[House Report 119-368]
[From the U.S. Government Publishing Office]
119th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 119-368
======================================================================
MERCHANT BANKING MODERNIZATION ACT
_______
November 4, 2025.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Hill of Arkansas, from the Committee on Financial Services,
submitted the following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 5291]
The Committee on Financial Services, to whom was referred
the bill (H.R. 5291) to amend the Bank Holding Company Act of
1956 to generally permit holding merchant banking investments
of up to 15 years, having considered the same, reports
favorably thereon with an amendment and recommends that the
bill as amended do pass.
CONTENTS
Page
Purpose and Summary.............................................. 2
Background and Need for Legislation.............................. 2
Committee Consideration.......................................... 3
Related Hearings................................................. 3
Committee Votes.................................................. 3
Committee Oversight Findings..................................... 5
Performance Goals and Objectives................................. 5
Committee Cost Estimate.......................................... 5
New Budget Authority and CBO Cost Estimate....................... 5
Unfunded Mandates Statement...................................... 5
Earmark Statement................................................ 5
Federal Advisory Committee Act Statement......................... 6
Applicability to the Legislative Branch.......................... 6
Duplication of Federal Programs.................................. 6
Section-by-Section Analysis of the Legislation................... 6
Changes in Existing Law Made by the Bill, as Reported............ 6
Minority Views................................................... 35
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Merchant Banking Modernization Act''.
SEC. 2. MERCHANT BANKING INVESTMENT HOLDING PERIOD.
Section 4(k)(7)(A) of the Bank Holding Company Act of 1956 (12 U.S.C.
1843(k)(7)(A)) is amended by inserting ``Under such regulations, the
period of time generally permitted for holding merchant banking
investments shall not be less than 15 years. For any merchant banking
investment held on the date of enactment of the Merchant Banking
Modernization Act, the holding period of time permitted shall not be
less than 15 years from the initial date of the investment.'' after the
period at the end.
Purpose and Summary
H.R. 5291, the Merchant Banking Modernization Act, was
introduced on September 10, 2025, by Republican Representative
Roger Williams (TX-25). This bill would amend the Bank Holding
Company Act to generally permit the holding of merchant banking
investments for at least 15 years.
Background and Need for Legislation
Among other activities, a financial holding company (FHC)
is permitted to engage in merchant banking whereby it acquires
or controls an ownership interest in a firm engaged in nonbank
activities (``portfolio company''), if certain prerequisites
are met. Pursuant to the Gramm-Leach-Bliley Act (GLBA), the
Federal Reserve Board (FRB) and Department of the Treasury were
authorized to promulgate regulations governing FHCs' ownership
or control of portfolio companies whose activities went beyond
the permissible nonbank activities enumerated in the Bank
Holding Company Act and related regulations.
Pursuant to the authority conferred by GLBA, the FRB and
Treasury promulgated rules governing FHCs' portfolio company
investments which, among other things, placed a ten-year limit
on FHCs' ownership, control, or holding of ownership interests
in a portfolio company. FHCs have the ability to petition the
FRB for a five-year extension to the ten-year limit regarding a
given portfolio company investment, with the FRB considering
approval or denial based on the following:
The cost to the FHC of disposing of the
investment within the holding period limit;
The FHC's total exposure to the investment
and risks of asset disposition to the FHC;
The prevailing market conditions;
The nature of the portfolio company's
business;
The extent of FHC involvement in portfolio
company management and operations; and
The average holding period of all merchant
banking investments of the FHC.
H.R. 5291 would maintain the incentive for portfolio
holding companies to commit to longer time horizons while
increasing stability. Under the bill, the FRB may, if
appropriate, exercise discretion to curtail the holding period
of a given portfolio company investment of an FHC.
Committee Consideration
119TH CONGRESS
On September 10, 2025, Representative Williams introduced
H.R. 5291, the Merchant Banking Modernization Act.
Representative Josh Gottheimer (D-NJ) was added subsequently as
a cosponsor. The bill was referred solely to the Committee on
Financial Services.
The bill was attached to the September 9, 2025, hearing
titled ``Promoting the Health of the Banking Sector: Reforming
Resolution and Broadening Funding Access for Long-Term
Resilience.''
On September 16, 2025, the Committee on Financial Services
met in open session to consider, among others, H.R. 5291. The
Committee ordered H.R. 5291, as amended, to be favorably
reported to the House of Representatives.
Related Hearings
Pursuant to clause 3(c)(6) of rule XIII of the Rules of the
House of Representatives, the following hearing was used to
develop H.R. 5291:
The Subcommittee on Financial Institutions held a September
9, 2025, hearing titled ``Promoting the Health of the Banking
Sector: Reforming Resolution and Broadening Funding Access for
Long-Term Resilience.'' A draft version of the bill was
attached to the hearing. The subcommittee heard testimony from
the following witnesses: Mr. Dory Wiley, President and CEO,
Commerce Street Holdings; Mr. James B. Barresi, Partner, Squire
Patton Boggs; Mr. Hugh Carney, Executive Vice President of
Financial Institution Policy and Regulatory Affairs, American
Bankers Association; Dr. Norbert Michel, Vice President and
Director, Cato Institute Center for Monetary and Financial
Alternatives; and Mr. Robert James, President and CEO, Carver
Financial Corporation, on behalf of the National Bankers
Association.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee Report to include record
votes on the motion to report legislation and amendments
thereto.
On September 16, 2025, the Committee ordered H.R. 5291, as
amended, to be reported favorably to the House by a recorded
vote of 35 yeas and 17 nays, a quorum being present. (Record
Vote No. FC-203).
Before the question to report was called, Representative
Williams offered an amendment in the nature of a substitute,
designated WILLTX_045, which made minor edits and technical
changes. This amendment was adopted by a voice vote.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Committee Oversight Findings
Pursuant to clause 3(c) of rule XIII of the Rules of the
House of Representatives, 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.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the goal of H.R. 5291 is to permit
relevant holding companies to generally hold merchant banking
investments for no less than 15 years.
Committee Cost Estimate
Clause 3(d)(1) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison of the
costs that would be incurred in carrying out H.R. 5291. The
Committee has requested but not received a cost estimate from
the Director of the Congressional Budget Office. However,
pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee will adopt as its own
the cost estimate by the Director of the Congressional Budget
Office once it has been prepared.
New Budget Authority and CBO Cost Estimate
With respect to the requirements of clause 3(c)(2) of rule
XIII of the Rules of the House of Representatives and section
308(a) of the Congressional Budget Act of 1974 and with respect
to requirements of clause 3(c)(3) of rule XIII of the Rules of
the House of Representatives and section 402 of the
Congressional Budget Act of 1974, the Committee will adopt as
its own the cost estimate for the bill prepared by the Director
of the Congressional Budget Office. However, a cost estimate
was not made available to the Committee in time for the filing
of this report. The Chairman of the Committee shall cause such
estimate to be printed in the Congressional Record upon its
receipt by the Committee.
Unfunded Mandates Statement
The Committee has requested but not received from the
Director of the Congressional Budget Office an estimate of the
Federal mandates pursuant to section 423 of the Unfunded
Mandates Reform Act. The Chairman of the Committee shall cause
such estimate to be printed in the Congressional Record upon
its receipt by the Committee.
Earmark Statement
In compliance with clause 9 of rule XXI of the Rules of the
House of Representatives, this bill, as reported, contains no
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(e), 9(f), or 9(g) of rule XXI.
Federal Advisory Committee Act Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to the Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Duplication of Federal Programs
Pursuant to clause 3(c)(5) of rule XIII of the Rules of the
House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes a program of
the Federal Government known to be duplicative of another
Federal program, including any program that was included in a
report to Congress pursuant to section 21 of the Public Law
111-139 or the most recent Catalog of Federal Domestic
Assistance.
Section-by-Section Analysis of the Legislation
Section 1. Short title
Section 1 provides the short title is the ``Merchant
Banking Modernization Act''.
Section 2. Merchant banking investment holding period
Section 2 amends the Bank Holding Company Act of 1956 to
require FRB regulations on FHC merchant banking investments to
generally permit a holding period of not less than 15 years.
For existing merchant banking investments, this section
mandates that the holding period shall not be less than 15
years from the initial date of investment.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (new matter is
printed in italics and existing law in which no change is
proposed is shown in roman):
BANK HOLDING COMPANY ACT OF 1956
* * * * * * *
interests in nonbanking organizations
Sec. 4. (a) Except as otherwise provided in this Act, no bank
holding company shall--
(1) after the date of enactment of this Act acquire
direct or indirect ownership or control of any voting
shares of any company which is not a bank, or
(2) after two years from the date as of which it
becomes a bank holding company, or in the case of a
company which has been continuously affiliated since
May 15, 1955, with a company which was registered under
the Investment Company Act of 1940, prior to May 15,
1955, in such a manner as to constitute an affiliated
company within the meaning of that Act, after December
31, 1978, or, in the case of any company which becomes,
as a result of the enactment of the Bank Holding
Company Act Amendments of 1970, a bank holding company
on the date of such enactment, after December 31, 1980,
retain direct or indirect ownership or control of any
voting shares of any company which is not a bank or
bank holding company or engage in any activities other
than (A) those of banking or of managing or controlling
banks and other subsidiaries authorized under this Act
or of furnishing services to or performing services for
its subsidiaries, and (B) those permitted under
paragraph (8) of subsection (c) of this section subject
to all the conditions specified in such paragraph or in
any order or regulation issued by the Board under such
paragraph: Provided, That a company covered in 1970 may
also engage in those activities in which directly or
through a subsidiary (i) it was lawfully engaged on
June 30, 1968 (or on a date subsequent to June 30, 1968
in the case of activities carried on as the result of
the acquisition by such company or subsidiary, pursuant
to a binding written contract entered into on or before
June 30, 1968, of another company engaged in such
activities at the time of the acquisition), and (ii) it
has been continuously engaged since June 30, 1968 (or
such subsequent date). The Board by order, after
opportunity for hearing, may terminate the authority
conferred by the preceding proviso on any company to
engage directly or through a subsidiary in any activity
otherwise permitted by that proviso if it determines,
having due regard to the purposes of this Act, that
such action is necessary to prevent undue concentration
of resources, decreased or unfair competition,
conflicts of interest, or unsound banking practices;
and in the case of any such company controlling a bank
having bank assets in excess of $60,000,000 on or after
the date of enactment of the Bank Holding Company Act
Amendments of 1970 the Board shall determine, within
two years after such date (or, if later, within two
years after the date on which the bank assets first
exceed $60,000,000), whether the authority conferred by
the preceding proviso with respect to such company
should be terminated as provided in this sentence.
