million in 
assets, and for rural banks with assets of under $250 million. This 
would have gone a long way towards relieving this tremendous financial 
and paperwork burden on the small community banks in my district. 
Unfortunately, the bill does not include this common sense reform.
  While I am very disappointed with this result, I nonetheless believe 
that we must take action to reform our depression era banking statutes. 
In addition, many of my constituents have contacted me to urge their 
support of this legislation. As a result, I will support this bill 
today in an effort to keep the reform effort alive. But I will work 
during the next few months to ensure that critical reforms, like CRA 
reform, are included in any final package approved by both the House 
and the Senate and sent to the President.
  Mr. STENHOLM. Madam Chairman, the legislation pending before the 
House, H.R. 10, the Financial Services Competition Act, contains 
numerous provisions that cause concern. Specifically, I'd like to bring 
to the attention of the Members of this body the section of the bill 
that proposes to broadly expand the mission of the Federal Home Loan 
Bank (FHLB) System. The authorities of the FHLB System would be 
expanded to provide advances to commercial banks for a variety of 
purposes, including agricultural lending.
  I am concerned that this proposal could actually limit credit 
availability by adversely affecting the two government sponsored 
enterprises chartered to serve rural markets: the Farm Credit System 
(FCS) and the Federal Agricultural Mortgage Corporation (FarmerMac). 
Expanding the Federal Home Loan Bank mission will convert every 
commercial bank with assets of less than $500 million into a retail 
GSE.
  As the ranking Democrat on the Agriculture Committee, I have had a 
keen interest in rural credit availability for many years. Credit is 
quite literally the lifeblood of our nation's agricultural producers. 
As a result, I am very interested in new ways to provide additional 
credit to farmers and rural communities. However, I am concerned that 
we have not had ample time to fully consider the serious policy 
implications of expanding the FHLB System's mission.
  While I support an appropriate expansion of credit for rural 
Americans, doing so through the FHLB System, without making important 
changes in the lending charter of the Farm Credit System, could 
potentially disrupt the competitive balance that exists in rural 
markets today. Currently, commercial banks, the Farm Credit System and 
FarmerMac work to provide competitively priced credit to those who live 
and work in rural America. We all have an interest in seeing that that 
competitive balance continues.
  The Agriculture Committee is aware of efforts by all participants in 
the rural credit markets to expand their lending authority. I am 
convinced that if we proceed down the path of expanding authorities, 
then we must consider all players that provide rural credit.
  Mr. DAVIS of Illinois. Madam Chairman, I rise today in strong 
opposition to H.R. 10, the ``Financial Services Competition Act.''
  I rise in opposition not because the laws governing our financial 
system are immune to change * * * just the opposite, in our rapidly 
changing world our financial system is undergoing a veritable 
transformation and our legal framework must change to correspond to the 
new realities. However, let us remember that many of our financial laws 
and regulations grew out of our great failures of the past in 
protecting the interests of the great masses of Americans. In 
addressing the need for change we must also learn from our history.
  H.R. 10 weakens the Community Reinvestment Act, a critical tool for 
low-income communities to develop housing, small business and financial 
services. CRA should be extended to all bank affiliates: insurance 
companies, securities firms and mortgage companies. Instead, H.R. 10 
encourages the movement of bank assets beyond the reach of the CRA and, 
indeed, beyond the bank charter.
  H.R. 10 does not address insurance redlining, still a major problem 
in many communities and one which I recently called upon the Attorney 
General to investigate in my district as regards to auto insurance.
  H.R. 10 should prohibit insurance companies from merging with banks 
until the company is in full compliance with the Fair Housing Act and 
other relevant legislation.
  H.R. 10 breaks down the final protective barriers between banks and 
commercial firms and adds a new level of risk to our financial 
stability, one we have not seen in our country in generations, but 
which we can all see in Southeast Asia today.
  H.R. 10 sharply reduces community input, giving automatic approvals 
FHCs whose banks have Satisfactory or Outstanding CRA ratings. This 
means that 98% of financial institutions will be beyond community 
input. It continues a trend brought into sharp national focus with the 
publication of William Greider's book Secrets of the Temple in 1987.
  Secrets brought to the attention of the nation how the Federal 
Reserve had been given greater command over many issues over the years 
and how many of the decisions entrusted to them, regardless of how 
wrong they might be, were made without public input or control.
  H.R. 10 ignores history, ignores the lessons of other nations, 
ignores the interests of poor and working Americans, ignores consumer 
interests, ignores community reinvestment protections and ignores 
increased risk to our financial infrastructure.
  Madam Chairman, I urge a vote against this legislation.
  Mr. HYDE. Madam Chairman, I rise in support of H.R. 10, the 
``Financial Services Competition Act of 1998.'' For many years, we have 
been trying to repeal the outdated restrictions that keep banks, 
securities firms, and insurance companies from getting into one 
another's businesses. After all the debate, I think we have finally 
come up with something in this bill that will open up a whole new world 
of competition.
  Now I know that some of the players in this debate have problems with 
this bill. That is always the case with major deregulation bills. But 
we cannot ignore the future. Financial services are becoming 
increasingly globalized, increasingly computerized, and increasingly 
seamless. Banking laws passed during the Depression simply will not do 
in the 21st century.
  Do I wish that we could maintain a world where everyone knew their 
banker on a first name basis and loans were made on a handshake? Sure, 
and I think in the new world some banks will provide that kind of 
service to those who demand it. But we need not have laws that limit us 
to that kind of service, as desirable as it may seem. Everyone is 
better off if the market decides what kinds of services all financial 
firms will offer.
  Just think about the progress we have made in the past 10 years. When 
I was a child, only the wealthy owned stocks. Now, with the growth of 
the mutual fund industry and self-directed retirement funds, millions 
and millions of average Americans not only own stocks, but make their 
own investment decisions. These developments create wealth, increase 
people's incentive to produce, and relieve some of the entitlement 
burden of government. I believe that this bill will bring more such 
positive developments.
  I want to say a word about my friends Jim Leach, chairman of the 
Banking Committee, and Tom Bliley, chairman of the Commerce Committee. 
They have done an excellent job of putting this package together. I 
commend them for their work in bringing about this bill in a very 
difficult and contentious environment.
  I especially want to commend them for working with me on the bank 
merger provisions of the bill. Under current law, bank mergers are 
reviewed under special bank merger statutes, and they do not go through 
the Hart-Scott-Rodino merger review process that covers most other 
mergers. Now banks

[[Page H3143]]

will be able to get into other businesses which they have not been able 
to do before.
  The principle that we have tried to follow is that when mergers 
occur, the bank part of that merger will be judged under the current 
bank merger statutes, and we do not intend any change in that process 
or in any of the agencies' respective jurisdictions. The nonbank part 
of that merger, which will fall under the new section 6 of the Bank 
Holding Company Act, will be subject to the normal Hart-Scott-Rodino 
merger review by either the Justice Department or the Federal 
Trade Commission. The managers' amendment has language that embodies 
that principle. In short, no bank is treated differently than it 
otherwise would be because it has some other business within its 
corporate family. Likewise, no other business is treated differently 
than it otherwise would be because it has a bank within its corporate 
family.

  We have embodied that same principle with respect to the Federal 
Trade Commission's authority to enforce the Federal Trade Commission 
Act and other laws. Section 5 of the Federal Trade Commission Act 
specifically prohibits the FTC from enforcing the Act against banks 
because they are heavily regulated. The language in the managers' 
amendment does not change that, but it does clarify that the bank 
prohibition does not extend to any other nonbank parts of a bank's 
corporate family. I would also note that similar language was not 
necessary for the Justice Department because there are no specific 
statutory prohibitions on its ability to enforce laws against banks, 
other than the Hart-Scott-Rodino exemption that I have already 
discussed.
  I think that we all agree on this principle both with respect to the 
mergers and the other laws, but the specific language may require some 
further refinement in conference. For that reason, I will be requesting 
Judiciary Committee conferees on this narrow part of the bill, and I 
look forward to continuing to work with my Banking Committee and 
Commerce Committee colleagues in this area.
  I also want to announce that the Judiciary Committee will hold a 
hearing on bank mergers on June 3, and I am hopeful that this hearing 
will help us determine whether we need to make any further revisions to 
this language
  Let me again commend my friends Jim Leach and Tom Bliley and everyone 
else who has worked on this legislation, and I ask my colleagues to 
support it.
  Mr. STRICKLAND. Madam Chairman, today's financial services 
marketplace is an increasingly complex web of interconnecting products 
and service providers. In the 1990's, consumers are going to their bank 
not just to deposit money in a traditional passbook savings account, 
but also, increasingly, to purchase insurance products. They visit 
their insurance broker not only for simple, term life insurance, but 
also for insurance products that include a long-term investment 
component. Consumers are no longer content with the choices of the 
past, but are demanding more advanced financial products and often want 
the convenience of ``one stop shopping.'' At the same time, financial 
institutions are consolidating at an increasing rate--banks are merging 
with other banks and insurance and securities dealers are combining 
forces--leading to new types of financial entities.
  These changes are enhancing the success of U.S. financial markets. 
They stimulate the economy and provide consumers with more savings and 
investment options. Unfortunately, the Depression era laws that 
regulate our financial markets have not kept pace with these market 
forces, leaving American consumers faced with a ``catch 22''. Consumers 
have access to more advanced, enhanced financial products, but are not 
adequately protected from fraud and abuse by the laws that currently 
regulate their financial investments and savings. As a result, the 
regulatory agencies responsible for enforcing those laws are forced to 
deal with new entities using old formulas that fail to fully appreciate 
the complexities of the evolving marketplace.
  The world recently witnessed in Asia that unregulated financial 
markets can lead to corruption and weakened economic conditions. With 
America's financial markets slowly evolving in the same direction as 
those in Asia, it is crucial that our country learns from Asia's 
misfortune and take the initiative to develop appropriate measures that 
will deter similar negative repercussions in our own financial markets.
  In the House of Representatives, the House Committees on Commerce and 
Banking have worked to develop a legislative response to these changes 
for the past year and a half. We recently reached a critical juncture 
in the legislative process--the Committees have devised a plan that 
lays the groundwork for carrying our financial markets safely and 
soundly into the 21st century. As a member of the House Commerce 
Committee, I support initiatives that address our antiquated laws and 
am committed to ensuring that the legislative process continues 
unhindered by powerful special interest groups.
  H.R. 10, the Financial Services Act, permits financial entities, such 
as banks, insurance and securities groups, to merge, affiliate and 
associate activities. One of the most pivotal components of H.R. 10 is 
the concept of functional regulation. Functional regulation would 
certify that all financial providers would be regulated according to 
the services which they provide. For example, a financial holding 
company that has an insurance entity as an operating subsidiary would 
be regulated by both the state insurance commission (insurance 
activities) and the Office of the Comptroller of the Currency and the 
Federal Reserve (banking activities). As a result, financial activities 
would be regulated by experts in that respective financial field.
  The House leadership has reached an agreement on a financial package 
that I believe is fair to all industries and best serves the public 
interest. The compromise on H.R. 10 will create a modernized financial 
system that will allow our country to be financially competitive into 
the next century. However, H.R. 10 can still be improved with the 
adoption of a package of consumer protection amendments which will be 
offered by commerce Committee Chairman Tom Bliley (R-VA) and Ranking 
Member John Dingell (D-MI). This amendment will provide the necessary 
safeguards for consumers while providing enough freedoms to financial 
providers to compete globally on a level playing field.
  Congress has waited long enough to enact legislation to guarantee the 
solvency of American financial markets. Congress must move the process 
forward and provide the necessary consumer protections and regulations 
to guarantee that all players, big and small, private and public, 
benefit from the financial prosperity of a developing and growing 
financial market in the U.S.
  Mr. FAZIO of California. Mr. Speaker, the Financial Services Act of 
1998 revolutionizes American financial institutions and it ensures the 
United States continued cutting edge success in the world market.
  The rules and regulations of the Great Depression aren't enough to 
maintain a healthy and increasingly globalized interdependent U.S. 
economy.
  The rules have changed and H.R. 10 recognizes these changes.
  In the old days, banking, insurance and security institutions each 
provided a distinct, clear financial service. But in the modern 
financial marketplace, financial innovations and globalization have 
increasingly blurred these institution's activities.
  H.R. 10 reflects the dynamic changes occurring in the marketplace.
  Republicans and Democrats have crafted a balanced bill that fosters 
open, fair competition, protects consumers and promotes U.S. financial 
services' competitiveness in the world economy.
  Our financial sector contributes over 18 percent to our GNP--this is 
an economic force that can't be ignored any longer.
  Today, my colleagues from both sides of the aisle have the 
opportunity to enhance competition in the financial services and 
maintain U.S. prominence in the international economic arena.
  I strongly encourage both Republicans and Democrats to vote ``yes'' 
for fair competition and ``yes'' for a prosperous, strong American 
economy that will take us safely into the 21st Century.
  The CHAIRMAN. All time for general debate has expired.
  Pursuant to the rule, the amendment in the nature of a substitute 
printed in part 1 of House Report 105-531 is considered as an original 
bill for the purpose of amendment under the 5 minute rule and is 
considered read.
  The text of the amendment in the nature of a substitute is as 
follows:

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

     SECTION 1. SHORT TITLE; PURPOSES; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Financial 
     Services Act of 1998''.
       (b) Purposes.--The purposes of this Act are as follows:
       (1) To enhance competition in the financial services 
     industry, in order to foster innovation and efficiency.
       (2) To ensure the continued safety and soundness of 
     depository institutions.
       (3) To provide necessary and appropriate protections for 
     investors and ensure fair and honest markets in the delivery 
     of financial services.
       (4) To provide for appropriate functional regulation of 
     insurance activities.
       (5) To reduce and, to the maximum extent practicable, to 
     eliminate the legal barriers preventing affiliation among 
     depository institutions, securities firms, insurance 
     companies, and other financial service providers and to 
     provide a prudential framework for achieving that result.
       (6) To enhance the availability of financial services to 
     citizens of all economic circumstances and in all geographic 
     areas.
       (7) To enhance the competitiveness of United States 
     financial service providers internationally.

[[Page H3144]]

       (8) To ensure compliance by depository institutions with 
     the provisions of the Community Reinvestment Act of 1977 and 
     enhance the ability of depository institutions to meet the 
     capital and credit needs of all citizens and communities, 
     including underserved communities and populations.
       (c) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; purposes; table of contents.

  TITLE I--FACILITATING AFFILIATION AMONG SECURITIES FIRMS, INSURANCE 
                 COMPANIES, AND DEPOSITORY INSTITUTIONS

                        Subtitle A--Affiliations

Sec. 101. Glass-Steagall Act reformed.
Sec. 102. Activity restrictions applicable to bank holding companies 
              which are not financial holding companies.
Sec. 103. Financial holding companies.
Sec. 104. Certain State laws preempted.
Sec. 105. Mutual bank holding companies authorized.
Sec. 106. Prohibition on deposit production offices.
Sec. 107. Clarification of branch closure requirements.
Sec. 108. Amendments relating to limited purpose banks.

  Subtitle B--Streamlining Supervision of Financial Holding Companies

Sec. 111. Streamlining financial holding company supervision.
Sec. 112. Elimination of application requirement for financial holding 
              companies.
Sec. 113. Authority of State insurance regulator and Securities and 
              Exchange Commission.
Sec. 114. Prudential safeguards.
Sec. 115. Examination of investment companies.
Sec. 116. Limitation on rulemaking, prudential, supervisory, and 
              enforcement authority of the Board.

               Subtitle C--Subsidiaries of National Banks

Sec. 121. Permissible activities for subsidiaries of national banks.
Sec. 122. Misrepresentations regarding depository institution liability 
              for obligations of affiliates.
Sec. 123. Repeal of stock loan limit in Federal reserve act.

Subtitle D--Wholesale Financial Holding Companies; Wholesale Financial 
                              Institutions

            Chapter 1--Wholesale Financial Holding Companies

Sec. 131. Wholesale financial holding companies established.
Sec. 132. Authorization to release reports.
Sec. 133. Conforming amendments.

              Chapter 2--Wholesale Financial Institutions

Sec. 136. Wholesale financial institutions.

  Subtitle E--Streamlining Antitrust Review of Bank Acquisitions and 
                                Mergers

Sec. 141. Amendments to the Bank Holding Company Act of 1956.
Sec. 142. Amendments to the Federal Deposit Insurance Act to vest in 
              the Attorney General sole responsibility for antitrust 
              review of depository institution mergers.
Sec. 143. Information filed by depository institutions; interagency 
              data sharing.
Sec. 144. Applicability of antitrust laws.
Sec. 145. Clarification of status of subsidiaries and affiliates.
Sec. 146. Effective date.

Subtitle F--Applying the Principles of National Treatment and Equality 
   of Competitive Opportunity to Foreign Banks and Foreign Financial 
                              Institutions

Sec. 151. Applying the principles of national treatment and equality of 
              competitive opportunity to foreign banks that are 
              financial holding companies.
Sec. 152. Applying the principles of national treatment and equality of 
              competitive opportunity to foreign banks and foreign 
              financial institutions that are wholesale financial 
              institutions.

               Subtitle G--Federal Home Loan Bank System

Sec. 161. Federal home loan banks-
Sec. 162. Membership and collateral.
Sec. 163. The Office of Finance.
Sec. 164. Management of banks.
Sec. 165. Advances to nonmember borrowers.
Sec. 166. Powers and duties of banks.
Sec. 167. Mergers and consolidations of Federal home loan banks.
Sec. 168. Technical amendments.
Sec. 169. Definitions.
Sec. 170. Resolution funding corporation
Sec. 171. Capital structure of the Federal home loan banks.
Sec. 172. Investments.
Sec. 173. Federal Housing Finance Board.

                 Subtitle H--Direct Activities of Banks

Sec. 181. Authority of national banks to underwrite certain municipal 
              bonds

                  Subtitle I--Effective Date of Title

Sec. 191. Effective date.

                    TITLE II--FUNCTIONAL REGULATION

                    Subtitle A--Brokers and Dealers

Sec. 201. Definition of broker.
Sec. 202. Definition of dealer.
Sec. 203. Registration for sales of private securities offerings.
Sec. 204. Sales practices and complaint procedures.
Sec. 205. Information sharing.
Sec. 206. Definition and treatment of banking products.
Sec. 207. Derivative instrument and qualified investor defined.
Sec. 208. Government securities defined.
Sec. 209. Effective date.

             Subtitle B--Bank Investment Company Activities

Sec. 211. Custody of investment company assets by affiliated bank.
Sec. 212. Lending to an affiliated investment company.
Sec. 213. Independent directors.
Sec. 214. Additional SEC disclosure authority.
Sec. 215. Definition of broker under the Investment Company Act of 
              1940.
Sec. 216. Definition of dealer under the Investment Company Act of 
              1940.
Sec. 217. Removal of the exclusion from the definition of investment 
              adviser for banks that advise investment companies.
Sec. 218. Definition of broker under the Investment Advisers Act of 
              1940.
Sec. 219. Definition of dealer under the Investment Advisers Act of 
              1940.
Sec. 220. Interagency consultation.
Sec. 221. Treatment of bank common trust funds.
Sec. 222. Investment advisers prohibited from having controlling 
              interest in registered investment company.
Sec. 223. Conforming change in definition.
Sec. 224. Conforming amendment.
Sec. 225. Effective date.

     Subtitle C--Securities and Exchange Commission Supervision of 
                   Investment Bank Holding Companies

Sec. 231. Supervision of investment bank holding companies by the 
              Securities and Exchange Commission.

                           Subtitle D--Study

Sec. 241. Study of methods to inform investors and consumers of 
              uninsured products.

                          TITLE III--INSURANCE

               Subtitle A--State Regulation of Insurance

Sec. 301. State regulation of the business of insurance.
Sec. 302. Mandatory insurance licensing requirements.
Sec. 303. Functional regulation of insurance.
Sec. 304. Insurance underwriting in national banks.
Sec. 305. New bank agency activities only through acquisition of 
              existing licensed agents.
Sec. 306. Title insurance activities of national banks and their 
              affiliates.
Sec. 307. Expedited and equalized dispute resolution for financial 
              regulators.
Sec. 308. Consumer protection regulations.
``Sec. 45. Consumer protection regulations.''
Sec. 309. Certain State affiliation laws preempted for insurance 
              companies and affiliates.

             Subtitle B--Redomestication of Mutual Insurers

Sec. 311. General application.
Sec. 312. Redomestication of mutual insurers.
Sec. 313. Effect on State laws restricting redomestication.
Sec. 314. Other provisions.
Sec. 315. Definitions.
Sec. 316. Effective date.

   Subtitle C--National Association of Registered Agents and Brokers

Sec. 321. State flexibility in multistate licensing reforms.
Sec. 322. National Association of Registered Agents and Brokers.
Sec. 323. Purpose.
Sec. 324. Relationship to the Federal Government.
Sec. 325. Membership.
Sec. 326. Board of directors.
Sec. 327. Officers.
Sec. 328. Bylaws, rules, and disciplinary action.
Sec. 329. Assessments.
Sec. 330. Functions of the NAIC.
Sec. 331. Liability of the Association and the directors, officers, and 
              employees of the Association.
Sec. 332. Elimination of NAIC oversight.
Sec. 333. Relationship to State law.
Sec. 334. Coordination with other regulators.
Sec. 335. Judicial review.
Sec. 336. Definitions.

          TITLE IV--UNITARY SAVINGS AND LOAN HOLDING COMPANIES

Sec. 401. Termination of expanded powers for new unitary S&L holding 
              companies.

  TITLE I--FACILITATING AFFILIATION AMONG SECURITIES FIRMS, INSURANCE 
                 COMPANIES, AND DEPOSITORY INSTITUTIONS

                        Subtitle A--Affiliations

     SEC. 101. GLASS-STEAGALL ACT REFORMED.

       (a) Section 20 Repealed.--Section 20 (12 U.S.C. 377) of the 
     Banking Act of 1933 (commonly referred to as the ``Glass-
     Steagall Act'') is repealed.
       (b) Section 32 Repealed.--Section 32 (12 U.S.C. 78) of the 
     Banking Act of 1933 is repealed.

[[Page H3145]]

     SEC. 102. ACTIVITY RESTRICTIONS APPLICABLE TO BANK HOLDING 
                   COMPANIES WHICH ARE NOT FINANCIAL HOLDING 
                   COMPANIES.

       (a) In General.--Section 4(c)(8) of the Bank Holding 
     Company Act of 1956 (12 U.S.C. 1843(c)(8)) is amended to read 
     as follows:
       ``(8) shares of any company the activities of which had 
     been determined by the Board by regulation under this 
     paragraph as of the day before the date of the enactment of 
     the Financial Services Act of 1998, to be so closely related 
     to banking as to be a proper incident thereto (subject to 
     such terms and conditions contained in such regulation, 
     unless modified by the Board);''.
       (b) Conforming Changes to Other Statutes.--
       (1) Amendment to the bank holding company act amendments of 
     1970.--Section 105 of the Bank Holding Company Act Amendments 
     of 1970 (12 U.S.C. 1850) is amended by striking ``, to engage 
     directly or indirectly in a nonbanking activity pursuant to 
     section 4 of such Act,''.
       (2) Amendment to the bank service company act.--Section 
     4(f) of the Bank Service Company Act (12 U.S.C. 1864(f)) is 
     amended by striking the period and adding at the end the 
     following: ``as of the day before the date of enactment of 
     the Financial Services Act of 1998.''.

     SEC. 103. FINANCIAL HOLDING COMPANIES.

       (a) In General.--The Bank Holding Company Act of 1956 is 
     amended by inserting after section 5 (12 U.S.C. 1844) the 
     following new section:

     ``SEC. 6. FINANCIAL HOLDING COMPANIES.

       ``(a) Financial Holding Company Defined.--For purposes of 
     this section, the term `financial holding company' means a 
     bank holding company which meets the requirements of 
     subsection (b).
       ``(b) Eligibility Requirements for Financial Holding 
     Companies.--
       ``(1) In general.--No bank holding company may engage in 
     any activity or directly or indirectly acquire or retain 
     shares of any company under this section unless the bank 
     holding company meets the following requirements:
       ``(A) All of the subsidiary depository institutions of the 
     bank holding company are well capitalized.
       ``(B) All of the subsidiary depository institutions of the 
     bank holding company are well managed.
       ``(C) All of the subsidiary depository institutions of the 
     bank holding company have achieved a rating of `satisfactory 
     record of meeting community credit needs', or better, at the 
     most recent examination of each such institution under the 
     Community Reinvestment Act of 1977.
       ``(D) All of the subsidiary insured depository institutions 
     of the bank holding company (other than any such depository 
     institution which does not, in the ordinary course of the 
     business of the depository institution, offer consumer 
     transaction accounts to the general public) offer and 
     maintain low-cost basic banking accounts.
       ``(E) The company has filed with the Board a declaration 
     that the company elects to be a financial holding company and 
     certifying that the company meets the requirements of 
     subparagraphs (A) through (D).
       ``(2) Foreign banks and companies.--For purposes of 
     paragraph (1), the Board shall establish and apply comparable 
     capital standards to a foreign bank that operates a branch or 
     agency or owns or controls a bank or commercial lending 
     company in the United States, and any company that owns or 
     controls such foreign bank, giving due regard to the 
     principle of national treatment and equality of competitive 
     opportunity.
       ``(3) Limited exclusions from community needs requirements 
     for newly acquired depository institutions.--
       ``(A) In general.--If the requirements of subparagraph (B) 
     are met, any depository institution acquired by a bank 
     holding company during the 24-month period preceding the 
     submission of a declaration under paragraph (1)(E) and any 
     depository institution acquired after the submission of such 
     declaration may be excluded for purposes of paragraph (1)(C) 
     until the later of--
       ``(i) the end of the 24-month period beginning on the date 
     the acquisition of the depository institution by such company 
     is consummated; or
       ``(ii) the date of completion of the 1st examination of 
     such depository institution under the Community Reinvestment 
     Act of 1977 which is conducted after the date of the 
     acquisition of the depository institution.
       ``(B) Requirements.--The requirements of this subparagraph 
     are met with respect to any bank holding company referred to 
     in subparagraph (A) if--
       ``(i) the bank holding company has submitted an affirmative 
     plan to the appropriate Federal banking agency to take such 
     action as may be necessary in order for such institution to 
     achieve a rating of `satisfactory record of meeting community 
     credit needs', or better, at the next examination of the 
     institution under the Community Reinvestment Act of 1977; and
       ``(ii) the plan has been approved by such agency.
       ``(c) Engaging in Activities Financial in Nature.--
       ``(1) In general.--Notwithstanding section 4(a), a 
     financial holding company and a wholesale financial holding 
     company may engage in any activity, and acquire and retain 
     the shares of any company engaged in any activity, which the 
     Board has determined (by regulation or order) to be financial 
     in nature or incidental to such financial activities.
       ``(2) Factors to be considered.--In determining whether an 
     activity is financial in nature or incidental to financial 
     activities, the Board shall take into account--
       ``(A) the purposes of this Act and the Financial Services 
     Act of 1998;
       ``(B) changes or reasonably expected changes in the 
     marketplace in which bank holding companies compete;
       ``(C) changes or reasonably expected changes in the 
     technology for delivering financial services; and
       ``(D) whether such activity is necessary or appropriate to 
     allow a bank holding company and the affiliates of a bank 
     holding company to--
       ``(i) compete effectively with any company seeking to 
     provide financial services in the United States;
       ``(ii) use any available or emerging technological means, 
     including any application necessary to protect the security 
     or efficacy of systems for the transmission of data or 
     financial transactions, in providing financial services; and
       ``(iii) offer customers any available or emerging 
     technological means for using financial services.
       ``(3) Activities that are financial in nature.--The 
     following activities shall be considered to be financial in 
     nature:
       ``(A) Lending, exchanging, transferring, investing for 
     others, or safeguarding money or securities.
       ``(B) Insuring, guaranteeing, or indemnifying against loss, 
     harm, damage, illness, disability, or death, or providing and 
     issuing annuities, and acting as principal, agent, or broker 
     for purposes of the foregoing.
       ``(C) Providing financial, investment, or economic advisory 
     services, including advising an investment company (as 
     defined in section 3 of the Investment Company Act of 1940).
       ``(D) Issuing or selling instruments representing interests 
     in pools of assets permissible for a bank to hold directly.
       ``(E) Underwriting, dealing in, or making a market in 
     securities.
       ``(F) Engaging in any activity that the Board has 
     determined, by order or regulation that is in effect on the 
     date of enactment of the Financial Services Act of 1998, to 
     be so closely related to banking or managing or controlling 
     banks as to be a proper incident thereto (subject to the same 
     terms and conditions contained in such order or regulation, 
     unless modified by the Board).
       ``(G) Engaging, in the United States, in any activity 
     that--
       ``(i) a bank holding company may engage in outside the 
     United States; and
       ``(ii) the Board has determined, under regulations issued 
     pursuant to section 4(c)(13) of this Act (as in effect on the 
     day before the date of enactment of the Financial Services 
     Act of 1998) to be usual in connection with the transaction 
     of banking or other financial operations abroad.
       ``(H) Directly or indirectly acquiring or controlling, 
     whether as principal, on behalf of 1 or more entities 
     (including entities, other than a depository institution or 
     subsidiary of a depository institution, that the bank holding 
     company controls) or otherwise, shares, assets, or ownership 
     interests (including without limitation debt or equity 
     securities, partnership interests, trust certificates or 
     other instruments representing ownership) of a company or 
     other entity, whether or not constituting control of such 
     company or entity, engaged in any activity not authorized 
     pursuant to this section if--
       ``(i) the shares, assets, or ownership interests are not 
     acquired or held by a depository institution or subsidiary of 
     a depository institution;
       ``(ii) such shares, assets, or ownership interests are 
     acquired and held by a securities affiliate or an affiliate 
     thereof as part of a bona fide underwriting or merchant 
     banking activity, including investment activities engaged in 
     for the purpose of appreciation and ultimate resale or 
     disposition of the investment;
       ``(iii) such shares, assets, or ownership interests, are 
     held only for such a period of time as will permit the sale 
     or disposition thereof on a reasonable basis consistent with 
     the nature of the activities described in clause (ii); and
       ``(iv) during the period such shares, assets, or ownership 
     interests are held, the bank holding company does not 
     actively participate in the day to day management or 
     operation of such company or entity, except insofar as 
     necessary to achieve the objectives of clause (ii).
       ``(I) Directly or indirectly acquiring or controlling, 
     whether as principal, on behalf of 1 or more entities 
     (including entities, other than a depository institution or 
     subsidiary of a depository institution, that the bank holding 
     company controls) or otherwise, shares, assets, or ownership 
     interests (including without limitation debt or equity 
     securities, partnership interests, trust certificates or 
     other instruments representing ownership) of a company or 
     other entity, whether or not constituting control of such 
     company or entity, engaged in any activity not authorized 
     pursuant to this section if--
       ``(i) the shares, assets, or ownership interests are not 
     acquired or held by a depository institution or a subsidiary 
     of a depository institution;
       ``(ii) such shares, assets, or ownership interests are 
     acquired and held by an insurance company that is 
     predominantly engaged in

[[Page H3146]]

     underwriting life, accident and health, or property and 
     casualty insurance (other than credit-related insurance);
       ``(iii) such shares, assets, or ownership interests 
     represent an investment made in the ordinary course of 
     business of such insurance company in accordance with 
     relevant State law governing such investments; and
       ``(iv) during the period such shares, assets, or ownership 
     interests are held, the bank holding company does not 
     directly or indirectly participate in the day-to-day 
     management or operation of the company or entity except 
     insofar as necessary to achieve the objectives of clauses 
     (ii) and (iii).
       ``(4) Actions required.--The Board shall, by regulation or 
     order, define, consistent with the purposes of this Act, the 
     following activities as, and the extent to which such 
     activities are, financial in nature or incidental to 
     activities which are financial in nature:
       ``(A) Lending, exchanging, transferring, investing for 
     others, or safeguarding financial assets other than money or 
     securities.
       ``(B) Providing any device or other instrumentality for 
     transferring money or other financial assets;
       ``(C) Arranging, effecting, or facilitating financial 
     transactions for the account of third parties.
       ``(5) Post consummation notification.--
       ``(A) In general.--A financial holding company and a 
     wholesale financial holding company that acquires any 
     company, or commences any activity, pursuant to this 
     subsection shall provide written notice to the Board 
     describing the activity commenced or conducted by the company 
     acquired no later than 30 calendar days after commencing the 
     activity or consummating the acquisition.
       ``(B) Approval not required for certain financial 
     activities.--Except as provided in section 4(j) with regard 
     to the acquisition of a savings association, a financial 
     holding company and a wholesale financial holding company may 
     commence any activity, or acquire any company, pursuant to 
     paragraph (3) or any regulation prescribed or order issued 
     under paragraph (4), without prior approval of the Board.
       ``(d) Provisions Applicable to Financial Holding Companies 
     That Fail To Meet Requirements.--
       ``(1) In general.--If the Board finds that a financial 
     holding company is not in compliance with the requirements of 
     subparagraph (A), (B), or (C) of subsection (b)(1), the Board 
     shall give notice of such finding to the company.
       ``(2) Agreement to correct conditions required.--Within 45 
     days of receipt by a financial holding company of a notice 
     given under paragraph (1) (or such additional period as the 
     Board may permit), the company shall execute an agreement 
     acceptable to the Board to comply with the requirements 
     applicable to a financial holding company.
       ``(3) Board may impose limitations.--Until the conditions 
     described in a notice to a financial holding company under 
     paragraph (1) are corrected, the Board may impose such 
     limitations on the conduct or activities of the company or 
     any affiliate of the company as the Board determines to be 
     appropriate under the circumstances.
       ``(4) Failure to correct.--If, after receiving a notice 
     under paragraph (1), a financial holding company does not--
       ``(A) execute and implement an agreement in accordance with 
     paragraph (2);
       ``(B) comply with any limitations imposed under paragraph 
     (3);
       ``(C) in the case of a notice of failure to comply with 
     subsection (b)(1)(A), restore each depository institution 
     subsidiary to well capitalized status before the end of the 
     180-day period beginning on the date such notice is received 
     by the company (or such other period permitted by the Board); 
     or
       ``(D) in the case of a notice of failure to comply with 
     subparagraph (B) or (C) of subsection (b)(1), restore 
     compliance with any such subparagraph by the date the next 
     examination of the depository institution subsidiary is 
     completed or by the end of such other period as the Board 
     determines to be appropriate,
     the Board may require such company, under such terms and 
     conditions as may be imposed by the Board and subject to such 
     extension of time as may be granted in the Board's 
     discretion, to divest control of any depository institution 
     subsidiary or, at the election of the financial holding 
     company, instead to cease to engage in any activity conducted 
     by such company or its subsidiaries pursuant to this section.
       ``(5) Consultation.--In taking any action under this 
     subsection, the Board shall consult with all relevant Federal 
     and State regulatory agencies.
       ``(e) Safeguards for Bank Subsidiaries.--A financial 
     holding company shall assure that--
       ``(1) the procedures of the holding company for identifying 
     and managing financial and operational risks within the 
     company, and the subsidiaries of such company, adequately 
     protect the subsidiaries of such company which are insured 
     depository institutions from such risks;
       ``(2) the holding company has reasonable policies and 
     procedures to preserve the separate corporate identity and 
     limited liability of such company and the subsidiaries of 
     such company, for the protection of the company's subsidiary 
     insured depository institutions; and
       ``(3) the holding company complies with this section.
       ``(f) Nonfinancial Activities.--
       ``(1) In general.--Notwithstanding section 4(a), a 
     financial holding company may engage in activities which are 
     not (or have not been determined to be) financial in nature 
     or incidental to activities which are financial in nature, or 
     acquire and retain ownership and control of the shares of a 
     company engaged in such activities, if--
       ``(A) the aggregate annual gross revenues derived from all 
     such activities and all such companies does not exceed the 
     lesser of--
       ``(i) 5 percent of the consolidated annual gross revenues 
     of the financial holding company; or
       ``(ii) $500,000,000;
       ``(B) the consolidated total assets of any company the 
     shares of which are acquired by the financial holding company 
     pursuant to this paragraph are less than $750,000,000 at the 
     time the shares are acquired by the holding company; and
       ``(C) the holding company provides notice to the Board 
     within 30 days of commencing the activity or acquiring the 
     ownership or control.
       ``(2) Inclusion of grandfathered activities.--For purposes 
     of determining the limits contained in paragraph (1)(A), the 
     gross revenues derived from all activities conducted, and 
     companies the shares of which are held, under subsection (g) 
     shall be considered to be derived or held under this 
     subsection.
       ``(3) Foreign banks.--In lieu of the limitation contained 
     in paragraph (1)(A) in the case of a foreign bank or a 
     company that owns or controls a foreign bank which engages in 
     any activity or acquires or retains ownership or control of 
     shares of any company pursuant to paragraph (1), the 
     aggregate annual gross revenues derived from all such 
     activities and all such companies in the United States shall 
     not exceed the lesser of--
       ``(A) 5 percent of the consolidated annual gross revenues 
     of the foreign bank or company in the United States derived 
     from any branch, agency, commercial lending company, or 
     depository institution controlled by the foreign bank or 
     company and any subsidiary engaged in the United States in 
     activities permissible under section 4 or 6; or
       ``(B) $500,000,000.
       ``(4) Indexing revenue test.--After December 31, 1998, the 
     Board shall annually adjust the dollar amount contained in 
     paragraphs (1)(A) and (3) by the annual percentage increase 
     in the Consumer Price Index for Urban Wage Earners and 
     Clerical Workers published by the Bureau of Labor Statistics.
       ``(5) Nonapplicability of other exemption.--Any foreign 
     bank or company that owns or controls a foreign bank which 
     engages in any activity or acquires or retains ownership or 
     control of shares of any company pursuant to this subsection 
     shall not be eligible for any exception described in section 
     2(h).
       ``(g) Authority To Retain Limited Nonfinancial Activities 
     and Affiliations.--
       ``(1) In general.--Notwithstanding subsection (f)(1) and 
     section 4(a), a company that is not a bank holding company or 
     a foreign bank (as defined in section 1(b)(7) of the 
     International Banking Act of 1978) and becomes a financial 
     holding company after the date of the enactment of the 
     Financial Services Act of 1998 may continue to engage in any 
     activity and retain direct or indirect ownership or control 
     of shares of a company engaged in any activity if--
       ``(A) the holding company lawfully was engaged in the 
     activity or held the shares of such company on September 30, 
     1997;
       ``(B) the holding company is predominantly engaged in 
     financial activities as defined in paragraph (2); and
       ``(C) the company engaged in such activity continues to 
     engage only in the same activities that such company 
     conducted on September 30, 1997, and other activities 
     permissible under this Act.
       ``(2) Predominantly financial.--For purposes of this 
     subsection, a company is predominantly engaged in financial 
     activities if, as of the day before the company becomes a 
     financial holding company, the annual gross revenues derived 
     by the holding company and all subsidiaries of the holding 
     company, on a consolidated basis, from engaging in activities 
     that are financial in nature or are incidental to activities 
     that are financial in nature under subsection (c) represent 
     at least 85 percent of the consolidated annual gross revenues 
     of the company.
       ``(3) No expansion of grandfathered commercial activities 
     through merger or consolidation.--A financial holding company 
     that engages in activities or holds shares pursuant to this 
     subsection, or a subsidiary of such financial holding 
     company, may not acquire, in any merger, consolidation, or 
     other type of business combination, assets of any other 
     company which is engaged in any activity which the Board has 
     not determined to be financial in nature or incidental to 
     activities that are financial in nature under subsection (c).
       ``(4) Continuing revenue limitation on grandfathered 
     commercial activities.--Notwithstanding any other provision 
     of this subsection, a financial holding company may continue 
     to engage in activities or hold shares in companies pursuant 
     to this subsection only to the extent that the aggregate 
     annual gross revenues derived from all such activities and 
     all such companies does not exceed 15 percent of the 
     consolidated annual gross revenues of the financial holding 
     company.

[[Page H3147]]

       ``(5) Cross marketing restrictions applicable to commercial 
     activities.--A depository institution controlled by a 
     financial holding company shall not--
       ``(A) offer or market, directly or through any arrangement, 
     any product or service of a company whose activities are 
     conducted or whose shares are owned or controlled by the 
     financial holding company pursuant to this subsection, 
     subsection (f), or subparagraph (H) or (I) of subsection 
     (c)(3); or
       ``(B) permit any of its products or services to be offered 
     or marketed, directly or through any arrangement, by or 
     through any company described in subparagraph (A).
       ``(6) Transactions with nonfinancial affiliates.--An 
     insured depository institution controlled by a financial 
     holding company may not engage in a covered transaction (as 
     defined by section 23A(b)(7) of the Federal Reserve Act) with 
     any affiliate controlled by the company pursuant to this 
     subsection, subsection (f), or subparagraph (H) or (I) of 
     subsection (c)(3).
       ``(h) Developing Activities.--A financial holding company 
     and a wholesale financial holding company may engage directly 
     or indirectly, or acquire shares of any company engaged, in 
     any activity that the Board has not determined to be 
     financial in nature or incidental to financial activities 
     under subsection (c) if--
       ``(1) the holding company reasonably concludes that the 
     activity is financial in nature or incidental to financial 
     activities;
       ``(2) the gross revenues from all activities conducted 
     under this subsection represent less than 5 percent of the 
     consolidated gross revenues of the holding company;
       ``(3) the aggregate total assets of all companies the 
     shares of which are held under this subsection do not exceed 
     5 percent of the holding company's consolidated total assets;
       ``(4) the total capital invested in activities conducted 
     under this subsection represents less than 5 percent of the 
     consolidated total capital of the holding company;
       ``(5) the Board has not determined that the activity is not 
     financial in nature or incidental to financial activities 
     under subsection (c); and
       ``(6) the holding company provides written notification to 
     the Board describing the activity commenced or conducted by 
     the company acquired no later than 10 business days after 
     commencing the activity or consummating the acquisition.''.

     SEC. 104. CERTAIN STATE LAWS PREEMPTED.

       (a) Affiliations.--No State may by statute, regulation, 
     order, interpretation, or otherwise, prevent or restrict an 
     insured depository institution or a wholesale financial 
     institution from being affiliated with an entity (including 
     an entity engaged in insurance activities) as authorized by 
     this Act or any other provision of Federal law.
       (b) Activities--.
       (1) Except as provided in paragraphs (2) and (3) and 
     subject to section 18(c) of the Securities Act of 1933, no 
     State may by statute, regulation, order, interpretation, or 
     otherwise, prevent or restrict an insured depository 
     institution or a wholesale financial institution from 
     engaging, directly or indirectly or in conjunction with an 
     affiliate, in any activity authorized under this Act or any 
     other provision of Federal law.
       (2) As stated by the United States Supreme Court in Barnett 
     Bank of Marion County, N.A. v. Nelson, 116 S.Ct. 1103 (1996), 
     no State may, by statute, regulation, order, interpretation, 
     or otherwise, prevent or significantly interfere with the 
     ability of an insured depository institution or wholesale 
     financial institution to engage, directly or indirectly, or 
     in conjunction with an affiliate, in any insurance sales or 
     solicitation activity, except that--
       (A) State statutes and regulations governing insurance 
     sales and solicitations which are no more restrictive than 
     provisions in the Illinois ``Act Authorizing and Regulating 
     the Sale of Insurance by Financial Institutions, Public Act 
     90-41'' (215 ILCS 5/1400-1416), as in effect on October 1, 
     1997, shall not be deemed to prevent or significantly 
     interfere with the ability of an insured depository 
     institution or wholesale financial institution to engage, 
     directly or indirectly, or in conjunction with an affiliate, 
     in any insurance sales or solicitation activity; and
       (B) subparagraph (A) shall not create any inference 
     regarding State statutes, and regulations governing insurance 
     sales and solicitations which are more restrictive than any 
     provision in the Illinois ``Act Authorizing and Regulating 
     the Sale of Insurance by Financial Institutions'', (Public 
     Act 90-41; 215 ILCS 5/1400-1416), as in effect on October 1, 
     1997.
       (3) State statutes, regulations, orders, and 
     interpretations which are applicable to and are applied in 
     the same manner with respect to insurance underwriting 
     activities of an affiliate of an insured depository 
     institution or a wholesale financial institution as they are 
     applicable to and are applied to an insurance underwriter 
     which is not affiliated with an insured depository 
     institution or a wholesale financial institution shall not be 
     preempted under paragraph (1).

     SEC. 105. MUTUAL BANK HOLDING COMPANIES AUTHORIZED.

       (a) In General.--Section 3(g)(2) of the Bank Holding 
     Company Act of 1956 (12 U.S.C. 1842(g)(2)) is amended to read 
     as follows:
       ``(2) Regulations.--A bank holding company organized as a 
     mutual holding company shall be regulated on terms, and shall 
     be subject to limitations, comparable to those applicable to 
     any other bank holding company.''.

     SEC. 106. PROHIBITION ON DEPOSIT PRODUCTION OFFICES.

       (a) In General.--Section 109(d) of the Riegle-Neal 
     Interstate Banking and Branching Efficiency Act of 1994 (12 
     U.S.C. 1835a(d)) is amended--
       (1) by inserting ``, the Financial Services Act of 1998,'' 
     after ``pursuant to this title''; and
       (2) by inserting ``or such Act'' after ``made by this 
     title''.
       (b) Technical and Conforming Amendment.--Section 109(e)(4) 
     of the Riegle-Neal Interstate Banking and Branching 
     Efficiency Act of 1994 (12 U.S.C. 1835a(e)(4)) is amended by 
     inserting ``and any branch of a bank controlled by an out-of-
     State bank holding company (as defined in section 2(o)(7) of 
     the Bank Holding Company Act of 1956)'' before the period.

     SEC. 107. CLARIFICATION OF BRANCH CLOSURE REQUIREMENTS.

       Section 42(d)(4)(A) of the Federal Deposit Insurance Act 
     (12 U.S.C. 1831r-1(d)(4)(A)) is amended by inserting ``and 
     any bank controlled by an out-of-State bank holding company 
     (as defined in section 2(o)(7) of the Bank Holding Company 
     Act of 1956)'' before the period.

     SEC. 108. AMENDMENTS RELATING TO LIMITED PURPOSE BANKS.

       Section 4(f) of the Bank Holding Company Act of 1956 (12 
     U.S.C. 1843(f)) is amended--
       (1) in paragraph (2)(A)(ii)--
       (A) by striking ``and'' at the end of subclause (IX);
       (B) by inserting ``and'' after the semicolon at the end of 
     subclause (X); and
       (C) by inserting after subclause (X) the following new 
     subclause:

       ``(XI) assets that are derived from, or are incidental to, 
     activities in which institutions described in section 
     2(c)(2)(F) are permitted to engage,'';

       (2) in paragraph (2), by striking subparagraph (B) and 
     inserting the following new subparagraphs:
       ``(B) any bank subsidiary of such company engages in any 
     activity in which the bank was not lawfully engaged as of 
     March 5, 1987, unless the bank is well managed and well 
     capitalized;
       ``(C) any bank subsidiary of such company both--
       ``(i) accepts demand deposits or deposits that the 
     depositor may withdraw by check or similar means for payment 
     to third parties; and
       ``(ii) engages in the business of making commercial loans 
     (and, for purposes of this clause, loans made in the ordinary 
     course of a credit card operation shall not be treated as 
     commercial loans); or
       ``(D) after the date of the enactment of the Competitive 
     Equality Amendments of 1987, any bank subsidiary of such 
     company permits any overdraft (including any intraday 
     overdraft), or incurs any such overdraft in such bank's 
     account at a Federal reserve bank, on behalf of an affiliate, 
     other than an overdraft described in paragraph (3).''; and
       (3) by striking paragraphs (3) and (4) and inserting the 
     following new paragraphs:
       ``(3) Permissible overdrafts described.--For purposes of 
     paragraph (2)(D), an overdraft is described in this paragraph 
     if--
       ``(A) such overdraft results from an inadvertent computer 
     or accounting error that is beyond the control of both the 
     bank and the affiliate; or
       ``(B) such overdraft--
       ``(i) is permitted or incurred on behalf of an affiliate 
     which is monitored by, reports to, and is recognized as a 
     primary dealer by the Federal Reserve Bank of New York; and
       ``(ii) is fully secured, as required by the Board, by 
     bonds, notes, or other obligations which are direct 
     obligations of the United States or on which the principal 
     and interest are fully guaranteed by the United States or by 
     securities and obligations eligible for settlement on the 
     Federal Reserve book entry system.
       ``(4) Divestiture in case of loss of exemption.--If any 
     company described in paragraph (1) fails to qualify for the 
     exemption provided under such paragraph by operation of 
     paragraph (2), such exemption shall cease to apply to such 
     company and such company shall divest control of each bank it 
     controls before the end of the 180-day period beginning on 
     the date that the company receives notice from the Board that 
     the company has failed to continue to qualify for such 
     exemption, unless before the end of such 180-day period, the 
     company has--
       ``(A) corrected the condition or ceased the activity that 
     caused the company to fail to continue to qualify for the 
     exemption; and
       ``(B) implemented procedures that are reasonably adapted to 
     avoid the reoccurrence of such condition or activity.''.

  Subtitle B--Streamlining Supervision of Financial Holding Companies

     SEC. 111. STREAMLINING FINANCIAL HOLDING COMPANY SUPERVISION.

       Section 5(c) of the Bank Holding Company Act of 1956 (12 
     U.S.C. 1844(c)) is amended to read as follows:
       ``(c) Reports and Examinations.--
       ``(1) Reports.--
       ``(A) In general.--The Board from time to time may require 
     any bank holding company and any subsidiary of such company 
     to submit reports under oath to keep the Board informed as 
     to--
       ``(i) its financial condition, systems for monitoring and 
     controlling financial and operating risks, and transactions 
     with depository institution subsidiaries of the holding 
     company; and

[[Page H3148]]

       ``(ii) compliance by the company or subsidiary with 
     applicable provisions of this Act.
       ``(B) Use of existing reports.--
       ``(i) In general.--The Board shall, to the fullest extent 
     possible, accept reports in fulfillment of the Board's 
     reporting requirements under this paragraph that a bank 
     holding company or any subsidiary of such company has 
     provided or been required to provide to other Federal and 
     State supervisors or to appropriate self-regulatory 
     organizations.
       ``(ii) Availability.--A bank holding company or a 
     subsidiary of such company shall provide to the Board, at the 
     request of the Board, a report referred to in clause (i).
       ``(iii) Required use of publicly reported information.--The 
     Board shall, to the fullest extent possible, accept in 
     fulfillment of any reporting or recordkeeping requirements 
     under this Act information that is otherwise required to be 
     reported publicly and externally audited financial 
     statements.
       ``(iv) Reports filed with other agencies.--In the event the 
     Board requires a report from a functionally regulated 
     nondepository institution subsidiary of a bank holding 
     company of a kind that is not required by another Federal or 
     State regulator or appropriate self-regulatory organization, 
     the Board shall request that the appropriate regulator or 
     self-regulatory organization obtain such report. If the 
     report is not made available to the Board, and the report is 
     necessary to assess a material risk to the bank holding 
     company or its subsidiary depository institution or 
     compliance with this Act, the Board may require such 
     subsidiary to provide such a report to the Board.
       ``(C) Definition.--For purposes of this subsection, the 
     term `functionally regulated nondepository institution' 
     means--
       ``(i) a broker or dealer registered under the Securities 
     Exchange Act of 1934;
       ``(ii) an investment adviser registered under the 
     Investment Advisers Act of 1940, with respect to the 
     investment advisory activities of such investment adviser and 
     activities incidental to such investment advisory activities;
       ``(iii) an insurance company subject to supervision by a 
     State insurance commission, agency, or similar authority; and
       ``(iv) an entity subject to regulation by the Commodity 
     Futures Trading Commission, with respect to the commodities 
     activities of such entity and activities incidental to such 
     commodities activities.
       ``(2) Examinations.--
       ``(A) Examination authority.--
       ``(i) In general.--The Board may make examinations of each 
     bank holding company and each subsidiary of a bank holding 
     company.
       ``(ii) Functionally regulated nondepository institution 
     subsidiaries.--Notwithstanding clause (i), the Board may make 
     examinations of a functionally regulated nondepository 
     institution subsidiary of a bank holding company only if--

       ``(I) the Board has reasonable cause to believe that such 
     subsidiary is engaged in activities that pose a material risk 
     to an affiliated depository institution, or
       ``(II) based on reports and other available information, 
     the Board has reasonable cause to believe that a subsidiary 
     is not in compliance with this Act or with provisions 
     relating to transactions with an affiliated depository 
     institution and the Board cannot make such determination 
     through examination of the affiliated depository institution 
     or bank holding company.

       ``(B) Limitations on examination authority for bank holding 
     companies and subsidiaries.--Subject to subparagraph (A)(ii), 
     the Board may make examinations under subparagraph (A)(i) of 
     each bank holding company and each subsidiary of such holding 
     company in order to--
       ``(i) inform the Board of the nature of the operations and 
     financial condition of the holding company and such 
     subsidiaries;
       ``(ii) inform the Board of--

       ``(I) the financial and operational risks within the 
     holding company system that may pose a threat to the safety 
     and soundness of any subsidiary depository institution of 
     such holding company; and
       ``(II) the systems for monitoring and controlling such 
     risks; and

       ``(iii) monitor compliance with the provisions of this Act 
     and those governing transactions and relationships between 
     any subsidiary depository institution and its affiliates.
       ``(C) Restricted focus of examinations.--The Board shall, 
     to the fullest extent possible, limit the focus and scope of 
     any examination of a bank holding company to--
       ``(i) the bank holding company; and
       ``(ii) any subsidiary of the holding company that, because 
     of--

       ``(I) the size, condition, or activities of the subsidiary;
       ``(II) the nature or size of transactions between such 
     subsidiary and any depository institution which is also a 
     subsidiary of such holding company; or
       ``(III) the centralization of functions within the holding 
     company system,

     could have a materially adverse effect on the safety and 
     soundness of any depository institution affiliate of the 
     holding company.
       ``(D) Deference to bank examinations.--The Board shall, to 
     the fullest extent possible, use, for the purposes of this 
     paragraph, the reports of examinations of depository 
     institutions made by the appropriate Federal and State 
     depository institution supervisory authority.
       ``(E) Deference to other examinations.--The Board shall, to 
     the fullest extent possible, address the circumstances which 
     might otherwise permit or require an examination by the Board 
     by forgoing an examination and instead reviewing the reports 
     of examination made of--
       ``(i) any registered broker or dealer or registered 
     investment adviser by or on behalf of the Securities and 
     Exchange Commission;
       ``(ii) any licensed insurance company by or on behalf of 
     any state regulatory authority responsible for the 
     supervision of insurance companies; and
       ``(iii) any other subsidiary that the Board finds to be 
     comprehensively supervised by a Federal or State authority.
       ``(3) Capital.--
       ``(A) In general.--The Board shall not, by regulation, 
     guideline, order or otherwise, prescribe or impose any 
     capital or capital adequacy rules, guidelines, standards, or 
     requirements on any subsidiary of a financial holding company 
     that is not a depository institution and--
       ``(i) is in compliance with applicable capital requirements 
     of another Federal regulatory authority (including the 
     Securities and Exchange Commission) or State insurance 
     authority; or
       ``(ii) is registered as an investment adviser under the 
     Investment Advisers Act of 1940.
       ``(B) Rule of construction.--Subparagraph (A) shall not be 
     construed as preventing the Board from imposing capital or 
     capital adequacy rules, guidelines, standards, or 
     requirements with respect to activities of a registered 
     investment adviser other than investment advisory activities 
     or activities incidental to investment advisory activities.
       ``(4) Transfer of board authority to appropriate federal 
     banking agency.--
       ``(A) In general.--In the case of any bank holding company 
     which is not significantly engaged in nonbanking activities, 
     the Board, in consultation with the appropriate Federal 
     banking agency, may designate the appropriate Federal banking 
     agency of the lead insured depository institution subsidiary 
     of such holding company as the appropriate Federal banking 
     agency for the bank holding company.
       ``(B) Authority transferred.--An agency designated by the 
     Board under subparagraph (A) shall have the same authority as 
     the Board under this Act to--
       ``(i) examine and require reports from the bank holding 
     company and any affiliate of such company (other than a 
     depository institution) under section 5;
       ``(ii) approve or disapprove applications or transactions 
     under section 3;
       ``(iii) take actions and impose penalties under subsections 
     (e) and (f) of section 5 and section 8; and
       ``(iv) take actions regarding the holding company, any 
     affiliate of the holding company (other than a depository 
     institution), or any institution-affiliated party of such 
     company or affiliate under the Federal Deposit Insurance Act 
     and any other statute which the Board may designate.
       ``(C) Agency orders.--Section 9 (of this Act) and section 
     105 of the Bank Holding Company Act Amendments of 1970 shall 
     apply to orders issued by an agency designated under 
     subparagraph (A) in the same manner such sections apply to 
     orders issued by the Board.
       ``(5) Functional regulation of securities and insurance 
     activities.--The Board shall defer to--
       ``(A) the Securities and Exchange Commission with regard to 
     all interpretations of, and the enforcement of, applicable 
     Federal securities laws relating to the activities, conduct, 
     and operations of registered brokers, dealers, investment 
     advisers, and investment companies; and
       ``(B) the relevant State insurance authorities with regard 
     to all interpretations of, and the enforcement of, applicable 
     State insurance laws relating to the activities, conduct, and 
     operations of insurance companies and insurance agents.''.

     SEC. 112. ELIMINATION OF APPLICATION REQUIREMENT FOR 
                   FINANCIAL HOLDING COMPANIES.

       (a) Prevention of Duplicative Filings.--Section 5(a) of the 
     Bank Holding Company Act of 1956 (12 U.S.C. 1844(a)) is 
     amended by adding the following new sentence at the end: ``A 
     declaration filed in accordance with section 6(b)(1)(E) shall 
     satisfy the requirements of this subsection with regard to 
     the registration of a bank holding company but not any 
     requirement to file an application to acquire a bank pursuant 
     to section 3.''.
       (b) Divestiture Procedures.--Section 5(e)(1) of the Bank 
     Holding Company Act of 1956 (12 U.S.C. 1844(e)(1)) is 
     amended--
       (1) by striking ``Financial Institutions Supervisory Act of 
     1966, order'' and inserting ``Financial Institutions 
     Supervisory Act of 1966, at the election of the bank holding 
     company--
       ``(A) order''; and
       (2) by striking ``shareholders of the bank holding company. 
     Such distribution'' and inserting ``shareholders of the bank 
     holding company; or
       ``(B) order the bank holding company, after due notice and 
     opportunity for hearing, and after consultation with the 
     bank's primary supervisor, which shall be the Comptroller of 
     the Currency in the case of a national bank, and the Federal 
     Deposit Insurance Corporation and the appropriate State 
     supervisor in the case of an insured nonmember bank, to 
     terminate (within 120 days or such longer period as the Board 
     may direct) the ownership

[[Page H3149]]

     or control of any such bank by such company.
     ``The distribution referred to in subparagraph (A)''.

     SEC. 113. AUTHORITY OF STATE INSURANCE REGULATOR AND 
                   SECURITIES AND EXCHANGE COMMISSION.

       Section 5 of the Bank Holding Company Act of 1956 (12 
     U.S.C. 1844) is amended by adding at the end the following 
     new subsection:
       ``(g) Authority of State Insurance Regulator and the 
     Securities and Exchange Commission.--
       ``(1) In general.--Notwithstanding any other provision of 
     law, any regulation, order, or other action of the Board 
     which requires a bank holding company to provide funds or 
     other assets to a subsidiary insured depository institution 
     shall not be effective nor enforceable if--
       ``(A) such funds or assets are to be provided by--
       ``(i) a bank holding company that is an insurance company 
     or is a broker or dealer registered under the Securities 
     Exchange Act of 1934; or
       ``(ii) an affiliate of the depository institution which is 
     an insurance company or a broker or dealer registered under 
     such Act; and
       ``(B) the State insurance authority for the insurance 
     company or the Securities and Exchange Commission for the 
     registered broker or dealer, as the case may be, determines 
     in writing sent to the holding company and the Board that the 
     holding company shall not provide such funds or assets 
     because such action would have a material adverse effect on 
     the financial condition of the insurance company or the 
     broker or dealer, as the case may be.
       ``(2) Notice to state insurance authority or sec 
     required.--If the Board requires a bank holding company, or 
     an affiliate of a bank holding company, which is an insurance 
     company or a broker or dealer described in paragraph (1)(A) 
     to provide funds or assets to an insured depository 
     institution subsidiary of the holding company pursuant to any 
     regulation, order, or other action of the Board referred to 
     in paragraph (1), the Board shall promptly notify the State 
     insurance authority for the insurance company or the 
     Securities and Exchange Commission, as the case may be, of 
     such requirement.
       ``(3) Divestiture in lieu of other action.--If the Board 
     receives a notice described in paragraph (1)(B) from a State 
     insurance authority or the Securities and Exchange Commission 
     with regard to a bank holding company or affiliate referred 
     to in such paragraph, the Board may order the bank holding 
     company to divest the insured depository institution within 
     180 days of receiving notice or such longer period as the 
     Board determines consistent with the safe and sound operation 
     of the insured depository institution.
       ``(4) Conditions before divestiture.--During the period 
     beginning on the date an order to divest is issued by the 
     Board under paragraph (3) to a bank holding company and 
     ending on the date the divestiture is completed, the Board 
     may impose any conditions or restrictions on the holding 
     company's ownership or operation of the insured depository 
     institution, including restricting or prohibiting 
     transactions between the insured depository institution and 
     any affiliate of the institution, as are appropriate under 
     the circumstances.''.

     SEC. 114. PRUDENTIAL SAFEGUARDS.

       Section 5 of the Bank Holding Company Act of 1956 (12 
     U.S.C. 1844) is amended by inserting after subsection (g) (as 
     added by section 113 of this subtitle) the following new 
     subsection:
       ``(h) Prudential Safeguards.--
       ``(1) In general.--The Board may, by regulation or order, 
     impose restrictions or requirements on relationships or 
     transactions between a depository institution subsidiary of a 
     bank holding company and any affiliate of such depository 
     institution (other than a subsidiary of such institution) 
     which the Board finds is consistent with the public interest, 
     the purposes of this Act, the Financial Services Act of 1998, 
     the Federal Reserve Act, and other Federal law applicable to 
     depository institution subsidiaries of bank holding companies 
     and the standards in paragraph (2).
       ``(2) Standards.--The Board may exercise authority under 
     paragraph (1) if the Board finds that such action will have 
     any of the following effects:
       ``(A) Avoid any significant risk to the safety and 
     soundness of depository institutions or any Federal deposit 
     insurance fund.
       ``(B) Enhance the financial stability of bank holding 
     companies.
       ``(C) Avoid conflicts of interest or other abuses.
       ``(D) Enhance the privacy of customers of depository 
     institutions.
       ``(E) Promote the application of national treatment and 
     equality of competitive opportunity between nonbank 
     affiliates owned or controlled by domestic bank holding 
     companies and nonbank affiliates owned or controlled by 
     foreign banks operating in the United States.
       ``(3) Review.--The Board shall regularly--
       ``(A) review all restrictions or requirements established 
     pursuant to paragraph (1) to determine whether there is a 
     continuing need for any such restriction or requirement to 
     carry out the purposes of the Act, including any purpose 
     described in paragraph (2); and
       ``(B) modify or eliminate any restriction or requirement 
     the Board finds is no longer required for such purposes.''.

     SEC. 115. EXAMINATION OF INVESTMENT COMPANIES.

       (a) Exclusive Commission Authority.--
       (1) In general.--The Commission shall be the sole Federal 
     agency with authority to inspect and examine any registered 
     investment company that is not a bank holding company.
       (2) Prohibition on banking agencies.--A Federal banking 
     agency may not inspect or examine any registered investment 
     company that is not a bank holding company.
       (b) Examination Results and Other Information.--The 
     Commission shall provide to any Federal banking agency, upon 
     request, the results of any examination, reports, records, or 
     other information with respect to any registered investment 
     company to the extent necessary for the agency to carry out 
     its statutory responsibilities.
       (c) Definitions.--For purposes of this section, the 
     following definitions shall apply:
       (1) Bank holding company.--The term ``bank holding 
     company'' has the meaning given to such term in section 2 of 
     the Bank Holding Company Act of 1956.
       (2) Commission.--The term ``Commission'' means the 
     Securities and Exchange Commission.
       (3) Federal banking agency.--The term ``Federal banking 
     agency'' has the meaning given to such term in section 3(z) 
     of the Federal Deposit Insurance Act.
       (4) Registered investment company.--The term ``registered 
     investment company'' means an investment company which is 
     registered with the Commission under the Investment Company 
     Act of 1940.

