[Congressional Record Volume 153, Number 83 (Monday, May 21, 2007)]
[House]
[Pages H5477-H5483]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
INDUSTRIAL BANK HOLDING COMPANY ACT OF 2007
Mr. FRANK of Massachusetts. Mr. Speaker, I move to suspend the rules
and pass the bill (H.R. 698) to amend the Federal Deposit Insurance Act
to establish industrial bank holding company regulation, and for other
purposes, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 698
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Industrial Bank Holding
Company Act of 2007''.
SEC. 2. INDUSTRIAL BANK HOLDING COMPANY REGULATION.
(a) Definitions.--
(1) Industrial bank.--Section 3(a) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(a)) is amended by adding at the
end the following new paragraph:
``(4) Industrial bank.--The term `industrial bank' means
any insured State bank that is an industrial bank, industrial
loan company, or other institution that is excluded, pursuant
to section 2(c)(2)(H) of the Bank Holding Company Act of
1956, from the definition of the term `bank' for purposes of
such Act.''.
(2) Industrial bank holding company.--Section 3(w) of the
Federal Deposit Insurance Act (12 U.S.C. 1813(w)) is amended
by adding at the end the following new paragraphs:
``(8) Industrial bank holding company.--The term
`industrial bank holding company' means any company that--
``(A) controls (as determined by the Corporation pursuant
to section 2(a) of the Bank Holding Company Act of 1956),
directly or indirectly, any industrial bank; and
``(B) is not--
``(i) 1 or more of the following: a bank holding company, a
savings and loan holding company, a company that is subject
to the Bank Holding Company Act of 1956 pursuant to section
8(a) of the International Banking Act of 1978, or a holding
company regulated by the Securities and Exchange Commission
pursuant to section 240.15c3-1(a)(7) of title 17 of the Code
of Federal Regulations (as in effect on January 29, 2007); or
``(ii) controlled by a company described in clause (i).
``(9) Capital terms relating to industrial bank holding
companies.--
``(A) Adequately capitalized.--With respect to an
industrial bank holding company, the term `adequately
capitalized' means a level of capitalization which meets or
exceeds all applicable Federal regulatory capital standards.
``(B) Well capitalized.--With respect to an industrial bank
holding company, the term `well capitalized' means a level of
capitalization which meets or exceeds the required capital
levels for well capitalized industrial bank holding companies
established by the Corporation.''.
(3) Technical and conforming amendments to other
definitions.--
(A) Appropriate federal banking agency.--Section 3(q)(3) of
the Federal Deposit Insurance Act (12 U.S.C. 1813(q)(3)) is
amended--
(i) by striking ``or a foreign'' and inserting ``, any
foreign''; and
[[Page H5478]]
(ii) by inserting ``, and any industrial bank holding
company and any subsidiary of an industrial bank holding
company (other than a bank)'' after ``insured branch''.
(B) Depository institution holding company.--Section
3(w)(1) of the Federal Deposit Insurance Act (12 U.S.C.
1813(w)(1)) is amended--
(i) by striking ``or a savings'' and inserting ``, any
savings''; and
(ii) by inserting ``, and any industrial bank holding
company'' before the period at the end.
(b) Industrial Bank Holding Company Registration and
Ownership.--The Federal Deposit Insurance Act (12 U.S.C. 1811
et seq.) is amended by adding at the end the following new
section:
``SEC. 51. INDUSTRIAL BANK HOLDING COMPANY REGULATION.
``(a) Acquisition of Industrial Bank Shares or Assets.--
Section 3 of the Bank Holding Company Act of 1956 (other than
section 3(c)(3)(B) of that Act) shall apply to any company
that is or would become an industrial bank holding company in
the same manner as such section applies to a company that is
or would become a bank holding company, except that for
purposes of applying this subsection--
``(1) any reference to a `bank holding company' in such
section 3 shall be deemed to be a reference to an `industrial
bank holding company';
``(2) any reference to a `bank' in such section 3 shall be
deemed to be a reference to an `industrial bank';
``(3) any reference to the `Board' in such section 3 shall
be deemed to be a reference to the Corporation;
``(4) any reference to the `Bank Holding Company Act
Amendments of 1970' in such section 3 shall be deemed to be a
reference to the `Industrial Bank Holding Company Act of
2007';
``(5) any reference to a `home State' in such section 3
shall be deemed to be a reference to--
``(A) with respect to an industrial bank holding company,
the State in which the total deposits of all banking
subsidiaries of such company were the largest on the later
of--
``(i) January 28, 2007; or
``(ii) the date on which the company becomes an industrial
bank holding company under this section; and
``(B) with respect to an industrial bank, the home State of
the bank as determined under section 44(g);
``(6) any reference to a `host State' in such section 3
shall be deemed to be a reference to--
``(A) with respect to an industrial bank holding company, a
State, other than the home State of the company, in which the
company controls, or seeks to control, an industrial bank
subsidiary; and
``(B) with respect to an industrial bank, the host State of
the bank as determined under section 44(g);
``(7) any reference to an `out-of-State bank holding
company' in such section 3 shall be deemed to be a reference
to, with respect to any State, an industrial bank holding
company whose home State is another State; and
``(8) any reference to an `out-of-State bank' in such
section 3 shall be deemed to be a reference to, with respect
to any State, an industrial bank whose home State is another
State.
``(b) Application Process.--An application filed under
subsection (a) to acquire control of an industrial bank shall
be treated as an application for a deposit facility for
purposes of this Act and any other Federal law.
``(c) Registration.--
``(1) In general.--Each industrial bank holding company
shall register with the Corporation on forms prescribed by
the Corporation before the end of the 180-day period
beginning on the later of--
``(A) the date the company becomes an industrial bank
holding company; or
``(B) the date of the enactment of the Industrial Bank
Holding Company Act of 2007.