Nothing in this paragraph shall be construed to
authorize any bank holding company referred to in the
preceding proviso, or any subsidiary thereof, to engage
in activities authorized by that proviso through the
acquisition, pursuant to a contract entered into after
June 30, 1968, of any interest in or the assets of a
going concern engaged in such activities. Any company
which is authorized to engage in any activity pursuant
to the preceding proviso or subsection (d) of this
section but, as a result of action of the Board, is
required to terminate such activity may
(notwithstanding any otherwise applicable time limit
prescribed in this paragraph) retain the ownership or
control of shares in any company carrying on such
activity for a period of ten years from the date on
which its authority was so terminated by the Board.
Notwithstanding any other provision of this paragraph,
if any company that became a bank holding company as a
result of the enactment of the Competitive Equality
Amendments of 1987 acquired, between March 5, 1987, and
the date of the enactment of such Amendments, an
institution that became a bank as a result of the
enactment of such Amendments, that company shall, upon
the enactment of such Amendments, immediately come into
compliance with the requirements of this Act.
The Board is authorized, upon application by a bank holding
company, to extend the two-year period referred to in paragraph
(2) above from time to time as to such bank holding company for
not more than one year at a time, if, in its judgment, such an
extension would not be detrimental to the public interest, but
no such extensions shall in the aggregate exceed three years.
Notwithstanding any other provision of this Act, the period
ending December 31, 1980, referred to in paragraph (2) above,
may be extended by the Board of Governors to December 31, 1984,
but only for the divestiture by a bank holding company of real
estate or interests in real estate lawfully acquired for
investment or development. In making its decision whether to
grant such extension, the Board shall consider whether the
company has made a good faith effort to divest such interests
and whether such extension is necessary to avert substantial
loss to the company.
(b) After two years from the date of enactment of this Act,
no certificate evidencing shares of any bank holding company
shall bear any statement purporting to represent shares of any
other company except a bank or a bank holding company, nor
shall the ownership, sale, or transfer of shares of any bank
holding company be conditioned in any manner whatsoever upon
the ownership, sale, or transfer of shares of any other company
except a bank or a bank holding company.
(c) The prohibitions in this section shall not apply to (i)
any company that was on January 4, 1977, both a bank holding
company and a labor, agricultural, or horticultural
organization exempt from taxation under section 501 of the
Internal Revenue Code of 1954, or to any labor, agricultural,
or horticultural organization to which all or substantially all
of the assets of such company are hereafter transferred, or
(ii) a company covered in 1970 more than 85 per centum of the
voting stock of which was collectively owned on June 30, 1968,
and continuously thereafter, directly or indirectly, by or for
members of the same family, or their spouses, who are lineal
descendants of common ancestors; and such prohibitions shall
not, with respect to any other bank holding company, apply to--
(1) shares of any company engaged or to be engaged
solely in one or more of the following activities: (A)
holding or operating properties used wholly or
substantially by any banking subsidiary of such bank
holding company in the operations of such banking
subsidiary or acquired for such future use; or (B)
conducting a safe deposit business; or (C) furnishing
services to or performing services for such bank
holding company or its banking subsidiaries; or (D)
liquidating assets acquired from such bank holding
company or its banking subsidiaries or acquired from
any other source prior to May 9, 1956, or the date on
which such company became a bank holding company,
whichever is later;
(2) shares acquired by a bank holding company or any
of its subsidiaries in satisfaction of a debt
previously contracted in good faith, but such shares
shall be disposed of within a period of two years from
the date on which they were acquired, except that the
Board is authorized upon application by such bank
holding company to extend such period of two years from
time to time as to such holding company if, in its
judgment, such an extension would not be detrimental to
the public interest, and, in the case of a bank holding
company which has not disposed of such shares within 5
years after the date on which such shares were
acquired, the Board may, upon the application of such
company, grant additional exemptions if, in the
judgment of the Board, such extension would not be
detrimental to the public interest and, either the bank
holding company has made a good faith attempt to
dispose of such shares during such 5-year period, or
the disposal of such shares during such 5-year period
would have been detrimental to the company, except that
the aggregate duration of such extensions shall not
extend beyond 10 years after the date on which such
shares were acquired;
(3) shares acquired by such bank holding company from
any of its subsidiaries which subsidiary has been
requested to dispose of such shares by any Federal or
State authority having statutory power to examine such
subsidiary, but such bank holding company shall dispose
of such shares within a period of two years from the
date on which they were acquired;
(4) shares held or acquired by a bank in good faith
in a fiduciary capacity, except where such shares are
held under a trust that constitutes a company as
defined in section 2(b) and except as provided in
paragraphs (2) and (3) of section 2(g);
(5) shares which are of the kinds and amounts
eligible for investment by national banking
associations under the provisions of section 5136 of
the Revised Statutes;
(6) shares of any company which do not include more
than 5 per centum of the outstanding voting shares of
such company;
(7) shares of an investment company which is not a
bank holding company and which is not engaged in any
business other than investing in securities, which
securities do not include more than 5 per centum of the
outstanding voting shares of any company;
(8) shares of any company the activities of which had
been determined by the Board by regulation or order
under this paragraph as of the day before the date of
the enactment of the Gramm-Leach-Bliley Act, to be so
closely related to banking as to be a proper incident
thereto (subject to such terms and conditions contained
in such regulation or order, unless modified by the
Board);
(9) shares held or activities conducted by any
company organized under the laws of a foreign country
the greater part of whose business is conducted outside
the United States, if the Board by regulation or order
determines that, under the circumstances and subject to
the conditions set forth in the regulation or order,
the exemption would not be substantially at variance
with the purposes of this Act and would be in the
public interest;
(10) shares lawfully acquired and owned prior to May
9, 1956, by a bank which is a bank holding company, or
by any of its wholly owned subsidiaries;
(11) shares owned directly or indirectly by a company
covered in 1970 in a company which does not engage in
any activities other than those in which the bank
holding company, or its subsidiaries, may engage by
virtue of this section, but nothing in this paragraph
authorizes any bank holding company, or subsidiary
thereof, to acquire any interest in or the assets of
any going concern (except pursuant to a binding written
contract entered into before June 30, 1968, or pursuant
to another provision of this Act) other than one which
was a subsidiary on June 30, 1968;
(12) shares retained or acquired, or activities
engaged in, by any company which becomes, as a result
of the enactment of the Bank Holding Company Act
Amendments of 1970, a bank holding company on the date
of such enactment, or by any subsidiary thereof, if
such company--
(A) within the applicable time limits
prescribed in subsection (a)(2) of this section
(i) ceases to be a bank holding company, or
(ii) ceases to retain direct or indirect
ownership or control of those shares and to
engage in those activities not authorized under
this section; and
(B) complies with such other conditions as
the Board may by regulation or order prescribe;
(13) shares of, or activities conducted by, any
company which does no business in the United States
except as an incident to its international or foreign
business, if the Board by regulation or order
determines that, under the circumstances and subject to
the conditions set forth in the regulation or order,
the exemption would not be substantially at variance
with the purposes of this Act and would be in the
public interest; or
(14) shares of any company which is an export trading
company whose acquisition (including each acquisition
of shares) or formation by a bank holding company has
not been disapproved by the Board pursuant to this
paragraph, except that such investments, whether direct
or indirect, in such shares shall not exceed 5 per
centum of the bank holding company's consolidated
capital and surplus.
(A)(i) No bank holding company shall invest
in an export trading company under this
paragraph unless the Board has been given sixty
days' prior written notice of such proposed
investment and within such period has not
issued a notice disapproving the proposed
investment or extending for up to another
thirty days the period during which such
disapproval may be issued.
(ii) The period for disapproval may be
extended for such additional thirty-day period
only if the Board determines that a bank
holding company proposing to invest in an
export trading company has not furnished all
the information required to be submitted or
that in the Board's judgment any material
information submitted is substantially
inaccurate.
(iii) The notice required to be filed by a
bank holding company shall contain such
relevant information as the Board shall require
by regulation or by specific request in
connection with any particular notice.
(iv) The Board may disapprove any proposed
investment only if--
(I) such disapproval is necessary to
prevent unsafe or unsound banking
practices, undue concentration of
resources, decreased or unfair
competition, or conflicts of interest;
(II) the Board finds that such
investment would affect the financial
or managerial resources of a bank
holding company to an extent which is
likely to have a materially adverse
effect on the safety and soundness of
any subsidiary bank of such bank
holding company, or
(III) the bank holding company fails
to furnish the information required
under clause (iii).