     SEC. 116. LIMITATION ON RULEMAKING, PRUDENTIAL, SUPERVISORY, 
                   AND ENFORCEMENT AUTHORITY OF THE BOARD.

       The Bank Holding Company Act of 1956 (12 U.S.C. 1841 et 
     seq.) is amended by inserting after section 10 the following 
     new section:

     ``SEC. 10A. LIMITATION ON RULEMAKING, PRUDENTIAL, 
                   SUPERVISORY, AND ENFORCEMENT AUTHORITY OF THE 
                   BOARD.

       ``(a) Limitation on Direct Action.--
       ``(1) In general.--The Board may not prescribe regulations, 
     issue or seek entry of orders, impose restraints, 
     restrictions, guidelines, requirements, safeguards, or 
     standards, or otherwise take any action under or pursuant to 
     any provision of this Act or section 8 of the Federal Deposit 
     Insurance Act against or with respect to a regulated 
     subsidiary of a bank holding company unless the action is 
     necessary to prevent or redress an unsafe or unsound practice 
     or breach of fiduciary duty by such subsidiary that poses a 
     material risk to--
       ``(A) the financial safety, soundness, or stability of an 
     affiliated depository institution; or
       ``(B) the domestic or international payment system.
       ``(2) Criteria for board action.--The Board shall not take 
     action otherwise permitted under paragraph (1) unless the 
     Board finds that it is not reasonably possible to effectively 
     protect against the material risk at issue through action 
     directed at or against the affiliated depository institution 
     or against depository institutions generally.
       ``(b) Limitation on Indirect Action.--The Board may not 
     prescribe regulations, issue or seek entry of orders, impose 
     restraints, restrictions, guidelines, requirements, 
     safeguards, or standards, or otherwise take any action under 
     or pursuant to any provision of this Act or section 8 of the 
     Federal Deposit Insurance Act against or with respect to a 
     financial holding company or a wholesale financial holding 
     company where the purpose or effect of doing so would be to 
     take action indirectly against or with respect to a regulated 
     subsidiary that may not be taken directly against or with 
     respect to such subsidiary in accordance with subsection (a).
       ``(c) Actions Specifically Authorized.--Notwithstanding 
     subsection (a), the Board may take action under this Act or 
     section 8 of the Federal Deposit Insurance Act to enforce 
     compliance by a regulated subsidiary with Federal law that 
     the Board has specific jurisdiction to enforce against such 
     subsidiary.
       ``(d) Regulated Subsidiary Defined.--For purposes of this 
     section, the term `regulated subsidiary' means any company 
     that is not a bank holding company and is--
       ``(1) a broker or dealer registered under the Securities 
     Exchange Act of 1934;
       ``(2) an investment adviser registered under the Investment 
     Advisers Act of 1940, with respect to the investment advisory 
     activities of such investment adviser and activities 
     incidental to such investment advisory activities;
       ``(3) an investment company registered under the Investment 
     Company Act of 1940;
       ``(4) an insurance company or an insurance agency subject 
     to supervision by a State insurance commission, agency, or 
     similar authority; or
       ``(5) an entity subject to regulation by the Commodity 
     Futures Trading Commission, with respect to the commodities 
     activities of such entity and activities incidental to such 
     commodities activities.''.

[[Page H3150]]

               Subtitle C--Subsidiaries of National Banks

     SEC. 121. PERMISSIBLE ACTIVITIES FOR SUBSIDIARIES OF NATIONAL 
                   BANKS.

       (a) Financial Subsidiaries of National Banks.--Chapter one 
     of title LXII of the Revised Statutes of United States (12 
     U.S.C. 21 et seq.) is amended--
       (1) by redesignating section 5136A as section 5136C; and
       (2) by inserting after section 5136 (12 U.S.C. 24) the 
     following new section:

     ``SEC. 5136A. SUBSIDIARIES OF NATIONAL BANKS.

       ``(a) Subsidiaries of National Banks Authorized To Engage 
     in Financial Activities.--
       ``(1) Exclusive authority.--No provision of section 5136 or 
     any other provision of this title LXII of the Revised 
     Statutes shall be construed as authorizing a subsidiary of a 
     national bank to engage in, or own any share of or any other 
     interest in any company engaged in, any activity that--
       ``(A) is not permissible for a national bank to engage in 
     directly; or
       ``(B) is conducted under terms or conditions other than 
     those that would govern the conduct of such activity by a 
     national bank,
     unless a national bank is specifically authorized by the 
     express terms of a Federal statute and not by implication or 
     interpretation to acquire shares of or an interest in, or to 
     control, such subsidiary, such as by paragraph (2) of this 
     subsection and section 25A of the Federal Reserve Act.
       ``(2) Specific authorization to conduct agency activities 
     which are financial in nature.--A national bank may control a 
     company that engages in agency activities that have been 
     determined to be financial in nature or incidental to such 
     financial activities pursuant to and in accordance with 
     section 6(c) of the Bank Holding Company Act of 1956 if--
       ``(A) the company engages in such activities solely as 
     agent and not directly or indirectly as principal,
       ``(B) the national bank is well capitalized and well 
     managed, and has achieved a rating of satisfactory or better 
     at the most recent examination of the bank under the 
     Community Reinvestment Act of 1977;
       ``(C) all depository institution affiliates of the national 
     bank are well capitalized and well managed, and have achieved 
     a rating of satisfactory or better at the most recent 
     examination of each such depository institution under the 
     Community Reinvestment Act of 1977; and
       ``(D) the bank has received the approval of the Comptroller 
     of the Currency.
       ``(3) Definitions.--
       ``(A) Company; control; subsidiary.--The terms `company', 
     `control', and `subsidiary' have the meanings given to such 
     terms in section 2 of the Bank Holding Company Act of 1956.
       ``(B) Well capitalized.--The term `well capitalized' has 
     the same meaning as in section 38 of the Federal Deposit 
     Insurance Act and, for purposes of this section, the 
     Comptroller shall have exclusive jurisdiction to determine 
     whether a national bank is well capitalized.
       ``(C) Well managed.--The term `well managed' means--
       ``(i) in the case of a bank that has been examined, unless 
     otherwise determined in writing by the Comptroller--

       ``(I) the achievement of a composite rating of 1 or 2 under 
     the Uniform Financial Institutions Rating System (or an 
     equivalent rating under an equivalent rating system) in 
     connection with the most recent examination or subsequent 
     review of the bank; and
       ``(II) at least a rating of 2 for management, if that 
     rating is given; or

       ``(ii) in the case of any national bank that has not been 
     examined, the existence and use of managerial resources that 
     the Comptroller determines are satisfactory.
       ``(b) Limited Exclusions From Community Needs Requirements 
     for Newly Acquired Depository Institutions.--Any depository 
     institution which becomes affiliated with a national bank 
     during the 24-month period preceding the submission of an 
     application to acquire a subsidiary under subsection (a)(2), 
     and any depository institution which becomes so affiliated 
     after the approval of such application, may be excluded for 
     purposes of subsection (a)(2)(B) during the 24-month period 
     beginning on the date of such acquisition if--
       ``(1) the depository institution has submitted an 
     affirmative plan to the appropriate Federal banking agency 
     (as defined in section 3 of the Federal Deposit Insurance 
     Act) to take such action as may be necessary in order for 
     such institution to achieve a `satisfactory record of meeting 
     community credit needs', or better, at the next examination 
     of the institution under the Community Reinvestment Act of 
     1977; and
       ``(2) the plan has been approved by the appropriate Federal 
     banking agency.''.
       (b) Limitation on Certain Activities in Subsidiaries.--
     Section 21(a)(1) of the Banking Act of 1933 (12 U.S.C. 
     378(a)(1)) is amended--
       (1) by inserting ``, or to be a subsidiary of any person, 
     firm, corporation, association, business trust, or similar 
     organization engaged (unless such subsidiary (A) was engaged 
     in such securities activities as of September 15, 1997, or 
     (B) is a nondepository subsidiary of a foreign bank and is 
     not also a subsidiary of a domestic depository 
     institution),'' after ``to engage at the same time''; and
       (2) by inserting ``or any subsidiary of such bank, company, 
     or institution'' after ``or private bankers''.
       (c) Technical and Conforming Amendments.--
       (1) Antitying.--Section 106(a) of the Bank Holding Company 
     Act Amendments of 1970 is amended by adding at the end the 
     following new sentence: ``For purposes of this section, a 
     subsidiary of a national bank which engages in activities as 
     an agent pursuant to section 5136A(a)(2) shall be deemed to 
     be a subsidiary of a bank holding company, and not a 
     subsidiary of a bank.''.
       (2) Section 23b.--Section 23B(a) of the Federal Reserve Act 
     (12 U.S.C. 371c-1(a)) is amended by adding at the end the 
     following new paragraph:
       ``(4) Subsidiary of national bank.--For purposes of this 
     section, a subsidiary of a national bank which engages in 
     activities as an agent pursuant to section 5136A(a)(2) shall 
     be deemed to be an affiliate of the national bank and not a 
     subsidiary of the bank.''
       (d) Clerical Amendment.--The table of sections for chapter 
     one of title LXII of the Revised Statutes of the United 
     States is amended--
        (1) by redesignating the item relating to section 5136A as 
     section 5136C; and
        (2) by inserting after the item relating to section 5136 
     the following new item:

``5136A. Financial subsidiaries of national banks.''.

     SEC. 122. MISREPRESENTATIONS REGARDING DEPOSITORY INSTITUTION 
                   LIABILITY FOR OBLIGATIONS OF AFFILIATES.

       (a) In General.--Chapter 47 of title 18, United States 
     Code, is amended by inserting after section 1007 the 
     following new section:

     ``Sec. 1008. Misrepresentations regarding financial 
       institution liability for obligations of affiliates

       ``(a) In General.--No institution-affiliated party of an 
     insured depository institution or institution-affiliated 
     party of a subsidiary or affiliate of an insured depository 
     institution shall fraudulently represent that the institution 
     is or will be liable for any obligation of a subsidiary or 
     other affiliate of the institution.
       ``(b) Criminal Penalty.--Whoever violates subsection (a) 
     shall be fined under this title, imprisoned for not more than 
     1 year, or both.
       ``(c) Institution-Affiliated Party Defined.--For purposes 
     of this section, the term `institution-affiliated party' with 
     respect to a subsidiary or affiliate has the same meaning as 
     in section 3 except references to an insured depository 
     institution shall be deemed to be references to a subsidiary 
     or affiliate of an insured depository institution.
       ``(d) Other Definitions.--For purposes of this section, the 
     terms `affiliate', `insured depository institution', and 
     `subsidiary' have same meanings as in section 3 of the 
     Federal Deposit Insurance Act.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     47 of title 18, United States Code, is amended by inserting 
     after the item relating to section 1007 the following new 
     item:

``1008. Misrepresentations regarding financial institution liability 
              for obligations of affiliates.''.

     SEC. 123. REPEAL OF STOCK LOAN LIMIT IN FEDERAL RESERVE ACT.

       Section 11 of the Federal Reserve Act (12 U.S.C. 248) is 
     amended by striking the paragraph designated as ``(m)'' and 
     inserting ``(m) [Repealed]''.

Subtitle D--Wholesale Financial Holding Companies; Wholesale Financial 
                              Institutions

            CHAPTER 1--WHOLESALE FINANCIAL HOLDING COMPANIES

     SEC. 131. WHOLESALE FINANCIAL HOLDING COMPANIES ESTABLISHED.

       (a) Definition and Supervision.--Section 10 of the Bank 
     Holding Company Act of 1956 (12 U.S.C. 1841 et seq.) is 
     amended to read as follows:

     ``SEC. 10. WHOLESALE FINANCIAL HOLDING COMPANIES.

       ``(a) Companies That Control Wholesale Financial 
     Institutions.--
       ``(1) Wholesale financial holding company defined.--The 
     term `wholesale financial holding company' means any company 
     that--
       ``(A) is registered as a bank holding company;
       ``(B) is predominantly engaged in financial activities as 
     defined in section 6(g)(2);
       ``(C) controls 1 or more wholesale financial institutions;
       ``(D) does not control--
       ``(i) a bank other than a wholesale financial institution;
       ``(ii) an insured bank other than an institution permitted 
     under subparagraph (D), (F), or (G) of section 2(c)(2); or
       ``(iii) a savings association; and
       ``(E) is not a foreign bank (as defined in section 1(b)(7) 
     of the International Banking Act of 1978).
       ``(2) Savings association transition period.--
     Notwithstanding paragraph (1)(C)(iii), the Board may permit a 
     company that controls a savings association and that 
     otherwise meets the requirements of paragraph (1) to become 
     supervised under paragraph (1), if the company divests 
     control of any such savings association within such period 
     not to exceed 5 years after becoming supervised under 
     paragraph (1) as permitted by the Board.
       ``(b) Supervision by the Board.--
       ``(1) In general.--The provisions of this section shall 
     govern the reporting, examination, and capital requirements 
     of wholesale financial holding companies.

[[Page H3151]]

       ``(2) Reports.--
       ``(A) In general.--The Board from time to time may require 
     any wholesale financial holding company and any subsidiary of 
     such company to submit reports under oath to keep the Board 
     informed as to--
       ``(i) the company's or subsidiary's activities, financial 
     condition, policies, systems for monitoring and controlling 
     financial and operational risks, and transactions with 
     depository institution subsidiaries of the holding company; 
     and
       ``(ii) the extent to which the company or subsidiary has 
     complied with the provisions of this Act and regulations 
     prescribed and orders issued under this Act.
       ``(B) Use of existing reports.--
       ``(i) In general.--The Board shall, to the fullest extent 
     possible, accept reports in fulfillment of the Board's 
     reporting requirements under this paragraph that the 
     wholesale financial holding company or any subsidiary of such 
     company has provided or been required to provide to other 
     Federal and State supervisors or to appropriate self-
     regulatory organizations.
       ``(ii) Availability.--A wholesale financial holding company 
     or a subsidiary of such company shall provide to the Board, 
     at the request of the Board, a report referred to in clause 
     (i).
       ``(C) Exemptions from reporting requirements.--
       ``(i) In general.--The Board may, by regulation or order, 
     exempt any company or class of companies, under such terms 
     and conditions and for such periods as the Board shall 
     provide in such regulation or order, from the provisions of 
     this paragraph and any regulation prescribed under this 
     paragraph.
       ``(ii) Criteria for consideration.--In making any 
     determination under clause (i) with regard to any exemption 
     under such clause, the Board shall consider, among such other 
     factors as the Board may determine to be appropriate, the 
     following factors:

       ``(I) Whether information of the type required under this 
     paragraph is available from a supervisory agency (as defined 
     in section 1101(7) of the Right to Financial Privacy Act of 
     1978) or a foreign regulatory authority of a similar type.
       ``(II) The primary business of the company.
       ``(III) The nature and extent of the domestic and foreign 
     regulation of the activities of the company.

       ``(3) Examinations.--
       ``(A) Limited use of examination authority.--The Board may 
     make examinations of each wholesale financial holding company 
     and each subsidiary of such company in order to--
       ``(i) inform the Board regarding the nature of the 
     operations and financial condition of the wholesale financial 
     holding company and its subsidiaries;
       ``(ii) inform the Board regarding--

       ``(I) the financial and operational risks within the 
     wholesale financial holding company system that may affect 
     any depository institution owned by such holding company; and
       ``(II) the systems of the holding company and its 
     subsidiaries for monitoring and controlling those risks; and

       ``(iii) monitor compliance with the provisions of this Act 
     and those governing transactions and relationships between 
     any depository institution controlled by the wholesale 
     financial holding company and any of the company's other 
     subsidiaries.
       ``(B) Restricted focus of examinations.--The Board shall, 
     to the fullest extent possible, limit the focus and scope of 
     any examination of a wholesale financial holding company 
     under this paragraph to--
       ``(i) the holding company; and
       ``(ii) any subsidiary (other than an insured depository 
     institution subsidiary) of the holding company that, because 
     of the size, condition, or activities of the subsidiary, the 
     nature or size of transactions between such subsidiary and 
     any affiliated depository institution, or the centralization 
     of functions within the holding company system, could have a 
     materially adverse effect on the safety and soundness of any 
     depository institution affiliate of the holding company.
       ``(C) Deference to bank examinations.--The Board shall, to 
     the fullest extent possible, use the reports of examination 
     of depository institutions made by the Comptroller of the 
     Currency, the Federal Deposit Insurance Corporation, the 
     Director of the Office of Thrift Supervision or the 
     appropriate State depository institution supervisory 
     authority for the purposes of this section.
       ``(D) Deference to other examinations.--The Board shall, to 
     the fullest extent possible, address the circumstances which 
     might otherwise permit or require an examination by the Board 
     by forgoing an examination and by instead reviewing the 
     reports of examination made of--
       ``(i) any registered broker or dealer or any registered 
     investment adviser by or on behalf of the Commission; and
       ``(ii) any licensed insurance company by or on behalf of 
     any State government insurance agency responsible for the 
     supervision of the insurance company.
       ``(E) Confidentiality of reported information.--
       ``(i) In general.--Notwithstanding any other provision of 
     law, the Board shall not be compelled to disclose any 
     nonpublic information required to be reported under this 
     paragraph, or any information supplied to the Board by any 
     domestic or foreign regulatory agency, that relates to the 
     financial or operational condition of any wholesale financial 
     holding company or any subsidiary of such company.
       ``(ii) Compliance with requests for information.--No 
     provision of this subparagraph shall be construed as 
     authorizing the Board to withhold information from the 
     Congress, or preventing the Board from complying with a 
     request for information from any other Federal department or 
     agency for purposes within the scope of such department's or 
     agency's jurisdiction, or from complying with any order of a 
     court of competent jurisdiction in an action brought by the 
     United States or the Board.
       ``(iii) Coordination with other law.--For purposes of 
     section 552 of title 5, United States Code, this subparagraph 
     shall be considered to be a statute described in subsection 
     (b)(3)(B) of such section.
       ``(iv) Designation of confidential information.--In 
     prescribing regulations to carry out the requirements of this 
     subsection, the Board shall designate information described 
     in or obtained pursuant to this paragraph as confidential 
     information.
       ``(F) Costs.--The cost of any examination conducted by the 
     Board under this section may be assessed against, and made 
     payable by, the wholesale financial holding company.
       ``(4) Capital adequacy guidelines.--
       ``(A) Capital adequacy provisions.--Subject to the 
     requirements of, and solely in accordance with, the terms of 
     this paragraph, the Board may adopt capital adequacy rules or 
     guidelines for wholesale financial holding companies.
       ``(B) Method of calculation.--In developing rules or 
     guidelines under this paragraph, the following provisions 
     shall apply:
       ``(i) Focus on double leverage.--The Board shall focus on 
     the use by wholesale financial holding companies of debt and 
     other liabilities to fund capital investments in 
     subsidiaries.
       ``(ii) No unweighted capital ratio.--The Board shall not, 
     by regulation, guideline, order, or otherwise, impose under 
     this section a capital ratio that is not based on appropriate 
     risk-weighting considerations.
       ``(iii) No capital requirement on regulated entities.--The 
     Board shall not, by regulation, guideline, order or 
     otherwise, prescribe or impose any capital or capital 
     adequacy rules, standards, guidelines, or requirements upon 
     any subsidiary that--

       ``(I) is not a depository institution; and
       ``(II) is in compliance with applicable capital 
     requirements of another Federal regulatory authority 
     (including the Securities and Exchange Commission) or State 
     insurance authority.

       ``(iv) Limitation.--The Board shall not, by regulation, 
     guideline, order or otherwise, prescribe or impose any 
     capital or capital adequacy rules, standards, guidelines, or 
     requirements upon any subsidiary that is not a depository 
     institution and that is registered as an investment adviser 
     under the Investment Advisers Act of 1940, except that this 
     clause shall not be construed as preventing the Board from 
     imposing capital or capital adequacy rules, guidelines, 
     standards, or requirements with respect to activities of a 
     registered investment adviser other than investment advisory 
     activities or activities incidental to investment advisory 
     activities.
       ``(v) Appropriate exclusions.--The Board shall take full 
     account of--

       ``(I) the capital requirements made applicable to any 
     subsidiary that is not a depository institution by another 
     Federal regulatory authority or State insurance authority; 
     and
       ``(II) industry norms for capitalization of a company's 
     unregulated subsidiaries and activities.

       ``(vi) Internal risk management models.--The Board may 
     incorporate internal risk management models of wholesale 
     financial holding companies into its capital adequacy 
     guidelines or rules and may take account of the extent to 
     which resources of a subsidiary depository institution may be 
     used to service the debt or other liabilities of the 
     wholesale financial holding company.
       ``(c) Nonfinancial Activities and Investments.--
       ``(1) Authority for limited amounts of new activities and 
     investments.--
       ``(A) In general.--Notwithstanding section 4(a), a 
     wholesale financial holding company may engage in activities 
     which are not (or have not been determined to be) financial 
     in nature or incidental to activities which are financial in 
     nature, or acquire and retain ownership and control of the 
     shares of a company engaged in such activities if--
       ``(i) the aggregate annual gross revenues derived from all 
     such activities and of all such companies does not exceed 5 
     percent of the consolidated annual gross revenues of the 
     wholesale financial holding company or, in the case of a 
     foreign bank or any company that owns or controls a foreign 
     bank, the aggregate annual gross revenues derived from any 
     such activities in the United States does not exceed 5 
     percent of the consolidated annual gross revenues of the 
     foreign bank or company in the United States derived from any 
     branch, agency, commercial lending company, or depository 
     institution controlled by the foreign bank or company and any 
     subsidiary engaged in the United States in activities 
     permissible under section 4 or 6 or this subsection;
       ``(ii) the consolidated total assets of any company the 
     shares of which are acquired pursuant to this subsection are 
     less than $750,000,000 at the time the shares are acquired by 
     the wholesale financial holding company; and

[[Page H3152]]

       ``(iii) such company provides notice to the Board within 30 
     days of commencing the activity or acquiring the ownership or 
     control.
       ``(B) Inclusion of grandfathered activities.--For purposes 
     of determining compliance with the limits contained in 
     subparagraph (A), the gross revenues derived from all 
     activities conducted and companies the shares of which are 
     held under paragraph (2) shall be considered to be derived or 
     held under this paragraph.
       ``(C) Report.--No later than 5 years after the date of 
     enactment of the Financial Services Act of 1998, the Board 
     shall submit to the Congress a report regarding the 
     activities conducted and companies held pursuant to this 
     paragraph and the effect, if any, that affiliations permitted 
     under this paragraph have had on affiliated depository 
     institutions. The report shall include recommendations 
     regarding the appropriateness of retaining, increasing, or 
     decreasing the limits contained in those provisions.
       ``(2) Grandfathered activities.--
       ``(A) In general.--Notwithstanding paragraph (1)(A) and 
     section 4(a), a company that becomes a wholesale financial 
     holding company may continue to engage, directly or 
     indirectly, in any activity and may retain ownership and 
     control of shares of a company engaged in any activity if--
       ``(i) on the date of the enactment of the Financial 
     Services Act of 1998, such wholesale financial holding 
     company was lawfully engaged in that nonfinancial activity, 
     held the shares of such company, or had entered into a 
     contract to acquire shares of any company engaged in such 
     activity; and
       ``(ii) the company engaged in such activity continues to 
     engage only in the same activities that such company 
     conducted on the date of the enactment of the Financial 
     Services Act of 1998, and other activities permissible under 
     this Act.
       ``(B) No expansion of grandfathered commercial activities 
     through merger or consolidation.--A wholesale financial 
     holding company that engages in activities or holds shares 
     pursuant to this paragraph, or a subsidiary of such wholesale 
     financial holding company, may not acquire, in any merger, 
     consolidation, or other type of business combination, assets 
     of any other company which is engaged in any activity which 
     the Board has not determined to be financial in nature or 
     incidental to activities that are financial in nature under 
     section 6(c).
       ``(C) Limitation to single exemption.--No company that 
     engages in any activity or controls any shares under 
     subsection (f) or (g) of section 6 may engage in any activity 
     or own any shares pursuant to this paragraph or paragraph 
     (1).
       ``(3) Commodities.--
       ``(A) In general.--Notwithstanding section 4(a), a 
     wholesale financial holding company which was predominately 
     engaged as of January 1, 1997, in financial activities in the 
     United States (or any successor to any such company) may 
     engage in, or directly or indirectly own or control shares of 
     a company engaged in, activities related to the trading, 
     sale, or investment in commodities and underlying physical 
     properties that were not permissible for bank holding 
     companies to conduct in the United States as of January 1, 
     1997, if such wholesale financial holding company, or any 
     subsidiary of such holding company, was engaged directly, 
     indirectly, or through any such company in any of such 
     activities as of January 1, 1997, in the United States.
       ``(B) Limitation.--Notwithstanding paragraph (1)(A)(i), the 
     attributed aggregate consolidated assets of a wholesale 
     financial holding company held under the authority granted 
     under this paragraph and not otherwise permitted to be held 
     by all wholesale financial holding companies under this 
     section may not exceed 5 percent of the total consolidated 
     assets of the wholesale financial holding company, except 
     that the Board may increase such percentage of total 
     consolidated assets by such amounts and under such 
     circumstances as the Board considers appropriate, consistent 
     with the purposes of this Act.
       ``(4) Cross marketing restrictions.--A wholesale financial 
     holding company shall not permit--
       ``(A) any company whose shares it owns or controls pursuant 
     to paragraph (1), (2), or (3) to offer or market any product 
     or service of an affiliated wholesale financial institution; 
     or
       ``(B) any affiliated wholesale financial institution to 
     offer or market any product or service of any company whose 
     shares are owned or controlled by such wholesale financial 
     holding company pursuant to such paragraphs.
       ``(d) Qualification of Foreign Bank as Wholesale Financial 
     Holding Company.--
       ``(1) In general.--Any foreign bank, or any company that 
     owns or controls a foreign bank, that--
       ``(A) operates a branch, agency, or commercial lending 
     company in the United States, including a foreign bank or 
     company that owns or controls a wholesale financial 
     institution; and
       ``(B) owns, controls, or is affiliated with a security 
     affiliate that engages in underwriting corporate equity 
     securities,
     may request a determination from the Board that such bank or 
     company be treated as a wholesale financial holding company 
     for purposes of subsection (c).
       ``(2) Conditions for treatment as a wholesale financial 
     holding company.--A foreign bank and a company that owns or 
     controls a foreign bank may not be treated as a wholesale 
     financial holding company unless the bank and company meet 
     and continue to meet the following criteria:
       ``(A) No insured deposits.--No deposits held directly by a 
     foreign bank or through an affiliate (other than an 
     institution described in subparagraph (D) or (F) of section 
     2(c)(2)) are insured under the Federal Deposit Insurance Act.
       ``(B) Capital standards.--The foreign bank meets risk-based 
     capital standards comparable to the capital standards 
     required for a wholesale financial institution, giving due 
     regard to the principle of national treatment and equality of 
     competitive opportunity.
       ``(C) Transaction with affiliates.--Transactions between a 
     branch, agency, or commercial lending company subsidiary of 
     the foreign bank in the United States, and any securities 
     affiliate or company in which the foreign bank (or any 
     company that owns or controls such foreign bank) has invested 
     pursuant to subsection (d) comply with the provisions of 
     sections 23A and 23B of the Federal Reserve Act in the same 
     manner and to the same extent as such transactions would be 
     required to comply with such sections if the bank were a 
     member bank.
       ``(3) Treatment as a wholesale financial institution.--Any 
     foreign bank which is, or is affiliated with a company which 
     is, treated as a wholesale financial holding company under 
     this subsection shall be treated as a wholesale financial 
     institution for purposes of subsection (c)(4) of this section 
     and subsections (c)(1)(C) and (c)(3) of section 9B of the 
     Federal Reserve Act, and any such foreign bank or company 
     shall be subject to paragraphs (3), (4), and (5) of section 
     9B(d) of the Federal Reserve Act, except that the Board may 
     adopt such modifications, conditions, or exemptions as the 
     Board deems appropriate, giving due regard to the principle 
     of national treatment and equality of competitive 
     opportunity.
       ``(4) Nonapplicability of other exemption.--Any foreign 
     bank or company which is treated as a wholesale financial 
     holding company under this subsection shall not be eligible 
     for any exception described in section 2(h).
       ``(5) Supervision of foreign bank which maintains no 
     banking presence other than control of a wholesale financial 
     institution.--A foreign bank that owns or controls a 
     wholesale financial institution but does not operate a 
     branch, agency, or commercial lending company in the United 
     States (and any company that owns or controls such foreign 
     bank) may request a determination from the Board that such 
     bank or company be treated as a wholesale financial holding 
     company for purposes of subsection (c), except that such bank 
     or company shall be subject to the restrictions of paragraphs 
     (2)(A), (3), and (4) of this subsection.
       ``(6) No effect on other provisions.--This section shall 
     not be construed as limiting the authority of the Board under 
     the International Banking Act of 1978 with respect to the 
     regulation, supervision, or examination of foreign banks and 
     their offices and affiliates in the United States.
       ``(7) Applicability of community reinvestment act of 
     1977.--The branches in the United States of a foreign bank 
     that is, or is affiliated with a company that is, treated as 
     a wholesale financial holding company shall be subject to 
     section 9B(b)(11) of the Federal Reserve Act as if the 
     foreign bank were a wholesale financial institution under 
     such section. The Board and the Comptroller of the Currency 
     shall apply the provisions of sections 803(2), 804, and 
     807(1) of the Community Reinvestment Act of 1977 to branches 
     of foreign banks which receive only such deposits as are 
     permissible for receipt by a corporation organized under 
     section 25A of the Federal Reserve Act, in the same manner 
     and to the same extent such sections apply to such a 
     corporation.''.
       (b) Uninsured State Banks.--Section 9 of the Federal 
     Reserve Act (U.S.C. 321 et seq.) is amended by adding at the 
     end the following new paragraph:
       ``(24) Enforcement authority over uninsured state member 
     banks.--Section 3(u) of the Federal Deposit Insurance Act, 
     subsections (j) and (k) of section 7 of such Act, and 
     subsections (b) through (n), (s), (u), and (v) of section 8 
     of such Act shall apply to an uninsured State member bank in 
     the same manner and to the same extent such provisions apply 
     to an insured State member bank and any reference in any such 
     provision to `insured depository institution' shall be deemed 
     to be a reference to `uninsured State member bank' for 
     purposes of this paragraph.''.

     SEC. 132. AUTHORIZATION TO RELEASE REPORTS.

       (a) Federal Reserve Act.--The last sentence of the 8th 
     undesignated paragraph of section 9 of the Federal Reserve 
     Act (12 U.S.C. 326) is amended to read as follows: ``The 
     Board of Governors of the Federal Reserve System, at its 
     discretion, may furnish reports of examination or other 
     confidential supervisory information concerning State member 
     banks or any other entities examined under any other 
     authority of the Board to any Federal or State authorities 
     with supervisory or regulatory authority over the examined 
     entity, to officers, directors, or receivers of the examined 
     entity, and to any other person that the Board determines to 
     be proper.''.
       (b) Commodity Futures Trading Commission.--

[[Page H3153]]

       (1) Section 1101(7) of the Right to Financial Privacy Act 
     of 1978 (12 U.S.C. 3401(7)) is amended--
       (A) by redesignating subparagraphs (G) and (H) as 
     subparagraphs (H) and (I), respectively; and
       (B) by inserting after subparagraph (F) the following new 
     subparagraph:
       ``(G) the Commodity Futures Trading Commission; or'' and
       (2) Section 1112(e) of the Right to Financial Privacy Act 
     (12 U.S.C. 3412(e)) is amended by striking ``and the 
     Securities and Exchange Commission'' and inserting ``, the 
     Securities and Exchange Commission, and the Commodity Futures 
     Trading Commission''.

     SEC. 133. CONFORMING AMENDMENTS.

       (a) Bank Holding Company Act of 1956.--
       (1) Definitions.--Section 2 of the Bank Holding Company Act 
     of 1956 (12 U.S.C. 1842) is amended by adding at the end the 
     following new subsections:
       ``(p) Wholesale Financial Institution.--The term `wholesale 
     financial institution' means a wholesale financial 
     institution subject to section 9B of the Federal Reserve Act.
       ``(q) Commission.--The term `Commission' means the 
     Securities and Exchange Commission.
       ``(r) Depository Institution.--The term `depository 
     institution'--
       ``(1) has the meaning given to such term in section 3 of 
     the Federal Deposit Insurance Act; and
       ``(2) includes a wholesale financial institution.''.
       (2) Definition of bank includes wholesale financial 
     institution.--Section 2(c)(1) of the Bank Holding Company Act 
     of 1956 (12 U.S.C. 1841(c)(1)) is amended by adding at the 
     end the following new subparagraph:
       ``(C) A wholesale financial institution.''.
       (3) Incorporated definitions.--Section 2(n) of the Bank 
     Holding Company Act of 1956 (12 U.S.C. 1841(n)) is amended by 
     inserting `` `insured bank','' after `` `in danger of 
     default',''.
       (4) Exception to deposit insurance requirement.--Section 
     3(e) of the Bank Holding Company Act of 1956 (12 U.S.C. 
     1842(e)) is amended by adding at the end the following: 
     ``This subsection shall not apply to a wholesale financial 
     institution.''
       (b) Federal Deposit Insurance Act.--Section 3(q)(2)(A) of 
     the Federal Deposit Insurance Act (12 U.S.C. 1813(q)(2)(A)) 
     is amended to read as follows:
       ``(A) any State member insured bank (except a District 
     bank) and any wholesale financial institution as authorized 
     pursuant to section 9B of the Federal Reserve Act;''.

              CHAPTER 2--WHOLESALE FINANCIAL INSTITUTIONS

     SEC. 136. WHOLESALE FINANCIAL INSTITUTIONS.

       (a) National Wholesale Financial Institutions.--
       (1) In general.--Chapter one of title LXII of the Revised 
     Statutes of the United States (12 U.S.C. 21 et seq.) is 
     amended by inserting after section 5136A (as added by section 
     121(a) of this title) the following new section:

     ``SEC. 5136B. NATIONAL WHOLESALE FINANCIAL INSTITUTIONS.

       ``(a) Authorization of the Comptroller Required.--A 
     national bank may apply to the Comptroller on such forms and 
     in accordance with such regulations as the Comptroller may 
     prescribe, for permission to operate as a national wholesale 
     financial institution.
       ``(b) Regulation.--A national wholesale financial 
     institution may exercise, in accordance with such 
     institution's articles of incorporation and regulations 
     issued by the Comptroller, all the powers and privileges of a 
     national bank formed in accordance with section 5133 of the 
     Revised Statutes of the United States, subject to section 9B 
     of the Federal Reserve Act and the limitations and 
     restrictions contained therein.
       ``(c) Community Reinvestment Act of 1977.--A national 
     wholesale financial institution shall be subject to the 
     Community Reinvestment Act of 1977.
       ``(d) Examination Reports.--The Comptroller of the Currency 
     shall, to the fullest extent possible, use the report of 
     examinations made by the Board of Governors of the Federal 
     Reserve System of a wholesale financial institution.''.
       (2) Clerical amendment.--The table of sections for chapter 
     one of title LXII of the Revised Statutes of the United 
     States is amended by inserting after the item relating to 
     section 5136A (as added by section 121(d) of this title) the 
     following new item:

``5136B. National wholesale financial institutions.''.
       (b) State Wholesale Financial Institutions.--The Federal 
     Reserve Act (12 U.S.C. 221 et seq.) is amended by inserting 
     after section 9A the following new section:

     ``SEC. 9B. WHOLESALE FINANCIAL INSTITUTIONS.

       ``(a) Application for Membership as Wholesale Financial 
     Institution.--
       ``(1) Application required.--
       ``(A) In general.--Any bank may apply to the Board of 
     Governors of the Federal Reserve System to become a wholesale 
     financial institution and, as a wholesale financial 
     institution, to subscribe to the stock of the Federal reserve 
     bank organized within the district where the applying bank is 
     located.
       ``(B) Treatment as member bank.--Any application under 
     subparagraph (A) shall be treated as an application under, 
     and shall be subject to the provisions of, section 9.
       ``(2) Insurance termination.--No bank the deposits of which 
     are insured under the Federal Deposit Insurance Act may 
     become a wholesale financial institution unless it has met 
     all requirements under that Act for voluntary termination of 
     deposit insurance.
       ``(b) General Requirements Applicable to Wholesale 
     Financial Institutions.--
       ``(1) Federal reserve act.--Except as otherwise provided in 
     this section, wholesale financial institutions shall be 
     member banks and shall be subject to the provisions of this 
     Act that apply to member banks to the same extent and in the 
     same manner as State member insured banks, except that a 
     wholesale financial institution may terminate membership 
     under this Act only with the prior written approval of the 
     Board and on terms and conditions that the Board determines 
     are appropriate to carry out the purposes of this Act.
       ``(2) Prompt corrective action.--A wholesale financial 
     institution shall be deemed to be an insured depository 
     institution for purposes of section 38 of the Federal Deposit 
     Insurance Act except that--
       ``(A) the relevant capital levels and capital measures for 
     each capital category shall be the levels specified by the 
     Board for wholesale financial institutions; and
       ``(B) all references to the appropriate Federal banking 
     agency or to the Corporation in that section shall be deemed 
     to be references to the Board.
       ``(3) Enforcement authority.--Subsections (j) and (k) of 
     section 7, subsections (b) through (n), (s), and (v) of 
     section 8, and section 19 of the Federal Deposit Insurance 
     Act shall apply to a wholesale financial institution in the 
     same manner and to the same extent as such provisions apply 
     to State member insured banks and any reference in such 
     sections to an insured depository institution shall be deemed 
     to include a reference to a wholesale financial institution.
       ``(4) Certain other statutes applicable.--A wholesale 
     financial institution shall be deemed to be a banking 
     institution, and the Board shall be the appropriate Federal 
     banking agency for such bank and all such bank's affiliates, 
     for purposes of the International Lending Supervision Act.
       ``(5) Bank merger act.--A wholesale financial institution 
     shall be subject to sections 18(c) and 44 of the Federal 
     Deposit Insurance Act in the same manner and to the same 
     extent the wholesale financial institution would be subject 
     to such sections if the institution were a State member 
     insured bank.
       ``(6) Branching.--Notwithstanding any other provision of 
     law, a wholesale financial institution may establish and 
     operate a branch at any location on such terms and conditions 
     as established by the Board and, in the case of a State-
     chartered wholesale financial institution, with the approval 
     of the Board, and, in the case of a national bank wholesale 
     financial institution, with the approval of the Comptroller 
     of the Currency.
       ``(7) Activities of out-of-state branches of wholesale 
     financial institutions.--
       ``(A) General.--A State-chartered wholesale financial 
     institution shall be deemed a State bank and an insured State 
     bank and a national wholesale financial institution shall be 
     deemed a national bank for purposes of paragraphs (1), (2), 
     and (3) of section 24(j) of the Federal Deposit Insurance 
     Act.
       ``(B) Definitions.--The following definitions shall apply 
     solely for purposes of applying paragraph (1):
       ``(i) Home state.--The term `home State' means--

       ``(I) with respect to a national wholesale financial 
     institution, the State in which the main office of the 
     institution is located; and
       ``(II) with respect to a State-chartered wholesale 
     financial institution, the State by which the institution is 
     chartered.

       ``(ii) Host state.--The term `host State' means a State, 
     other than the home State of the wholesale financial 
     institution, in which the institution maintains, or seeks to 
     establish and maintain, a branch.
       ``(iii) Out-of-state bank.--The term `out-of-State bank' 
     means, with respect to any State, a wholesale financial 
     institution whose home State is another State.
       ``(8) Discrimination regarding interest rates.--Section 27 
     of the Federal Deposit Insurance Act shall apply to State-
     chartered wholesale financial institutions in the same manner 
     and to the same extent as such provisions apply to State 
     member insured banks and any reference in such section to a 
     State-chartered insured depository institution shall be 
     deemed to include a reference to a State-chartered wholesale 
     financial institution.
       ``(9) Preemption of state laws requiring deposit insurance 
     for wholesale financial institutions.--The appropriate State 
     banking authority may grant a charter to a wholesale 
     financial institution notwithstanding any State constitution 
     or statute requiring that the institution obtain insurance of 
     its deposits and any such State constitution or statute is 
     hereby preempted solely for purposes of this paragraph.
       ``(10) Parity for wholesale financial institutions.--A 
     State bank that is a wholesale financial institution under 
     this section shall have all of the rights, powers, 
     privileges, and immunities (including those derived from 
     status as a federally chartered institution) of and as if it 
     were a national bank, subject to such terms and conditions as 
     established by the Board.
       ``(11) Community reinvestment act of 1977.--A State 
     wholesale financial institution shall be subject to the 
     Community Reinvestment Act of 1977.
       ``(c) Specific Requirements Applicable to Wholesale 
     Financial Institutions.--
       ``(1) Limitations on deposits.--

[[Page H3154]]

       ``(A) Minimum amount.--
       ``(i) In general.--No wholesale financial institution may 
     receive initial deposits of $100,000 or less, other than on 
     an incidental and occasional basis.
       ``(ii) Limitation on deposits of less than $100,000.--No 
     wholesale financial institution may receive initial deposits 
     of $100,000 or less if such deposits constitute more than 5 
     percent of the institution's total deposits.
       ``(B) No deposit insurance.--No deposits held by a 
     wholesale financial institution shall be insured deposits 
     under the Federal Deposit Insurance Act.
       ``(C) Advertising and disclosure.--The Board shall 
     prescribe regulations pertaining to advertising and 
     disclosure by wholesale financial institutions to ensure that 
     each depositor is notified that deposits at the wholesale 
     financial institution are not federally insured or otherwise 
     guaranteed by the United States Government.
       ``(2) Minimum capital levels applicable to wholesale 
     financial institutions.--The Board shall, by regulation, 
     adopt capital requirements for wholesale financial 
     institutions--
       ``(A) to account for the status of wholesale financial 
     institutions as institutions that accept deposits that are 
     not insured under the Federal Deposit Insurance Act; and
       ``(B) to provide for the safe and sound operation of the 
     wholesale financial institution without undue risk to 
     creditors or other persons, including Federal reserve banks, 
     engaged in transactions with the bank.
       ``(3) Additional requirements applicable to wholesale 
     financial institutions.--In addition to any requirement 
     otherwise applicable to State member insured banks or 
     applicable, under this section, to wholesale financial 
     institutions, the Board may impose, by regulation or order, 
     upon wholesale financial institutions--
       ``(A) limitations on transactions, direct or indirect, with 
     affiliates to prevent--
       ``(i) the transfer of risk to the deposit insurance funds; 
     or
       ``(ii) an affiliate from gaining access to, or the benefits 
     of, credit from a Federal reserve bank, including overdrafts 
     at a Federal reserve bank;
       ``(B) special clearing balance requirements; and
       ``(C) any additional requirements that the Board determines 
     to be appropriate or necessary to--
       ``(i) promote the safety and soundness of the wholesale 
     financial institution or any insured depository institution 
     affiliate of the wholesale financial institution;
       ``(ii) prevent the transfer of risk to the deposit 
     insurance funds; or
       ``(iii) protect creditors and other persons, including 
     Federal reserve banks, engaged in transactions with the 
     wholesale financial institution.
       ``(4) Exemptions for wholesale financial institutions.--The 
     Board may, by regulation or order, exempt any wholesale 
     financial institution from any provision applicable to a 
     member bank that is not a wholesale financial institution, if 
     the Board finds that such exemption is not inconsistent 
     with--
       ``(A) the promotion of the safety and soundness of the 
     wholesale financial institution or any insured depository 
     institution affiliate of the wholesale financial institution;
       ``(B) the protection of the deposit insurance funds; and
       ``(C) the protection of creditors and other persons, 
     including Federal reserve banks, engaged in transactions with 
     the wholesale financial institution.
       ``(5) Limitation on transactions between a wholesale 
     financial institution and an insured bank.--For purposes of 
     section 23A(d)(1) of the Federal Reserve Act, a wholesale 
     financial institution that is affiliated with an insured bank 
     shall not be a bank.
       ``(6) No effect on other provisions.--This section shall 
     not be construed as limiting the Board's authority over 
     member banks under any other provision of law, or to create 
     any obligation for any Federal reserve bank to make, 
     increase, renew, or extend any advance or discount under this 
     Act to any member bank or other depository institution.
       ``(d) Capital and Managerial Requirements.--
       ``(1) In general.--A wholesale financial institution shall 
     be well capitalized and well managed.
       ``(2) Notice to company.--The Board shall promptly provide 
     notice to a company that controls a wholesale financial 
     institution whenever such wholesale financial institution is 
     not well capitalized or well managed.
       ``(3) Agreement to restore institution.--Within 45 days of 
     receipt of a notice under paragraph (2) (or such additional 
     period not to exceed 90 days as the Board may permit), the 
     company shall execute an agreement acceptable to the Board to 
     restore the wholesale financial institution to compliance 
     with all of the requirements of paragraph (1).
       ``(4) Limitations until institution restored.--Until the 
     wholesale financial institution is restored to compliance 
     with all of the requirements of paragraph (1), the Board may 
     impose such limitations on the conduct or activities of the 
     company or any affiliate of the company as the Board 
     determines to be appropriate under the circumstances.
       ``(5) Failure to restore.--If the company does not execute 
     and implement an agreement in accordance with paragraph (3), 
     comply with any limitation imposed under paragraph (4), 
     restore the wholesale financial institution to well 
     capitalized status within 180 days after receipt by the 
     company of the notice described in paragraph (2), or restore 
     the wholesale financial institution to well managed status 
     within such period as the Board may permit, the company 
     shall, under such terms and conditions as may be imposed by 
     the Board and subject to such extension of time as may be 
     granted in the Board's discretion, divest control of its 
     subsidiary depository institutions.
       ``(6) Well managed defined.--For purposes of this 
     subsection, the term `well managed' has the same meaning as 
     in section 2 of the Bank Holding Company Act of 1956.
       ``(e) Conservatorship Authority.--
       ``(1) In general.--The Board may appoint a conservator to 
     take possession and control of a wholesale financial 
     institution to the same extent and in the same manner as the 
     Comptroller of the Currency may appoint a conservator for a 
     national bank under section 203 of the Bank Conservation Act, 
     and the conservator shall exercise the same powers, 
     functions, and duties, subject to the same limitations, as 
     are provided under such Act for conservators of national 
     banks.
       ``(2) Board authority.--The Board shall have the same 
     authority with respect to any conservator appointed under 
     paragraph (1) and the wholesale financial institution for 
     which such conservator has been appointed as the Comptroller 
     of the Currency has under the Bank Conservation Act with 
     respect to a conservator appointed under such Act and a 
     national bank for which the conservator has been appointed.
       ``(f) Exclusive Jurisdiction.--Subsections (c) and (e) of 
     section 43 of the Federal Deposit Insurance Act shall not 
     apply to any wholesale financial institution.''.
       (c) Voluntary Termination of Insured Status by Certain 
     Institutions.--
       (1) Section 8 designations.--Section 8(a) of the Federal 
     Deposit Insurance Act (12 U.S.C. 1818(a)) is amended--
       (A) by striking paragraph (1); and
       (B) by redesignating paragraphs (2) through (10) as 
     paragraphs (1) through (9), respectively.
       (2) Voluntary termination of insured status.--The Federal 
     Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amended by 
     inserting after section 8 the following new section:

     ``SEC. 8A. VOLUNTARY TERMINATION OF STATUS AS INSURED 
                   DEPOSITORY INSTITUTION.

       ``(a) In General.--Except as provided in subsection (b), an 
     insured State bank or a national bank may voluntarily 
     terminate such bank's status as an insured depository 
     institution in accordance with regulations of the Corporation 
     if--
       ``(1) the bank provides written notice of the bank's intent 
     to terminate such insured status--
       ``(A) to the Corporation and the Board of Governors of the 
     Federal Reserve System not less than 6 months before the 
     effective date of such termination; and
       ``(B) to all depositors at such bank, not less than 6 
     months before the effective date of the termination of such 
     status; and
       ``(2) either--
       ``(A) the deposit insurance fund of which such bank is a 
     member equals or exceeds the fund's designated reserve ratio 
     as of the date the bank provides a written notice under 
     paragraph (1) and the Corporation determines that the fund 
     will equal or exceed the applicable designated reserve ratio 
     for the 2 semiannual assessment periods immediately following 
     such date; or
       ``(B) the Corporation and the Board of Governors of the 
     Federal Reserve System approved the termination of the bank's 
     insured status and the bank pays an exit fee in accordance 
     with subsection (e).
       ``(b) Exception.--Subsection (a) shall not apply with 
     respect to--
       ``(1) an insured savings association; or
       ``(2) an insured branch that is required to be insured 
     under subsection (a) or (b) of section 6 of the International 
     Banking Act of 1978.
       ``(c) Eligibility for Insurance Terminated.--Any bank that 
     voluntarily elects to terminate the bank's insured status 
     under subsection (a) shall not be eligible for insurance on 
     any deposits or any assistance authorized under this Act 
     after the period specified in subsection (f)(1).
       ``(d) Institution Must Become Wholesale Financial 
     Institution or Terminate Deposit-Taking Activities.--Any 
     depository institution which voluntarily terminates such 
     institution's status as an insured depository institution 
     under this section may not, upon termination of insurance, 
     accept any deposits unless the institution is a wholesale 
     financial institution subject to section 9B of the Federal 
     Reserve Act.
       ``(e) Exit Fees.--
       ``(1) In general.--Any bank that voluntarily terminates 
     such bank's status as an insured depository institution under 
     this section shall pay an exit fee in an amount that the 
     Corporation determines is sufficient to account for the 
     institution's pro rata share of the amount (if any) which 
     would be required to restore the relevant deposit insurance 
     fund to the fund's designated reserve ratio as of the date 
     the bank provides a written notice under subsection (a)(1).
       ``(2) Procedures.--The Corporation shall prescribe, by 
     regulation, procedures for assessing any exit fee under this 
     subsection.
       ``(f) Temporary Insurance of Deposits Insured as of 
     Termination.--
       ``(1) Transition period.--The insured deposits of each 
     depositor in a State bank or a

[[Page H3155]]

     national bank on the effective date of the voluntary 
     termination of the bank's insured status, less all subsequent 
     withdrawals from any deposits of such depositor, shall 
     continue to be insured for a period of not less than 6 months 
     and not more than 2 years, as determined by the Corporation. 
     During such period, no additions to any such deposits, and no 
     new deposits in the depository institution made after the 
     effective date of such termination shall be insured by the 
     Corporation.
       ``(2) Temporary assessments; obligations and duties.--
     During the period specified in paragraph (1) with respect to 
     any bank, the bank shall continue to pay assessments under 
     section 7 as if the bank were an insured depository 
     institution. The bank shall, in all other respects, be 
     subject to the authority of the Corporation and the duties 
     and obligations of an insured depository institution under 
     this Act during such period, and in the event that the bank 
     is closed due to an inability to meet the demands of the 
     bank's depositors during such period, the Corporation shall 
     have the same powers and rights with respect to such bank as 
     in the case of an insured depository institution.
       ``(g) Advertisements.--
       ``(1) In general.--A bank that voluntarily terminates the 
     bank's insured status under this section shall not advertise 
     or hold itself out as having insured deposits, except that 
     the bank may advertise the temporary insurance of deposits 
     under subsection (f) if, in connection with any such 
     advertisement, the advertisement also states with equal 
     prominence that additions to deposits and new deposits made 
     after the effective date of the termination are not insured.
       ``(2) Certificates of deposit, obligations, and 
     securities.--Any certificate of deposit or other obligation 
     or security issued by a State bank or a national bank after 
     the effective date of the voluntary termination of the bank's 
     insured status under this section shall be accompanied by a 
     conspicuous, prominently displayed notice that such 
     certificate of deposit or other obligation or security is not 
     insured under this Act.
       ``(h) Notice Requirements.--
       ``(1) Notice to the corporation.--The notice required under 
     subsection (a)(1)(A) shall be in such form as the Corporation 
     may require.
       ``(2) Notice to depositors.--The notice required under 
     subsection (a)(1)(B) shall be--
       ``(A) sent to each depositor's last address of record with 
     the bank; and
       ``(B) in such manner and form as the Corporation finds to 
     be necessary and appropriate for the protection of 
     depositors.''.
       (3) Definition.--Section 19(b)(1)(A)(i) of the Federal 
     Reserve Act (12 U.S.C. 461(b)(1)(A)(i)) is amended by 
     inserting ``, or any wholesale financial institution subject 
     to section 9B of this Act'' after ``such Act''.

  Subtitle E--Streamlining Antitrust Review of Bank Acquisitions and 
                                Mergers

     SEC. 141. AMENDMENTS TO THE BANK HOLDING COMPANY ACT OF 1956.

       (a) Amendments to Section 3 To Require Filing of 
     Application Copies With Antitrust Agencies.--Section 3 of the 
     Bank Holding Company Act of 1956 (12 U.S.C. 1842) is 
     amended--
       (1) in subsection (b) by inserting after paragraph (2) the 
     following new paragraph:
       ``(3) Requirement to file information with antitrust 
     agencies.--Any applicant seeking prior approval of the Board 
     to engage in an acquisition transaction under this section 
     must file simultaneously with the Attorney General and, if 
     the transaction also involves an acquisition under section 4 
     or 6, the Federal Trade Commission copies of any documents 
     regarding the proposed transaction required by the Board.''; 
     and
       (2) in subsection (c)--
       (A) by striking paragraph (1); and
       (B) by redesignating paragraphs (2) through (5) as 
     paragraphs (1) through (4), respectively.
       (b) Amendments to Section 11 To Modify Justice Department 
     Notification and Post-Approval Waiting Period for Section 3 
     Transactions.--Section 11 of the Bank Holding Company Act of 
     1956 (12 U.S.C. 1849) is amended--
       (1) in subsection (b)(1)--
       (A) by striking ``, if the Board has not received any 
     adverse comment from the Attorney General of the United 
     States relating to competitive factors,'';
       (B) by striking ``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.'' and 
     inserting ``as may be prescribed by the appropriate antitrust 
     agency.''; and
       (C) by striking the 3d to last sentence and the penultimate 
     sentence; and
       (2) by striking subsections (c) and (e) and redesignating 
     subsections (d) and (f) as subsections (c) and (d), 
     respectively.
       (c) Definitions.--Section 2(o) of the Bank Holding Company 
     Act of 1956 (12 U.S.C. 1841(o)) is amended by adding at the 
     end the following new paragraphs:
       ``(8) Antitrust agencies.--The term `antitrust agencies' 
     means the Attorney General and the Federal Trade Commission.
       ``(9) Appropriate antitrust agency.--With respect to a 
     particular transaction, the term `appropriate antitrust 
     agency' means the antitrust agency engaged in reviewing the 
     competitive effects of such transaction.''.

     SEC. 142. AMENDMENTS TO THE FEDERAL DEPOSIT INSURANCE ACT TO 
                   VEST IN THE ATTORNEY GENERAL SOLE 
                   RESPONSIBILITY FOR ANTITRUST REVIEW OF 
                   DEPOSITORY INSTITUTION MERGERS.

       Section 18(c) of the Federal Deposit Insurance Act (12 
     U.S.C. 1828) is amended--
       (1) in paragraph (3)(C) by striking ``during a period at 
     least as long as the period allowed for furnishing reports 
     under paragraph (4) of this subsection'';
       (2) by striking paragraph (4) and inserting the following 
     new paragraph:
       ``(4) Factors to be considered.--In determining whether to 
     approve a transaction, the responsible agency shall in every 
     case take into consideration the financial and managerial 
     resources and future prospects of the existing and proposed 
     institutions, and the convenience and needs of the community 
     to be served.'';
       (3) by striking paragraph (5) and inserting the following 
     new paragraph:
       ``(5) Notice to attorney general.--The responsible agency 
     shall immediately notify the Attorney General of any approval 
     by it pursuant to this subsection of a proposed merger 
     transaction. If the responsible agency has found that it must 
     act immediately in order to prevent the probable failure of 
     one of the banks involved, the transaction may be consummated 
     immediately upon approval by the agency. If the responsible 
     agency has notified the other Federal banking agencies 
     referred to in this section of the existence of an emergency 
     requiring expeditious action and has required the submission 
     of views and recommendations within 10 days, the transaction 
     may not be consummated before the 5th calendar day after the 
     date of approval of the responsible agency. In all other 
     cases, the transaction may not be consummated before the 30th 
     calendar day after the date of approval by the agency, or 
     such shorter period of time as may be prescribed by the 
     Attorney General.'';
       (4) by striking paragraph (6) and redesignating paragraphs 
     (7) through (11) as paragraphs (6) through (10), 
     respectively;
       (5) in subparagraph (A) of paragraph (6) (as so 
     redesignated by paragraph (4) of this section)--
       (A) by striking ``(5)'' and inserting ``(4)''; and
       (B) by striking ``(6)'' and inserting ``(5)'';
       (C) by striking ``In any such action, the court shall 
     review de novo the issues presented.'';
       (6) in paragraph (6) (as so redesignated by paragraph (4) 
     of this section)--
       (A) by striking subparagraphs (B) and (D); and
       (B) by redesignating subparagraph (C) as subparagraph (B);
       (7) in paragraph (8) (as so redesignated by paragraph (4) 
     of this section)--
       (A) by inserting ``and'' after the semicolon at the end of 
     subparagraph (A):
       (B) by striking subparagraph (B); and
       (C) by redesignating subparagraph (C) as subparagraph (B); 
     and
       (8) by inserting after paragraph (10) (as so redesignated 
     by paragraph (4) of this section) the following new 
     paragraph:
       ``(11) Requirement to file information with attorney 
     general.--Any applicant seeking prior written approval of the 
     responsible Federal banking agency to engage in a merger 
     transaction under this subsection shall file simultaneously 
     with the Attorney General copies of any documents regarding 
     the proposed transaction required by the Federal banking 
     agency.''.

     SEC. 143. INFORMATION FILED BY DEPOSITORY INSTITUTIONS; 
                   INTERAGENCY DATA SHARING.

       (a) Format of Notice.--
       (1) In general.--Notice of any proposed transaction for 
     which approval is required under section 3 of the Bank 
     Holding Company Act of 1956 or section 18(c) of the Federal 
     Deposit Insurance Act shall be in a format designated and 
     required by the appropriate Federal banking agency (as 
     defined in section 3 of the Federal Deposit Insurance Act) 
     and shall contain a section on the likely competitive effects 
     of the proposed transaction.
       (2) Designation by agency.--The appropriate Federal banking 
     agency, with the concurrence of the antitrust agencies, shall 
     designate and require the form and content of the competitive 
     effects section.
       (3) Notice of suspension.--Upon notification by the 
     appropriate antitrust agency that the competitive effects 
     section of an application is incomplete, the appropriate 
     Federal banking agency shall notify the applicant that the 
     agency will suspend processing of the application until the 
     appropriate antitrust agency notifies the agency that the 
     application is complete.
       (4) Emergency action.--This provision shall not affect the 
     appropriate Federal banking agency's authority to act 
     immediately--
       (A) to prevent the probable failure of 1 of the banks 
     involved; or
       (B) to reduce or eliminate a post approval waiting period 
     in case of an emergency requiring expeditious action.
       (5) Exemption for certain filings.--With the concurrence of 
     the antitrust agencies, the appropriate Federal banking 
     agency may exempt classes of persons, acquisitions, or 
     transactions that are not likely to violate the antitrust 
     laws from the requirement that applicants file a competitive 
     effects section.
       (b) Interagency Data Sharing Requirement.--
       (1) In general.--To the extent not prohibited by other law, 
     the Federal banking agencies shall make available to the 
     antitrust agencies any data in their possession that

[[Page H3156]]

     the antitrust agencies deem necessary for antitrust reviews 
     of transactions requiring approval under section 3 of the 
     Bank Holding Company Act of 1956 or section 18(c) of the 
     Federal Deposit Insurance Act.
       (2) Continuation of data collection and analysis.--The 
     Federal banking agencies shall continue to provide market 
     analysis, deposit share information, and other relevant 
     information for determining market competition as needed by 
     the Attorney General in the same manner such agencies 
     provided analysis and information under section 18(c) of the 
     Federal Deposit Insurance Act and 3(c) of the Bank Holding 
     Company Act of 1956 (as such sections were in effect on the 
     day before the date of the enactment of this Act) and shall 
     continue to collect information necessary or useful for such 
     analysis.
       (c) Definitions.--For purposes of this section, the 
     following definitions shall apply:
       (1) Antitrust agencies.--The term ``antitrust agencies'' 
     means the Attorney General and the Federal Trade Commission.
       (2) Appropriate antitrust agency.--With respect to a 
     particular transaction, the term ``appropriate antitrust 
     agency'' means the antitrust agency engaged in reviewing the 
     competitive effects of such transaction.

     SEC. 144. APPLICABILITY OF ANTITRUST LAWS.

       No provision of this subtitle shall be construed as 
     affecting--
       (1) the applicability of antitrust laws (as defined in 
     section 11(d) of the Bank Holding Company Act of 1956; as so 
     redesignated pursuant to this subtitle); or
       (2) the applicability, if any, of any State law which is 
     similar to the antitrust laws.

     SEC. 145. CLARIFICATION OF STATUS OF SUBSIDIARIES AND 
                   AFFILIATES.

       (a) Clarification of Federal Trade Commission 
     Jurisdiction.--Any person which directly or indirectly 
     controls, is controlled directly or indirectly by, or is 
     directly or indirectly under common control with, any bank or 
     savings association (as such terms are defined in section 3 
     of the Federal Deposit Insurance Act) and is not itself a 
     bank or savings association shall not be deemed to be a bank 
     or savings association for purposes of the Federal Trade 
     Commission Act or any other law enforced by the Federal Trade 
     Commission.
       (b) Savings Provision.--No provision of this section shall 
     be construed as restricting the authority of any Federal 
     banking agency (as defined in section 3 of the Federal 
     Deposit Insurance Act) under any Federal banking law, 
     including section 8 of the Federal Deposit Insurance Act.

     SEC. 146. EFFECTIVE DATE.

       This subtitle shall take effect 6 months after the date of 
     enactment of this Act.

Subtitle F--Applying the Principles of National Treatment and Equality 
   of Competitive Opportunity to Foreign Banks and Foreign Financial 
                              Institutions

      SEC. 151. APPLYING THE PRINCIPLES OF NATIONAL TREATMENT AND 
                   EQUALITY OF COMPETITIVE OPPORTUNITY TO FOREIGN 
                   BANKS THAT ARE FINANCIAL HOLDING COMPANIES.

       Section 8(c) of the International Banking Act of 1978 (12 
     U.S.C. 3106(c)) is amended by adding at the end the following 
     new paragraph:
       ``(3) Termination of grandfathered rights.--
       ``(A) In general.--If any foreign bank or foreign company 
     files a declaration under section 6(b)(1)(E) or which 
     receives a determination under section 10(d)(1) of the Bank 
     Holding Company Act of 1956, any authority conferred by this 
     subsection on any foreign bank or company to engage in any 
     activity which the Board has determined to be permissible for 
     financial holding companies under section 6 of such Act shall 
     terminate immediately.
       ``(B) Restrictions and requirements authorized.--If a 
     foreign bank or company that engages, directly or through an 
     affiliate pursuant to paragraph (1), in an activity which the 
     Board has determined to be permissible for financial holding 
     companies under section 6 of the Bank Holding Company Act of 
     1956 has not filed a declaration with the Board of its status 
     as a financial holding company under such section or received 
     a determination under section 10(d)(1) by the end of the 2-
     year period beginning on the date of enactment of the 
     Financial Services Act of 1998, the Board, giving due regard 
     to the principle of national treatment and equality of 
     competitive opportunity, may impose such restrictions and 
     requirements on the conduct of such activities by such 
     foreign bank or company as are comparable to those imposed on 
     a financial holding company organized under the laws of the 
     United States, including a requirement to conduct such 
     activities in compliance with any prudential safeguards 
     established under section 5(h) of the Bank Holding Company 
     Act of 1956.''.

