[Pages H3132-H3201]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

{time} 1255

In the Committee of the Whole

Accordingly, the House resolved itself into the Committee of the
Whole House on the State of the Union for the consideration of the bill
(H.R. 10) to enhance competition in the financial services industry by
providing a prudential framework for the affiliation of banks,
securities firms, and other financial service providers, and for other
purposes, with Mrs. Emerson in the chair.
The Clerk read the title of the bill.
The CHAIRMAN. Pursuant to the rule, the bill is considered as having
been read the first time.
Under the rule, the gentleman from Iowa (Mr. Leach), the gentleman
from New York (Mr. LaFalce), the gentleman from Virginia (Mr. Bliley),
and the gentleman from Michigan (Mr. Dingell) each will control 15
minutes.
The Chair recognizes the gentleman from Iowa (Mr. Leach).
Mr. LEACH. Madam chairman, I yield myself such time as I may consume.
(Mr. LEACH asked and was given permission to revise and extend his
remarks.)
Mr. LEACH. Madam Chairman, we come to the Congress today to deal with
truly historic legislation. Everybody knows there are massive changes
underway in the financial landscape. Not all of us like all of these
changes. In fact, I would suspect the majority of the country and the
majority of this body have serious doubts. But the bill we are bringing
before the Congress is about the question of whether we want to have a
government of laws or of men, whether we want to have laws shaped and
constrained to defend the financial system for the benefit of the
public.
What we really have before us as we deal with issues of this nature
are differences between and within industrial groupings, differences
between and within regulatory bodies, and questions of the public
interest.
In my view, the principal issue is the latter, what is in the public
interest. What we have in the bill that is being brought before us is a
bill designed to be pro-competitive. In its broadest outlines, there is
enormous support in the administration, both sides of Congress, both
committees for the principle that we ought to have more competition
within financial services; banks being allowed to offer more securities
and insurance services, insurance companies more banking and securities
products, securities firms more insurance and banking products. That is
a pro-competitive circumstance.
Now, there are many differences of judgment on the subtleties: who
regulates, who gets what powers relative to what other institutions. My
view is very simple. We ought to put a great emphasis on antitrust, we
ought to put a great emphasis and decide as many issues as possible on
what is the most pro-competitive option, and we ought to be, most of
all, concerned for small individuals and small institutions.

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Here let me just stress from the perspective of a Midwesterner, for
the first time we have historic new powers granted to community banks
to allow them to offer lower-cost services for small business and for
agriculture based on access to capital from a government-sponsored
enterprise, the Federal Home Loan Bank system. We also have the
capacity of the consumers to get services from more sources in a single
moment, what is called one-stop shopping. That is the framework of the
bill. I think it makes sense.
There are different subtleties that we will get into and certainly an
amendment that I will be offering that I feel is of enormous
consequence. Having said that, let me turn for a moment to the
regulatory situation.
What this bill does is establish functional regulation with a bit of
a tilt to the Federal Reserve Board. The Department of the Treasury has
some objection to this tilt.
I would only say for Members of this body that the Federal Reserve
Board is the only institution of the United States Government that has
significant experience in the holding company regulatory area, which is
what we are really getting into with this legislation.
It is also the only institution that has resources available in a
time of emergency, absolutely extraordinary and stunning resources that
can be brought to bear in an instantaneous time period. It also has the
greatest reputation for being a nonpoliticized institution of the
government.
These are reasons that this Congress has historically tilted, not
just this legislative body, but historically tilted to the Fed. My own
view is, the Department of the Treasury has some reasonable positions
that this Congress is going to have to take into consideration. The
gentleman from New York (Mr. LaFalce) will offer an amendment tilting
in that direction, I think, fractionally too far, but in any regard,
tilting in that direction.
Certainly, whatever happens on this floor, if this bill passes, if we
go to conference, I would expect the Treasury to have a seat at the
table, and we will certainly take into consideration their views. But I
would simply say to my friends and colleagues that have listened to the
Department of the Treasury about certain concerns, I would hope that
the Department of the Treasury would recognize that the major issue is
what is in the public interest, not what is in the parochial interests
of any particular institution of government.
We have to be enormously cautious as we proceed that, as new powers
are undertaken, as new changes occur in the marketplace, that we have a
credible regulatory framework set in place. That is what I believe this
bill in its final measure accomplishes. Certainly, there are nuanced
changes that can occur without great damage to that structure, but I
would hope very much that the administration and the other side would
recognize that these are honest differences of opinion that this body
will have to deal with over time.
Madam Chairman, In this context, H.R. 10, the Financial Services Act,
references a historic effort to modernize the basic laws governing the
financial services sector of the economy so that our banks, securities
and insurance firms can better serve customers in the United States and
remain world leaders as financial services providers.
The Glass-Steagall Act, which has separated commercial banking from
investment banking, turns 65 years old this year. During these past six
decades, financial services has proved to be one of the fastest
evolving sectors of the economy, yet it continues to be governed by
legislation that is antiquated.
H.R. 10 has been several years in the making, and has involved
negotiations and compromises: between different congressional
committees, different political parties, different industrial groupings
and different regulators. No single individual or group got all--or
even most--of what it wanted.