(v) Leverage.--The Board may not disapprove
any proposed investment solely on the basis of
the anticipated or proposed asset-to-equity
ratio of the export trading company with
respect to which such investment is proposed,
unless the anticipated or proposed annual
average asset-to-equity ratio is greater than
20-to-1.
(vi) Within three days after a decision to
disapprove an investment, the Board shall
notify the bank holding company in writing of
the disapproval and shall provide a written
statement of the basis for the disapproval.
(vii) A proposed investment may be made prior
to the expiration of the disapproval period if
the Board issues written notice of its intent
not to disapprove the investment.
(B)(i) The total amount of extensions of
credit by a bank holding company which invests
in an export trading company, when combined
with all such extensions of credit by all the
subsidiaries of such bank holding company, to
an export trading company shall not exceed at
any one time 10 per centum of the bank holding
company's consolidated capital and surplus. For
purposes of the preceding sentence, an
extension of credit shall not be deemed to
include any amount invested by a bank holding
company in the shares of an export trading
company.
(ii) No provision of any other Federal law in
effect on October 1, 1982, relating
specifically to collateral requirements shall
apply with respect to any such extension of
credit.
(iii) No bank holding company or subsidiary
of such company which invests in an export
trading company may extend credit to such
export trading company or to customers of such
export trading company on terms more favorable
than those afforded similar borrowers in
similar circumstances, and such extension of
credit shall not involve more than the normal
risk of repayment or present other unfavorable
features.
(C) For purposes of this paragraph, an export
trading company--
(i) may engage in or hold shares of a
company engaged in the business of
underwriting, selling, or distributing
securities in the United States only to
the extent that any bank holding
company which invests in such export
trading company may do so under
applicable Federal and State banking
laws and regulations; and
(ii) may not engage in agricultural
production activities or in
manufacturing, except for such
incidental product modification
including repackaging, reassembling or
extracting byproducts, as is necessary
to enable United States goods or
services to conform with requirements
of a foreign country and to facilitate
their sale in foreign countries.
(D) A bank holding company which invests in
an export trading company may be required, by
the Board, to terminate its investment or may
be made subject to such limitations or
conditions as may be imposed by the Board, if
the Board determines that the export trading
company has taken positions in commodities or
commodity contracts, in securities, or in
foreign exchange, other than as may be
necessary in the course of the export trading
company's business operations.
(E) Notwithstanding any other provision of
law, an Edge Act corporation, organized under
section 25(a) of the Federal Reserve Act (12
U.S.C. 611-631), which is a subsidiary of a
bank holding company, or an agreement
corporation, operating subject to section 25 of
the Federal Reserve Act (12 U.S.C. 601-604(a)),
which is a subsidiary of a bank holding
company, may invest directly and indirectly in
the aggregate up to 5 per centum of its
consolidated capital and surplus (25 per centum
in the case of a corporation not engaged in
banking) in the voting stock of other evidences
of ownership in one or more export trading
companies.
(F) For purposes of this paragraph--
(i) the term ``export trading
company'' means a company which does
business under the laws of the United
States or any State, which is
exclusively engaged in activities
related to international trade, and
which is organized and operated
principally for purposes of exporting
goods or services produced in the
United States or for purposes of
facilitating the exportation of goods
or services produced in the United
States by unaffiliated persons by
providing one or more export trade
services.
(ii) the term ``export trade
services'' includes, but is not limited
to, consulting, international market
research, advertising, marketing,
insurance (other than acting as
principal, agent or broker in the sale
of insurance on risks resident or
located, or activities performed, in
the United States, except for insurance
covering the transportation of cargo
from any point of origin in the United
States to a point of final destination
outside the United States), product
research and design, legal assistance,
transportation, including trade
documentation and freight forwarding,
communication and processing of foreign
orders to and for exporters and foreign
purchasers, warehousing, foreign
exchange, financing, and taking title
to goods, when provided in order to
facilitate the export of goods or
services produced in the United States;
(iii) the term ``bank holding
company'' shall include a bank which
(I) is organized solely to do business
with other banks and their officers,
directors, or employees; (II) is owned
primarily by the banks with which it
does business; and (III) does not do
business with the general public. No
such other bank, owning stock in a bank
described in this clause that invests
in an export trading company, shall
extend credit to an export trading
company in an amount exceeding at any
one time 10 per centum of such other
bank's capital and surplus; and
(iv) the term ``extension of credit''
shall have the same meaning given such
term in the fourth paragraph of section
23A of the Federal Reserve Act.
(G) Determination of status as export trading
company.--
(i) Time period requirements.--For
purposes of determining whether an
export trading company is operated
principally for the purposes described
in subparagraph (F)(i)--
(I) the operations of such
company during the 2-year
period beginning on the date
such company commences
operations shall not be taken
into account in making any such
determination; and
(II) not less than 4
consecutive years of operations
of such company (not including
any portion of the period
referred to in subclause (I))
shall be taken into account in
making any such determination.
(ii) Export revenue requirements.--A
company shall not be treated as
operated principally for the purposes
described in subparagraph (F)(i)
unless--
(I) the revenues of such
company from the export, or
facilitating the export, of
goods or services produced in
the United States exceed the
revenues of such company from
the import, or facilitating the
import, into the United States
of goods or services produced
outside the United States; and
(II) at least \1/3\ of such
company's total revenues are
revenues from the export, or
facilitating the export, of
goods or services produced in
the United States by persons
not affiliated with such
company.
(H) Inventory.--
(i) No general limitation.--The Board
may not prescribe by regulation any
maximum dollar amount limitation on the
value of goods which an export trading
company may maintain in inventory at
any time.
(ii) Specific limitation by order.--
Notwithstanding clause (i), the Board
may issue an order establishing a
maximum dollar amount limitation on the
value of goods which a particular
export trading company may maintain in
inventory at any time (after such
company has been operating for a
reasonable period of time) if the Board
finds that, under the facts and
circumstances, such limitation is
necessary to prevent risks that would
affect the financial or managerial
resources of an investor bank holding
company to an extent which would be
likely to have a materially adverse
effect on the safety and soundness of
any subsidiary bank of such bank
holding company.
The Board shall include in its annual report to the Congress a
description and a statement of the reasons for approval of each
activity approved by it by order or regulation under such
paragraph during the period covered by the report.
(d) To the extent that such action would not be substantially
at variance with the purposes of this Act and subject to such
conditions as it considers necessary to protect the public
interest, the Board by order, after opportunity for hearing,
may grant exemptions from the provisions of this section to any
bank holding company which controlled one bank prior to July 1,
1968, and has not thereafter acquired the control of any other
bank in order (1) to avoid disrupting business relationships
that have existed over a long period of years without adversely
affecting the banks or communities involved, or (2) to avoid
forced sales of small locally owned banks to purchasers not
similarly representative of community interests, or (3) to
allow retention of banks that are so small in relation to the
holding company's total interests and so small in relation to
the banking market to be served as to minimize the likelihood
that the bank's powers to grant or deny credit may be
influenced by a desire to further the holding company's other
interests.
(e) With respect to shares which were not subject to the
prohibitions of this section as originally enacted by reason of
any exemption with respect thereto but which were made subject
to such prohibitions by the subsequent repeal of such
exemption, no bank holding company shall retain direct or
indirect ownership or control of such shares after five years
from the date of the repeal of such exemption, except as
provided in paragraph (2) of subsection (a). Any bank holding
company subject to such five-year limitation on the retention
of nonbanking assets shall endeavor to divest itself of such
shares promptly and such bank holding company shall report its
progress in such divestiture to the Board two years after
repeal of the exemption applicable to it and annually
thereafter.
(f) Certain Companies Not Treated as Bank Holding
Companies.--
(1) In general.--Except as provided in paragraph (9),
any company which--
(A) on March 5, 1987, controlled an
institution which became a bank as a result of
the enactment of the Competitive Equality
Amendments of 1987; and
(B) was not a bank holding company on the day
before the date of the enactment of the
Competitive Equality Amendments of 1987,
shall not be treated as a bank holding company for
purposes of this Act solely by virtue of such company's
control of such institution.
(2) Loss of exemption.--Subject to paragraph (3), a
company described in paragraph (1) shall no longer
qualify for the exemption provided under that paragraph
if--
(A) such company directly or indirectly--
(i) acquires control of an additional
bank or an insured institution (other
than an insured institution described
in paragraph (10) or (12) of this
subsection) after March 5, 1987; or
(ii) acquires control of more than 5
percent of the shares or assets of an
additional bank or a savings
association other than--
(I) shares held as a bona
fide fiduciary (whether with or
without the sole discretion to
vote such shares);
(II) shares held by any
person as a bona fide fiduciary
solely for the benefit of
employees of either the company
described in paragraph (1) or
any subsidiary of that company
and the beneficiaries of those
employees;
(III) shares held temporarily
pursuant to an underwriting
commitment in the normal course
of an underwriting business;
(IV) shares held in an
account solely for trading
purposes;
(V) shares over which no
control is held other than
control of voting rights
acquired in the normal course
of a proxy solicitation;
(VI) loans or other accounts
receivable acquired in the
normal course of business;
(VII) shares or assets
acquired in securing or
collecting a debt previously
contracted in good faith,
during the 2-year period
beginning on the date of such
acquisition or for such
additional time (not exceeding
3 years) as the Board may
permit if the Board determines
that such an extension will not
be detrimental to the public
interest;
(VIII) shares or assets of a
savings association described
in paragraph (10) or (12) of
this subsection;
(IX) shares of a savings
association held by any
insurance company, as defined
in section 2(a)(17) of the
Investment Company Act of 1940,
except as provided in paragraph
(11);
(X) shares issued in a
qualified stock issuance under
section 10(q) of the Home
Owners' Loan Act; and
(XI) assets that are derived
from, or incidental to,
activities in which
institutions described in
subparagraph (F) or (H) of
section 2(c)(2) are permitted
to engage;
except that the aggregate amount of shares held under this
clause (other than under subclauses (I), (II), (III), (IV),
(V), and (VIII)) may not exceed 15 percent of all outstanding
shares or of the voting power of a savings association;
(B) any bank subsidiary of such company--
(i) accepts demand deposits or
deposits that the depositor may
withdraw by check or similar means for
payment to third parties; and
(ii) engages in the business of
making commercial loans (except that,
for purposes of this clause, loans made
in the ordinary course of a credit card
operation shall not be treated as
commercial loans); or
(C) after the date of the enactment of the
Competitive Equality Amendments of 1987, any
bank subsidiary of such company permits any
overdraft (including any intraday overdraft),
or incurs any such overdraft in the account of
the bank at a Federal reserve bank, on behalf
of an affiliate, other than an overdraft
described in paragraph (3).