     SEC. 152. APPLYING THE PRINCIPLES OF NATIONAL TREATMENT AND 
                   EQUALITY OF COMPETITIVE OPPORTUNITY TO FOREIGN 
                   BANKS AND FOREIGN FINANCIAL INSTITUTIONS THAT 
                   ARE WHOLESALE FINANCIAL INSTITUTIONS.

       Section 8A of the Federal Deposit Insurance Act (as added 
     by section 136(c)(2) of this Act) is amended by adding at the 
     end the following new subsection:
       ``(i) Voluntary Termination of Deposit Insurance.--The 
     provisions on voluntary termination of insurance in this 
     section shall apply to an insured branch of a foreign bank 
     (including a Federal branch) in the same manner and to the 
     same extent as they apply to an insured State bank or a 
     national bank.''.

               Subtitle G--Federal Home Loan Bank System

     SEC. 161. FEDERAL HOME LOAN BANKS-

       The 1st sentence of section 3 of the Federal Home Loan Bank 
     Act (12 U.S.C. 1423) is amended--
       (1) by striking ``the continental United States'' and all 
     that follows through the ``eight''; and
       (2) by inserting ``the States into not less than 1'' before 
     ``nor''.

     SEC. 162. MEMBERSHIP AND COLLATERAL.

       (a) Subsection (f) of section 5 of the Home Owners' Loan 
     Act (12 U.S.C. 1464) is amended to read as follows:
       ``(f) Federal Home Loan Bank Membership.--A Federal savings 
     association may become a member, of the Federal Home Loan 
     Bank System, and shall qualify for such membership in the 
     manner provided by the Federal Home Loan Bank Act, beginning 
     January 1, 1999.''.
       (b) Section 10(a)(5) of the Federal Home Loan Bank Act (12 
     U.S.C. 1430(a)(5)) is amended--
       (1) in the 2d sentence, by striking ``and the Board''; and
       (2) in the 3d sentence, by striking ``Board'' and inserting 
     ``Bank''.
       (c) Section 10(a) of the Federal Home Loan Bank Act (12 
     U.S.C. 1430(a)) is amended--
       (1) in the 2d sentence, by striking ``All long-term 
     advances'' and inserting ``Except as provided in the 
     succeeding sentence, all long-term advances'';
       (2) by inserting after the 2d sentence, the following 
     sentence: ``Notwithstanding the preceding sentence, long-term 
     advances may be made to members insured by the Federal 
     Deposit Insurance Corporation which have less than 
     $500,000,000 in total assets for the purpose of funding small 
     businesses, agriculture, rural development, or low-income 
     community development (as defined by the Board).''; and
       (3) by redesignating paragraph (5) as paragraph (6) and 
     inserting after paragraph (4) the following new paragraph:
       ``(5) In the case of any member insured by the Federal 
     Deposit Insurance Corporation which has total assets of less 
     than $500,000,000, secured loans for small business, 
     agriculture, rural development, or low-income community 
     development, or securities representing a whole interest in 
     such secured loans.''.
       (d) Section 4(a) of the Federal Home Loan Bank Act (12 
     U.S.C. 1424(a)) is amended by adding at the end the following 
     new paragraph:
       ``(3) Eligibility requirements for community financial 
     institutions.--The requirements of paragraph (2) (other than 
     subparagraph (B) of such paragraph) shall not apply to any 
     insured depository institution which has total assets of less 
     than $500,000,000.
       (e) Section 10 of the Federal Home Loan Bank Act (12 U.S.C. 
     1430) is amended by striking the 1st of the 2 subsections 
     designated as subsection (e) (relating to qualified thrift 
     lender status).

     SEC. 163. THE OFFICE OF FINANCE.

       The Federal Home Loan Bank Act (12 U.S.C. 1421) is amended 
     by inserting after section 4 the following new section:

     ``SEC. 5. THE OFFICE OF FINANCE.

       ``(a) Operation.--The Federal home loan banks shall operate 
     jointly an office of finance (hereafter in this section 
     referred to as the `Office') to issue the notes, bonds, and 
     debentures of the Federal home loan banks in accordance with 
     this Act.
       ``(b) Powers.--Subject to the other provisions of this Act 
     and such safety and soundness regulations as the Finance 
     Board may prescribe, the Office shall be authorized by the 
     Federal home loan banks to act as the agent of such banks to 
     issue Federal home loan bank notes, bonds and debentures 
     pursuant to section 11 of this Act on behalf of the banks.
       ``(c) Central Board of Directors.--
       ``(1) Establishment.--The Federal home loan banks shall 
     establish a central board of directors of the Office to 
     administer the affairs of the Office in accordance with the 
     provisions of this Act.
       ``(2) Composition of Board.--Each Federal home loan bank 
     shall annually select 1 individual who, as of the time of the 
     election, is an officer or director of such bank to serve as 
     a member of the central board of directors of the Office.
       ``(d) Status.--Except to the extent expressly provided in 
     this Act, the Office shall be treated as a Federal home loan 
     bank for purposes of any law.''.

     SEC. 164. MANAGEMENT OF BANKS.

       (a) Subsections (a) and (b) of section 7 of the Federal 
     Home Loan Bank Act (12 U.S.C. 1427(a) and (b)) are amended to 
     read as follows:
       ``(a) The management of each Federal home loan bank shall 
     be vested in a board of 15 directors, 9 of whom shall be 
     elected by the members in accordance with this section, 6 of 
     whom shall be appointed by the Board referred to in section 
     2A, and all of whom shall be citizens of the United States 
     and bona fide residents of the district in which such bank is 
     located. At least 2 of the Federal home loan bank directors 
     who are appointed by the Board shall be representatives 
     chosen from organizations with more than a 2-year history of 
     representing consumer or community interests on banking 
     services, credit needs, housing, or financial consumer

[[Page H3157]]

     protections. No Federal home loan bank director who is 
     appointed pursuant to this subsection may, during such bank 
     director's term of office, serve as an officer of any Federal 
     home loan bank or a director or officer of any member of a 
     bank, or hold shares, or any other financial interest in, any 
     member of a bank.
       ``(b) The elective directors shall be divided into three 
     classes, designated as classes A, B, and C, as nearly equal 
     in number as possible. Each directorship shall be filled by a 
     person who is an officer or director of a member located in 
     that bank's district. Each class shall represent members of 
     similar asset size, and the Board shall, to the maximum 
     extent possible, seek to achieve geographic diversity. The 
     Finance Board shall establish the minimum and maximum asset 
     size for each class. Any member shall be entitled to nominate 
     and elect eligible persons for its class of directorship; 
     such offices shall be filled from such nominees by a 
     plurality of the votes which members of each class may cast 
     for nominees in their corresponding class of directors in an 
     election held for the purpose of filling such offices. Each 
     member shall be permitted to cast one vote for each share of 
     Federal home loan bank stock owned by that member. No person 
     who is an officer or director of a member that fails to meet 
     any applicable capital requirement is eligible to hold the 
     office of Federal Home Loan Bank director. As used in this 
     subsection, the term ``member'' means a member of a Federal 
     home loan bank which was a member of such Bank as of a record 
     date established by the Bank.''.
       (b) Section 7 of the Federal Home Loan Bank Act (12 U.S.C. 
     1427) is amended--
       (1) by striking subsections (c) and (h); and
       (2) by redesignating subsections (d), (e), (f), (g), (i), 
     (j), and (k) as subsections (c), (d), (e), (f), (g), (h), and 
     (i), respectively.
       (c) Subsection (c) of section 7 of the Federal Home Loan 
     Bank Act (12 U.S.C. 1427(d)) (as so redesignated by 
     subsection (b) of this section) is amended by striking the 
     1st and 2d sentences and inserting the following 2 new 
     sentences: ``The term of each position of director shall be 3 
     years. No director serving for 3 consecutive terms, nor any 
     other officer, director or that member or any affiliated 
     depository institution, shall be eligible for another term 
     earlier than 3 years after the expiration of the last 
     expiring of said 3-year terms. 3 elected directors of 
     different classes as specified by the Finance Board shall be 
     elected by ballot annually.''.
       (d) Subsection (d) of section 7 of the Federal Home Loan 
     Bank Act (12 U.S.C. 1427(e)) (as so redesignated by 
     subsection (b) of this section) is amended to read as 
     follows:
       ``(d) Transition Provision.--In the 1st election after the 
     date of the enactment of the Financial Services Act of 1998, 
     3 directors shall be elected in each of the 3 classes of 
     elective directorship. The Finance Board may, in the 1st 
     election after such date of enactment, designate the terms of 
     each elected director in each class, not to exceed 3 years, 
     to assure that, in each subsequent election, 3 directors from 
     different classes of elective directorships are elected each 
     year.''.
       (e) Subsection (g) of section 7 of the Federal Home Loan 
     Bank Act (12 U.S.C. 1427(i)) (as so redesignated by 
     subsection (b) of this section) is amended by striking 
     ``subject to the approval of the board''.

     SEC. 165. ADVANCES TO NONMEMBER BORROWERS.

       Section 10b of the Federal Home Loan Bank Act (12 U.S.C. 
     1430b) is amended--
       (1) in subsection (a), by striking ``(a) In General.--'';
       (2) by striking the 4th sentence of subsection (a), and 
     inserting ``Notwithstanding the preceding sentence, if an 
     advance is made for the purpose of facilitating mortgage 
     lending that benefits individuals and families that meet the 
     income requirements set forth in section 142(d) or 143(f) of 
     the Internal Revenue Code of 1986, the advance may be 
     collateralized as provided in section 10(a) of this Act.''; 
     and
       (3) by striking subsection (b).

     SEC. 166. POWERS AND DUTIES OF BANKS.

       (a) Subsection (a) of section 11 of the Federal Home Loan 
     Bank Act (12 U.S.C. 1431(a)) is amended--
       (1) by inserting ``through the Office of Finance'' after 
     ``to issue'';
       (2) by striking ``Board'' after ``upon such terms and 
     conditions as the'' and inserting ``board of directors of the 
     bank''.
       (b) Subsection (b) of section 11 of the Federal Home Loan 
     Bank Act (12 U.S.C. 1431(b)) is amended to read as follows:
       ``(b) Issuance of Federal Home Loan Bank Consolidated 
     Bonds.--
       ``(1) In general.-- The Office of Finance may issue 
     consolidated Federal home loan bank bonds and other 
     consolidated obligations on behalf of the banks.
       ``(2) Joint and several obligation; terms and conditions.--
     Consolidated obligations issued by the Office of Finance 
     under paragraph (1) shall--
       ``(A) be the joint and several obligations of all the 
     Federal home loan banks; and
       ``(B) shall be issued upon such terms and conditions as 
     shall be established by the Office of Finance subject to such 
     rules and regulations as the Finance Board may prescribe.''.
       (c) Section 11(f) of the Federal Home Loan Bank Act (12 
     U.S.C. 1430(f) (as designated before the redesignation by 
     subsection (e) of this section) is amended by striking both 
     commas immediately following ``permit'' and inserting ``or''.
       (d) Subsection (i) of section 11 of the Federal Home Loan 
     Bank Act (12 U.S.C. 1431(i)) is amended by striking the 2d 
     undesignated paragraph.
       (e) Section 11 of the Federal Home Loan Bank Act (12 U.S.C. 
     1431) is amended--
       (1) by striking subsection (c); and
       (2) by redesignating subsections (d) through (k) as 
     subsections (c) through (j), respectively.

     SEC. 167. MERGERS AND CONSOLIDATIONS OF FEDERAL HOME LOAN 
                   BANKS.

       Section 26 of the Federal Home Loan Bank Act (12 U.S.C. 
     1446) is amended by designating the current paragraph as 
     ``(a)'' and adding the following new sections:
       ``(b) Nothing in this section shall preclude voluntary 
     mergers, combinations or consolidation by or among the 
     Federal home loan banks pursuant to such regulations as the 
     Finance Board may prescribe.
       ``(c) Number of Elected Directors of Resulting Bank.-- 
     Subject to section 7 of this Act, any bank resulting from a 
     merger, combination, or consolidation pursuant to this 
     section may have a number of elected directors equal to or 
     less than the total number of elected directors of all the 
     banks which participated in such transaction (as determined 
     immediately before such transaction).
       ``(d) Number of Appointed Directors of Resulting Bank.--The 
     number of appointed directors of any bank resulting from a 
     merger, combination, or consolidation pursuant to this 
     section shall be a number that is three less than the number 
     of elected directors.
       ``(e) Adjustment of District Boundaries.--After 
     consummation of any merger, combination, or consolidation of 
     2 or more Federal home loan banks, the Finance Board shall 
     adjust the districts established in section 3 of this Act to 
     reflect such merger, combination, or consolidation.''.

     SEC. 168. TECHNICAL AMENDMENTS.

       (a) Repeal of Sections 22A and 27.--The Federal Home Loan 
     Bank Act (12 U.S.C. 1421 et seq.) is amended by striking 
     sections 22A (12 U.S.C. 1442a) and 27 (12 U.S.C. 1447).
       (b) Section 12.--
       (1) Section 12(a) of the Federal Home Loan Bank Act (12 
     U.S.C. 1432(a)) is amended--
       (A) by striking ``subject to the approval of the Board'' 
     immediately following ``transaction of its business''; and
       (B) by striking ``and, by its Board of directors, to 
     prescribe, amend, and repeal by-laws, rules, and regulations 
     governing the manner in which its affairs may be 
     administered; and the powers granted to it by law may be 
     exercised and enjoyed subject to the approval of the Board. 
     The president of a Federal Home Loan Bank may also be a 
     member of the Board of directors thereof, but no other 
     officer, employee, attorney, or agent of such bank,'' and 
     inserting ``and, by the board of directors of the bank, to 
     prescribe, amend, and repeal by-laws governing the manner in 
     which its affairs may be administered, consistent with 
     applicable statute and regulation, as administered by the 
     Finance Board. No officer, employee, attorney, or agent of a 
     Federal home loan bank''.
       (2) Section 12 of the Federal Home Loan Bank Act (12 U.S.C. 
     1432) is amended by inserting after subsection (b) the 
     following new subsection:
       ``(c) Prohibition on Excessive Compensation.--
       ``(1) In general.--The Finance Board shall prohibit the 
     Federal home loan banks from providing compensation to any 
     officer, director, or employee that is not reasonable and 
     comparable with the compensation for employment in other 
     similar businesses involving similar duties and 
     responsibilities. However, the Finance Board may not 
     prescribe or set a specific level or range of compensation 
     for any officer, director, or employee.
       ``(2) Regulations.--The Finance Board, by regulation, may 
     provide for the requirements of paragraph (1) to be phased-in 
     over a period not to exceed 3 years.
       ``(3) Exception for existing contracts.--Paragraph (1) 
     shall not apply to any contract entered into before June 1, 
     1997.''.
       (c) Powers and Duties of Federal Housing Finance Board.--
       (1) Subsection (a)(1) of section 2B of the Federal Home 
     Loan Bank Act (12 U.S.C. 1422b(a)(1)) is amended by striking 
     the period at the end of the sentence and inserting ``; and 
     to have the same powers, rights, and duties to enforce this 
     Act with respect to the Federal home loan banks and the 
     senior officers and directors of such banks as the Office of 
     Federal Housing Enterprise Oversight has over the Federal 
     housing enterprises and the senior officers and directors of 
     such enterprises under the Federal Housing Enterprises 
     Financial Safety and Soundness Act of 1992.''.
       (2) Subsection (b) of section 2B of the Federal Home Loan 
     Bank Act (12 U.S.C. 1422b(b)) is amended--
       (A) by striking ``(1) Board staff.--'';
       (B) by striking ``function to any employee, administrative 
     unit'' and inserting ``function to any employee or 
     administrative unit'';
       (C) by striking the 2d sentence in paragraph (1); and
       (D) by striking paragraph (2).
       (3) Section 111 of Public Law 93-495 (12 U.S.C. 250) is 
     amended by striking ``Federal Home Loan Bank Board'' and 
     inserting ``Federal Housing Finance Board''.
       (d) Eligibility to Secure Advances.--
       (1) Section 9.--Section 9 of the Federal Home Loan Bank Act 
     (12 U.S.C. 1429) is amended--
       (A) in the second sentence, by striking ``with the approval 
     of the Board''; and

[[Page H3158]]

       (B) in the third sentence, by striking ``, subject to the 
     approval of the Board,''.
       (2) Section 10.--
       (A) Subsection (a) of section 10 of the Federal Home Loan 
     Bank Act (12 U.S.C. 1430(a)) is amended in paragraph (3), by 
     striking ``Deposits'' and inserting ``Cash or deposits''.
       (B) Subsection (c) of section 10 of the Federal Home Loan 
     Bank Act (12 U.S.C. 1430(c)) is amended--
       (i) in the 1st sentence by striking ``Board'' and inserting 
     ``Federal home loan bank''; and
       (ii) by striking the 2d sentence.
       (C) Subsection (d) of section 10 of the Federal Home Loan 
     Bank Act (12 U.S.C. 1430(d)) is amended--
       (i) in the 1st sentence, by striking ``and the approval of 
     the Board'';
       (ii) in the last sentence, by striking ``Subject to the 
     approval of the Board, any'' and inserting ``Any''.
       (D) Section 10(j) of the Federal Home Loan Bank Act (12 
     U.S.C. 1430(j)) is amended--
       (i) in the 1st sentence of paragraph (1) by striking ``to 
     subsidize the interest rate on advances'' and inserting ``to 
     provide subsidies, including subsidized interest rates on 
     advances'';
       (ii) in paragraphs (2), (3), (4), (5), (9), (11), and (12) 
     by striking ``advances'' and ``subsidized advances'' each 
     place such terms appear and inserting ``subsidies, including 
     subsidized advances'';
       (iii) in paragraph (1), by inserting ``(A)'' before the 1st 
     sentence, and inserting the following at the end of the 
     paragraph:
       ``(B) Subject to such regulations as the Finance Board may 
     prescribe, the board of directors of each Federal home loan 
     bank may approve or disapprove requests from members for 
     Affordable Housing Program subsidies, and may not delegate 
     such authority.'';
       (iv) in paragraph (2), by striking subparagraph (B) and 
     inserting the following new subparagraph:
       ``(B) finance the purchase, construction or rehabilitation 
     of rental housing if, for a period of at least 15 years, 
     either 20 percent or more of the units in such housing are 
     occupied by and affordable for households whose income is 50 
     percent or less of area median income (as determined by the 
     Secretary of Housing and Urban Development, and as adjusted 
     for family size); or 40 percent or more of the units in such 
     housing are occupied by and affordable for households whose 
     income is 60 percent or less of area median income (as 
     determined by the Secretary of Housing and Urban Development, 
     and as adjusted for family size).'';
       (v) in paragraph (5)--

       (I) by striking the colon after ``Affordable Housing 
     Program'';
       (II) by striking subparagraphs (A) and (B); and
       (III) by striking ``(C) In 1995, and subsequent years,'';

       (vi) in paragraph (11)--

       (I) by inserting ``, pursuant to a nomination process that 
     is as broad and as participatory as possible, and giving 
     consideration to the size of the District and the diversity 
     of low- and moderate-income housing needs and activities 
     within the District,'' after ``Advisory Council of 7 to 15 
     persons'';
       (II) by inserting ``a diverse range of'' before ``community 
     and nonprofit organizations''; and
       (III) by inserting after the 1st sentence, the following 
     new sentence: ``Representatives of no one group shall 
     constitute an undue proportion of the membership of the 
     Advisory Council.''; and

       (vii) in paragraph (13), by striking subparagraph (D) and 
     inserting the following new subparagraph:
       ``(D) Affordable.--For purposes of paragraph (2)(B), the 
     term ``affordable'' means that the rent with respect to a 
     unit shall not exceed 30 percent of the income limitation 
     under paragraph (2)(B) applicable to occupants of such 
     unit.''.
       (e) Section 16.--Subsection (a) of section 16 of the 
     Federal Home Loan Bank Act (12 U.S.C. 1436) is amended in the 
     3d sentence by striking ``net earnings'' and inserting 
     ``previously retained earnings or current net earnings''; by 
     striking ``, and then only with the approval of the Federal 
     Housing Finance Board''; and by striking the 4th sentence.
       (f) Section 18.--Subsection (b) of section 18 of the 
     Federal Home Loan Bank Act (12 U.S.C. 1438) is amended by 
     striking paragraph (4).
       (g) Section 11.--Section 11 of the Federal Home Loan Bank 
     Act (12 U.S.C. 1431) is amended by inserting after subsection 
     (j) (as so redesignated by section 166(e) of this subtitle) 
     the following subsection:
       ``(k) Prohibition on Other Activities.--
       ``(1) A Federal home loan bank may not engage in any 
     activity other than the activities authorized under this Act 
     and activities incidental to such authorized activities.
       ``(2) All activities specified in paragraph (1) are subject 
     to Finance Board approval.''.

     SEC. 169. DEFINITIONS.

       Paragraph (3) of section 2 of the Federal Home Loan Bank 
     Act (12 U.S.C. 1422(3)) is amended to read as follows:
       ``(3) The term ``State'' in addition to the states of the 
     United States, includes the District of Columbia, Guam, 
     Puerto Rico, the United States Virgin Islands, American 
     Samoa, and the Commonwealth of the Northern Mariana 
     Islands.''

     SEC. 170. RESOLUTION FUNDING CORPORATION

       (a) In General.--Section 21B(f)(2)(C) of the Federal Home 
     Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is amended to read 
     as follows:
       ``(C) Payments by federal home loan banks.--To the extent 
     the amounts available pursuant to subparagraphs (A) and (B) 
     are insufficient to cover the amount of interest payments, 
     each Federal home loan bank shall pay to the Funding 
     Corporation each calendar year 20.75 percent of the net 
     earnings of such bank (after deducting expenses relating to 
     subsection (j) of section 10 and operating expenses).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on January 1, 1999.

     SEC. 171. CAPITAL STRUCTURE OF THE FEDERAL HOME LOAN BANKS.

       (a) In General.--Section 6 of the Federal Home Loan Bank 
     Act (12 U.S.C. 1426) is amended to read as follows:

     ``SEC. 6. CAPITAL STRUCTURE OF FEDERAL HOME LOAN BANKS.

       ``(a) Capital Structure Plan.--On or before January 1, 
     1999, the board of directors of each Federal home loan bank 
     shall submit for Finance Board approval a plan establishing 
     and implementing a capital structure for such bank which--
       ``(1) the board of directors determines is the best suited 
     for the condition and operation of the bank and the interests 
     of the shareholders of the bank;
       ``(2) meets the requirements of subsection (b); and
       ``(3) meets the minimum capital standards and requirements 
     established under subsection (c) and any regulations 
     prescribed by the Finance Board pursuant to such subsection.
       ``(b) Contents of Plan.--The capital structure plan of each 
     Federal home loan bank shall meet the following requirements:
       ``(1) Stock purchase requirements.--
       ``(A) In general.--Each capital structure plan of a Federal 
     home loan bank shall require the shareholders of the bank to 
     maintain an investment in the stock of the bank in amount not 
     less than--
       ``(i) a minimum percentage of the total assets of the 
     shareholder; and
       ``(ii) a minimum percentage of the outstanding advances 
     from the bank to the shareholder.
       ``(B) Minimum percentage levels.--The minimum percentages 
     established pursuant to subparagraph (A) shall be set at 
     levels sufficient to meet the bank's minimum capital 
     requirements established by the Finance Board under 
     subsection (c).
       ``(C) Maximum asset based capital requirement.--The asset-
     based capital requirement applicable to any shareholder of a 
     Federal home loan bank in any year shall not exceed the 
     lesser of--
       ``(i) 0.6 percent of a shareholder's total assets at the 
     close of the preceding year; or
       ``(ii) $300,000,000.
       ``(D) Maximum advance-based requirement.--The advance-based 
     capital requirement applicable to any shareholder of a 
     Federal home loan bank shall not exceed 6 percent of the 
     total outstanding advances from the bank to the shareholder.
       ``(E) Minimum stock purchase requirement authorized.--A 
     capital structure plan may establish a minimum dollar amount 
     of stock of a Federal home loan bank in which a shareholder 
     shall be required to invest.
       ``(2) Adjustments to stock purchase requirements.--The 
     capital structure plan adopted by each Federal home loan bank 
     shall impose a continuing obligation on the board of 
     directors of the bank to review and adjust as necessary 
     member stock purchase requirements in order to ensure that 
     the bank remains in compliance with applicable minimum 
     capital levels established by the Finance Board.
       ``(3) Transition rule for stock purchase requirements.--
       ``(A) In general.--A capital structure plan may allow 
     shareholders who were members of a Federal home loan bank on 
     the date of the enactment of the Financial Services Act of 
     1998 to come into compliance with the asset-based stock 
     purchase requirement established under paragraph (1) during a 
     transition period established under the plan of not more than 
     3 years, if such requirement exceeds the asset-based stock 
     purchase requirement in effect on such date of enactment.
       ``(B) Interim purchase requirements.--A capital structure 
     plan may establish interim asset-based stock purchase 
     requirements applicable to members referred to in 
     subparagraph (A) during a transition period established under 
     subparagraph (A).
       ``(4) Classes of stock.--
       ``(A) In general.--Each capital structure plan shall afford 
     each shareholder of a Federal home loan bank the option of 
     meeting the shareholder's stock purchase requirements through 
     the purchase of any combination of Class A or Class B stock.
       ``(B) Class a stock.--Class A stock shall be stock of a 
     Federal home loan bank that shall be redeemed in cash and at 
     par by the bank no later than 12 months following submission 
     of a written notice by a shareholder of the shareholder's 
     intention to divest all shares of stock in the bank.
       ``(C) Class b stock.--Class B stock shall be stock of a 
     Federal home loan bank that shall be redeemed in cash and at 
     par by the bank no later than 5 years following submission of 
     a written notice by a shareholder of the shareholder's 
     intention to divest all shares of stock in the bank.
       ``(D) Rights requirement.--The Class B stock of a Federal 
     home loan bank may receive a dividend premium over that paid 
     on Class A stock, and may have preferential

[[Page H3159]]

     voting rights in the election of Federal home loan bank 
     directors.
       ``(E) Lower stock purchase requirements for class b 
     stock.--A capital structure plan may provide for lower stock 
     purchase requirements with respect to those shareholder's 
     that elect to purchase Class B stock in a manner that is 
     consistent with meeting the bank's own minimum capital 
     requirements as established by the Finance Board.
       ``(F) No other classes of stock permitted.--No class of 
     stock other than the Class A and Class B stock described in 
     subparagraphs (B) and (C) may be issued by a Federal home 
     loan bank.
       ``(5) Limited transferability of stock.--Each capital 
     structure plan shall provide that any equity securities 
     issued by the bank shall be available only to, held only by, 
     and tradable only among shareholders of the bank.
       ``(c) Capital Standards.--
       ``(1) In general.--The Finance Board shall prescribe, by 
     regulation, uniform capital standards applicable to each 
     Federal home loan bank which shall include--
       ``(A) a leverage limit in accordance with paragraph (2); 
     and
       ``(B) a risk-based capital requirement in accordance with 
     paragraph (3).
       ``(2) Minimum leverage limit.--The leverage limit 
     established by the Finance Board shall require each Federal 
     home loan bank to maintain total capital in an amount not 
     less than 5 percent of the total assets of the bank. In 
     determining compliance with the minimum leverage ratio, the 
     amount of retained earnings and the paid-in value of Class B 
     stock, if any, shall be multiplied by 1.5 and such higher 
     amount shall be deemed to be capital for purposes of meeting 
     the 5 percent minimum leverage ratio.
       ``(3) Risk-based capital standard.--The risk-based capital 
     requirement shall be composed of the following components:
       ``(A) Capital sufficient to meet the credit risk to which a 
     Federal home loan bank is subject, based on an amount which 
     is not less than the amount of tier 1, risk-based capital 
     required by regulations prescribed, or guidelines issued 
     under section 38 of the Federal Deposit Insurance Act for a 
     well capitalized insured depository institution.
       ``(B) Capital sufficient to meet the interest rate risk to 
     which a Federal home loan bank is subject, based on an 
     interest rate stress test applied by the Finance Board that 
     rigorously tests for changes in interest rates, rate 
     volatility, and changes in the shape of the yield curve.
       ``(d) Redemption of Capital.--
       ``(1) In general.--Any shareholder of a Federal home loan 
     bank shall have the right to withdraw the shareholder's 
     membership from a Federal home loan bank and to redeem the 
     shareholder's stock in accordance with the redemption rights 
     associated with the class of stock the shareholder holds, 
     if--
       ``(A) such shareholder has filed a written notice of an 
     intention to redeem all such shares; and
       ``(B) the shareholder has no outstanding advances from any 
     Federal home loan bank at the time of such redemption.
       ``(2) Partial redemption.--A shareholder who files notice 
     of intention to redeem all shares of stock in a Federal home 
     loan bank may redeem not more than 1/2 of all such shares, in 
     cash and at par, 6 months before the date by which the bank 
     is required to redeem such stock pursuant to subparagraph (B) 
     or (C) of subsection (b)(4).
       ``(3) Divestiture.--The board of directors of any Federal 
     home loan bank may, after a hearing, order the divestiture by 
     any shareholder of all ownership interests of such 
     shareholder in the bank, if--
       ``(A) in the opinion of the board of directors, such 
     shareholder has failed to comply with a provision of this Act 
     or any regulation prescribed under this Act; or
       ``(B) the shareholder has been determined to be insolvent, 
     or otherwise subject to the appointment of a conservator, 
     receiver, or other legal custodian, by a State or Federal 
     authority with regulatory and supervisory responsibility for 
     such shareholder.
       ``(4) Retirement of excess stock.--Any shareholder may--
       ``(A) retire shares of Class A stock or, at the option of 
     the shareholder, shares of Class B stock, or any combination 
     of Class A and Class B stock, that are excess to the minimum 
     stock purchase requirements applicable to the shareholder; 
     and
       ``(B) receive from the Federal home loan bank a prompt 
     payment in cash equal to the par value of such stock.
       ``(5) Impairment of capital.--If the Finance Board or the 
     board of directors of a Federal home loan bank determines 
     that the paid-in capital of the bank is, or is likely to be, 
     impaired as a result of losses in or depreciation of the 
     assets of the bank, the Federal home loan bank shall withhold 
     that portion of the amount due any shareholder with respect 
     to any redemption or retirement of any class of stock which 
     bears the same ratio to the total of such amount as the 
     amount of the impaired capital bears to the total amount of 
     capital allocable to such class of stock.
       ``(6) Policies.--Subject to the requirements of this 
     section, the board of directors of each Federal home loan 
     bank shall promptly establish policies, consistent with this 
     Act, governing the capital stock of such bank and other 
     provisions of this section.''.

     SEC. 172. INVESTMENTS.

       Subsection (j) of section 11 of the Federal Home Loan Bank 
     Act (12 U.S.C. 1431) (as so redesignated by section 166(e) of 
     this subtitle) is amended to read as follows:
       ``(j) Investments.--Each bank shall reduce its investments 
     to those necessary for liquidity purposes, for safe and sound 
     operation of the banks, or for housing finance, as 
     administered by the Finance Board.''.

     SEC. 173. FEDERAL HOUSING FINANCE BOARD.

       Section 2A(b)(1) of the Federal Home Loan Bank Act (12 
     U.S.C. 1422(b)(1)) is amended--
       (1) by redesignating subparagraphs (A) and (B) as 
     subparagraphs (B) and (C), respectively;
       (2) by inserting before subparagraph (B) (as so 
     redesignated by paragraph (1) of this section) the following 
     new subparagraph:
       ``(A) The Secretary of the Treasury (or the Secretary of 
     the Treasury's designee), who shall serve without additional 
     compensation.''; and
       (3) in subparagraph (C) (as so redesignated by paragraph 
     (1) of this section) by striking ``Four'' and inserting 
     ``3''.

                 Subtitle H--Direct Activities of Banks

     SEC. 181. AUTHORITY OF NATIONAL BANKS TO UNDERWRITE CERTAIN 
                   MUNICIPAL BONDS

       The paragraph designated the Seventh of section 5136 of the 
     Revised Statutes of the United States (12 U.S.C. 24(7)) is 
     amended by adding at the end the following new sentence: ``In 
     addition to the provisions in this paragraph for dealing in, 
     underwriting or purchasing securities, the limitations and 
     restrictions contained in this paragraph as to dealing in, 
     underwriting, and purchasing investment securities for the 
     national bank's own account shall not apply to obligations 
     (including limited obligation bonds, revenue bonds, and 
     obligations that satisfy the requirements of section 
     142(b)(1) of the Internal Revenue Code of 1986) issued by or 
     on behalf of any state or political subdivision of a state, 
     including any municipal corporate instrumentality of 1 or 
     more states, or any public agency or authority of any state 
     or political subdivision of a state, if the national banking 
     association is well capitalized (as defined in section 38 of 
     the Federal Deposit Insurance Act).''.

                  Subtitle I--Effective Date of Title

     SEC. 191. EFFECTIVE DATE.

       Except with regard to any subtitle or other provision of 
     this title for which a specific effective date is provided, 
     this title and the amendments made by this title shall take 
     effect at the end of the 270-day period beginning on the date 
     of the enactment of this Act.

                    TITLE II--FUNCTIONAL REGULATION

                    Subtitle A--Brokers and Dealers

     SEC. 201. DEFINITION OF BROKER.

       Section 3(a)(4) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78c(a)(4)) is amended to read as follows:
       ``(4) Broker.--
       ``(A) In general.--The term `broker' means any person 
     engaged in the business of effecting transactions in 
     securities for the account of others.
       ``(B) Exception for certain bank activities.--A bank shall 
     not be considered to be a broker because the bank engages in 
     any of the following activities under the conditions 
     described:
       ``(i) Third party brokerage arrangements.--The bank enters 
     into a contractual or other arrangement with a broker or 
     dealer registered under this title under which the broker or 
     dealer offers brokerage services on or off the premises of 
     the bank if--

       ``(I) such broker or dealer is clearly identified as the 
     person performing the brokerage services;
       ``(II) the broker or dealer performs brokerage services in 
     an area that is clearly marked and, to the extent 
     practicable, physically separate from the routine deposit-
     taking activities of the bank;
       ``(III) any materials used by the bank to advertise or 
     promote generally the availability of brokerage services 
     under the contractual or other arrangement clearly indicate 
     that the brokerage services are being provided by the broker 
     or dealer and not by the bank;
       ``(IV) any materials used by the bank to advertise or 
     promote generally the availability of brokerage services 
     under the contractual or other arrangement are in compliance 
     with the Federal securities laws before distribution;
       ``(V) bank employees (other than associated persons of a 
     broker or dealer who are qualified pursuant to the rules of a 
     self-regulatory organization) perform only clerical or 
     ministerial functions in connection with brokerage 
     transactions including scheduling appointments with the 
     associated persons of a broker or dealer, except that bank 
     employees may forward customer funds or securities and may 
     describe in general terms the range of investment vehicles 
     available from the bank and the broker or dealer under the 
     contractual or other arrangement;
       ``(VI) bank employees do not directly receive incentive 
     compensation for any brokerage transaction unless such 
     employees are associated persons of a broker or dealer and 
     are qualified pursuant to the rules of a self-regulatory 
     organization, except that the bank employees may receive 
     compensation for the referral of any customer if the 
     compensation is a nominal one-time cash fee of a fixed dollar 
     amount and the payment of the fee is not contingent on 
     whether the referral results in a transaction;

[[Page H3160]]

       ``(VII) such services are provided by the broker or dealer 
     on a basis in which all customers which receive any services 
     are fully disclosed to the broker or dealer;
       ``(VIII) the bank does not carry a securities account of 
     the customer except in a customary custodian or trustee 
     capacity; and
       ``(IX) the bank, broker, or dealer informs each customer 
     that the brokerage services are provided by the broker or 
     dealer and not by the bank and that the securities are not 
     deposits or other obligations of the bank, are not guaranteed 
     by the bank, and are not insured by the Federal Deposit 
     Insurance Corporation.

       ``(ii) Trust activities.--The bank--

       ``(I) effects transactions in a trustee capacity and is 
     primarily compensated based on an annual fee (payable on a 
     monthly, quarterly, or other basis) or percentage of assets 
     under management, or both; or
       ``(II) effects transactions in a fiduciary capacity in its 
     trust department or other department that is regularly 
     examined by bank examiners for compliance with fiduciary 
     principles and standards and--

       ``(aa) is primarily compensated on the basis of either an 
     annual fee (payable on a monthly, quarterly, or other basis), 
     a percentage of assets under management, or both, and does 
     not receive brokerage commissions or other similar 
     remuneration based on effecting transactions in securities, 
     other than the cost incurred by the bank in connection with 
     executing securities transactions for fiduciary customers; 
     and
       ``(bb) does not publicly solicit brokerage business, other 
     than by advertising that it effects transactions in 
     securities in conjunction with advertising its other trust 
     activities.
       ``(iii) Permissible securities transactions.--The bank 
     effects transactions in--

       ``(I) commercial paper, bankers acceptances, or commercial 
     bills;
       ``(II) exempted securities;
       ``(III) qualified Canadian government obligations as 
     defined in section 5136 of the Revised Statutes, in 
     conformity with section 15C of this title and the rules and 
     regulations thereunder, or obligations of the North American 
     Development Bank; or
       ``(IV) any standardized, credit enhanced debt security 
     issued by a foreign government pursuant to the March 1989 
     plan of then Secretary of the Treasury Brady, used by such 
     foreign government to retire outstanding commercial bank 
     loans.

       ``(iv) Certain stock purchase plans.--

       ``(I) In general.--The bank effects transactions, as part 
     of its transfer agency activities, in--

       ``(aa) the securities of an issuer as part of any pension, 
     retirement, profit-sharing, bonus, thrift, savings, 
     incentive, or other similar benefit plan for the employees of 
     that issuer or its subsidiaries, if the bank does not solicit 
     transactions or provide investment advice with respect to the 
     purchase or sale of securities in connection with the plan;
       ``(bb) the securities of an issuer as part of that issuer's 
     dividend reinvestment plan, if the bank does not--
       ``(AA) solicit transactions or provide investment advice 
     with respect to the purchase or sale of securities in 
     connection with the plan;
       ``(BB) net shareholders' buy and sell orders, other than 
     for programs for odd-lot holders or plans registered with the 
     Commission; or
       ``(cc) the securities of an issuer as part of a plan or 
     program for the purchase or sale of that issuer's shares, 
     if--
       ``(AA) the bank does not solicit transactions or provide 
     investment advice with respect to the purchase or sale of 
     securities in connection with the plan or program;
       ``(BB) the bank does not net shareholders' buy and sell 
     orders, other than for programs for odd-lot holders or plans 
     registered with the Commission; and
       ``(CC) the bank's compensation for such plan or program 
     consists of administration fees, or flat or capped per order 
     processing fees, or both, plus the cost incurred by the bank 
     in connection with executing securities transactions 
     resulting from such plan or program.

       ``(II) Permissible delivery of materials.--The exception to 
     being considered a broker for a bank engaged in activities 
     described in subclause (I) will not be affected by a bank's 
     delivery of written or electronic plan materials to employees 
     of the issuer, shareholders of the issuer, or members of 
     affinity groups of the issuer, so long as such materials 
     are--

       ``(aa) comparable in scope or nature to that permitted by 
     the Commission as of the date of the enactment of the 
     Financial Services Act of 1998; or
       ``(bb) otherwise permitted by the Commission.
       ``(v) Sweep accounts.--The bank effects transactions as 
     part of a program for the investment or reinvestment of bank 
     deposit funds into any no-load, open-end management 
     investment company registered under the Investment Company 
     Act of 1940 that holds itself out as a money market fund.
       ``(vi) Affiliate transactions.--The bank effects 
     transactions for the account of any affiliate of the bank (as 
     defined in section 2 of the Bank Holding Company Act of 1956) 
     other than--

       ``(I) a registered broker or dealer; or
       ``(II) an affiliate that is engaged in merchant banking, as 
     described in section 6(c)(3)(H) of the Bank Holding company 
     Act of 1956.

       ``(vii) Private securities offerings.--The bank--

       ``(I) effects sales as part of a primary offering of 
     securities not involving a public offering, pursuant to 
     section 3(b), 4(2), or 4(6) of the Securities Act of 1933 or 
     the rules and regulations issued thereunder;
       ``(II) at any time after one year after the date of 
     enactment of the Financial Services Act of 1998, is not 
     affiliated with a broker or dealer that has been registered 
     for more than one year; and
       ``(III) effects transactions exclusively with qualified 
     investors.

       ``(viii) Safekeeping and custody activities.--

       ``(I) In general.--The bank, as part of customary banking 
     activities--

       ``(aa) provides safekeeping or custody services with 
     respect to securities, including the exercise of warrants and 
     other rights on behalf of customers;
       ``(bb) facilitates the transfer of funds or securities, as 
     a custodian or a clearing agency, in connection with the 
     clearance and settlement of its customers' transactions in 
     securities;
       ``(cc) effects securities lending or borrowing transactions 
     with or on behalf of customers as part of services provided 
     to customers pursuant to division (aa) or (bb) or invests 
     cash collateral pledged in connection with such transactions; 
     or
       ``(dd) holds securities pledged by a customer to another 
     person or securities subject to purchase or resale agreements 
     involving a customer, or facilitates the pledging or transfer 
     of such securities by book entry or as otherwise provided 
     under applicable law.

       ``(II) Exception for carrying broker activities.--The 
     exception to being considered a broker for a bank engaged in 
     activities described in subclause (I) shall not apply if the 
     bank, in connection with such activities, acts in the United 
     States as a carrying broker (as such term, and different 
     formulations thereof, are used in section 15(c)(3) and the 
     rules and regulations thereunder) for any broker or dealer, 
     unless such carrying broker activities are engaged in with 
     respect to government securities (as defined in paragraph 
     (42) of this subsection).

       ``(ix) Banking products.--The bank effects transactions in 
     traditional banking products, as defined in section 206(a) of 
     the Financial Services Act of 1998.
       ``(x) De minimis exception.--The bank effects, other than 
     in transactions referred to in clauses (i) through (ix), not 
     more than 500 transactions in securities in any calendar 
     year, and such transactions are not effected by an employee 
     of the bank who is also an employee of a broker or dealer.
       ``(C) Broker dealer execution.--The exception to being 
     considered a broker for a bank engaged in activities 
     described in clauses (ii), (iv), and (viii) of subparagraph 
     (B) shall not apply if the activities described in such 
     provisions result in the trade in the United States of any 
     security that is a publicly traded security in the United 
     States, unless--
       ``(i) the bank directs such trade to a registered or broker 
     dealer for execution;
       ``(ii) the trade is a cross trade or other substantially 
     similar trade of a security that--

       ``(I) is made by the bank or between the bank and an 
     affiliated fiduciary; and
       ``(II) is not in contravention of fiduciary principles 
     established under applicable Federal or State law; or

       ``(iii) the trade is conducted in some other manner 
     permitted under rules, regulations, or orders as the 
     Commission may prescribe or issue.
       ``(D) No effect of bank exemptions on other commission 
     authority.--The exception to being considered a broker for a 
     bank engaged in activities described in subparagraphs (B) and 
     (C) shall not affect the commission's authority under any 
     other provision of this Act or any other securities law.
       ``(E) Fiduciary capacity.--For purposes of subparagraph 
     (B)(ii), the term `fiduciary capacity' means--
       ``(i) in the capacity as trustee, executor, administrator, 
     registrar of stocks and bonds, transfer agent, guardian, 
     assignee, receiver, or custodian under a uniform gift to 
     minor act, or as an investment adviser if the bank receives a 
     fee for its investment advice;
       ``(ii) in any capacity in which the bank possesses 
     investment discretion on behalf of another; or
       ``(iii) in any other similar capacity.
       ``(F) Exception for entities subject to section 15(e).--The 
     term `broker' does not include a bank that--
       ``(i) was, immediately prior to the enactment of the 
     Financial Services Act of 1998, subject to section 15(e); and
       ``(ii) is subject to such restrictions and requirements as 
     the Commission considers appropriate.''.

      SEC. 202. DEFINITION OF DEALER.

       Section 3(a)(5) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78c(a)(5)) is amended to read as follows:
       ``(5) Dealer.--
       ``(A) In general.--The term `dealer' means any person 
     engaged in the business of buying and selling securities for 
     such person's own account through a broker or otherwise.
       ``(B) Exception for person not engaged in the business of 
     dealing.--The term `dealer' does not include a person that 
     buys or sells securities for such person's own account, 
     either individually or in a fiduciary capacity, but not as a 
     part of a regular business.
       ``(C) Exception for certain bank activities.--A bank shall 
     not be considered to be a

[[Page H3161]]

     dealer because the bank engages in any of the following 
     activities under the conditions described:
       ``(i) Permissible securities transactions.--The bank buys 
     or sells--

       ``(I) commercial paper, bankers acceptances, or commercial 
     bills;
       ``(II) exempted securities;
       ``(III) qualified Canadian government obligations as 
     defined in section 5136 of the Revised Statutes of the United 
     States, in conformity with section 15C of this title and the 
     rules and regulations thereunder, or obligations of the North 
     American Development Bank; or
       ``(IV) any standardized, credit enhanced debt security 
     issued by a foreign government pursuant to the March 1989 
     plan of then Secretary of the Treasury Brady, used by such 
     foreign government to retire outstanding commercial bank 
     loans.

       ``(ii) Investment, trustee, and fiduciary transactions.--
     The bank buys or sells securities for investment purposes--

       ``(I) for the bank; or
       ``(II) for accounts for which the bank acts as a trustee or 
     fiduciary.

       ``(iii) Asset-backed transactions.--The bank engages in the 
     issuance or sale to qualified investors, through a grantor 
     trust or otherwise, of securities backed by or representing 
     an interest in notes, drafts, acceptances, loans, leases, 
     receivables, other obligations, or pools of any such 
     obligations predominantly originated by the bank, or a 
     syndicate of banks of which the bank is a member, or an 
     affiliate of any such bank other than a broker or dealer.
       ``(iv) Banking products.--The bank buys or sells 
     traditional banking products, as defined in section 206(a) of 
     the Financial Services Act of 1998.
       ``(v) Derivative instruments.--The bank issues, buys, or 
     sells any derivative instrument to which the bank is a 
     party--

       ``(I) to or from a corporation, limited liability company, 
     or partnership that owns and invests on a discretionary 
     basis, not less than $10,000,000 in investments, or to or 
     from a qualified investor, except that if the instrument 
     provides for the delivery of one or more securities (other 
     than a derivative instrument or government security), the 
     transaction shall be effected with or through a registered 
     broker or dealer; or
       ``(II) to or from other persons, except that if the 
     derivative instrument provides for the delivery of one or 
     more securities (other than a derivative instrument or 
     government security), or is a security (other than a 
     government security), the transaction shall be effected with 
     or through a registered broker or dealer; or
       ``(III) to or from any person if the instrument is neither 
     a security nor provides for the delivery of one or more 
     securities (other than a derivative instrument).''.

     SEC. 203. REGISTRATION FOR SALES OF PRIVATE SECURITIES 
                   OFFERINGS.

       Section 15A of the Securities Exchange Act of 1934 (15 
     U.S.C. 78o-3) is amended by inserting after subsection (i) 
     the following new subsection:
       ``(j) Registration for Sales of Private Securities 
     Offerings.--A registered securities association shall create 
     a limited qualification category for any associated person of 
     a member who effects sales as part of a primary offering of 
     securities not involving a public offering, pursuant to 
     section 3(b), 4(2), or 4(6) of the Securities Act of 1933 and 
     the rules and regulations thereunder, and shall deem 
     qualified in such limited qualification category, without 
     testing, any bank employee who, in the six month period 
     preceding the date of enactment of this Act, engaged in 
     effecting such sales.''.

     SEC. 204. SALES PRACTICES AND COMPLAINT PROCEDURES.

       Section 18 of the Federal Deposit Insurance Act is amended 
     by adding at the end the following new subsection:
       ``(s) Sales Practices and Complaint Procedures With Respect 
     to Bank Securities Activities.--
       ``(1) Regulations Required.--Each Federal banking agency 
     shall prescribe and publish in final form, not later than 6 
     months after the date of enactment of the Financial Services 
     Act of 1998, regulations which apply to retail transactions, 
     solicitations, advertising, or offers of any security by any 
     insured depository institution or any affiliate thereof other 
     than a registered broker or dealer or an individual acting on 
     behalf of such a broker or dealer who is an associated person 
     of such broker or dealer. Such regulations shall include--
       ``(A) requirements that sales practices comply with just 
     and equitable principles of trade that are substantially 
     similar to the Rules of Fair Practice of the National 
     Association of Securities Dealers; and
       ``(B) requirements prohibiting (i) conditioning an 
     extension of credit on the purchase or sale of a security; 
     and (ii) any conduct leading a customer to believe that an 
     extension of credit is conditioned upon the purchase or sale 
     of a security.
       ``(2) Procedures required.--The appropriate Federal banking 
     agencies shall jointly establish procedures and facilities 
     for receiving and expeditiously processing complaints against 
     any bank or employee of a bank arising in connection with the 
     purchase or sale of a security by a customer, including a 
     complaint alleging a violation of the regulations prescribed 
     under paragraph (1), but excluding a complaint involving an 
     individual acting on behalf of such a broker or dealer who is 
     an associated person of such broker or dealer. The use of any 
     such procedures and facilities by such a customer shall be at 
     the election of the customer. Such procedures shall include 
     provisions to refer a complaint alleging fraud to the 
     Securities and Exchange Commission and appropriate State 
     securities commissions.
       ``(3) Required actions.--The actions required by the 
     Federal banking agencies under paragraph (2) shall include 
     the following:
       ``(A) establishing a group, unit, or bureau within each 
     such agency to receive such complaints;
       ``(B) developing and establishing procedures for 
     investigating, and permitting customers to investigate, such 
     complaints;
       ``(C) developing and establishing procedures for informing 
     customers of the rights they may have in connection with such 
     complaints;
       ``(D) developing and establishing procedures that allow 
     customers a period of at least 6 years to make complaints and 
     that do not require customers to pay the costs of the 
     proceeding; and
       ``(E) developing and establishing procedures for resolving 
     such complaints, including procedures for the recovery of 
     losses to the extent appropriate.
       ``(4) Consultation and joint regulations.--The Federal 
     banking agencies shall consult with each other and prescribe 
     joint regulations pursuant to paragraphs (1) and (2), after 
     consultation with the Securities and Exchange Commission.
       ``(5) Procedures in addition to other remedies.--The 
     procedures and remedies provided under this subsection shall 
     be in addition to, and not in lieu of, any other remedies 
     available under law.
       ``(6) Definition.--As used in this subsection--
       ``(A) the term `security' has the meaning provided in 
     section 3(a)(10) of the Securities Exchange Act of 1934;
       ``(B) the term `registered broker or dealer' has the 
     meaning provided in section 3(a)(48) of such Act; and
       ``(C) the term `associated person' has the meaning provided 
     in section 3(a)(18) of such Act.''.

     SEC. 205. INFORMATION SHARING.

       Section 18 of the Federal Deposit Insurance Act is amended 
     by adding at the end the following new subsection:
       ``(t) Recordkeeping Requirements.--
       ``(1) Requirements.--Each appropriate Federal banking 
     agency, after consultation with and consideration of the 
     views of the Commission, shall establish recordkeeping 
     requirements for banks relying on exceptions contained in 
     paragraphs (4) and (5) of section 3(a) of the Securities 
     Exchange Act of 1934. Such recordkeeping requirements shall 
     be sufficient to demonstrate compliance with the terms of 
     such exceptions and be designed to facilitate compliance with 
     such exceptions. Each appropriate Federal banking agency 
     shall make any such information available to the Commission 
     upon request.
       ``(2) Definitions.--As used in this subsection the term 
     `Commission' means the Securities and Exchange Commission.''.

     SEC. 206. DEFINITION AND TREATMENT OF BANKING PRODUCTS.

       (a) Definition of Traditional Banking Product.--
       (1) In general.--For purposes of paragraphs (4) and (5) of 
     section 3(a) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78c(a)(4), (5)), the term `traditional banking 
     product' means--
       (A) a deposit account, savings account, certificate of 
     deposit, or other deposit instrument issued by a bank;
       (B) a banker's acceptance;
       (C) a letter of credit issued or loan made by a bank;
       (D) a debit account at a bank arising from a credit card or 
     similar arrangement;
       (E) a participation in a loan which the bank or an 
     affiliate of the bank (other than a broker or dealer) funds, 
     participates in, or owns that is sold--
       (i) to qualified investors; or
       (ii) to other persons that--

       ``(I) have the opportunity to review and assess any 
     material information, including information regarding the 
     borrower's creditworthiness; and
       ``(II) based on such factors as financial sophistication, 
     net worth, and knowledge and experience in financial matters, 
     have the capability to evaluate the information available, as 
     determined under generally applicable banking standards or 
     guidelines; or

       (F) any derivative instrument, whether or not individually 
     negotiated, involving or relating to--
       (i) foreign currencies, except options on foreign 
     currencies that trade on a national securities exchange;
       (ii) interest rates, except interest rate derivative 
     instruments (I) that are based on a security; or (II) that 
     provide for the delivery of one or more securities; or
       (iii) commodities, other rates, indices, or other assets, 
     except derivative instruments that are securities or that 
     provide for the delivery of one or more securities.
       (2) Classification limited.--Classification of a particular 
     product as a traditional banking product pursuant to this 
     subsection shall not be construed as finding or implying that 
     such product is oris not a security for any purpose under the 
     securities laws, or is or is not an account, agreement, 
     contract, or transaction for any purpose under the Commodity 
     Exchange Act.

[[Page H3162]]

       (3) Definitions.--For purposes of this subsection--
       (A) the term ``bank'' has the meaning provided in section 
     3(a)(6) of the Securities Exchange Act of 1934 (15 U.S.C. 
     78c(a)(6);
       (B) the term ``qualified investor'' has the meaning 
     provided in section 3(a)(55) of such Act; and
       (C) the term ``Federal banking agency'' has the meaning 
     provided in section 3(z) of the Federal Deposit Insurance Act 
     (12 U.S.C. 1813(z)).
       (b) Treatment of New Banking Products for Purposes of 
     Broker/Dealer Requirements.--Section 15 of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78o) is amended by adding at 
     the end the following new subsection:
       ``(i) Rulemaking to Extend Requirements to New Banking 
     Products.--
       ``(1) Limitation.--The Commission shall not--
       ``(A) require a bank to register as a broker or dealer 
     under this section because the bank engages in any 
     transaction in, or buys or sells, a new banking product; or
       ``(B) bring an action against a bank for a failure to 
     comply with a requirement described in subparagraph (A);

     unless the Commission has imposed such requirement by rule or 
     regulation issued in accordance with this section.
       ``(2) Criteria for rulemaking.--The Commission shall not 
     impose a requirement under paragraph (1) of this subsection 
     with respect to any new banking product unless the Commission 
     determines that--
       ``(A) the new banking product is a security; and
       ``(B) imposing such requirement is necessary or appropriate 
     in the public interest and for the protection of investors, 
     consistent with the requirements of section 3(f).
       ``(3) New banking product.--For purposes of this 
     subsection, the term `new banking product' means a product 
     that--
       ``(A) was not subjected to regulation by the Commission as 
     a security prior to the date of enactment of this subsection; 
     and
       ``(B) is not a traditional banking product, as such term is 
     defined in section 206(a) of the Financial Services Act of 
     1998.
       ``(4) Consultation.--In promulgating rules under this 
     subsection, the Commission shall consult with and consider 
     the views of the appropriate regulatory agencies concerning 
     the proposed rule and the impact on the banking industry.''.

     SEC. 207. DERIVATIVE INSTRUMENT AND QUALIFIED INVESTOR 
                   DEFINED.

       Section 3(a) of the Securities Exchange Act of 1934 is 
     amended by adding at the end the following new paragraphs:
       ``(54) Derivative instrument.--
       ``(A) Definition.--The term `derivative instrument' means 
     any individually negotiated contract, agreement, warrant, 
     note, or option that is based, in whole or in part, on the 
     value of, any interest in, or any quantitative measure or the 
     occurrence of any event relating to, one or more commodities, 
     securities, currencies, interest or other rates, indices, or 
     other assets, but does not include a traditional banking 
     product, as defined in section 206(a) of the Financial 
     Services Act of 1998.
       ``(B) Classification limited.-- Classification of a 
     particular contract as a derivative instrument pursuant to 
     this paragraph shall not be construed as finding or implying 
     that such instrument is or is not a security for any purpose 
     under the securities laws, or is or is not an account, 
     agreement, contract, or transaction for any purpose under the 
     Commodity Exchange Act.
       ``(55) Qualified investor.--
       ``(A) Definition.--For purposes of this title and section 
     206(a)(1)(E) of the Financial Services Act of 1998, the term 
     `qualified investor' means--
       ``(i) any investment company registered with the Commission 
     under section 8 of the Investment Company Act of 1940;
       ``(ii) any issuer eligible for an exclusion from the 
     definition of investment company pursuant to section 3(c)(7) 
     of the Investment Company Act of 1940;
       ``(iii) any bank (as defined in paragraph (6) of this 
     subsection), savings and loan association (as defined in 
     section 3(b) of the Federal Deposit Insurance Act), broker, 
     dealer, insurance company (as defined in section 2(a)(13) of 
     the Securities Act of 1933), or business development company 
     (as defined in section 2(a)(48) of the Investment Company Act 
     of 1940);
       ``(iv) any small business investment company licensed by 
     the United States Small Business Administration under section 
     301(c) or (d) of the Small Business Investment Act of 1958;
       ``(v) any State sponsored employee benefit plan, or any 
     other employee benefit plan, within the meaning of the 
     Employee Retirement Income Security Act of 1974, other than 
     an individual retirement account, if the investment decisions 
     are made by a plan fiduciary, as defined in section 3(21) of 
     that Act, which is either a bank, savings and loan 
     association, insurance company, or registered investment 
     adviser;
       ``(vi) any trust whose purchases of securities are directed 
     by a person described in clauses (i) through (v) of this 
     subparagraph;
       ``(vii) any market intermediary exempt under section 
     3(c)(2) of the Investment Company Act of 1940;
       ``(viii) any associated person of a broker or dealer other 
     than a natural person; or
       ``(ix) any foreign bank (as defined in section 1(b)(7) of 
     the International Banking Act of 1978).
       ``(B) Additional qualifications defined.--For purposes of 
     paragraphs (4)(B)(vii) and (5)(C)(iii) of this subsection, 
     and section 206(a)(1)(E) of the Financial Services Act of 
     1998, the term `qualified investor' also means--
       ``(i) any corporation, company, or partnership that owns 
     and invests on a discretionary basis, not less than 
     $10,000,000 in investments;
       ``(ii) any natural person who owns and invests on a 
     discretionary basis, not less than $10,000,000 in 
     investments;
       ``(iii) any government or political subdivision, agency, or 
     instrumentality of a government who owns and invests on a 
     discretionary basis not less than $50,000,000 in investments; 
     or
       ``(iv) any multinational or supranational entity or any 
     agency or instrumentality thereof.
       ``(C) Additional authority.--The Commission may, by rule or 
     order, define a `qualified investor' as any other person, 
     other than a natural person, taking into consideration such 
     factors as the person's financial sophistication, net worth, 
     and knowledge and experience in financial matters.''.

     SEC. 208. GOVERNMENT SECURITIES DEFINED.

       Section 3(a)(42) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78c(a)(42)) is amended--
       (1) by striking ``or'' at the end of subparagraph (C);
       (2) by striking the period at the end of subparagraph (D) 
     and inserting ``; or''; and
       (3) by adding at the end the following new subparagraph:
       ``(E) for purposes of section 15C as applied to a bank, a 
     qualified Canadian government obligation as defined in 
     section 5136 of the Revised Statutes.''.

     SEC. 209. EFFECTIVE DATE.

       This subtitle shall take effect at the end of the 270-day 
     period beginning on the date of the enactment of this Act.

             Subtitle B--Bank Investment Company Activities

     SEC. 211. CUSTODY OF INVESTMENT COMPANY ASSETS BY AFFILIATED 
                   BANK.

       (a) Management Companies.--Section 17(f) of the Investment 
     Company Act of 1940 (15 U.S.C. 80a-17(f)) is amended--
       (1) by redesignating paragraphs (1), (2), and (3) as 
     subparagraphs (A), (B), and (C), respectively;
       (2) by striking ``(f) Every registered'' and inserting the 
     following:
       ``(f) Custody of Securities.--
       ``(1) Every registered'';
       (3) by redesignating the 2d, 3d, 4th, and 5th sentences of 
     such subsection as paragraphs (2) through (5), respectively, 
     and indenting the left margin of such paragraphs 
     appropriately; and
       (4) by adding at the end the following new paragraph:
       ``(6) The Commission may adopt rules and regulations, and 
     issue orders, consistent with the protection of investors, 
     prescribing the conditions under which a bank, or an 
     affiliated person of a bank, either of which is an affiliated 
     person, promoter, organizer, or sponsor of, or principal 
     underwriter for, a registered management company may serve as 
     custodian of that registered management company.''.
       (b) Unit Investment Trusts.--Section 26 of the Investment 
     Company Act of 1940 (15 U.S.C. 80a-26) is amended--
       (1) by redesignating subsections (b) through (e) as 
     subsections (c) through (f), respectively; and
       (2) by inserting after subsection (a) the following new 
     subsection:
       ``(b) The Commission may adopt rules and regulations, and 
     issue orders, consistent with the protection of investors, 
     prescribing the conditions under which a bank, or an 
     affiliated person of a bank, either of which is an affiliated 
     person of a principal underwriter for, or depositor of, a 
     registered unit investment trust, may serve as trustee or 
     custodian under subsection (a)(1).''.
       (c) Fiduciary Duty of Custodian.--Section 36(a) of the 
     Investment Company Act of 1940 (15 U.S.C. 80a-35(a)) is 
     amended--
       (1) in paragraph (1), by striking ``or'' at the end;
       (2) in paragraph (2), by striking the period at the end and 
     inserting ``; or''; and
       (3) by inserting after paragraph (2) the following:
       ``(3) as custodian.''.

     SEC. 212. LENDING TO AN AFFILIATED INVESTMENT COMPANY.

       Section 17(a) of the Investment Company Act of 1940 (15 
     U.S.C. 80a-17(a)) is amended--
       (1) by striking ``or'' at the end of paragraph (2);
       (2) by striking the period at the end of paragraph (3) and 
     inserting ``; or''; and
       (3) by adding at the end the following new paragraph:
       ``(4) to loan money or other property to such registered 
     company, or to any company controlled by such registered 
     company, in contravention of such rules, regulations, or 
     orders as the Commission may prescribe or issue consistent 
     with the protection of investors.''.

     SEC. 213. INDEPENDENT DIRECTORS.

       (a) In General.--Section 2(a)(19)(A) of the Investment 
     Company Act of 1940 (15 U.S.C. 80a-2(a)(19)(A)) is amended--
       (1) by striking clause (v) and inserting the following new 
     clause:
       ``(v) any person or any affiliated person of a person 
     (other than a registered investment

[[Page H3163]]

     company) that, at any time during the 6-month period 
     preceding the date of the determination of whether that 
     person or affiliated person is an interested person, has 
     executed any portfolio transactions for, engaged in any 
     principal transactions with, or distributed shares for--

       ``(I) the investment company,
       ``(II) any other investment company having the same 
     investment adviser as such investment company or holding 
     itself out to investors as a related company for purposes of 
     investment or investor services, or
       ``(III) any account over which the investment company's 
     investment adviser has brokerage placement discretion,'';

       (2) by redesignating clause (vi) as clause (vii); and
       (3) by inserting after clause (v) the following new clause:
       ``(vi) any person or any affiliated person of a person 
     (other than a registered investment company) that, at any 
     time during the 6-month period preceding the date of the 
     determination of whether that person or affiliated person is 
     an interested person, has loaned money or other property to--

       ``(I) the investment company,
       ``(II) any other investment company having the same 
     investment adviser as such investment company or holding 
     itself out to investors as a related company for purposes 
     of investment or investor services, or

       ``(III) any account for which the investment company's 
     investment adviser has borrowing authority,''.

