[House Report 109-356]
[From the U.S. Government Publishing Office]



109th Congress                                            Rept. 109-356
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 2

======================================================================



 
            FINANCIAL SERVICES REGULATORY RELIEF ACT OF 2005

                                _______
                                

 February 16, 2006.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

 Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 3505]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 3505) to provide regulatory relief and improve 
productivity for insured depository institutions, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.
    The amendment adopted by this committee is identical to the 
text reported by the Committee on Financial Services shown in 
their report filed December 17, 2005 (Rept. 109-356, Part 1).

                           TABLE OF CONTENTS

                                                                   Page
The Amendment....................................................     1
Purpose and Summary..............................................     2
Background and Need for the Legislation..........................     2
Hearings.........................................................     4
Committee Consideration..........................................     4
Vote of the Committee............................................     4
Committee Oversight Findings.....................................     4
New Budget Authority and Tax Expenditures........................     4
Congressional Budget Office Cost Estimate........................     4
Performance Goals and Objectives.................................    12
Constitutional Authority Statement...............................    12
Section-by-Section Analysis and Discussion.......................    12
Changes in Existing Law Made by the Bill, as Reported............    15

                             The Amendment

    The amendment adopted by this committee is identical to the 
text reported by the Committee on Financial Services shown in 
their report filed December 17, 2005 (Rept. 109-356, Part I).

                          Purpose and Summary

    As reported by the Committee on the Judiciary, H.R. 3505, 
the ``Financial Services Regulatory Relief Act of 2005,'' is 
intended to alter or eliminate statutory banking provisions in 
order to reduce the growing regulatory burden on insured 
depository institutions, improve their productivity, and to 
make needed technical corrections to current law. H.R. 3505 
contains a broad range of constructive provisions that, taken 
as a whole, will allow banks and other depository institutions 
to devote more resources to the business of lending to 
consumers and less to the bureaucratic maze of compliance with 
outdated and unneeded regulations. Reducing the regulatory 
burden on financial institutions lowers the cost of credit and 
will help restore vibrancy to the national economy.