(3) Permissible overdrafts described.--For purposes
of paragraph (2)(C), an overdraft is described in this
paragraph if--
(A) such overdraft results from an
inadvertent computer or accounting error that
is beyond the control of both the bank and the
affiliate;
(B) such overdraft--
(i) is permitted or incurred on
behalf of an affiliate that is
monitored by, reports to, and is
recognized as a primary dealer by the
Federal Reserve Bank of New York; and
(ii) is fully secured, as required by
the Board, by bonds, notes, or other
obligations that are direct obligations
of the United States or on which the
principal and interest are fully
guaranteed by the United States or by
securities and obligations eligible for
settlement on the Federal Reserve book
entry system; or
(C) such overdraft--
(i) is permitted or incurred by, or
on behalf of, an affiliate in
connection with an activity that is
financial in nature or incidental to a
financial activity; and
(ii) does not cause the bank to
violate any provision of section 23A or
23B of the Federal Reserve Act, either
directly, in the case of a bank that is
a member of the Federal Reserve System,
or by virtue of section 18(j) of the
Federal Deposit Insurance Act, in the
case of a bank that is not a member of
the Federal Reserve System.
(4) Divestiture in case of loss of exemption.--If any
company described in paragraph (1) fails to qualify for
the exemption provided under paragraph (1) by operation
of paragraph (2), such exemption shall cease to apply
to such company and such company shall divest control
of each bank it controls before the end of the 180-day
period beginning on the date on which the company
receives notice from the Board that the company has
failed to continue to qualify for such exemption,
unless, before the end of such 180-day period, the
company has--
(A) either--
(i) corrected the condition or ceased
the activity that caused the company to
fail to continue to qualify for the
exemption; or
(ii) submitted a plan to the Board
for approval to cease the activity or
correct the condition in a timely
manner (which shall not exceed 1 year);
and
(B) implemented procedures that are
reasonably adapted to avoid the reoccurrence of
such condition or activity.
(5) Subsection ceases to apply under certain
circumstances.--This subsection shall cease to apply to
any company described in paragraph (1) if such
company--
(A) registers as a bank holding company under
section 5(a) of this Act;
(B) immediately upon such registration,
complies with all of the requirements of this
Act, and regulations prescribed by the Board
pursuant to this Act, including the nonbanking
restrictions of this section; and
(C) does not, at the time of such
registration, control banks in more than one
State, the acquisition of which would be
prohibited by section 3(d) of this Act if an
application for such acquisition by such
company were filed under section 3(a) of this
Act.
(6) Information requirement.--Each company described
in paragraph (1) shall, within 60 days after the date
of enactment of the Competitive Equality Amendments of
1987, provide the Board with the name and address of
such company, the name and address of each bank such
company controls, and a description of each such bank's
activities.
(7) Examination.--The Board may, from time to time,
examine a company described in paragraph (1), or a bank
controlled by such company, or require reports under
oath from appropriate officers or directors of such
company or bank solely for purposes of assuring
compliance with the provisions of this subsection and
enforcing such compliance.
(8) Enforcement.--
(A) In general.--In addition to any other
power of the Board, the Board may enforce
compliance with the provisions of this Act
which are applicable to any company described
in paragraph (1), and any bank controlled by
such company, under section 8 of the Federal
Deposit Insurance Act and such company or bank
shall be subject to such section (for such
purposes) in the same manner and to the same
extent as if such company or bank were a State
member insured bank.
(B) Application of other act.--Any violation
of this Act by any company described in
paragraph (1), and any bank controlled by such
company, may also be treated as a violation of
the Federal Deposit Insurance Act for purposes
of subparagraph (A).
(C) No effect on other authority.--No
provision of this paragraph shall be construed
as limiting any authority of the Comptroller of
the Currency or the Federal Deposit Insurance
Corporation.
(9) Tying provisions.--A company described in
paragraph (1) shall be--
(A) treated as a bank holding company for
purposes of section 106 of the Bank Holding
Company Act Amendments of 1970 and section
22(h) of the Federal Reserve Act and any
regulation prescribed under any such section;
and
(B) subject to the restrictions of section
106 of the Bank Holding Company Act Amendments
of 1970, in connection with any transaction
involving the products or services of such
company or affiliate and those of a bank
affiliate, as if such company or affiliate were
a bank and such bank were a subsidiary of a
bank holding company.
(10) Exemption unaffected by certain emergency
acquisitions.--For purposes of clauses (i) and
(ii)(VIII) of paragraph (2)(A), an insured institution
is described in this paragraph if--
(A) the insured institution was acquired (or
any shares or assets of such institution were
acquired) by a company described in paragraph
(1) in an acquisition under section 408(m) of
the National Housing Act or section 13(k) of
the Federal Deposit Insurance Act; and
(B) either--
(i) the insured institution is
located in a State in which such
company controlled a bank on March 5,
1987; or
(ii) the insured institution has
total assets of $500,000,000 or more at
the time of such acquisition.
(11) Shares held by insurance affiliates.--Shares
described in clause (ii)(IX) of paragraph (2)(A) shall
not be excluded for purposes of clause (ii) of such
paragraph if--
(A) all shares held under such clause
(ii)(IX) by all insurance company affiliates of
such savings association in the aggregate
exceed 5 percent of all outstanding shares or
of the voting power of the savings association;
or
(B) such shares are acquired or retained with
a view to acquiring, exercising, or
transferring control of the savings
association.
(12) Exemption unaffected by certain other
acquisitions.--For purposes of clauses (i) and
(ii)(VIII) of paragraph (2)(A), an insured institution
is described in this paragraph if the insured
institution was acquired (or any shares or assets of
such institution were acquired) by a company described
in paragraph (1)--
(A) from the Resolution Trust Corporation,
the Federal Deposit Insurance Corporation, or
the Director of the Office of Thrift
Supervision, in any capacity; or
(B) in an acquisition in which the insured
institution has been found to be in danger of
default (as defined in section 3 of the Federal
Deposit Insurance Act) by the appropriate
Federal or State authority.
(13) Special rule relating to shares acquired in a
qualified stock issuance.--A company described in
paragraph (1) that holds shares issued in a qualified
stock issuance pursuant to section 10(q) of the Home
Owners' Loan Act by any savings association or savings
and loan holding company (neither of which is a
subsidiary) shall not be deemed to control such savings
association or savings and loan holding company solely
because such company holds such shares unless--
(A) the company fails to comply with any
requirement or condition imposed by paragraph
(2)(A)(ii)(X) or section 10(q) of the Home
Owners' Loan Act with respect to such shares;
or
(B) the shares are acquired or retained with
a view to acquiring, exercising, or
transferring control of the savings association
or savings and loan holding company.
(14) Foreign bank subsidiaries of limited purpose
credit card banks.--
(A) In general.--An institution described in
section 2(c)(2)(F) may control a foreign bank
if--
(i) the investment of the institution
in the foreign bank meets the
requirements of section 25 or 25A of
the Federal Reserve Act and the foreign
bank qualifies under such sections;
(ii) the foreign bank does not offer
any products or services in the United
States; and
(iii) the activities of the foreign
bank are permissible under otherwise
applicable law.
(B) Other limitations inapplicable.--The
limitations contained in any clause of section
2(c)(2)(F) shall not apply to a foreign bank
described in subparagraph (A) that is
controlled by an institution described in such
section.
(g) Limitations on Certain Banks.--
(1) In general.--Notwithstanding any other provision
of this section (other than the last sentence of
subsection (a)(2)), a bank holding company which
controls an institution that became a bank as a result
of the enactment of the Competitive Equality Amendments
of 1987 may retain control of such institution if such
institution does not--
(A) engage in any activity after the date of
the enactment of such Amendments which would
have caused such institution to be a bank (as
defined in section 2(c), as in effect before
such date) if such activities had been engaged
in before such date; or
(B) increase the number of locations from
which such institution conducts business after
March 5, 1987.
(2) Limitations cease to apply under certain
circumstances.--The limitations contained in paragraph
(1) shall cease to apply to a bank described in such
paragraph at such time as the acquisition of such bank,
by the bank holding company referred to in such
paragraph, would not be prohibited under section 3(d)
of this Act if--
(A) an application for such acquisition were
filed under section 3(a) of this Act; and
(B) such bank were treated as an additional
bank (under section 3(d)).