``(2) Information to be included.--Each registration
submitted under paragraph (1) shall include such information,
under oath, with respect to the financial condition,
ownership, operations, management, and intercompany
relationships of the industrial bank holding company and
subsidiaries of such holding company, and other factors
(including information described in subsection (d)(1)(C)), as
the Corporation may determine to be appropriate to carry out
the purposes of this section.
``(3) Extension of time for submitting complete
information.--Upon application by an industrial bank holding
company and subject to such requirements, factors, and
evidence as the Corporation may require, the Corporation may
extend the period described in paragraph (1) within which
such company shall register and file the requisite
information.
``(d) Reports and Examinations.--
``(1) Reports.--
``(A) Reports required.--Each industrial bank holding
company and each subsidiary of an industrial bank holding
company, other than an industrial bank, shall file with the
Corporation such reports as may be required by the
Corporation.
``(B) Form and manner.--Reports filed under subparagraph
(A) shall be made under oath and shall be in such form and
for such periods, as the Corporation may prescribe.
``(C) Information.--Each report filed under subparagraph
(A) shall contain such information as the Corporation may
require concerning--
``(i) the operations of the industrial bank holding company
and the holding company's subsidiaries;
``(ii) the financial condition of the industrial bank
holding company and such subsidiaries, together with
information on systems maintained within the holding company
or within any such subsidiary for monitoring and controlling
financial and operating risks, and transactions with insured
depository institution subsidiaries of the holding company;
``(iii) compliance by the industrial bank holding company
and the holding company's subsidiaries with all applicable
Federal and State law; and
``(iv) such other information as the Corporation may
require.
``(D) Acceptance of existing reports.--For purposes of this
paragraph, the Corporation may accept reports that an
industrial bank holding company or any subsidiary of such
company has provided or has been required to provide to any
other Federal or State supervisor or to any appropriate self-
regulatory organization.
``(2) Examinations.--
``(A) In general.--Each industrial bank holding company and
each subsidiary of each such holding company (other than an
industrial bank) shall be subject to such examinations by the
Corporation as the Corporation may prescribe for purposes of
this section.
``(B) Furnishing reports to other agencies.--Examination
and other reports made or received under this section may be
furnished by the Corporation to any other appropriate Federal
agency or any appropriate State bank supervisor or other
State financial supervisory agency.
``(C) Use of reports from other agencies.--The Corporation
may use, for the purposes of this subsection, reports of
examination made by any other appropriate Federal agency, any
appropriate State bank supervisor, or any other State
financial supervisory authority with respect to any
industrial bank holding company or subsidiary of any such
holding company, to the extent the Corporation may determine
such use to be feasible for such purposes.
``(3) Capital.--
``(A) In general.-- The Corporation may not, by regulation,
guideline, order, or otherwise, prescribe or impose any
capital or capital adequacy rules, guidelines, standards, or
requirements on any functionally regulated affiliate (as
defined in section 45) of any depository institution that is
controlled by an industrial bank holding company that--
``(i) is not a depository institution; and
``(ii) is--
``(I) in compliance with the applicable capital
requirements of the appropriate Federal supervisory agency of
the affiliate (including the Securities and Exchange
Commission or State insurance authority);
``(II) properly registered as an investment adviser under
the Investment Advisers Act of 1940, or with any State; or
``(III) is licensed as an insurance agent with the
appropriate State insurance authority.
``(B) Rule of construction.--Subparagraph (A) shall not be
construed as preventing the Corporation from imposing capital
or capital adequacy rules, guidelines, standards, or
requirements with respect to--
``(i) activities of a registered investment adviser other
than with respect to investment advisory activities or
activities incidental to investment advisory activities; or
``(ii) activities of a licensed insurance agent other than
insurance agency activities or activities incidental to
insurance agency activities.
``(e) Access to Information.--
``(1) Information provided by corporation.--Any
confidential supervisory information, including examination
or other reports, pertaining to an industrial bank furnished
by the Corporation to any other Federal agency or any
appropriate State supervisory agency shall remain
confidential unless the Corporation, in writing, otherwise
consents.
``(2) Deference to depository institution examinations.--
Any appropriate Federal supervisory agency of a holding
company of an industrial bank shall, to the fullest extent
possible, forego any examination of any depository
institution subsidiary of the holding company and use the
reports of examinations of the institution made by the
appropriate Federal banking agency and the appropriate State
bank supervisor in lieu of a direct examination.
``(3) Information to be provided to corporation.--
``(A) Request to agency.--Upon request by the Corporation,
an appropriate Federal supervisory agency may provide to the
Corporation information regarding the condition of an
industrial bank, any holding company that controls such
industrial bank, or any other affiliate of any such holding
company that is necessary to assess risk to the industrial
bank.
``(B) Availability from holding company directly.--
Notwithstanding section 45, section 115 of the Gramm-Leach-
Bliley Act, or any other provision of law (including any
regulation), if the information requested under subparagraph
(A) is not provided to the Corporation, and the information
is necessary to assess risk to the industrial bank, the
Corporation may require the holding company or affiliate
referred to in such subparagraph with respect to such bank to
provide such information to the Corporation.
``(4) Examinations by corporation.--
[[Page H5479]]
``(A) In general.--Subject to subparagraph (B) and
notwithstanding section 45, section 115 of the Gramm-Leach-
Bliley Act, or any other provision of law (including any
regulation), no law shall be construed as preventing the
Corporation from examining an affiliate of an industrial bank
pursuant to paragraph (2), (3), or (4) of section 10(b), as
may be necessary to disclose fully the relationship between
the industrial bank and the affiliate, and the effect of such
relationship on the industrial bank, if the Corporation finds
such examination necessary to determine the condition of an
industrial bank.
``(B) Functionally regulated affiliates.-- Before the
Corporation may examine any affiliate of an industrial bank
that is--
``(i) a broker, a dealer, an investment company, or an
investment advisor, or
``(ii) an entity that is subject to consolidated
supervision by the Securities and Exchange Commission, other
than a depository institution,
the Corporation shall request the Commission to provide the
information that the Corporation is seeking to obtain through
examination and may proceed with the examination only if the
requested information is not provided by the Commission in a
timely manner.
