[Senate Report 109-256]
[From the U.S. Government Publishing Office]
Calendar No. 437
109th Congress Report
SENATE
2d Session 109-256
======================================================================
FINANCIAL SERVICES REGULATORY RELIEF ACT OF 2006
_______
May 18, 2006.--Ordered to be printed
_______
Mr. Crapo, from the Committee on Banking, Housing, and Urban Affairs,
submitted the following
R E P O R T
[To accompany S. 2856]
The Committee on Banking, Housing, and Urban Affairs, which
took up an original bill, having considered the same, reports
favorably thereon and recommends that the bill do pass.
INTRODUCTION
On May 4, 2006, the Senate Committee on Banking, Housing,
and Urban Affairs considered a Committee Print, entitled ``The
Financial Services Regulatory Relief Act of 2006,'' a bill to
provide regulatory relief and improve productivity for insured
depository institutions, and for other purposes. The Committee
passed the bill by voice vote.
PURPOSE OF THE LEGISLATION
Regulatory burdens imposed on the financial services
industry have grown over time. Some of these requirements have
become obsolete or unnecessary. The purpose of this legislation
is to lessen the regulatory burden, so banks, thrifts, and
credit unions can better serve their customers and communities.
HEARINGS
The Committee heard testimony in the 109th Congress on
March 1, 2006, regarding the consideration of regulatory relief
proposals. The witnesses testifying were: John M. Reich,
Director, Office of Thrift Supervision; Gavin M. Gee, Director
of Finance, Idaho Department of Finance; Donald L. Kohn,
Governor--Federal Reserve Board of Governors, Federal Reserve
System; Douglas H. Jones, Acting General Counsel, Federal
Deposit Insurance Corporation; Julie L. Williams, First Senior
Deputy Comptroller and Chief Counsel, Office of the Comptroller
of the Currency; JoAnn Johnson, Chairman--Board of Directors,
National Credit Union Administration; Linda Jekel, Chair and
Director of Credit Unions, National Association of State Credit
Union Supervisors; Bradley Rock, President and CEO, Bank of
Smithtown; Edmund Mierzwinski, Consumer Program Director, U.S.
Public Interest Research Group; F. Weller Meyer, President and
CEO, Acacia Federal Savings Bank; H. Greg McClellan, President
and CEO, MAX Federal Credit Union; Travis Plunkett, Legislative
Director, Consumer Federation of America; Steve Bartlett,
President and CEO, Financial Services Roundtable; Joe McGee,
President and CEO, Legacy Community Federal Credit Union;
Margot Saunders, Managing Attorney, National Consumer Law
Center; and Terry Jorde, President and CEO, CountryBank USA.
The Committee had previously heard testimony on June 21,
2005, regarding the consideration of regulatory relief
proposals. The witnesses testifying were: John M. Reich, Vice
Chairman, Federal Deposit Insurance Corporation; Julie L.
Williams, Acting Comptroller, Office of the Comptroller of the
Currency; Mark W. Olson, Member, Board of Governors, Federal
Reserve System; Richard M. Riccobono, Acting Director, Office
of Thrift Supervision; JoAnn Johnson, Chairman--Board of
Directors, National Credit Union Administration; Eric McClure,
Commissioner, Missouri Division of Finance; Steve Bartlett,
President and CEO, Financial Services Roundtable; Carolyn
Carter, Counsel, National Consumer Law Center; Arthur R.
Connelly, Chairman and CEO, South Shore Savings Bank; David
Hayes, President and CEO, Security Bank; Christopher A. Korst,
Senior Vice President, Rent-A-Center, Inc.; Chris Loseth,
President and CEO, Potlatch No. 1 Federal Credit Union; Ed
Pinto, President, Courtesy Settlement Services LLC; Eugene
Maloney, Executive Vice President, Federated Investors, Inc.;
Travis Plunkett, Legislative Director, Consumer Federation of
America; Bradley Rock, President and CEO, Bank of Smithtown;
and Michael Vadala, President and CEO, The Summit Federal
Credit Union.
The Committee also heard testimony in the 108th Congress on
June 22, 2004, regarding the consideration of regulatory relief
proposals. The witnesses testifying were: Mary L. Landrieu,
United States Senator; Blanche Lambert Lincoln, United States
Senator; Donald Kohn, Member of the Board of Governors of the
Federal Reserve; John M. Reich, Vice Chairman, Federal Deposit
Insurance Corporation; JoAnn Johnson, Chair, National Credit
Union Administration; John Bowman, Chief Counsel, Office of
Thrift Supervision; John Allison, Mississippi State Banking
Commissioner; Roger W. Little, Deputy Commissioner, Credit
Union Division, Division of Financial Institutions, State of
Michigan; Mark Macomber, President and CEO, Litchfield Bancorp;
Edward J. Pinto, President & CEO, Lenders Residential Asset
Company LLC; Dale L. Leighty, Chairman/President, First
National Bank of Las Animas; Bradley Rock, President and CEO,
Bank of Smithtown; Eugene Maloney, Executive Vice President,
Federated Investors, Inc.; Marilyn F. James, CEO of NEPCO
Federal Credit Union; Margot Saunders, Managing Attorney,
National Consumer Law Center; Edmund Mierzwinski, Consumer
Program Director, U.S. Public Interest Research Group; Julie
Williams, First Senior Deputy Comptroller and Chief Counsel,
Office of the Comptroller of the Currency; William Cheney,
President/CEO, Xerox Federal Credit Union; and William A.
Longbrake, Vice Chair, Washington Mutual Incorporated.
SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION
Section 1. Short title; table of contents
This section provides a short title and table of contents.
Section 101. Rulemaking required for revised definition of broker in
the Securities Exchange Act of 1934
Prior to passage of the Gramm-Leach-Bliley Act (``GLBA''),
banks were exempt from the definition of ``broker'' under the
Securities Exchange Act of 1934 (``Exchange Act'') and
therefore not required to register as a broker under the
Exchange Act.