                Background and Need for the Legislation

    On November 16, 2005, the Committee on Financial Services 
reported H.R. 3505, the ``Financial Services Regulatory Relief 
Act of 2005.'' \1\ The bill was sequentially referred to the 
Committee on the Judiciary for a period ending not later than 
December 31, 2005. On December 31, 2005, the sequential 
referral was extended for a period ending not later than 
February 3, 2006, and later extended for a period ending not 
later than February 24, 2006. The sections within the 
jurisdiction of the Committee on the Judiciary pertain to the 
operation of the Federal courts, criminal law enforcement, and 
the regulation of the banking industry as it pertains to 
antitrust. This legislation is substantially similar to H.R. 
1375, the ``Financial Services Regulatory Relief Act of 2003,'' 
which was reported from the Committee on the Judiciary last 
Congress.\2\
---------------------------------------------------------------------------
    \1\ See H.R. Rep. No. 109-356, Part I (2005).
    \2\ See H.R. Rep. No. 108-152, Part II, (2003).
---------------------------------------------------------------------------
    Congress has not passed structural reforms to America's 
banking industry since the Financial Institutions Reform, 
Recovery and Enforcement Act (FIRREA) was enacted in 1989. At 
that time, the national banking industry and the broader 
economy were recovering from a savings and loan crisis that 
undermined public confidence in America's financial 
institutions. As a result, Congress enacted FIRREA to help 
restore the integrity and reliability of the banking industry. 
H.R. 3505 addresses many shortcomings in that law. For example, 
economic analysts have estimated that the annual cost of 
compliance with various State and Federal banking regulations 
is nearly $36 billion. While effective regulation of the 
financial services industry is central to the preservation of 
public trust in financial institutions, excessive 
regulationundermines competition and consumer choice, results in higher 
service fees for consumers, and stifles innovation among competing 
institutions.
    H.R. 3505 provides the following regulatory improvements 
for national banks: (1) removes the prohibition on national and 
State banks expanding across State lines by opening branches; 
(2) allows the use of subordinated debt instruments to meet 
eligibility requirements for national banks to benefit from 
subchapter S tax treatment; (3) eliminates duplicative and 
costly reporting requirements on banks regarding lending to 
bank officials; (4) changes the exemption from the prohibition 
on management interlocks for banks in metropolitan statistical 
areas from $20 million in assets to $100 million; and (5) 
streamlines bank merger application regulatory requirements.
    The legislation provides the following regulatory 
improvements for savings associations: (1) gives savings 
associations parity with banks with respect to Securities and 
Exchange Commission (SEC) broker-dealer and investment adviser 
registration requirements; (2) removes auto lending and small 
business lending limits and expands business lending limit for 
Federal thrifts; (3) allows Federal thrifts to merge with one 
or more of their non-thrift subsidiaries or affiliates, as 
national banks; (4) increases the aggregate limit on commercial 
real estate loans by Federal thrifts from 400 to 500 percent of 
capital; and (5) gives Federal thrifts the same authority as 
national and State banks to make investments primarily designed 
to promote community development.
    H.R. 3505 provides the following regulatory improvements 
for credit unions: (1) allows privately insured credit unions 
to apply for membership to the Federal Home Loan Bank system; 
(2) expands the investment authority of Federal credit unions; 
(3) permits offering of check cashing and money transfer 
services to eligible members; (4) increases the limit on 
investment by Federal credit unions in credit union service 
organizations from 1 percent to 3 percent of shares and 
earnings; (5) raises the general limit on the term of Federal 
credit union loans from 12 to 15 years; and (6) allows for 
expedited consideration of credit union mergers.
    In addition, H.R. 3505 provides the following regulatory 
improvements for Federal financial regulatory agencies: (1) 
provides agencies the discretion to adjust the examination 
cycle for insured depository institutions to use agency 
resources in the most efficient manner; (2) increases from $250 
million to $1 billion the asset size of well-capitalized, well-
managed banks eligible for an 18-month exam schedule and allows 
banks with less than $1 billion in assets to file short-form 
call reports; (3) authorizes the agencies to share confidential 
supervisory information concerning an examined institution; (4) 
modernizes agency recordkeeping requirements to allow use of 
optically imaged or computer scanned images; and (5) clarifies 
that agencies may suspend or prohibit institution-affiliated 
parties charged with certain crimes from participation in the 
affairs of any depository institution and not only the 
institution with which the individual is or was associated.
    H.R. 3505 also addresses some financial institutions' 
concerns regarding duplicative and burdensome anti-money 
laundering requirements. Title VII seeks to make a number of 
changes--some statutory and others directing swift regulatory 
changes--to balance law enforcement's needs to prevent 
terrorist financing and money laundering with the industry's 
very real concerns about excessive burdens. The bill 
streamlines the process by which legitimate businesses with 
large cash-based operations may be exempted from certain 
requirements to file ``currency transaction reports'' (CTRs) on 
``seasoned customers,'' and directs the Secretary of the 
Treasury to prescribe regulations under which the filing 
institution may retain the exemption if the institution is 
acquired or merged. The bill also contains provisions to ease 
or eliminate inconsistent or duplicative requirements to file 
Suspicious Activity Reports (SARs), and directs the Secretary 
to devise computer-based methods of filing required reports 
electronically.
    These improvements will allow financial institutions to 
devote more resources to the business of lending to consumers 
and less to compliance with outdated and unneeded regulations. 
Reducing the regulatory burden will serve to lower credit costs 
for consumers and help invigorate the national economy.

                                Hearings

    The Committee on the Judiciary held no hearings on H.R. 
3505.

                        Committee Consideration

    On December 17, 2005, the House Committee on the Judiciary 
received a sequential referral of H.R. 3505. On February 15, 
2006, the Committee met in open session and ordered favorably 
reported the bill H.R. 3505 to the full House by voice vote, a 
quorum being present.

                         Vote of the Committee

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the Committee notes that there 
were no recorded votes during the Committee consideration of 
H.R. 3505.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of rule XIII of the Rules of the House of 
Representatives is inapplicable because the provisions of this 
legislation within the jurisdiction of the Judiciary Committee 
do not provide new budgetary authority or increased tax 
expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 3505, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:
                                                 February 16, 2005.
Hon. F. James Sensenbrenner Jr.,
Chairman, Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3505, the 
Financial Services Regulatory Relief Act of 2005.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Kathleen 
Gramp (for federal costs), Pam Greene (for revenues), Sarah 
Puro (for the state and local impact), and Judith Ruud (for the 
private-sector impact).
            Sincerely,
                                          Donald B. Marron,
                                                   Acting Director.
    Enclosure.