       (b) Conforming Amendment.--Section 2(a)(19)(B) of the 
     Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)(B)) is 
     amended--
       (1) by striking clause (v) and inserting the following new 
     clause:
       ``(v) any person or any affiliated person of a person 
     (other than a registered investment company) that, at any 
     time during the 6-month period preceding the date of the 
     determination of whether that person or affiliated person is 
     an interested person, has executed any portfolio transactions 
     for, engaged in any principal transactions with, or 
     distributed shares for--

       ``(I) any investment company for which the investment 
     adviser or principal underwriter serves as such,
       ``(II) any investment company holding itself out to 
     investors, for purposes of investment or investor services, 
     as a company related to any investment company for which the 
     investment adviser or principal underwriter serves as such, 
     or
       ``(III) any account over which the investment adviser has 
     brokerage placement discretion,'';

       (2) by redesignating clause (vi) as clause (vii); and
       (3) by inserting after clause (v) the following new clause:
       ``(vi) any person or any affiliated person of a person 
     (other than a registered investment company) that, at any 
     time during the 6-month period preceding the date of the 
     determination of whether that person or affiliated person is 
     an interested person, has loaned money or other property to--

       ``(I) any investment company for which the investment 
     adviser or principal underwriter serves as such,
       ``(II) any investment company holding itself out to 
     investors, for purposes of investment or investor services, 
     as a company related to any investment company for which the 
     investment adviser or principal underwriter serves as such, 
     or
       ``(III) any account for which the investment adviser has 
     borrowing authority,''.

       (c) Affiliation of Directors.--Section 10(c) of the 
     Investment Company Act of 1940 (15 U.S.C. 80a-10(c)) is 
     amended by striking ``bank, except'' and inserting ``bank 
     (together with its affiliates and subsidiaries) or any one 
     bank holding company (together with its affiliates and 
     subsidiaries) (as such terms are defined in section 2 of the 
     Bank Holding Company Act of 1956), except''.
       (d) Effective Date.--The amendments made by this section 
     shall take effect at the end of the 1-year period beginning 
     on the date of enactment of this subtitle.

     SEC. 214. ADDITIONAL SEC DISCLOSURE AUTHORITY.

       Section 35(a) of the Investment Company Act of 1940 (15 
     U.S.C. 80a-34(a)) is amended to read as follows:
       ``(a) Misrepresentation of Guarantees.--
       ``(1) In general.--It shall be unlawful for any person, 
     issuing or selling any security of which a registered 
     investment company is the issuer, to represent or imply in 
     any manner whatsoever that such security or company--
       ``(A) has been guaranteed, sponsored, recommended, or 
     approved by the United States, or any agency, instrumentality 
     or officer of the United States;
       ``(B) has been insured by the Federal Deposit Insurance 
     Corporation; or
       ``(C) is guaranteed by or is otherwise an obligation of any 
     bank or insured depository institution.
       ``(2) Disclosures.--Any person issuing or selling the 
     securities of a registered investment company that is advised 
     by, or sold through, a bank shall prominently disclose that 
     an investment in the company is not insured by the Federal 
     Deposit Insurance Corporation or any other government agency. 
     The Commission may adopt rules and regulations, and issue 
     orders, consistent with the protection of investors, 
     prescribing the manner in which the disclosure under this 
     paragraph shall be provided.
       ``(3) Definitions.--The terms `insured depository 
     institution' and `appropriate Federal banking agency' have 
     the meaning given to such terms in section 3 of the Federal 
     Deposit Insurance Act.''.

     SEC. 215. DEFINITION OF BROKER UNDER THE INVESTMENT COMPANY 
                   ACT OF 1940.

       Section 2(a)(6) of the Investment Company Act of 1940 (15 
     U.S.C. 80a-2(a)(6)) is amended to read as follows:
       ``(6) The term `broker' has the same meaning as in the 
     Securities Exchange Act of 1934, except that such term does 
     not include any person solely by reason of the fact that such 
     person is an underwriter for one or more investment 
     companies.''.

     SEC. 216. DEFINITION OF DEALER UNDER THE INVESTMENT COMPANY 
                   ACT OF 1940.

       Section 2(a)(11) of the Investment Company Act of 1940 (15 
     U.S.C. 80a-2(a)(11)) is amended to read as follows:
       ``(11) The term `dealer' has the same meaning as in the 
     Securities Exchange Act of 1934, but does not include an 
     insurance company or investment company.''.

     SEC. 217. REMOVAL OF THE EXCLUSION FROM THE DEFINITION OF 
                   INVESTMENT ADVISER FOR BANKS THAT ADVISE 
                   INVESTMENT COMPANIES.

       (a) Investment Adviser.--Section 202(a)(11) of the 
     Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(11)) is 
     amended in subparagraph (A), by striking ``investment 
     company'' and inserting ``investment company, except that the 
     term `investment adviser' includes any bank or bank holding 
     company to the extent that such bank or bank holding company 
     serves or acts as an investment adviser to a registered 
     investment company, but if, in the case of a bank, such 
     services or actions are performed through a separately 
     identifiable department or division, the department or 
     division, and not the bank itself, shall be deemed to be the 
     investment adviser''.
       (b) Separately Identifiable Department or Division.--
     Section 202(a) of the Investment Advisers Act of 1940 (15 
     U.S.C. 80b-2(a)) is amended by adding at the end the 
     following:
       ``(26) The term `separately identifiable department or 
     division' of a bank means a unit--
       ``(A) that is under the direct supervision of an officer or 
     officers designated by the board of directors of the bank as 
     responsible for the day-to-day conduct of the bank's 
     investment adviser activities for one or more investment 
     companies, including the supervision of all bank employees 
     engaged in the performance of such activities; and
       ``(B) for which all of the records relating to its 
     investment adviser activities are separately maintained in or 
     extractable from such unit's own facilities or the facilities 
     of the bank, and such records are so maintained or otherwise 
     accessible as to permit independent examination and 
     enforcement by the Commission of this Act or the Investment 
     Company Act of 1940 and rules and regulations promulgated 
     under this Act or the Investment Company Act of 1940.''.

     SEC. 218. DEFINITION OF BROKER UNDER THE INVESTMENT ADVISERS 
                   ACT OF 1940.

       Section 202(a)(3) of the Investment Advisers Act of 1940 
     (15 U.S.C. 80b-2(a)(3)) is amended to read as follows:
       ``(3) The term `broker' has the same meaning as in the 
     Securities Exchange Act of 1934.''.

     SEC. 219. DEFINITION OF DEALER UNDER THE INVESTMENT ADVISERS 
                   ACT OF 1940.

       Section 202(a)(7) of the Investment Advisers Act of 1940 
     (15 U.S.C. 80b-2(a)(7)) is amended to read as follows:
       ``(7) The term `dealer' has the same meaning as in the 
     Securities Exchange Act of 1934, but does not include an 
     insurance company or investment company.''.

     SEC. 220. INTERAGENCY CONSULTATION.

       The Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et 
     seq.) is amended by inserting after section 210 the following 
     new section:

     ``SEC. 210A. CONSULTATION.

       ``(a) Examination Results and Other Information.--
       ``(1) The appropriate Federal banking agency shall provide 
     the Commission upon request the results of any examination, 
     reports, records, or other information to which such agency 
     may have access with respect to the investment advisory 
     activities--
       ``(A) of any--
       ``(i) bank holding company,
       ``(ii) bank, or
       ``(iii) separately identifiable department or division of a 
     bank,

     that is registered under section 203 of this title; and
       ``(B) in the case of a bank holding company or bank that 
     has a subsidiary or a separately identifiable department or 
     division registered under that section, of such bank or bank 
     holding company.
       ``(2) The Commission shall provide to the appropriate 
     Federal banking agency upon request the results of any 
     examination, reports, records, or other information with 
     respect to the investment advisory activities of any bank 
     holding company, bank, or separately identifiable department 
     or division of a bank, any of which is registered under 
     section 203 of this title.
       ``(b) Effect on Other Authority.--Nothing in this section 
     shall limit in any respect the authority of the appropriate 
     Federal banking agency with respect to such bank holding 
     company, bank, or department or division under any provision 
     of law.
       ``(c) Definition.--For purposes of this section, the term 
     `appropriate Federal banking agency' shall have the same 
     meaning as in

[[Page H3164]]

     section 3 of the Federal Deposit Insurance Act.''.

     SEC. 221. TREATMENT OF BANK COMMON TRUST FUNDS.

       (a) Securities Act of 1933.--Section 3(a)(2) of the 
     Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is amended by 
     striking ``or any interest or participation in any common 
     trust fund or similar fund maintained by a bank exclusively 
     for the collective investment and reinvestment of assets 
     contributed thereto by such bank in its capacity as trustee, 
     executor, administrator, or guardian'' and inserting ``or any 
     interest or participation in any common trust fund or similar 
     fund that is excluded from the definition of the term 
     `investment company' under section 3(c)(3) of the Investment 
     Company Act of 1940''.
       (b) Securities Exchange Act of 1934.--Section 
     3(a)(12)(A)(iii) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78c(a)(12)(A)(iii)) is amended to read as follows:
       ``(iii) any interest or participation in any common trust 
     fund or similar fund that is excluded from the definition of 
     the term `investment company' under section 3(c)(3) of the 
     Investment Company Act of 1940;''.
       (c) Investment Company Act of 1940.--Section 3(c)(3) of the 
     Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(3)) is 
     amended by inserting before the period the following: ``, 
     if--
       ``(A) such fund is employed by the bank solely as an aid to 
     the administration of trusts, estates, or other accounts 
     created and maintained for a fiduciary purpose;
       ``(B) except in connection with the ordinary advertising of 
     the bank's fiduciary services, interests in such fund are 
     not--
       ``(i) advertised; or
       ``(ii) offered for sale to the general public; and
       ``(C) fees and expenses charged by such fund are not in 
     contravention of fiduciary principles established under 
     applicable Federal or State law''.

     SEC. 222. INVESTMENT ADVISERS PROHIBITED FROM HAVING 
                   CONTROLLING INTEREST IN REGISTERED INVESTMENT 
                   COMPANY.

       Section 15 of the Investment Company Act of 1940 (15 U.S.C. 
     80a-15) is amended by adding at the end the following new 
     subsection:
       ``(g) Controlling Interest in Investment Company 
     Prohibited.--
       ``(1) In general.--If an investment adviser to a registered 
     investment company, or an affiliated person of that 
     investment adviser, holds a controlling interest in that 
     registered investment company in a trustee or fiduciary 
     capacity, such person shall--
       ``(A) if it holds the shares in a trustee or fiduciary 
     capacity with respect to any employee benefit plan subject to 
     the Employee Retirement Income Security Act of 1974, transfer 
     the power to vote the shares of the investment company 
     through to another person acting in a fiduciary capacity with 
     respect to the plan who is not an affiliated person of that 
     investment adviser or any affiliated person thereof; or
       ``(B) if it holds the shares in a trustee or fiduciary 
     capacity with respect to any person or entity other than an 
     employee benefit plan subject to the Employee Retirement 
     Income Security Act of 1974--
       ``(i) transfer the power to vote the shares of the 
     investment company through to--

       ``(I) the beneficial owners of the shares;
       ``(II) another person acting in a fiduciary capacity who is 
     not an affiliated person of that investment adviser or any 
     affiliated person thereof; or
       ``(III) any person authorized to receive statements and 
     information with respect to the trust who is not an 
     affiliated person of that investment adviser or any 
     affiliated person thereof;

       ``(ii) vote the shares of the investment company held by it 
     in the same proportion as shares held by all other 
     shareholders of the investment company; or
       ``(iii) vote the shares of the investment company as 
     otherwise permitted under such rules, regulations, or orders 
     as the Commission may prescribe or issue consistent with the 
     protection of investors.
       ``(2) Exemption.--Paragraph (1) shall not apply to any 
     investment adviser to a registered investment company, or any 
     affiliated person of that investment adviser, that holds 
     shares of the investment company in a trustee or fiduciary 
     capacity if that registered investment company consists 
     solely of assets held in such capacities.
       ``(3) Safe harbor.--No investment adviser to a registered 
     investment company or any affiliated person of such 
     investment adviser shall be deemed to have acted unlawfully 
     or to have breached a fiduciary duty under State or Federal 
     law solely by reason of acting in accordance with clause (i), 
     (ii), or (iii) of paragraph (1)(B).''.

     SEC. 223. CONFORMING CHANGE IN DEFINITION.

       Section 2(a)(5) of the Investment Company Act of 1940 (15 
     U.S.C. 80a-2(a)(5)) is amended by striking ``(A) a banking 
     institution organized under the laws of the United States'' 
     and inserting ``(A) a depository institution (as defined in 
     section 3 of the Federal Deposit Insurance Act) or a branch 
     or agency of a foreign bank (as such terms are defined in 
     section 1(b) of the International Banking Act of 1978)''.

     SEC. 224. CONFORMING AMENDMENT.

       Section 202 of the Investment Advisers Act of 1940 (15 
     U.S.C. 80b-2) is amended by adding at the end the following 
     new subsection:
       ``(c) Consideration of Promotion of Efficiency, 
     Competition, and Capital Formation.--Whenever pursuant to 
     this title the Commission is engaged in rulemaking and is 
     required to consider or determine whether an action is 
     necessary or appropriate in the public interest, the 
     Commission shall also consider, in addition to the protection 
     of investors, whether the action will promote efficiency, 
     competition, and capital formation.''.

     SEC. 225. EFFECTIVE DATE.

       This subtitle shall take effect 90 days after the date of 
     the enactment of this Act.

     Subtitle C--Securities and Exchange Commission Supervision of 
                   Investment Bank Holding Companies

     SEC. 231. SUPERVISION OF INVESTMENT BANK HOLDING COMPANIES BY 
                   THE SECURITIES AND EXCHANGE COMMISSION.

       (a) Amendment.--Section 17 of the Securities Exchange Act 
     of 1934 (15 U.S.C. 78q) is amended--
       (1) by redesignating subsection (i) as subsection (l); and
       (2) by inserting after subsection (h) the following new 
     subsections:
       ``(i) Investment Bank Holding Companies.--
       ``(1) Elective supervision of an investment bank holding 
     company not having a bank or savings association affiliate.--
       ``(A) In general.--An investment bank holding company that 
     is not--
       ``(i) an affiliate of a wholesale financial institution, an 
     insured bank (other than an institution described in 
     subparagraph (D), (F), or (G) of section 2(c)(2), or held 
     under section 4(f), of the Bank Holding Company Act of 1956), 
     or a savings association,
       ``(ii) a foreign bank, foreign company, or company that is 
     described in section 8(a) of the International Banking Act of 
     1978, or
       ``(iii) a foreign bank that controls, directly or 
     indirectly, a corporation chartered under section 25A of the 
     Federal Reserve Act,

     may elect to become supervised by filing with the Commission 
     a notice of intention to become supervised, pursuant to 
     subparagraph (B) of this paragraph. Any investment bank 
     holding company filing such a notice shall be supervised in 
     accordance with this section and comply with the rules 
     promulgated by the Commission applicable to supervised 
     investment bank holding companies.
       ``(B) Notification of status as a supervised investment 
     bank holding company.--An investment bank holding company 
     that elects under subparagraph (A) to become supervised by 
     the Commission shall file with the Commission a written 
     notice of intention to become supervised by the Commission in 
     such form and containing such information and documents 
     concerning such investment bank holding company as the 
     Commission, by rule, may prescribe as necessary or 
     appropriate in furtherance of the purposes of this section. 
     Unless the Commission finds that such supervision is not 
     necessary or appropriate in furtherance of the purposes of 
     this section, such supervision shall become effective 45 days 
     after receipt of such written notice by the Commission or 
     within such shorter time period as the Commission, by rule or 
     order, may determine.
       ``(2) Election not to be supervised by the commission as an 
     investment bank holding company.--
       ``(A) Voluntary withdrawal.--A supervised investment bank 
     holding company that is supervised pursuant to paragraph (1) 
     may, upon such terms and conditions as the Commission deems 
     necessary or appropriate, elect not to be supervised by the 
     Commission by filing a written notice of withdrawal from 
     Commission supervision. Such notice shall not become 
     effective until one year after receipt by the Commission, or 
     such shorter or longer period as the Commission deems 
     necessary or appropriate to ensure effective supervision of 
     the material risks to the supervised investment bank holding 
     company and to the affiliated broker or dealer, or to prevent 
     evasion of the purposes of this section.
       ``(B) Discontinuation of commission supervision.--If the 
     Commission finds that any supervised investment bank holding 
     company that is supervised pursuant to paragraph (1) is no 
     longer in existence or has ceased to be an investment bank 
     holding company, or if the Commission finds that continued 
     supervision of such a supervised investment bank holding 
     company is not consistent with the purposes of this section, 
     the Commission may discontinue the supervision pursuant to a 
     rule or order, if any, promulgated by the Commission under 
     this section.
       ``(3) Supervision of investment bank holding companies.--
       ``(A) Recordkeeping and reporting.--
       ``(i) In general.--Every supervised investment bank holding 
     company and each affiliate thereof shall make and keep for 
     prescribed periods such records, furnish copies thereof, and 
     make such reports, as the Commission may require by rule, in 
     order to keep the Commission informed as to--

       ``(I) the company's or affiliate's activities, financial 
     condition, policies, systems for monitoring and controlling 
     financial and operational risks, and transactions and 
     relationships between any broker or dealer affiliate of the 
     supervised investment bank holding company; and
       ``(II) the extent to which the company or affiliate has 
     complied with the provisions of this Act and regulations 
     prescribed and orders issued under this Act.

       ``(ii) Form and contents.--Such records and reports shall 
     be prepared in such form and according to such specifications 
     (including certification by an independent public

[[Page H3165]]

     accountant), as the Commission may require and shall be 
     provided promptly at any time upon request by the Commission. 
     Such records and reports may include--

       ``(I) a balance sheet and income statement;
       ``(II) an assessment of the consolidated capital of the 
     supervised investment bank holding company;
       ``(III) an independent auditor's report attesting to the 
     supervised investment bank holding company's compliance with 
     its internal risk management and internal control objectives; 
     and
       ``(IV) reports concerning the extent to which the company 
     or affiliate has complied with the provisions of this title 
     and any regulations prescribed and orders issued under this 
     title.

       ``(B) Use of existing reports.--
       ``(i) In general.--The Commission shall, to the fullest 
     extent possible, accept reports in fulfillment of the 
     requirements under this paragraph that the supervised 
     investment bank holding company or its affiliates have been 
     required to provide to another appropriate regulatory agency 
     or self-regulatory organization.
       ``(ii) Availability.--A supervised investment bank holding 
     company or an affiliate of such company shall provide to the 
     Commission, at the request of the Commission, any report 
     referred to in clause (i).
       ``(C) Examination authority.--
       ``(i) Focus of examination authority.--The Commission may 
     make examinations of any supervised investment bank holding 
     company and any affiliate of such company in order to--

       ``(I) inform the Commission regarding--

       ``(aa) the nature of the operations and financial condition 
     of the supervised investment bank holding company and its 
     affiliates;
       ``(bb) the financial and operational risks within the 
     supervised investment bank holding company that may affect 
     any broker or dealer controlled by such supervised investment 
     bank holding company; and
       ``(cc) the systems of the supervised investment bank 
     holding company and its affiliates for monitoring and 
     controlling those risks; and

       ``(II) monitor compliance with the provisions of this 
     subsection, provisions governing transactions and 
     relationships between any broker or dealer affiliated with 
     the supervised investment bank holding company and any of the 
     company's other affiliates, and applicable provisions of 
     subchapter II of chapter 53, title 31, United States Code 
     (commonly referred to as the `Bank Secrecy Act') and 
     regulations thereunder.

       ``(ii) Restricted focus of examinations.--The Commission 
     shall limit the focus and scope of any examination of a 
     supervised investment bank holding company to--

       ``(I) the company; and
       ``(II) any affiliate of the company that, because of its 
     size, condition, or activities, the nature or size of the 
     transactions between such affiliate and any affiliated broker 
     or dealer, or the centralization of functions within the 
     holding company system, could, in the discretion of the 
     Commission, have a materially adverse effect on the 
     operational or financial condition of the broker or dealer.

       ``(iii) Deference to other examinations.--For purposes of 
     this subparagraph, the Commission shall, to the fullest 
     extent possible, use the reports of examination of an 
     institution described in subparagraph (D), (F), or (G) of 
     section 2(c)(2), or held under section 4(f), of the Bank 
     Holding Company Act of 1956 made by the appropriate 
     regulatory agency, or of a licensed insurance company made by 
     the appropriate State insurance regulator.
       ``(4) Holding company capital.--
       ``(A) Authority.--If the Commission finds that it is 
     necessary to adequately supervise investment bank holding 
     companies and their broker or dealer affiliates consistent 
     with the purposes of this subsection, the Commission may 
     adopt capital adequacy rules for supervised investment bank 
     holding companies.
       ``(B) Method of calculation.--In developing rules under 
     this paragraph:
       ``(i) Double leverage.--The Commission shall consider the 
     use by the supervised investment bank holding company of debt 
     and other liabilities to fund capital investments in 
     affiliates.
       ``(ii) No unweighted capital ratio.--The Commission shall 
     not impose under this section a capital ratio that is not 
     based on appropriate risk-weighting considerations.
       ``(iii) No capital requirement on regulated entities.--The 
     Commission shall not, by rule, regulation, guideline, order 
     or otherwise, impose any capital adequacy provision on a 
     nonbanking affiliate (other than a broker or dealer) that is 
     in compliance with applicable capital requirements of another 
     Federal regulatory authority or State insurance authority.
       ``(iv) Appropriate exclusions.--The Commission shall take 
     full account of the applicable capital requirements of 
     another Federal regulatory authority or State insurance 
     regulator.
       ``(C) Internal risk management models.--The Commission may 
     incorporate internal risk management models into its capital 
     adequacy rules for supervised investment bank holding 
     companies.
       ``(5) Functional regulation of banking and insurance 
     activities of supervised investment bank holding companies.--
     The Commission shall defer to--
       ``(A) the appropriate regulatory agency with regard to all 
     interpretations of, and the enforcement of, applicable 
     banking laws relating to the activities, conduct, ownership, 
     and operations of banks, and institutions described in 
     subparagraph (D), (F), and (G) of section 2(c)(2), or held 
     under section 4(f), of the Bank Holding Company Act of 1956; 
     and
       ``(B) the appropriate State insurance regulators with 
     regard to all interpretations of, and the enforcement of, 
     applicable State insurance laws relating to the activities, 
     conduct, and operations of insurance companies and insurance 
     agents.
       ``(6) Definitions.--For purposes of this subsection--
       ``(A) The term `investment bank holding company' means--
       ``(i) any person other than a natural person that owns or 
     controls one or more brokers or dealers; and
       ``(ii) the associated persons of the investment bank 
     holding company.
       ``(B) The term `supervised investment bank holding company' 
     means any investment bank holding company that is supervised 
     by the Commission pursuant to this subsection.
       ``(C) The terms `affiliate', `bank', `bank holding 
     company', `company', `control', and `savings association' 
     have the meanings given to those terms in section 2 of the 
     Bank Holding Company Act of 1956 (12 U.S.C. 1841).
       ``(D) The term `insured bank' has the meaning given to that 
     term in section 3 of the Federal Deposit Insurance Act.
       ``(E) The term `foreign bank' has the meaning given to that 
     term in section 1(b)(7) of the International Banking Act of 
     1978.
       ``(F) The terms ``person associated with an investment bank 
     holding company' and ``associated person of an investment 
     bank holding company' means any person directly or indirectly 
     controlling, controlled by, or under common control with, an 
     investment bank holding company.
       ``(j) Authority To Limit Disclosure of Information.--
     Notwithstanding any other provision of law, the Commission 
     shall not be compelled to disclose any information required 
     to be reported under subsection (h) or (i) or any information 
     supplied to the Commission by any domestic or foreign 
     regulatory agency that relates to the financial or 
     operational condition of any associated person of a broker or 
     dealer, investment bank holding company, or any affiliate of 
     an investment bank holding company. Nothing in this 
     subsection shall authorize the Commission to withhold 
     information from Congress, or prevent the Commission from 
     complying with a request for information from any other 
     Federal department or agency or any self-regulatory 
     organization requesting the information for purposes within 
     the scope of its jurisdiction, or complying with an order of 
     a court of the United States in an action brought by the 
     United States or the Commission. For purposes of section 552 
     of title 5, United States Code, this subsection shall be 
     considered a statute described in subsection (b)(3)(B) of 
     such section 552. In prescribing regulations to carry out the 
     requirements of this subsection, the Commission shall 
     designate information described in or obtained pursuant to 
     subparagraphs (A), (B), and (C) of subsection (i)(5) as 
     confidential information for purposes of section 24(b)(2) of 
     this title.''.
       (b) Conforming Amendments.--
       (1) Section 3(a)(34) of the Securities Exchange Act of 1934 
     (15 U.S.C. 78c(a)(34)) is amended by adding at the end the 
     following new subparagraphs:
       ``(H) When used with respect to an institution described in 
     subparagraph (D), (F), or (G) of section 2(c)(2), or held 
     under section 4(f), of the Bank Holding Company Act of 1956--
       ``(i) the Comptroller of the Currency, in the case of a 
     national bank or a bank in the District of Columbia examined 
     by the Comptroller of the Currency;
       ``(ii) the Board of Governors of the Federal Reserve 
     System, in the case of a State member bank of the Federal 
     Reserve System or any corporation chartered under section 25A 
     of the Federal Reserve Act;
       ``(iii) the Federal Deposit Insurance Corporation, in the 
     case of any other bank the deposits of which are insured in 
     accordance with the Federal Deposit Insurance Act; or
       ``(iv) the Commission in the case of all other such 
     institutions.''.
       (2) Section 1112(e) of the Right to Financial Privacy Act 
     of 1978 (12 U.S.C. 3412(e)) is amended--
       (A) by striking ``this title'' and inserting ``law''; and
       (B) by inserting ``, examination reports'' after 
     ``financial records''.

                           Subtitle D--Study

     SEC. 241. STUDY OF METHODS TO INFORM INVESTORS AND CONSUMERS 
                   OF UNINSURED PRODUCTS.

       Within one year after the date of enactment of this Act, 
     the Comptroller General of the United States shall submit a 
     report to the Congress regarding the efficacy, costs, and 
     benefits of requiring that any depository institution that 
     accepts federally insured deposits and that, directly or 
     through a contractual or other arrangement with a broker, 
     dealer, or agent, buys from, sells to, or effects 
     transactions for retail investors in securities or consumers 
     of insurance to inform such investors and consumers through 
     the use of a logo or seal that the security or insurance is 
     not insured by the Federal Deposit Insurance Corporation.

[[Page H3166]]

                          TITLE III--INSURANCE

               Subtitle A--State Regulation of Insurance

     SEC. 301. STATE REGULATION OF THE BUSINESS OF INSURANCE.

       The Act entitled ``An Act to express the intent of the 
     Congress with reference to the regulation of the business of 
     insurance'' and approved March 9, 1945 (15 U.S.C. 1011 et 
     seq.), commonly referred to as the ``McCarran--Ferguson 
     Act'') remains the law of the United States.

     SEC. 302. MANDATORY INSURANCE LICENSING REQUIREMENTS.

       No person or entity shall provide insurance in a State as 
     principal or agent unless such person or entity is licensed 
     as required by the appropriate insurance regulator of such 
     State in accordance with the relevant State insurance law, 
     subject to section 104 of this Act.

     SEC. 303. FUNCTIONAL REGULATION OF INSURANCE.

       The insurance sales activity of any person or entity shall 
     be functionally regulated by the States, subject to section 
     104 of this Act.

     SEC. 304. INSURANCE UNDERWRITING IN NATIONAL BANKS.

       (a) In General.--Except as provided in section 306, a 
     national bank and the subsidiaries of a national bank may not 
     provide insurance in a State as principal except that this 
     prohibition shall not apply to authorized products.
       (b) Authorized Products.--For the purposes of this section, 
     a product is authorized if--
       (1) as of January 1, 1997, the Comptroller of the Currency 
     had determined in writing that national banks may provide 
     such product as principal, or national banks were in fact 
     lawfully providing such product as principal;
       (2) no court of relevant jurisdiction had, by final 
     judgment, overturned a determination of the Comptroller of 
     the Currency that national banks may provide such product as 
     principal; and
       (3) the product is not title insurance, or an annuity 
     contract the income of which is subject to tax treatment 
     under section 72 of the Internal Revenue Code of 1986.
       (c) Definition.--For purposes of this section, the term 
     ``insurance'' means--
       (1) any product regulated as insurance as of January 1, 
     1997, in accordance with the relevant State insurance law, in 
     the State in which the product is provided;
       (2) any product first offered after January 1, 1997, 
     which--
       (A) a State insurance regulator determines shall be 
     regulated as insurance in the State in which the product is 
     provided because the product insures, guarantees, or 
     indemnifies against liability, loss of life, loss of health, 
     or loss through damage to or destruction of property, 
     including, but not limited to, surety bonds, life insurance, 
     health insurance, title insurance, and property and casualty 
     insurance (such as private passenger or commercial 
     automobile, homeowners, mortgage, commercial multiperil, 
     general liability, professional liability, workers' 
     compensation, fire and allied lines, farm owners multiperil, 
     aircraft, fidelity, surety, medical malpractice, ocean 
     marine, inland marine, and boiler and machinery insurance); 
     and
       (B) is not a product or service of a bank that is--
       (i) a deposit product;
       (ii) a loan, discount, letter of credit, or other extension 
     of credit;
       (iii) a trust or other fiduciary service;
       (iv) a qualified financial contract (as defined in or 
     determined pursuant to section 11(e)(8)(D)(i) of the Federal 
     Deposit Insurance Act); or
       (v) a financial guaranty, except that this subparagraph (B) 
     shall not apply to a product that includes an insurance 
     component such that if the product is offered or proposed to 
     be offered by the bank as principal--

       (I) it would be treated as a life insurance contract under 
     section 7702 of the Internal Revenue Code of 1986, as 
     amended; or
       (II) in the event that the product is not a letter of 
     credit or other similar extension of credit, a qualified 
     financial contract, or a financial guaranty, it would qualify 
     for treatment for losses incurred with respect to such 
     product under section 832(b)(5) of the Internal Revenue Code 
     of 1986, as amended, if the bank were subject to tax as an 
     insurance company under section 831 of such Code; or

       (3) any annuity contract the income on which is subject to 
     tax treatment under section 72 of the Internal Revenue Code 
     of 1986, as amended.

     SEC. 305. NEW BANK AGENCY ACTIVITIES ONLY THROUGH ACQUISITION 
                   OF EXISTING LICENSED AGENTS.

       If a national bank or a subsidiary of a national bank is 
     not providing insurance as agent in a State as of the date of 
     the enactment of this Act, the national bank and the 
     subsidiary of the national bank may provide insurance (which 
     such bank or subsidiary is otherwise authorized to provide) 
     as agent in such State after such date only by acquiring a 
     company which has been licensed by the appropriate State 
     regulator to provide insurance as agent in such State for not 
     less than 2 years before such acquisition.

     SEC. 306. TITLE INSURANCE ACTIVITIES OF NATIONAL BANKS AND 
                   THEIR AFFILIATES.

       (a) Authority.--
       (1) In general.--Notwithstanding any other provision of 
     this Act or any other law, no national bank, and no 
     subsidiary of a national bank, may engage in any activity 
     involving the underwriting or sale of title insurance other 
     than title insurance activities in which such national bank 
     or subsidiary was actively and lawfully engaged before the 
     date of the enactment of this Act.
       (2) Insurance affiliate.--In the case of a national bank 
     which has an affiliate which provides insurance as principal 
     and is not a subsidiary of the bank, the national bank and 
     any subsidiary of the national bank may not engage in any 
     activity involving the underwriting or sale of title 
     insurance pursuant to paragraph (1).
       (3) Insurance subsidiary.--In the case of a national bank 
     which has a subsidiary which provides insurance as principal 
     and has no affiliate which provides insurance as principal 
     and is not a subsidiary, the national bank may not engage in 
     any activity involving the underwriting or sale of title 
     insurance pursuant to paragraph (1).
       (4) Affiliate and subsidiary defined.--For purposes of this 
     section, the terms ``affiliate'' and ``subsidiary'' have the 
     meaning given such terms in section 2 of the Bank Holding 
     Company Act of 1956.
       (b) Parity Exception.--Notwithstanding subsection (a), in 
     the case of any State in which banks organized under the laws 
     of such State were authorized to sell title insurance as 
     agent as of January 1, 1997, a national bank and a subsidiary 
     of a national bank may sell title insurance as agent in such 
     State in the same manner and to the same extent such State 
     banks are authorized to sell title insurance as agent in such 
     State.

     SEC. 307. EXPEDITED AND EQUALIZED DISPUTE RESOLUTION FOR 
                   FINANCIAL REGULATORS.

       (a) Filing in Court of Appeal.--In the case of a regulatory 
     conflict between a State insurance regulator and a Federal 
     regulator as to whether any product is or is not insurance as 
     defined in section 304(c) of this Act, or whether a State 
     statute, regulation, order, or interpretation regarding any 
     insurance sales or solicitation activity is properly treated 
     as preempted under Federal law, either regulator may seek 
     expedited judicial review of such determination by the United 
     States Court of Appeals for the circuit in which the State is 
     located or in the United States Court of Appeals for the 
     District of Columbia Circuit by filing a petition for review 
     in such court.
       (b) Expedited Review.--The United States court of appeals 
     in which a petition for review is filed in accordance with 
     paragraph (1) shall complete all action on such petition, 
     including rendering a judgment, before the end of the 60-day 
     period beginning on the date such petition is filed, unless 
     all parties to such proceeding agree to any extension of such 
     period.
       (c) Supreme Court Review.--Any request for certiori to the 
     Supreme Court of the United States of any judgment of a 
     United States court of appeals with respect to a petition for 
     review under this section shall be filed with the United 
     States Supreme Court as soon as practicable after such 
     judgment is issued.
       (d) Statute of Limitation.--No action may be filed under 
     this section challenging an order, ruling, determination, or 
     other action of a Federal financial regulator or State 
     insurance regulator after the later of--
       (1) the end of the 12-month period beginning on the date 
     the first public notice is made of such order, ruling, or 
     determination in its final form; or
       (2) the end of the 6-month period beginning on the date 
     such order, ruling, or determination takes effect.
       (e) Standard of Review.--The court shall decide an action 
     filed under this section based on its review on the merits of 
     all questions presented under State and Federal law, 
     including the nature of the product or activity and the 
     history and purpose of its regulation under State and Federal 
     law, without unequal deference.

     SEC. 308. CONSUMER PROTECTION REGULATIONS.

       (a) Regulations Required.--
       (1) In general.--The Federal Deposit Insurance Act (12 
     U.S.C. 1811 et seq.) is amended by adding at the end the 
     following new section:

     ``SEC. 45. CONSUMER PROTECTION REGULATIONS.

       ``(a) Regulations Required.--
       ``(1) In general.--The Federal banking agencies shall 
     prescribe and publish in final form, before the end of the 1-
     year period beginning on the date of the enactment of this 
     Act, consumer protection regulations (which the agencies 
     jointly determine to be appropriate) that--
       ``(A) apply to retail sales, solicitations, advertising, or 
     offers of any insurance product by any insured depository 
     institution or wholesale financial institution or any person 
     who is engaged in such activities at an office of the 
     institution or on behalf of the institution; and
       ``(B) are consistent with the requirements of this Act and 
     provide such additional protections for consumers to whom 
     such sales, solicitations, advertising, or offers are 
     directed as the agency determines to be appropriate.
       ``(2) Applicability to subsidiaries.--The regulations 
     prescribed pursuant to paragraph (1) shall extend such 
     protections to any subsidiaries of an insured depository 
     institution, as deemed appropriate by the regulators referred 
     to in paragraph (3), where such extension is determined to be 
     necessary to ensure the consumer protections provided by this 
     section.
       ``(3) Consultation and joint regulations.--The Federal 
     banking agencies shall

[[Page H3167]]

     consult with each other and prescribe joint regulations 
     pursuant to paragraph (1), after consultation with the State 
     insurance regulators, as appropriate.
       ``(b) Sales Practices.--The regulations prescribed pursuant 
     to subsection (a) shall include anticoercion rules applicable 
     to the sale of insurance products which prohibit an insured 
     depository institution from engaging in any practice that 
     would lead a consumer to believe an extension of credit, in 
     violation of section 106(b) of the Bank Holding Company Act 
     Amendments of 1970, is conditional upon--
       ``(1) the purchase of an insurance product from the 
     institution or any of its affiliates or subsidiaries; or
       ``(2) an agreement by the consumer not to obtain, or a 
     prohibition on the consumer from obtaining, an insurance 
     product from an unaffiliated entity.
       ``(c) Disclosures and Advertising.--The regulations 
     prescribed pursuant to subsection (a) shall include the 
     following provisions relating to disclosures and advertising 
     in connection with the initial purchase of an insurance 
     product:
       ``(1) Disclosures.--
       ``(A) In general.--Requirements that the following 
     disclosures be made orally and in writing before the 
     completion of the initial sale and, in the case of clause 
     (iv), at the time of application for an extension of credit:
       ``(i) Uninsured status.--As appropriate, the product is not 
     insured by the Federal Deposit Insurance Corporation, the 
     United States Government, or the insured depository 
     institution.
       ``(ii) Investment risk.--In the case of a variable annuity 
     or other insurance product which involves an investment risk, 
     that there is an investment risk associated with the product, 
     including possible loss of value.
       ``(iv) Coercion.--The approval of an extension of credit 
     may not be conditioned on--

       ``(I) the purchase of an insurance product from the 
     institution in which the application for credit is pending or 
     any of its affiliates or subsidiaries; or
       ``(II) an agreement by the consumer not to obtain, or a 
     prohibition on the consumer from obtaining, an insurance 
     product from an unaffiliated entity.

       ``(B) Making disclosure readily understandable.--
     Regulations prescribed under subparagraph (A) shall encourage 
     the use of disclosure that is conspicuous, simple, direct, 
     and readily understandable, such as the following:
       ``(i) `NOT FDIC-INSURED'.
       ``(ii) `NOT GUARANTEED BY THE BANK'.
       ``(iii) `MAY GO DOWN IN VALUE'.
       ``(C) Adjustments for alternative methods of purchase.--In 
     prescribing the requirements under subparagraphs (A) and (D), 
     necessary adjustments shall be made for purchase in person, 
     by telephone, or by electronic media to provide for the most 
     appropriate and complete form of disclosure and 
     acknowledgments.
       ``(D) Consumer acknowledgment.--A requirement that an 
     insured depository institution shall require any person 
     selling an insurance product at any office of, or on behalf 
     of, the institution to obtain, at the time a consumer 
     receives the disclosures required under this paragraph or at 
     the time of the initial purchase by the consumer of such 
     product, an acknowledgment by such consumer of the receipt of 
     the disclosure required under this subsection with respect to 
     such product.
       ``(2) Prohibition on misrepresentations.--A prohibition on 
     any practice, or any advertising, at any office of, or on 
     behalf of, the insured depository institution, or any 
     subsidiary as appropriate, which could mislead any person or 
     otherwise cause a reasonable person to reach an erroneous 
     belief with respect to--
       ``(A) the uninsured nature of any insurance product sold, 
     or offered for sale, by the institution or any subsidiary of 
     the institution; or
       ``(B) in the case of a variable annuity or other insurance 
     product that involves an investment risk, the investment risk 
     associated with any such product.
       ``(d) Separation of Banking and Nonbanking Activities.--
       ``(1) Regulations required.--The regulations prescribed 
     pursuant to subsection (a) shall include such provisions as 
     the Federal banking agencies consider appropriate to ensure 
     that the routine acceptance of deposits and the making of 
     loans is kept, to the extent practicable, physically 
     segregated from insurance product activity.
       ``(2) Requirements.--Regulations prescribed pursuant to 
     paragraph (1) shall include the following requirements:
       ``(A) Separate setting.--A clear delineation of the setting 
     in which, and the circumstances under which, transactions 
     involving insurance products should be conducted in a 
     location physically segregated from an area where retail 
     deposits are routinely accepted.
       ``(B) Referrals.--Standards which permit any person 
     accepting deposits from, or making loans to, the public in an 
     area where such transactions are routinely conducted in an 
     insured depository institution to refer a customer who seeks 
     to purchase any insurance product to a qualified person who 
     sells such product, only if the person making the referral 
     receives no more than a one-time nominal fee of a fixed 
     dollar amount for each referral that does not depend on 
     whether the referral results in a transaction.
       ``(C) Qualification and licensing requirements.--Standards 
     prohibiting any insured depository institution from 
     permitting any person to sell or offer for sale any insurance 
     product in any part of any office of the institution, or on 
     behalf of the institution, unless such person is 
     appropriately qualified and licensed.
       ``(e) Domestic Violence Discrimination Prohibition.--
       ``(1) In general.--In the case of an applicant for, or an 
     insured under, any insurance product described in paragraph 
     (2), the status of the applicant or insured as a victim of 
     domestic violence, or as a provider of services to victims of 
     domestic violence, shall not be considered as a criterion in 
     any decision with regard to insurance underwriting, pricing, 
     renewal, or scope of coverage of insurance policies, or 
     payment of insurance claims, except as required or expressly 
     permitted under State law.
       ``(2) Scope of application.--The prohibition contained in 
     paragraph (1) shall apply to any insurance product which is 
     sold or offered for sale, as principal, agent, or broker, by 
     any insured depository institution or any person who is 
     engaged in such activities at an office of the institution or 
     on behalf of the institution.
       ``(3) Sense of the congress.--It is the sense of the 
     Congress that, by the end of the 30-month period beginning on 
     the date of the enactment of this Act, the States should 
     enact prohibitions against discrimination with respect to 
     insurance products that are at least as strict as the 
     prohibitions contained in paragraph (1).
       ``(4) Domestic violence defined.--For purposes of this 
     subsection, the term `domestic violence' means the occurrence 
     of 1 or more of the following acts by a current or former 
     family member, household member, intimate partner, or 
     caretaker:
       ``(A) Attempting to cause or causing or threatening another 
     person physical harm, severe emotional distress, 
     psychological trauma, rape, or sexual assault.
       ``(B) Engaging in a course of conduct or repeatedly 
     committing acts toward another person, including following 
     the person without proper authority, under circumstances that 
     place the person in reasonable fear of bodily injury or 
     physical harm.
       ``(C) Subjecting another person to false imprisonment.
       ``(D) Attempting to cause or cause damage to property so as 
     to intimidate or attempt to control the behavior of another 
     person.
       ``(f) Consumer Grievance Process.--The Federal banking 
     agencies shall jointly establish a consumer complaint 
     mechanism, for receiving and expeditiously addressing 
     consumer complaints alleging a violation of regulations 
     issued under the section, which shall--
       ``(1) establish a group within each regulatory agency to 
     receive such complaints;
       ``(2) develop procedures for investigating such complaints;
       ``(3) develop procedures for informing consumers of rights 
     they may have in connection with such complaints; and
       ``(4) develop procedures for addressing concerns raised by 
     such complaints, as appropriate, including procedures for the 
     recovery of losses to the extent appropriate.
       ``(g) Effect on Other Authority.--
       ``(1) No provision of this section shall be construed as 
     granting, limiting, or otherwise affecting--
       ``(A) any authority of the Securities and Exchange 
     Commission, any self-regulatory organization, the Municipal 
     Securities Rulemaking Board, or the Secretary of the Treasury 
     under any Federal securities law; or
       ``(B) any authority of any State insurance commissioner or 
     other State authority under any State law.
       ``(2) Regulations prescribed by a Federal banking agency 
     under this section shall not apply to retail sales, 
     solicitations, advertising, or offers of any insurance 
     product by any insured depository institution or wholesale 
     financial institution or to any person who is engaged in such 
     activities at an office of such institution or on behalf of 
     the institution, in a State where the State has in effect 
     statutes, regulations, orders, or interpretations, that are 
     inconsistent with or contrary to the regulations prescribed 
     by the Federal banking agencies.
       ``(h) Insurance Product Defined.--For purposes of this 
     section, the term `insurance product' includes an annuity 
     contract the income of which is subject to tax treatment 
     under section 72 of the Internal Revenue Code of 1986.''.

     SEC. 309. CERTAIN STATE AFFILIATION LAWS PREEMPTED FOR 
                   INSURANCE COMPANIES AND AFFILIATES.

       No State may, by law, regulation, order, interpretation, or 
     otherwise--
       (1) prevent or restrict any insurer, or any affiliate of an 
     insurer (whether such affiliate is organized as a stock 
     company, mutual holding company, or otherwise), from becoming 
     a financial holding company or acquiring control of an 
     insured depository institution;
       (2) limit the amount of an insurer's assets that may be 
     invested in the voting securities of an insured depository 
     institution (or any company which controls such institution), 
     except that the laws of an insurer's State of domicile may 
     limit the amount of such investment to an amount that is not 
     less than 5 percent of the insurer's admitted assets; or
       (3) prevent, restrict, or have the authority to review, 
     approve, or disapprove a plan of reorganization by which an 
     insurer proposes to reorganize from mutual form to become a 
     stock insurer (whether as a direct or indirect

[[Page H3168]]

     subsidiary of a mutual holding company or otherwise) unless 
     such State is the State of domicile of the insurer.

             Subtitle B--Redomestication of Mutual Insurers

     SEC. 311. GENERAL APPLICATION.

       This subtitle shall only apply to a mutual insurance 
     company in a State which has not enacted a law which 
     expressly establishes reasonable terms and conditions for a 
     mutual insurance company domiciled in such State to 
     reorganize into a mutual holding company.

     SEC. 312. REDOMESTICATION OF MUTUAL INSURERS.

       (a) Redomestication.--A mutual insurer organized under the 
     laws of any State may transfer its domicile to a transferee 
     domicile as a step in a reorganization in which, pursuant to 
     the laws of the transferee domicile and consistent with the 
     standards in subsection (f), the mutual insurer becomes a 
     stock insurer that is a direct or indirect subsidiary of a 
     mutual holding company.
       (b) Resulting Domicile.--Upon complying with the applicable 
     law of the transferee domicile governing transfers of 
     domicile and completion of a transfer pursuant to this 
     section, the mutual insurer shall cease to be a domestic 
     insurer in the transferor domicile and, as a continuation of 
     its corporate existence, shall be a domestic insurer of the 
     transferee domicile.
       (c) Licenses Preserved.--The certificate of authority, 
     agents' appointments and licenses, rates, approvals and other 
     items that a licensed State allows and that are in existence 
     immediately prior to the date that a redomesticating insurer 
     transfers its domicile pursuant to this subtitle shall 
     continue in full force and effect upon transfer, if the 
     insurer remains duly qualified to transact the business of 
     insurance in such licensed State.
       (d) Effectiveness of Outstanding Policies and Contracts.--
       (1) In general.--All outstanding insurance policies and 
     annuities contracts of a redomesticating insurer shall remain 
     in full force and effect and need not be endorsed as to the 
     new domicile of the insurer, unless so ordered by the State 
     insurance regulator of a licensed State, and then only in the 
     case of outstanding policies and contracts whose owners 
     reside in such licensed State.
       (2) Forms.--
       (A) Applicable State law may require a redomesticating 
     insurer to file new policy forms with the State insurance 
     regulator of a licensed State on or before the effective date 
     of the transfer.
       (B) Notwithstanding subparagraph (A), a redomesticating 
     insurer may use existing policy forms with appropriate 
     endorsements to reflect the new domicile of the 
     redomesticating insurer until the new policy forms are 
     approved for use by the State insurance regulator of such 
     licensed State.
       (e) Notice.--A redomesticating insurer shall give notice of 
     the proposed transfer to the State insurance regulator of 
     each licensed State and shall file promptly any resulting 
     amendments to corporate documents required to be filed by a 
     foreign licensed mutual insurer with the insurance regulator 
     of each such licensed State.
       (f) Procedural Requirements.--No mutual insurer may 
     redomesticate to another State and reorganize into a mutual 
     holding company pursuant to this section unless the State 
     insurance regulator of the transferee domicile determines 
     that the plan of reorganization of the insurer includes the 
     following requirements:
       (1) Approval by board of directors and policyholders.--The 
     reorganization is approved by at least a majority of the 
     board of directors of the mutual insurer and at least a 
     majority of the policyholders who vote after notice, 
     disclosure of the reorganization and the effects of the 
     transaction on policyholder contractual rights, and 
     reasonable opportunity to vote, in accordance with such 
     notice, disclosure, and voting procedures as are approved by 
     the State insurance regulator of the transferee domicile.
       (2) Continued voting control by policyholders; review of 
     public stock offering.--After the consummation of a 
     reorganization, the policyholders of the reorganized insurer 
     shall have the same voting rights with respect to the mutual 
     holding company as they had before the reorganization with 
     respect to the mutual insurer. With respect to an initial 
     public offering of stock, the offering shall be conducted in 
     compliance with applicable securities laws and in a manner 
     approved by the State insurance regulator of the transferee 
     domicile.
       (3) Award of stock or grant of options to officers and 
     directors.--For a period of 6 months after completion of an 
     initial public offering, neither a stock holding company nor 
     the converted insurer shall award any stock options or stock 
     grants to persons who are elected officers or directors of 
     the mutual holding company, the stock holding company, or the 
     converted insurer, except with respect to any such awards or 
     options to which a person is entitled as a policyholder and 
     as approved by the State insurance regulator of the 
     transferee domicile.
       (4) Contractual rights.--Upon reorganization into a mutual 
     holding company, the contractual rights of the policyholders 
     are preserved.
       (5) Fair and equitable treatment of policyholders.--The 
     reorganization is approved as fair and equitable to the 
     policyholders by the insurance regulator of the transferee 
     domicile.

     SEC. 313. EFFECT ON STATE LAWS RESTRICTING REDOMESTICATION.

       (a) In General.--Unless otherwise permitted by this 
     subtitle, State laws of any transferor domicile that conflict 
     with the purposes and intent of this subtitle are preempted, 
     including but not limited to--
       (1) any law that has the purpose or effect of impeding the 
     activities of, taking any action against, or applying any 
     provision of law or regulation to, any insurer or an 
     affiliate of such insurer because that insurer or any 
     affiliate plans to redomesticate, or has redomesticated, 
     pursuant to this subtitle;
       (2) any law that has the purpose or effect of impeding the 
     activities of, taking action against, or applying any 
     provision of law or regulation to, any insured or any 
     insurance licensee or other intermediary because such person 
     or entity has procured insurance from or placed insurance 
     with any insurer or affiliate of such insurer that plans to 
     redomesticate, or has redomesticated, pursuant to this 
     subtitle, but only to the extent that such law would treat 
     such insured licensee or other intermediary differently than 
     if the person or entity procured insurance from, or placed 
     insurance with, an insured licensee or other intermediary 
     which had not redomesticated;
       (3) any law that has the purpose or effect of terminating, 
     because of the redomestication of a mutual insurer pursuant 
     to this subtitle, any certificate of authority, agent 
     appointment or license, rate approval, or other approval, of 
     any State insurance regulator or other State authority in 
     existence immediately prior to the redomestication in any 
     State other than the transferee domicile.
       (b) Differential Treatment Prohibited.--No State law, 
     regulation, interpretation, or functional equivalent thereof, 
     of a State other than a transferee domicile may treat a 
     redomesticating or redomesticated insurer or any affiliate 
     thereof any differently than an insurer operating in that 
     State that is not a redomesticating or redomesticated 
     insurer.
       (c) Laws Prohibiting Operations.--If any licensed State 
     fails to issue, delays the issuance of, or seeks to revoke an 
     original or renewal certificate of authority of a 
     redomesticated insurer immediately following redomestication, 
     except on grounds and in a manner consistent with its past 
     practices regarding the issuance of certificates of authority 
     to foreign insurers that are not redomesticating, then the 
     redomesticating insurer shall be exempt from any State law of 
     the licensed State to the extent that such State law or the 
     operation of such State law would make unlawful, or regulate, 
     directly or indirectly, the operation of the redomesticated 
     insurer, except that such licensed State may require the 
     redomesticated insurer to--
       (1) comply with the unfair claim settlement practices law 
     of the licensed State;
       (2) pay, on a nondiscriminatory basis, applicable premium 
     and other taxes which are levied on licensed insurers or 
     policyholders under the laws of the licensed State;
       (3) register with and designate the State insurance 
     regulator as its agent solely for the purpose of receiving 
     service of legal documents or process;
       (4) submit to an examination by the State insurance 
     regulator in any licensed state in which the redomesticated 
     insurer is doing business to determine the insurer's 
     financial condition, if--
       (A) the State insurance regulator of the transferee 
     domicile has not begun an examination of the redomesticated 
     insurer and has not scheduled such an examination to begin 
     before the end of the 1-year period beginning on the date of 
     the redomestication; and
       (B) any such examination is coordinated to avoid 
     unjustified duplication and repetition;
       (5) comply with a lawful order issued in--
       (A) a delinquency proceeding commenced by the State 
     insurance regulator of any licensed State if there has been a 
     judicial finding of financial impairment under paragraph (7); 
     or
       (B) a voluntary dissolution proceeding;
       (6) comply with any State law regarding deceptive, false, 
     or fraudulent acts or practices, except that if the licensed 
     State seeks an injunction regarding the conduct described in 
     this paragraph, such injunction must be obtained from a court 
     of competent jurisdiction as provided in section 314(a);
       (7) comply with an injunction issued by a court of 
     competent jurisdiction, upon a petition by the State 
     insurance regulator alleging that the redomesticating insurer 
     is in hazardous financial condition or is financially 
     impaired;
       (8) participate in any insurance insolvency guaranty 
     association on the same basis as any other insurer licensed 
     in the licensed State; and
       (9) require a person acting, or offering to act, as an 
     insurance licensee for a redomesticated insurer in the 
     licensed State to obtain a license from that State, except 
     that such State may not impose any qualification or 
     requirement that discriminates against a nonresident 
     insurance licensee.

     SEC. 314. OTHER PROVISIONS.

       (a) Judicial Review.--The appropriate United States 
     district court shall have exclusive jurisdiction over 
     litigation arising under this section involving any 
     redomesticating or redomesticated insurer.
       (b) Severability.--If any provision of this section, or the 
     application thereof to any person or circumstances, is held 
     invalid, the remainder of the section, and the application

[[Page H3169]]

     of such provision to other persons or circumstances, shall 
     not be affected thereby.

     SEC. 315. DEFINITIONS.

       For purposes of this subtitle, the following definitions 
     shall apply:
       (1) Court of competent jurisdiction.--The term ``court of 
     competent jurisdiction'' means a court authorized pursuant to 
     section 314(a) to adjudicate litigation arising under this 
     subtitle.
       (2) Domicile.--The term ``domicile'' means the State in 
     which an insurer is incorporated, chartered, or organized.
       (3) Insurance licensee.--The term ``insurance licensee'' 
     means any person holding a license under State law to act as 
     insurance agent, subagent, broker, or consultant.
       (4) Institution.--The term ``institution'' means a 
     corporation, joint stock company, limited liability company, 
     limited liability partnership, association, trust, 
     partnership, or any similar entity.
       (5) Licensed state.--The term ``licensed State'' means any 
     State, the District of Columbia, American Samoa, Guam, Puerto 
     Rico, or the United States Virgin Islands in which the 
     redomesticating insurer has a certificate of authority in 
     effect immediately prior to the redomestication.
       (6) Mutual insurer.--The term ``mutual insurer'' means a 
     mutual insurer organized under the laws of any State.
       (7) Person.--The term ``person'' means an individual, 
     institution, government or governmental agency, State or 
     political subdivision of a State, public corporation, board, 
     association, estate, trustee, or fiduciary, or other similar 
     entity.
       (8) Policyholder.--The term ``policyholder'' means the 
     owner of a policy issued by a mutual insurer, except that, 
     with respect to voting rights, the term means a member of a 
     mutual insurer or mutual holding company granted the right to 
     vote, as determined under applicable State law.
       (9) Redomesticated insurer.--The term ``redomesticated 
     insurer'' means a mutual insurer that has redomesticated 
     pursuant to this subtitle.
       (10) Redomesticating insurer.--The term ``redomesticating 
     insurer'' means a mutual insurer that is redomesticating 
     pursuant to this subtitle.
       (11) Redomestication or transfer.--The terms 
     ``redomestication'' and ``transfer'' mean the transfer of the 
     domicile of a mutual insurer from one State to another State 
     pursuant to this subtitle.
       (12) State insurance regulator.--The term ``State insurance 
     regulator'' means the principal insurance regulatory 
     authority of a State, the District of Columbia, American 
     Samoa, Guam, Puerto Rico, or the United States Virgin 
     Islands.
       (13) State law.--The term ``State law'' means the statutes 
     of any State, the District of Columbia, American Samoa, Guam, 
     Puerto Rico, or the United States Virgin Islands and any 
     regulation, order, or requirement prescribed pursuant to any 
     such statute.
       (14) Transferee domicile.--The term ``transferee domicile'' 
     means the State to which a mutual insurer is redomesticating 
     pursuant to this subtitle.
       (15) Transferor domicile.--The term ``transferor domicile'' 
     means the State from which a mutual insurer is 
     redomesticating pursuant to this subtitle.

     SEC. 316. EFFECTIVE DATE.

       This subtitle shall take effect on the date of enactment of 
     this Act.

   Subtitle C--National Association of Registered Agents and Brokers

     SEC. 321. STATE FLEXIBILITY IN MULTISTATE LICENSING REFORMS.

        (a) In General.--The provisions of this subtitle shall 
     take effect unless by the end of the 3-year period beginning 
     on the date of the enactment of this Act at least a majority 
     of the States--
       (1) have enacted uniform laws and regulations governing the 
     licensure of individuals and entities authorized to sell and 
     solicit the purchase of insurance within the State; or
       (2) have enacted reciprocity laws and regulations governing 
     the licensure of nonresident individuals and entities 
     authorized to sell and solicit insurance within those States.
       (b) Uniformity Required.--States shall be deemed to have 
     established the uniformity necessary to satisfy subsection 
     (a)(1) if the States--
       (1) establish uniform criteria regarding the integrity, 
     personal qualifications, education, training, and experience 
     of licensed insurance producers, including the qualification 
     and training of sales personnel in ascertaining the 
     appropriateness of a particular insurance product for a 
     prospective customer;
       (2) establish uniform continuing education requirements for 
     licensed insurance producers;
       (3) establish uniform ethics course requirements for 
     licensed insurance producers in conjunction with the 
     continuing education requirements under paragraph (2);
       (4) establish uniform criteria to ensure that an insurance 
     product, including any annuity contract, sold to a consumer 
     is suitable and appropriate for the consumer based on 
     financial information disclosed by the consumer; and
       (5) do not impose any requirement upon any insurance 
     producer to be licensed or otherwise qualified to do business 
     as a nonresident that has the effect of limiting or 
     conditioning that producer's activities because of its 
     residence or place of operations, except that counter-
     signature requirements imposed on nonresident producers shall 
     not be deemed to have the effect of limiting or conditioning 
     a producer's activities because of its residence or place of 
     operations under this section.
       (c) Reciprocity Required.--States shall be deemed to have 
     established the reciprocity required to satisfy subsection 
     (a)(2) if the following conditions are met:
       (1) Administrative licensing procedures.--At least a 
     majority of the States permit a producer that has a resident 
     license for selling or soliciting the purchase of insurance 
     in its home State to receive a license to sell or solicit the 
     purchase of insurance in such majority of States as a 
     nonresident to the same extent such producer is permitted to 
     sell or solicit the purchase of insurance in its State, 
     without satisfying any additional requirements other than 
     submitting--
       (A) a request for licensure;
       (B) the application for licensure that the producer 
     submitted to its home State;
       (C) proof that the producer is licensed and in good 
     standing in its home State; and
       (D) the payment of any requisite fee to the appropriate 
     authority,

     if the producer's home State also awards such licenses on 
     such a reciprocal basis.
       (2) Continuing education requirements.--A majority of the 
     States accept an insurance producer's satisfaction of its 
     home State's continuing education requirements for licensed 
     insurance producers to satisfy the States' own continuing 
     education requirements if the producer's home State also 
     recognizes the satisfaction of continuing education 
     requirements on such a reciprocal basis.
       (3) No limiting nonresident requirements.--A majority of 
     the States do not impose any requirement upon any insurance 
     producer to be licensed or otherwise qualified to do business 
     as a nonresident that has the effect of limiting or 
     conditioning that producer's activities because of its 
     residence or place of operations, except that 
     countersignature requirements imposed on nonresident 
     producers shall not be deemed to have the effect of limiting 
     or conditioning a producer's activities because of its 
     residence or place of operations under this section.
       (4) Reciprocal reciprocity.--Each of the States that 
     satisfies paragraphs (1), (2), and (3) grants reciprocity to 
     residents of all of the other States that satisfy such 
     paragraphs.
       (d) Determination.--
       (1) NAIC determination.--At the end of the 3-year period 
     beginning on the date of the enactment of this Act, the 
     National Association of Insurance Commissioners shall 
     determine, in consultation with the insurance commissioners 
     or chief insurance regulatory officials of the States, 
     whether the uniformity or reciprocity required by subsections 
     (b) and (c) has been achieved.
       (2) Judicial review.--The appropriate United States 
     district court shall have exclusive jurisdiction over any 
     challenge to the National Association of Insurance 
     Commissioners' determination under this section and such 
     court shall apply the standards set forth in section 706 of 
     title 5, United States Code, when reviewing any such 
     challenge.
       (e) Continued Application.--If, at any time, the uniformity 
     or reciprocity required by subsections (b) and (c) no longer 
     exists, the provisions of this subtitle shall take effect 
     within 2 years, unless the uniformity or reciprocity required 
     by those provisions is satisfied before the expiration of 
     that 2-year period.
       (f) Savings Provision.--No provision of this section shall 
     be construed as requiring that any law, regulation, 
     provision, or action of any State which purports to regulate 
     insurance producers, including any such law, regulation, 
     provision, or action which purports to regulate unfair trade 
     practices or establish consumer protections, including 
     countersignature laws, be altered or amended in order to 
     satisfy the uniformity or reciprocity required by subsections 
     (b) and (c), unless any such law, regulation, provision, or 
     action is inconsistent with a specific requirement of any 
     such subsection and then only to the extent of such 
     inconsistency.

     SEC. 322. NATIONAL ASSOCIATION OF REGISTERED AGENTS AND 
                   BROKERS.

       (a) Establishment.--There is established the National 
     Association of Registered Agents and Brokers (hereafter in 
     this subtitle referred to as the ``Association'')
       (b) Status.--The Association shall--
       (1) be a nonprofit corporation and be presumed to have the 
     status of an organization described in section 501(c)(6) of 
     the Internal Revenue Code of 1986 unless the Secretary of the 
     Treasury determines that the Association does not meet the 
     requirements of such section;
       (2) have succession until dissolved by an Act of Congress;
       (3) not be an agency or establishment of the United States 
     Government; and
       (4) except as otherwise provided in this Act, be subject 
     to, and have all the powers conferred upon a nonprofit 
     corporation by the District of Columbia Nonprofit Corporation 
     Act (D.C. Code, sec. 29y-1001 et seq.).

     SEC. 323. PURPOSE.

       The purpose of the Association shall be to provide a 
     mechanism through which uniform licensing, appointment, 
     continuing education, and other insurance producer sales 
     qualification requirements and conditions can be adopted and 
     applied on a multistate basis, while preserving the right of 
     States to

[[Page H3170]]

     license, supervise, and discipline insurance producers and to 
     prescribe and enforce laws and regulations with regard to 
     insurance-related consumer protection and unfair trade 
     practices.

     SEC. 324. RELATIONSHIP TO THE FEDERAL GOVERNMENT.

       The Association shall be subject to the supervision and 
     oversight of the National Association of Insurance 
     Commissioners (hereafter in this subtitle referred to as the 
     ``NAIC'') and shall not be an agency or an instrumentality of 
     the United States Government.

     SEC. 325. MEMBERSHIP.