Section 201 of GLBA repealed the banks' blanket exemption
and replaced it with a series of activity-specific statutory
exceptions. Thus, as long as a bank is engaged in these
``traditional banking activities,'' it would not be subject to
broker-dealer regulation by the Securities andExchange
Commission (``SEC''). These activities would, however, continue to be
supervised by the Federal bank regulators.
Section 101 directs the SEC to consult with and seek the
concurrence of the Federal banking agencies in implementing the
exceptions to the definition of broker under Section 201 of
GLBA. Section 101 also provides for expedited judicial review
in the event that one of the Federal banking agencies decides
to challenge a final rule by the SEC on the grounds that it is
not consistent with the purposes and language of Section
3(a)(4) of the Exchange Act. Section 101 in no way amends or
otherwise affects the provisions of Section 25 of the Exchange
Act permitting private parties to challenge a rule adopted by
the SEC. In addition, Section 101 provides that (1) upon
enactment, no rules previously issued by the SEC with regard to
the bank exception from the definition of ``broker'' under
Section 3(a)(4) of the Exchange Act (whether or not issued in
final form) shall have any force or effect as of the date of
enactment of GLBA, and (2) the final rule issued in accordance
with Section 101 shall supersede such previous rules.
Section 201. Authorization for the Federal Reserve to pay interest on
reserves
This section authorizes the payment of interest on balances
held by depository institutions at a Federal reserve bank.
Section 202. Increased flexibility for the Federal Reserve Board to
establish reserve requirements
This section provides the Federal Reserve with greater
flexibility to set the ratio of reserves a depository
institution must maintain against its transaction accounts,
allowing a zero reserve ratio, if appropriate.
Section 301. Voting in shareholder elections
This section permits a national bank to provide in its
articles of association which method of electing its directors
best suits its business goals and needs--a national bank could
choose whether to allow cumulative voting, which is mandated by
the current law.
Section 302. Simplifying dividend calculations for national banks
This section provides more flexibility than current law to
a national bank to pay dividends as deemed appropriate by its
board of directors. Consistent with safety and soundness, the
amendment retains the current requirements that Office of the
Comptroller of the Currency (``OCC'') approval is necessary if
the dividend exceeds a certain amount. These same dividend
approval requirements apply to State member banks with the
exception that the Federal Reserve Board is the approval
authority rather than the OCC.
Section 303. Repeal of obsolete limitation on removal authority of the
Comptroller of the Currency
This section gives the OCC the same removal authority as
the other banking agencies to remove an institution-affiliated
party (``IAP'') from the banking business.
Section 304. Repeal of obsolete provisions in the Revised Statutes
This section deletes references to two obsolete provisions
regarding capital requirements, but makes no changes to the
requirement that a national bank may not reduce its capital
unless approved by shareholders owning two-thirds of its
capital stock and by the OCC.
Section 401. Parity for savings associations under the Securities
Exchange Act of 1934 and the Investment Advisers Act of 1940
This section exempts Federal savings associations from the
investment adviser and broker-dealer regulatory requirements to
the same extent that banks are exempt under the Investment
Advisers Act of 1940 and the Securities and Exchange Act of
1934.
Section 402. Repeal of overlapping rules governing purchased mortgage
servicing rights
This section repeals the overlapping, obsolete requirements
governing purchased mortgage servicing rights (``PMSRs'') in
the Home Owners'' Loan Act. Section 475 of the Federal Deposit
Insurance Corporation Improvement Act of 1991 will continue to
govern the valuation of PMSRs for savings associations and
other depository institutions. Section 475 already permits
overriding the valuation limit, and repealing this provision
will simply eliminate potential confusion without sacrificing
safety and soundness objectives.
Section 403. Clarifying citizenship of Federal savings associations for
Federal court jurisdiction
This section expressly provides that a Federal savings
association is only a citizen of the State in which its home
office is located for purposes of determining diversity
jurisdiction.
Section 404. Repeal of limitation on loans to one borrower
This section eliminates the limitation in the loans to one
borrower provision applicable to thrifts that restricts loans
to develop domestic residential housing units to units with a
purchase price that does not exceed $500,000. It does not alter
the overall limitation of the lesser of $30 million or 30% of a
savings association's unimpaired capital and unimpaired surplus
for residential housing development.
Section 501. Leases of land on Federal facilities for credit unions
This section gives military and civilian authorities
responsible for buildings erected on Federal property the
discretion to extend to credit unions that finance the
construction of credit union facilities on Federal land real
estate leases at minimal charge.
Section 502. Increase in general 12-year limitation of term of Federal
credit union loans to 15 years
This section increases the maturity limitation on Federal
credit union loans from 12 to 15 years.
Section 503. Check cashing and money transfer services offered within
the field of membership
This section amends the Federal Credit Union Act to allow
Federal credit unions to sell negotiable checks, money orders,
and other similar transfer instruments, including international
and domestic electronic fund transfers, to anyone eligible for
membership, regardless of their membership status.
Section 504. Clarification of definition of net worth under certain
circumstances for purposes of prompt corrective action
This section amends the Federal Credit Union Act's prompt
corrective action requirements by redefining a credit union's
net worth as the retained earnings balance of the credit union
(as determined under generally accepted accounting principles,
as under current law), together with any amounts that were
previously retained earnings of any other credit union with
which the credit union has merged.
Section 601. Reporting requirements relating to insider lending
This section eliminates certain reporting requirements
currently imposed on banks and their executive officers and
principal shareholders related to lending by banks to insiders.
This would not alter restrictions on the ability of banks to
make insider loans or limit the ability of Federal banking
agencies to take enforcement action against a bank or its
insiders for violation of lending limits.
Section 602. Investments by insured savings associations in bank
service companies authorized
This section provides investment authority for banks and
thrifts to participate in bank service companies, while
preserving existing activity and geographic limits and maximum
investment rules, as well as the roles of the Federal
regulatory agencies with respect to subsidiary activities of
the institutions under their primary jurisdiction.