H.R. 3505--Financial Services Regulatory Relief Act of 2005

    Summary: H.R. 3505 would affect the operations of financial 
institutions and the agencies that regulate them. Some 
provisions would address specific sectors: national banks could 
more easily operate as S corporations or adopt other 
alternative organizational structures; thrift institutions 
would be given some of the same investment, lending, and 
ownership options available to banks; credit unions would have 
new options for investments, lending, mergers, and leasing 
federal property; and certain privately insured credit unions 
could become members of the Federal Home Loan Bank system. The 
bill would provide the Federal Deposit Insurance Corporation 
(FDIC) with new enforcement authority and modify regulatory 
procedures governing certain types of transactions. It also 
would give financial regulatory agencies more flexibility in 
sharing data, retaining records, and scheduling examinations. 
Finally, the bill would direct the Secretary of the Treasury to 
develop various reports, regulations, and programs related to 
currency transactions.
    CBO estimates that enacting this bill would reduce federal 
revenues by $64 million over the 2006-2011 period and by a 
total of $167 million over the 2006-2016 period. In addition, 
we estimate that direct spending would increase by $2 million 
over the 2006-2011 period and by a total of $7 million over the 
2006-2016 period. Provisions affecting programs funded by 
annual appropriations would cost another $4 million in 2007, 
CBO estimates, assuming appropriation of the necessary amounts.
    H.R. 3505 contains intergovernmental mandates as defined in 
the Unfunded Mandates Reform Act (UMRA), but CBO estimates that 
the cost of complying with the requirements would be small and 
would not exceed the threshold established in UMRA ($64 million 
in 2006, adjusted annually for inflation).
    H.R. 3505 contains several private-sector mandates as 
defined in UMRA. Those mandates would affect some depository 
institutions controlled by commercial firms, certain depository 
institutions and institution-affiliated parties, nondepository 
institutions that control depository institutions, uninsured 
banks, bank holding companies and their subsidiaries, and 
savings and loan association holding companies and their 
subsidiaries. At the same time, the bill would relax some 
restrictions on the operations of certain financial 
institutions. CBO estimates that the aggregate direct costs of 
complying with the private-sector mandates in the bill would 
not exceed the annual threshold established by UMRA ($128 
million in 2006, adjusted annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 3505 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         By fiscal year, in millions of dollars--
                                                                 ---------------------------------------------------------------------------------------
                                                                   2006    2007    2008    2009    2010    2011    2012    2013    2014    2015    2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Estimated Revenues: \1\
    S Corporation Status........................................       *      -6     -11     -14     -16     -13     -14     -15     -16     -17     -18
    Business Organization Flexibility...........................       0       *       *      -1      -1      -2      -2      -4      -5      -6      -6
                                                                 ---------------------------------------------------------------------------------------
        Total...................................................       *      -6     -11     -15     -17     -15     -16     -19     -21     -23     -24

                                                               CHANGES IN DIRECT SPENDING

Estimated Budget Authority......................................       *       *       *       *       1       1       1       1       1       1       1
Estimated Outlays...............................................       *       *       *       *       1       1       1       1       1       1       1

                                                           CHANGES IN SUBJECT TO APPROPRIATION

Estimated Authorization Level...................................       0       4       0       0       0       0       0       0       0       0       0
Estimated Outlays...............................................       0       4       0       0       0       0       0       0       0       0      0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Negative revenues indicate a reduction in revenue collections.
Note.--* = Revenue loss or spending cost of less than $500,000.

    Basis of estimate: Most of the budgetary impacts of this 
legislation would result from three provisions: section 101, 
which would make it easier for national banks to convert to S 
corporation status or alternative organization forms; section 
302, which would allow certain federal credit unions to lease 
federal land at no charge; and title VII, which would direct 
the Secretary of the Treasury to complete various studies, 
programs, and regulatory proceedings. For this estimate, CBO 
assumes that H.R. 3505 will be enacted during fiscal year 2006.
    H.R. 3505 also would affect the workload at agencies that 
regulate financial institutions. We estimate that the net 
change in agency spending would not be significant. Based on 
information from each of the agencies, CBO estimates that the 
change in administrative expenses--both costs and potential 
savings--would average less than $500,000 a year over the next 
several years. Expenditures of the Office of the Comptroller of 
the Currency (OCC), the Office of Thrift Supervision (OTS), the 
National Credit Union Administration (NCUA), and the FDIC are 
classified as direct spending and would be covered by fees or 
insurance premiums paid by the institutions they regulate. Any 
change in spending by the Federal Reserve would affect net 
revenues, while adjustments in the budgets of the Department of 
the Treasury, Securities and Exchange Commission (SEC), and 
Federal Trade Commission (FTC) would be subject to 
appropriation.