``(f) Limitation on Control.--
``(1) In general.--Except as provided in paragraph (3) or
(4), no industrial bank may be controlled, directly or
indirectly, by a commercial firm.
``(2) Commercial firm defined.--For purposes of this
section, the term `commercial firm' means any entity at least
15 percent of the annual gross revenues of which on a
consolidated basis, including all affiliates of the entity,
were derived from engaging, on an on-going basis, in
activities that are not financial in nature or incidental to
a financial activity during at least 3 of the prior 4
calendar quarters, as determined by the Corporation in
accordance with regulations which the Corporation shall
prescribe.
``(3) Pre-2003 exclusions.--
``(A) Grandfathered institutions.--Paragraph (1) shall not
apply with respect to any industrial bank--
``(i) which became an insured depository institution before
October 1, 2003, or pursuant to an application for deposit
insurance which was approved by the Corporation before such
date; and
``(ii) with respect to which there is no change in control,
directly or indirectly, of the bank after September 30, 2003,
that requires a registration under this section or an
application under section 7(j) or 18(c), section 3 of the
Bank Holding Company Act of 1956, or section 10 of the Home
Owners' Loan Act, except a direct or indirect change of
control in which--
``(I) immediately prior to such change in control neither
the ultimate acquiring holding company nor the ultimate
acquired holding company is a commercial firm;
``(II) immediately after such change of control the
resulting ultimate holding company is not a commercial firm;
and
``(III) the resulting ultimate holding company is subject
to consolidated supervision by the Office of Thrift
Supervision or a holding company regulated by the Securities
and Exchange Commission pursuant to section 240.15c3-1(a)(7)
of title 17 of the Code of Federal Regulations (as in effect
on January 29, 2007).
``(B) Corporate reorganizations permitted.--The acquisition
of direct or indirect control of the industrial bank referred
to in subparagraph (A)(ii) shall not be treated as a `change
in control' for purposes of such subparagraph if--
``(i) the company acquiring control is itself directly or
indirectly controlled by a company that was an affiliate of
such bank on the date referred to in such subparagraph, and
remains an affiliate at all times after such date; and
``(ii) the transaction through which the company acquired
control of the industrial bank constituted solely a corporate
reorganization of a company that controlled the industrial
bank on the date referred to in such subparagraph.
``(4) Pre-2007 exclusions.--
``(A) Grandfathered commercial firms.--Paragraph (1) shall
not apply to any commercial firm--
``(i) which became a holding company of an industrial bank
by virtue of acquiring control of an industrial bank on or
after October 1, 2003, and before January 29, 2007;
``(ii) which does not acquire control of any other
depository institution after January 28, 2007;
``(iii) with respect to which there is no change in
control, directly or indirectly, of any depository
institution subsidiary after January 28, 2007, that requires
a registration under this section or an application under
section 7(j) or 18(c), section 3 of the Bank Holding Company
Act of 1956, or section 10 of the Home Owners' Loan Act; and
``(iv) each industrial bank subsidiary of which remains in
compliance with the limitations contained in subparagraph
(B).
``(B) Activity and branching limitations.--An industrial
bank subsidiary of a commercial firm described in clauses
(i), (ii) and (iii) of subparagraph (A) is in compliance with
the requirements of this subparagraph for purposes of
subparagraph (A)(iv) so long as the industrial bank--
``(i) engages only in activities in which the industrial
bank was engaged on January 28, 2007; and
``(ii) does not acquire, establish, or operate any branch,
deposit production office, loan production office, automated
teller machine, or remote service unit in any State other
than the home State of the bank or any host State in which
such bank operated branches on January 28, 2007.
``(C) Corporate reorganizations permitted.--The acquisition
of direct or indirect control of a depository institution
subsidiary referred to in subparagraph (A)(iii) shall not be
treated as a `change in control' for purposes of such
subparagraph if--
``(i) the company acquiring control is itself directly or
indirectly controlled by a company that was an affiliate of
such subsidiary on the date referred to in such subparagraph,
and remains an affiliate at all times after such date; and
``(ii) the transaction through which the company acquired
control of the depository institution constituted solely a
corporate reorganization of a company that controlled the
depository institution on the date referred to in such
subparagraph.
``(g) Procedures and Timing for Termination of Activities
or Divestiture.--
``(1) Transition provision.--
``(A) In general.--Any company that fails to comply with
the provisions of subsection (f) shall divest its ownership
or control of each industrial bank subsidiary of the company
not later than the end of the 2-year period beginning on the
first date that the company ceased to comply with subsection
(f).
``(B) Extension of time period.--
``(i) In general.--Upon application by a holding company
that controls an industrial bank, the appropriate Federal
supervisory agency of such holding company may extend the 2-
year period referred to in subparagraph (A) with respect to
such company for not more than 1 year if, in such agency's
judgment, such an extension would not be detrimental to the
public interest.
``(ii) Factors.--In making any decision to grant an
extension under clause (i) to a holding company of an
industrial bank, the appropriate Federal supervisory agent of
such holding company shall consider whether--
``(I) the company has made a good faith effort to divest
such interests; and
``(II) such extension is necessary to avert substantial
loss to the company.
``(2) Conditions before divestiture.--During the 2-year
period referred to in paragraph (1)(A) with respect to any
company and any extension of such period, the appropriate
Federal supervisory agency may impose any conditions or
restrictions on the company or any subsidiary of the company
(other than a bank), including restricting or prohibiting
transactions between the company or subsidiary and any
depository institution subsidiary of the company, as are
appropriate under the circumstances.
