[House Report 104-127]
[From the U.S. Government Publishing Office]



104th Congress                                            Rept. 104-127
                        HOUSE OF REPRESENTATIVES

 1st Session                                                     Part 3
_______________________________________________________________________


 
             FINANCIAL SERVICES COMPETITIVENESS ACT OF 1995

                                _______


 June 22, 1995.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________


  Mr. Bliley, from the Committee on Commerce, submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 1062]

      [Including cost estimate of the Congressional Budget Office]
    The Committee on Commerce, to whom was referred the bill 
(H.R. 1062) 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, having considered the same, report an 
amendment, but without recommendation on the bill as amended.
                                CONTENTS

                                                                   Page
The amendment....................................................     2
Purpose and summary..............................................    54
Background and need..............................................    55
Hearings.........................................................    59
Committee consideration..........................................    60
Roll call votes..................................................    60
Committee oversight findings.....................................    60
Committee on Government Reform and Oversight findings............    61
New budget authority and tax expenditures........................    61
Congressional Budget Office estimates............................    61
Advisory Committee statement.....................................    63
Congressional Accountability Act.................................    64
Inflationary impact statement....................................    64
Section-by-section analysis and discussion.......................    64
Changes in existing law made by the bill, as reported............   110
Minority views...................................................   229
    The amendment is as follows:
    Strike out all after the enacting clause and insert in lieu 
thereof the following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Financial Services 
Competitiveness Act of 1995''.
  (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.

 TITLE I--BANK SECURITIES ACTIVITIES AND AFFILIATIONS WITH SECURITIES 
                  FIRMS AND OTHER FINANCIAL COMPANIES

                   Subtitle A--Securities Activities

Sec. 101. Anti-affiliation provision of the Banking Act of 1933 
repealed.
Sec. 102. Financial services holding companies authorized to have 
securities affiliates.
Sec. 103. Establishment and operations of securities affiliates.
Sec. 104. Safeguards relating to securities affiliates.
Sec. 105. Ownership of shares of certain companies by financial 
services holding companies.
Sec. 106. Provisions applicable to limited purpose banks.
Sec. 107. Securities company affiliations of FDIC--insured banks.
Sec. 108. Authority to terminate grandfather rights under the 
International Banking Act of 1978.
Sec. 109. Effect on State laws prohibiting the affiliation of banks and 
securities companies.
Sec. 110. Municipal securities.
Sec. 111. Interagency agreement relating to retail sales of certain 
nondeposit investment products.
Sec. 112. Effective date.

             Subtitle B--Investment Bank Holding Companies

Sec. 116. Investment bank holding companies.
Sec. 117. Wholesale financial institutions.

                    Subtitle C--Financial Activities

Sec. 121. Financial activities.
Sec. 122. No prior approval required for well capitalized and well 
managed financial services holding companies.
Sec. 123. Streamlined examination and reporting requirements for all 
financial services holding companies.
Sec. 124. Holding company supervision for financial services holding 
companies engaged primarily in nonbanking activities.
Sec. 125. Conversion of unitary savings and loan holding companies to 
financial services holding companies.
Sec. 126. Financial services advisory committee.
Sec. 127. Coordination with State law.
Sec. 128. Conforming amendments to the Bank Holding Company Act of 
1956.
Sec. 129. Conforming amendments to the Bank Holding Company Act 
Amendments of 1970.
Sec. 130. Credit cards for business purposes.

    Subtitle D--Interagency Banking and Financial Services Advisory 
                               Committee

Sec. 141. Interagency banking and financial services advisory 
committee.

                    TITLE II--FUNCTIONAL REGULATION

                    Subtitle A--Brokers and Dealers

Sec. 201. Definition of broker.
Sec. 202. Definition of dealer.
Sec. 203. Power to exempt from the definitions of broker and dealer.
Sec. 204. Margin requirements.
Sec. 205. Effective date.

             Subtitle B--Bank Investment Company Activities

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

                   Subtitle A--Securities Activities

SEC. 101. ANTI-AFFILIATION PROVISION OF THE BANKING ACT OF 1933 
                    REPEALED.

  (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) Conforming Amendment to Section 32.--Section 32 (12 U.S.C. 78) of 
the Banking Act of 1933 is amended by adding at the end the following 
sentence: ``This section shall not apply so as to prohibit an officer, 
director, or employee of a securities affiliate (as defined in section 
2 of the Financial Services Company Act of 1995) from serving at the 
same time as an officer, director, or employee of a member bank 
affiliated with that securities affiliate pursuant to section 10 of 
such Act. This section shall not apply so as to prohibit an officer, 
director, or employee of an investment company registered under the 
Investment Company Act of 1940 or an investment adviser registered 
under the Investment Advisers Act of 1940 from serving at the same time 
as an officer, director, or employee of a member bank.''.
SEC. 102. FINANCIAL SERVICES HOLDING COMPANIES AUTHORIZED TO HAVE 
                    SECURITIES AFFILIATES.

  Section 4(c) of the Bank Holding Company Act of 1956 (12 U.S.C. 
1843(c)) is amended--
          (1) by striking ``or'' at the end of paragraph (13);
          (2) by striking the period at the end of paragraph (14) and 
        inserting ``; or''; and
          (3) by adding after paragraph (14) the following new 
        paragraph:
          ``(15) shares of a securities affiliate in accordance with 
        section 10.''.

SEC. 103. ESTABLISHMENT AND OPERATIONS OF SECURITIES AFFILIATES.

  (a) In General.--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. SECURITIES ACTIVITIES.

  ``(a) Activities Permissible for Securities Affiliates.--
          ``(1) In general.--A securities affiliate may engage in 1 or 
        more of the following activities:
                  ``(A) Underwrite, deal in, broker, place, or 
                distribute securities of any type, provide investment 
                advice regarding securities of any type, and engage in 
                other securities activities as determined by the Board.
                  ``(B) Sponsor, organize, control, manage, and act as 
                investment adviser to an investment company.
                  ``(C) Engage in, or acquire the shares of a company 
                engaged in, any activity if--
                          ``(i) a provision of section 4(c) permits 
                        financial services holding companies generally 
                        to engage in that activity or acquire those 
                        shares; and
                          ``(ii) either--
                                  ``(I) the Board permits the financial 
                                services holding company to engage in 
                                that activity or acquire those shares 
                                through the securities affiliate; or
                                  ``(II) a provision of section 4(c) 
                                permits the financial services holding 
                                company to engage in such activity or 
                                acquire such shares without the Board's 
                                approval.
          ``(2) Factor to be considered.--In making determinations 
        pursuant to this section, the Board shall take into account the 
        need for securities firms affiliated with banks to be 
        innovative and competitive.
  ``(b) Acquiring Interest in Securities Affiliate.--
          ``(1) Notice required.--A financial services holding company 
        shall not, without complying with and receiving approval 
        pursuant to the notice procedure in section 4(j)(1), directly 
        or indirectly acquire or retain more than 5 percent of the 
        voting shares of, or all or substantially all of the assets of, 
        a securities affiliate (or a company that would be a securities 
        affiliate if the Board permitted the financial services holding 
        company to acquire that company).
          ``(2) Criteria for approval.--The Board shall disapprove a 
        notice required under paragraph (1) unless the Board determines 
        that the requirements of the following subparagraphs have been 
        met:
                  ``(A) Capital.--
                          ``(i) Depository institutions.--
                                  ``(I) The lead depository institution 
                                of the financial services holding 
                                company is well capitalized.
                                  ``(II) Well capitalized depository 
                                institutions control at least 80 
                                percent of the aggregate total risk-
                                weighted assets of depository 
                                institutions controlled by the 
                                financial services holding company.
                                  ``(III) All depository institutions 
                                controlled by the financial services 
                                holding company are well capitalized or 
                                adequately capitalized.
                          ``(ii) Recently acquired depository 
                        institutions.--Depository institutions acquired 
                        by a financial services holding company during 
                        the 12-month period preceding the submission of 
                        a notice under paragraph (1) may be excluded 
                        for purposes of clause (i)(II) if--
                                  ``(I) the financial services holding 
                                company has submitted a plan to the 
                                appropriate Federal banking agency to 
                                restore the capital of the institution 
                                and the plan has been accepted by such 
                                agency; and
                                  ``(II) all such institutions that are 
                                excluded for the purposes of clause 
                                (i)(II) represent, in the aggregate, 
                                less than 25 percent of the aggregate 
                                total risk-weighted assets of all 
                                depository institutions controlled by 
                                the financial services holding company.
                          ``(iii) Financial services holding company.--
                        The financial services holding company is (and 
                        immediately after the acquisition of a 
                        securities affiliate would continue to be) 
                        adequately capitalized under the capital 
                        standards applicable, if any, to such financial 
                        services holding company.
                          ``(iv) Foreign banks and companies.--For 
                        purposes of applying this subsection and other 
                        provisions of this section, the Board shall 
                        establish and apply comparable capital 
                        standards for the acquisition, retention, and 
                        operation of a securities affiliate in the 
                        United States by 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 a foreign bank, giving due regard to the 
                        principle of national treatment and equality of 
                        competitive opportunity.
                  ``(B) Alternative capital treatment for well 
                capitalized financial services holding companies.--
                          ``(i) In general.--A financial services 
                        holding company and the depository institution 
                        subsidiaries of such company shall be deemed to 
                        have met the capital requirements set forth in 
                        subparagraph (A) if--
                                  ``(I) the holding company files a 
                                written notice with the Board of such 
                                company's election to meet such capital 
                                requirements in the manner provided in 
                                this subparagraph;
                                  ``(II) all depository institutions 
                                controlled by the financial services 
                                holding company are at least adequately 
                                capitalized; and
                                  ``(III) the financial services 
                                holding company is (and immediately 
                                after the acquisition of a securities 
                                affiliate would continue to be) well 
                                capitalized.
                          ``(ii) Losses incurred by fdic.--A financial 
                        services holding company which makes an 
                        election under clause (i) in connection with 
                        the acquisition of control of any securities 
                        affiliate shall be liable for any loss incurred 
                        by the Federal Deposit Insurance Corporation, 
                        or any loss which the Federal Deposit Insurance 
                        Corporation reasonably anticipates incurring in 
                        connection with--
                                  ``(I) the default of any insured 
                                depository institution controlled by 
                                the financial services holding company; 
                                or
                                  ``(II) any assistance provided by the 
                                Corporation to any insured depository 
                                institution in danger of default that 
                                is controlled by the financial services 
                                holding company.
                  ``(C) Managerial resources.--
                          ``(i) In general.--The financial services 
                        holding company and each depository institution 
                        subsidiary of such company--
                                  ``(I) are well managed; and
                                  ``(II) were well managed during the 
                                12-month period preceding the 
                                acquisition of a securities affiliate 
                                (but for purposes of this subparagraph 
                                the Board may disregard any depository 
                                institution acquired by the financial 
                                services holding company during that 
                                period).
                          ``(ii) Securities activities.--The financial 
                        services holding company has the managerial 
                        resources to conduct the proposed securities 
                        activities safely and soundly.
                  ``(D) Internal controls.--The financial services 
                holding company has established adequate policies and 
                procedures to manage financial and operational risks, 
                to provide reasonable assurance of compliance with this 
                section and other applicable laws, and to provide 
                reasonable assurance of maintenance of corporate 
                separateness within the financial services holding 
                company.
                  ``(E) No detrimental effect on financial services 
                holding company or its subsidiary depository 
                institutions.--The acquisition of a securities 
                affiliate would not adversely affect the safety and 
                soundness of--
                          ``(i) the financial services holding company; 
                        or
                          ``(ii) any depository institution subsidiary 
                        of the financial services holding company.
                  ``(F) Concentration of resources.--The acquisition of 
                a securities affiliate would not result in an undue 
                concentration of resources in the financial services 
                business.
                  ``(G) Responsiveness to community needs.--The lead 
                insured depository institution subsidiary of the 
                financial services holding company and insured 
                depository institutions controlling at least 80 percent 
                of the aggregate total risk-weighted assets of insured 
                depository institutions controlled by the financial 
                services holding company have achieved a `satisfactory 
                record of meeting community credit needs', or better, 
                during the most recent examination of such insured 
                depository institutions.
          ``(3) Limited notice procedures for proposals by well 
        capitalized and well managed companies to acquire additional 
        securities affiliates.--A financial services holding company 
        may, without providing the notice required under paragraph (1), 
        directly or indirectly acquire the shares or substantially all 
        of the assets of any company that is engaged in activities 
        described in subparagraph (A) or (B) of subsection (a)(1), if--
                  ``(A) the financial services holding company 
                previously received the Board's approval under 
                paragraph (1) to control a securities affiliate and 
                continues to control the securities affiliate pursuant 
                to that approval;
                  ``(B) the acquisition proposal qualifies under 
                section 4(j)(4);
                  ``(C) the financial services holding company provides 
                the written notification required in section 4(j)(5); 
                and
                  ``(D) the acquisition would not result in an undue 
                concentration of resources in the financial services 
                business.
  ``(c) Additional Investment in Securities Affiliate.--
          ``(1) Prior notice required.--A financial services holding 
        company that has acquired control of a securities affiliate 
        under this section shall not, directly or indirectly, make any 
        additional investment in the securities affiliate that is 
        considered capital for purposes of any capital requirement 
        imposed on the securities affiliate under the Securities 
        Exchange Act of 1934 (other than an extension of credit under a 
        revolving credit agreement approved by the Board), unless the 
        financial services holding company gives the Board prior 
        written notice of the proposed investment and the Board--
                  ``(A) issues a written statement of the Board's 
                intent not to disapprove the notice; or
                  ``(B) does not disapprove the notice within 30 days 
                after the notice is filed.
          ``(2) No prior notice required for certain financial services 
        holding companies.--
                  ``(A) In general.--A financial services holding 
                company shall not be required to provide prior notice 
                under paragraph (1) if after making any investment 
                described in paragraph (1)--
                          ``(i) the financial services holding company 
                        would be adequately capitalized under the 
                        capital standards applicable, if any, to such 
                        financial services holding company and each of 
                        the financial services holding company's 
                        subsidiary depository institutions would be 
                        well capitalized; and
                          ``(ii) the financial services holding company 
                        and each of its subsidiary depository 
                        institutions are well managed (but for purposes 
                        of this clause the Board may disregard any 
                        depository institution acquired by the 
                        financial services holding company during the 
                        previous 12-month period).
                  ``(B) Subsequent notice.--A financial services 
                holding company that makes an investment pursuant to 
                subparagraph (A) shall provide written notice to the 
                Board of the additional investment within 10 days after 
                making the investment.
          ``(3) Criteria for disapproving notice.--The Board may 
        disapprove a notice filed under paragraph (1) if--
                  ``(A) any depository institution affiliate of the 
                securities affiliate is undercapitalized; or
                  ``(B) the Board determines that the financial 
                services holding company would be undercapitalized 
                under the capital standards applicable, if any, to such 
                financial services holding company after making the 
                investment or that the investment would otherwise be 
                unsafe or unsound.
          ``(4) Emergency approval.--Notwithstanding any provision of 
        this subsection, in the event of adverse market conditions, or 
        concerns regarding the financial or operational condition of 
        the securities affiliate, the Board may approve any additional 
        investment in the securities affiliate on an emergency basis if 
        such additional investment does not adversely affect the safety 
        and soundness of all insured depository institution affiliates 
        of such securities affiliate and does not diminish the ability 
        of the financial services holding company to maintain an 
        appropriate amount of capital in all such insured depository 
        institutions.
  ``(d) Provisions Applicable if Affiliated Depository Institution 
Ceases To Be Well Capitalized.--
          ``(1) Holding company action required if affiliated 
        institutions are not well capitalized.--
                  ``(A) Applicability.--This paragraph shall apply if--
                          ``(i) the lead depository institution of the 
                        financial services holding company is not well 
                        capitalized, or
                          ``(ii) well capitalized depository 
                        institutions do not control at least 80 percent 
                        of the aggregate total risk-weighted assets of 
                        depository institutions affiliated with the 
                        securities affiliate.
                  ``(B) Capital maintenance agreement.--Within 30 days 
                after subparagraph (A) becomes applicable with respect 
                to any financial services holding company, such company 
                shall execute an agreement with the Board--
                          ``(i) to meet the capital requirements of 
                        subparagraph (A) within a reasonable period of 
                        time; or
                          ``(ii) to divest control of the depository 
                        institution in an orderly manner within 180 
                        days, or within such additional period of time 
                        as the Board may determine is reasonably 
                        required in order to effect such divestiture.
                  ``(C) Restrictions on certain securities 
                activities.--If a financial services holding company 
                fails to meet the requirements of, or comply with the 
                agreement executed pursuant to, subparagraph (B), a 
                securities affiliate of such financial services holding 
                company shall not, beginning 180 days after 
                subparagraph (A) becomes applicable with respect to 
                such company, agree to underwrite or deal in, any 
                securities other than--
                          ``(i) securities expressly authorized by 
                        section 5136 of the Revised Statutes of the 
                        United States as permissible for a national 
                        bank to underwrite or deal in;
                          ``(ii) securities backed by or representing 
                        interests in notes, drafts, acceptances, loans, 
                        leases, receivables, other obligations, or 
                        pools of any such obligations; or
                          ``(iii) securities issued by an open-end 
                        investment company registered under the 
                        Investment Company Act of 1940.
                  ``(D) Exception.--The Board may permit the securities 
                affiliate of a financial services holding company 
                described in subparagraph (C) to underwrite or deal in 
                securities not described in clauses (i) through (iii) 
                of such subparagraph for a period of 1 year from the 
                date on which subparagraph (A) first becomes applicable 
                with respect to such company, if--
                          ``(i) the financial services holding company 
                        submits a capital restoration plan to the Board 
                        specifying the steps the financial services 
                        holding company will take to meet the 
                        requirements of subsection (b)(2)(A), and 
                        containing such other information as the Board 
                        may require; and
                          ``(ii) the Board approves the plan.
                  ``(E) Extension of period.--
                          ``(i) In general.--Upon application by a 
                        financial services holding company, the Board 
                        may extend, for not more than 1 year at a time, 
                        the period provided in subparagraph (C).
                          ``(ii) Maximum extension.--No extension under 
                        clause (i) of the period provided in 
                        subparagraph (C) shall, in the aggregate, 
                        exceed 2 years.
          ``(2) Divestiture of securities affiliate.--
                  ``(A) In general.--A financial services holding 
                company shall divest itself of the securities affiliate 
                if any of the financial services holding company's 
                subsidiary depository institutions has been 
                undercapitalized for more than 6 months.
                  ``(B) Extending time.--The Board may provide 
                additional time, not exceeding 18 months, for a 
                divestiture under subparagraph (A) if--
                          ``(i) the appropriate Federal banking agency 
                        or, in the case of a foreign bank or company 
                        that owns or controls a foreign bank, the 
                        Board, has approved the undercapitalized 
                        institution's capital restoration plan; and
                          ``(ii) the Board determines that the 
                        securities affiliate poses no significant risk 
                        to any affiliated depository institution.
  ``(e) Securities Affiliate Excluded in Determining Whether Financial 
Services Holding Company Is Adequately Capitalized.--
          ``(1) In general.--In determining whether a financial 
        services holding company is adequately capitalized--
                  ``(A) the financial services holding company's 
                capital and total assets shall each be reduced by--
                          ``(i) an amount equal to the amount of the 
                        financial services holding company's equity 
                        investment in any securities affiliate; and
                          ``(ii) an amount equal to the amount of any 
                        extensions of credit by the financial services 
                        holding company to any securities affiliate 
                        that are considered capital for purposes of any 
                        capital requirement imposed on the securities 
                        affiliate under section 15(c)(3) of the 
                        Securities Exchange Act of 1934; and
                  ``(B) the securities affiliate's assets and 
                liabilities shall not be consolidated with those of the 
                financial services holding company.
          ``(2) Exception for nonsecurities activities.--Paragraph (1) 
        shall not apply to the extent that the Board determines by 
        regulation or order that--
                  ``(A) an item described in such paragraph relates to 
                activities which are not described in subparagraph (A) 
                or (B) of subsection (a)(1); or
                  ``(B) another method of adjusting capital is more 
                appropriate to ensure the safety and soundness of 
                depository institutions.
  ``(f) Safeguards.--Each financial services holding company and each 
subsidiary of any such company shall comply with all applicable 
safeguard requirements of section 11.
  ``(g) Activities Not Permissible for Depository Institutions.--
          ``(1) In general.--A financial services holding company that 
        acquires control of a securities affiliate shall not, after the 
        end of the 1-year period beginning on the date of such 
        acquisition, permit any depository institution, or any 
        subsidiary of any depository institution, which is controlled 
        by such holding company--
                  ``(A) to engage, directly or indirectly, in the 
                United States--
                          ``(i) in underwriting securities backed by or 
                        representing interests in notes, drafts, 
                        acceptances, loans, leases, receivables, other 
                        obligations, or pools of any such obligations 
                        originated or purchased by the institution or 
                        its affiliates, other than--
                                  ``(I) securities backed by or 
                                representing an interest in 1--4 family 
                                residential mortgages originated or 
                                purchased by the depository institution 
                                or any affiliate or subsidiary of the 
                                institution; or
                                  ``(II) securities backed by or 
                                representing an interest in consumer 
                                receivables or consumer leases 
                                originated or purchased by the 
                                depository institution or any affiliate 
                                or subsidiary of the institution; or
                          ``(ii) in underwriting or dealing in any 
                        other securities, except securities expressly 
                        authorized by section 5136 of the Revised 
                        Statutes of the United States as permissible 
                        for a national bank to underwrite or deal in; 
                        or
                  ``(B) to make an equity investment in any securities 
                affiliate.
          ``(2) Exception for certain edge act and agreement 
        corporations.--The limitations in paragraph (1)(A) shall not 
        apply with respect to activities conducted by a subsidiary of a 
        financial services holding company which is held pursuant to 
        section 25 or 25A of the Federal Reserve Act or section 
        4(c)(13) of this Act.
          ``(3) Rule of construction.--No provision of this subsection 
        shall be construed as permitting a securities affiliate to 
        accept deposits in contravention of section 21 of the Banking 
        Act of 1933.
  ``(h) Approval of Securities Activities Under Section 4(c)(8) 
Restricted.--The Board shall deny any notice or application by a 
financial services holding company under authority of section 4(c)(8) 
to engage in, or acquire the shares of a company engaged in, 
underwriting or dealing in securities in the United States, other than 
securities expressly authorized by section 5136 of the Revised Statutes 
of the United States as permissible for a national bank to underwrite 
or deal in.
  ``(i) Bankers' Banks.--
          ``(1) In general.--For purposes of this section, each 
        shareholder of or participant in a company that controls a 
        depository institution described in section 5169(b)(1) of the 
        Revised Statutes of the United States or in a similar statute 
        of any State, and each subsidiary of such a shareholder or 
        participant, shall be treated as if such shareholder, 
        participant, or subsidiary were a subsidiary of that company.
          ``(2) Exception.--This subsection shall not apply with 
        respect to a shareholder or participant in a company described 
        in subparagraph (A) (or any subsidiary of such shareholder or 
        participant) if the shareholder or participant, and the 
        affiliates of any such shareholder or participant, do not, in 
        the aggregate, control more than 5 percent of any class of 
        voting shares of such company.
  ``(j) Shares Acquired in Connection With Underwriting and Investment 
Banking Activities.--
          ``(1) In general.--Notwithstanding section 4(a), a financial 
        services holding company may directly or indirectly acquire or 
        control, 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 financial 
        services 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 activities not authorized 
        pursuant to section 4 if--
                  ``(A) the shares, assets, or ownership interests are 
                not acquired or held by a depository institution or a 
                subsidiary of a depository institution;
                  ``(B) such shares, assets, or ownership interests are 
                acquired and held by a securities affiliate or an 
                affiliate of a securities affiliate as part of a bona 
                fide underwriting or investment banking activity, which 
                includes investment activities engaged in for the 
                purpose of appreciation and ultimate resale or other 
                disposition of the investment, and such shares, assets, 
                or ownership interests are held for such a period of 
                time as will permit the sale or disposition thereof on 
                a reasonable basis consistent with the nature of such 
                activities; and
                  ``(C) during the period such shares, assets, or 
                ownership interests are held, the financial services 
                holding company does not actively manage or operate the 
                company or entity except insofar as necessary to 
                achieve the objectives of subparagraph (B).
          ``(2) No expansion of underwriting activities.--No provision 
        of this subsection shall be construed as authorizing any 
        financial services holding company, or any subsidiary of any 
        such company, to underwrite or deal in any security.
  ``(k) Definitions.--For purposes of this section and sections 11 and 
12, the following definitions shall apply:
          ``(1) Capital stock and surplus.--The term `capital stock and 
        surplus' has the same meaning as in section 23A of the Federal 
        Reserve Act.
          ``(2) Covered transaction.--The term `covered transaction' 
        has the same meaning as in section 23A of the Federal Reserve 
        Act.
          ``(3) Security.--
                  ``(A) In general.--The term `security' has the 
                meaning given to such term in section 3(a)(10) of the 
                Securities Exchange Act of 1934.
                  ``(B) Exceptions.--For purposes of this section, 
                other than subsection (a), the term `security' does not 
                include any of the following:
                          ``(i) A contract of insurance.
                          ``(ii) A deposit account, savings account, 
                        certificate of deposit, or other deposit 
                        instrument issued by a depository institution.
                          ``(iii) A share account issued by a savings 
                        association if the account is insured by the 
                        Federal Deposit Insurance Corporation.
                          ``(iv) A banker's acceptance.
                          ``(v) A letter of credit issued by a 
                        depository institution.
                          ``(vi) A debit account at a depository 
                        institution arising from a credit card or 
                        similar arrangement.
                          ``(vii) A loan or loan participation (as 
                        determined by the Board).
                  ``(C) Board's authority to exempt traditional banking 
                products.--The Board may, by regulation or order and 
                after consultation with and consideration of the views 
                of the Securities and Exchange Commission, exempt a 
                banking product from the definition of security if the 
                Board determines that--
                          ``(i) the product is more appropriately 
                        regulated as a banking product; and
                          ``(ii) the exemption is otherwise consistent 
                        with the purposes of this section.
                  ``(D) Definition for limited purpose.--The fact that 
                a particular instrument is excluded pursuant to 
                subparagraph (B) or (C) from the definition of security 
                for purposes of this section shall not be construed as 
                finding or implying that such instrument is or is not a 
                security for purposes of Federal securities laws.''.
  (b) Transition Rule for Securities Affiliates Approved Under Section 
4(c)(8).--
          (1) Conversion to (4)(c)(15) subsidiary.--
                  (A) In general.--Except as provided in subparagraph 
                (B) and paragraphs (3) and (4), effective 18 months 
                after the date of enactment of this Act, no financial 
                services holding company may engage in, or retain the 
                shares of any company engaged in, underwriting or 
                dealing in securities based on the approval of an 
                application under section 4(c)(8) of the Bank Holding 
                Company Act of 1956 (as in effect before the date of 
                the enactment of the Financial Services Competitiveness 
                Act of 1995) unless the financial services holding 
                company has obtained the Board's approval to retain the 
                shares of that company under section 10.
                  (B) Exception for bank eligible securities.--
                Subparagraph (A) shall not apply with respect to 
                underwriting or dealing in securities expressly 
                authorized by section 5136 of the Revised Statutes of 
                the United States as permissible for a national bank to 
                underwrite or deal in.
          (2) Extending time.--
                  (A) In general.--The Board may, for good cause shown, 
                extend the time provided under paragraph (1) for not 
                more than 18 months.
                  (B) Pending notices.--If a financial services holding 
                company has filed a notice under section 10(b) of the 
                Bank Holding Company Act of 1956 not later than 180 
                days after the date of enactment of this Act, paragraph 
                (1) shall not apply with respect to the company engaged 
                in such underwriting or dealing until 180 days after 
                the Board has acted on the notice.
          (3) Conversion procedures for companies previously authorized 
        to conduct securities activities.--Any financial services 
        holding company that controls a company engaged in underwriting 
        and dealing in corporate debt and equity securities pursuant to 
        an order issued by the Board under section 4(c)(8) of the Bank 
        Holding Company Act of 1956 before the date of enactment of the 
        Financial Services Competitiveness Act of 1995 shall be treated 
        as follows:
                  (A) Revenue test and certain other restrictions.--
                Upon filing the notice required under section 10(b) of 
                the Financial Services Holding Company Act of 1995, the 
                financial services holding company shall be relieved 
                from--
                          (i) the limitation contained in such order on 
                        the amount of revenue that may be derived from 
                        securities underwriting and dealing activities; 
                        and
                          (ii) any other restriction contained in such 
                        order that would not be required under section 
                        11 of such Act, as permitted by the Board.
                  (B) Examination of internal controls.--The financial 
                services holding company shall not, in connection with 
                action on the notice submitted under section 10(b)(1) 
                of the Financial Services Holding Company Act of 1995, 
                be subject to an examination of internal controls under 
                section 10(b)(2)(D) of such Act.
          (4) Retention of companies conducting limited securities 
        activities.--Notwithstanding paragraph (1), any financial 
        services holding company that controls a company engaged in 
        underwriting and dealing in securities (other than corporate 
        debt or equity securities) pursuant to an order issued by the 
        Board under section 4(c)(8) of the Bank Holding Company Act of 
        1956 before the date of enactment of the Financial Services 
        Competitiveness Act of 1995 may retain control of such company, 
        so long as such company complies with all of the limitations, 
        restrictions and conditions, including the limitation on the 
        revenue that may be derived from such underwriting or dealing 
        activities, contained in such order.

SEC. 104. SAFEGUARDS RELATING TO SECURITIES AFFILIATES.
  (a) In General.--The Bank Holding Company Act of 1956 (12 U.S.C. 1841 
et seq.) is amended--
          (1) by redesignating sections 11 and 12 as sections 13 and 
        14, respectively; and
          (2) by inserting after section 10 (as added by section 103 of 
        this Act) the following new section:
``SEC. 11. SAFEGUARDS RELATING TO SECURITIES AFFILIATES.

  ``(a) Extensions of Credit and Asset Purchases Restricted.--
          ``(1) In general.--No depository institution affiliated with 
        a securities affiliate shall, directly or indirectly, do any of 
        the following:
                  ``(A) Extend credit in any manner to the securities 
                affiliate.
                  ``(B) Issue a guarantee, acceptance, or letter of 
                credit, including an endorsement or a standby letter of 
                credit, for the benefit of the securities affiliate.
                  ``(C) Except as provided in paragraph (3), purchase 
                for its own account, or for the account of any 
                subsidiary of such institution, financial assets of the 
                securities affiliate.
          ``(2) Exception for clearing securities.--Paragraph (1)(A) 
        shall not apply with respect to an extension of credit by a 
        well capitalized depository institution to acquire or sell 
        securities if the following conditions are met:
                  ``(A) The extension of credit is incidental to 
                clearing transactions in those securities through that 
                depository institution.
                  ``(B) Both the principal of and the interest on the 
                extension of credit are fully secured by those 
                securities.
                  ``(C) Either--
                          ``(i) the extension of credit is to be repaid 
                        before the close of business on the same 
                        business day; or
                          ``(ii) all of the following conditions are 
                        satisfied:
                                  ``(I) The securities cannot, in the 
                                ordinary course of business, be cleared 
                                on that business day.
                                  ``(II) The extension of credit is to 
                                be repaid before the close of business 
                                on the next business day.
                                  ``(III) Extensions of credit subject 
                                to this clause, when aggregated with 
                                all other covered transactions between 
                                the institution and all affiliated 
                                securities affiliates do not exceed 10 
                                percent of the institution's capital 
                                stock and surplus.
                  ``(D) Either--
                          ``(i) the securities are securities expressly 
                        authorized by section 5136 of the Revised 
                        Statutes of the United States as permissible 
                        for a national bank to underwrite or deal in; 
                        or
                          ``(ii) the Board permits transactions under 
                        this paragraph in securities not described in 
                        clause (i) and the securities affiliate 
                        provides the depository institution with such 
                        additional security or other assurance of 
                        performance, if any, as the Board shall require 
                        to prevent such transactions from posing any 
                        appreciable risk to the institution.
          ``(3) Exceptions for certain securities purchased for a 
        depository institution's own account.--Paragraph (1)(C) shall 
        not apply with respect to purchases at the current market value 
        (based on reliable and regularly available price quotations) 
        of--
                  ``(A) securities expressly authorized by section 5136 
                of the Revised Statutes of the United States as 
                permissible for a national bank to underwrite or deal 
                in; or
                  ``(B) securities that--
                          ``(i) the securities affiliate has been 
                        marking to market daily; and
                          ``(ii) are rated investment grade by at least 
                        1 nationally recognized statistical rating 
                        organization.
          ``(4) Other exceptions.--The Board may make exceptions to 
        paragraph (1) for well capitalized depository institutions if--
                  ``(A) the transaction is fully secured in accordance 
                with section 23A(c) of the Federal Reserve Act; and
                  ``(B) the aggregate amount of covered transactions 
                between the institution and all securities affiliates 
                of the financial services holding company, excluding 
                transactions permitted under paragraph (2)(C)(i) or 
                (3)(A), does not exceed 10 percent of the institution's 
                capital stock and surplus.
  ``(b) Credit Enhancement Restricted.--
          ``(1) In general.--No depository institution affiliated with 
        a securities affiliate shall, directly or indirectly, extend 
        credit, or issue or enter into a standby letter of credit, 
        asset purchase agreement, indemnity, guarantee, insurance, or 
        other facility, for the purpose of enhancing the marketability 
        of a securities issue underwritten by the securities affiliate.
          ``(2) Definition of term by board.--The Board shall prescribe 
        a definition for the term `for the purpose of enhancing the 
        marketability of a securities issue' for purposes of paragraph 
        (1).
          ``(3) Exception for bank eligible securities.--Paragraph (1) 
        shall not apply with regard to securities expressly authorized 
        by section 5136 of the Revised Statutes of the United States as 
        permissible for a national bank to underwrite or deal in.
          ``(4) Application to well capitalized depository 
        institutions.--
                  ``(A) In general.--A well capitalized depository 
                institution may engage in a transaction described in 
                paragraph (1) if--
                          ``(i) the depository institution has adopted 
                        appropriate limits on exposure on a 
                        consolidated basis to any single customer whose 
                        securities are underwritten by the securities 
                        affiliate; and
                          ``(ii) the institution and its securities 
                        affiliate have adopted appropriate procedures, 
                        including maintenance of necessary documentary 
                        records, to assure that any such extension of 
                        credit, standby letter of credit, asset 
                        purchase agreement, indemnity, guarantee, 
                        insurance or other facility, is on an arm's 
                        length basis.
                  ``(B) Arm's length transaction described.--An 
                extension of credit may be considered to be on an arm's 
                length basis if the terms and conditions are 
                substantially the same as those prevailing at the time 
                for comparable transactions involving securities that 
                are not underwritten by the securities affiliate.
                  ``(C) Compliance with paragraph (1).--The Board may 
                require, by regulation or order, compliance with 
                paragraph (1) by well capitalized depository 
                institutions exempt under this paragraph in order to 
                achieve any purpose specified in subsection (l).
  ``(c) Prohibition on Financing Purchase of Security Being 
Underwritten.--
          ``(1) In general.--No financial services holding company or 
        subsidiary of a financial services holding company (other than 
        a securities affiliate) shall knowingly extend or arrange for 
        the extension of credit, directly or indirectly, secured by or 
        for the purpose of purchasing any security while, or for 30 
        days after, that security is the subject of a distribution in 
        which a securities affiliate of that financial services holding 
        company participates as an underwriter or a member of a selling 
        group.
          ``(2) Reliance on acknowledgement.--For purposes of paragraph 
        (1), a financial services holding company or subsidiary may 
        rely on an express written acknowledgement signed by the 
        borrower that the credit is not secured by or for the purpose 
        of purchasing a security described in this subparagraph.
          ``(3) Application to bank eligible securities.--Paragraph (1) 
        shall not apply with regard to extensions of credit if the 
        securities are securities expressly authorized by section 5136 
        of the Revised Statutes of the United States as permissible for 
        a national bank to underwrite or deal in.
          ``(4) Application to well capitalized depository 
        institutions.--The Board may make exceptions, by regulation or 
        order, to paragraph (1) for an extension of credit, after 
        consultation with and considering the views of the Securities 
        and Exchange Commission, if--
                  ``(A) the financial services holding company is 
                adequately capitalized;
                  ``(B) the financial services holding company's lead 
                depository institution is well capitalized;
                  ``(C) well capitalized depository institutions 
                control at least 80 percent of the assets of depository 
                institutions controlled by the financial services 
                holding company; and
                  ``(D) all depository institutions controlled by the 
                financial services holding company are well capitalized 
                or adequately capitalized.
          ``(5) Consistency with the federal securities laws.--No 
        provision of this subsection shall be construed as permitting a 
        securities affiliate to extend or maintain credit, or arrange 
        for an extension of credit, except in compliance with 
        applicable provisions of the Securities Exchange Act of 1934 
        and the regulations prescribed and interpretations issued under 
        such Act.
  ``(d) Restriction on Extending Credit To Make Payments on 
Securities.--
          ``(1) In general.--No depository institution affiliated with 
        a securities affiliate shall, directly or indirectly, extend 
        credit to an issuer of securities underwritten by the 
        securities affiliate for the purpose of paying the principal of 
        those securities or interest or dividends on those securities.
          ``(2) Exceptions for certain extensions of credit.--Paragraph 
        (1) shall not apply to an extension of credit for a documented 
        purpose (other than paying principal, interest, or dividends) 
        if the timing, maturity, and other terms of the credit, taken 
        as a whole, are substantially different from those of the 
        underwritten securities.
          ``(3) Exceptions for bank eligible securities.--Paragraph (1) 
        shall not apply with respect to any security expressly 
        authorized by section 5136 of the Revised Statutes of the 
        United States as permissible for a national bank to underwrite 
        or deal in.
          ``(4) Application to well capitalized depository 
        institutions.--
                  ``(A) In general.--Paragraph (1) shall not apply with 
                respect to well capitalized depository institutions 
                if--
                          ``(i) the depository institution has adopted 
                        appropriate limits on exposure on a 
                        consolidated basis to any single customer whose 
                        securities are underwritten by the securities 
                        affiliate; and
                          ``(ii) the depository institution has adopted 
                        appropriate procedures, including maintenance 
                        of necessary documentary records, to assure 
                        that any extension of credit by the depository 
                        institution to an issuer for the purpose of 
                        paying the principal, interest or dividends on 
                        securities underwritten by the securities 
                        affiliate is on an arm's length basis.
                  ``(B) Arm's length transaction described.--An 
                extension of credit may be considered to have been made 
                on an arm's length basis if the terms and conditions 
                are substantially the same as those prevailing at the 
                time for comparable transactions with issuers whose 
                securities are not underwritten by the securities 
                affiliate.
                  ``(C) Compliance with subparagraph (a).--The Board 
                may require, by regulation or order, compliance with 
                paragraph (1) by well capitalized depository 
                institutions exempt under this paragraph in order to 
                achieve any purpose specified in subsection (l).
  ``(e) Common Directors and Senior Executive Officers.--
          ``(1) In general.--The Board shall, by regulation or order, 
        prescribe the circumstances under which directors and senior 
        executive officers of a securities affiliate may serve at the 
        same time as directors or senior executive officers of any 
        affiliated depository institutions.
          ``(2) Standards.--The Board, in issuing any regulation or 
        order pursuant to paragraph (1), shall consider appropriate 
        factors including--
                  ``(A) any burdens imposed by restrictions on director 
                and senior executive officer interlocks;
                  ``(B) the safety and soundness of depository 
                institutions and securities affiliates;
                  ``(C) unfair competition in securities activities;
                  ``(D) improper exchange of customer information; or
                  ``(E) harm to customers of securities affiliates or 
                depository institutions that could reasonably result 
                from director and senior officer interlocks.
          ``(3) Exception for small financial services holding 
        companies.--
                  ``(A) In general.--Notwithstanding paragraph (1), a 
                director or senior executive officer of a securities 
                affiliate may serve at the same time as a director or 
                senior executive officer of an affiliated depository 
                institution if that institution and all affiliated 
                depository institutions have, in the aggregate, total 
                assets of not more than $500,000,000.
                  ``(B) Inflation adjustment.--The dollar limitation 
                contained in subparagraph (A) shall be adjusted 
                annually after December 31, 1995, by the annual 
                percentage increase in the Consumer Price Index for 
                Urban Wage Earners and Clerical Workers published by 
                the Bureau of Labor Statistics.
          ``(4) Exception for certain regulation k affiliates.--
        Paragraph (1) shall not prohibit a director or senior executive 
        officer of a securities affiliate from serving at the same time 
        as a director or senior executive officer of a depository 
        institution which--
                  ``(A) is organized under section 25 or 25A of the 
                Federal Reserve Act;
                  ``(B) is an affiliate of such securities affiliate; 
                and
                  ``(C) principally engages in business outside the 
                United States.
  ``(f) Disclosure Required by Securities Affiliate.--
          ``(1) In general.--At the time a securities account is 
        opened, a securities affiliate shall conspicuously disclose in 
        writing to each of its customers that--
                  ``(A) securities sold, offered, or recommended by the 
                securities affiliate--
                          ``(i) are not deposits;
                          ``(ii) are not insured by the Federal Deposit 
                        Insurance Corporation;
                          ``(iii) are not guaranteed by an affiliated 
                        insured depository institution;
                          ``(iv) are not otherwise an obligation of an 
                        insured depository institution (unless such is 
                        the case); and
                          ``(v) with regard to any product that 
                        includes any investment component, are subject 
                        to investment risks including possible loss of 
                        principal invested;
                  ``(B) the securities affiliate is not an insured 
                depository institution, and is a corporation separate 
                from any insured depository institution; and
                  ``(C) the securities affiliate may be underwriting or 
                dealing in the securities being sold, offered or 
                recommended, and if so, would have a financial interest 
                in the transaction.
          ``(2) Form of disclosure.--The disclosures required by 
        paragraph (1) shall be made in clear and concise language 
        that--
                  ``(A) is readily comprehensible to customers of the 
                securities affiliate, and
                  ``(B) is designed to promote customer understanding 
                that uninsured investment products are not deposits 
                insured by the Federal Deposit Insurance Corporation.
          ``(3) Board authority.--Subject to paragraph (2), the Board 
        may, in the Board's discretion, prescribe disclosures in 
        addition to the disclosures prescribed by paragraph (1).
  ``(g) Disclosure Required by Insured Depository Institutions.--
          ``(1) In general.--No insured depository institution shall 
        knowingly express any opinion on the value of, or the 
        advisability of purchasing or selling, nonbanking products (as 
        defined by the Board) sold by the insured depository 
        institution or any affiliate of an insured depository 
        institution unless the insured depository institution 
        conspicuously discloses in writing to the customer that--
                  ``(A) the insured depository institution or affiliate 
                (whichever is applicable) is selling the nonbanking 
                product and has a financial interest in the transaction 
                (if such is the case);
                  ``(B) the nonbanking products--
                          ``(i) are not deposits;
                          ``(ii) are not insured by the Federal Deposit 
                        Insurance Corporation;
                          ``(iii) are not guaranteed by the institution 
                        or any other affiliated insured depository 
                        institution;
                          ``(iv) are not otherwise an obligation of an 
                        insured depository institution (unless such is 
                        the case); and
                          ``(v) with regard to any nonbanking product 
                        that includes any investment component, are 
                        subject to investment risks including possible 
                        loss of principal invested; and
                  ``(C) an affiliate, if involved, is not an insured 
                depository institution (unless such is the case), and 
                is a corporation separate from any insured depository 
                institution (unless such is not the case).
          ``(2) Form of disclosure.--The disclosures required by 
        paragraph (1) shall be made in clear and concise language 
        that--
                  ``(A) is readily comprehensible to customers of the 
                insured depository institution, and
                  ``(B) is designed to promote customer understanding 
                that nonbanking products are not deposits insured by 
                the Federal Deposit Insurance Corporation.
          ``(3) Customer acknowledgement of disclosure.--
                  ``(A) In general.--Whenever any insured depository 
                institution or securities affiliate opens an account 
                for the purpose of selling a nondeposit investment 
                product or products to a customer, such insured 
                depository institution or securities affiliate as the 
                case may be, shall obtain a 1-time acknowledgment of 
                receipt by the customer of such disclosures, including 
                the date of receipt with the customer's name, address, 
                and the account number.
                  ``(B) Special rule for accredited investors.--In the 
                case of any customer who is, or meets the requirements 
                for, an accredited investor (as defined in section 
                2(15) of the Securities Act of 1933), the 
                acknowledgment of the receipt of any disclosure 
                described in subparagraph (A) may be obtained by the 
                insured depository institution or securities affiliate 
                at the time any account is opened by such customer.
          ``(4) Board authority.--Subject to paragraph (2), the Board, 
        after consultation with the other appropriate Federal banking 
        agencies, may prescribe disclosures in addition to the 
        disclosures required by paragraph (1).
  ``(h) Improper Disclosure of Confidential Customer Information 
Prohibited.--
          ``(1) In general.--No depository institution subsidiary of a 
        financial services holding company shall disclose to any 
        affiliate of such institution which is not a depository 
        institution, and no affiliate of such company which is not a 
        depository institution shall disclose to any other affiliate 
        which is a depository institution or a subsidiary of such an 
        institution, any nonpublic customer information (including an 
        evaluation of the creditworthiness of an issuer or other 
        customer of that institution or securities affiliate), unless 
        it is clearly and conspicuously disclosed that such information 
        may be communicated among such persons and the customer is 
        given the opportunity, before the time that the information is 
        initially communicated, to direct that such information not be 
        communicated among such persons.
          ``(2) Definition.--For purposes of paragraph (1), the term 
        `nonpublic customer information' does not include--
                  ``(A) customers' names and addresses (unless a 
                customer has specified otherwise);
                  ``(B) information that could be obtained from 
                unaffiliated credit bureaus or similar companies in the 
                ordinary course of business; or
                  ``(C) information that is customarily provided to 
                unaffiliated credit bureaus or similar companies in the 
                ordinary course of business by--
                          ``(i) depository institutions not affiliated 
                        with securities affiliates; or
                          ``(ii) brokers and dealers not affiliated 
                        with depository institutions.
  ``(i) Underwriting Securities Representing Obligations Originated by 
Affiliate Restricted.--A securities affiliate shall not underwrite 
securities secured by or representing an interest in mortgages or other 
obligations originated or purchased by an affiliated depository 
institution or subsidiary of such an institution--
          ``(1) unless those securities--
                  ``(A) are rated by at least 1 unaffiliated, 
                nationally recognized statistical rating organization;
                  ``(B) are issued or guaranteed by the Federal Home 
                Loan Mortgage Corporation, the Federal National 
                Mortgage Association, or the Government National 
                Mortgage Association; or
                  ``(C) represent interests in securities described in 
                subparagraph (B); or
          ``(2) except as permitted by the Board.
  ``(j) Reciprocal Arrangements Prohibited.--No financial services 
holding company and no subsidiary of a financial services holding 
company may enter into any agreement, understanding, or other 
arrangement under which--
          ``(1) 1 financial services holding company (or subsidiary of 
        that financial services holding company) agrees to engage in a 
        transaction with, or on behalf of, another financial services 
        holding company (or subsidiary of that financial services 
        holding company), in exchange for
          ``(2) the agreement of the second financial services holding 
        company referred to in paragraph (1) (or a subsidiary of that 
        financial services holding company) to engage in any 
        transaction with, or on behalf of, the first financial services 
        holding company referred to in such paragraph (or any 
        subsidiary of that financial services holding company), for the 
        purpose of evading any requirement or restriction of Federal 
        law on transactions between, or for the benefit of, affiliates 
        of financial services holding companies.
  ``(k) Safeguards Apply to Certain Subsidiaries.--Except as provided 
in this section--
          ``(1) Securities affiliate.--No subsidiary of a securities 
        affiliate may do anything that this section prohibits the 
        securities affiliate from doing.
          ``(2) Depository institution.--No subsidiary of a depository 
        institution may do anything that this subsection prohibits the 
        institution from doing.
  ``(l) Authority To Modify and Impose Additional Safeguards; 
Interpretive Authority.--
          ``(1) In general.--The Board may, by regulation or order--
                  ``(A) adopt additional limitations, restrictions or 
                conditions on relationships or transactions among 
                depository institutions, their affiliates, and their 
                customers; and
                  ``(B) make any modification to any limitation, 
                restriction, or condition imposed under this section on 
                relationships or transactions among depository 
                institutions, the affiliates of insured depository 
                institutions, and the customers of such institutions or 
                affiliates, including modifications in addition to 
                those expressly provided for in this section.
          ``(2) Standards.--The Board may not exercise authority under 
        paragraph (1) unless the Board finds that such action is 
        consistent with the purposes of this Act, including--
                  ``(A) the avoidance of any significant risk to the 
                safety and soundness of depository institutions or the 
                Federal deposit insurance funds;
                  ``(B) the enhancement of the financial stability of 
                financial services holding companies;
                  ``(C) the prevention of the subsidization of 
                securities affiliates by depository institutions;
                  ``(D) the avoidance of conflicts of interest or other 
                abuses; and
                  ``(E) the application of the principle of national 
                treatment and equality of competitive opportunity 
                between securities affiliates owned or controlled by 
                domestic financial services holding companies and 
                securities affiliates owned or controlled by foreign 
                banks operating in the United States.
          ``(3) Biennial review.--Beginning 2 years after the date of 
        enactment of the Financial Services Competitiveness Act of 
        1995, the Board shall, on a biennial basis--
                  ``(A) review all restrictions established pursuant to 
                paragraph (1) to determine whether any such 
                restrictions are required any longer to carry out the 
                purposes of this Act; and
                  ``(B) modify or eliminate any such restriction that 
                the Board determines is no longer required to carry out 
                the purposes of this Act.
  ``(m) Compliance Programs Required.--
          ``(1) In general.--Each appropriate Federal banking and 
        agency the Securities and Exchange Commission shall establish a 
        program for--
                  ``(A) sharing information concerning compliance with 
                subtitle A of title I or subtitle A or B of title II of 
                the Financial Services Competitiveness Act of 1995, and 
                the amendments made by such subtitles, by--
                          ``(i) brokers, dealers, investment advisers, 
                        or investment companies that are registered 
                        with the Securities and Exchange Commission 
                        that are affiliated with depository 
                        institutions, or are separately identifiable 
                        departments or divisions of depository 
                        institutions registered as brokers, dealers, or 
                        investment advisers; and
                          ``(ii) depository institutions and their 
                        affiliates;
                  ``(B) enforcing compliance with subtitle A of title I 
                of the Financial Services Competitiveness Act of 1995, 
                and the amendments made by such subtitle and paragraphs 
                (4) and (5) of section 3(a) of the Securities Exchange 
                Act of 1934 by entities under its supervision; and
                  ``(C) responding to any complaints from customers 
                about inappropriate cross-marketing of securities 
                products or inadequate disclosure.
          ``(2) Data collection.--
                  ``(A) In general.--The appropriate Federal banking 
                agencies, after consultation with and consideration of 
                the views of the Securities and Exchange Commission, 
                may require any depository institution that has 
                effected securities transactions pursuant to any 
                exception enumerated in paragraphs (4) and (5) of 
                section 3(a) of the Securities Exchange Act of 1934 to 
                identify the exceptions relied upon and to submit such 
                information necessary to monitor compliance under such 
                paragraphs.
                  ``(B) Commission access.--The appropriate Federal 
                banking agency shall make any information referred to 
                in subparagraph (A) available to the Securities and 
                Exchange Commission, upon the request of the 
                Commission.
                  ``(C) Compliance.--In implementing the provisions of 
                this paragraph, the appropriate Federal banking 
                agencies shall ensure that any information requests to 
                depository institutions take into account the size and 
                activities of the institutions and do not cause undue 
                reporting burdens.
          ``(3) Commission's enforcement authority.--Without limiting 
        in any way the authority of the appropriate Federal banking 
        agencies under this section, the Securities and Exchange 
        Commission shall have the authority to enforce any subsection 
        of this section against a securities affiliate as if such 
        subsection were a provision of the Securities Exchange Act of 
        1934 to the extent that the subsection applies with respect to 
        the conduct or activities of the securities affiliate.
          ``(4) Examination reports.--The appropriate Federal banking 
        agencies shall, to the extent practicable, use the reports of 
        examination of any broker, dealer, investment adviser, or 
        investment company made by or on behalf of the Securities and 
        Exchange Commission and reports made by or on behalf of a 
        registered securities association or national securities 
        exchange, and shall defer to such examinations for compliance 
        with the Federal securities laws.
          ``(5) Interpretations of the federal securities laws.--The 
        appropriate Federal banking agencies shall defer to the 
        Securities and Exchange Commission regarding all 
        interpretations and enforcement of the Federal securities laws 
        relating to the application of the Federal securities laws to 
        the activities and conduct of brokers, dealers, investment 
        advisers, and investment companies.
          ``(6) Notice of certain actions by sec.--The Securities and 
        Exchange Commission shall give notice to the appropriate 
        Federal banking agency upon the commencement of any 
        disciplinary or law enforcement proceedings by the Commission 
        and a copy of any order entered by the Commission against--
                  ``(A) any broker, dealer, or investment adviser 
                that--
                          ``(i) is registered with the Securities and 
                        Exchange Commission; and
                          ``(ii) is affiliated with, or is a separately 
                        identifiable department or division of, a 
                        depository institution;
                  ``(B) any investment company registered with the 
                Securities and Exchange Commission that is an affiliate 
                of or is advised by an investment adviser affiliated 
                with a depository institution or by a separately 
                identifiable department or division of a depository 
                institution that is a registered investment adviser; or
                  ``(C) any financial services holding company, 
                depository institution, or subsidiary of such company 
                or institution, if the proposed action relates to 
                subtitle A of title I or subtitle A or B of title II of 
                the Financial Services Competitiveness Act of 1995.
          ``(7) Notice of certain actions by appropriate federal 
        banking agencies.--Upon the commencement of any disciplinary or 
        law enforcement proceedings to enforce the provisions of 
        subtitle A of title I of the Financial Services Competitiveness 
        Act of 1995, or any amendment made by such subtitle, by an 
        appropriate Federal banking agency against any broker, dealer, 
        investment adviser, or investment company that is registered 
        under the Federal securities laws and is affiliated with a 
        depository institution or is a separately identifiable 
        department or division of a depository institution, the 
        appropriate Federal banking agency shall give notice to the 
        Securities and Exchange Commission of the proposed action.
          ``(8) Immediate action allowed before notice.--The notice 
        required under paragraph (6) or (7) may be provided promptly 
        after action by the Securities and Exchange Commission or the 
        appropriate Federal banking agency, if--
                  ``(A) the Commission determines that the protection 
                of investors requires immediate action by the 
                Commission and prior notice under paragraph (6) is not 
                practical under the circumstances; or
                  ``(B) the appropriate Federal banking agency 
                determines that concerns for the safety and soundness 
                of a depository institution or its affiliate require 
                immediate action by the agency and prior notice under 
                paragraph (7) is not practical under the circumstances.
          ``(9) Coordinated enforcement actions.--The Securities and 
        Exchange Commission and the appropriate Federal banking 
        agencies shall, to the extent practicable, coordinate 
        supervisory actions based on applicable law where the actions 
        are based on the same or related events or practices.
          ``(10) Investment companies not affiliated with a depository 
        institution.--The appropriate Federal banking agency shall not 
        have authority under this Act or any other provision of law to 
        inspect or examine any investment company registered under the 
        Federal securities laws that is not--
                  ``(A) affiliated with a depository institution; or
                  ``(B) advised by an investment adviser affiliated 
                with a depository institution or by a separately 
                identifiable department or division of a depository 
                institution that is a registered investment adviser.
          ``(11) Definition.--For purposes of this subsection, the term 
        `Federal securities laws' means the provisions of Federal law 
        governing securities activities that are within the 
        jurisdiction of the Securities and Exchange Commission under 
        the Securities Act of 1933, the Securities Exchange Act of 
        1934, the Investment Company Act of 1940, the Investment 
        Advisers Act of 1940, and the Trust Indenture Act of 1939.
  ``(n) Foreign Bank Firewalls.--
          ``(1) In general.--A foreign bank that operates a branch, 
        agency, or commercial lending company in the United States and 
        accepts no deposits in the United States, either directly or 
        through an affiliate, that are insured under the Federal 
        Deposit Insurance Act, and any affiliate of such foreign bank, 
        shall not be subject to the restrictions of any subsection of 
        this section, other than subsections (l) and (m), if the 
        conditions described in paragraph (2) are met.
          ``(2) Conditions for applicability of exception.--The 
        conditions of this paragraph have been met with respect to any 
        foreign bank referred to in paragraph (1) if--
                  ``(A) transactions between a securities affiliate of 
                such foreign bank and any branch, agency or commercial 
                lending company operated in the United States by such 
                foreign bank comply with the provisions of sections 23A 
                and 23B of the Federal Reserve Act as if the foreign 
                bank were a member bank; and
                  ``(B) such foreign bank has received a determination 
                from the Board that the bank meets capital standards 
                comparable to those established by the Board for well 
                capitalized financial services holding companies, 
                giving due regard to the principle of national 
                treatment and equality of competitive opportunity, 
                subject to any changes the Board may adopt with respect 
                to such standards.
          ``(3) Applicability of subsection (l) to foreign banks.--Any 
        limitation, restriction, condition, or modification adopted by 
        the Board under subsection (l) may be applied by the Board to--
                  ``(A) a foreign bank described in paragraph (1) (and 
                any company that owns or controls such foreign bank);
                  ``(B) any branch, agency or commercial lending 
                company operated by such foreign bank in the United 
                States; or
                  ``(C) any other affiliate of such foreign bank in the 
                United States,
        if such limitation, restriction, condition, or modification is 
        applied by regulation or order of general applicability under 
        section 12(a)(2)(B)(ii) to wholesale financial institutions and 
        securities affiliates controlled by investment bank holding 
        companies, subject to such modifications, conditions, or 
        exemptions as the Board deems appropriate, giving due regard to 
        the principle of national treatment and equality of competitive 
        opportunity.''.
  (b) Amendment to the Federal Reserve Act.--Section 23B(b)(1)(B) of 
the Federal Reserve Act (12 U.S.C. 371c-l(b)(1)(B)) is amended by 
inserting ``and for 30 days thereafter'' after ``during the existence 
of any underwriting or selling syndicate''.
  (c) Exemption From Section 305(b) of the Federal Power Act.--Section 
305(b) of the Federal Power Act shall not apply to any person now 
holding, or proposing to hold, at the same time the position of officer 
or director of a public utility and the position of officer or director 
of a bank, trust company, banking association, or firm permitted by 
section 10 of the Financial Services Holding Company Act of 1995 (as 
amended by section 103(a) of this Act) to underwrite or participate in 
the marketing of securities (including commercial paper) of a public 
utility, if that bank, trust company, banking association, or firm does 
not underwrite or participate in the marketing of securities of the 
public utility for which the person serves, or proposes to serve, as an 
officer or director.
  (d) Amendment to the Right to Financial Privacy Act.--Section 1112(e) 
of the Right to Financial Privacy Act (12 U.S.C. 3412(e)) is amended as 
follows--
          (1) by striking ``this title'' and inserting ``law''; and
          (2) by inserting ``, examination reports,'' after ``financial 
        records''.
  (e) Regulations To Preserve Separation of Banking and Commerce.--
Section 5(b) of the Bank Holding Company Act of 1956 (12 U.S.C. 
1844(b)) is amended by inserting ``, including the protection of 
depository institutions and the separation of banking and commerce,'' 
after ``purposes of this Act''.

SEC. 105. OWNERSHIP OF SHARES OF CERTAIN COMPANIES BY FINANCIAL 
                    SERVICES HOLDING COMPANIES.

  Section 4 of the Bank Holding Company Act of 1956 (12 U.S.C. 1843) is 
amended by adding at the end the following new subsection:
  ``(k) Ownership of Shares of Certain Companies by Financial Services 
Holding Companies.--
          ``(1) Nonconforming financial companies.--Notwithstanding 
        section 4(a), a financial services holding company may retain 
        direct or indirect ownership or control of voting shares of any 
        company that--
                  ``(A) engages solely in activities that the Board 
                finds to be financial but which the Board has not 
                authorized under section 4(c)(8) (and such other 
                financial activities that the Board has authorized) 
                if--
                          ``(i) the financial services holding company 
                        acquired the shares of a company engaged in 
                        such activities or of each company to which the 
                        company engaged in such activities is a 
                        successor more than 2 years before the date 
                        that such financial services holding company 
                        becomes a financial services holding company;
                          ``(ii) the aggregate investment by the 
                        financial services holding company in shares of 
                        all such companies does not exceed 10 percent 
                        of the total consolidated capital and surplus 
                        of the financial services holding company as of 
                        the date that the holding company becomes a 
                        financial services holding company or as of the 
                        date of any additional investment by the 
                        financial services holding company in such 
                        shares;
                          ``(iii) more than 50 percent of the aggregate 
                        gross revenues of the financial services 
                        holding company and the subsidiaries of such 
                        holding company for each of the 2 calendar 
                        years before the date the holding company 
                        becomes a financial services holding company 
                        were attributable to securities activities 
                        described in subparagraphs (A) and (B) of 
                        section 10(a)(1), as determined without taking 
                        into account any activities (other than 
                        securities activities) in which financial 
                        services holding companies were permitted to 
                        engage before the date of the enactment of the 
                        Financial Services Competitiveness Act of 1995; 
                        and
                          ``(iv) the company engaged in such activities 
                        continues to engage only in activities that 
                        such company conducted as of the date that such 
                        financial services holding company becomes a 
                        financial services holding company (or other 
                        activities permitted under section 4(c)(8) or 
                        section 10); or
                  ``(B) engages in activities not authorized under 
                section 4 if--
                          ``(i) the financial services holding company 
                        held the shares of any company engaged in such 
                        activities as of the date of the enactment of 
                        the Financial Services Competitiveness Act of 
                        1995 and the financial services holding company 
                        was then exempt from the provisions of section 
                        4 pursuant to section 4(d) as of such date;
                          ``(ii) the company engaged in such activities 
                        continues to engage only in the same general 
                        lines of business and related activities that 
                        such company conducted as of the date of the 
                        enactment of the Financial Services 
                        Competitiveness Act of 1995 (or other 
                        activities permitted under section 4(c) or 
                        section 10); and
                          ``(iii) 80 percent of the aggregate gross 
                        revenues of the financial services holding 
                        company and the subsidiaries of such holding 
                        company as of the date of the enactment of the 
                        Financial Services Competitiveness Act of 1995 
                        was attributable to--
                                  ``(I) ownership and operation of 
                                depository institutions;
                                  ``(II) activities that are financial 
                                in nature as determined by the Board 
                                pursuant to section 4(c)(8);
                                  ``(III) activities permissible under 
                                section 10; and
                                  ``(IV) such other activities that 
                                would be permissible generally for the 
                                holding company as a financial services 
                                holding company (other than as an 
                                investment bank holding company).
          ``(2) Nonfinancial companies.--
                  ``(A) In general.--Notwithstanding section 4(a), a 
                financial services holding company described in 
                paragraph (1)(A)(iii) may, during the 5-year period 
                beginning on the date that the company becomes a 
                financial services holding company, retain direct or 
                indirect ownership or control of voting shares of any 
                company that the financial services holding company 
                owns or controls on the date such holding company 
                becomes a financial services holding company.
                  ``(B) Extension of divestiture period.--The Board may 
                extend the period described in subparagraph (A) for an 
                additional period not to exceed 5 years if the Board--
                          ``(i) determines that such extension is 
                        necessary to avert substantial loss to the 
                        financial services holding company; and
                          ``(ii) finds that the financial services 
                        holding company has made good faith efforts to 
                        divest such shares.
                  ``(C) No expansion of nonfinancial companies prior to 
                divestiture.--Unless an acquisition or activity is 
                permitted in accordance with section 3 or 4(c)--
                          ``(i) no financial services holding company, 
                        and no company whose shares are owned or 
                        controlled by a financial services holding 
                        company in accordance with this paragraph, may 
                        acquire any interest in or assets of any other 
                        company, and
                          ``(ii) no company whose shares are owned or 
                        controlled by a financial services holding 
                        company pursuant to this paragraph may engage 
                        directly or indirectly in any activity that the 
                        company did not conduct on the day before the 
                        financial services holding company registered 
                        as a financial services holding company.
          ``(3) Restrictions on joint marketing.--No depository 
        institution (and no subsidiary of such institution) shall--
                  ``(A) offer or market, directly or indirectly through 
                any arrangement, any product or service of any 
                affiliate whose shares are owned or controlled by the 
                financial services holding company pursuant to this 
                subsection or section 10(j); or
                  ``(B) permit any of such depository institution's or 
                subsidiary's products or services to be offered or 
                marketed, directly or indirectly through any 
                arrangement, by or through any affiliate whose shares 
                are owned or controlled by the financial services 
                holding company pursuant to this subsection or section 
                10(j),
        unless, in a case involving an affiliate held under this 
        subsection, the product or service is permissible for financial 
        services holding companies to provide under section 4(c)(8) or 
        10.
          ``(4) Depository institution defined.--For purposes of 
        paragraph (3), the term `depository institution' includes a 
        foreign bank.''.

SEC. 106. PROVISIONS APPLICABLE TO LIMITED PURPOSE BANKS.

  (a) Exception to Restriction on Asset Growth of Nonbank Banks.--
          (1) In general.--Section 4(f)(3) of the Bank Holding Company 
        Act of 1956 (12 U.S.C. 1843(f)(3)) is amended by adding at the 
        end the following new subparagraph:
                  ``(D) Exception to restriction on asset growth, 
                activities, and certain cross-marketing restrictions.--
                          ``(i) Qualification for exception from growth 
                        restriction.--A bank controlled by a company 
                        described in paragraph (1) shall not be subject 
                        to the limitation contained in subparagraph 
                        (B)(iv) if the company meets the requirements 
                        of this subparagraph and the requirements of 
                        paragraph (14).
                          ``(ii) Qualification for exception from 
                        activities restriction.--Notwithstanding 
                        subparagraph (B)(i), a bank controlled by a 
                        company described in paragraph (1) that meets 
                        the requirements of clause (i) may engage in an 
                        activity authorized under applicable law (other 
                        than an activity that would have resulted in 
                        the institution being a bank for purposes of 
                        this Act, as in effect on the day before the 
                        date of the enactment of the Competitive 
                        Equality Banking Act of 1987, based on the 
                        activities each bank conducted on March 5, 
                        1987, as reported to the Board) if such bank, 
                        at least 60 days before commencing such 
                        activity, has notified the Board of the bank's 
                        intention to commence such activity and 
                        either--
                                  ``(I) the Board has notified such 
                                bank that the Board will not disapprove 
                                the proposed activity as unsafe or 
                                unsound; or
                                  ``(II) the Board has not, within 60 
                                days after receiving such notice, 
                                disapproved the proposal on the basis 
                                of such criteria.
                          ``(iii) Qualification for exception from 
                        cross-marketing restriction.--Notwithstanding 
                        subparagraph (B)(ii), a bank controlled by a 
                        company described in paragraph (1) that meets 
                        the requirements of clause (i) may offer or 
                        market products or services of an affiliate or 
                        permit the bank's products or services to be 
                        offered or marketed in connection with products 
                        or services of an affiliate if such products or 
                        services are offered or marketed only to the 
                        extent permissible for banks or financial 
                        services holding companies to provide by law, 
                        regulation, or order under paragraph (8) or 
                        (15) of subsection (c).
                          ``(iv) Exception from divestiture requirement 
                        for banks restored to well capitalized level.--
                        If any bank controlled by a company that meets 
                        the requirements of clause (i) ceases to be 
                        well capitalized, the company shall divest 
                        control of such bank in accordance with 
                        paragraph (4) unless--
                                  ``(I) within 12 months after the date 
                                the bank ceases to be well capitalized, 
                                the capital of the bank is restored to 
                                the well capitalized level; and
                                  ``(II) after the end of such 12-month 
                                period, the bank remains well 
                                capitalized, subject to the capital 
                                restoration requirements in subclause 
                                (I).
                          ``(v) Action required if bank ceases to be 
                        adequately capitalized.--If any bank controlled 
                        by a company that meets the requirements of 
                        clause (i) ceases to be adequately capitalized, 
                        the company shall, within 30 days after the 
                        date as of which the bank ceases to be 
                        adequately capitalized--
                                  ``(I) execute an agreement with the 
                                Board to divest control of such bank in 
                                accordance with paragraph (4); or
                                  ``(II) restore the capital of the 
                                bank to at least the adequately 
                                capitalized level.''.
          (2) Qualifications for companies under paragraph (3)(d).--
        Section 4(f) of the Bank Holding Company Act of 1956 (12 U.S.C. 
        1843(f)) is amended by adding at the end the following new 
        paragraph:
          ``(14) Qualifications for companies under paragraph (3)(d).--
        A company meets the requirements of paragraph (3)(D)(i) if--
                  ``(A) the company (based on consolidated revenues) 
                engages in activities that are financial (including 
                activities not authorized under subsection (c)(8)) and 
                predominantly in--
                          ``(i) banking;
                          ``(ii) activities that the Board has 
                        determined under subsection (c)(8) to be 
                        financial in nature or incidental to such 
                        financial activities;
                          ``(iii) activities permitted under 
                        subparagraph (A) or (B) of section 10(a)(1); 
                        and
                          ``(iv) other activities that would be 
                        permissible for such company as a financial 
                        services holding company (other than as an 
                        investment bank holding company);
                  ``(B) all insured depository institutions controlled 
                by such company are well capitalized and well managed;
                  ``(C) the bank and any affiliate of the bank that is 
                engaged in securities activities described in section 
                10(a) comply with the safeguards contained in section 
                11 as if that affiliate were a securities affiliate; 
                and
                  ``(D) the company has provided at least 60 days prior 
                written notice to the Board and, during that period, 
                the Board has not disapproved the proposal.''.
  (b) Amended Divestiture Procedure for Certain Companies.--Section 
4(f)(4) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(f)(4)) 
is amended by adding at the end the following: ``If any company 
described in paragraph (1) which meets the requirements of paragraph 
(3)(D)(i) fails to qualify for the exemption provided under paragraph 
(2), such company shall divest, in accordance with this paragraph, 
control of each bank the company controls unless, within 12 months 
after the date that the company fails to comply with the provisions of 
paragraph (2), the company has corrected the condition or ceased the 
activity that led to the failure to comply.''.
  (c) Conversion of Certain Nonbank Holding Companies to Financial 
Services Holding Companies.--Section 4(f) of the Bank Holding Company 
Act of 1956 (12 U.S.C. 1843(f)) is amended by inserting after paragraph 
(14) (as added by subsection (a)(2)) the following new paragraph:
          ``(15) Conversion of certain companies to financial services 
        holding companies.--
                  ``(A) In general.--During the 18-month period 
                beginning on the date of the enactment of the Financial 
                Services Competitiveness Act of 1995, any company 
                described in paragraph (1) may become a financial 
                services holding company if--
                          ``(i) the company (on a consolidated basis) 
                        engages in activities that are financial 
                        (including activities not authorized under 
                        subsection (c)(8)) and predominantly in--
                                  ``(I) banking;
                                  ``(II) activities that the Board has 
                                determined under subsection (c)(8) to 
                                be financial in nature or incidental to 
                                such financial activities;
                                  ``(III) activities permitted under 
                                subparagraph (A) or (B) of section 
                                10(a)(1); and
                                  ``(IV) other activities that would be 
                                permissible for such company as a 
                                financial services holding company 
                                (other than an investment bank holding 
                                company);
                          ``(ii) all insured depository institutions 
                        controlled by such company are well capitalized 
                        and well managed;
                          ``(iii) the company provides written notice 
                        to the Board under sections 4 and 10 at least 
                        60 days before the company becomes a financial 
                        services holding company; and
                          ``(iv) the Board does not object to such 
                        transaction before the end of such 60-day 
                        period.
                  ``(B) Retention of financial companies.--
                          ``(i) In general.--Notwithstanding subsection 
                        (a), a company that becomes a financial 
                        services holding company pursuant to 
                        subparagraph (A) may retain direct or indirect 
                        ownership or control of voting shares of any 
                        company that engages solely in activities that 
                        the Board finds to be financial but which the 
                        Board has not authorized under subsection 
                        (c)(8) (and such other financial activities 
                        that the Board has authorized) if the financial 
                        services holding company acquired the shares of 
                        such company, or of each company to which such 
                        company is a successor, before January 1, 1995.
                          ``(ii) Limits on expansion following 
                        registration.--A company that becomes a 
                        financial services holding company pursuant to 
                        this paragraph, and any company whose shares 
                        are owned or controlled by a financial services 
                        holding company pursuant to this paragraph, 
                        shall be subject to the limitations contained 
                        in paragraphs (2)(C) and (3) of section 4(k) as 
                        if the activities or shares of such company 
                        were conducted or held pursuant to section 
                        4(k)(2).
                          ``(iii) Period to conform other activities.--
                        Notwithstanding subsection (a), a company that 
                        becomes a financial services holding company 
                        pursuant to subparagraph (A) may retain direct 
                        or indirect ownership or control of voting 
                        shares of any company not otherwise permitted 
                        under this section for the period provided in, 
                        and subject to the conditions contained in, 
                        paragraphs (2) and (3) of section 4(k).
                  ``(C) Election for reduced supervision.--Any company 
                that becomes a financial services holding company 
                pursuant to subparagraph (A) may elect to be governed 
                by the provisions of paragraphs (3), (4), (5), and (6) 
                of section 5(g), subject to the requirements of such 
                section, if--
                          ``(i) the company, and any insured depository 
                        institution controlled by such company, meet 
                        the requirements of section 5(g) (other than 
                        the requirements of paragraph (2)(A) of such 
                        section);
                          ``(ii) the company does not acquire more than 
                        5 percent of the shares of any additional 
                        depository institution after the date that such 
                        company becomes a financial services holding 
                        company; and
                          ``(iii) no depository institution controlled 
                        by such company acquires, establishes, or 
                        operates an additional branch office after the 
                        date that the company becomes a financial 
                        services holding company.''.

SEC. 107. SECURITIES COMPANY AFFILIATIONS OF FDIC-INSURED BANKS.