Revenues

    CBO estimates that enacting H.R. 3505 would reduce federal 
tax revenues collected from national and state-chartered banks 
and would have an insignificant effect on civil and criminal 
penalties collected for violations of the bill's provisions.
    S Corporation Status. Under this bill, some national banks 
would find it easier to convert from C corporation status to S 
corporation status. Section 101 would allow directors of 
national banks to be issued subordinated debt to satisfy the 
requirement that directors of a bank own qualifying shares in 
the bank. This provision would effectively reduce the number of 
shareholders of a bank by removing directors from shareholder 
status, making it easier for banks to comply with the 100-
shareholder limit that defines eligibility for subchapter-S 
election.
    Income earned by banks taxed as C corporations is subject 
to the corporate income tax, and post-tax income distributed to 
shareholders is taxed again at individual income-tax rates. 
Income earned by banks operating as S corporations is taxed 
only at the personal income-tax rates of the banks' 
shareholders and is not subject to the corporate income tax. 
The averageeffective tax rate on S-corporation income is lower 
than the average effective tax rate on C-corporation income. CBO 
estimates that enacting this provision would reduce revenues by a total 
of $60 million over the 2006-2011 period and by $140 million over the 
2006-2016 period.
    Based on information from the Federal Reserve Board, the 
OCC, and private trade associations, CBO expects that most of 
the banks that would be affected are small, although banks and 
bank holding companies with assets over $500 million would also 
be affected. In addition, states are likely to amend the rules 
for state-chartered banks to match those for national banks. 
CBO expects that most conversions to subchapter-S status would 
occur between 2006 and 2008 and that national banks would 
convert earlier than state-chartered banks.
    Business Organization Flexibility. Under section 109 of 
this bill, the Comptroller of the Currency could allow national 
banks to organize in noncorporate form, for example as Limited 
Liability Companies (LLCs) as defined by state law. LLCs 
generally choose to be taxed as partnerships. Only a few states 
currently allow banks to organize as LLCs, however, and the IRS 
currently taxes state-chartered bank-LLCs as C corporations. 
LLCs provide more organizational flexibility than S 
corporations while retaining the corporate characteristic of 
limited liability.
    Income earned by banks taxed as C corporations is subject 
to the corporate income tax, and post-tax income distributed to 
shareholders is taxed again at individual income tax rates. 
Income earned by partnerships--like that earned by S 
corporations--is taxed only at the personal income-tax rates of 
the partners and is not subject to the corporate income tax. 
The average effective tax rate on partnerships is lower than 
the average effective tax rate on C-corporation income but is 
similar to the average effective tax rate on S-corporation 
income.
    Based on information from the OCC, the FDIC, and private 
trade associations, CBO views that it is quite possible that 
the OCC would alter its regulations to allow national banks to 
organize in noncorporate form. CBO expects that, over the next 
decade, most states that do not currently allow banks to 
organize as LLCs will begin allowing them to do so out of 
competitiveness concerns. CBO also expects that the IRS is 
likely to reconsider allowing pass-through tax treatment to 
banks organized as LLCs and may allow such tax treatment at 
some point in the next decade. CBO believes that banks forming 
as LLCs would most likely be newly chartered institutions. Over 
the next decade, only a very limited number of banks would 
convert from C corporation or S corporation status to LLCs 
taxed as partnerships.CBO estimates that enacting this 
provision would reduce revenues by a total of $4 million over the 2006-
2011 period and by $27 million over the 2006-2016 period.
    Civil and Criminal Penalties. H.R. 3505 would make all 
depository institutions--not just insured institutions--subject 
to certain civil and criminal fines for violating rules 
regarding breach of trust, dishonesty, and certain other 
crimes. It also would authorize the FDIC to take enforcement 
action or impose civil penalties of up to $1 million a day on 
any individual, corporation, or other entity that falsely 
implies that deposits or other funds are insured by the agency. 
Based on information from the FDIC, CBO expects that 
enforcement actions would likely deter most individuals or 
institutions from violating rules regarding breach of trust, 
dishonesty, or certain other crimes. As a result, we estimate 
that any additional penalty collections under those provisions 
would not be significant.