Section 603. Authorization for member bank to use pass-through reserve
accounts
This section permits banks that are members of the Federal
Reserve System to count as reserves the deposits in other banks
that are ``passed through'' by those banks to the Federal
Reserve as required reserve balances. Nonmember banks already
are able to use such pass-through reserve accounts.
Section 604. Streamlining reports of condition
This section directs all Federal banking agencies to
conduct a review of call report requirements every five years
to determine which data requirements are no longer necessary or
appropriate.
Section 605. Expansion of eligibility for 18-month examination schedule
for community banks
This section amends the Federal Deposit Insurance Act to
increase from $250 million to $500 million the asset size of
well-capitalized, well-managed institutions eligible for the
extended 18-month examination schedule.
Section 606. Streamlining depository institution merger applications
requirements
This section eliminates the requirement that each federal
banking agency must request a competitive factors report from
the other three federal banking agencies as well as from the
Attorney General. The amendment decreases the number to two,
with the Attorney General continuing to be required to consider
the competitive factors involved in each merger transaction and
the Federal Deposit Insurance Corporation (``FDIC''), as
insurer, receiving notice even where it is not the appropriate
banking agency for the particular merger. Federal banking
agencies are not required to request a competitive factors
report if they find that they must act on a merger application
immediately to prevent the probable failure of a depository
institution involved in the transaction, or the transaction
consists of a merger solely between an insured depository
institution and one or more of its affiliates.
Section 607. Nonwaiver of privileges
This section provides that a depository institution does
not waive any privilege it may claim with respect to
information when it submits such information to a Federal,
State, or foreign bank regulator as part of the supervisory
process.
Section 608. Clarification of application requirements for optional
conversion for Federal savings associations
This section clarifies that conversions which result in
more than one bank require deposit insurance applications from
the resulting institutions, as well as review and approval by
the appropriate Federal banking agency. In addition, the
amendment clarifies that no applications under Section 18(c) of
the Federal Deposit Insurance Act would be required for such
conversions.
Section 609. Exemption from disclosure of privacy policy for accounting
firms
This section exempts from compliance with the disclosure
requirements of section 503(a) of GLBA certified public
accountants that are subject to State law that prohibits the
disclosure of a consumer's nonpublic personal information
without the knowing and expressed consent of the consumer.
Section 610. Inflation adjustment for the small depository institution
exception under the Depository Institution Management
Interlocks Act
This section increases the small depository institution
exemption limit under Depository Institution Management
Interlock Act (``DIMIA'') from $20 million in assets to $50
million in assets. Unless the institutions have less than $20
million in assets, DIMIA currently prohibits a management
official of one institution from serving as a management
official of any other nonaffiliated depository institution or
depository institution holding company if the institutions or
an affiliate of such institutions have offices that are located
in the same metropolitan statistical area. The amendment
increases this exemption threshold to $50 million in assets.
Section 611. Modification to cross marketing restrictions
This section allows depository institution subsidiaries of
a financial holding company to engage in cross-marketing
activities with portfolio companies that are held under GLBA
merchant banking authority to the same extent as such
activities are currently permissible for portfolio companies
held under GLBA insurance company investment authority.
Section 701. Statute of limitations for judicial review of appointment
of a receiver for depository institutions
This section provides for a 30-day period for a party to
judicially challenge a determination by the OCC to appoint a
receiver for a national bank. This section also amends the Bank
Conservation Act and the Federal Deposit Insurance Act to
provide greater consistency regarding the time an insured
depository institution has to challenge the appointment of a
receiver.
Section 702. Enhancing the safety and soundness of insured depository
institutions
This section clarifies the discretionary authority of the
Federal banking agencies to enforce (1) any condition imposed
in writing in connection with any action on any application,
notice, or other request, or (2) any written agreement between
the agency and an IAP, particularly those in which an IAP or
controlling shareholder agrees to provide capital to the
depository institution, without showing unjust enrichment or
limiting recovery to 5% of the institution's assets at the time
it became undercapitalized. Also, this section clarifies
existing FDIC authority as receiver or conservator to enforce
written conditions or agreements. This section eliminates the
requirement that the insured depository institution receiving
the transfer be undercapitalized at the time of the transfer.
Section 703. Cross guarantee authority
This section clarifies the scope of cross guarantee
liability to include all insured depository institutions
commonly controlled by the same company.
Section 704. Golden parachute authority and nonbank holding companies
This section clarifies that the authority to prohibit
golden parachute payments includes nonbank holding companies as
well as depository institution holding companies.
Section 705. Amendments relating to change in bank control
This section amends the Change in Bank Control Act to
clarify the bases for which change-in-control notices may be
disapproved and to expand the bases for extensions of time for
consideration of certain notices raising novel or significant
issues.
Section 706. Amendment to provide the Federal Reserve Board with
discretion concerning the imputation of control of shares of a
company by trustees
This section permits the Federal Reserve Board to waive the
attribution rule in section 2(g)(2) of the Bank Holding Company
Act (12 U.S.C. 1841(g)(2)) in appropriate circumstances. It is
expected that the Federal Reserve Board would grant such a
waiver only in situations where the facts and circumstances
indicate that the company does not have the ability to control
the shares held on behalf of its shareholders, members or
employees. This attribution rule currently provides that, for
purposes of the Bank Holding Company Act, a company is deemed
in all circumstances to own or control any shares that are held
by a trust (such as an employee benefit plan) for the benefit
of the company or its shareholders or employees.
Section 707. Interagency data sharing
GLBA gave the Federal Reserve Board authority to provide
confidential supervisory information concerning an examined
entity to another supervisory authority, an officer, director,
or receiver of the examined entity, or any other person
determined by the supervisory agency to be appropriate. This
section gives the same authority to all federal banking
agencies.
Section 708. Clarification of extent 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 charged with certain
crimes from participation in the affairs of any depository
institution and not solely the insured depository institution
with which the institution affiliated party is or was
associated. This section further clarifies that the section
8(g) remedy may be imposed even where the institution with
which the individuals were associated ceases to exist. The
proposed amendment also allows the appropriate Federal banking
agency to suspend or remove an individual who attempts to
become involved in the affairs of an insured depository
institution after being charged with a crime involving
dishonesty or a breach of trust and clarifies the standards and
process for issuing a suspension or removal order in situations
where an individual terminates his or her affiliation with one
depository institution after being charged with a crime, but
then becomes or seeks to become affiliated with another.