       (a) Eligibility.--
       (1) In general.--Any State-licensed insurance producer 
     shall be eligible to become a member in the Association.
       (2) Ineligibility for suspension or revocation of 
     license.--Notwithstanding paragraph (1), a State-licensed 
     insurance producer shall not be eligible to become a member 
     if a State insurance regulator has suspended or revoked such 
     producer's license in that State during the 3-year preceding 
     the date such producer applies for membership.
       (3) Resumption of eligibility.--Paragraph (2) shall cease 
     to apply to any insurance producer if--
       (A) the State insurance regulator renews the license of 
     such producer in the State in which the license was suspended 
     or revoked; or
       (B) the suspension or revocation is subsequently 
     overturned.
       (b) Authority To Establish Membership Criteria.--The 
     Association shall have the authority to establish membership 
     criteria that--
       (1) bear a reasonable relationship to the purposes for 
     which the Association was established; and
       (2) do not unfairly limit the access of smaller agencies to 
     the Association membership.
       (c) Establishment of Classes and Categories.--
       (1) Classes of membership.--The Association may establish 
     separate classes of membership, with separate criteria, if 
     the Association reasonably determines that performance of 
     different duties requires different levels of education, 
     training, or experience.
       (2) Categories.--The Association may establish separate 
     categories of membership for individuals and for other 
     persons. The establishment of any such categories of 
     membership shall be based either on the types of licensing 
     categories that exist under State laws or on the aggregate 
     amount of business handled by an insurance producer. No 
     special categories of membership, and no distinct membership 
     criteria, shall be established for members which are insured 
     depository institutions or wholesale financial institutions 
     or for their employees, agents, or affiliates.
       (d) Membership Criteria.--
       (1) In general.--The Association may establish criteria for 
     membership which shall include standards for integrity, 
     personal qualifications, education, training, and experience.
       (2) Minimum standard.--In establishing criteria under 
     paragraph (1), the Association shall consider the highest 
     levels of insurance producer qualifications established under 
     the licensing laws of the States.
       (e) Effect of Membership.--Membership in the Association 
     shall entitle the member to licensure in each State for which 
     the member pays the requisite fees, including licensing fees 
     and, where applicable, bonding requirements, set by such 
     State.
       (f) Annual Renewal.--Membership in the Association shall be 
     renewed on an annual basis.
       (g) Continuing Education.--The Association shall establish, 
     as a condition of membership, continuing education 
     requirements which shall be comparable to or greater than the 
     continuing education requirements under the licensing laws of 
     a majority of the States.
       (h) Suspension and Revocation.--The Association may--
       (1) inspect and examine the records and offices of the 
     members of the Association to determine compliance with the 
     criteria for membership established by the Association; and
       (2) suspend or revoke the membership of an insurance 
     producer if--
       (A) the producer fails to meet the applicable membership 
     criteria of the Association: or
       (B) the producer has been subject to disciplinary action 
     pursuant to a final adjudicatory proceeding under the 
     jurisdiction of a State insurance regulator, and the 
     Association concludes that retention of membership in the 
     Association would not be in the public interest.
       (i) Office of Consumer Complaints.--
       (1) In general.--The Association shall establish an office 
     of consumer complaints that shall--
       (A) receive and investigate complaints from both consumers 
     and State insurance regulators related to members of the 
     Association; and
       (B) recommend to the Association any disciplinary actions 
     that the office considers appropriate, to the extent that any 
     such recommendation is not inconsistent with State law.
       (2) Records and referrals.--The office of consumer 
     complaints of the Association shall--
       (A) maintain records of all complaints received in 
     accordance with paragraph (1) and make such records available 
     to the NAIC and to each State insurance regulator for the 
     State of residence of the consumer who filed the complaint; 
     and
       (B) refer, when appropriate, any such complaint to any 
     appropriate State insurance regulator.
       (3) Telephone and other access.--The office of consumer 
     complaints shall maintain a toll-free telephone number for 
     the purpose of this subsection and, as practicable, other 
     alternative means of communication with consumers, such as an 
     Internet home page.

      SEC. 326. BOARD OF DIRECTORS.

       (a) Establishment.--There is established the board of 
     directors of the Association (hereafter in this subtitle 
     referred to as the ``Board'') for the purpose of governing 
     and supervising the activities of the Association and the 
     members of the Association.
       (b) Powers.--The Board shall have such powers and authority 
     as may be specified in the bylaws of the Association.
       (c) Composition.--
       (1) Members.--The Board shall be composed of 7 members 
     appointed by the NAIC.
       (2) Requirement.--At least 4 of the members of the Board 
     shall have significant experience with the regulation of 
     commercial lines of insurance in at least 1 of the 20 States 
     in which the greatest total dollar amount of commercial-lines 
     insurance is placed in the United States.
       (3) Initial board membership.--
       (A) In general.--If, by the end of the 2-year period 
     beginning on the date of the enactment of this Act, the NAIC 
     has not appointed the initial 7 members of the Board of the 
     Association, the initial Board shall consist of the 7 State 
     insurance regulators of the 7 States with the greatest total 
     dollar amount of commercial-lines insurance in place as of 
     the end of such period.
       (B) Alternate composition.--If any of the State insurance 
     regulators described in subparagraph (A) declines to serve on 
     the Board, the State insurance regulator with the next 
     greatest total dollar amount of commercial-lines insurance in 
     place, as determined by the NAIC as of the end of such 
     period, shall serve as a member of the Board.
       (C) Inoperability.--If fewer than 7 State insurance 
     regulators accept appointment to the Board, the Association 
     shall be established without NAIC oversight pursuant to 
     section 332.
       (d) Terms.--The term of each director shall, after the 
     initial appointment of the members of the Board, be for 3 
     years, with \1/3\ of the directors to be appointed each year.
       (e) Board Vacancies.--A vacancy on the Board shall be 
     filled in the same manner as the original appointment of the 
     initial Board for the remainder of the term of the vacating 
     member.
       (f) Meetings.--The Board shall meet at the call of the 
     chairperson, or as otherwise provided by the bylaws of the 
     Association.

      SEC. 327. OFFICERS.

       (a) In General.--
       (1) Positions.--The officers of the Association shall 
     consist of a chairperson and a vice chairperson of the Board, 
     a president, secretary, and treasurer of the Association, and 
     such other officers and assistant officers as may be deemed 
     necessary.
       (2) Manner of selection.--Each officer of the Board and the 
     Association shall be elected or appointed at such time and in 
     such manner and for such terms not exceeding 3 years as may 
     be prescribed in the bylaws of the Association.
       (b) Criteria for Chairperson.-- Only individuals who are 
     members of the National Association of Insurance 
     Commissioners shall be eligible to serve as the chairperson 
     of the board of directors.

      SEC. 328. BYLAWS, RULES, AND DISCIPLINARY ACTION.

       (a) Adoption and Amendment of Bylaws.--
       (1) Copy required to be filed with the naic.--The board of 
     directors of the Association shall file with the NAIC a copy 
     of the proposed bylaws or any proposed amendment to the 
     bylaws, accompanied by a concise general statement of the 
     basis and purpose of such proposal.
       (2) Effective date.--Except as provided in paragraph (3), 
     any proposed bylaw or proposed amendment shall take effect--
       (A) 30 days after the date of the filing of a copy with the 
     NAIC;
       (B) upon such later date as the Association may designate; 
     or
       (C) such earlier date as the NAIC may determine.
       (3) Disapproval by the naic.--Notwithstanding paragraph 
     (2), a proposed bylaw or amendment shall not take effect if, 
     after public notice and opportunity to participate in a 
     public hearing--
       (A) the NAIC disapproves such proposal as being contrary to 
     the public interest or contrary to the purposes of this 
     subtitle and provides notice to the Association setting forth 
     the reasons for such disapproval; or
       (B) the NAIC finds that such proposal involves a matter of 
     such significant public interest that public comment should 
     be obtained, in which case it may, after notifying the 
     Association in writing of such finding, require that the 
     procedures set forth in subsection (b) be followed with 
     respect to such proposal, in the same manner as if such 
     proposed bylaw change were a proposed rule change within the 
     meaning of such paragraph.
       (b) Adoption and Amendment of Rules.--
       (1) Filing proposed regulations with the naic.--

[[Page H3171]]

       (A) In general.--The board of directors of the Association 
     shall file with the NAIC a copy of any proposed rule or any 
     proposed amendment to a rule of the Association which shall 
     be accompanied by a concise general statement of the basis 
     and purpose of such proposal.
       (B) Other rules and amendments ineffective.--No proposed 
     rule or amendment shall take effect unless approved by the 
     NAIC or otherwise permitted in accordance with this 
     paragraph.
       (2) Initial consideration by the naic.--Within 35 days 
     after the date of publication of notice of filing of a 
     proposal, or before the end of such longer period not to 
     exceed 90 days as the NAIC may designate after such date if 
     the NAIC finds such longer period to be appropriate and sets 
     forth its reasons for so finding, or as to which the 
     Association consents, the NAIC shall--
       (A) by order approve such proposed rule or amendment; or
       (B) institute proceedings to determine whether such 
     proposed rule or amendment should be modified or disapproved.
       (3) NAIC proceedings.--
       (A) In general.--Proceedings instituted by the NAIC with 
     respect to a proposed rule or amendment pursuant to paragraph 
     (2) shall--
       (i) include notice of the grounds for disapproval under 
     consideration;
       (ii) provide opportunity for hearing; and
       (iii) be concluded within 180 days after the date of the 
     Association's filing of such proposed rule or amendment.
       (B) Disposition of proposal.--At the conclusion of any 
     proceeding under subparagraph (A), the NAIC shall, by order, 
     approve or disapprove the proposed rule or amendment.
       (C) Extension of time for consideration.--The NAIC may 
     extend the time for concluding any proceeding under 
     subparagraph (A) for--
       (i) not more than 60 days if the NAIC finds good cause for 
     such extension and sets forth its reasons for so finding; or
       (ii) for such longer period as to which the Association 
     consents.
       (4) Standards for review.--
       (A) Grounds for approval.--The NAIC shall approve a 
     proposed rule or amendment if the NAIC finds that the rule or 
     amendment is in the public interest and is consistent with 
     the purposes of this Act.
       (B) Approval before end of notice period.--The NAIC shall 
     not approve any proposed rule before the end of the 30-day 
     period beginning on the date the Association files proposed 
     rules or amendments in accordance with paragraph (1) unless 
     the NAIC finds good cause for so doing and sets forth the 
     reasons for so finding.
       (5) Alternate procedure.--
       (A) In general.--Notwithstanding any provision of this 
     subsection other than subparagraph (B), a proposed rule or 
     amendment relating to the administration or organization of 
     the Association may take effect--
       (i) upon the date of filing with the NAIC, if such proposed 
     rule or amendment is designated by the Association as 
     relating solely to matters which the NAIC, consistent with 
     the public interest and the purposes of this subsection, 
     determines by rule do not require the procedures set forth in 
     this paragraph; or
       (ii) upon such date as the NAIC shall for good cause 
     determine.
       (B) Abrogation by the naic.--
       (i) In general.--At any time within 60 days after the date 
     of filing of any proposed rule or amendment under 
     subparagraph (A)(i) or (B)(ii), the NAIC may repeal such rule 
     or amendment and require that the rule or amendment be 
     refiled and reviewed in accordance with this paragraph, if 
     the NAIC finds that such action is necessary or appropriate 
     in the public interest, for the protection of insurance 
     producers or policyholders, or otherwise in furtherance of 
     the purposes of this subtitle.
       (ii) Effect of reconsideration by the naic.--Any action of 
     the NAIC pursuant to clause (i) shall--

       (I) not affect the validity or force of a rule change 
     during the period such rule or amendment was in effect; and
       (II) not be considered to be final action.

       (c) Action Required by the NAIC.--The NAIC may, in 
     accordance with such rules as the NAIC determines to be 
     necessary or appropriate to the public interest or to carry 
     out the purposes of this subtitle, require the Association to 
     adopt, amend, or repeal any bylaw, rule or amendment of the 
     Association, whenever adopted.
       (d) Disciplinary Action by the Association.--
       (1) Specification of charges.--In any proceeding to 
     determine whether membership shall be denied, suspended, 
     revoked, and not renewed (hereafter in this section referred 
     to as a ``disciplinary action''), the Association shall bring 
     specific charges, notify such member of such charges and give 
     the member an opportunity to defend against the charges, and 
     keep a record.
       (2) Supporting statement.--A determination to take 
     disciplinary action shall be supported by a statement setting 
     forth--
       (A) any act or practice in which such member has been found 
     to have been engaged;
       (B) the specific provision of this subtitle, the rules or 
     regulations under this subtitle, or the rules of the 
     Association which any such act or practice is deemed to 
     violate; and
       (C) the sanction imposed and the reason for such sanction.
       (e) NAIC Review of Disciplinary Action.--
       (1) Notice to the naic.--If the Association orders any 
     disciplinary action, the Association shall promptly notify 
     the NAIC of such action.
       (2) Review by the naic.--Any disciplinary action taken by 
     the Association shall be subject to review by the NAIC--
       (A) on the NAIC's own motion; or
       (B) upon application by any person aggrieved by such action 
     if such application is filed with the NAIC not more than 30 
     days after the later of--
       (i) the date the notice was filed with the NAIC pursuant to 
     paragraph (1); or
       (ii) the date the notice of the disciplinary action was 
     received by such aggrieved person.
       (f) Effect of Review.--The filing of an application to the 
     NAIC for review of a disciplinary action, or the institution 
     of review by the NAIC on the NAIC's own motion, shall not 
     operate as a stay of disciplinary action unless the NAIC 
     otherwise orders.
       (g) Scope of Review.--
       (A) In general.--In any proceeding to review such action, 
     after notice and the opportunity for hearing, the NAIC 
     shall--
       (i) determine whether the action should be taken;
       (ii) affirm, modify, or rescind the disciplinary sanction; 
     or
       (iii) remand to the Association for further proceedings.
       (B) Dismissal of review.--The NAIC may dismiss a proceeding 
     to review disciplinary action if the NAIC finds that--
       (i) the specific grounds on which the action is based exist 
     in fact;
       (ii) the action is in accordance with applicable rules and 
     regulations; and
       (iii) such rules and regulations are, and were, applied in 
     a manner consistent with the purposes of this Act.

      SEC. 329. ASSESSMENTS.

       (a) Insurance Producers Subject to Assessment.--The 
     Association may establish such application and membership 
     fees as the Association finds necessary to cover the costs of 
     its operations, including fees made reimbursable to the NAIC 
     under subsection (b), except that, in setting such fees, the 
     Association may not discriminate against smaller insurance 
     producers.
       (b) NAIC Assessments.--The NAIC may assess the Association 
     for any costs it incurs under this subtitle.

      SEC. 330. FUNCTIONS OF THE NAIC.

       (a) Administrative Procedure.--Determinations of the NAIC, 
     for purposes of making rules pursuant to section 328, shall 
     be made after appropriate notice and opportunity for a 
     hearing and for submission of views of interested persons.
       (b) Examinations and Reports.--
       (1) The NAIC may make such examinations and inspections of 
     the Association and require the Association to furnish it 
     with such reports and records or copies thereof as the NAIC 
     may consider necessary or appropriate in the public interest 
     or to effectuate the purposes of this subtitle.
       (2) As soon as practicable after the close of each fiscal 
     year, the Association shall submit to the NAIC a written 
     report regarding the conduct of its business, and the 
     exercise of the other rights and powers granted by this 
     subtitle, during such fiscal year. Such report shall include 
     financial statements setting forth the financial position of 
     the Association at the end of such fiscal year and the 
     results of its operations (including the source and 
     application of its funds) for such fiscal year. The NAIC 
     shall transmit such report to the President and the Congress 
     with such comment thereon as the NAIC determines to be 
     appropriate.

      SEC. 331. LIABILITY OF THE ASSOCIATION AND THE DIRECTORS, 
                   OFFICERS, AND EMPLOYEES OF THE ASSOCIATION.

       (a) In General.--The Association shall not be deemed to be 
     an insurer or insurance producer within the meaning of any 
     State law, rule, regulation, or order regulating or taxing 
     insurers, insurance producers, or other entities engaged in 
     the business of insurance, including provisions imposing 
     premium taxes, regulating insurer solvency or financial 
     condition, establishing guaranty funds and levying 
     assessments, or requiring claims settlement practices.
       (b) Liability of the Association, Its Directors, Officers, 
     and Employees.--Neither the Association nor any of its 
     directors, officers, or employees shall have any liability to 
     any person for any action taken or omitted in good faith 
     under or in connection with any matter subject to this 
     subtitle.

      SEC. 332. ELIMINATION OF NAIC OVERSIGHT.

       (a) In General.--The Association shall be established 
     without NAIC oversight and the provisions set forth in 
     section 324, subsections (a), (b), (c), and (e) of section 
     328, and sections 329(b) and 330 of this subtitle shall cease 
     to be effective if, at the end of the 2-year period after the 
     date on which the provisions of this subtitle take effect 
     pursuant to section 321--
       (1) at least a majority of the States representing at least 
     50 percent of the total United States commercial-lines 
     insurance premiums have not satisfied the uniformity or 
     reciprocity requirements of subsections (a) and (b) of 
     section 321; and
       (2) the NAIC has not approved the Association's bylaws as 
     required by section 328, the NAIC is unable to operate or 
     supervise the Association, or the Association is not 
     conducting its activities as required under this Act.
       (b) Board Appointments.--If the repeals required by 
     subsection (a) are implemented--

[[Page H3172]]

       (1) General appointment power.--The President, with the 
     advice and consent of the United States Senate, shall appoint 
     the members of the Association's Board established under 
     section 326 from lists of candidates recommended to the 
     President by the National Association of Insurance 
     Commissioners.
       (2) Procedures for obtaining national association of 
     insurance commissioners appointment recommendations.--
       (A) Initial determination and recommendations.--After the 
     date on which the provisions of part a of this section take 
     effect, then the National Association of Insurance 
     Commissioners shall have 60 days to provide a list of 
     recommended candidates to the President. If the National 
     Association of Insurance Commissioners fails to provide a 
     list by that date, or if any list that is provided does not 
     include at least 14 recommended candidates or comply with the 
     requirements of section 326(c), the President shall, with the 
     advice and consent of the United States Senate, make the 
     requisite appointments without considering the views of the 
     NAIC.
       (B) Subsequent appointments.--After the initial 
     appointments, the National Association of Insurance 
     Commissioners shall provide a list of at least 6 recommended 
     candidates for the Board to the President by January 15 of 
     each subsequent year. If the National Association of 
     Insurance Commissioners fails to provide a list by that date, 
     or if any list that is provided does not include at least 6 
     recommended candidates or comply with the requirements of 
     section 326(c), the President, with the advice and consent of 
     the Senate, shall make the requisite appointments without 
     considering the views of the NAIC.
       (C) Presidential oversight.--
       (i) Removal.--If the President determines that the 
     Association is not acting in the interests of the public, the 
     President may remove the entire existing Board for the 
     remainder of the term to which the members of the Board were 
     appointed and appoint, with the advice and consent of the 
     Senate, new members to fill the vacancies on the Board for 
     the remainder of such terms.
       (ii) Suspension of rules or actions.--The President, or a 
     person designated by the President for such purpose, may 
     suspend the effectiveness of any rule, or prohibit any 
     action, of the Association which the President or the 
     designee determines is contrary to the public interest.
       (d) Annual Report.--As soon as practicable after the close 
     of each fiscal year, the Association shall submit to the 
     President and to Congress a written report relative to the 
     conduct of its business, and the exercise of the other rights 
     and powers granted by this subtitle, during such fiscal year. 
     Such report shall include financial statements setting forth 
     the financial position of the Association at the end of such 
     fiscal year and the results of its operations (including the 
     source and application of its funds) for such fiscal year.

      SEC. 333. RELATIONSHIP TO STATE LAW.

       (a) Preemption of State Laws.--State laws, regulations, 
     provisions, or actions purporting to regulate insurance 
     producers shall be preempted in the following instances:
       (1) No State shall impede the activities of, take any 
     action against, or apply any provision of law or regulation 
     to, any insurance producer because that insurance producer or 
     any affiliate plans to become, has applied to become, or is a 
     member of the Association.
       (2) No State shall impose any requirement upon a member of 
     the Association that it pay different fees to be licensed or 
     otherwise qualified to do business in that State, including 
     bonding requirements, based on its residency.
       (3) No State shall impose any licensing, appointment, 
     integrity, personal or corporate qualifications, education, 
     training, experience, residency, or continuing education 
     requirement upon a member of the Association that is 
     different than the criteria for membership in the Association 
     or renewal of such membership, except that counter-signature 
     requirements imposed on nonresident producers shall not be 
     deemed to have the effect of limiting or conditioning a 
     producer's activities because of its residence or place of 
     operations under this section.
       (4) No State shall implement the procedures of such State's 
     system of licensing or renewing the licenses of insurance 
     producers in a manner different from the authority of the 
     Association under section 325.
       (b) Savings Provision.--Except as provided in subsection 
     (a), no provision of this section shall be construed as 
     altering or affecting the continuing effectiveness of any 
     law, regulation, provision, or action of any State which 
     purports to regulate insurance producers, including any such 
     law, regulation, provision, or action which purports to 
     regulate unfair trade practices or establish consumer 
     protections, including, but not limited to, countersignature 
     laws.

      SEC. 334. COORDINATION WITH OTHER REGULATORS.

       (a) Coordination With State Insurance Regulators.--The 
     Association shall have the authority to--
       (1) issue uniform insurance producer applications and 
     renewal applications that may be used to apply for the 
     issuance or removal of State licenses, while preserving the 
     ability of each State to impose such conditions on the 
     issuance or renewal of a license as are consistent with 
     section 333;
       (2) establish a central clearinghouse through which members 
     of the Association may apply for the issuance or renewal of 
     licenses in multiple States; and
       (3) establish or utilize a national database for the 
     collection of regulatory information concerning the 
     activities of insurance producers.
       (b) Coordination With the National Association of 
     Securities Dealers.--The Association shall coordinate with 
     the National Association of Securities Dealers in order to 
     ease any administrative burdens that fall on persons that are 
     members of both associations, consistent with the purposes of 
     this subtitle and the Federal securities laws.

      SEC. 335. JUDICIAL REVIEW.

       (a) Jurisdiction.--The appropriate United States district 
     court shall have exclusive jurisdiction over litigation 
     involving the Association, including disputes between the 
     Association and its members that arise under this subtitle. 
     Suits brought in State court involving the Association shall 
     be deemed to have arisen under Federal law and therefore be 
     subject to jurisdiction in the appropriate United States 
     district court.
       (b) Exhaustion of Remedies.--An aggrieved person must 
     exhaust all available administrative remedies before the 
     Association and the NAIC before it may seek judicial review 
     of an Association decision.
       (c) Standards of Review.--The standards set forth in 
     section 553 of title 5, United States Code, shall be applied 
     whenever a rule or bylaw of the Association is under judicial 
     review, and the standards set forth in section 554 of title 
     5, United States Code, shall be applied whenever a 
     disciplinary action of the Association is judicially 
     reviewed.

      SEC. 336. DEFINITIONS.

       For purposes of this subtitle, the following definitions 
     shall apply:
       (1) Insurance.--The term ``insurance'' means any product 
     defined or regulated as insurance by the appropriate State 
     insurance regulatory authority.
       (2) Insurance producer.--The term ``insurance producer'' 
     means any insurance agent or broker, surplus lines broker, 
     insurance consultant, limited insurance representative, and 
     any other person that solicits, negotiates, effects, 
     procures, delivers, renews, continues or binds policies of 
     insurance or offers advice, counsel, opinions or services 
     related to insurance.
       (3) State law.--The term ``State law'' includes all laws, 
     decisions, rules, regulations, or other State action having 
     the effect of law, of any State. A law of the United States 
     applicable only to the District of Columbia shall be treated 
     as a State law rather than a law of the United States.
       (4) State.--The term ``State'' includes any State, the 
     District of Columbia, American Samoa, Guam, Puerto Rico, and 
     the United States Virgin Islands.
       (5) Home state.--The term ``home State'' means the State in 
     which the insurance producer maintains its principal place of 
     residence and is licensed to act as an insurance producer.

          TITLE IV--UNITARY SAVINGS AND LOAN HOLDING COMPANIES

     SEC. 401. TERMINATION OF EXPANDED POWERS FOR NEW UNITARY S&L 
                   HOLDING COMPANIES.

       (a) In General.--Section 10(c) of the Home Owners' Loan Act 
     (12 U.S.C. 1467a(c)) is amended by adding at the end the 
     following new paragraph:
       ``(9) Termination of expanded powers for new unitary s&l 
     holding company.--
       ``(A) In general.--Subject to subparagraph (B), paragraph 
     (3) shall not apply with respect to any company that becomes 
     a savings and loan holding company pursuant to an application 
     filed after March 31, 1998.
       ``(B) Existing unitary s&l holding companies and the 
     successors to such companies.--Subparagraph (A) shall not 
     apply, and paragraph (3) shall continue to apply, to a 
     company (or any subsidiary of such company) that--
       ``(i) either--

       ``(I) acquired 1 or more savings associations described in 
     paragraph (3) pursuant to applications at least 1 of which 
     was filed before April 1, 1998; or
       ``(II) became a savings and loan holding company by 
     acquiring ownership or control of the company described in 
     subclause (I); and

       ``(ii) continues to control the savings associations 
     referred to in clause (i)(I) or the successor to any such 
     savings association.''.
       (b) Technical and Conforming Amendment.--Section 10(c)(3) 
     of the Home Owners' Loan Act (12 U.S.C. 1467a(c)(3)) is 
     amended by striking ``Notwithstanding'' and inserting 
     ``Except as provided in paragraph (9) and notwithstanding''.

  The CHAIRMAN. No amendment to that amendment in the nature of a 
substitute is in order unless printed in part 2 of that report. Each 
amendment may be offered only in the order printed in the report, may 
be offered only by a Member designated in the report, shall be 
considered read, shall be considered debatable for the time specified 
in the report, equally divided and controlled by the proponent and an 
opponent, shall not be subject to amendment, and shall not be subject 
to a demand for division of the question.
  The Chair may postpone a request for a recorded vote on any amendment 
and may reduce to a minimum of 5 minutes the time for voting on any 
postponed

[[Page H3173]]

question that immediately follows another vote, provided that the time 
for voting on the first question shall be a minimum of 15 minutes.
  It is now in order to consider Amendment No. 1 printed in part 2 of 
House Report 105-531.


                 Amendment No. 1 Offered by Mr. Bliley

  Mr. BLILEY. Madam Chairman, I offer an amendment.
  The CHAIRMAN. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment No. 1 printed in part 2 of House Report 105-531 
     offered by Mr. Bliley:


                      [1. Customer Fee Disclosure]

       At the end of title II of the Amendment in the Nature of a 
     Substitute, insert the following new subtitle (and conform 
     the table of contents accordingly):

    Subtitle E--Disclosure of Customer Costs of Acquiring Financial 
                                Products

     SEC. 251. IMPROVED AND CONSISTENT DISCLOSURE.

       (a) Revised Regulations Required.--Within one year after 
     the date of enactment of this Act, each Federal financial 
     regulatory authority shall prescribe rules, or revisions to 
     its rules, to improve the accuracy, simplicity, and 
     completeness, and to make more consistent, the disclosure of 
     information by persons subject to the jurisdiction of such 
     regulatory authority concerning any commissions, fees, 
     markups, or other costs incurred by customers in the 
     acquisition of financial products.
       (b) Consultation.--In prescribing rules and revisions under 
     subsection (a), the Federal financial regulatory authorities 
     shall consult with each other and with appropriate State 
     financial regulatory authorities.
       (c) Consideration of Existing Disclosures.--In prescribing 
     rules and revisions under subsection (a), the Federal 
     financial regulatory authorities shall consider the 
     sufficiency and appropriateness of then existing laws and 
     rules applicable to persons subject to their jurisdiction, 
     and may prescribe exemptions from the rules and revisions 
     required by subsection (a) to the extent appropriate in light 
     of the objective of this section to increase the consistency 
     of disclosure practices.
       (d) Enforcement.--Any rule prescribed by a Federal 
     financial regulatory authority pursuant to this section 
     shall, for purposes of enforcement, be treated as a rule 
     prescribed by such regulatory authority pursuant to the 
     statute establishing such regulatory authority's jurisdiction 
     over the persons to whom such rule applies.
       (e) Definition.--As used in this section, the term 
     ``Federal financial regulatory authority'' means the Board of 
     Governors of the Federal Reserve System, the Securities and 
     Exchange Commission, the Comptroller of the Currency, the 
     Federal Deposit Insurance Corporation, the Commodity Futures 
     Trading Commission, and any self-regulatory organization 
     under the supervision of any of the foregoing.


                       [2. SEC Backup Authority]

       In section 17(i)(6) of the Securities Exchange Act of 1934, 
     as amended by section 231(a) of the Amendment in the Nature 
     of a Substitute, after ``For purposes of this subsection'' 
     insert ``and subsection (j)''.
       In section 17 of the Securities Exchange Act of 1934, as 
     amended by section 231(a) of the Amendment in the Nature of a 
     Substitute, redesignate subsection (j) as subsection (k) and 
     before such redesignated subsection (k) insert the following 
     new subsection:
       ``(j) Commission Backup Authority.--
       ``(1) Authority.--The Commission may make inspections of 
     any wholesale financial holding company that--
       ``(A) controls a wholesale financial institution,
       ``(B) is not a foreign bank, and
       ``(C) does not control an insured bank (other than an 
     institution permitted under subparagraph (D), (F), or (G) of 
     section 2(c)(2), or held under section 4(f), of the Bank 
     Holding Company Act of 1956) or a savings association,

     and any affiliate of such company, for the purpose of 
     monitoring and enforcing compliance by the wholesale 
     financial holding company with the Federal securities laws.
       ``(2) Limitation.--The Commission shall limit the focus and 
     scope of any inspection under paragraph (1) to those 
     transactions, policies, procedures, or records that are 
     reasonably necessary to monitor and enforce compliance by the 
     wholesale financial holding company or any affiliate with the 
     Federal securities laws.
       ``(3) Deference to examinations.--To the fullest extent 
     possible, the Commission shall use, for the purposes of this 
     subsection, the reports of examinations--
       ``(A) made by the Board of Governors of the Federal Reserve 
     System of any wholesale financial holding company that is 
     supervised by the Board;
       ``(B) made by or on behalf of any State regulatory agency 
     responsible for the supervision of an insurance company of 
     any licensed insurance company; and
       ``(C) made by any Federal or State banking agency of any 
     bank or institution described in subparagraph (D), (F), or 
     (G) of section 2(c)(2), or held under section 4(f), of the 
     Bank Holding Company Act of 1956.
       ``(4) Notice.--To the fullest extent possible, the 
     Commission shall notify the appropriate regulatory agency 
     prior to conducting an inspection of a wholesale financial 
     institution or institution described in subparagraph (D), 
     (F), or (G) of section 2(c)(2), or held under section 4(f), 
     of the Bank Holding Company Act of 1956.


                      [3. Savings Clause for CFTC]

       At the end of subtitle A of title II of the Amendment in 
     the Nature of a Substitute, insert the following new section 
     (and conform the table of contents accordingly):

     SEC. 210. RULE OF CONSTRUCTION.

       Nothing in this Act shall supersede, affect, or otherwise 
     limit the scope and applicability of the Commodity Exchange 
     Act (7 U.S.C. 1 et seq.).


                        [4. Consumer protection]

       In subparagraph (A) of section 45(a)(1) of the Federal 
     Deposit Insurance Act, as added by section 308(a) of the 
     Amendment in the Nature of a Substitute, insert ``practices'' 
     after ``retail sales''.
       In paragraph (1) of section 45(g) of the Federal Deposit 
     Insurance Act, as added by section 308(a) of the Amendment in 
     the Nature of a Substitute, strike ``(1) No provision'' and 
     insert ``(1) In general.--No provision''.
       In paragraph (1)(B) of section 45(g) of the Federal Deposit 
     Insurance Act, as added by section 308(a) of the Amendment in 
     the Nature of a Substitute, insert ``except as provided in 
     paragraph (2),'' after ``(B)''.
       In paragraph (2) of section 45(g) of the Federal Deposit 
     Insurance Act, as added by section 308(a) of the Amendment in 
     the Nature of a Substitute, strike ``(2) Regulations'' and 
     insert `` `(2) Coordination with state law.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     regulations''.
       At the end of paragraph (2) of section 45(g) of the Federal 
     Deposit Insurance Act, as added by section 308(a) of the 
     Amendment in the Nature of a Substitute, add the following 
     new subparagraph:
       (B) Preemption.--If, with respect to any provision of the 
     regulations prescribed under this section, the Board of 
     Governors of the Federal Reserve System, the Comptroller of 
     the Currency, and the Board of Directors of the Federal 
     Deposit Insurance Corporation determine jointly that the 
     protection afforded by such provision for consumers is 
     greater than the protection provided by a comparable 
     provision of the statutes, regulations, orders, or 
     interpretations referred to in subparagraph (A) of any State, 
     such provision of the regulations prescribed under this 
     section shall supersede the comparable provision of such 
     State statute, regulation, order, or interpretation.


                         [5. Lifeline banking]

       In paragraph (1) of section 6(d) of the Bank Holding 
     Company Act of 1956, as added by section 103(a) of the 
     Amendment in the Nature of a Substitute, strike ``or (C)'' 
     and insert ``(C), or (D)''.
       In paragraph (4)(D) of section 6(d) of the Bank Holding 
     Company Act of 1956, as added by section 103(a) of the 
     Amendment in the Nature of a Substitute, strike ``or (C)'' 
     and insert ``(C), or (D)''.


                  [6. State Securities and Insurance]

       In section 104(a)(1) of the Amendment in the Nature of a 
     Substitute, strike ``restrict'' and insert ``significantly 
     interfere with the ability of''.
       In section 104(a)(1) of the Amendment in the Nature of a 
     Substitute, strike ``from being'' and insert ``to be''.
       In section 104(b)(1) of the Amendment in the Nature of a 
     Substitute, strike ``paragraphs (2) and (3) and subject to 
     section 18(c) of the Securities Act of 1933'' and insert 
     ``paragraphs (2), (3), and (4)''.
       In section 104(b)(1) of the Amendment in the Nature of a 
     Substitute, strike ``restrict'' and insert ``significantly 
     interfere with the ability of''.
       In section 104(b)(1) of the Amendment in the Nature of a 
     Substitute, strike ``from engaging,'' and insert ``to 
     engage,''.
       In section 104(b)(2) of the Amendment in the Nature of a 
     Substitute, strike ``As stated by the United States Supreme 
     Court'' and insert ``In accordance with the decision of the 
     Supreme Court of the United States''.
       In section 104(b)(2) of the Amendment in the Nature of a 
     Substitute, strike subparagraph (B) and insert the following 
     new subparagraph:
       (B) subparagraph (A) shall not create any inference 
     regarding State statutes and regulations governing insurance 
     sales and solicitations other than State statutes and 
     regulations described in subparagraph (A).
       In section 104(b) of the Amendment in the Nature of a 
     Substitute, strike paragraph (3) and insert the following new 
     paragraph:
       (3) State statutes, regulations, orders, and 
     interpretations or otherwise shall not be preempted under 
     paragraph (1) if they--
       (A) relate to, or are enacted or issued for the purpose of 
     regulating, the business of insurance in accordance with the 
     McCarran-Ferguson Act;
       (B) apply only to entities that are not insured depository 
     institutions or wholesale financial institutions but which 
     are engaged in the business of insurance;
       (C) do not relate to, and are not enacted or issued for the 
     purpose of regulating--

[[Page H3174]]

       (i) cross-marketing; or
       (ii) activities, including cross-marketing, which are 
     subject to paragraph (2);
       (D) are applicable to and are applied in the same manner 
     with respect to an affiliate of an insured depository 
     institution or a wholesale financial institution as they are 
     applicable to and are applied to those entities that are not 
     affiliated with an insured depository institution or a 
     wholesale financial institution; and
       (E) do not prevent or significantly interfere with the 
     ability of an insured depository institution or wholesale 
     financial institution to engage in activities authorized for 
     such institution under this Act or any other provision of 
     Federal law.
       In section 104(b) of the Amendment in the Nature of a 
     Substitute, after paragraph (3) insert the following new 
     paragraph:
       (4) Paragraphs (1) and (2) shall not be construed as 
     affecting the jurisdiction of the securities commission (or 
     any agency or office performing like functions) of any State, 
     under the laws of such State, to investigate and bring 
     enforcement actions, consistent with section 18(c) of the 
     Securities Act of 1933, with respect to fraud or deceit or 
     unlawful conduct by any person, in connection with securities 
     or securities transactions.
       After section 116 of the Amendment in the Nature of a 
     Substitute, insert the following new section (and amend the 
     table of contents accordingly):

     SEC. 117. INTERAGENCY CONSULTATION.

       (a) Purpose.--It is the intention of Congress that the 
     Board of Governors of the Federal Reserve System, as the 
     umbrella supervisor for financial holding companies, and the 
     State insurance regulators, as the functional regulators of 
     companies engaged in insurance activities, coordinate efforts 
     to supervise companies that control both a depository 
     institution and a company engaged in insurance activities 
     regulated under State law. In particular, Congress believes 
     that the Board and the State insurance regulators should 
     share, on a confidential basis, information relevant to the 
     supervision of companies that control both a depository 
     institution and a company engaged in insurance activities, 
     including information regarding the financial health of the 
     consolidated organization and information regarding 
     transactions and relationships between insurance companies 
     and affiliated depository institutions. The appropriate 
     Federal banking agencies for depository institutions should 
     also share, on a confidential basis, information with the 
     relevant State insurance regulators regarding transactions 
     and relationships between depository institutions and 
     affiliated companies engaged in insurance activities. The 
     purpose of this section is to encourage this coordination and 
     confidential sharing of information, and to thereby improve 
     both the efficiency and the quality of the supervision of 
     financial holding companies and their affiliated depository 
     institutions and companies engaged in insurance activities.
       (b) Examination Results and Other Information.--
       (1) Information of the board.--Upon the request of the 
     appropriate insurance regulator of any State, the Board may 
     provide any information of the Board regarding the financial 
     condition, risk management policies, and operations of any 
     financial holding company that controls a company that is 
     engaged in insurance activities and is regulated by such 
     State insurance regulator, and regarding any transaction or 
     relationship between such an insurance company and any 
     affiliated depository institution. The Board may provide any 
     other information to the appropriate State insurance 
     regulator that the Board believes is necessary or appropriate 
     to permit the State insurance regulator to administer and 
     enforce applicable State insurance laws.
       (2) Banking agency information.--Upon the request of the 
     appropriate insurance regulator of any State, the appropriate 
     Federal banking agency may provide any information of the 
     agency regarding any transaction or relationship between a 
     depository institution supervised by such Federal banking 
     agency and any affiliated company that is engaged in 
     insurance activities regulated by such State insurance 
     regulator. The appropriate Federal banking agency may provide 
     any other information to the appropriate State insurance 
     regulator that the agency believes is necessary or 
     appropriate to permit the State insurance regulator to 
     administer and enforce applicable State insurance laws.
       (3) State insurance regulator information.--Upon the 
     request of the Board or the appropriate Federal banking 
     agency, a State insurance regulator may provide any 
     examination or other reports, records, or other information 
     to which such insurance regulator may have access with 
     respect to a company which--
       (A) is engaged in insurance activities and regulated by 
     such insurance regulator; and
       (B) is an affiliate of an insured depository institution, 
     wholesale financial institution, or financial holding 
     company.
       (c) Consultation.--Before making any determination relating 
     to the initial affiliation of, or the continuing affiliation 
     of, an insured depository institution, wholesale financial 
     institution, or financial holding company with a company 
     engaged in insurance activities, the appropriate Federal 
     banking agency shall consult with the appropriate State 
     insurance regulator of such company and take the views of 
     such insurance regulator into account in making such 
     determination.
       (d) Effect on other authority.--Nothing in this section 
     shall limit in any respect the authority of the appropriate 
     Federal banking agency with respect to an insured depository 
     institution, wholesale financial institution, or bank holding 
     company or any affiliate thereof under any provision of law.
       (e) Confidentiality and Privilege.--
       (1) Confidentiality.--The appropriate Federal banking 
     agency shall not provide any information or material that is 
     entitled to confidential treatment under applicable Federal 
     banking agency regulations, or other applicable law, to a 
     State insurance regulator unless such regulator agrees to 
     maintain the information or material in confidence and to 
     take all reasonable steps to oppose any effort to secure 
     disclosure of the information or material by the regulator. 
     The appropriate Federal banking agency shall treat as 
     confidential any information or material obtained from a 
     State insurance regulator that is entitled to confidential 
     treatment under applicable State regulations, or other 
     applicable law, and take all reasonable steps to oppose any 
     effort to secure disclosure of the information or material by 
     the Federal banking agency.
       (2) Privilege.--The provision pursuant to this section of 
     information or material by a Federal banking agency or State 
     insurance regulator shall not constitute a waiver of, or 
     otherwise affect, any privilege to which the information or 
     material is otherwise subject.
       (f) Definitions.--For purposes of this section, the 
     following definitions shall apply:
       (1) Appropriate Federal banking agency; insured depository 
     institution.--The terms ``appropriate Federal banking 
     agency'' and ``insured depository institution'' shall have 
     the same meanings as in section 3 of the Federal Deposit 
     Insurance Act.
       (2) Board; financial holding company; and wholesale 
     financial institution.--The terms ``Board'', ``financial 
     holding company'', and ``wholesale financial institution'' 
     shall have the same meanings as in section 2 of the Bank 
     Holding Company Act of 1956.
       In paragraph (1) of section 309 of the Amendment in the 
     Nature of a Substitute, strike ``restrict'' and insert 
     ``significantly interfere with the ability of''.
       In paragraph (1) of section 309 of the Amendment in the 
     Nature of a Substitute, strike ``from becoming'' and insert 
     ``to become''.
       In paragraph (1) of section 309 of the Amendment in the 
     Nature of a Substitute, strike ``from acquiring'' and insert 
     ``to acquire''.
       In paragraph (3) of section 309 of the Amendment in the 
     Nature of a Substitute, strike ``restrict'' and insert 
     ``significantly interfere with''.


                       [7. Brokerage Commissions]

       In section 3(a)(4)(B) of the Securities Exchange Act of 
     1934, as amended by section 201 of the Amendment in the 
     Nature of a Substitute, strike clause (ii) (relating to trust 
     activities) and insert the following:
       ``(ii) Trust activities.--The bank effects transactions in 
     a trustee capacity, or effects transactions in a fiduciary 
     capacity in its trust department or other department that is 
     regularly examined by bank examiners for compliance with 
     fiduciary principles and standards, and (in either case)--
       ``(I) is primarily compensated on the basis of an 
     administration or annual fee (payable on a monthly, 
     quarterly, or other basis), a percentage of assets under 
     management, or a flat or capped per order processing fee, or 
     any combination of such fees, but does not otherwise receive 
     brokerage commissions, or other similar remuneration based on 
     effecting transactions in securities, that exceed the cost 
     incurred by the bank in connection with executing securities 
     transactions for trustee or fiduciary customers; and
       ``(II) does not publicly solicit brokerage business, other 
     than by advertising that it effects transactions in 
     securities in conjunction with advertising its other trust 
     activities.
       In section 3(a)(4)(B) of the Securities Exchange Act of 
     1934, as amended by section 201 of the Amendment in the 
     Nature of a Substitute, strike clause (iv) (relating to 
     certain stock purchase plans) and insert the following:
       ``(iv) Certain stock purchase plans.--
       ``(I) Employee benefit plans.--The bank effects 
     transactions, as part of its transfer agency activities, in 
     the securities of an issuer as part of any pension, 
     retirement, profit-sharing, bonus, thrift, savings, 
     incentive, or other similar benefit plan for the employees of 
     that issuer or its subsidiaries, if--


[[Page H3175]]

       (aa) the bank does not solicit transactions or provide 
     investment advice with respect to the purchase or sale of 
     securities in connection with the plan; and
       ``(bb) the bank's compensation for such plan or program 
     consists of administration fees, or flat or capped per order 
     processing fees, or both, but the bank does not otherwise 
     receive brokerage commissions, or other similar remuneration 
     based on effecting transactions in securities, that exceed 
     the cost incurred by the bank in connection with executing 
     securities transactions under this subclause (I).
       ``(II) Dividend reinvestment plans.--The bank effects 
     transactions, as part of its transfer agency activities, in 
     the securities of an issuer as part of that issuer's dividend 
     reinvestment plan, if--
       ``(aa) the bank does not solicit transactions or provide 
     investment advice with respect to the purchase or sale of 
     securities in connection with the plan;
       ``(bb) the bank does not net shareholders' buy and sell 
     orders, other than for programs for odd-lot holders or plans 
     registered with the Commission; and
       ``(cc) the bank's compensation for such plan or program 
     consists of administration fees, or flat or capped per order 
     processing fees, or both, but the bank does not otherwise 
     receive brokerage commissions, or other similar remuneration 
     based on effecting transactions in securities, that exceed 
     the cost incurred by the bank in connection with executing 
     securities transactions under this subclause (II).
       ``(III) Issuer plans.--The bank effects transactions, as 
     part of its transfer agency activities, in the securities of 
     an issuer as part of a plan or program for the purchase or 
     sale of that issuer's shares, if--
       ``(aa) the bank does not solicit transactions or provide 
     investment advice with respect to the purchase or sale of 
     securities in connection with the plan or program;
       ``(bb) the bank does not net shareholders' buy and sell 
     orders, other than for programs for odd-lot holders or plans 
     registered with the Commission; and
       ``(cc) the bank's compensation for such plan or program 
     consists of administration fees, or flat or capped per order 
     processing fees, or both, but the bank does not otherwise 
     receive brokerage commissions, or other similar remuneration 
     based on effecting transactions in securities, that exceed 
     the cost incurred by the bank in connection with executing 
     securities transactions under this subclause (III).
       ``(IV) Permissible delivery of materials.--The exception to 
     being considered a broker for a bank engaged in activities 
     described in subclauses (I), (II), and (III) will not be 
     affected by a bank's delivery of written or electronic plan 
     materials to employees of the issuer, shareholders of the 
     issuer, or members of affinity groups of the issuer, so long 
     as such materials are--
       ``(aa) comparable in scope or nature to that permitted by 
     the Commission as of the date of the enactment of the 
     Financial Services Act of 1998; or
       ``(bb) otherwise permitted by the Commission.


                             [8. Antitrust]

       Strike subtitle E of title I of the Amendment in the Nature 
     of a Substitute and insert the following new subtitle (and 
     conform the table of contents accordingly):

               Subtitle E--Preservation of FTC Authority

     SEC. 141. AMENDMENT TO THE BANK HOLDING COMPANY ACT OF 1956 
                   TO MODIFY NOTIFICATION AND POST-APPROVAL 
                   WAITING PERIOD FOR SECTION 3 TRANSACTIONS.

       Section 11(b)(1) of the Bank Holding Company Act of 1956 
     (12 U.S.C. 1849(b)(1)) is amended by inserting ``and, if the 
     transaction also involves an acquisition under section 4 or 
     section 6, the Board shall also notify the Federal Trade 
     Commission of such approval'' before the period at the end of 
     the 1st sentence.

     SEC. 142. INTERAGENCY DATA SHARING.

       To the extent not prohibited by other law, the Comptroller 
     of the Currency, the Director of the Office of Thrift 
     Supervision, the Federal Deposit Insurance Corporation, and 
     the Board of Governors of the Federal Reserve System shall 
     make available to the Attorney General and the Federal Trade 
     Commission any data in the possession of any such banking 
     agency that the antitrust agency deems necessary for 
     antitrust review of any transaction requiring notice to any 
     such antitrust agency or the approval of such agency under 
     section 3, 4, or 6 of the Bank Holding Company Act of 1956, 
     section 18(c) of the Federal Deposit Insurance Act, the 
     National Bank Consolidation and Merger Act, section 10 of the 
     Home Owners' Loan Act, or the antitrust laws.

     SEC. 143. CLARIFICATION OF STATUS OF SUBSIDIARIES AND 
                   AFFILIATES.

       (a) Clarification of Federal Trade Commission 
     Jurisdiction.--Any person which directly or indirectly 
     controls, is controlled directly or indirectly by, or is 
     directly or indirectly under common control with, any bank or 
     savings association (as such terms are defined in section 3 
     of the Federal Deposit Insurance Act) and is not itself a 
     bank or savings association shall not be deemed to be a bank 
     or savings association for purposes of the Federal Trade 
     Commission Act or any other law enforced by the Federal Trade 
     Commission.
       (b) Savings Provision.--No provision of this section shall 
     be construed as restricting the authority of any Federal 
     banking agency (as defined in section 3 of the Federal 
     Deposit Insurance Act) under any Federal banking law, 
     including section 8 of the Federal Deposit Insurance Act.
       (c) Hart-Scott-Rodino Amendment.--Section 7A(c)(7) of the 
     Clayton Act (15 U.S.C. 18a(c)(7)) is amended by inserting 
     before the semicolon at the end thereof the following: ``, 
     except that a portion of a transaction is not exempt under 
     this paragraph if such portion of the transaction (A) 
     requires notice under section 6 of the Bank Holding Company 
     Act of 1956; and (B) does not require approval under section 
     3 or 4 of the Bank Holding Company Act of 1956''.

     SEC. 144. ANNUAL GAO REPORT.

       (a) In General.--By the end of the 1-year period beginning 
     on the date of the enactment of this Act and annually 
     thereafter, the Comptroller General of the United States 
     shall submit a report to the Congress on market concentration 
     in the financial services industry and its impact on 
     consumers.
       (b) Analysis.--Each report submitted under subsection (a) 
     shall contain an analysis of--
       (1) the positive and negative effects of affiliations 
     between various types of financial companies, and of 
     acquisitions pursuant to this Act and the amendments made by 
     this Act to other provisions of law, including any positive 
     or negative effects on consumers, area markets, and 
     submarkets thereof or on registered securities brokers and 
     dealers which have been purchased by depository institutions 
     or depository institution holding companies;
       (2) the changes in business practices and the effects of 
     any such changes on the availability of venture capital, 
     consumer credit, and other financial services or products and 
     the availability of capital and credit for small businesses; 
     and
       (3) the acquisition patterns among depository institutions, 
     depository institution holding companies, securities firms, 
     and insurance companies including acquisitions among the 
     largest 20 percent of firms and acquisitions within regions 
     or other limited geographical areas.


                      [9. Derivative Instruments]

       In section 206(a)(1)(F) of the Amendment in the Nature of a 
     Substitute, strike clauses (ii) and (iii), and insert the 
     following:
       (ii) interest rates, except interest rate derivative 
     instruments (I) that are based on a security or a group or 
     index of securities (other than government securities or a 
     group or index of government securities); (II) that provide 
     for the delivery of one or more securities (other than 
     government securities); or (III) that trade on a national 
     securities exchange; or
       (iii) commodities, other rates, indices, or other assets, 
     except derivative instruments (I) that are securities or that 
     are based on a group or index of securities (other than 
     government securities or a group or index of government 
     securities); (II) that provide for the delivery of one or 
     more securities (other than government securities); or (III) 
     that trade on a national securities exchange.
       In section 206(a)(3) of the Amendment in the Nature of a 
     Substitute, strike ``and'' at the end of subparagraph (B); 
     redesignate subparagraph (C) as subparagraph (D); and after 
     subparagraph (B), insert the following new subparagraph:
       (C) the term `government securities' has the meaning 
     provided in section 3(a)(42) of such Act, and, for purposes 
     of this subsection, commercial paper, bankers acceptances, 
     and commercial bills shall be treated in the same manner as 
     government securities; and


                        [10. Qualified investor]

       In paragraph (55)(A) of section 3(a) of the Securities 
     Exchange Act of 1934, as added by section 207 of the 
     Amendment in the Nature of a Substitute, strike ``or'' at the 
     end of clause (viii).
       In paragraph (55)(A) of section 3(a) of the Securities 
     Exchange Act of 1934, as added by section 207 of the 
     Amendment in the Nature of a Substitute, strike the period at 
     the end of clause (ix) and insert ``; or''.
       In paragraph (55)(A) of section 3(a) of the Securities 
     Exchange Act of 1934, as added by section 207 of the 
     Amendment in the Nature of a Substitute, insert the following 
     new clause after clause (ix):
       ``(x) the government of any foreign country.


                         [11. Community Needs]

       At the end of subtitle A of title I of the Amendment in the 
     Nature of a Substitute, insert the following new section (and 
     amend the table of contents accordingly):

[[Page H3176]]

     SEC. 109. RESPONSIVENESS TO COMMUNITY NEEDS FOR FINANCIAL 
                   SERVICES.

       (a) Study.--The Secretary of the Treasury, in consultation 
     with the Federal banking agencies (as defined in section 3(z) 
     of the Federal Deposit Insurance Act) and the Securities and 
     Exchange Commission, shall conduct a study of the extent to 
     which adequate services are being provided as intended by the 
     Community Reinvestment Act of 1977, including services in 
     low- and moderate-income neighborhoods and for persons of 
     modest means, as a result of the enactment of this Act.
       (b) Report.--Before the end of the 2-year period beginning 
     on the date of the enactment of this Act, the Secretary of 
     the Treasury, in consultation with the Federal banking 
     agencies and the Securities and Exchange Commission, shall 
     submit a report to the Congress on the study conducted 
     pursuant to subsection (a) and shall include such 
     recommendations as the Secretary determines to be appropriate 
     for administrative and legislative action with respect to 
     institutions covered under the Community Reinvestment Act of 
     1977.


                          [12. Privacy study]

       After section 109 (as so added) of the Amendment in the 
     Nature of a Substitute, insert the following new section (and 
     amend the table of contents accordingly):

     SEC. 110. REPORTS ON ONGOING FTC STUDY OF CONSUMER PRIVACY 
                   ISSUES.

       With respect to the ongoing multistage study being 
     conducted by the Federal Trade Commission on consumer privacy 
     issues, the Commission shall submit to the Congress an 
     interim report on the findings and conclusions of the 
     Commission, together with such recommendations for 
     legislative and administrative action as the Commission 
     determines to be appropriate, at the conclusion of each stage 
     of such study and a final report at the conclusion of the 
     study.


                       [13. Technical correction]

       In section 322(b) of the Amendment in the Nature of a 
     Substitute, strike paragraph (1) and insert the following:
       (1) be a nonprofit corporation;

  The CHAIRMAN. Is the gentleman from Virginia (Mr. Bliley) the 
designee of the gentleman from Iowa (Mr. Leach)?
  Mr. LEACH. Yes, Madam Chairman, he certainly is. With great pride I 
designate him such.
  The CHAIRMAN. Under the rule, the gentleman from Virginia (Mr. 
Bliley) does offer the amendment in his own right.
  Pursuant to House Resolution 428, the gentleman from Virginia (Mr. 
Bliley) and a Member opposed each will control 15 minutes.
  The Chair recognizes the gentleman from Virginia (Mr. Bliley).
  Mr. BLILEY. Madam Chairman, I yield myself such time as I may 
consume.
  Madam Chairman, I rise in strong support of the managers' amendment, 
which represents a bipartisan, bi-committee agreement that will 
significantly improve H.R. 10.
  I thank my good friend and ranking Member, John Dingell, and 
Committee on Banking and Financial Services chairman, the gentleman 
from Iowa (Mr. Leach), for their commitment to this legislation. They 
deserve a great deal of credit for being able to roll up their sleeves 
and make reasonable compromises. The result is one every Member can be 
proud to support, for it promotes good public policy for American 
consumers and American businesses.
  The managers' amendment will strengthen investor and consumer 
protection, clarify regulations for the businesses that have to comply 
with them, and make regulatory standards more consistent for all 
parties in the insurance business, including banks. The agreement 
accomplishes all this without imposing any needless regulatory burdens.
  The managers' amendment improves upon investor and consumer 
protection by providing for SEC regulatory authority over securities 
activities of wholesale financial institutions. It charges Federal 
regulators to review the adequacy of the disclosure of fees charged by 
financial institutions, but requires those regulators to consider the 
sufficiency of existing regulations when making that determination.
  Consumers have a rate to understand the fees they are charged by 
their financial institutions. This amendment will help ensure they get 
or continue to get the disclosure they need.
  The amendment preserves the authorities of State insurance and 
securities regulators. The amendment also makes the applicability of 
the Barnett ``significant interference'' test more uniform throughout 
the bill to prevent State insurance regulations from unfairly 
interfering with the insurance activities of banks.
  The amendment ensures that banks can enter the brave new world of 
affiliations and continue to provide and be paid for trust and other 
securities-related services.
  The managers' amendment also reserve the application of Hart-Scott-
Rodino, the act that requires certain filings with the Justice 
Department when big companies merge. The act does not eliminate any 
exemption that currently applies under that act. Rather, it preserves 
current law as it would apply once H.R. 10 were signed into law.
  The managers' amendment enjoys the strong support of Federal Reserve 
Board Chairman Greenspan, SEC Chairman Levitt, State securities and 
insurance regulators and a wide array of financial service providers.
  This amendment will benefit every participant in our Nation's 
financial markets, from businesses to consumers. I urge every Member of 
this body to support this amendment.
  Madam Chairman, I reserve the balance of my time.
  Mr. LaFALCE. Madam Chairman, I claim the time in opposition to the 
amendment.
  The CHAIRMAN. The gentleman from New York (Mr. LaFalce) is recognized 
for 15 minutes.
  Mr. LaFALCE. Madam Chairman, I yield myself 4 minutes.
  Madam Chairman, the bill before us today is extremely complex and 
controversial. It would usher in a new era and a new structure for 
financial services, one in which banking, investment, insurance and 
other services would be merged, and enormous financial resources could 
be concentrated in huge financial conglomerates.

                              {time}  1415

  I wish to commend the authors of the manager's amendment, therefore, 
for offering a number of important changes in H.R. 10 that I believe 
are essential if this legislation is to serve the needs and interests 
of consumers and investors.
  The amendment would correct a provision relating to consumer 
protections in bank sales of insurance products that would otherwise 
have permitted any related State statute or regulation to preempt and 
nullify the consumer protections in Federal law and regulation.
  The manager's amendment clarifies that the stronger Federal or State 
standard in terms of these specific protections provided to consumers 
will prevail. We had this in the Committee on Banking and Financial 
Services product; it is absolutely essential. I am delighted it is in 
the manager's amendment.
  This change relates to specific consumer protection rules for 
insurance sales which, as I said, were in the original Committee on 
Banking and Financial Services product. A number of colleagues have 
related concerns which I share about how the broader preemption 
language in section 104 will affect and possibly preempt other State 
consumer statutes. Regrettably, the manager's amendment does not 
address this issue.
  The amendment corrects a serious shortcoming of the bill relating to 
a provision originally sponsored by the gentlewoman from California 
(Ms. Waters) that now requires financial services holding companies to 
offer and maintain low-cost, basic banking accounts for lower-income 
consumers, but provides for no enforcement authority. The amendment, 
the manager's amendment, provides this needed authority to assure 
ongoing compliance with this important requirement.
  The manager's amendment also addresses the problem of potential new 
and undisclosed charges to consumers in the cross-marketing of 
financial products by banks. It gives the financial regulators 
authority to issue new or revised rules that will improve the 
disclosure of information about fees, commissions and other costs to 
consumers.
  The manager's amendment also makes other important changes to enhance 
SEC authority, to protect individual investors, to preserve the FTC's

[[Page H3177]]

authority to review the antitrust implications of bank mergers and to 
require expanded studies of consumer privacy issues and CRA compliance 
by banks.
  Madam Speaker, financial modernization presents enormous potential 
benefits to consumers in terms of new products, greater convenience and 
lower cost. But if we permit this process to undermine consumer rights 
and rob their pocketbooks, we have achieved neither reform nor 
modernization.
  The manager's amendment makes a number of needed changes in H.R. 10 
that can help assure that the consumer will benefit. It does not go far 
enough, but what it does do it does in the right direction, and 
therefore, I would urge adoption of the manager's amendment.
  Madam Chairman, I reserve the balance of my time.
  Mr. BLILEY. Madam Chairman, I yield 6 minutes to the gentleman from 
Michigan (Mr. Dingell) and I ask unanimous consent that he may control 
that time.
  The CHAIRMAN. Is there objection to the request of the gentleman from 
Virginia?
  There was no objection.
  (Mr. DINGELL asked and was given permission to revise and extend his 
remarks.)
  Mr. DINGELL. Madam Chairman, I want to thank my good friend, the 
gentleman from Virginia (Mr. Bliley), the chairman of the Committee on 
Commerce. I yield myself 3 minutes.
  Last month, Madam Chairman, USA Today carried an editorial with a 
title, ``Protecting Consumers Is a Big Part of Reforming Bank Laws.'' 
With this amendment, the House will say resoundingly, ``We agree.'' I 
would note to my colleagues that we have heard no condemnation nor 
criticism of the amendment.
  Consumers Union today submitted a letter urging Members to vote for 
the manager's amendment, and I will insert that letter, and an 
explanation of the manager's amendment, following my remarks.
  Breaking down the barriers between financial services industries 
raises serious risks to consumers. USA Today raised some of these.
  Rip-off risks. The big promise to consumers from merging banking, 
securities and insurance firms is one-stop shopping. But that opens 
consumers up to enormous pressure to absorb all of the services that 
the banks can give. Clearly, a person badly in need of a loan is going 
to be extremely responsive to that, hardly a situation which we want. 
The manager's amendment protects against that.
  Uninsured risks is another. Will bank customers be misled about which 
products are insured and which are not? Bank deposits are FDIC insured; 
if the bank goes under, taxpayers pony up to cover the deposits, as we 
had to do on savings and loans. Stock funds and other investment 
vehicles are not. Consumer groups complain that it will be too easy for 
banks to woo customers into higher-risk, higher-paying investments with 
consumers thinking that their assets are protected. Clear guidelines 
are a must, says USA Today. Our amendment provides them.
  Taxpayers' risks. Taxpayers are also facing heightened risks. Banks 
might be tempted to use insured deposits as leverage to make riskier 
investments, knowing that if the investments turn sour, taxpayers will 
bail them out. That is what happened to the savings and loans in the 
bailouts of the late 1980s. It cost taxpayers hundreds of billions of 
dollars.
  These are things against which the manager's amendment protects. The 
manager's amendment will also protect customers and consumers with 
strong protections against risks and abuses as banks move into other 
financial fields.
  Madam Chairman, I would urge my colleagues to support this amendment, 
and at this time I will include for the Record the previously referred 
to materials.

        Protecting Consumers is Big Part of Reforming Bank Laws

       For many, many years, overhauling the banking industry has 
     been one of Congress' favorite pastimes. Just promise to 
     change the nation's Depression-era banking laws, and a host 
     of competing industries starts flooding campaign coffers with 
     cash in an effort to protest their interests. The trick for 
     lawmakers was to not actually pass anything.
       This week's announcement of an $83 billion merger of 
     Citicorp and Travelers Group could bring that game to a halt. 
     The marriage will likely prompt other banks to start courting 
     insurance and securities firms. All of which will put intense 
     pressure on lawmakers to get off the dime and kill the 1933 
     law that sought to minimize risks to depositors by preventing 
     banks from underwriting securities or insurance products. But 
     breaking down the financial service industry's firewalls also 
     raises serious risks to consumers.
       Rip-off risks. The big promise to consumers from merging 
     banking, securities and insurance firms is one-stop shopping. 
     But will those looking for a mortgage be pressured into 
     buying other services from the lender? Or will banks offer 
     package deals that seem appealing but are far more expensive 
     than if each were bought separately? Some consumer-protection 
     ground rules are needed here.
       Uninsured risks. Will bank customers be misled about which 
     products are insured and which aren't? Bank deposits are FDIC 
     insured--if the bank goes under, taxpayers pony up to cover 
     the deposits. Stock funds and other investment vehicles 
     aren't. Consumer groups complain that it will be too easy for 
     banks to woo customers to riskier, higher-paying investments, 
     with customers thinking their assets are protected. Clear 
     guidelines are a must.
       Taxpayer risks. Taxpayers also face heightened risks. Banks 
     might be tempted to use insured deposits as leverage to make 
     riskier investments, knowing that if the investments turn 
     sour, taxpayers will bail them out. That's what happened in 
     the S&L bailout of the late '80s. It cost taxpayers hundreds 
     of billions of dollars. Firms also might be tempted to loan 
     that money to struggling subsidiaries--again boosting 
     taxpayer risk. Strong safeguards against this ``moral 
     hazard'' problem have to be in place.
       It is nevertheless clear that banking laws designed for an 
     economy 65 years ago don't work as well now. The goal of the 
     1933 Glass-Steagall Act was to keep banks separate from 
     insurance and securities firms as a way to protect banks.
       But the law has weakened banks. They've lost ground at home 
     and abroad to more flexible foreign financial firms.
       Responding to this concern, the Federal Reserve Board over 
     the past decade used its authority as regulatory of bank 
     holding companies to chip away slowly at the Glass-Steagall 
     wall, giving banks more leeway to set up securities 
     subsidiaries. The Fed has gone about as far as it can under 
     the law. Congress has to tear down the rest of the wall.
       As lawmakers remove obstacles to the brave new world of 
     finance, they must take care not to leave the consumer 
     behind.
                                  ____



                                              Consumers Union,

                                     Washington, DC, May 13, 1998.


              vote for pro-consumer amendments to h.r. 10

       Dear Representative: We are writing to urge you to vote for 
     amendments to H.R. 10 that make substantial improvements for 
     consumers. If these amendments are not adopted, we urge you 
     to oppose the bill. The following amendments will help make 
     the bill better for consumers.
       Restoration of Consumer Protections, Basic Banking 
     Enforcement and Fee Disclosure--Bliley-Dingell-Leach 
     Amendment: H.R. 10 includes a package of consumer safeguards 
     against deceptive and misleading bank insurance sales 
     practices. Section 308(g)(2) would undo these safeguards by 
     allowing states to preempt them with laws that are ``contrary 
     or inconsistent'' to the protections provided. The amendment 
     would fix the standard to conform with other consumer banking 
     laws, ensuring state laws that provide greater protection 
     than the federal regulations would not be preempted.
       The amendment also mandates ongoing commonplace with H.R. 
     10's requirement that all depository institutions affiliated 
     with financial services holding companies provide low-cost, 
     basic banking accounts. In addition, the amendment requires 
     improved fee and commission disclosures to enhance comparison 
     shopping; deletes sections relating to antitrust authority 
     that would limit the ability of regulators to assess certain 
     competition problems associated with mergers; preserves the 
     authority of antitrust regulators; and closes further certain 
     loopholes in the securities laws as they apply to banks. We 
     urge you to vote for the amendment.
       We strongly urge you to oppose the Baker amendment that 
     would rollback consumer safeguards for retail sales 
     activities and eliminate Community Reinvestment Act (CRA) 
     requirements for institutions with less than $100 million in 
     assets.
       Elimination of Banking and Consumer Provisions--Leach-
     Bereuter-Campbell Amendment: The longstanding barrier between 
     banking and commerce is still needed to prevent our taxpayer-
     backed banking system from being exposed to the kinds of 
     risks that have plagued Asian neighbors. H.R. 10 currently 
     allows holding companies to derive 5% of their revenues from 
     commercial activities, with some dollar limits. Some argue 
     that this is small enough to avoid risks but many large firms 
     may still come under that limit and the commercial firm can 
     grow once in financial services holding company. The 
     amendment would delete the 5% basket. On the other hand, we 
     urge you to oppose the Roukema-Vento-Baker-McCollum-LaFalce 
     amendment that would increase the basket to 10% or, in some 
     cases, 15% and thereby create more risks to taxpayers.