Direct spending

    CBO estimates that enacting H.R. 3505 would increase direct 
spending by $2 million over the 2006-2011 period and about $7 
million over the 2006-2016 period by reducing offsetting 
receipts collected from credit unions that lease federal 
facilities. Enacting the bill also could affect the cost of 
deposit insurance, but CBO has no basis for estimating the 
amount of any change.
    Credit Union Leases. Section 302 would allow federal 
agencies to lease land to federal credit unions without charge 
under certain conditions. Under existing law, agencies may 
allocate space in federal buildings without charge if at least 
95 percent of the credit union's members are or were federal 
employees. Some credit unions, primarily those serving military 
bases, have leased federal land to build a facility. Prior to 
1991, leases awarded by the Department of Defense (DoD) were 
free of charge and for terms of up to 25 years; a statutory 
change enacted that year limited the term of such leases to 
five years and required the lessee to pay a fair market value 
for the property. According to DoD, about 35 credit unions have 
leased land since 1991 and are paying a total of about $525,000 
a year to lease federal property. Those proceeds are recorded 
as offsetting receipts, and any spending of those payments is 
subject to appropriation.
    CBO expects that enacting this provision would result in a 
loss of offsetting receipts from all credit union leases. Those 
lessees currently paying a fee would stop making those payments 
after they renew their current leases, all of which should 
expire within the next five years. In addition, credit unions 
that have long-term, no-cost leases would be able to renew them 
without becoming subject to the fees they otherwise would pay 
under current law. CBO estimates that enacting this provision 
would cost a total of about $2 million over the next six years 
and an average of about $700,000 annually after 2011.
    Deposit Insurance. Several provisions in the bill could 
affect the cost of federal deposit insurance. For example, the 
bill would streamline the approval process for mergers, 
branching, and affiliations, which could give eligible 
institutions the opportunity to diversify and compete more 
effectively with other financial businesses. In some cases, 
such efficiencies could reduce the risk of insolvency. It is 
also possible, however, that some of the new lending and 
investment options could increase the risk of losses to the 
deposit insurance funds.
    CBO has no clear basis for predicting the direction or the 
amount of any change in spending for insurance that could 
result from the new investment, lending, and operational 
arrangements authorized by this bill. The net budgetary impact 
of such changes would be negligible over time, however, because 
any increase or decrease in costs would be offset by 
adjustments in the insurance premiums paid by banks, thrifts, 
or credit unions.

Spending subject to appropriation

    H.R. 3505 also would affect spending for activities funded 
by annual appropriations. CBO estimates implementing those 
provisions would cost about $4 million in 2007, assuming 
appropriation of the necessary amounts.
    Title VII would direct the Secretary of the Treasury to 
develop and implement various measures related to the reporting 
of currency transactions. Based on information from the 
Treasury, CBO estimates that it would cost about $4 million to 
complete the regulations, reports, and programs required by the 
bill, assuming appropriation of the necessary amounts.
    In addition, section 201 provides thrift institutions with 
exemptions from broker-dealer and investment-advisor 
registration requirements similar to those accorded banks. 
Section 313 provides similar exemptions for federally insured 
credit unions. Based on information from the SEC, CBO estimates 
that the budgetary effects of those exemptions would not be 
significant.
    Finally, section 312 would exempt federally insured credit 
unions from filing certain acquisition or merger notices with 
the FTC. Under current law, the FTC charges filing fees ranging 
from $45,000 to $280,000, depending on the value of the 
transaction. The collection of such fees is contingent on 
appropriation action. Based on information from the FTC, CBO 
estimates that this exemption would have no significant effect 
on the amounts collected from such fees.
    Estimated impact on State, local, and tribal governments: 
H.R. 3505 contains intergovernmental mandates as defined in 
UMRA, because it would preempt certain state laws and place new 
requirements on certain state agencies that regulate financial 
institutions. CBO estimates that the cost of complying with the 
requirements would be small and would not exceed the threshold 
established in UMRA ($64 million in 2006, adjusted annually for 
inflation).
    Provisions in section 209 would preempt certain state 
securities laws by prohibiting states from requiring agents who 
represent a federal savings association to register as brokers 
or dealers if they sell deposit products (CDs) issued by the 
savings association. Such a preemption would impose costs (in 
the form of lost revenues) on those states that currently 
require such registration. Based on information from 
representatives of the securities industry and securities 
regulators, CBO estimates that losses to states as a result of 
this prohibition would total less than $1 million a year.
    Other provisions of the bill would place requirements on 
state regulators of credit unions to review documents related 
to federal deposit insurance and to provide certain information 
to the NCUA. Also, section 401 would extend certain preemptions 
of state laws related to mergers between insured depository 
institutions chartered in different states and preempt state 
laws that regulate certain fiduciary activities performed by 
insured banks and other depository institutions. Section 619 
provides that only certain bank supervisors may impose 
supervisory fees on the bank. Based on information from 
industry authorities and state entities, CBO estimates that 
these provisions would impose minimal costs, if any, on state, 
local, and tribal governments.
    Estimated impact on the private sector: H.R. 3505 contains 
several private-sector mandates as defined by UMRA. At the same 
time, the bill would relax some restrictions on the operations 
of certain financial institutions. CBO estimates that the 
aggregate direct costs of mandates in the bill would not exceed 
the annual threshold established in UMRA ($128 million in 2006, 
adjusted annually for inflation).
    Mandates in the bill include a prohibition of interstate 
branching by certain depository institutions controlled by 
commercial firms, an expansion of the authority of federal 
bankingagencies over insured depository institutions and 
institution-affiliated parties with respect to safety and soundness 
enforcement, and restrictions on participation in the affairs of 
financial institutions of people convicted of certain crimes or the 
subject of certain criminal proceedings.