(h) Tying Provisions.--
(1) Applicable to certain exempt institutions and
parent companies.--An institution described in
subparagraph (D), (F), (G), or (H) of section 2(c)(2)
shall be treated as a bank, and a company that controls
such an institution shall be treated as a bank holding
company, for purposes of section 106 of the Bank
Holding Company Act Amendments of 1970 and section
22(h) of the Federal Reserve Act and any regulation
prescribed under any such section.
(2) Applicable with respect to certain
transactions.--A company that controls an institution
described in subparagraph (D), (F), (G), or (H) of
section 2(c)(2) and any of such company's other
affiliates, shall be subject to the tying restrictions
of section 106 of the Bank Holding Company Act
Amendments of 1970 in connection with any transaction
involving the products or services of such company or
affiliate and those of such institution, as if such
company or affiliate were a bank and such institution
were a subsidiary of a bank holding company.
(i) Acquisition of Savings Associations.--
(1) In general.--The Board may approve an application
by any bank holding company under subsection (c)(8) to
acquire any savings association in accordance with the
requirements and limitations of this section.
(2) Prohibition on tandem restrictions.--In approving
an application by a bank holding company to acquire a
savings association, the Board shall not impose any
restriction on transactions between the savings
association and its holding company affiliates, except
as required under sections 23A and 23B of the Federal
Reserve Act or any other applicable law.
(3) Acquisition of insolvent savings associations.--
(A) In general.--Notwithstanding any other
provision of this Act, any qualified savings
association which became a federally chartered
stock company in December of 1986 and which is
acquired by any bank holding company without
Federal financial assistance after June 1,
1991, and before March 1, 1992, and any
subsidiary of any such association, may after
such acquisition continue to engage within the
home State of the qualified savings association
in insurance agency activities in which any
Federal savings association (or any subsidiary
thereof) may engage in accordance with the Home
Owners' Loan Act and regulations pursuant to
such Act if the qualified savings association
or subsidiary thereof was continuously engaged
in such activity from June 1, 1991, to the date
of the acquisition.
(B) Definition of qualified savings
association.--For purposes of this paragraph,
the term ``qualified savings association''
means any savings association that--
(i) was chartered or organized as a
savings association before June 1,
1991;
(ii) had, immediately before the
acquisition of such association by the
bank holding company referred to in
subparagraph (A), negative tangible
capital and total insured deposits in
excess of $3,000,000,000; and
(iii) will meet all applicable
regulatory capital requirements as a
result of such acquisition.
(4) Solicitation of views.--
(A) Notice.--Upon receiving any application
or notice by a bank holding company to acquire,
directly or indirectly, a savings association
under subsection (c)(8), the Board shall
solicit comments and recommendations from--
(i) the Comptroller of the Currency,
with respect to the acquisition of a
Federal savings association; and
(ii) the Federal Deposit Insurance
Corporation, with respect to the
acquisition of a State savings
association.
(B) Comment period.--The comments and
recommendations of the Comptroller of the
Currency or the Federal Deposit Insurance
Corporation, as applicable, under subparagraph
(A) with respect to any acquisition subject to
such subparagraph shall be transmitted to the
Board not later than 30 days after the receipt
by the Comptroller of the Currency or the
Federal Deposit Insurance Corporation, as
applicable, of the notice relating to such
acquisition (or such shorter period as the
Board may specify if the Board advises the
Comptroller of the Currency or the Federal
Deposit Insurance Corporation, as applicable,
that an emergency exists that requires
expeditious action).
(5) Examination.--
(A) Scope.--The Board shall consult with the
Comptroller of the Currency or the Federal
Deposit Insurance Corporation, as appropriate,
in establishing the scope of an examination by
the Board of a bank holding company that
directly or indirectly controls a savings
association.
(B) Access to inspection reports.--Upon the
request of the Comptroller of the Currency or
the Federal Deposit Insurance Corporation, the
Board shall furnish the Comptroller of the
Currency or the Federal Deposit Insurance
Corporation, as applicable, with a copy of any
inspection report, additional examination
materials, or supervisory information relating
to any bank holding company that directly or
indirectly controls a savings association.
(6) Coordination of enforcement efforts.--The Board
and the Comptroller of the Currency or the Federal
Deposit Insurance Corporation, as applicable, shall
cooperate in any enforcement action against any bank
holding company that controls a savings association, if
the relevant conduct involves such association.
(8) Interstate acquisitions.--
(A) In general.--The Board may not approve an
application by a bank holding company to
acquire an insured depository institution under
subsection (c)(8) or any other provision of
this Act if--
(i) the home State of such insured
depository institution is a State other
than the home State of the bank holding
company; and
(ii) the applicant (including all
insured depository institutions which
are affiliates of the applicant)
controls, or upon consummation of the
transaction would control, more than 10
percent of the total amount of deposits
of insured depository institutions in
the United States.
(B) Exception.--Subparagraph (A) shall not
apply to an acquisition that involves an
insured depository institution in default or in
danger of default, or with respect to which the
Federal Deposit Insurance Corporation provides
assistance under section 13 of the Federal
Deposit Insurance Act (12 U.S.C. 1823).
(j) Notice Procedures for Nonbanking Activities.--
(1) General notice procedure.--
(A) Notice requirement.--Except as provided
in paragraph (3), no bank holding company may
engage in any nonbanking activity or acquire or
retain ownership or control of the shares of a
company engaged in activities based on
subsection (c)(8) or (a)(2) or in any
complementary activity under subsection
(k)(1)(B) without providing the Board with
written notice of the proposed transaction or
activity at least 60 days before the
transaction or activity is proposed to occur or
commence.
(B) Contents of notice.--The notice submitted
to the Board shall contain such information as
the Board shall prescribe by regulation or by
specific request in connection with a
particular notice.
(C) Procedure for agency action.--
(i) Notice of disapproval.--Any
notice filed under this subsection
shall be deemed to be approved by the
Board unless, before the end of the 60-
day period beginning on the date the
Board receives a complete notice under
subparagraph (A), the Board issues an
order disapproving the transaction or
activity and setting forth the reasons
for disapproval.
(ii) Extension of period.--The Board
may extend the 60-day period referred
to in clause (i) for an additional 30
days. The Board may further extend the
period with the agreement of the bank
holding company submitting the notice
pursuant to this
subsection.
(iii) Determination of period in case
of public hearing.--In the event a
hearing is requested or the Board
determines that a hearing is warranted,
the Board may extend the notice period
provided in this subsection for such
time as is reasonably necessary to
conduct a hearing and to evaluate the
hearing record. Such extension shall
not exceed the 91-day period beginning
on the date that the hearing record is
complete.
(D) Approval before end of period.--
(i) In general.--Any transaction or
activity may commence before the
expiration of any period for
disapproval established under this
paragraph if the Board issues a written
notice of approval.
(ii) Shorter periods by regulation.--
The Board may prescribe regulations
which provide for a shorter notice
period with respect to particular
activities or transactions.
(E) Extension of period.--In the case of any
notice to engage in, or to acquire or retain
ownership or control of shares of any company
engaged in, any activity pursuant to subsection
(c)(8) or (a)(2) or in any complementary
activity under subsection (k)(1)(B) that has
not been previously approved by regulation, the
Board may extend the notice period under this
subsection for an additional 90 days. The Board
may further extend the period with the
agreement of the bank holding company
submitting the notice pursuant to this
subsection.
(2) General standards for review.--
(A) Criteria.--In connection with a notice
under this subsection, the Board shall consider
whether performance of the activity by a bank
holding company or a subsidiary of such company
can reasonably be expected to produce benefits
to the public, such as greater convenience,
increased competition, or gains in efficiency,
that outweigh possible adverse effects, such as
undue concentration of resources, decreased or
unfair competition, conflicts of interests,
unsound banking practices, or risk to the
stability of the United States banking or
financial system.
(B) Grounds for disapproval.--The Board may
deny any proposed transaction or activity for
which notice has been submitted pursuant to
this subsection if the bank holding company
submitting such notice neglects, fails, or
refuses to furnish the Board all the
information required by the Board.
(C) Conditional action.--Nothing in this
subsection limits the authority of the Board to
impose conditions in connection with an action
under this section.
(3) No notice required for certain transactions.--No
notice under paragraph (1) of this subsection or under
subsection (c)(8) or (a)(2)(B) is required for a
proposal by a bank holding company to engage in any
activity, other than any complementary activity under
subsection (k)(1)(B), or acquire the shares or assets
of any company, other than an insured depository
institution or a company engaged in any complementary
activity under subsection (k)(1)(B), if the proposal
qualifies under paragraph (4).
(4) Criteria for statutory approval.--A proposal
qualifies under this paragraph if all of the following
criteria are met:
(A) Financial criteria.--Both before and
immediately after the proposed transaction--
(i) the acquiring bank holding
company is well capitalized;
(ii) the lead insured depository
institution of such holding company is
well capitalized;
(iii) well capitalized insured
depository institutions control at
least 80 percent of the aggregate total
risk-weighted assets of insured
depository institutions controlled by
such holding company; and
(iv) no insured depository
institution controlled by such holding
company is undercapitalized.
(B) Managerial criteria.--
(i) Well managed.--At the time of the
transaction, the acquiring bank holding
company, its lead insured depository
institution, and insured depository
institutions that control at least 90
percent of the aggregate total risk-
weighted assets of insured depository
institutions controlled by such holding
company are well managed.