Section 709. Protection of confidential information received by Federal
banking regulators from foreign banking supervisors
This section provides that a Federal banking agency may not
be compelled to disclose information received from a foreign
regulatory or supervisory authority if public disclosure of the
information would violate the laws applicable to that authority
and the agency obtained the information in connection with the
administration and enforcement of Federal banking laws or under
a memorandum of understanding between the authority and the
agency. This section also provides that such information would
be exempt under FOIA, but does not authorize an agency to
withhold information from Congress or in response to a court
order.
Section 710. Prohibition on participation by convicted individuals
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 nonthrift subsidiaries, without the
consent of the Office of Thrift Supervision (``OTS''). Foreign
banks and nonbank subsidiaries of a bank holding company are
excluded.
Section 711. Coordination of State examination authority
This section is intended to improve coordination of
supervision of multi-state state-chartered banks, by clarifying
how state-chartered institutions with branches in more than one
state are examined. While giving primacy of supervision to the
chartering or home state, this section requires the home state
bank supervisor to abide by any written cooperative agreement
relating to coordination of exams and joint participation in
exams, with the host state supervisor where an out-of-state
branch is located. Unless otherwise permitted by a cooperative
agreement, only the home state supervisor may charge state
supervisory fees on the bank. If a branch in a host state
resulted from certain interstate merger transactions, the host
state supervisor may, with written notice to the home state
supervisor, examine the branch for compliance with host state
consumer protection laws. If permitted by a cooperative
agreement or if the out-of-state bank is in a troubled
condition, the host state supervisor may participate in the
examination of the bank by the home state supervisor to
ascertain that branch activities are not conducted in an unsafe
or unsound manner. If the host state supervisor determines that
a branch is violating host state consumer protection laws, the
supervisor may, with written notice to the home state
supervisor, undertake enforcement actions. This section does
not limit in any way the authority of federal banking
regulators and does not affect state taxation authority.
Section 712. Deputy Director; succession authority for the Director of
the OTS
This section authorizes the Treasury Secretary to appoint
one or more individuals within the OTS to serve as Acting
Director in order to promote agency continuity of leadership
during a vacancy in the office of the Director of the OTS or in
the absence or disability of the Director of the OTS. An Acting
Director shall serve until a permanent Director is confirmed.
Section 713. OTS representation on Basel Committee on Banking
Supervision
This section amends International Lending Supervision Act
of 1983 to give the OTS equal representation on the Committee
on Banking Regulations and Supervisory Practices of the Group
of Ten Countries and Switzerland (Basel Committee).
Section 714. Federal Financial Institutions Examination Council
This section adds a representative State regulator as a
full voting member on the Federal Financial Institutions
Examination Council.
Section 715. Technical amendments concerning enforcement actions
This section clarifies that a Federal banking agency may
take enforcement action against a person for conduct that
occurred during his or her affiliation with a banking
organization even if the person resigns from the organization,
regardless of whether the enforcement action is initiated
through a notice or an order. This section also makes a
parallel amendment to the Federal Credit Union Act.
Section 716. Clarification of enforcement authority
This section amends section 8 of the Federal Deposit
Insurance Act to clarify authority to enforce conditions
imposed in connection with a notice, including a change-in-
control notice. It also makes similar changes to Section 206
the Federal Credit Union Act.
Section 717. Federal banking agency authority to enforce deposit
insurance conditions
This section amends section 8 of the Federal Deposit
Insurance Act to provide each of the other three appropriate
Federal banking agencies with express authority to enforce
conditions imposed in writing in connection with the approval
of an institution's application for deposit insurance.
Section 718. Receiver or conservator consent requirement
This section requires the consent of the receiver or
conservator before a party to a contract to which a depository
institution or credit union is a party could exercise any right
or power to terminate, accelerate, or declare a default under
any contract, or to obtain possession of or exercise control
over any property of the institution or affect any contractual
rights of the institution or credit union.
Section 719. Acquisition of FICO scores
This section amends the Fair Credit Reporting Act to define
an FDIC or National Credit Union Administration (``NCUA'')
request for FICO scores as part of its preparation for a
resolution as a permissible purpose, enabling the FDIC or NCUA
to obtain FICO scores by contacting credit reporting agencies
and to obtain current consumer credit reports.
Section 720. Elimination of criminal indictments against receiverships
This section amends the Federal Deposit Insurance Act to
require that any criminal indictment against a bank be
dismissed if the FDIC is appointed receiver of that bank. This
section also amends the Federal Credit Union Act to require
that any criminal indictment against a credit union be
dismissed if the NCUA is appointed receiver of that credit
union.
Section 721. Resolution of deposit insurance disputes
This section clarifies that the Administrative Procedures
Act standard of review, the 60-day limitation period, and U.S.
district court jurisdiction apply to the FDIC's final
determination of insurance coverage whether made pursuant to
procedural regulations or not. Similar clarifications are made
to the Federal Credit Union Act.
Section 722. Recordkeeping
This section permits the FDIC and NCUA to destroy records
that are 10 or more years old at the time of its appointment as
receiver, unless directed not to do so by a court or a
government agency or prohibited by law.
Section 723. Preservation of records
This section provides that the FDIC and NCUA may rely upon
records preserved electronically, such as optically imaged or
computer scanned images.
Section 724. Technical amendments to information sharing provisions in
the Federal Deposit Insurance Act
This section amends section 11(t) of the Federal Deposit
Insurance Act to clarify that the FDIC is a ``covered agency''
for purposes of privilege, regardless of the type of failed
depository institution to which transferred information
pertains.
Section 725. Technical and conforming amendments relating to banks
operating under the Code of Law for the District of Columbia
This section makes technical and conforming amendments
reflecting the transfer of authority for the supervision and
regulation of District banks from the OCC to the FDIC.