  (a) In General.--Section 18 of the Federal Deposit Insurance Act (12 
U.S.C. 1828) is amended by adding at the end the following new 
subsections:
  ``(s) Securities Affiliations of Banks.--
          ``(1) In general.--A bank shall not be an affiliate of any 
        company that, directly or indirectly, acts as an underwriter or 
        dealer of any security, other than--
                  ``(A) a securities affiliate in accordance with 
                section 10 of the Financial Services Holding Company 
                Act of 1995; or
                  ``(B) a company that underwrites or deals only in 
                securities described in section 10(g) of the Financial 
                Services Holding Company Act of 1995.
          ``(2) Exceptions.--
                  ``(A) Certain banks not included.--For purposes of 
                this subsection, the term `bank' does not include--
                          ``(i) an insured bank described in 
                        subparagraph (D), (F), or (H) of section 
                        2(c)(2) of the Financial Services Holding 
                        Company Act of 1995; and
                          ``(ii) a Federal branch or an insured branch 
                        (as defined in section 3 of the Federal Deposit 
                        Insurance Act).
                  ``(B) Affiliations with edge act and agreement 
                corporations.--Paragraph (1) shall not apply with 
                respect to the affiliation of a bank with a company 
                held pursuant to section 25 or 25A of the Federal 
                Reserve Act or section 4(c)(13) of the Financial 
                Services Holding Company Act of 1995.
          ``(3) Grandfather provision.--This subsection shall not apply 
        with respect to--
                  ``(A) an affiliation that existed on January 1, 1995; 
                or
                  ``(B) any new affiliation by an insured bank that has 
                an affiliation that would be prohibited if the 
                affiliation were not covered by subparagraph (A).
          ``(4) Definitions.--For purposes of this subsection, the 
        following definitions shall apply:
                  ``(A) Broker.--The term `broker' has the meaning 
                given to such term in section 3(a)(4) of the Securities 
                Exchange Act of 1934.
                  ``(B) Dealer.--The term `dealer' has the meaning 
                given to such term in section 3(a)(5) of the Securities 
                Exchange Act of 1934.
                  ``(C) Security.--The term `security' has the meaning 
                given to such term in section 10(k) of the Financial 
                Services Holding Company Act of 1995.
                  ``(D) Underwriter.--The term `underwriter' has the 
                meaning given to such term in section 2(11) of the 
                Securities Act of 1933.
          ``(5) Affiliate.--For purposes of this subsection, a 
        separately identifiable department or division (as defined in 
        section 3(a) of the Securities Exchange Act of 1934) of a bank 
        shall be deemed to be a company which is an affiliate of the 
        bank.
  ``(t) Broker-Dealer Registration.--An insured bank may not use the 
United States mails or any means or instrumentality of interstate 
commerce to act as a broker or dealer without registration under the 
Securities Exchange Act of 1934--
          ``(1) except to the extent permitted under the circumstances 
        described in paragraph (4) or (5) of section 3(a) of such Act; 
        or
          ``(2) unless otherwise exempt from registrations as a broker 
        or dealer pursuant to regulations prescribed by the Securities 
        and Commission.
  ``(u) Examination Reports.--The Federal banking agencies shall, to 
the maximum extent practicable, use the reports of examination of any 
broker, dealer, investment adviser, or investment company made by or on 
behalf of the Securities and Exchange Commission and reports made by or 
on behalf of a registered securities association or national securities 
exchange and shall defer to such examination for compliance with 
Federal securities laws.''.
  (b) Study of Risks to Deposit Insurance System.--
          (1) Study required.--During the 6-month period beginning 18 
        months after the date of the enactment of the Financial 
        Services Competitiveness Act of 1995, the Federal Deposit 
        Insurance Corporation shall conduct a study of the risks posed 
        to the deposit insurance funds by--
                  (A) the affiliation of insured depository 
                institutions with securities affiliates and other 
                institutions described in subsection (s)(1) of section 
                18 of the Federal Deposit Insurance Act (as added by 
                subsection (a) of this section); or
                  (B) any activity described in section 10(a) (as added 
                by section 103(a) of this Act) of the Financial 
                Services Holding Company Act of 1995 (as so 
                redesignated by section 128(a) of this Act) in which 
                insured depository institutions may engage in 
                accordance with any provision of Federal or State law.
          (2) Report to congress and gao.--
                  (A) In general.--Before the end of the 6-month period 
                described in paragraph (1), the Federal Deposit 
                Insurance Corporation shall submit a report to the 
                Congress on the findings and conclusions of the 
                Corporation with respect to the study conducted under 
                such paragraph, together with such conclusions for 
                administrative or legislative action as the Corporation 
                may determine to be appropriate.
                  (B) Details of specific risks.--If the Federal 
                Deposit Insurance Corporation concludes that certain 
                kinds of activities not specifically authorized by 
                statute for insured depository institutions before the 
                date of the enactment of this Act, or the affiliation 
                of insured depository institutions with securities 
                affiliates engaged in certain kinds of securities 
                activities, pose a greater risk to the deposit 
                insurance funds than activities specifically authorized 
                by statute for national banks before January 1, 1995, 
                the report submitted under subparagraph (A) shall 
                contain a detailed explanation of the basis for such 
                conclusion.
                  (C) Transmittal to gao.--The Federal Deposit 
                Insurance Corporation shall transmit a copy of the 
                report referred to in paragraph (1) to the Comptroller 
                General.
          (3) Action by fdic.--If the Federal Deposit Insurance 
        Corporation concludes that any activity or affiliation with 
        respect to insured depository institutions poses a greater risk 
        to any deposit insurance fund than the risk posed by activities 
        specifically authorized by statute for national banks before 
        January 1, 1995, the Federal Deposit Insurance Corporation 
        shall treat such conclusion as a factor to be considered in 
        setting semiannual assessments under section 7(b)(2)(A) of the 
        Federal Deposit Insurance Act.
          (4) Evaluation of report by gao.--The Comptroller General 
        shall--
                  (A) evaluate the report transmitted by the Federal 
                Deposit Insurance Corporation to the Comptroller 
                General under paragraph (2); and
                  (B) submit a report to the Congress on such 
                evaluation, including a discussion on the methodology 
                used by the Corporation to assess risks posed by 
                nonbanking activities to the deposit insurance funds.

SEC. 108. AUTHORITY TO TERMINATE GRANDFATHER RIGHTS UNDER THE 
                    INTERNATIONAL BANKING ACT OF 1978.

  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) Parity in conduct of authorized securities 
        activities.--
                  ``(A) In general.--Notwithstanding the provisions of 
                paragraph (1) or any other provision of law, any 
                authority conferred under this subsection on any 
                foreign bank or company with respect to securities 
                activities authorized for financial services holding 
                companies in the United States shall terminate 30 days 
                following approval by the Board of an application by 
                such foreign bank or company under section 10 of the 
                Financial Services Holding Company Act of 1995.
                  ``(B) Authority to impose conditions.--If a foreign 
                bank or company that engages directly or through an 
                affiliate in any securities activity pursuant to 
                paragraph (1) has not received approval by the Board 
                under section 10 of the Financial Services Holding 
                Company Act of 1995 to control a securities affiliate 
                by the end of the 3-year period beginning on the 
                effective date of such Act, the Board may impose such 
                limitations and restrictions, including the termination 
                of any activities conducted under paragraph (1) or a 
                requirement that such activities be conducted in 
                compliance with the safeguards of section 11 of such 
                Act, as the Board considers appropriate consistent with 
                the purposes of this Act and the Financial Services 
                Holding Company Act of 1995.''.

SEC. 109. EFFECT ON STATE LAWS PROHIBITING THE AFFILIATION OF BANKS AND 
                    SECURITIES COMPANIES.

  (a) In General.--Section 7 of the Bank Holding Company Act of 1956 
(12 U.S.C. 1846) is amended by adding at the end the following new 
subsection:
  ``(c) Affiliations and Activities.--No State may prohibit or limit--
          ``(1) the affiliation of a bank or financial services holding 
        company with a securities affiliate solely because the 
        securities affiliate is engaged in activities described in 
        subparagraph (A) or (B) of section 10(a)(1); or
          ``(2) the insurance or other activities of a subsidiary of a 
        financial services holding company solely because the financial 
        services holding company is no longer exempt under this Act 
        pursuant to section 4(d).''.
  (b) Bank Activities.--No provision of this Act, and no amendment made 
by this Act to any other provision of law (other than section 10 or 11 
of the Financial Services Holding Company Act of 1995 (as added by 
sections 103 and 104 of this Act), section 18(s) of the Federal Deposit 
Insurance Act (as added by section 107 of this Act), or any amendments 
made by title II of this Act), may be construed as affecting the 
authority of any bank to engage in any activity authorized for such 
bank under the law of such bank's home State (as defined in section 
2(o)(4) of the Financial Services Holding Company Act of 1995).

SEC. 110. MUNICIPAL SECURITIES.

  The paragraph designated the ``Seventh'' of section 5136 of the 
Revised Statutes of the United States (12 U.S.C. 24) is amended by 
adding at the end the following new sentences: ``Notwithstanding any 
limitation and restriction contained in this paragraph relating to 
dealing, underwriting, and purchasing securities and in addition to any 
authorization in this paragraph to deal in, underwrite or purchase 
securities, a national bank may deal in, underwrite, and purchase for 
such association's own account any obligation (including general and 
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 instrumentalities of 1 or more 
States, or any public agency or authority of any State or political 
subdivision of a State, if the national bank--
          ``(1) is well capitalized (as defined in section 38(b) of the 
        Federal Deposit Insurance Act); and
          ``(2) engages in the business of banking.''.
SEC. 111. INTERAGENCY AGREEMENT RELATING TO RETAIL SALES OF CERTAIN 
                    NONDEPOSIT INVESTMENT PRODUCTS.

  Section 18 of the Federal Deposit Insurance Act (12 U.S.C. 1828) is 
amended by inserting after subsection (u) (as added by section 107 of 
this Act) the following new subsection:
  ``(v) Joint Standards Relating to Retail Sales of Certain Nondeposit 
Investment Products.--
          ``(1) In general.--The appropriate Federal banking agencies 
        shall jointly prescribe, after consulting with and considering 
        the views of the Securities and Exchange Commission, standards 
        applicable to any insured depository institution which--
                  ``(A) is not registered as a broker under the 
                Securities Exchange Act of 1934; and
                  ``(B) effects transactions in securities issued by an 
                investment company or annuities.
          ``(2) Scope of standards.--The standards required under 
        paragraph (1) with respect to securities and annuities referred 
        to in such paragraph shall, at a minimum, establish 
        requirements with respect to--
                  ``(A) sales practices;
                  ``(B) disclosures and advertising in connection with 
                transactions in such securities and annuities, 
                including--
                          ``(i) the content, form, and timing of any 
                        such disclosure; and
                          ``(ii) disclaimers concerning the noninsured 
                        status of the security or annuity;
                  ``(C) the compensation of sales personnel with 
                respect to referrals or transactions;
                  ``(D) the training of and qualifications for 
                personnel involved in such transactions, including 
                training in making an accurate judgment about the 
                suitability of a particular investment product for a 
                prospective customer; and
                  ``(E) the setting in which and the circumstances 
                under which transactions may be effected, and referrals 
                made, by sales personnel with respect to such 
                securities and annuities.''.

SEC. 112. EFFECTIVE DATE.

  The amendments made by this subtitle shall take effect at the end of 
the 90-day period beginning on the date of the enactment of this Act.

             Subtitle B--Investment Bank Holding Companies

SEC. 116. INVESTMENT BANK HOLDING COMPANIES.

  (a) Definitions.--
          (1) In general.--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:
  ``(s) Wholesale Financial Institution.--The term `wholesale financial 
institution' means any institution that is an uninsured State member 
bank authorized pursuant to section 9B of the Federal Reserve Act.
  ``(t) Investment Bank Holding Company.--The term `investment bank 
holding company' means any financial services holding company that--
          ``(1) controls a company engaged in underwriting corporate 
        equity securities pursuant to section 10;
          ``(2) controls a wholesale financial institution; and
          ``(3) if the company is a foreign bank that operates a 
        branch, agency or commercial lending company in the United 
        States, or is a company that controls such foreign bank, is 
        treated as an investment bank holding company because such bank 
        or company meets the criteria in section 12(b) and has received 
        the determination required by such section.''.
          (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.''.
  (b) Investment Bank Holding Companies.--The Bank Holding Company Act 
of 1956 (12 U.S.C. 1841 et seq.) is amended by inserting after section 
11 (as added by section 104 of this Act) the following new section:

``SEC. 12. INVESTMENT BANK HOLDING COMPANIES.
  ``(a) Permissible Affiliations for Investment Bank Holding 
Companies.--
          ``(1) Financial activities.--
                  ``(A) Activities authorized.--An investment bank 
                holding company may directly or indirectly own or 
                control shares of any company engaged in any activity 
                the Board has determined to be financial in nature or 
                incidental to a financial activity (other than 
                activities expressly limited under subsection (c)(8)), 
                or any activity in compliance with subparagraph (B) or 
                (C).
                  ``(B) Incidental activities.--
                          ``(i) In general.--Notwithstanding 
                        subparagraph (A), the aggregate investment by 
                        an investment bank holding company in shares of 
                        companies that engage in nonfinancial 
                        activities and financial activities (other than 
                        those otherwise permitted under this section) 
                        shall not at any time exceed 7.5 percent (or 
                        such greater percentage as the Board may 
                        determine to be appropriate) of the 
                        consolidated total risk-weighted assets of the 
                        investment bank holding company (excluding 
                        assets of companies held pursuant to this 
                        subparagraph), except that the amount invested 
                        by the investment bank holding company in any 1 
                        company (including all affiliates of such 
                        company other than preexisting affiliates of 
                        such investment bank holding company) may not 
                        exceed the amount which is equal to 25 percent 
                        of the total capital and surplus of such 
                        investment bank holding company.
                          ``(ii) Applicability to successor in 
                        interest.--Any successor to any investment bank 
                        holding company referred to in clause (i) may 
                        retain any investments made pursuant to this 
                        subparagraph--
                                  ``(I) during the 5-year period 
                                beginning on the date the succession is 
                                consummated; and
                                  ``(II) with the consent of the Board, 
                                for an additional period not to exceed 
                                5 years after the 5-year period 
                                referred to in subclause (I),
                        unless the Board determines that the retention 
                        of such investment would jeopardize the safety 
                        and soundness of any insured depository 
                        institution affiliate of such successor.
                          ``(iii) Cross marketing restrictions.--A 
                        wholesale financial institution shall not--
                                  ``(I) offer or market, directly or 
                                through any arrangement, any product or 
                                service of an affiliate whose shares 
                                are owned or controlled by the 
                                investment bank holding company 
                                pursuant to this subparagraph or 
                                subparagraph (C); or
                                  ``(II) permit any of such wholesale 
                                financial institution's or subsidiary's 
                                products or services to be offered or 
                                marketed, directly or through any 
                                arrangement, by or through any such 
                                affiliate.
                          ``(iv) Use of common name.--An investment 
                        bank holding company shall not permit a 
                        wholesale financial institution to adopt a name 
                        which is the same as or similar to, or a 
                        variation of, the name or title of an affiliate 
                        engaged in activities pursuant to subparagraph 
                        (B).
                  ``(C) Commodities.--
                          ``(i) In general.--An investment bank holding 
                        company predominantly engaged as of January 1, 
                        1995, in securities 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, 1995, provided 
                        such investment bank 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, 1995, in the United States.
                          ``(ii) Limitation.--Notwithstanding 
                        subparagraphs (A) and (B), the aggregate 
                        investment by an investment bank holding 
                        company in activities under this subparagraph 
                        (other than those otherwise permitted under 
                        this section) shall not at any time exceed 5 
                        percent of the total consolidated assets of the 
                        investment bank holding company.
                          ``(iii) Successor defined.--For purposes of 
                        this subparagraph and subparagraph (B), the 
                        term `successor' means, with respect to any 
                        investment bank holding company described in 
                        clause (i), any company that merges with, or 
                        acquires control of, such investment bank 
                        holding company.
                  ``(D) Qualified investor in an investment bank 
                holding company.--
                          ``(i) In general.--Notwithstanding any other 
                        provision of Federal or State law, a qualified 
                        investor--
                                  ``(I) shall not be, or be deemed to 
                                be, an investment bank holding company, 
                                a financial services holding company, a 
                                bank holding company, or any similar 
                                organization; and
                                  ``(II) shall not be deemed to control 
                                any such company or organization or any 
                                subsidiary of any such company or 
                                organization (other than for purposes 
                                of section 23A and 23B of the Federal 
                                Reserve Act),
                        by virtue of the investor's ownership or 
                        control of shares of an investment bank holding 
                        company.
                          ``(ii) Qualified investor defined.--For 
                        purposes of this subparagraph, the term 
                        `qualified investor' means any United States 
                        company (including a parent company and all 
                        subsidiaries of which the parent company holds 
                        at least 80 percent of the total voting equity 
                        securities) which since February 27, 1995, has 
                        directly or indirectly owned or controlled 
                        shares of capital stock representing at least 
                        10 percent, and not more than 45 percent, of 
                        the outstanding voting shares or voting power 
                        of a company that--
                                  ``(I) becomes an investment bank 
                                holding company or a subsidiary of an 
                                investment bank holding company; and
                                  ``(II) before such company became an 
                                investment bank holding company or a 
                                subsidiary of an investment bank 
                                holding company, had more than 50 
                                percent of the company's assets 
                                employed directly or indirectly in 
                                securities activities.
                          ``(iii) Cross-marketing and common name.--A 
                        wholesale financial institution shall not--
                                  ``(I) offer or market products or 
                                services of a qualified investor in the 
                                investment bank holding company of 
                                which the wholesale financial 
                                institution is an affiliate;
                                  ``(II) permit the institution's 
                                products or services to be offered or 
                                marketed in connection with products or 
                                services of such qualified investor; or
                                  ``(III) adopt a name which is the 
                                same as or similar to, or a variation 
                                of, the name or title of such qualified 
                                investor.
                          ``(iv) Examination and reporting.--
                        Notwithstanding any other provision of law, the 
                        Board may conduct examinations of, or require 
                        reports from, a qualified investor only to the 
                        extent that the Board reasonably determines 
                        that such examinations or reports are 
                        necessary--
                                  ``(I) to ensure compliance with this 
                                subparagraph; or
                                  ``(II) to the extent that the 
                                qualified investor is an affiliate of a 
                                wholesale financial institution for 
                                purposes of section 23A of the Federal 
                                Reserve Act, to ensure compliance with 
                                restrictions imposed by law or 
                                regulation on transactions between the 
                                qualified investor and such wholesale 
                                financial institution.
                  ``(E) Special rule.--An investment bank holding 
                company that owns and controls shares of a company 
                pursuant to subparagraph (B) or (C) may not own or 
                control shares of a company pursuant to section 4(k).
                  ``(F) Consolidated total risk-weighted assets.--For 
                purposes of this paragraph, the following definitions 
                shall apply:
                          ``(i) In general.--The term `consolidated 
                        total risk-weighted assets' shall have the 
                        meaning given to such term in regulations 
                        prescribed by the Board as in effect on the 
                        date of the enactment of the Financial Services 
                        Competitiveness Act of 1995.
                          ``(ii) Application to foreign banks.--In the 
                        case of a foreign bank or a company that owns 
                        or controls a foreign bank, the term 
                        `consolidated total risk-weighted assets' means 
                        total risk-weighted assets held by the foreign 
                        bank or company in the United States in any 
                        United States branch, agency, or commercial 
                        lending company subsidiary, any depository 
                        institution controlled by the foreign bank or 
                        company, any subsidiary held under the 
                        authority of this section, section 3, 4, or 10 
                        (other than paragraph (9) or (13) of section 
                        4(c)), or section 25 or 25A of the Federal 
                        Reserve Act.
          ``(2) Securities activities.--
                  ``(A) Institutions must be well capitalized.--The 
                Board shall disapprove a notice under section 10 by an 
                investment bank holding company (or a company seeking 
                to become an investment bank holding company) to 
                acquire a securities affiliate if any wholesale 
                financial institution controlled by the investment bank 
                holding company is not well capitalized or would not be 
                well capitalized following the transaction.
                  ``(B) Transactions with affiliates.--
                          ``(i) In general.--A wholesale financial 
                        institution controlled by an investment bank 
                        holding company shall be treated as a bank for 
                        purposes of the provisions of sections 23A and 
                        23B of the Federal Reserve Act.
                          ``(ii) Other restrictions regarding 
                        securities affiliates determined by the 
                        board.--A securities affiliate of an investment 
                        bank holding company, and a wholesale financial 
                        institution controlled by an investment bank 
                        holding company, shall not be subject to the 
                        provisions of section 11, except that the 
                        securities affiliate and wholesale financial 
                        institution shall be subject to subsections (l) 
                        and (m) of such section in the same manner and 
                        to the same extent such paragraphs would apply 
                        if the wholesale financial institution were an 
                        insured depository institution.
          ``(3) Limitation on affiliation with insured depository 
        institutions.--An investment bank holding company may not, 
        directly or indirectly, own or control--
                  ``(A) any bank, other than a wholesale financial 
                institution;
                  ``(B) any savings association;
                  ``(C) any institution described in section 2(c)(2) 
                (other than subparagraphs (C) and (G) of such section); 
                or
                  ``(D) any institution that accepts--
                          ``(i) initial deposits of $100,000 or less, 
                        other than on an incidental or occasional 
                        basis, or
                          ``(ii) deposits that are insured under the 
                        Federal Deposit Insurance Act.
          ``(4) No deposit insurance fund liability.--No Federal 
        deposit insurance funds may be used in connection with the 
        failure of, or any proposed assistance to, a wholesale 
        financial institution or an investment bank holding company.
          ``(5) Capital of ibhc.--
                  ``(A) In general.--The Board shall not impose any 
                capital requirement on investment bank holding 
                companies or subsidiaries of such companies (other than 
                depository institutions) unless any such requirement is 
                based upon appropriate risk-weighing considerations.
                  ``(B) Applicable accounting principles.--In applying 
                any capital standard to investment bank holding 
                companies, or subsidiaries of such companies, the Board 
                shall utilize uniform accounting principles consistent 
                with generally accepted accounting principles in 
                accordance with section 37(a)(2) of the Federal Deposit 
                Insurance Act.
  ``(b) Qualification of Foreign Bank as Investment Bank Holding 
Company.--
          ``(1) In general.--Any foreign bank that--
                  ``(A) operates a branch, agency or commercial lending 
                company in the United States (and any company that owns 
                or controls such foreign bank), including a foreign 
                bank that does not own or control a wholesale financial 
                institution; and
                  ``(B) controls 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 an investment bank holding company.
          ``(2) Conditions for treatment as an investment bank holding 
        company.--A foreign bank and a company that owns or controls a 
        foreign bank may not be treated as an investment bank 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 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) Transactions 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 
                (a)(1)(B), 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 an investment bank holding company under this 
        subsection shall be treated as a wholesale financial 
        institution for purposes of clauses (iii) and (iv) of 
        subsection (a)(1)(B), subsection (a)(2)(B)(ii), and section 
        5(g), 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 an investment bank holding 
        company under this subsection shall not be eligible for any 
        exemption described in section 2(h).
  ``(c) Eligibility of Foreign Banks for Certain Treatment.--
          ``(1) Reciprocal national treatment.--
                  ``(A) In general.--A foreign bank that operates a 
                branch, agency or commercial lending company in the 
                United States, and any company that owns or controls 
                such a foreign bank, shall be eligible for the 
                treatment afforded under subsection (b) or section 
                11(n) only if the home country of such foreign bank or 
                company accords to United States banks the same 
                competitive opportunities in banking as such country 
                accords to domestic banks of such country.
                  ``(B) Coordination with nafta.--Subparagraph (A) 
                shall not apply in derogation of any obligation under 
                the North American Free Trade Agreement.
                  ``(C) Home country defined.--For purposes of 
                subparagraph (A), the term `home country' means, with 
                respect to any foreign bank or company referred to in 
                subparagraph (A), the country under the laws of which 
                the foreign bank or company is organized.
          ``(2) Prevention of evasion.--No foreign bank or bank owned 
        by a former United States national may operate a branch or 
        agency in the United State if the predominance of the assets of 
        such bank were acquired in connection with a merger with, or 
        purchase or assumption of all or substantially all the assets 
        of, a wholesale financial institution.
  ``(d) Rule for Financial Services Holding Companies.--For purposes of 
section 5(g)(2)(A)(ii), any foreign bank (as defined in section 1(b) of 
the International Banking Act of 1978) which is directly or indirectly 
owned, controlled, or operated by a company that--
          ``(1) as of January 1, 1995, was registered as a bank holding 
        company; or
          ``(2) is a successor to any such bank holding company,
shall be treated as a wholesale financial institution.''.
  (c) Conforming Amendments.--
          (1) 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 that is 
        controlled by an investment bank holding company that controls 
        no banks other than wholesale financial institutions.''.
          (2) Appropriate federal banking agency.--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 wholesale financial institution as 
                authorized pursuant to section 9B of the Federal 
                Reserve Act;''.

SEC. 117. WHOLESALE FINANCIAL INSTITUTIONS.

  (a) In General.--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 incorporated by special 
                law of any State, or organized under the general laws 
                of any State, may apply to the Board of Governors of 
                the Federal Reserve System to become a wholesale 
                financial institution and to subscribe to the stock of 
                the Federal reserve bank organized within the district 
                where the applying bank is located.
                  ``(B) Treatment as state member bank.--Any 
                application under subparagraph (A) shall be treated as 
                an application to become a State member bank under, and 
                shall be subject to the provisions of, section 9.
          ``(2) Insurance termination.--No bank that is 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 in accordance with subsection (c);
                  ``(B) the provisions applicable to well capitalized 
                insured depository institutions shall be inapplicable 
                to wholesale financial institutions;
                  ``(C) the provisions authorizing or requiring an 
                institution to be placed into receivership shall not 
                apply to a wholesale financial institution, and, 
                instead, the Board is authorized or required, as the 
                case may be, to terminate the wholesale financial 
                institution's membership in the Federal Reserve System 
                or place the bank into conservatorship; and
                  ``(D) for purposes of applying the provisions of 
                section 38 of the Federal Deposit Insurance Act to 
                wholesale financial institutions, 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), (u), 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, for purposes of 
        this paragraph, to be 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 the provisions of 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.
  ``(c) Specific Requirements Applicable to Wholesale Financial 
Institutions.--
          ``(1) Limitations on deposits.--
                  ``(A) Minimum amount.--
                          ``(i) In general.--Pursuant to such 
                        regulations as the Board may prescribe, 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 bank may be treated as a 
                        wholesale financial institution if the total 
                        amount of the initial deposits of $100,000 or 
                        less at such bank constitute more than 5 
                        percent of the bank'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) Special capital requirements applicable to wholesale 
        financial institutions.--
                  ``(A) Minimum capital levels.--
                          ``(i) In general.--The Board shall, by 
                        regulation, adopt capital requirements for 
                        wholesale financial institutions--
                                  ``(I) 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
                                  ``(II) 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.
                          ``(ii) Minimum leverage ratio.--The minimum 
                        leverage ratio of tier one capital to total 
                        assets of wholesale financial institutions 
                        shall be not less than the level required for a 
                        State member insured bank to be well 
                        capitalized unless the Board determines 
                        otherwise, consistent with safety and 
                        soundness.
                  ``(B) Capital categories for prompt corrective 
                action.--For purposes of applying section 38 of the 
                Federal Deposit Insurance Act with respect to any 
                wholesale financial institution, the Board shall, by 
                regulation, establish, for each relevant capital 
                measure specified by the Board under subparagraph (A), 
                the levels at which a wholesale financial institution 
                is well capitalized, adequately capitalized, 
                undercapitalized, significantly undercapitalized, and 
                critically undercapitalized.
          ``(3) Additional requirements applicable to wholesale 
        financial institutions.--In addition to any requirement 
        otherwise applicable to State member banks or applicable, under 
        this section, to wholesale financial institutions, the Board 
        may prescribe, by regulation or order, for wholesale financial 
        institutions--
                  ``(A) limitations on transactions with affiliates to 
                prevent 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
                          ``(ii) 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 State 
        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; and
                  ``(B) the protection of creditors and other persons, 
                including Federal reserve banks, engaged in 
                transactions with the wholesale financial institution.
          ``(5) 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 advances or discount under this Act to any 
        member bank or other depository institution.
  ``(d) 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.
  ``(e) Definitions.--For purposes of this section, the following 
definitions shall apply:
          ``(1) Wholesale financial institution.--The term `wholesale 
        financial institution' means a bank whose application to become 
        a wholesale financial institution and a State member bank has 
        been approved by the Board under this section.
          ``(2) Deposit.--The term `deposit' has the meaning given to 
        such term by the Board under this Act.
          ``(3) State member insured bank.--The term `State member 
        insured bank' means a State member bank which is an insured 
        bank (as defined in section 3(h) of the Federal Deposit 
        Insurance Act).
  ``(f) Exclusive Jurisdiction.--Subsections (c) and (e) of section 43 
of the Federal Deposit Insurance Act shall not apply to any wholesale 
financial institution.''.
  (b) 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 (9) as 
                paragraphs (1) through (8), 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 approve 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;
          ``(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; or
          ``(3) any institution described in section 2(c)(2) of the 
        Bank Holding Company Act of 1956.
  ``(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 under 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 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 after ``such 
        Act'' by inserting ``, or any wholesale financial institution 
        as defined in section 9B of this Act''.
  (c) Reports on Discounts and Advances to Wholesale Financial 
Institutions.--Section 10B of the Federal Reserve Act (12 U.S.C. 
347(b)) is amended by adding at the end the following new subsection:
  ``(c) Reports on Discounts and Advances to Wholesale Financial 
Institutions.--
          ``(1) In general.--The Board shall submit a report to the 
        Congress at the end of any year in which any wholesale 
        financial institution has obtained a discount, advance, or 
        other extension of credit from a Federal reserve bank.
          ``(2) Contents.--Any report submitted under paragraph (1) 
        shall explain the circumstances and need for any discount, 
        advance, or other extension of credit to a wholesale financial 
        institution during the period covered by the report, including 
        the type and amount of credit extended and the amount of credit 
        remaining outstanding as of the date of the report.''.

                    Subtitle C--Financial Activities

SEC. 121. FINANCIAL ACTIVITIES.

  Section 4(c)(8) of the Bank Holding Company Act of 1956 (12 U.S.C. 
1843(c)(8)) is amended--
          (1) by striking ``shares of any company'' and all that 
        follows through ``for a bank holding company to provide'' and 
        inserting ``shares of any company the activities of which the 
        Board after due notice has determined (by order, regulation, or 
        advisory opinion) to be financial in nature or incidental to 
        such financial activities. In determining whether an activity 
        is financial in nature or incidental to financial activities, 
        the Board shall take into account changes or reasonably 
        expected changes in the marketplace in which financial services 
        holding companies compete as well as changes or reasonably 
        expected changes in the technology by which these services are 
        delivered. In addition, the Board shall take into account 
        activities considered financial activities or banking or 
        financial operations for purposes of the regulation of the 
        Board designated as `Regulation K' (12 C.F.R. 211.23 
        (f)(5)(iii)(B)) as in effect on the date of the enactment of 
        the Financial Services Competitiveness Act of 1995. Any 
        activity that the Board has determined, by order or regulation 
        that is in effect on such date to be so closely related to 
        banking or managing or controlling banks as to be a proper 
        incident thereto shall be deemed to be of a financial nature 
        for purposes of this paragraph without further action by the 
        Board (subject to the same terms and conditions contained in 
        such order or regulation, unless modified by the Board), but 
        for purposes of this subsection it shall not be closely related 
        to banking or managing or controlling banks or financial in 
        nature or incidental to a financial activity for a financial 
        services holding company to provide'';
          (2) in the 3d sentence, by inserting ``and between activities 
        commenced by affiliates of different classes of banks'' before 
        the period at the end; and
          (3) by striking the 2d sentence.

SEC. 122. NO PRIOR APPROVAL REQUIRED FOR WELL CAPITALIZED AND WELL 
                    MANAGED FINANCIAL SERVICES HOLDING COMPANIES.

  Section 4(j) of the Bank Holding Company Act of 1956 (12 U.S.C. 
1843(j)) is amended--
          (1) in paragraph (1), by striking ``No'' and inserting 
        ``Except as provided in paragraph (3) or section 10(b)(3), 
        no''; and
          (2) by adding at the end the following new paragraphs:
          ``(3) No notice required for certain transactions.--
        Notwithstanding paragraph (1), no notice under subsection 
        (c)(8) or (a)(2)(B) is required for a proposal by a financial 
        services holding company to engage in any activity (other than 
        an activity described in subparagraph (A) or (B) of section 
        10(a)(1)) or acquire or retain the shares or assets of any 
        company (other than a securities affiliate) if the proposal 
        qualifies under paragraph (4).
          ``(4) Criteria for statutory approval.--A proposal qualifies 
        under this paragraph if all of the following criteria are met:
                  ``(A) Financial criteria.--Both before and 
                immediately after the proposed transaction--
                          ``(i) the acquiring financial services 
                        holding company is well capitalized;
                          ``(ii) the lead depository institution of 
                        such holding company is well capitalized;
                          ``(iii) well capitalized depository 
                        institutions control at least 80 percent of the 
                        aggregate total risk-weighted assets of 
                        depository institutions controlled by such 
                        holding company; and
                          ``(iv) no depository institution controlled 
                        by such holding company is undercapitalized.
                  ``(B) Managerial criteria.--
                          ``(i) Well managed.--At the time of the 
                        transaction, the acquiring financial services 
                        holding company, the lead depository 
                        institution of such holding company, and 
                        depository institutions that control at least 
                        80 percent of the aggregate total risk-weighted 
                        assets of depository institutions controlled by 
                        such holding company are well managed.
                          ``(ii) Limitation on poorly managed 
                        institutions.--No depository institution which 
                        is controlled by the acquiring financial 
                        services holding company has received any of 
                        the lowest 2 composite ratings at the later of 
                        the institution's most recent examination or 
                        subsequent review.
                          ``(iii) Recently acquired institutions.--
                        Depository institutions acquired by the 
                        financial services holding company during the 
                        12-month period ending on the date of the 
                        proposed transaction may be excluded for 
                        purposes of clause (ii) if--
                                  ``(I) the financial services holding 
                                company has developed a plan acceptable 
                                to the appropriate Federal banking 
                                agency for the institution to restore 
                                the capital and management of the 
                                institution; and
                                  ``(II) all such depository 
                                institutions represent, in the 
                                aggregate, less than 25 percent of the 
                                total risk-weighted assets of all 
                                depository institutions controlled by 
                                the financial services holding company.
                  ``(C) Activities permissible.--Following consummation 
                of the proposed transaction, the financial services 
                holding company engages directly or through a 
                subsidiary solely in--
                          ``(i) activities that are permissible under 
                        subsection (c)(8), as determined by the Board 
                        by any regulation, order, or advisory opinion 
                        under such subsection that is in effect at the 
                        time of the proposed transaction, subject to 
                        all of the restrictions, terms, and conditions 
                        of such subsection and such regulation, order, 
                        or advisory opinion; and
                          ``(ii) such other activities as are otherwise 
                        permissible under this Act, subject to the 
                        restrictions, terms and conditions, including 
                        any prior notice or approval requirements, 
                        provided in this Act.
                  ``(D) Size of acquisition.--
                          ``(i) Asset size.--The book value of the 
                        total risk-weighted assets acquired does not 
                        exceed 10 percent of the consolidated total 
                        risk-weighted assets of the acquiring financial 
                        services holding company.
                          ``(ii) Consideration.--The gross 
                        consideration to be paid for the securities or 
                        assets does not exceed 15 percent of the 
                        consolidated tier 1 capital of the acquiring 
                        financial services holding company.
                  ``(E) Notice not otherwise warranted.--For proposals 
                described in paragraph (5)(B), the Board has not, 
                before the conclusion of the period described in such 
                paragraph, advised the financial services holding 
                company that a notice under paragraph (1) is required.
          ``(5) Notification.--
                  ``(A) Commencement of activities approved by rule.--A 
                financial services holding company that qualifies under 
                paragraph (4) and proposes to engage de novo, directly 
                or through a subsidiary, in any activity that is 
                permissible under subsection (c)(8), as determined by 
                the Board by regulation, may commence that activity 
                without prior notice to the Board.
                  ``(B) Subsequent notice.--A financial services 
                holding company that commences an activity under 
                subsection (c)(8) without prior notice to the Board 
                shall provide written notice to the Board no later than 
                10 business days after commencing the activity.
                  ``(C) Activities permitted by order and 
                acquisitions.--
                          ``(i) In general.--At least 12 business days 
                        prior to commencing any activity (other than an 
                        activity described in subparagraph (A)) or 
                        acquiring shares or assets of any company in a 
                        proposal that qualifies under paragraph (4), 
                        the financial services holding company shall 
                        provide written notice to the Board of the 
                        proposal, unless the Board determines that no 
                        notice or a shorter notice period is 
                        appropriate.
                          ``(ii) Description of proposed activities.--A 
                        notice under clause (i) shall include a 
                        description of the proposed activities and the 
                        terms of any proposed acquisition.
          ``(6) Adjustment of amounts.--The Board may, by regulation, 
        adjust the amounts and the manner in which the percentage of 
        depository institutions is calculated under subparagraph 
        (B)(i), (B)(iii)(II), or (D) of paragraph (4) if the Board 
        determines that any such adjustment is consistent with safety 
        and soundness and the purposes of this Act.
          ``(7) Expedited procedure for new activities.--
                  ``(A) Expedited preacquisition review.--After the end 
                of the 12-day period referred to in paragraph (5)(C) 
                and subject to any final ruling under subparagraph (B), 
                a financial services holding company may acquire a 
                company engaged in activities that the company believes 
                are financial in nature for purposes of subsection 
                (c)(8) and that the Board has not previously reviewed 
                under such subsection if--
                          ``(i) the proposal qualifies under all of the 
                        criteria in paragraph (4) other than paragraph 
                        (4)(C);
                          ``(ii) the financial services holding company 
                        provides the notice required under paragraph 
                        (5)(C), and includes with such notice an 
                        explanation of the facts and circumstances that 
                        provide a reasonable basis for concluding that 
                        the proposed activities are financial in nature 
                        or incidental to such financial activities; and
                          ``(iii) before the end of such 12-day period, 
                        the Board has not--
                                  ``(I) required a notice under 
                                paragraph (1) with respect to the 
                                proposed transaction; or
                                  ``(II) advised the financial services 
                                holding company that the company has 
                                failed to provide a reasonable basis 
                                for concluding that the proposed 
                                activities are financial in nature or 
                                incidental to such financial 
                                activities.
                  ``(B) Postacquisition review.--
                          ``(i) Notice procedure.--A financial services 
                        holding company which is permitted to make an 
                        acquisition under this paragraph shall file a 
                        notice with the Board in accordance with 
                        paragraph (1) before the end of the 30-day 
                        period beginning on the date of the 
                        consummation of the acquisition.
                          ``(ii) Limited review.--The Board's review of 
                        a postconsummation notice required under this 
                        subparagraph shall be limited to determining 
                        whether the proposed activities are permissible 
                        under subsection (c)(8), including whether the 
                        proposal meets the criteria in paragraph 
                        (2)(A).
                          ``(iii) Conditional action.--No provision of 
                        this paragraph shall be construed as limiting 
                        in any way the authority of the Board under 
                        this section to impose conditions on the 
                        conduct of any activity or the ownership of any 
                        company.
                          ``(iv) Divestiture of impermissible 
                        activities.--If the Board determines that any 
                        proposed activity is not permissible under 
                        subsection (c)(8), the financial services 
                        holding company shall terminate the activity or 
                        divest the company acquired in reliance on this 
                        paragraph before the end of the 2-year period 
                        beginning on the date of such determination.
                  ``(C) Initial decision not prejudicial to subsequent 
                determination.--A decision by the Board under 
                subparagraph (A) not to require a notice under 
                paragraph (1) during the 12-day period referred to in 
                such subparagraph shall not prejudice the Board's 
                decision under subparagraph (B).''.

SEC. 123. STREAMLINED EXAMINATION AND REPORTING REQUIREMENTS FOR ALL 
                    FINANCIAL SERVICES HOLDING COMPANIES.

  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) Purposes.--
                  ``(A) In general.--The purpose of this subsection is 
                to authorize the Board, through reports and 
                examinations, to gather information from a financial 
                services holding company and the subsidiaries of any 
                such holding company regarding the structure, 
                activities, and financial condition of the financial 
                services holding company and such subsidiaries so that 
                the Board can monitor risks within the holding company 
                system that could adversely affect any depository 
                institution subsidiary of the holding company and may 
                monitor and enforce compliance with this Act.
                  ``(B) Purpose not to impose additional burdens on 
                holding companies.--It is the intended purpose of this 
                subsection that the Board shall--
                          ``(i) exercise the Board's authority to 
                        collect information under this section in a 
                        manner that is the least burdensome to 
                        financial services holding companies and the 
                        subsidiaries of such companies; and
                          ``(ii) rely, to the fullest extent possible, 
                        on reports prepared for and examinations 
                        conducted by or for other Federal and State 
                        supervisors.
                  ``(C) Purpose to require carefully tailored 
                examinations.--It is the intended purpose of this 
                subsection that the Board shall tailor the focus and 
                scope of any examination under this section to a 
                financial services holding company or to any subsidiary 
                of such company which, because of financial conditions, 
                activities, operations of such subsidiary, the 
                transactions between such subsidiary and other 
                affiliates, or the size of any such subsidiary poses a 
                potential material risk to a depository institution 
                subsidiary of such holding company.
          ``(2) Reports.--
                  ``(A) In general.--The Board from time to time may 
                require any financial services 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 the 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 a 
                        financial services holding company or any 
                        subsidiary of such company has been required to 
                        provide to other Federal and State supervisors 
                        or to appropriate self-regulatory 
                        organizations.
                          ``(ii) Availability.--A financial services 
                        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).
          ``(3) Examinations.--
                  ``(A) Limited use of examination authority.--The 
                Board may make examinations of each financial services 
                holding company and each subsidiary of such company in 
                order to--
                          ``(i) inform the Board of the nature of the 
                        operations and financial condition of the 
                        financial services holding company and such 
                        subsidiaries;
                          ``(ii) inform the Board of the--
                                  ``(I) financial and operational risks 
                                within the financial services holding 
                                company system that may affect any 
                                depository institution owned by such 
                                holding company; and
                                  ``(II) the systems of the holding 
                                company and such 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 a 
                        financial services 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 financial services 
                holding company to--
                          ``(i) the holding company; and
                          ``(ii) to any subsidiary (other than a 
                        depository institution subsidiary) of the 
                        holding company which, because of the size, 
                        condition, or activities of the subsidiary, the 
                        nature or size of transactions between such 
                        subsidiary and any depository institution 
                        affiliate, 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 subsidiary or of the holding 
                        company.
                  ``(C) Deference to bank examinations.--The Board 
                shall, to the fullest extent possible, use the report 
                of examinations of depository institutions made by the 
                Comptroller of the Currency, the Federal Deposit 
                Insurance Corporation, 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, use the reports 
                of examination made of--
                          ``(i) any registered broker or dealer by or 
                        on behalf of the Securities Exchange 
                        Commission, and
                          ``(ii) any other subsidiary that the Board 
                        finds to be comprehensively supervised under 
                        relevant Federal or State law by a Federal or 
                        state agency or authority.
                  ``(E) Confidentiality of reported information.--
                          ``(i) In general.--Notwithstanding any other 
                        provision of law, the Board shall not be 
                        compelled to disclose any 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 financial services 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 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 an 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, such holding company.''.

SEC. 124. HOLDING COMPANY SUPERVISION FOR FINANCIAL SERVICES HOLDING 
                    COMPANIES ENGAGED PRIMARILY IN NONBANKING 
                    ACTIVITIES.

  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) Reduced Supervision of Companies Controlling Principally 
Nondepository Institutions.--
          ``(1) Election.--
                  ``(A) In general.--Any financial services holding 
                company that qualifies under paragraph (2) may make an 
                election to be governed by the approval, capital, 
                reporting and examination requirements of paragraphs 
                (3), (4), (5) and (6) by--
                          ``(i) filing a written notice of such 
                        election with the Board; and
                          ``(ii) if applicable, providing a written 
                        guarantee to the Federal Deposit Insurance 
                        Corporation pursuant to paragraph (2).
                  ``(B) Effective period of election.--An election 
                under subparagraph (A) shall remain in effect--
                          ``(i) so long as the financial services 
                        holding company continues to qualify under 
                        paragraph (2); or
                          ``(ii) until the financial services holding 
                        company revokes the election.
          ``(2) Criteria for election.--A financial services holding 
        company may make an election under paragraph (1) if the company 
        meets all of the following criteria:
                  ``(A) Company principally controls nondepository 
                companies.--
                          ``(i) Financial services holding companies 
                        with depository institutions.--In the case of a 
                        financial services holding company (other than 
                        an investment bank holding company), the 
                        consolidated total risk-weighted assets of all 
                        depository institutions and foreign banks (as 
                        defined in section 1(b)(7) of the International 
                        Banking Act of 1978) controlled by the 
                        financial services holding company--
                                  ``(I) constitute less than 10 percent 
                                of the consolidated total risk-weighted 
                                assets of such company; and
                                  ``(II) are less than $5,000,000,000.
                          ``(ii) Investment bank holding companies.--In 
                        the case of an investment bank holding company, 
                        the consolidated total risk-weighted assets of 
                        all wholesale financial institutions controlled 
                        by the investment bank holding company--
                                  ``(I) constitute less than 25 percent 
                                of the consolidated total risk-weighted 
                                assets of such company; and
                                  ``(II) are less than $15,000,000,000.
                          ``(iii) Inflation adjustment.--The dollar 
                        limitation contained in clauses (i)(II) and 
                        (ii)(II) shall be adjusted annually after 
                        December 31, 1995, by the annual percentage 
                        increase in the Consumer Price Index for Urban 
                        Wage Earners and Clerical Workers published by 
                        the Bureau of Labor Statistics.
                          ``(iv) Authority to increase limits.--The 
                        Board may increase any of the percentages 
                        referred to in clauses (i)(I) and (ii)(I) and 
                        the dollar amounts described in clauses (i)(II) 
                        and (ii)(II) as the Board may determine to be 
                        appropriate.
                  ``(B) Well capitalized institutions.--Each depository 
                institution controlled by the financial services 
                holding company is well capitalized.
                  ``(C) Well managed institutions.--
                          ``(i) In general.--Each depository 
                        institution controlled by the financial 
                        services holding company received a CAMEL 
                        composite rating of 1 or 2 (or an equivalent 
                        rating under an equivalent rating system) in 
                        the most recent examination of such 
                        institution.
                          ``(ii) Exclusion for newly acquired 
                        institutions.--A depository institution 
                        acquired by a financial services holding 
                        company during the 12-month period ending on 
                        the date of the election by such company under 
                        paragraph (1) may be excluded for purposes of 
                        clause (i) if the financial services holding 
                        company has developed a plan acceptable to the 
                        appropriate Federal banking agency (for such 
                        institution) to restore the capital and 
                        management of the institution.
                  ``(D) Holding company guarantee.--
                          ``(i) In general.--The financial services 
                        holding company provides a written guarantee 
                        acceptable to the Federal Deposit Insurance 
                        Corporation to maintain the capital levels of 
                        each insured depository institution controlled 
                        by the financial services holding company at 
                        not less than the levels required for such 
                        institution to remain well capitalized.
                          ``(ii) Limitation on liability.--The 
                        liability of a financial services holding 
                        company under a guarantee provided under this 
                        subparagraph shall not exceed an amount equal 
                        to 10 percent of the total risk-weighted assets 
                        of the insured depository institution, measured 
                        as of the date that the institution becomes 
                        undercapitalized.
                          ``(iii) Duration of guarantee.--
                        Notwithstanding paragraph (1), a financial 
                        services holding company that has elected 
                        treatment under this subsection shall continue 
                        to be bound by the guarantee made under this 
                        subsection until released in accordance with 
                        this subparagraph.
                          ``(iv) Release from liability.--The Board 
                        shall release a financial services holding 
                        company from the guarantee applicable with 
                        respect to any depository institution 
                        subsidiary of such company--
                                  ``(I) upon the written request of the 
                                financial services holding company to 
                                revoke the company's election under 
                                paragraph (1) if the Board determines 
                                that each depository institution 
                                controlled by the financial services 
                                holding company is well capitalized and 
                                well managed at the time of such 
                                revocation;
                                  ``(II) in the case of a financial 
                                services holding company which no 
                                longer meets the requirements of 
                                subparagraph (A), upon a determination 
                                by the Board that each depository 
                                institution controlled by the financial 
                                services holding company is well 
                                capitalized and well managed;
                                  ``(III) upon the written request of 
                                the financial services holding company 
                                following the divestiture of control of 
                                the depository institution in a 
                                transaction that does not require 
                                Federal assistance if the Board 
                                determines that, immediately following 
                                the divestiture, the depository 
                                institution is or will be well 
                                capitalized; or
                                  ``(IV) upon a determination by the 
                                Board, after consultation with the 
                                Federal Deposit Insurance Corporation, 
                                that, subject to the limit on liability 
                                provided in clause (ii), the financial 
                                services holding company has fully 
                                performed under the guarantee.
                  ``(E) Responsiveness to community needs.--The lead 
                insured depository institution subsidiary of the 
                financial services holding company and insured 
                depository institutions controlling at least 80 percent 
                of the aggregate total risk-weighted assets of insured 
                depository institutions controlled by the financial 
                services holding company have achieved a `satisfactory 
                record of meeting community credit needs', or better, 
                during the most recent examination of such insured 
                depository institutions.
          ``(3) No notice or approval required for certain purposes 
        under paragraphs (8), (13), or (15) of section 4(c).--
                  ``(A) In general.--Notwithstanding paragraphs (8), 
                (13), and, in the case of an investment bank holding 
                company, (15) of section 4(c), a financial services 
                holding company that has in effect an election under 
                paragraph (1), and any subsidiary of such holding 
                company, may, without prior notice to, or the approval 
                of, the Board under paragraph (8), (13), or, in the 
                case of an investment bank holding company, (15) of 
                section 4(c), engage de novo in any activity, or 
                acquire shares of any company engaged in any activity, 
                if--
                          ``(i) the Board has determined, by order or 
                        regulation in effect at the time the company or 
                        subsidiary commences to engage in such activity 
                        or acquire such shares, that the activity is 
                        permissible for a financial services holding 
                        company or a subsidiary of such company to 
                        engage in under paragraph (8) or (13) of 
                        section 4(c) (and regulations prescribed under 
                        such paragraphs); and
                          ``(ii) the activity is conducted in 
                        compliance with all conditions and limitations 
                        applicable to such activity under any 
                        regulation, order, or advisory opinion 
                        prescribed or issued by the Board.
                  ``(B) Subsequent notice.--A financial services 
                holding company that commences to engage in an 
                activity, or makes an acquisition, in accordance with 
                subparagraph (A) shall inform the Board of such fact, 
                in writing, not later than 10 days after commencing the 
                activity or consummating the acquisition.
          ``(4) Capital.--
                  ``(A) In general.--The Board shall not (by regulation 
                or order), directly or indirectly, establish or apply 
                minimum capital requirements to a financial services 
                holding company which has in effect an election under 
                paragraph (1) unless the Board concludes, on the basis 
                of all information available to the Board, that the 
                financial services holding company is not maintaining 
                sufficient financial resources to meet fully any 
                guarantee required under paragraph (2).
                  ``(B) Criteria for consideration.--For purposes of 
                making a determination under subparagraph (A), the 
                Board shall consider, in addition to any other relevant 
                considerations, the financial condition and the 
                adequacy of the capital of each of the depository 
                institutions controlled by the financial services 
                holding company.
          ``(5) Reports.--
                  ``(A) In general.--The reporting requirements 
                contained in subsection (c)(2) shall apply to a 
                financial services holding company which qualifies 
                under this subsection, to the extent provided by the 
                Board.
                  ``(B) 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 
                        regulations prescribed under this paragraph.
                          ``(ii) Criteria for consideration.--In 
                        granting any exemption under clause (i), the 
                        Board shall consider, among other 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), the 
                                Commodity Futures Trading Commission, 
                                or a foreign regulatory body of a 
                                similar type;
                                  ``(II) the primary business of the 
                                company; and
                                  ``(III) the nature and extent of 
                                domestic or foreign regulations of the 
                                company's activities.
          ``(6) Examinations.--
                  ``(A) Limited use of examination authority for 
                financial services holding companies.--The Board shall 
                not examine, under this section, any financial services 
                holding company described in paragraph (2)(A)(i) for 
                which an election is in effect under paragraph (1) or 
                any subsidiary (other than a depository institution) of 
                such holding company unless--
                          ``(i) the Board determines, on the basis of 
                        all information available to the Board, that--
                                  ``(I) the operations or activities of 
                                the financial services holding company 
                                or any subsidiary of such company, or 
                                any transaction involving such company 
                                or subsidiary and an affiliated 
                                depository institution, may pose a 
                                material risk to the safety and 
                                soundness of any depository institution 
                                owned by such holding company; or
                                  ``(II) the financial services holding 
                                company does not appear to have 
                                sufficient resources to meet the 
                                guarantee required under paragraph (2); 
                                or
                          ``(ii) the Board is unable to accomplish the 
                        purposes described in subsection (c)(3)(A) 
                        without such examinations.
                  ``(B) Limited use of examination authority for 
                investment bank holding companies.--The Board shall not 
                examine, under this section, any investment bank 
                holding company described in paragraph (2)(A)(ii) which 
                has an election in effect under paragraph (1) or any 
                subsidiary (other than a depository institution) of 
                such holding company unless--
                          ``(i) the Board determines that the 
                        operations or activities of the investment bank 
                        holding company or any subsidiary of such 
                        company, or any transaction involving such 
                        company or subsidiary and an affiliated 
                        depository institution, may pose a material 
                        risk to the safety and soundness of any 
                        depository institution owned by such holding 
                        company; or
                          ``(ii) the Board is unable to determine from 
                        reports the nature of the operations, financial 
                        condition, activities, or effectiveness of the 
                        risk management systems of the investment bank 
                        holding company or any subsidiary of such 
                        company, or to assess compliance with the 
                        provisions of this Act and those governing 
                        transactions and relationships between any 
                        depository institution controlled by the 
                        investment bank holding company and the 
                        investment bank holding company or any of such 
                        subsidiaries.
                  ``(C) Restricted focus and deference in 
                examinations.--The Board shall limit the focus and 
                scope of any examination, under this section, of a 
                financial services holding company or investment bank 
                holding company for which an election is in effect 
                under paragraph (1) or of any subsidiary (other than a 
                depository institution) of such holding company and 
                shall defer to examinations conducted by the Securities 
                Exchange Commission or other supervisors in accordance 
                with subparagraphs (B), (C), and (D) of subsection 
                (c)(3).''.

SEC. 125. CONVERSION OF UNITARY SAVINGS AND LOAN HOLDING COMPANIES TO 
                    FINANCIAL SERVICES HOLDING COMPANIES.

  The Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.) is 
amended by inserting after section 5 the following new section:

``SEC. 6. CONVERSION OF UNITARY SAVINGS AND LOAN HOLDING COMPANIES TO 
                    FINANCIAL SERVICES HOLDING COMPANIES.

  ``(a) Streamlined Procedure for Conversion.--
          ``(1) In general.--During the 18-month period beginning on 
        the date of the enactment of the Financial Services 
        Competitiveness Act of 1995, no approval shall be required 
        under section 3(a) or paragraph (8) or (13) of section 4(c) for 
        any qualified savings and loan holding company to become a 
        financial services holding company for any company that, both 
        prior to January 1, 1995, and on the date of enactment of the 
        Financial Services Competitiveness Act of 1995, is a savings 
        and loan holding company if the requirements of paragraph (2) 
        are met.
          ``(2) Eligibility requirements.--A qualified savings and loan 
        holding company shall be eligible to become a financial 
        services holding company pursuant to paragraph (1) if--
                  ``(A) the company becomes a financial services 
                holding company as the result of the conversion of a 
                savings association controlled by such company as of 
                the date of enactment of the Financial Services 
                Competitiveness Act of 1995 into a bank;
                  ``(B) the company is adequately capitalized before 
                and immediately after the conversion referred to in 
                subparagraph (A);
                  ``(C) all depository institutions controlled by such 
                company are well capitalized before and immediately 
                after such conversion;
                  ``(D) all depository institutions controlled by such 
                company are well managed before the conversion;
                  ``(E) the Board would not be prohibited under any 
                provision of section 3(d) from approving the 
                transaction;
                  ``(F) the activities of the company and of each 
                subsidiary of the company comply with this Act (and 
                regulations prescribed under this Act); and
                  ``(G) the company provides the Board with at least 30 
                days written notice of the proposed conversion, and, 
                before the expiration of such 30-day period, the Board 
                has not objected to the company becoming a financial 
                services holding company based on the criteria 
                contained in this subsection.
          ``(3) Qualified savings and loan holding company defined.--
        For purposes of this subsection, the term `qualified savings 
        and loan holding company' means any company which became a 
        savings and loan holding company before January 1, 1995, and is 
        a savings and loan holding company as of the date of the 
        enactment of the Financial Services Competitiveness Act of 
        1995.
  ``(b) Limited Retention of Existing Investments.--Any holding company 
which converts to a financial services holding company in accordance 
with subsection (a) may retain direct or indirect ownership or control 
of voting shares of any company as provided in, and subject to, section 
4(k) if--
          ``(1) the holding company controlled 1 or more savings 
        associations in accordance with section 10(c)(3) of the Home 
        Owners Loan Act before January 1, 1995, and as of the date of 
        the enactment of the Financial Services Competitiveness Act of 
        1995;
          ``(2) the investment in voting shares and the financial 
        services holding company meet the requirements of section 4(k) 
        (other than paragraph (1)(A)(iii) of such section); and
          ``(3) more than 75 percent of the revenues of the financial 
        services holding company for each of the 2 calendar years 
        before the date such company became a financial services 
        holding company involved securities activities described in 
        subparagraphs (A) and (B) of section 10(a)(1) and activities 
        that the Board has determined to be permissible under section 
        4(c)(8).''.
SEC. 126. FINANCIAL SERVICES ADVISORY COMMITTEE.

  (a) Establishment.--There is hereby established the Financial 
Services Advisory Committee (hereinafter in this section referred to as 
the ``Committee'').
  (b) Membership.--
          (1) In general.--The Committee shall consist of 9 members, 
        appointed as follows from among individuals who are not 
        officers or employees of the Federal Government and who are 
        especially qualified to serve on such committee by virtue of 
        their education, training, or experience:
                  (A) 1 member appointed by the Secretary of the 
                Treasury.
                  (B) 2 members appointed by the Comptroller of the 
                Currency.
                  (C) 2 members appointed by the Director of the Office 
                of Thrift Supervision.
                  (D) 2 members appointed by the Board of Governors of 
                the Federal Reserve System.
                  (E) 2 members appointed by the Board of Directors of 
                the Federal Deposit Insurance Corporation.
          (2) Representation of small and independent depository 
        institutions.--Of the members appointed under subparagraphs 
        (B), (C), (D), and (E) of paragraph (1), 1 of the 2 members 
        appointed under each such paragraph shall be appointed from 
        among individuals who are especially qualified to represent the 
        interests of depository institutions which--
                  (A) have total assets of less than $500,000,000; or
                  (B) are not controlled by any depository institution 
                holding company.
  (c) Vacancies.--Any vacancy on the Committee shall be filled in the 
same manner in which the original appointment was made.
  (d) Pay and Expenses.--Members of the Committee shall serve without 
pay, but each member shall be reimbursed for expenses incurred in 
connection with attendance of such members at meetings of the Committee 
by the agency which appointed such member to the Committee.
  (e) Terms.--Members shall be appointed for terms of 1 year.
  (f) Authority of the Committee.--The Committee may select a 
chairperson, vice chairperson, and secretary, and adopt methods of 
procedure, and shall have power--
          (1) to confer with each Federal banking agency on general and 
        special business conditions and regulatory and other matters 
        relating to the financial services industry in the United 
        States and the impact of this Act, and the amendments made by 
        this Act, on the financial service industry, especially with 
        regard to depository institutions described in subsection 
        (b)(2); and
          (2) to request information from, and to make recommendations 
        to, each of the Federal banking agencies with respect to 
        matters within the jurisdiction of such agency.
  (g) Meetings.--The Committee shall meet at least 2 times each year at 
the call of the chairperson or a majority of the members.
  (h) Reports.--The Committee shall submit a semiannual written report 
to the Committee on Banking and Financial Services of the House and to 
the Committee on Banking, Housing, and Urban Affairs of the Senate. 
Such report shall describe the activities of the Committee for such 
semiannual period and contain such recommendations as the Committee 
considers appropriate.
  (i) Provision of Staff and Other Resources.--Each of the Federal 
banking agencies shall provide the Committee with the use of such 
resources, including staff, as the Committee reasonably shall require 
to carry out its duties, including the preparation and submission of 
reports to Congress, under this section.
  (j) Definitions.--The terms ``insured depository institution'' and 
``Federal banking agencies'' have the meaning given to such terms in 
section 3 of the Federal Deposit Insurance Act.
  (k) Federal Advisory Committee Act Does Not Apply.--The Federal 
Advisory Committee Act shall not apply to the Committee.
  (l) Sunset.--The Committee shall cease to exist 10 years after the 
enactment of this section.
SEC. 127. COORDINATION WITH STATE LAW.

  Except as specifically provided in section 109, no provision of this 
Act, and no amendment made by this Act to any other provision of law, 
may be construed as superseding any provision of the law of any State 
which imposes additional requirements or establishes higher standards 
for the safe and sound operation and condition of depository 
institutions (as defined in section 3 of the Federal Deposit Insurance 
Act) and the protection of consumers than the requirements imposed or 
the standards established under this Act and the amendments made by 
this Act to other provisions of law (including capital standards and 
other safeguards placed on affiliates).

SEC. 128. CONFORMING AMENDMENTS TO THE BANK HOLDING COMPANY ACT OF 
                    1956.

  (a) Short Title; Table of Contents.--The first section of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841 nt.) is amended to read as 
follows:

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

  ``(a) Short Title.--This Act may be cited as the `Financial Services 
Holding Company Act of 1995'.
  ``(b) Table of Contents.--The table of contents for this Act is as 
follows:

``Sec. 1.  Short title; table of contents.
``Sec. 2.  Definitions.
``Sec. 3.  Acquisition of bank shares or assets.
``Sec. 4.  Interests in nonbanking organizations.
``Sec. 5.  Administration.
``Sec. 6.  Conversion of unitary savings and loan holding companies to 
financial services holding companies.
``Sec. 7.  Reservation of rights to States.
``Sec. 8.  Penalties.
``Sec. 9.  Judicial review.
``Sec. 10. Securities activities.
``Sec. 11. Safeguards relating to securities activities.
``Sec. 12. Investment bank holding companies and other financial 
activities.
``Sec. 13. Saving provision.
``Sec. 14. Separability of provisions.

  ``(c) References in Other Laws.--Any reference in any Federal or 
State law to a provision of the Bank Holding Company Act of 1956 shall 
be deemed to be a reference to the corresponding provision of this 
Act.''.
  (b) Definitions.--
          (1) Subsection (n) of section 2 of the Bank Holding Company 
        Act of 1956 (12 U.S.C. 1841(n)) is amended by inserting `` 
        `depository institution', '' before `` `insured depository 
        institution' ''.
          (2) Subsection (o) of section 2 of the Bank Holding Company 
        Act of 1956 (12 U.S.C. 1841(o)) is amended--
                  (A) by striking paragraph (1) and inserting the 
                following new paragraph:
          ``(1) Lead depository institution.--The term `lead depository 
        institution' means the largest depository institution 
        controlled by the financial services holding company, based on 
        a comparison of the average total assets controlled by each 
        depository institution during the previous 12-month period.''; 
        and
                  (B) by adding at the end the following new 
                paragraphs:
          ``(8) Insured depository institution for certain sections.--
        Notwithstanding subsection (n), the terms `depository 
        institution' and `insured depository institution' include, for 
        purposes of paragraph (1) and sections 4(k), 10, and 11, any 
        branch, agency, or commercial lending company operated in the 
        United States by a foreign bank.
          ``(9) Well managed.--The term `well managed' means--
                  ``(A) in the case of any company or depository 
                institution which receives examinations, the 
                achievement of--
                          ``(i) a CAMEL composite rating of 1 or 2 (or 
                        an equivalent rating under an equivalent rating 
                        system) in connection with the most recent 
                        examination or subsequent review of such 
                        company or institution; and
                          ``(ii) at least a satisfactory rating for 
                        management, if such rating is given; or
                  ``(B) in the case of a company or depository 
                institution that has not received an examination 
                rating, the existence and use of managerial resources 
                which the Board determines are satisfactory.''.
          (3) Section 2 of the Bank Holding Company Act of 1956 (12 
        U.S.C. 1841) (as amended by section 116(a)(1) of this Act) is 
        amended by inserting after subsection (o) the following new 
        subsections:
  ``(p) Securities Affiliate.--The term `securities affiliate' means 
any company--
          ``(1) that is (or is required to be) registered under the 
        Securities Exchange Act of 1934 as a broker or dealer; and
          ``(2) the acquisition or retention of the shares or assets of 
        which the Board has approved under section 10.
  ``(q) Capital Terms.--
          ``(1) Depository institutions.--With respect to depository 
        institutions, the terms `well capitalized,' `adequately 
        capitalized' and `undercapitalized' have the meanings given to 
        such terms in accordance with section 38(b) of the Federal 
        Deposit Insurance Act.
          ``(2) Financial services holding company.--The following 
        definitions shall apply with respect to financial services 
        holding companies:
                  ``(A) Adequately capitalized.--The term `adequately 
                capitalized' means a level of capitalization which 
                meets or exceeds the required minimum level established 
                by the Board for each relevant capital measure for 
                financial services holding companies.
                  ``(B) Well capitalized.--The term `well capitalized' 
                means a level of capitalization which meets or exceeds 
                the required capital levels established by the Board 
                for well capitalized financial services holding 
                companies.
          ``(3) Other capital terms.--The terms `tier 1' and `risk-
        weighted assets' have the meaning given those terms in the 
        capital guidelines or regulations established by the Board for 
        financial services holding companies.
  ``(r) Foreign Bank Terms.--For purposes of subsections (s) and (u), 
sections 4(k), 10, and 11, and subsections (b) and (c) of section 12--
          ``(1) the terms `agency', `branch', and `commercial lending 
        company' have the same meaning as in section 1(b) of the 
        International Banking Act of 1978.
          ``(2) the term `foreign bank' means a foreign bank (as 
        defined in section 1(b) of the International Banking Act of 
        1978) which operates a branch, agency or commercial lending 
        company, or owns or controls a bank, in the United States.''.
  (c) Amendment Regarding Conditional Approval of Notices.--Section 
4(a)(2) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(a)(2)) 
is amended by striking ``paragraph (8)'' and all that follows through 
``issued by the Board under such paragraph'' and inserting ``subsection 
(c)(8) or section 4(k), 10, or 11, subject to all the conditions 
specified in those provisions or in any order or regulation issued by 
the Board under those provisions''.
  (d) Amendment to Notice Procedures.--Section 4(j) of the Bank Holding 
Company Act of 1956 (12 U.S.C. 1843(j)) is amended--
          (1) in paragraph (1)(A), by striking ``subsection (c)(8) or 
        (a)(2)'' and inserting ``subsection (a)(2), (c)(8), (c)(15), or 
        (k)'';
          (2) in paragraph (1)(E)--
                  (A) by striking ``subsection (c)(8) or (a)(2)'' and 
                inserting ``subsection (a)(2), (c)(8), (c)(15), or 
                (k)''; and
                  (B) by striking the last sentence and inserting the 
                following: ``In no event may the Board, without the 
                agreement of the financial services holding company 
                submitting the notice, extend the notice period under 
                this subparagraph beyond the period that ends 180 days 
                after the date that a notice is filed with the Board or 
                the relevant Federal reserve bank in accordance with 
                the regulations of the Board.''; and
          (3) in paragraph (2), by redesignating subparagraphs (B) and 
        (C) as subparagraphs (C) and (D), respectively, and inserting 
        after subparagraph (A) the following new subparagraph:
                  ``(B) Criteria for notices involving securities 
                affiliates.--In considering any notice that involves 
                the acquisition of shares of a securities affiliate 
                pursuant to section 4(c)(15), the Board shall apply the 
                criteria and safeguards contained in this paragraph and 
                in sections 10 and 11.''.
  (e) Elimination of Obsolete Provisions.--The Bank Holding Company Act 
of 1956 (12 U.S.C. 1841 through 1849) is amended--
          (1) in section 4(a)(2)--
                  (A) by striking ``or in the case of a company'' and 
                ending ``after December 31, 1980,''; and
                  (B) by striking the sentence beginning 
                ``Notwithstanding any other provision of this 
                paragraph'';
          (2) in section 4(b), by striking ``After two years from the 
        date of enactment of this Act, no'' and inserting ``No''; and
          (3) in section 5(a)--
                  (A) by striking ``Within one hundred and eighty days 
                after the date of enactment of this Act, or within'' 
                and inserting ``Within''; and
                  (B) by striking ``whichever is later,''.
  (f) Conforming Amendments.--The Bank Holding Company Act of 1956 (12 
U.S.C. 1841 et seq.) is amended as follows:
          (1) In section 3(c)(4), by striking ``one-bank holding 
        company'' each place such term appears and inserting ``1-bank 
        financial services holding company''.
          (2) In section 3(f)(5), by striking ``bank holding company'' 
        the first and second time such term appears and inserting 
        ``financial services holding company''.
          (3) In section 4(i)(3)(A), by striking ``is acquired'' and 
        inserting ``was acquired''.
          (4) By striking ``bank holding companies'' each place such 
        appears in the following sections and inserting ``financial 
        services holding companies'':
                  (A) Section 3(d).
                  (B) Section 4(f).
                  (C) Section 7(a).
          (5) By striking ``bank holding company's'' each place such 
        term appears in section 4(c)(14) and inserting ``financial 
        services holding company's''.
          (6) By striking ``bank holding company'' each place such term 
        appears in the following sections and inserting ``financial 
        services holding company'':
                  (A) Subsections (a), (d), (e), (g), (h), and (o) of 
                section 2.
                  (B) Subsections (a), (b), (d), (f)(1), (f)(2), and 
                (f)(3) of section 3.
                  (C) Subsections (a), (d), (e), (g), (h), and (j) of 
                section 4.
                  (D) Clause (ii) in the portion of section 4(c) which 
                precedes paragraph (1) of such section.
                  (E) Paragraphs (2), (3), (7), (8), (10), (11), 
                (12)(A), and (14) of section 4(c).
                  (F) Paragraphs (4), (5), and (9) of section 4(f).
                  (G) Paragraphs (1) and (2) of section 4(i).
                  (H) Sections 5, 7(b), 8, and 11.
          (7) In section 4(f)(1), by striking ``bank holding company'' 
        the 2d place such term appears and inserting ``financial 
        services holding company''.
          (8) In the headings for section 3(f) and 4(f), by striking 
        ``Bank Holding'' and inserting ``Financial Services Holding''.
          (9) In the heading for section 2(o)(7), by striking ``bank'' 
        and inserting ``financial services''.
  (g) Treatment of Existing Bank Holding Companies.--Section 2(a)(6) of 
the Bank Holding Company Act of 1956 (12 U.S.C. 1841(a)(6)) is amended 
by inserting at the end the following: ``Any company that was a bank 
holding company on the day before the date of enactment of the 
Financial Services Competitiveness Act of 1995 shall, for purposes of 
this chapter, be deemed to have been a financial services holding 
company as of the date on which the company became a bank holding 
company.''.
  (h) Other References.--Any reference in any Federal law to ``bank 
holding company'' or ``bank holding companies'' as those terms were 
defined under the Bank Holding Company Act of 1956 before the enactment 
of this Act shall be deemed to include a reference to ``financial 
services holding company'' and ``financial services holding 
companies'', respectively, as such terms are defined under the 
Financial Services Holding Company Act of 1995.

SEC. 129. CONFORMING AMENDMENTS TO THE BANK HOLDING COMPANY ACT 
                    AMENDMENTS OF 1970.

  Section 106 of the Bank Holding Company Act Amendments of 1970 (12 
U.S.C. 1971 through 1978) is amended by striking ``bank holding 
company'' each place such term appears and inserting ``financial 
services holding company''.

SEC. 130. CREDIT CARDS FOR BUSINESS PURPOSES.
  Section 2(c)(2)(F) of the Bank Holding Company Act of 1956 (relating 
to the definition of credit card banks) is amended--
          (1) in clause (i), by inserting ``including the provision of 
        credit card accounts for business purposes'' before the 
        semicolon; and
          (2) in clause (v), by inserting ``(other than the provision 
        of credit card accounts for business purposes in connection 
        with the credit card operations referred to in clause (i))'' 
        before the period.

    Subtitle D--Interagency Banking and Financial Services Advisory 
                               Committee

SEC. 141. INTERAGENCY BANKING AND FINANCIAL SERVICES ADVISORY 
                    COMMITTEE.
  (a) Establishment; Composition.--There is established the Banking and 
Financial Services Advisory Committee which shall consist of 6 members 
as follows:
          (1) The Secretary of the Treasury.
          (2) The Chairman of the Board of Governors of the Federal 
        Reserve System.
          (3) The Chairperson of the Board of Directors of the Federal 
        Deposit Insurance Corporation.
          (4) The Chairman of the Securities and Exchange Commission.
          (5) The Chairperson of the Commodities Futures Trading 
        Commission.
          (6) The Comptroller of the Currency.
  (b) Chairperson.--The chairperson of the Committee shall be the 
Secretary of the Treasury.
  (c) Designation of Officers and Employees.--The members of the 
Committee may, from time to time, designate other officers or employees 
of their respective agencies to carry out their duties on the 
Committee.
  (d) Compensation and Expenses.--Each member of the Committee shall 
serve without additional compensation but shall be entitled to 
reasonable expenses incurred in carrying out official duties as a 
member.
  (e) Function of the Committee.--
          (1) In general.--The Committee shall meet as appropriate to 
        consider matters of mutual interest to the members and to 
        consider making recommendations to the Board of Governors of 
        the Federal Reserve System regarding the types of activities 
        that may be financial in nature for purposes of the Financial 
        Services Holding Company Act and to the Comptroller of the 
        Currency regarding the types of activities that may be 
        incidental to banking for purposes of section 5136 of the 
        Revised Statutes of the United States.
          (2) Consideration of recommendations.--The Board of Governors 
        of the Federal Reserve System and the Comptroller of the 
        Currency, as appropriate, shall take into account any 
        recommendation made to the respective agency by the Committee 
        and, if the agency does not adopt the recommendation, shall 
        provide a written explanation to the Committee.
  (f) Improving the Supervision, Efficiency, and Competitiveness of the 
Financial Services Industry.--
          (1) In general.--The Committee shall seek to improve the 
        supervision, efficiency, and competitiveness of the financial 
        services industry by making recommendations for such 
        legislative or administrative action as the Committee 
        determines to be appropriate to the Congress, each agency or 
        office represented by a member on the Committee, and other 
        agencies or departments of the United States, including 
        recommendations for changes in law and in the regulations, 
        policies, and procedures of any department or agency.
          (2) Printing in federal register.--Recommendations from 
        paragraph (1) shall be printed in the Federal Register and 
        submitted to the Committee on Banking and Financial Services of 
        the House of Representatives and the Committee on Banking, 
        Housing, and Urban Affairs of the Senate.