Prohibition of interstate branching by subsidiaries of commercial firms

    The bill would prohibit interstate branching by industrial 
loan companies or industrial banks or certain other depository 
institutions that are controlled by firms that derive 15 
percent or more of their revenues from nonfinancial activities. 
The prohibition would not apply to such institutions that 
became insured depository institutions before October 1, 2003.
    This mandate only applies to a handful of institutions, 
none of which currently operates any branches. While the 
mandate does take away their option to open branches in other 
states, according to government and industry sources, the 
affected institutions had no immediate plans to use the option 
to branch. Consequently, CBO estimates that there would be 
little or no direct cost to comply with this mandate.

Enhanced safety and soundness enforcement

    The bill would expand some of the authorities of federal 
banking agencies with respect to troubled or failing 
institutions, and institution-affiliated parties. Based on 
information from the FDIC, the cost to the private sector of 
these expanded authorities would be small.
    The Gramm-Leach-Bliley Act allowed new forms of 
affiliations among depositories and other financial services 
firms. Consequently, insured depository institutions may now be 
controlled by a company other than a depository institution 
holding company (DIHC). The bill would amend current law to 
give the FDIC certain authorities concerning troubled or 
failing depository institutions held by those new forms of 
holding companies.
    Cross-Guarantee Authority. Under current law, if the FDIC 
suffers a loss from liquidating or selling a failed depository 
institution, the FDIC has the authority to obtain reimbursement 
from any insured depository institution within the same DIHC. 
Section 407 would expand the scope of the FDIC's reimbursement 
power to include all insured depository institutions controlled 
by the same company, not just those controlled by the same 
DIHC.
    The cost of this mandate would depend, among other things, 
on the probability of failure of the additional institutions 
subject to this authority and the probability that the FDIC 
would incur a loss as a result of those failures. The new 
authority would apply only to a handful of depository 
institutions. Based on information from the FDIC, CBO estimates 
that the cost of this mandate would not be substantial.
    Golden Parachute Authority and Nonbank Holding Companies. 
Section 408 would allow the FDIC to prohibit or limit any 
company that controls an insured depository from making 
``golden parachute'' payments or indemnification payments to 
institution-affiliated parties of troubled or failing insured 
depositories. (Institution-affiliated parties include 
directors, officers, employees, and controlling shareholders. 
Institution-affiliated parties also include independent 
contractors such as accountants or lawyers who participate in 
violations of the law or undertake unsound business practices 
that may cause a financial loss to, or adverse effect on, the 
insured depository institution.)
    Based on information from the FDIC, CBO expects that only a 
few institutions would be covered by the new authority. In the 
event that the FDIC exercises this authority, CBO expects that 
the cost to institutions of withholding such payments would be 
administrative in nature and minimal, if any.

Restrictions on convicted individuals

    Current law prohibits a person convicted of a crime 
involving dishonesty, a breach of trust, or money laundering 
from participating in the affairs of an insured depository 
institution without FDIC approval. The bill would extend that 
prohibition so that uninsured banks, bank holding companies and 
their subsidiaries, and savings and loan holding companies and 
their subsidiaries could not allow such persons to participate 
in their affairs without the prior written consent of their 
designated federal banking regulator.
    Assuming that those institutions already screen potential 
directors, officers, and employees for criminal offenses, the 
incremental cost of complying with this mandate would be small.
    Previous CBO estimate: On December 8, 2005, CBO transmitted 
a cost estimate for H.R. 3505 as ordered reported by the House 
Committee on Financial Services on November 16, 2005. The two 
versions of the bill are identical, but CBO updated the 
estimate of costs to reflect a later date of enactment and 
CBO's new baseline projections of corporate tax revenues.
    The intergovernmental and private-sector mandates in both 
versions of the bill are the same.
    Estimate prepared by: Federal Spending: Kathleen Gramp. 
Federal Revenues: Pam Greene. Impact on State, Local, and 
Tribal Governments: Sarah Puro. Impact on the Private Sector: 
Judith Ruud.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis, and G. Thomas Woodward, Assistant 
Director for Tax Analysis.