``(3) Termination of activities or divestiture of nonbank
subsidiaries constituting serious risk.--
``(A) In general.--Notwithstanding any other provision of
this section, the appropriate Federal supervisory agency may,
whenever such agency has reasonable cause to believe that the
continuation by a holding company of an industrial bank of
any activity or of ownership or control of any nonbank
subsidiary of such holding company, other than a nonbank
subsidiary of a depository institution, constitutes a serious
risk to the financial safety, soundness, or stability of a
depository institution subsidiary of the holding company and
is inconsistent with sound banking principles or with the
purposes of this section, at the election of the holding
company--
``(i) order such holding company or any such nonbank
subsidiary, after due notice and opportunity for hearing, and
after considering the views of the appropriate Federal
banking agency and, if applicable, appropriate State bank
supervisor, to terminate such activities or to terminate
(within 120 days or such longer period as the appropriate
Federal supervisory agency may direct in unusual
circumstances) the ownership or control by such holding
company or nonbank subsidiary of any such depository
institution subsidiary either by sale or by distribution of
the shares of the depository institution subsidiary, in
accordance with subparagraph (B), to the shareholders of the
holding company of the industrial bank; or
``(ii) order the holding company of the industrial bank,
after due notice and opportunity for hearing, and after
consultation with the appropriate State bank supervisor for
the industrial bank, to terminate (within 120 days or such
longer period as the appropriate Federal supervisory agency
may direct) the ownership or control of any such industrial
bank by such company.
``(B) Pro rata distribution.--Any distribution to
shareholders referred to in clause (i) shall be pro rata with
respect to all of the shareholders of the distributing
company, and such company shall not make any charge to any
shareholder in connection with such distribution.
``(4) Foreign bank ownership.--
``(A) Industrial banks.--After January 28, 2007, no foreign
bank may acquire, directly or indirectly, control of an
industrial bank unless the Board of Governors of the Federal
Reserve System has determined by order, or in the case of a
foreign bank that is a savings and loan holding company the
Board of Governors of the Federal Reserve System and the
Director of Office of Thrift Supervision have jointly
determined by order, in connection with the change in control
or acquisition of the industrial bank and after consultation
with the Corporation, that the
[[Page H5480]]
foreign bank is subject to comprehensive supervision or
regulation on a consolidated basis by the appropriate
authorities in the bank's home country in accordance with the
standard in section 3(c)(3)(B) of the Bank Holding Company
Act of 1956.
``(B) Conforming amendment.--Notwithstanding any other
provision of law, after the date of enactment of the
Industrial Bank Holding Company Act of 2007, the Director of
the Office of Thrift Supervision shall not approve any
acquisition of a savings association under section 10(e)(2)
of the Home Owners' Loan Act by a foreign bank that is
subject to the Bank Holding Company Act of 1956 pursuant to
section 8(a) of the International Banking Act of 1978 and
that is not a bank holding company unless the Director of the
Office of Thrift Supervision and the Board of Governors of
the Federal Reserve System have jointly determined, by order,
in connection with the acquisition of the savings association
that the foreign bank is subject to comprehensive supervision
or regulation on a consolidated basis by the appropriate
authorities in the bank's home country in accordance with the
standard in section 3(c)(3)(B) of the Bank Holding Company
Act of 1956.
``(5) Holding company responsibility.--
``(A) Source of strength.--Notwithstanding section 45, a
holding company of an industrial bank--
``(i) shall serve as a source of financial and managerial
strength to the subsidiary banks of such holding company; and
``(ii) shall not conduct the operations of the holding
company in an unsafe or unsound manner.
``(B) Implementation.--The appropriate Federal supervisory
agency of the holding company of an industrial bank shall
implement the requirements under subparagraph (A).
``(h) Administrative Provisions.--
``(1) Agent for service of process.--The Corporation may
require any industrial bank holding company, or persons
connected with such holding company if it is not a
corporation, to execute and file a prescribed form of
irrevocable appointment of agent for service of process.
``(2) Release from registration.--The Corporation may at
any time, upon the Corporation's own motion or upon
application, release a registered industrial bank holding
company from any registration previously made by such
company, if the Corporation determines that such company no
longer controls any industrial bank.
``(i) Definitions.--For purposes of this section, the
following definitions shall apply:
``(1) Appropriate federal supervisory agency.--The term
`appropriate Federal supervisory agency' means, with respect
to a company that controls an industrial bank--
``(A) the Corporation, in the case of a company that is an
industrial bank holding company;
``(B) the Board of Governors of the Federal Reserve System,
in the case of a company that is a bank holding company or
that is subject to the Bank Holding Company Act of 1956
pursuant to section 8(a) of the International Banking Act of
1978;
``(C) the Office of Thrift Supervision, in the case of a
company that is a savings and loan holding company; and
``(D) the Securities and Exchange Commission, in the case
of a company that is regulated by the Commission pursuant to
section 240.15c3-1(a)(7) of title 17 of the Code of Federal
Regulations (as in effect on January 29, 2007).
``(2) Rule of construction.--Under the definition of the
term `appropriate Federal supervisory agency' in paragraph
(1), more than 1 agency may be an appropriate Federal
supervisory agency with respect to any given company that
controls an industrial bank.''.
(c) Enforcement.--
(1) Section 8(b) of the Federal Deposit Insurance Act (12
U.S.C. 1818(b)) is amended by adding at the end the following
new paragraph:
``(11) Industrial bank holding companies.--This subsection
and subsections (c) through (s) and subsection (u) of this
section shall apply to any industrial bank holding company,
and to any subsidiary (other than a bank) of an industrial
bank holding company in the same manner as such subsections
apply to State nonmember insured banks.''.
(2) Section 8(h)(2) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(h)(2)) is amended by striking ``(2) Any party
to'' and inserting ``(2) Any party aggrieved by an order of
any appropriate Federal supervisory agency under section 51
or any party to''.
(3) Section 8(i) of the Federal Deposit Insurance Act (12
U.S.C. 1818(i)) is amended by striking ``or 39'' each place
such term appears and inserting ``, 39, or 51''.