                    TITLE II--FUNCTIONAL REGULATION

                    Subtitle A--Brokers and Dealers

SEC. 201. DEFINITION OF BROKER.

  (a) In General.--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) Exclusion of banks.--The term `broker' does not 
                include a bank unless such bank--
                          ``(i) publicly solicits the business of 
                        effecting securities transactions for the 
                        account of others;
                          ``(ii) is compensated for such business by 
                        the payment of commissions or similar 
                        remuneration based on effecting transactions in 
                        securities (other than fees calculated as a 
                        percentage of assets under management) in 
                        excess of the bank's incremental costs directly 
                        attributable to effecting such transactions 
                        (hereafter referred to as `incentive 
                        compensation'); or
                          ``(iii) is a separately identifiable 
                        department or division of the bank.
                  ``(C) Exemption for certain bank activities.--A bank 
                shall not be deemed to be a broker because it 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, unless made 
                                impossible by space or personnel 
                                considerations, 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 service 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 perform only 
                                clerical or ministerial functions in 
                                connection with brokerage transactions, 
                                including scheduling appointments with 
                                the associated persons of a broker or 
                                dealer and, on behalf of a broker or 
                                dealer, transmitting orders or handling 
                                customers funds or securities, except 
                                that bank employees who are not so 
                                qualified may describe in general terms 
                                investment vehicles under the 
                                contractual or other arrangement and 
                                accept customer orders on behalf of the 
                                broker or dealer if such employees have 
                                received training that is substantially 
                                equivalent to the training required for 
                                personnel qualified to sell securities 
                                pursuant to the requirements of a self-
                                regulatory organization (as defined in 
                                section 3(a) of the Securities Exchange 
                                Act of 1934);
                                  ``(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 requirements of a self-
                                regulatory organization (as so defined) 
                                except that the bank employees may 
                                receive nominal cash and noncash 
                                compensation for customer referrals if 
                                the cash compensation is a 1-time fee 
                                of a fixed dollar amount and the 
                                payment of the fee is not contingent on 
                                whether the referral results in a 
                                transaction;
                                  ``(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; and
                                  ``(VIII) the 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 engages in 
                        trust activities (including effecting 
                        transactions in the course of such trust 
                        activities) permissible for national banks 
                        under the first section of the Act of September 
                        28, 1962, or for State banks under relevant 
                        State trust statutes or law (including 
                        securities safekeeping, self-directed 
                        individual retirement accounts, or managed 
                        agency accounts or other functionally 
                        equivalent accounts of a bank) unless the 
                        bank--
                                  ``(I) publicly solicits brokerage 
                                business, other than by advertising 
                                that it effects transactions in 
                                securities in conjunction with 
                                advertising its other trust activities; 
                                or
                                  ``(II) receives incentive 
                                compensation for such brokerage 
                                activities.
                          ``(iii) Permissible securities 
                        transactions.-- The bank effects transactions 
                        in exempted securities, other than municipal 
                        securities, or in commercial paper, bankers 
                        acceptances, commercial bills, qualified 
                        Canadian Government obligations as defined in 
                        section 5136 of the Revised Statues, 
                        obligations of the Washington Metropolitan Area 
                        Transit Authority which are guaranteed by the 
                        Secretary of Transportation under section 9 of 
                        the National Capital Transportation Act of 
                        1969, obligations of the North American 
                        Development Bank, and obligations of any local 
                        public agency (as defined in section 110(h) of 
                        the Housing Act of 1949) or any public housing 
                        agency (as defined in the United States Housing 
                        Act of 1937) that are expressly authorized by 
                        section 5136 of the Revised Statutes of the 
                        United States as permissible for a national 
                        bank to underwrite or deal in.
                          ``(iv) Municipal securities.--The bank 
                        effects transactions in municipal securities.
                          ``(v) Employee and shareholder benefit 
                        plans.--The bank effects transactions as part 
                        of any bonus, profit-sharing, pension, 
                        retirement, thrift, savings, incentive, stock 
                        purchase, stock ownership, stock appreciation, 
                        stock option, dividend reinvestment, or similar 
                        plan for employees or shareholders of an issuer 
                        or its subsidiaries.
                          ``(vi) 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.
                          ``(vii) Affiliate transactions.--The bank 
                        effects transactions for the account of any 
                        affiliate of the bank, as defined in section 2 
                        of the Financial Services Holding Company Act 
                        of 1995.
                          ``(viii) Private securities offerings.--The 
                        bank--
                                  ``(I) effects sales as part of a 
                                primary offering of securities by an 
                                issuer, 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 
                                issued thereunder;
                                  ``(II) effects such sales exclusively 
                                to an accredited investor, as defined 
                                in section 3 of the Securities Act of 
                                1933; and
                                  ``(III) if affiliated with a 
                                securities affiliate, as provided under 
                                section 10 of the Financial Services 
                                Holding Company Act of 1995--
                                          ``(aa) has not been so 
                                        affiliated for more than 1 
                                        year; or
                                          ``(bb) effects such sales 
                                        through a separately 
                                        identifiable department or 
                                        division that itself shall be 
                                        deemed to be a broker.
                          ``(ix) De minimis exemption.--If the bank 
                        does not have a subsidiary or affiliate 
                        registered as a broker or dealer under section 
                        15, the bank effects, other than in 
                        transactions referenced in clauses (i) through 
                        (viii), not more than--
                                  ``(I) 800 transactions in any 
                                calendar year in securities for which a 
                                ready market exists, and
                                  ``(II) 200 other transactions in 
                                securities in any calendar year.
                          ``(x) Safekeeping and custody services.--The 
                        bank, as part of customary banking activities--
                                  ``(I) provides safekeeping or custody 
                                services with respect to securities, 
                                including the exercise of warrants or 
                                other rights on behalf of customers;
                                  ``(II) clears or settles transactions 
                                in securities;
                                  ``(III) effects securities lending or 
                                borrowing transactions with or on 
                                behalf of customers as part of services 
                                provided to customers pursuant to 
                                subclauses (I) and (II) or invests cash 
                                collateral pledged in connection with 
                                such transactions; or
                                  ``(IV) holds securities pledged by 1 
                                customer to another customer or 
                                securities subject to resale agreements 
                                between customers or facilitates the 
                                pledging or transfer of such securities 
                                by book entry.
                          ``(xi) Banking products.--The bank effects 
                        transactions that have been determined pursuant 
                        to section 10(k)(3)(C) to be more appropriately 
                        treated as banking products, if the bank 
                        effects such transactions through a separately 
                        identifiable department or division that itself 
                        shall be deemed to be a broker.
                  ``(D) Exemption 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 Competitiveness Act 
                        of 1995, subject to section 15(e); and
                          ``(ii) is subject to such restrictions and 
                        requirements as the Commission deems 
                        appropriate.''.
  (b) Separately Identifiable Department or Division Defined.--Section 
3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) is 
amended by adding at the end the following new paragraph:
          ``(54) For purposes of paragraphs (4) and (5), 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 activities, 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 
                activities described in paragraphs (4) and (5) 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 of this Act and rules and regulations 
                promulgated under this Act.''.
  (c) Regulation.--Section 15(c) of the Securities Exchange Act of 1934 
(15 U.S.C. 78o(c)) is amended by adding at the end the following new 
paragraph:
          ``(8)(A) The Commission may prescribe rules, after 
        consultation with and considering the views of the appropriate 
        Federal banking agencies, with respect to a broker or dealer 
        that is a separately identifiable department or division of a 
        bank as the Commission finds necessary in the public interest 
        or for the protection of investors to take into account the 
        characteristics of a separately identifiable department or 
        division of a bank.
          ``(B) If a bank of which a separately identifiable department 
        or division is a part is adequately capitalized (as defined by 
        the bank's appropriate Federal banking agency), the separately 
        identifiable department or division that is a broker or dealer 
        shall be deemed to be in compliance with the net capital rules 
        adopted pursuant to paragraph (3).''.

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 his own account through a broker or 
                otherwise.
                  ``(B) Exceptions.--Such term does not include--
                          ``(i) 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; or
                          ``(ii) a bank, to the extent that the bank--
                                  ``(I) buys and sells commercial 
                                paper, bankers acceptances, exempted 
                                securities (other than municipal 
                                securities), qualified Canadian 
                                Government obligations as defined in 
                                section 5136 of the Revised Statues, 
                                obligations of the Washington 
                                Metropolitan Area Transit Authority 
                                which are guaranteed by the Secretary 
                                of Transportation under section 9 of 
                                the National Capital Transportation Act 
                                of 1969, obligations of the North 
                                American Development Bank, and 
                                obligations of any local public agency 
                                (as defined in section 110(h) of the 
                                Housing Act of 1949) or any public 
                                housing agency (as defined in the 
                                United States Housing Act of 1937) that 
                                are expressly authorized by section 
                                5136 of the Revised Statutes of the 
                                United States as permissible for a 
                                national bank to underwrite or deal in;
                                  ``(II) buys and sells municipal 
                                securities;
                                  ``(III) buys and sells securities for 
                                investment purposes for the bank or for 
                                accounts for which the bank acts as a 
                                trustee or fiduciary;
                                  ``(IV) engages in the issuance or 
                                sale of designated asset-back 
                                securities through a grantor trust or 
                                otherwise and--
                                          ``(aa) has not been 
                                        affiliated with a securities 
                                        affiliate under section 10 of 
                                        the Financial Services Holding 
                                        Company Act of 1995 for more 
                                        than 1 year; or
                                          ``(bb) effects such 
                                        transactions through a 
                                        separately identifiable 
                                        department or division that 
                                        itself shall be deemed to be a 
                                        dealer; or
                                  ``(V) buys and sells securities that 
                                have been determined pursuant to 
                                section 10(k)(3)(C) to be more 
                                appropriately treated as banking 
                                products, if a separately identifiable 
                                department or division that itself is 
                                deemed to be a broker or dealer for 
                                purposes of this Act engages in such 
                                purchases and sales.
                  ``(C) Designated asset-backed securities defined.--
                For purposes of subparagraph (B)(ii)(IV), the term 
                `designated asset-backed securities' means--
                          ``(i) securities backed by or representing an 
                        interest in 1-4 family residential mortgages 
                        originated or purchased by the bank, its 
                        affiliates, or its subsidiaries; and
                          ``(ii) securities backed by or representing 
                        an interest in consumer receivables or consumer 
                        leases originated or purchased by the bank, its 
                        affiliates, or its subsidiaries.''.

SEC. 203. POWER TO EXEMPT FROM THE DEFINITIONS OF BROKER AND DEALER.

  Section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c) is 
amended by adding at the end the following:
  ``(e) Exemption From Definition of Broker or Dealer.--The Commission, 
by regulation or order, upon its own motion or upon application, may 
conditionally or unconditionally exclude any person or class of persons 
from the definitions of `broker' or `dealer', if the Commission finds 
that such exclusion is consistent with the public interest, the 
protection of investors, and the purposes of this title.''.

SEC. 204. MARGIN REQUIREMENTS.

  (a) Section 7(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
15g(d)) is amended by striking ``or (E)'' and inserting ``(E) to a loan 
to a broker or dealer by a member bank or any other person that has 
entered into an agreement pursuant to section 8(a) if the proceeds of 
the loan are to be used in the ordinary course of the broker's or 
dealer's business other than for the purpose of funding the purchase of 
securities for the account of such broker or dealer, or (F)''.
  (b) Section 8(a) of the Securities and Exchange Act of 1934 is 
amended--
          (1) by striking ``nonmember bank'' and inserting ``person 
        other than a member bank''; and
          (2) by striking ``such bank'' in the second sentence and 
        inserting ``such person''.

SEC. 205. EFFECTIVE DATE.

  This subtitle shall become effective 270 days after the date of 
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 ``(f) 
        Custody of Securities.--
          ``(1) Every registered'';
          (3) by designating 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) Notwithstanding any provision of this subsection, if a 
        bank described in paragraph (1) or an affiliated person of such 
        bank is an affiliated person, promoter, organizer, or sponsor 
        of, or principal underwriter for the registered company, such 
        bank may serve as custodian under this subsection in accordance 
        with such rules, regulations, or orders as the Commission may 
        prescribe, consistent with the protection of investors, after 
        consulting in writing with the appropriate Federal banking 
        agency, as defined in section 3 of the Federal Deposit 
        Insurance Act.''.
  (b) Unit Investment Trusts.--Section 26(a)(1) of the Investment 
Company Act of 1940 (15 U.S.C. 80a-26(a)(1)) is amended by inserting 
before the semicolon at the end the following: ``, except that, if the 
trustee or custodian described in this subsection is an affiliated 
person of such underwriter or depositor, the Commission may adopt rules 
and regulations or issue orders, consistent with the protection of 
investors, prescribing the conditions under which such trustee or 
custodian may serve, after consulting in writing with the appropriate 
Federal banking agency (as defined in section 3 of the Federal Deposit 
Insurance Act)''.
  (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. INDEBTEDNESS TO AFFILIATED PERSON.

  Section 10(f) of the Investment Company Act of 1940 (15 U.S.C. 80a-
10(f)) is amended--
          (1) in the 1st sentence, by striking ``issuer) a principal 
        underwriter'' and inserting ``issuer)--
          ``(1) a principal underwriter''; and
          (2) by striking ``for the issuer. The Commission'' and 
        inserting ``for the issuer; or
          ``(2) the issuer of which has a material lending relationship 
        with the adviser of such registered investment company or any 
        person controlling, controlled by, or under common control with 
        the adviser in contravention of such rules, regulations, or 
        orders as the Commission may prescribe in the public interest 
        and consistent with the protection of investors.
The Commission''.

SEC. 213. LENDING TO AN AFFILIATED INVESTMENT COMPANY.

  Section 18 of the Investment Company Act of 1940 (15 U.S.C. 80a-18) 
is amended by adding at the end the following:
  ``(l) Notwithstanding any provision of this section, it shall be 
unlawful for any affiliated person of a registered investment company 
or any affiliated person of such a person to loan money to such 
investment company in contravention of such rules, regulations, or 
orders as the Commission may prescribe in the public interest and 
consistent with the protection of investors.''.

SEC. 214. 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 (other than a registered 
                        investment company) that, at any time during 
                        the preceding 6 months, 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,
                        or any affiliated person of such a person,'';
          (2) by redesignating clause (vi) as clause (vii); and
          (3) by inserting after clause (v) the following new clause:
                          ``(vi) any person (other than a registered 
                        investment company) that, at any time during 
                        the preceding 6 months, has loaned money 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,
                        or any affiliated person of such a person, 
                        or''.
  (b) 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 (and its subsidiaries) or any 
single financial services holding company (and its affiliates and 
subsidiaries), as those terms are defined in the Financial Services 
Holding Company Act of 1995, except''.
  (c) Effective Date.--The provisions of subsection (a) of this section 
shall become effective 1 year after the date of enactment of this 
subtitle.

SEC. 215. ADDITIONAL SEC DISCLOSURE AUTHORITY.

  (a) Misrepresentation.--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 shall prominently 
        disclose that the investment company or any security issued by 
        the investment company--
                  ``(A) is not insured by the Federal Deposit Insurance 
                Corporation;
                  ``(B) is not guaranteed by an affiliated insured 
                depository institution; and
                  ``(C) is not otherwise an obligation of any bank or 
                insured depository institution,
        in accordance with such rules, regulations, or orders as the 
        Commission may prescribe as reasonably necessary or appropriate 
        in the public interest for the protection of investors, after 
        consulting in writing with the appropriate Federal banking 
        agencies.
          ``(3) Definitions.--The terms `insured depository 
        institution' and `appropriate Federal banking agency' have the 
        meanings given to such terms in section 3 of the Federal 
        Deposit Insurance Act.''.
  (b) Deceptive Use of Names.--Section 35(d) of the Investment Company 
Act of 1940 (15 U.S.C. 80a-34(d)) is amended to read as follows:
  ``(d)(1) It shall be unlawful for any registered investment company 
to adopt as part of the name or title of such company, or of any 
securities of which it is the issuer, any word or words that the 
Commission finds are materially deceptive or misleading. The Commission 
may adopt such rules or regulations or issue such orders as are 
necessary or appropriate to prevent the use of deceptive or misleading 
names or titles by investment companies.
  ``(2) It shall be deceptive and misleading for any registered 
investment company (A) that is an affiliated person of a bank or an 
affiliated person of such a person, or (B) for which a bank or an 
affiliated person of a bank acts as investment adviser, sponsor, 
promoter, or principal underwriter, to adopt, as part of the name or 
title of such company, or of any security of which it is an issuer, any 
word that is the same or similar to, or a variation of, the name or 
title of such bank or affiliated person thereof, in contravention of 
such rules, regulations, or orders as the Commission may prescribe as 
necessary or appropriate in the public interest or for the protection 
of investors.''.

SEC. 216. 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) `Broker' has the same meaning as in the Securities 
        Exchange Act of 1934, except that it does not include any 
        person solely by reason of the fact that such person is an 
        underwriter for 1 or more investment companies.''.

SEC. 217. 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. 218. 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 financial services holding company to the extent 
that such bank or financial services holding company acts as an 
investment adviser to a registered investment company, or if, in the 
case of a bank, such services 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:
          ``(25) 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 
                1 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 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. 219. 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. 220. 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. 221. 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 as each may have access 
        to with respect to the investment advisory activities of any 
        financial services holding company, bank, or separately 
        identifiable department or division of a bank, that is 
        registered under section 203 of this title, or, in the case of 
        a financial services holding company or bank, that has a 
        subsidiary or a separately identifiable department or division 
        registered under that section, to the extent necessary for the 
        Commission to carry out its statutory responsibilities.
          ``(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 financial services 
        holding company, bank, or separately identifiable department or 
        division of a bank, any of which is registered under section 
        203 of this title, to the extent necessary for the agency to 
        carry out its statutory responsibilities.
  ``(b) Effect on Other Authority.--Nothing herein shall limit in any 
respect the authority of the appropriate Federal banking agency with 
respect to such financial services 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 
section 3 of the Federal Deposit Insurance Act.''.

SEC. 222. 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)(l2)(A)(iii) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(l2)(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''.
  (d) Tax Effect.--It is the sense of the Congress that the public 
interest would be furthered by enacting legislation to amend section 
584 of the Internal Revenue Code of 1986 by inserting after subsection 
(h) the following new subsection:
  ``(i) Conversion, Mergers, or Reorganization of Common Trust Funds.--
Notwithstanding any other provision of the Internal Revenue Code, any 
transfer of all or substantially all of the assets of a common trust 
fund taxable under this section to a registered investment company 
taxable under subchapter M shall not result in a gain or loss to the 
participants in such common trust fund where the transfer is a result 
of a merger, conversion, reorganization, transfer, or other similar 
transaction or series of transactions.''.

SEC. 223. 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 any 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 other 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 for the protection of investors.
          ``(2) Exemption.--Paragraph (1) shall not apply to any 
        investment adviser to a registered investment company, or an 
        affiliated person of that investment adviser, holding shares of 
        the investment company in a trustee or fiduciary capacity if 
        that registered investment company consists solely of assets of 
        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).
          ``(4) Church plan exemption.--Paragraph (1) shall not apply 
        to any investment adviser to a registered investment company, 
        or an affiliated person of that investment adviser, holding 
        shares in such a capacity, if such investment adviser or such 
        affiliated person is an organization described in section 
        414(e)(3)(A) of the Internal Revenue Code of 1986.''.

SEC. 224. 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 101(b) of the International Banking Act of 1978)''.

SEC. 225. EFFECTIVE DATE.

  This subtitle shall take effect 270 days after the date of the 
enactment of this Act.
                          Purpose and Summary

    In general, H.R. 1062, the Financial Services 
Competitiveness Act of 1995 (``FSCA''), is intended to permit 
affiliations between full-service depository institutions and 
full-service securities companies.
    First, it would permit a firm to conduct both banking and 
full service securities activities under the legal framework of 
the Bank Holding Company Act (``BHCA''), renamed the Financial 
Services Holding Company Act (``FSHCA''). Second, it generally 
would require that banking and securities activities be 
conducted in separate subsidiaries of the bank holding company 
or in separately identifiable divisions or departments of banks 
subject to ``functional regulation'' by the appropriate bank 
regulator and the Securities and Exchange Commission (``SEC''), 
respectively. Third, it would impose statutory ``firewalls'' 
and other restrictions in an effort to insulate the insured 
depository from risk associated with the securities affiliate 
and to prevent unfair competition. Finally, it would impose 
separate firewalls and functional regulation with respect to 
mutual fund or investment company activities.
    The FSCA would remove the restrictions contained in certain 
sections of the Banking Act of 1933, commonly referred to as 
the Glass-Steagall Act. (Sections 16, 20, 21, and 32 of the 
Banking Act of 1933 are referred to as the ``Glass-Steagall 
Act.'') Holding companies would be permitted both to control a 
bank and to control a securities affiliate that may engage in 
underwriting and dealing in any security, as well as sponsoring 
investment companies and distributing shares of those 
companies. These securities affiliates would be required to 
comply with all applicable Federal securities laws, including 
the registration and other requirements applicable to brokers-
dealers.
    Since investment banking firms may currently engage in 
activities not permitted for bank holding companies, the 
framework permits investment banking firms to continue to 
conduct such activities under certain conditions only if the 
Federal Reserve Board (``Federal Reserve'' or ``Board'') 
determines that such activities are financial in nature. 
Investment banking firms that acquire a bank may continue to 
engage in nonfinancial activities for 5 years after acquiring a 
bank, subject to certain limitations.
    The FSCA would create a new category of bank holding 
companies, known as investment bank holding companies 
(``IBHCs''). IBHCs would be permitted to engage in a wider 
range of financial activities than is authorized for bank 
holding companies, provided that such companies control only 
wholesale financial institutions that do not accept insured 
deposits or deposits under $100,000.
    As noted above, affiliations between insured depository 
institutions and securities firms would take place subject to 
the BHCA, renamed as the FSHCA. In the view of some, the bank 
holding company framework permits financial organizations to 
engage in broader financial activities while at the same time 
maximizing the corporate insulation of insured depository 
institutions from the potential risks of these activities. 
Since 1987, the Federal Reserve has allowed affiliations 
between banks and securities firms that engage in limited 
underwriting activities pursuant to section 20 of the Glass-
Steagall Act. In approving these affiliations, the Board has 
adopted limitations on inter-affiliate relationships and 
transactions known as ``firewalls.'' Firewalls such as those 
adopted by the Board have helped to assure that insured 
depository institutions that are affiliated with so-called 
section 20 affiliates have not suffered financial loss as a 
result of the activities of the securities affiliate.
    One of the most important methods of maintaining the 
financial strength of, and public confidence in, insured 
depository institutions that affiliate with a securities firm 
is to require that the insured depository institution be 
strongly capitalized. Accordingly, the FSCA would provide that 
affiliations between securities firms and bank holding 
companies may only take place if the lead insured depository 
institution in the organization is well capitalized and if well 
capitalized insured depository institutions control at least 80 
percent of the risk-weighted assets of insured depository 
institution subsidiaries of the bank holding company. In 
addition, all depository institutions in the bank holding 
company would be required to be well managed and at least 
adequately capitalized, and the bank holding company itself 
must be well managed and at least adequately capitalized. The 
FSCA also contains other limitations on interaffiliate 
transactions that are similar to the ``firewalls'' adopted by 
the Board.
    Any securities firm that is affiliated with an insured 
depository institution would be, as is currently required, 
subject to registration and regulation by the SEC under the 
Federal securities laws. In addition, the FSCA amends the 
Securities Exchange Act of 1934 (``Exchange Act'') to remove 
the exemption from the definition of the terms ``broker'' and 
``dealer'' currently provided for banks, except in certain 
defined circumstances that primarily involve traditional 
banking activities. As a result, banks that engage in brokerage 
or dealing activities would be required, with several 
exceptions primarily for traditional banking activities, to 
register with the SEC. It is expected that most banks would 
conduct these activities through a subsidiary or an affiliate 
that is registered with the SEC or through an arrangement with 
an unaffiliated broker-dealer. The FSCA also amends the 
Investment Advisers Act of 1940 to remove the exemption from 
registration and regulation as an investment adviser for banks 
and bank holding companies and the Investment Company Act of 
1940 to add limitations on the relationships and transactions 
between banks and affiliated investment companies.

                Background and Need for the Legislation

    The Glass-Steagall Act separates commercial banking, the 
taking of deposits and the making of commercial loans, from 
investment banking, the raising of capital for companies 
through the public offering of securities. The Act contains 
additional regulation of the activities of Federal Reserve 
member banks, including provisions covering corporate 
affiliation and interlocking directorates. Even at the time of 
its enactment, the Act contained exceptions that allowed banks 
to underwrite and deal in obligations of the United States and 
many of its instrumentalities, along with obligations of States 
and their subdivisions. These were principally the securities 
of cities, counties, and school districts supported by the full 
faith and credit of the issuer. Banks were also permitted to 
provide securities brokerage services at the request of 
customers by amendments to the Act made in 1935 to allow stock 
purchases and sales in an ``agency'' capacity.
    Today, Sections 5(c) and 16 of the Glass-Steagall Act limit 
a national bank and a State-chartered Federal Reserve member 
bank to ``purchasing and selling such securities and stock 
without recourse, solely upon the order and for the account of 
customers, and in no case for its own account'' except for 
dealing in an underwriting U.S. Treasury and State and 
municipal general obligation securities. Section 20 of the Act 
forbids affiliation of any Federal Reserve member bank (through 
a holding company or otherwise) with any business entity 
``principally engaged'' in investment banking activities. For 
over fifty years after the enactment of the Glass-Steagall Act, 
bank holding companies could not underwrite securities.
    In recent years, however, the Glass-Steagall wall 
separating commercial from investment banking has largely 
eroded. Banks now engage in a wide range of brokerage and other 
securities activities that are comparable to, and competitive 
with, services offered by registered broker-dealers. Banking 
organizations currently are advisers to and sell mutual funds, 
offer full-service brokerage, and (through so-called ``section 
20 affiliates'') underwrite corporate debt and equity 
securities. Over the same period, too, securities firms have 
entered into certain aspects of the banking business.
    This expansion, notably, has been made possible by 
administrative rather than Congressional action. The 
Comptroller of the Currency (``OCC'') has broadly interpreted 
the Glass-Steagall Act to permit national banks and their 
operating subsidiaries (among other things) to provide discount 
and full-service brokerage, to originate and sell asset-backed 
securities, and to deal in options on a wide range of 
instruments. The Federal Reserve, for its part, has allowed 
bank holding companies' affiliates to underwrite commercial 
paper, municipal revenue bonds, and securities backed by 
mortgages or consumer credit. Originally, this activity was 
limited to 5 percent of an individual affiliate's gross 
revenues. The five percent limitation was an attempt to comply 
with the language of section 20 of the Glass-Steagall Act 
prohibiting commercial bankers from being ``engaged 
principally'' in investment banking functions.
    In 1989, the Federal Reserve allowed specific bank holding 
companies, through subsidiaries, to underwrite and deal in 
corporate debt securities. The Board has since doubled its 
percentage limits on the four groups of affected private and 
municipal securities to 10 percent of revenues of the bank 
holding company ``Section 20'' affiliates authorized to 
underwrite them. And, just as national banks may package their 
own loans into securities and underwrite them, so can bank 
holding company affiliates package bank loans into self-
underwritten securities. The latter must be given a quality 
rating by a national rating agency comparable to the ratings of 
corporate bonds.
    The Federal Reserve also approved equity (stock) 
underwriting by one bank holding company in 1990--and has 
allowed this activity for others since. About the same time, 
the OCC approved further securities powers for national banks. 
These institutions may sell mortgage-backed securities they 
originate, and offer investments in pools of futures 
commodities (speculative ``commodity funds'').
    Finally, in 1992, the Federal Reserve issued an amendment 
to its ``Regulation Y'' allowing bank holding companies to 
offer investment advisory and securities brokerage services to 
large (institutional) customers on a combined basis. The Board 
also relaxed restrictions on key personnel overlaps between 
banks and affiliated securities firms.
    Banking institutions have also blended the commercial and 
investment banking businesses abroad. In most of the world, 
there is little or no separation of banking and commerce. The 
international operations of many large U.S. banking 
organizations include the underwriting, distribution, and 
brokerage of securities in many other countries whose internal 
financial markets are more deregulated than the United States.
    Technological developments, such as the rapid growth of 
computers, CD-ROM and telecommunications, also have had an 
impact on the delivery of financial services. Technology is 
lowering the cost and broadening the scope of financial 
services. New product development has changed the institutional 
and market boundaries. In turn, technological innovation has 
added to financial globalization by expanding cross-border 
asset holdings, trading, and credit flows. In response, both 
securities firms and U.S. and foreign banks have increased 
their cross-border presence. These firms, in a response to 
competitive pressures of the local markets in which they 
operate, have been permitted to engage in activities not 
permitted to them at home.
    The supporters of Glass-Steagall reform argue that the U.S. 
financial services regulatory structure has not kept pace with 
these technological and market developments. This line of 
argument holds that the Glass-Steagall Act, enacted over 60 
years ago, has prevented corporations, State and local 
government enterprises, and other borrowers from realizing the 
cost, efficiency, and other benefits that would result from 
greater competition among providers of financial services. In 
addition, from the international perspective, U.S. companies 
(lenders as well as borrowers) may have been constrained by 
Glass-Steagall, to the benefit of their foreign counterparts.
    In response to these concerns, H.R. 1062 attempts to design 
a financial framework that allows banks and banking 
organizations to offer a broader array of products and 
services.
    Based on the series of hearings before the Committee and 
the Committee on Banking and Financial Services this Congress, 
there is a general agreement on the forces shaping our evolving 
financial system--forces that require modernization of our 
statutory framework for financial institutions and the markets. 
The anomalies among banks and between banks, securities firms, 
and other providers of financial services need to be corrected 
in the interest of efficiency and fair competition.
    During the course of hearings before this Committee, 
however, a number of serious issues were raised with respect to 
the route that H.R. 1062 takes toward financial services 
reform. The hearings highlighted, in particular, concerns about 
(1) the bill's provisions allowing banks to engage directly, 
through ``separately identifiable departments or divisions'' 
(``SIDs'') of the bank, in a wide range of securities 
activities; (2) the bill's ``two-way street'' provisions, which 
will bring securities firms affiliated with banks within a 
banking-oriented regulatory framework; and (3) the bill's 
failure to resolve long-standing controversies with respect to 
bank insurance powers and affiliations.

                                  sids

    H.R. 1062 would allow a bank that establishes a SIDD to 
engage in significant securities activities directly rather 
than in a separately incorporated broker-dealer. The Committee 
heard testimony that, because SIDs would not be subject to the 
SEC's net capital requirements, bank SIDs would operate under a 
different standard than applies to their broker-dealer 
competitors. This differential could skew competition and 
create an incentive for financial services firms to move 
securities activities out of broker-dealers and into affiliated 
banks. The bank SID concept also means that the capital of the 
bank as a whole (and ultimately the Federal Deposit Insurance 
Fund) would be exposed to losses that occur in the SIDD as a 
result of its securities business. Finally, use of bank SIDs 
could also present significant practical problems relating to 
securities examination and enforcement efforts.

                             two-way street

    Testimony before the Committee noted that H.R. 1062--
following the model of the BHCA--would essentially impose an 
overlay of bank-type ``safety and soundness'' regulation on 
bank securities affiliates. For example, H.R. 1062 would 
require the Federal Reserve to impose restrictions on a 
securities firm on the basis of capital or management problems 
in an affiliated bank. The Committee fears that imposing bank-
oriented safety and soundness regulation on securities 
affiliates could constrain their ability to respond quickly to 
market movements; this in turn could change the character of 
the securities business and affect the capital formation 
process.

                            insurance issues

    Controversy has long surrounded the questions of bank 
insurance powers and bank affiliations with insurance firms.
    Over the past several years, the OCC--by administrative 
interpretation, and without Congressional instruction--has 
moved to expand the insurance powers of national banks. For 
example, the OCC interpreted the National Bank Act to authorize 
a national bank or its branches located in a place of 5,000 or 
under population, to sell insurance to existing and potential 
customers located anywhere. The OCC also concluded that Federal 
law preempts State statutes that require licensing of 
individuals engaged in the sale of insurance, with respect to 
national bank employees engaged in insurance activities allowed 
by 12 U.S.C. Sec. 24(Seventh). Most recently, the Supreme Court 
upheld the OCC's determination that national banks may sell 
annuities (NationsBank of North Carolina, N.A. v. Variable 
Annuity Life Insurance Co., 115 S. Ct. 810 (1995)).
    H.R. 1062 does not address the issue of national bank 
insurance powers--or the OCC's ability to continue expanding 
those powers through administrative rulings. Nor does the bill 
address the equally thorny question of whether banks should be 
permitted to affiliate with insurance companies.
    Under existing State and Federal law, banks and bank 
holding companies are subject to strict restrictions on their 
ability to affiliate with insurance companies. These 
limitations, among other things, create an obstacle to a true 
``two-way street'' between banks and securities firms, since 
many of the latter are affiliated with insurance companies.
    The Commerce Committee did not amend H.R. 1062 to address 
the issue of bank SIDs, the ``two-way street'', or bank 
insurance powers and affiliations--but this should not be taken 
to mean that the issues are unimportant, or that they have been 
resolved to the Committee's satisfaction. Rather, this 
Committee determined that an attempt to improve the bill before 
it reached the House Floor would only jeopardize the prospect 
of enacting historic legislation modernizing our financial 
services industries.
    Accordingly, this Committee has chosen to report H.R. 1062, 
without recommendation, in the form approved by the Banking 
Committee. This will permit the bill and the important issues 
it raises to move forward to the Floor of the House and to 
ultimate resolution by the Members. This Committee has also 
obtained the consent of the Chairman of the Rules Committee to 
allow amendments on the Floor which will address some of these 
issues.

                                Hearings

    H.R. 1062, the Financial Services Competitiveness Act of 
1995, was referred to the Committee on Banking and Financial 
Services, and in addition to the Committee on Commerce for a 
period to be subsequently determined by the Speaker. On May 18, 
1995, the Committee on Banking and Financial Services reported 
the bill to the House.
    The Subcommittee on Telecommunications and Finance and the 
Subcommittee on Commerce, Trade and Hazardous Materials held 
two days of joint hearings on the bill.
    Testifying before the Subcommittees on June 6, 1995 were: 
Arthur Levitt, Chairman, Securities and Exchange Commission; 
Alan Greenspan, Chairman, Federal Reserve Board; Julie 
Williams, Chief Counsel, Office of the Comptroller of the 
Currency; Ricki Helfer, Chairman, Federal Deposit Insurance 
Corporation; Gary Hughes, Vice President, American Council of 
Life Insurers; Joseph Bracewell, Chairman, Century National 
Bank; Elizabeth Randall, Commissioner of Banking, State of New 
Jersey; and Philip Feagin, President, North American Securities 
Administrators Association.
    On June 8, 1995, the Subcommittees received testimony from: 
Peter Browne, Chairman of the National Association of Life 
Underwriters Committee on Federal Law and Legislation; Andrew 
Cassidy, Chairman, Task Force on Financial Services, The 
Council of Insurance Agents & Brokers; Michael Grace, Wright 
and Percy Insurance; James Klagholz, Chairman, Government 
Affairs Committee, Independent Insurance Agents of America; 
Matthew Fink, President, Investment Company Institute; Mark 
Lackritz, President, Securities Industry Association; Samuel 
Baptista, President, Financial Service Council; R. Scott Jones, 
Director, American Bankers Association; Jeffrey Tassey, Senior 
Vice President, American Financial Services Association; Craig 
Zimpher, Vice President, Nationwide Insurance Enterprise; and 
Drew Pfirrman, Senior Vice President, Fleet Financial Group.

                        Committee Consideration

    The Subcommittee on the Telecommunications and Finance met 
on June 13, 1995, and marked up a Committee Print of H.R. 1062 
containing the text of the bill as reported to the House by the 
Committee on Banking and Financial Services. The Subcommittee 
approved the Committee Print for Full Committee, without 
recommendation, by a voice vote.
    The Subcommittee on Commerce, Trade, and Hazardous 
Materials met on June 14, 1995, and marked up a Committee Print 
of H.R. 1062 containing the text of the bill as reported to the 
House by the Committee on Banking and Financial Services. The 
Subcommittee approved the Committee Print for Full Committee, 
without recommendation, by a voice vote.
    The Full Committee met on June 16, 1995, and ordered H.R. 
1062 reported to the House, as amended, without recommendation, 
by a voice vote, a quorum being present.

                            Roll Call Votes

    Pursuant to clause 2(l)(2)(B) of rule XI of the Rules of 
the House of Representatives, there were no recorded votes on 
the motion to report H.R. 1062 or on amendments offered to the 
measure. The voice votes taken on this measure are listed 
below.

           committee on commerce--104th congress voice votes

    Bill: H.R. 1062, Financial Services Competitiveness Act of 
1995.
    Amendment: An amendment by Mr. Markey re: securities 
affiliate investments.
    Disposition: Withdrawn, by unanimous consent.
    Amendment: An en bloc amendment by Mr. Dingell re: 
functional regulation/securities activities.
    Disposition: Withdrawn, by unanimous consent.
    Amendment: An amendment by Mr. Dingell re: adding a new 
title III to the bill, Insurance Competition.
    Disposition: Withdrawn, by unanimous consent.
    Motion: Motion by Mr. Fields to report H.R. 1062 to the 
House, as amended, without recommendation.
    Disposition: Agreed to, by a voice vote, a quorum being 
present June 16, 1995.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of 
the House of Representatives, the Subcommittee on 
Telecommunications and Power and the Subcommittee on Commerce, 
Trade, and Hazardous Materials held oversight and legislative 
hearings and made findings that are reflected in this report.

         Committee on Government Reform and Oversight Findings

    Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of 
the House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform and Oversight.

               New Budget Authority and Tax Expenditures

    Clause 2(l)(3)(B) of House rule XI of the Rules of the 
House of Representatives is inapplicable because this 
legislation does not provide new budgetary authority or 
increased tax expenditures.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 403 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 2(l)(3)(C) of rule XI of the Rules of 
the House of Representatives, following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
403 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 19, 1995.
Hon. Thomas J. Bliley, Jr.,
Chairman, Committee on Commerce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed H.R. 1062, the Financial Services Competitiveness Act 
of 1995, as ordered reported by the House Committee on Commerce 
on June 16, 1995. H.R. 1062 would repeal provisions of the 
Glass-Steagall Act that restrict the authority of commercial 
banks to underwrite and sell securities. While these changes 
could affect the government's spending for deposit insurance, 
CBO has no basis for predicting whether long-run deposit 
insurance costs would be higher or lower than under current 
law. Implementing this bill is not expected to affect 
significantly the administrative costs of the financial 
regulatory agencies other than the Securities and Exchange 
Commission (SEC), which would spend an additional $750,000 to 
$1 million annually, assuming appropriation of the necessary 
amounts.
    Because the bill could affect direct spending and receipts, 
pay-as-you-go procedures would apply. CBO estimates that the 
net effect of H.R. 1062 on both direct spending and receipts 
would not be significant. We expect that this bill would not 
result in any significant costs to state and local governments. 
This cost estimate is identical to the one prepared on May 23, 
1995, for H.R. 1062, as reported by the House Committee on 
Banking and Financial Services on May 18, 1995.

                              bill purpose

    H.R. 1062 would amend a number of banking laws, including 
the repeal of certain restrictions of the Glass-Steagall Act, 
to allow banks and securities firms to affiliate through 
financial services holding companies and to offer a full range 
of retail and wholesale banking services, as well as 
underwriting and selling securities.
    H.R. 1062 would require financial institutions to conduct 
banking and securities activities in separate subsidiaries, and 
would impose strict capital standards on bank holding companies 
that seek to acquire or retain a securities affiliate. In an 
effort to maintain the safety and soundness of the insured 
depository institutions, the bill would create ``firewalls'' to 
protect federally insured banks from losses by a security 
affiliate, and would prevent banks from using insured deposits 
to subsidize non-bank related activities. A number of 
safeguards, including restrictions on access to credit and 
other information, limits on underwriting purchases, and 
required disclosures of certain information, would help to 
limit the direct risk to banks and the federal government's 
deposit insurance funds, primarily the Bank Insurance Fund.
    The Board of Governors of the Federal Reserve, the SEC, and 
state and federal banking regulators--the Comptroller of the 
Currency (OCC), the Federal Deposit Insurance Corporation 
(FDIC), and the Office of Thrift Supervision (OTS)--would have 
responsibility for monitoring and enforcing compliance with the 
statute. The bill would create an interagency advisory 
committee to recommend types of financial activities 
permissible for financial services holding companies and would 
allow the various regulatory agencies to coordinate 
examinations and enforcement procedures.
    H.R. 1062 also includes a number of provisions affecting 
financial institutions' transactions and products. In addition, 
banks selling nondeposit investment products would be required 
to obtain a signed acknowledgement from the customer that the 
products are not deposits and are not federally insured.

                          impact on the budget

    Deposit Insurance Funds.--Enactment of H.R. 1062 could 
affect the federal budget by causing changes in the 
government's spending for deposit insurance, but there is no 
clear basis for predicting the direction or the amount of such 
changes.
    On the one hand, the bill could reduce potential risk to 
the insurance funds by allowing banks to diversify their 
sources of income and by helping banks to be more competitive 
in the world's financial markets. Diversification of income 
sources could result in lower overall risks for banks, assuming 
that the expansion of their activities is accompanied by 
adequate safeguards. H.R. 1062 would create a holding company 
framework to limit the direct risk of securities activities to 
banks and the deposit insurance fund. Other firewalls and rules 
would prohibit or limit certain bank and affiliate 
transactions.
    In addition, repeal of the restrictions of the Glass-
Steagall Act would accelerate changes already occurring in the 
marketplace. For example, some banks now sell mutual funds to 
their customers and, under limited circumstances, underwrite 
securities. At the same time, some securities firms offer 
checking-like accounts linked to mutual funds and extend credit 
directly to businesses. Expanding permissible activities would 
allow banking organizations to compete more effectively and 
efficiently with other financial businesses.
    On the other hand, while the bill contains safeguards and 
other provisions to protect the banks, the benefits do not come 
without risks. In certain circumstances, a holding company may 
have an incentive to transfer or divert value away from the 
insured bank, leaving greater losses for the FDIC if the bank 
ultimately fails. Ultimately, strong supervision and monitoring 
by the regulators, which history has demonstrated is critical 
in limiting the exposure of the taxpayer during times of severe 
financial stress, will be essential to avoid additional losses 
to the deposit insurance funds.
    If losses to the deposit insurance funds were to increase 
as a result of enactment of this measure, the FDIC would 
increase premiums that banks pay for deposit insurance. 
Similarly, if losses were to decrease, banks might pay smaller 
premiums. As a result, the net budgetary impact is likely to be 
negligible over time in either case.
    Regulatory Costs.--The Federal Reserve would be the primary 
regulator of the new banking organizations. Because the Federal 
Reserve System remits its budget surplus to the Treasury, with 
the payment classified as a miscellaneous receipt (or revenue), 
additional operating costs can potentially reduce government 
receipts. Based on information provided by staff members of the 
Board of Governors of the Federal Reserve System, we estimate 
that H.R. 1062 would cause no overall change in Federal Reserve 
costs. CBO estimates that H.R. 1062 would change the Federal 
Reserve's costs of processing applications in two offsetting 
ways. By allowing bank holding companies to own securities 
firms, subject to the approval of the Federal Reserve, the bill 
would increase the Federal Reserve's costs for processing the 
required applications. But that effect would be offset by other 
cost reductions because the bill also would streamline the 
processing of certain other applications.
    Based on information from the SEC, we expect that 
additional rulemaking and inspections would cost $750,000 to $1 
million annually. The other financial regulatory agencies--OCC, 
FDIC, and OTS--do not expect any significant change in their 
workload as a result of enactment of the legislation.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mary 
Maginniss, who can be reached at 226-2860, and Mark Booth, who 
can be reached at 226-2685.
            Sincerely,
                                         June E. O'Neill, Director.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                    Congressional Accountability Act

    The reporting requirement under section 102(b)(3) of the 
Congressional Accountability Act (P.L. 104-1) is inapplicable 
because this legislation does not relate to terms and 
conditions of employment or access to public services or 
accommodations.

                     Inflationary Impact Statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee finds that the bill 
would have no inflationary impact.
                      Section-by-Section Analysis

                         section 1. short title

    Section 1 designates the bill as the ``Financial Services 
Competitiveness Act of 1995.''

 TITLE I--BANK SECURITIES ACTIVITIES AND AFFILIATIONS WITH SECURITIES 
                  FIRMS AND OTHER FINANCIAL COMPANIES

                   Subtitle A--Securities Activities

Section 101. Anti-affiliation provisions of Glass-Steagall Act repealed

    Section 101 repeals section 20 and amends section 32 of the 
Banking Act of 1933. (Sections 16, 20, 21, and 32 of the 
Banking Act of 1933 are known as the ``Glass-Steagall Act.'')
    Section 20 currently prohibits any bank that is a member of 
the Federal Reserve System from affiliating with any company 
that is ``engaged principally in the issue, floation, 
underwriting, public sale or distribution'' of securities. 12 
U.S.C. Sec. 377. The effect of repealing Section 20 is to 
permit affiliations between banks and securities firms 
regardless of the type or volume of securities activities 
conducted by the firm. As explained below, section 103 
contemplates that the affiliation of an insured depository 
institution and a securities firm will occur through a holding 
company structure. Section 107 amends the Federal Deposit 
Insurance Act (``FDIA'') to provide that banks may not be 
affiliated with securities firms engaged in underwriting or 
dealing in securities (other than certain bank-eligible 
securities) except pursuant to new section 10 of the BHCA.
    Section 32 prohibits any officer, director, or employee of 
a company ``primarily engaged in the issue, floation, 
underwriting, public sale, or distribution'' of securities from 
serving simultaneously as an officer, director, or employee of 
any member bank, except as allowed by the Board. 12 U.S.C. 
Sec. 78. Section 101 adds an exception to section 32 that 
allows an officer, director, or employee of a ``securities 
affiliate'' or of an investment company or investment adviser 
to serve simultaneously as an officer, director, or employee of 
a member bank as permitted under section 10 of the BHCA.

Section 102. Financial services holding companies authorized to have 
        securities affiliates

    Section 4 of the BHCA permits a bank holding company to own 
or control voting shares of a company that is engaged in 
banking or nonbanking activities permitted by that Act or 
determined by the Board to be closely related to banking. 12 
U.S.C. Sec. 1843. Section 102 adds a new section 4(c)(15) to 
the BHCA that permits a bank holding company to own or control 
shares of a securities affiliate in accordance with section 10 
of the BHCA.

Section 103. Establishment and operations of securities affiliates

    Sectin 103 adds a new section 10 to the BHCA to establish a 
new framework for affiliations between banks and securities 
firms. This section provides the authority for banks to 
affiliate with securities firms and establishes the prudential 
limitations that govern that affiliation.

          A. Activities permissible for securities affiliates

1. Securities activities

    Subsection (a)(1)(A) permits a securities affiliate to 
underwrite, deal in, broker, place, or distribute any type of 
securities, provide investment advice regarding securities, and 
engage in other securities activities permitted by the Board. A 
securities affiliate also is permitted under subparagraph (B) 
to sponsor, organize, control, manage, and act as an investment 
adviser to an investment company, including a mutual fund.

2. Other activities.

    In addition, subparagraph (C) permits a securities 
affiliate to engage in, or acquire the shares of a company 
engaged in, any other activity permissible under section 4(c) 
of the BHCA. In order to do so, the activity or shares must 
satisfy a two-part test. First, a provision of section 4(c) 
must permit bank holding companies generally to engage in that 
activity or acquire those shares, Second, the bank holding 
company must obtain Board approval under the BHCA to conduct 
the activity or acquire the shares if such approval is 
otherwise required by section 4(c).

3. Permissible securities activities.

    In determining the type of securities activities that would 
be permissible for financial services holding companies 
(``FSHC''), the Board is directed to take into account the need 
for securities firms to be innovative and competitive.
    U.S. securities firms have historically been extremely 
innovative, introducing a number of new products--such as 
commercial paper, money market funds and asset backed 
securities--that have been extremely valuable to the economy. 
The Committee believes that it is important for the economy 
that U.S. securities firms continue to be innovative and 
competitive. Therefore, it is the Committee's intention that 
securities affiliates of banks be permitted to engage in the 
full range of investment banking, securities and financial 
activities engaged in by domestic and foreign securities firms 
whether or not they are affiliated with U.S. banks. 
Furthermore, the Committee believes that such firms need the 
flexibility to introduce quickly new financial products and 
services.

             B. Acquiring interest in securities affiliate

    Subsection (b) establishes the standards and procedures 
applicable to a bank holding company that seeks to acquire 
shares, or all, or substantially all, of the assets of a 
securities affiliate.

1. Notice required

    Paragraph (1) of subsection (b) provides that a bank 
holding company cannot directly or indirectly acquire or retain 
more than 5 percent of the voting shares of a securities 
affiliate, or all or substantially all of the assets of a 
securities affiliate, without complying with the notice 
procedures contained in section 4(j) of the BHCA and receiving 
approval from the Board pursuant to these procedures. Section 
4(j) establishes a 60-day prior notice procedure for Board 
review of nonbanking proposals.

2. Criteria for approval
    Under paragraph (2), the Board must disapprove a notice 
filed by a bank holding company to acquire or retain shares (or 
all or substantially all of the assets) of a securities 
affiliate unless the Board determines that the proposed 
transaction satisfies criteria relating to capital, managerial 
resources, internal controls, effect on affiliates, 
concentration of resources, and responsiveness to community 
credit needs as set forth in subparagraphs (A) through (G).
    Subparagraph (A) sets out capital standards that bank 
holding companies must meet in order to acquire or retain a 
securities affiliate. Requiring the maintenance of high capital 
is fundamental to assuring that the new securities activities 
permitted by section 10 do not jeopardize the safety and 
soundness of affiliated depository institutions. To achieve 
this goal, subparagraph (A) requires that a bank holding 
company seeking to acquire a securities affiliate meet the 
following capital standards: (1) the bank holding company's 
lead subsidiary insured depository institution must be well 
capitalized; (2) at least 80 percent of the aggregate total 
risk-weighted assets of depository institution assets 
controlled by the bank holding company must be in depository 
institutions that are well capitalized; (3) all subsidiary 
depository institutions controlled by the bank holding company 
must be well capitalized or adequately capitalized; and (4) the 
bank holding company itself must be adequately capitalized and 
must continue to be so immediately after the acquisition.
    In determining whether well capitalized depository 
institutions control 80 percent of the total risk-weighted 
depository institution assets, recently acquired depository 
institutions may be excluded from the test, if a capital 
restoration plan has been submitted to and accepted by the 
institution's appropriate federal banking agency and all 
institutions that are excluded represent in aggregate less than 
25 percent of the aggregate total risk-weighted assets of all 
depository institutions controlled by the FSHC. In addition, 
under subparagraph (B), a FSHC and its depository institution 
subsidiaries are deemed to have met the legislation's capital 
requirements if the depository institutions are at least 
adequately capitalized and the holding company is well 
capitalized after the acquisition. Any FSHC that makes this 
election will be held liable for any FDIC losses, including any 
reasonably anticipated losses, associated with any of its 
depository institutions.
    The Board is required to establish and apply comparable 
capital standards for the ownership or control of a securities 
affiliate in the United States by a foreign bank, giving due 
regard to the principle of national treatment and equality of 
competitive opportunity in the United States.
    In this regard, the legislation requires that the Board 
evaluate the capital of both the bank and the bank holding 
company in determining whether a U.S. bank holding company may 
acquire and retain a securities affiliate. Foreign banks, 
however, operate in the United States as both banks and bank 
holding companies. Moreover, branches and agencies of foreign 
banks do not have separate capital requirements and operate 
based on the consolidated capital of the foreign bank itself. 
In light of these differences, the FSCA, without mandating a 
holding company structure, gives the Board the authority to 
apply capital standards to the foreign bank that assure a level 
playing field and prevent a foreign bank operating at lower 
capital levels than apply to U.S. banking organizations from 
acquiring or retaining control of a securities affiliate.
    Subparagraph (C) requires that the bank holding company 
must have the managerial resources to conduct the proposed 
securities activities safely and soundly. In addition, the bank 
holding company and each of its subsidiary insured depository 
institutions must be well managed, and have been well managed 
for at least 12 months (excluding institutions acquired during 
that period).
    Subparagraph (D) requires the FSHC to have established 
adequate internal controls.
    Subparagraph (E) provides that the acquisition of a 
securities affiliate must not adversely affect the safety and 
soundness of the bank holding company or any of its subsidiary 
insured depository institutions.
    Subparagraph (F) provides that the acquisition may not be 
approved if it would result in an undue concentration of 
resources in the financial services business.
    Subparagraph (G) provides that the acquisition may not be 
approved unless the lead insured depository institution and 
insured depository institutions that control at least 80 
percent of the aggregate total risk-weighted insured depository 
institution assets controlled by the holding company have 
achieved at least a ``satisfactory'' rating under the Community 
Reinvestment Act. This requirement would not apply to IBHCs as 
such companies are not subject to the Community Reinvestment 
Act.
3. Limited notice procedure for acquisition of additional securities 
        affiliates

    Paragraph (3) establishes a limited notice procedure for 
the acquisition of additional securities affiliates by a FSHC.

            C. Additional investment in securities affiliate

1. Prior notice

    Section 10(c)(1) requires a bank holding company to provide 
30 days prior notice to the Board before making additional 
investments in a securities affiliate held under section 
10(b)(1), if the investment would be considered capital for 
purposes of any capital requirement imposed under the Exchange 
Act. The holding company may not make the investment if the 
Board disapproves the notice within the 30-day period. 
Currently, this includes an investment in the form of preferred 
stock, nonvoting common stock, convertible debt, or 
subordinated debt considered capital for purposes of such a 
capital requirement. The notice requirement does not apply to 
additional extensions of credit under a revolving credit 
agreement approved by the Board.

2. No prior notice required for certain bank holding companies

    Paragraph (2) permits a bank holding company that meets 
certain capital and managerial requirements to make additional 
investments in a securities affiliate without providing prior 
notice to the Board. This paragraph applies if each of the bank 
holding company's subsidiary insured depository institutions 
are well capitalized, the bank holding company is adequately 
capitalized, and the holding company and each of its subsidiary 
depository institutions are well managed (except for 
institutions acquired during the previous 12-month period). The 
bank holding company must provide subsequent notice to the 
Board regarding such additional investment.

3. Criteria for disapproving notice

    Paragraph (3) permits the Board to disapprove a notice of 
additional investment filed under paragraph (1), if any insured 
depository institution affiliate of the securities affiliate is 
undercapitalized, or if the Board determines that the bank 
holding company would be undercapitalized after making the 
investment or that the investment would be otherwise unsafe or 
unsound.

4. Emergency approval

    Paragraph (4) permits the Board to approve any additional 
investment in a securities affiliate on an emergency basis to 
address situations such as adverse market conditions or 
concerns regarding the financial or operation condition of a 
securities affiliate, if such additional investment does not 
adversely affect the safety and soundness of any insured 
depository institutions affiliated with the securities 
affiliate and does not diminish the ability of the financial 
services holding company to maintain an appropriate amount of 
capital in all such insured depository institutions

 D. Provision applicable if affiliated insured depository institution 
                     ceases to be well capitalized

    Subsection (d) requires that a bank holding company that 
owns a securities affiliate maintain high levels of capital in 
its depository institution. Under this section, if the holding 
company's lead depository institution is not well capitalized, 
or if well capitalized depository institutions do not control 
at least 80 percent of the total risk-weighted depository 
institution assets of the company, the holding company must 
execute a capital maintenance agreement with the Board to meet 
the capital requirements in a reasonable time or to divest 
control of the depository institution. If the holding company 
doe not comply with this agreement then the holding company's 
securities affiliate must discontinue its securities 
underwriting and dealing activities beginning 180 days after 
the insured depository institutions first fail these capital 
tests. In these circumstances, subsection (d) permits an 
affiliated securities affiliate to underwrite and deal in only: 
(1) securities that section 5136 of the Revised Statutes 
expressly authorized as permissible for a national bank to 
underwrite or deal in (hereinafter ``bank eligible 
securities''); (2) securities backed by or representing 
interests in notes, drafts, acceptances, loans, leases, 
receivables, other obligations, or pools of any such 
obligations; or (3) securities issued by an open-end investment 
company registered under the Investment Company Act of 1940.
    The Board may permit a securities affiliate to underwrite 
other securities for up to one year after its insured 
depository institutions fail these capital tests, if the bank 
holding company submits a capital restoration plan to the Board 
and the Board approves the plan. Such a plan must specify the 
steps the holding company will take to meet the capital 
requirements necessary to retain a securities affiliate and 
contain such other information as the Board may require. The 
Board may grant up to two additional one year extensions for a 
bank holding company that has submitted an acceptable capital 
plan.
    Paragraph (2) requires a bank holding company to divest its 
securities affiliate if any of the bank holding company's 
subsidiary insured depository institutions has been 
undercapitalized for more than 6 months. The Board may extend 
the deadline for divestiture for up to an additional 18 months 
if: (1) the appropriate federal banking agency has approved the 
undercapitalized institution's capital restoration plan and (2) 
the Board determines that the securities affiliate poses no 
significant risk to any affiliated depository institution.

 E. Securities affiliate excluded in determining whether bank holding 
                   company is adequately capitalized

    Paragraph (1) of subsection (e) requires that a securities 
affiliate be separately capitalized, i.e., that the bank 
holding company's investment in the securities affiliate be 
deducted from the bank holding company's capital in calculating 
compliance with bank holding company capital standards. The 
separate capitalization requirement promotes the safety and 
soundness of the bank holding company and its subsidiary 
insured depository institutions. It also promotes the financial 
stability of the securities affiliate by providing capital to 
the affiliate that is not committed to other purposes.
    Specifically, paragraph (1) provides that in determining 
whether a bank holding company is adequately capitalized, the 
bank holding company's capital and total assets must each be 
reduced by the amount of (1) the bank holding company's equity 
investment in any securities affiliate, and (2) any extensions 
of credit by the bank holding company to any securities 
affiliate that are considered capital for purposes of any 
capital requirement imposed on the securities affiliate under 
the Exchange Act. The securities affiliate's assets and 
liabilities also must not be consolidated with those of the 
bank holding company.
    Paragraph (2) provides that the rules of paragraph (1) do 
not apply to the extent that the Board determines by order that 
the securities affiliate is engaged in nonsecurities activities 
or that another method of adjusting capital is more appropriate 
to ensure safety and soundness of depository institutions. It 
is the intent of the Committee that the Board consult with, and 
consider the views of, the SEC in making any such 
determination.
    The Board may not require a securities affiliate to hold 
more capital than is required for unaffiliated broker-dealers. 
Such a practice would undermine the notion of functional 
regulation and put securities affiliates at a clear competitive 
disadvantage with securities firms not affiliated with banks. 
In addition, this provision generally requires a FSHC to deduct 
from its regulatory capital the amount of its equity investment 
in a securities affiliate, any requirement for excess capital 
in the securities affiliate effectively doubles the competitive 
disadvantage for banking organizations.
                             F. Safeguards

    Subsection (f) requires that each holding company and each 
subsidiary comply with the safeguards in new section 11 of the 
FSHCA. New section 11 imposes a series of prudential 
restrictions and requirements on relationships and transactions 
among securities affiliates, their parent holding companies, 
and affiliated depository institutions and subsidiaries.

G. Activities not permissible for depository institutions or securities 
                               affiliates

    Section 103 of the FSCA enacts a new section 10(g) of the 
BHCA that governs the securities activities of banks that are 
affiliated with a securities affiliate and subsidiaries of such 
banks. Effective one year after a bank holding company acquires 
a securities affiliate, its depository institutions and their 
subsidiaries are prohibited from making an equity investment in 
any securities affiliate, and must cease engaging in the United 
States in (1) underwriting securities backed by or representing 
obligations, or pools of any obligations, originated or 
purchased by the depository institution or its affiliates 
(other than certain consumer obligations described below), or 
(2) underwriting or dealing in any other securities, except 
securities expressly authorized by section 5136 of the Revised 
Statutes. Thus, this provision does not disturb any securities 
underwriting or dealing activity specifically authorized for a 
national bank by statute. For example, a bank affiliated with a 
securities affiliate may continue to engage in underwriting and 
dealing in the securities specifically referenced in section 
5136 of the Revised Statutes as permissible for a national bank 
to underwrite and deal in, such as obligations of the United 
States, general obligations of any State or of any political 
subdivision of any State, and securities sold by the Federal 
Home Loan Mortgage Corporation pursuant to section 305 or 
section 306 of the Federal Home Loan Mortgage Corporation Act. 
The provision also specifically permits banks to continue to 
securitize 1-4 family residential mortgage assets and consumer 
receivables that are originated or purchased by the bank.
    It is recognized that a national bank is ``expressly 
authorized'' to underwrite and deal in obligations described in 
12 C.F.R. Part 1 as of January 1, 1995, subject to the 
limitations described therein. These would include, for 
example, certain indirect general obligation bonds involving 
lease/rental agreement, tax anticipation notes, obligations 
secured by so-called ``Type I'' obligations, and several other 
types of obligations.
    It is also recognized that a national bank is ``expressly 
authorized'' to underwrite and deal in the preferred stock of 
the Federal Home Loan Mortgage Corporation; options on U.S. 
government securities or other ``bank eligible'' securities; 
and bonds collateralized by U.S. government obligations. All of 
these obligations were clearly ``bank eligible'' as of January 
1, 1995.
    In addition, a bank may engage within the bank, subject to 
the requirements of section 15B of the Exchange Act, in the new 
municipal securities underwriting activities authorized under 
section 110 of the FSCA. These permissible activities also 
include investment securities underwriting activities that are 
described in the regulations of the OCC that are currently in 
effect. Private placement activities, which have not been 
deemed to be underwriting or dealing activities by the federal 
banking regulators, are also left unaffected by this provision, 
unless a bank affiliates with a broker-dealer.
    This reference to permissible underwriting or dealing 
activities under section 5136 of the Revised Statutes is also 
referred to in other new provisions of the FSHCA.
    The limitations on the underwriting and dealing activities 
contained in this subsection do not apply to so-called Edge Act 
companies, Agreement companies, or companies held under section 
4(c)(13) of the BHCA. All of these companies are engaged 
primarily in business outside the United States.

 H. Approval of securities activities under section 4(c)(8) restricted

    Subsection (h) requires the Board to deny any application 
by a bank holding company under section 4(c)(8) to engage in, 
or acquire the shares of a company engaged in, underwriting or 
dealing in securities other than bank-eligible securities. 
Thus, a bank holding company may only acquire a securities 
affiliate pursuant to new section 10. This subsection does not 
disturb the Board's authority under section 4(c)(13) to permit 
a bank holding company to control shares of a company that does 
no business in the United States except as an incident to its 
international or foreign business.

                            I. Bankers' bank

    Subsection (i) applies a special rule to a shareholder of 
or participant in a bankers' bank holding company, if the 
shareholder or participant and its affiliates, in the 
aggregate, control more than 5 percent of any class of bankers' 
bank holding company's voting shares. Subsection (i) treats 
each such shareholder or participant, and each subsidiary of 
such a shareholder or participant, as if it were a subsidiary 
of the bankers' bank holding company. Thus, the bankers' bank 
and each shareholder, participant, or affiliate of the bankers' 
bank will be treated for purposes of section 16, as an 
affiliate of any securities affiliate owned by the bankers' 
bank holding company or affiliated with any 10 percent 
shareholder of the bankers' bank holding company. For example, 
a depository institution controlling 10 percent of the voting 
shares of a bankers' bank holding company may extend credit to 
any securities affiliate of the bankers' bank holding company 
only to the extent permitted under section 10(f)(1).

   J. Shares acquired in connection with underwriting and investment 
                           banking activities

    Section 10(j) is designed to recognize the essential role 
that investment banking, also known as merchant banking, plays 
in modern finance and permits a FSHC that has a securities 
affiliate to engage in such activities without the Board's 
prior approval so long as these investments do not result in 
breaching the barrier between banking and commerce. Under this 
provision, the FSHC may directly or indirectly acquire or 
control any kind of ownership interest (including debt or 
equity securities, partnership interests, trust certificates, 
or other instruments representing ownership) in an entity 
engaged in any kind of trade or business whatsoever. (Such 
entities are customarily referred to as portfolio companies). 
The FSHC may make such an acquisition whether acting as 
principal, on behalf of one or more entities (e.g., as adviser 
to a fund, regardless of whether the FSHC is also an investor 
in the fund), including entities that the FSHC controls (other 
than a depository institution or a subsidiary thereof), or 
otherwise.
    The Committee recognizes that the investment may result in 
the FSHC or an affiliate acquiring control of a portfolio 
company or employees of the FSHC or an affiliate constituting a 
majority of the board of directors of a portfolio company. 
However, section 10(j) imposes on all investments three 
conditions designed to maintain the separation between banking 
and commerce. First, the ownership interests in question may 
not be acquired or held by a depository institution or 
subsidiary thereof. Only a securities affiliate or another 
nonbanking affiliate of the holding company may make such 
investments. In this regard, section 4(k)(3) restricts any 
joint marketing activities between depository institutions and 
portfolio companies. Second, the ownership interests must be 
acquired or held by the FSHC for the purpose of appreciation 
and ultimate resale or other disposition and for such a period 
of time as will permit the sale or disposition of the 
investment on a reasonable basis consistent with the nature of 
the investment activity. The Committee recognizes this broad 
language contemplates a variety of factors which may affect the 
decision to sell or dispose of the investment, including but 
not limited to overall conditions in the financial or other 
markets, the nature of the portfolio company's business, the 
financial condition and results of operation of the portfolio 
company, opportunities for selling or disposing of all or part 
of the investment or portfolio company in a manner which will 
maximize investment return, and any fiduciary, contractual, or 
other duties to co-investors and advisory clients. In this 
regard, the Committee recognizes that the nature of certain 
investment is such that they must often be held for a 
considerable period of time in order to realize their potential 
value. Third, during the period such ownership interests are 
held, the FSHC may not actively manage or operate the portfolio 
company except insofar as necessary to achieve the investment 
objectives. The Committee anticipates that employees of the 
FSHC may have certain dealings with the management of a 
portfolio company. The Committee also recognizes that there may 
be special circumstances when active, day-to-day management or 
operation may become necessary to achieve the objectives of the 
investment.
    The Committee believes that compliance with these 
requirements of section 10(j) can be ascertained either by 
periodic reports from or by examination of the FSHC or 
affiliate making the investment and that no reporting by or 
examination of the portfolio company itself is necessary or 
appropriate other than in the unusual case in which reports or 
examinations are necessary to assure compliance with the BHCA 
restrictions governing transactions involving depository 
institutions and portfolio companies.
    Furthermore, the Committee intends section 10(j) to permit 
investment banking firms to continue to conduct their principal 
investing in substantially the same manner as at present and 
recognizes that any rules or regulations creating undue, 
artificial, or rigid restrictions or requirements would destroy 
the two-way street concept and frustrate the efforts of FSHCs 
to be competitive for investment banking services. Thus, on the 
one hand, if investment banking firms that wish to become FSHCs 
found their principal investing activities would be 
significantly restricted--such as by any rules or regulations 
limiting the amount of shares or other ownership interests that 
could be acquired or unduly limiting the period of time during 
which they could be held or restricting the ability of 
representatives of the FSHC or its affiliates to work with a 
portfolio company to the extent necessary to achieve the 
objectives of the investment--they might be constrained to 
forgo establishing or acquiring a depository institution. On 
the other hand, if commercial banking organizations found that, 
because of any such restrictions, they could not compete on an 
equal basis for principal investments with firms unaffiliated 
with any depository institution, then the effectiveness of such 
organizations in their investment banking activities would be 
compromised. For these reasons, the Committee intends that the 
Board not require, even informally, any preclearance of 
principal investments and not impose any unduly restrictive 
limitations on the holding period for such investments. The 
Committee intends that the Board may adopt appropriate rules 
governing activities under section 10(j) to assure that the 
purposes of the BHCA are carried out including the separation 
of banking and commerce and the protection of affiliated 
depository institutions.

                             K. Definitions

    Subsection (k) defines various terms used in sections 10, 
11 and 12.
    Paragraph (1) of subsection (k) gives ``capital stock and 
surplus'' the same meaning as in section 23A of the Federal 
Reserve Act.
    Paragraph (2) generally incorporates the definition of 
``covered transaction'' in section 23A of the Federal Reserve 
Act.
    Subparagraph (A) of paragraph (3) incorporates the 
definition of ``security'' in section 3(a)(10) of the Exchange 
Act.
    Subparagraph (B) provides that, for certain purposes, 
``security'' does not include any of the following: (1) a 
contract of insurance, other than a variable annuity; (2) a 
deposit account, savings account, certificate of deposit, or 
other deposit instrument issued by a depository institution; 
(3) a share account issued by a savings association if the 
account is insured by the FDIC; (4) a banker's acceptance; (5) 
a letter of credit issued by a depository institution; (6) a 
debit account at a depository institution arising from a credit 
card or similar arrangement; or (7) a loan or loan 
participation (as determined by the Board).
    Under subparagraph (C), the Board may, by regulation or 
order, after consultation with and consideration of the views 
of the SEC, exempt a banking product from the definition of 
``security,'' if the Board determines that the product is a 
traditional banking product and thus is more appropriately 
regulated as a banking product, and the exemption is consistent 
with the purposes of section 10.
    Subparagraph (D) provides that the exclusion of a 
particular instrument from the definition of security under 
subparagraphs (B) and (C) should not be construed as a finding, 
or as implying any finding, as to whether that instrument is or 
is not a security for purposes of section 3(a)(10) of the 
Exchange Act.
    Questions have been raised in the past about whether 
certain over-the-counter derivatives should be deemed 
``securities'' for purposes of the securities laws. At present, 
banks engage in certain underwriting, dealing in, and brokering 
of over-the-counter derivatives. To the extent that a 
determination is made in the future with respect to any 
derivative instrument, the FSCA provides that brokerage or 
dealing activities involving such derivatives, even if engaged 
in by a bank, would have to be conducted by a registered 
broker-dealer subject to SEC regulation. Depending on the 
circumstances, however, a bank may be permitted to engage in 
such activities (1) directly through a SID of the bank that 
itself registers as a broker-dealer; (2) in a subsidiary of the 
bank that registers as a broker-dealer (and is not subject to 
the FSCA's firewalls); or (3) in the new securities affiliate, 
which by definition is a registered broker-dealer and subject 
to the FSCA's firewalls.
    In general, a bank could take advantage of the first two 
options if the Board exempted the derivative instrument from 
the definition of ``security'' for purposes of the banking laws 
pursuant to a determination that the instrument would be more 
appropriately regulated as a banking product. If no such 
determination were made, dealing activities involving the 
instrument would have to be conducted through the new 
securities affiliate.

   Transition rule for securities affiliates approved under section 
                                4(c)(8)

    Pursuant to section 4(c)(8), the Board has authorized bank 
holding companies to engage through nonbank subsidiaries in 
underwriting and dealing activities not permissible for banks. 
Section 103(b) requires a bank holding company to obtain 
approval to retain such a subsidiary as a securities affiliate 
under section 10 unless the subsidiary underwrites and deals in 
only securities expressly specified by section 5136 of the 
Revised Statutes as permissible for a national bank to 
underwrite or deal in. The bank holding company must obtain the 
Board's approval within 18 months of the date of enactment of 
the FSCA. The Board may, for good cause shown, extend the 
deadline for up to 18 additional months. If a bank holding 
company files a notice under section 10 within 180 days after 
the FSCA becomes law, the initial 18-month period does not 
begin to elapse until 180 days after the Board acts on the 
notice. Section 103(b)(3) also relieves holding companies 
previously authorized to conduct corporate debt and equity 
securities underwriting activities after filing a limited 
notice from revenue limitations and other restrictions imposed 
in the order that allowed the holding company to engage in 
these activities.
    Finally, a FSHC can continue to control an existing company 
which is engaged in securities activities (other than 
underwriting and dealing in corporate debt or equity 
securities) subject to the limitations in the original orders, 
following enactment of the FSCA. In that regard, FSHCs with 
existing section 20 subsidiaries authorized to conduct limited 
underwriting powers pursuant to an order of the Board are 
authorized to continue to conduct such activities, subject to 
the limitations in the original orders, following enactment of 
the FSCA. In order to own or retain an affiliate engaging in 
the full range of underwriting activities under new section 10, 
such FSHCs must file a notice and obtain the Board's approval. 
The Board has had an opportunity to review and examine the 
limited underwriting activities and other operations of such 
companies. The Committee, therefore, anticipates that the Board 
will be able to process notices by FSHCs that control 
affiliates with existing limited underwriting powers within the 
60-day period specified for such notices in section 4(j)(1) of 
the FSHCA. Such time period is particularly appropriate in the 
case where the securities affiliate has demonstrated adequate 
financial and managerial resources as demonstrated by receiving 
one of the two highest overall ratings on its most recent 
examination by the Board.

Section 104. Safeguards relating to securities affiliates

    Section 104 imposes a series of prudential restrictions and 
requirements (commonly known as ``firewalls'') on relationships 
and transactions among securities affiliates, their parent bank 
holding companies, and affiliated insured depository 
institutions and their subsidiaries. These firewalls are also 
made applicable to subsidiaries of securities affiliates and to 
subsidiaries of insured depository institutions. Section 104 
places these safeguards in section 11 of the BHCA and 
redesignates current section 11 and section 12 as sections 13 
and 14, respectively.