                    Performance Goals and Objectives

    The Committee states that pursuant to clause 3(c)(4) of 
rule XIII of the Rules of the House of Representatives, H.R. 
3505 is intended to alter or eliminate statutory banking 
provisions in order to reduce the growing regulatory burden on 
insured depository institutions, improve their productivity, 
and to make needed technical corrections to current law.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in art. 1, Sec. 8 of the Constitution.

               Section-by-Section Analysis and Discussion

    The following section-by-section analysis contains a 
description of principal provisions contained in H.R. 3505 as 
reported within the jurisdiction of the Committee on the 
Judiciary. H.R. 3505 was reported from the Committee on 
Financial Services on November 16, 2005. For a discussion of 
the provisions within the jurisdiction of the Committee on 
Financial Services, please see H.R. Rept. 109-356, Part I.

                        TITLE I--NATIONAL BANKS


Section 106. Clarification of Waiver of Publication Requirements for 
        Bank Merger Notices

    Section 106 amends the National Bank Consolidation and 
Merger Act (12 U.S.C. Sec. 215(a) and 215(a)(2)) to provide the 
Comptroller with authority to waive the publication of notice 
requirement for bank mergers if the Comptroller determines that 
an emergency justifies such a waiver or if shareholders of the 
association or State bank agree by unanimous action to waive 
the publication requirement for their respective institutions.

                     TITLE II--SAVINGS ASSOCIATIONS


Section 203. Mergers and consolidations of Federal Savings Associations 
        with nondepository institution affiliates

    This section amends the Home Owners Loan Act (12 U.S.C. 
Sec. 1464) to permit a Federal savings association to merge 
with any nondepository institution affiliate of the savings 
association.

Section 213. Citizenship of Federal Savings Associations for 
        determining Federal court diversity jurisdiction

    This section amends the Home Owners' Loan Act (12 U.S.C. 
Sec. 1464) to establish that a Federal savings association 
shall be considered--for purposes of establishing diversity 
jurisdiction--a citizen only of the State where the savings 
association locates its main office. Diversity jurisdiction 
requires complete diversity among all parties to a lawsuit, 
i.e. that all parties be citizens of different States, and for 
there to be a minimum sum of $75,000 in controversy. Since they 
are chartered by the Federal government and not incorporated in 
a State, it has been held that federally-chartered savings 
associations that conduct business in more than one State are 
not considered to be a citizen of any State. In contrast, a 
federally-chartered savings association that confines its 
business to a single State is considered to be a citizen of 
that State. This section will provide parity among federally-
chartered savings associations. This section also ensures 
greater parity between federally-chartered savings associations 
and national banking associations by providing that each is 
considered to be a citizen of the State where it is located for 
purposes of diversity jurisdiction.

                        TITLE III--CREDIT UNIONS


Section 312. Exemption from pre-merger notification requirement of the 
        Clayton Act

    This section amends the Clayton Act to exempt credit unions 
from provisions of the Hart-Scott-Rodino Antitrust Improvements 
Act of 1976 (15 U.S.C. Sec. 18a) which require certain acquired 
and acquiring persons--including federally insured credit 
unions--to file a notification and report form with the Federal 
Trade Commission (FTC) to provide advance notification of 
mergers and acquisitions when the value of the transaction 
exceeds $50 million.