Section 726. Technical corrections to the Federal Credit Union Act
This section makes technical corrections to the Federal
Credit Union Act.
Section 727. Repeal obsolete provisions of the Bank Holding Company Act
of 1956
This section eliminates certain outdated provisions of the
Bank Holding Company Act that no longer have any effect.
Section 728. Development of model privacy forms
This section directs the agencies to develop jointly a
model form of privacy notice to satisfy the requirements of
GLBA that is succinct, comprehensible to consumers and enables
consumers to compare privacy practices among financial
institutions. A financial institution that elects to provide
the model form developed by the agencies shall be deemed to be
in compliance with the disclosures required under Section 503
of GLBA.
Section 801. Exemption for certain bad check enforcement programs
Over five hundred State or district attorneys across the
country operate pre-trial diversion programs for alleged bad
check offenders so that those individuals can avoid criminal
prosecution if they voluntarily participate in these programs.
These programs have been in operation for over twenty years.
The programs typically require restitution to the harmed
merchant, a class designed to discourage the writing of bad
checks in the future, and the payment of a fee to cover the
class and the administrative burden on the State or district
attorneys.
In some instances, however, the State or District attorneys
contract with private entities to help administer these
programs and several lawsuits have been filed contending that
the private entities are in violation of the Fair Debt
Collection Practices Act (``FDCPA''). This provision amends the
FDCPA to exempt those entities provided they comply with the
safeguards outlined in the provision. These requirements
include the following: comply with the penal laws of the state
in which they operate; conform their activities to the terms of
their contract and the directives of the State or district
attorney; not exercise any independent prosecutorial
discretion; contact alleged offenders only as a result of a
determination by the State or district attorney that there is
probable cause of a bad check violation under State penal law
and that contact with the offender is appropriate; communicate
in writing a clear and conspicuous statement that the alleged
offender may dispute the validity of alleged bad check
violation, and assert via a crime report that the alleged bad
check was actually stolen, forged, or related to identity theft
or some other fraud; and charge only fees in connection with
the services that have been authorized by the contract with the
State or district attorney.
If the alleged offender disputes the validity of the
allegation and notifies either the private entity or State or
district attorney in writing within 30 days after demand for
payment has been sent, then restitution efforts have to be
halted until the State or district attorney or their authorized
employees determine there is probable cause to believe a crime
has been committed.
Finally, this provision excludes certain types of checks
from the program, such as: a postdated check presented in
connection with payday loans or similar transactions where the
payee knew the issuer had insufficient funds when the check was
written; a stop payment order where the issuer acted in good
faith and had reasonable cause to stop payment; a check
dishonored because of an adjustment to the issuer's account by
his or her financial institution without notice to the issuer
of the adjustment; a partial payment check where the payee had
accepted that form of payment previously; a check issued by a
person who was incompetent or not of legal age to issue checks;
or a check issued to pay an obligation arising from a
transaction that was illegal in the jurisdiction of the State
or district attorney.
Section 901. Collateral modernization
This section makes changes to 31 U.S.C. 9301 and 31 U.S.C.
9303 that allow the Secretary of the Treasury to determine the
types of securities that may be pledged in lieu of surety bonds
and require that the securities be valued at current market
rates.
Section 1001. Study and report by the Comptroller General on the
currency transaction report filing system
This section requires a study by the Comptroller General on
the volume of currency transaction reports filed with the
Treasury, including, if appropriate, recommendations for
changes to the filing system.
Section 1002. Study and report on institution diversity and
consolidation
This section requires a study by the Comptroller General on
the cost and overall regulatory regime of the financial
services industry.
COST ESTIMATE
May 18, 2006.
Hon. Richard C. Shelby,
Chairman, Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for the Financial Services
Regulatory Relief Act of 2006.
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), Barbara Edwards (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.
Financial Services Regulatory Relief Act of 2006
Summary: This bill would affect the operations of financial
institutions and the agencies that regulate them. It would
allow the Federal Reserve System to pay interest on certain
reserve balances of depository institutions that are held on
deposit at the Federal Reserve, and would give the Board of
Governors of the Federal Reserve greater flexibility in setting
reserve requirements. Other provisions would modify the
regulatory standards for certain types of financial
transactions, expand and clarify federal authorities and
procedures for enforcing regulations, and give financial
regulatory agencies more flexibility in sharing data, retaining
records, and scheduling examinations. Finally, the bill would
allow federal agencies to lease land to credit unions without
charge and direct the Government Accountability Office (GAO) to
conduct various studies.
CBO estimates that enacting this bill would reduce federal
revenues by $1.0 billion over the 2007-2011 period and by a
total of $2.4 billion over the 2007-2016 period. In addition,
we estimate that direct spending would increase by $2 million
over the 2007-2011 period and by a total of $6 million over the
2007-2016 period. Provisions affecting programs funded by
annual appropriations would cost another $1 million in 2007,
CBO estimates.
The legislation 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).
The bill contains several private-sector mandates as
defined in UMRA. Those mandates would affect certain depository
institutions, nondepository institutions that control
depository institutions, uninsured banks, certain holding
companies, and parties with contracts or agreements with
depository institutions that go into conservatorship or
receivership. 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-sectormandates in the bill would not
exceed the annual threshold established by UMRA ($126 million in 2006,
adjusted annually for inflation).
Estimated cost to the Federal Government: The estimated
budgetary impact of this bill is shown in Table 1.--The costs
of this legislation fall within budget function 370 (commerce
and housing credit).
TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF THE FINANCIAL SERVICES REGULATORY RELIEF ACT OF 2006
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
--------------------------------------------------------------------------------------------------
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUESa
Estimated Revenues................................... 0 -192 -192 -202 -212 -221 -242 -253 -266 -293 -308
CHANGES IN DIRECT SPENDING
Estimated Budget Authority........................... 0 (*) (*) (*) 1 1 1 1 1 1 1
Estimated Outlays.................................... 0 (*) (*) (*) 1 1 1 1 1 1 1
CHANGES IN SUBJECT TO APPROPRIATION
Estimated Authorization Level........................ 0 1 0 0 0 0 0 0 0 0 0
Estimated Outlays.................................... 0 1 0 0 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
aNegative revenues indicate a reduction in revenue collections.