(ii) Limitation on poorly managed
institutions.--Except as provided in
paragraph (6), no insured depository
institution controlled by the acquiring
bank holding company has received 1 of
the 2 lowest composite ratings at the
later of the institution's most recent
examination or subsequent review.
(C) Activities permissible.--Following
consummation of the proposal, the bank holding
company engages directly or through a
subsidiary solely in--
(i) activities that are permissible
under subsection (c)(8), as determined
by the Board by regulation or order
thereunder, subject to all of the
restrictions, terms, and conditions of
such subsection and such regulation or
order; and
(ii) such other activities as are
otherwise permissible under this
section, subject to the restrictions,
terms and conditions, including any
prior notice or approval requirements,
provided in this section.
(D) Size of acquisition.--
(i) Asset size.--The book value of
the total assets to be acquired does
not exceed 10 percent of the
consolidated total risk-weighted assets
of the acquiring bank holding company.
(ii) Consideration.--The gross
consideration to be paid for the
securities or assets does not exceed 15
percent of the consolidated Tier 1
capital of the acquiring bank holding
company.
(E) Notice not otherwise warranted.--For
proposals described in paragraph (5)(B), the
Board has not, before the conclusion of the
period provided in paragraph (5)(B), advised
the bank holding company that a notice under
paragraph (1) is required.
(F) Compliance criterion.--During the 12-
month period ending on the date on which the
bank holding company proposes to commence an
activity or acquisition, no administrative
enforcement action has been commenced, and no
cease and desist order has been issued pursuant
to section 8 of the Federal Deposit Insurance
Act, against the bank holding company or any
depository institution subsidiary of the
holding company, and no such enforcement
action, order, or other administrative
enforcement proceeding is pending as of such
date.
(5) Notification.--
(A) Commencement of activities approved by
rule.--A bank holding company that qualifies
under paragraph (4) and that proposes to engage
de novo, directly or through a subsidiary, in
any activity that is permissible under
subsection (c)(8), as determined by the Board
by regulation, may commence that activity
without prior notice to the Board and must
provide written notification to the Board not
later than 10 business days after commencing
the activity.
(B) Activities permitted by order and
acquisitions.--
(i) In general.--At least 12 business
days before commencing any activity
pursuant to paragraph (3) (other than
an activity described in subparagraph
(A) of this paragraph) or acquiring
shares or assets of any company
pursuant to paragraph (3), the bank
holding company shall provide written
notice of the proposal to the Board,
unless the Board determines that no
notice or a shorter notice period is
appropriate.
(ii) Description of activities and
terms.--A notification under this
subparagraph shall include a
description of the proposed activities
and the terms of any proposed
acquisition.
(6) Recently acquired institutions.--Any insured
depository institution which has been acquired by a
bank holding company during the 12-month period
preceding the date on which the company proposes to
commence an activity or acquisition pursuant to
paragraph (3) may be excluded for purposes of paragraph
(4)(B)(ii) if--
(A) the bank holding company has developed a
plan for the institution to restore the capital
and management of the institution which is
acceptable to the appropriate Federal banking
agency; and
(B) all such insured depository institutions
represent, in the aggregate, less than 10
percent of the aggregate total risk-weighted
assets of all insured depository institutions
controlled by the bank holding company.
(7) Adjustment of percentages.--The Board may, by
regulation, adjust the percentages and the manner in
which the percentages of insured depository
institutions are calculated under paragraph (4)(B)(i),
(4)(D), or (6)(B) if the Board determines that any such
adjustment is consistent with safety and soundness and
the purposes of this Act.
(k) Engaging in Activities That Are Financial in Nature.--
(1) In general.--Notwithstanding subsection (a), a
financial holding company may engage in any activity,
and may acquire and retain the shares of any company
engaged in any activity, that the Board, in accordance
with paragraph (2), determines (by regulation or
order)--
(A) to be financial in nature or incidental
to such financial activity; or
(B) is complementary to a financial activity
and does not pose a substantial risk to the
safety or soundness of depository institutions
or the financial system generally.
(2) Coordination between the board and the secretary
of the treasury.--
(A) Proposals raised before the board.--
(i) Consultation.--The Board shall
notify the Secretary of the Treasury
of, and consult with the Secretary of
the Treasury concerning, any request,
proposal, or application under this
subsection for a determination of
whether an activity is financial in
nature or incidental to a financial
activity.
(ii) Treasury view.--The Board shall
not determine that any activity is
financial in nature or incidental to a
financial activity under this
subsection if the Secretary of the
Treasury notifies the Board in writing,
not later than 30 days after the date
of receipt of the notice described in
clause (i) (or such longer period as
the Board determines to be appropriate
under the circumstances) that the
Secretary of the Treasury believes that
the activity is not financial in nature
or incidental to a financial activity
or is not otherwise permissible under
this section.
(B) Proposals raised by the treasury.--
(i) Treasury recommendation.--The
Secretary of the Treasury may, at any
time, recommend in writing that the
Board find an activity to be financial
in nature or incidental to a financial
activity.
(ii) Time period for board action.--
Not later than 30 days after the date
of receipt of a written recommendation
from the Secretary of the Treasury
under clause (i) (or such longer period
as the Secretary of the Treasury and
the Board determine to be appropriate
under the circumstances), the Board
shall determine whether to initiate a
public rulemaking proposing that the
recommended activity be found to be
financial in nature or incidental to a
financial activity under this
subsection, and shall notify the
Secretary of the Treasury in writing of
the determination of the Board and, if
the Board determines not to seek public
comment on the proposal, the reasons
for that determination.
(3) Factors to be considered.--In determining whether
an activity is financial in nature or incidental to a
financial activity, the Board shall take into account--
(A) the purposes of this Act and the Gramm-
Leach-Bliley Act;
(B) changes or reasonably expected changes in
the marketplace in which financial holding
companies compete;
(C) changes or reasonably expected changes in
the technology for delivering financial
services; and
(D) whether such activity is necessary or
appropriate to allow a financial holding
company and the affiliates of a financial
holding company to--
(i) compete effectively with any
company seeking to provide financial
services in the United States;
(ii) efficiently deliver information
and services that are financial in
nature through the use of technological
means, including any application
necessary to protect the security or
efficacy of systems for the
transmission of data or financial
transactions; and
(iii) offer customers any available
or emerging technological means for
using financial services or for the
document imaging of data.
(4) Activities that are financial in nature.--For
purposes of this subsection, the following activities
shall be considered to be financial in nature:
(A) Lending, exchanging, transferring,
investing for others, or safeguarding money or
securities.
(B) Insuring, guaranteeing, or indemnifying
against loss, harm, damage, illness,
disability, or death, or providing and issuing
annuities, and acting as principal, agent, or
broker for purposes of the foregoing, in any
State.
(C) Providing financial, investment, or
economic advisory services, including advising
an investment company (as defined in section 3
of the Investment Company Act of 1940).
(D) Issuing or selling instruments
representing interests in pools of assets
permissible for a bank to hold directly.
(E) Underwriting, dealing in, or making a
market in securities.
(F) Engaging in any activity that the Board
has determined, by order or regulation that is
in effect on the date of the enactment of the
Gramm-Leach-Bliley Act, to be so closely
related to banking or managing or controlling
banks as to be a proper incident thereto
(subject to the same terms and conditions
contained in such order or regulation, unless
modified by the Board).
(G) Engaging, in the United States, in any
activity that--
(i) a bank holding company may engage
in outside of the United States; and
(ii) the Board has determined, under
regulations prescribed or
interpretations issued pursuant to
subsection (c)(13) (as in effect on the
day before the date of the enactment of
the Gramm-Leach-Bliley Act) to be usual
in connection with the transaction of
banking or other financial operations
abroad.
(H) Directly or indirectly acquiring or
controlling, whether as principal, on behalf of
1 or more entities (including entities, other
than a depository institution or subsidiary of
a depository institution, that the bank holding
company controls), or otherwise, shares,
assets, or ownership interests (including debt
or equity securities, partnership interests,
trust certificates, or other instruments
representing ownership) of a company or other
entity, whether or not constituting control of
such company or entity, engaged in any activity
not authorized pursuant to this section if--
(i) the shares, assets, or ownership
interests are not acquired or held by a
depository institution or subsidiary of
a depository institution;
(ii) such shares, assets, or
ownership interests are acquired and
held by--
(I) a securities affiliate or
an affiliate thereof; or
(II) an affiliate of an
insurance company described in
subparagraph (I)(ii) that
provides investment advice to
an insurance company and is
registered pursuant to the
Investment Advisers Act of
1940, or an affiliate of such
investment adviser;
as part of a bona fide underwriting or
merchant or investment banking
activity, including investment
activities engaged in for the purpose
of appreciation and ultimate resale or
disposition of the investment;
(iii) such shares, assets, or
ownership interests are held for a
period of time to enable the sale or
disposition thereof on a reasonable
basis consistent with the financial
viability of the activities described
in clause (ii); and
(iv) during the period such shares,
assets, or ownership interests are
held, the bank holding company does not
routinely manage or operate such
company or entity except as may be
necessary or required to obtain a
reasonable return on investment upon
resale or disposition.