(d) Prompt Corrective Action.--Section 38(f)(2)(H) of the
Federal Deposit Insurance Act (12 U.S.C. 1831o(f)(2)(H)) is
amended by--
(1) by striking ``bank holding company.--Prohibiting any
bank'' and inserting ``holding company.--
``(i) Bank holding company.--Prohibiting any bank''; and
(2) by adding at the end the following new clause:
``(ii) Industrial bank holding company.--Prohibiting any
industrial bank holding company having control of the insured
depository institution from making any capital distribution
without the prior approval of the Corporation.''.
(e) Technical and Conforming Amendments.--
(1) Section 10(e)(2) of the Federal Deposit Insurance Act
(12 U.S.C. 1820(e)(2)) is amended by inserting ``or section
51'' after ``subsection (b)(4)''.
(2) Section 1101(6) of the Right to Financial Privacy Act
of 1978 (12 U.S.C. 3401(6)) is amended--
(A) in subparagraph (B), by striking ``and'' after the
semicolon;
(B) in subparagraph (C), by inserting ``and'' after the
semicolon; and
(C) by inserting after paragraph (C) the following new
paragraph:
``(D) any industrial bank holding company (as defined in
section 3(w)(8) of the Federal Deposit Insurance Act);''.
(3) Section 115 of the Gramm-Leach-Bliley Act (12 U.S.C.
1820a) is amended--
(A) in subsection (a), by striking ``or'' after ``bank
holding company'' and inserting ``, industrial bank holding
company, or'';
(B) in subsection (d)--
(i) by redesignating paragraphs (5), (6), and (7) as
paragraphs (6), (7), and (8), respectively; and
(ii) by inserting after paragraph (4) the following new
paragraph:
``(5) Industrial bank holding company.--The term
`industrial bank holding company' has the same meaning as in
section 3(w)(8) of the Federal Deposit Insurance Act.''.
(4) Section 304(g)(1) of the Home Mortgage Disclosure Act
of 1975 (12 U.S.C. 2803(g)(1)) is amended by inserting ``,
industrial bank holding company,'' after ``bank holding
company''.
SEC. 3. REGULATIONS.
The Corporation shall prescribe such regulations as the
Corporation determines to be appropriate to carry out the
amendments made by this Act.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Massachusetts (Mr. Frank) and the gentleman from Ohio (Mr. Gillmor)
each will control 20 minutes.
The Chair recognizes the gentleman from Massachusetts.
General Leave
Mr. FRANK of Massachusetts. Mr. Speaker, at the outset, I ask that
all Members have 5 legislative days to revise and extend their remarks
on this legislation and to include in the Record extraneous material
thereon.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Massachusetts?
There was no objection.
Mr. FRANK of Massachusetts. Mr. Speaker, the House today revisits the
subject of the industrial loan corporation.
Industrial loan corporations were created early in the last century
as a kind of a niche at a time when it was felt that banks did not
adequately serve working people, people of lower incomes.
When Congress dealt with the situation of banking reform in the
1980s, Congress decided to limit this form to six States, which now
have the right to issue industrial loan charters, and recognize that
the general business of banking was now being carried out in a way that
did not require these niche banks, which Congress did not want to at
that time wipe out banks that had been appropriately established under
existing law.
But it's clear that they were regarded as a somewhat nonconforming
use. There are people today who talk about what a good thing the
industrial loan corporations are. None of them, however, seem to me to
have shown the courage of their convictions, because those who believe
that the industrial loan corporation should continue to flourish and
grow, as will happen if we don't pass the bill, ought to be abolishing
that restriction that says only six States can issue those charters.
I cannot think of any other financial instrument of which we have
general approval where only six States are allowed to charter them.
People who genuinely believe in the ILCs are the ones who ought to be
pushing legislation. They do not. They implicitly accept the fact that
they are an exception to a general principle.
The particular general principle to which they are an exception is
the one which we have affirmed recently when we did the Gramm-Leach-
Bliley bill, namely that banking and commerce should be separate.
Now, let me be very clear. If an entity that is in the manufacturing
business or the retail business or any other business wants to get into
financing its purchases, or even wants to lend money to people, they
wouldn't be affected by this as long as they were willing to forgo
deposit insurance.
We are here because if you become an official bank, as ILCs can be to
this extent, you get various benefits from the Federal Government,
including deposit insurance. So this is not the Federal
[[Page H5481]]
Government intruding on purely private business decisions, it is the
Federal Government saying, look, we have set up the system of deposit
insurance. We have set up other things that apply to banks. We want to
restrict those services to entities which are only in the banking
business. We do not want people who have as their primary business a
manufacturer or wholesale or retail sales also dealing with banking. We
think that is an unwise mixture. We think that the decisions that are
made that we want to insure through the depository insurance system
ought to be made purely on the banking aspects of this and not because
the bank will make money on the side from where the purchase goes.
Now, people have asked, why this legislation now? The answer is that
for a variety of reasons, I am not fully aware of why, this situation
changed drastically in the last few years.
ILCs, as they exist today, are not a problem. No one is talking about
abolishing them. In the State of Utah, where they are most important,
and where there continues to be strong support for them, there is
opposition to them even in some of the other States that have the right
to charter them, the estimate we received from the Utah bank supervisor
was that 93 percent of the assets of ILCs meet the test that we would
apply here in this bill to everybody.
That test, by the way, is the one that we took out of Gramm-Leach-
Bliley; namely, that to be in the banking business, you have to be at
least 85 percent a financial institution, though we do recognize there
will be some incidentals. Ninety-three percent of the Utah ILCs meet
this.
The problem is over the last few years, a number of large
manufacturing and commercial entities have decided that they would like
to get into the ILC business. So people have said to us, why are you
upsetting the status quo? We are not. Here, to be honest, we are
preserving, we think, the status quo, which is the principle of the
separation of banking, commerce, a banking system which exists under
that rubric and a small niche for some banks which, for historical
reasons, were allowed not necessarily to follow this.