Note: * = Revenue loss or spending of less than $500,000.
Basis of estimate: For this estimate, CBO assumes that the
legislation will be enacted near the end of fiscal year 2006.
Most of the budgetary impact of this legislation would
result from provisions allowing the Federal Reserve System to
pay interest on certain reserve balances. Enacting this bill
also would affect the workload at agencies that regulate
financial institutions. We estimate that the net change in
agencies' 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, the Office of Thrift Supervision, the National
Credit Union Administration (NCUA), and the Federal Deposit
Insurance Corporation (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 Securities and Exchange Commission (SEC) and
Government Accountability Office would be subject to
appropriation.
Revenues
The legislation would allow the Federal Reserve System to
pay interest on any reserve balances held on deposit at the
Federal Reserve by insured depository institutions. The Board
of Governors of the Federal Reserve Board would have greater
flexibility in setting reserve requirements. CBO estimates that
the bill would reduce revenues by $1.0 billion over the 2007-
2011 period and by $2.4 billion over the 2007-2016 period.
The initial budgetary effect of the bill would be a
decrease in the payment of profits from the Federal Reserve
System to the U.S. Treasury. The Federal Reserve remits its
profits to the Treasury, and those payments are classified as
governmental receipts, or revenues, in the federal budget. Any
additional income or costs to the Federal Reserve, therefore,
can affect the federal budget. The Federal Reserve's largest
source of income is interest from its holdings of Treasury
securities. In effect, the Federal Reserve invests in Treasury
securities the reserve balances and issues of currency that
constitute the bulk of its liabilities. Since the Federal
Reserve pays no interest on reserves or currency, and the
Treasury pays the Federal Reserve interest on its security
holdings, the Federal Reserve earns profits.
By allowing the Federal Reserve to pay interest on
reserves, the bill would decrease the Federal Reserve's profits
and thereby reduce federal revenues. This budgetary response
has three significant components. First, the Federal Reserve's
payment of interest on required reserve balances held at
Federal Reserve banks would tend to reduce governmental
receipts. CBO anticipates that some depository institutions and
depositors would respond to the interest payments on reserves
by shifting funds out of consumer ``retail'' sweep accounts and
into demand deposit accounts. This secondary response would
increase required reserve balances although the Federal Reserve
would be expected to offset a portion of that increase by
lowering reserve requirements. The net increase in reserves
would partially offset the loss in federal revenues from the
payment of interest on reserves. Finally, those net
reductionsin Federal Reserve receipts would act like reductions in
indirect business taxes, generating increases in other incomes in the
economy and subsequently higher income and payroll taxes. Those higher
income and payroll taxes would offset the declines in Federal Reserve
receipts by an estimated 25 percent, roughly the marginal tax rate on
overall incomes in the economy.
Allowing the Federal Reserve to Pay Interest on Reserve
Balances. Depository institutions hold three types of balances
at the Federal Reserve--required reserve balances, contractual
clearing balances, and excess reserve balances. Required
reserve balances are the balances that a depository institution
must hold to meet reserve requirements. Depository institutions
may also hold additional balances, called required or
contractual clearing balances, which can earn an implicit rate
of interest in the form of an interest credit that is used to
defray fees for Federal Reserve services. Contractual clearing
balances have risen over the past decade from under $2 billion
in 1990 to between $6.5 billion and $7.0 billion today. Excess
reserves are funds held at reserve banks in excess of a
depository institution's required reserve and contractual
clearing balances.
Interest on Required Reserve Balances. The budgetary effect
of interest on required reserve balances consists of three
components. First, the bill would result in the Federal Reserve
paying interest on the required reserve balances expected under
current law, thus reducing its net income and, therefore,
governmental receipts. Second, the payment of interest on
reserves would cause demand deposit balances at depository
institutions to increase. That increase would raise the amount
of reserve balances held at the Federal Reserve, although the
increase would likely be diminished by actions taken by the
Federal Reserve to reduce reserve requirements. The higher
reserve balances at the Federal Reserve would increase its
earnings because it would invest the balances at a higher rate
than it would pay on them. This change in projected reserves
would increase governmental receipts, but would only partially
offset the loss caused by the payment of interest on reserves
projected under current law. Third, the net reduction in the
Federal Reserve's receipts from the first two effects would be
partially offset by increased income and payroll tax receipts.
Interest Payments on Required Reserves Projected Under
Current Law. Because depository institutions currently do not
earn a return on required reserve balances, they have an
incentive to minimize such balances. Required reserve balances
measured almost $30 billion at the end of 1993, but generally
have ranged between $7.5 billion and $12 billion in the past
year. The expansion of retail and business sweep accounts has
caused this general decline. In typical sweep accounts, banks
shift their depositors' funds from demand deposits, against
which reserves are required, into other depository accounts,
against which reserves are not required. The banks shift the
funds back to the demand deposit accounts the next business
day, or when needed by the depositor. Sweep accounts for
business demand deposits have existed in various forms since
the early 1970s. They originated and grew in importance because
financial institutions cannot pay interest on business demand
deposits. Advances in computer technology in the 1990s made the
shifting of funds feasible for many consumer accounts as well.
Under current law, CBO expects the expansion of retail and
business sweep accounts to continue, in part because of the
effects of rising interest rates. CBO expects required reserve
balances to decline to about $6.5 billion over the next two
years and to rise gradually in subsequent years, with growth in
the economy.
Under this bill, the Federal Reserve would be allowed to
choose the interest rate it pays on reserve balances, although
the rate chosen could not exceed the general level of short-
term interest rates. Staff at the Federal Reserve have
indicated that the Federal Reserve would choose an interest
rate near the key short-term rate, the federal funds rate. The
likely rate would be 10 to 15 basis points lower than the
federal funds rate to account for the lack of risk.