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But it should be remembered that while the work of Congress
inevitably involves adjudicating regulatory turf battles and refereeing
industrial groups fighting for their piece of the pie, the principal
work of Congress in the work of the people. To ensure that citizens
have access to the widest range of products at the lowest possible
price; that taxpayers are not threatened by institutions that take
unacceptable risks; that institutions are able to compete against their
international rivals, which far outweigh even our largest financial
services groups.
The trick in crafting financial services legislation that works to
the public interest is to enhance competitiveness abroad, while
advancing competition here at home. In this contest, H.R. 10
strengthens the competitive position of America's financial services
sector internationally and at some time empowers community banks and
small financial institutions to ensure competition and consumer choice.
We address this legislation, of course, in the shadow of large
mergers that have been announced in the financial services sector. Many
of us have concerns about certain trends in finances. The key, whether
one likes or dislikes what is happening in the market place, is to
ensure that appropriate regulation is in place--anti-trust, consumer,
and perhaps, most critically regulation related to derivatives always
and other complex financial products. In this regard, this bill opts
for functional regulations and for the primary of non-politicized
Federal Reverse supervision.
Here it deserves stressing that amid all the publicity about large
financial institutions, the true beneficiaries of this legislation are
small community banks and the ordinary citizens and small businesses
they serve. This bill is opposed by many of the largest banks in the
country, because they can already take part in most of the activities
the bill permits.
Americans have long held concerns about bigness in the economy. As we
have seen in other countries, concentration of economic power does not
lead to increased competition, innovation or customer service.
But the solution to the problem of concentration of economic power is
not to deny small banks the new powers included in H.R. 10. It is to
empower them to compete against large institutions, combining the new
powers granted in this legislation with their personal service and
local knowledge in order to maintain and increase their market share.
In order to compete against large regional institutions or new
technologies like Internet banking, community based institutions need
new powers like the ones granted in H.R. 10. Banks which stick with
offering the same old accounts and services in the same old ways will
find their viability threatened.
For many communities, retaining their local, independent bank depends
upon granting that bank the power to compete against mega-giants which
are being formed under the current regulatory and legal framework. In a
David versus Goliath circumstance, H.R. 10 is the small banks'
slingshot.
H.R. 10 provides community banks with the tools to compete, not only
against large mega-banks but also against new technologies such as
Internet banking.
First, H.R. 10 gives community banks the ability to offer ``one stop
shopping,'' so that they can attract new individual and business
customers and retain customers who might otherwise feel they have
outgrown a community institution. Large financial institutions can
already offer a variety of services. But community banks are usually
not large enough to utilize legal loopholes like Section 20 affiliates
or creation of the unitary thrift holding company which large
institutions--commercial as well as financial--have turned to.
Second, H.R. 10 gives community banks access to low cost federal
funds through the Home Loan Bank System, letting small banks compete
against the Farm Credit System in providing credit for agricultural and
rural development projects. Not only will community banks benefit from
this provision, but increased competition in rural lending will lower
costs to farmers.
Third, H.R. 10 prohibits what are called ``deposit production
offices''--that is, offices which are designed to gather up deposits in
communities without lending out money to people in these communities.
This provision helps ensure that deposits made by members of a
community stay in the community, thereby creating economic growth and
opportunity.