What's changing the status quo is the application from a number of
large entities, Wal-Mart, Home Depot, many others, to get into the ILC
business. We believe that does not really reflect what Congress
intended in the 1980s. It's not illegal under current law, but we think
that Congress did not anticipate then that large commercial and
manufacturing entities would seek substantially to broaden the ILC
approach.
There were people who disagreed with us that we should preserve the
distinction between banking and commerce. I asked them, where is that
bill?
Again, those who would support by not changing the law a broad
expansion of the ILCs are the ones who are seeking drastic change in
our banking laws. They are, in effect, saying, you know, this
distinction between banking and commerce you make is arbitrary, it has
been outdated, let's get rid of it.
Well, the way to get rid of that is for people to bring forward a
bill. I can promise them as chairman of the Financial Services
Committee, we will have a hearing, we will consider it. But let them
bring forward a bill, and let's do that as a conscious decision of the
Congress of the United States.
I will oppose it, I think most Members will, which is probably why
they don't want to bring it forward. But let's not do it in a kind of a
back-door way by the expansion of what had been intended to be a
residual niche kind of banking. This bill today would say that going
forward, it doesn't wipe out existing entities, but going forward, ILC
charters will only be granted to those that are at least 85 percent
financial.
I want to give my thanks to the Chair of the Federal Deposit
Insurance Commission, Chairman Bair. They have been put in a tough
situation, because the law theoretically allows them to create an
infinite number of new ILCs with no respect whatsoever for the banking
and commerce distinction. Once this House passed a bill on the subject,
although it did not pass the Senate, a phrase one often hears, the FDIC
at our request has imposed a moratorium on new ILC charters.
But the FDIC is a law-abiding organization. Chairwoman Bair has an
appropriate understanding of the role of the regulatory body in a
democratic system. She will not forever maintain a moratorium, nor
should she. What she did was, quite appropriately, give Congress the
chance to legislate. We are beginning that process today.
I hope that we will pass the bill, that it will go to the Senate and
they will pass something, and we will be able to work out legislation
which will essentially preserve the distinction between banking and
commerce. The necessity for us to act now is that if we do not act, the
status quo will be greatly transformed, and the distinction we have
long maintained in our law between banking and commerce, instead of
admitting a fairly small exception where six States can do it, and
where even in the State where it is most prominent only 7 percent of
the assets under this form are the exception, we will then see a
general erosion. Erosion may understate it; a general abolition of the
line between banking and commerce. We do not think that is appropriate,
and passing this bill is the way to stop it.
Mr. Speaker, I reserve the balance of my time.
Mr. GILLMOR. I want to thank Chairman Frank for all his leadership on
this issue, not just in this session, but in previous sessions, and
also thank Ranking Member Spencer Bachus for his consistent support of
the principles embodied in this legislation.
Chairman Frank and I have cosponsored meaningful reform of the ILC
charter option for a number of years now. We have gotten a bill, passed
the House twice, it died in the Senate. I think this year, though, the
third time may be the charm. I think we have substantially more support
for this legislation in the Senate than in the past.
While it's available in only a handful of States, the ILC charter is
the last loophole remaining for commercial firms wishing to engage in
full-service banking.
While a majority of current commercial owners of industrial banks
refrain from using all the banking powers available to them, the broad
ILC charter does allow for a complete mixing of banking and commerce,
which I and other objective observers, such as Alan Greenspan, Chairman
Ben Bernanke and others, consider to be financially unwise.
The trend in Congress over the past several decades has been one of
removing loopholes and exceptions in the bank law. We did it most
recently in 1987 and in 1999, and the trend is clear: If you want to
engage in full-service banking, you must become a bank or a thrift
holding company.
Chartering an ILC in Utah is really your only option to make an end
run around our bank laws, and the secret is out. ILC assets have grown
more than 3,500 percent over the past decade. Applications for new ILCs
look nothing like they did 80 years ago when this charter was created.
States such as California, Maryland and others have taken notice of
this alarming trend in ILC applications and have installed roadblocks
to an extension of the charter.
State action alone is insufficient, however. It's time that Congress
address this policy concern, using the time which was wisely given to
us by the FDIC-imposed moratorium. I also want to commend Chairman Bair
and the FDIC for listening to the concerns of Congress and imposing
that moratorium.
Should Congress fail to send H.R. 698 to the President, we will be
increasingly in danger of creating a parallel banking system to that
which we have now and which has served the country very well. Both
financial and commercial firms will look to this industrial bank option
as a way to escape the rules that apply to everybody else. The banking
system is well served by the different charter options available to
them, but the universe in which an industrial bank can operate is more
expansive than any other.
This is poor public policy. Simply saying that since no ILC has yet
taken full advantage, that Congress shouldn't act, is wrong.
We are currently in a time of banking stability. Up until recently
the FDIC had gone a record 952 days without a bank failure. But I don't
like to think about the type of hit that the deposit insurance fund
would have taken,
[[Page H5482]]
and the hit that taxpayers would have taken, if Enron had had an
industrial bank prior to their collapse.
{time} 1515
This bill is a combination of significant bipartisan effort
undertaken by myself and Chairman Frank to strike a balance between
protecting those ILCs already in existence and preventing any further
widening of this loophole by commercial firms.
The list of supporters for this reform measure is long and growing.
We have 145 cosponsors of this measure to date, and the other body has
already begun its deliberations of an identical bill.
So I want to sincerely thank Chairman Frank, Ranking Member Bachus,
and their staff for the hard work on this bill, and urge my colleagues
to support this bipartisan legislation.
Mr. Speaker, I reserve the balance of my time.
Mr. FRANK of Massachusetts. Mr. Speaker, I now yield as much time as
he may consume to the gentleman from Utah (Mr. Matheson), a former
member of our committee with whom many of us disagree but who,
representing the State of Utah, has been a very staunch and articulate
defender of a form of banking which is very important in his State.