Accordingly, CBO assumes that the Federal Reserve would pay
interest only on required reserves at a rate of 10 to 15 basis
points below the federal funds rate.
CBO projects that the federal funds rate will average about
4.75 percent in 2007 and 4.5 percent over the nine-year period
from 2008 through 2016. The payment of interest on reserves is
assumed to start early in fiscal year 2007. CBO projects that
the legislation would cause the Federal Reserve to pay interest
to depository institutions of about $300 million in 2007 on
about $6.5 billion of required reserve balances expected under
current law. Throughout the projection period, the interest
paid to depository institutions would be higher because
required reserves under current law will grow based on growth
of the economy. Such interest payments would total about $1.6
billion over the 2007-2011 period and $3.6 billion over the
2007-2016 period. Those payments would reduce the profits of
the Federal Reserve--and thus its payments to the Treasury--by
the same amount (see Table 2).
Projected Impact of the Bill on the Volume of Reserves. If
the Federal Reserve pays interest on required reserve balances,
there would be a second budgetary effect on the Federal Reserve
that would reduce, but not eliminate, the net revenue loss from
the payment of interest. In particular, CBO expects that
reserve balances would increase because depository institutions
would close a significant share of their retail sweep accounts
and, as a result, maintain a higher level of required reserves.
Under current law, depository institutions are already allowed
to pay interest on consumer demand deposits. By closing a
significant share of the retail sweep accounts, depository
institutions could eliminate the costs of maintaining the sweep
accounts and receive a return on their required reserves,
although presumably at a lower rate than what they could
receive if they invested the funds in other ways. The payment
of interest on reserves would have no effect on business sweep
accounts because it would offer no incentive to businesses to
discontinue their current practices regarding sweep activity.
(The bill would not lift the ban on interest payments on
business demand deposits.)
TABLE 2.--ESTIMATED BUDGETARY IMPACT OF PAYING INTEREST ON RESERVE BALANCES
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars
--------------------------------------------------------------------------------------------------
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES
Revenues from Federal Reserve:
Interest on Required Reserves.................... 0 -299 -298 -313 -328 -343 -359 -375 -395 -416 -437
Profits from Increased Reserves.................. 0 43 42 44 46 48 36 38 40 25 27
--------------------------------------------------------------------------------------------------
Net Effect on Revenue from Federal Reserve....... 0 -256 -256 -269 -282 -295 -323 -337 -355 -390 -410
Income and Payroll Tax Offsets....................... 0 64 64 67 71 74 81 84 89 98 103
Net Effect of Allowing Interest on Reserves.......... 0 -192 -192 -202 -212 -221 -242 -253 -266 -293 -308
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Numbers may not add up to totals because of rounding.
CBO estimates that depository institutions would eliminate
approximately 30 percent of retail sweep accounts currently in
existence by 2009 and half of those that otherwise would be
established. As a result, demand deposits for which reserves
are required would increase at depository institutions.
The increase in reserves from the closing of many sweep
accounts would likely provide the Federal Reserve with more
reserves than needed for implementing monetary policy. The
legislation would relax the current lower bound on reserve
requirements, therefore providing the Federal Reserve with the
option of lowering reserve requirements, perhaps substantially,
in the face of increasing reserves. The Federal Reserve has
indicated that it would study possible strategies for setting
reserve requirements in such an environment.
Under current law, the Federal Reserve can set reserve
requirements as high as 14 percent and as low as 8 percent of
transactions deposits (above a fixed threshold). The Federal
Reserve has kept the requirement at 10 percent for most
transactions deposits since 1992. The legislation would remove
the lower limit of 8 percent.
CBO assumes the Federal Reserve would offset a part of the
increase in reserve balances by lowering reserve requirements.
The magnitude and timing of such changes is very uncertain, but
CBO assumes that required reserves would be maintained at
roughly $10 billion to $15 billion, which is consistent with
balances in the past five years.
As a result, CBO projects that required reserve balances
would be greater than under current law and thus generate
additional net income to the Federal Reserve. Although the
Federal Reserve would pay interest on the added reserves at
approximately the federal funds rate, it would invest the
reserves in Treasury securities, earning a rate of return
approximately 0.6 of a percentage point more than it pays. As a
result of that differential, the Federal Reserve would generate
additional profits of about $223 million over the 2007-2011
period and $389 million over the 2007-2016 period.
Projected Offsetting Impact on Tax Revenues. Allowing
interest on required reserve balances held at the Federal
Reserve would have a third budgetary effect, which would also
partially offset the decline in revenue from the payment of
interest on current balances. The current reserve requirement
on depository institutions, without provision of interest, is
like an indirect business tax. Allowing interest payments on
reserves, therefore, would generate the same economic effects
as does removing an excise tax. Assuming that GDP remains
unchanged, reductions in excise tax receipts generate equal
increases in other incomes in the economy. The higher incomes
produce increases in income and payroll taxes that offset an
estimated 25 percent of the reduction in excise tax receipts,
roughly the marginal tax rate on overall incomes in the
economy. In this case, a quarter of the loss in receipts to the
Treasury from the Federal Reserve would be offset by an
increase in income and payroll tax receipts. CBO estimates that
the loss in Federal Reserve receipts would total $1.4 billion
from 2007 through 2011, offset partially by an increase in
income and payroll taxes of $340 million. Over the 2007-2016
period, the loss in Federal Reserve receipts would total about
$3.2 billion, and the increase in income and payroll taxes
would total about $0.8 billion.
Impact on Other Balances Held at the Federal Reserve. The
estimate assumes no change in the current arrangements
regarding contractual clearing balances. However, a great deal
of uncertainty exists regarding how the Federal Reserve would
structure its policy regarding contractual clearing balances if
this legislation was enacted. A change in that policy could
affect federal revenues, but the staff at the Federal Reserve
have provided no clear indication of whether a change would
occur or what any change would entail except to indicate that
one policy would be prescribed for all depository institutions
regarding contractual clearing balances. CBO believes that the
Federal Reserve would choose not to pay interest on excess
reserve balances, unless required reserve balances fall to such
a low level that interest on excess reserves would be needed to
build reserves. That is an unlikely scenario.