By bolstering the viability of community-based institutions and
providing greater flexibility to them, H.R. 10 increases the percentage
of dollars retained in local communities.
It should be our goal to approve a bill that first of all gives
greater choice and lowers prices to the consumers of financial
services; second, protects the taxpayer; and third, is balanced between
the various industrial and commercial interests.
As we all know, there are complex issues involved in this
legislation, and there will be differing judgments on major issues by
members. One thing we all may agree upon, however, is that Congress
needs to reassert its Constitutional role in determining what should be
the laws governing financial services, instead of allowing the
regulators and courts to usurp this responsibility.
If Congress turns its back on financial services modernization, we
should not fool ourselves that rapid evolution in the fields of
banking, securities and insurance will cease. It will not. Financial
services modernization will take place with or without Congressional
approval. Without this legislation, however, changes in financial
services will continue unabated, but they will take place in an ad hoc
manner through the courts and through regulatory fiat, and will not be
subject to the safeguards and prudential parameters established in this
legislation.
Now is the time for Congress, not the regulators and the courts, to
step up to the challenge of modernizing our nation's financial services
sector for the 21st century, to ensure that it remains competitive
internationally, that it is stable and poses no threat to the taxpayer,
and that it provides quality service to all our citizens and
communities.
Madam Chairman, I reserve the balance of my time.
Mr. LaFALCE. Madam Chairman, I yield myself such time as I may
consume.
First of all, I want to acknowledge the fact that it has been a
pleasure to work with the chairman of the Committee on Banking and
Financial Services, the gentleman from Iowa (Mr. Leach), and the
chairman of the Committee on Commerce and the ranking Democrat, the
gentleman from Virginia (Mr. Bliley) and the gentleman from Michigan
(Mr. Dingell).
We have some differences of opinion. There are some very good
provisions within the most recent iteration of H.R. 10, but in my
judgment there are some very, very bad provisions that take significant
steps backward. The issue is, how do we best advance the cause of the
American consumer? How do we best protect the cause of the American
consumer?
Every consumer group in America that I am aware of opposes H.R. 10,
even with the manager's amendment. The administration opposes it, even
with the manager's amendment, to such an extent that the Secretary of
the Treasury had a press conference yesterday, appeared before Congress
today, and indicated that he would strongly recommend a veto of it
because it is not in the public interest.
I side with all of these consumer organizations. I side with the
administration. I also side on these issues with the State banking
regulators and the chairman of the FDIC, the insurance fund.
Now, in its current form, unfortunately, this bill reduces
competition; it does not enhance competition. It fuels concentration. I
think that is why most of the bigger banks and bigger insurance
companies and bigger securities firms are for it, but the smaller banks
of America, for example, and the consumers are opposed to it. It leaves
smaller and medium-size banks at a serious competitive disadvantage,
and it flatly discriminates against national banks as providers of new
financial services.
Perhaps most importantly, the bill requires national banks to move
assets out of institutions covered by the Community Reinvestment Act in
order to offer new products and services.
We Democrats have worked hard for years to ensure that banks actively
invest in the communities from which they draw their funds. No such
requirements apply to the new conglomerates that will be created as the
result of this bill. Only banks are covered by the CRA, and traditional
banking institutions are put at a competitive disadvantage under this
bill.
The strength of CRA is substantially dependent on the strength of the
national bank system. This bill undermines both. For this and a number
of other reasons, consumer and community groups generally oppose this
legislation.
The creation of large, diversified financial institutions that can
compete in global markets must be a part of financial modernization,
but there must be room in this country and in this bill for the
community-based institutions that we so heavily rely on to provide
credit to consumers and local businesses and to fuel community
development.
Many Members have also asked me whether this bill is good for
consumers and good for their communities. Consumers benefit from
innovation and