[[Page H3178]]

       Even with the adoption of these pro-consumer amendments 
     that substantially improve the bill, we are extremely 
     concerned about language that would place at risk state 
     consumer laws that are critical in this increasingly 
     complicated marketplace. Section 104(b)(1) would extend a 
     sweeping preemption standard to any activity authorized not 
     only under H.R. 10 but also under ``any other provision of 
     Federal law.'' Although this section was designed to address 
     regulatory turf disagreements between insurance, securities 
     and banking interests, this language places at risk a host of 
     state consumer laws that protect consumers from excessive 
     fees and otherwise protect consumers and has a chilling 
     effect on state legislators. The Kucinich amendment, that 
     would have addressed this problem, was not ruled in order. 
     Because consumers are still at risk under this bill, 
     Consumers Union cannot support the bill.
           Sincerely,
     Mary Griffin.
                                  ____



                   explanation of manager's amendment

       The Bliley-Dingell-Leach manager's amendment consists in 
     the main of the investor and consumer protections originally 
     contained in the Dingell amendment. It addresses concerns 
     raised by the Federal and State regulators and consumer 
     groups, and incorporates the historical positions of the 
     Commerce Committee on matters within its securities and 
     insurance jurisdiction under the rules of the House. This 
     statement is offered as clarification of the meaning of those 
     provisions and shall constitute the legislative history. I am 
     pleased to have been able to contribute to this important 
     effort.
       1. Customer Fee Disclosure. Section 251 directs the Federal 
     financial regulators to review the adequacy of existing 
     disclosures of fees, commissions, markups, and other costs, 
     and, using existing authorities, to consider improving their 
     accuracy, simplicity, completeness, and consistency. It is 
     the intent of this provision that the regulators, prior to 
     adopting any new rules or rule amendments pursuant to section 
     251, would first consult with each other, and with the 
     appropriate State financial regulators, in determining 
     whether any new rules or rule amendments are appropriate, 
     necessary, and in the public interest. It is the intent of 
     Congress that the Securities and Exchange Commission (SEC) 
     should take the lead in setting disclosure standards with 
     respect to securities, and that the Federal bank regulators 
     should apply the same standards as those adopted by the SEC 
     with respect to securities sold by banks. It is the intent of 
     Congress that disclosure for consumers and investors be 
     improved so that they can make informed decisions. The 
     Congress intends to give the financial regulators flexibility 
     to achieve this goal through any effective means, including 
     increasing the disclosure of prices for debt securities.
       2. SEC Backup Authority. Section 231(a) adds a new 
     subsection (j) to section 17 of the Securities Exchange Act 
     to give the SEC explicit securities inspection backup 
     authority over wholesale financial holding companies and 
     other bank affiliates for the purpose of monitoring and 
     enforcing compliance with the Federal securities laws. In the 
     same manner as bank regulators are required to rely on the 
     SEC's oversight before inspecting registered broker-dealer 
     affiliates of banks, the SEC is required, to the fullest 
     extent possible, to defer to the reports of examinations of 
     banks made by bank regulators and of insurance companies made 
     by insurance regulators and to provide notice to the 
     appropriate regulatory agency. Reasonable limits are imposed 
     on the scope of any inspection under this subsection. It is 
     the intent of Congress that this Act maintain the SEC's 
     ability to enforce the Federal securities laws vigorously for 
     the protection of investors.
       3. Saving Clause For CFTC: By letter dated March 19, 1998, 
     the Commodity Futures Trading Commission (CFTC) complained 
     that the bill designates many CFTC-regulated products as 
     ``traditional banking products,'' thereby creating a 
     misconception that banks dealing in certain defined 
     derivatives might need only comply with Federal banking laws 
     and not the Commodity Exchange Act (CEA). This is not the 
     intent of the Congress. This bill and this amendment do not 
     address the scope of the CFTC's jurisdiction under the CEA. 
     Accordingly, section 210 explicitly preserves the current 
     extent of the authority of the CFTC under the CEA.
       4. Consumer Protection. Section 308 of the bill adds a new 
     section 45 of the Federal Deposit Insurance Act directing the 
     Federal banking agencies to prescribe consumer protection 
     regulations for insurance sales by insured depository 
     institutions and wholesale financial institutions. The 
     regulations cover retail sales practices, disclosures and 
     advertising (especially with respect to uninsured status, 
     investment risk, and coercion), prohibition on 
     misrepresentations and domestic violence discrimination, 
     separation of some activities, and the establishment of a 
     consumer grievance mechanism. The amendment responds to 
     concerns of consumer groups and banks with the effect of this 
     provision on other laws. It provides that the regulations 
     prescribed under section 45 will preempt State law only if 
     the Federal Reserve, Comptroller of the Currency, and FDIC 
     jointly determine that the joint Federal regulations provide 
     consumers with greater protection. It is not the intention of 
     Congress that this preemption provision shall override or be 
     read in a manner inconsistent with section 104 of this Act.
       5. Lifeline Banking. Section 103 of the bill adds new 
     section 6 to the Bank Holding Company Act. Section 6(b) 
     establishes eligibility criteria for forming a financial 
     holding company and engaging in its expanded activities. One 
     of the requirements is that the subsidiary insured depository 
     institutions of such company offer and maintain low-cost 
     basic banking accounts. The amendment provides for ongoing 
     compliance as is the case with the other requirements. The 
     provision does not affect banks who choose not to form 
     financial holding companies.
       6. State Securities and Insurance. Section 104 of the bill 
     would preempt all State laws, including State securities law 
     and State insurance solvency laws, not specifically preserved 
     with regard to affiliations and activities authorized by this 
     Act or any other provision of Federal law. The amendment adds 
     a new paragraph (4) to section 104(b) to preserve State 
     regulation of securities. State regulation of insurance 
     underwriting is preserved under a new paragraph (3) that sets 
     forth five tests that must be met. The amendment makes clear 
     that the U.S. Supreme Court Barnett Bank decision's ``prevent 
     or significantly interfere'' standard will be applicable to 
     both affiliations and activities with respect to allowable 
     State regulation of bank insurance sales. Federal banking and 
     State insurance regulators are directed to share information 
     (consistent with applicable confidentiality and other 
     privileges) regarding financial holding companies that own 
     insurance companies, and Federal banking agencies shall 
     consult with the appropriate State insurance regulator before 
     making any determination regarding initial or continued 
     affiliations with insurance companies. It is the intent of 
     Congress that these regulators cooperate in order to enhance 
     the safety and soundness of the financial system and the 
     protection of consumers.
       7. Brokerage Commission. Title II of the bill requires the 
     functional regulation of bank securities activities. Subtitle 
     A amends the Securities Exchange Act of 1934 to eliminate the 
     outdated blanket exceptions for banks from the definitions of 
     ``broker'' and ``dealer.'' The bill preserves specific 
     exceptions for some existing bank securities activities based 
     on the limited nature of those activities. In general, the 
     fifteen exceptions reflect our intent to exclude certain 
     existing banking activities while ensuring that activities 
     that require securities regulation are subject to the 
     securities laws. These exceptions are designed to assure that 
     activities that most need to be subject to securities 
     regulation in an era of financial modernization and 
     increasing competition do not escape that regulation.
       It is the intent of Congress that banks that act like 
     brokerage firms must be regulated as brokerage firms unless 
     these activities are limited in nature, narrowly constrained, 
     and subject to limits to preclude the concerns that require 
     broker-dealer oversight. To that end, the amendment makes 
     clear that a bank will not be considered a ``broker'' only 
     when it effects transactions in a trustee capacity, or in a 
     fiduciary capacity in its trust department, subject to key 
     limitations, or when, acting in its transfer agent capacity, 
     it conducts brokerage transactions for: (1) employee benefit 
     plans, (2) dividend reinvestment plans, and (3) open 
     enrollment plans, as long as the bank does not solicit 
     transactions, or provide investment advice concerning the 
     purchase and sale of securities, or receive brokerage 
     commissions exceeding the bank's execution costs. To take 
     advantage of this exception, these excepted bank activities 
     must be regularly examined by bank examiners for compliance 
     with fiduciary principles and standards. It is the intent of 
     Congress that such examinations be specifically focused on 
     these activities and rigorous in nature. The amendment also 
     spells out that banks that use these exceptions may be 
     primarily compensated by an administration or annual fee, a 
     percentage of assets under management, a flat or capped per 
     order processing fee, or any combination of such fees. Such 
     fees must not be structured in such a way that they give rise 
     to the sales incentives inherent in brokerage commissions.
       8. Antitrust. The bill substantially streamlines antitrust 
     review of bank acquisitions and mergers under the Federal 
     Reserve. The amendment strikes that language and replaces it 
     with language preserving the authority of the appropriate 
     antitrust regulators, the Attorney General and the Federal 
     Trade Commission. It provides for interagency data sharing to 
     facilitate antitrust reviews and requires a GAO report on 
     market concentration in the financial services industry and 
     its impact on consumers. It is the intent of Congress that 
     the ongoing consolidation and merger activity in the 
     financial services industry undergo complete and rigorous 
     review in order to preserve competition and protect 
     consumers.
       9. Derivative Instruments. The bill preserves the ability 
     of the SEC to determine what is a ``security,'' and when new 
     bank products are ``securities,'' by providing a definition 
     of ``traditional banking product'' as a stand-alone statute--
     not in the Federal securities laws or in the banking laws. 
     The definition includes such things as deposit accounts, 
     letters of credit, credit card debit accounts, certain loan 
     participations, and certain derivative instruments that 
     traditionally have not been regulated as securities. If banks 
     sell products within the scope of this definition, they are 
     not required to register as a broker or a dealer.

[[Page H3179]]

       Derivatives involving or relating to foreign currencies, 
     interest rates, commodities, other rates, indices or other 
     assets, except instruments that are (1) based on a security 
     including a group or index of securities, (2) that provide 
     for the delivery of one or more securities, or (3) that trade 
     on a national securities exchange, are defined as traditional 
     banking products. If a derivative other than an interest rate 
     swap or a foreign currency swap is a security, it would not 
     qualify as a traditional banking product unless it was based 
     on a government security, commercial paper, banker's 
     acceptance or commercial bill or a group or index of one of 
     more of these products. The amendment makes technical and 
     clarifying changes to this provision to ensure that the SEC 
     maintains jurisdiction over derivatives that are securities.
       The bill includes a new provision that establishes a 
     process by which the SEC shall decide whether banks that sell 
     ``new banking products'' that are securities must register 
     with the SEC as brokers, dealers, or both. Specifically, the 
     SEC must engage in a rulemaking proceeding and must determine 
     (1) that the new product is a security and (2) that imposing 
     a registration requirement on a bank to sell the new product 
     is necessary or appropriate in the public interest and for 
     the protection of investors. Under this provision, during the 
     rulemaking process, the SEC is also required to consult with 
     and consider the views of the appropriate banking agencies 
     concerning the proposed rules and the impact of those rules 
     on the banking industry.
       10. Qualified Investors. The amendment expands the bill's 
     definition of ``qualified investor'' to include the 
     governments of foreign countries.
       11. Community Needs. The amendment responds to the concerns 
     of consumer and community groups about the impact of this 
     bill and the recent megamergers on the cost and availability 
     of financial services to communities and persons of modest 
     means. The amendment requires the Treasury Department, in 
     consultation with the Federal banking regulators and the SEC, 
     to study the impact of the changes affected by this Act on 
     Community Reinvestment Act obligations and performance, and 
     to submit a report to Congress with any appropriate 
     recommendations based on the results of that study.
       12. Privacy Study. The amendment requires the Federal Trade 
     Commission to submit to Congress an interim report on its 
     ongoing study of consumer privacy issues together with 
     recommendations for legislative and administrative action. 
     This responds to growing concerns about the use and sharing 
     of confidential customer information for cross-marketing and 
     other purposes.

  Madam Chairman, I reserve the balance of my time.
  Mr. LaFALCE. Madam Chairman, I yield 2 minutes to the gentlewoman 
from Texas (Ms. Jackson-Lee).
  (Ms. JACKSON-LEE of Texas asked and was given permission to revise 
and extend her remarks.)
  Ms. JACKSON-LEE of Texas. Madam Chairman, on Court TV we always hear 
``order in the court'' as one of the calling cries of that popular 
show. I think this manager's amendment brings order to the financial 
services structure that is so much needed by the consumers.
  It particularly regulates and protects the consumers as they come 
into the banking institution needing a variety of services, maybe 
needing only one and winding up buying or going away with two or three, 
because it is attractive to come in and buy a variety of services. I 
think there is a great need for that. It certainly protects and 
regulates the whole question of dealing with what is insured and what 
is not insured, and provides that kind of security for the consumer 
that uses these services. It brings a sense of balance between our 
insurance entities and, as well, our banking entities; and I would say, 
Madam Chairman, that it helps us understand this merging market and 
brings protection there as well.
  I simply say that we are going in the right direction, but I would 
also argue very vigorously against the Baker amendment that seeks to 
eliminate the Community Reinvestment Act. We can protect small banks, 
but we need to protect small business owners and minority communities 
who have yet to participate in the financial structure of this Nation.
  The Community Reinvestment Act has for long years provided investment 
in the inner cities, rebuilding homes and businesses. How dare we go to 
move to eliminate an act that has just begun? We may need some 
tinkering, but we do not need any elimination.
  I stand on behalf of the women business owners in inner-city 
communities, minorities, Hispanics, African Americans and Asians who 
are seeking to rebuild their communities, the innovative American 
community who is just beginning to use the Community Reinvestment Act 
and having banking institutions that are supportive.
  The Baker amendment is wrong-directed in eliminating the Community 
Reinvestment Act. The manager's amendment does attack the problem from 
a consumer's perspective and brings the right kind of balancing to this 
industry. I thank the ranking member, and as well the chairman of this 
committee for this legislation.
  Mr. BLILEY. Madam Chairman, I yield such time as he may consume to 
the gentleman from Iowa (Mr. Leach), chairman of the Committee on 
Banking and Financial Services.
  Mr. LEACH. Madam Chairman, I thank my distinguished friend for 
yielding to me.
  I rise also in support of this manager's amendment. The amendment 
before us was negotiated on a bipartisan, multiple-committee basis. It 
contains changes requested by the Committee on Agriculture, the 
Committee on the Judiciary, and the Committee on Ways and Means. The 
most significant changes are the insurance provisions and the 
provisions relating to antitrust.
  The revisions contained in the amendment relating to the insurance 
provisions are intended to help strike an appropriate balance between 
the need of the States to regulate insurance activities in banks and 
the ability of national banks to engage in insurance activities without 
being subject to State laws that prevent or significantly interfere 
with that activity.
  This House has been a firm supporter of States' rights and, in 
particular, leaving the regulation of insurance to the States. However, 
this House also believes that States should not regulate the manner 
which has, either directly or indirectly, the effect of preventing or 
significantly interfering with the ability of a bank to engage in 
activities that it is properly authorized to do by Federal law. The 
manager's amendment addresses this issue by clarifying these 
relationships.
  Second, the manager's amendment at my request strengthens the 
antitrust laws in a number of ways. It restores the Federal Reserve's 
ability to consider anticompetitive issues in reviewing the acquisition 
of banks; it bolsters the Federal Trade Commission's antitrust 
authority, and it assures that financial affiliations that will be 
permissible under this bill will receive appropriate antitrust review 
by the Department of Justice and the FTC.
  Other provisions of the manager's amendment incorporate amendments 
that were filed by the gentleman from Michigan (Mr. Dingell), the 
gentleman from Massachusetts (Mr. Markey), the gentleman from New York 
(Mr. LaFalce), and the gentleman from Minnesota (Mr. Vento) last month 
and during the most recent consideration of the bill.
  Finally, the manager's amendment includes a number of subtleties as 
well as a number of studies and consumer provisions. I believe it is 
well-balanced and thoughtful, protects the consumer, as well as 
establishes a clear guideline for certain competition in financial 
services. I think it deserves the support of this body.
  Mr. LaFALCE. Madam Chairman, I yield 1 minute to the gentleman from 
Minnesota (Mr. Vento).
  Mr. VENTO. Madam Chairman, I intend to enter into a colloquy with the 
gentleman from Iowa (Mr. Leach), chairman of the Committee on Banking 
and Financial Services.
  Madam Chairman, I would ask the gentleman to clarify that it is our 
mutual understanding that the soon-to-be created electronic accounts, 
ETA accounts, would be one way to satisfy the low-cost, basic banking 
provisions in the bill and the requirement that banks help meet the 
credit needs of local communities under the Community Reinvestment Act. 
The ETA accounts are those that are required to be established for 
Americans to receive Federal benefits or payments by the Debt 
Collection Improvement Act of 1996 (Chapter 10, Public Law 104-134).
  Mr. LEACH. Madam Chairman will the gentleman yield?
  Mr. VENTO. I yield to the gentleman from Iowa.
  Mr. LEACH. Madam Chairman, that is precisely my understanding, and I 
would like to compliment the gentleman for his work in this field as 
well as for his articulation of a very common-sense approach.
  Mr. VENTO. Madam Chairman, reclaiming my time, I want to thank the

[[Page H3180]]

chairman for his clarification, and I would urge Members to support 
this amendment, and I intend to speak on it further myself.
  Mr. BLILEY. Madam Chairman, could I inquire as to how much time I 
have remaining?
  The CHAIRMAN. The gentleman from Virginia (Mr. Bliley), has 4 
minutes, the gentleman from Michigan (Mr. Dingell) has 3 minutes, and 
the gentleman from New York (Mr. LaFalce) has 8\1/2\ minutes.
  Mr. BLILEY. Madam Chairman, do I have the right to close?
  The CHAIRMAN. The gentleman is correct.
  Mr. BLILEY. Madam Chairman, I reserve the balance of my time.
  Mr. LaFALCE. Madam Chairman, I yield 2 minutes to the gentleman from 
Texas (Mr. Bentsen).
  (Mr. BENTSEN asked and was given permission to revise and extend his 
remarks.)
  Mr. BENTSEN. Madam Chairman, this is an amendment on which I am in 
profound agreement with my colleague from Michigan (Mr. Dingell) and 
the two managers of the bill, the gentleman from Virginia (Mr. Bliley), 
and the gentleman from Iowa (Mr. Leach).
  When H.R. 10 left the Committee on Banking and Financial Services 
last year, it included an amendment that I and our colleague, the 
gentleman from North Carolina (Mr. Watt), had drafted which would 
provide for securities sales in banks to be under the auspices of the 
National Association of Security Dealers. I think that the idea of 
increasing SEC regulatory oversight of Bank Securities sales that is in 
the manager's amendment is a step in the right direction. I commend the 
gentleman for offering it.

                              {time}  1430

  I think we should have functional regulation, and I think we have to 
have market modernization, but I think we also need to ensure that 
consumers are protected, and that the playing field is equal between 
both in-bank and out-of-bank securities sales. This amendment moves in 
that direction.
  I would encourage my colleagues to vote for the manager's amendment. 
We obviously have profound disagreements on other issues, but this is, 
I think, a good amendment. As the gentleman mentioned the issue of 
proper regulation of bank mutual fund sales has come up, and we know 
that the Federal bank regulators have had difficulties in their ability 
to properly regulate the sales of these instruments and protect 
investors. This amendment should go a long way toward correcting this 
matter.
  I appreciate the gentleman for offering it, and I intend to support 
it.
  Mr. LaFALCE. Madam Chairman, I yield 3 minutes to the gentleman from 
Minnesota (Mr. Vento).
  Mr. VENTO. Madam Chairman, I thank the gentleman for yielding me the 
time.
  Madam Chairman, I rise in support of this manager's amendment, which 
include the Vento amendment antitrust provisions with respect to the 
required ongoing GAO annual reports, the different cultures that exist 
within the financial entities, insurance, securities, and banking. I am 
very concerned what this may do in terms of venture capital and the 
other capacities.
  The consumer protection provisions with regard to this, I think there 
are some concerns that banks have even with this manager's amendment 
concerning what happens with insurance sales. Obviously, the banks are 
not satisfied even with the LaFalce-Vento amendment, but I think we are 
willing to accept that and move forward; such provisions represent 
progress.
  I appreciate the lifeline provisions and note the CRA study 
provisions and question the focus. What is conspicuously absent from 
this, of course, is the good work in terms of extending CRA that was 
actually initiated in a previous March 30 Dingell-LaFalce amendment.
  I would also like to comment on SEC enforcement, and the National 
Association of Securities Dealers, enforcement they do very important 
regulatory work. My colleague from the Committee on Banking and 
Financial Services just pointed out the important work in terms of 
having functional regulation.
  In 1996, as an example, the Securities and Exchange Commission, under 
its authority, actually imposed over $325 million worth of assessments 
reflected in terms of illegal profits, and $67 million worth of civil 
penalties. The S.E.C. in 1996 noted 180 civil actions, 239 
administrative proceedings and 32 civil and criminal contempt 
proceedings.
  It has been pointed out repeatedly here that Nations Securities, 
NationsBank's Nations Securities, has had a penalty most recently 
reported in the paper derived from a 1994 incident. Incidentally, it 
was not just Nations Securities, it was Dean Witter and Nation's Bank 
who jointly owned Nation's Securities. Dean Witter, of course, is a 
securities firm, but other firms have also had some problems. It was, 
of course, functional regulation that, in that instance, actually 
penalized Nations Securities. That is not changed in this measure or in 
the LaFalce-Vento amendment.
  But other firms also have had some very significant fines in 1996, 
and I realize it is very important we see this type of discipline, this 
regulatory enforcement. A securities firm Lazard along with Merrill 
Lynch had a $10 million fine in 1996. PaineWebber was fined in a number 
of instances, as were many others. I could go through the entire list 
and point out the violations of securities firms--mistakes have been 
made and penalties exacted.
  Suffice it to say that the Securities and Exchange Commission is 
doing its job. I commend them for that. I commend them for the work 
they did with Nations Bank and Dean Witter, the owners of Nations 
Securities. It is interesting to note that, but functional regulation 
would not change under this bill, under the operating subsidiary, any 
different from what actually happened in the recent penalty that is 
being highlighted by my colleagues. It is exactly this type of rigorous 
regulation and rigorous exercise by the regulators that will prevent 
the type of abuses that occurred with the S&L crisis. Without rigorous 
regulation no corporate structure will suffice. The law must provide 
for enforcement and a willing watch dog.
  We worked mightily in 1989 and 1991 to pass new regulations on banks 
and S&Ls to prevent any repeat of that type of crisis. We hope that law 
works. We have not seen the ups and downs in the economy to demonstrate 
that it will work, I will admit freely, but I think we have some pretty 
sound law in place to deal with that, forged in the heat of a red hot 
furnace catastrophe, the S&L crisis.
  I think what is proved or demonstrated by the reports that we have 
had here with regard to Nations Bank/Dean Witter role with 
NationsSecurities, is that the operating subsidiary, when functionally 
regulated, can be adequately controlled and penalized, just as we 
control securities firms when indeed they do run afoul of the law, as 
we did in 1996 with $325 million worth payback and $67 million in 
fines.
  Mr. DINGELL. Madam Chairman, I yield 1 minute to the distinguished 
gentleman from New York (Mr. Manton), the ranking member of the 
subcommittee.
  Mr. MANTON. Madam Chairman, I rise in strong support of the manager's 
amendment. By voting for the manager's amendment, we ensure the most 
important goal of this legislation is realized.
  This amendment will make certain that consumers and investors receive 
clear and meaningful fee disclosure when buying products from a 
financial institution. Simply stated, this means that when someone buys 
a product from a bank, they will be provided with information on all of 
the costs associated with that purchase.
  This amendment also considers how the Community Reinvestment Act 
should be incorporated under this new holding company structure, where 
financial holding companies or their subsidiaries can potentially hold 
the assets of a bank.
  This amendment requires that a study be conducted on whether adequate 
services are being provided to low- and moderate-income neighborhoods. 
Because the new holding company regime will allow for greater 
flexibility in how financial institutions are structured and financed, 
how CRA will be affected should certainly be examined by the regulators 
that oversee them.
  These are just a few of the consumer and investors' protections built 
into the manager's amendment. I believe H.R. 10 is improved 
significantly by

[[Page H3181]]

this amendment, and I urge all of my colleagues to support it.
  Mr. DINGELL. Madam Chairman, I yield 1 minute to the distinguished 
gentlewoman from Colorado (Ms. DeGette).
  Ms. DeGETTE. Madam Chairman, I thank the gentleman for yielding me 
the time.
  Madam Chairman, I am in strong support of the manager's amendment, 
primarily because of the numerous consumer protection provisions that 
it contains. I am particularly concerned about preservation of the 
community services that are intended by the Community Reinvestment Act.
  The Community Reinvestment Act is vitally important to many, many 
areas in this country. In my district in Denver, for example, the 
Community Reinvestment Act has been used to revitalize our local urban 
economy.
  I was concerned in the underlying bill that because of the 
structuring, that the Community Reinvestment Act would be undermined. I 
retain those concerns, but I feel that the 2-year review period 
contained in the manager's amendment will give us ample time to see the 
effect of H.R. 10 on the CRA.
  I hope and I urge that Congress, at the end of this 2-year period, 
will take a strong look as if the CRA is being preserved and expanded, 
and take quick legislative action if it is not, so our urban 
communities, our small women- and minority-owned businesses, can be 
preserved, while at the same time we have financial expansion and 
modernization.
  Mr. DINGELL. Madam Chairman, I yield 1 minute to my distinguished 
friend, the gentleman from Massachusetts (Mr. Markey).
  Mr. MARKEY. Madam Chairman, I thank the gentleman for yielding me the 
time, and I want to congratulate him and the gentleman from Virginia 
(Mr. Bliley) and the gentleman from New York (Mr. LaFalce), and all 
those that worked to put together this bipartisan manager's amendment, 
because it really does help to close up a lot of the problem areas that 
had developed in the drafting of the legislation with regard to how 
investors and depositors were going to be protected in the legislation.
  Specifically, I speak here as the ranking Democrat on the 
Subcommittee on Telecommunications, Trade, and Consumer Protection. We 
had real questions about whether or not the Federal Trade Commission 
was going to have the authority to be able to follow these antitrust 
questions, as banks affiliated with insurance or with financial 
institutions, securities institutions, or even with nonfinancial 
institutions.
  In this amendment, we clarify that the Federal Trade Commission has 
the antitrust authority to be able to look at these transactions, and 
that the Hart-Scott-Rodino antitrust review is retained in a way that 
covers these bank mergers with financial and nonfinancial institutions. 
I thank the gentleman for making that possible.
  The CHAIRMAN. All time of the gentleman from Michigan (Mr. Dingell) 
has expired.
  The gentleman from New York (Mr. LaFalce) has 4 minutes remaining.
  Mr. LaFALCE. Madam Chairman, I yield myself such time as I may 
consume.
  Madam Chairman, I am delighted that everyone who has spoken has 
spoken in support of this manager's amendment, because the objectives 
that it would effectuate are certainly in the public interest.
  There are still, however, even after we pass this manager's 
amendment, a number of deficiencies. One of them has not been mentioned 
very much, and I would like to address that now. That is the issue of 
the redomestication of mutual insurance companies. I am very concerned 
about that.
  It is my understanding that there are approximately 70 million 
Americans who have ownership in mutual insurance companies. It is my 
understanding that this bill has a provision within it that would allow 
State law to preempt Federal law, not when the State law gives greater 
consumer protection, but when the State law gives lesser consumer 
protection. Further, I understand that this State law then could become 
the operative national law for these mutual insurance holding 
companies.
  This is very worrisome to me, because there are a good many States 
that want to protect the rights of individuals who own a stake in 
mutual insurance companies. This Federal legislation will permit 
certain State legislatures to enact legislation which would then entice 
the transfer of the corporate headquarters to their State, and enable 
them to operate on a national basis on the basis of the lowest common 
denominator. The manager's amendment does not deal with this issue.
  The other big provision, of course, is the Community Reinvestment 
Act. This is very fundamental. The manager's amendment does nothing 
about the mandate in the bill that if they want to engage in new, 
innovative products and services, they must, they must move their 
activities into an affiliate that is not subject to the Community 
Reinvestment Act; that is, if they want to remain a national bank.
  So they have the option of either becoming a financial services 
holding company, which most small national banks would not want to do, 
or they have the option of converting from the national bank charter to 
a State bank charter, because most State banks would permit them to 
conduct these activities in operating subsidiaries, where the 
regulators have said that you have as much safety and soundness as you 
would in the affiliate. So it would permit the undermining of the 
Community Reinvestment Act, the undermining of the national bank 
system.
  The manager's amendment does not deal with that. So vote yes on the 
manager's amendment, but that is not enough to turn a bad bill into a 
good bill.
  Mr. BLILEY. Madam Chairman, I yield myself such time as I may 
consume.
  Madam Chairman, this has been a good debate. It is now coming to a 
close, and we will shortly have a vote. This amendment is a good 
amendment. It represents the House at its best: two committees, two 
parties working side by side in the interests of the Nation. That is 
the way it should be more often. Sadly, unfortunately, it is not. But 
this is a good amendment. We are going to have a long day, so let us 
have the question.
  Madam Chairman, I yield back the balance of my time.
  The CHAIRMAN. The question is on the amendment offered by the 
gentleman from Virginia (Mr. Bliley).
  The question was taken; and the Chairman announced that the ayes 
appeared to have it.


                             Recorded Vote

  Mr. BLILEY. Madam Chairman, I demand a recorded vote.
  A recorded vote was ordered.
  The vote was taken by electronic device, and there were--ayes 407, 
noes 11, not voting 14, as follows:

                             [Roll No. 143]

                               AYES--407

     Abercrombie
     Ackerman
     Aderholt
     Allen
     Andrews
     Archer
     Armey
     Baesler
     Baker
     Baldacci
     Ballenger
     Barcia
     Barr
     Barrett (NE)
     Barrett (WI)
     Bartlett
     Barton
     Bass
     Becerra
     Bentsen
     Bereuter
     Berman
     Berry
     Bilbray
     Bilirakis
     Bishop
     Blagojevich
     Bliley
     Blumenauer
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bonior
     Bono
     Borski
     Boswell
     Boucher
     Boyd
     Brady
     Brown (CA)
     Brown (FL)
     Brown (OH)
     Bryant
     Bunning
     Burr
     Burton
     Buyer
     Callahan
     Calvert
     Camp
     Campbell
     Canady
     Cannon
     Capps
     Cardin
     Carson
     Castle
     Chabot
     Chambliss
     Chenoweth
     Clayton
     Clement
     Clyburn
     Coble
     Coburn
     Collins
     Combest
     Condit
     Conyers
     Cook
     Cooksey
     Costello
     Cox
     Coyne
     Cramer
     Crane
     Crapo
     Cubin
     Cummings
     Cunningham
     Danner
     Davis (FL)
     Davis (IL)
     Davis (VA)
     Deal
     DeFazio
     DeGette
     Delahunt
     DeLauro
     DeLay
     Deutsch
     Diaz-Balart
     Dickey
     Dicks
     Dingell
     Dixon
     Doggett
     Dooley
     Doolittle
     Doyle
     Duncan
     Dunn
     Edwards
     Ehlers
     Ehrlich
     Emerson
     Engel
     English
     Ensign
     Eshoo
     Etheridge
     Evans
     Everett
     Ewing
     Farr
     Fawell
     Fazio
     Filner
     Foley
     Forbes
     Ford
     Fossella
     Fowler
     Fox
     Frank (MA)
     Franks (NJ)
     Frelinghuysen
     Frost
     Furse
     Gallegly
     Ganske
     Gejdenson
     Gekas
     Gephardt
     Gillmor
     Gilman
     Goodlatte
     Goodling
     Gordon
     Goss
     Graham
     Granger
     Green
     Greenwood
     Gutierrez
     Gutknecht
     Hall (OH)
     Hall (TX)
     Hamilton
     Hansen
     Hastert
     Hastings (FL)

[[Page H3182]]


     Hastings (WA)
     Hayworth
     Hefley
     Herger
     Hill
     Hilleary
     Hinchey
     Hinojosa
     Hobson
     Hoekstra
     Holden
     Hooley
     Horn
     Hostettler
     Houghton
     Hoyer
     Hulshof
     Hunter
     Hutchinson
     Hyde
     Inglis
     Istook
     Jackson (IL)
     Jackson-Lee (TX)
     Jefferson
     Jenkins
     John
     Johnson (CT)
     Johnson (WI)
     Johnson, E.B.
     Jones
     Kanjorski
     Kaptur
     Kasich
     Kelly
     Kennedy (MA)
     Kennedy (RI)
     Kennelly
     Kildee
     Kim
     Kind (WI)
     King (NY)
     Kingston
     Kleczka
     Klink
     Klug
     Knollenberg
     Kolbe
     Kucinich
     LaFalce
     Lampson
     Lantos
     Largent
     Latham
     LaTourette
     Lazio
     Leach
     Lee
     Levin
     Lewis (CA)
     Lewis (GA)
     Lewis (KY)
     Linder
     Lipinski
     Livingston
     LoBiondo
     Lofgren
     Lowey
     Lucas
     Luther
     Maloney (CT)
     Maloney (NY)
     Manton
     Manzullo
     Markey
     Martinez
     Mascara
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McCrery
     McDade
     McDermott
     McGovern
     McHale
     McHugh
     McInnis
     McIntosh
     McIntyre
     McKeon
     McKinney
     McNulty
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Metcalf
     Mica
     Millender-McDonald
     Miller (CA)
     Miller (FL)
     Minge
     Mink
     Moakley
     Mollohan
     Moran (KS)
     Moran (VA)
     Morella
     Murtha
     Myrick
     Nadler
     Neal
     Nethercutt
     Neumann
     Ney
     Northup
     Norwood
     Nussle
     Oberstar
     Obey
     Olver
     Ortiz
     Owens
     Oxley
     Packard
     Pallone
     Pappas
     Parker
     Pascrell
     Pastor
     Paul
     Paxon
     Payne
     Pease
     Pelosi
     Peterson (MN)
     Peterson (PA)
     Petri
     Pickering
     Pickett
     Pitts
     Pombo
     Pomeroy
     Porter
     Portman
     Poshard
     Price (NC)
     Pryce (OH)
     Quinn
     Rahall
     Ramstad
     Rangel
     Redmond
     Regula
     Reyes
     Riggs
     Rivers
     Rodriguez
     Roemer
     Rogan
     Rogers
     Rohrabacher
     Ros-Lehtinen
     Rothman
     Roukema
     Roybal-Allard
     Royce
     Rush
     Ryun
     Sabo
     Salmon
     Sanchez
     Sanders
     Sandlin
     Sanford
     Sawyer
     Saxton
     Schaefer, Dan
     Schumer
     Scott
     Sensenbrenner
     Serrano
     Sessions
     Shadegg
     Shaw
     Shays
     Sherman
     Shimkus
     Shuster
     Sisisky
     Skeen
     Skelton
     Slaughter
     Smith (MI)
     Smith (NJ)
     Smith (OR)
     Smith (TX)
     Smith, Adam
     Smith, Linda
     Snowbarger
     Snyder
     Solomon
     Souder
     Spence
     Spratt
     Stabenow
     Stark
     Stearns
     Stenholm
     Stokes
     Strickland
     Stump
     Stupak
     Sununu
     Talent
     Tanner
     Tauscher
     Tauzin
     Taylor (MS)
     Taylor (NC)
     Thomas
     Thompson
     Thornberry
     Thurman
     Tierney
     Torres
     Towns
     Traficant
     Turner
     Upton
     Velazquez
     Vento
     Visclosky
     Walsh
     Wamp
     Waters
     Watkins
     Watt (NC)
     Watts (OK)
     Waxman
     Weldon (FL)
     Weldon (PA)
     Weller
     Wexler
     Weygand
     Whitfield
     Wicker
     Wise
     Wolf
     Woolsey
     Wynn
     Yates
     Young (AK)
     Young (FL)

                                NOES--11

     Bachus
     Dreier
     Goode
     Johnson, Sam
     LaHood
     McCollum
     Riley
     Scarborough
     Schaffer, Bob
     Thune
     Tiahrt

                             NOT VOTING--14

     Bateman
     Christensen
     Clay
     Fattah
     Gibbons
     Gilchrest
     Gonzalez
     Harman
     Hefner
     Hilliard
     Kilpatrick
     Radanovich
     Skaggs
     White

                              {time}  1503

  Mr. BACHUS changed his vote from ``aye'' to ``no.''
  Mr. HEFLEY and Mr. BOSWELL changed their vote from ``no'' to ``aye.''
  So the amendment was agreed to.
  The result of the vote was announced as above recorded.
  The CHAIRMAN pro tempore (Mr. Dickey). It is now in order to consider 
amendment No. 2 printed in part 2 of House Report 105-531.


                 Amendment No. 2 Offered by Mr. LaFalce

  Mr. LaFALCE. Mr. Chairman, I offer an amendment.
  The CHAIRMAN pro tempore. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Part 2, Amendment No. 2, printed in House Report 105-531 
     offered by Mr. LaFalce:


                             [1. Insurance]

       In section 104(b)(2) of the Amendment in the Nature of a 
     Substitute, strike ``As stated by the United States Supreme 
     Court'' and insert ``In accordance with the decision of the 
     Supreme Court of the United States''.
       In section 104(b)(2) of the Amendment in the Nature of a 
     Substitute, strike ``to engage'' each place such term appears 
     and insert ``, or any subsidiary or other affiliate thereof, 
     from engaging''.
       In section 104(b)(2) of the Amendment in the Nature of a 
     Substitute, strike subparagraph (B) and insert the following 
     new subparagraph:
       (B) subparagraph (A) shall not apply after the end of the 
     5-year period beginning on the date of the enactment of this 
     Act.
       In section 104(b)(3) of the Amendment in the Nature of a 
     Substitute, insert ``not relating to crossmarketing 
     activities subject to paragraph (2)'' after ``orders, and 
     interpretations''.
       In section 104(b)(3) of the Amendment in the Nature of a 
     Substitute, insert ``to the extent that such statutes, 
     regulations, orders, and interpretations do not have a 
     disparate impact on insurance underwriters affiliated with an 
     insured depository institution or wholesale financial 
     institution'' before the period at the end.


                              [2. Op-subs]

       Strike the heading for subtitle C of title I of the 
     Amendment in the Nature of a Substitute and insert the 
     following new heading:
      Subtitle C--Subsidiaries of Insured Depository Institutions
       Strike section 121 of the Amendment in the Nature of a 
     Substitute and insert the following new sections (and 
     redesignate subsequent sections and amend the table of 
     contents accordingly):

     SEC. 121. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED TO ENGAGE 
                   IN FINANCIAL ACTIVITIES.

       (a) Financial Subsidiaries of National Banks.--Chapter one 
     of title LXII of the Revised Statutes of United States (12 
     U.S.C. 21 et seq.) is amended--
       (1) by redesignating section 5136A as section 5136C; and
       (2) by inserting after section 5136 (12 U.S.C. 24) the 
     following new section:

     ``SEC. 5136A. FINANCIAL SUBSIDIARIES OF NATIONAL BANKS.

       ``(a) Subsidiaries of National Banks Authorized to Engage 
     in Financial Activities.--
       ``(1) In general.--A subsidiary of a national bank may 
     engage in an activity that is not permissible for a national 
     bank to engage in directly, but only if--
       ``(A) the activity is a financial activity (as defined in 
     paragraph (4));
       ``(B) the national bank is well capitalized, well managed, 
     and achieved a rating of `satisfactory record of meeting 
     community credit needs', or better, at the most recent 
     examination of the bank;
       ``(C) all depository institution affiliates of such 
     national bank are well capitalized, well managed, and have 
     achieved a rating of `satisfactory record of meeting 
     community credit needs', or better, at the most recent 
     examination of each such institution; and
       ``(D) the bank has received the approval of the Comptroller 
     of the Currency.
       ``(2) No effect on edge act or agreement corporations.--
     Paragraph (1) shall not apply with respect to any subsidiary 
     which is a corporation organized under section 25A of the 
     Federal Reserve Act or a corporation operating under section 
     25 of such Act.
       ``(3) Other subsidiaries prohibited.--A national bank may 
     not control any subsidiary other than a subsidiary--
       ``(A) which engages solely in activities that are 
     permissible for a national bank to engage in directly or are 
     authorized under paragraph (1); or
       ``(B) which a national bank may control pursuant to section 
     25 or 25A of the Federal Reserve Act, the Bank Service 
     Company Act, or any other Act that expressly by its terms 
     authorizes national banks to control subsidiaries.
       ``(4) Financial activity defined.--For purposes of this 
     section and subject to paragraph (5), the term `financial 
     activity' means any 1 or more of the following:
       ``(A) Receiving money subject to a deposit or other 
     repayment obligation.
       ``(B) Lending, exchanging, transferring, investing, or 
     safeguarding money or other financial assets.
       ``(C) Providing any device or other instrumentality for 
     transferring money or other financial assets.
       ``(D) Acting as agent or broker in the placement of 
     annuities contracts or contracts insuring, guaranteeing, or 
     indemnifying against loss, harm, damage, illness, disability, 
     or death.
       ``(E) Providing financial, investment, or economic advisory 
     or information services, including advising an investment 
     company (as defined in section 3 of the Investment Company 
     Act of 1940).
       ``(F) Issuing or selling instruments representing interests 
     in pools of assets permissible for a bank to hold directly.
       ``(G) Arranging, effecting, or facilitating financial 
     transactions for the account of third parties.
       ``(H) Directly or indirectly acquiring or controlling, 
     whether as principal, on behalf of 1 or more entities 
     (including entities that the financial subsidiary controls) 
     or otherwise, shares, assets, or ownership interests 
     (including without limitation debt or equity securities, 
     partnership interests, trust certificates or other 
     instruments representing ownership) of a company or other 
     entity, whether or not constituting control of such company 
     or entity, engaged in any activity not authorized pursuant to 
     this section if--
       ``(i) the shares, assets, or ownership interests are not 
     acquired or held by a depository institution;
       ``(ii) such shares, assets, or ownership interests are 
     acquired and held by a securities affiliate or an affiliate 
     thereof as part of a bona fide underwriting or merchant 
     banking activity, including investment activities engaged in 
     for the purpose of appreciation and ultimate resale or 
     disposition of the investment;
       ``(iii) such shares, assets, or ownership interests, are 
     held only for such a period of time as will permit the sale 
     or disposition

[[Page H3183]]

     thereof on a reasonable basis consistent with the nature of 
     the activities described in clause (ii); and
       ``(iv) during the period such shares, assets, or ownership 
     interests are held, the financial subsidiary does not 
     actively participate in the day to day management or 
     operation of such company or entity, except insofar as 
     necessary to achieve the objectives of clause (ii).
       ``(I) Underwriting, dealing in, or making a market in 
     securities.
       ``(J) Engaging in any activity that was, by regulation or 
     order, permissible for a bank holding company pursuant to 
     section 4(c)(8) of the Bank Holding Company Act of 1956 (as 
     in effect on the day before the date of enactment of the 
     Financial Services Act of 1998).
       ``(K) Engaging, in the United States, in any activity 
     that--
       ``(i) a bank holding company may engage in outside the 
     United States; and
       ``(ii) the Board of Governors of the Federal Reserve System 
     determined, under regulations issued pursuant to section 
     4(c)(13) of the Bank Holding Company Act of 1956 (as in 
     effect on the day before the date of enactment of the 
     Financial Services Act of 1998) to be usual in connection 
     with the transaction of banking or other financial operations 
     abroad;
       ``(L) Owning shares of a company to the extent permissible 
     under section 4(c)(7) of the Bank Holding Company Act of 1956 
     (as in effect on the day before the date of enactment of the 
     Financial Services Act of 1998).
       ``(M) Engaging in any activity that the Comptroller of the 
     Currency determines by regulation or order is the functional 
     equivalent of any activity described in 1 or more of 
     subparagraphs (A) through (K).
       ``(N) Engaging in any activity that the Comptroller of the 
     Currency determines by regulation or order to be financial, 
     or related to a financial activity, having taken into 
     account--
       ``(i) the purposes of this title and the Financial Services 
     Act of 1998;
       ``(ii) changes or reasonably expected changes in the market 
     in which bank subsidiaries compete;
       ``(iii) changes or reasonable expected changes in the 
     technology delivering financial services; and
       ``(iv) whether such activity is necessary or appropriate to 
     allow a bank and the subsidiaries of a bank to--

       ``(I) compete effectively with any company seeking to 
     provide financial services in the United States;
       ``(II) use any available or emerging technological means, 
     including any application necessary to protect the security 
     or efficacy of systems for the transmission of data or 
     financial transactions, in providing financial services; and
       ``(III) offer customers any available or emerging 
     technological means for using financial services.

       ``(5) Other definitions.--For purposes of this section, the 
     following definitions shall apply:
       ``(A) Financial subsidiary.--The term `financial 
     subsidiary' means a company which--
       ``(i) is a subsidiary of a national bank (other than a 
     corporation organized under section 25A of the Federal 
     Reserve Act or a corporation operating under section 25 of 
     such Act); and
       ``(ii) is engaged in a financial activity pursuant to 
     paragraph (1) that is not a permissible activity for a 
     national bank to engage in directly.
       ``(B) Subsidiary.--The term `subsidiary' has the meaning 
     given to such term in section 2 of the Bank Holding Company 
     Act of 1956.
       ``(C) Well capitalized.--The term `well capitalized' has 
     the same meaning as in section 38 of the Federal Deposit 
     Insurance Act and, for purposes of this section, the 
     Comptroller shall have exclusive jurisdiction to determine 
     whether a national bank is well capitalized.
       ``(D) Well managed.--The term `well managed' means--
       ``(i) in the case of a bank that has been examined, unless 
     otherwise determined in writing by the Comptroller, the 
     achievement of--

       ``(I) a composite rating of 1 or 2 under the Uniform 
     Financial Institutions Rating System (or an equivalent rating 
     under an equivalent rating system) in connection with the 
     most recent examination or subsequent review of the bank; and
       ``(II) at least a rating of 2 for management, if that 
     rating is given; or

       ``(ii) in the case of any national bank that has not been 
     examined, the existence and use of managerial resources that 
     the Comptroller determines are satisfactory.
       ``(6) Insurance underwriting and direct investment.--Except 
     as provided in title III of the Financial Services Act of 
     1998, no subsidiary of a national bank (other than a 
     corporation organized under section 25A of the Federal 
     Reserve Act or a corporation operating under section 25 of 
     such Act) may underwrite noncredit-related insurance or 
     engage in real estate investment or development activities 
     (except to the extent a national bank is specifically 
     authorized by statute to engage in any such activity 
     directly).
       ``(7) Limited exclusions from community needs requirements 
     for newly acquired depository institutions.--Any depository 
     institution which becomes affiliated with a national bank 
     during the 12-month period preceding the submission of an 
     application to acquire a financial subsidiary and any 
     depository institution which becomes so affiliated after the 
     approval of such application may be excluded for purposes of 
     paragraph (1)(C) during the 12-month period beginning on the 
     date of such acquisition if--
       ``(A) the national bank has submitted an affirmative plan 
     to the Comptroller of the Currency to take such action as may 
     be necessary in order for such institution to achieve a 
     `satisfactory record of meeting community credit needs', or 
     better, during the most next examination of the institution; 
     and
       ``(B) the plan has been accepted by the Comptroller.
       ``(b) Capital Deduction Required.--
       ``(1) In general.--In determining compliance with 
     applicable capital standards--
       ``(A) the amount of a national bank's equity investment in 
     a financial subsidiary shall be deducted from the national 
     bank's assets and tangible equity; and
       ``(B) the financial subsidiary's assets and liabilities 
     shall not be consolidated with those of the national bank.
       ``(2) Regulations required.--The Comptroller shall 
     prescribe regulations implementing this subsection.
       ``(c) Safeguards for the Bank.--A national bank that 
     establishes or maintains a financial subsidiary shall assure 
     that--
       ``(1) the bank's procedures for identifying and managing 
     financial and operational risks within the bank and financial 
     subsidiaries of the bank adequately protect the bank from 
     such risks;
       ``(2) the bank has, for the protection of the bank, 
     reasonable policies and procedures to preserve the separate 
     corporate identity and limited liability of the bank and 
     subsidiaries of the bank; and
       ``(3) the bank complies with this section.
       ``(d) National Banks Which Do Not Comply With Requirements 
     of This Section.--
       ``(1) In general.--If the Comptroller determines that a 
     national bank which controls a financial subsidiary, or a 
     depository institution affiliate of such national bank, does 
     not continue to meet the requirements of subsection (a), the 
     Comptroller shall give notice to the bank to that effect, 
     describing the conditions giving rise to the notice.
       ``(2) Agreement to correct conditions required.--
       ``(A) Content of agreement.--Within 45 days of the receipt 
     by a depository institution of a notice given under paragraph 
     (1) (or such additional period as the Comptroller may 
     permit), the depository institution failing to meet the 
     requirements of subsection (a) shall execute an agreement 
     with the appropriate Federal banking agency for such 
     institution to correct the conditions described in the 
     notice.
       ``(B) Comptroller may impose limitations.--Until the 
     conditions giving rise to the notice are corrected, the 
     Comptroller may impose such limitations on the conduct of the 
     business of the national bank or subsidiary of such bank as 
     the Comptroller determines to be appropriate under the 
     circumstances.
       ``(3) Failure to correct.--If the conditions described in 
     the notice are not corrected within 180 days after the bank 
     receives the notice, the Comptroller may require, under such 
     terms and conditions as may be imposed by the Comptroller and 
     subject to such extensions of time as may be granted in the 
     discretion of the Comptroller--
       (A) the national bank to divest control of each subsidiary 
     engaged in an activity that is not permissible for the bank 
     to engage in directly; or
       ``(B) each subsidiary of the national bank to cease any 
     activity that is not permissible for the bank to engage in 
     directly.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     one of title LXII of the Revised Statutes of the United 
     States is amended--
        (1) by redesignating the item relating to section 5136A as 
     section 5136C; and
        (2) by inserting after the item relating to section 5136 
     the following new item:

``5136A. Financial subsidiaries of national banks.''.

     SEC. 122. ACTIVITIES OF SUBSIDIARIES OF INSURED STATE BANKS.

       Section 24(d) of the Federal Deposit Insurance Act (12 
     U.S.C. 1831a(d)) is amended--
       (1) by adding at the end the following new paragraphs:
       ``(3) Conditions on certain activities.--
       ``(A) In general.--Subject to the approval of the 
     appropriate Federal banking agency, a subsidiary of a State 
     bank may engage in an activity in which a subsidiary of a 
     national bank may engage as principal pursuant to subsection 
     (a)(1) of section 5136A of the Revised Statutes of the United 
     States but only if the State bank meets the same requirements 
     which are applicable to national banks under subparagraphs 
     (B) and (C) of such subsection and subsections (b) and (c) of 
     such section.
       ``(B) Application of section 5136a of revised statutes.--
     For purposes of applying section 5136A of the Revised 
     Statutes of the United States with regard to the activities 
     of a subsidiary of a State bank, all references in such 
     section to the Comptroller of the Currency, or regulations 
     and orders of the Comptroller, shall be deemed to be 
     references to the appropriate Federal banking agency with 
     respect to such State bank, and regulations and orders of 
     such agency.
       ``(4) State banks which fail to comply with paragraph (3) 
     conditions.--
       ``(A) In general.--If the appropriate Federal banking 
     agency determines that a State

[[Page H3184]]

     bank that controls a subsidiary which is engaged as principal 
     in financial activities pursuant to paragraph (3) does not 
     meet the requirements of subparagraph (A) of such paragraph, 
     the appropriate Federal banking agency shall give notice to 
     the bank to that effect, describing the conditions giving 
     rise to the notice.
       ``(A) Agreement to correct conditions required.--
       ``(i) Content of agreement.--Within 45 days of the receipt 
     by a bank of a notice given under paragraph (1) (or such 
     additional period as the appropriate Federal banking agency 
     for such bank may permit), the bank failing to meet the 
     requirements of paragraph (3)(A) shall execute an agreement 
     with the appropriate Federal banking agency for such bank to 
     correct the conditions described in the notice.
       ``(B) Agency may impose limitations.--Until the conditions 
     giving rise to the notice are corrected, the appropriate 
     Federal banking agency for the State bank may impose such 
     limitations on the conduct of the business of the bank or a 
     subsidiary of the bank as the agency determines to be 
     appropriate under the circumstances.
       ``(C) Failure to correct.--If the conditions described in 
     the notice are not corrected within 180 days after the bank 
     receives the notice, the appropriate Federal banking agency 
     for the State may require, under such terms and conditions as 
     may be imposed by such agency and subject to such extensions 
     of time as may be granted in the discretion of the agency--
       ``(i) the bank to divest control of each subsidiary engaged 
     in an activity as principal that is not permissible for the 
     bank to engage in directly; or
       ``(ii) each subsidiary of the bank to cease any activity as 
     principal that is not permissible for the bank to engage in 
     directly.''.

     SEC. 123. RULES APPLICABLE TO FINANCIAL SUBSIDIARIES.

       (a) Transactions Between Financial Subsidiaries and Other 
     Affiliates.--Section 23A of the Federal Reserve Act (12 
     U.S.C. 371c) is amended--
       (1) by redesignating subsection (e) as subsection (f); and
       (2) by inserting after subsection (d), the following new 
     subsection:
       ``(e) Rules Relating to Banks With Financial 
     Subsidiaries.--
       ``(1) Financial subsidiary defined.--For purposes of this 
     section and section 23B, the term `financial subsidiary' 
     means a company which--
       ``(A) is a subsidiary of a bank (other than a corporation 
     organized under section 25A of the Federal Reserve Act or a 
     corporation operating under section 25 of such Act); and
       ``(B) is engaged in a financial activity (as defined in 
     section 5136A(a)(4)) that is not a permissible activity for a 
     national bank to engage in directly.
       ``(2) Application to transactions between a financial 
     subsidiary of a bank and the bank.--For purposes of applying 
     this section and section 23B to a transaction between a 
     financial subsidiary of a bank and the bank (or between such 
     financial subsidiary and any other subsidiary of the bank 
     which is not a financial subsidiary) and notwithstanding 
     subsection (b)(2) and section 23B(d)(1), the financial 
     subsidiary of the bank--
       ``(A) shall be an affiliate of the bank and any other 
     subsidiary of the bank which is not a financial subsidiary; 
     and
       ``(B) shall not be treated as a subsidiary of the bank.
       ``(3) Application to transactions between financial 
     subsidiary and nonbank affiliates.--
       ``(A) In general.--A transaction between a financial 
     subsidiary and an affiliate of the financial subsidiary shall 
     not be deemed to be a transaction between a subsidiary of a 
     national bank and an affiliate of the bank for purposes of 
     section 23A or section 23B of the Federal Reserve Act.
       ``(B) Certain affiliates excluded.--For purposes of 
     subparagraph (A) and notwithstanding paragraph (4), the term 
     `affiliate' shall not include a bank, or a subsidiary of a 
     bank, which is engaged exclusively in activities permissible 
     for a national bank to engage in directly.
       ``(4) Equity investments excluded subject to the approval 
     of the banking agency.--Subsection (a)(1) shall not apply so 
     as to limit the equity investment of a bank in a financial 
     subsidiary of such bank, except that any investment that 
     exceeds the amount of a dividend that the bank could pay at 
     the time of the investment without obtaining prior approval 
     of the appropriate Federal banking agency and is in excess of 
     the limitation which would apply under subsection (a)(1), but 
     for this paragraph, may be made only with the approval of the 
     appropriate Federal banking agency (as defined in section 
     3(q) of the Federal Deposit Insurance Act) with respect to 
     such bank.''.
       (b) Treatment of Financial Subsidiaries Under Other 
     Provisions of Law.--
       (1) Bank Holding Company Act Amendments of 1970.--Section 
     106(a) of the Bank Holding Company Act Amendments of 1970 is 
     amended by adding at the end the following new sentence: 
     ``For purposes of this section, a financial subsidiary (as 
     defined in section 5136A(a)(5)(A) of the Revised Statutes of 
     the United States or referenced in the 20th undesignated 
     paragraph of section 9 of the Federal Reserve Act or section 
     24(d)(3)(A) of the Federal Deposit Insurance Act) shall be 
     deemed to be a subsidiary of a bank holding company, and not 
     a subsidiary of a bank.''; and
       (2) Federal Reserve Act.--The 20th undesignated paragraph 
     of section 9 of the Federal Reserve Act (12 U.S.C. 335) is 
     amended by adding at the end of the following new sentence: 
     ``To the extent permitted under State law, a State member 
     bank may acquire or establish and retain a financial 
     subsidiary (as defined in section 5136A(a)(3)(A) of the 
     Revised Statutes of the United States, except that all 
     references in that section to the Comptroller of the 
     Currency, the Comptroller, or regulations or orders of the 
     Comptroller shall be deemed to be references to the Board or 
     regulations or orders of the Board.''.


                        [3. Consumer protection]

       In paragraph (1) of section 45(a) of the Federal Deposit 
     Insurance Act, as added by section 308(a) of the Amendment in 
     the Nature of a Substitute, insert ``governing sales 
     practices'' after ``regulations'' in the portion of such 
     paragraph which precedes subparagraph (A).
       In paragraph (1) of section 45(d) of the Federal Deposit 
     Insurance Act, as added by section 308(a) of the Amendment in 
     the Nature of a Substitute, strike ``and the making of 
     loans''.
       Strike paragraph (2) of section 45(g) of the Federal 
     Deposit Insurance Act, as added by section 308(a) of the 
     Amendment in the Nature of a Substitute, and insert the 
     following new paragraph:
       ``(2) Effect on other laws.--Subject to section 104, 
     regulations prescribed by a Federal banking agency under this 
     section shall not be construed as superseding, altering, or 
     affecting the statutes, regulations, orders, or 
     interpretations in effect in any State, except to the extent 
     that such statutes, regulations, orders, or interpretations 
     are inconsistent with the regulations prescribed by a Federal 
     banking agency under this section and then only to the extent 
     of the inconsistency. For purposes of this paragraph, a State 
     statute, regulation, order, or interpretation is not 
     inconsistent with the regulations prescribed by a Federal 
     banking agency under this section if the protection such 
     statute, regulation, order, or interpretation affords any 
     consumer is greater than the protection provided by the 
     regulations under this section.


                         [4. Lifeline banking]

       In paragraph (1) of section 6(d) of the Bank Holding 
     Company Act of 1956, as added by section 103(a) of the 
     Amendment in the Nature of a Substitute, strike ``or (C)'' 
     and insert ``(C), or (D)''.
       In paragraph (4)(D) of section 6(d) of the Bank Holding 
     Company Act of 1956, as added by section 103(a) of the 
     Amendment in the Nature of a Substitute, strike ``or (C)'' 
     and insert ``(C), or (D)''.


                             [5. Deference]

       In section 307(e) of the Amendment in the Nature of a 
     Substitute, strike ``, without unequal deference''.


                       [6. GAO study--antitrust]

       After section 145 of the Amendment in the Nature of a 
     Substitute, insert the following new section (and redesignate 
     the subsequent section and conform the table of contents 
     accordingly):

     SEC. 146. ANNUAL GAO REPORT.

       (a) In General.--By the end of the 1-year period beginning 
     on the date of the enactment of this Act and annually 
     thereafter, the Comptroller General of the United States 
     shall submit a report to the Congress on market concentration 
     in the financial services industry and its impact on 
     consumers.
       (b) Analysis.--Each report submitted under subsection (a) 
     shall contain an analysis of--
       (1) the positive and negative effects of affiliations 
     between various types of financial companies, and of 
     acquisitions pursuant to this Act and the amendments made by 
     this Act to other provisions of law, including any positive 
     or negative effects on consumers, area markets, and 
     submarkets thereof or on registered securities brokers and 
     dealers which have been purchased by depository institutions 
     or depository institution holding companies;
       (2) the changes in business practices and the effects of 
     any such changes on the availability of venture capital, 
     consumer credit, and other financial services or products and 
     the availability of capital and credit for small businesses; 
     and
       (3) the acquisition patterns among depository institutions, 
     depository institution holding companies, securities firms, 
     and insurance companies including acquisitions among the 
     largest 20 percent of firms and acquisitions within regions 
     or other limited geographical areas.


                           [7. Privacy study]

       After section 108 of the Amendment in the Nature of a 
     Substitute, insert the following new section (and amend the 
     table of contents accordingly):

     SEC. 110. REPORTS ON ONGOING FTC STUDY OF CONSUMER PRIVACY 
                   ISSUES.

       With respect to the ongoing multistage study being 
     conducted by the Federal Trade Commission on consumer privacy 
     issues, the Commission shall submit an interim report on the 
     findings and conclusions of the Commission, together with 
     such recommendations for legislative and administrative 
     action as the Commission determines to be appropriate, to the 
     Committee on Commerce and the Committee on Banking and 
     Financial Services of the House of Representatives

[[Page H3185]]

     and the Committee on Banking, Housing, and Urban Affairs of 
     the Senate at the conclusion of each stage of such study and 
     a final report at the conclusion of the study.