Mr. MATHESON. I thank Chairman Frank for his good work. I have great
respect for Chairman Frank, and I have great respect for my colleague
Mr. Gillmor. On this particular issue, I respectfully have a different
point of view, but I do understand the time and effort that has gone
into looking at this issue.
I think it is important to note that when we look at legislation, we
often are trying to solve problems and achieve progress. That is what
Congress does, and my concern here is this is legislation that is a
solution in search of the problem.
We already have a number of banks that have been chartered with
commercial parents, and we have a track record of regulation of this
type of institution that is a stellar track record. Quite frankly, I
think the Federal Deposit Insurance Corporation, the FDIC, and the
State of Utah, which regulates these particular banks, has a great
track record. So I fear that we have moved down a path where we said,
``Oh, gee, these things could happen; therefore, let's stop this
industry from moving in the direction that it has been moving.''
I think it is important for us to show concern and make sure we don't
go down a path that could have negative implications, but in this case
where we have already had a number of banks chartered and a track
record that is so solid and none of these potential problems have
manifested themselves, I question whether Congress should be moving in
this direction.
As this debate has moved along, we have also said, well, what about
the auto companies? Maybe we should carve out an exemption for them.
What about the ones that already exist? Like Target already has one. We
need to cut out an exemption for them.
As you start to slice and dice this industry and allow certain
exemptions here and there, that calls into question the basic premise
of if there really is a problem to have commercial ownership of this
industry.
I will close with just one other point of fact. I noted in the
hearing before the Financial Services Committee a couple weeks ago a
comment by one of the witnesses was made that I have heard periodically
throughout this debate. They said: My gosh, what if Enron and WorldCom
had one of these? Where would we be then?
And my answer is: Based on the track record of this industry, I would
like to think that, while those parent companies had their financial
difficulties, the subsidiary bank would have been fine. We have
examples right now where the parent company, like Conseco, went into
bankruptcy, and their industrial loan company based in Utah was
shielded from all those financial problems and, quite frankly, sold at
a premium.
So that shows that the style of regulation, which is different, it is
a different style of regulation called ``bottom up'' or ``bank
centric'' regulation, it shows that type of regulation has worked, it
has protected against transgressions, and I think that track record is
something we need to keep in mind.
So as this issue percolates along, it is clear this bill is going to
pass the House today. I suspect the Senate may have a different type of
bill as well. And as this issue perks along, I just encourage everyone
to keep an open mind about looking at the actual track record,
understanding the magnitude of the potential problems, but also keeping
in mind that more choices for consumers, greater efficiency for our
economy, those are good things, too, and they ought to be balanced in
this overall debate.
Again, I really thank the chairman for giving me some time when I am
speaking out. Quite frankly, I am going to vote against the bill, but I
appreciate him giving me time to speak today.
Again, I respect all my colleagues that worked on this, and I look
forward to continuing to work with them on the adjusted loan bank issue
in the future.
Mr. GILLMOR. Mr. Speaker, let me commend the gentleman from Utah for
an articulate presentation. He is protecting the hometown industry, and
there is nothing wrong with that.
I think this bill, though, involves something much broader than that;
and it involves a very important financial principle that has been
recognized for decades, which is a separation of banking and commerce.
Really, the fact that some of these ILCs have not utilized all the
powers they could have isn't really an argument against this bill.
Because the business plan of some of the new industrial companies
trying to take over ILCs, Home Depot is a great example, is totally
different than what the history in the past has been. So that history I
don't think is really relevant to what this bill is aimed at.
But that having been said, I am very pleased to yield as much time as
he may consume to the ranking member, the gentleman from Alabama (Mr.
Bachus).
Mr. BACHUS. Mr. Speaker, I rise in support of this legislation. I
really believe that we do need enhanced regulatory supervisions over
the ILCs, and this legislation does that. The Federal Reserve and other
Federal regulators have urged us to enhance the regulation, and that is
what this does.
It also does two things; and every year that we wait to pass this, it
becomes a bigger problem. But we grandfather the existing ILCs. If we
had done this bill 2 or 3 years ago, we would have had much fewer of
these and we wouldn't have the problems that we have today, talking
about, well, this commercial firm has one, this commercial doesn't.
But it was through no fault of the chairman of the full committee.
Mr. Frank, when he was ranking member, pushed this very hard as a
solution to this problem, as did the subcommittee chairman, Mr.
Gillmor, and I want to commend both of them for their hard work over
the past several years.
I also want to particularly commend the chairman of the committee,
Mr. Frank. He has really made this a collaborative effort. It has been
a bipartisan effort; and I hope the bill, because of that, is a better
bill.
I think we are going to have a good vote here. I do think, because it
is a bipartisan effort and it is a compromise, that we will have,
hopefully, better success in not only passing this bill out of the
House but seeing it ultimately enacted into law.
These ILCs, and they are ILCs, industrial loan companies, now they
are industrial bank holding. This is the Industrial Bank Holding
Company Act, because they really have evolved into bank holding
companies; and what these started out primarily as is just a small loan
company where industrial employees were able to borrow money. It is
very similar to a credit union. The only difference is they didn't join
as members. They just borrowed money, because they really didn't have
access to a commercial bank at that time, and that was the whole reason
for these.
As the chairman said and as the subcommittee Chair said, all of these
exist in six States. The vast majority of the assets of ILCs are
chartered in Utah; California and Nevada being the other States that
have significant numbers of them.
As the subcommittee Chair has said, these things have grown 3,500
percent just since we started focusing on this.
[[Page H5483]]
It is really growing out of control. And what it does, we made a policy
decision several years ago in this Congress that we would not allow
commercial firms to operate banks, and this will really enforce that
policy decision that we made.