1. Extensions of credit and assets purchases restricted

    Section 11(a)(1) prohibits a depository institution 
affiliated with a securities affiliate from, directly or 
indirectly, (1) extending credit in any manner to a securities 
affiliate; (2) issuing a guarantee, acceptance, or letter of 
credit, for the benefit of a securities affiliate; or (3) 
purchasing for its own account, or for the account of any 
subsidiary of such institution, financial assets of the 
securities affiliate. The restrictions contained in paragraph 
(1) are in addition to any other applicable restrictions, such 
as sections 23A and 23B of the Federal Reserve Act.

                  a. Exception for clearing securities

    Paragraph (2) permits a depository institution to extend 
credit to a securities affiliate that is incidental to clearing 
securities for the securities affiliate if four conditions are 
satisfied. First, the depository institution must be well 
capitalized. Second, the extension of credit must be fully 
secured as to both principal and interest by those securities. 
Third, the securities must either be bank-eligible securities 
or other securities as the Board may permit. Except in the case 
of bank-eligible securities, the Board may require whatever 
additional security or other assurance of performance as may be 
necessary to prevent the transaction from posing any 
appreciable risk to the institution.
    Fourth, the extension of credit must be for repayment 
before the close of business on the same day. If the securities 
cannot, in the ordinary course of business, be cleared on the 
same business day on which the extension of credit was made, 
the extension of credit must be repaid on the next business day 
and, when aggregated with all other covered transactions 
between the institution and all affiliated securities 
affiliates, must not exceed 10 percent of the institution's 
capital stock and surplus.
    In general, this exception is intended to apply to intraday 
extensions of credit by a bank to any securities affiliate in 
connection with clearing and settling transactions in 
securities by the securities affiliate, provided that the 
extensions of credit are fully secured by readily marketable 
securities or collateral approved by the Board. The exception 
is intended to apply to extensions of credit that would be 
intraday if all the parties were located in the same time zone, 
but where the extension of credit arises on one calendar day in 
one time zone and is repaid on another calendar day in another 
time zone. More and more banks and securities affiliates 
operate across several time zones, and the financial payments 
systems are on global systems spanning many time zones. The 
exception would apply to extensions of credit made by any 
office of a bank after the close of business established by 
such office on one business day and repaid before the close of 
business established by such office on the next succeeding 
business day.
            b. Exception for purchasing certain financial assets
    Paragraph (3) grants an exception to permit the purchase of 
financial assets of the securities affiliate, if the assets are 
purchased at current market value and the assets consist of 
either bank-eligible securities, or securities that are rated 
investment grade by at least one nationally recognized 
statistical rating organization unaffiliated with the 
depository institution or the issuer of the securities, and 
that have been marked to market daily. ``Current market value'' 
must be determined from reliable and regularly available price 
quotations. This provision does not, in itself, expand bank 
powers under the National Bank Act or other banking statutes.
            c. Other exceptions
    Paragraph (4) specifically permits the Board to make 
additional exceptions to paragraph (1) for well capitalized 
depository institutions, if the transactions are fully secured 
in accordance with section 23A(c) of the Federal Reserve Act 
and the aggregate amount of covered transactions of the 
institution with all affiliated securities affiliates, 
excluding purchases of U.S. Government and agency securities 
and extensions of credit for intraday clearing, do not exceed 
10 percent of the institution's capital stock and surplus.

2. Credit enhancement restricted

    Subsection (b)(1) of section 11 prohibits a depository 
institution affiliated with a securities affiliate from 
directly or indirectly extending credit or issuing or entering 
into another type of credit facility, asset purchase agreement, 
indemnity, guarantee, or insurance, for the purpose of 
enhancing the marketability of securities underwritten by the 
securities affiliate. Paragraph (2) requires the Board to 
define the phrase ``for the purpose of enhancing the 
marketability of a securities issue'' for purposes of paragraph 
(1).
    Paragraph (3) exempts bank eligible securities from the 
restrictions in paragraph (1). Paragraph (4) allows, under 
certain restrictions, well capitalized depository institutions 
to provide credit enhancements.

3. Prohibition on financing purchase of securities being underwritten

    Subsection (c)(1) of section 11 prohibits a bank holding 
company or any of its subsidiaries, other than a securities 
affiliate, from knowingly extending or arranging for an 
extension of credit, directly or indirectly, secured by or for 
the purpose of purchasing any security being underwritten by an 
affiliated securities affiliate. The prohibition applies to any 
security that is, or during the past 30 days has been, the 
subject of a distribution in which such securities affiliate 
participates as an underwriter or member of a selling group. 
The federal securities law also currently regulate these 
extensions of credit, and paragraph (5) provides that nothing 
in subsection (c) is intended in any manner to authorize an 
extension of credit by a securities affiliate except in 
compliance with applicable provisions of the Exchange Act and 
any rules or interpretations issued thereunder.
    In order to demonstrate compliance with this firewell, a 
bank holding company or subsidiary may, but is not required to, 
obtain an express written acknowledgement from the borrower 
that the credit is not secured by or for the purpose of 
purchasing a security during the distribution period or for 30 
days thereafter. It is intended that a customer be fully 
informed by the organization regarding the prohibition in this 
section and in the federal securities laws before a written 
acknowledgment is obtained.
    Paragraph (3) excepts from the prohibitions in paragraph 
(1) bank financing of bank eligible securities. Under paragraph 
(4), the Board may, after consultation with and considering the 
views of the SEC, permit a bank holding company or any of if 
its subsidiaries, including a depository institution or its 
subsidiaries, to extend credit for the purpose of purchasing 
any other security, if the bank holding company is adequately 
capitalized, the holding company's lead depository institution 
is well capitalized, well capitalized depository institutions 
control at least 80 percent of the depository institution 
assets controlled by the holding company, and all depository 
institutions controlled by the bank holding company are at 
least adequately capitalized.

4. Restriction on extending credit to make payments on securities

    Subsection (d)(1) of section 11 prohibits any depository 
institution affiliated with a securities affiliate from, 
directly or indirectly, extending credit to an issuer of 
securities underwritten by the securities affiliate where the 
purpose of the credit is to pay the principal of, or interest 
or dividends on, those securities. This prohibition does not 
apply to an extension of credit for a documented purpose (other 
than paying principal, interest, or dividends) if the timing, 
maturity, and other terms of the credit, taken as a whole, are 
substantially different from those of the underwritten 
securities.
    Paragraph (3) exempts bank eligible securities from the 
restriction imposed in paragraph (1). Paragraph (4) provides an 
exemption from the restrictions in paragraph (1) for well 
capitalized institutions if certain conditions are met.

5. Director and senior executive officer interlocks restricted

    Subsection (e)(1) of section 10 requires the Board to 
prescribe the circumstances under which senior officers and 
directors of a securities affiliate may serve at the same time 
as a director or senior officer of an affiliated depository 
institution.
    Paragraph (2) lists the factors that the Board should 
consider in issuing any regulation or order under paragraph 
(1).
    Paragraph (3) permits directors and senior executive 
officer interlocks between a securities affiliate and an 
affiliated depository institution if the aggregate assets of 
that institution and all affiliated depository institutions do 
not exceed $500 million. The $500-million limitation will be 
adjusted annually for inflation occurring after December 31, 
1995.
    Paragraph (4) provides that any conditions the Board may 
prescribe regarding interlocks involving senior officers and 
directors may not prohibit interlocks involving a securities 
affiliate and a Regulation K subsidiary of an affiliated 
depository institution.

6. Disclosure required

    Subsections (f) and (g) of section 11 require a securities 
affiliate and an affiliated insured depository institution to 
make a number of written disclosures to their customers. In 
particular the securities affiliate must conspicuously disclose 
in writing that the securities sold, offered, or recommended 
are not deposits, are not insured by the FDIC, are not 
guaranteed by an affiliated depository institution, are not 
otherwise an obligation of a depository institution (unless 
such is the case), and (if appropriate) are subject to market 
risk. In addition, the securities affiliate must disclose that 
it is not a depository institution, that it is a corporation 
separate from any depository institution, and that it may be 
underwriting or dealing in the securities being sold, offered, 
or recommended, and if so, would have a financial interest in 
the transaction. The Board may prescribe additional 
disclosures, and, in any event, shall consult with the SEC in 
prescribing any disclosures applicable to registered broker-
dealers.
    An insured depository institution may not express any 
opinion on the value of, or the advisability of purchasing or 
selling nonbanking products sold by the institution or any 
affiliate unless the institution conspicuously discloses in 
writing to the customer that the institution or the affiliate 
has a financial interest in the transaction, if that is the 
case. The institution must also disclose that the nonbanking 
products are not deposits, are not insured by the FDIC, are not 
guaranteed by the institution, or any other affiliated insured 
depository institution, and with regard to any investment 
component, are subject to investment risk, and that an 
affiliate, if involved, is not an insured depository 
institution and is a corporation separate from any insured 
depository institution.
    Subsection (g)(3) requires that whenever any insured 
depository institution or securities affiliates opens an 
account for the purpose of selling non-banking products to a 
customer, that it must obtain a one time acknowledgement of 
receipt of such disclosures that the nondeposit investment is 
(1) not a deposit, (2) is not insured by the FDIC, and (3) is 
not guaranteed by the institution or any other affiliated 
insured depository institution. The acknowledgement of receipt 
must include the date of receipt with the customer's name, 
address, and account number.
    There is a special rule for an ``accredited investor'' as 
defined by section 2(15) of the Securities Act of 1933 
(``Securities Act''). Any insured depository institution or 
securities affiliates must make the required disclosures to an 
accredited investor. However, obtaining a signed 
acknowledgement of receipt from the accredited investor is 
optional.

7. Improper disclosure of confidential customer information prohibited

    Subparagraph (h) prohibits the disclosure of nonpublic 
information about a customer by a depository institution 
subsidiary of a bank holding company to an affiliated 
securities affiliate or vice versa unless it is clearly and 
conspicuously disclosed to the customer that such information 
may be communicated between the depository institution and the 
securities affiliate and the customer is given the opportunity, 
prior to the time that the information is initially 
communicated, to direct that such information should not be 
disclosed. ``Nonpublic customer information'' does not include: 
(1) a customer's name and address, unless the customer has 
specified otherwise; (2) information obtainable from 
unaffiliated credit bureaus or similar companies in the 
ordinary course of business; or (3) information customarily 
provided to unaffiliated credit bureaus or similar companies in 
the ordinary course of business by depository institutions not 
affiliated with securities affiliates, or broker-dealers not 
affiliated with depository institutions.

8. Underwriting securities representing obligations originated by 
        affiliate restricted

     Subparagraph (1) prohibits a securities affiliate from 
underwriting securities secured by or representing an interest 
in mortgages or other obligations originated or purchased by an 
affiliated depository institution or subsidiary of such an 
institution, unless those securities either (1) are rated by at 
least one unaffiliated, nationally recognized statistical 
rating organization; or, (2) are issued or guaranteed by the 
Federal Home Loan Mortgage Corporation, the Federal National 
Mortgage Association, or the Government National Mortgage 
Association, or represent interests in such securities. The 
Board may grant additional exceptions.

9. Reciprocal arrangements prohibited

    Subparagraph (j) prohibits evasion of the restrictions and 
limitations contained in section 11 or other Federal law on 
interaffiliate transactions through reciprocal arrangements 
between bank holding companies.

10. Safeguards apply to certain subsidiaries

    Subsection (k)(1) of section 11 prohibits any subsidiary of 
a securities affiliate from doing anything that section 11 
prohibits the securities affiliate from doing. Paragraph (2) 
prohibits any subsidiary of a depository institution from doing 
anything that section 11 prohibits the institution from doing.

11. Authority to modify or impose additional safeguards; interpretive 
        authority

    Subsection (l) permits the Board, by regulation or order, 
to adopt additional limitations or modify existing limitations 
on relationships or transactions among depository institutions, 
their affiliates, and their customers.
    In exercising its authority under subsection (l) to impose 
additional restrictions or to make modifications, the Board 
must find that its proposed action is consistent with the 
purposes of the FSCA, including the avoidance of any 
significant risk to the safety and soundness of depository 
institutions or the federal deposit insurance funds, 
enhancement of the financial stability of bank holding 
companies, prevention of the subsidization of securities 
affiliates by depository institutions, the avoidance of 
conflicts of interest and other abuses, and the application of 
the principle of national treatment and equality of competitive 
opportunity between securities affiliates owned by domestic 
bank holding companies and those owned by foreign banks 
operating in the United States.
    The Board is to conduct a biennial review of the 
restrictions it imposes under this subsection.
12. Compliance programs required

    Subsection (m) requires each appropriate federal banking 
agency and the SEC to establish a program for enforcing 
compliance with subtitle A and with the definitions of 
``broker'' and ``dealer'' in the Exchange Act by entities under 
their supervision. Subsection (m) also requires that these 
programs provide a mechanism for the agencies to share 
information concerning compliance with the FSCA by depository 
institutions and their affiliates including affiliated SEC-
registered brokers or dealers and to respond to any complaints 
from customers about inappropriate cross-marketing of 
securities products or inadequate disclosure. Without limiting 
the authority of the appropriate federal banking agencies, this 
paragraph also grants to the SEC authority to take enforcement 
actions against a securities affiliate for a violation of any 
firewall in section 11 that places limitations or restrictions 
on the conduct or activities of securities affiliates as if 
those firewalls were provisions of the federal securities laws.
    The appropriate federal banking agencies, after 
consultation with and consideration of the views of the SEC, 
may require any depository institution that has effected 
securities transactions pursuant to the exceptions from the 
definitions of ``broker'' and ``dealer'' contained in sections 
3(a)(4)(C) and 3(a)(5) of the Exchange Act to submit such 
information as the agencies determine is necessary to monitor 
compliance with those sections. It is intended that in 
implementing any information requests that such requests take 
into account the size and activities of the institutions and do 
not cause undue reporting burdens. However, it is the intent of 
this Committee that banks document their use of the exceptions. 
The appropriate federal banking agencies must make any such 
information available to the SEC solely for the purpose of 
determining compliance with sections 3(a)(4)(C) and 3(a)(5) of 
the Exchange Act.
    The appropriate federal banking agencies also are directed 
to use, to the maximum extent practicable, examinations reports 
for any broker, dealer, investment adviser, or investment 
company made by or on behalf of the SEC, a registered 
securities association, or a national securities exchange and 
to defer to such exams for compliance with the federal 
securities laws. The appropriate federal banking agencies must 
defer to the SEC regarding all interpretations and enforcement 
of the federal securities laws relating to the activities and 
conduct of brokers, dealers, investment advisers, and 
investment companies.
    In order to improve agency coordination and reduce 
regulatory burden, subsection (m) adopts an interagency 
coordination requirement regarding enforcement actions taken 
against an entity that is subject to the supervisory authority 
of both the SEC and an appropriate Federal banking agency. The 
SEC must give the appropriate federal banking agency notice 
upon the commencement of any disciplinary or law enforcement 
proceedings against any broker, dealer, investment company, 
investment adviser, or SID of a depository institution, that is 
registered with the SEC and is affiliated with a depository 
institution. The SEC also must provide the same type of notice 
concerning any bank holding company, depository institution, or 
subsidiary of such company or institution, if the proposed 
action relates to subtitle A of title I or subtitles A and B of 
title II and the appropriate federal banking agencies are 
required to provide the SEC with the same type of notice 
concerning any broker, dealer, investment company, or 
investment adviser that is registered under the federal 
securities laws. The notice required to be provided by the SEC 
may be provided promptly after the action is taken if the 
Commission determines that protection of investors requires 
immediate action and prior notice is not practical under the 
circumstances. Similarly, the appropriate federal banking 
agency may provide notice after the action is taken, if the 
agency determines that concerns for the safety and soundness of 
a depository institution or its affiliates require immediate 
action and prior notice is not practical under the 
circumstances.
    In addition to providing prior notice of a proposed action, 
the SEC and the appropriate federal banking agencies are 
required, to the extent practical, to coordinate supervisory 
actions based on applicable law where the actions are based on 
the same or related events or practices.

13. Uninsured wholesale operations of foreign banks

    Under subsection (n), the safeguards and firewalls 
mentioned above (except those provided in subsections (l) and 
(m)) do not apply to the uninsured wholesale operations of 
foreign banks so long as the foreign bank's U.S. operations 
comply with sections 23A and 23B of the Federal Reserve Act and 
meet certain capital requirements.
    Because the FSCA provides that FSHCs may acquire wholesale 
financial institutions (WFIs) that are not insured by the FDIC, 
section 11(n) of the FSCA allows the uninsured branches and 
agencies of a foreign bank generally to be treated like 
uninsured WFIs for purposes of the FSCA, subject to a number of 
conditions. The conditions include the prohibition of a foreign 
bank and its affiliates from accepting FDIC-insured deposits; 
transactions between any U.S. branch or agency of the foreign 
bank and the securities affiliate being subject to sections 23A 
and 23B restrictions on dealing with affiliates; and the 
requirement that a foreign bank receive a determination from 
the Board that it meets capital standards comparable to those 
established for a well-capitalized FSHC. In these 
circumstances, firewalls between the foreign bank and the 
securities affiliate generally would be the same as between a 
WFI and a securities affiliate, with such modifications or 
limits as may be appropriate in the interests of national 
treatment.
                  amendment to the federal reserve act

    Section 23B(b)(1)(B) of the Federal Reserve Act currently 
prohibits a member bank or any of its subsidiaries from 
knowingly acquiring any security ``during the existence of any 
underwriting or selling syndicate'' if any affiliate of the 
bank is a principal underwriter of the security. Section 104(b) 
amends section 23B(b)(1)(B) to apply the prohibition to the 30 
day period after the underwriting or selling syndicate 
terminates.

         exemption from section 305(b) of the Federal Power act

    Section 305(b) of the Federal Power Act prohibits a person 
from serving simultaneously as an officer or director of ``any 
bank, trust company, banking association, or firm that is 
authorized by law to underwrite or participate in the marketing 
of securities of a public utility.'' 16 U.S.C. Sec. 825d(b). 
Section 104(c) provides an exception permitting an officer or 
director of a public utility to serve simultaneously as an 
officer or director of a securities affiliate permitted by 
section 10 or a depository institution permitted by section 
5136(b) of the Revised Statutes (as amended by subtitle D) to 
underwrite or participate in marketing securities (including 
commercial paper) of a public utility, so long as the 
securities affiliate or institution does not actually 
underwrite or participate in marketing securities of the 
particular public utility for which the person serves or 
proposes to serve as an officer or director.

            amendment to the right to financial privacy act

    The Right to Financial Privacy Act currently permits the 
five member supervisory agencies of the Federal Financial 
Institutions Examination Council and the SEC to exchange 
financial records or other information with respect to a 
financial institution, holding company, or any subsidiary of a 
depository institution or holding company. Section 104(d) makes 
conforming amendments to the Right to Financial Privacy Act to 
permit these agencies to exchange examination reports as well.

                   separation of banking and commerce

    Section 104(e) requires the Board in implementing the FSHCA 
to protect depository institutions and preserve the separation 
of banking and commerce.

Section 105. Ownership of shares of certain companies by financial 
        services holding companies

    Section 105 adds a new section 4(k) of the FSHCA to permit 
securities firms, many of which currently engage in a broad 
range of financial activities, to continue those activities 
which the Board determines are ``financial'' in nature, after 
acquiring an insured bank. Recognizing that securities firms 
may also be engaged in ``nonfinancial'' activities, this new 
section provides a transition period during which the firm must 
conform its nonfinancial activities to the requirements of the 
BHCA.

1. Financial activities

    New section 4(k)(1) of the BHCA permits a bank holding 
company to retain ownership or control of a company (or its 
successor) that is not otherwise permissible for a FSHC to own 
if the company engages solely in financial activities. To 
qualify to hold a company engaged in financial activities, the 
company must have been a securities firm prior to becoming a 
bank holding company. A company qualifies as a securities firm 
if more than 50 percent of the aggregate gross revenues of the 
holding company for the two year period prior to becoming a 
holding company involved securities activities. Nonbanking 
activities that are permissible for a bank holding company 
(other than securities activities) are excluded from the 
calculation of the company's business. A qualifying securities 
firm may retain shares of any company engaged in activities 
that the Board determines to be financial if the firm acquired 
the shares of the company more than 2 years before becoming a 
holding company, and the aggregate investment of the holding 
company in shares of all ``financial companies'' under this 
paragraph does not exceed 10% of the total consolidated capital 
and surplus of the holding company.
    In addition, a FSHC may retain ownership of nonconforming 
financial companies if, as of the date of enactment, the FSHC 
was exempt from the provisions of section 4 of the BHCA 
pursuant to section 4(d), it continues to engage only in the 
same general lines of business and related activities, and 80% 
of the gross revenues of the FSHC as of the date of enactment, 
was attributable to conforming financial activities.
    Furthermore, the aggregate investment by the holding 
company in shares of all such companies may not exceed 10 
percent of the holding company's total consolidated capital and 
surplus, as determined based on statutory accounting or 
generally accepted accounting principles.

2. Nonfinancial activities

    New section 4(k)(2) of the BHCA permits a qualifying 
securities firm to retain for 5 years ownership of any 
nonfinancial company that it owned on the date it became a 
holding company. The Board may extend this period for an 
additional 5 years if necessary to avert substantial loss to 
the bank holding company and if the Board finds that the bank 
holding company has made a good faith effort to divest the 
shares.
    During the period prior to divestiture of the nonfinancial 
firm, neither the bank holding company nor the nonfinancial 
firm may acquire any interest in or assets of any company and 
the nonfinancial firm may not engage in any activities it was 
not engaged in on the day before its parent company became a 
bank holding company.

3. Restrictions on joint marketing

    Section (4)(k)(3) also imposes joint marketing restrictions 
on depository institutions and the same companies to which 
subsection (k) applies unless the product or service involved 
in the joint marketing is permissible for bank holding 
companies under section 10 or section 4(c)(8).
Section 106. Provisions applicable to limited purpose banks

    Section 106(a) provides an exception from the growth cap, 
crossmarketing and activities restrictions (other than a 
continuing restriction on activities that would have resulted 
in the institution being considered a bank before the enactment 
of Competitive Equality Banking Act (CEBA)) for qualified 
limited-purpose banks. Most of the 22 institutions that are 
currently subject to these restrictions are engaged in 
financial activities, and it is only these companies that the 
Committee intends to be eligible for the relief granted by 
section 106(a). Consequently, in order for a company to 
qualify, the overall nature of its activities, based on its 
consolidated revenues, must be financial in nature, and at 
least 51% of the company's consolidated revenues, based on 
generally accepted accounting principles, would have to be 
derived (with no more than minor occasional fluctuations) from 
activities in which financial services holding companies are 
permitted to engage (e.g. activities permissible under sections 
4(c)(8) and (10). The remaining activities must be 
predominantly financial in nature and may include non-
conforming financial activities (i.e. activities not authorized 
under section 4(c)(8)), and a company could not engage in 
substantial commercial activities such as manufacturing or 
industrial activities.

                        Asset Growth Restriction

    Eligible limited-purpose bank owners are not subject to the 
annual 7% asset growth limitation if the limited-purpose bank 
itself, and all other insured depository institutions 
controlled by such company, are well capitalized and well 
managed. Moreover, if the bank, or any affiliate, engages in 
securities activities described in section 10(a) of the FSHCA, 
they must comply with the safeguards contained in section 
10(f).
    The section requires the company controlling a limited-
purpose bank to notify the Board in writing of its eligibility 
for the exception from the 7% growth limitation. The notice is 
deemed to be effective unless the Board disapproves it within 
60 days. The purpose of the 60 day period is to allow the Board 
to evaluate the company's eligibility for the exception. (i.e., 
that it engages predominantly in qualified financial services, 
and that its bank and other insured depository institutions are 
well capitalized and well managed, and that if the bank has a 
securities affiliate, it complies with the securities firewalls 
contained in section 10(f). If the Board is able to make this 
evaluation within a shorter time period, the Committee expects 
that it would notify the company of that fact so that the 
exception could become effective before the expiration of the 
60-day period.
    This section provides that, if the bank ceases to be well 
capitalized, it must be divested unless it is restored to the 
well capitalized level within 12 months. The requirement also 
applies in the event the bank again ceases to be well 
capitalized. If the bank ceases to be adequately capitalized, 
it must be divested unless it is restored to the adequately 
capitalized level within 30 days. It is the intention of the 
Committee that these capital standards, and the divestiture 
penalties for ceasing to meet them, apply to limited-purpose 
banks in any year in which they increase their assets by more 
than 7%. A company will not be considered to have qualified for 
purposes of clause (I) of this section unless it has notified 
the Board of eligibility for the exemption. A company 
controlling a depository institution which ceases to be well 
managed becomes subject to the asset growth limitation at the 
end of the 12-month period during which it ceased to be well 
capitalized.

                         Activities Restriction

    Subsection 106(a) also establishes a procedure for eligible 
limited-purpose banks to qualify for an exception form the 
limitation (in subsection 4(f)(3)(B)(f) of the FSHCA) on 
engaging in new banking activities. Eligible banks must notify 
the Board of their intention to engage in a lawful banking 
activity in which the bank did not engage prior to March 5, 
1987. The amendment does not permit such activity to include 
one that, prior to the Competitive Equality Amendments of 1987 
would have resulted in the institution becoming a ``bank.'' The 
subsection provides that the Board may disapprove a proposed 
new activity as ``unsafe and unsound'' within 60 days of 
receiving the bank's notice.

                       Crossmarketing Limitation

    Eligible limited-purpose banks are permitted under this 
section to crossmarket affiliates products or services, and 
bank affiliates are permitted to offer or market the bank's 
products or services, to the extent permissible under law, 
regulation or order for banks or FSHCs under subsections 
4(c)(8) or (15). The provision also specifies that 
authorization to banks or FSHCs to offer products and services 
is deemed to apply to limited-purpose banks regardless of 
whether the authority was conferred by statute, regulation or 
order.

                        Divestiture Requirement

    Companies which control limited-purpose banks must either 
divest the banks, or register as bank holding companies, if 
they fail to comply with the asset growth, crossmarketing, 
activities and other requirements set forth in the FSHCA which 
entitle them to the exemption from FSHC status. Section 103(g) 
modifies these requirements for eligible limited-purpose bank 
owners, by providing, in effect a ``right to cure'' any 
condition (or cease any activity) that would ordinarily be 
grounds for a divestiture order. These companies may avoid the 
divestiture requirement by ceasing the nonconforming activity 
or correcting a nonconforming condition within 12 months. The 
Committee intends the 12-month period established under this 
subsection to commence from the date the company learns that an 
activity or condition is not permissible for such company or 
the bank it controls.
    Section 106(c) allows for the conversion of companies 
controlling nonbank banks into FSHCs. Nonbank holding companies 
predominantly engaged in the above specified activities and 
which have all their insured depository institutions well 
capitalized would have 18 months after the date of enactment to 
convert to a FSHC. If the company converts within the 18-month 
period, the company could retain its investments (made before 
January 1, 1995), in companies engaging in financial activities 
not authorized by the Board under section 4(c)(8). The holding 
company would be subject to the asset growth and joint 
marketing restrictions provided for in section 4(k) of the 
FSHCA. In addition, if the company controls or owns any company 
not permitted under section 4, that company would have to 
comply with the five-year divestiture and crossmarketing 
requirements of section 4(k). Finally, section 106(c) allows 
the converted nonbank holding company to elect reduced 
supervision under section 5(g) of the FSHCA.
Section 107. Securities company affiliations of FDIC insured banks

      A. Limitations on affiliations of banks and securities firms

    Section 107 adds a new section 18(s) to the FDIA that 
restricts affiliations between a bank and a securities company. 
Paragraph (1) prohibits any bank from being an affiliate of any 
company that, directly or indirectly, acts as an underwriter or 
dealer of securities unless the affiliation has been approved 
under section 10 of the BHCA or the securities company confines 
its underwriting and dealing activities to only securities 
described in section 10(g) of the BHCA. Paragraph (2) exempts 
trust company banks, credit card banks, industrial banks, and 
federal or insured branches from the prohibition in paragraph 
(1).
    Paragraph (3) permits an affiliation that existed on 
January 1, 1995, to continue notwithstanding paragraph (1). 
Paragraph (3) also permits an insured bank that has such an 
affiliation to form new affiliations with companies engaged in 
underwriting or dealing in securities, but does not authorize a 
company with a grandfathered bank to acquire any additional 
bank.

                             B. Definitions

    Paragraph (4) adds several definitions to the FDIA.
            1. Broker and dealer
    Subparagraph (C) and subparagraph (D) incorporate the 
definitions of ``dealer'' and ``broker'' in sections 3(a)(5) 
and 3(a)(4) of the Exchange Act.
            2. Security
    The definition of ``security'' in subparagraph (D) 
parallels that in new section 10(k)(7) of the BHCA.
            3. Underwriter
    Subparagraph (E) incorporates the definition of 
``underwriter'' in section 2(11) of the Securities Act.

                     C. Broker-dealer registration

    Section 107 also adds a new subsection (t) to the FDIA that 
provides that an insured bank may not use the United States 
mails or any means or instrumentality of interstate commerce to 
act as a broker or dealer without registration under the 
Exchange Act, except to the extent permitted under the 
definitions of ``broker'' and ``dealer'' contained in sections 
3(a)(4) of 3(a)(5) of that Act, or as otherwise exempt pursuant 
to rules adopted by the SEC.
    Section 107 adds a new subsection (u) that requires the 
federal banking agencies to use to the maximum extent 
practicable examination reports made by or on behalf of the 
SEC, a registered securities association, or a national 
securities exchange, of a broker-dealer, investment adviser, or 
investment company. It is expected that the federal banking 
agencies will seldom find it necessary to generate their own 
examination reports. The federal banking agencies shall defer 
to such examination reports with respect to the interpretation 
and application of the federal securities laws.
    Section 107 also requires the FDIC to conduct a study of 
the risks posed to the deposit insurance funds of (1) 
affiliations between insured depository institutions with 
securities affiliates and other affiliates engaged in 
underwriting and dealing in securities; and (2) any activity 
described in section 10(a) in which insured depository 
institutions may engage. If the FDIC concludes that the risk of 
any such activities or affiliations is greater than the risk 
posed by activities specifically authorized by statute prior to 
January 1, 1995, the FDIC must treat such conclusion as a 
factor in setting semiannual assessments for deposit insurance.

Section 108. Authority to terminate grandfather rights under the 
        International Banking Act of 1978

    Section 108 amends section 8(c) of the International 
Banking Act of 1978 (IBA) by adding a new paragraph (3) to 
permit termination of the grandfathering authority granted by 
the IBA and other statutes to foreign banks to retain certain 
companies engaged in securities activities. This grandfathering 
was necessary because of the restrictions contained in the 
Glass-Steagall Act. With the repeal of these Glass-Steagall 
restrictions, foreign banks with grandfathered securities 
affiliates would be permitted to retain these grandfathered 
securities companies on the same terms that other banking 
organizations are permitted to establish a securities 
affiliate. In order to assure national treatment and so as not 
to disturb other activities that may continue to be entitled to 
grandfather rights under the IBA, new section 8(c)(3) only 
applies to securities activities that the Board determines have 
been authorized for financial services holding companies 
generally.
    The legislation provides that foreign banks should no 
longer be entitled to grandfather rights for securities 
activities after the foreign bank has received approval to 
conduct those activities pursuant to section 10 of the BHCA. In 
order to provide both competitive equality between domestic and 
foreign banks and fairness to the foreign banks that have 
relied for many years on their grandfather rights, the foreign 
bank is granted three years in which to have an application 
approved under section 10. Failing such approval within this 
time period, the Board may terminate or impose firewalls and 
other limits on the foreign bank's securities activities. In 
addition, the loss of grandfather rights is designed to apply 
to specific securities activities approved by the Board for 
FSHCs. Accordingly, if the Board finds, some, but not all, of a 
foreign bank's grandfathered securities activities are 
authorized for a section 10 affiliate, the foreign bank shall 
be entitled to retain its grandfather rights for the activities 
that are not authorized for a FSHC.

Section 109. Effect on state laws prohibiting the affiliation of banks 
        and securities companies

    Section 7 of the BHCA currently provides that the Act does 
not restrict the States' authority over companies, banks, bank 
holding companies, and subsidiaries of those entities. 12 
U.S.C. Sec. 1846. Section 109(a) adds two exceptions. First, a 
State may not limit or prohibit an affiliation between a bank 
or bank holding company and a securities affiliate solely 
because the securities affiliate is engaged in securities 
activities described in subparagraphs (A) and (B) of section 
10(a)(1). Second, a State may not limit or prohibit the 
insurance activities of a subsidiary of a FSHC solely because 
it is no longer exempt under certain laws. This provision is 
not intended to affect the authority of any bank to engage in 
any activity authorized for such bank under the law of the 
bank's home State except for section 18(s) of the FDIA as 
amended by this Act and Title II of this Act.
    In section 109(b), the Committee adopted express language 
to clarify that, in general, no provision of the FSCA ``may be 
construed as affecting the authority of any bank to engage in 
any activity authorized for such bank under the law of such 
bank's home state.'' This preservation of State-authorized 
activities applies to any insured State nonmember bank that 
elects to become or merge into a wholesale financial 
institution, thereby becoming a State member bank. It is the 
Committee's intent that, except as provided in the three 
specific exceptions to section 109(b), the Board should 
exercise its exemptive authority granted by new section 
9B(c)(4) of the Federal Reserve Act to preserve the authority 
of a State nonmember bank or its subsidiaries to engage in any 
activity authorized for such bank or subsidiaries under the law 
of its home State.

Section 110. Municipal securities

    Section 110 amends section 5136 of the Revised Statutes to 
permit national banks, subject to the existing municipal 
securities regulatory scheme, to underwrite and deal in any 
municipal revenue bonds secured by a pledge of revenues, 
including certain exempt facility bonds used to finance 
airports, mass commuting facilities, docks and wharfs and water 
pollution control facilities where the governmental authority 
on behalf of which the bonds are issued is treated for federal 
income tax purposes as the sole owner of the facility being 
financed. Underwriting and dealing in municipal revenue bonds 
pursuant to the new authority contained in this section is 
permissible only for national banks that are well capitalized 
and that engage generally in the business of banking. This 
provision is not intended to amend any other provision of this 
section, including that provision which grants to national 
banks the ability to deal in, underwrite or purchase for their 
own account certain housing, university, and dormitory bonds.
Section 111. Interagency agreement relating to retail sales of certain 
        nondeposit investment products

    Section 111 adds a new subsection (v) to section 18 of the 
FDIA which requires the appropriate federal banking agencies to 
jointly prescribe, after consultation with and consideration of 
the views of the SEC, standards regarding sales of mutual funds 
and annuities by depository institutions that are not 
registered as brokers under the Exchange Act. The standards 
must, at a minimum, establish requirements relating to sales 
practices, disclosures and advertising, compensation of sales 
personnel with respect to referrals or transactions, training 
and qualifications for personnel involved in such transactions, 
and the setting and circumstances under which the transactions 
may be effected and referrals made. These standards replace the 
existing interagency guidelines currently in effect, and shall 
be substantially similar to SEC regulations.

Section 112. Effective date

    Section 112 provides that the amendments made by subtitle A 
will become effective 90 days after the date of enactment of 
the FSCA.

             Subtitle B--Investment Bank Holding Companies

Section 116. Investment bank holding companies

    Section 116 establishes a new category of bank holding 
companies, known as IBHCs, that will be permitted to engage in 
a wider range of financial activities than generally is 
permitted for bank holding companies provided that such 
companies control only wholesale financial institutions that do 
not accept insured deposits or deposits under $100,000. To 
account for the broader scope of financial activities permitted 
for IBHCs, an IBHC may not own an insured depository 
institution and an IBHC may not acquire a securities affiliate 
unless all WFIs owned by the IBHC are well capitalized.
    Subsection (a) amends section 2 of the BHCA to add a 
definition of ``wholesale financial institution'' and 
``investment bank holding company.'' A WFI must be a member of 
the Federal Reserve System subject to examination and 
regulation under the Federal Reserve Act. Thus, the term 
``wholesale financial institution'' is defined as any 
institution that is an uninsured state member bank authorized 
pursuant to the Federal Reserve Act. The term ``investment bank 
holding company'' is defined as any bank holding company that 
controls a WFI and a section 10 securities affiliate. If the 
company is a foreign bank, it must also meet the requirements 
imposed in new section 12 of the BHCA.
    Subsection (b) amends the BHCA to add a new section 12 to 
establish a framework to permit certain affiliations under the 
umbrella of an IBHC. Section 12(a)(1) authorizes IBHCs to own 
companies engaged in any activity that the Board determines to 
be financial in nature or incidental to a financial activity. 
Section 12(a)(1)(B) permits IBHCs to hold shares of companies 
that are engaged in nonfinancial and financial activities 
(other than those permitted under section 12) provided that 
such investment does not at any time exceed 7.5 percent of the 
consolidated total risk-weighted assets of the IBHC (excluding 
assets of companies held under this subparagraph). The amount 
invested by the IBHC in any one company, including all 
affiliates of such company other than preexisting affiliates of 
such IBHC, may not exceed 25 percent of the total capital and 
surplus of the IBHC.
    Section 12(a)(1)(C) permits firms whose activities in the 
United States on January 1, 1995 were predominately securities 
activities to engage fully in all commodities activities if the 
firm was engaged, directly or indirectly, in the United States, 
on January 1, 1995, in any commodity activity which was not 
then permissible for a bank holding company to conduct in the 
United States. The Committee intends that activities relating 
to the trading, sale or investment in commodities and 
underlying physical properties shall be construed broadly and 
shall include owning and operating properties and facilities 
required to extract, process, store and transport commodities.
    Section 12(a)(1)(D) provides that a qualified investor will 
not be or be deemed to be an IBHC, a FSHC, a bank holding 
company or a similar organization or, with limited exceptions, 
be deemed to control any such company or a subsidiary. A 
qualified investor is a domestic firm that owns from 10 to 45 
percent of an IBHC which, before it became an IBHC, had more 
than 50 percent of its assets employed directly or indirectly 
in securities activities, including underwriting, trading and 
investing. There are restrictions imposed on cross-marketing of 
the qualified investor's products or services and on the use of 
a common name. This provision is intended to make the two-way 
street effective for certain securities firms whose parent 
companies have significant minority shareholders.
    To the extent that an IBHC becomes subject to capital 
requirements because it cannot make the election referred to in 
section 124 of the FSCA, the Committee expects that those 
requirements will be risk-based and will not include a leverage 
test. Moreover, the Committee expects that the Board will be 
flexible in applying capital standards to such IBHCs in 
recognition of their special characteristics, including (i) the 
uninsured status and wholesale funding base of WFI affiliates, 
(ii) the nature of the capital requirements applicable to 
securities and other regulated subsidiaries, which may involve 
the raising of capital in forms not technically qualifying as 
capital under bank capital standards, (iii) the ownership 
structure of certain securities firms, and (iv) the absence of 
holding company capital requirements with respect to many of 
the U.S. and foreign firms with which IBHCs must compete.
    Transactions between a WFI and its affiliates are subject 
to sections 23A and 23B of the Federal Reserve Act. A 
securities affiliate and a WFI are not subject to the 
``firewalls'' contained in section 11 except for any 
restriction adopted by the Board pursuant to its authority 
under paragraph (12) of that section. A subsidiary of a WFI 
will be subject to any restriction adopted by the Board under 
paragraph (12) to the same extent as its parent institution. In 
addition, the compliance programs that the SEC and the 
appropriate Federal banking agencies are required to establish 
pursuant to paragraph (13) will apply to a WFI and its 
affiliated securities affiliate.
    Subsection (b) also allows certain treatment to foreign 
banks, subject to certain conditions.
    A foreign bank may qualify for treatment as an IBHC even if 
it does not establish a WFI, provided that it meets the 
criteria set forth in section 12(b).
    In that regard, a WFI cannot be insured by the FDIC and 
generally cannot accept initial deposits of under $100,000 
other than on an incidental or occasional basis. As noted 
previously, many foreign banks operate in the United States 
only through uninsured offices that cannot accept initial 
retail deposits of under $100,000 except on a de minimis basis. 
In light of this, section 12(b) of the FSCA would allow a 
foreign bank that operates uninsured branches or agencies in 
the United States to be treated as an IBHC subject to a 
determination by the Board that the foreign bank or its parent 
company meets conditions designed to assure a level playing 
field as compared with U.S. banking organizations. If the 
foreign bank has branches or agencies in the United States, the 
conditions of section 12(b) must be met even if the foreign 
bank also owns or controls a WFI.
    Under section 12(b), the foreign bank and any company that 
controls such foreign bank may request a determination from the 
Board that it be treated as an IBHC. A determination may be 
granted if neither the foreign bank nor any of its affiliates 
accept any FDIC-insured deposits; any transactions between any 
U.S. branch or agency of the foreign bank, and the securities 
affiliate and any company acquired under the broader investment 
authority of an IBHC by the foreign bank or any parent company 
of the foreign bank would be subject to sections 23A and 23B 
restrictions on affiliate transactions; and the foreign bank 
must meet risk-based capital standards comparable to those 
established for a WFI, and would be treated as a wholesale 
financial institution for purposes of certain restrictions, 
such as the prohibition on cross-marketing, subject to such 
modifications as the Board deems appropriate in light of 
national treatment considerations.
    Any foreign bank or company that receives a determination 
that it may be treated as an IBHC would no longer be eligible 
to make investments or conduct activities in the United States 
under the authority of section 2(h) of the BHCA. (Section 2(h), 
subject to a number of restrictions, allows foreign non-
financial affiliates of foreign banks to own companies in the 
United States that operate in the same non-financial lines of 
business as their parents conduct outside the United States.) 
If a foreign bank chooses to be treated as an IBHC, it must 
limit its investments in the United States to those permissible 
for an IBHC. This restriction is necessary because, since IBHCs 
are allowed to invest in commercial companies subject to the 
restrictions of the FSHCA, a foreign bank would have an 
advantage over domestic banking organizations if it could make 
investments under both the investment bank holding company 
authority and the authority of section 2(h).
    An IBHC is permitted to invest up to 7.5 percent of its 
consolidated total risk-weighted assets in shares of companies 
engaged in activities in the United States not otherwise 
permitted to financial services holding companies. For foreign 
banks, ``consolidated total risk-weighted assets'' means total 
risk-weighted assets held by the foreign bank or its parent 
company in the United States through controlled entities such 
as U.S. branches, agencies, or subsidiaries. Thus, the foreign 
bank or company may invest a percentage of its U.S.-based 
assets in activities not otherwise permitted to holding 
companies. Although this percentage is based on U.S.-held 
assets, and not on total assets of the foreign bank or company, 
the foreign bank or company is not constrained by U.S. law in 
its investments outside the United States. Consequently, a 
foreign bank may devote its entire percentage of eligible 
assets to investments held only in the United States, while a 
U.S. IBHC must comply with its applicable percentage on a 
worldwide basis. In light of these circumstances, U.S. and 
foreign banking organizations would have available to them 
equal opportunities to take advantage of this authority.
    In that regard new section 12(c) of the FSHCA provides that 
a foreign bank is not eligible for the treatment afforded 
foreign banks with respect to firewalls under section 11(n) or 
IBHCs under section 12(b) unless the home country of the 
foreign bank provides the same competitive opportunities to 
U.S. banks as it affords to domestic banks in the home country. 
This provision would not operate to change any obligations that 
might exist under the North American Free Trade Agreement. In 
addition, a foreign bank cannot operate a branch or agency in 
the U.S. if the foreign entity was established in order to 
evade certain strictures concerning the operation of a domestic 
WFL.

Section 117. Wholesale financial institutions

    Section 117 amends the Federal Reserve Act by adding a new 
section 9B which authorizes WFIs to become members of the 
Federal Reserve System. Section 9B provides that WFI will be 
subject to the Federal Reserve Act to the same extent and in 
the same manner as a State member insured bank except that a 
WFI may only terminate membership on the terms and conditions 
set by the Board and with the prior written approval of the 
Board.
    Section 9B also contains special capital requirements 
applicable to WFIs including the requirement that the Board 
adopt capital requirements that are sufficiently higher than 
the capital levels applicable to State member insured banks to 
take into account that WFIs accept uninsured deposits and to 
provide for the safe and sound operation of such institutions 
without undue risk to creditors or other persons, including 
Federal Reserve banks, engaged in transactions with the 
institution. It is expected that wholesale financial 
institutions should generally meet the requirements for well 
capitalized insured banks. The Board may adjust capital 
standards for WFIs consistent with safety and soundness 
concerns and international risk-based capital standards taking 
into account global competitiveness to permit WFIs to 
effectively compete in markets, such as the government 
securities market.
    Section 9B also provides that WFIs will be subject to the 
prompt corrective action provisions contained in section 38 of 
the FDIA with certain changes to reflect the status of WFIs as 
uninsured institutions. In addition WFIs will be subject to the 
enforcement provisions contained in the FDIA and the Bank 
Merger Act as if they were state member insured banks. WFIs 
will also be considered banking institutions for purposes of 
the International Lending Supervision Act and the Board will be 
the appropriate federal banking agency for that Act and under 
the FDIA.
    A WFI is subject to limitations on the deposits it may 
receive. Subject to regulations issued by the Board, a WFI may 
not receive initial deposits of $100,000 or less other than on 
an incidental and occasional basis. Deposits of that amount 
received on an incidental basis may not represent more than 5 
percent of the institution's total deposits. In addition, 
deposits of a WFI may not be insured by the FDIC and the Board 
must issue regulations concerning advertising and disclosure to 
ensure that there is no confusion concerning the application of 
deposit insurance to such deposits.
    The Board may also prescribe additional requirements 
concerning: (1) limitations on transactions with affiliates to 
prevent an affiliate from gaining access to credit from a 
Federal Reserve bank; (2) special clearing balance 
requirements; and (3) any other requirements necessary to 
promote the safety and soundness of the WFI or to protect 
creditors. The Board also has broad exemptive authority 
provided any exemption is consistent with safety and soundness 
of the WFI and the protection of creditors and other persons, 
including Federal Reserve banks, engaged in transactions with 
the WFI. The Board also is authorized to appoint a conservator 
for a WFI to the same extent and in the same manner as the OCC 
is authorized to appoint a conservator for a national bank 
under the Bank Conservation Act.
    In order to permit existing insured banks to become WFIs, 
section 117 adds a new section 8A to the FDIA. Subsection (a) 
of section 8A permits a State-chartered or national bank to 
terminate its status as an insured institution after providing 
6 months prior notice to the FDIC, to the Board, and to its 
depositors. An insured bank may terminate its insurance if the 
deposit insurance fund of which the bank is a member has met or 
exceeds its designated reserve ratio and the bank pays an exit 
fee to the FDIC or the bank receives regulatory approval and 
pays the appropriate exit fee. Subsection (d) provides that 
insured banks that terminate their insurance may not accept any 
deposits unless the institution becomes a WFI. Subsection (e) 
provides that institutions that terminate their insured status 
must pay an exit fee to the FDIC as provided for in subsection 
(e) of section 8A. Subsection (f) provides for temporary 
deposit insurance and assessments during the transition period. 
Subsection (g) requires that, during the transaction period, 
institutions may only advertise that insurance on deposits 
received by the institution is temporary and that deposits made 
after a certain date will not be insured. Subsection (h) 
contains notice requirements applicable to the notice to be 
provided to the FDIC and depositors.
    While H.R. 1062 allows a WFI to borrow at the Board's 
discount window under the same terms as a State member bank, 
the Committee does not expect the Board to use the discount 
window to bail out WFIs. Furthermore, it is the Committee's 
intent that the Board will only use the discount window with 
regard to WFIs for general short term adjustment purposes. 
Accordingly, section 117(c) requires the Board to submit a 
detailed report to the Congress at the end of any year in which 
a WFI borrows funds from the Board.

                    Subtitle C--Financial Activities

Section 121. Financial activities

    Section 121 modifies the ``closely related to banking'' 
test under the BHCA to a ``financial in nature or incidental to 
such financial activities'' test for purposes of authorizing 
non-banking activities for FSHCs. In deciding what new 
activities fall under the new test, the Board must take into 
account changes and reasonably expected changes in the 
marketplace as well as changes and reasonably expected changes 
in technology. In addition, the Board is to take into account 
activities approved for U.S. banks overseas when determining 
``financial in nature.''
    The new financial test incorporates all of the activities 
that the Board has previously determined to be closely related 
to banking under the BHCA, including any lending activity 
(including ownership of credit-card banks, trust companies, 
mortgage companies, consumer finance companies, factoring 
companies, and any other type of lending institution or 
financial intermediary); financial data processing/transmission 
services (including ownership of companies engaged in wire-
transfers of money, debit cards, stored-value cards, point-of-
sale systems, etc.); leasing activities; issuing and 
distributing travelers checks and other payment instruments; 
consumer financial counseling and other related financial 
advisory services; futures commission merchant activities; 
derivatives clearing activities; investment advisory 
activities; and any other activity previously approved by the 
Board under the closely related test.
    The change from the current ``closely related to banking'' 
test in the BHCA to a ``financial in nature'' test also 
broadens the types of activities that FSHCs may conduct, 
directly or through subsidiaries. In particular, the FSCA is 
intended to permit FSHCs to engage in any financial activity 
that develops or may develop as a result of changes or 
reasonably expected changes in the marketplace in which these 
companies compete as well as in the technology for providing 
financial services. In that regard, the Committee recognizes 
the integral role that technology, particularly in the computer 
and data processing areas, plays in the financial services 
industry, and the increasing importance it will hold for the 
assimilation of information and the delivery of new services by 
FSHCs.
    Section 121 also permits FSHCs to engage in activities that 
are incidental to financial activities. Incidental activities 
would include activities that are necessary or appropriate to 
the conduct of the financial activity. The Board has broad 
flexibility in determining activities that are financial in 
nature, and, where appropriate, to distinguish between 
activities that may be conducted by affiliates of insured 
depository institutions from those that may be conducted by 
affiliates of uninsured wholesale financial institutions.
    In determining which activities may be considered 
``financial in nature'', the Board is required to take into 
account activities previously authorized under the Board's 
Regulation K (12 C.F.R. 211.23(f)(5)(iii)(B)) for U.S. banks 
overseas. These previously authorized activities include: 
commercial and other banking activities; financing including 
commercial and consumer financing, mortgage banking and 
factoring; leasing that is the equivalent of an extension of 
credit; fiduciary duties; servicing activities and holding 
premises used in other operations; investment, financial or 
economic advisory services; computer and data processing 
services; management consulting; travel agency services; 
arrangement of passenger transportation; futures commission 
merchant activities; engaging in swap transactions subject to 
certain conditions; and accounting, auditing and bookkeeping 
services. It would be expected that the Board would authorize 
comparable activities for domestic institutions to the extent 
not prohibited, as described below.
    While section 121 amends section 4(c)(8) of the BHCA to 
permit FSHCs to acquire ownership or control of the shares of 
companies engaged in activities ``financial in nature'' or 
``incidental to such financial activities'', the amendment 
maintains the current language of the BHCA that such companies 
may not ``provide insurance as a principal, agent, or broker'' 
except in the limited circumstances addressed by subparagraphs 
(A) through (G) of section 4(c)(8). These prohibitions and 
limited exceptions were enacted as part of the Garn-St Germain 
Depository Institutions Act in 1982 and are not modified by 
section 121 of H.R. 1062. Accordingly, the prohibition against 
underwriting and sale of title insurance, activities that have 
been prohibited by the Board under its existing rulings and 
interpretations under section 4(c)(8), continue to be effective 
under the amendment to that section made by the bill.
    The current restrictions should be maintained by the Board 
and future applications of a similar nature should be rejected.
    The Committee also notes that real estate brokerage is not 
currently a permissible activity for bank holding companies. It 
is the intent of the Committee that the current restrictions on 
real estate activities under the Board's Regulation Y (12 
C.F.R. 225) be continued and, as a consequence, real estate 
brokerage should not be found by the Board to be ``financial in 
nature.''
    Finally, it is the intent of the Committee that the term 
``incidental to banking'' be more narrowly construed than the 
term ``financial in nature,'' and that banks should not engage 
in these types of activities within banks or bank subsidiaries.

Section 122. No prior approval required for well capitalized and well 
        managed financial services holding companies

    Section 122 allows certain FSHCs to engage in certain 
transactions without having to provide prior notice to the 
Board. Under the section, no prior notice would be required for 
previously authorized activities conducted by well capitalized, 
well managed institutions. New activities not previously 
authorized would be considered under expedited procedures.
Section 123. Streamlined examination and reporting requirements for all 
        financial services holding companies

    Section 123 authorizes the Board to oversee a FSHC and its 
subsidiaries through the submission of reports from and 
streamlined examinations of the FSHC and its subsidiaries. It 
is the intent of the Committee that the Board will process 
orders authorizing activities in as expeditious a manner as 
possible. In cases where an application for authorization is 
taking an undue length of time, the applicant may go to the 
Board Ombudsman for assistance in moving the process forward. 
The Ombudsman reports to the Board's Supervisory Governor who 
will seek to insure that the application process will operate 
efficiently.

Section 124. Holding company supervision for financial services holding 
        companies engaged primarily in nonbanking activities

    Section 124 allows a different supervisory structure for 
holding companies engaged primarily in nonbanking activities. 
FHSCs with depository institution and foreign bank assets less 
than 10% of the consolidated total risk-weighted assets of the 
holding company and that are less than $5 billion could elect 
to be under limited reporting and examination requirements and 
minimal approval requirements for new activities. IBHCs with 
WFI assets less than 25% of the consolidated total risk-
weighted assets of the holding company and that are less than 
$15 billion could elect to be under the same limited 
supervision. The dollar limitations are to be adjusted annually 
for inflation and the Board may increase both the dollar 
amounts and the percentage, as it deems appropriate. All 
depository institutions controlled by the FSHC or IBHC must be 
well capitalized and (except for recent acquisitions) well 
managed (defined as having a composite rating of CAMEL 1 or 2. 
In addition, if the FSHC controls an insured depository 
institution, the FSHC must provide a written guarantee 
acceptable to the FDIC to maintain, on an ongoing basis, the 
capital of its depository institutions at ``well capitalized'' 
levels. This guarantee would be capped at an amount equal to 
ten percent of the assets and would be payable in the event the 
insured institution fails or is sold with federal assistance. 
Furthermore, to be eligible for the lesser institution fails or 
is sold with federal assistance. Furthermore, to be eligible 
for the lesser supervision, the lead insured depository 
institution and insured depository institutions controlling 80 
percent of the aggregate risk- weighted assets must have 
achieved a satisfactory record of meeting community credit 
needs or better, under the Community Reinvestment Act. This 
requirement would not apply to IBHCs as such companies are not 
subject to the Community Reinvestment Act.
    Holding companies which elect limited supervision under 
Section 124 would be subject to the following supervision. 
First, the holding company would not need formal federal 
regulatory approval to engage de novo or to make any 
acquisition of a company engaged exclusively in previously 
approved financial (or incidental to financial) activities. The 
company would have to provide written notice to the Board no 
later than ten days after commencing the activity or 
consummating the acquisition.
    Second, the FSHC capital would not have to comply with 
holding company capital requirements so long as the FSHC 
demonstrates, through reports or other information, that it has 
the resources available to meet the FDIC guarantee. Third, the 
Board would have access to all reports submitted to other 
agencies, internal and external audit reports, and exam reports 
of other agencies.
    The Board may require the FSHC to file such reports as are 
needed to inform the Board regarding the nature of the 
operations and financial conditions of the FSHC and its 
affiliates; the risks within the FSHC system that may affect 
any affiliated depository institution; and compliance with the 
provisions of the FSHCA and provisions governing transactions 
and relationships between depository institutions and their 
affiliates.
    Fourth, a FSHC or its non-depository institution affiliates 
are not subject to examination, except when the Board makes a 
finding that the risk from, or any transactions with, any non-
depository institution affiliate may have a material effect on 
the safety and soundness of any affiliated depository 
institution or if the FSHC does not appear to have sufficient 
resources to meet its guarantee. In addition, the Board may 
conduct an examination of the FSHC and its affiliates if the 
Board determines that the actions of the IBHC or its 
subsidiaries pose a material risk to its depository institution 
or if it is unable to determine if the risk management system 
of the IBHC is adequate or if the FSHC is in compliance with 
the Act and regulations.

Section 125. Conversion of unitary S&L holding companies to financial 
        services holding companies

    Section 125 allows a unitary savings and loan holding 
company to convert to a FSHC without having to seek prior 
approval from the Board under Sections 3(a), 4(c)(8) and 
4(c)(13). In order to take advantage of the expedited 
conversion procedure, the company and its depository 
institutions must act within 18 months after enactment of the 
FSCA, meet certain capital requirements, be well managed, and 
provide advance notice to the Board. A holding company which 
takes advantage of the streamlined procedure may retain 
ownership in companies as provided for in new section 4(k) of 
the act, so long as at least 75 percent of the holding 
company's revenue for the past two years involves securities 
activities and section 4(c)(8) activities.

Section 126. Financial services advisory committee

    Section 126 establishes a new ``Financial Services Advisory 
Committee'' (FSAC) which is given the authority to confer with 
regulators on the impact the FSCA has on the U.S. financial 
services industry, especially small and independent depository 
institutions, and to request documents from and make 
recommendations to them concerning matters under the 
regulators' jurisdiction. The FSAC is comprised of nine 
members, all non-government employees, with one member being 
appointed by the Secretary of Treasury, two by the OCC, two by 
the Director of the OTS, two by the Board, and two by the Board 
of the FDIC. At least three of the members are to be 
individuals who represent small and independent depository 
institutions. The FSAC is meant to focus on banking issues 
solely, and not securities or commodities issues.
Section 127. Coordination with State law

    Section 127 preserves the rights of States to impose higher 
safety and soundness standards for depository institutions or 
consumer protection standards than those imposed in the FSCA, 
except as specifically provided in section 109.

Section 128. Conforming Amendments to the Bank Holding Company Act of 
        1956

    Section 128 makes a number of conforming amendments to the 
BHCA of 1956 including the recasting of the BHCA as the 
Financial Services Holding Company Act and redesignating ``bank 
holding companies'' as ``financial services holding 
companies.'' The section also provides definitions for a number 
of terms, including ``securities affiliate'', ``insured 
depository institition'', and ``lead depository institution.''

Section 129. Conforming Amendments to the Bank Holding Company Act of 
        1970

    Section 129 replaces the term ``bank holding company'' in 
the Bank Holding Company Act Amendments of 1970 with the term 
``financial services holding company.''

Section 130. Credit Cards for Business Purposes

    Section 130 amends the BHCA to allow credit card banks to 
issue corporate credit cards. The BHCA currently prohibits 
credit card banks, which are specifically exempted under the 
definition of ``bank'' in the BHCA (as amended by CEBA) from 
making commercial loans. The amendment contained in this 
section provides that corporate credit cards are not commercial 
loans. In adopting the amendment, it is not the intent to 
derogate the prohibition in present law on commercial lending 
by credit card banks. The purpose of the amendment is to 
clarify that this prohibition does not preclude the provisions 
of credit card accounts for business purposes. For example, 
many companies arrange for their employees to have credit cards 
to use when traveling on company business or entertaining on 
official business. Corporate credit cards offered by a credit 
card bank could not be used, however, as a way to meet any 
company's general commercial financing needs.

    SUBTITLE D--INTERAGENCY BANKING AND FINANCIAL SERVICES ADVISORY 
                               COMMITTEE

    Section 141 establishes a Banking and Financial Services 
Advisory Committee (BFSAC) comprised of the Board Chairman, the 
Chairperson of the FDIC, the Chairperson of the SEC, the 
Chairperson of the Commodities Futures Trade Commission, the 
OCC, and the Secretary of the Treasury, who will serve as Chair 
of the Committee. The function of the BFSAC is to consider 
matters of mutual interest to the member agencies and to 
consider making recommendations to the Board regarding the 
types of activities that may be financial in nature for 
purposes of implementing the FSHCA and to the OCC regarding the 
types of activities that may be incidental to banking for 
purposes of section 5136 of the Revised Statutes. The BFSAC 
would effectively complement functional regulation while 
providing an interagency policy forum for ascertaining 
permissible activities for FSHCs, including IBHCs, and national 
banks. The BFSAC recommendations are to be forwarded to the 
Board and OCC for their consideration. The Board or OCC is 
required to provide a written explanation to the BFSAC when the 
Board or OCC do not adopt the recommendations of the BFSAC. The 
BFSAC also may make legislative or administrative 
recommendations to improve the supervision, efficiency, and 
competitiveness of the financial services industry. 
Recommendations issued by the BFSAC will be printed in the 
Federal Register and reported to the respective House and 
Senate Banking Committee. Through this process, the newly 
established BFSAC will provide the opportunity to minimize 
regulatory overlap while reducing the risks of regulatory gaps.

                    TITLE II--FUNCTIONAL REGULATION

                    Subtitle A--Brokers and Dealers

Section 201. Definition of broker

    Section 3(a)(4) of the Exchange Act currently excludes 
banks from its definition of ``broker.'' 15 U.S.C. 
Sec. 78o(a)(4). As a result, banks that directly conduct 
brokerage activities are exempt from the registration and most 
other requirements applicable to SEC-registered brokers under 
the Exchange Act.
    Section 201 amends the Exchange Act's definition of 
``broker'' to include banks subject to certain exemptions. As a 
general matter, a bank will be considered a broker (1) if the 
bank ``publicly solicits'' brokerage business, (2) if the bank 
receives ``incentive compensation'' for brokerage business, or 
(3) to the extent that the bank conducts brokerage activities 
through a SID of the bank.
    Section 201 contains other exemptions that provide that a 
bank that publicly solicits brokerage business or receives 
incentive compensation for brokerage business is not subject to 
broker-dealer registration and regulation under the Exchange 
Act if the bank limits its brokerage activities to ten 
categories described below. These exemptions recognize that it 
may not be appropriate, in certain limited circumstances, to 
require a bank to register as a broker-dealer.
            1. Networking exemption
    A bank will not be deemed a ``broker'' if it offers 
brokerage services to its customers in connection with a 
``networking'' arrangement in which the bank contracts with a 
registered broker-dealer, whether or not affiliated with the 
bank, to provide brokerage services on a bank's premises. This 
provision is intended to codify the guidance offered by the 
banking agencies. As such the Committee intends that the 
situation be avoided where banks are literally confronted with 
having to comply with different and potentially conflicting 
sets of rules established by federal securities and banking 
regulators. These networking activities must be conducted at a 
location that is clearly identified and physically separate 
from the retail deposit-taking activities of the bank. There is 
one exception available from the space limitation to be 
utilized only where it is physically impossible to have a 
separation. In such circumstances, it is expected that the bank 
will make additional efforts, such as increased supervision, to 
ensure that there is no customer confusion. As part of 
networking arrangements, banks frequently designate employees 
who become licensed registered representatives under the 
supervision of the broker-dealer for the purpose of conducting 
brokerage transactions. These employees, known as ``dual 
employees'' are associated persons of the broker and receive 
incentive compensation. Such employees are subject to 
regulation and disciplinary actions by the self-regulatory 
organizations and the SEC in connection with their brokerage 
activities. The Committee expects that banks engaged in 
networking activities with brokers and dealers and their 
associated persons (including dual employees) will also be 
fully subject to such conditions as the SEC or a self-
regulatory organization may prescribe by rule pursuant to 
existing rulemaking authority, such as sections 10(b) and 15(c) 
of the Exchange Act. Bank employees who have not received 
substantially equivalent training may only perform clerical or 
ministerial functions and may not receive incentive 
compensation. The Committee expects that tellers and other bank 
employees, while located in the routine deposit taking area, 
will not make general or specific investment recommendations 
regarding securities, qualify a customer as eligible to 
purchase securities, or accept orders for securities. Other 
provisions govern advertising and promotional material and 
disclosure requirements.
            2. Trust activities
    A bank will not be deemed a ``broker'' if it conducts 
brokerage transactions in the course of conducting its trust 
activities, including securities safe-keeping, self-directed 
individual retirement accounts and managing agency accounts, 
unless the bank (1) receives incentive compensation for the 
brokerage (as opposed to trust) activities or (2) publicly 
solicits brokerage business other than by advertising such 
activities in conjunction with advertising other trust 
activities.
            3. Exemption for transactions in certain permissible 
                    securities
    A bank will not be deemed a ``broker'' if it conducts 
brokerage transactions in ``exempted securities'' under the 
Exchange Act, such as United States Government securities, 
commercial paper bankers' acceptances, and commercial bills. 
For purposes of this exemption, municipal securities are not 
treated as ``exempted securities.'' This exemption also applies 
to other securities (except municipal securities) that are 
bank-eligible securities but that have not been included in the 
definition of ``exempted securities.'' Bank transactions in 
government securities will, of course, continue to be subject 
to the requirements of section 15C of the Exchange Act.
            4. Municipal securities
    A bank that effects transactions in municipal securities, 
subject to the requirements of section 15B of the Exchange Act, 
will not be deemed a ``broker.''
            5. Employee and shareholder benefit plan accounts
    A bank will not be deemed a ``broker'' if it conducts 
brokerage transactions for employee or shareholder benefit plan 
accounts. Such accounts include bonus, profit-sharing, pension, 
retirement, thrift, savings, incentive, stock purchase, stock 
ownership, stock appreciation, stock option, dividend 
reinvestment, or similar plans.
            6. Money market sweep accounts
    A bank will not be deemed a ``broker'' if it conducts 
brokerage transactions for the purpose of investing or 
reinvesting depositors' funds in money market accounts.
            7. Affiliate transactions
    A bank will not be deemed a ``broker'' if it conducts 
brokerage transactions for the account of any affiliate, as 
that term is defined in section 2 of the BHCA.
            8. Private placements
    A bank that is not affiliated with a securities affiliate 
under section 10 of the BHCA will not be deemed a ``broker'' if 
the bank sells securities exclusively to accredited investors 
(as defined in section 3 of the Securities Act) as part of a 
primary offering of securities by an issuer not involving a 
public offering. A bank that is affiliated with a securities 
affiliate may engage in such private placements of securities 
for one year after the affiliation without being deemed a 
``broker.'' After the one year period, a bank can conduct 
private placement activities within a ``separately identifiable 
department'' within the bank. Such a department must register 
as a broker-dealer under the Exchange Act.
    A SID of a bank will be fully subject to all of the 
provisions of the Exchange Act applicable to ``brokers,'' 
including those relating to registration with the SEC pursuant 
to section 15 of the Exchange Act, membership in a self-
regulatory organization, and membership in the Securities 
Investor Protection Corporation; provided, however, that if a 
bank of which a SID is a part is adequately capitalized (as 
defined by the bank's appropriate federal banking agency), the 
SID shall be deemed to be in compliance with the net capital 
rule adopted pursuant to paragraph (c)(3) of the Exchange Act.
    It is anticipated that bank SIDs that are registered as 
broker-dealers will comply fully with SEC and self-regulatory 
organization rules (other than capital). However, the SEC has 
rulemaking authority, in consultation with the appropriate 
federal banking agencies, to take into account the special 
characteristics of a SID of a bank. Such rulemaking authority 
is in addition to the SEC's existing rulemaking authority with 
respect to brokers under the Exchange Act.
            9. De minimis exemption
    A bank will not be deemed a ``broker'' if it limits a 
brokerage activities to fewer than 800 transactions per year in 
securities for which a ready market exists plus 200 other 
transactions per year in any other types of securities. 
Securities transactions that qualify for any other exemption 
are not counted for purposes of calculating the number of 
transactions under this exemption. This exemption is only 
available if the bank does not have a subsidiary or an 
affiliate that is a registered broker-dealer.
            10. Safekeeping and custody services
    Subsection (x) contains an exemption for safekeeping, 
clearance, settlement and custody services, to the extent those 
services have traditionally been performed by banks. It 
reflects the distinction between the common understanding of 
``brokerage'' as executing trades for the account of others on 
a securities exchange or in the over-the-counter market and 
traditional banking functions related to settling trades 
(actual delivery and payment), which usually takes place 
several days afterward. A bank should not be treated as a 
broker solely because it holds securities in safekeeping for 
others, collects dividends or provides other custody services 
with respect to securities, clears or settles transactions in 
securities by book-entry or otherwise, facilitates the lending, 
borrowing or pledging (including selling or purchasing subject 
to repurchase or resale agreements) of securities by book-entry 
or otherwise. A bank also should be permitted to provide a 
variety of other traditional banking services associated with 
the clearance and settlement process, such as extending credit, 
providing money transfer services and receiving deposits 
without being treated as a broker.
            11. ``Banking products'' exemption
    A bank will not be deemed a ``broker'' if it engages in 
securities transactions through a separately identifiable 
department or division that the Federal Reserve determines in 
the future should be deemed to be ``banking products.'' It is 
expected that the Board will grant this exception only with 
respect to traditional and customary banking products. This 
determination should not affect whether a particular product is 
deemed to be a security for purposes of the federal securities 
laws.
            12. Banks subject to section 15(e)
    Section 201 excludes from the definition of ``broker'' 
banks that are subject to section 15(e) of the Exchange Act and 
to any restrictions and requirements the SEC deems appropriate.
Section 202. Definition of dealer

    Section 3(a)(5) of the Exchange Act currently excludes 
banks from the definition of ``dealer.'' Section 202 amends 
section 3(a)(5) to include banks within the general definition 
of dealer, but creates five specific exemptions for banks that 
are similar to the ``broker'' exemptions. Section 202 preserves 
the existing distinction between dealer activities and non-
dealer principal transactions, including bank investment and 
trading portfolio transactions for its own account, as 
reflected in current SEC interpretive positions.
    A bank will not be deemed a ``dealer'' because of 
transactions it conducts in ``exempted securities'', such as 
United States Government securities, commercial paper, bankers' 
acceptances, and commercial bills. For purposes of this 
exemption, municipal securities are not treated as ``exempted 
securities.'' The definition of ``exempted securities'' also is 
amended to include bank-eligible securities that are not 
otherwise ``exempted securities''. In addition, a bank will not 
be deemed a ``dealer'' if it buys and sells municipal 
securities subject to the requirements of section 15B of the 
Exchange Act. In addition, banks that engage in government 
securities activities will continue to be subject to section 
15C of the Exchange Act.
    A bank will not be deemed a ``dealer'' because it buys and 
sells securities for investment purposes for the bank or for 
accounts for which the bank acts as a trustee or fiduciary. 
This exemption from dealer registration includes all accounts 
handled throughout trust departments, including trustee and 
managed agency accounts, directed agency accounts, and 
custodial accounts.
    A bank that is not affiliated with a securities affiliate 
under section 10 of the BHCA will not have to register as a 
``dealer'' if it engages in issuing or selling securities that 
are exclusively backed by or represent an interest in 
obligations originated or purchased by the bank, its 
affiliates, or its subsidiaries, provided that the underlying 
obligations are 1-4 family residential mortgages, consumer 
receivables, or consumer leases. This exception is only 
available if the underlying obligations include exclusively 
obligations originated or purchased by the bank, its 
affiliates, or its subsidiaries. A bank that does have a 
securities affiliate may engage in such activities for one year 
after the affiliation without being deemed a ``dealer.'' A bank 
that would be required to register as a dealer because of its 
activities could conduct these activities in a SID. Such a SID 
would have to register as a broker-dealer under the Exchange 
Act.
    A bank will not be deemed a ``dealer'' if it buys and sells 
through a SID securities that the Federal Reserve determines in 
the future should be deemed to be ``banking products.'' It is 
expected that the Board will only grant this exception with 
respect to traditional and customary banking products. This 
determination should not affect whether a particular product is 
deemed to be a security for purposes of the federal securities 
laws.
    A SID of a bank will be subject to most of the provisions 
of the Exchange Act applicable to ``dealers,'' including those 
relating to registration with the SEC pursuant to section 15C 
of the Exchange Act, membership in a self-regulatory 
organization, and membership in the Securities Investor 
Protection Corporation; provided, however, that if a bank of 
which a SID is a part is adequately capitalized (as defined by 
the bank's appropriate federal banking agency), the SID shall 
be deemed to be in compliance with the net capital rule adopted 
pursuant to paragraph (c)(3) of the Exchange Act.
    The SEC has rulemaking authority, in consultation with the 
appropriate federal banking agencies, to take into account the 
special characteristics of a SID of a bank. Such rulemaking 
authority is in addition to the SEC's existing rulemaking 
authority with respect to dealers under the Exchange Act.

Section 203. Power to exempt from the definitions of broker and dealer

    Section 203 adds a new section 3(e) to the Exchange Act, 
authorizing the SEC to exempt by regulation or order any person 
or class of persons from the definition of ``broker'' or 
``dealer'' if the SEC finds that the exemption is consistent 
with the public interest, the protection of investors, and the 
purposes of the Exchange Act.

Section 204. Margin requirements

    Section 204 amends section 7(d) of the Exchange Act to 
clarify that a bank may lend to a broker-dealer for any 
ordinary business purpose, other than for the purpose of 
purchasing securities for the broker's own account, without 
those loans being subject to the margin provisions.
    Section 204 also amends section 8(a) to permit a broker-
dealer to borrow from any person provided that such person 
agrees to comply with the provisions of the Federal Reserve Act 
that relate to the use of credit to finance transactions in 
securities.
             Subtitle B--Bank Investment Company Activities

Section 211. Custody of investment company assets by affiliated bank

    Section 211(a) amends section 17(f) of the Investment 
Company Act (15 U.S.C. Sec. 80a-17(f) to clarify the SEC's 
authority to adopt regulations governing the custody of 
investment company assets by affiliated banks. A registered 
investment company is permitted to place its assets with a bank 
that is an affiliated person, promoter, organizer, sponsor, or 
principal underwriter for such a company in accordance with 
such regulations or orders that the SEC may adopt after written 
consultation with the appropriate federal banking agency.
    Section 26(a) of the Investment Company Act currently 
prohibits a principal underwriter or depositor of a unit 
investment trust from selling securities issued by the trust 
unless the trust, by appropriate agreement, designates as 
trustee or custodian a bank meeting certain qualifications. 15 
U.S.C. Sec. 80a-26(a)(1). Section 211(b) amends section 26(a) 
to further provide that the SEC may prescribe, by regulation or 
order, conditions under which an affiliated bank may serve as 
trustee or custodian, after written consultation with the 
appropriate federal banking agency.
    This section also amends section 36(a) of the Investment 
Company Act to permit the SEC to bring a civil action alleging 
breach of fiduciary duty involving personal misconduct against 
a person who acts as custodian for a registered investment 
company. The SEC may already bring such actions against persons 
acting as investment advisers, officers, directors, or 
depositors of an investment company and against principal 
underwriters of an open-end company or unit investment trust.
    In addition to addressing the conditions under which an 
affiliated bank could serve as a fund's custodian, the rules 
adopted under this provision could address issues arising under 
the affiliated transaction provisions of the Investment Company 
Act when an affiliated bank serves as custodian, or could 
provide exemptions from those provisions for certain types of 
services provided by affiliated custodians.
    The amendments to section 17 of the Investment Company Act 
do not affect the SEC's staff position that affiliated 
custodians must comply with the SEC's self custody rule (rule 
17f-2). Banks currently providing custodial services to 
investment companies or unit investment trusts may continue to 
do so under existing SEC standards until the SEC adopts rules. 
At that time, banks will have to conform such activities to the 
SEC's rules.