  The CHAIRMAN pro tempore. Pursuant to House Resolution 428, the 
gentleman from New York (Mr. LaFalce) and a Member opposed each will 
control 20 minutes.
  Is the gentleman from Virginia (Mr. Bliley) opposed to the amendment?
  Mr. BLILEY. I am, Mr. Chairman.
  The CHAIRMAN pro tempore. The gentleman from Virginia (Mr. Bliley) 
will be recognized for 20 minutes.
  The Chair recognizes the gentleman from New York (Mr. LaFalce).
  Mr. LaFALCE. Mr. Chairman, I yield myself such time as I may consume.
  (Mr. LaFALCE asked and was given permission to revise and extend his 
remarks.)
  Mr. LaFALCE. Mr. Chairman, the bill in its current form is a frontal 
attack on the national bank system. That is why this administration, 
past administrations, any future administration would veto the bill 
before us.
  The bill before us promotes the movement of assets out of those 
institutions covered by the Community Reinvestment Act. It undermines 
the national bank charter and the authority of the national bank 
regulator. It places small and mid-sized banks at an enormous 
competitive disadvantage vis-a-vis the giant conglomerates this bill 
helps facilitate. It permits discrimination against banks as providers 
of new financial services, and it would create a serious competitive 
imbalance between nationally and State chartered banks and between big 
banks which can and small banks which cannot use a holding company 
structure.
  The amendment the gentleman from Minnesota (Mr. Vento) and I offer, 
along with a good many others, would correct these problems. It would 
correct these problems by permitting national banks to offer a broad 
range of new financial services efficiently and safely through 
subsidiaries so that these assets remain covered by CRA. It would 
ensure that banks are not subject to discriminatory restrictions when 
providing new financial services, and it would maintain for the 
national bank regulator the same authority traditionally granted all, 
each and every, Federal regulator to interpret Federal law.
  The treasury secretary has repeatedly pointed out there is no safety 
and soundness reason whatsoever, none, zero, and no competitive reason 
that would justify a radical shift from the operation of a bank 
subsidiary to a wholesale transfer of assets out of the national bank 
system, out of the jurisdiction of the Comptroller of the Currency, the 
Federal bank regulator, into the hands of the Federal Reserve Board.
  The chairman of the FDIC, present and past, has concurred in that 
judgment. The State bank regulators have concurred in that judgment. 
Now, why should we care? Why should we care whether national banks are 
disadvantaged in this bill? Is this just an esoteric debate about 
corporate structure? It is not.
  There are sound public policy reasons to value national banks and 
their ability to offer new financial services through their own 
subsidiaries. Fundamentally, adopting this amendment will ensure that a 
significant portion of America's financial assets continue to flow 
through banks. That is good for consumers. That is good for 
communities.
  If we want a law, rather than a one-House bill, we will adopt this 
amendment and we then will ultimately bring with us the support of the 
administration and produce something that can be enacted into law. If 
this amendment goes down, we may or may not get a one-House bill but we 
will not get a law.
  Mr. Chairman, I reserve the balance of my time.
  Mr. BLILEY. Mr. Chairman, I yield myself 3 minutes.
  (Mr. BLILEY asked and was given permission to revise and extend his 
remarks.)
  Mr. BLILEY. Mr. Chairman, I rise in opposition to the amendment 
offered by my friends, the gentleman from New York (Mr. LaFalce) and 
the gentleman from Minnesota (Mr. Vento). I have three concerns with 
this amendment.
  One, it puts taxpayer money at risk. It does this by expanding the 
subsidy provided by Federal deposit insurance and the Federal safety 
net; two, these operating subsidies are not truly separate from banks 
and will confuse customers; and three, it undoes the careful compromise 
on insurance we have reached so that disputes over insurance will be 
treated equally without unfair deference to one side or the other.
  This amendment represents a radically different course in this 
legislation. It grants new powers for banks in operating subsidiaries. 
These new powers include full securities underwriting and merchant 
banking.
  I remember when Congress made the disastrous mistake of expanding the 
powers and the insurance coverage of savings and loan institutions. The 
result of that legislation was that the taxpayers had to spend billions 
to bail out the S&Ls that had invested in casinos, strip malls, and 
other developments. I resolved that never would we do something like 
that again.
  I believe that expansion of operating subsidiaries powers poses the 
same dangers as did the expansion of the powers of savings and loans. 
Alan Greenspan, the distinguished chairman of the Federal Reserve, has 
testified both before the Committee on Banking and Financial Services 
and the Committee on Commerce that granting banks additional authority 
in operating subsidiaries expands the reach of the taxpayer subsidy. 
This expansion of Federal subsidy is both anti-competitive and 
dangerous to taxpayers.
  Operating subsidiaries are anti-competitive because securities or 
merchant banking done in operating subsidiaries will be able to take 
advantage of the Federal subsidy to finance their business more cheaply 
than their competitors. Congress is abolishing subsidies. We ended farm 
subsidies in the last Congress. Wall Street firms made over $14 billion 
last year. They need open competition, not subsidies.
  Operating subsidiaries are dangerous to taxpayers. If a child takes 
the family car and goes on a joy ride smashing into a building, who is 
on the hook? The parents. Similarly, if operating subsidiaries get into 
trouble, who will hold the bag? The Federal taxpayers. That is why 
Americans For Tax Reform is opposed to this amendment.
  I believe that operating subsidiaries pose dangers to consumers. Last 
week the SEC brought an enforcement action against a major bank 
operating subsidiary for selling billions of dollars in unsuitable 
investments to elderly people. These people had maturing CDs at the 
bank. Officers of the operating subsidiary called them up and sold them 
dangerous strip derivatives claiming they were treasury securities. The 
OCC could have done something about this but the OCC did not. They 
waited for the SEC to have to bring an action to stop this fraud. I 
believe we should not expand powers of operating subsidiaries in the 
face of abuses like this.

                              {time}  1515

  Mr. LaFALCE. Mr. Chairman, I yield 3 minutes to the gentleman from 
Massachusetts (Mr. Frank).
  Mr. FRANK of Massachusetts. Mr. Chairman, I rise in support of the 
amendment.
  Our good friend from Virginia made me want to call the history 
police. The misuse of history is one of the downsides of our debate. 
No, this has nothing to do with why the savings and loans got in 
trouble. We had tax changes. We had a real estate bubble. We had a lot 
of other reasons.
  This is a very important amendment. I must say that if this amendment 
were to be adopted, I could vote for a bill which I will otherwise feel 
constrained to oppose. The smaller banks that I deal with in the State 
of Massachusetts are banks which have been responsible, which have 
tried to meet the needs of local communities, so oppose the bill 
without this amendment. That is a major cause of opposition because 
what it says to the smaller banks is, none of these new powers are in 
fact available to them, and indeed much of what they may have been 
doing they will have to stop doing.
  This greatly disadvantages the smaller banks, who are then forced 
either to forgo getting into these new activities or to get out of the 
ones they are in, because they will not be able to set up the holding 
companies. The notion that if we have a holding company with siblings, 
they do not implicate each other,

[[Page H3186]]

but if we have an operating subsidy, they do, does not seem to me to 
hold water.
  The analogies of the gentleman, I must say, do not seem to me any 
more persuasive than his history. I was sorry to hear about the kid who 
stole his parents' car and had an accident. What it has to do with 
banking it will probably take me till Sunday to figure out, but it 
certainly does not have anything to do with this particular issue.
  Yes, we are talking about the same overall entity being in both 
insured and noninsured activities. Whether or not they do it through a 
holding company or operating subsidiaries does not affect the quality 
of regulation, nor will it affect the drain on the insured deposit.
  What it will do is weaken the ability of small banks and, further, 
and maybe this is partly what some had in mind, obviously not all, it 
weakens the reach of the Community Reinvestment Act because the 
activities conducted in the operating subsidiaries will be covered by 
the Community Reinvestment Act. If, in fact, it becomes the holding 
company, they will not be. So the effect of the bill without this 
amendment will be to diminish some of the reach of the Community 
Reinvestment Act.
  Now, I realize that is not enough for some people who would like to 
totally cut off the arms of the Community Reinvestment Act in a later 
amendment. But I must also say that one surefire way to guarantee that 
no legislation goes forward is to cut back on the Community 
Reinvestment Act, which many of us believe to have been a significant 
improvement in our communities which most need it.
  So I hope in the interest of getting reasonable legislation through, 
that the amendment is adopted.
  Mr. BLILEY. Mr. Chairman, I yield 3 minutes to the gentleman from 
Michigan (Mr. Dingell), ranking minority member of the Committee on 
Commerce.
  (Mr. DINGELL asked and was given permission to revise and extend his 
remarks.)
  Mr. DINGELL. Mr. Chairman, bankers said it this morning, and I want 
my colleagues to hear what the ABA had to say. They said, ``No 
amendment or combination of amendments will be offered that will make 
the bill acceptable.''
  Do not think, Mr. Speaker, that voting for this amendment is going to 
buy us any peace or approval from the bankers. I want my colleagues to 
understand that.
  Now, I want to say a word of respect and affection for my good 
friend, the gentleman from New York (Mr. LaFalce), the author of the 
amendment. I think that the bill is a good bill. It helps the banks. It 
allows them to underwrite municipal revenue bonds. It allows them to 
engage in all kinds of financial activity as the agent of the bank in 
an operating subsidiary. It knocks down current Glass-Steagall and Bank 
Holding Company Act barriers against affiliations between banks, 
securities firms, insurance companies, and other firms.
  The bankers trade association, the ABA, does not want a bill. It 
never did. So voting for this amendment is not going to buy us peace 
with the banks.
  But voting for this bill and voting against the LaFalce amendment is 
going to buy us a bill which is good and in the public interest, which 
helps banks, and which does something else, which protects people 
against the abuses that the banks committed which brought about the 
crash of 1929.
  The Fed is right. Listen to Mr. Greenspan. Listen to Chairman Levitt. 
Listen to other former chairmen of the SEC, pointing out the need to 
have real separation between banks and between nonbank subsidiaries.
  Operating subs are permitted to do all kinds of interesting things: 
accounting games, shifting of assets back and forth between the sub and 
the parent company, and opportunities for committing all kinds of, 
quite honestly, improper and doubtful practices which are nonetheless 
fully legal.
  The simple fact of the matter is that just recently we saw an in-
house subsidiary of a bank engaging in grotesquely improper practices, 
selling to old folks securities which they cast as being government 
guaranteed. They were not. And they wound up having to pay a $7 million 
fine. That tells us that bankers are willing to do whatever is 
necessary to make money and to compete in a hard world.
  The only way that we can protect investors against this is to see to 
it that the banks are situated in a situation where they can be fully 
observed, where their accounting can be properly watched, and where 
they cannot shift assets back and forth, and where the bank has no 
incentive to engage in either bad accounting practices, or to achieve 
the permission of the regulators to engage in special accounting 
practices, which will protect them against the failure or the loss of a 
subsidiary to the dissatisfaction of the public at large.
  Remember the abuses that brought about the savings and loan crash? 
They were caused by in-house actions by the savings and loans. Do not 
repeat it with the banks.
  Mr. LaFALCE. Mr. Chairman, I yield 3 minutes to the gentleman from 
Minnesota (Mr. Vento), coauthor of the amendment.
  (Mr. VENTO asked and was given permission to revise and extend his 
remarks.)
  Mr. VENTO. Mr. Chairman, I rise in strong support of the LaFalce-
Vento amendment, and I urge my colleagues to support it.
  Now, it may be true that in fact the banks are not going to support 
this bill with the LaFalce-Vento amendment, but there are a lot of good 
reasons to support it in spite of that. The fact is that I think it 
will be a better bill with this and it is the right policy path that we 
should pursue.
  We should not be superimposing a type of corporate structure on these 
entities unless there is good reason to do so. The fact is that this 
amendment is good for small- and medium-size banks that they can 
participate and exercise some of the new powers that are anticipated by 
virtue of this modernization policy to exercise powers that they do 
today in the structure that serves them. And, this amendment will help 
our communities through the application of the Community Reinvestment 
Act.
  This is an important amendment. In fact, this amendment goes a long 
way towards resolving and reconciling the issue with regard to 
insurance. We adopt in this amendment the same language with regard to 
the Illinois case that is part of this basic text. We reached out to 
try to find compromise that is workable. And, of course, trying to 
preserve the National Bank Charter is immensely important, an entity 
that has been in existence for 135 years and has served our Nation 
very, very well in terms of building the economic foundation of banking 
in this country, which is, of course, the envy of the world.
  There is no greater security under a holding company, affiliate-type 
structure than there is under a subsidiary corporate structure. That is 
why the current and past chairpersons of the Federal Deposit Insurance 
Corporation, which has the principal responsibility to safeguard the 
public funds the deposit insurance program, I think, that there is 
absolutely no safety or soundness reason to oppose having in a 
subsidiary version an affiliate or holding company corporate form.
  The fact is that the same procedures, the same laws, the same 
regulations apply, 23(a) and (b) under the Holding Company Act; 23(a) 
and (b) a similar type of regulations exercised by the Comptroller of 
the Currency. And the FDIC can step in and avert types of action which 
are improper in any instance.
  As a matter of fact, as far as the bank is concerned and the 
insurance funds, the money flows in a one-way direction out of a 
subsidiary to, in fact, support the source of strength with regards to 
a bank and thereby protect the taxpayer to a greater extent. This is a 
good amendment for small- and medium-size banks. While we cannot win 
the support of all the bankers, the fact is it is good for our economy 
and it is good in terms of permitting bank to serve communities.
  Now, with regard to allegations here regarding functional regulation 
and penalties, as I was pointing out in my statement previously, there 
have been nearly $325 million in 1996 of misbegotten funds that have 
been assessed and recovered from securities firms, and there were $67 
million worth of fines in 1996 from these securities firms.
  So there has been and this is functional regulation at its best. And 
this

[[Page H3187]]

entity, NationsSecurities, was owned by NationsBank and the securities 
company Dean Witter when the events and violations occurred. This is 
not a sound basis upon which to oppose one corporate form over another.
  The LaFalce-Vento amendment will provide a better balance, a more 
appropriate direction for a competitive future financial services 
industry.
  As I stated earlier in the general debate, the underlying bill is 
fundamentally flawed for national banks, the national bank regulator, 
and ultimately, consumers and communities.
  This amendment makes some technical changes in Section 104. Left to 
my druthers, I would have preferred the Banking Committee's version of 
Section 104, or at the very least, a grandfathering of the Illinois 
State law test. These cut and bite amendments, however, are reasonable, 
and I think are reflected in some if not all of the changes made by the 
Manager's amendment.
  The changes to section 308 would ensure that with regard to consumer 
protections, the stronger law, whether State or Federal law, would 
apply. That is a bare minimum for consumers across this Nation who will 
be impacted by this legislation.
  Our amendment carries three other provisions that were included in 
the Manager's amendment: the enforcement provisions for lifeline 
banking, the annual antitrust report, and the privacy study.
  Importantly, the LaFalce-Vento amendment would address the deference 
issue. As written, H.R. 10 will undermine our Federal banking regulator 
in the courts by altering the deference standard. If H.R. 10 were to 
pass as written now, the precedent could be detrimental to other areas 
of law as well.
  Last but by no means least, the LaFalce-Vento amendment would make a 
critical correction in the bill by allowing for the creation of 
financially viable and safe operating subsidiary for national banks. 
The amendment would permit all financial activities within the 
operating subsidiary with the exception of insurance underwriting, and 
real estate investment and development.
  As written today, H.R. 10 would force banks to move financial 
innovation out of the bank, a loss of diversity that is disadvantageous 
for many reasons.
  Structurally, banks would fundamentally be forced to choose a holding 
company structure in order to participate in a meaningful way in the 
21st Century financial services landscape. This is essentially a 
business decision that should be made on a business basis, not because 
options have been closed down by this ``modernization'' bill.
  Small- and medium-sized banks may not wish to form such a corporate 
holding company structure, a much more complex and difficult process 
than creating a subsidiary. For example, a bank would need to form the 
company through a filing or reorganization, chartering an interim bank, 
merger the ``two'' banks, obtain approval by shareholders with public 
review, DOJ review and OCC approval, obtain approval to engage in non-
banking activity with public notice requirements. As a subsidiary, the 
bank only works to obtain OCC approval with public notice and hearing 
if applicable (4 steps vs. 1 step). This loss of flexibility through 
limiting the powers of the operating subsidiary will not further 
competition in the marketplace nor improve consumer service in many 
communities across this Nation.
  Contrary to some of the rhetoric we will hear today, this lack of 
diversity within a bank's portfolio does not benefit the deposit 
insurance funds. The FDIC has opined more than once that operating 
subsidiaries are not more risky to a bank than affiliates in a holding 
company. The LaFalce-Vento amendment provides that only well-
capitalized and well-managed banks could have operating subsidiaries 
that are engaged in these expanded financial activities. Because the 
bank's equity investment in the subsidiary would be deducted from the 
bank's assets and equity capital while the bank remains well-
capitalized, this structure should pose no additional risk to the 
deposit insurance funds. In fact, these operating subsidiaries should 
instead provide additional, positive revenues for banks. The same 
restrictions on transactions applied to holding company affiliates by 
the FRB, 23(A) and (B), would apply between banks and financial 
subsidiaries.
  Without our amendment, there is yet another disadvantage for the 
communities in which banks are located. Without the viable operating 
subsidiary provided in the LaFalce-Vento amendment, bank assets will be 
shifted away from coverage under the Community Reinvestment Act (CRA) 
into a bank holding company or financial holding company affiliate, 
which are not as yet covered by community investment requirements. The 
OCC is the only bank regulator to count the assets of subsidiaries in 
terms of analyzing CRA capacity of a bank.
  Some may assert that operating subsidiaries will be renegades that 
will subvert laws, such as securities laws. On the contrary, op subs 
will be doubly regulated in the instance of securities activities--both 
by the financial securities regulators--the SEC and the NASD--and the 
OCC. While bank subs have had their problems, as highlighted by the 
recent Nations Securities fine, they do not have a corner of the market 
for less than scrupulous practices. With regard to Nations Securities, 
the SEC and the NASD were the primary regulators, not the OCC. 
Unfortunately, that cannot prevent a breaching of suitability and 
product selection processes.
  As to safety and soundness, let me reiterate that the FDIC, the 
entity responsible for deposit insurance, has not found op subs to be 
more risky than affiliates. As to arguments that this will bring on the 
next S&L crisis, I would remind my colleagues that diversity is a good 
thing. The thrifts got in trouble for a number of reasons, including a 
mightmare-ish interest rate situation, bad loans and bad investment. 
Among those that survived without cost to the taxpayers, were the 
thrifts associated in the more diverse unitary thrift holding 
companies. Further, following the S&L crisis, Congress enacted two 
strong laws, FIRREA and FDICIA, that greatly empowered the regulator, 
specifically the FDIC. If the FDIC finds any activity by any banks is 
too risky, they can stop that activity from happening under section 24 
of the FDI Act.
  As to true competitive parity, without the LaFalce-Vento amendment, 
national banks will not have a subsidiary option that state banks have 
and that banks, regulated by the Federal Reserve Board, have when 
operating abroad.
  If the LaFalce-Vento amendment were to pass, the Administration has 
indicated they will take another look at this bill. If it doesn't pass, 
the veto recommendation will stand. There is no strong public policy 
reason that this amendment should not pass. I urge my colleagues to 
vote for this amendment.
  Mr. BLILEY. Mr. Chairman, I yield 2\1/2\ minutes to the gentleman 
from Ohio (Mr. Oxley), chairman of the subcommittee.
  (Mr. OXLEY asked and was given permission to revise and extend his 
remarks.)
  Mr. OXLEY. Mr. Chairman, the LaFalce amendment would strike down any 
ability of a State to regulate bank affiliated insurance agents. I want 
to make that very clear. The gentleman from Minnesota stated quite the 
opposite, that this amendment would provide functional regulation. I 
would challenge him on that.
  For example, if a bank-affiliated insurance agent commits fraud by 
representing health care coverage, for example, the result of this 
amendment offered by the gentleman from Minnesota and the gentleman 
from New York would mean that we would have virtually no regulatory 
authority whatsoever at the State level.
  Now, if we believe in functional regulation and we believe strongly 
that State insurance regulators have the ability to regulate insurance, 
then we have to oppose this amendment. The State insurance regulators 
have indicated very strongly that they believe this amendment would be 
catastrophic. It would go beyond the fact that we would have no 
discrimination, but it would result in no regulation at all.
  Now, those of us who believe in State regulation and functional 
regulation also believe, I think, that the States are the laboratories 
for democracy. Let us take a real-life look at what happened in banking 
sales of insurance in the real world.
  Our committee held hearings on this bill, and we had the president of 
the State Bankers Association from Illinois and the president of the 
State Insurance Agents from Illinois testify about the fact that they 
had gotten together, worked out a compromise on State bank sales of 
insurance, had gone to the State legislature in Illinois, not an 
insignificant State, probably represents a great microcosm of this 
country, and passed that legislation unanimously and signed by the 
governor.
  We decided in our committee, after a lot of hard work and a lot of 
head-knocking between the parties, to basically provide that the 
Illinois statute become a safe harbor for legislation, so if the States 
had regulation, they would be able to put it up against what Illinois 
had done. This was the real world. This was a compromise that was 
worked out very effectively.
  Before my time runs out, let me tell my colleagues the States that 
would be deleted from protecting different State laws. Let me just list 
the States if I could, Mr. Chairman. These regulatory functions would 
be struck down in these States if the LaFalce amendment becomes law.

[[Page H3188]]

  States of Texas, Virginia, Tennessee, Pennsylvania, Michigan, Maine, 
Louisiana, Indiana, Connecticut, Colorado, Arkansas, Massachusetts, New 
Hampshire, New Mexico, Rhode Island, West Virginia, Florida, Georgia, 
and Vermont. All of those State regulatory laws would be out the window 
if the LaFalce amendment passes.
  All of my colleagues who represent those States, and everybody else, 
let us defeat the LaFalce amendment and preserve the integrity of this 
regulatory process.
  Mr. LaFALCE. Mr. Chairman, I yield myself 15 seconds simply to say 
that the gentleman from Ohio is in error in his interpretation of our 
amendment. We leave the Illinois law and less restrictive State 
statutes as a safe harbor. We keep the language of the bill on that.
  Mr. Chairman, I yield 2 minutes to the gentleman from Massachusetts 
(Mr. Kennedy).
  Mr. KENNEDY of Massachusetts. Mr. Chairman, this rhetoric that we are 
hearing on the House floor today really, I think, centers around one 
issue and one issue only, and that is cutting the cake. It is a 
determination as to whether or not the Committee on Banking and 
Financial Services is going to gain greater jurisdiction by having more 
and more of these larger institutions under a regulator that the 
Committee on Banking and Financial Services oversees, or whether or not 
the securities industry is going to be the winner and, therefore, the 
Committee on Commerce is going to oversee the jurisdiction.

                              {time}  1530

  That is what this is all about. It is not about whether or not we are 
going to look after the interests of the taxpayer. It is not about 
whether we are going to look out after the interests of working 
families. It is not about whether we are going to make sure that the 
insurance companies are going to provide insurance policies to all 
parts of our country, to people of every race, creed, and color. It is 
not about whether or not we are going to make certain the banks lend 
into the communities from which they take their deposits. It is about 
one thing. It is about power.
  All I say is it is fine with me for these institutions to gobble one 
another up, to get stronger, to be able to compete internationally, to 
be able to compete here in the United States. But if we are going to do 
that, then we darn well ought to make sure that working families and 
the poor have every bit of right of access to these institutions, to 
the creation of wealth as anybody else.
  That is what is wrong with this bill, because this bill does not 
provide the assurance that makes sure that these banks and insurance 
companies and securities firms cannot discriminate. It does not make 
certain that they are going to lend money back into the communities 
from which they suck out their deposits.
  That is why I believe we should support the LaFalce amendment, 
because at a very minimum, at a very minimum, it suggests that these 
institutions, these powerful companies are not going to be able to 
serve out to their affiliates their requirements under the Community 
Reinvestment Act to lend back to the communities from which they take 
their deposit. It is a minimal standard. It is a very small crumb to 
provide to the working families of America.
  Support the LaFalce amendment. Stand up for the working people of our 
country.
  Mr. BLILEY. Mr. Chairman, I yield 2 minutes to the distinguished 
gentleman from California (Mr. Fazio), the chairman of the Democratic 
Caucus.
  Mr. FAZIO of California. Mr. Chairman, I rise to commend the efforts 
of my colleagues, the gentleman from New York (Mr. LaFalce) and the 
gentleman from Minnesota (Mr. Vento), but to oppose their amendment.
  Their hard work and dedication is going to be required if we are 
going to pass this bill, and sometime down the road, see it enacted 
into law. We hope that, in the months ahead, we can find the key to 
bringing this bill into law.
  But if we agree to the amendment of the gentleman from New York (Mr. 
LaFalce) today, it promises to undermine not only the very intent of 
H.R. 10, but also the manager's amendment we just overwhelmingly 
adopted.
  It gets us no support from the banks, and it earns us the undying 
opposition of the entire insurance industry. It, therefore, is the 
killer amendment that will determine whether or not we pass a bill 
today and move it along in the process so that we can confront our 
differences and do something about modernizing this industry that so 
clearly needs it, before it becomes a wholly-owned subsidiary of 
foreign investors.
  Instead of igniting reform and competition, the amendment of the 
gentleman from New York (Mr. LaFalce) gives banking institutions 
extended privileges I fear they lack the mechanisms to properly 
administer; and the insured deposits of those entities, means this is a 
problem for the rest of us, for the taxpayers.
  The gentleman from Massachusetts (Mr. Frank) has told us it is not an 
appropriate analogy to talk about the S&L crisis, but the same 
underlying problem exists. History reminds us of that bailout. The 
crisis, that drained the savings of millions of Americans, cost 
taxpayers billions and embarrassed this country and the financial 
institutions within it on a global basis.
  This amendment leads American financial institutions to a potentially 
similar economic disaster and places the financial burden of risky 
banking activity on the shoulders of the average taxpayer. We cannot 
allow that to occur.
  I think we need to support this bill, hopefully in numbers that will 
give the Senate a message that they need to deal with it, and then sit 
down with the administration and find a common solution so that we can 
do what we all say we want to do, and that is, modernize the laws and 
rules and regulations of our financial institutions.
  If we vote for this amendment, we might as well fold our tent, pull 
the bill, and close it down for another year, another failure. How many 
times in these past 2 decades are we going to go down that road? I urge 
a no vote on this amendment.
  Mr. LaFALCE. Mr. Chairman, I yield 2 minutes to the gentleman from 
North Carolina (Mr. Watt).
  Mr. WATT of North Carolina. Mr. Chairman, I thank the gentleman for 
yielding, and I rise in support of the LaFalce-Vento amendment.
  I am a little surprised that people who typically talk about giving 
businesses more flexibility are now on the other side of this issue, 
saying we want to remove flexibility from businesses. Typically, the 
byword is, let us give businesses the opportunity to organize and 
operate in a fashion that they believe is most advantageous to them. 
Yet, here we are, apparently, in this bill, willing to take away that 
kind of flexibility from banks.
  It has a particularly bad impact on small- and medium-sized banks, 
because they are not going to run out and spend the time and money to 
create these holding companies. It is just not going to happen. 
Consequently, this bill is, and the additional powers that we are 
giving to them are going to be of less value to them than to the larger 
banks. So for that reason, the increased flexibility reason, I support 
this amendment.
  Another reason that I support the amendment is because I think, to 
the maximum extent we can, we need to bring assets into the bank and 
under the bank in such a way that those assets are subjected to the 
Community Reinvestment Act.
  Our communities need a strong commitment from financial institutions, 
and banks in my congressional district have made that kind of strong 
commitment. I do not think we ought to be giving them any incentives to 
take assets away from that commitment.
  Mr. BLILEY. Parliamentary inquiry, Mr. Chairman. How much time 
remains on this side?
  The CHAIRMAN pro tempore (Mr. Dickey). The gentleman from Virginia 
(Mr. Bliley) has 9\1/2\ minutes remaining. The gentleman from New York 
(Mr. LaFalce) has 6 minutes remaining.
  Mr. BLILEY. Further parliamentary inquiry, Mr. Chairman. Who has the 
right to close?
  The CHAIRMAN pro tempore. The gentleman from Virginia (Mr. Bliley) 
has the right to close.
  Mr. BLILEY. Mr. Chairman, I yield 1 minute to the distinguished 
gentleman from Georgia (Mr. Kingston).
  Mr. KINGSTON. Mr. Chairman, I thank the gentleman for yielding to me.

[[Page H3189]]

  Mr. Chairman, let me just say there are three reasons to oppose this 
well-intended amendment. Number one, it does get around the McCarran-
Ferguson Act, which says States regulate insurance. It would supersede 
laws in Texas, Georgia, Virginia, Pennsylvania, and Michigan, just to 
name a few. This is a time when we are trying to decentralize power out 
of Washington. We do not want to usurp it from the States.
  Number two, this law will have the unintended consequences of rapid 
bank investment and expansion into nonbanking activities. Look at the 
Asian model. Here we are with the Asian markets right now in absolute 
disaster, which the American taxpayers have been asked to contribute 
$18 billion to help correct and help bail them out. We do not need 
another S&L-type crisis in America.
  Number three and finally, this is corporate welfare. Why should hard-
working, middle-class taxpayers who are busting their tail to get to 
work in the morning and making ends meet at the end of the month, why 
should they give a subsidy to an industry that made $14 billion in 
profit last year? American taxpayers do not need more corporate welfare 
for folks who are already making money.
  Those are three good reasons to vote against this amendment. Let us 
vote it down. Pass the bill as is.
  Mr. LaFALCE. Mr. Chairman, I yield 2 minutes to the gentleman from 
Texas (Mr. Bentsen).
  (Mr. BENTSEN asked and was given permission to revise and extend his 
remarks.)
  Mr. BENTSEN. Mr. Chairman, the colleague that just spoke before me 
was wrong on at least two of his counts and possibly on three.
  But let me start out, I want to quote Alan Greenspan, because we have 
heard him talked a lot about. This quote is from the hearing on May 21, 
22, 1997 in the House Committee on Banking and Financial Services, and 
this is in response to a question which I asked about safety and 
soundness with respect to operating subsidiaries.
  He says, ``My concerns are not safety and soundness.'' So once and 
for all, this is Alan Greenspan and what he said. With respect to the 
subsidy, if we read the rest of the testimony, he says, The issue here 
is that the amount of the subsidization that is employed by the holding 
company in financing a section 20 securities affiliate is significantly 
less than it would be were it being financed as a subsidiary of a bank.
  Mr. Greenspan says that while there is no safety and soundness issue 
with respect to operating subsidiaries, there is a subsidy that occurs 
in both the holding company model as well as in the operating 
subsidiary model. Of course, he did not provide any evidence of that, 
and no one else has.
  Let me ask a question, a question of the subsidy: How does the 
marketplace see it? If the marketplace sees a tombstone for bond issue 
offering that are being underwritten by NationsBank Montgomery 
Securities, do they see that as a subsidy, an implicit guarantee that 
is going from the bank or from the Federal Government? Even though that 
is a holding company and an affiliate model, the marketplace is 
sophisticated enough to understand it.
  Let me say also what this bill does. This creates an inequity between 
the national bank charter and the holding company charter. It shifts 
regulation of the Nation's banking system away from the elected 
government, through the Comptroller of the Currency, to the Federal 
Reserve, an appointed entity.
  If we were talking about doing that with the Securities and Exchange 
Commission, a number of us, including both the gentlemen from the 
Committee on Commerce, would be down here raising a lot of Cain, as 
would I.
  The fact is, this is not a safety and soundness issue. This is a 
parity issue. It does affect CRA. And, to assert that somehow this is 
tied to the savings and loan crisis is just factually incorrect.
  I urge my colleagues to support the amendment offered by the 
gentleman from New York (Mr. LaFalce) and the gentleman from Minnesota 
(Mr. Vento).
  Mr. Chairman, I insert the following:
  Mr. Chairman, I rise in support of the LaFalce-Vento amendment and 
ask unanimous consent to revise and extend my remarks.
  As currently drafted H.R. 10 allows banks to engage in securities 
underwriting through a holding company structure regulated by the 
Federal Reserve System, but not through a national bank regulated by 
the Comptroller of the Currency.
  As a result, this legislation will restrict some national banks from 
offering comprehensive financial services for consumers while allowing 
it for others. The LaFalce-Vento amendment would also ensure that there 
is a level playing field for all types of financial institutions by 
allowing banks to make decisions based upon good business strategy 
rather than the one-size-fits-all bank holding company structure.
  I am also convinced that there is no safety and soundness risk 
associated with operating subsidiaries vs. affiliates. When I 
questioned Federal Reserve Chairman Alan Greenspan about this issue in 
the House Banking Committee, he agreed there was no safety and 
soundness problem associated with an operating subsidiary structure. 
Rather, he argued that a subsidiary structure extends an implicit 
taxpayer subsidy to that subsidiary. There is no evidence to back up 
this claim and in fact Mr. Greenspan goes on to admit that affiliates 
under a holding company structure also benefits from a subsidy. 
Further, some argue that the market will interpret a subsidy in an op-
sub but not an affiliate. Again, there is no evidence to back up this 
claim. First, when one sees Nationsbank Montgomery Securities, do they 
see an implicit subsidy and bank guarantee? But that is an affiliate, 
not an op-sub.
  I also believe that permitting operating subsidiaries is good banking 
practice. If the operating subsidiary is making profits, its profits 
will flow up to the parent bank. However, the LaFalce-Bentsen amendment 
includes proper safeguards that will prevent the operating subsidiary 
from impacting their parent bank just as the holding company structure 
attempts to prevent the affiliate from dragging down the holding 
company and thus the bank. The LaFalce/Vento amendment would only 
permit national banks that are well-capitalized and well-managed to 
establish operating subsidiaries. The LaFalce/Vento amendment also 
requires operating subsidiaries to separately capitalize their 
operations and keep their operations completely separate from the 
parent bank. And it subjects the operating subsidiary to full 
functional regulation. I believe both of these safeguards should ensure 
that taxpayers are not at risk with operating subsidiaries any more 
than they would be with a holding company/affiliate structure.

  The LaFalce/Vento amendment would also ensure that all of the assets 
of the bank are subject to the Community Reinvestment Act (CRA). This 
is critical when many banks are restructuring and being merged with 
other financial companies. If banks are required to establish 
affiliates, all of their capital and operations that are directly 
associated with their affiliate are not subject to CRA. This would have 
the effect of reducing the amount of assets that are subject to CRA and 
would reduce the investment that banks are currently making into their 
communities. I am a strong supporter of CRA and believe that we must 
ensure that banks continue to invest in their communities.
  The LaFalce/Vento amendment corrects the inequity in the underlying 
bill by providing parity between national banks and bank holding 
companies. To do otherwise would eviscerate the national bank charter 
and result in a dramatic shift in regulatory authority over the banking 
system from the elected to the appointed branch of government. If we 
proposed that with the Securities and Exchange Commission, I think many 
would object.
  Finally, with respect to section 104 and bank insurance sales, this 
would correct the provision in the bill that would effectively reverse 
the Chevron precedent set by the Supreme Court. I must admit that I am 
ambivalent on this issue.
  I strongly support a level playing field with respect to regulation 
of bank insurance sales. Since McCarran-Ferguson provides for insurance 
to be regulated at the state level, banks should be subject to state 
regulation so long as such regulation does not have the effect of 
discriminating and prohibiting bank insurance sales contrary to the 
Barnett decision.
  In all honesty, I was prepared to accept section 104 as written so 
long as the operating subsidiary language was also accepted and in fact 
Mr. Vento and I had proposed such an amendment, but that was not 
allowed under the rule. I believe the only true fix to the bank 
insurance sale power question will come as a result of practice because 
compromise among the parties has been impossible.
  In the end it is necessary that the House adopt the LaFalce/Vento 
amendment to H.R. 10 to make this bill live up to its name of financial 
modernization.
  Mr. BLILEY. Mr. Chairman, it gives me great, great pleasure to yield 
2 minutes to the gentleman from Massachusetts (Mr. Markey).
  Mr. MARKEY. Mr. Chairman, again, let us go back. What are we talking 
about? Separate subsidiary means we are putting it over here in a 
separate

[[Page H3190]]

operation that makes it possible for the SEC, for insurance regulators, 
to know what we are doing. An Op-sub is an operating subsidiary. That 
is what they want to call it. That means it will be right inside the 
bank, hard for the SEC, hard for the insurance regulators to get inside 
to know what is going on. Op-sub really stands for ``ordinary people 
subsidizing'' risky business by banks.
  Alan Greenspan, here is what he said in a letter to the gentleman 
from Michigan (Mr. Dingell) on May 4, last week, ``Operating 
subsidiaries also pose serious risks to banks and their deposit 
insurance funds, and potentially the taxpayer, and will cause serious 
conflicts in the ability of functional regulators to carry out their 
supervisory responsibilities.''
  Chairman Breeden, George Bush's chair of the Securities and Exchange 
Commission, he says that it will cause a ``dulling narcotic effect of 
those subsidies and the related bureaucratic nannyism will work a 
prompt and significant alteration on the culture of Wall Street.''
  We can create a level playing field allowing each of these industries 
to compete and to consolidate without having the inherent bias that is 
built in, the conflicts that are built in by having the expansion of 
the Federal safety net blur over into these operating subsidiaries and 
causing real dangers to depositors and taxpayers alike.
  Vote no on the LaFalce amendment if we do not want to see a 
repetition of some of the financial shenanigans which we have all come 
to see during our lifetime.
  Mr. LaFALCE. Mr. Chairman, how much time do we have remaining on this 
side?
  The CHAIRMAN pro tempore. The gentleman from New York (Mr. LaFalce) 
has 4 minutes remaining.
  Mr. LaFALCE. Mr. Chairman, is there a speaker other than the closing 
speaker?
  Mr. BLILEY. Mr. Chairman, we have another speaker.
  Mr. LaFALCE. Mr. Chairman, I yield 1 minute to the gentleman from 
Ohio (Mr. Kucinich).
  Mr. KUCINICH. Mr. Chairman, I rise for the purpose of entering into a 
colloquy with the gentleman from Iowa (Mr. Leach).
  Mr. Chairman, there is some uncertainty about what, and I quote, 
``any other provision of Federal law'' means in section 104(b)(1) of 
the bill. Some consumer groups expressed concern that this language 
might be unnecessarily broad and might unintentionally preempt a broad 
range of consumer laws.
  Will the gentleman from Iowa work with me on this matter as this bill 
moves forward to conference, through the Senate to conference, that 
this language will be reviewed so as not to be interpreted in an overly 
broad manner?
  Mr. Chairman, I yield to the gentleman from Iowa (Mr. Leach).
  Mr. LEACH. Mr. Chairman, the gentleman has raised probably the most 
controversial section of the bill in terms of subtleties of language. I 
share some of his concerns, and I will assure the gentleman, as we move 
forward there, this language will be carefully reviewed. I cannot 
guarantee an outcome because there are people on all sides of this 
issue, but I do believe that a careful review is warranted, and I 
assure the gentleman that we will continue to look at that precise 
language.

                              {time}  1545

  Mr. BLILEY. Mr. Chairman, I yield one minute to the distinguished 
gentleman from Nebraska (Mr. Bereuter).
  (Mr. BEREUTER asked and was given permission to revise and extend his 
remarks.)
  Mr. BEREUTER. Mr. Chairman, I rise in opposition to the amendment as 
a member of the Committee on Banking and Financial Services. I 
understand the greater flexibility for small and middle size banks, and 
that is important. But there is something more important, and I want to 
remind my colleagues that this Congress listens, the Americans listen, 
and the world listens to Alan Greenspan when he speaks.
  Alan Greenspan has been quoted here several times. Here is what he 
had to say before the House Committee on Banking and Financial Services 
on May 22, and he made a similar statement on July 17 to the Committee 
on Commerce:

       The Federal Reserve Board is of the view that the risks 
     from securities and insurance underwriting are manageable 
     using the holding company framework as compared to the 
     operating subsidiaries. But there is another risk, the risk 
     of transference to nonbank affiliates of the subsidy implicit 
     in the Federal safety net. Deposit insurance, the discount 
     window and access to the payment window with attendant moral 
     hazard. As the committee knows, the Board believes that the 
     subsidiary is more readily transferable to a subsidiary of 
     the insured deposit institution than to its affiliates, and 
     the holding company structure creates the best framework for 
     limiting this leakage.

  The Federal Reserve Board will oppose this bill if we approve the 
LaFalce amendment.
  Mr. LaFALCE. Mr. Chairman, I yield one minute to the gentleman from 
Texas (Mr. Bentsen).
  Mr. BENTSEN. Mr. Chairman, I want to respond to my colleague from 
Nebraska. At that same hearing, Mr. Greenspan again said, ``My concerns 
are not safety and soundness,'' and, again if you read the testimony, 
he does make the argument that there is an implicit subsidy that goes 
through an operating subsidiary.
  He says the same subsidy exists through a bank holding company with 
an affiliate structure. But then he went on to make an unsubstantiated 
argument that somehow the subsidy is less through a holding company 
structure than it is through an operating subsidiary.
  But Ricki Helfer, the then-Chairman of the FDIC, as the gentleman 
will recall, went on to say that in the FDIC's study of the issue, not 
only did they find there was no safety and soundness concern with 
respect to an operating subsidiary compared to an affiliate through a 
holding company structure, but, furthermore, that they saw no 
difference in the subsidy whatsoever, if in fact there is such a 
subsidy. So the gentleman will recall from the hearing, it was a year 
ago, but it was very clear where Mr. Greenspan stood on the issue at 
the time. The chairman of the Federal Reserve says a lot of things. 
Sometimes he is consistent, and, quite frankly, sometimes he is not. On 
this issue, he has apparently not been very consistent.
  Mr. BLILEY. Mr. Chairman, I yield two minutes to the gentlewoman from 
New Jersey (Mrs. Roukema).
  Mrs. ROUKEMA. Mr. Chairman, I must say that this is a safety and 
soundness issue, and I am rising in opposition to this amendment.
  I must say also that one of the things that Mr. Greenspan has been 
quite careful to enunciate is that there are heightened concerns in 
these days of mega-mergers. We should be giving much more attention to 
the implication of the subsidy.
  It is a safety and soundness issue, and this dictates that new 
activities must be an affiliate under a holding company. The new 
activities will not pose a threat to the bank or the deposit insurance 
fund if they are conducted through an affiliate, not a subsidiary. We 
should not permit operating subsidiaries to pose this kind of danger.
  I want to say, my friend, the gentleman from Massachusetts (Mr. 
Frank) is not here right now, but I do want to say this does bring to 
mind ``deja vu all over again'' to the ghost of the savings & loan 
debacle.
  Make no mistake about that, my colleagues. This subsidiary proposal 
severely violates the functional regulatory structure that we have at 
the heart of this legislation.
  I want to repeat again, I believe that the gentleman from Nebraska 
(Mr. Bereuter) correctly quoted Mr. Greenspan in context, stating his 
opposition to the operating subsidiary, both in terms of the subsidy, 
as well as in terms of the safety and soundness.
  In addition to Mr. Greenspan being opposed to this, Mr. Levitt, the 
chairman of the Securities and Exchange Commission, is also opposed to 
it, and I might say that there is significant opposition from my 
colleagues, and bipartisan opposition, on the Committee on Commerce.
  I stand here ready to alert my colleagues that this would be really 
undermining the whole purpose of this bill if this amendment were 
passed, so I would urge a no vote.
  Mr. Chairman, I rise today, in opposition to this amendment. I 
support many of the provisions in this package of amendments. In fact,

[[Page H3191]]

I asked the Rules Committee to let me offer 3 insurance amendments 
which are similar to some of the insurance provisions in this package. 
In addition, I support a small bank CRA exemption. However, I continue 
to have grave reservations about the operating subsidiary and will vote 
against the package based on this.
  The operating subsidiary is a bad idea, and the House should vote it 
down.
  Proponents argue that an operating subsidiary is necessary to keep 
the national bank charter vital and flexible. Some even say that it 
will promote CRA.
  The operating subsidiary is not necessary for any of these reasons. 
On flexibility and vitality--national banks will be permitted to engage 
in many new opportunities under the bill. They just have to do it over 
in the holding company.
  The debate here is over where the activities must be housed. Should 
the new activities be as affiliates under the holding company or should 
they be subsidiaries under the national bank.
  This is a safety and soundness issue. And heightened concern in these 
days of mega mergers. Safety and soundness dictates that the new 
activities take place in an affiliate under the holding company. These 
new activities will not pose a threat to the bank or the Federal 
deposit insurance funds if they are conducted through an affiliate. We 
should not permit operating subsidiaries to pose a risk to safety and 
soundness. This does bring deja vous all over again to the savings and 
loan debacle. This subsidiary proposal severely violates the functional 
regulatory structure we have as the heart of the legislation.
  I am not alone in opposing the operating subsidiary. The operating 
subsidiary is opposed by Mr. Greenspan, the Chairman of the Federal 
Reserve Board. It is also opposed by Mr. Levitt, the Chairman of the 
Securities and Exchange Commission. There is bipartisan opposition to 
the operating subsidiary. I am joined by Mr. Bliley and Mr. Dingell as 
well as many other members of the Banking Committee. Much has been made 
about Secretary Rubin supporting the operating subsidiary. Many seem to 
forget that Treasury Secretary Regan during the Reagan Administration 
opposed the operating subsidiary.
  Don't make a safety and soundness mistake. Vote no on the operating 
subsidiary.
  Mr. LaFALCE. Mr. Chairman, I yield myself such time as I may consume.
  Mr. Chairman, first of all, the primary issue is the Community 
Reinvestment Act. If we pass this amendment, we will permit a structure 
where you can retain assets under the jurisdiction of the CRA. If we 
reject this amendment, we mandate that a good many present activities, 
and most all future activities, would go outside of the jurisdiction of 
the Community Reinvestment Act. That is fundamental.
  Secondly, with respect to safety and soundness, Chairman Greenspan 
testified before the Committee on Banking and Financial Services on two 
separate occasions, this is not a safety and soundness issue. So sayeth 
Alan Greenspan before the Committee on Banking and Financial Services 
when he was not negotiating with legislators for a particular bill.
  Secondly, this was the testimony of the State banking regulators.
  Third, this was the testimony of the present chairman and the past 
chairman of the Federal Deposit Insurance Commission. This is the not a 
safety and soundness issue. The safety and soundness can be conducted 
just as well or better under the operating subsidiary concept as under 
the separate affiliate concept.
  Secondly, with respect to functional regulation, there is no 
difference. We would have the same functional regulation under an 
operating subsidiary by the SEC, by the State insurance commissioners, 
et cetera, that we would have under the separate financial holding 
company affiliate. That is a non-issue.
  Big banks, they really do not care. They are going to the financial 
services holding company routes. The security firms, they do not really 
care. They want a bill to accomplish repeal of Glass-Stegall and 
changes the bank holding company law.
  The ones that care are the consumers who will not be subject to the 
Community Reinvestment Act, whose communities will not be subject to 
it, and the smaller banks, because these smaller banks will be forced 
to either be taken over or to convert to State chartered institutions.
  That is this amendment, and we have the chance of passing a law, 
rather than a one House bill.
  Mr. BLILEY. Mr. Chairman, it is a great pleasure for me to yield the 
balance of my time to the gentleman from Iowa (Mr. Leach), the 
distinguished chairman of the Committee on Banking and Financial 
Services, who has been so helpful and so cooperative in working 
together on this bill.
  The CHAIRMAN pro tempore (Mr. Dickey). The distinguished chairman of 
the Committee on Banking and Financial Services is recognized for 3\1/
2\ minutes.
  (Mr. LEACH asked and was given permission to revise and extend his 
remarks.)
  Mr. LEACH. Mr. Chairman, with reluctance, I stand in opposition to 
this amendment.
  Let me say what is in the bill is a compromise between the Committee 
on Banking and Financial Services and the Committee on Commerce. If 
this amendment had gone back to the Committee on Banking and Financial 
Services' position, I probably would have been obligated to support it. 
But I will tell you, it goes further. What it does, it adds under the 
power of a bank, merchant banking authority. This is authority that is 
very, very significant.
  Merchant banking constitutes direct ownership and control of 
commercial investments. I used to argue in the 1980's that the two 
dirtiest words in the American language were ``direct investment,'' 
rights which were authorized S&L's in half a dozen states to use 
Federally insured deposits to make investments in entities that they 
would then control. Instead of making loans to people, they would 
simply own things. Here let me just comment on common sense. If you are 
an outsider listening to this debate, the esoterics of an operating 
subsidiary versus affiliate must seem very large. But does any common-
sense American think that a bank ought to be able to come in and under 
its own volition start to own commercial businesses, rather than simply 
make loans, in ways that involve potentially the deposit insurance 
system and what could be a subsidy involved thereof?
  I know the subsidy issue is controversial. The Fed says one thing, 
the Treasury something else. In my time in public life, I always found 
the argument that a subsidy exists to be valid.
  Secondly, let me say there is a question of history that has been 
articulated. That is, the Department of Treasury has said no Treasury 
could support any position the one being taken. The gentleman from New 
York has suggested that his is a historical position of all Treasuries.
  Well, that, frankly, is not precisely the case. I would like to 
direct both the Treasury and my good friends to this statement of the 
Honorable Donald T. Regan, the Department of the Treasury Secretary 
under the Reagan Administration.
  Secretary Regan said, ``The administration,'' meaning the Reagan 
Administration:

       Does not believe that non-depository institution activities 
     should be conducted through a subsidiary or service 
     corporation in which a bank or a thrift has a direct equity 
     investment. The investment would be at risk if the 
     subsidiary's activities were to falter and the funds for the 
     investment would be raised with Federal assistance not 
     available to non-depository institution competitors and a 
     cost advantage to the bank or the thrift.

  I raise this simply to note, as this testimony reflects, that the 
Reagan Administration was in opposition to this administration's 
position on this subject, and in consonance with this bill and with the 
position of Mr. Greenspan.
  Finally, let me just stress that there are articulated differences 
that relate to CRA. The Federal Reserve has a very profound letter out 
on this subject, and I commend it to my colleagues, which shows that 
the CRA argument has been widely exaggerated, and that the differences 
in CRA treatment of a national bank and a bank under the supervision of 
the Federal Reserve is very, very similar.
  This bill expands CRA, it does not contract it, in significant ways. 
What are the unarticulated differences, or some of the differences, 
between the Treasury and the Fed in which there is a major battle 
underway?
  Mr. Chairman, I would simply inform the membership that the rest of 
the words would have been extraordinarily compelling.
  Mr. Chairman, truth be told, the CRA argument on this bill is 
proffered to mask the extraordinary differences between the Treasury

[[Page H3192]]

and the Federal Reserve Board on which institutions should be the 
primary federal regulator of the banking system. Just as the Fed 
perhaps exaggerates a bit the importance of the subsidy that exists 
with the offering of insured deposits, the Treasury magnifies the CRA 
argument. The reason these arguments are so critical to these two 
institutions is that the Treasury believes Congress will tilt to it if 
a case can be made that Fed supervised institutions have lower CRA 
obligations, and the Fed believes Congress may tilt to it if it can be 
shown that competitive advantages accrue to institutions with 
subsidized federally insured deposits.
  Actually, Congress has historically considered the Federal Reserve to 
be the appropriate principal regulator for new power approaches for a 
different set of reasons: (1) It is the Fed which has the predominance 
of experience with holding company regulations. (2) It is the Fed, and 
only the Fed, which has the resources to act on a moment's notice in a 
time of emergency. While the Treasury has no treasury, the Fed has the 
capacity to liquify virtually any problem of any size. (3) With its 
functional and precise regulatory approach, the bill is designed to 
resolve issues of regulatory turf in such a way that financial 
companies can't engage in regulatory arbitrage thus precipitating 
weaker regulation. (4) While sometimes controversial in its monetary 
policy deliberations, the Fed has a sterling record for being above 
politics on the regulatory front.
  From the very beginning of development of this bill I have been 
impressed with how much support exists for the general framework of 
change but how extraordinary the divisions on the subtleties are.
  In the private sector there are natural maximization of profit 
motivations; on the public side, there are maximization of power 
concerns. Ironically, as we come to the conclusion of the House 
consideration process, the rivalry between the Fed and the Treasury has 
come more to the fore than rivalries between and within industrial 
groupings.
  One of the most profound observations of the month was that of a 
prominent New York banker who told me: ``All I want is to get out of 
the Fed-Treasury crossfire.'' The bill provides certitude as well as 
fairness.
  The CHAIRMAN. The question is on the amendment offered by the 
gentleman from New York (Mr. LaFalce).
  The question was taken; and the Chairman pro tempore announced that 
the noes appeared to have it.


                             Recorded Vote

  Mr. LaFALCE. Mr. Chairman, I demand a recorded vote.
  A recorded vote was ordered.
  The vote was taken by electronic device, and there were--ayes 115, 
noes 306, not voting 11, as follows:

                             [Roll No. 144]

                               AYES--115

     Allen
     Baesler
     Barrett (WI)
     Becerra
     Bentsen
     Berman
     Bishop
     Blumenauer
     Boehlert
     Bonior
     Borski
     Boswell
     Brown (CA)
     Capps
     Cardin
     Carson
     Castle
     Clayton
     Clyburn
     Conyers
     Davis (IL)
     Davis (VA)
     DeFazio
     Dixon
     Dreier
     Eshoo
     Evans
     Farr
     Fattah
     Filner
     Frank (MA)
     Gibbons
     Goode
     Goodlatte
     Green
     Gutierrez
     Hall (OH)
     Hastings (FL)
     Hinchey
     Hooley
     Hostettler
     Hoyer
     Jackson (IL)
     Jackson-Lee (TX)
     Jefferson
     Johnson (WI)
     Johnson, E. B.
     Kanjorski
     Kaptur
     Kelly
     Kennedy (MA)
     Kennedy (RI)
     Kind (WI)
     Kleczka
     Kucinich
     LaFalce
     Lampson
     Lantos
     LaTourette
     Lee
     Lewis (GA)
     Luther
     Maloney (CT)
     Maloney (NY)
     Martinez
     McDermott
     McHale
     McInnis
     McIntosh
     McKinney
     Meehan
     Meek (FL)
     Meeks (NY)
     Millender-McDonald
     Miller (CA)
     Moakley
     Mollohan
     Moran (VA)
     Myrick
     Oberstar
     Obey
     Olver
     Ortiz
     Owens
     Pastor
     Payne
     Pelosi
     Petri
     Price (NC)
     Ramstad
     Roybal-Allard
     Rush
     Sabo
     Sanders
     Sandlin
     Schumer
     Serrano
     Sherman
     Slaughter
     Smith, Adam
     Snyder
     Souder
     Stark
     Stokes
     Thompson
     Thurman
     Tierney
     Torres
     Velazquez
     Vento
     Visclosky
     Waters
     Watt (NC)
     Weygand
     Woolsey

                               NOES--306

     Abercrombie
     Ackerman
     Aderholt
     Andrews
     Archer
     Armey
     Bachus
     Baker
     Baldacci
     Ballenger
     Barcia
     Barr
     Barrett (NE)
     Bartlett
     Barton
     Bass
     Bereuter
     Berry
     Bilbray
     Bilirakis
     Blagojevich
     Bliley
     Blunt
     Boehner
     Bonilla
     Bono
     Boucher
     Boyd
     Brady
     Brown (FL)
     Brown (OH)
     Bryant
     Bunning
     Burr
     Burton
     Buyer
     Callahan
     Calvert
     Camp
     Campbell
     Canady
     Cannon
     Chabot
     Chambliss
     Chenoweth
     Clement
     Coble
     Coburn
     Collins
     Combest
     Condit
     Cook
     Cooksey
     Costello
     Cox
     Coyne
     Cramer
     Crane
     Crapo
     Cubin
     Cummings
     Cunningham
     Danner
     Davis (FL)
     Deal
     DeGette
     Delahunt
     DeLauro
     DeLay
     Deutsch
     Diaz-Balart
     Dickey
     Dicks
     Dingell
     Doggett
     Dooley
     Doolittle
     Doyle
     Duncan
     Dunn
     Edwards
     Ehlers
     Ehrlich
     Emerson
     Engel
     English
     Ensign
     Etheridge
     Everett
     Ewing
     Fawell
     Fazio
     Foley
     Forbes
     Ford
     Fossella
     Fowler
     Fox
     Franks (NJ)
     Frelinghuysen
     Frost
     Furse
     Gallegly
     Ganske
     Gejdenson
     Gekas
     Gephardt
     Gillmor
     Gilman
     Goodling
     Gordon
     Goss
     Graham
     Granger
     Greenwood
     Gutknecht
     Hall (TX)
     Hamilton
     Hansen
     Hastert
     Hastings (WA)
     Hayworth
     Hefley
     Herger
     Hill
     Hilleary
     Hinojosa
     Hobson
     Hoekstra
     Holden
     Horn
     Houghton
     Hulshof
     Hunter
     Hutchinson
     Hyde
     Inglis
     Istook
     Jenkins
     John
     Johnson (CT)
     Johnson, Sam
     Jones
     Kasich
     Kennelly
     Kildee
     Kim
     King (NY)
     Kingston
     Klink
     Klug
     Knollenberg
     Kolbe
     LaHood
     Largent
     Latham
     Lazio
     Leach
     Levin
     Lewis (CA)
     Lewis (KY)
     Linder
     Lipinski
     Livingston
     LoBiondo
     Lofgren
     Lowey
     Lucas
     Manton
     Manzullo
     Markey
     Mascara
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McCollum
     McCrery
     McDade
     McGovern
     McHugh
     McIntyre
     McKeon
     McNulty
     Menendez
     Metcalf
     Mica
     Miller (FL)
     Minge
     Mink
     Moran (KS)
     Morella
     Murtha
     Nadler
     Neal
     Nethercutt
     Neumann
     Ney
     Northup
     Norwood
     Nussle
     Oxley
     Packard
     Pallone
     Pappas
     Parker
     Pascrell
     Paul
     Paxon
     Pease
     Peterson (MN)
     Peterson (PA)
     Pickering
     Pickett
     Pitts
     Pombo
     Pomeroy
     Porter
     Portman
     Poshard
     Pryce (OH)
     Quinn
     Rahall
     Rangel
     Redmond
     Regula
     Reyes
     Riggs
     Riley
     Rivers
     Rodriguez
     Roemer
     Rogan
     Rogers
     Rohrabacher
     Ros-Lehtinen
     Rothman
     Roukema
     Royce
     Ryun
     Salmon
     Sanchez
     Sanford
     Sawyer
     Saxton
     Scarborough
     Schaefer, Dan
     Schaffer, Bob
     Scott
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Shays
     Shimkus
     Shuster
     Sisisky
     Skeen
     Skelton
     Smith (MI)
     Smith (NJ)
     Smith (OR)
     Smith (TX)
     Smith, Linda
     Snowbarger
     Solomon
     Spence
     Spratt
     Stabenow
     Stearns
     Stenholm
     Strickland
     Stump
     Stupak
     Sununu
     Talent
     Tanner
     Tauscher
     Tauzin
     Taylor (MS)
     Taylor (NC)
     Thomas
     Thornberry
     Thune
     Tiahrt
     Towns
     Traficant
     Turner
     Upton
     Walsh
     Wamp
     Watkins
     Watts (OK)
     Waxman
     Weldon (FL)
     Weldon (PA)
     Weller
     Wexler
     White
     Whitfield
     Wicker
     Wise
     Wolf
     Wynn
     Yates
     Young (AK)
     Young (FL)

                             NOT VOTING--11

     Bateman
     Christensen
     Clay
     Gilchrest
     Gonzalez
     Harman
     Hefner
     Hilliard
     Kilpatrick
     Radanovich
     Skaggs

                              {time}  1619

  Messrs. COBURN, INGLIS of South Carolina, PICKETT, STENHOLM, Mrs. 
LOWEY, and Messrs. LEVIN, MASCARA, and FORBES changed their vote from 
``aye'' to ``no.''
  Messrs. BISHOP, FARR of California, MOAKLEY, GOODLATTE, GIBBONS, Ms. 
ESHOO, and Messrs. OLVER, McINTOSH, DAVIS of Virginia, and MORAN of 
Virginia changed their vote from ``no'' to ``aye.''
  So the amendment was rejected.
  The result of the vote was announced as above recorded.


                          personal explanation

  Ms. KILPATRICK. Madam Chairman, because I was unavoidably detained in 
the 15th Congressional District, I missed several roll call votes. Had 
I been present, I would have voted Nay on roll call number 142, Aye on 
roll call vote number 143, and Aye on roll call number 144.
  The CHAIRMAN. It is now in order to consider amendment No. 3 printed 
in part 2 of House Report 105-531.


                  Amendment No. 3 Offered by Mr. Baker

  Mr. BAKER. Madam Chairman, I offer an amendment under the rule.
  The CHAIRMAN. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Part 2, amendment No. 3, printed in House Report 105-531, 
     offered by Mr. Baker:
       After section 181, insert the following new sections (and 
     conform the table of contents accordingly):

     SEC. 182. CRA AMENDMENT.

       Section 803(2) of the Community Reinvestment Act of 1977 
     (12 U.S.C. 2902(2)) is amended by inserting ``which has total 
     assets of more than $100,000,000'' before the semicolon at 
     the end.
       In section 305 of the Amendment in the Nature of a 
     Substitute, strike ``If a national bank'' and insert ``(a) In 
     General.--If a national bank''.

[[Page H3193]]

       In section 305 of the Amendment in the Nature of a 
     Substitute, insert the following new subsections after 
     subsection (a) (as so redesignated):
       (b) State Waiver.--If, in any community served by a 
     national bank or a subsidiary of a national bank, there is no 
     company licensed by the appropriate State regulator to 
     provide insurance as agent which is available for 
     acquisition, the State insurance regulator may, upon 
     application by the national bank or subsidiary, waive the 
     limitation of subsection (a) with respect to the provision of 
     insurance as agent by such bank or subsidiary within such 
     community.
       (c) Sunset.--This section shall cease to be effective at 
     the end of the 3-year period beginning on the date of the 
     enactment of this Act.
       In paragraph (1) of section 45(d) of the Federal Deposit 
     Insurance Act, as added by section 308(a) of the Amendment in 
     the Nature of a Substitute, strike ``and the making of 
     loans''.
       In paragraph (2) of section 45(g) of the Federal Deposit 
     Insurance Act, as added by section 308(a) of the Amendment in 
     the Nature of a Substitute, strike ``Regulations prescribed'' 
     and insert ``Subject to section 104, regulations 
     prescribed''.
       After section 309 of the Amendment in the Nature of a 
     Substitute, add the following new section (and conform the 
     table of contents accordingly):

     SEC. 310. STUDY OF EFFECTIVENESS OF SAFE HARBOR.

       (a) Study Required.--3 years after the date of the 
     enactment of this Act, the Comptroller of the Currency shall 
     study, in conjunction with the National Association of 
     Insurance Commissioners should such Association choose to 
     participate, the effectiveness of the provisions of section 
     104(b)(2)(A) in establishing a safe harbor for the regulation 
     by States of insurance sales and solicitation activity.
       (b) Report.--The Comptroller of the Currency, together with 
     the National Association of Insurance Commissioners should 
     such Association choose to participate, shall submit a report 
     to the Congress before the end of the 6-month period 
     beginning 3 years after the date of the enactment of this Act 
     on findings made and conclusions reached with regard to the 
     study required under subsection (a), together with such 
     recommendations for legislative or administrative action as 
     the Comptroller and the Association determine to be 
     appropriate.
       Paragraph (9) of section 10(c) of the Home Owners' Loan 
     Act, as added by section 401 of the Amendment in the Nature 
     of a Substitute, is amended by adding at the end the 
     following new subparagraph:
       ``(C) No acquisition of grandfathered unitaries by 
     unregulated nonfinancial companies.--Notwithstanding 
     subparagraph (B), paragraph (3) shall not apply to any 
     company described in subparagraph (B)(i)(II) which is not, at 
     the time of the acquisition referred to in such subparagraph, 
     subject to licensing, regulation, or examination by a Federal 
     banking agency, the Securities and Exchange Commission, the 
     Commodities Futures Trading Commission, or a State insurance 
     regulator.''.
       Strike the heading of subtitle C of title I of the 
     Amendment in the Nature of a Substitute and insert the 
     following new heading (and amend the table of contents 
     accordingly):

      Subtitle C--Subsidiaries of Insured Depository Institutions

       Strike section 121 of the Amendment in the Nature of a 
     Substitute and insert the following new sections (and 
     redesignate subsequent sections and amend the table of 
     contents accordingly):

     SEC. 121. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED TO ENGAGE 
                   IN FINANCIAL ACTIVITIES.

       (a) Financial Subsidiaries of National Banks.--Chapter one 
     of title LXII of the Revised Statutes of United States (12 
     U.S.C. 21 et seq.) is amended--
       (1) by redesignating section 5136A as section 5136C; and
       (2) by inserting after section 5136 (12 U.S.C. 24) the 
     following new section:

     ``SEC. 5136A. FINANCIAL SUBSIDIARIES OF NATIONAL BANKS.