As they have grown in size and nature and complexity, several not
only regulatory but policy issues have been presented, not only to the
Congress, but to the regulators. One of the concerns, as the
subcommittee Chair and the chairman have both referred to, is a concern
over mixing banking and commerce, which is really not what the American
financial system is all about. Japan and other systems have allowed a
mixing of commerce and banking, and we are evolving, but they have run
into problems. We would like to avoid those problems.
An exemption in the current law permits any type of company,
including a commercial firm, to acquire an ILC in six States. We want
to close that loophole. We want to stop that.
Let me conclude by saying I do have one concern, and I am going to
have a colloquy with the chairman in a moment. But I am concerned that
this bill, and it is not intended and I know the chairman has said
previously we hope to address this in the Senate or in conference, but
I am concerned that it may discriminate against our domestic automobile
manufacturing dealers.
The reason I say that is most automobile companies today, including
the large foreign automobile manufacturers, have set up ILCs. General
Motors has set up an ILC. But Chrysler and Ford do not have ILCs. And,
as drafted today, the bill would allow the foreign automobile
manufacturers as well as GM, and I am going to clarify that in the
colloquy, to continue their ILCs. However, Ford and Chrysler, or
DaimlerChrysler, which may end up to be Chrysler, does not have an ILC.
I am concerned not only that that is a disadvantage to the automobile
companies but to the Nation's dealers that sell Ford and Chrysler
products. People are going into this every day, they are thinking ILCs
give them a competitive advantage, and I don't want to see Chrysler and
Ford shut out of having an opportunity to have this advantage.
As the process moves forward, I would like to work with both the
chairman and the ranking member to ensure the legislation does not
create an unlevel playing field that harms our domestic automobile
industry.
At this time, I would like to pose a question to the chairman.
Under the committee reported bill, Chairman Frank, a number of firms
that already controlled industrial banks before January 29, 2007, are
grandfathered from the new prohibition on control of industrial banks
by commercial firms. The grandfathered firms that control a particular
industrial bank are subject to a disposition agreement with the FDIC
that is affected by the outcome of this legislation. Under the
agreement, the FDIC has the power to waive the disposition requirement,
depending on the state of the law, in 2008.
My question is whether it is the committee's intention that the
decision to grandfather these firms supercedes this particular prior
agreement and makes a waiver unnecessary, provided the grandfathered
firms abide by all of the limitations imposed on grandfathered firms
and operate under the supervision of the appropriate Federal
supervisory agency.
Mr. FRANK of Massachusetts. If the gentleman would yield to me, let
me say, and I want to pay tribute to members of the staffs on both
sides, Mr. Paese and Mr. Yi on my side here, who did a lot of
negotiating. There are a lot of regulators involved here, the FDIC as
the primary regulator, but the Federal Reserve and the Securities and
Exchange Commission, the Comptroller, and we did the best we could to
try and not have this be a means of changing existing relationships.
So I can assure the gentleman from Alabama that he has precisely
stated our intent. When we grandfathered these firms in this bill, it
was our purpose and is our purpose to let them continue to operate the
existing industrial banks under the limitations of the bill and under
the supervision of each grandfathered firm's appropriate supervisory
agency.
So I hope that would respond to the question. It is our intention
essentially to ratify the existing arrangements by law, which would, of
course, preclude the need for a waiver if the law is clear about what
it does.
Mr. BACHUS. Chairman, your response does indeed clarify the
situation, and I thank you for doing that. And I again thank you and
the gentleman from Ohio (Mr. Gillmor) for their work on this important
bill.
I would also like to join with you. You have both praised Chairman
Bair, and I think she has done an exceptional job of trying to sort
through this difficult situation. And I would also like to commend the
OTS and the Federal Reserve for working a compromise on some of the
supervisory questions that were presented by this bill. Late last week,
they came to an agreement between themselves.
Mr. FRANK of Massachusetts. If the gentleman would yield. With some
encouragement.
Mr. BACHUS. Yes, and I appreciate that encouragement; and I know they
do, too.
At this time, I again commend the chairman. I think this is a very
good bill that deserves the support of all the membership.
Mr. GILLMOR. Mr. Speaker, I yield back the balance of my time.
Mr. FRANK of Massachusetts. I just want to respond to my good friend
from Utah. He made an interesting point which is, well, if these are
terrible, why don't you abolish them? That, of course, becomes a Catch-
22. I guarantee you that if we had proposed in fact to abolish or
severely restrict existing ones, he would have been justifiably a lot
less happy than he is today.
{time} 1530
Congress made a decision. We don't always make the best decisions
when we look back; we often make good decisions, but not perfect ones.
We believe it would be unfair to undo what was originally done by law.
I would note again that even in the State of Utah, which has become
the primary focal point for the industrial loan corporations, 93
percent of the entities functioning as industrial loan corporations in
Utah would be unaffected by this bill. They would be able to expand
because they meet the 85 percent financial test.
As to the others, we believe that it is those who have finally
figured out the potential of the industrial loan corporation going
forward who are trying to change things. People have said to us, well,
there's been no problem. Why are you doing this? Well, for once, maybe
not once, let's not be too self-denigratory, we're doing this to get
ahead of the problem. Yes, that's precisely the case. The ILCs have not
caused problems. It is the, I believe, overwhelming view of people here
and people who have watched the banking business and who believe in the
separation of banking and commerce that if we don't act, we will see
some problems. So that is what we are doing here. And I hope that this
bill passes with a large margin, and we can pretty soon engage with our
colleagues in the Senate about putting a final product on the desk of
the President.
Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from Massachusetts (Mr. Frank) that the House suspend the
rules and pass the bill, H.R. 698, as amended.
The question was taken.
The SPEAKER pro tempore. In the opinion of the Chair, two-thirds
being in the affirmative, the ayes have it.
Mr. FRANK of Massachusetts. Mr. Speaker, on that I demand the yeas
and nays.
The yeas and nays were ordered.
The SPEAKER pro tempore. Pursuant to clause 8 of rule XX and the
Chair's prior announcement, further proceedings on this question will
be postponed.
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