Section 212. Indebtedness to affiliated person

    Section 10(f) of the Investment Company Act currently 
prohibits a registered investment company from purchasing any 
security (except a security of which it is the issuer) during 
the existence of any underwriting or selling syndicate if a 
principal underwriter of the security is an officer, director, 
member of any advisory board, investment adviser, or employee 
of the investment company or affiliate of such a party (unless 
the investment company is itself acting as a principal 
underwriter). 15 U.S.C. Sec. 80a-10(f). Section 212 amends 
section 10(f) to authorize the SEC to adopt rules or issue 
orders that would govern investment company acquisitions or 
securities during an underwriting or selling syndicate if the 
issuer has a material relationship with the adviser of the 
investment company or any person controlling, controlled by, or 
under common control with the adviser. Under this provision, 
the SEC would have the authority to define ``material lending 
relationship'' by rule or regulation. Rulemaking authority, 
rather than a blanket prohibition, preserves flexibility to 
allow these types of acquisitions, where beneficial, to go 
forward.

Section 213. Lending to an affiliated investment company

    Section 18(f) of the Investment Company Act prohibits a 
registered open-end investment company (mutual fund) from 
issuing ``senior securities'' but allows a mutual fund to 
borrow from a bank under certain circumstances. 15 U.S.C. 
Sec. 80a-18(f). Section 18(a) of the Investment Company Act 
limits the extent to which closed-end investment companies may 
issue senior securities. Section 213 adds a new section 18(l), 
making it unlawful for any affiliated person of an investment 
company (including both open-end and closed-end funds) to loan 
money to the investment company in contravention of such rules, 
regulations, or orders as the SEC may prescribe.

Section 214. Independent directors

    Section 2(a)(19)(A)(v) of the Investment Company Act 
currently defines ``interested person'' of an investment 
company to include any registered broker or dealer and any 
affiliated person of such broker or dealer. 15 U.S.C. Sec. 80a-
2(a)(19)(A)(v). Section 214 amends section 2(a)(19)(A)(v) to 
include in the definition of ``interested person'' of an 
investment company any person or any affiliate of a person who 
during the preceding six-month period has executed any 
portfolio transactions for, engaged in any principal 
transactions with, or distributed shares for an investment 
company (or another investment company in the same complex or 
private advisory accounts over which the investment company's 
adviser has brokerage discretion). Section 214 of the bill also 
adds new subparagraph (iv) to section 2(a)(19)(A) of the 
Investment Company Act to include within the definition of 
interested person any person, that within the last six months, 
has loaned money to an investment company (or another 
investment company in the same complex or private advisory 
accounts over which the investment company's adviser has 
borrowing authority).
    Section 10(c) of the Investment Company Act currently 
prohibits a registered investment company from having a 
majority of its board of directors consist of individuals who 
are officers, directors, or employees of any one bank. 15 
U.S.C. Sec. 80a-10(c). Section 214(b) amends section 10(c) to 
extend this prohibition to any one bank and its subsidiaries, 
and any one FSHC and its affiliates and subsidiaries.
Section 215. Additional SEC disclosure authority

    Section 215 amends section 35(a) of the Investment Company 
Act to prohibit a registered investment company or a person 
selling any security issued by a registered investment company 
from representing or implying that the company or the security 
is guaranteed, sponsored, recommended or approved by the United 
States or its agencies or instrumentalities; insured by the 
FDIC; or guaranteed by or otherwise an obligation of any 
depository institution. Such a person would also be required to 
disclose that the security is not insured by the FDIC, is not 
guaranteed by an affiliated depository institution, and is not 
otherwise an obligation of such a bank or institution in 
accordance with rules, regulations, or orders prescribed by the 
SEC. This provision is similar to the requirement placed on 
securities affiliates under section 10(f)(6) of the BHCA.
    This section is designed to allow the SEC to address 
potential investor confusion concerning the availability of 
federal deposit insurance for investments in mutual funds 
affiliated with banks. Therefore, the Committee would not 
expect the SEC to adopt rules where the potential for such 
confusion does not exist.
    Section 35(d) of the Investment Company Act currently 
prohibits a registered investment company from adopting as part 
of its name any words that the SEC determines by order to be 
deceptive or misleading. Section 215(b) amends section 35(d) to 
specifically authorize the SEC to adopt rules or regulations or 
to issue orders to prevent the use of deceptive or misleading 
names. In addition, section 215(b) of the bill further 
prohibits a registered investment company that has a depository 
institution or its affiliates as an affiliated person, 
promoter, or principal underwriter from adopting as part of its 
name or title any word that is the same or similar to, or a 
variation of, the name or title of such bank in contravention 
of such rules, regulations, or orders as the SEC may prescribe.

Section 216. Definition of broker under the Investment Company Act of 
        1940

    Section 216 amends the definition of ``broker'' in section 
2(a)(6) of the Investment Company Act to reflect section 201's 
amended definition of that term in the Exchange Act. The 
amended definition continues to exclude any person, including a 
bank, that would be deemed a ``broker'' solely because such 
person is an underwriter for one or more investment companies.

Section 217. Definition of dealer under the Investment Company Act of 
        1940

    Section 217 similarly amends the definition of ``dealer'' 
in section 2(a)(11) of the Investment Company Act to reflect 
section 202's amended definition of that term in the Exchange 
Act. The amended definition continues to exclude insurance 
companies and investment companies.

Section 218. Removal of the exclusion from the definition of investment 
        adviser for banks that advise investment companies

    Section 202(a)(11) of the Investment Advisers Act currently 
excludes any bank or bank holding company from the Act's 
definition of ``investment adviser.'' 15 U.S.C. Sec. 80b-
2(a)(11). Section 218(a) amends section 202(a)(11) to remove 
this exclusion for banks or bank holding companies that serve 
as investment advisers to registered investment companies. 
Section 218(a) of the bill also allows a bank to establish a 
SID to act as an investment adviser, in which case only the 
SID, and not the bank, would be required to register. The SEC 
would have the same regulatory authority over such a bank SID 
with respect to its investment company advisory activities as 
it has over other investment advisers.
    Section 218(b) adds section 202(a)(25) to the Investment 
Advisers Act to define a ``separately identifiable department 
or division'' of a bank as a unit that is separately supervised 
and whose records are separately maintained to permit 
independent examination and enforcement of the Investment 
Advisers Act and the Investment Company Act.

Section 219. Definition of broker under the Investment Advisers Act of 
        1940

    Section 219 amends the definition of ``broker'' in section 
202(a)(3) of the Investment Advisers Act (15 U.S.C. Sec. 80b-
2(a)3)) to reflect section 110's amended definition of that 
term in the Exchange Act. The amended definition continues to 
exclude any person, including a bank, that would be deemed a 
``broker'' solely because such person is an underwriter for one 
or more investment companies.

Section 220. Definition of dealer under the Investment Advisers Act of 
        1940

    Section 220 similarly amends the definition of ``dealer'' 
in section 2(a)(7) of the Investment Advisers Act (15 U.S.C. 
Sec. 80b-2(a)(7)) to reflect section 111's amended definition 
of that term in the Exchange Act. The amended definition 
continues to exclude insurance companies and investment 
companies.

Section 221. Interagency consultation

    Section 221 adds a new section 210A to the Investment 
Advisers Act to require the appropriate federal banking agency 
to share with the SEC the results of any examination, reports, 
records, or other information that the agency may have access 
to with respect to the investment advisory activities of any 
bank holding company, bank, or subsidiary or SID thereof, any 
of which is required to be registered as an investment adviser, 
to the extent necessary for the SEC to carry out is statutory 
responsibilities. Similarly, the SEC must provide all such 
information to the appropriate Federal banking agency to permit 
that agency to carry out its statutory responsibilities.
Section 222. Treatment of bank common trust funds

    Section 3(c)(3) of the Investment Company Act currently 
exempts bank common trust funds from the definition of 
investment company under the Investment Company Act. 15 U.S.C. 
Sec. 80b-3(c)(3). To qualify for the exemption, common trust 
funds must be maintained by a bank exclusively for the 
collective investment and reinvestment of moneys contributed 
thereto by the bank as trustee, executor, administrator, or 
guardian. Section 222(c) amends section 3(c)(3) to clarify that 
the common trust fund exemption is only available to a fund 
that is employed by a bank solely as an aid to the 
administration of trusts, estates or other accounts maintained 
for a fiduciary purpose. Shares in the fund may not be offered 
for sale to the public or advertised, except in connection with 
the ordinary advertising of the bank's fiduciary services. In 
addition, a bank would be able to charge a common trust fund 
fees and expenses consistent with State and federal fiduciary 
law.
    Section 3(a)(2) of the Securities Act currently exempts any 
interest or participation in a bank common trust fund from the 
Securities Act. 15 U.S.C. Sec. 78c(a)(2). Section 222(a) amends 
section 3(a)(2) to provide that interests in the common trust 
fund, in order to be exempted from the Securities Act, must 
fall within the amended definition of ``common trust'' fund 
under section 3(c)(3) of the Investment Company Act. Similarly, 
section 3(a)(12)(A)(iii) of the Exchange Act currently includes 
any interest or participation in a bank common trust fund in 
the definition of ``exempted security'' under the Exchange Act. 
Id. Sec. 78c(a)(12)(A)(iii). Section 222(b) amends section 
3(a)(12)(A)(iii) to require that the common trust fund must 
fall within the amended definition of ``common trust fund'' 
under section 3(c)(3).
    Section 222(d) provides that it is the sense of the 
Congress that the Internal Revenue Code should be amended to 
provide that any transfer of all or substantially all of the 
assets of a common trust fund to a registered investment 
company as a result of a merger, conversion, reorganization, or 
similar transaction shall not result in a taxable event for the 
participants in the common trust fund.

Section 223. Investment advisers prohibited from having controlling 
        interest in registered investment company

    Section 223 amends section 15 of the Investment Company Act 
to add a new subsection (g) to require an investment adviser of 
an investment company, or an affiliated person of the adviser, 
that holds a controlling interest in that investment company in 
a trustee or fiduciary capacity to comply with certain pass-
through or echo-voting requirements. There is a separate voting 
procedure for shares held in a trustee or fiduciary capacity 
with respect to any employee benefit plan subject to the 
Employee Retirement Income Security Act of 1974 (ERISA).
    Subsection (g) is intended to address certain conflicts 
that may arise when an investment adviser to a mutual fund also 
holds voting control over the fund through shares held in a 
trustee or fiduciary capacity. To ensure that the investment 
adviser does not use its fiduciary authority to further its own 
interests, such as perpetuating its status as an investment 
adviser, subparagraph (g)(1) would require that, in those 
situations where the investment adviser holds a controlling 
interest in the mutual fund, voting authority be transferred to 
another unaffiliated person; that shares held in a fiduciary 
capacity be voted pro rata to those shares held in a non-
fiduciary capacity, or that shares be voted in some other 
manner permitted by SEC rules or regulations. Because, under 
well-established principles of fiduciary law, a fiduciary has 
an obligation to vote the shares in the best interests of its 
fiduciary clients and without regard to the fiduciary's own 
needs, transferring the power to vote to another might be 
deemed to be an improper delegation or abdication of the 
fiduciary's responsibilities. Similar concerns are presented by 
voting fiduciary shares pro rata.
    Consequently, subsection (g)(1)(A) provides that for 
employee benefit plans subject to the ERISA the investment 
adviser fiduciary should transfer the power to vote the shares 
of the mutual fund to another person acting in a fiduciary 
capacity with respect to that plan. In this way, the investment 
adviser fiduciary will merely transfer the power to vote to 
another fiduciary, such as the plan administrator or plan 
sponsor, that will exercise voting authority in accordance with 
ERISA requirements. Transferring the power to vote to another 
fiduciary is neither an improper delegation of voting authority 
nor an improper exercise of voting responsibilities by the 
investment adviser fiduciary in violation of ERISA.
    In any event, a safe harbor is provided by subparagraph 
(g)(3) stating that an investment adviser fiduciary will not be 
deemed to have acted unlawfully or to have breached a fiduciary 
duty under state or federal law solely by reason of having 
acted in accordance with the requirements of clauses (i), (ii), 
or (iii). An investment adviser fiduciary can, thus, be assured 
that if it complies with this paragraph or SEC rules and 
regulations promulgated thereunder, it will not later be found 
liable for breach of its fiduciary duties.
    Because fiduciary customers have adequate protection under 
applicable state and federal fiduciary precedent, subsection 
(g) will not apply to investment companies consisting solely of 
assets held in a trustee or fiduciary capacity. Rather, the 
protections offered by subsection (g) are only meant to protect 
those investors who are not fiduciary customers of the bank and 
are minority holders of the advised mutual fund.
    Finally, church pension boards are primarily responsible 
for holding and investing the assets of their respective 
denominational employee benefit plans and programs. However, in 
some cases these pension boards may also hold and invest other 
church assets (such as church agency funds or church 
endowments). These other church assets may be held in other 
than a trustee or fiduciary capacity. Therefore, the exemption 
provided in paragraph (2) of the bill may not be available to 
investment companies advised by church pension boards. 
Paragraph (4) of subsection (g) would permit a church pension 
board which may hold some assets in other than a trustee or 
fiduciary capacity to nonetheless rely on the exemption.

Section 224. Conforming change in definition

    Section 224 amends the definition of ``bank'' in section 
2(a)(5) of the Investment Company Act by replacing the 
reference to ``a banking organization organized under the laws 
of the United States'' with a reference to ``a depository 
institution'' as defined in the FDIA.

Section 225. Effective date

    This subtitle shall become effective 270 days after the 
date of enactment of the FSCA.
         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (existing law proposed 
to be omitted is enclosed in black brackets, new matter is 
printed in italic, existing law in which no change is proposed 
is shown in roman):
                          BANKING ACT OF 1933

          * * * * * * *
    [Sec. 20. After one year from the date of the enactment of 
this Act, no member bank shall be affiliated in any manner 
described in section 2(b) hereof with any corporation, 
association, business trust, or other similar organization 
engaged principally in the issue, flotation, underwriting, 
public sale, or distribution at wholesale or retail or through 
syndicate participation of stocks, bonds, debentures, notes, or 
other securities: Provided, That nothing in this paragraph 
shall apply to any such organization which shall have been 
placed in formal liquidation and which shall transact no 
business except such as may be incidental to the liquidation of 
its affairs.
    [For every violation of this section the member bank 
involved shall be subject to a penalty not exceeding $1,000 per 
day for each day during which such violation continues. Such 
penalty may be assessed by the Federal Reserve Board, in its 
discretion, and, when so assessed, may be collected by the 
Federal reserve bank by suit or otherwise.
    [If any such violation shall continue for six calendar 
months after the member bank shall have been warned by the 
Federal Reserve Board to discontinue the same, (a) in the case 
of a national bank, all the rights, privileges, and franchises 
granted to it under the National Bank Act may be forfeited in 
the manner prescribed in section 2 of the Federal Reserve Act, 
as amended (U.S.C., title 12, secs. 141, 222-225, 281-286, and 
502) or, (b) in the case of a State member bank, all of its 
rights and privileges of membership in the Federal Reserve 
System may be forfeited in the manner prescribed in section 9 
of the Federal Reserve Act, as amended (U.S.C., title 12, secs. 
321-332).]
          * * * * * * *
    Sec. 32. No officer, director, or employee of any 
corporation or unincorporated association, no partner or 
employee of any partnership, and no individual, primarily 
engaged in the issue, flotation, underwriting, public sale, or 
distribution, at wholesale or retail, or through syndicate 
participation, of stocks, bonds, or other similar securities, 
shall serve the same time as an officer, director, or employee 
of any member bank except in limited classes of cases in which 
the Board of Governors of the Federal Reserve System may allow 
such service by general regulations when in the judgment of the 
said Board it would not unduly influence the investment 
policies of such member bank or the advice it gives its 
customers regarding investments. This section shall not apply 
so as to prohibit an officer, director, or employee of a 
securities affiliate (as defined in section 2 of the Financial 
Services Company Act of 1995) from serving at the same time as 
an officer, director, or employee of a member bank affiliated 
with that securities affiliate pursuant to section 10 of such 
Act. This section shall not apply so as to prohibit an officer, 
director, or employee of an investment company registered under 
the Investment Company Act of 1940 or an investment adviser 
registered under the Investment Advisers Act of 1940 from 
serving at the same time as an officer, director, or employee 
of a member bank.
          * * * * * * *
                              ----------                              

                    BANK HOLDING COMPANY ACT OF 1956

  Be is enacted by the Senate and House of Representatives of 
the United States of America in Congress assembled, [That this 
Act may be cited as the ``Bank Holding Company Act of 1956''.]
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Financial 
Services Holding Company Act of 1995''.
  (b) Table of Contents.--The table of contents for this Act is 
as follows:

Sec. 1.  Short title; table of contents.
Sec. 2.  Definitions.
Sec. 3.  Acquisition of bank shares or assets.
Sec. 4.  Interests in nonbanking organizations.
Sec. 5.  Administration.
Sec. 6.  Conversion of unitary savings and loan holding companies to 
          financial services holding companies.
Sec. 7.  Reservation of rights to States.
Sec. 8.  Penalties.
Sec. 9.  Judicial review.
Sec. 10. Securities activities.
Sec. 11. Safeguards relating to securities activities.
Sec. 12. Investment bank holding companies and other financial 
          activities.
Sec. 13. Saving provision.
Sec. 14. Separability of provisions.

  (c) References in Other Laws.--Any reference in any Federal 
or State law to a provision of the Bank Holding Company Act of 
1956 shall be deemed to be a reference to the corresponding 
provision of this Act.
                              definitions

  Sec. 2. (a)(1) Except as provided in paragraph (5) of this 
subsection, ``[bank holding company] financial services holding 
company'' means any company which has control over any bank or 
over any company that is or becomes a [bank holding company] 
financial services holding company by virtue of this Act.
          * * * * * * *
  (5) Notwithstanding any other provision of this subsection--
          (A) No bank and no company owning or controlling 
        voting shares of a bank is a [bank holding company] 
        financial services holding company by virtue of its 
        ownership or control of shares in a fiduciary capacity, 
        except as provided in paragraphs (2) and (3) of 
        subsection (g) of this section. For the purpose of the 
        preceding sentence, bank shares shall not be deemed to 
        have been acquired in a fiduciary capacity if the 
        acquiring bank or company has sole discretionary 
        authority to exercise voting rights with respect 
        thereto; except that this limitation is applicable in 
        the case of a bank or company acquiring such shares 
        prior to the date of enactment of the Bank Holding 
        Company Act Amendments of 1970 only if the bank or 
        company has the right consistent with its obligations 
        under the instrument, agreement, or other arrangement 
        establishing the fidiciary relationship to divest 
        itself of such voting rights and fails to exercise that 
        right to divest within a reasonable period not to 
        exceed one year after the date of enactment of the Bank 
        Holding Company Act Amendments of 1970.
          (B) No company is a [bank holding company] financial 
        services holding company by virtue of its ownership or 
        control of shares acquired by it in connection with its 
        underwriting of securities if such shares are held only 
        for such period of time as will permit the sale thereof 
        on a reasonable basis.
          (C) No company formed for the sole purpose of 
        participating in a proxy solicitation is a [bank 
        holding company] financial services holding company by 
        virtue of its control of voting rights of shares 
        acquired in the course of such solicitation.
          (D) No company is a [bank holding company] financial 
        services holding company by virtue of its ownership or 
        control of shares acquired in securing or collecting a 
        debt previously contracted in good faith, until two 
        years after the date of acquisition. The Board is 
        authorized upon application by a company to extend, 
        from time to time for not more than one year at a time, 
        the two-year period referred to herein for disposing of 
        any shares acquired by a company in the regular course 
        of securing or collecting a debt previously contracted 
        in good faith, if, in the Board's judgment, such an 
        extension would not be detrimental to the public 
        interest, but no such extension shall in the aggregate 
        exceed three years.
          (E) No company is a [bank holding company] financial 
        services holding company by virtue of its ownership or 
        control of any State-chartered bank or trust company 
        which--
                  (i) is wholly owned by thrift institutions or 
                savings banks; and
                  (ii) is restricted to accepting--
                          (I) deposits from thrift institutions 
                        or savings banks;
                          (II) deposits arising out of the 
                        corporate business of the thrift 
                        institutions or savings banks that own 
                        the bank or trust company; or
                          (III) deposits of public moneys.
          (F) No trust company or mutual savings bank which is 
        an insured bank under the Federal Deposit Insurance Act 
        is a [bank holding company] financial services holding 
        company by virtue of its direct or indirect ownership 
        or control of one bank located in the same State, if 
        (i) such ownership or control existed on the date of 
        enactment of the Bank Holding Company Act Amendments of 
        1970 and is specifically authorized by applicable State 
        law, and (ii) the trust company or mutual savings bank 
        does not after that date acquire an interest in any 
        company that, together with any other interest it holds 
        in that company, will exceed 5 per centum of any class 
        of the voting shares of that company, except that this 
        limitation shall not be applicable to investments of 
        the trust company or mutual savings bank, direct and 
        indirect, which are otherwise in accordance with the 
        limitations applicable to national banks under section 
        5136 of the Revised Statutes. (12 U.S.C. 24)
  (6) For the purposes of this Act, any successor to a [bank 
holding company] financial services holding company shall be 
deemed to be a [bank holding company] financial services 
holding company from the date on which the predecessor company 
became a [bank holding company] financial services holding 
company. Any company that was a bank holding company on the day 
before the date of enactment of the Financial Services 
Competitiveness Act of 1995 shall, for purposes of this 
chapter, be deemed to have been a financial services holding 
company as of the date on which the company became a bank 
holding company.
          * * * * * * *
  (c) Bank Defined.--For purposes of this Act--
          (1) In general.--Except as provided in paragraph (2), 
        the term ``bank'' means any of the following:
                  (A) * * *
          * * * * * * *
                  (C) A wholesale financial institution.
          (2) Exceptions.--The term ``bank'' does not include 
        any of the following:
                  (A) * * *
          * * * * * * *
                  (F) An institution which--
                          (i) engages only in credit card 
                        operations including the provision of 
                        credit card accounts for business 
                        purposes;
          * * * * * * *
                          (v) does not engage in the business 
                        of making commercial loans (other than 
                        the provision of credit card accounts 
                        for business purposes in connection 
                        with the credit card operations 
                        referred to in clause (i)).
          * * * * * * *
  (d) ``Subsidiary'', with respect to a specified [bank holding 
company] financial services holding company, means (1) any 
company 25 per centum or more of whose voting shares (excluding 
shares owned by the United States or by any company wholly 
owned by the United States) is directly or indirectly owned or 
controlled by such [bank holding company] financial services 
holding company, or is held by it with power to vote; (2) any 
company the election of a majority of whose directors is 
controlled in any manner by such [bank holding company] 
financial services holding company; or (3) any company with 
respect to the management or policies of which such [bank 
holding company] financial services holding company has the 
power, directly or indirectly, to exercise a controlling 
influence, as determined by the Board, after notice and 
opportunity for hearing.
  (e) The term ``successor'' shall include any company which 
acquires directly or indirectly from a [bank holding company] 
financial services holding company shares of any bank, when and 
if the relationship between such company and the [bank holding 
company] financial services holding company is such that the 
transaction effects no substantial change in the control of the 
bank or beneficial ownership of such shares of such bank. The 
Board may, by regulation, further define the term ``successor'' 
to the extent necessary to prevent evasion of the purposes of 
this Act.
  (f) ``Board'' means the Board of Governors of the Federal 
Reserve System.
  (g) For the purposes of this Act--
          (1) shares owned or controlled by any subsidiary of a 
        [bank holding company] financial services holding 
        company shall be deemed to be indirectly owned or 
        controlled by such [bank holding company] financial 
        services holding company;
          (2) shares held or controlled directly or indirectly 
        by trustees for the benefit of (A) a company, (B) the 
        shareholders or members of a company, or (C) the 
        employees (whether exclusively or not) of a company, 
        shall be deemed to be controlled by such company; and
          (3) shares transferred after January 1, 1966, by any 
        [bank holding company] financial services holding 
        company (or by any company which, but for such 
        transfer, would be a [bank holding company] financial 
        services holding company) directly or indirectly to any 
        transferee that is indebted to the transferor, or has 
        one or more officers, directors, trustees, or 
        beneficiaries in common with or subject to control by 
        the transferor, shall be deemed to be indirectly owned 
        or controlled by the transferor unless the Board, after 
        opportunity for hearing, determines that the transferor 
        is not in fact capable of controlling the transferee.
  (h)(1) Except as provided by paragraph (2), the application 
of this Act and of section 23A of the Federal Reserve Act (12 
U.S.C. 371), as amended, shall not be affected by the fact that 
a transaction takes place wholly or partly outside the United 
States or that a company is organized or operates outside the 
United States.
  (2) Except as provided in paragraph (3), the prohibitions of 
section 4 of this Act shall not apply to shares of any company 
organized under the laws of a foreign country (or to shares 
held by such company in any company engaged in the same general 
line of business as the investor company or in a business 
related to the business of the investor company) that is 
principally engaged in business outside the United States if 
such shares are held or acquired by a [bank holding company] 
financial services holding company organized under the laws of 
a foreign country that is principally engaged in the banking 
business outside the United States. For the purpose of this 
subsection, the term ``section 2(h)(2) company'' means any 
company whose shares are held pursuant to this paragraph.
          * * * * * * *
  (4) No domestic office or subsidiary of a [bank holding 
company] financial services holding company or subsidiary 
thereof holding shares of a section 2(h)(2) company may extend 
credit to a domestic office or subsidiary of such section 
2(h)(2) company on terms more favorable than those afforded 
similar borrowers in the United States.
  (5) No domestic banking office or bank subsidiary of a [bank 
holding company] financial services holding company that 
controls a section 2(h)(2) company may offer or market products 
or services of such section 2(h)(2) company, or permit its 
products or services to be offered or marketed by or through 
such section 2(h)(2) company, unless such products or services 
were being so offered or marketed as of March 5, 1987, and then 
only in the same manner in which they were being offered or 
marketed as of that date.
          * * * * * * *
  (n) Incorporated Definitions.--For purposes of this Act, the 
terms ``depository institution'', ``insured depository 
institution'', ``appropriate Federal banking agency'', 
``default'', ``in danger of default'', and ``State bank 
supervisor'' have the same meanings as in section 3 of the 
Federal Deposit Insurance Act.
  (o) Other Definitions.--For purposes of this Act, the 
following definitions shall apply:
          [(1) Adequately capitalized.--The term ``adequately 
        capitalized'' means a level of capitalization which 
        meets or exceeds all applicable Federal regulatory 
        capital standards.]
          (1) Lead depository institution.--The term ``lead 
        depository institution'' means the largest depository 
        institution controlled by the financial services 
        holding company, based on a comparison of the average 
        total assets controlled by each depository institution 
        during the previous 12-month period.
          * * * * * * *
          (4) Home state.--The term ``home State'' means--
                  (A) with respect to a national bank, the 
                State in which the main office of the bank is 
                located;
                  (B) with respect to a State bank, the State 
                by which the bank is chartered; and
                  (C) with respect to a [bank holding company] 
                financial services holding company, the State 
                in which the total deposits of all banking 
                subsidiaries of such company are the largest on 
                the later of--
                          (i) July 1, 1966; or
                          (ii) the date on which the company 
                        becomes a [bank holding company] 
                        financial services holding company 
                        under this Act.
          (5) Host state.--The term ``host State'' means--
                  (A) with respect to a bank, a State, other 
                than the home State of the bank, in which the 
                bank maintains, or seeks to establish and 
                maintain, a branch; and
                  (B) with respect to a [bank holding company] 
                financial services holding company, a State, 
                other than the home State of the company, in 
                which the company controls, or seeks to 
                control, a bank subsidiary.
          (6) Out-of-state bank.--The term ``out-of-State 
        bank'' means, with respect to any State, a bank whose 
        home State is another State.
          (7) Out-of-state [bank holding company] financial 
        services holding company.--The term ``out-of-State 
        [bank holding company] financial services holding 
        company'' means, with respect to any State, a [bank 
        holding company] financial services holding company 
        whose home State is another State.
          (8) Insured depository institution for certain 
        sections.--Notwithstanding subsection (n), the terms 
        ``depository institution'' and ``insured depository 
        institution'' include, for purposes of paragraph (1) 
        and sections 4(k), 10, and 11, any branch, agency, or 
        commercial lending company operated in the United 
        States by a foreign bank.
          (9) Well managed.--The term ``well managed'' means--
                  (A) in the case of any company or depository 
                institution which receives examinations, the 
                achievement of--
                          (i) a CAMEL composite rating of 1 or 
                        2 (or an equivalent rating under an 
                        equivalent rating system) in connection 
                        with the most recent examination or 
                        subsequent review of such company or 
                        institution; and
                          (ii) at least a satisfactory rating 
                        for management, if such rating is 
                        given; or
                  (B) in the case of a company or depository 
                institution that has not received an 
                examination rating, the existence and use of 
                managerial resources which the Board determines 
                are satisfactory.
  (p) Securities Affiliate.--The term ``securities affiliate'' 
means any company--
          (1) that is (or is required to be) registered under 
        the Securities Exchange Act of 1934 as a broker or 
        dealer; and
          (2) the acquisition or retention of the shares or 
        assets of which the Board has approved under section 
        10.
  (q) Capital Terms.--
          (1) Depository institutions.--With respect to 
        depository institutions, the terms ``well 
        capitalized,'' ``adequately capitalized'' and 
        ``undercapitalized'' have the meanings given to such 
        terms in accordance with section 38(b) of the Federal 
        Deposit Insurance Act.
          (2) Financial services holding company.--The 
        following definitions shall apply with respect to 
        financial services holding companies:
                  (A) Adequately capitalized.--The term 
                ``adequately capitalized'' means a level of 
                capitalization which meets or exceeds the 
                required minimum level established by the Board 
                for each relevant capital measure for financial 
                services holding companies.
                  (B) Well capitalized.--The term ``well 
                capitalized'' means a level of capitalization 
                which meets or exceeds the required capital 
                levels established by the Board for well 
                capitalized financial services holding 
                companies.
          (3) Other capital terms.--The terms ``tier 1'' and 
        ``risk-weighted assets'' have the meaning given those 
        terms in the capital guidelines or regulations 
        established by the Board for financial services holding 
        companies.
  (r) Foreign Bank Terms.--For purposes of subsections (s) and 
(u), sections 4(k), 10, and 11, and subsections (b) and (c) of 
section 12--
          (1) the terms ``agency'', ``branch'', and 
        ``commercial lending company'' have the same meaning as 
        in section 1(b) of the International Banking Act of 
        1978.
          (2) the term ``foreign bank'' means a foreign bank 
        (as defined in section 1(b) of the International 
        Banking Act of 1978) which operates a branch, agency or 
        commercial lending company, or owns or controls a bank, 
        in the United States.
  (s) Wholesale Financial Institution.--The term ``wholesale 
financial institution'' means any institution that is an 
uninsured State member bank authorized pursuant to section 9B 
of the Federal Reserve Act.
  (t) Investment Bank Holding Company.--The term ``investment 
bank holding company'' means any financial services holding 
company that--
          (1) controls a company engaged in underwriting 
        corporate equity securities pursuant to section 10;
          (2) controls a wholesale financial institution; and
          (3) if the company is a foreign bank that operates a 
        branch, agency or commercial lending company in the 
        United States, or is a company that controls such 
        foreign bank, is treated as an investment bank holding 
        company because such bank or company meets the criteria 
        in section 12(b) and has received the determination 
        required by such section.
                  acquisition of bank shares or assets

  Sec. 3. (a) It shall be unlawful, except with the prior 
approval of the Board, (1) for any action to be taken that 
causes any company to become a [bank holding company] financial 
services holding company; (2) for any action to be taken that 
causes a bank to become a subsidiary of a [bank holding 
company] financial services holding company; (3) for any [bank 
holding company] financial services holding company to acquire 
direct or indirect ownership or control of any voting shares of 
any bank if, after such acquisition, such company will directly 
or indirectly own or control more than 5 per centum of the 
voting shares of such bank; (4) for any [bank holding company] 
financial services holding company or subsidiary thereof, other 
than a bank, to acquire all or substantially all of the assets 
of a bank; or (5) for any [bank holding company] financial 
services holding company to merge or consolidate with any other 
[bank holding company] financial services holding company. 
Notwithstanding the foregoing this prohibition shall not apply 
to (A) shares acquired by a bank, (i) in good faith in a 
fiduciary capacity, except where such shares are held under a 
trust that constitutes a company as defined in section 2(b) and 
except as provided in paragraphs (2) and (3) of section 2(g), 
or (ii) in the regular course of securing or collecting a debt 
previously contracted in good faith, but any shares acquired 
after the date of enactment of this Act in securing or 
collecting any such previously contracted debt shall be 
disposed of within a period of two years from the date on which 
they were acquired; (B) additional shares acquired by a [bank 
holding company] financial services holding company in a bank 
in which such [bank holding company] financial services holding 
company owned or controlled a majority of the voting shares 
prior to such acquisition; or (C) the acquisition, by a 
company, of control of a bank in a reorganization in which a 
person or group of persons exchanges their shares of the bank 
for shares of a newly formed [bank holding company] financial 
services holding company and receives after the reorganization 
substantially the same proportional share interest in the 
holding company as they held in the bank except for changes in 
shareholders' interests resulting from the exercise of 
dissenting shareholders' rights under State or Federal law if--
          (i) immediately following the acquisition--
                  (I) the [bank holding company] financial 
                services holding company meets the capital and 
                other financial standards prescribed by the 
                Board by regulation for such a [bank holding 
                company] financial services holding company; 
                and
          * * * * * * *
  (b)(1) Notice and Hearing Requirements.--Upon receiving from 
a company any application for approval under this section, the 
Board shall give notice to the Comptroller of the Currency, if 
the applicant company or any bank the voting shares or assets 
of which are sought to be required is a national banking 
association or a District bank, or to the appropriate 
supervisory authority of the interested State, if the applicant 
company or any bank the voting shares or assets of which are 
sought to be acquired is a State bank, in order to provide for 
the submission of the views and recommendations of the 
Comptroller of the Currency or the State supervisory authority, 
as the case may be. The views and recommendations shall be 
submitted within thirty calendar days of the date on which 
notice is given, or within ten calendar days of such date if 
the Board advises the Comptroller of the Currency or the State 
supervisory authority that an emergency exists requiring 
expeditious action. If the thirty-day notice period applies and 
if the Comptroller of the Currency or the State supervisory 
authority so notified by the Board disapproves the application 
in writing within this period, the Board shall forthwith give 
written notice of that fact to the applicant. Within three days 
after giving such notice to the applicant, the Board shall 
notify in writing the applicant and the disapproving authority 
of the date for commencement of a hearing by it on such 
application. Any such hearing shall be commenced not less than 
ten or more than thirty days after the Board has given written 
notice to the applicant of the action of the disapproving 
authority. The length of any such hearing shall be determined 
by the Board, but it shall afford all interested parties a 
reasonable opportunity to testify at such hearing. At the 
conclusion thereof, the Board shall, by order, grant or deny 
the application on the basis of the record made at such 
hearing. In the event of the failure of the Board to act on any 
application for approval under this section within the ninety-
one-day period which begins on the date of submission to the 
Board of the complete record on that application, the 
application shall be deemed to have been granted. 
Notwithstanding any other provision of this subsection, if the 
Board finds that it must act immediately on any application for 
approval under this section in order to prevent the probable 
failure of a bank or [bank holding company] financial services 
holding company involved in a proposed acquisition, merger, or 
consolidation transaction, the Board may dispense with the 
notice requirements of this subsection, and if notice is given, 
the Board may request that the views and recommendations of the 
Comptroller of the Currency or the State supervisory authority, 
as the case may be, be submitted immediately in any form or by 
any means acceptable to the Board. If the Board has found 
pursuant to this subsection either that an emergency exists 
requiring expeditious action or that it must act immediately to 
prevent probable failure, the Board may grant or deny any such 
application without a hearing not withstanding any recommended 
disapproval by the appropriate supervisory authority.
  (2) Waiver in Case of Bank in Danger of Closing.--If the 
Board receives a certification described in section 13(f)(8)(D) 
of the Federal Deposit Insurance Act from the appropriate 
Federal or State chartering authority that a bank is in danger 
of closing, the Board may dispense with the notice and hearing 
requirements of paragraph (1) with respect to any application 
received by the Board relating to the acquisition of such bank, 
the [bank holding company] financial services holding company 
which controls such bank, or any other affiliated bank.
  (c) Factors for Consideration by Board.--
          (1) * * *
          * * * * * * *
          (4) Treatment of certain bank stock loans.--
        Notwithstanding any other provision of law, the Board 
        shall not follow any practice or policy in the 
        consideration of any application for the formation of a 
        one-bank holding company if following such practice or 
        policy would result in the rejection of such 
        application solely because the transaction to form such 
        [one-bank holding company] 1-bank financial services 
        holding company involves a bank stock loan which is for 
        a period of not more than twenty-five years. The 
        previous sentence shall not be construed to prohibit 
        the Board from rejecting any application solely because 
        the other financial arrangements are considered 
        unsatisfactory. The Board shall consider transactions 
        involving bank stock loans for the formation of a [one-
        bank holding company] 1-bank financial services holding 
        company having a maturity of twelve years or more on a 
        case by case basis and no such transaction shall be 
        approved if the Board believes the safety or soundness 
        of the bank may be jeopardized.
          * * * * * * *
  (d) Interstate Banking.--
          (1) Approvals authorized.--
                  (A) Acquisition of banks.--The Board may 
                approve an application under this section by a 
                [bank holding company] financial services 
                holding company that is adequately capitalized 
                and adequately managed to acquire control of, 
                or acquire all or substantially all of the 
                assets of, a bank located in a State other than 
                the home State of such [bank holding company] 
                financial services holding company, without 
                regard to whether such transaction is 
                prohibited under the law of any State.
                  (B) Preservation of state age laws.--
                          (i) In general.--Notwithstanding 
                        subparagraph (A), the Board may not 
                        approve an application pursuant to such 
                        subparagraph that would have the effect 
                        of permitting an out-of-State [bank 
                        holding company] financial services 
                        holding company to acquire a bank in a 
                        host State that has not been in 
                        existence for the minimum period of 
                        time, if any, specified in the 
                        statutory law of the host State.
          * * * * * * *
                  (D) Effect on state contingency laws.--No 
                provision of this subsection shall be construed 
                as affecting the applicability of a State law 
                that makes an acquisition of a bank contingent 
                upon a requirement to hold a portion of such 
                bank's assets available for call by a State-
                sponsored housing entity established pursuant 
                to State law, if--
                          (i) the State law does not have the 
                        effect of discriminating against out-
                        of-State banks, out-of-State [bank 
                        holding companies] financial services 
                        holding companies, or subsidiaries of 
                        such banks or [bank holding companies] 
                        financial services holding companies;
          * * * * * * *
          (2) Concentration limits.--
                  (A) * * *
          * * * * * * *
                  (C) Effectiveness of state deposit caps.--No 
                provision of this subsection shall be construed 
                as affecting the authority of any State to 
                limit, by statute, regulation, or order, the 
                percentage of the total amount of deposits of 
                insured depository institutions in the State 
                which may be held or controlled by any bank or 
                [bank holding company] financial services 
                holding company (including all insured 
                depository institutions which are affiliates of 
                the bank or [bank holding company] financial 
                services holding company) to the extent the 
                application of such limitation does not 
                discriminate against out-of-State banks, out-
                of-State [bank holding companies] financial 
                services holding companies, or subsidiaries of 
                such banks or holding companies.
                  (D) Exceptions to subparagraph (b).--The 
                Board may approve an application pursuant to 
                paragraph (1)(A) without regard to the 
                applicability of subparagraph (B) with respect 
                to any State if--
                          (i) there is a limitation described 
                        in subparagraph (C) in a State statute, 
                        regulation, or order which has the 
                        effect of permitting a bank or [bank 
                        holding company] financial services 
                        holding company (including all insured 
                        depository institutions which are 
                        affiliates of the bank or [bank holding 
                        company] financial services holding 
                        company) to control a greater 
                        percentage of total deposits of all 
                        insured depository institutions in the 
                        State than the percentage permitted 
                        under subparagraph (B); or
                          (ii) the acquisition is approved by 
                        the appropriate State bank supervisor 
                        of such State and the standard on which 
                        such approval is based does not have 
                        the effect of discriminating against 
                        out-of-State banks, out-of-State [bank 
                        holding companies] financial services 
                        holding companies, or subsidiaries of 
                        such banks or holding companies.
          * * * * * * *
  (e) Every bank that is a holding company and every bank that 
is a subsidiary of such company shall become and remain an 
insured depository institution as such term is defined in 
section 3 of the Federal Deposit Insurance Act. This subsection 
shall not apply to a wholesale financial institution that is 
controlled by an investment bank holding company that controls 
no banks other than wholesale financial institutions.
  (f) Savings Bank Subsidiaries of [Bank Holding Companies] 
Financial Services Holding Companies.--
          (1) In general.--Notwithstanding any other provision 
        of this Act (other than paragraphs (2) and (3)), any 
        qualified savings bank which is a subsidiary of a [bank 
        holding company] financial services holding company may 
        engage, directly or through a subsidiary, in any 
        activity in which such savings bank may engage (as a 
        State chartered savings bank) pursuant to express, 
        incidental, or implied powers under any statute or 
        regulation, or under any judicial interpretation of any 
        law, of the State in which such savings bank is 
        located.
          (2) Insurance activities.--Except as provided in 
        paragraph (3), any insurance activities of any 
        qualified savings bank which is a subsidiary of a [bank 
        holding company] financial services holding company 
        shall be limited to insurance activities allowed under 
        section 4(c)(8).
          (3) Savings bank life insurance.--Any qualified 
        savings bank permitted, as of March 5, 1987, to engage 
        in the sale or underwriting of savings bank life 
        insurance may sell or underwrite such insurance after 
        such savings bank is a subsidiary of a [bank holding 
        company] financial services holding company if--
                  (A) the savings bank is located in the State 
                of Connecticut, Massachusetts, or New York;
                  (B) such activity is expressly authorized by 
                the law of the State in which such savings bank 
                is located;
                  (C) the savings bank retains its character as 
                a savings bank;
                  (D) such activity is carried out by the 
                savings bank directly and not by--
                          (i) any subsidiary or affiliate of 
                        the savings bank; or
                          (ii) the [bank holding company] 
                        financial services holding company 
                        which controls such savings bank;
                  (E) such activity is carried out by the 
                savings bank in accordance with any residency 
                or employment limitations set forth in the 
                savings bank life insurance statute in effect 
                on March 5, 1987, in the State in which such 
                bank is located; and
                  (F) such activity is otherwise carried out in 
                the same manner as savings bank life insurance 
                activity is carried out in the State in which 
                such bank is located by savings banks which are 
                not subsidiaries of any [bank holding company] 
                financial services holding company registered 
                under this Act.
          * * * * * * *
          (5) Special asset aggregation rule for purposes of 
        paragraph (3).--For the sole purpose of determining 
        whether a qualified savings bank may continue to sell 
        and underwrite savings bank life insurance in 
        accordance with this subsection after control of such 
        savings bank is acquired by a [bank holding company] 
        financial services holding company, the assets of any 
        other bank affiliated with, or under contract to 
        affiliate with, such savings bank as of March 5, 1987, 
        shall be treated as assets of the savings bank in 
        determining whether such [bank holding company] 
        financial services holding company is a savings bank 
        holding company.

                 interests in nonbanking organizations

  Sec. 4. (a) Except as otherwise provided in this Act, no 
[bank holding company] financial services holding company 
shall--
          (1) after the date of enactment of this Act acquire 
        direct or indirect ownership or control of any voting 
        shares of any company which is not a bank, or
          (2) after two years from the date as of which it 
        becomes a [bank holding company] financial services 
        holding company, [or in the case of a company which has 
        been continuously affiliated since May 15, 1955, with a 
        company which was registered under the Investment 
        Company Act of 1940, prior to May 15, 1955, in such a 
        manner as to constitute an affiliated company within 
        the meaning of that Act, after December 31, 1978, or, 
        in the case of any company which becomes, as a result 
        of the enactment of the Bank Holding Company Act 
        Amendments of 1970, a bank holding company on the date 
        of such enactment, after December 31, 1980,] retain 
        direct or indirect ownership or control of any voting 
        shares of any company which is not a bank or [bank 
        holding company] financial services holding company or 
        engage in any activities other than (A) those of 
        banking or of managing or controlling banks and other 
        subsidiaries authorized under this Act or of furnishing 
        services to or performing services for its 
        subsidiaries, and (B) those permitted under [paragraph 
        (8) of subsection (c) of this section subject to all 
        the conditions specified in such paragraph or in any 
        order or regulation issued by the Board under such 
        paragraph] subsection (c)(8) or section 4(k), 10, or 
        11, subject to all the conditions specified in those 
        provisions or in any order or regulation issued by the 
        Board under those provisions: Provided, That a company 
        covered in 1970 may also engage in those activities in 
        which directly or through a subsidiary (i) it was 
        lawfully engaged on June 30, 1968 (or on a date 
        subsequent to June 30, 1968 in the case of activities 
        carried on as the result of the acquisition by such 
        company or subsidiary, pursuant to a binding written 
        contract entered into on or before June 30, 1968, of 
        another company engaged in such activities at the time 
        of the acquisition), and (ii) it has been continuously 
        engaged since June 30, 1968 (or such subsequent date). 
        The Board by order, after opportunity for hearing, may 
        terminate the authority conferred by the preceding 
        proviso on any company to engage directly or through a 
        subsidiary in any activity otherwise permitted by that 
        proviso if it determines, having due regard to the 
        purposes of this Act, that such action is necessary to 
        prevent undue concentration of resources, decreased or 
        unfair competition, conflicts of interest, or unsound 
        banking practices; and in the case of any such company 
        controlling a bank having bank assets in excess of 
        $60,000,000 on or after the date of enactment of the 
        Bank Holding Company Act Amendments of 1970 the Board 
        shall determine, within two years after such date (or, 
        if later, within two years after the date on which the 
        bank assets first exceed $60,000,000), whether the 
        authority conferred by the preceding proviso with 
        respect to such company should be terminated as 
        provided in this sentence. Nothing in this paragraph 
        shall be construed to authorize any [bank holding 
        company] financial services holding company referred to 
        in the preceding proviso, or any subsidiary thereof, to 
        engage in activities authorized by that proviso through 
        the acquisition, pursuant to a contract entered into 
        after June 30, 1968, of any interest in or the assets 
        of a going concern engaged in such activities. Any 
        company which is authorized to engage in any activity 
        pursuant to the preceding proviso or subsection (d) of 
        this section but, as a result of action of the Board, 
        is required to terminate such activity may 
        (notwithstanding any otherwise applicable time limit 
        prescribed in this paragraph) retain the ownership or 
        control of shares in any company carrying on such 
        activity for a period of ten years from the date on 
        which its authority was so terminated by the Board. 
        [Notwithstanding any other provision of this paragraph, 
        if any company that became a bank holding company as a 
        result of the enactment of the Competitive Equality 
        Amendments of 1987 acquired, between March 5, 1987, and 
        the date of the enactment of such Amendments, an 
        institution that became a bank as a result of the 
        enactment of such Amendments, that company shall, upon 
        the enactment of such Amendments, immediately come into 
        compliance with the requirements of this Act.]
The Board is authorized, upon application by a [bank holding 
company] financial services holding company, to extend the two-
year period referred to in paragraph (2) above from time to 
time as to such [bank holding company] financial services 
holding company for not more than one year at a time, if, in 
its judgment, such an extension would not be detrimental to the 
public interest, but no such extensions shall in the aggregate 
exceed three years. Notwithstanding any other provision of this 
Act, the period ending December 31, 1980, referred to in 
paragraph (2) above, may be extended by the Board of Governors 
to December 31, 1984, but only for the divestiture by a bank 
holding company of real estate or interests in real estate 
lawfully acquired for investment or development. In making its 
decision whether to grant such extension, the Board shall 
consider whether the company has made a good faith effort to 
divest such interests and whether such extension is necessary 
to avert substantial loss to the company.
  (b) [After two years from the date of enactment of this Act, 
no] No certificate evidencing shares of any bank holding 
company shall bear any statement purporting to represent shares 
of any other company except a bank or a bank holding company, 
nor shall the ownership, sale, or transfer of shares of any 
bank holding company be conditioned in any manner whatsoever 
upon the ownership, sale, or transfer of shares of any other 
company except a bank or a bank holding company.
  (c) The prohibitions in this section shall not apply to (i) 
any company that was on January 4, 1977, both a [bank holding 
company] financial services holding company and a labor, 
agricultural, or horticultural organization exempt from 
taxation under section 501 of the Internal Revenue Code of 
1954, or to any labor, agricultural, or horticultural 
organization to which all or substantially all of the assets of 
such company are hereafter transferred, or (ii) a company 
covered in 1970 more than 85 per centum of the voting stock of 
which was collectively owned on June 30, 1968, and continuously 
thereafter, directly or indirectly, by or for members of the 
same family, or their spouses, who are lineal descendants of 
common ancestors; and such prohibitions shall not, with respect 
to any other [bank holding company] financial services holding 
company, apply to--
          (1) * * *
          (2) shares acquired by a [bank holding company] 
        financial services holding company or any of its 
        subsidiaries in satisfaction of a debt previously 
        contracted in good faith, but such shares shall be 
        disposed of within a period of two years from the date 
        on which they were acquired, except that the Board is 
        authorized upon application by such [bank holding 
        company] financial services holding company to extend 
        such period of two years from time to time as to such 
        holding company for not more than one year at a time 
        if, in its judgment, such an extension would not be 
        detrimental to the public interest, but no such 
        extensions shall extend beyond a date five years after 
        the date on which such shares were acquired;
          (3) shares acquired by such [bank holding company] 
        financial services holding company from any of its 
        subsidiaries which subsidiary has been requested to 
        dispose of such shares by any Federal or State 
        authority having statutory power to examine such 
        subsidiary, but such [bank holding company] financial 
        services holding company shall dispose of such shares 
        within a period of two years from the date on which 
        they were acquired;
          * * * * * * *
          (7) shares of an investment company which is not a 
        [bank holding company] financial services holding 
        company and which is not engaged in any business other 
        than investing in securities, which securities do not 
        include more than 5 per centum of the outstanding 
        voting shares of any company;
          (8) [shares of any company the activities of which 
        the Board after due notice and opportunity for hearing 
        has determined (by order or regulation) to be so 
        closely related to banking or managing or controlling 
        banks as to be a proper incident thereto, but for 
        purposes of this subsection it is not closely related 
        to banking or managing or controlling banks for a bank 
        holding company to provide] shares of any company the 
        activities of which the Board after due notice has 
        determined (by order, regulation, or advisory opinion) 
        to be financial in nature or incidental to such 
        financial activities. In determining whether an 
        activity is financial in nature or incidental to 
        financial activities, the Board shall take into account 
        changes or reasonably expected changes in the 
        marketplace in which financial services holding 
        companies compete as well as changes or reasonably 
        expected changes in the technology by which these 
        services are delivered. In addition, the Board shall 
        take into account activities considered financial 
        activities or banking or financial operations for 
        purposes of the regulation of the Board designated as 
        ``Regulation K'' (12 C.F.R. 211.23 (f)(5)(iii)(B)) as 
        in effect on the date of the enactment of the Financial 
        Services Competitiveness Act of 1995. Any activity that 
        the Board has determined, by order or regulation that 
        is in effect on such date to be so closely related to 
        banking or managing or controlling banks as to be a 
        proper incident thereto shall be deemed to be of a 
        financial nature for purposes of this paragraph without 
        further action by the Board (subject to the same terms 
        and conditions contained in such order or regulation, 
        unless modified by the Board), but for purposes of this 
        subsection it shall not be closely related to banking 
        or managing or controlling banks or financial in nature 
        or incidental to a financial activity for a financial 
        services holding company to provide insurance as a 
        principal, agent, or broker except (A) where the 
        insurance is limited to assuring repayment of the 
        outstanding balance due on a specific extension of 
        credit by a [bank holding company] financial services 
        holding company or its subsidiary in the event of the 
        death, disability, or involuntary unemployment of the 
        debtor; (B) in the case of a finance company which is a 
        subsidiary of a [bank holding company] financial 
        services holding company, where the insurance is also 
        limited to assuring repayment of the outstanding 
        balance on an extension of credit in the event of loss 
        or damage to any property used as collateral on such 
        extention of credit and, during the period beginning on 
        the date of the enactment of this subparagraph and 
        ending on December 31, 1982, such extension of credit 
        is not more than $10,000 ($25,000 in the case of an 
        extension of credit which is made to finance the 
        purchase of a residential manufactured home and which 
        is secured by such residential manufactured home) and 
        for any given year after 1982, such extension of credit 
        is not more than an amount equal to $10,000 ($25,000 in 
        the case of an extension of credit which is made to 
        finance the purchase of a residential manufactured home 
        and which is secured by such residential manufactured 
        home) increased by the percentage increase in the 
        Consumer Price Index for Urban Wage Earners and 
        Clerical Workers published monthly by the Bureau of 
        Labor Statistics for the period beginning on January 1, 
        1982, and ending on December 31 of the year preceding 
        the year in which such extension of credit is made; (C) 
        any insurance agency activity in a place that (i) has a 
        population not exceeding five thousand (as shown by the 
        last preceding decennial census), or (ii) the [bank 
        holding company] financial services holding company, 
        after notice and opportunity for a hearing, 
        demonstrates has inadequate insurance agency 
        facilities; (D) any insurance agency activity which was 
        engaged in by the [bank holding company] financial 
        services holding company or any of its subsidiaries on 
        May 1, 1982, or which the Board approved for such 
        company or any of its subsidiaries on or before May 1, 
        1982, including (i) sales of insurance at new locations 
        of the same [bank holding company] financial services 
        holding company or the same subsidiary or subsidiaries 
        with respect to which insurance was sold on May 1, 
        1982, or approved to be sold on or before May 1, 1982, 
        if such new locations are confined to the State in 
        which the principal place of business of the [bank 
        holding company] financial services holding company is 
        located, any State or States immediately adjacent to 
        such State, and any State or States in which insurance 
        activities were conducted by the [bank holding company] 
        financial services holding company or any of its 
        subsidiaries on May 1, 1982, or were approved to be 
        conducted by the [bank holding company] financial 
        services holding company or any of its subsidiaries on 
        or before May 1, 1982, and (ii) sales of insurance 
        coverages which may become available after May 1, 1982, 
        so long as those coverages insure against the same 
        types of risks as, or are otherwise functionally 
        equivalent to, coverages sold on May 1, 1982, or 
        approved to be sold on or before May 1, 1982 (for 
        purposes of this subparagraph, activities engaged in or 
        approved by the Board on May 1, 1982, shall include 
        activities carried on subsequent to that date as the 
        result of an application to engage in such activities 
        pending on May 1, 1982, and approved subsequent to that 
        date or of the acquisition by such company pursuant to 
        a binding written contract entered into on or before 
        May 1, 1982, of another company engaged in such 
        activities at the time of the acquisition); (E) any 
        insurance activity where the activity is limited solely 
        to supervising on behalf of insurance underwriters the 
        activities of retail insurance agents who sell (i) 
        fidelity insurance and property and casualty insurance 
        on the real and personal property used in the 
        operations of the [bank holding company] financial 
        services holding company or any of its subsidiaries, 
        and (ii) group insurance that protects the employees of 
        the [bank holding company] financial services holding 
        company or any of its subsidiaries; (F) any insurance 
        agency activity engaged in by a [bank holding company] 
        financial services holding company, or any of its 
        subsidiaries, which [bank holding company] financial 
        services holding company has total assets of 
        $50,000,000 or less: Provided, however, That such a 
        [bank holding company] financial services holding 
        company and its subsidiaries may not engage in the sale 
        of life insurance or annuities except as provided in 
        subparagraph (A), (B), or (C); or (G) where the 
        activity is performed, or shares of the company 
        involved are owned, directly or indirectly, by a [bank 
        holding company] financial services holding company 
        which is registered with the Board of Governors of the 
        Federal Reserve System and which, prior to January 1, 
        1971, was engaged, directly or indirectly, in insurance 
        agency activities as a consequence of approval by the 
        Board prior to January 1, 1971. [In determining whether 
        a particular activity is a proper incident to banking 
        or managing or controlling banks the Board shall 
        consider whether its performance by an affiliate of a 
        holding company can reasonably be expected to produce 
        benefits to the public, such as greater convenience, 
        increased competition, or gains in efficiency, that 
        outweigh possible adverse effects, such as undue 
        concentration of resources, decreased or unfair 
        competition, conflicts of interests, or unsound banking 
        practices.] In orders and regulation under this 
        subsection, the Board may differentiate between 
        activities commenced de novo and activities commenced 
        by the acquisition, in whole or in part, of a going 
        concern and between activities commenced by affiliates 
        of different classes of banks. Notwithstanding any 
        other provision of this Act, if the Board finds that an 
        emergency exists which requires the Board to act 
        immediately on any application under this subsection 
        involving a thrift institution, and the primary Federal 
        regulator of such institution concurs in such finding, 
        the Board may dispense with the notice and hearing 
        requirement of this subsection and the Board may 
        approve or deny any such application without notice or 
        hearing. If an application is filed under this 
        paragraph in connection with an application to make an 
        acquisition pursuant to section 13(f) of the Federal 
        Deposit Insurance Act, the Board may dispense with the 
        notice and hearing requirement of this paragraph and 
        the Board may approve or deny the application under 
        this paragraph without notice or hearing. If an 
        application described in the preceding sentence is 
        approved, the Board shall publish in the Federal 
        Register, not later than 7 days after such approval is 
        granted, the order approving the application and a 
        description of the nonbanking activities involved in 
        the acquisition;
          * * * * * * *
          (10) shares lawfully acquired and owned prior to May 
        9, 1956, by a bank which is a [bank holding company] 
        financial services holding company, or by any of its 
        wholly owned subsidiaries;
          (11) shares owned directly or indirectly by a company 
        covered in 1970 in a company which does not engage in 
        any activities other than those in which the [bank 
        holding company] financial services holding company, or 
        its subsidiaries, may engage by virtue of this section, 
        but nothing in this paragraph authorizes any [bank 
        holding company] financial services holding company, or 
        subsidiary thereof, to acquire any interest in or the 
        assets of any going concern (except pursuant to a 
        binding written contract entered into before June 30, 
        1968, or pursuant to another provision of this Act) 
        other than one which was a subsidiary on June 30, 1968;
          (12) shares retained or acquired, or activities 
        engaged in, by any company which becomes, as a result 
        of the enactment of the Bank Holding Company Act 
        Amendments of 1970, a bank holding company on the date 
        of such enactment, or by any subsidiary thereof, if 
        such company--
                  (A) within the applicable time limits 
                prescribed in subsection (a)(2) of this section 
                (i) ceases to be a [bank holding company] 
                financial services holding company, or (ii) 
                ceases to retain direct or indirect owership or 
                control of those shares and to engage in those 
                activities not authorized under this section; 
                and
          * * * * * * *
          (13) shares of, or activities conducted by, any 
        company which does no business in the United States 
        except as an incident to its international or foreign 
        business, if the Board by regulation or order 
        determines that, under the circumstances and subject to 
        the conditions set forth in the regulation or order, 
        the exemption would not be substantially at variance 
        with the purposes of this Act and would be in the 
        public interest; [or]
          (14) shares of any company which is an export trading 
        company whose acquisition (including each acquisition 
        of shares) or formation by a [bank holding company] 
        financial services holding company has not been 
        disapproved by the Board pursuant to this paragraph, 
        except that such investments, whether direct or 
        indirect, in such shares shall not exceed 5 per centum 
        of the [bank holding company's] financial services 
        holding company's consolidated capital and surplus.
                  (A)(i) No [bank holding company] financial 
                services holding company shall invest in an 
                export trading company under this paragraph 
                unless the Board has been given sixty days' 
                prior written notice of such proposed 
                investment and within such period has not 
                issued a notice disapproving the proposed 
                investment or extending for up to another 
                thirty days the period during which such 
                disapproval may be issued.
                  (ii) The period for disapproval may be 
                extended for such additional thirty-day period 
                only if the Board determines that a [bank 
                holding company] financial services holding 
                company proposing to invest in an export 
                trading company has not furnished all the 
                information required to be submitted or that in 
                the Board's judgment any material information 
                submitted is substantially inaccurate.
                  (iii) The notice required to be filed by a 
                [bank holding company] financial services 
                holding company shall contain such relevant 
                information as the Board shall require by 
                regulation or by specific request in connection 
                with any particular notice.
                  (iv) The Board may disapprove any proposed 
                investment only if--
                          (I) such disapproval is necessary to 
                        prevent unsafe or unsound banking 
                        practices, undue concentration of 
                        resources, decreased or unfair 
                        competition, or conflicts of interest;
                          (II) the Board finds that such 
                        investment would affect the financial 
                        or managerial resources of a [bank 
                        holding company] financial services 
                        holding company to an extent which is 
                        likely to have a materially adverse 
                        effect on the safety and soundness of 
                        any subsidiary bank of such [bank 
                        holding company] financial services 
                        holding company, or
                          (III) the [bank holding company] 
                        financial services holding company 
                        fails to furnish the information 
                        required under clause (iii).
                  (v) Leverage.--The Board may not disapprove 
                any proposed investment solely on the basis of 
                the anticipated or proposed asset-to-equity 
                ratio of the export trading company with 
                respect to which such investment is proposed, 
                unless the anticipated or proposed annual 
                average asset-to-equity ratio is greater than 
                20-to-1.
                  (vi) Within three days after a decision to 
                disapprove an investment, the Board shall 
                notify the [bank holding company] financial 
                services holding company in writing of the 
                disapproval and shall provide a written 
                statement of the basis for the disapproval.
                  (vii) A proposed investment may be made prior 
                to the expiration of the disapproval period if 
                the Board issues written notice of its intent 
                not to disapprove the investment.
                  (B)(i) The total amount of extensions of 
                credit by a [bank holding company] financial 
                services holding company which invests in an 
                export trading company, when combined with all 
                such extensions of credit by all the 
                subsidiaries of such [bank holding company] 
                financial services holding company, to an 
                export trading company shall not exceed at any 
                one time 10 per centum of the [bank holding 
                company's] financial services holding company's 
                consolidated capital and surplus. For purposes 
                of the preceding sentence, an extension of 
                credit shall not be deemed to include any 
                amount invested by a [bank holding company] 
                financial services holding company in the 
                shares of an export trading company.
                  (ii) No provision of any other Federal law in 
                effect on October 1, 1982, relating 
                specifically to collateral requirements shall 
                apply with respect to any such extension of 
                credit.
                  (iii) No [bank holding company] financial 
                services holding company or subsidiary of such 
                company which invests in an export trading 
                company may extend credit to such export 
                trading company or to customers of such export 
                trading company on terms more favorable than 
                those afforded similar borrowers in similar 
                circumstances, and such extension of credit 
                shall not involve more than the normal risk of 
                repayment or present other unfavorable 
                features.
                  (C) For purposes of this paragraph, an export 
                trading company--
                          (i) may engage in or hold shares of a 
                        company engaged in the business of 
                        underwriting, selling, or distributing 
                        securities in the United States only to 
                        the extent that any [bank holding 
                        company] financial services holding 
                        company which invests in such export 
                        trading company may do so under 
                        applicable Federal and State banking 
                        laws and regulations; and
          * * * * * * *
                  (D) A [bank holding company] financial 
                services holding company which invests in an 
                export trading company may be required, by the 
                Board, to terminate its investment or may be 
                made subject to such limitations or conditions 
                as may be imposed by the Board, if the Board 
                determines that the export trading company has 
                taken positions in commodities or commodity 
                contracts, in securities, or in foreign 
                exchange, other than as may be necessary in the 
                course of the export trading company's business 
                operations.
                  (E) Notwithstanding any other provision of 
                law, an Edge Act corporation, organized under 
                section 25(a) of the Federal Reserve Act (12 
                U.S.C. 611-631), which is a subsidiary of a 
                [bank holding company] financial services 
                holding company, or an agreement corporation, 
                operating subject to section 25 of the Federal 
                Reserve Act (12 U.S.C. 601-604(a)), which is a 
                subsidiary of a [bank holding company] 
                financial services holding company, may invest 
                directly and indirectly in the aggregate up to 
                5 per centum of its consolidated capital and 
                surplus (25 per centum in the case of a 
                corporation not engaged in banking) in the 
                voting stock or other evidences of ownership in 
                one or more export trading companies.
                          (i) * * *
          * * * * * * *
                          (iii) the term ``[bank holding 
                        company] financial services holding 
                        company'' shall include a bank which 
                        (I) is organized solely to do business 
                        with other banks and their officers, 
                        directors, or employees; (II) is owned 
                        primarily by the banks with which it 
                        does business; and (III) does not do 
                        business with the general public. No 
                        such other bank, owning stock in a bank 
                        described in this clause that invests 
                        in an export trading company, shall 
                        extend credit to an export trading 
                        company in an amount exceeding at any 
                        one time 10 per centum of such other 
                        bank's capital and surplus; and
          * * * * * * *
                  (H) Inventory.--
                          (i) No general limitation.--The Board 
                        may not prescribe by regulation any 
                        maximum dollar amount limitation on the 
                        value of goods which an export trading 
                        company may maintain in inventory at 
                        any time.
                          (ii) Specific limitation by order.--
                        Notwithstanding clause (i), the Board 
                        may issue an order establishing a 
                        maximum dollar amount limitation on the 
                        value of goods which a particular 
                        export trading company may maintain in 
                        inventory at any time (after such 
                        company has been operating for a 
                        reasonable period of time) if the Board 
                        finds that, under the facts and 
                        circumstances, such limitation is 
                        necessary to prevent risks that would 
                        affect the financial or managerial 
                        resources of an investor [bank holding 
                        company] financial services holding 
                        company to an extent which would be 
                        likely to have a materially adverse 
                        effect on the safety and soundness of 
                        any subsidiary bank of such [bank 
                        holding company.] financial services 
                        holding company; or
          (15) shares of a securities affiliate in accordance 
        with section 10.
The Board shall include in its annual report to the Congress a 
description and a statement of the reasons for approval of each 
activity approved by it by order or regulation under such 
paragraph during the period covered by the report.
  (d) To the extent that such action would not be substantially 
at variance with the purposes of this Act and subject to such 
conditions as it considers necessary to protect the public 
interest, the Board by order, after opportunity for hearing, 
may grant exemptions from the provisions of this section to any 
[bank holding company] financial services holding company which 
controlled one bank prior to July 1, 1968, and has not 
thereafter acquired the control of any other bank in order (1) 
to avoid disrupting business relationships that have existed 
over a long period of years without adversely affecting the 
banks or communities involved, or (2) to avoid forced sales of 
small locally owned banks to purchasers not similarly 
representative of community interests, or (3) to allow 
retention of banks that are so small in relation to the holding 
company's total interests and so small in relation to the 
banking market to be served as to minimize the likelihood that 
the bank's powers to grant or deny credit may be influenced by 
a desire to further the holding company's other interests.
  (e) With respect to shares which were not subject to the 
prohibitions of this section as originally enacted by reason of 
any exemption with respect thereto but which were made subject 
to such prohibitions by the subsequent repeal of such 
exemption, no [bank holding company] financial services holding 
company shall retain direct or indirect ownership or control of 
such shares after five years from the date of the repeal of 
such exemption, except as provided in paragraph (2) of 
subsection (a). Any [bank holding company] financial services 
holding company subject to such five-year limitation on the 
retention of nonbanking assets shall endeavor to divest itself 
of such shares promptly and such [bank holding company] 
financial services holding company shall report its progress in 
such divestiture to the Board two years after repeal of the 
exemption applicable to it and annually thereafter.
  (f) Certain Companies Not Treated as [Bank Holding Companies] 
Financial Services Holding Companies.--
          (1) In general.--Except as provided in paragraph (9), 
        any company which--
                  (A) on March 5, 1987, controlled an 
                institution which became a bank as a result of 
                the enactment of the Competitive Equality 
                Amendments of 1987; and
                  (B) was not a bank holding company on the day 
                before the date of the enactment of the 
                Competitive Equality Amendments of 1987,