Direct spending
CBO estimates that enacting this legislation would increase
direct spending by $2 million over the 2007-2011 period and $6
million over the 2007-2016 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 the net change in spending that would result.
Credit Union Leases. Section 501 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 five 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 enhance the ability of the FDIC and NCUA to
negotiate with other parties regarding the disposition of
certain assets of failed institutions. Such changes could
reduce the government's losses from future failures in some
circumstances. It is also possible, however, that some of the
new business arrangements authorized by the bill could increase
the risk of losses to the deposit insurance funds. The net
budgetary impact of such changes would likely be negligible
over time because any significant 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
The legislation also would affect spending for activities
funded by annual appropriations. It would direct the GAO to
prepare two studies, one related to currency transaction
reports filed with Department of the Treasury, and one on
issues related to the effectiveness and efficiency of the
current approach to regulating financial institutions. Based on
information from GAO, CBO estimates that completing those
studies would cost about $1 million in 2007.
The bill also would require the SEC to issue new
regulations on various matters, exempt thrift institutions from
certain registration requirements, and exempt certified public
accountants from certain disclosure requirements. Based on
information from the SEC, CBO estimates that the budgetary
effects of those changes would not be significant.
Estimated impact on State, local, and tribal governments:
The legislation contains intergovernmental mandates, as defined
in UMRA, because it would limit certain fees that bank
supervisors may impose on banks not domiciled in their state
and place certain notification requirements on bank
supervisors. The bill also would preempt state laws if banks or
credit unions go into receivership. 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 that would not exceed the
threshold established in UMRA ($64 million in 2006, adjusted
annually for inflation).
Other provisions of the bill would impose no costs on
state, local, or tribal governments.
Estimated impact on the private sector: The bill contains
several private-sector mandates as defined in UMRA. The
mandates in the bill would impose:
Requirements on certain insured depository
institutions and parties affiliated with such
institutions with respect to safety and soundness;
Restrictions on parties with certain
contracts or agreements with depository institutions
that go into conservatorship or receivership; and
Restrictions on participation in the affairs
of certain financial institutions by people convicted
of certain crimes.
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 ($126
million in 2006, adjusted annually for inflation).
Enhanced safety and soundness enforcement
The bill would expand and enhance some of the authorities
of federal banking agencies with respect to troubled or failing
institutions, and certain parties affiliated with those
institutions. For example, the bill would enhance the authority
of banking agencies to enforce certain conditions imposed on
depository institutions and parties affiliated with such
institutions. The bill also would make companies that control
depository institutions subject to certain authorities of the
FDIC. Based on information from the FDIC, CBO expects that 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 703 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 few 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 704 would allow the FDIC to prohibit or limit any
company that controls an insured depository from making
``golden parachute'' payments or indemnification payments to
parties affiliated with troubled or failing insured
depositories. (Affiliated parties include directors, officers,
employees, and controlling shareholders. Such parties also
include independent contractors such as accountants or lawyers
who participate in violations of the law or undertake
unsoundbusiness 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.
Receiver or conservator consent requirement
The bill would enhance the ability of the FDIC and NCUA to
negotiate with parties to certain contracts or agreements with
depository institutions that go into conservatorship or
receivership. With some exceptions, the bill would require the
consent of the receiver or conservator before any party to a
contract with the insured depository institution would be
allowed to exercise any right or power to terminate,
accelerate, or declare a default under that contract during the
45-day period beginning on the date of conservatorship, or
during the 90-day period beginning on the date of appointment
of the receiver. The mandate would be on entities that have
certain types of contracts with depository institutions that go
into conservatorship or receivership. Based on information from
the FDIC, CBO expects that the cost to the private sector of
this provision over the next five years is likely to be
minimal.
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 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: CBO has transmitted several cost
estimates for legislation that contained provisions similar to
those in this bill. They include: H.R. 3505, as ordered
reported by the House Committee on Financial Services on
November 16, 2005 (transmitted on December 8, 2005); H.R. 3505,
as ordered reported by the House Committee on the Judiciary on
February 15, 2006 (transmitted on February 16, 2006); H.R.
1224, the Business Checking Freedom Act of 2005, as ordered
reported by the House Committee on Financial Services on April
27, 2005 (transmitted on May 10, 2005); and H.R. 3508, the 2005
District of Columbia Omnibus Authorization Act, as ordered
reported by the House Committee on Government Reform on
September 15, 2005 (transmitted on October 12, 2005).
The provisions of this bill that affect direct spending are
identical to those in H.R. 3505, and the estimated costs are
the same as those shown in CBO's February 15, 2006, estimate.
Differences between the estimated revenue impact of this bill
and the estimated revenue impacts of H.R. 3505 and H.R. 1224
are due to differences in the legislation and changes in CBO's
economic assumptions.
H.R. 3505, as ordered reported by both the House Committee
on Judiciary and the House Committee on Financial Services,
would preempt certain state securities laws that require agents
who represent a federal savings association to register as
brokers or dealers if they sell certain products; it would also
preempt state laws that regulate certain fiduciary activities
performed by insured banks and other depository institutions.
This bill does not contain such provisions, and the mandates
statements reflect those differences.
H.R. 3505 had a mandate on certain industrial loan
companies or industrial banks that is not included in this
bill. This bill contains a mandate on parties with certain
contracts with depository institutions that go into
conservatorship or receivership that was not in H.R. 3505. The
other mandates in this bill are similar to those in H.R. 3505.
The aggregate cost of complying with the mandates in both bills
would fall below UMRA's annual threshold for private-sector
mandates.
Estimate prepared by: Federal spending: Kathleen Gramp;
Federal revenues: Barbara Edwards; impact on State, local, and
tribal governments: Sarah Puro; impact on the private sector:
Judith Ruud.
Estimate approved by: Robert A. Sunshine, Assistant
Director for Budget Analysis and G. Thomas Woodward, Assistant
Director for Tax Analysis.