(I) Directly or indirectly acquiring or
controlling, whether as principal, on behalf of
1 or more entities (including entities, other
than a depository institution or subsidiary of
a depository institution, that the bank holding
company controls) or otherwise, shares, assets,
or ownership interests (including debt or
equity securities, partnership interests, trust
certificates or other instruments representing
ownership) of a company or other entity,
whether or not constituting control of such
company or entity, engaged in any activity not
authorized pursuant to this section if--
(i) the shares, assets, or ownership
interests are not acquired or held by a
depository institution or a subsidiary
of a depository institution;
(ii) such shares, assets, or
ownership interests are acquired and
held by an insurance company that is
predominantly engaged in underwriting
life, accident and health, or property
and casualty insurance (other than
credit-related insurance) or providing
and issuing annuities;
(iii) such shares, assets, or
ownership interests represent an
investment made in the ordinary course
of business of such insurance company
in accordance with relevant State law
governing such investments; and
(iv) during the period such shares,
assets, or ownership interests are
held, the bank holding company does not
routinely manage or operate such
company except as may be necessary or
required to obtain a reasonable return
on investment.
(5) Actions required.--
(A) In general.--The Board shall, by
regulation or order, define, consistent with
the purposes of this Act, the activities
described in subparagraph (B) as financial in
nature, and the extent to which such activities
are financial in nature or incidental to a
financial activity.
(B) Activities.--The activities described in
this subparagraph are as follows:
(i) Lending, exchanging,
transferring, investing for others, or
safeguarding financial assets other
than money or securities.
(ii) Providing any device or other
instrumentality for transferring money
or other financial assets.
(iii) Arranging, effecting, or
facilitating financial transactions for
the account of third parties.
(6) Required notification.--
(A) In general.--A financial holding company
that acquires any company or commences any
activity pursuant to this subsection shall
provide written notice to the Board describing
the activity commenced or conducted by the
company acquired not later than 30 calendar
days after commencing the activity or
consummating the acquisition, as the case may
be.
(B) Approval not required for certain
financial activities.--
(i) In general.--Except as provided
in subsection (j) with regard to the
acquisition of a savings association
and clause (ii), a financial holding
company may commence any activity, or
acquire any company, pursuant to
paragraph (4) or any regulation
prescribed or order issued under
paragraph (5), without prior approval
of the Board.
(ii) Exception.--A financial holding
company may not acquire a company,
without the prior approval of the
Board, in a transaction in which the
total consolidated assets to be
acquired by the financial holding
company exceed $10,000,000,000.
(iii) Hart-Scott-Rodino filing
requirement.--Solely for purposes of
section 7A(c)(8) of the Clayton Act (15
U.S.C. 18a(c)(8)), the transactions
subject to the requirements of this
paragraph shall be treated as if the
approval of the Board is not required.
(7) Merchant banking activities.--
(A) Joint regulations.--The Board and the
Secretary of the Treasury may issue such
regulations implementing paragraph (4)(H),
including limitations on transactions between
depository institutions and companies
controlled pursuant to such paragraph, as the
Board and the Secretary jointly deem
appropriate to assure compliance with the
purposes and prevent evasions of this Act and
the Gramm-Leach-Bliley Act and to protect
depository institutions. Under such
regulations, the period of time generally
permitted for holding merchant banking
investments shall not be less than 15 years.
For any merchant banking investment held on the
date of enactment of the Merchant Banking
Modernization Act, the holding period of time
permitted shall not be less than 15 years from
the initial date of the investment.
(B) Sunset of restrictions on merchant
banking activities of financial subsidiaries.--
The restrictions contained in paragraph (4)(H)
on the ownership and control of shares, assets,
or ownership interests by or on behalf of a
subsidiary of a depository institution shall
not apply to a financial subsidiary (as defined
in section 5136A of the Revised Statutes of the
United States) of a bank, if the Board and the
Secretary of the Treasury jointly authorize
financial subsidiaries of banks to engage in
merchant banking activities pursuant to section
122 of the Gramm-Leach-Bliley Act.
(l) Conditions for Engaging in Expanded Financial
Activities.--
(1) In general.--Notwithstanding subsection (k), (n),
or (o), a bank holding company may not engage in any
activity, or directly or indirectly acquire or retain
shares of any company engaged in any activity, under
subsection (k), (n), or (o), other than activities
permissible for any bank holding company under
subsection (c)(8), unless--
(A) all of the depository institution
subsidiaries of the bank holding company are
well capitalized;
(B) all of the depository institution
subsidiaries of the bank holding company are
well managed;
(C) the bank holding company is well
capitalized and well managed; and
(D) the bank holding company has filed with
the Board--
(i) a declaration that the company
elects to be a financial holding
company to engage in activities or
acquire and retain shares of a company
that were not permissible for a bank
holding company to engage in or acquire
before the enactment of the Gramm-
Leach-Bliley Act; and
(ii) a certification that the company
meets the requirements of subparagraphs
(A), (B), and (C).
(2) CRA requirement.--Notwithstanding subsection (k)
or (n) of this section, section 5136A(a) of the Revised
Statutes of the United States, or section 46(a) of the
Federal Deposit Insurance Act, the appropriate Federal
banking agency shall prohibit a financial holding
company or any insured depository institution from--
(A) commencing any new activity under
subsection (k) or (n) of this section, section
5136A(a) of the Revised Statutes of the United
States, or section 46(a) of the Federal Deposit
Insurance Act; or
(B) directly or indirectly acquiring control
of a company engaged in any activity under
subsection (k) or (n) of this section, section
5136A(a) of the Revised Statutes of the United
States, or section 46(a) of the Federal Deposit
Insurance Act (other than an investment made
pursuant to subparagraph (H) or (I) of
subsection (k)(4), or section 122 of the Gramm-
Leach-Bliley Act, or under section 46(a) of the
Federal Deposit Insurance Act by reason of such
section 122, by an affiliate already engaged in
activities under any such provision);
if any insured depository institution subsidiary of
such financial holding company, or the insured
depository institution or any of its insured depository
institution affiliates, has received in its most recent
examination under the Community Reinvestment Act of
1977, a rating of less than ``satisfactory record of
meeting community credit needs''.
(3) Foreign banks.--For purposes of paragraph (1),
the Board shall apply comparable capital and management
standards to a foreign bank that operates a branch or
agency or owns or controls a commercial lending company
in the United States, giving due regard to the
principle of national treatment and equality of
competitive opportunity.
(m) Provisions Applicable to Financial Holding Companies That
Fail To Meet Certain Requirements.--
(1) In general.--If the Board finds that--
(A) a financial holding company is engaged,
directly or indirectly, in any activity under
subsection (k), (n), or (o), other than
activities that are permissible for a bank
holding company under subsection (c)(8); and
(B) such financial holding company is not in
compliance with the requirements of subsection
(l)(1);
the Board shall give notice to the financial holding
company to that effect, describing the conditions
giving rise to the notice.
(2) Agreement to correct conditions required.--Not
later than 45 days after the date of receipt by a
financial holding company of a notice given under
paragraph (1) (or such additional period as the Board
may permit), the financial holding company shall
execute an agreement with the Board to comply with the
requirements applicable to a financial holding company
under subsection (l)(1).
(3) Board may impose limitations.--Until the
conditions described in a notice to a financial holding
company under paragraph (1) are corrected, the Board
may impose such limitations on the conduct or
activities of that financial holding company or any
affiliate of that company as the Board determines to be
appropriate under the circumstances and consistent with
the purposes of this Act.
(4) Failure to correct.--If the conditions described
in a notice to a financial holding company under
paragraph (1) are not corrected within 180 days after
the date of receipt by the financial holding company of
a notice under paragraph (1), the Board may require
such financial holding company, under such terms and
conditions as may be imposed by the Board and subject
to such extension of time as may be granted in the
discretion of the Board, either--
(A) to divest control of any subsidiary
depository institution; or
(B) at the election of the financial holding
company instead to cease to engage in any
activity conducted by such financial holding
company or its subsidiaries (other than a
depository institution or a subsidiary of a
depository institution) that is not an activity
that is permissible for a bank holding company
under subsection (c)(8).
(5) Consultation.--In taking any action under this
subsection, the Board shall consult with all relevant
Federal and State regulatory agencies and authorities.
(n) Authority To Retain Limited Nonfinancial Activities and
Affiliations.--
(1) In general.--Notwithstanding subsection (a), a
company that is not a bank holding company or a foreign
bank (as defined in section 1(b)(7) of the
International Banking Act of 1978) and becomes a
financial holding company after the date of the
enactment of the Gramm-Leach-Bliley Act may continue to
engage in any activity and retain direct or indirect
ownership or control of shares of a company engaged in
any activity if--
(A) the holding company lawfully was engaged
in the activity or held the shares of such
company on September 30, 1999;
(B) the holding company is predominantly
engaged in financial activities as defined in
paragraph (2); and
(C) the company engaged in such activity
continues to engage only in the same activities
that such company conducted on September 30,
1999, and other activities permissible under
this Act.
(2) Predominantly financial.--For purposes of this
subsection, a company is predominantly engaged in
financial activities if the annual gross revenues
derived by the holding company and all subsidiaries of
the holding company (excluding revenues derived from
subsidiary depository institutions), on a consolidated
basis, from engaging in activities that are financial
in nature or are incidental to a financial activity
under subsection (k) represent at least 85 percent of
the consolidated annual gross revenues of the company.
(3) No expansion of grandfathered commercial
activities through merger or consolidation.--A
financial holding company that engages in activities or
holds shares pursuant to this subsection, or a
subsidiary of such financial holding company, may not
acquire, in any merger, consolidation, or other type of
business combination, assets of any other company that
is engaged in any activity that the Board has not
determined to be financial in nature or incidental to a
financial activity under subsection (k), except this
paragraph shall not apply with respect to a company
that owns a broadcasting station licensed under title
III of the Communications Act of 1934 and the shares of
which are under common control with an insurance
company since January 1, 1998, unless such company is
acquired by, or otherwise becomes an affiliate of, a
bank holding company that, at the time such acquisition
or affiliation is consummated, is 1 of the 5 largest
domestic bank holding companies (as determined on the
basis of the consolidated total assets of such
companies).