        shall not be treated as a [bank holding company] 
        financial services holding company for purposes of this 
        Act solely by virtue of such company's control of such 
        institution.
          * * * * * * *
          (3) Limitation on banks controlled by paragraph (1) 
        companies.--
                  (A) Findings.--The Congress finds that banks 
                controlled by companies referred to in 
                paragraph (1) may, because of relationships 
                with affiliates, be involved in conflicts of 
                interest, concentration of resources, or other 
                effects adverse to bank safety and soundness, 
                and may also be able to compete unfairly 
                against banks controlled by [bank holding 
                companies] financial services holding companies 
                by combining banking services with financial 
                services not permissible for [bank holding 
                companies] financial services holding 
                companies. The purpose of this paragraph is to 
                minimize any such potential adverse effects or 
                inequities by temporarily restricting the 
                activities of banks controlled by companies 
                referred to in paragraph (1) until such time as 
                the Congress has enacted proposals to allow, 
                with appropriate safeguards, all banks or [bank 
                holding companies] financial services holding 
                companies to compete on a more equal basis with 
                banks controlled by companies referred to in 
                paragraph (1) or, alternatively, proposals to 
                permanently restrict the activities of banks 
                controlled by companies referred to in 
                paragraph (1).
                  (B) Limitations.--Until such time as the 
                Congress has taken action pursuant to 
                subparagraph (A), a bank controlled by a 
                company described in paragraph (1) shall not--
                          (i) engage in any activity in which 
                        such bank was not lawfully engaged as 
                        of March 5, 1987;
                          (ii) offer or market products or 
                        services of an affiliate that are not 
                        permissible for [bank holding 
                        companies] financial services holding 
                        companies to provide under subsection 
                        (c)(8), or permit its products or 
                        services to be offered or marketed in 
                        connection with products and services 
                        of an affiliate, unless--
                                  (I) the Board, by regulation, 
                                has determined such products 
                                and services are permissible 
                                for [bank holding companies] 
                                financial services holding 
                                companies to provide under 
                                subsection (c)(8);
                                  (II) such products and 
                                services are described in 
                                section 20 of the Banking Act 
                                of 1933 and the Board, by 
                                regulation, has permitted [bank 
                                holding companies] financial 
                                services holding companies to 
                                offer or market such products 
                                or services, but has prohibited 
                                [bank holding companies] 
                                financial services holding 
                                companies and their affiliates 
                                from principally engaging in 
                                the offering or marketing of 
                                such products or services; or
          * * * * * * *
                  (D) Exception to restriction on asset growth, 
                activities, and certain cross-marketing 
                restrictions.--
                          (i) Qualification for exception from 
                        growth restriction.--A bank controlled 
                        by a company described in paragraph (1) 
                        shall not be subject to the limitation 
                        contained in subparagraph (B)(iv) if 
                        the company meets the requirements of 
                        this subparagraph and the requirements 
                        described in paragraph (14).
                          (ii) Qualification for exception from 
                        activities restriction.--
                        Notwithstanding subparagraph (B)(i), a 
                        bank controlled by a company described 
                        in paragraph (1) that meets the 
                        requirements of clause (i) may engage 
                        in an activity authorized under 
                        applicable law (other than an activity 
                        that would have resulted in the 
                        institution being a bank for purposes 
                        of this Act, as in effect on the day 
                        before the date of the enactment of the 
                        Competitive Equality Banking Act of 
                        1987, based on the activities each bank 
                        conducted on March 5, 1987, as reported 
                        to the Board) if such bank, at least 60 
                        days before commencing such activity, 
                        has notified the Board of the bank's 
                        intention to commence such activity and 
                        either--
                                  (I) the Board has notified 
                                such bank that the Board will 
                                not disapprove the proposed 
                                activity as unsafe or unsound; 
                                or
                                  (II) the Board has not, 
                                within 60 days after receiving 
                                such notice, disapproved the 
                                proposal on the basis of such 
                                criteria.
                          (iii) Qualification for exception 
                        from cross-marketing restriction.--
                        Notwithstanding subparagraph (B)(ii), a 
                        bank controlled by a company described 
                        in paragraph (1) that meets the 
                        requirements of clause (i) may offer or 
                        market products or services of an 
                        affiliate or permit the bank's products 
                        or services to be offered or marketed 
                        in connection with products or services 
                        of an affiliate if such products or 
                        services are offered or marketed only 
                        to the extent permissible for banks or 
                        financial services holding companies to 
                        provide by law, regulation, or order 
                        under paragraph (8) or (15) of 
                        subsection (c).
                          (iv) Exception from divestiture 
                        requirement for banks restored to well 
                        capitalized level.--If any bank 
                        controlled by a company that meets the 
                        requirements of clause (i) ceases to be 
                        well capitalized, the company shall 
                        divest control of such bank in 
                        accordance with paragraph (4) unless--
                                  (I) within 12 months after 
                                the date the bank ceases to be 
                                well capitalized, the capital 
                                of the bank is restored to the 
                                well capitalized level; and
                                  (II) after the end of such 
                                12-month period, the bank 
                                remains well capitalized, 
                                subject to the capital 
                                restoration requirements in 
                                subclause (I).
                          (v) Action required if bank ceases to 
                        be adequately capitalized.--If any bank 
                        controlled by a company that meets the 
                        requirements of clause (i) ceases to be 
                        adequately capitalized, the company 
                        shall, within 30 days after the date as 
                        of which the bank ceases to be 
                        adequately capitalized--
                                  (I) execute an agreement with 
                                the Board to divest control of 
                                such bank in accordance with 
                                paragraph (4); or
                                  (II) restore the capital of 
                                the bank to at least the 
                                adequately capitalized level.
          (4) Divestiture in case of loss of exemption.--If any 
        company described in paragraph (1) loses the exemption 
        provided under such paragraph by operation of paragraph 
        (2), such company shall divest control of each bank it 
        controls within 180 days after such company becomes a 
        [bank holding company] financial services holding 
        company due to the loss of such exemption. If any 
        company described in paragraph (1) which meets the 
        requirements of paragraph (3)(D)(i) fails to qualify 
        for the exemption provided under paragraph (2), such 
        company shall divest, in accordance with this 
        paragraph, control of each bank the company controls 
        unless, within 12 months after the date that the 
        company fails to comply with the provisions of 
        paragraph (2), the company has corrected the condition 
        or ceased the activity that led to the failure to 
        comply.
          (5) Subsection ceases to apply under certain 
        circumstances.--This subsection shall cease to apply to 
        any company described in paragraph (1) if such 
        company--
                  (A) registers as a [bank holding company] 
                financial services holding company under 
                section 5(a) of this Act;
          * * * * * * *
          (9) Tying provisions.--A company described in 
        paragraph (1) shall be--
                  (A) treated as a [bank holding company] 
                financial services holding company for purposes 
                of section 106 of the Bank Holding Company Act 
                Amendments of 1970 and section 22(h) of the 
                Federal Reserve Act and any regulation 
                prescribed under any such section; and
                  (B) subject to the restrictions of section 
                106 of the Bank Holding Company Act Amendments 
                of 1970, in connection with any transaction 
                involving the products or services of such 
                company or affiliate and those of a bank 
                affiliate, as if such company or affiliate were 
                a bank and such bank were a subsidiary of a 
                [bank holding company] financial services 
                holding company.
          * * * * * * *
          (14) Qualifications for companies under paragraph 
        (3)(d).--A company meets the requirements of paragraph 
        (3)(D)(i) if--
                  (A) the company (based on consolidated 
                revenues) engages in activities that are 
                financial (including activities not authorized 
                under subsection (c)(8)) and predominantly in--
                          (i) banking;
                          (ii) activities that the Board has 
                        determined under subsection (c)(8) to 
                        be financial in nature or incidental to 
                        such financial activities;
                          (iii) activities permitted under 
                        sections subparagraph (A) or (B) of 
                        section 10(a)(1); and
                          (iv) other activities that would be 
                        permissible for such company as a 
                        financial services holding company 
                        (other than as an investment bank 
                        holding company);
                  (B) all insured depository institutions 
                controlled by such company are well capitalized 
                and well managed;
                  (C) the bank and any affiliate of the bank 
                that is engaged in securities activities 
                described in section 10(a) comply with the 
                safeguards contained in section 11 as if that 
                affiliate were a securities affiliate; and
                  (D) the company has provided at least 60 days 
                prior written notice to the Board and, during 
                that period, the Board has not disapproved the 
                proposal.
          (15) Conversion of certain companies to financial 
        services holding companies.--
                  (A) In general.--During the 18-month period 
                beginning on the date of the enactment of the 
                Financial Services Competitiveness Act of 1995, 
                any company described in paragraph (1) may 
                become a financial services holding company 
                if--
                          (i) the company (on a consolidated 
                        basis) engages in activities that are 
                        financial (including activities not 
                        authorized under subsection (c)(8)) and 
                        predominantly in--
                                  (I) banking,
                                  (II) activities that the 
                                Board has determined under 
                                subsection (c)(8) to be 
                                financial in nature or 
                                incidental to such financial 
                                activities;
                                  (III) activities permitted 
                                under subparagraph (A) or (B) 
                                of section 10(a)(1); and
                                  (IV) other activities that 
                                would be permissible for such 
                                company as a financial services 
                                holding company (other than an 
                                investment bank holding 
                                company);
                          (ii) all insured depository 
                        institutions controlled by such company 
                        are well capitalized and well managed;
                          (iii) the company provides written 
                        notice to the Board under sections 4 
                        and 10 at least 60 days before the 
                        company becomes a financial services 
                        holding company; and
                          (iv) the Board does not object to 
                        such transaction before the end of such 
                        60-day period.
                  (B) Retention of financial companies.--
                          (i) In general.--Notwithstanding 
                        subsection (a), a company that becomes 
                        a financial services holding company 
                        pursuant to subparagraph (A) may retain 
                        direct or indirect ownership or control 
                        of voting shares of any company that 
                        engages solely in activities that the 
                        Board finds to be financial but which 
                        the Board has not authorized under 
                        subsection (c)(8) (and such other 
                        financial activities that the Board has 
                        authorized) if the financial services 
                        holding company acquired the shares of 
                        such company, or of each company to 
                        which such company is a successor, 
                        before January 1, 1995.
                          (ii) Limits on expansion following 
                        registration.--A company that becomes a 
                        financial services holding company 
                        pursuant to this paragraph, and any 
                        company whose shares are owned or 
                        controlled by a financial services 
                        holding company pursuant to this 
                        paragraph, shall be subject to the 
                        limitations contained in paragraphs 
                        (2)(C) and (3) of section 4(k) as if 
                        the activities or shares of such 
                        company were conducted or held pursuant 
                        to section 4(k)(2).
                          (iii) Period to conform other 
                        activities.--Notwithstanding subsection 
                        (a), a company that becomes a financial 
                        services holding company pursuant to 
                        subparagraph (A) may retain direct or 
                        indirect ownership or control of voting 
                        shares of any company not otherwise 
                        permitted under this section for the 
                        period provided in, and subject to the 
                        conditions contained in, paragraphs (2) 
                        and (3) of section 4(k).
                  (C) Election for reduced supervision.--Any 
                company that becomes a financial services 
                holding company pursuant to subparagraph (A) 
                may elect to be governed by the provisions of 
                paragraphs (3), (4), (5), and (6) of section 
                5(g), subject to the requirements of such 
                section, if--
                          (i) the company, and any insured 
                        depository institution controlled by 
                        such company, meet the requirements of 
                        section 5(g) (other than the 
                        requirements of paragraph (2)(A) of 
                        such section);
                          (ii) the company does not acquire 
                        more than 5 percent of the shares of 
                        any additional depository institution 
                        after the date that such company 
                        becomes a financial services holding 
                        company; and
                          (iii) no depository institution 
                        controlled by such company acquires, 
                        establishes, or operates an additional 
                        branch office after the date that the 
                        company becomes a financial services 
                        holding company.
  (g) Limitations on Certain Banks.--
          (1) In general.--Notwithstanding any other provision 
        of this section (other than the last sentence of 
        subsection (a)(2)), a [bank holding company] financial 
        services holding company which controls an institution 
        that became a bank as a result of the enactment of the 
        Competitive Equality Amendments of 1987 may retain 
        control of such institution if such institution does 
        not--
                  (A) engage in any activity after the date of 
                the enactment of such Amendments which would 
                have caused such institution to be a bank (as 
                defined in section 2(c), as in effect before 
                such date) if such activities had been engaged 
                in before such date; or
                  (B) increase the number of locations from 
                which such institution conducts business after 
                March 5, 1987.
          (2) Limitations cease to apply under certain 
        circumstances.--The limitations contained in paragraph 
        (1) shall cease to apply to a bank described in such 
        paragraph at such time as the acquisition of such bank, 
        by the [bank holding company] financial services 
        holding company referred to in such paragraph, would 
        not be prohibited under section 3(d) of this Act if--
                  (A) an application for such acquisition were 
                filed under section 3(a) of this Act; and
                  (B) such bank were treated as an additional 
                bank (under section 3(d)).
  (h) Tying Provisions.--
          (1) Applicable to certain exempt institutions and 
        parent companies.--An institution described in 
        subparagraph (D), (F), (G), (H), (I), or (J) of section 
        2(c)(2) shall be treated as a bank, and a company that 
        controls such an institution shall be treated as a 
        [bank holding company] financial services holding 
        company, for purposes of section 106 of the Bank 
        Holding Company Act Amendments of 1970 and section 
        22(h) of the Federal Reserve Act and any regulation 
        prescribed under any such section.
          (2) Applicable with respect to certain 
        transactions.--A company that controls an institution 
        described in subparagraph (D), (F), (G), (H), (I), or 
        (J) of section 2(c)(2) and any of such company's other 
        affiliates, shall be subject to the tying restrictions 
        of section 106 of the Bank Holding Company Act 
        Amendments of 1970 in connection with any transaction 
        involving the products or services of such company or 
        affiliate and those of such institution, as if such 
        company or affiliate were a bank and such institution 
        were a subsidiary of a [bank holding company] financial 
        services holding company.
  (i) Acquisition of Savings Associations.--
          (1) In general.--The Board may approve an application 
        by any [bank holding company] financial services 
        holding company under subsection (c)(8) to acquire any 
        savings association in accordance with the requirements 
        and limitations of this section.
          (2) Prohibition on tandem restrictions.--In approving 
        an application by a [bank holding company] financial 
        services holding company to acquire a savings 
        association, the Board shall not impose any restriction 
        on transactions between the savings association and its 
        holding company affiliates, except as required under 
        sections 23A and 23B of the Federal Reserve Act or any 
        other applicable law.
          (3) Acquisition of insolvent savings associations.--
                  (A) In general.--Notwithstanding any other 
                provision of this Act, any qualified savings 
                association which became a federally chartered 
                stock company in December of 1986 and which 
                [is] was acquired by any bank holding company 
                without Federal financial assistance after June 
                1, 1991, and before March 1, 1992, and any 
                subsidiary of any such association, may after 
                such acquisition continue to engage within the 
                home State of the qualified savings association 
                in insurance agency activities in which any 
                Federal savings association (or any subsidiary 
                thereof) may engage in accordance with the Home 
                Owners' Loan Act and regulations pursuant to 
                such Act if the qualified savings association 
                or subsidiary thereof was continuously engaged 
                in such activity from June 1, 1991, to the date 
                of the acquisition.
          * * * * * * *
  (j) Notice Procedures for Nonbanking Activities.--
          (1) General notice procedure.--
                  (A) Notice requirement.--[No bank holding 
                company] Except as provided in paragraph (3) or 
                section 10(b)(3), no financial services holding 
                company may engage in any nonbanking activity 
                or acquire or retain ownership or control of 
                the shares of a company engaged in activities 
                based on [subsection (c)(8) or (a)(2)] 
                subsection (a)(2), (c)(8), (c)(15), or (k) 
                without providing the Board with written notice 
                of the proposed transaction or activity at 
                least 60 days before the transaction or 
                activity is proposed to occur or commence.
                  (B) Contents of notice.--The notice submitted 
                to the Board shall contain such information as 
                the Board shall prescribe by regulation or by 
                specific request in connection with a 
                particular notice.
                  (C) Procedure for agency action.--
                          (i) * * *
                          (ii) Extension of period.--The Board 
                        may extend the 60-day period referred 
                        to in clause (i) for an additional 30 
                        days. The Board may further extend the 
                        period with the agreement of the [bank 
                        holding company] financial services 
                        holding company submitting the notice 
                        pursuant to this subsection.
          * * * * * * *
                  (E) Extension of period.--In the case of any 
                notice to engage in, or to acquire or retain 
                ownership or control of shares of any company 
                engaged in, any activity pursuant to 
                [subsection (c)(8) or (a)(2)] subsection 
                (a)(2), (c)(8), (c)(15), or (k) that has not 
                been previously approved by regulation, the 
                Board may extend the notice period under this 
                subsection for an additional 90 days. [The 
                Board may further extend the period with the 
                agreement of the bank holding company 
                submitting the notice pursuant to this 
                subsection.] In no event may the Board, without 
                the agreement of the financial services holding 
                company submitting the notice, extend the 
                notice period under this subparagraph beyond 
                the period that ends 180 days after the date 
                that a notice is filed with the Board or the 
                relevant Federal reserve bank in accordance 
                with the regulations of the Board.
          (2) General standards for review.--
                  (A) Criteria.--In connection with a notice 
                under this subsection, the Board shall consider 
                whether performance of the activity by a [bank 
                holding company] financial services holding 
                company or a subsidiary of such company can 
                reasonably be expected to produce benefits to 
                the public, such as greater convenience, 
                increased competition, or gains in efficiency, 
                that outweigh possible adverse effects, such as 
                undue concentration of resources, decreased or 
                unfair competition, conflicts of interests, or 
                unsound banking practices.
                  (B) Criteria for notices involving securities 
                affiliates.--In considering any notice that 
                involves the acquisition of shares of a 
                securities affiliate pursuant to section 
                4(c)(15), the Board shall apply the criteria 
                and safeguards contained in this paragraph and 
                in sections 10 and 11.
                  [(B)] (C) Grounds for disapproval.--The Board 
                may deny any proposed transaction or activity 
                for which notice has been submitted pursuant to 
                this subsection if the [bank holding company] 
                financial services holding company submitting 
                such notice neglects, fails, or refuses to 
                furnish the Board all the information required 
                by the Board.
                  [(C)] (D) Conditional action.--Nothing in 
                this subsection limits the authority of the 
                Board to impose conditions in connection with 
                an action under this section.
          (3) No notice required for certain transactions.--
        Notwithstanding paragraph (1), no notice under 
        subsection (c)(8) or (a)(2)(B) is required for a 
        proposal by a financial services holding company to 
        engage in any activity (other than an activity 
        described in subparagraph (A) or (B) of section 
        10(a)(1)) or acquire or retain the shares or assets of 
        any company (other than a securities affiliate) if the 
        proposal qualifies under paragraph (4).
          (4) Criteria for statutory approval.--A proposal 
        qualifies under this paragraph if all of the following 
        criteria are met:
                  (A) Financial criteria.--Both before and 
                immediately after the proposed transaction--
                          (i) the acquiring financial services 
                        holding company is well capitalized;
                          (ii) the lead depository institution 
                        of such holding company is well 
                        capitalized;
                          (iii) well capitalized depository 
                        institutions control at least 80 
                        percent of the aggregate total risk-
                        weighted assets of depository 
                        institutions controlled by such holding 
                        company; and
                          (iv) no depository institution 
                        controlled by such holding company is 
                        undercapitalized.
                  (B) Managerial criteria.--
                          (i) Well managed.--At the time of the 
                        transaction, the acquiring financial 
                        services holding company, the lead 
                        depository institution of such holding 
                        company, and depository institutions 
                        that control at least 80 percent of the 
                        aggregate total risk-weighted assets of 
                        depository institutions controlled by 
                        such holding company are well managed.
                          (ii) Limitation on poorly managed 
                        institutions.--No depository 
                        institution which is controlled by the 
                        acquiring financial services holding 
                        company has received any of the lowest 
                        2 composite ratings at the later of the 
                        institution's most recent examination 
                        or subsequent review.
                          (iii) Recently acquired 
                        institutions.--Depository institutions 
                        acquired by the financial services 
                        holding company during the 12-month 
                        period ending on the date of the 
                        proposed transaction may be excluded 
                        for purposes of clause (ii) if--
                                  (I) the financial services 
                                holding company has developed a 
                                plan acceptable to the 
                                appropriate Federal banking 
                                agency for the institution to 
                                restore the capital and 
                                management of the institution; 
                                and
                                  (II) all such depository 
                                institutions represent, in the 
                                aggregate, less than 25 percent 
                                of the total risk-weighted 
                                assets of all depository 
                                institutions controlled by the 
                                financial services holding 
                                company.
                  (C) Activities permissible.--Following 
                consummation of the proposed transaction, the 
                financial services holding company engages 
                directly or through a subsidiary solely in--
                          (i) activities that are permissible 
                        under subsection (c)(8), as determined 
                        by the Board by any regulation, order, 
                        or advisory opinion under such 
                        subsection that is in effect at the 
                        time of the proposed transaction, 
                        subject to all of the restrictions, 
                        terms, and conditions of such 
                        subsection and such regulation, order, 
                        or advisory opinion; and
                          (ii) such other activities as are 
                        otherwise permissible under this Act, 
                        subject to the restrictions, terms and 
                        conditions, including any prior notice 
                        or approval requirements, provided in 
                        this Act.
                  (D) Size of acquisition.--
                          (i) Asset size.--The book value of 
                        the total risk-weighted assets acquired 
                        does not exceed 10 percent of the 
                        consolidated total risk-weighted assets 
                        of the acquiring financial services 
                        holding company.
                          (ii) Consideration.--The gross 
                        consideration to be paid for the 
                        securities or assets does not exceed 15 
                        percent of the consolidated tier 1 
                        capital of the acquiring financial 
                        services holding company.
                  (E) Notice not otherwise warranted.--For 
                proposals described in paragraph (5)(B), the 
                Board has not, before the conclusion of the 
                period described in such paragraph, advised the 
                financial services holding company that a 
                notice under paragraph (1) is required.
          (5) Notification.--
                  (A) Commencement of activities approved by 
                rule.--A financial services holding company 
                that qualifies under paragraph (4) and proposes 
                to engage de novo, directly or through a 
                subsidiary, in any activity that is permissible 
                under subsection (c)(8), as determined by the 
                Board by regulation, may commence that activity 
                without prior notice to the Board.
                  (B) Subsequent notice.--A financial services 
                holding company that commences an activity 
                under subsection (c)(8) without prior notice to 
                the Board shall provide written notice to the 
                Board no later than 10 business days after 
                commencing the activity.
                  (C) Activities permitted by order and 
                acquisitions.--
                          (i) In general.--At least 12 business 
                        days prior to commencing any activity 
                        (other than an activity described in 
                        subparagraph (A)) or acquiring shares 
                        or assets of any company in a proposal 
                        that qualifies under paragraph (4), the 
                        financial services holding company 
                        shall provide written notice to the 
                        Board of the proposal, unless the Board 
                        determines that no notice or a shorter 
                        notice period is appropriate.
                          (ii) Description of proposed 
                        activities.--A notice under clause (i) 
                        shall include a description of the 
                        proposed activities and the terms of 
                        any proposed acquisition.
          (6) Adjustment of amounts.--The Board may, by 
        regulation, adjust the amounts and the manner in which 
        the percentage of depository institutions is calculated 
        under subparagraph (B)(i), (B)(iii)(II), or (D) of 
        paragraph (4) if the Board determines that any such 
        adjustment is consistent with safety and soundness and 
        the purposes of this Act.
          (7) Expedited procedure for new activities.--
                  (A) Expedited preacquisition review.--After 
                the end of the 12-day period referred to in 
                paragraph (5)(C) and subject to any final 
                ruling under subparagraph (B), a financial 
                services holding company may acquire a company 
                engaged in activities that the company believes 
                are financial in nature for purposes of 
                subsection (c)(8) and that the Board has not 
                previously reviewed under such subsection if--
                          (i) the proposal qualifies under all 
                        of the criteria in paragraph (4) other 
                        than paragraph (4)(C);
                          (ii) the financial services holding 
                        company provides the notice required 
                        under paragraph (5)(C), and includes 
                        with such notice an explanation of the 
                        facts and circumstances that provide a 
                        reasonable basis for concluding that 
                        the proposed activities are financial 
                        in nature or incidental to such 
                        financial activities; and
                          (iii) before the end of such 12-day 
                        period, the Board has not--
                                  (I) required a notice under 
                                paragraph (1) with respect to 
                                the proposed transaction; or
                                  (II) advised the financial 
                                services holding company that 
                                the company has failed to 
                                provide a reasonable basis for 
                                concluding that the proposed 
                                activities are financial in 
                                nature or incidental to such 
                                financial activities.
                  (B) Postacquisition review.--
                          (i) Notice procedure.--A financial 
                        services holding company which is 
                        permitted to make an acquisition under 
                        this paragraph shall file a notice with 
                        the Board in accordance with paragraph 
                        (1) before the end of the 30-day period 
                        beginning on the date of the 
                        consummation of the acquisition.
                          (ii) Limited review.--The Board's 
                        review of a postconsummation notice 
                        required under this subparagraph shall 
                        be limited to determining whether the 
                        proposed activities are permissible 
                        under subsection (c)(8), including 
                        whether the proposal meets the criteria 
                        in paragraph (2)(A).
                          (iii) Conditional action.--No 
                        provision of this paragraph shall be 
                        construed as limiting in any way the 
                        authority of the Board under this 
                        section to impose conditions on the 
                        conduct of any activity or the 
                        ownership of any company.
                          (iv) Divestiture of impermissible 
                        activities.--If the Board determines 
                        that any proposed activity is not 
                        permissible under subsection (c)(8), 
                        the financial services holding company 
                        shall terminate the activity or divest 
                        the company acquired in reliance on 
                        this paragraph before the end of the 2-
                        year period beginning on the date of 
                        such determination.
                  (C) Initial decision not prejudicial to 
                subsequent determination.--A decision by the 
                Board under subparagraph (A) not to require a 
                notice under paragraph (1) during the 12-day 
                period referred to in such subparagraph shall 
                not prejudice the Board's decision under 
                subparagraph (B).
  (k) Ownership of Shares of Certain Companies by Financial 
Services Holding Companies.--
          (1) Nonconforming financial companies.--
        Notwithstanding section 4(a), a financial services 
        holding company may retain direct or indirect ownership 
        or control of voting shares of any company that--
                  (A) engages solely in activities that the 
                Board finds to be financial but which the Board 
                has not authorized under section 4(c)(8) (and 
                such other financial activities that the Board 
                has authorized) if--
                          (i) the financial services holding 
                        company acquired the shares of a 
                        company engaged in such activities or 
                        of each company to which the company 
                        engaged in such activities is a 
                        successor more than 2 years before the 
                        date that such financial services 
                        holding company becomes a financial 
                        services holding company;
                          (ii) the aggregate investment by the 
                        financial services holding company in 
                        shares of all such companies does not 
                        exceed 10 percent of the total 
                        consolidated capital and surplus of the 
                        financial services holding company as 
                        of the date that the holding company 
                        becomes a financial services holding 
                        company or as of the date of any 
                        additional investment by the financial 
                        services holding company in such 
                        shares;
                          (iii) more than 50 percent of the 
                        aggregate gross revenues of the 
                        financial services holding company and 
                        the subsidiaries of such holding 
                        company for each of the 2 calendar 
                        years before the date the holding 
                        company becomes a financial services 
                        holding company were attributable to 
                        securities activities described in 
                        subparagraphs (A) and (B) of section 
                        10(a)(1), as determined without taking 
                        into account any activities (other than 
                        securities activities) in which 
                        financial services holding companies 
                        were permitted to engage before the 
                        date of the enactment of the Financial 
                        Services Competitiveness Act of 1995; 
                        and
                          (iv) the company engaged in such 
                        activities continues to engage only in 
                        activities that such company conducted 
                        as of the date that such financial 
                        services holding company becomes a 
                        financial services holding company (or 
                        other activities permitted under 
                        section 4(c)(8) or section 10); or
                  (B) engages in activities not authorized 
                under section 4 if--
                          (i) the financial services holding 
                        company held the shares of any company 
                        engaged in such activities as of the 
                        date of the enactment of the Financial 
                        Services Competitiveness Act of 1995 
                        and the financial services holding 
                        company was then exempt from the 
                        provisions of section 4 pursuant to 
                        section 4(d) as of such date;
                          (ii) the company engaged in such 
                        activities continues to engage only in 
                        the same general lines of business and 
                        related activities that such company 
                        conducted as of the date of the 
                        enactment of the Financial Services 
                        Competitiveness Act of 1995 (or other 
                        activities permitted under section 4(c) 
                        or section 10); and
                          (iii) 80 percent of the aggregate 
                        gross revenues of the financial 
                        services holding company and the 
                        subsidiaries of such holding company as 
                        of the date of the enactment of the 
                        Financial Services Competitiveness Act 
                        of 1995 was attributable to--
                                  (I) ownership and operation 
                                of depository institutions;
                                  (II) activities that are 
                                financial in nature as 
                                determined by the Board 
                                pursuant to section 4(c)(8);
                                  (III) activities permissible 
                                under section 10; and
                                  (IV) such other activities 
                                that would be permissible 
                                generally for the holding 
                                company as a financial services 
                                holding company (other than as 
                                an investment bank holding 
                                company).
          (2) Nonfinancial companies.--
                  (A) In general.--Notwithstanding section 
                4(a), a financial services holding company 
                described in paragraph (1)(A)(iii) may, during 
                the 5-year period beginning on the date that 
                the company becomes a financial services 
                holding company, retain direct or indirect 
                ownership or control of voting shares of any 
                company that the financial services holding 
                company owns or controls on the date such 
                holding company becomes a financial services 
                holding company.
                  (B) Extension of divestiture period.--The 
                Board may extend the period described in 
                subparagraph (A) for an additional period not 
                to exceed 5 years if the Board--
                          (i) determines that such extension is 
                        necessary to avert substantial loss to 
                        the financial services holding company; 
                        and
                          (ii) finds that the financial 
                        services holding company has made good 
                        faith efforts to divest such shares.
                  (C) No expansion of nonfinancial companies 
                prior to divestiture.--Unless an acquisition or 
                activity is permitted in accordance with 
                section 3 or 4(c)--
                          (i) no financial services holding 
                        company, and no company whose shares 
                        are owned or controlled by a financial 
                        services holding company in accordance 
                        with this paragraph, may acquire any 
                        interest in or assets of any other 
                        company, and
                          (ii) no company whose shares are 
                        owned or controlled by a financial 
                        services holding company pursuant to 
                        this paragraph may engage directly or 
                        indirectly in any activity that the 
                        company did not conduct on the day 
                        before the financial services holding 
                        company registered as a financial 
                        services holding company.
          (3) Restrictions on joint marketing.--No depository 
        institution (and no subsidiary of such institution) 
        shall--
                  (A) offer or market, directly or indirectly 
                through any arrangement, any product or service 
                of any affiliate whose shares are owned or 
                controlled by the financial services holding 
                company pursuant to this subsection or section 
                10(j); or
                  (B) permit any of such depository 
                institution's or subsidiary's products or 
                services to be offered or marketed, directly or 
                indirectly through any arrangement, by or 
                through any affiliate whose shares are owned or 
                controlled by the financial services holding 
                company pursuant to this subsection or section 
                10(j),
        unless, in a case involving an affiliate held under 
        this subsection, the product or service is permissible 
        for financial services holding companies to provide 
        under section 4(c)(8) or 10.
          (4) Depository institution defined.--For purposes of 
        paragraph (3), the term ``depository institution'' 
        includes a foreign bank.
                             administration

  Sec. 5. (a) [Within one hundred and eighty days after the 
date of enactment of this Act, or within] Within one hundred 
and eighty days after becoming a [bank holding company] 
financial services holding company, [whichever is later,] each 
[bank holding company] financial services holding company shall 
register with the Board on forms prescribed by the Board, which 
shall include such information with respect to the financial 
condition and operations, management, and intercompany 
relationships of the [bank holding company] financial services 
holding company and its subsidiaries, and related matters, as 
the Board may deem necessary or appropriate to carry about the 
purposes of this Act. The Board may, in its discretion, extend 
the time within which a [bank holding company] financial 
services holding company shall register and file the requisite 
information.
  (b) The Board is authorized to issue such regulations and 
orders as may be necessary to enable it to administer and carry 
out the purposes of this Act, including the protection of 
depository institutions and the separation of banking and 
commerce, and prevent evasions thereof.
  [(c) The Board from time to time may require reports under 
oath to keep it informed as to whether the provisions of this 
Act and such regulations and orders issued thereunder have been 
complied with; and the Board may make examinations of each bank 
holding company and each subsidiary thereof, the cost of which 
shall be assessed against, and paid by, such holding company. 
The Board shall, as far as possible, use the reports of 
examinations made by the Comptroller of the Currency, the 
Federal Deposit Insurance Corporation, or the appropriate State 
bank supervisory authority for the purposes of this section.]
  (c) Reports and Examinations.--
          (1) Purposes.--
                  (A) In general.--The purpose of this 
                subsection is to authorize the Board, through 
                reports and examinations, to gather information 
                from a financial services holding company and 
                the subsidiaries of any such holding company 
                regarding the structure, activities, and 
                financial condition of the financial services 
                holding company and such subsidiaries so that 
                the Board can monitor risks within the holding 
                company system that could adversely affect any 
                depository institution subsidiary of the 
                holding company and may monitor and enforce 
                compliance with this Act.
                  (B) Purpose not to impose additional burdens 
                on holding companies.--It is the intended 
                purpose of this subsection that the Board 
                shall--
                          (i) exercise the Board's authority to 
                        collect information under this section 
                        in a manner that is the least 
                        burdensome to financial services 
                        holding companies and the subsidiaries 
                        of such companies; and
                          (ii) rely, to the fullest extent 
                        possible, on reports prepared for and 
                        examinations conducted by or for other 
                        Federal and State supervisors.
                  (C) Purpose to require carefully tailored 
                examinations.--It is the intended purpose of 
                this subsection that the Board shall tailor the 
                focus and scope of any examination under this 
                section to a financial services holding company 
                or to any subsidiary of such company which, 
                because of financial conditions, activities, 
                operations of such subsidiary, the transactions 
                between such subsidiary and other affiliates, 
                or the size of any such subsidiary poses a 
                potential material risk to a depository 
                institution subsidiary of such holding company.
          (2) Reports.--
                  (A) In general.--The Board from time to time 
                may require any financial services 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 the 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 a financial services 
                        holding company or any subsidiary of 
                        such company has been required to 
                        provide to other Federal and State 
                        supervisors or to appropriate self-
                        regulatory organizations.
                          (ii) Availability.--A financial 
                        services 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).
          (3) Examinations.--
                  (A) Limited use of examination authority.--
                The Board may make examinations of each 
                financial services holding company and each 
                subsidiary of such company in order to--
                          (i) inform the Board of the nature of 
                        the operations and financial condition 
                        of the financial services holding 
                        company and such subsidiaries;
                          (ii) inform the Board of the--
                                  (I) financial and operational 
                                risks within the financial 
                                services holding company system 
                                that may affect any depository 
                                institution owned by such 
                                holding company; and
                                  (II) the systems of the 
                                holding company and such 
                                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 a financial 
                        services 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 financial services holding company to--
                          (i) the holding company; and
                          (ii) to any subsidiary (other than a 
                        depository institution subsidiary) of 
                        the holding company which, because of 
                        the size, condition, or activities of 
                        the subsidiary, the nature or size of 
                        transactions between such subsidiary 
                        and any depository institution 
                        affiliate, 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 subsidiary or of the holding 
                        company.
                  (C) Deference to bank examinations.--The 
                Board shall, to the fullest extent possible, 
                use the report of examinations of depository 
                institutions made by the Comptroller of the 
                Currency, the Federal Deposit Insurance 
                Corporation, 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, 
                use the reports of examination made of--
                          (i) any registered broker or dealer 
                        by or on behalf of the Securities 
                        Exchange Commission, and
                          (ii) any other subsidiary that the 
                        Board finds to be comprehensively 
                        supervised under relevant Federal or 
                        State law by a Federal or state agency 
                        or authority.
                  (E) Confidentiality of reported 
                information.--
                          (i) In general.--Notwithstanding any 
                        other provision of law, the Board shall 
                        not be compelled to disclose any 
                        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 
                        financial services 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 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 an 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, such 
                holding company.
          * * * * * * *
  (e)(1) Notwithstanding any other provision of this Act, the 
Board may, whenever it has reasonable cause to believe that the 
continuation by a [bank holding company] financial services 
holding company of any activity or of ownership or control of 
any of its nonbank subsidiaries, other than a nonbank 
subsidiary of a bank, constitutes a serious risk to the 
financial safety, soundness, or stability of a [bank holding 
company] financial services holding company subsidiary bank and 
is inconsistent with sound banking principles or with the 
purposes of this Act or with the Financial Institutions 
Supervisory Act of 1966, order the [bank holding company] 
financial services holding company or any such nonbank 
subsidiaries, after due notice and opportunity for hearing, and 
after considering the views of the bank's primary supervisor, 
which shall be the Comptroller of the Currency in the case of a 
national bank or the Federal Deposit Insurance Corporation and 
the appropriate State supervisory authority in the case of an 
insured nonmember bank, to terminate such activities or to 
terminate (within one hundred and twenty days or such longer 
period as the Board may direct in unusual circumstances) its 
ownership or control of any such subsidiary either by sale or 
by distribution of the shares of the subsidiary to the 
shareholders of the [bank holding company] financial services 
holding company. Such distribution shall be pro rata with 
respect to all of the shareholders of the distributing [bank 
holding company] financial services holding company, and the 
holding company shall not make any charge to its shareholders 
arising out of such a distribution.
          * * * * * * *
  (g) Reduced Supervision of Companies Controlling Principally 
Nondepository Institutions.--
          (1) Election.--
                  (A) In general.--Any financial services 
                holding company that qualifies under paragraph 
                (2) may make an election to be governed by the 
                approval, capital, reporting and examination 
                requirements of paragraphs (3), (4), (5) and 
                (6) by--
                          (i) filing a written notice of such 
                        election with the Board; and
                          (ii) if applicable, providing a 
                        written guarantee to the Federal 
                        Deposit Insurance Corporation pursuant 
                        to paragraph (2).
                  (B) Effective period of election.--An 
                election under subparagraph (A) shall remain in 
                effect--
                          (i) so long as the financial services 
                        holding company continues to qualify 
                        under paragraph (2); or
                          (ii) until the financial services 
                        holding company revokes the election.
          (2) Criteria for election.--A financial services 
        holding company may make an election under paragraph 
        (1) if the company meets all of the following criteria:
                  (A) Company principally controls 
                nondepository companies.--
                          (i) Financial services holding 
                        companies with depository 
                        institutions.--In the case of a 
                        financial services holding company 
                        (other than an investment bank holding 
                        company), the consolidated total risk-
                        weighted assets of all depository 
                        institutions and foreign banks (as 
                        defined in section 1(b)(7) of the 
                        International Banking Act of 1978) 
                        controlled by the financial services 
                        holding company--
                                  (I) constitute less than 10 
                                percent of the consolidated 
                                total risk-weighted assets of 
                                such company; and
                                  (II) are less than 
                                $5,000,000,000.
                          (ii) Investment bank holding 
                        companies.--In the case of an 
                        investment bank holding company, the 
                        consolidated total risk-weighted assets 
                        of all wholesale financial institutions 
                        controlled by the investment bank 
                        holding company--
                                  (I) constitute less than 25 
                                percent of the consolidated 
                                total risk-weighted assets of 
                                such company; and
                                  (II) are less than 
                                $15,000,000,000.
                          (iii) Inflation adjustment.--The 
                        dollar limitation contained in clauses 
                        (i)(II) and (ii)(II) shall be adjusted 
                        annually after December 31, 1995, by 
                        the annual percentage increase in the 
                        Consumer Price Index for Urban Wage 
                        Earners and Clerical Workers published 
                        by the Bureau of Labor Statistics.
                          (iv) Authority to increase limits.--
                        The Board may increase any the 
                        percentages referred to in clauses 
                        (i)(I) and (ii)(I) and the dollar 
                        amounts described in clauses (i)(II) 
                        and (ii)(II) as the Board may determine 
                        to be appropriate.
                  (B) Well capitalized institutions.--Each 
                depository institution controlled by the 
                financial services holding company is well 
                capitalized.
                  (C) Well managed institutions.--
                          (i) In general.--Each depository 
                        institution controlled by the financial 
                        services holding company received a 
                        CAMEL composite rating of 1 or 2 (or an 
                        equivalent rating under an equivalent 
                        rating system) in the most recent 
                        examination of such institution.
                          (ii) Exclusion for newly acquired 
                        institutions.--A depository institution 
                        acquired by a financial services 
                        holding company during the 12-month 
                        period ending on the date of the 
                        election by such company under 
                        paragraph (1) may be excluded for 
                        purposes of clause (i) if the financial 
                        services holding company has developed 
                        a plan acceptable to the appropriate 
                        Federal banking agency (for such 
                        institution) to restore the capital and 
                        management of the institution.
                  (D) Holding company guarantee.--
                          (i) In general.--The financial 
                        services holding company provides a 
                        written guarantee acceptable to the 
                        Federal Deposit Insurance Corporation 
                        to maintain the capital levels of each 
                        insured depository institution 
                        controlled by the financial services 
                        holding company at not less than the 
                        levels required for such institution to 
                        remain well capitalized.
                          (ii) Limitation on liability.--The 
                        liability of a financial services 
                        holding company under a guarantee 
                        provided under this subparagraph shall 
                        not exceed an amount equal to 10 
                        percent of the total risk-weighted 
                        assets of the insured depository 
                        institution, measured as of the date 
                        that the institution becomes under 
                        capitalized.
                          (iii) Duration of guarantee.--
                        Notwithstanding paragraph (1), a 
                        financial services holding company that 
                        has elected treatment under this 
                        subsection shall continue to be bound 
                        by the guarantee made under this 
                        subsection until released in accordance 
                        with this subparagraph.
                          (iv) Release from liability.--The 
                        Board shall release a financial 
                        services holding company from the 
                        guarantee applicable with respect to 
                        any depository institution subsidiary 
                        of such company--
                                  (I) upon the written request 
                                of the financial services 
                                holding company to revoke the 
                                company's election under 
                                paragraph (1) if the Board 
                                determines that each depository 
                                institution controlled by the 
                                financial services holding 
                                company is well capitalized and 
                                well managed at the time of 
                                such revocation;
                                  (II) in the case of a 
                                financial services holding 
                                company which no longer meets 
                                the requirements of 
                                subparagraph (A), upon a 
                                determination by the Board that 
                                each depository institution 
                                controlled by the financial 
                                services holding company is 
                                well capitalized and well 
                                managed;
                                  (III) upon the written 
                                request of the financial 
                                services holding company 
                                following the divestiture of 
                                control of the depository 
                                institution in a transaction 
                                that does not require Federal 
                                assistance if the Board 
                                determines that, immediately 
                                following the divestiture, the 
                                depository institution is or 
                                will be well capitalized; or
                                  (IV) upon a determination by 
                                the Board, after consultation 
                                with the Federal Deposit 
                                Insurance Corporation, that, 
                                subject to the limit on 
                                liability provided in clause 
                                (ii), the financial services 
                                holding company has fully 
                                performed under the guarantee.
                  (E) Responsiveness to community needs.--The 
                lead insured depository institution subsidiary 
                of the financial services holding company and 
                insured depository institutions controlling at 
                least 80 percent of the aggregate total risk-
                weighted assets of insured depository 
                institutions controlled by the financial 
                services holding company have achieved a 
                ``satisfactory record of meeting community 
                credit needs'', or better, during the most 
                recent examination of such insured depository 
                institutions.
          (3) No notice or approval required for certain 
        purposes under paragraphs (8), (13), or (15) of section 
        4(c).--
                  (A) In general.--Notwithstanding paragraphs 
                (8), (13), and, in the case of an investment 
                bank holding company, (15) of section 4(c), a 
                financial services holding company that has in 
                effect an election under paragraph (1), and any 
                subsidiary of such holding company, may, 
                without prior notice to, or the approval of, 
                the Board under paragraph (8), (13), or, in the 
                case of an investment bank holding company, 
                (15) of section 4(c), engage de novo in any 
                activity, or acquire shares of any company 
                engaged in any activity, if--
                          (i) the Board has determined, by 
                        order or regulation in effect at the 
                        time the company or subsidiary 
                        commences to engage in such activity or 
                        acquire such shares, that the activity 
                        is permissible for a financial services 
                        holding company or a subsidiary of such 
                        company to engage in under paragraph 
                        (8) or (13) of section 4(c) (and 
                        regulations prescribed under such 
                        paragraphs); and
                          (ii) the activity is conducted in 
                        compliance with all conditions and 
                        limitations applicable to such activity 
                        under any regulation, order, or 
                        advisory opinion prescribed or issued 
                        by the Board.
                  (B) Subsequent notice.--A financial services 
                holding company that commences to engage in an 
                activity, or makes an acquisition, in 
                accordance with subparagraph (A) shall inform 
                the Board of such fact, in writing, not later 
                than 10 days after commencing the activity or 
                consummating the acquisition.
          (4) Capital.--
                  (A) In general.--The Board shall not (by 
                regulation or order), directly or indirectly, 
                establish or apply minimum capital requirements 
                to a financial services holding company which 
                has in effect an election under paragraph (1) 
                unless the Board concludes, on the basis of all 
                information available to the Board, that the 
                financial services holding company is not 
                maintaining sufficient financial resources to 
                meet fully any guarantee required under 
                paragraph (2).
                  (B) Criteria for consideration.--For purposes 
                of making a determination under subparagraph 
                (A), the Board shall consider, in addition to 
                any other relevant considerations, the 
                financial condition and the adequacy of the 
                capital of each of the depository institutions 
                controlled by the financial services holding 
                company.
          (5) Reports.--
                  (A) In general.--The reporting requirements 
                contained in subsection (c)(2) shall apply to a 
                financial services holding company which 
                qualifies under this subsection, to the extent 
                provided by the Board.
                  (B) 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 
                        regulations prescribed under this 
                        paragraph.
                          (ii) Criteria for consideration.--In 
                        granting any exemption under clause 
                        (i), the Board shall consider, among 
                        other 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), the Commodity Futures 
                                Trading Commission, or a 
                                foreign regulatory body of a 
                                similar type;
                                  (II) the primary business of 
                                the company; and
                                  (III) the nature and extent 
                                of domestic or foreign 
                                regulations of the company's 
                                activities.
          (6) Examinations.--
                  (A) Limited use of examination authority for 
                financial services holding companies.--The 
                Board shall not examine, under this section, 
                any financial services holding company 
                described in paragraph (2)(A)(i) for which an 
                election is in effect under paragraph (1) or 
                any subsidiary (other than a depository 
                institution) of such holding company unless--
                          (i) the Board determines, on the 
                        basis of all information available to 
                        the Board, that--
                                  (I) the operations or 
                                activities of the financial 
                                services holding company or any 
                                subsidiary of such company, or 
                                any transaction involving such 
                                company or subsidiary and an 
                                affiliated depository 
                                institution, may pose a 
                                material risk to the safety and 
                                soundness of any depository 
                                institution owned by such 
                                holding company; or
                                  (II) the financial services 
                                holding company does not appear 
                                to have sufficient resources to 
                                meet the guarantee required 
                                under paragraph (2); or
                          (ii) the Board is unable to 
                        accomplish the purposes described in 
                        subsection (c)(3)(A) without such 
                        examinations.
                  (B) Limited use of examination authority for 
                investment bank holding companies.--The Board 
                shall not examine, under this section, any 
                investment bank holding company described in 
                paragraph (2)(A)(ii) which has an election in 
                effect under paragraph (1) or any subsidiary 
                (other than a depository institution) of such 
                holding company unless--
                          (i) the Board determines that the 
                        operations or activities of the 
                        investment bank holding company or any 
                        subsidiary of such company, or any 
                        transaction involving such company or 
                        subsidiary and an affiliated depository 
                        institution, may pose a material risk 
                        to the safety and soundness of any 
                        depository institution owned by such 
                        holding company; or
                          (ii) the Board is unable to determine 
                        from reports the nature of the 
                        operations, financial condition, 
                        activities, or effectiveness of the 
                        risk management systems of the 
                        investment bank holding company or any 
                        subsidiary of such company, or to 
                        assess compliance with the provisions 
                        of this Act and those governing 
                        transactions and relationships between 
                        any depository institution controlled 
                        by the investment bank holding company 
                        and the investment bank holding company 
                        or any of such subsidiaries.
                  (C) Restricted focus and deference in 
                examinations.--The Board shall limit the focus 
                and scope of any examination, under this 
                section, of a financial services holding 
                company or investment bank holding company for 
                which an election is in effect under paragraph 
                (1) or of any subsidiary (other than a 
                depository institution) of such holding company 
                and shall defer to examinations conducted by 
                the Securities Exchange Commission or other 
                supervisors in accordance with subparagraphs 
                (B), (C), and (D) of subsection (c)(3).

SEC. 6. CONVERSION OF UNITARY SAVINGS AND LOAN HOLDING COMPANIES TO 
                    FINANCIAL SERVICES HOLDING COMPANIES.

  (a) Streamlined Procedure for Conversion.--
          (1) In general.--During the 18-month period beginning 
        on the date of the enactment of the Financial Services 
        Competitiveness Act of 1995, no approval shall be 
        required under section 3(a) or paragraph (8) or (13) of 
        section 4(c) for any qualified savings and loan holding 
        company to become a financial services holding company 
        for any company that, both prior to January 1, 1995, 
        and on the date of enactment of the Financial Services 
        Competitiveness Act of 1995, is a savings and loan 
        holding company if the requirements of paragraph (2) 
        are met.
          (2) Eligibility requirements.--A qualified savings 
        and loan holding company shall be eligible to become a 
        financial services holding company pursuant to 
        paragraph (1) if--
                  (A) the company becomes a financial services 
                holding company as the result of the conversion 
                of a savings association controlled by such 
                company as of the date of enactment of the 
                Financial Services Competitiveness Act of 1995 
                into a bank;
                  (B) the company is adequately capitalized 
                before and immediately after the conversion 
                referred to in subparagraph (A);
                  (C) all depository institutions controlled by 
                such company are well capitalized before and 
                immediately after such conversion;
                  (D) all depository institutions controlled by 
                such company are well managed before the 
                conversion;
                  (E) the Board would not be prohibited under 
                any provision of section 3(d) from approving 
                the transaction;
                  (F) the activities of the company and of each 
                subsidiary of the company comply with this Act 
                (and regulations prescribed under this Act); 
                and
                  (G) the company provides the Board with at 
                least 30 days written notice of the proposed 
                conversion, and, before the expiration of such 
                30-day period, the Board has not objected to 
                the company becoming a financial services 
                holding company based on the criteria contained 
                in this subsection.
          (3) Qualified savings and loan holding company 
        defined.--For purposes of this subsection, the term 
        ``qualified savings and loan holding company'' means 
        any company which became a savings and loan holding 
        company before January 1, 1995, and is a savings and 
        loan holding company as of the date of the enactment of 
        the Financial Services Competitiveness Act of 1995.
  (b) Limited Retention of Existing Investments.--Any holding 
company which converts to a financial services holding company 
in accordance with subsection (a) may retain direct or indirect 
ownership or control of voting shares of any company as 
provided in, and subject to, section 4(k) if--
          (1) the holding company controlled 1 or more savings 
        associations in accordance with section 10(c)(3) of the 
        Home Owners Loan Act before January 1, 1995, and as of 
        the date of the enactment of the Financial Services 
        Competitiveness Act of 1995;
          (2) the investment in voting shares and the financial 
        services holding company meet the requirements of 
        section 4(k) (other than paragraph (1)(A)(iii) of such 
        section); and
          (3) more than 75 percent of the revenues of the 
        financial services holding company for each of the 2 
        calendar years before the date such company became a 
        financial services holding company involved securities 
        activities described in subparagraphs (A) and (B) of 
        section 10(a)(1) and activities that the Board has 
        determined to be permissible under section 4(c)(8).
                    reservation of rights to states

  Sec. 7. (a) In General.--No provision of this Act shall be 
construed as preventing any State from exercising such powers 
and jurisdiction which it now has or may hereafter have with 
respect to companies, banks, [bank holding companies] financial 
services holding companies, and subsidiaries thereof.
  (b) State Taxation Authority Not Affected.--No provision of 
this Act shall be construed as affecting the authority of any 
State or political subdivision of any State to adopt, apply, or 
administer any tax or method of taxation to any bank, [bank 
holding company] financial services holding company, or foreign 
bank, or any affiliate of any bank, [bank holding company] 
financial services holding company, or foreign bank, to the 
extent that such tax or tax method is otherwise permissible by 
or under the Constitution of the United States or other Federal 
law.
  (c) Affiliations and Activities.--No State may prohibit or 
limit--
          (1) the affiliation of a bank or financial services 
        holding company with a securities affiliate solely 
        because the securities affiliate is engaged in 
        activities described in subparagraph (A) or (B) of 
        section 10(a)(1); or
          (2) the insurance or other activities of a subsidiary 
        of a financial services holding company solely because 
        the financial services holding company is no longer 
        exempt under this Act pursuant to section 4(d).
                               penalties

  Sec. 8. (a) Criminal Penalty.--
          (1) Whoever knowingly violates any provision of this 
        Act or, being a company, violates any regulation or 
        order issued by the Board under this Act, shall be 
        imprisoned not more than 1 year, fined not more than 
        $100,000 per day for each day during which the 
        violation continues, or both.
          (2) Whoever, with the intent to deceive, defraud, or 
        profit significantly, knowingly violates any provision 
        of this Act shall be imprisoned not more than 5 years, 
        fined not more than $1,000,000 per day for each day 
        during which the violation continues, or both. Every 
        officer, director, agent, and employee of a [bank 
        holding company] financial services holding company 
        shall be subject to the same penalties for false 
        entries in any book, report, or statement of such [bank 
        holding company] financial services holding company as 
        are applicable to officers, directors, agents, and 
        employees of member banks for false entries in any 
        books, reports, or statements of member banks under 
        section 1005 of title 18, United States Code.
          * * * * * * *
  (c) Notice Under This Section After Separation From 
Service.--The resignation, termination of employment or 
participation, or separation of an institution-affiliated party 
(within the meaning of section 3(u) of the Federal Deposit 
Insurance Act) with respect to a [bank holding company] 
financial services holding company (including a separation 
caused by the deregistration of such a company) shall not 
affect the jurisdiction and authority of the Board to issue any 
notice and proceed under this section against any such party, 
if such notice is served before the end of the 6-year period 
beginning on the date such party ceased to be such a party with 
respect to such holding company (whether such date occurs 
before, on, or after the date of the enactment of this 
subsection).
          * * * * * * *
              [amendments to internal revenue code of 1954

    [Sec. 10. (a) Subchapter O of chapter 1 of the Internal 
Revenue Code of 1954 is amended by adding at the end thereof 
the following new part:

  [``PART VIII--DISTRIBUTIONS PURSUANT TO BANK HOLDING COMPANY ACT OF 
                                  1956
[``Sec. 1101. Distributions pursuant to Bank Holding Company Act of 
          1956.
[``Sec. 1102. Special rules.
[``Sec. 1103. Definitions.
[``SEC. 1101. DISTRIBUTIONS PURSUANT TO BANK HOLDING COMPANY ACT OF 
                    1956.

    [``(a) Distributions of Certain Non-Banking Property.--
        [``(1) Distributions of prohibited property.--If--
                  [``(A) a qualified bank holding corporation 
                distributes prohibited property (other than 
                stock received in an exchange to which 
                subsection (c)(2) applies)--
                          [``(i) to a shareholder (with respect 
                        to its stock held by such shareholder), 
                        without the surrender by such 
                        shareholder of stock in such 
                        corporation; or
                          [``(ii) to a shareholder, in exchange 
                        for its preferred stock; or
                          [``(iii) to a security holder, in 
                        exchange for its securities; and
                  [``(B) the Board has, before the 
                distribution, certified that the distribution 
                of such prohibited property is necessary or 
                appropriate to effectuate section 4 of the Bank 
                Holding Company Act of 1956,
        then no gain to the shareholder or security holder from 
        the receipt of such property shall be recognized.
          [``(2) Distributions of stock and securities received 
        in an exchange to which subsection (c)(2) applies.--
        If--
                  [``(A) a qualified bank holding corporation 
                distributes--
                          [``(i) common stock received in an 
                        exchange to which subsection (c)(2) 
                        applies to a shareholder (with respect 
                        to its stock held by such shareholder), 
                        without the surrender by such 
                        shareholder of stock in such 
                        corporation; or
                          [``(ii) common stock received in an 
                        exchange to which subsection (c)(2) 
                        applies to a shareholder, in exchange 
                        for its common stock; or
                          [``(iii) preferred stock or common 
                        stock received in an exchange to which 
                        subsection (c)(2) applies to a 
                        shareholder, in exchange for its 
                        preferred stock; or
                          [``(iv) securities or preferred or 
                        common stock received in an exchange to 
                        which subsection (c)(2) applies to a 
                        security holder, in exchange for its 
                        securities; and
                  [``(B) any preferred stock received has 
                substantially the same terms as the preferred 
                exchanged, and any securities received have 
                substantially the same terms as the securities 
                exchanged,
          [then, except as provided in subsection (f), no gain 
        to the shareholder or security holder from the receipt 
        of such stock or such securities or such stock and 
        securities shall be recognized.
          [``(3) Non pro rata distributions.--Paragraphs (1) 
        and (2) shall apply to a distribution whether or not 
        the distribution is pro rata with respect to all of the 
        shareholders of the distributing qualified bank holding 
        corporation.
          [``(4) Exception.--This subsection shall not apply to 
        any distributions by a corporation which has made any 
        distribution pursuant to subsection (b).
          [``(5) Distributions involving gift or 
        compensation.--
                  [``In the case of a distribution to which paragraph 
                (1) or (2) applies, but which--
                          [``(A) results in a gift, see section 2501, 
                        and following, or
                          [``(B) has the effect of the payment of 
                        compensation, see section 61(a)(1).
    [``(b) Corporation Ceasing To Be a Bank Holding Company.--
          [``(1) Distributions of property which cause a 
        corporation to be a bank holding company.--If--
                  [``(A) a qualified bank holding corporation 
                distributes property (other than stock received 
                in an exchange to which subsection (c)(3) 
                applies)--
                          [``(i) to a shareholder (with respect 
                        to its stock held by such shareholder), 
                        without the surrender by such 
                        shareholder of stock in such 
                        corporation; or
                          [``(ii) to a shareholder, in exchange 
                        for its preferred stock; or
                          [``(iii) to a security holder, in 
                        exchange for its securities; and
                  [``(B) the Board has, before the 
                distribution, certified that--
                          [``(i) such property is all or part 
                        of the property by reason of which such 
                        corporation controls (within the 
                        meaning of section 2(a) of the Bank 
                        Holding Company Act of 1956) a bank or 
                        bank holding company, or such property 
                        is part of the property by reason of 
                        which such corporation did control a 
                        bank or a bank holding company before 
                        any property of the same kind was 
                        distributed under this subsection or 
                        exchanged under subsection (c)(3); and
                          [``(ii) the distribution is necessary 
                        or appropriate to effectuate the 
                        policies of such Act,
        then no gain to the shareholder or security holder from 
        the receipt of such property shall be recognized.
          [``(2) Distributions of stock and securities received 
        in an exchange to which subsection (c)(3) applies.--
        If--
                  [``(A) a qualified bank holding corporation 
                distributes--
                          [``(i) common stock received in an 
                        exchange to which subsection (c)(3) 
                        applies to a shareholder (with respect 
                        to its stock held by such shareholder), 
                        without the surrender by such 
                        shareholder of stock in such 
                        corporation; or
                          [``(ii) common stock received in an 
                        exchange to which subsection (c)(3) 
                        applies to a shareholder, in exchange 
                        for its common stock; or
                          [``(iii) preferred stock or common 
                        stock received in an exchange to which 
                        subsection (c)(3) applies to a 
                        shareholder, in exchange for its 
                        preferred stock; or
                          [``(iv) securities or preferred or 
                        common stock received in an exchange to 
                        which subsection (c)(3) applies to a 
                        security holder, in exchange for its 
                        securities; and
                  [``(B) any preferred stock received has 
                substantially the same terms as the preferred 
                stock exchanged, and any securities received 
                have substantially the same terms as the 
                securities exchanged,
        then, except as provided in subsection (f), no gain to 
        the shareholder or security holder from the receipt of 
        such stock or such securities or such stock and 
        securities shall be recognized.
          [``(3) Non pro rata distributions.--Paragraphs (1) 
        and (2) shall apply to a distribution whether or not 
        the distribution is pro rata with respect to all of the 
        shareholders of the distributing qualified bank holding 
        corporation.
          [``(4) Exception.--This subsection shall not apply to 
        any distribution by a corporation which has made any 
        distribution pursuant to subsection (a).
          [``(5) Distribution involving gift or compensation.--
                  [``In the case of a distribution to which paragraph 
                (1) or (2) applies, but which--
                          [``(A) results in a gift, see section 2501, 
                        and following, or
                          [``(B) has the effect of the payment of 
                        compensation, see section 61(a)(1).
      ``(c) Property Acquired After May 15, 1995.--
          [``(1) In general.--Except as provided in paragraphs 
        (2) and (3), subsection (a) or (b) shall not apply to--
                  [``(A) any property acquired by the 
                distributing corporation after May 15, 1995, 
                unless (i) gain to such corporation with 
                respect to the receipt of such property was not 
                recognized by reason of subsection (a) or (b), 
                or (ii) such property was received by it in 
                exchange for all of its stock in an exchange to 
                which paragraph (2) or (3) applies, or (iii) 
                such property was acquired by the distributing 
                corporation in a transaction in which gain was 
                not recognized under section 305(a) or section 
                332, or under section 354 with respect to a 
                reorganization described in section 368(a)(1) 
                (E) or (F), or
                  [``(B) any property which was acquired by the 
                distributing corporation in a distribution with 
                respect to stock acquired by such corporation 
                after May 15, 1995, unless such stock was 
                acquired by such corporation (i) in a 
                distribution (with respect to stock held by it 
                on May 15, 1995, or with respect to stock in 
                respect of which all previous applications of 
                this clause are satisfied) with respect to 
                which gain to it was not recognized by reason 
                of subsection (a) or (b), or (ii) in exchange 
                for all of its stock in an exchange to which 
                paragraph (2) or (3) applies, or (iii) in a 
                transaction in which gain was not recognized 
                under section 305(a) or section 332, or under 
                section 354 with respect to a reorganization 
                described in section 368(a)(1) (E) or (F), or
                  [``(C) any property acquired by the 
                distributing corporation in a transaction in 
                which gain was not recognized under section 
                332, unless such property was acquired from a 
                corporation which, if it had been a qualified 
                bank holding corporation, could have 
                distributed such property under subsection 
                (a)(1) or (b)(1).
          [``(2) Exchanges involving prohibited property.--If--
                  [``(A) Any qualified bank holding corporation 
                exchanges (i) property, which, under subsection 
                (a) (1), such corporation could distribute 
                directly to its shareholders or security 
                holders without the recognition of gain to such 
                shareholders or security holders, and other 
                property (except property described in 
                subsection (b) (1) (B) (i)), for (ii) all of 
                the stock of a second corporation created and 
                availed of solely for the purpose of receiving 
                such property;
                  [``(B) immediately after the exchange, the 
                qualified bank holding corporation distributes 
                all of such stock in a manner prescribed in 
                subsection (a) (2) (A); and
                  [``(C) before such exchange, the Board has 
                certified (with respect to the property 
                exchanged which consists of property which, 
                under subsection (a) (1), such corporation 
                could distribute directly to its shareholders 
                or security holders without the recognition of 
                gain) that the exchange and distribution are 
                necessary or appropriate to effectuate section 
                4 of the Bank Holding Company Act of 1956,
        then paragraph (1) shall not apply with respect to such 
        distribution.
          [``(3) Exchanges involving interests in banks.--If--
                  [``(A) any qualified bank holding corporation 
                exchanges (i) property which, under subsection 
                (b) (1), such corporation could distribute 
                directly to its shareholders or security 
                holders without the recognition of gain to such 
                shareholders or security holders, and other 
                property (except prohibited property), for (ii) 
                all of the stock of a second corporation 
                created and availed of solely for the purpose 
                of receiving such property;
                  [``(B) immediately after the exchange, the 
                qualified bank holding corporation distributes 
                all of such stock in a manner prescribed in 
                subsection (b) (2) (A); and
                  [``(C) before such exchange, the Board has 
                certified (with respect to the property 
                exchanged which consists of property which, 
                under subsection (b) (1), such corporation 
                could distribute directly to its shareholders 
                or security holders without the recognition of 
                gain) that--
                          [``(i) such property is all or part 
                        of the property by reason of which such 
                        corporation controls (within the 
                        meaning of section 2 (a) of the Bank 
                        Holding Company Act of 1956) a bank or 
                        bank holding company, or such property 
                        is part of the property by reason of 
                        which such corporation did control a 
                        bank or a bank holding company before 
                        any property of the same kind was 
                        distributed under subsection (b) (1) or 
                        exchanged under this paragraph; and
                          [``(ii) the exchange and distribution 
                        are necessary or appropriate to 
                        effectuate the policies of such Act,
        then paragraph (1) shall not apply with respect to such 
        distribution.
    [``(d) Distributions To Avoid Federal Income Tax.--
          [``(1) Prohibited property.--Subsection (a) shall not 
        apply to a distribution if, in connection with such 
        distribution, the distributing corporation retains, or 
        transfers after May 15, 1955, to any corporation, 
        property (other than prohibited property) as part of a 
        plan one of the principal purposes of which is the 
        distribution of the earnings and profits of any 
        corporation.
          [``(2) Banking property.--Subsection (b) shall not 
        apply to a distribution if, in connection with such 
        distribution, the distributing corporation retains, or 
        transfers after May 15, 1955, to any corporation, 
        property (other than property described in subsection 
        (b) (1) (B) (i)) as part of a plan one of the principal 
        purposes of which is the distribution of the earnings 
        and profits of any corporation.
          [``(3) Certain contributions to capital.--In the case 
        of a distribution a portion of which is attributable to 
        a transfer which is a contribution to the capital of a 
        corporation, made after May 15, 1955, and prior to the 
        date of the enactment of this part, if subsection (a) 
        or (b) would apply to such distribution but for the 
        fact that, under paragraph (1) or (2) (as the case may 
        be) of this subsection, such contribution to capital is 
        part of a plan one of the principal purposes of which 
        is to distribute the earnings and profits of any 
        corporation, then, notwithstanding paragraph (1) or 
        (2), subsection (a) or (b) (as the case may be) shall 
        apply to that portion of such distribution not 
        attributable to such contribution to capital, and shall 
        not apply to that portion of such distribution 
        attributable to such contribution to capital.
    [``(e) Final Certification.--
          [``(1) For subsection (a).--Subsection (a) shall not 
        apply with respect to any distribution by a corporation 
        unless the Board certifies that, before the expiration 
        of the period permitted under section 4(a) of the Bank 
        Holding Company Act of 1956 (including any extensions 
        thereof granted to such corporation under such section 
        4(a)), the corporation has disposed of all the property 
        the disposition of which is necessary or appropriate to 
        effectuate section 4 of such Act (or would have been so 
        necessary or appropriate if the corporation had 
        continued to be a bank holding company).
        [``(2) For subsection (b).--
                  [``(A) Subsection (b) shall not apply with 
                respect to any distribution by any corporation 
                unless the Board certifies that, before the 
                expiration of the period specified in 
                subparagraph (B), the corporation has ceased to 
                be a bank holding company.
                  [``(B) The period referred to in subparagraph 
                (A) is the period which expires 2 years after 
                the date of the enactment of this part or 2 
                years after the date on which the corporation 
                becomes a bank holding company, whichever date 
                is later. The Board is authorized, on 
                application by any corporation, to extend such 
                period from time to time with respect to such 
                corporation for not more than one year at a 
                time if, in its judgment, such an extension 
                would not be detrimental to the public 
                interest; except that such period may not in 
                any case be extended beyond the date 5 years 
                after the date of the enactment of this part or 
                5 years after the date on which the corporation 
                becomes a bank holding company, whichever date 
                is later.
    [``(f) Certain Exchanges of Securities.--In the case of an 
exchange described in subsection (a)(2)(A)(iv) or subsection 
(b)(2)(A)(iv), subsection (a) or subsection (b) (as the case 
may be) shall apply only to the extent that the principal 
amount of the securities received does not exceed the principal 
amount of the securities exchanged.

[``SEC. 1102. SPECIAL RULES.

    [``(a) Basis of Property Acquired in Distributions.--If, by 
reason of section 1101, gain is not recognized with respect to 
the receipt of any property, then, under regulations prescribed 
by the Secretary or his delegate--
          [``(1) if the property is received by a shareholder 
        with respect to stock, without the surrender by such 
        shareholder of stock, the basis of the property 
        received and of the stock with respect to which it is 
        distributed shall, in the distributee's hands, be 
        determined by allocating between such property and such 
        stock the adjusted basis of such stock; or
          [``(2) if the property is received by a shareholder 
        in exchange for stock or by a security holder in 
        exchange for securities, the basis of the property 
        received shall, in the distributee's hands, be the same 
        as the adjusted basis of the stock or securities 
        exchanged, increased by--
                  [``(A) the amount of the property received 
                which was treated as a dividend, and
                  [``(B) the amount of gain to the taxpayer 
                recognized on the property received (not 
                including any portion of such gain which was 
                treated as a dividend).
    [``(b) Periods of Limitation.--The periods of limitation 
provided in section 6501 (relating to limitations on assessment 
and collection) shall not expire, with respect to any 
deficiency (including interest and additions to the tax) 
resulting solely from the receipt of property by shareholders 
in a distribution which is certified by the Board under 
subsection (a), (b), or (c) of section 1101, until five years 
after the distributing corporation notifies the Secretary or 
his delegate (in such manner and with such accompanying 
information as the Secretary or his delegate may by regulations 
prescribe) that the period (including extensions thereof) 
prescribed in section 4 (a) of the Bank Holding Company Act of 
1956, or section 1101 (e) (2) (B), whichever is applicable, has 
expired; and such assessment may be made notwithstanding any 
provision of law or rule of law which would otherwise prevent 
such assessment.
    [``(c) Allocation of Earnings and Profits.--
          [``(1) Distribution of stock in a controlled 
        corporation.--In the case of a distribution by a 
        qualified bank holding corporation under section 1101 
        (a) (1) or (b) (1) of stock in a controlled 
        corporation, proper allocation with respect to the 
        earnings and profits of the distributing corporation 
        and the controlled corporation shall be made under 
        regulations prescribed by the Secretary or his 
        delegate.
          [``(2) Exchanges described in section 1101 (c) (2) or 
        (3).--In the case of any exchange described in section 
        1101 (c) (2) or (3), proper allocation with respect to 
        the earnings and profits of the corporation 
        transferring the property and the corporation receiving 
        such property shall be made under regulations 
        prescribed by the Secretary or his delegate.
          [``(3) Definition of controlled corporation.--For 
        purposes of paragraph (1), the term `controlled 
        corporation' means a corporation with respect to which 
        at least 80 percent of the total combined voting power 
        of all classes of stock entitled to vote and at least 
        80 percent of the total number of shares of all other 
        classes of stock is owned by the distributing qualified 
        bank holding corporation.
    [``(d) Itemization of Property.--In any certification under 
this part, the Board shall make such specification and 
itemization of property as may be necessary to carry out the 
provisions of this part.

[``SEC. 1103. DEFINITIONS.

    [``(a) Bank Holding Company.--For purposes of this part, 
the term `bank holding company' has the meaning assigned to 
such term by section 2 of the Bank Holding Company Act of 1956.
    [``(b) Qualified Bank Holding Corporation.--
          [``(1) In general.--Except as provided in paragraph 
        (2), for purposes of this part the term `qualified bank 
        holding corporation' means any corporation (as defined 
        in section 7701 (a) (3)) which is a bank holding 
        company and which holds prohibited property acquired by 
        it--
                  [``(A) on or before May 15, 1955,
                  [``(B) in a distribution in which gain to 
                such corporation with respect to the receipt of 
                such property was not recognized by reason of 
                subsection (a) or (b) of section 1101, or
                  [``(C) in exchange for all of its stock in an 
                exchange described in section 1101 (c) (2) or 
                (c) (3).
         [``(2) Limitations.--
                  [``(A) A bank holding company shall not be a 
                qualified bank holding corporation, unless it 
                would have been a bank holding company on May 
                15, 1955, if the Bank Holding Company Act of 
                1956 had been in effect on such date, or unless 
                it is a bank holding company determined solely 
                by reference to--
                          [``(i) property acquired by it on or 
                        before May 15, 1955,
                          [``(ii) property acquired by it in a 
                        distribution in which gain to such 
                        corporation with respect to the receipt 
                        of such property was not recognized by 
                        reason of subsection (a) or (b) of 
                        section 1101, and
                          [``(iii) property acquired by it in 
                        exchange for all of its stock in an 
                        exchange described in section 1101 (c) 
                        (2) or (3).
                  [``(B) A bank holding company shall not be a 
                qualified bank holding corporation by reason of 
                property described in subparagraph (B) of 
                paragraph (1) or clause (ii) of subparagraph 
                (A) of this paragraph, unless such property was 
                acquired in a distribution with respect to 
                stock, which stock was acquired by such bank 
                holding company--
                          [``(i) on or before May 15, 1955,
                          [``(ii) in a distribution (with 
                        respect to stock held by it on May 15, 
                        1955, or with respect to stock in 
                        respect of which all previous 
                        applications of this clause are 
                        satisfied) with respect to which gain 
                        to it was not recognized by reason of 
                        subsection (a) or (b) of section 1101, 
                        or
                          [``(iii) in exchange for all of its 
                        stock in an exchange described in 
                        section 1101 (c) (2) or (3).
                  [``(C) A corporation shall be treated as a 
                qualified bank holding corporation only if the 
                Board certifies that it satisfies the foregoing 
                requirements of this subsection.
    [``(c) Prohibited Property.--For purposes of this part, the 
term `prohibited property' means, in the case of any bank 
holding company, property (other than nonexempt property) the 
disposition of which would be necessary or appropriate to 
effectuate section 4 of the Bank Holding Company Act of 1956 if 
such company continued to be a bank holding company beyond the 
period (including any extensions thereof) specified in 
subsection (a) of such section or in section 1101 (e) (2) (B) 
of this part, as the case may be. The term `prohibited 
property' does not include shares of any company held by a bank 
holding company to the extent that the prohibitions of section 
4 of the Bank Holding Company Act of 1956 do not apply to the 
ownership by such bank holding company of such property by 
reason of subsection (c) (5) of such section.
    [``(d) Nonexempt Property.--For purposes of this part, the 
term `nonexempt property' means--
          [``(1) obligations (including notes, drafts, bills of 
        exchange, and bankers' acceptances) having a maturity 
        at the time of issuance of not exceeding 24 months, 
        exclusive of days of grace;
          [``(2) securities issued by or guaranteed as to 
        principal or interest by a government or subdivision 
        thereof or by any instrumentality of a government or 
        subdivision; or
          [``(3) money, and the right to receive money not 
        evidenced by a security or obligation (other than a 
        security or obligation described in paragraph (1) or 
        (2)).
    [``(e) Board.--For purposes of this part, the term `Board' 
means the Board of Governors of the Federal Reserve System.''
    [(b) The table of parts for subchapter O of chapter 1 of 
the Internal Revenue Code of 1954 is amended by adding at the 
end thereof the following:

[``Part VIII. Distributions pursuant to Bank Holding Company Act of 
          1956.''

    [(c) The amendments made by this section shall apply with 
respect to taxable years ending after the date of the enactment 
of this Act.]
SEC. 10. SECURITIES ACTIVITIES.