       ``(a) Subsidiaries of National Banks Authorized to Engage 
     in Financial Activities.--
       ``(1) In general.--A subsidiary of a national bank may 
     engage in an activity that is not permissible for a national 
     bank to engage in directly, but only if--
       ``(A) the activity is a financial activity (as defined in 
     paragraph (4));
       ``(B) the national bank is well capitalized, well managed, 
     and achieved a rating of `satisfactory record of meeting 
     community credit needs', or better, at the most recent 
     examination of the bank;
       ``(C) all depository institution affiliates of such 
     national bank are well capitalized, well managed, and have 
     achieved a rating of `satisfactory record of meeting 
     community credit needs', or better, at the most recent 
     examination of each such institution; and
       ``(D) the bank has received the approval of the Comptroller 
     of the Currency.
       ``(2) No effect on edge act or agreement corporations.--
     Paragraph (1) shall not apply with respect to any subsidiary 
     which is a corporation organized under section 25A of the 
     Federal Reserve Act or a corporation operating under section 
     25 of such Act.
       ``(3) Other subsidiaries prohibited.--A national bank may 
     not control any subsidiary other than a subsidiary--
       ``(A) which engages solely in activities that are 
     permissible for a national bank to engage in directly or are 
     authorized under paragraph (1); or
       ``(B) which a national bank may control pursuant to section 
     25 or 25A of the Federal Reserve Act, the Bank Service 
     Company Act, or any other Act that expressly by its terms 
     authorizes national banks to control subsidiaries.
       ``(4) Financial activity defined.--For purposes of this 
     section and subject to paragraphs (5) and (6), the term 
     `financial activity' means any activity determined under 
     section 6(c) of the Bank Holding Company Act of 1956 to be 
     financial in nature or incidental to financial activities.
       ``(5) Other definitions.--For purposes of this section, the 
     following definitions shall apply:
       ``(A) Financial subsidiary.--The term `financial 
     subsidiary' means a company which--
       ``(i) is a subsidiary of a national bank (other than a 
     corporation organized under section 25A of the Federal 
     Reserve Act or a corporation operating under section 25 of 
     such Act); and
       ``(ii) is engaged in a financial activity pursuant to 
     paragraph (1) that is not a permissible activity for a 
     national bank to engage in directly.
       ``(B) Subsidiary.--The term `subsidiary' has the meaning 
     given to such term in section 2 of the Bank Holding Company 
     Act of 1956.
       ``(C) Well capitalized.--The term `well capitalized' has 
     the same meaning as in section 38 of the Federal Deposit 
     Insurance Act and, for purposes of this section, the 
     Comptroller shall have exclusive jurisdiction to determine 
     whether a national bank is well capitalized.
       ``(D) Well managed.--The term `well managed' means--
       ``(i) in the case of a bank that has been examined, unless 
     otherwise determined in writing by the Comptroller, the 
     achievement of--

       ``(I) a composite rating of 1 or 2 under the Uniform 
     Financial Institutions Rating System (or an equivalent rating 
     under an equivalent rating system) in connection with the 
     most recent examination or subsequent review of the bank; and
       ``(II) at least a rating of 2 for management, if that 
     rating is given; or

       ``(ii) in the case of any national bank that has not been 
     examined, the existence and use of managerial resources that 
     the Comptroller determines are satisfactory.
       ``(6) Insurance underwriting, merchant banking, and direct 
     investment.--Except as provided in title III of the Financial 
     Services Act of 1998, no subsidiary of a national bank (other 
     than a corporation organized under section 25A of the Federal 
     Reserve Act or a corporation operating under section 25 of 
     such Act) may underwrite noncredit-related insurance, engage 
     in real estate investment or development activities (except 
     to the extent a national bank is specifically authorized by 
     statute to engage in any such activity directly), or engage 
     in merchant banking (as described in section 6(c)(3)(H) of 
     the Bank Holding Company Act of 1956).
       ``(7) Limited exclusions from community needs requirements 
     for newly acquired depository institutions.--Any depository 
     institution which becomes affiliated with a national bank 
     during the 12-month period preceding the submission of an 
     application to acquire a financial subsidiary and any 
     depository institution which becomes so affiliated after the 
     approval of such application may be excluded for purposes of 
     paragraph (1)(C) during the 12-month period beginning on the 
     date of such acquisition if--
       ``(A) the national bank has submitted an affirmative plan 
     to the Comptroller of the Currency to take such action as may 
     be necessary in order for such institution to achieve a 
     `satisfactory record of meeting community credit needs', or 
     better, during the most next examination of the institution; 
     and
       ``(B) the plan has been accepted by the Comptroller.
       ``(b) Capital Deduction Required.--
       ``(1) In general.--In determining compliance with 
     applicable capital standards--
       ``(A) the amount of a national bank's equity investment in 
     a financial subsidiary shall be deducted from the national 
     bank's assets and tangible equity; and
       ``(B) the financial subsidiary's assets and liabilities 
     shall not be consolidated with those of the national bank.
       ``(2) Regulations required.--The Comptroller shall 
     prescribe regulations implementing this subsection.
       ``(c) Safeguards for the Bank.--A national bank that 
     establishes or maintains a financial subsidiary shall assure 
     that--
       ``(1) the bank's procedures for identifying and managing 
     financial and operational risks within the bank and financial 
     subsidiaries of the bank adequately protect the bank from 
     such risks;
       ``(2) the bank has, for the protection of the bank, 
     reasonable policies and procedures to preserve the separate 
     corporate identity and limited liability of the bank and 
     subsidiaries of the bank; and
       ``(3) the bank complies with this section.
       ``(d) National Banks Which Do Not Comply With Requirements 
     of This Section.--
       ``(1) In general.--If the Comptroller determines that a 
     national bank which controls a financial subsidiary, or a 
     depository institution affiliate of such national bank, does 
     not

[[Page H3194]]

     continue to meet the requirements of subsection (a), the 
     Comptroller shall give notice to the bank to that effect, 
     describing the conditions giving rise to the notice.
       ``(2) Agreement to correct conditions required.--
       ``(A) Content of agreement.--Within 45 days of the receipt 
     by a depository institution of a notice given under paragraph 
     (1) (or such additional period as the Comptroller may 
     permit), the depository institution failing to meet the 
     requirements of subsection (a) shall execute an agreement 
     with the appropriate Federal banking agency for such 
     institution to correct the conditions described in the 
     notice.
       ``(B) Comptroller may impose limitations.--Until the 
     conditions giving rise to the notice are corrected, the 
     Comptroller may impose such limitations on the conduct of the 
     business of the national bank or subsidiary of such bank as 
     the Comptroller determines to be appropriate under the 
     circumstances.
       ``(3) Failure to correct.--If the conditions described in 
     the notice are not corrected within 180 days after the bank 
     receives the notice, the Comptroller may require, under such 
     terms and conditions as may be imposed by the Comptroller and 
     subject to such extensions of time as may be granted in the 
     discretion of the Comptroller--
       (A) the national bank to divest control of each subsidiary 
     engaged in an activity that is not permissible for the bank 
     to engage in directly; or
       ``(B) each subsidiary of the national bank to cease any 
     activity that is not permissible for the bank to engage in 
     directly.
       ``(e) Functional Regulation.--
       ``(1) In general.--A financial subsidiary of a national 
     bank shall not be treated as a bank for purposes of any 
     definition of bank in the Federal securities laws.
       ``(2) Deference to sec.--The Comptroller shall defer to the 
     Securities and Exchange Commission with regard to all 
     interpretations of, and the enforcement of, applicable 
     Federal securities laws relating to the activities, conduct, 
     and operations of registered brokers, dealers, investment 
     advisers, and investment companies.
       ``(3) Deference to examinations.--In the case of a 
     financial subsidiary of a national bank which is a registered 
     broker or dealer or a registered investment adviser, the 
     Comptroller shall, to the fullest extent possible, address 
     the circumstances which might otherwise permit or require an 
     examination by the Comptroller by forgoing an examination and 
     instead reviewing the reports of examination made of such 
     subsidiary by or on behalf of the Securities and Exchange 
     Commission.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     one of title LXII of the Revised Statutes of the United 
     States is amended--
        (1) by redesignating the item relating to section 5136A as 
     section 5136C; and
        (2) by inserting after the item relating to section 5136 
     the following new item:

``5136A. Financial subsidiaries of national banks.''.

     SEC. 122. ACTIVITIES OF SUBSIDIARIES OF INSURED STATE BANKS.

       Section 24(d) of the Federal Deposit Insurance Act (12 
     U.S.C. 1831a(d)) is amended--
       (1) by adding at the end the following new paragraphs:
       ``(3) Conditions on certain activities.--
       ``(A) In general.--A subsidiary of a State bank may engage 
     in an activity in which a subsidiary of a national bank may 
     engage as principal pursuant to subsection (a)(1) of section 
     5136A of the Revised Statutes of the United States but only 
     if the State bank meets the same requirements which are 
     applicable to national banks under subparagraphs (B) and (C) 
     of such subsection and subsections (b) and (c) of such 
     section.
       ``(B) Application of section 5136a of revised statutes.--
     For purposes of applying section 5136A of the Revised 
     Statutes of the United States with regard to the activities 
     of a subsidiary of a State bank, all references in such 
     section to the Comptroller of the Currency, or regulations 
     and orders of the Comptroller, shall be deemed to be 
     references to the appropriate Federal banking agency with 
     respect to such State bank, and regulations and orders of 
     such agency.
       ``(4) State banks which fail to comply with paragraph (3) 
     conditions.--
       ``(A) In general.--If the appropriate Federal banking 
     agency determines that a State bank that controls a 
     subsidiary which is engaged as principal in financial 
     activities pursuant to paragraph (3) does not meet the 
     requirements of subparagraph (A) of such paragraph, the 
     appropriate Federal banking agency shall give notice to the 
     bank to that effect, describing the conditions giving rise to 
     the notice.
       ``(A) Agreement to correct conditions required.--
       ``(i) Content of agreement.--Within 45 days of the receipt 
     by a bank of a notice given under paragraph (1) (or such 
     additional period as the appropriate Federal banking agency 
     for such bank may permit), the bank failing to meet the 
     requirements of paragraph (3)(A) shall execute an agreement 
     with the appropriate Federal banking agency for such bank to 
     correct the conditions described in the notice.
       ``(B) Agency may impose limitations.--Until the conditions 
     giving rise to the notice are corrected, the appropriate 
     Federal banking agency for the State bank may impose such 
     limitations on the conduct of the business of the bank or a 
     subsidiary of the bank as the agency determines to be 
     appropriate under the circumstances.
       ``(C) Failure to correct.--If the conditions described in 
     the notice are not corrected within 180 days after the bank 
     receives the notice, the appropriate Federal banking agency 
     for the State may require, under such terms and conditions as 
     may be imposed by such agency and subject to such extensions 
     of time as may be granted in the discretion of the agency--
       ``(i) the bank to divest control of each subsidiary engaged 
     in an activity as principal that is not permissible for the 
     bank to engage in directly; or
       ``(ii) each subsidiary of the bank to cease any activity as 
     principal that is not permissible for the bank to engage in 
     directly.''.

     SEC. 123. RULES APPLICABLE TO FINANCIAL SUBSIDIARIES.

       (a) Transactions Between Financial Subsidiaries and Other 
     Affiliates.--Section 23A of the Federal Reserve Act (12 
     U.S.C. 371c) is amended--
       (1) by redesignating subsection (e) as subsection (f); and
       (2) by inserting after subsection (d), the following new 
     subsection:
       ``(e) Rules Relating to Banks With Financial 
     Subsidiaries.--
       ``(1) Financial subsidiary defined.--For purposes of this 
     section and section 23B, the term `financial subsidiary' 
     means a company which--
       ``(A) is a subsidiary of a bank (other than a corporation 
     organized under section 25A of the Federal Reserve Act or a 
     corporation operating under section 25 of such Act); and
       ``(B) is engaged in a financial activity (as defined in 
     section 5136A(a)(4)) that is not a permissible activity for a 
     national bank to engage in directly.
       ``(2) Application to transactions between a financial 
     subsidiary of a bank and the bank.--For purposes of applying 
     this section and section 23B to a transaction between a 
     financial subsidiary of a bank and the bank (or between such 
     financial subsidiary and any other subsidiary of the bank 
     which is not a financial subsidiary) and notwithstanding 
     subsection (b)(2) and section 23B(d)(1), the financial 
     subsidiary of the bank--
       ``(A) shall be an affiliate of the bank and any other 
     subsidiary of the bank which is not a financial subsidiary; 
     and
       ``(B) shall not be treated as a subsidiary of the bank.
       ``(3) Application to transactions between financial 
     subsidiary and nonbank affiliates.--
       ``(A) In general.--A transaction between a financial 
     subsidiary and an affiliate of the financial subsidiary shall 
     not be deemed to be a transaction between a subsidiary of a 
     national bank and an affiliate of the bank for purposes of 
     section 23A or section 23B of the Federal Reserve Act.
       ``(B) Certain affiliates excluded.--For purposes of 
     subparagraph (A) and notwithstanding paragraph (4), the term 
     `affiliate' shall not include a bank, or a subsidiary of a 
     bank, which is engaged exclusively in activities permissible 
     for a national bank to engage in directly.
       ``(4) Equity investments excluded subject to the approval 
     of the banking agency.--Subsection (a)(1) shall not apply so 
     as to limit the equity investment of a bank in a financial 
     subsidiary of such bank, except that any investment that 
     exceeds the amount of a dividend that the bank could pay at 
     the time of the investment without obtaining prior approval 
     of the appropriate Federal banking agency and is in excess of 
     the limitation which would apply under subsection (a)(1), but 
     for this paragraph, may be made only with the approval of the 
     appropriate Federal banking agency (as defined in section 
     3(q) of the Federal Deposit Insurance Act) with respect to 
     such bank.''.
       (b) Treatment of Financial Subsidiaries Under Other 
     Provisions of Law.--
       (1) Bank holding company act amendments of 1970.--Section 
     106(a) of the Bank Holding Company Act Amendments of 1970 is 
     amended by adding at the end the following new sentence: 
     ``For purposes of this section, a financial subsidiary (as 
     defined in section 5136A(a)(5)(A) of the Revised Statutes of 
     the United States or referenced in the 20th undesignated 
     paragraph of section 9 of the Federal Reserve Act or section 
     24(d)(3)(A) of the Federal Deposit Insurance Act) shall be 
     deemed to be a subsidiary of a bank holding company, and not 
     a subsidiary of a bank.''; and
       (2) Federal reserve act.--The 20th undesignated paragraph 
     of section 9 of the Federal Reserve Act (12 U.S.C. 335) is 
     amended by adding at the end of the following new sentence: 
     ``To the extent permitted under State law, a State member 
     bank may acquire or establish and retain a financial 
     subsidiary (as defined in section 5136A(a)(3)(A) of the 
     Revised Statutes of the United States, except that all 
     references in that section to the Comptroller of the 
     Currency, the Comptroller, or regulations or orders of the 
     Comptroller shall be deemed to be references to the Board or 
     regulations or orders of the Board.''.

  The CHAIRMAN. Pursuant to House Resolution 428, the gentleman from 
Louisiana (Mr. Baker) and a Member opposed each will control 20 
minutes.
  The Chair recognizes the gentleman from Louisiana (Mr. Baker).

[[Page H3195]]

    Request for Modification to Amendment No. 3 Offered by Mr. Baker

  Mr. BAKER. Madam Chairman, I ask unanimous consent to modify the 
amendment.
  The CHAIRMAN. The Clerk will report the modification.
  The Clerk read as follows:

       Amendment, as modified, offered by Mr. Baker:
       After section 181, insert the following new sections (and 
     conform the table of contents accordingly):

     SEC. 182. CRA AMENDMENT.

       Section 803(2) of the Community Reinvestment Act of 1977 
     (12 U.S.C. 2902(2)) is amended by inserting ``which has total 
     assets of more than $100,000,000'' before the semicolon at 
     the end.
       In section 305 of the Amendment in the Nature of a 
     Substitute, strike ``If a national bank'' and insert ``(a) In 
     General.--If a national bank''.
       In section 305 of the Amendment in the Nature of a 
     Substitute, insert the following new subsections after 
     subsection (a) (as so redesignated):
       (b) State Waiver.--If, in any community served by a 
     national bank or a subsidiary of a national bank, there is no 
     company licensed by the appropriate State regulator to 
     provide insurance as agent which is available for 
     acquisition, the State insurance regulator may, upon 
     application by the national bank or subsidiary, waive the 
     limitation of subsection (a) with respect to the provision of 
     insurance as agent by such bank or subsidiary within such 
     community.
       (c) Sunset.--This section shall cease to be effective at 
     the end of the 3-year period beginning on the date of the 
     enactment of this Act.
       In paragraph (1) of section 45(d) of the Federal Deposit 
     Insurance Act, as added by section 308(a) of the Amendment in 
     the Nature of a Substitute, strike ``and the making of 
     loans''.
       After section 309 of the Amendment in the Nature of a 
     Substitute, add the following new section (and conform the 
     table of contents accordingly):

     SEC. 310. STUDY OF EFFECTIVENESS OF SAFE HARBOR.

       (a) Study Required.--3 years after the date of the 
     enactment of this Act, the Comptroller of the Currency shall 
     study, in conjunction with the National Association of 
     Insurance Commissioners should such Association choose to 
     participate, the effectiveness of the provisions of section 
     104(b)(2)(A) in establishing a safe harbor for the regulation 
     by States of insurance sales and solicitation activity.
       (b) Report.--The Comptroller of the Currency, together with 
     the National Association of Insurance Commissioners should 
     such Association choose to participate, shall submit a report 
     to the Congress before the end of the 6-month period 
     beginning 3 years after the date of the enactment of this Act 
     on findings made and conclusions reached with regard to the 
     study required under subsection (a), together with such 
     recommendations for legislative or administrative action as 
     the Comptroller and the Association determine to be 
     appropriate.
       Paragraph (9) of section 10(c) of the Home Owners' Loan 
     Act, as added by section 401 of the Amendment in the Nature 
     of a Substitute, is amended by adding at the end the 
     following new subparagraph:
       ``(C) No acquisition of grandfathered unitaries by 
     unregulated nonfinancial companies.--
       ``(i) In general.--Notwithstanding subparagraph (B), 
     paragraph (3) shall not apply to any company described in 
     subparagraph (B)(i)(II) which is not, at the time of the 
     acquisition referred to in such subparagraph, subject to 
     licensing, regulation, or examination by a Federal banking 
     agency, the Securities and Exchange Commission, the 
     Commodities Futures Trading Commission, or a State insurance 
     regulator.''.
       ``(ii) Sunset provision.--This subparagraph shall cease to 
     be effective at the end of the 5-year period beginning on the 
     date of the enactment of the Financial Services Act of 
     1998.''.
       Strike the heading of subtitle C of title I of the 
     Amendment in the Nature of a Substitute and insert the 
     following new heading (and amend the table of contents 
     accordingly):

      Subtitle C--Subsidiaries of Insured Depository Institutions

       Strike section 121 of the Amendment in the Nature of a 
     Substitute and insert the following new sections (and 
     redesignate subsequent sections and amend the table of 
     contents accordingly):

     SEC. 121. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED TO ENGAGE 
                   IN FINANCIAL ACTIVITIES.

       (a) Financial Subsidiaries of National Banks.--Chapter one 
     of title LXII of the Revised Statutes of United States (12 
     U.S.C. 21 et seq.) is amended--
       (1) by redesignating section 5136A as section 5136C; and
       (2) by inserting after section 5136 (12 U.S.C. 24) the 
     following new section:

     ``SEC. 5136A. FINANCIAL SUBSIDIARIES OF NATIONAL BANKS.

       ``(a) Subsidiaries of National Banks Authorized to Engage 
     in Financial Activities.--
       ``(1) In general.--A subsidiary of a national bank may 
     engage in an activity that is not permissible for a national 
     bank to engage in directly, but only if--
       ``(A) the activity is a financial activity (as defined in 
     paragraph (4));
       ``(B) the national bank is well capitalized, well managed, 
     and achieved a rating of `satisfactory record of meeting 
     community credit needs', or better, at the most recent 
     examination of the bank;
       ``(C) all depository institution affiliates of such 
     national bank are well capitalized, well managed, and have 
     achieved a rating of `satisfactory record of meeting 
     community credit needs', or better, at the most recent 
     examination of each such institution; and
       ``(D) the bank has received the approval of the Comptroller 
     of the Currency.
       ``(2) No effect on edge act or agreement corporations.--
     Paragraph (1) shall not apply with respect to any subsidiary 
     which is a corporation organized under section 25A of the 
     Federal Reserve Act or a corporation operating under section 
     25 of such Act.
       ``(3) Other subsidiaries prohibited.--A national bank may 
     not control any subsidiary other than a subsidiary--
       ``(A) which engages solely in activities that are 
     permissible for a national bank to engage in directly or are 
     authorized under paragraph (1); or
       ``(B) which a national bank may control pursuant to section 
     25 or 25A of the Federal Reserve Act, the Bank Service 
     Company Act, or any other Act that expressly by its terms 
     authorizes national banks to control subsidiaries.
       ``(4) Financial activity defined.--For purposes of this 
     section and subject to paragraphs (5) and (6), the term 
     `financial activity' means any activity determined under 
     section 6(c) of the Bank Holding Company Act of 1956 to be 
     financial in nature or incidental to financial activities.
       ``(5) Other definitions.--For purposes of this section, the 
     following definitions shall apply:
       ``(A) Financial subsidiary.--The term `financial 
     subsidiary' means a company which--
       ``(i) is a subsidiary of a national bank (other than a 
     corporation organized under section 25A of the Federal 
     Reserve Act or a corporation operating under section 25 of 
     such Act); and
       ``(ii) is engaged in a financial activity pursuant to 
     paragraph (1) that is not a permissible activity for a 
     national bank to engage in directly.
       ``(B) Subsidiary.--The term `subsidiary' has the meaning 
     given to such term in section 2 of the Bank Holding Company 
     Act of 1956.
       ``(C) Well capitalized.--The term `well capitalized' has 
     the same meaning as in section 38 of the Federal Deposit 
     Insurance Act and, for purposes of this section, the 
     Comptroller shall have exclusive jurisdiction to determine 
     whether a national bank is well capitalized.
       ``(D) Well managed.--The term `well managed' means--
       ``(i) in the case of a bank that has been examined, unless 
     otherwise determined in writing by the Comptroller, the 
     achievement of--

       ``(I) a composite rating of 1 or 2 under the Uniform 
     Financial Institutions Rating System (or an equivalent rating 
     under an equivalent rating system) in connection with the 
     most recent examination or subsequent review of the bank; and
       ``(II) at least a rating of 2 for management, if that 
     rating is given; or

       ``(ii) in the case of any national bank that has not been 
     examined, the existence and use of managerial resources that 
     the Comptroller determines are satisfactory.
       ``(6) Insurance underwriting, merchant banking, and direct 
     investment.--Except as provided in title III of the Financial 
     Services Act of 1998, no subsidiary of a national bank (other 
     than a corporation organized under section 25A of the Federal 
     Reserve Act or a corporation operating under section 25 of 
     such Act) may underwrite noncredit-related insurance, engage 
     in real estate investment or development activities (except 
     to the extent a national bank is specifically authorized by 
     statute to engage in any such activity directly), or engage 
     in merchant banking (as described in section 6(c)(3)(H) of 
     the Bank Holding Company Act of 1956).
       ``(7) Limited exclusions from community needs requirements 
     for newly acquired depository institutions.--Any depository 
     institution which becomes affiliated with a national bank 
     during the 12-month period preceding the submission of an 
     application to acquire a financial subsidiary and any 
     depository institution which becomes so affiliated after the 
     approval of such application may be excluded for purposes of 
     paragraph (1)(C) during the 12-month period beginning on the 
     date of such acquisition if--
       ``(A) the national bank has submitted an affirmative plan 
     to the Comptroller of the Currency to take such action as may 
     be necessary in order for such institution to achieve a 
     `satisfactory record of meeting community credit needs', or 
     better, during the most next examination of the institution; 
     and
       ``(B) the plan has been accepted by the Comptroller.
       ``(b) Capital Deduction Required.--
       ``(1) In general.--In determining compliance with 
     applicable capital standards--
       ``(A) the sum of--
       ``(i) the amount of a national bank's equity investment in 
     a financial subsidiary; and

[[Page H3196]]

       ``(ii) the amount equal to the sum of the retained earnings 
     of each financial subsidiary,

     shall be deducted from the national bank's assets and 
     tangible equity; and
       ``(B) the financial subsidiary's assets and liabilities 
     shall not be consolidated with those of the national bank.
       ``(2) Regulations required.--The Comptroller shall 
     prescribe regulations implementing this subsection.
       ``(c) Safeguards for the Bank.--
       ``(1) In general.--A national bank that establishes or 
     maintains a financial subsidiary shall assure that--
       ``(A) the bank's procedures for identifying and managing 
     financial and operational risks within the bank and financial 
     subsidiaries of the bank adequately protect the bank from 
     such risks;
       ``(B) the bank has, for the protection of the bank, 
     reasonable policies and procedures to preserve the separate 
     corporate identity and limited liability of the bank and 
     subsidiaries of the bank; and
       ``(C) the bank complies with this section.
       ``(2) Prohibition on piercing the corporate veil.--
     Notwithstanding any other law (including any law relating to 
     insurance), no obligation of a financial subsidiary of a 
     national bank arising more than 270 days after the date of 
     enactment of the Financial Services Act of 1998 may be 
     charged against such bank by reason of any ruling, 
     determination, or judgment disregarding the separate 
     corporate identity or limited liability of the bank or the 
     financial subsidiary.
       ``(3) Maintenance of separate corporate identity and 
     separate legal status--
       ``(A) In general.--The Comptroller shall take steps, 
     including conducting the review required by subparagraph (B), 
     to assure that each national bank observes the separate 
     corporate identity and separate legal status of each of the 
     bank's financial subsidiaries.
       ``(B) Examinations.--The Comptroller, when examining a 
     national bank, shall review whether the bank is observing the 
     separate corporate identity and separate legal status of the 
     bank's financial subsidiaries.
       ``(d) National Banks Which Do Not Comply With Requirements 
     of This Section.--
       ``(1) In general.--If the Comptroller determines that a 
     national bank which controls a financial subsidiary, or a 
     depository institution affiliate of such national bank, does 
     not continue to meet the requirements of subsection (a), the 
     Comptroller shall give notice to the bank to that effect, 
     describing the conditions giving rise to the notice.
       ``(2) Agreement to correct conditions required.--
       ``(A) Content of agreement.--Within 45 days of the receipt 
     by a depository institution of a notice given under paragraph 
     (1) (or such additional period as the Comptroller may 
     permit), the depository institution failing to meet the 
     requirements of subsection (a) shall execute an agreement 
     with the appropriate Federal banking agency for such 
     institution to correct the conditions described in the 
     notice.
       ``(B) Comptroller may impose limitations.--Until the 
     conditions giving rise to the notice are corrected, the 
     Comptroller may impose such limitations on the conduct of the 
     business of the national bank or subsidiary of such bank as 
     the Comptroller determines to be appropriate under the 
     circumstances.
       ``(3) Failure to correct.--If the conditions described in 
     the notice are not corrected within 180 days after the bank 
     receives the notice, the Comptroller may require, under such 
     terms and conditions as may be imposed by the Comptroller and 
     subject to such extensions of time as may be granted in the 
     discretion of the Comptroller--
       ``(A) the national bank to divest control of each 
     subsidiary engaged in an activity that is not permissible for 
     the bank to engage in directly; or
       ``(B) each subsidiary of the national bank to cease any 
     activity that is not permissible for the bank to engage in 
     directly.
       ``(e) Functional Regulation.--
       ``(1) In general.--A financial subsidiary of a national 
     bank shall not be treated as a bank for purposes of any 
     definition of bank in the Federal securities laws.
       ``(2) Deference to sec.--The Comptroller shall defer to the 
     Securities and Exchange Commission with regard to all 
     interpretations of, and the enforcement of, applicable 
     Federal securities laws relating to the activities, conduct, 
     and operations of registered brokers, dealers, investment 
     advisers, and investment companies.
       ``(3) Deference to examinations.--In the case of a 
     financial subsidiary of a national bank which is a registered 
     broker or dealer or a registered investment adviser, the 
     Comptroller shall, to the fullest extent possible, address 
     the circumstances which might otherwise permit or require an 
     examination by the Comptroller by forgoing an examination and 
     instead reviewing the reports of examination made of such 
     subsidiary by or on behalf of the Securities and Exchange 
     Commission.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     one of title LXII of the Revised Statutes of the United 
     States is amended--
        (1) by redesignating the item relating to section 5136A as 
     section 5136C; and
        (2) by inserting after the item relating to section 5136 
     the following new item:

``5136A. Financial subsidiaries of national banks.''.

     SEC. 122. ACTIVITIES OF SUBSIDIARIES OF INSURED STATE BANKS.

       Section 24(d) of the Federal Deposit Insurance Act (12 
     U.S.C. 1831a(d)) is amended--
       (1) by adding at the end the following new paragraphs:
       ``(3) Conditions on certain activities.--
       ``(A) In general.--A subsidiary of a State bank may engage 
     in an activity in which a subsidiary of a national bank may 
     engage as principal pursuant to subsection (a)(1) of section 
     5136A of the Revised Statutes of the United States but only 
     if the State bank meets the same requirements which are 
     applicable to national banks under subparagraphs (B) and (C) 
     of such subsection and subsections (b) and (c) of such 
     section.
       ``(B) Application of section 5136a of revised statutes.--
     For purposes of applying section 5136A of the Revised 
     Statutes of the United States with regard to the activities 
     of a subsidiary of a State bank, all references in such 
     section to the Comptroller of the Currency, or regulations 
     and orders of the Comptroller, shall be deemed to be 
     references to the appropriate Federal banking agency with 
     respect to such State bank, and regulations and orders of 
     such agency.
       ``(4) State banks which fail to comply with paragraph (3) 
     conditions.--
       ``(A) In general.--If the appropriate Federal banking 
     agency determines that a State bank that controls a 
     subsidiary which is engaged as principal in financial 
     activities pursuant to paragraph (3) does not meet the 
     requirements of subparagraph (A) of such paragraph, the 
     appropriate Federal banking agency shall give notice to the 
     bank to that effect, describing the conditions giving rise to 
     the notice.
       ``(A) Agreement to correct conditions required.--
       ``(i) Content of agreement.--Within 45 days of the receipt 
     by a bank of a notice given under paragraph (1) (or such 
     additional period as the appropriate Federal banking agency 
     for such bank may permit), the bank failing to meet the 
     requirements of paragraph (3)(A) shall execute an agreement 
     with the appropriate Federal banking agency for such bank to 
     correct the conditions described in the notice.
       ``(B) Agency may impose limitations.--Until the conditions 
     giving rise to the notice are corrected, the appropriate 
     Federal banking agency for the State bank may impose such 
     limitations on the conduct of the business of the bank or a 
     subsidiary of the bank as the agency determines to be 
     appropriate under the circumstances.
       ``(C) Failure to correct.--If the conditions described in 
     the notice are not corrected within 180 days after the bank 
     receives the notice, the appropriate Federal banking agency 
     for the State may require, under such terms and conditions as 
     may be imposed by such agency and subject to such extensions 
     of time as may be granted in the discretion of the agency--
       ``(i) the bank to divest control of each subsidiary engaged 
     in an activity as principal that is not permissible for the 
     bank to engage in directly; or
       ``(ii) each subsidiary of the bank to cease any activity as 
     principal that is not permissible for the bank to engage in 
     directly.''.

     SEC. 123. RULES APPLICABLE TO FINANCIAL SUBSIDIARIES.

       (a) Transactions Between Financial Subsidiaries and Other 
     Affiliates.--Section 23A of the Federal Reserve Act (12 
     U.S.C. 371c) is amended--
       (1) by redesignating subsection (e) as subsection (f); and
       (2) by inserting after subsection (d), the following new 
     subsection:
       ``(e) Rules Relating to Banks With Financial 
     Subsidiaries.--
       ``(1) Financial subsidiary defined.--For purposes of this 
     section and section 23B, the term `financial subsidiary' 
     means a company which--
       ``(A) is a subsidiary of a bank (other than a corporation 
     organized under section 25A of the Federal Reserve Act or a 
     corporation operating under section 25 of such Act); and
       ``(B) is engaged in a financial activity (as defined in 
     section 5136A(a)(4)) that is not a permissible activity for a 
     national bank to engage in directly.
       ``(2) Application to transactions between a financial 
     subsidiary of a bank and the bank.--For purposes of applying 
     this section and section 23B to a transaction between a 
     financial subsidiary of a bank and the bank (or between such 
     financial subsidiary and any other subsidiary of the bank 
     which is not a financial subsidiary) and notwithstanding 
     subsection (b)(2) and section 23B(d)(1), the financial 
     subsidiary of the bank--
       ``(A) shall be an affiliate of the bank and any other 
     subsidiary of the bank which is not a financial subsidiary; 
     and
       ``(B) shall not be treated as a subsidiary of the bank.
       ``(3) Application to transactions between financial 
     subsidiary and nonbank affiliates.--
       ``(A) In general.--A transaction between a financial 
     subsidiary and an affiliate of the financial subsidiary shall 
     not be deemed to be a transaction between a subsidiary of a 
     national bank and an affiliate of the bank for purposes of 
     section 23A or section 23B of the Federal Reserve Act.
       ``(B) Certain affiliates excluded.--For purposes of 
     subparagraph (A) and notwithstanding paragraph (4), the term 
     `affiliate' shall not include a bank, or a subsidiary of a

[[Page H3197]]

     bank, which is engaged exclusively in activities permissible 
     for a national bank to engage in directly.
       ``(4) Equity investments excluded subject to the approval 
     of the banking agency.--Subsection (a)(1) shall not apply so 
     as to limit the equity investment of a bank in a financial 
     subsidiary of such bank, except that any investment that 
     exceeds the amount of a dividend that the bank could pay at 
     the time of the investment without obtaining prior approval 
     of the appropriate Federal banking agency and is in excess of 
     the limitation which would apply under subsection (a)(1), but 
     for this paragraph, may be made only with the approval of the 
     appropriate Federal banking agency (as defined in section 
     3(q) of the Federal Deposit Insurance Act) with respect to 
     such bank.''.
       (b) Treatment of Financial Subsidiaries Under Other 
     Provisions of Law.--
       (1) Bank Holding Company Act Amendments of 1970.--Section 
     106(a) of the Bank Holding Company Act Amendments of 1970 is 
     amended by adding at the end the following new sentence: 
     ``For purposes of this section, a financial subsidiary (as 
     defined in section 5136A(a)(5)(A) of the Revised Statutes of 
     the United States or referenced in the 20th undesignated 
     paragraph of section 9 of the Federal Reserve Act or section 
     24(d)(3)(A) of the Federal Deposit Insurance Act) shall be 
     deemed to be a subsidiary of a bank holding company, and not 
     a subsidiary of a bank.''; and
       (2) Federal Reserve Act.--The 20th undesignated paragraph 
     of section 9 of the Federal Reserve Act (12 U.S.C. 335) is 
     amended by adding at the end of the following new sentence: 
     ``To the extent permitted under State law, a State member 
     bank may acquire or establish and retain a financial 
     subsidiary (as defined in section 5136A(a)(3)(A) of the 
     Revised Statutes of the United States, except that all 
     references in that section to the Comptroller of the 
     Currency, the Comptroller, or regulations or orders of the 
     Comptroller shall be deemed to be references to the Board or 
     regulations or orders of the Board.''.

  Mr. BAKER (during the reading). Madam Chairman, I ask unanimous 
consent that the amendment, as modified, be considered as read and 
printed in the Record.
  The CHAIRMAN. Is there objection to the request of the gentleman from 
Louisiana?


                         Parliamentary Inquiry

  Mr. DINGELL. Point of parliamentary inquiry, Madam Chairman.
  Are we reading the amendment, or discussing the amendment which is 
authorized by the rule, or something different?
  The CHAIRMAN. The reading of the modification was just dispensed 
with.
  Is there objection to modifying the amendment offered by Mr. Baker?
  Mr. DINGELL. Reserving the right to object, Madam Chairman, we have 
not had a chance to review this or what it means. The Committee on 
Rules has spoken rather clearly on it, and with great respect and 
affection for the distinguished gentleman from Louisiana (Mr. Baker), I 
have to object. I do object.
  The CHAIRMAN. Objection is heard.
  The Chair recognizes the gentleman from Louisiana (Mr. Baker).
  Mr. BAKER. Madam Chairman, I yield myself such time as I may consume.
  Madam Chairman, I would like to respond just briefly to the intent to 
modify, so that the distinguished individual can understand our intent.
  Madam Chairman, under the provisions of the consolidated amendment, 
there is one small element of the insurance provisions----


                         Parliamentary Inquiry

  Mr. SOLOMON. Parliamentary inquiry, Madam Chairman. Are we under 
regular order? Is time being consumed on the 40 minutes now? Because 
that is regular order.
  The CHAIRMAN. That is correct.
  Mr. BAKER. Madam Chairman, I would like to respond to the gentleman's 
inquiry. Under the provisions of the insurance portions of the 
amendment, there was a technical reference to section 104 being cross-
referenced with section 308; stated in other words, consumer protection 
standards for the sales of insurance by banks.
  Given the fact that some in the insurance community had expressed 
concerns about the consequences of those provisions, I simply chose to 
remove that section from the consideration from the House, thinking 
that that would be moving in the gentleman's direction in the 
consideration of this amendment. I regret that he was unable to allow 
that modification to be considered.
  Madam Chairman, the amendment before us is substantive and quite 
broad-based. Simply stated, it is an amendment which addresses many of 
the community banks' concerns who, in the process of financial 
modernization, have felt, frankly, not only left out, but all too often 
stepped on.
  Just last month this House passed H.R. 1151, which gave credit unions 
the unfettered right to continue to provide services to their 
consumers. Unfortunately for most small banks in this country, they are 
feeling increased competitive pressures from the mergers and 
consolidations, increased regulatory oversight, and little ability to 
offer new products to their shrinking consumer base.
  Madam Chairman, reemphasizing the point, there is little in this 
bill, as it now stands, that is attractive to the community banker who 
is struggling to survive with high end regulatory costs.
  This amendment makes four simple changes. It exempts community banks 
under $100 million in asset size from compliance with CRA; it amends 
the insurance provisions to allow enhanced flexibility for the 
marketing of insurance products; it provides an operating subsidiary 
structure reported out by the Committee on Banking and Financial 
Services months ago, which does not allow for merchant banking, 
underwriting of insurance, or direct investment in real estate; it 
provides for a prohibition on the sale of unitary thrifts to commercial 
enterprises.
  Many of my colleagues on the other side of this issue are very much 
concerned about the merger of commerce and finance, and the giant 
corporations gobbling up small town banks. We now have in law what is 
known as a unitary thrift, a unique financial creature which combines 
the resources of commercial enterprises with financial resources.
  This amendment would prohibit the future sale of those enterprises to 
the Microsofts, the General Electrics, the General Motors. It is, in 
fact, a protection against the further breach of banking and commerce.
  This is an extraordinarily important amendment, and I would suggest 
that unless the amendment is adopted, it is highly unlikely that many 
of the hometown bankers now calling Members' offices and complaining 
about the consideration of this bill will find an ability to tolerate 
the provisions of H.R. 10, without the inclusion of this amendment.
  Madam Chairman, I reserve the balance of my time.
  Mr. BLILEY. Madam Chairman, I claim the time in opposition.
  The CHAIRMAN. The gentleman from Virginia (Mr. Bliley) is recognized 
for 20 minutes.


                         Parliamentary Inquiry

  Mr. LaFALCE. Parliamentary inquiry, Madam Chairman.
  The CHAIRMAN. The gentleman will state it.
  Mr. LaFALCE. Madam Chairman, should the time in opposition be given 
to a member of the same party in opposition, or to a member of the 
opposition party in opposition?
  The CHAIRMAN. The time in opposition has been given to the manager of 
the bill.
  Mr. BLILEY. Madam Chairman, I yield myself 1\1/2\ minutes.
  Madam Chairman, I will see that the gentleman from New York (Mr. 
LaFalce) gets time.
  Madam Chairman, this amendment is similar to the amendment offered by 
the gentleman from New York (Mr. LaFalce) and the gentleman from 
Minnesota (Mr. Vento) in that it expands the powers of operating 
subsidiaries. It undoes the insurance compromise we have crafted to end 
deference to the OCC. It also restricts other provisions.
  Like Alan Greenspan, like Americans for Tax Reform, like Ronald 
Reagan's Treasury, I am opposed to expanding the powers in operating 
subsidiaries.

                              {time}  1630

  The reason I am opposed is that these are not free; they increase 
risk to taxpayers. Americans for Tax Reform say that operating 
subsidiaries pose just that danger. I do not think it is worth the 
risk.
  H.R. 10 gives bank affiliates full securities, insurance and merchant 
banking powers. It does it in an affiliate structure that protects 
taxpayers. No one, other than the bureaucrats at the OCC, care about 
operating subsidiaries. Protecting taxpayers is more important than 
protecting them. I urge Members to oppose this amendment.

[[Page H3198]]

  Please note that even if this Baker amendment passes, the community 
banks will not support this bill.
  Madam Chairman, I reserve the balance of my time.
  Mr. BAKER. Madam Chairman, I yield 4 minutes to the gentleman from 
New York (Mr. Lazio).
  Mr. LAZIO of New York. Madam Chairman, I thank the gentleman for his 
hard work and for his effort to try and improve this bill, at least as 
it affects banks.
  Let me explain the operating subsidiary provisions in the amendment 
before the House. First, these provisions are similar to the operating 
subsidiary provisions adopted by the Committee on Banking and Financial 
Services.
  Second, the powers of a bank op-sub are limited to those powers 
granted to a bank holding company under the bill. Third, op-subs are 
not authorized to engage in insurance underwriting, merchant banking 
and real estate. In that sense, fourth, they push out the most risky 
business.
  Fifth, the safeguards of section 23A and 23B of the Federal Reserve 
Act apply. Section 23A limits how many transactions a bank can have 
within its op-sub. Section 23B says every one of those transactions 
must be conducted at arm's length. The Federal Reserve writes the rules 
for op-subs.
  Sixth, the bank must be well managed, well capitalized and meet 
community credit needs before it can have an operating subsidiary.
  Seventh and most importantly, any bank investment in the op-sub must 
be deducted from the bank's regulatory capital, so a bank can lose its 
entire stake in the subsidiary and it will be protected and remain well 
capitalized.
  These provisions further reinforce that securities activities will be 
regulated by the SEC, and it empowers State securities officials to 
regulate these activities.
  There are even more safety provisions. If the bank is not well 
capitalized or well managed, regulators have authority to impose 
additional terms and conditions. Failure to comply with these 
conditions may result in divestiture.
  Then FDIC Chairwoman Ricki Helfer submitted testimony to the House 
Committee on Banking and Financial Services on March 5, 1997. She said, 
``With appropriate safeguards, having earnings from new activities in 
bank subsidiaries lowers the probability of failure and thus provides 
greater protection for the insurance fund than having the earnings from 
new activities in bank holding company affiliates.'' This from one of 
our top regulators.
  Two experts, Gerard Lynch and Peter Strauss, state further in the 
October 1997 issue of the Columbia Law Review that banks should not be 
denied the use of operating subsidiaries. For years U.S. banks 
operating overseas have had separate op-subs with these powers. Banks 
in most G-10 countries have long, and successfully, engaged in these 
financial services in a subsidiary, including underwriting and 
brokering securities, which is what we are pushing now.
  A survey of bank failures in the United States over the last 20 years 
demonstrates that the cause of failures is typically due to 
deterioration in the quality of the traditional assets that they hold, 
not to involvement in nonbanking activities.
  These op-sub provisions were contained in the amendment that I filed 
with the Committee on Rules along with the gentleman from Louisiana 
(Mr. Baker), the gentleman from Delaware (Mr. Castle) and the gentleman 
from Iowa (Mr. Leach). They represent a reasonable, rational, safe and 
sound approach to expanding an op-sub's ability to engage in new powers 
and are reflective of our need and desire to modernize our financial 
services in this country.
  Mr. BLILEY. Madam Chairman, I ask unanimous consent to yield 10 
minutes to the gentleman from New York (Mr. LaFalce) and that he may be 
permitted to control the time, and that the balance of my time be under 
the control of the gentleman from Ohio (Mr. Gillmor).
  The CHAIRMAN. Is there objection to the request of the gentleman from 
Virginia?
  There was no objection.
  Mr. LaFALCE. Madam Chairman, I yield myself 1 minute. I thank the 
distinguished chairman of the Committee on Commerce for his generosity.
  I have tremendous respect for the gentleman from Louisiana (Mr. 
Baker). We attempted to work out an amendment together. I wish that we 
could have done it, because right now I think the Committee on Rules 
has divided us and maybe, by dividing us, hoped to conquer. If the 
gentleman could have joined with me, I think we would have done much 
better.
  The difficulty I have in joining with him is his provision that 
repeals the requirements of CRA for banks $100 million or less. That is 
a poison pill for Democrats. We simply cannot support it.
  So prescinding from the relative merits or demerits of the rest of 
his amendment, so long as it contains this provision, a repeal of CRA 
for banks with $100 million or less, we are constrained to oppose it.
  Madam Chairman, I reserve the balance of my time.
  Mr. BAKER. Madam Chairman, I yield 2 minutes to the gentleman from 
Alabama (Mr. Bachus), another distinguished member of Committee on 
Banking and Financial Services.
  Mr. BACHUS. Madam Chairman, I would like to say that the gentleman 
from New York said something that I agree with. That is, that we are 
mixing a lot of things in this amendment. And I wish that the Committee 
on Rules had given us an opportunity to address CRA reform in a 
separate amendment. I had offered an amendment to exempt the community 
banks of CRA up to $250 million, but this House is not going to get to 
address that.
  However, in this amendment, there is a provision which will exempt 
the small banks up to $100 million in assets from CRA. Let me tell my 
colleagues, this is not a revolutionary idea. In fact, the gentleman 
from Pennsylvania (Mr. Kanjorski), Democratic Member of this body, 
offered and the Subcommittee on Financial Institutions and Consumer 
Credit of the Committee on Banking and Financial Services passed a 
provision which exempted banks up to $150 million and rural banks up to 
$250 million in 1991. We continue to back-pedal on this issue.
  In the Senate, 12 Democratic Senators have endorsed the idea of a 
two-tier approach to CRA. Forty-one Democrats have joined in the House, 
saying that we need to have a two-tier approach. But first of all, we 
are not going to get to vote on that in a clear shot. I wish we all 
did.
  I wish that the Committee on Rules had seen in their wisdom to let us 
take a stand on this issue. All we will get to do today is vote on this 
provision, and one of the things it has in it that I strongly support 
is an exemption for banks up to $100 million in assets. And who are 
these banks? Seventy-five percent of them are in communities of 10,000 
people and less; 45 percent of them, the majority of their loans are 
agricultural loans to small farmers. These banks are simply being 
driven out of the market by the cost of compliance. It is open season 
on the small banks.
  H.R. 10 is going to continue to put them at a disadvantage and put 
them out of business, but at least this amendment gives them a little 
bit of relief, not as much as the Democratic House of Representatives 
in 1991 gave them, because we obviously love regulation today more than 
we did then, not as much as this entire House did when it passed the 
provisions a few years ago.
  We are back-pedalling, making the exemption smaller, giving less 
relief, but good gosh, can we not at least do this?
  Mr. GILLMOR. Madam Chairman, I yield 2 minutes to the distinguished 
gentlewoman from New Jersey (Mrs. Roukema).
  Mrs. ROUKEMA. Madam Chairman, I thank the gentleman for yielding time 
to me.
  I rise today in opposition to this amendment. I do so reluctantly 
because there are parts of this package that I really supported. For 
example, the insurance amendments, where I wanted amendments of my own 
on the insurance question. But they were not permitted in the rule. And 
also I think the small bank CRA exemption has merit.
  However, I want my colleagues to understand this, and it is 
interesting that it follows on the Vento-LaFalce operating subsidiary 
question that we just

[[Page H3199]]

voted on. Make no mistake about it, the core of this package, the 
essence of this amendment is the operating subsidiary provision. This 
is the core issue, none other.
  So I must repeat again what I said in the prior debate, that 
particularly in this time of megamergers, we have to be very concerned 
about how the operating subsidiary relates to the safety and soundness 
issue. As far as I am concerned, this actually just goes to the heart 
and violates the very heart of the bill we have before us.
  The reason I am for this mixture of modernization of financial 
institutions is because I am sure that we have a sound regulatory 
structure, but this amendment, if adopted with the operating 
subsidiary, will really violate the essence of the functional 
regulation and the bank holding company structure that we have in this 
bill. So I must again oppose the amendment, and again, I guess I have 
got to repeat, because there are an awful lot of us around who either 
were here or taxpayers at home, when we remember the savings and loan 
debacle and how that came about at the end of the 1980s, it built up 
through the 1980s, came there at the end of the 1980s, and we are still 
living with the cost to the taxpayer of that issue.
  I do not want to make, even have a potential opening for that kind of 
mistake again. I must reluctantly oppose this package because of the 
operating sub provision.
  Mr. BAKER. Madam Chairman, I yield 2 minutes to the gentleman from 
Utah (Mr. Cook).
  Mr. COOK. Madam Chairman, I rise today in support of the amendment 
offered by my good friend, the gentleman from Louisiana (Mr. Baker).
  Although the Baker amendment has several components, I would like to 
focus on one section that is particularly important to the health of 
small banks across our Nation. The Baker amendment would remove 
Community Reinvestment Act obligations from banks with less than $100 
million in assets.
  I respect very much the views of my friends on the other side of the 
aisle who believe the CRA is important for helping underserved 
communities, rural and urban alike, but CRA, as it was intended, does 
not work efficiently in practice, particularly with small banks. Let me 
take a moment to share a bit of anecdotal evidence.
  An acquaintance of mine recently received a CRA loan for a home 
purchase. The loan was well below the going interest rate with no 
points or origination fees. This person makes a good income, has no 
family to support and could easily handle an identical mortgage at 
standard rates, but this person makes just under the median income of 
57,000 in the area where he is from. The loan recipient told me that 
his experience is an example of how CRA has good intentions, but does 
not really work in practice.
  This person himself does not believe that he is the intended 
recipient of CRA assistance. The problem is not with the financial 
institution who granted this discounted loan; the problem is with the 
Federal law that forces banks to make such loans just in order to 
receive high CRA ratings.
  This is especially true with small, community-based financial 
institutions that probably have a personal relationship with their loan 
applicants. In reality, small institutions are deeply engaged with the 
communities they serve. If they were not, they would simply be out of 
business. CRA obligations are onerous burdens that tie the hands of 
small institutions, cause an increase in bank fees, and make car, home 
and business loans out of reach for many Americans.
  For these reasons, I urge my colleagues to support the Baker 
amendment.
  Mr. LaFALCE. Mr. Chairman, I yield 2 minutes to the gentleman from 
Massachusetts (Mr. Neal).
  Mr. NEAL of Massachusetts. Madam Chairman, sometimes in this Chamber 
we act as though we have a collective sense of amnesia.
  I want to stand in opposition to the Baker amendment today, an issue 
that the gentleman from Louisiana (Mr. Baker) and I engaged in some 
years ago, as well, and with great regard for the gentleman's 
abilities. But I would like to point out that oftentimes we forget what 
has occurred here.
  In 1991, I offered this amendment on the House floor that would call 
for the opportunity for lending institutions to do a better job of 
keeping track of the loans that they made to small business and to 
small farms. At that time, I had the support of Andy Ireland, who was 
the ranking member on the Committee on Small Business, but in the end 
we were able to come to an agreement that allowed the call report to be 
amended so that we could do a better job of tracking this information 
as it applied again to small business and to small farms.

                              {time}  1645

  Now, the FIDICIA act of 1991, in the midst of the magic words that 
some of us also might remember here, the credit crunch, where we had 
regulators arguing that there was no credit crunch, what the real 
argument was about was they were unable to secure the necessary data 
that accompanied that information so that we could have done a better 
job beyond anecdotal evidence, as highlighted by the previous speaker. 
We need to be in a position where we can secure this information so 
that we can act accordingly.
  Now, let me talk, if I can about that FIDICIA markup. At that time my 
amendment was included in the final package, and to this day we are 
able to go and retrieve that information in a timely manner. I offered 
that amendment at the time to collect evidence that small banks were 
not lending to small businesses. I was pleased at the time that the 
data was included, and I believe it encouraged banks to make loans to 
small businesses, which we oftentimes celebrate here as the engine of 
economic growth.
  Now, I know the economy today is not in the same state that it was in 
in 1991. The banks are reporting record profits. And I do not think 
anybody here would argue that there still exists a credit crunch. But 
who in this chamber knows how long that is going to last?
  We should reject the Baker amendment, stick with the CRA 
requirements, and retrieve this information in a timely manner so that 
we can make better decisions.
  Mr. BAKER. Madam Chairman, I yield 3 minutes to the gentleman from 
California (Mr. Dreier), a distinguished member of the Committee on 
Rules and former member of the Committee on Banking and Financial 
Services.
  Mr. DREIER. Madam Chairman, I thank my friend from Baton Rouge for 
yielding me this time, and I would like to begin by congratulating him 
for his excellent work as chairman of the Subcommittee on Capital 
Markets, Securities and Government Sponsored Enterprises of the 
Committee on Banking and Financial Services, where he has been the 
driving force for this whole issue of the three-way street 
affiliations, which are very important, so that we can continue our 
quest to meet the consumer demand.
  I rise in very strong support of his amendment for a number of 
reasons. I think one of the most important is, in fact, to counter the 
argument that was just provided by my friend, the gentleman from 
Springfield, Massachusetts (Mr. Neal). I believe the provisions that 
were initially put forward by our friend, the gentleman from Alabama 
(Mr. Bachus), are very important to deal with that tremendous 
regulatory burden which has been placed onto the shoulders of those 
small banks that are trying to deliver financial services to people in 
small communities.
  I think that we have a tremendous chance with this amendment to 
greatly improve what I think is a flawed measure. And so I think that 
as we look at the work that has been done by the gentleman from 
Louisiana (Mr. Baker) and others in this effort, that this amendment 
deserves our very, very serious consideration and support. And I urge 
my colleagues to join in doing just that.
  Mr. GILLMOR. Madam Chairman, I yield 2 minutes to the gentleman from 
New York (Mr. Solomon), chairman of the Committee on Rules.
  Mr. SOLOMON. Madam Chairman, I spoke from this side of the well 
earlier, almost on the same subject. I am going to switch and talk to 
my Republican colleagues in particular over here.
  What I asked earlier of my good friends on the Democratic side of the

[[Page H3200]]

aisle was did they remember what happened in the early 1980s. Do we 
remember? The gentleman from New York (Mr. LaFalce) and others were 
here back in 1980 when this Congress brought an innocuous bill to the 
floor which caused the S&L crisis.
  What we did at that time was that we raised the guaranty on simple 
deposits by our constituents from $25,000 up to $100,000. Then we said 
they could place $100,000 in 50 banks across the country, if they 
wanted to, and the Federal Government is going to guaranty every nickel 
of it.
  So what happened is, people like me, who had sold their businesses, 
had a little bit of money, we said, sure, we can invest in these new 
banks that are starting up, and let them go into the high risk knowing 
that we are going to get our money back if it fails. And lo and behold 
they did fail. They failed by the dozens all over this country. Not in 
my neck of the woods, up in the Adirondacks, in the Hudson Valley. They 
are prudent, cautious, conservative bankers, and none of them failed, 
but they failed in other places. And yet we, our investors, our 
depositors and our taxpayers, had to bail out these others.
  My colleagues, we have not seen anything yet. We let this legislation 
go down the drain, and if this amendment passes, regardless of its 
merits, and I have great respect for the sponsor, he is one of the most 
respected Members and the most knowledgeable Member in this House on 
these issues, but if we let this legislation fail, we are going to see 
4 or 5 years from now that we are going to be bailing out much larger, 
mega, mega bailouts than we have in the past, and it will be all our 
taxpayers that are doing it.
  That is why we need this legislation today. Defeat this amendment. 
Let us go to the Senate and then let us work as a team with the 
administration together to try to fashion a bill that will protect the 
consumers, protect the investors, the depositors and, above all else, 
protect the taxpayers. Please defeat the amendment.
  Mr. BAKER. May I inquire of the Chair how much time is remaining?
  The CHAIRMAN. The gentleman from Louisiana (Mr. Baker) has 7\1/2\ 
minutes remaining, the gentleman from Ohio (Mr. Gillmor) has 4\1/2\ 
minutes remaining, and the gentleman from New York (Mr. LaFalce) has 7 
minutes remaining.
  Mr. LaFALCE. Madam Chairman, I yield 2 minutes to the gentleman from 
Minnesota (Mr. Vento).
  Mr. VENTO. Madam Chair, I rise in opposition to the amendment. 
Fundamentally, I am concerned. This amendment, I think, is a grudging 
recognition of the importance of the operating subsidiary which has 
been turned down in the previous amendment.
  I will not reiterate the arguments for an operating subsidiary. This 
is a more limited operating subsidiary. It is set forth, in fact, with 
the permission of the Federal Reserve Board. So I guess the Fed already 
provides operating subsidiaries in U.S. banks that operate abroad, and 
this tries to give them some of the same powers. But the fact is that 
in giving powers to an operating subsidiary, we give it to them so that 
they can serve the communities. So this amendment gives with one hand 
but then it takes back with the other.
  If I remember correctly, about 80 percent of the banks would not be 
subject to CRA. And what is CRA, after all? It is a successful law that 
assures that financial institutions are actually participating in 
providing creditworthy activity within the communities that they serve. 
Where they are taking deposits, they make loans. Where they are taking 
deposits, they finance businesses and farms and make home loans.
  That is what Community Reinvestment Act has provided. It is workable. 
The new program that has been put together with the lead of the 
Comptroller of the Currency, incidentally, working with the Fed and 
working with the Federal Deposit Insurance Corporation, has, in fact, 
put a CRA program in place that emphasizes performance, not paperwork. 
It is working.
  There are many examples. I said jokingly before that not many will 
get up and say I love my bank, as my colleague did with regard to other 
financial institutions. But the fact is that many small and medium-
sized banks within my community in Minnesota are, in fact, performing 
tremendous service in the community, both as volunteers but, most 
importantly, fulfilling that important work.
  In fact, what we are finding with CRA is that a lot of loans are 
being made that before were not recognized as being creditworthy. CRA 
works and we ought to keep it in place.
  Mr. GILLMOR. Madam Chairman, I yield 2 minutes to the gentleman from 
Michigan (Mr. Dingell), the ranking member of the Committee on 
Commerce.
  (Mr. DINGELL asked and was given permission to revise and extend his 
remarks.)
  Mr. DINGELL. Madam Chairman, I would like to commend and compliment 
my colleagues. This has been one of the most constructive and, I 
believe, gentlemanly debates I have seen in my career in this Congress.
  And I particularly want to pay tribute to my friend from New York 
(Mr. LaFalce), and my colleagues on the other side, the gentleman from 
Virginia (Mr. Bliley) and the gentleman from Louisiana (Mr. Baker), and 
the other Members of the Congress who have participated.
  I would like to speak about the amendment, and I would like to point 
out several things. First of all, if my colleagues voted against the 
LaFalce amendment earlier, because it allowed for operating 
subsidiaries inside the banks to engage in nonbank activities, they 
should oppose this because this amendment does exactly the same thing.
  Now, a large number of my other colleagues voted for the LaFalce 
amendment because they said it kept intact the community reinvestment 
requirements that are in the CRA. That was a valid reason for my 
colleagues to vote that way, although I do not think that was 
controlling in that particular matter. I would observe, however, if 
that was the reason for my colleagues voting that way on that 
amendment, they should vote ``no'' on this amendment because this 
amendment removes the requirements of the CRA from community banks, 
small banks, it is said. But the number of the banks that are absolved 
of those responsibilities are 6,500. Sixty-five hundred banks no longer 
have to meet that requirement if this amendment is adopted.
  Now, this also violates the compromise which was achieved with the 
insurance agents and brokers. I would assume that if Members voted 
against the provisions of the LaFalce amendment, or if Members voted 
for it because they were concerned about CRA, they would vote against 
this amendment in the firm knowledge that they have every reason to so 
do.
  Now, there is one other point to be made. A lot of my colleagues are 
still troubled about the concerns of the banks, and very truthfully I 
am, too, because banks are important to this country and to the 
economy. But I would observe for my colleagues, clearly, that the banks 
have made it plain that the adoption of this or any other amendment is 
not going to make this bill acceptable to them.
  Mr. LaFALCE. Madam Chairman, how much time do I have remaining?
  The CHAIRMAN. The gentleman from New York (Mr. LaFalce) has 5 minutes 
remaining.
  Mr. LaFALCE. Madam Chairman, I yield 2 minutes to the gentleman from 
Massachusetts (Mr. Kennedy).
  Mr. KENNEDY of Massachusetts. Madam Chairman, I think that it is 
interesting that the way this bill is now being debated is whether or 
not we can use the excuse to merge and acquire more and more banks, 
more insurance companies, more securities firms to actually undercut 
and drop back the bar on our investments to the poorest communities in 
this country. That is what we have come to in the Congress of the 
United States.
  It seems if we are really serious about looking at the effects of 
CRA, let us take a look at the fact that since 1977 the regulators have 
indicated that over $400 billion have been invested in the poorer 
communities of this country. Not communities where banks lose money, 
but rather communities where banks have invested, the communities have 
grown and prospered, and we see home ownership rates rising among 
blacks and Hispanics and Asians, as well as poor whites.
  We see communities that have been neglected for years and years, 
despite the fact that they put deposits in banks. Banks sucked up those 
deposits

[[Page H3201]]

and then turned around and lent the money someplace else. All CRA says 
is put the money back into the communities from which the deposits are 
taken.
  Why would anybody try to undercut that basic fundamental premise? Why 
would we say that they should not do that? Why should we say that small 
banks have less of an obligation to do that than big banks, when if we 
look at the data, the fact of the matter is that small banks have worse 
records in terms of lending to minorities, lending to people of color, 
lending into the poorer communities than the bigger banks.
  Sixty-five percent of all the banks in the United States would be 
exempted by virtue of the amendment that we are currently debating. 
Sixty-five percent. We are going to turn around and say to 65 percent 
of the banks in the United States that they can go ahead and buy each 
other up, they can merge and acquire one another, they can go into the 
insurance industry, go into the securities industry, but, boy, they 
really do not have to go back to Main Street; they do not have to go 
back and lend money into the communities from which they take their 
deposits.
  It is a crime for us to be suggesting that we want to allow that kind 
of pullback on our commitment to the poorest people in this country as 
a provision in order to allow the bigger banks to get even bigger.
  Mr. LaFALCE. Madam Chairman, I yield 1\1/2\ minutes to the 
gentlewoman from California (Ms. Waters).
  Ms. WATERS. Madam Chairman, I rise to voice my strong opposition to 
the Baker amendment. If passed, the Baker amendment would exempt more 
than 60 percent of all banks from the requirements of the Community 
Reinvestment Act. This amendment is a frontal attack on the Community 
Reinvestment Act and has absolutely no place in this bill.
  The fact of the matter is the Baker amendment tries to solve a 
problem that does not exist. The new CRA regulations have already 
streamlined the exam process for small banks. Under the new rule, banks 
with assets of less than $250 million are no longer required to 
collect, report or disclose any data. Instead, examiners look at a 
small bank's loan-to-deposit ratio and distribution of loans across 
geography and income levels.

                              {time}  1700

  Even though the new rule went into effect in January of 1996, the 
effect is already being felt. According to the Office of the 
Comptroller of the Currency, over 80 percent of all banks covered by 
CRA qualify for the streamlined performance standards for small banks 
and thrifts. They also report that the actual time spent in community 
banks on CRA examinations have been reduced by 30 percent. To argue 
that small banks are still suffering under unfair burdens is absolutely 
preposterous.
  CRA works. The Community Reinvestment Act has been an extremely hard-
fought reform of our banking sector that has brought over $400 billion 
in resources to poor and minority communities. This has meant the 
availability of critically needed lending for community, small 
business, and housing developments.
  That is why the friend of my colleague got some money. He lives in a 
community that had not been getting the money, and now he has got it. 
It has nothing to do with affirmative action. So we have a successful 
law. It should not be dismantled. Vote against this amendment.
  The CHAIRMAN. The Committee will rise informally.
  The SPEAKER pro tempore (Mr. Nethercutt) assumed the Chair.

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