(4) Continuing revenue limitation on grandfathered
commercial activities.--Notwithstanding any other
provision of this subsection, a financial holding
company may continue to engage in activities or hold
shares in companies pursuant to this subsection only to
the extent that the aggregate annual gross revenues
derived from all such activities and all such companies
does not exceed 15 percent of the consolidated annual
gross revenues of the financial holding company
(excluding revenues derived from subsidiary depository
institutions).
(5) Cross marketing restrictions applicable to
commercial activities.--
(A) In general.--A depository institution
controlled by a financial holding company shall
not--
(i) offer or market, directly or
through any arrangement, any product or
service of a company whose activities
are conducted or whose shares are owned
or controlled by the financial holding
company pursuant to this subsection or
subparagraph (H) or (I) of subsection
(k)(4); or
(ii) permit any of its products or
services to be offered or marketed,
directly or through any arrangement, by
or through any company described in
clause (i).
(B) Rule of construction.--Subparagraph (A)
shall not be construed as prohibiting an
arrangement between a depository institution
and a company owned or controlled pursuant to
subparagraph (H) or (I) of subsection (k)(4)
for the marketing of products or services
through statement inserts or Internet websites
if--
(i) such arrangement does not violate
section 106 of the Bank Holding Company
Act Amendments of 1970; and
(ii) the Board determines that the
arrangement is in the public interest,
does not undermine the separation of
banking and commerce, and is consistent
with the safety and soundness of
depository institutions.
(6) Transactions with nonfinancial affiliates.--A
depository institution controlled by a financial
holding company may not engage in a covered transaction
(as defined in section 23A(b)(7) of the Federal Reserve
Act) with any affiliate controlled by the company
pursuant to this subsection.
(7) Sunset of grandfather.--A financial holding
company engaged in any activity, or retaining direct or
indirect ownership or control of shares of a company,
pursuant to this subsection, shall terminate such
activity and divest ownership or control of the shares
of such company before the end of the 10-year period
beginning on the date of the enactment of the Gramm-
Leach-Bliley Act. The Board may, upon application by a
financial holding company, extend such 10-year period
by a period not to exceed an additional 5 years if such
extension would not be detrimental to the public
interest.
(o) Regulation of Certain Financial Holding Companies.--
Notwithstanding subsection (a), a company that is not a bank
holding company or a foreign bank (as defined in section
1(b)(7) of the International Banking Act of 1978) and becomes a
financial holding company after the date of enactment of the
Gramm-Leach-Bliley Act, may continue to engage in, or directly
or indirectly own or control shares of a company engaged in,
activities related to the trading, sale, or investment in
commodities and underlying physical properties that were not
permissible for bank holding companies to conduct in the United
States as of September 30, 1997, if--
(1) the holding company, or any subsidiary of the
holding company, lawfully was engaged, directly or
indirectly, in any of such activities as of September
30, 1997, in the United States;
(2) the attributed aggregate consolidated assets of
the company held by the holding company pursuant to
this subsection, and not otherwise permitted to be held
by a financial holding company, are equal to not more
than 5 percent of the total consolidated assets of the
bank holding company, except that the Board may
increase that percentage by such amounts and under such
circumstances as the Board considers appropriate,
consistent with the purposes of this Act; and
(3) the holding company does not permit--
(A) any company, the shares of which it owns
or controls pursuant to this subsection, to
offer or market any product or service of an
affiliated depository institution; or
(B) any affiliated depository institution to
offer or market any product or service of any
company, the shares of which are owned or
controlled by such holding company pursuant to
this subsection.
* * * * * * *
MINORITY VIEWS
H.R. 5291 would amend the Bank Holding Company Act (BHCA)
to permit financial holding companies (FHCs), a type of bank
holding company, to hold merchant banking investments for up to
15 years. The Fed's regulations currently set a limit of 10
years on these investments, though they may grant individual
extensions based on the circumstance and could modify the
regulation. Most of these investments are done by the largest
banks and allow the bank to make engage in non-financial
business activities that may incur unusual risks. In fact, the
Federal Reserve has warned that, ``The potential risks . . .
[of] merchant banking activities exceed those of many more
traditional banking activities.''\1\ It is unclear if any of
banks may have bad merchant bank investments coming due that
the Fed is reluctant to authorize an extension for that would
be accomplished through this bill. Therefore, without more data
about these kind of unique investments, such a reform could
undermine the safety and soundness of the largest banks.
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\1\Fed, Supervisory Guidance on Equity Investment and Merchant
Banking Activities (Feb. 26, 2021).
---------------------------------------------------------------------------
Bank Holding Companies (BHCs) engage in a broad range of
activities that the Fed has deemed to be closely related to, or
incidental to, the business of banking. BHCs may have both bank
and nonbank subsidiaries. In addition, BHCs that elect to
become financial holding companies can engage in any activity
that has been deemed financial in nature, allowing banks,
securities firms, and insurance firms to operate under common
ownership and engage in a variety of other financial
activities.
Merchant banking investments are an exception to BHCA's
separation of banking and commerce.\2\ They are permissible
only for FHCs with subsidiaries that are broker-dealers,
investment advisers, or affiliates underwriting insurance. In
the course of underwriting, merchant banking, or investment
banking, an FHC might obtain shares in a nonfinancial
business.\3\ Called merchant banking investments, these
investments are allowed within certain limits on holding time
and as a share of total capital.\4\ Merchant banking
investments cannot be made by the bank subsidiary and must be
held separately by a portfolio company, such as a private
equity fund, that is not routinely managed by the FHC.
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\2\12 U.S.C. Sec. 1843(k)(7).
\3\A merchant bank provides financial services for corporations or
high-net-worth individuals, as opposed to the general public, and is
not housed in the bank subsidiary of an FHC. Investment banks
underwrite securities for companies and governments and sell them to
institutional investors. For example, an FHC might manage a company's
initial public offering.
\4\12 U.S.C. Sec. 1843(n). The FHC cannot manage or operate the
business and can hold the shares for up to 10-15 years, depending on
the type, but can seek extensions. Merchant banking investments are
limited to 20-30% of the FHC's Tier 1 capital, depending on the type. A
bank cannot cross-market products from these companies and cannot
engage in the types of transactions that are covered by affiliate
restrictions.
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The statutory authority for merchant banking investments is
broad, and the implementing regulation defines it as ``to
acquire or control any amount of shares, assets or ownership
interests of a company or other entity that is engaged in any
activity not otherwise authorized for the financial holding
company under section 4 of the Bank Holding Company Act.''\5\
According to one study: ``In effect, the merchant banking power
serves as a catch-all authority for FHCs to invest in
commercial enterprises, as long as any such investment meets
[the regulatory requirements] . . . . Even though an FHC is
permitted to acquire full ownership of a purely commercial
firm, the principal purpose of its investment must remain
purely financial: making a profit upon subsequent resale or
disposition of its ownership stake . . . . [T]he main
justification for allowing FHCs to own or control commercial
companies . . . is the notion of merchant banking as a
fundamentally financial activity.''\6\
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\5\12 CFR Sec. 225 Subpart J.
\6\Saule T. Omarova, The Merchants of Wall Street: Banking,
Commerce, and Commodities (Nov. 2013).
---------------------------------------------------------------------------
Other activities that have been approved as complementary
to finance for FHCs include trading physical commodities in
spot and futures markets, energy management and tolling, and
disease management and mail-order pharmacy activities. Existing
FHCs' nonfinancial physical commodity market activities--
including ``extraction, transportation, storage, or
distribution of commodities, or to process or refine
commodities''--were grandfathered in.\7\ When the Fed proposed
a rule in 2016 to curb FHC activity in physical commodity
markets (though did not finalize the rule), they noted FHCs
held $29 billion in merchant banking investments, and 99% of
merchant banking activity was undertaken by FHCs with over $50
billion in assets at the time.\8\ Only Goldman Sachs and Morgan
Stanley were grandfathered in to continue engaging in physical
commodities activities. In addition, 12 FHCs, all with over $50
billion in assets, had been approved for complementary
activities as of 2016.\9\
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\7\CRS, Bank Holding Companies: Background and Issues for Congress
(Dec. 2024).
\8\Fed, Federal Reserve Board Invites Public Comment on Proposed
Rule That Would Strengthen Existing Requirements and Limitations on the
Physical Commodity Activities of Financial Holding Companies (Sep. 23,
2016).
\9\CRS, Bank Holding Companies: Background and Issues for Congress
(Dec. 2024).
---------------------------------------------------------------------------
While some argue the reform put forward by this bill could
help smaller banks support small businesses and affordable
housing in their communities, the bill would apply to any
merchant banking investment, regardless of type, as well as all
banks, regardless of size, and the evidence we have available
suggests these are largely handled by larger banks. Moreover,
the Fed already has the authority to extend the investment
period, either on a case-by-case basis or by updating the
regulation. Without more data on these type of investments, it
is difficult to know if a sweeping mandate to extend the
maturity for all of these investments by 5 years would be
beneficial or have any safety and soundness ramifications.
This bill is opposed by Americans for Financial Reform and
Public Citizen.
For these reasons, we oppose H.R. 5291.
Sincerely,
Maxine Waters,
Ranking Member.
Nydia M. Velazquez,
Stephen F. Lynch,
Al Green,
Joyce Beatty,
Rashida Tlaib,
Members of Congress.
[all]