  (a) Activities Permissible for Securities Affiliates.--
          (1) In general.--A securities affiliate may engage in 
        1 or more of the following activities:
                  (A) Underwrite, deal in, broker, place, or 
                distribute securities of any type, provide 
                investment advice regarding securities of any 
                type, and engage in other securities activities 
                as determined by the Board.
                  (B) Sponsor, organize, control, manage, and 
                act as investment adviser to an investment 
                company.
                  (C) Engage in, or acquire the shares of a 
                company engaged in, any activity if--
                          (i) a provision of section 4(c) 
                        permits financial services holding 
                        companies generally to engage in that 
                        activity or acquire those shares; and
                          (ii) either--
                                  (I) the Board permits the 
                                financial services holding 
                                company to engage in that 
                                activity or acquire those 
                                shares through the securities 
                                affiliate; or
                                  (II) a provision of section 
                                4(c) permits the financial 
                                services holding company to 
                                engage in such activity or 
                                acquire such shares without the 
                                Board's approval.
          (2) Factor to be considered.--In making 
        determinations pursuant to this section, the Board 
        shall take into account the need for securities firms 
        affiliated with banks to be innovative and competitive.
  (b) Acquiring Interest in Securities Affiliate.--
          (1) Notice required.--A financial services holding 
        company shall not, without complying with and receiving 
        approval pursuant to the notice procedure in section 
        4(j)(1), directly or indirectly acquire or retain more 
        than 5 percent of the voting shares of, or all or 
        substantially all of the assets of, a securities 
        affiliate (or a company that would be a securities 
        affiliate if the Board permitted the financial services 
        holding company to acquire that company).
          (2) Criteria for approval.--The Board shall 
        disapprove a notice required under paragraph (1) unless 
        the Board determines that the requirements of the 
        following subparagraphs have been met:
                  (A) Capital.--
                          (i) Depository institutions.--
                                  (I) The lead depository 
                                institution of the financial 
                                services holding company is 
                                well capitalized.
                                  (II) Well capitalized 
                                depository institutions control 
                                at least 80 percent of the 
                                aggregate total risk-weighted 
                                assets of depository 
                                institutions controlled by the 
                                financial services holding 
                                company.
                                  (III) All depository 
                                institutions controlled by the 
                                financial services holding 
                                company are well capitalized or 
                                adequately capitalized.
                          (ii) Recently acquired depository 
                        institutions.--Depository institutions 
                        acquired by a financial services 
                        holding company during the 12-month 
                        period preceding the submission of a 
                        notice under paragraph (1) may be 
                        excluded for purposes of clause (i)(II) 
                        if--
                                  (I) the financial services 
                                holding company has submitted a 
                                plan to the appropriate Federal 
                                banking agency to restore the 
                                capital of the institution and 
                                the plan has been accepted by 
                                such agency; and
                                  (II) all such institutions 
                                that are excluded for the 
                                purposes of clause (i)(II) 
                                represent, in the aggregate, 
                                less than 25 percent of the 
                                aggregate total risk-weighted 
                                assets of all depository 
                                institutions controlled by the 
                                financial services holding 
                                company.
                          (iii) Financial services holding 
                        company.--The financial services 
                        holding company is (and immediately 
                        after the acquisition of a securities 
                        affiliate would continue to be) 
                        adequately capitalized under the 
                        capital standards applicable, if any, 
                        to such financial services holding 
                        company.
                          (iv) Foreign banks and companies.--
                        For purposes of applying this 
                        subsection and other provisions of this 
                        section, the Board shall establish and 
                        apply comparable capital standards for 
                        the acquisition, retention, and 
                        operation of a securities affiliate in 
                        the United States by 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 a foreign bank, giving due regard 
                        to the principle of national treatment 
                        and equality of competitive 
                        opportunity.
                  (B) Alternative capital treatment for well 
                capitalized financial services holding 
                companies.--
                          (i) In general.--A financial services 
                        holding company and the depository 
                        institution subsidiaries of such 
                        company shall be deemed to have met the 
                        capital requirements set forth in 
                        subparagraph (A) if--
                                  (I) the holding company files 
                                a written notice with the Board 
                                of such company's election to 
                                meet such capital requirements 
                                in the manner provided in this 
                                subparagraph;
                                  (II) all depository 
                                institutions controlled by the 
                                financial services holding 
                                company are at least adequately 
                                capitalized; and
                                  (III) the financial services 
                                holding company is (and 
                                immediately after the 
                                acquisition of a securities 
                                affiliate would continue to be) 
                                well capitalized.
                          (ii) Losses incurred by fdic.--A 
                        financial services holding company 
                        which makes an election under clause 
                        (i) in connection with the acquisition 
                        of control of any securities affiliate 
                        shall be liable for any loss incurred 
                        by the Federal Deposit Insurance 
                        Corporation, or any loss which the 
                        Federal Deposit Insurance Corporation 
                        reasonably anticipates incurring in 
                        connection with--
                                  (I) the default of any 
                                insured depository institution 
                                controlled by the financial 
                                services holding company; or
                                  (II) any assistance provided 
                                by the Corporation to any 
                                insured depository institution 
                                in danger of default that is 
                                controlled by the financial 
                                services holding company.
                  (C) Managerial resources.--
                          (i) In general.--The financial 
                        services holding company and each 
                        depository institution subsidiary of 
                        such company--
                                  (I) are well managed; and
                                  (II) were well managed during 
                                the 12-month period preceding 
                                the acquisition of a securities 
                                affiliate (but for purposes of 
                                this subparagraph the Board may 
                                disregard any depository 
                                institution acquired by the 
                                financial services holding 
                                company during that period).
                          (ii) Securities activities.--The 
                        financial services holding company has 
                        the managerial resources to conduct the 
                        proposed securities activities safely 
                        and soundly.
                  (D) Internal controls.--The financial 
                services holding company has established 
                adequate policies and procedures to manage 
                financial and operational risks, to provide 
                reasonable assurance of compliance with this 
                section and other applicable laws, and to 
                provide reasonable assurance of maintenance of 
                corporate separateness within the financial 
                services holding company.
                  (E) No detrimental effect on financial 
                services holding company or its subsidiary 
                depository institutions.--The acquisition of a 
                securities affiliate would not adversely affect 
                the safety and soundness of--
                          (i) the financial services holding 
                        company; or
                          (ii) any depository institution 
                        subsidiary of the financial services 
                        holding company.
                  (F) Concentration of resources.--The 
                acquisition of a securities affiliate would not 
                result in an undue concentration of resources 
                in the financial services business.
                  (G) Responsiveness to community needs.--The 
                lead insured depository institution subsidiary 
                of the financial services holding company and 
                insured depository institutions controlling at 
                least 80 percent of the aggregate total risk-
                weighted assets of insured depository 
                institutions controlled by the financial 
                services holding company have achieved a 
                ``satisfactory record of meeting community 
                credit needs'', or better, during the most 
                recent examination of such insured depository 
                institutions.
          (3) Limited notice procedures for proposals by well 
        capitalized and well managed companies to acquire 
        additional securities affiliates.--A financial services 
        holding company may, without providing the notice 
        required under paragraph (1), directly or indirectly 
        acquire the shares or substantially all of the assets 
        of any company that is engaged in activities described 
        in subparagraph (A) or (B) of subsection (a)(1), if--
                  (A) the financial services holding company 
                previously received the Board's approval under 
                paragraph (1) to control a securities affiliate 
                and continues to control the securities 
                affiliate pursuant to that approval;
                  (B) the acquisition proposal qualifies under 
                section 4(j)(4);
                  (C) the financial services holding company 
                provides the written notification required in 
                section 4(j)(5); and
                  (D) the acquisition would not result in an 
                undue concentration of resources in the 
                financial services business.
  (c) Additional Investment in Securities Affiliate.--
          (1) Prior notice required.--A financial services 
        holding company that has acquired control of a 
        securities affiliate under this section shall not, 
        directly or indirectly, make any additional investment 
        in the securities affiliate that is considered capital 
        for purposes of any capital requirement imposed on the 
        securities affiliate under the Securities Exchange Act 
        of 1934 (other than an extension of credit under a 
        revolving credit agreement approved by the Board), 
        unless the financial services holding company gives the 
        Board prior written notice of the proposed investment 
        and the Board--
                  (A) issues a written statement of the Board's 
                intent not to disapprove the notice; or
                  (B) does not disapprove the notice within 30 
                days after the notice is filed.
          (2) No prior notice required for certain financial 
        services holding companies.--
                  (A) In general.--A financial services holding 
                company shall not be required to provide prior 
                notice under paragraph (1) if after making any 
                investment described in paragraph (1)--
                          (i) the financial services holding 
                        company would be adequately capitalized 
                        under the capital standards applicable, 
                        if any, to such financial services 
                        holding company and each of the 
                        financial services holding company's 
                        subsidiary depository institutions 
                        would be well capitalized; and
                          (ii) the financial services holding 
                        company and each of its subsidiary 
                        depository institutions are well 
                        managed (but for purposes of this 
                        clause the Board may disregard any 
                        depository institution acquired by the 
                        financial services holding company 
                        during the previous 12-month period).
                  (B) Subsequent notice.--A financial services 
                holding company that makes an investment 
                pursuant to subparagraph (A) shall provide 
                written notice to the Board of the additional 
                investment within 10 days after making the 
                investment.
          (3) Criteria for disapproving notice.--The Board may 
        disapprove a notice filed under paragraph (1) if--
                  (A) any depository institution affiliate of 
                the securities affiliate is undercapitalized; 
                or
                  (B) the Board determines that the financial 
                services holding company would be 
                undercapitalized under the capital standards 
                applicable, if any, to such financial services 
                holding company after making the investment or 
                that the investment would otherwise be unsafe 
                or unsound.
          (4) Emergency approval.--Notwithstanding any 
        provision of this subsection, in the event of adverse 
        market conditions, or concerns regarding the financial 
        or operational condition of the securities affiliate, 
        the Board may approve any additional investment in the 
        securities affiliate on an emergency basis if such 
        additional investment does not adversely affect the 
        safety and soundness of all insured depository 
        institution affiliates of such securities affiliate and 
        does not diminish the ability of the financial services 
        holding company to maintain an appropriate amount of 
        capital in all such insured depository institutions.
  (d) Provisions Applicable if Affiliated Depository 
Institution Ceases To Be Well Capitalized.--
          (1) Holding company action required if affiliated 
        institutions are not well capitalized.--
                  (A) Applicability.--This paragraph shall 
                apply if--
                          (i) the lead depository institution 
                        of the financial services holding 
                        company is not well capitalized, or
                          (ii) well capitalized depository 
                        institutions do not control at least 80 
                        percent of the aggregate total risk-
                        weighted assets of depository 
                        institutions affiliated with the 
                        securities affiliate.
                  (B) Capital maintenance agreement.--Within 30 
                days after subparagraph (A) becomes applicable 
                with respect to any financial services holding 
                company, such company shall execute an 
                agreement with the Board--
                          (i) to meet the capital requirements 
                        of subparagraph (A) within a reasonable 
                        period of time; or
                          (ii) to divest control of the 
                        depository institution in an orderly 
                        manner within 180 days, or within such 
                        additional period of time as the Board 
                        may determine is reasonably required in 
                        order to effect such divestiture.
                  (C) Restrictions on certain securities 
                activities.--If a financial services holding 
                company fails to meet the requirements of, or 
                comply with the agreement executed pursuant to, 
                subparagraph (B), a securities affiliate of 
                such financial services holding company shall 
                not, beginning 180 days after subparagraph (A) 
                becomes applicable with respect to such 
                company, agree to underwrite or deal in, any 
                securities other than--
                          (i) securities expressly authorized 
                        by section 5136 of the Revised Statutes 
                        of the United States as permissible for 
                        a national bank to underwrite or deal 
                        in;
                          (ii) securities backed by or 
                        representing interests in notes, 
                        drafts, acceptances, loans, leases, 
                        receivables, other obligations, or 
                        pools of any such obligations; or
                          (iii) securities issued by an open-
                        end investment company registered under 
                        the Investment Company Act of 1940.
                  (D) Exception.--The Board may permit the 
                securities affiliate of a financial services 
                holding company described in subparagraph (C) 
                to underwrite or deal in securities not 
                described in clauses (i) through (iii) of such 
                subparagraph for a period of 1 year from the 
                date on which subparagraph (A) first becomes 
                applicable with respect to such company, if--
                          (i) the financial services holding 
                        company submits a capital restoration 
                        plan to the Board specifying the steps 
                        the financial services holding company 
                        will take to meet the requirements of 
                        subsection (b)(2)(A), and containing 
                        such other information as the Board may 
                        require; and
                          (ii) the Board approves the plan.
                  (E) Extension of period.--
                          (i) In general.--Upon application by 
                        a financial services holding company, 
                        the Board may extend, for not more than 
                        1 year at a time, the period provided 
                        in subparagraph (C).
                          (ii) Maximum extension.--No extension 
                        under clause (i) of the period provided 
                        in subparagraph (C) shall, in the 
                        aggregate, exceed 2 years.
          (2) Divestiture of securities affiliate.--
                  (A) In general.--A financial services holding 
                company shall divest itself of the securities 
                affiliate if any of the financial services 
                holding company's subsidiary depository 
                institutions has been undercapitalized for more 
                than 6 months.
                  (B) Extending time.--The Board may provide 
                additional time, not exceeding 18 months, for a 
                divestiture under subparagraph (A) if--
                          (i) the appropriate Federal banking 
                        agency or, in the case of a foreign 
                        bank or company that owns or controls a 
                        foreign bank, the Board, has approved 
                        the undercapitalized institution's 
                        capital restoration plan; and
                          (ii) the Board determines that the 
                        securities affiliate poses no 
                        significant risk to any affiliated 
                        depository institution.
  (e) Securities Affiliate Excluded in Determining Whether 
Financial Services Holding Company Is Adequately Capitalized.--
          (1) In general.--In determining whether a financial 
        services holding company is adequately capitalized--
                  (A) the financial services holding company's 
                capital and total assets shall each be reduced 
                by--
                          (i) an amount equal to the amount of 
                        the financial services holding 
                        company's equity investment in any 
                        securities affiliate; and
                          (ii) an amount equal to the amount of 
                        any extensions of credit by the 
                        financial services holding company to 
                        any securities affiliate that are 
                        considered capital for purposes of any 
                        capital requirement imposed on the 
                        securities affiliate under section 
                        15(c)(3) of the Securities Exchange Act 
                        of 1934; and
                  (B) the securities affiliate's assets and 
                liabilities shall not be consolidated with 
                those of the financial services holding 
                company.
          (2) Exception for nonsecurities activities.--
        Paragraph (1) shall not apply to the extent that the 
        Board determines by regulation or order that--
                  (A) an item described in such paragraph 
                relates to activities which are not described 
                in subparagraph (A) or (B) of subsection 
                (a)(1); or
                  (B) another method of adjusting capital is 
                more appropriate to ensure the safety and 
                soundness of depository institutions.
  (f) Safeguards.--Each financial services holding company and 
each subsidiary of any such company shall comply with all 
applicable safeguard requirements of section 11.
  (g) Activities Not Permissible for Depository Institutions.--
          (1) In general.--A financial services holding company 
        that acquires control of a securities affiliate shall 
        not, after the end of the 1-year period beginning on 
        the date of such acquisition, permit any depository 
        institution, or any subsidiary of any depository 
        institution, which is controlled by such holding 
        company--
                  (A) to engage, directly or indirectly, in the 
                United States--
                          (i) in underwriting securities backed 
                        by or representing interests in notes, 
                        drafts, acceptances, loans, leases, 
                        receivables, other obligations, or 
                        pools of any such obligations 
                        originated or purchased by the 
                        institution or its affiliates, other 
                        than--
                                  (I) securities backed by or 
                                representing an interest in 1--
                                4 family residential mortgages 
                                originated or purchased by the 
                                depository institution or any 
                                affiliate or subsidiary of the 
                                institution; or
                                  (II) securities backed by or 
                                representing an interest in 
                                consumer receivables or 
                                consumer leases originated or 
                                purchased by the depository 
                                institution or any affiliate or 
                                subsidiary of the institution; 
                                or
                          (ii) in underwriting or dealing in 
                        any other securities, except securities 
                        expressly authorized by section 5136 of 
                        the Revised Statutes of the United 
                        States as permissible for a national 
                        bank to underwrite or deal in; or
                  (B) to make an equity investment in any 
                securities affiliate.
          (2) Exception for certain edge act and agreement 
        corporations.--The limitations in paragraph (1)(A) 
        shall not apply with respect to activities conducted by 
        a subsidiary of a financial services holding company 
        which is held pursuant to section 25 or 25A of the 
        Federal Reserve Act or section 4(c)(13) of this Act.
          (3) Rule of construction.--No provision of this 
        subsection shall be construed as permitting a 
        securities affiliate to accept deposits in 
        contravention of section 21 of the Banking Act of 1933.
  (h) Approval of Securities Activities Under Section 4(c)(8) 
Restricted.--The Board shall deny any notice or application by 
a financial services holding company under authority of section 
4(c)(8) to engage in, or acquire the shares of a company 
engaged in, underwriting or dealing in securities in the United 
States, other than securities expressly authorized by section 
5136 of the Revised Statutes of the United States as 
permissible for a national bank to underwrite or deal in.
  (i) Bankers' Banks.--
          (1) In general.--For purposes of this section, each 
        shareholder of or participant in a company that 
        controls a depository institution described in section 
        5169(b)(1) of the Revised Statutes of the United States 
        or in a similar statute of any State, and each 
        subsidiary of such a shareholder or participant, shall 
        be treated as if such shareholder, participant, or 
        subsidiary were a subsidiary of that company.
          (2) Exception.--This subsection shall not apply with 
        respect to a shareholder or participant in a company 
        described in subparagraph (A) (or any subsidiary of 
        such shareholder or participant) if the shareholder or 
        participant, and the affiliates of any such shareholder 
        or participant, do not, in the aggregate, control more 
        than 5 percent of any class of voting shares of such 
        company.
  (j) Shares Acquired in Connection With Underwriting and 
Investment Banking Activities.--
          (1) In general.--Notwithstanding section 4(a), a 
        financial services holding company may directly or 
        indirectly acquire or control, 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 financial services 
        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 activities not authorized pursuant 
        to section 4 if--
                  (A) the shares, assets, or ownership 
                interests are not acquired or held by a 
                depository institution or a subsidiary of a 
                depository institution;
                  (B) such shares, assets, or ownership 
                interests are acquired and held by a securities 
                affiliate or an affiliate of a securities 
                affiliate as part of a bona fide underwriting 
                or investment banking activity, which includes 
                investment activities engaged in for the 
                purpose of appreciation and ultimate resale or 
                other disposition of the investment, and such 
                shares, assets, or ownership interests are held 
                for such a period of time as will permit the 
                sale or disposition thereof on a reasonable 
                basis consistent with the nature of such 
                activities; and
                  (C) during the period such shares, assets, or 
                ownership interests are held, the financial 
                services holding company does not actively 
                manage or operate the company or entity except 
                insofar as necessary to achieve the objectives 
                of subparagraph (B).
          (2) No expansion of underwriting activities.--No 
        provision of this subsection shall be construed as 
        authorizing any financial services holding company, or 
        any subsidiary of any such company, to underwrite or 
        deal in any security.
  (k) Definitions.--For purposes of this section and sections 
11 and 12, the following definitions shall apply:
          (1) Capital stock and surplus.--The term ``capital 
        stock and surplus'' has the same meaning as in section 
        23A of the Federal Reserve Act.
          (2) Covered transaction.--The term ``covered 
        transaction'' has the same meaning as in section 23A of 
        the Federal Reserve Act.
          (3) Security.--
                  (A) In general.--The term ``security'' has 
                the meaning given to such term in section 
                3(a)(10) of the Securities Exchange Act of 
                1934.
                  (B) Exceptions.--For purposes of this 
                section, other than subsection (a), the term 
                ``security'' does not include any of the 
                following:
                          (i) A contract of insurance.
                          (ii) A deposit account, savings 
                        account, certificate of deposit, or 
                        other deposit instrument issued by a 
                        depository institution.
                          (iii) A share account issued by a 
                        savings association if the account is 
                        insured by the Federal Deposit 
                        Insurance Corporation.
                          (iv) A banker's acceptance.
                          (v) A letter of credit issued by a 
                        depository institution.
                          (vi) A debit account at a depository 
                        institution arising from a credit card 
                        or similar arrangement.
                          (vii) A loan or loan participation 
                        (as determined by the Board).
                  (C) Board's authority to exempt traditional 
                banking products.--The Board may, by regulation 
                or order and after consultation with and 
                consideration of the views of the Securities 
                and Exchange Commission, exempt a banking 
                product from the definition of security if the 
                Board determines that--
                          (i) the product is more appropriately 
                        regulated as a banking product; and
                          (ii) the exemption is otherwise 
                        consistent with the purposes of this 
                        section.
                  (D) Definition for limited purpose.--The fact 
                that a particular instrument is excluded 
                pursuant to subparagraph (B) or (C) from the 
                definition of security for purposes of this 
                section shall not be construed as finding or 
                implying that such instrument is or is not a 
                security for purposes of Federal securities 
                laws.

SEC. 11. SAFEGUARDS RELATING TO SECURITIES AFFILIATES.

  (a) Extensions of Credit and Asset Purchases Restricted.--
          (1) In general.--No depository institution affiliated 
        with a securities affiliate shall, directly or 
        indirectly, do any of the following:
                  (A) Extend credit in any manner to the 
                securities affiliate.
                  (B) Issue a guarantee, acceptance, or letter 
                of credit, including an endorsement or a 
                standby letter of credit, for the benefit of 
                the securities affiliate.
                  (C) Except as provided in paragraph (3), 
                purchase for its own account, or for the 
                account of any subsidiary of such institution, 
                financial assets of the securities affiliate.
          (2) Exception for clearing securities.--Paragraph 
        (1)(A) shall not apply with respect to an extension of 
        credit by a well capitalized depository institution to 
        acquire or sell securities if the following conditions 
        are met:
                  (A) The extension of credit is incidental to 
                clearing transactions in those securities 
                through that depository institution.
                  (B) Both the principal of and the interest on 
                the extension of credit are fully secured by 
                those securities.
                  (C) Either--
                          (i) the extension of credit is to be 
                        repaid before the close of business on 
                        the same business day; or
                          (ii) all of the following conditions 
                        are satisfied:
                                  (I) The securities cannot, in 
                                the ordinary course of 
                                business, be cleared on that 
                                business day.
                                  (II) The extension of credit 
                                is to be repaid before the 
                                close of business on the next 
                                business day.
                                  (III) Extensions of credit 
                                subject to this clause, when 
                                aggregated with all other 
                                covered transactions between 
                                the institution and all 
                                affiliated securities 
                                affiliates do not exceed 10 
                                percent of the institution's 
                                capital stock and surplus.
                  (D) Either--
                          (i) the securities are securities 
                        expressly authorized by section 5136 of 
                        the Revised Statutes of the United 
                        States as permissible for a national 
                        bank to underwrite or deal in; or
                          (ii) the Board permits transactions 
                        under this paragraph in securities not 
                        described in clause (i) and the 
                        securities affiliate provides the 
                        depository institution with such 
                        additional security or other assurance 
                        of performance, if any, as the Board 
                        shall require to prevent such 
                        transactions from posing any 
                        appreciable risk to the institution.
          (3) Exceptions for certain securities purchased for a 
        depository institution's own account.--Paragraph (1)(C) 
        shall not apply with respect to purchases at the 
        current market value (based on reliable and regularly 
        available price quotations) of--
                  (A) securities expressly authorized by 
                section 5136 of the Revised Statutes of the 
                United States as permissible for a national 
                bank to underwrite or deal in; or
                  (B) securities that--
                          (i) the securities affiliate has been 
                        marking to market daily; and
                          (ii) are rated investment grade by at 
                        least 1 nationally recognized 
                        statistical rating organization.
          (4) Other exceptions.--The Board may make exceptions 
        to paragraph (1) for well capitalized depository 
        institutions if--
                  (A) the transaction is fully secured in 
                accordance with section 23A(c) of the Federal 
                Reserve Act; and
                  (B) the aggregate amount of covered 
                transactions between the institution and all 
                securities affiliates of the financial services 
                holding company, excluding transactions 
                permitted under paragraph (2)(C)(i) or (3)(A), 
                does not exceed 10 percent of the institution's 
                capital stock and surplus.
  (b) Credit Enhancement Restricted.--
          (1) In general.--No depository institution affiliated 
        with a securities affiliate shall, directly or 
        indirectly, extend credit, or issue or enter into a 
        standby letter of credit, asset purchase agreement, 
        indemnity, guarantee, insurance, or other facility, for 
        the purpose of enhancing the marketability of a 
        securities issue underwritten by the securities 
        affiliate.
          (2) Definition of term by board.--The Board shall 
        prescribe a definition for the term ``for the purpose 
        of enhancing the marketability of a securities issue'' 
        for purposes of paragraph (1).
          (3) Exception for bank eligible securities.--
        Paragraph (1) shall not apply with regard to securities 
        expressly authorized by section 5136 of the Revised 
        Statutes of the United States as permissible for a 
        national bank to underwrite or deal in.
          (4) Application to well capitalized depository 
        institutions.--
                  (A) In general.--A well capitalized 
                depository institution may engage in a 
                transaction described in paragraph (1) if--
                          (i) the depository institution has 
                        adopted appropriate limits on exposure 
                        on a consolidated basis to any single 
                        customer whose securities are 
                        underwritten by the securities 
                        affiliate; and
                          (ii) the institution and its 
                        securities affiliate have adopted 
                        appropriate procedures, including 
                        maintenance of necessary documentary 
                        records, to assure that any such 
                        extension of credit, standby letter of 
                        credit, asset purchase agreement, 
                        indemnity, guarantee, insurance or 
                        other facility, is on an arm's length 
                        basis.
                  (B) Arm's length transaction described.--An 
                extension of credit may be considered to be on 
                an arm's length basis if the terms and 
                conditions are substantially the same as those 
                prevailing at the time for comparable 
                transactions involving securities that are not 
                underwritten by the securities affiliate.
                  (C) Compliance with paragraph (1).--The Board 
                may require, by regulation or order, compliance 
                with paragraph (1) by well capitalized 
                depository institutions exempt under this 
                paragraph in order to achieve any purpose 
                specified in subsection (l).
  (c) Prohibition on Financing Purchase of Security Being 
Underwritten.--
          (1) In general.--No financial services holding 
        company or subsidiary of a financial services holding 
        company (other than a securities affiliate) shall 
        knowingly extend or arrange for the extension of 
        credit, directly or indirectly, secured by or for the 
        purpose of purchasing any security while, or for 30 
        days after, that security is the subject of a 
        distribution in which a securities affiliate of that 
        financial services holding company participates as an 
        underwriter or a member of a selling group.
          (2) Reliance on acknowledgement.--For purposes of 
        paragraph (1), a financial services holding company or 
        subsidiary may rely on an express written 
        acknowledgement signed by the borrower that the credit 
        is not secured by or for the purpose of purchasing a 
        security described in this subparagraph.
          (3) Application to bank eligible securities.--
        Paragraph (1) shall not apply with regard to extensions 
        of credit if the securities are securities expressly 
        authorized by section 5136 of the Revised Statutes of 
        the United States as permissible for a national bank to 
        underwrite or deal in.
          (4) Application to well capitalized depository 
        institutions.--The Board may make exceptions, by 
        regulation or order, to paragraph (1) for an extension 
        of credit, after consultation with and considering the 
        views of the Securities and Exchange Commission, if--
                  (A) the financial services holding company is 
                adequately capitalized;
                  (B) the financial services holding company's 
                lead depository institution is well 
                capitalized;
                  (C) well capitalized depository institutions 
                control at least 80 percent of the assets of 
                depository institutions controlled by the 
                financial services holding company; and
                  (D) all depository institutions controlled by 
                the financial services holding company are well 
                capitalized or adequately capitalized.
          (5) Consistency with the federal securities laws.--No 
        provision of this subsection shall be construed as 
        permitting a securities affiliate to extend or maintain 
        credit, or arrange for an extension of credit, except 
        in compliance with applicable provisions of the 
        Securities Exchange Act of 1934 and the regulations 
        prescribed and interpretations issued under such Act.
  (d) Restriction on Extending Credit To Make Payments on 
Securities.--
          (1) In general.--No depository institution affiliated 
        with a securities affiliate shall, directly or 
        indirectly, extend credit to an issuer of securities 
        underwritten by the securities affiliate for the 
        purpose of paying the principal of those securities or 
        interest or dividends on those securities.
          (2) Exceptions for certain extensions of credit.--
        Paragraph (1) shall not apply to an extension of credit 
        for a documented purpose (other than paying principal, 
        interest, or dividends) if the timing, maturity, and 
        other terms of the credit, taken as a whole, are 
        substantially different from those of the underwritten 
        securities.
          (3) Exceptions for bank eligible securities.--
        Paragraph (1) shall not apply with respect to any 
        security expressly authorized by section 5136 of the 
        Revised Statutes of the United States as permissible 
        for a national bank to underwrite or deal in.
          (4) Application to well capitalized depository 
        institutions.--
                  (A) In general.--Paragraph (1) shall not 
                apply with respect to well capitalized 
                depository institutions if--
                          (i) the depository institution has 
                        adopted appropriate limits on exposure 
                        on a consolidated basis to any single 
                        customer whose securities are 
                        underwritten by the securities 
                        affiliate; and
                          (ii) the depository institution has 
                        adopted appropriate procedures, 
                        including maintenance of necessary 
                        documentary records, to assure that any 
                        extension of credit by the depository 
                        institution to an issuer for the 
                        purpose of paying the principal, 
                        interest or dividends on securities 
                        underwritten by the securities 
                        affiliate is on an arm's length basis.
                  (B) Arm's length transaction described.--An 
                extension of credit may be considered to have 
                been made on an arm's length basis if the terms 
                and conditions are substantially the same as 
                those prevailing at the time for comparable 
                transactions with issuers whose securities are 
                not underwritten by the securities affiliate.
                  (C) Compliance with subparagraph (a).--The 
                Board may require, by regulation or order, 
                compliance with paragraph (1) by well 
                capitalized depository institutions exempt 
                under this paragraph in order to achieve any 
                purpose specified in subsection (l).
  (e) Common Directors and Senior Executive Officers.--
          (1) In general.--The Board shall, by regulation or 
        order, prescribe the circumstances under which 
        directors and senior executive officers of a securities 
        affiliate may serve at the same time as directors or 
        senior executive officers of any affiliated depository 
        institutions.
          (2) Standards.--The Board, in issuing any regulation 
        or order pursuant to paragraph (1), shall consider 
        appropriate factors including--
                  (A) any burdens imposed by restrictions on 
                director and senior executive officer 
                interlocks;
                  (B) the safety and soundness of depository 
                institutions and securities affiliates;
                  (C) unfair competition in securities 
                activities;
                  (D) improper exchange of customer 
                information; or
                  (E) harm to customers of securities 
                affiliates or depository institutions that 
                could reasonably result from director and 
                senior officer interlocks.
          (3) Exception for small financial services holding 
        companies.--
                  (A) In general.--Notwithstanding paragraph 
                (1), a director or senior executive officer of 
                a securities affiliate may serve at the same 
                time as a director or senior executive officer 
                of an affiliated depository institution if that 
                institution and all affiliated depository 
                institutions have, in the aggregate, total 
                assets of not more than $500,000,000.
                  (B) Inflation adjustment.--The dollar 
                limitation contained in subparagraph (A) shall 
                be adjusted annually after December 31, 1995, 
                by the annual percentage increase in the 
                Consumer Price Index for Urban Wage Earners and 
                Clerical Workers published by the Bureau of 
                Labor Statistics.
          (4) Exception for certain regulation k affiliates.--
        Paragraph (1) shall not prohibit a director or senior 
        executive officer of a securities affiliate from 
        serving at the same time as a director or senior 
        executive officer of a depository institution which--
                  (A) is organized under section 25 or 25A of 
                the Federal Reserve Act;
                  (B) is an affiliate of such securities 
                affiliate; and
                  (C) principally engages in business outside 
                the United States.
  (f) Disclosure Required by Securities Affiliate.--
          (1) In general.--At the time a securities account is 
        opened, a securities affiliate shall conspicuously 
        disclose in writing to each of its customers that--
                  (A) securities sold, offered, or recommended 
                by the securities affiliate--
                          (i) are not deposits;
                          (ii) are not insured by the Federal 
                        Deposit Insurance Corporation;
                          (iii) are not guaranteed by an 
                        affiliated insured depository 
                        institution;
                          (iv) are not otherwise an obligation 
                        of an insured depository institution 
                        (unless such is the case); and
                          (v) with regard to any product that 
                        includes any investment component, are 
                        subject to investment risks including 
                        possible loss of principal invested;
                  (B) the securities affiliate is not an 
                insured depository institution, and is a 
                corporation separate from any insured 
                depository institution; and
                  (C) the securities affiliate may be 
                underwriting or dealing in the securities being 
                sold, offered or recommended, and if so, would 
                have a financial interest in the transaction.
          (2) Form of disclosure.--The disclosures required by 
        paragraph (1) shall be made in clear and concise 
        language that--
                  (A) is readily comprehensible to customers of 
                the securities affiliate, and
                  (B) is designed to promote customer 
                understanding that uninsured investment 
                products are not deposits insured by the 
                Federal Deposit Insurance Corporation.
          (3) Board authority.--Subject to paragraph (2), the 
        Board may, in the Board's discretion, prescribe 
        disclosures in addition to the disclosures prescribed 
        by paragraph (1).
  (g) Disclosure Required by Insured Depository Institutions.--
          (1) In general.--No insured depository institution 
        shall knowingly express any opinion on the value of, or 
        the advisability of purchasing or selling, nonbanking 
        products (as defined by the Board) sold by the insured 
        depository institution or any affiliate of an insured 
        depository institution unless the insured depository 
        institution conspicuously discloses in writing to the 
        customer that--
                  (A) the insured depository institution or 
                affiliate (whichever is applicable) is selling 
                the nonbanking product and has a financial 
                interest in the transaction (if such is the 
                case);
                  (B) the nonbanking products--
                          (i) are not deposits;
                          (ii) are not insured by the Federal 
                        Deposit Insurance Corporation;
                          (iii) are not guaranteed by the 
                        institution or any other affiliated 
                        insured depository institution;
                          (iv) are not otherwise an obligation 
                        of an insured depository institution 
                        (unless such is the case); and
                          (v) with regard to any nonbanking 
                        product that includes any investment 
                        component, are subject to investment 
                        risks including possible loss of 
                        principal invested; and
                  (C) an affiliate, if involved, is not an 
                insured depository institution (unless such is 
                the case), and is a corporation separate from 
                any insured depository institution (unless such 
                is not the case).
          (2) Form of disclosure.--The disclosures required by 
        paragraph (1) shall be made in clear and concise 
        language that--
                  (A) is readily comprehensible to customers of 
                the insured depository institution, and
                  (B) is designed to promote customer 
                understanding that nonbanking products are not 
                deposits insured by the Federal Deposit 
                Insurance Corporation.
          (3) Customer acknowledgement of disclosure.--
                  (A) In general.--Whenever any insured 
                depository institution or securities affiliate 
                opens an account for the purpose of selling a 
                nondeposit investment product or products to a 
                customer, such insured depository institution 
                or securities affiliate as the case may be, 
                shall obtain a 1-time acknowledgment of receipt 
                by the customer of such disclosures, including 
                the date of receipt with the customer's name, 
                address, and the account number.
                  (B) Special rule for accredited investors.--
                In the case of any customer who is, or meets 
                the requirements for, an accredited investor 
                (as defined in section 2(15) of the Securities 
                Act of 1933), the acknowledgment of the receipt 
                of any disclosure described in subparagraph (A) 
                may be obtained by the insured depository 
                institution or securities affiliate at the time 
                any account is opened by such customer.
          (4) Board authority.--Subject to paragraph (2), the 
        Board, after consultation with the other appropriate 
        Federal banking agencies, may prescribe disclosures in 
        addition to the disclosures required by paragraph (1).
  (h) Improper Disclosure of Confidential Customer Information 
Prohibited.--
          (1) In general.--No depository institution subsidiary 
        of a financial services holding company shall disclose 
        to any affiliate of such institution which is not a 
        depository institution, and no affiliate of such 
        company which is not a depository institution shall 
        disclose to any other affiliate which is a depository 
        institution or a subsidiary of such an institution, any 
        nonpublic customer information (including an evaluation 
        of the creditworthiness of an issuer or other customer 
        of that institution or securities affiliate), unless it 
        is clearly and conspicuously disclosed that such 
        information may be communicated among such persons and 
        the customer is given the opportunity, before the time 
        that the information is initially communicated, to 
        direct that such information not be communicated among 
        such persons.
          (2) Definition.--For purposes of paragraph (1), the 
        term ``nonpublic customer information'' does not 
        include--
                  (A) customers' names and addresses (unless a 
                customer has specified otherwise);
                  (B) information that could be obtained from 
                unaffiliated credit bureaus or similar 
                companies in the ordinary course of business; 
                or
                  (C) information that is customarily provided 
                to unaffiliated credit bureaus or similar 
                companies in the ordinary course of business 
                by--
                          (i) depository institutions not 
                        affiliated with securities affiliates; 
                        or
                          (ii) brokers and dealers not 
                        affiliated with depository 
                        institutions.
  (i) Underwriting Securities Representing Obligations 
Originated by Affiliate Restricted.--A securities affiliate 
shall not underwrite securities secured by or representing an 
interest in mortgages or other obligations originated or 
purchased by an affiliated depository institution or subsidiary 
of such an institution--
          (1) unless those securities--
                  (A) are rated by at least 1 unaffiliated, 
                nationally recognized statistical rating 
                organization;
                  (B) are issued or guaranteed by the Federal 
                Home Loan Mortgage Corporation, the Federal 
                National Mortgage Association, or the 
                Government National Mortgage Association; or
                  (C) represent interests in securities 
                described in subparagraph (B); or
          (2) except as permitted by the Board.
  (j) Reciprocal Arrangements Prohibited.--No financial 
services holding company and no subsidiary of a financial 
services holding company may enter into any agreement, 
understanding, or other arrangement under which--
          (1) 1 financial services holding company (or 
        subsidiary of that financial services holding company) 
        agrees to engage in a transaction with, or on behalf 
        of, another financial services holding company (or 
        subsidiary of that financial services holding company), 
        in exchange for
          (2) the agreement of the second financial services 
        holding company referred to in paragraph (1) (or a 
        subsidiary of that financial services holding company) 
        to engage in any transaction with, or on behalf of, the 
        first financial services holding company referred to in 
        such paragraph (or any subsidiary of that financial 
        services holding company), for the purpose of evading 
        any requirement or restriction of Federal law on 
        transactions between, or for the benefit of, affiliates 
        of financial services holding companies.
  (k) Safeguards Apply to Certain Subsidiaries.--Except as 
provided in this section--
          (1) Securities affiliate.--No subsidiary of a 
        securities affiliate may do anything that this section 
        prohibits the securities affiliate from doing.
          (2) Depository institution.--No subsidiary of a 
        depository institution may do anything that this 
        subsection prohibits the institution from doing.
  (l) Authority To Modify and Impose Additional Safeguards; 
Interpretive Authority.--
          (1) In general.--The Board may, by regulation or 
        order--
                  (A) adopt additional limitations, 
                restrictions or conditions on relationships or 
                transactions among depository institutions, 
                their affiliates, and their customers; and
                  (B) make any modification to any limitation, 
                restriction, or condition imposed under this 
                section on relationships or transactions among 
                depository institutions, the affiliates of 
                insured depository institutions, and the 
                customers of such institutions or affiliates, 
                including modifications in addition to those 
                expressly provided for in this section.
          (2) Standards.--The Board may not exercise authority 
        under paragraph (1) unless the Board finds that such 
        action is consistent with the purposes of this Act, 
        including--
                  (A) the avoidance of any significant risk to 
                the safety and soundness of depository 
                institutions or the Federal deposit insurance 
                funds;
                  (B) the enhancement of the financial 
                stability of financial services holding 
                companies;
                  (C) the prevention of the subsidization of 
                securities affiliates by depository 
                institutions;
                  (D) the avoidance of conflicts of interest or 
                other abuses; and
                  (E) the application of the principle of 
                national treatment and equality of competitive 
                opportunity between securities affiliates owned 
                or controlled by domestic financial services 
                holding companies and securities affiliates 
                owned or controlled by foreign banks operating 
                in the United States.
          (3) Biennial review.--Beginning 2 years after the 
        date of enactment of the Financial Services 
        Competitiveness Act of 1995, the Board shall, on a 
        biennial basis--
                  (A) review all restrictions established 
                pursuant to paragraph (1) to determine whether 
                any such restrictions are required any longer 
                to carry out the purposes of this Act; and
                  (B) modify or eliminate any such restriction 
                that the Board determines is no longer required 
                to carry out the purposes of this Act.
  (m) Compliance Programs Required.--
          (1) In general.--Each appropriate Federal banking and 
        agency the Securities and Exchange Commission shall 
        establish a program for--
                  (A) sharing information concerning compliance 
                with subtitle A of title I or subtitle A or B 
                of title II of the Financial Services 
                Competitiveness Act of 1995, and the amendments 
                made by such subtitles, by--
                          (i) brokers, dealers, investment 
                        advisers, or investment companies that 
                        are registered with the Securities and 
                        Exchange Commission that are affiliated 
                        with depository institutions, or are 
                        separately identifiable departments or 
                        divisions of depository institutions 
                        registered as brokers, dealers, or 
                        investment advisers; and
                          (ii) depository institutions and 
                        their affiliates;
                  (B) enforcing compliance with subtitle A of 
                title I of the Financial Services 
                Competitiveness Act of 1995, and the amendments 
                made by such subtitle and paragraphs (4) and 
                (5) of section 3(a) of the Securities Exchange 
                Act of 1934 by entities under its supervision; 
                and
                  (C) responding to any complaints from 
                customers about inappropriate cross-marketing 
                of securities products or inadequate 
                disclosure.
          (2) Data collection.--
                  (A) In general.--The appropriate Federal 
                banking agencies, after consultation with and 
                consideration of the views of the Securities 
                and Exchange Commission, may require any 
                depository institution that has effected 
                securities transactions pursuant to any 
                exception enumerated in paragraphs (4) and (5) 
                of section 3(a) of the Securities Exchange Act 
                of 1934 to identify the exceptions relied upon 
                and to submit such information necessary to 
                monitor compliance under such paragraphs.
                  (B) Commission access.--The appropriate 
                Federal banking agency shall make any 
                information referred to in subparagraph (A) 
                available to the Securities and Exchange 
                Commission, upon the request of the Commission.
                  (C) Compliance.--In implementing the 
                provisions of this paragraph, the appropriate 
                Federal banking agencies shall ensure that any 
                information requests to depository institutions 
                take into account the size and activities of 
                the institutions and do not cause undue 
                reporting burdens.
          (3) Commission's enforcement authority.--Without 
        limiting in any way the authority of the appropriate 
        Federal banking agencies under this section, the 
        Securities and Exchange Commission shall have the 
        authority to enforce any subsection of this section 
        against a securities affiliate as if such subsection 
        were a provision of the Securities Exchange Act of 1934 
        to the extent that the subsection applies with respect 
        to the conduct or activities of the securities 
        affiliate.
          (4) Examination reports.--The appropriate Federal 
        banking agencies shall, to the extent practicable, use 
        the reports of examination of any broker, dealer, 
        investment adviser, or investment company made by or on 
        behalf of the Securities and Exchange Commission and 
        reports made by or on behalf of a registered securities 
        association or national securities exchange, and shall 
        defer to such examinations for compliance with the 
        Federal securities laws.
          (5) Interpretations of the federal securities laws.--
        The appropriate Federal banking agencies shall defer to 
        the Securities and Exchange Commission regarding all 
        interpretations and enforcement of the Federal 
        securities laws relating to the application of the 
        Federal securities laws to the activities and conduct 
        of brokers, dealers, investment advisers, and 
        investment companies.
          (6) Notice of certain actions by sec.--The Securities 
        and Exchange Commission shall give notice to the 
        appropriate Federal banking agency upon the 
        commencement of any disciplinary or law enforcement 
        proceedings by the Commission and a copy of any order 
        entered by the Commission against--
                  (A) any broker, dealer, or investment adviser 
                that--
                          (i) is registered with the Securities 
                        and Exchange Commission; and
                          (ii) is affiliated with, or is a 
                        separately identifiable department or 
                        division of, a depository institution;
                  (B) any investment company registered with 
                the Securities and Exchange Commission that is 
                an affiliate of or is advised by an investment 
                adviser affiliated with a depository 
                institution or by a separately identifiable 
                department or division of a depository 
                institution that is a registered investment 
                adviser; or
                  (C) any financial services holding company, 
                depository institution, or subsidiary of such 
                company or institution, if the proposed action 
                relates to subtitle A of title I or subtitle A 
                or B of title II of the Financial Services 
                Competitiveness Act of 1995.
          (7) Notice of certain actions by appropriate federal 
        banking agencies.--Upon the commencement of any 
        disciplinary or law enforcement proceedings to enforce 
        the provisions of subtitle A of title I of the 
        Financial Services Competitiveness Act of 1995, or any 
        amendment made by such subtitle, by an appropriate 
        Federal banking agency against any broker, dealer, 
        investment adviser, or investment company that is 
        registered under the Federal securities laws and is 
        affiliated with a depository institution or is a 
        separately identifiable department or division of a 
        depository institution, the appropriate Federal banking 
        agency shall give notice to the Securities and Exchange 
        Commission of the proposed action.
          (8) Immediate action allowed before notice.--The 
        notice required under paragraph (6) or (7) may be 
        provided promptly after action by the Securities and 
        Exchange Commission or the appropriate Federal banking 
        agency, if--
                  (A) the Commission determines that the 
                protection of investors requires immediate 
                action by the Commission and prior notice under 
                paragraph (6) is not practical under the 
                circumstances; or
                  (B) the appropriate Federal banking agency 
                determines that concerns for the safety and 
                soundness of a depository institution or its 
                affiliate require immediate action by the 
                agency and prior notice under paragraph (7) is 
                not practical under the circumstances.
          (9) Coordinated enforcement actions.--The Securities 
        and Exchange Commission and the appropriate Federal 
        banking agencies shall, to the extent practicable, 
        coordinate supervisory actions based on applicable law 
        where the actions are based on the same or related 
        events or practices.
          (10) Investment companies not affiliated with a 
        depository institution.--The appropriate Federal 
        banking agency shall not have authority under this Act 
        or any other provision of law to inspect or examine any 
        investment company registered under the Federal 
        securities laws that is not--
                  (A) affiliated with a depository institution; 
                or
                  (B) advised by an investment adviser 
                affiliated with a depository institution or by 
                a separately identifiable department or 
                division of a depository institution that is a 
                registered investment adviser.
          (11) Definition.--For purposes of this subsection, 
        the term ``Federal securities laws'' means the 
        provisions of Federal law governing securities 
        activities that are within the jurisdiction of the 
        Securities and Exchange Commission under the Securities 
        Act of 1933, the Securities Exchange Act of 1934, the 
        Investment Company Act of 1940, the Investment Advisers 
        Act of 1940, and the Trust Indenture Act of 1939.
  (n) Foreign Bank Firewalls.--
          (1) In general.--A foreign bank that operates a 
        branch, agency, or commercial lending company in the 
        United States and accepts no deposits in the United 
        States, either directly or through an affiliate, that 
        are insured under the Federal Deposit Insurance Act, 
        and any affiliate of such foreign bank, shall not be 
        subject to the restrictions of any subsection of this 
        section, other than subsections (l) and (m), if the 
        conditions described in paragraph (2) are met.
          (2) Conditions for applicability of exception.--The 
        conditions of this paragraph have been met with respect 
        to any foreign bank referred to in paragraph (1) if--
                  (A) transactions between a securities 
                affiliate of such foreign bank and any branch, 
                agency or commercial lending company operated 
                in the United States by such foreign bank 
                comply with the provisions of sections 23A and 
                23B of the Federal Reserve Act as if the 
                foreign bank were a member bank; and
                  (B) such foreign bank has received a 
                determination from the Board that the bank 
                meets capital standards comparable to those 
                established by the Board for well capitalized 
                financial services holding companies, giving 
                due regard to the principle of national 
                treatment and equality of competitive 
                opportunity, subject to any changes the Board 
                may adopt with respect to such standards.
          (3) Applicability of subsection (l) to foreign 
        banks.--Any limitation, restriction, condition, or 
        modification adopted by the Board under subsection (l) 
        may be applied by the Board to--
                  (A) a foreign bank described in paragraph (1) 
                (and any company that owns or controls such 
                foreign bank);
                  (B) any branch, agency or commercial lending 
                company operated by such foreign bank in the 
                United States; or
                  (C) any other affiliate of such foreign bank 
                in the United States,
        if such limitation, restriction, condition, or 
        modification is applied by regulation or order of 
        general applicability under section 12(a)(2)(B)(ii) to 
        wholesale financial institutions and securities 
        affiliates controlled by investment bank holding 
        companies, subject to such modifications, conditions, 
        or exemptions as the Board deems appropriate, giving 
        due regard to the principle of national treatment and 
        equality of competitive opportunity.

SEC. 12. INVESTMENT BANK HOLDING COMPANIES.

  (a) Permissible Affiliations for Investment Bank Holding 
Companies.--
          (1) Financial activities.--
                  (A) Activities authorized.--An investment 
                bank holding company may directly or indirectly 
                own or control shares of any company engaged in 
                any activity the Board has determined to be 
                financial in nature or incidental to a 
                financial activity (other than activities 
                expressly limited under subsection (c)(8)), or 
                any activity in compliance with subparagraph 
                (B) or (C).
                  (B) Incidental activities.--
                          (i) In general.--Notwithstanding 
                        subparagraph (A), the aggregate 
                        investment by an investment bank 
                        holding company in shares of companies 
                        that engage in nonfinancial activities 
                        and financial activities (other than 
                        those otherwise permitted under this 
                        section) shall not at any time exceed 
                        7.5 percent (or such greater percentage 
                        as the Board may determine to be 
                        appropriate) of the consolidated total 
                        risk-weighted assets of the investment 
                        bank holding company (excluding assets 
                        of companies held pursuant to this 
                        subparagraph), except that the amount 
                        invested by the investment bank holding 
                        company in any 1 company (including all 
                        affiliates of such company other than 
                        preexisting affiliates of such 
                        investment bank holding company) may 
                        not exceed the amount which is equal to 
                        25 percent of the total capital and 
                        surplus of such investment bank holding 
                        company.
                          (ii) Applicability to successor in 
                        interest.--Any successor to any 
                        investment bank holding company 
                        referred to in clause (i) may retain 
                        any investments made pursuant to this 
                        subparagraph--
                                  (I) during the 5-year period 
                                beginning on the date the 
                                succession is consummated; and
                                  (II) with the consent of the 
                                Board, for an additional period 
                                not to exceed 5 years after the 
                                5-year period referred to in 
                                subclause (I),
                        unless the Board determines that the 
                        retention of such investment would 
                        jeopardize the safety and soundness of 
                        any insured depository institution 
                        affiliate of such successor.
                          (iii) Cross marketing restrictions.--
                        A wholesale financial institution shall 
                        not--
                                  (I) offer or market, directly 
                                or through any arrangement, any 
                                product or service of an 
                                affiliate whose shares are 
                                owned or controlled by the 
                                investment bank holding company 
                                pursuant to this subparagraph 
                                or subparagraph (C); or
                                  (II) permit any of such 
                                wholesale financial 
                                institution's or subsidiary's 
                                products or services to be 
                                offered or marketed, directly 
                                or through any arrangement, by 
                                or through any such affiliate.
                          (iv) Use of common name.--An 
                        investment bank holding company shall 
                        not permit a wholesale financial 
                        institution to adopt a name which is 
                        the same as or similar to, or a 
                        variation of, the name or title of an 
                        affiliate engaged in activities 
                        pursuant to subparagraph (B).
                  (C) Commodities.--
                          (i) In general.--An investment bank 
                        holding company predominantly engaged 
                        as of January 1, 1995, in securities 
                        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, 
                        1995, provided such investment bank 
                        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, 1995, in the United 
                        States.
                          (ii) Limitation.--Notwithstanding 
                        subparagraphs (A) and (B), the 
                        aggregate investment by an investment 
                        bank holding company in activities 
                        under this subparagraph (other than 
                        those otherwise permitted under this 
                        section) shall not at any time exceed 5 
                        percent of the total consolidated 
                        assets of the investment bank holding 
                        company.
                          (iii) Successor defined.--For 
                        purposes of this subparagraph and 
                        subparagraph (B), the term 
                        ``successor'' means, with respect to 
                        any investment bank holding company 
                        described in clause (i), any company 
                        that merges with, or acquires control 
                        of, such investment bank holding 
                        company.
                  (D) Qualified investor in an investment bank 
                holding company.--
                          (i) In general.--Notwithstanding any 
                        other provision of Federal or State 
                        law, a qualified investor--
                                  (I) shall not be, or be 
                                deemed to be, an investment 
                                bank holding company, a 
                                financial services holding 
                                company, a bank holding 
                                company, or any similar 
                                organization; and
                                  (II) shall not be deemed to 
                                control any such company or 
                                organization or any subsidiary 
                                of any such company or 
                                organization (other than for 
                                purposes of section 23A and 23B 
                                of the Federal Reserve Act),
                        by virtue of the investor's ownership 
                        or control of shares of an investment 
                        bank holding company.
                          (ii) Qualified investor defined.--For 
                        purposes of this subparagraph, the term 
                        ``qualified investor'' means any United 
                        States company (including a parent 
                        company and all subsidiaries of which 
                        the parent company holds at least 80 
                        percent of the total voting equity 
                        securities) which since February 27, 
                        1995, has directly or indirectly owned 
                        or controlled shares of capital stock 
                        representing at least 10 percent, and 
                        not more than 45 percent, of the 
                        outstanding voting shares or voting 
                        power of a company that--
                                  (I) becomes an investment 
                                bank holding company or a 
                                subsidiary of an investment 
                                bank holding company; and
                                  (II) before such company 
                                became an investment bank 
                                holding company or a subsidiary 
                                of an investment bank holding 
                                company, had more than 50 
                                percent of the company's assets 
                                employed directly or indirectly 
                                in securities activities.
                          (iii) Cross-marketing and common 
                        name.--A wholesale financial 
                        institution shall not--
                                  (I) offer or market products 
                                or services of a qualified 
                                investor in the investment bank 
                                holding company of which the 
                                wholesale financial institution 
                                is an affiliate;
                                  (II) permit the institution's 
                                products or services to be 
                                offered or marketed in 
                                connection with products or 
                                services of such qualified 
                                investor; or
                                  (III) adopt a name which is 
                                the same as or similar to, or a 
                                variation of, the name or title 
                                of such qualified investor.
                          (iv) Examination and reporting.--
                        Notwithstanding any other provision of 
                        law, the Board may conduct examinations 
                        of, or require reports from, a 
                        qualified investor only to the extent 
                        that the Board reasonably determines 
                        that such examinations or reports are 
                        necessary--
                                  (I) to ensure compliance with 
                                this subparagraph; or
                                  (II) to the extent that the 
                                qualified investor is an 
                                affiliate of a wholesale 
                                financial institution for 
                                purposes of section 23A of the 
                                Federal Reserve Act, to ensure 
                                compliance with restrictions 
                                imposed by law or regulation on 
                                transactions between the 
                                qualified investor and such 
                                wholesale financial 
                                institution.
                  (E) Special rule.--An investment bank holding 
                company that owns and controls shares of a 
                company pursuant to subparagraph (B) or (C) may 
                not own or control shares of a company pursuant 
                to section 4(k).
                  (F) Consolidated total risk-weighted 
                assets.--For purposes of this paragraph, the 
                following definitions shall apply:
                          (i) In general.--The term 
                        ``consolidated total risk-weighted 
                        assets'' shall have the meaning given 
                        to such term in regulations prescribed 
                        by the Board as in effect on the date 
                        of the enactment of the Financial 
                        Services Competitive Act of 1995.
                          (ii) Application to foreign banks.--
                        In the case of a foreign bank or a 
                        company that owns or controls a foreign 
                        bank, the term ``consolidated total 
                        risk-weighted assets'' means total 
                        risk-weighted assets held by the 
                        foreign bank or company in the United 
                        States in any United States branch, 
                        agency, or commercial lending company 
                        subsidiary, any depository institution 
                        controlled by the foreign bank or 
                        company, any subsidiary held under the 
                        authority of this section, section 3, 
                        4, or 10 (other than paragraph (9) or 
                        (13) of section 4(c)), or section 25 or 
                        25A of the Federal Reserve Act.
          (2) Securities activities.--
                  (A) Institutions must be well capitalized.--
                The Board shall disapprove a notice under 
                section 10 by an investment bank holding 
                company (or a company seeking to become an 
                investment bank holding company) to acquire a 
                securities affiliate if any wholesale financial 
                institution controlled by the investment bank 
                holding company is not well capitalized or 
                would not be well capitalized following the 
                transaction.
                  (B) Transactions with affiliates.--
                          (i) In general.--A wholesale 
                        financial institution controlled by an 
                        investment bank holding company shall 
                        be treated as a bank for purposes of 
                        the provisions of sections 23A and 23B 
                        of the Federal Reserve Act.
                          (ii) Other restrictions regarding 
                        securities affiliates determined by the 
                        board.--A securities affiliate of an 
                        investment bank holding company, and a 
                        wholesale financial institution 
                        controlled by an investment bank 
                        holding company, shall not be subject 
                        to the provisions of section 11, except 
                        that the securities affiliate and 
                        wholesale financial institution shall 
                        be subject to subsections (l) and (m) 
                        of such section in the same manner and 
                        to the same extent such paragraphs 
                        would apply if the wholesale financial 
                        institution were an insured depository 
                        institution.
          (3) Limitation on affiliation with insured depository 
        institutions.--An investment bank holding company may 
        not, directly or indirectly, own or control--
                  (A) any bank, other than a wholesale 
                financial institution;
                  (B) any savings association;
                  (C) any institution described in section 
                2(c)(2) (other than subparagraphs (C) and (G) 
                of such section); or
                  (D) any institution that accepts--
                          (i) initial deposits of $100,000 or 
                        less, other than on an incidental or 
                        occasional basis, or
                          (ii) deposits that are insured under 
                        the Federal Deposit Insurance Act.
          (4) No deposit insurance fund liability.--No Federal 
        deposit insurance funds may be used in connection with 
        the failure of, or any proposed assistance to, a 
        wholesale financial institution or an investment bank 
        holding company.
          (5) Capital of ibhc.--
                  (A) In general.--The Board shall not impose 
                any capital requirement on investment bank 
                holding companies or subsidiaries of such 
                companies (other than depository institutions) 
                unless any such requirement is based upon 
                appropriate risk-weighing considerations.
                  (B) Applicable accounting principles.--In 
                applying any capital standard to investment 
                bank holding companies, or subsidiaries of such 
                companies, the Board shall utilize uniform 
                accounting principles consistent with generally 
                accepted accounting principles in accordance 
                with section 37(a)(2) of the Federal Deposit 
                Insurance Act.
  (b) Qualification of Foreign Bank as Investment Bank Holding 
Company.--
          (1) In general.--Any foreign bank that--
                  (A) operates a branch, agency or commercial 
                lending company in the United States (and any 
                company that owns or controls such foreign 
                bank), including a foreign bank that does not 
                own or control a wholesale financial 
                institution; and
                  (B) controls 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 an investment bank 
        holding company.
          (2) Conditions for treatment as an investment bank 
        holding company.--A foreign bank and a company that 
        owns or controls a foreign bank may not be treated as 
        an investment bank 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 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) Transactions 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 (a)(1)(B), 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 bank.--Any foreign bank 
        which is, or is affiliated with a company which is, 
        treated as an investment bank holding company under 
        this subsection shall be treated as a wholesale 
        financial institution for purposes of clauses (iii) and 
        (iv) of subsection (a)(1)(B), subsection (a)(2)(B)(ii), 
        and section 5(g), 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 an investment bank 
        holding company under this subsection shall not be 
        eligible for any exemption described in section 2(h).
  (c) Eligibility of Foreign Banks for Certain Treatment.--
          (1) Reciprocal national treatment.--
                  (A) In general.--A foreign bank that operates 
                a branch, agency or commercial lending company 
                in the United States, and any company that owns 
                or controls such a foreign bank, shall be 
                eligible for the treatment afforded under 
                subsection (b) or section 11(n) only if the 
                home country of such foreign bank or company 
                accords to United States banks the same 
                competitive opportunities in banking as such 
                country accords to domestic banks of such 
                country.
                  (B) Coordination with nafta.--Subparagraph 
                (A) shall not apply in derogation of any 
                obligation under the North American Free Trade 
                Agreement.
                  (C) Home country defined.--For purposes of 
                subparagraph (A), the term ``home country'' 
                means, with respect to any foreign bank or 
                company referred to in subparagraph (A), the 
                country under the laws of which the foreign 
                bank or company is organized.
          (2) Prevention of evasion.--No foreign bank or bank 
        owned by a former United States national may operate a 
        branch or agency in the United State if the 
        predominance of the assets of such bank were acquired 
        in connection with a merger with, or purchase or 
        assumption of all or substantially all the assets of, a 
        wholesale financial institution.
  (d) Rule for Financial Services Holding Companies.--For 
purposes of section 5(g)(2)(A)(ii), any foreign bank (as 
defined in section 1(b) of the International Banking Act of 
1978) which is directly or indirectly owned, controlled, or 
operated by a company that--
          (1) as of January 1, 1995, was registered as a bank 
        holding company; or
          (2) is a successor to any such bank holding company, 
        shall be treated as a wholesale financial institution.
                            saving provision

  Sec. [11.] 13. (a) Nothing herein contained shall be 
interpreted or construed as approving any act, action, or 
conduct which is or has been or may be in violation of existing 
law, nor shall anything herein contained constitute a defense 
to any action, suit, or proceeding pending or hereafter 
instituted on account of any prohibited antitrust or 
monopolistic act, action, or conduct, except as specifically 
provided in this section.
  (b) Antitrust Review.--
          (1) In general.--The Board shall immediately notify 
        the Attorney General of any approval by it pursuant to 
        section 3 of a proposed acquisition, merger, or 
        consolidation transaction. If the Board has found that 
        it must act immediately in order to prevent the 
        probable failure of a bank or [bank holding company] 
        financial services holding company involved in any such 
        transaction, the transaction may be consummated 
        immediately upon approval by the Board. If the Board 
        has advised the Comptroller of the Currency or the 
        State supervisory authority, as the case may be, of the 
        existence of an emergency requiring expeditious action 
        and has required the submission of views and 
        recommendations within ten days, the transaction may 
        not be consummated before the fifth calendar day after 
        the date of approval by the Board. In all other cases, 
        the transaction may not be consummated before the 
        thirtieth calendar day after the date of approval by 
        the Board or, if the Board has not received any adverse 
        comment from the Attorney General of the United States 
        relating to competitive factors, such shorter period of 
        time as may be prescribed by the Board with the 
        concurrence of the Attorney General, but in no event 
        less than 15 calendar days after the date of approval. 
        Any action brought under the antitrust laws arising out 
        of an acquisition, merger, or consolidation transaction 
        approved under section 3 shall be commenced prior to 
        the earliest time under this subsection at which the 
        transaction approval under section 3 might be 
        consummated. The commencement of such an action shall 
        stay the effectiveness of the Board's approval unless 
        the court shall otherwise specifically order. In any 
        such action, the court shall review de novo the issues 
        presented. In any judicial proceeding attacking any 
        acquisition, merger, or consolidation transaction 
        approved pursuant to section 3 on the ground that such 
        transaction alone and of itself constituted a violation 
        of any antitrust laws other than section 2 of the Act 
        of July 2, 1890 (section 2 of the Sherman Antitrust 
        Act, 15 U.S.C. 2), the standards applied by the court 
        shall be identical with those that the Board is 
        directed to apply under section 3 of this Act. Upon the 
        consummation of an acquisition, merger, or 
        consolidation transaction approved under section 3 in 
        compliance with this Act and after the termination of 
        any antitrust litigation commenced within the period 
        prescribed in this section, or upon the termination of 
        such period if no such litigation is commenced therein, 
        the transaction may not thereafter be attacked in any 
        judicial proceeding on the ground that it alone and of 
        itself constituted a violation of any antitrust laws 
        other than section 2 of the Act of July 2, 1890 
        (section 2 of the Sherman Antitrust Act, 15 U.S.C. 2), 
        but nothing in this Act shall exempt any [bank holding 
        company] financial services holding company involved in 
        such a transaction from complying with the antitrust 
        laws after the consummation of such transaction.
          * * * * * * *

                       separability of provisions

  Sec. [12.] 14. If any provision of this Act, or the 
application of such provision to any person or circumstance, 
shall be held invalid, the remainder of the Act, and the 
application of such provision to persons or circumstances other 
than those to which it is held invalid, shall not be affected 
thereby.
                              ----------                              


                          FEDERAL RESERVE ACT

          * * * * * * *
SEC. 9B. WHOLESALE FINANCIAL INSTITUTIONS.

  (a) Application for Membership as Wholesale Financial 
Institution.--
          (1) Application required.--
                  (A) In general.--Any bank incorporated by 
                special law of any State, or organized under 
                the general laws of any State, may apply to the 
                Board of Governors of the Federal Reserve 
                System to become a wholesale financial 
                institution and to subscribe to the stock of 
                the Federal reserve bank organized within the 
                district where the applying bank is located.
                  (B) Treatment as state member bank.--Any 
                application under subparagraph (A) shall be 
                treated as an application to become a State 
                member bank under, and shall be subject to the 
                provisions of, section 9.
          (2) Insurance termination.--No bank that is 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 in accordance with 
                subsection (c);
                  (B) the provisions applicable to well 
                capitalized insured depository institutions 
                shall be inapplicable to wholesale financial 
                institutions;
                  (C) the provisions authorizing or requiring 
                an institution to be placed into receivership 
                shall not apply to a wholesale financial 
                institution, and, instead, the Board is 
                authorized or required, as the case may be, to 
                terminate the wholesale financial institution's 
                membership in the Federal Reserve System or 
                place the bank into conservatorship; and
                  (D) for purposes of applying the provisions 
                of section 38 of the Federal Deposit Insurance 
                Act to wholesale financial institutions, 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), (u), 
        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, for 
        purposes of this paragraph, to be 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 the provisions of 
        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.
  (c) Specific Requirements Applicable to Wholesale Financial 
Institutions.--
          (1) Limitations on deposits.--
                  (A) Minimum amount.--
                          (i) In general.--Pursuant to such 
                        regulations as the Board may prescribe, 
                        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 bank may be treated 
                        as a wholesale financial institution if 
                        the total amount of the initial 
                        deposits of $100,000 or less at such 
                        bank constitute more than 5 percent of 
                        the bank'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) Special capital requirements applicable to 
        wholesale financial institutions.--
                  (A) Minimum capital levels.--
                          (i) In general.--The Board shall, by 
                        regulation, adopt capital requirements 
                        for wholesale financial institutions--
                                  (I) 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
                                  (II) 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.
                          (ii) Minimum leverage ratio.--The 
                        minimum leverage ratio of tier one 
                        capital to total assets of wholesale 
                        financial institutions shall be not 
                        less than the level required for a 
                        State member insured bank to be well 
                        capitalized unless the Board determines 
                        otherwise, consistent with safety and 
                        soundness.
                  (B) Capital categories for prompt corrective 
                action.--For purposes of applying section 38 of 
                the Federal Deposit Insurance Act with respect 
                to any wholesale financial institution, the 
                Board shall, by regulation, establish, for each 
                relevant capital measure specified by the Board 
                under subparagraph (A), the levels at which a 
                wholesale financial institution is well 
                capitalized, adequately capitalized, 
                undercapitalized, significantly 
                undercapitalized, and critically 
                undercapitalized.
          (3) Additional requirements applicable to wholesale 
        financial institutions.--In addition to any requirement 
        otherwise applicable to State member banks or 
        applicable, under this section, to wholesale financial 
        institutions, the Board may prescribe, by regulation or 
        order, for wholesale financial institutions--
                  (A) limitations on transactions with 
                affiliates to prevent 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
                          (ii) 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 State 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; and
                  (B) the protection of creditors and other 
                persons, including Federal reserve banks, 
                engaged in transactions with the wholesale 
                financial institution.
          (5) 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 
        advances or discount under this Act to any member bank 
        or other depository institution.
  (d) 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.
  (e) Definitions.--For purposes of this section, the following 
definitions shall apply:
          (1) Wholesale financial institution.--The term 
        ``wholesale financial institution'' means a bank whose 
        application to become a wholesale financial institution 
        and a State member bank has been approved by the Board 
        under this section.
          (2) Deposit.--The term ``deposit'' has the meaning 
        given to such term by the Board under this Act.
          (3) State member insured bank.--The term ``State 
        member insured bank'' means a State member bank which 
        is an insured bank (as defined in section 3(h) of the 
        Federal Deposit Insurance Act).
  (f) Exclusive Jurisdiction.--Subsections (c) and (e) of 
section 43 of the Federal Deposit Insurance Act shall not apply 
to any wholesale financial institution.
          * * * * * * *
  Sec. 10B. (a) * * *
          * * * * * * *
  (c) Reports on Discounts and Advances to Wholesale Financial 
Institutions.--
          (1) In general.--The Board shall submit a report to 
        the Congress at the end of any year in which any 
        wholesale financial institution has obtained a 
        discount, advance, or other extension of credit from a 
        Federal reserve bank.
          (2) Contents.--Any report submitted under paragraph 
        (1) shall explain the circumstances and need for any 
        discount, advance, or other extension of credit to a 
        wholesale financial institution during the period 
        covered by the report, including the type and amount of 
        credit extended and the amount of credit remaining 
        outstanding as of the date of the report.
          * * * * * * *
  Sec. 19. (a) * * *
  (b) Reserve Requirements.--
          (1) Definitions.--The following definitions and rules 
        apply to this subsection, subsection (c), section 11A, 
        the first paragraph of section 13, and the second, 
        thirteenth, and fourteenth paragraphs of section 16:
                  (A) The term ``depository institution'' 
                means--
                          (i) any insured bank as defined in 
                        section 3 of the Federal Deposit 
                        Insurance Act or any bank which is 
                        eligible to make application to become 
                        an insured bank under section 5 of such 
                        Act, or any wholesale financial 
                        institution as defined in section 9B of 
                        this Act;
          * * * * * * *

              restrictions on transactions with affiliates

  Sec. 23B. (a) * * *
  (b) Prohibited Transactions.--
          (1) In general.--A member bank or its subsidiary--
                  (A) * * *
                  (B) whether acting as principal or fiduciary, 
                shall not knowingly purchase or otherwise 
                acquire, during the existence of any 
                underwriting or selling syndicate and for 30 
                days thereafter, any security if a principal 
                underwriter of that security is an affiliate of 
                such bank.
          * * * * * * *

       SECTION 1112 OF THE RIGHT TO FINANCIAL PRIVACY ACT OF 1978

                           use of information

    Sec. 1112. (a) * * *
          * * * * * * *
    (e) Notwithstanding section 1101(6) or any other provision 
of [this title] law, the exchange of financial records, 
examination reports, or other information with respect to a 
financial institution , holding company, or a subsidiary of a 
depository institution or holding company, among and between 
the five member supervisory agencies of the Federal Financial 
Institutions Examination Council and the Securities and 
Exchange Commission is permitted.
                              ----------                              


                     FEDERAL DEPOSIT INSURANCE ACT

          * * * * * * *
  Sec. 3. As used in this Act--
  (a) * * *
          * * * * * * *
  (q) Appropriate Federal Banking Agency.--The term 
``appropriate Federal banking agency'' means--
          (1) * * *
          (2) the Board of Governors of the Federal Reserve 
        System, in the case of--
                  [(A) any State member insured bank (except a 
                District bank),]
                  (A) any State member insured bank (except a 
                District bank) and wholesale financial 
                institution as authorized pursuant to section 
                9B of the Federal Reserve Act;
          * * * * * * *
  Sec. 8. (a) Termination of Insurance.--
          [(1) Voluntary termination.--Any insured depository 
        institution which is not--
                  [(A) a national member bank;
                  [(B) a State member bank;
                  [(C) a Federal branch;
                  [(D) a Federal savings association; or
                  [(E) an insured branch which is required to 
                be insured under subsection (a) or (b) of 
                section 6 of the International Banking Act of 
                1978,
        may terminate such depository institution's status as 
        an insured depository institution if such insured 
        institution provides written notice to the Corporation 
        of the institution's intent to terminate such status 
        not less than 90 days before the effective date of such 
        termination.
          [(2)] (1) Involuntary termination.--
                  (A) * * *
          * * * * * * *
          [(3)] (2) Hearing; termination.--If, on the basis of 
        the evidence presented at a hearing before the Board of 
        Directors (or any person designated by the Board for 
        such purpose), in which all issues shall be determined 
        on the record pursuant to section 554 of title 5, 
        United States Code, and the written findings of the 
        Board of Directors (or such person) with respect to 
        such evidence (which shall be conclusive), the Board of 
        Directors finds that any unsafe or unsound practice or 
        condition or any violation specified in the notice to 
        an insured depository institution under paragraph 
        (2)(B) or subsection (w) has been established, the 
        Board of Directors may issue an order terminating the 
        insured status of such depository institution effective 
        as of a date subsequent to such finding.
          [(4)] (3) Appearance; consent to termination.--Unless 
        the depository institution shall appear at the hearing 
        by a duly authorized representative, it shall be deemed 
        to have consented to the termination of its status as 
        an insured depository institution and termination of 
        such status thereupon may be ordered.
          [(5)] (4) Judicial review.--Any insured depository 
        institution whose insured status has been terminated by 
        order of the Board of Directors under this subsection 
        shall have the right of judicial review of such order 
        only to the same extent as provided for the review of 
        orders under subsection (h) of this section.
          [(6)] (5) Publication of notice of termination.--The 
        Corporation may publish notice of such termination and 
        the depository institution shall give notice of such 
        termination to each of its depositors at his last 
        address of record on the books of the depository 
        institution, in such manner and at such time as the 
        Board of Directors may find to be necessary and may 
        order for the protection of depositors.
          [(7)] (6) Temporary insurance of deposits insured as 
        of termination.--After the termination of the insured 
        status of any depository institution under the 
        provisions of this subsection, the insured deposits of 
        each depositor in the depository institution on the 
        date of such termination, less all subsequent 
        withdrawals from any deposits of such depositor, shall 
        continue for a period of at least 6 months or up to 2 
        years, within the discretion of the Board of Directors, 
        to be insured, and the depository institution shall 
        continue to pay to the Corporation assessments as in 
        the case of an insured depository institution during 
        such period. No additions to any such deposits and no 
        new deposits in such depository institution made after 
        the date of such termination shall be insured by the 
        Corporation, and the depository institution shall not 
        advertise or hold itself out as having insured deposits 
        unless in the same connection it shall also state with 
        equal prominence that such additions to deposits and 
        new deposits made after such date are not so insured. 
        Such depository institution shall, in all other 
        respects, be subject to the duties and obligations of 
        an insured depository institution for the period 
        referred to in the 1st sentence from the date of such 
        termination, and in the event that such depository 
        institution shall be closed on account of inability to 
        meet the demands of its depositors within such period, 
        the Corporation shall have the same powers and rights 
        with respect to such depository institution as in case 
        of an insured depository institution.
          [(8)] (7) Temporary suspension of insurance.--
                  (A) * * *
          * * * * * * *
          [(9)] (8) Final decisions to terminate insurance.--
        Any decision by the Board of Directors to--
                  (A) * * *
          * * * * * * *
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 approve 
                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;
          (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; or
          (3) any institution described in section 2(c)(2) of 
        the Bank Holding Company Act of 1956.
  (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 
under 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 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.
          * * * * * * *
  Sec. 18. (a) * * *
          * * * * * * *
  (s) Securities Affiliations of Banks.--
          (1) In general.--A bank shall not be an affiliate of 
        any company that, directly or indirectly, acts as an 
        underwriter or dealer of any security, other than--
                  (A) a securities affiliate in accordance with 
                section 10 of the Financial Services Holding 
                Company Act of 1995; or
                  (B) a company that underwrites or deals only 
                in securities described in section 10(g) of the 
                Financial Services Holding Company Act of 1995.
          (2) Exceptions.--
                  (A) Certain banks not included.--For purposes 
                of this subsection, the term ``bank'' does not 
                include--
                          (i) an insured bank described in 
                        subparagraph (D), (F), or (H) of 
                        section 2(c)(2) of the Financial 
                        Services Holding Company Act of 1995; 
                        and
                          (ii) a Federal branch or an insured 
                        branch (as defined in section 3 of the 
                        Federal Deposit Insurance Act).
                  (B) Affiliations with edge act and agreement 
                corporations.--Paragraph (1) shall not apply 
                with respect to the affiliation of a bank with 
                a company held pursuant to section 25 or 25A of 
                the Federal Reserve Act or section 4(c)(13) of 
                the Financial Services Holding Company Act of 
                1995.
          (3) Grandfather provision.--This subsection shall not 
        apply with respect to--
                  (A) an affiliation that existed on January 1, 
                1995; or
                  (B) any new affiliation by an insured bank 
                that has an affiliation that would be 
                prohibited if the affiliation were not covered 
                by subparagraph (A).
          (4) Definitions.--For purposes of this subsection, 
        the following definitions shall apply:
                  (A) Broker.--The term ``broker'' has the 
                meaning given to such term in section 3(a)(4) 
                of the Securities Exchange Act of 1934.
                  (B) Dealer.--The term ``dealer'' has the 
                meaning given to such term in section 3(a)(5) 
                of the Securities Exchange Act of 1934.
                  (C) Security.--The term ``security'' has the 
                meaning given to such term in section 10(k) of 
                the Financial Services Holding Company Act of 
                1995.
                  (D) Underwriter.--The term ``underwriter'' 
                has the meaning given to such term in section 
                2(11) of the Securities Act of 1933.
          (5) Affiliate.--For purposes of this subsection, a 
        separately identifiable department or division (as 
        defined in section 3(a) of the Securities Exchange Act 
        of 1934) of a bank shall be deemed to be a company 
        which is an affiliate of the bank.
  (t) Broker-Dealer Registration.--An insured bank may not use 
the United States mails or any means or instrumentality of 
interstate commerce to act as a broker or dealer without 
registration under the Securities Exchange Act of 1934--
          (1) except to the extent permitted under the 
        circumstances described in paragraph (4) or (5) of 
        section 3(a) of such Act; or
          (2) unless otherwise exempt from registrations as a 
        broker or dealer pursuant to regulations prescribed by 
        the Securities and Commission.
  (u) Examination Reports.--The Federal banking agencies shall, 
to the maximum extent practicable, use the reports of 
examination of any broker, dealer, investment adviser, or 
investment company made by or on behalf of the Securities and 
Exchange Commission and reports made by or on behalf of a 
registered securities association or national securities 
exchange and shall defer to such examination for compliance 
with Federal securities laws.
  (v) Joint Standards Relating to Retail Sales of Certain 
Nondeposit Investment Products.--
          (1) In general.--The appropriate Federal banking 
        agencies shall jointly prescribe, after consulting with 
        and considering the views of the Securities and 
        Exchange Commission, standards applicable to any 
        insured depository institution which--
                  (A) is not registered as a broker under the 
                Securities Exchange Act of 1934; and
                  (B) effects transactions in securities issued 
                by an investment company or annuities.
          (2) Scope of standards.--The standards required under 
        paragraph (1) with respect to securities and annuities 
        referred to in such paragraph shall, at a minimum, 
        establish requirements with respect to--
                  (A) sales practices;
                  (B) disclosures and advertising in connection 
                with transactions in such securities and 
                annuities, including--
                          (i) the content, form, and timing of 
                        any such disclosure; and
                          (ii) disclaimers concerning the 
                        noninsured status of the security or 
                        annuity;
                  (C) the compensation of sales personnel with 
                respect to referrals or transactions;
                  (D) the training of and qualifications for 
                personnel involved in such transactions, 
                including training in making an accurate 
                judgment about the suitability of a particular 
                investment product for a prospective customer; 
                and
                  (E) the setting in which and the 
                circumstances under which transactions may be 
                effected, and referrals made, by sales 
                personnel with respect to such securities and 
                annuities.
          * * * * * * *
                              ----------                              