                   TITLE IV--DEPOSITORY INSTITUTIONS


Section 401. Easing restrictions on interstate branching and mergers

    This section removes the prohibition in current law on 
national and State banks expanding through de novo interstate 
branching. Currently, banks may expand in this fashion only if 
a State's law expressly permits interstate branching. This 
section clarifies that a State member bank may establish a de 
novo interstate branch under the same terms and conditions 
applicable to national banks. The authority for a State to 
prohibit an out-of-State bank or bank holding company from 
acquiring, through merger or acquisition, an in-State bank that 
has not existed for at least five years is eliminated. Insured 
banks are authorized to acquire by merger or consolidation 
another insured depository institution (including a savings 
association) or an uninsured trust company that has a different 
home State than the acquiring insured bank. Industrial loan 
companies (ILCs) controlled by firms that derive 15 percent or 
more of their consolidated revenues from non-financial 
activities would not be permitted to engage in interstate 
branching, unless the ILC became an insured depository 
institution prior to October 1, 2003.
    This section permits a State bank supervisor to authorize 
State trust companies it supervises to act in a fiduciary 
capacity on an interstate basis either with or without 
interstate offices. Such activities must not be in 
contravention of State law, but will not be deemed to 
contravene State law to the extent that a host State grants to 
its trust institutions the fiduciary powers sought to be 
exercised on an interstate basis. This authority parallels 
existing authority of national banks and national trust 
companies under the National Bank Act.

Section 402. Statute of limitations for judicial review of appointment 
        of a receiver for depository institutions

    This section amends the National Bank Receivership Act (12 
U.S.C. Sec. 191), the Federal Deposit Insurance Act (12 U.S.C. 
Sec. 1821(c)(7)), and the Federal Credit Union Act (12 U.S.C. 
Sec. 1787(a)(1)), to establish a uniform 30-day statute of 
limitations for national banks, State chartered non-member 
banks, and credit unions to challenge decisions by the Office 
of the Comptroller of the Currency, Federal Deposit Insurance 
Corporation, and the National Credit Union Administration to 
appoint a receiver. Current law generally provides that 
challenges to a decision by the Federal Deposit Insurance 
Corporation or the Office of Thrift Supervision to appoint a 
receiver for an insured State bank or savings association must 
be raised within 30 days of the appointment (see 12 U.S.C. 
Sec. 1821(c)(7) and Sec. 1464(d)(2)(B)). However, there is no 
statutory limitation on national banks' ability to challenge a 
decision by the Office of the Comptroller of the Currency to 
appoint a receiver of an insured or uninsured national bank. As 
a result, the general six-year statute of limitations currently 
applies to national banks in these instances. This protracted 
time period severely limits the Office of the Comptroller of 
the Currency's authority to manage insolvent national banks 
that are placed in receivership and the ability of the Federal 
Deposit Insurance Corporation to wind up the affairs of an 
insured national bank in a timely manner with legal certainty.

                       TITLE VI--BANKING AGENCIES


Section 603. Penalty for unauthorized participation by convicted 
        individual

    A person convicted of a crime involving dishonesty or a 
breach of trust may not participate in the affairs of an 
insured depository institution without FDIC approval. Certain 
special purpose banks and foreign banking institutions operate 
without insured status (e.g., trust banks and foreign 
branches). This section extends the prohibition to include 
uninsured national and State member banks and uninsured offices 
of foreign banks.

Section 609. Clarification of suspension, removal, and prohibition 
        authority of Federal banking agencies in cases of certain 
        crimes by institution-affiliated parties

    This section clarifies that the appropriate Federal banking 
agency may suspend or prohibit individuals who are the subject 
of criminal proceedings from participation in the affairs of 
any depository institution, instead of only a prohibition from 
the insured depository with which the institution affiliated 
party is or was associated. The agency may also use the 
prohibition authority even when the institution with which the 
individuals were associated ceases to exist.

Section 610. Streamlining depository institution merger application 
        requirements

    This section amends the Federal Deposit Insurance Act (12 
U.S.C. Sec. 1828) to require the Attorney General to provide 
within 30 days a report on the competitive factors associated 
with a depository institution merger to a requesting agency. 
This section reduces this period to 10 days if the requesting 
agency advises the Attorney General that an emergency exists 
requiring expeditious action.

Section 613. Prohibition on participation by convicted individual

    This section would prohibit a person convicted of a 
criminal offense involving dishonesty, a breach of trust, or 
money laundering from participating in the affairs of a bank 
holding company or an Edge or Agreement Corporation, without 
the consent of the Federal Reserve Board, and from 
participating in the affairs of a savings and loan holding 
company or any of its non-thrift subsidiaries, without the 
consent of the Office of Thrift Supervision. Foreign banks and 
nonbank subsidiaries of a bank holding company are excluded.

         Changes in Existing Law Made by the Bill, as Reported

  The bill was referred to this committee for consideration of 
such provisions of the bill and amendment as fall within the 
jurisdiction of this committee pursuant to clause 1(l) of Rule 
X of the Rules of the House of Representatives. The changes 
made to existing law by the amendment reported by the Committee 
on Financial Services are shown in the report filed by that 
committee (Rept. 109-356, Part 1).

                                  
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