           SECTION 8 OF THE INTERNATIONAL BANKING ACT OF 1978

                         nonbanking activities

  Sec. 8. (a) * * *
          * * * * * * *
  (c)(1) * * *
          * * * * * * *
          (3) Parity in conduct of authorized securities 
        activities.--
                  (A) In general.--Notwithstanding the 
                provisions of paragraph (1) or any other 
                provision of law, any authority conferred under 
                this subsection on any foreign bank or company 
                with respect to securities activities 
                authorized for financial services holding 
                companies in the United States shall terminate 
                30 days following approval by the Board of an 
                application by such foreign bank or company 
                under section 10 of the Financial Services 
                Holding Company Act of 1995.
                  (B) Authority to impose conditions.--If a 
                foreign bank or company that engages directly 
                or through an affiliate in any securities 
                activity pursuant to paragraph (1) has not 
                received approval by the Board under section 10 
                of the Financial Services Holding Company Act 
                of 1995 to control a securities affiliate by 
                the end of the 3-year period beginning on the 
                effective date of such Act, the Board may 
                impose such limitations and restrictions, 
                including the termination of any activities 
                conducted under paragraph (1) or a requirement 
                that such activities be conducted in compliance 
                with the safeguards of section 11 of such Act, 
                as the Board considers appropriate consistent 
                with the purposes of this Act and the Financial 
                Services Holding Company Act of 1995.
                              ----------                              

       SECTION 5136 OF THE REVISED STATUTES OF THE UNITED STATES

  Sec. 5136. Upon duly making and filing articles of 
association and an organization certificate, the association 
shall become, as from the date of the execution of its 
organization certificate, a body corporate, and as such, and in 
the name designated in the organization certificate, it shall 
have power--
  First. To adopt and use a corporate seal.
          * * * * * * *
  Seventh. To exercise by its board of directors or duly 
authorized officers or agents, subject to law, all such 
incidental powers as shall be necessary to carry on the 
business of banking; by discounting and negotiating promissory 
notes, drafts, bills of exchange, and other evidences of debt; 
by receiving deposits; by buying and selling exchange, coin, 
and bullion; by loaning money on personal security; and by 
obtaining, issuing, and circulating notes according to the 
provisions of this title. The business of dealing in securities 
and stock by the association shall be limited to purchasing and 
selling such securities and stock without recourse, solely upon 
the order, and for the account of, customers, and in no case 
for its own account, and the association shall not underwrite 
any issue of securities or stock: Provided, That the 
association may purchase for its own account investment 
securities under such limitations and restrictions as the 
Comptroller of the Currency may by regulation prescribe. In no 
event shall the total amount of the investment securities of 
any one obligor or maker, held by the association for its own 
account, exceed at any time 10 per centum of its capital stock 
actually paid in and unimpaired and 10 per centum of its 
unimpaired surplus fund, except that this limitation shall not 
require any association to dispose of any securities lawfully 
held by it on the date of enactment of the Banking Act of 1935. 
As used in this section the term ``investment securities'' 
shall mean marketable obligations evidencing indebtedness of 
any person, copartnership, association, or corporation in the 
form of bonds, notes and/or debentures commonly known as 
investment securities under such further definition of the term 
``investment securities'' as may by regulation be prescribed by 
the Comptroller of the Currency. Except as hereinafter provided 
or otherwise permitted by law, nothing herein contained shall 
authorize the purchase by the association for its own account 
of any shares of stock of any corporation. The limitations and 
restrictions herein contained as to dealing in, underwriting 
and purchasing for its own account, investment securities shall 
not apply to obligations of the United States, or general 
obligations of any State or of any political subdivision 
thereof, or obligations of the Washington Metropolitan Area 
Transit Authority which are guaranteed by the Secretary of 
Transportation under section 9 of the National Capital 
Transportation Act of 1969, or obligations issued under 
authority of the Federal Farm Loan Act, as amended, or issued 
by the thirteen banks for cooperatives or any of them or the 
Federal Home Loan Banks, or obligations which are insured by 
the Secretary of Housing and Urban Development under title XI 
of the National Housing Act, or obligations which are insured 
by the Secretary of Housing and Urban Development (hereafter in 
this sentence referred to as the ``Secretary'' pursuant to 
section 207 of the National Housing Act, if the debentures to 
be issued in payment of such insured obligations are guaranteed 
as to principal and interest by the United States, or 
obligations, participations, or other instruments of or issued 
by the Federal National Mortgage Association or the Government 
National Mortgage Association, or mortgages, obligations, or 
other securities which are or ever have been sold by the 
Federal Home Loan Mortgage Corporation pursuant to section 305 
or section 306 of the Federal Home Loan Mortgage Corporation 
Act or obligations of the Federal Financing Bank or obligations 
of the Environmental Financing Authority or obligations or 
other instruments or securities of the Student Loan Marketing 
Association, or such obligations of any local public agency (as 
defined in section 110 (h) of the Housing Act of 1949) as are 
secured by an agreement between the local public agency and the 
Secretary in which the local public agency agrees to borrow 
from said Secretary and said Secretary agrees to lend to said 
local public agency, monies in an aggregate amount which 
(together with any other monies irrevocably committed to the 
payment of interest on such obligations) will suffice to pay, 
when due, the interest on and all installments (including the 
final installment) of the principal of such obligations, which 
monies under the terms of said agreement are required to be 
used for such payments, or such obligations of a public housing 
agency (as defined in the United States Housing Act of 1937, as 
amended) as are secured (1) by an agreement between the public 
housing agency and the Secretary in which the public housing 
agency agrees to borrow from the Secretary and the Secretary 
agrees to lend to the public housing agency, prior to the 
maturity of such obligations, monies in an amount which 
(together with any other monies irrevocably committed to the 
payment of interest on such obligations) will suffice to pay 
the principal of such obligations with interest to maturity 
thereon, which monies under the terms of said agreement are 
required to be used for the purpose of paying the principal of 
and the interest on such obligations at their maturity, (2) by 
a pledge of annual contributions under an annual contributions 
contract between such public housing agency and the Secretary 
if such contract shall contain the covenant by the Secretary 
which is authorized by subsection (b) of section 22 of the 
United States Housing Act of 1937, as amended, and if the 
maximum sum and the maximum period specified in such contract 
pursuant to said subsection 22(b) shall not be less than the 
annual amount and the period for payment which are requisite to 
provide for the payment when due of all installments of 
principal and interest on such obligations, or (3) by a pledge 
or both annual contributions under an annual contributions 
contract containing the covenant by the Secretary which is 
authorized by section 6(g) of the United States Housing Act of 
1937, and a loan under an agreement between the local public 
housing agency and the Secretary in which the public housing 
agency agrees to borrow from the Secretary, and the Secretary 
agrees to lend to the public housing agency, prior to the 
maturity of the obligations involved, moneys in an amount which 
(together with any other moneys irrevocably committed under the 
annual contributions contract to the payment of principal and 
interest on such obligations) will suffice to provide for the 
payment when due of all installments of principal and interest 
on such obligations, which moneys under the terms of the 
agreement are required to be used for the purpose of paying the 
principal and interest on such obligations at their maturity: 
Provided, That in carrying on the business commonly known as 
the safe-deposit business the association shall not invest in 
the capital stock of a corporation organized under the law of 
any State to conduct a safe-deposit business in an amount in 
excess of 15 per centum of the capital stock of the association 
actually paid in and unimpaired and 15 per centum of its 
unimpaired surplus. The limitations and restrictions herein 
contained as to dealing in and underwriting investment 
securities shall not apply to obligations issued by the 
International Bank for Reconstruction and Development, the 
European Bank for Reconstruction and Development, the Inter-
American Development Bank, the Asian Development Bank, the 
African Development Bank, the Inter-American Investment 
Corporation, or the International Finance Corporation, or 
obligations issued by any State or political subdivision or any 
agency of a State or political subdivision for housing, 
university, or dormitory purposes, which are at the time 
eligible for purchase by a national bank for its own account, 
nor to bonds, notes and other obligations issued by the 
Tennessee Valley Authority or by the United States Postal 
Service: Provided, That no association shall hold obligations 
issued by any of said organizations as a result of 
underwriting, dealing, or purchasing for its own account (and 
for this purpose obligations as to which it is under commitment 
shall be deemed to be held by it) in a total amount exceeding 
at any one time 10 per centum of its capital stock actually 
paid in and unimpaired and 10 per centum of its unimpaired 
surplus fund. Notwithstanding any other provision in this 
paragraph, the association may purchase for its own account 
shares of stock issued by a corporation authorized to be 
created pursuant to title IX of the Housing and Urban 
Development Act of 1968, and may make investments in a 
partnership, limited partnership, or joint venture formed 
pursuant to section 907(a) or 907(c) of that Act. 
Notwithstanding any other provision of this paragraph, the 
association may purchase for its own account shares of stock 
issued by any State housing corporation incorporated in the 
State in which the association is located and may make 
investments in loans and commitments for loans to any such 
corporation: Provided, That in no event shall the total amount 
of such stock held for its own account and such investments in 
loans and commitments made by the association exceed at any 
time 5 per centum of its capital stock actually paid in and 
unimpaired plus 5 per centum of its unimpaired surplus fund. 
Notwithstanding any other provision in this paragraph, the 
association may purchase for its own account shares of stock 
issued by a corporation organized solely for the purpose of 
making loans to farmers and ranchers for agricultural purposes, 
including the breeding, raising, fattening, or marketing of 
livestock. However, unless the association owns at least 80 per 
centum of the stock of such agricultural credit corporation the 
amount invested by the association at any one time in the stock 
of such corporation shall not exceed 20 per centum of the 
unimpaired capital and surplus of the association: Provided 
further, That notwithstanding any other provision of this 
paragraph, the association may purchase for its own account 
shares of stock of a bank insured by the Federal Deposit 
Insurance Corporation or a holding company which owns or 
controls such an insured bank if the stock of such bank or 
company is owned exclusively (except to the extent directors' 
qualifying shares are required by law) by depository 
institutions or depository institution holding companies (as 
defined in section 3 of the Federal Deposit Insurance Act) and 
such bank or company and all subsidiaries thereof are engaged 
exclusively in providing services to or for other depository 
institutions, their holding companies, and the officers, 
directors, and employees of such institutions and companies, 
and in providing correspondent banking services at the request 
of other depository institutions or their holding companies 
(also referred to as a ``banker's bank''), but in no event 
shall the total amount of such stock held by the association in 
any bank or holding company exceed at any time 10 per centum of 
the associations capital stock and paid in and unimpaired 
surplus and in no event shall the purchase of such stock result 
in an association's acquiring more than 5 per centum of any 
class of voting securities of such bank or company. The 
limitations and restrictions contained in this paragraph as to 
an association purchasing for its own account investment 
securities shall not apply to securities that (A) are offered 
and sold pursuant to section 4(5) of the Securities Act of 1933 
(15 U.S.C. 77d(5)); (B) are small business related securities 
(as defined in section 3(a)(53) of the Securities Exchange Act 
of 1934); or (C) are mortgage related securities (as that term 
is defined in section 3(a)(41) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78c(a)(41)). The exception provided for the 
securities described in subparagraphs (A), (B), and (C) shall 
be subject to such regulations as the Comptroller of the 
Currency may prescribe, including regulations prescribing 
minimum size of the issue (at the time of initial distribution) 
or minimum aggregate sales prices, or both. A national banking 
association may deal in, underwrite, and purchase for such 
association's own account qualified Canadian government 
obligations to the same extent that such association may deal 
in, underwrite, and purchase for such association's own account 
obligations of the United States or general obligations of any 
State or of any political subdivision thereof. For purposes of 
this paragraph--
          (1) the term ``qualified Canadian government 
        obligations'' means any debt obligation which is backed 
        by Canada, any Province of Canada, or any political 
        subdivision of any such Province to a degree which is 
        comparable to the liability of the United States, any 
        State, or any political subdivision thereof for any 
        obligation which is backed by the full faith and credit 
        of the United States, such State, or such political 
        subdivision, and such term includes any debt obligation 
        of any agent of Canada or any such Province or any 
        political subdivision of such Province if--
                  (A) the obligation of the agent is assumed in 
                such agent's capacity as agent for Canada or 
                such Province or such political subdivision; 
                and
                  (B) Canada, such Province, or such political 
                subdivision on whose behalf such agent is 
                acting with respect to such obligation is 
                ultimately and unconditionally liable for such 
                obligation; and
          (2) the term ``Province of Canada'' means a Province 
        of Canada and includes the Yukon Territory and the 
        Northwest Territories and their successors.
Notwithstanding any limitation and restriction contained in 
this paragraph relating to dealing, underwriting, and 
purchasing securities and in addition to any authorization in 
this paragraph to deal in, underwrite or purchase securities, a 
national bank may deal in, underwrite, and purchase for such 
association's own account any obligation (including general and 
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 instrumentalities of 1 or more States, or any public 
agency or authority of any State or political subdivision of a 
State, if the national bank--
          (1) is well capitalized (as defined in section 38(b) 
        of the Federal Deposit Insurance Act); and
          (2) engages in the business of banking.
                              ----------                              


     SECTION 106 OF THE BANK HOLDING COMPANY ACT AMENDMENTS OF 1970

  Sec. 106. (a) As used in this section, the terms ``bank'', 
``[bank holding company] financial services holding company'', 
``subsidiary'', and ``Board'' have the meaning ascribed to such 
terms in section 2 of the Bank Holding Company Act of 1956. For 
purposes of this section only, the term ``company'', as used in 
section 2 of the Bank Holding Company Act of 1956, means any 
person, estate, trust, partnership, corporation, association, 
or similar organization, but does not include any corporation 
the majority of the shares of which are owned by the United 
States or by any State. The term ``trust service'' means any 
service customarily performed by a bank trust department.
  (b)(1) A bank shall not in any manner extend credit, lease or 
sell property of any kind, or furnish any service, or fix or 
vary the consideration for any of the foregoing, on the 
condition or requirement--
          (A) that the customer shall obtain some additional 
        credit, property, or service from such bank other than 
        a loan, discount, deposit, or trust service;
          (B) that the customer shall obtain some additional 
        credit, property, or service from a [bank holding 
        company] financial services holding company of such 
        bank, or from any other subsidiary of such [bank 
        holding company] financial services holding company;
          (C) that the customer provide some additional credit, 
        property, or service to such bank, other than those 
        related to and usually provided in connection with a 
        loan, discount, deposit, or trust service;
          (D) that the customer provide some additional credit, 
        property, or service to a [bank holding company] 
        financial services holding company of such bank, or to 
        any other subsidiary of such [bank holding company] 
        financial services holding company; or
          (E) that the customer shall not obtain some other 
        credit, property, or service from a competitor of such 
        bank, a [bank holding company] financial services 
        holding company of such bank, or any subsidiary of such 
        [bank holding company] financial services holding 
        company, other than a condition or requirement that 
        such bank shall reasonably impose in a credit 
        transaction to assure the soundness of the credit.
The Board may by regulation or order permit such exceptions to 
the foregoing prohibition as it considers will not be contrary 
to the purposes of this section.
          * * * * * * *
                              ----------                              


                    SECURITIES EXCHANGE ACT OF 1934

          * * * * * * *

              TITLE I--REGULATION OF SECURITIES EXCHANGES

          * * * * * * *

                  definitions and application of title

  Sec. 3. (a) When used in this title, unless the context 
otherwise requires--
          (1) * * *
          * * * * * * *
          [(4) The term ``broker'' means any person engaged in 
        the business of effecting transactions in securities 
        for the account of others, but does not include a bank.
          [(5) The term ``dealer'' means any person engaged in 
        the business of buying and selling securities for his 
        own account, through a broker or otherwise, but does 
        not include a bank, or any person insofar as he buys or 
        sells securities for his own account, either 
        individually or in some fiduciary capacity, but not as 
        a part of a regular business.]
          (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) Exclusion of banks.--The term ``broker'' 
                does not include a bank unless such bank--
                          (i) publicly solicits the business of 
                        effecting securities transactions for 
                        the account of others;
                          (ii) is compensated for such business 
                        by the payment of commissions or 
                        similar remuneration based on effecting 
                        transactions in securities (other than 
                        fees calculated as a percentage of 
                        assets under management) in excess of 
                        the bank's incremental costs directly 
                        attributable to effecting such 
                        transactions (hereafter referred to as 
                        ``incentive compensation''); or
                          (iii) is a separately identifiable 
                        department or division of the bank.
                  (C) Exemption for certain bank activities.--A 
                bank shall not be deemed to be a broker because 
                it 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, unless made impossible by 
                                space or personnel 
                                considerations, 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 
                                service 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 perform 
                                only clerical or ministerial 
                                functions in connection with 
                                brokerage transactions, 
                                including scheduling 
                                appointments with the 
                                associated persons of a broker 
                                or dealer and, on behalf of a 
                                broker or dealer, transmitting 
                                orders or handling customers 
                                funds or securities, except 
                                that bank employees who are not 
                                so qualified may describe in 
                                general terms investment 
                                vehicles under the contractual 
                                or other arrangement and accept 
                                customer orders on behalf of 
                                the broker or dealer if such 
                                employees have received 
                                training that is substantially 
                                equivalent to the training 
                                required for personnel 
                                qualified to sell securities 
                                pursuant to the requirements of 
                                a self-regulatory organization 
                                (as defined in section 3(a) of 
                                the Securities Exchange Act of 
                                1934);
                                  (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 requirements of a self-
                                regulatory organization (as so 
                                defined) except that the bank 
                                employees may receive nominal 
                                cash and noncash compensation 
                                for customer referrals if the 
                                cash compensation is a 1-time 
                                fee of a fixed dollar amount 
                                and the payment of the fee is 
                                not contingent on whether the 
                                referral results in a 
                                transaction;
                                  (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; and
                                  (VIII) the 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 
                        engages in trust activities (including 
                        effecting transactions in the course of 
                        such trust activities) permissible for 
                        national banks under the first section 
                        of the Act of September 28, 1962, or 
                        for State banks under relevant State 
                        trust statutes or law (including 
                        securities safekeeping, self-directed 
                        individual retirement accounts, or 
                        managed agency accounts or other 
                        functionally equivalent accounts of a 
                        bank) unless the bank--
                                  (I) publicly solicits 
                                brokerage business, other than 
                                by advertising that it effects 
                                transactions in securities in 
                                conjunction with advertising 
                                its other trust activities; or
                                  (II) receives incentive 
                                compensation for such brokerage 
                                activities.
                          (iii) Permissible securities 
                        transactions.--The bank effects 
                        transactions in exempted securities, 
                        other than municipal securities, or in 
                        commercial paper, bankers acceptances, 
                        commercial bills, qualified Canadian 
                        Government obligations as defined in 
                        section 5136 of the Revised Statues, 
                        obligations of the Washington 
                        Metropolitan Area Transit Authority 
                        which are guaranteed by the Secretary 
                        of Transportation under section 9 of 
                        the National Capital Transportation Act 
                        of 1969, obligations of the North 
                        American Development Bank, and 
                        obligations of any local public agency 
                        (as defined in section 110(h) of the 
                        Housing Act of 1949) or any public 
                        housing agency (as defined in the 
                        United States Housing Act of 1937) that 
                        are expressly authorized by section 
                        5136 of the Revised Statutes of the 
                        United States as permissible for a 
                        national bank to underwrite or deal in.
                          (iv) Municipal securities.--The bank 
                        effects transactions in municipal 
                        securities.
                          (v) Employee and shareholder benefit 
                        plans.--The bank effects transactions 
                        as part of any bonus, profit-sharing, 
                        pension, retirement, thrift, savings, 
                        incentive, stock purchase, stock 
                        ownership, stock appreciation, stock 
                        option, dividend reinvestment, or 
                        similar plan for employees or 
                        shareholders of an issuer or its 
                        subsidiaries.
                          (vi) 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.
                          (vii) Affiliate transactions.--The 
                        bank effects transactions for the 
                        account of any affiliate of the bank, 
                        as defined in section 2 of the 
                        Financial Services Holding Company Act 
                        of 1995.
                          (viii) Private securities 
                        offerings.--The bank--
                                  (I) effects sales as part of 
                                a primary offering of 
                                securities by an issuer, 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 issued thereunder;
                                  (II) effects such sales 
                                exclusively to an accredited 
                                investor, as defined in section 
                                3 of the Securities Act of 
                                1933; and
                                  (III) if affiliated with a 
                                securities affiliate, as 
                                provided under section 10 of 
                                the Financial Services Holding 
                                Company Act of 1995--
                                          (aa) has not been so 
                                        affiliated for more 
                                        than 1 year; or
                                          (bb) effects such 
                                        sales through a 
                                        separately identifiable 
                                        department or division 
                                        that itself shall be 
                                        deemed to be a broker.
                          (ix) De minimis exemption.--If the 
                        bank does not have a subsidiary or 
                        affiliate registered as a broker or 
                        dealer under section 15, the bank 
                        effects, other than in transactions 
                        referenced in clauses (i) through 
                        (viii), not more than--
                                  (I) 800 transactions in any 
                                calendar year in securities for 
                                which a ready market exists, 
                                and
                                  (II) 200 other transactions 
                                in securities in any calendar 
                                year.
                          (x) Safekeeping and custody 
                        services.--The bank, as part of 
                        customary banking activities--
                                  (I) provides safekeeping or 
                                custody services with respect 
                                to securities, including the 
                                exercise of warrants or other 
                                rights on behalf of customers;
                                  (II) clears or settles 
                                transactions in securities;
                                  (III) effects securities 
                                lending or borrowing 
                                transactions with or on behalf 
                                of customers as part of 
                                services provided to customers 
                                pursuant to subclauses (I) and 
                                (II) or invests cash collateral 
                                pledged in connection with such 
                                transactions; or
                                  (IV) holds securities pledged 
                                by 1 customer to another 
                                customer or securities subject 
                                to resale agreements between 
                                customers or facilitates the 
                                pledging or transfer of such 
                                securities by book entry.
                          (xi) Banking products.--The bank 
                        effects transactions that have been 
                        determined pursuant to section 
                        10(k)(3)(C) to be more appropriately 
                        treated as banking products, if the 
                        bank effects such transactions through 
                        a separately identifiable department or 
                        division that itself shall be deemed to 
                        be a broker.
                  (D) Exemption 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 
                        Competitiveness Act of 1995, subject to 
                        section 15(e); and
                          (ii) is subject to such restrictions 
                        and requirements as the Commission 
                        deems appropriate.
          (5) Dealer.--
                  (A) In general.--The term ``dealer'' means 
                any person engaged in the business of buying 
                and selling securities for his own account 
                through a broker or otherwise.
                  (B) Exceptions.--Such term does not include--
                          (i) 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; or
                          (ii) a bank, to the extent that the 
                        bank--
                                  (I) buys and sells commercial 
                                paper, bankers acceptances, 
                                exempted securities (other than 
                                municipal securities), 
                                qualified Canadian Government 
                                obligations as defined in 
                                section 5136 of the Revised 
                                Statues, obligations of the 
                                Washington Metropolitan Area 
                                Transit Authority which are 
                                guaranteed by the Secretary of 
                                Transportation under section 9 
                                of the National Capital 
                                Transportation Act of 1969, 
                                obligations of the North 
                                American Development Bank, and 
                                obligations of any local public 
                                agency (as defined in section 
                                110(h) of the Housing Act of 
                                1949) or any public housing 
                                agency (as defined in the 
                                United States Housing Act of 
                                1937) that are expressly 
                                authorized by section 5136 of 
                                the Revised Statutes of the 
                                United States as permissible 
                                for a national bank to 
                                underwrite or deal in;
                                  (II) buys and sells municipal 
                                securities;
                                  (III) buys and sells 
                                securities for investment 
                                purposes for the bank or for 
                                accounts for which the bank 
                                acts as a trustee or fiduciary;
                                  (IV) engages in the issuance 
                                or sale of designated asset-
                                back securities through a 
                                grantor trust or otherwise 
                                and--
                                          (aa) has not been 
                                        affiliated with a 
                                        securities affiliate 
                                        under section 10 of the 
                                        Financial Services 
                                        Holding Company Act of 
                                        1995 for more than 1 
                                        year; or
                                          (bb) effects such 
                                        transactions through a 
                                        separately identifiable 
                                        department or division 
                                        that itself shall be 
                                        deemed to be a dealer; 
                                        or
                                  (V) buys and sells securities 
                                that have been determined 
                                pursuant to section 10(k)(3)(C) 
                                to be more appropriately 
                                treated as banking products, if 
                                a separately identifiable 
                                department or division that 
                                itself is deemed to be a broker 
                                or dealer for purposes of this 
                                Act engages in such purchases 
                                and sales.
                  (C) Designated asset-backed securities 
                defined.--For purposes of subparagraph 
                (B)(ii)(IV), the term ``designated asset-backed 
                securities'' means--
                          (i) securities backed by or 
                        representing an interest in 1-4 family 
                        residential mortgages originated or 
                        purchased by the bank, its affiliates, 
                        or its subsidiaries; and
                          (ii) securities backed by or 
                        representing an interest in consumer 
                        receivables or consumer leases 
                        originated or purchased by the bank, 
                        its affiliates, or its subsidiaries.
          * * * * * * *
          (12)(A) The term ``exempted security'' or ``exempted 
        securities'' includes--
                  (i) * * *
          * * * * * * *
                  [(iii) 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;]
                  (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;
          * * * * * * *
          (54) For purposes of paragraphs (4) and (5), 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 activities, 
                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 activities described in paragraphs (4) and 
                (5) 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 of this 
                Act and rules and regulations promulgated under 
                this Act.
          * * * * * * *
  (e) Exemption From Definition of Broker or Dealer.--The 
Commission, by regulation or order, upon its own motion or upon 
application, may conditionally or unconditionally exclude any 
person or class of persons from the definitions of ``broker'' 
or ``dealer'', if the Commission finds that such exclusion is 
consistent with the public interest, the protection of 
investors, and the purposes of this title.
          * * * * * * *

                          margin requirements

  Sec. 7. (a) * * *
          * * * * * * *
  (d) It shall be unlawful for any person not subject to 
subsection (c) of this section to extend or maintain credit or 
to arrange for the extension or maintenance of credit for the 
purpose of purchasing or carrying any security, in 
contravention of such rules and regulations as the Federal 
Reserve Board shall prescribe to prevent the excessive use of 
credit for the purchasing or carrying of or trading in 
securities in circumvention of the other provisions of this 
section. Such rules and regulations may impose upon all loans 
made for the purpose of purchasing or carrying securities 
limitations similar to those imposed upon members, brokers, or 
dealers by subsection (c) of this section and the rules and 
regulations thereunder. This subsection and the rules and 
regulations thereunder shall not apply (A) to a loan made by a 
person not in the ordinary course of his business, (B) to a 
loan on an exempted security, (C) to a loan to a dealer to aid 
in the financing of the distribution of securities to customers 
not through the medium of a national securities exchange, (D) 
to a loan by a bank on a security other than an equity 
security, [or (E)] (E) to a loan to a broker or dealer by a 
member bank or any other person that has entered into an 
agreement pursuant to section 8(a) if the proceeds of the loan 
are to be used in the ordinary course of the broker's or 
dealer's business other than for the purpose of funding the 
purchase of securities for the account of such broker or 
dealer, or (F) to such other loans as the Federal Reserve Board 
shall, by such rules and regulations as it may deem necessary 
or appropriate in the public interest or for the protection of 
investors, exempt, either unconditionally or upon specified 
terms and conditions or for stated periods, from the operation 
of this subsection and the rules and regulations thereunder.
          * * * * * * *

       restrictions on borrowing by members, brokers, and dealers

  Sec. 8. It shall be unlawful for any registered broker or 
dealer, member of a national securities exchange, or broker or 
dealer who transacts a business in securities through the 
medium of any member of a national securities exchange, 
directly or indirectly--
  (a) To borrow in the ordinary course of business as a broker 
or dealer on any security (other than an exempted security) 
registered on a national securities exchange except (1) from or 
through a member bank of the Federal Reserve Board, (2) from 
any [nonmember bank] person other than a member bank which 
shall have filed with the Federal Reserve Board an agreement, 
which is still in force and which is in the form prescribed by 
the Board, undertaking to comply with all provisions of this 
Act, the Federal Reserve Act, as amended, and the Banking Act 
of 1933, which are applicable to member banks and which relate 
to the use of credit to finance transactions in securities, and 
with such rules and regulations as may be prescribed pursuant 
to such provisions of law or for the purpose of preventing 
evasions thereof, or (3) in accordance with such rules and 
regulations as the Federal Reserve Board may prescribe to 
permit loans between such members and/or brokers and/or 
dealers, or to permit loans to meet emergency needs. Any such 
agreement filed with the Board of Governors of the Federal 
Reserve Board shall be subject to termination at any time by 
order of the Board, after appropriate notice and opportunity 
for hearing, because of any failure by [such bank] such person 
to comply with the provisions thereof or with such provisions 
of law or rules or regulations; and, for any willful violation 
of such agreement, such bank shall be subject to the penalties 
provided for violations of rules and regulations prescribed 
under this title. The provisions of sections 21 and 25 of this 
title shall apply in the case of any such proceeding or order 
of the Federal Reserve Board in the same manner as such 
provisions apply in the case of proceedings and orders of the 
Commission. Subject to such rules and regulations as the Board 
of Governors of the Federal Reserve System adopt in the public 
interest and for the protection of investors, no person shall 
be deemed to have borrowed within the ordinary course of 
business, within the meaning of this subsection, by reason of a 
bona fide agreement for delayed delivery of a mortgage related 
security or a small business related security against full 
payment of the purchase price thereof upon such delivery within 
one hundred and eighty days after the purchase, or within such 
shorter period as the Board of Governors of the Federal Reserve 
System may prescribe by rule or regulation.
          * * * * * * *

           registration and regulation of brokers and dealers

  Sec. 15. (a) * * *
          * * * * * * *
  (c)(1)(A) No broker or dealer shall make use of the mails or 
any means or instrumentality of interstate commerce to effect 
any transaction in, or to induce or attempt to induce the 
purchase or sale of, any security (other than commercial paper, 
bankers' acceptances, or commercial bills) otherwise than on a 
national securities exchange of which it is a member by means 
of any manipulative, deceptive, or other fraudulent device or 
contrivance.
          * * * * * * *
          (8)(A) The Commission may prescribe rules, after 
        consultation with and considering the views of the 
        appropriate Federal banking agencies, with respect to a 
        broker or dealer that is a separately identifiable 
        department or division of a bank as the Commission 
        finds necessary in the public interest or for the 
        protection of investors to take into account the 
        characteristics of a separately identifiable department 
        or division of a bank.
          (B) If a bank of which a separately identifiable 
        department or division is a part is adequately 
        capitalized (as defined by the bank's appropriate 
        Federal banking agency), the separately identifiable 
        department or division that is a broker or dealer shall 
        be deemed to be in compliance with the net capital 
        rules adopted pursuant to paragraph (3).
          * * * * * * *
                              ----------                              


                     INVESTMENT COMPANY ACT OF 1940

                     TITLE I--INVESTMENT COMPANIES

          * * * * * * *

                          general definitions

  Sec. 2. (a) When used in this title, unless the context 
otherwise requires--
          (1) * * *
          * * * * * * *
          (5) ``Bank'' means [(A) a banking institution 
        organized under the laws of the United States] (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 
        101(b) of the International Banking Act of 1978), (B) a 
        member bank of the Federal Reserve System, (C) any 
        other banking institution or trust company, whether 
        incorporated or not, doing business under the laws of 
        any State or of the United States, a substantial 
        portion of the business of which consists of receiving 
        deposits or exercising fiduciary powers similar to 
        those permitted to national banks under the authority 
        of the Comptroller of the Currency, and which is 
        supervised and examined by State or Federal authority 
        having supervision over banks, and which is not 
        operated for the purpose of evading the provisions of 
        this title, and (D) a receiver, conservator, or other 
        liquidating agent of any institution or firm included 
        in clause (A), (B), or (C) of this paragraph.
          [(6) ``Broker'' means any person engaged in the 
        business of effecting transactions in securities for 
        the account of others, but does not include a bank or 
        any person solely by reason of the fact that such 
        person is an underwriter for one or more investment 
        companies.]
          (6) ``Broker'' has the same meaning as in the 
        Securities Exchange Act of 1934, except that it does 
        not include any person solely by reason of the fact 
        that such person is an underwriter for 1 or more 
        investment companies.
          * * * * * * *
          [(11) ``Dealer'' means any person regularly engaged 
        in the business of buying and selling securities for 
        his own account, through a broker or otherwise, but 
        does not include a bank, insurance company, or 
        investment company, or any person insofar as he is 
        engaged in investing, reinvesting, or trading in 
        securities, or in owning or holding securities, for his 
        own account, either individually or in some fiduciary 
        capacity, but not as a part of a regular business.]
          (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.
          * * * * * * *
          (19) ``Interested person'' of another person means--
                  (A) when used with respect to an investment 
                company--
                          (i) * * *
          * * * * * * *
                          [(v) any broker or dealer registered 
                        under the Securities Exchange Act of 
                        1934 or any affiliated person of such a 
                        broker or dealer, and]
                          (v) any person (other than a 
                        registered investment company) that, at 
                        any time during the preceding 6 months, 
                        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,
                        or any affiliated person of such a 
                        person,
                          (vi) any person (other than a 
                        registered investment company) that, at 
                        any time during the preceding 6 months, 
                        has loaned money 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,
                        or any affiliated person of such a 
                        person, or
                          [(vi)] (vii) any natural person whom 
                        the Commission by order shall have 
                        determined to be an interested person 
                        by reason of having had, at any time 
                        since the beginning of the last two 
                        completed fiscal years of such company, 
                        a material business or professional 
                        relationship with such company or with 
                        the principal executive officer of such 
                        company or with any other investment 
                        company having the same investment 
                        adviser or principal underwriter or 
                        with the principal executive officer of 
                        such other investment company:
                Provided, That no person shall be deemed to be 
                an interested person of an investment company 
                solely by reason of (aa) his being a member of 
                its board of directors or advisory board or an 
                owner of its securities, or (bb) his membership 
                in the immediate family of any person specified 
                in clause (aa) of this proviso; and
          * * * * * * *

                    definition of investment company

  Sec. 3. (a) * * *
          * * * * * * *
  (c) Notwithstanding subsection (a), none of the following 
persons is an investment company within the meaning of this 
title:
          (1) * * *
          * * * * * * *
          (3) Any bank or insurance company; any savings and 
        loan association, building and loan association, 
        cooperative bank, homestead association, or similar 
        institution, or any receiver, conservator, liquidator, 
        liquidating agent, or similar official or person 
        thereof or therefor; or any common trust fund or 
        similar fund maintained by a bank exclusively for the 
        collective investment and reinvestment of moneys 
        contributed thereto by the bank in its capacity as a 
        trustee, executor, administrator, or guardian, 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.
          * * * * * * *

                       affiliations of directors

  Sec. 10. (a) * * *
          * * * * * * *
  (c) No registered investment company shall have a majority of 
its board of directors consisting of persons who are officers, 
directors, or employees of any one [bank, except] bank (and its 
subsidiaries) or any single financial services holding company 
(and its affiliates and subsidiaries), as those terms are 
defined in the Financial Services Holding Company Act of 1995, 
except that, if on March 15, 1940, any registered investment 
company had a majority of its directors consisting of persons 
who are directors, officers, or employees of any one bank, such 
company may continue to have the same percentage of its board 
of directors consisting of persons who are directors, officers, 
or employees of such bank.
          * * * * * * *
  (f) No registered investment company shall knowingly purchase 
or otherwise acquire, during the existence of any underwriting 
or selling syndicate, any security (except a security of which 
such company is the [issuer) a principal underwriter] issuer)--
          (1) a principal underwriter of which is an officer, 
        director, member of an advisory board, investment 
        adviser, or employee of such registered company, or is 
        a person (other than a company of the character 
        described in section 12(d)(3) (A) and (B)) of which any 
        such officer, director, member of an advisory board, 
        investment adviser, or employee is an affiliated 
        person, unless in acquiring such security such 
        registered company is itself acting as a principal 
        underwriter [for the issuer. The Commission] for the 
        issuer; or
          (2) the issuer of which has a material lending 
        relationship with the adviser of such registered 
        investment company or any person controlling, 
        controlled by, or under common control with the adviser 
        in contravention of such rules, regulations, or orders 
        as the Commission may prescribe in the public interest 
        and consistent with the protection of investors.
The Commission, by rules and regulations upon its own motion or 
by order upon application, may conditionally or unconditionally 
exempt any transaction or classes of transactions from any of 
the provisions of this subsection, if and to the extent that 
such exemption is consistent with the protection of investors.
          * * * * * * *

             investment advisory and underwriting contracts

  Sec. 15. (a) * * *
          * * * * * * *
  (g) Controlling Interest in Investment Company Prohibited.--
          (1) In general.--If any 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 other 
                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 for the 
                        protection of investors.
          (2) Exemption.--Paragraph (1) shall not apply to any 
        investment adviser to a registered investment company, 
        or an affiliated person of that investment adviser, 
        holding shares of the investment company in a trustee 
        or fiduciary capacity if that registered investment 
        company consists solely of assets of 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).
          (4) Church plan exemption.--Paragraph (1) shall not 
        apply to any investment adviser to a registered 
        investment company, or an affiliated person of that 
        investment adviser, holding shares in such a capacity, 
        if such investment adviser or such affiliated person is 
        an organization described in section 414(e)(3)(A) of 
        the Internal Revenue Code of 1986.
          * * * * * * *

      transactions of certain affiliated persons and underwriters

  Sec. 17. (a) * * *
          * * * * * * *
  [(f) Every registered]
  (f) Custody of Securities.--
          (1) Every registered management company shall place 
        and maintain its securities and similar investments in 
        the custody of [(1)] (A) a bank or banks having the 
        qualifications prescribed in paragraph (1) of section 
        26(a) of this title for the trustees of unit investment 
        trusts; or [(2)] (B) a company which is a member of a 
        national securities exchange as defined in the 
        Securities Exchange Act of 1934, subject to such rules 
        and regulations as the Commission may from time to time 
        prescribe for the protection of investors; or [(3)] (C) 
        such registered company, but only in accordance with 
        such rules and regulations or orders as the Commission 
        may from time to time prescribe for the protection of 
        investors.
          (2) Subject to such rules, regulations, and orders as 
        the Commission may adopt as necessary or appropriate 
        for the protection of investors, a registered 
        management company or any such custodian, with the 
        consent of the registered management company for which 
        it acts as custodian, may deposit all or any part of 
        the securities owned by such registered management 
        company in a system for the central handling of 
        securities established by a national securities 
        exchange or national securities association registered 
        with the Commission under the Securities Exchange Act 
        of 1934, or such other person as may be permitted by 
        the Commission, pursuant to which system all securities 
        of any particular class or series of any issuer 
        deposited within the system are treated as fungible and 
        may be transferred or pledged by bookkeeping entry 
        without physical delivery of such securities.
          (3) Rules, regulations, and orders of the Commission 
        under this subsection, among other things, may make 
        appropriate provision with respect to such matters as 
        the earmarking, segregation, and hypothecation of such 
        securities and investments, and may provide for or 
        require periodic or other inspections by any or all of 
        the following: Independent public accountants, 
        employees and agents of the Commission, and such other 
        persons as the Commission may designate.
          (4) No such member which trades in securities for its 
        own account may act as custodian except in accordance 
        with rules and regulations prescribed by the Commission 
        for the protection of investors.
          (5) If a registered company maintains its securities 
        and similar investments in the custody of a qualified 
        bank or banks, the cash proceeds from the sale of such 
        securities and similar investments and other cash 
        assets of the company shall likewise be kept in the 
        custody of such a bank or banks, or in accordance with 
        such rules and regulations or orders as the Commission 
        may from time to time prescribe for the protection of 
        investors, except that such a registered company may 
        maintain a checking account in a bank or banks having 
        the qualifications prescribed in paragraph (1) of 
        section 26(a) of this title for the trustees of unit 
        investment trusts with the balance of such account or 
        the aggregate balances of such accounts at no time in 
        excess of the amount of the fidelity bond, maintained 
        pursuant to section 17(g) of this title, covering the 
        officers or employees authorized to draw on such 
        account or accounts.
          (6) Notwithstanding any provision of this subsection, 
        if a bank described in paragraph (1) or an affiliated 
        person of such bank is an affiliated person, promoter, 
        organizer, or sponsor of, or principal underwriter for 
        the registered company, such bank may serve as 
        custodian under this subsection in accordance with such 
        rules, regulations, or orders as the Commission may 
        prescribe, consistent with the protection of investors, 
        after consulting in writing with the appropriate 
        Federal banking agency, as defined in section 3 of the 
        Federal Deposit Insurance Act.
          * * * * * * *
                           capital structure

  Sec. 18. (a) * * *
          * * * * * * *
  (l) Notwithstanding any provision of this section, it shall 
be unlawful for any affiliated person of a registered 
investment company or any affiliated person of such a person to 
loan money to such investment company in contravention of such 
rules, regulations, or orders as the Commission may prescribe 
in the public interest and consistent with the protection of 
investors.
          * * * * * * *

                         unit investment trusts

  Sec. 26. (a) No principal underwriter for or depositor of a 
registered unit investment trust shall sell, except by 
surrender to the trustee for redemption, any security of which 
such trust is the issuer (other than short-term paper), unless 
the trust indenture, agreement of custodianship, or other 
instrument pursuant to which such security is issued--
          (1) designates one or more trustees or custodians, 
        each of which is a bank, and provides that each such 
        trustee or custodian shall have at all times an 
        aggregate capital, surplus, and undivided profits of a 
        specified minimum amount, which shall not be less than 
        $500,000 (but may also provide, if such trustee or 
        custodian publishes reports of condition at least 
        annually, pursuant to law or to the requirements of its 
        supervising or examining authority, that for the 
        purposes of this paragraph the aggregate capital, 
        surplus, and undivided profits of such trustee or 
        custodian shall be deemed to be its aggregate capital, 
        surplus, and undivided profits as set forth in its most 
        recent report of condition so published), except that, 
        if the trustee or custodian described in this 
        subsection is an affiliated person of such underwriter 
        or depositor, the Commission may adopt rules and 
        regulations or issue orders, consistent with the 
        protection of investors, prescribing the conditions 
        under which such trustee or custodian may serve, after 
        consulting in writing with the appropriate Federal 
        banking agency (as defined in section 3 of the Federal 
        Deposit Insurance Act);
          * * * * * * *

                   unlawful representations and names

  Sec. 35. [(a) It shall be unlawful for any person, in 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 has been guaranteed, 
sponsored, recommended, or approved by the United States or any 
agency or officer thereof.]
  (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 shall 
        prominently disclose that the investment company or any 
        security issued by the investment company--
                  (A) is not insured by the Federal Deposit 
                Insurance Corporation;
                  (B) is not guaranteed by an affiliated 
                insured depository institution; and
                  (C) is not otherwise an obligation of any 
                bank or insured depository institution,
        in accordance with such rules, regulations, or orders 
        as the Commission may prescribe as reasonably necessary 
        or appropriate in the public interest for the 
        protection of investors, after consulting in writing 
        with the appropriate Federal banking agencies.
          (3) Definitions.--The terms ``insured depository 
        institution'' and ``appropriate Federal banking 
        agency'' have the meanings given to such terms in 
        section 3 of the Federal Deposit Insurance Act.
          * * * * * * *
  [(d) It shall be unlawful for any registered investment 
company hereafter to adopt as a part of the name or title of 
such company, or of any security of which it is the issuer, any 
word or words which the Commission finds and by order declares 
to be deceptive or misleading. The Commission is authorized to 
bring an action in the proper district court of the United 
States or United States court of any Territory or other place 
subject to the jurisdiction of the United States alleging that 
the name or title of any registered investment company, or of 
any security which it has issued, is materially deceptive or 
misleading. If the court finds that the Commission's 
allegations in this respect, taking into consideration the 
history of the investment company and the length of time which 
it may have used any such name or title, are established, the 
court shall enjoin such investment company from continuing to 
use any such name or title.]
  (d)(1) It shall be unlawful for any registered investment 
company to adopt as part of the name or title of such company, 
or of any securities of which it is the issuer, any word or 
words that the Commission finds are materially deceptive or 
misleading. The Commission may adopt such rules or regulations 
or issue such orders as are necessary or appropriate to prevent 
the use of deceptive or misleading names or titles by 
investment companies.
  (2) It shall be deceptive and misleading for any registered 
investment company (A) that is an affiliated person of a bank 
or an affiliated person of such a person, or (B) for which a 
bank or an affiliated person of a bank acts as investment 
adviser, sponsor, promoter, or principal underwriter, to adopt, 
as part of the name or title of such company, or of any 
security of which it is an issuer, any word that is the same or 
similar to, or a variation of, the name or title of such bank 
or affiliated person thereof, in contravention of such rules, 
regulations, or orders as the Commission may prescribe as 
necessary or appropriate in the public interest or for the 
protection of investors.
          * * * * * * *

                        breach of fiduciary duty

  Sec. 36. (a) The Commission is authorized to bring an action 
in the proper district court of the United States, or in the 
United States court of any territory or other place subject to 
the jurisdiction of the United States, alleging that a person 
serving or acting in one or more of the following capacities 
has engaged within five years of the commencement of the action 
or is about to engage in any act or practice constituting a 
breach of fiduciary duty involving personal misconduct in 
respect of any registered investment company for which such 
person so serves or acts--
          (1) as officer, director, member of any advisory 
        board, investment adviser, or depositor; [or]
          (2) as principal underwriter, if such registered 
        company is an open-end company, unit investment trust, 
        or face-amount certificate company[.]; or
          (3) as custodian.
If such allegations are established, the court may enjoin such 
persons from acting in any or all such capacities either 
permanently or temporarily and award such injunctive or other 
relief against such person as may be reasonable and appropriate 
in the circumstances, having due regard to the protection of 
investors and to the effectuation of the policies declared in 
section 1(b) of this title.
          * * * * * * *
                              ----------                              


                    INVESTMENT ADVISORS ACT OF 1949

                     TITLE II--INVESTMENT ADVISERS

          * * * * * * *

                              definitions

  Sec. 202. (a) When used in this title, unless the context 
otherwise requires--
          (1) * * *
          * * * * * * *
          [(3) ``Broker'' means any person engaged in the 
        business of effecting transactions in securities for 
        the account of others, but does not include a bank.]
          (3) The term ``broker'' has the same meaning as in 
        the Securities Exchange Act of 1934.
          * * * * * * *
          [(7) ``Dealer'' means any person regularly engaged in 
        the business of buying and selling securities for his 
        own account, through a broker or otherwise, but does 
        not include a bank, insurance company, or investment 
        company, or any person insofar as he is engaged in 
        investing, reinvesting or trading in securities, or in 
        owning or holding securities, for his own account, 
        either individually or in some fiduciary capacity, but 
        not as a part of a regular business.]
          (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.
          * * * * * * *
          (11) ``Investment adviser'' means any person who, for 
        compensation, engages in the business of advising 
        others, either directly or through publications or 
        writings, as to the value of securities or as to the 
        advisability of investing in, purchasing, or selling 
        securities, or who, for compensation and as part of a 
        regular business, issues or promulgates analyses or 
        reports concerning securities; but does not include (A) 
        a bank, or any bank holding company as defined in the 
        Bank Holding Company Act of 1956, which is not an 
        [investment company] investment company, except that 
        the term ``investment adviser'' includes any bank or 
        financial services holding company to the extent that 
        such bank or financial services holding company acts as 
        an investment adviser to a registered investment 
        company, or if, in the case of a bank, such services 
        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) any lawyer, accountant, 
        engineer, or teacher whose performance of such services 
        is solely incidental to the practice of his profession; 
        (C) any broker or dealer whose performance of such 
        services is solely incidental to the conduct of his 
        business as a broker or dealer and who receives no 
        special compensation therefor; (D) the publisher of any 
        bona fide newspaper, news magazine or business or 
        financial publication of general and regular 
        circulation; (E) any person whose advice, analyses, or 
        reports relate to no securities other than securities 
        which are direct obligations of or obligations 
        guaranteed as to principal or interest by the United 
        States, or securities issued or guaranteed by 
        corporations in which the United States has a direct or 
        indirect interest which shall have been designated by 
        the Secretary of the Treasury, pursuant to section 
        3(a)(12) of the Securities Exchange Act of 1934, as 
        exempted securities for the purposes of that Act; or 
        (F) such other persons not within the intent of this 
        paragraph, as the Commission may designate by rules and 
        regulations or order.
          * * * * * * *
          (25) 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 1 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 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. 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 as 
        each may have access to with respect to the investment 
        advisory activities of any financial services holding 
        company, bank, or separately identifiable department or 
        division of a bank, that is registered under section 
        203 of this title, or, in the case of a financial 
        services holding company or bank, that has a subsidiary 
        or a separately identifiable department or division 
        registered under that section, to the extent necessary 
        for the Commission to carry out its statutory 
        responsibilities.
          (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 financial services holding company, bank, or 
        separately identifiable department or division of a 
        bank, any of which is registered under section 203 of 
        this title, to the extent necessary for the agency to 
        carry out its statutory responsibilities.
  (b) Effect on Other Authority.--Nothing herein shall limit in 
any respect the authority of the appropriate Federal banking 
agency with respect to such financial services 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 section 3 of the Federal Deposit Insurance Act.
          * * * * * * *
                              ----------                              


                SECTION 3 OF THE SECURITIES ACT OF 1933

                          exempted securities

  Sec. 3. (a) Except as hereinafter expressly provided, the 
provisions of this title shall not apply to any of the 
following classes of securities:
          (1) Reserved.
          (2) Any security issued or guaranteed by the United 
        States or any Territory thereof, or by the District of 
        Columbia, or by any State of the United States, or by 
        any political subdivision of a State or Territory, or 
        by any public instrumentality of one or more States or 
        Territories, or by any person controlled or supervised 
        by and acting as an instrumentality of the Government 
        of the United States pursuant to authority granted by 
        the Congress of the United States; or any certificate 
        of deposit for any of the foregoing; or any security 
        issued or guaranteed by any bank; or any security 
        issued by or representing an interest in or a direct 
        obligation of a Federal Reserve bank; [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] 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; or any security 
        which is an industrial development bond (as defined in 
        section 103(c)(2) of the Internal Revenue Code of 1954) 
        the interest on which is excludable from gross income 
        under section 103(a)(1) of such Code if, by reason of 
        the application of paragraph (4) or (6) of section 
        103(c) of such Code (determined as if paragraphs 
        (4)(A), (5), and (7) were not included in such section 
        103(c)), paragraph (1) of such section 103(c) does not 
        apply to such security; or any interest or 
        participation in a single trust fund, or in a 
        collective trust fund maintained by a bank, or any 
        security arising out of a contract issued by an 
        insurance company, which interest, participation, or 
        security is issued in connection with (A) a stock 
        bonus, pension, or profit-sharing plan which meets the 
        requirements for qualification under section 401 of the 
        Internal Revenue Code of 1954, (B) an annuity plan 
        which meets the requirements for the deduction of the 
        employer's contributions under section 404(a)(2) of 
        such Code, or (C) a governmental plan as defined in 
        section 414(d) of such Code which has been established 
        by an employer for the exclusive benefit of its 
        employees or their beneficiaries for the purpose of 
        distributing to such employees or their beneficiaries 
        the corpus and income of the funds accumulated under 
        such plan, if under such plan it is impossible, prior 
        to the satisfaction of all liabilities with respect to 
        such employees and their beneficiaries, for any part of 
        the corpus or income to be used for, or diverted to, 
        purposes other than the exclusive benefit of such 
        employees or their beneficiaries, other than any plan 
        described in clause (A), (B), or (C) of this paragraph 
        (i) the contributions under which are held in a single 
        trust fund or in a separate account maintained by an 
        insurance company for a single employer and under which 
        an amount in excess of the employer's contribution is 
        allocated to the purchase of securities (other than 
        interests or participations in the trust or separate 
        account itself) issued by the employer or any company 
        directly or indirectly controlling, controlled by, or 
        under common control with the employer, (ii) which 
        covers employees some or all of whom are employees 
        within the meaning of section 401(c)(1) of such Code, 
        or (iii) which is a plan funded by an annuity contract 
        described in section 403(b) of such Code. The 
        Commission, by rules and regulations or order, shall 
        exempt from the provisions of section 5 of this title 
        any interest or participation issued in connection with 
        a stock bonus, pension, profit-sharing, or annuity plan 
        which covers employees some or all of whom are 
        employees within the meaning of section 401(c)(1) of 
        the Internal Revenue Code of 1954, if and to the extent 
        that the Commission determines this to be necessary or 
        appropriate in the public interest and consistent with 
        the protection of investors and the purposes fairly 
        intended by the policy and provisions of this title. 
        For purposes of this paragraph, a security issued or 
        guaranteed by a bank shall not include any interest or 
        participation in any collective trust fund maintained 
        by a bank; and the term ``bank'' means any national 
        bank, or any banking institution organized under the 
        laws of any State, territory, or the District of 
        Columbia, the business of which is substantially 
        confined to banking and is supervised by the State or 
        territorial banking commission or similar official; 
        except that in the case of a common trust fund or 
        similar fund, or a collective trust fund, the term 
        ``bank'' has the same meaning as in the Investment 
        Company Act of 1940;
          * * * * * * *
                             Minority Views

    We strongly support the principal purpose of H.R. 1062--to 
modernize this nation's financial services regulatory framework 
in order to improve U.S. financial services providers' 
competitiveness at home and abroad. The record before this 
Committee, and before our sister committee, the Committee on 
Banking and Financial Services, establishes a clear need for 
responsible changes to that framework.
    However, as demonstrated by the testimony of the six panels 
of witnesses who testified before the joint hearings of this 
Committee's Subcommittee on Telecommunications and Finance and 
Subcommittee on Commerce, Trade and Hazardous Materials, there 
is great concern among those who represent the affected 
industries, those who speak on behalf of consumers and 
investors, and those who are called upon to administer and 
enforce our laws and regulations about the policy choices made 
by the Banking Committee in crafting H.R. 1062. As noted by SEC 
Chairman Arthur Levitt at the June 6 hearing, ``H.R. 1062 as a 
whole . . . does not strike an optimal balance between 
preserving bank safety and soundness, and the needs of 
investors and the marketplace as a whole.'' Representative 
Christopher Cox observed that the bill was ``not sufficiently 
visionary'' and, with specific reference to the bill's new 
Interagency Banking and Financial Services Advisory Committee, 
created ``excessive, burdensome, and duplicative'' layers of 
new regulation. Representative Markey characterized the bill's 
regulatory and operational framework as ``Byzantine.'' We 
agree.
    As evidenced by the opening statement of the chairman of 
the Committee on Commerce, Representative Thomas J. Bliley, 
Jr., there are strong bipartisan reasons to oppose H.R. 1062. 
(That statement appears as an appendix to these views.) Our 
primary concerns can be summarized as follows:

                  safety and soundness is compromised

    As introduced, H.R. 1062 (originally H.R. 18) required the 
most significant and risky securities activities to be carried 
out in a separately-capitalized, SEC-registered affiliate of 
the holding company. As reported by the Banking Committee, H.R. 
1062 would now permit many of those securities activities to be 
carried out directly in the bank through separately 
identifiable departments or divisions (SIDs). We concede that 
the distinction between activities conducted in a ``separately-
capitalized affiliate'' and those conducted ``within a separate 
department in the bank'' sounds technical and obtuse. But the 
distinction is crucial. The fact is that, if securities 
activities are conducted in a bank ``SID,'' all of the bank's 
capital would be available to support the securities activities 
conducted in the bank SID. As such, the bank would not be 
insulated from risk, and the federal safety net, including 
federal deposit insurance, would be put at risk if those 
securities activities led to significant losses.
    Proponents of H.R. 1062's current structure argue that the 
securities activities that can be done in the bank in a SID, 
e.g., mortgage-backed securities and private placements, are 
low-risk. However, this is not necessarily true. CMOs 
(collateralized mortgage obligations, a type of mortgage-backed 
security) are extremely complex, risky, and volatile and have 
caused huge, multi-million dollar losses to investors. 
``Private placement'' describes the method of offering and 
selling a security and not the nature of the instrument that is 
the subject of a private placement transaction: while such a 
transaction does not carry the market risk of an 
``underwriting,'' the instrument being placed could be a 
``structured note'' (a type of derivative security that has 
caused devastating losses) or a limited partnership interest 
such as figured in the billion dollar Prudential debacle. 
Allowing banks to deal in these instruments thus exposes banks 
to considerable risks and potential liability. All of this 
would be avoided if these securities activities were simply 
moved into a separately-capitalized affiliate of the bank's 
holding company.
    H.R. 1062 also grants the Federal Reserve Board unfettered 
discretion to modify or tear down the ``firewalls'' between 
banks and securities firms. Firewalls protect against risk to 
insured deposits and prevent conflicts of interest between 
affiliated companies. The Banking Committee Report's Minority 
Views calls this power ``ill conceived, unwarranted and 
potentially dangerous.'' An amendment to address this problem 
was offered and withdrawn during Committee consideration.

      functional regulation and investor protection are illusions

    H.R. 1062 set out to create a level regulatory and 
competitive playing field by repealing the blanket exemptions 
for banks from registration and regulation under the federal 
securities laws. This should have permitted each of the 
affected industries to play under the same rules under the same 
expert regulator to achieve consistent protections for 
investors and markets and economical and efficient examinations 
and enforcement within the affected industries. However, as 
finally reported by the Banking Committee H.R. 1062 contained 
new ``mini'' exclusions for banks: specifically it provides 
eleven specific exclusions or exemptions for bank brokerage 
activities and five new exclusions or exemptions for bank 
dealer activities. This includes open-ended authority for the 
Federal Reserve Board to determine that certain ``securities'' 
should be ``more appropriately treated as banking products'' 
and permitted to remain in a bank SID. The bill's numerous new 
exemptions would leave a significant number of bank securities 
activities outside the regulatory framework and investor 
protections established under the federal securities laws. 
Moreover, the SEC testified that SIDs could pose practical 
problems relating to SEC examinations and enforcement.
    H.R. 1062 also directs the federal banking regulators to 
adopt their own sales practice, disclosure, training and 
qualification, and other ``standards.'' H.R 1062 does not 
require those standards to be substantially similar to 
requirements under the federal securities laws. For example, 
banks would not be charged with an express duty to supervise 
their employees' securities activities, a key investor 
protection. As noted by the SEC, in footnote 18 at page 12 of 
their June 6, 1995 Testimony, section 111 of H.R. 1062 follows 
the approach taken by the federal banking agencies when they 
adopted ``guidelines'' in their 1994 Interagency Statement. The 
guidelines provided in the Interagency Statement do not create 
a comprehensive securities regulatory scheme for banks. They 
are advisory rather than legally binding, and may not be 
legally enforceable by the bank regulators or by bank 
customers. Furthermore, the guidelines do not establish precise 
standards of conduct; banks are given wide latitude to 
establish procedures and policies to implement them. Finally, 
the existing guidelines create regulatory confusion and overlap 
because they purport to apply to registered broker-dealers that 
sell securities in association with banks. The new 
``standards'' to be adopted under H.R. 1062 will likely 
perpetuate these problems.
    The bill will not rationalize financial services 
regulation; it will further complicate it. Specifically, under 
the structures contemplated by the bill, some securities 
activities will be regulated by the SEC (in broker-dealer 
affiliates and in SEC-registered SIDs) and other securities 
activities will be regulated by bank regulators (in the bank 
and in bank regulator-regulated SIDs). Some securities 
activities may be regulated by both. This will inevitably 
result in conflicting and overlapping (and thus burdensome) 
regulation, and opportunities for regulated entities to play 
regulators off against one another in a dangerous regulatory 
race to the bottom. An amendment to address this problem was 
offered and withdrawn during Committee consideration.

                  h.r. 1062 fosters unfair competition

    H.R. 1062 could seriously harm retail broker-dealers, 
especially the smaller firms that are the backbone of the 
securities industry. While we enthusiastically support greater 
competition in our securities markets, as well as in all other 
sectors of the financial services industry, it is essential 
that the rules be fairly and evenhandedly enforced and that the 
competitors not be endowed by the government with unfair 
advantages. While a handful of large securities firms and banks 
potentially benefit from this bill's authorization of certain 
new financial activities within a holding company structure, 
most of the securities industry appears to gain only federally-
subsidized bank competitors. These banks have lower funding 
costs (as a result of being insured depository institutions) 
and will carry lower regulatory costs and burdens by virtue of 
the bill's numerous exclusions/exemptions noted above. For 
example, the number of securities transactions that banks are 
allowed to engage in and still qualify for the bill's de 
minimis exemption appears to be excessive. This appears to be 
especially true when compared with the number of average 
annualized transactions carried out currently by most small 
broker-dealers who are required to be registered with the SEC, 
thus putting these firms at a competitive disadvantage. (In 
calendar year 1993, the SEC supervised over 8,600 broker-
dealers with 34,000 branch offices and over 470,000 registered 
representatives. The overwhelming majority of these broker-
dealers are small businesses.)
    Moreover, as noted by many of the witnesses before the 
Subcommittees, H.R. 1062 poses significant obstacles to a true 
``two-way street.'' H.R. 1062 requires that ownership of an 
insured depository institution be accomplished through a 
financial services holding company (FSHC). H.R. 1062 permits 
the FSHC to own a bank and a securities firm, but prohibits the 
FSHC from owning any ``nonfinancial'' company (such company 
must be divested within 5 years of the securities firm becoming 
an FSHC). While the bill provides that FSHCs may own certain 
``financial'' companies up to 10% of the FSHC's capital and 
surplus (provided that any such company was acquired more than 
2 years before the securities firm became an FSHC), the bill's 
definition of ``financial'' is unduly restrictive in that it 
excludes insurance and does not clearly include real estate, 
both of which are commonly though of as being financial. 
Because many securities firms have affiliates engaged in either 
or both of these activities, securities firms would have to 
divest or scale back considerably such operations in order to 
exercise the combined securities and banking powers granted by 
the bill. Insurance companies cannot avail themselves of the 
bill's competitive options at all.

              The Federal Reserve Board's Sweeping Powers

    Concerns also have been raised about the sweeping 
regulatory powers afforded to the Federal Reserve Board under 
this bill (especially provisions empowering the Federal Reserve 
to impose significant business limitations on securities firms) 
and their impact on securities firms within the new 
``investment bank holding companies'' (and ``financial services 
holding companies'') as well as the impact on our innovative 
and vibrant securities markets. Moreover, H.R. 1062 replaces 
the Bank Holding Company Act's ``closely related to banking'' 
test with a ``financial in nature or incidental to such 
financial activities'' test for purposes of authorizing non-
banking activities for financial services holding companies. 
This change broadens the types of activities that the Federal 
Reserve Board may permit FSHCs to conduct, directly or through 
subsidiaries. In determining what activities may be considered 
``financial in nature,'' the Board is required to take into 
account ``changes or reasonably expected changes in the 
marketplace,'' ``changes or reasonably expected changes in * * 
* technology,'' and activities previously authorized under the 
Board's Regulation K for U.S. banks overseas (the latter 
include commercial activities such as travel agencies--see 
Banking Committee Report pp. 102, 103). Accordingly, while H.R. 
1062 has been described as ``narrow'' reform that only 
addresses the commingling of commercial banking and securities 
activities, it appears to give the Federal Reserve unbridled 
authority ``by order, regulation or advisory opinion'' to tear 
down the wall between banking and commerce and to create 
``universal banking'' in this country without Congressional 
debate and instruction on a number of significant public policy 
questions. Among these portentous questions are whether federal 
deposit insurance and other components of the federal safety 
net should continue to extend to any such ``universal bank.''

  unresolved Questions Regarding the Powers of the Comptroller of the 
                                Currency

    Concerns have been raised about attempts by the Comptroller 
of the Currency (OCC) (1) to authorize national banks to engage 
in a full range of securities activities in direct operating 
subsidiaries of banks, and (2) to use the National Bank Act to 
preempt and thus displace state insurance regulation of 
national banks' insurance sales. H.R. 1062 does not appear to 
resolve either concern.
    For example, last year, the OCC issued a notice of proposed 
rulemaking to revise its rules as 12 CFR Part 5 governing 
corporate applications and notices (59 FR 61034 et seq. 
(November 24, 1994)) that, among other things, proposed to 
revise the current OCC regulations at Sec. 5.34 to permit 
national banks to establish or acquire operating subsidiaries. 
The OCC proposed to allow these operating subsidiaries to 
engage in activities (including full securities underwriting 
and insurance agency and underwriting activities) that are 
currently prohibited or restricted when undertaken directly by 
banks. Both Representative Dingell, in a seminal legal analysis 
by letter to the OCC dated January 30, 1995, and Banking 
Committee Chairman James A. Leach, by letter to the OCC dated 
April 5, 1995, challenged the legality of the OCC proposal. 
H.R. 1062 does not address this issue. Theoretically, the OCC 
could go forward with its proposal and establish a competing 
scheme to the framework established by H.R. 1062.
    Further, as stated above, the OCC issued a notice of 
proposed rulemaking in March of this year indicating that the 
OCC is considering an interpretative ruling that would preempt 
all State licensing and consumer protection laws, including 
those governing insurance underwriters and agents, in their 
applicability to national banks. 60 Fed. Reg. 11930 (March 3, 
1995) The competitive consequences of this proposal are 
alarming. The implications for consumers are even worse. The 
OCC ruling would mean that national banks selling insurance 
would not have to be licensed or regulated by the States. Since 
virtually all consumer protections under State insurance law 
are tied to licensing statutes, consumers purchasing insurance 
from unlicensed national banks will be denied essential 
protections they receive when buying a comparable product from 
an insurer or insurance agent. Worse yet, there are no 
analogous protections available under federal or State banking 
law to the solvency and consumer protection rules of State 
insurance law. An amendment to address this problem was offered 
and withdrawn during Committee consideration.

                                process

    On May 9, 1995, the Banking Committee favorably reported 
H.R. 1062 as amended. On May 11, 1995, the Banking Committee 
reconvened to reconsider the vote on which H.R. 1062 was 
favorably reported. That Committee again favorably reported 
H.R. 1062 as amended. On May 18, 1995, the Banking Committee 
filed its report (Rept. 104-127, Pt. 1), and H.R. 1062 was then 
referred to the Committee on Commerce for a period ending not 
later than June 16, 1995, for consideration of such matters 
within that legislation as fall within the Rule X jurisdiction 
of the Commerce Committee. By letter dated May 24, 1995, the 
Speaker informed Chairman Bliley that Chairman Leach had agreed 
to extend this deadline to June 22, 1995 in light of the 
interruption of the 30-day sequential referral to this 
Committee by the Memorial Day District Work Period.
    That same correspondence admonished Chairman Bliley to 
resist efforts ``to rewrite matters within Banking's 
jurisdiction.'' Furthermore, admonitions by the Republican 
Leadership to make no changes in H.R. 1062 as reported by the 
Banking Committee were made throughout this Committee's review 
period. Of course, because the Banking Committee itself acted 
extensively on securities matters within the Commerce 
Committee's well-established Rule X jurisdiction, this 
stricture to move the Banking Committee bill to the Floor, as 
is, turned the referral to the Commerce Committee into a 
charade. It severely constrained, indeed cut off, the ability 
of the Members of this Committee to address the shortcomings in 
this legislation discussed above. The end result forces this 
Committee to report defective legislation to the Floor of the 
House, without amendment and without recommendation. Having 
raised these issues, we understand that the issues and 
amendments that we raised in Committee will be permitted to be 
addressed as Floor amendments. We express our hope that our 
Republican colleagues and all Members of the House will commit 
themselves to working cooperatively to develop a sounder, more 
responsible final product. This legislation, before it leaves 
the House, must do a better job of protecting depositors, 
investors, and taxpayers, while providing a competitive 
framework to take our financial services providers into the 
next century.

                                   John D. Dingell.
                                   Edward J. Markey.
                                   Henry A. Waxman.
                                   Ralph M. Hall.
                                   John Bryant.
                                   Edolphus Towns.
                                   Gerry E. Studds.
                                   Frank Pallone, Jr.
                                   Peter Deutsch.
                                   Ron Klink.
                                   Bart Stupak.
   Statement of the Honorable Thomas J. Bliley, Jr., Chairman, House 
                           Commerce Committee

    Thank you, Mr. Chairman.
    Today the Subcommittee on Telecommunications and Finance, 
and the Subcommittee on Commerce, Trade and Hazardous Materials 
convene to mark up H.R. 1062, the Financial Services 
Competitiveness Act of 1995. As has been done several times 
before, the Commerce Committee has again been tasked with 
bringing its unique perspective to deliberations on legislation 
that proposes to redefine the structure of regulation in the 
banking, securities, and insurance industries. And once again 
our Subcommittees are faced with the impossible task of 
reconciling regulatory schemes that do not reflect the 
financial, technological, and business realities of the modern 
market place. If it ever existed, the distinction between 
commercial banking is no more.
    Commercial banking is no longer the taking of deposits and 
making loans. Today, banks are involved in myriads of financial 
transactions in which capital is raised through the private 
placement of equity and debt. Banks issue negotiable 
instruments derived from the securitization of mortgages, 
assets and commercial receivables. Indeed, to the extent that 
they have been permitted to do so through Section 20 
affiliates, banks are a significant factor in the underwriting 
of corporate debt and equity.
    And yet all these activities are conducted in a regulatory 
environment which was designed to provide extraordinary levels 
of government oversight of lending backed by federally insured 
deposits. The safety and soundness of the bank and the 
protection of the federal deposit insurance fund are the 
primary goals of the regulators and the laws that direct them. 
Investor protection and competitive equality with other 
financial service providers are implicit rather than explicit 
obligations of the regulators, and as such are assigned a 
lower, albeit still significant, level of regulatory priority.
    Nor is the traditional definition of the business of the 
stockbroker relevant to our modern markets. Investment banking 
and other securities firms hold billions of dollars in money 
market funds that are the functional equivalent of bank 
accounts that accept deposits and pay interest. Commercial and 
consumer lending is a regular part of the business of some 
securities firms, as is the offering of credit cards and 
certificates of deposit.
    Although the government gives an advantage to banks in the 
form of federal deposit insurance, government regulation of 
their competitors gives an advantage to brokers by protecting 
them from some types of competition. One example is the 
regulatory limit placed on the amount of securities business a 
Section 20 broker/dealer affiliate of a bank can do. Perhaps 
more importantly, government regulation insures that only 
brokers can exploit opportunities which require quick action 
and structural flexibility. The built in delay of the bank 
approval process insures that banks will not be able to move 
quickly enough to offer competition. Government regulation has 
become such an interference with the development of legitimate 
business that one bank regulator apparently feels obligated to 
regularly encourage banks to interpret the regulations placed 
upon them in the least restrictive and most expansive manner.
    Although this Committee has reported financial services 
legislation in the past that eventually became law, in fact 
this issue has never been satisfactorily resolved. Banks and 
brokers have had to move towards offering the other's products 
to remain competitive with each other and with foreign 
financial institutions in an increasingly global market. The 
development of financial services reform of intense discussions 
with members of the House leadership, and weeks of meetings 
with the interested parties, it became apparent to me--as I 
said during our hearings last Thursday--that an affiliation 
approach is unworkable at this time. The parties are too far 
apart, and their commitment to their respective positions too 
firmly held, for such an approach to succeed at present.
    It became clear that issues of public policy arise that 
make technical improvements in the operation of the bill 
premature, and equally clear that to attempt to do so would 
only jeopardize the prospect of enacting historic legislation 
modernizing our financial services industries.
    For example, whether an accommodation on a capital 
requirement for a SIDD is possible is subject first to the 
determination of whether such an accommodation is desirable. I 
believe, as did Chairman Leach in his original bill, that 
securities business should be conducted in a separately 
capitalized broker/dealer affiliate of the holding company and 
not within the bank or its separate divisions.
    The concept of the bank SIDD is, we are told, a necessary 
compromise that must be accepted or the bill will die. This 
Committee will not fail to meet its responsibility to move this 
issue to the Floor for debate and resolution. To accept the 
SIDD means to embrace the concept of exposing the capital of 
the bank to losses that occur as the result of its conducting 
an expanded securities business. On both sides of the aisle, 
many Members of the Commerce Committee question those notions. 
The Banking Committee went one way on this issue, and whether 
or not the Commerce Committee acquiesces is only an interim 
(and possibly divisive) question, since the very same issue 
will ultimately be reconsidered by the Committee of the Whole.
    Unlike past instances where this measure has come before 
our Committee, we will not allow our disagreements over these 
issues to become an excuse to become destructive of the greater 
goal of enacting long-overdue modernization of financial 
services regulation.
    Consequently, it is my intention to ask the Members of the 
Committee to report out the legislative product of the Banking 
Committee without recommendation or amendment. This will move 
the process forward to the Floor of the House and ultimate 
resolution by the Members.
    I have obtained the consent of the Chairman of the Rules 
Committee to allow an amendment on the floor which will address 
the issue of moving new securities activities out of the bank 
and into a broker-dealer affiliate of the holding company.
    I recognize that others on the Committee may dissent from 
this decision and markups are being held at the Subcommittee 
and Full Committee levels to provide them with the opportunity 
to state their positions and to offer amendments they deem 
appropriate. It is my personal intention to vote against any 
and all amendments to the bill at the Committee level.
    I will close by thanking the Members of the Committee in 
advance for their patience, their hard work, and their 
understanding of the difficulty involved in the Committee's 
processing in so short a time a bill that is not only 
substantively complex but involves a significant number of 
policy decisions that will determine whether the financial 
system of this country will remain sound and whether it will be 
able to compete in the markets of the world.