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competition. Communities benefit from investment in their citizens and
businesses that can spur economic development. This bill,
unfortunately, would impede innovation by preventing national banks
from offering new products and services within their existing
structure. It would reduce competition by eliminating the historical
tension between different bank charters and different bank regulators,
forcing all institutions into one mold governed by one regulator. For
those who fear the power of the Federal Reserve Board, this is not a
slight tilt in the Federal Reserve Board's direction; this is a massive
shift.
It virtually compels smaller banks to become part of a larger-scale
conglomerate in order to compete. It forces assets out of banks and,
therefore, out of the reach of the CRA. I cannot honestly say that any
one of these things is good for either consumers or communities.
The gentleman from Minnesota (Mr. Vento) and I will be offering an
amendment to cure many of these defects. I would urge Members' strong
support of our amendment to cure so many of these defects.
If our amendment should not pass, I would be constrained to oppose
the bill as the consumer groups of America do, as this administration
does.
Madam Chairman, I reserve the balance of my time.
Mr. BLILEY. Madam Chairman, I yield myself such time as I may
consume.
I would like to begin by thanking my good friend and ranking
Democratic member on the Committee on Commerce, the gentleman from
Michigan (Mr. Dingell), as well as the gentleman from Ohio (Mr. Oxley),
the gentleman from New York (Mr. Manton), the gentleman from Ohio (Mr.
Boehner), and the gentleman from Iowa (Mr. Leach), who have spent
hundreds of hours in meetings and negotiations working on a bipartisan
basis to create our best opportunity in 65 years to modernize our
financial system.
Every step of the way we were opposed by lobbyists and special
interest groups who said it could not be done. But we heard the
concerns of the American people about all of these megamergers. We
heard the concerns of the local businessmen who want to better compete
but have one hand tied behind their backs by the archaic Glass-Steagall
restrictions that current law imposes. And we heard from the Federal
and State financial regulators who expressed concern about the safety
and soundness of the financial system and their consumer protections as
we enter into the 21st century if we do not enact reform.
It is a testament to the will of the American people that we have
heard your concerns and are here today to pass legislation to protect
your future and that of your children.
I have a grandson who is almost 2 years old, Thomas J. Bliley, the
4th. When our committee heard from the OCC bank regulator that they
considered critical securities and insurance consumer protection
regulations to be only guidelines that banks may or may not have to
comply with, I worried about his future. This bill protects us.
Last year, the citizens of Illinois encouraged their legislature to
sign a comprehensive law governing bank insurance sales. It was a
bipartisan consensus, worked out with the support of all the affected
industries. We have taken this great compromise from Illinois and made
it one of the central keys to this legislation. We have protected or
safe-harbored any State consumer protection law which is no more
restrictive than the Illinois consensus.
This means that if my grandson, TJ, goes into a bank in New York, the
New York law guaranteeing consumers information that their choice of
insurance providers will not affect the loan application will be a
requirement, not a guideline. It means if he goes into a financial
institution in Florida, that that State's laws providing disclosures
will be requirements, not guidelines. And if he goes to Louisiana,
which has a law protecting the confidentiality of a consumer's
insurance history, something very important to all of us, that such
privacy protections will be a requirement that banks have to follow,
not just a guideline. But even if those State laws are protected, how
much competition will be left by the time he grows up?
Our committee has been inundated with letters and calls by consumers
worried about the ongoing megamergers, such as First Union bank's
purchase of CoreStates Bank in Pennsylvania, which included plans to
cut 4,400 jobs, close 172 bank branches and turn Philadelphia into the
top 10 market most dominated by a single bank at an amazing 53 percent
of the market. If we do not remove the government restrictions
preventing new competition in the banking industry, consumers will
continue to face higher fees and increased charges into the future.
This bill immediately triples the number of providers that can
potentially offer competing products and will ensure new competition to
reduce prices and surcharges.
And banks are not the only ones abusing the protectionist loopholes
in the current system. Our committee has investigated extensive fraud
by insurance agents who have swindled consumers out of huge premiums
for little to no extra policy benefits. H.R. 10 would not only let
insurance companies bring competition into the banking industry, but it
also allows banks the ability to offer competing insurance products in
every branch and location and at a huge potential savings for
customers.
I happen to be a friend of both my local bank and my insurance agent.
Both are honest and hard-working individuals. But would I like to see
them compete to see who can offer me the lowest price for my business?
Absolutely. Do I want American consumers to have the same savings? Yes,
absolutely yes.
Last month we all heard about the Travelers-Citibank merger which
created the biggest corporation in the Nation. I am told that they
cannot do this under current law, that we have restrictions in place
against this sort of thing, but they did it and more companies will do
it, and we do not have the framework in place to regulate it. This bill
creates that framework.
With H.R. 10 we create a standard for protecting consumer laws and
the safety of our country's finances. Without H.R. 10, we are diving
into a river of uncertainty at night hoping what somehow we will make
it to the opposite shore in one piece.
I have heard from the administration and the Treasury Department that
they oppose this bill because it hurts the national bank charter. Do
not be fooled. They are simply losing a turf battle between two
agencies, the OCC and the Federal Reserve, over who gets control over
these megamergers.
If I have to choose between a Federal Reserve Board that has kept
inflation at a long-term low, made the American dollar the envy of the
world and strengthened our financial payment system into the best shape
it has ever been in versus the OCC bureaucrats that go around
threatening to preempt State consumer protection laws and then join
political fund-raisers to solicit campaign money from the affected
institutions, then I choose the Federal Reserve.

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If we do not care more about protecting the American people than
protecting a bank charter, then we should turn in our election
certificates and find someone who can better represent our country.
Vote ``yes'' on H.R. 10 to ensure that my grandson TJ and millions of
other Americans do not lose the protection of our securities and
insurance laws. Vote ``yes'' on H.R. 10 because it opens up competition
and protects consumers from these mega-mergers. Vote ``yes'' because,
after all, there are millions of industry lobbying dollars spent to
defeat this bill every year. Our country needs reform, and they are
depending on us to do the right thing.
Madam Chairman, I reserve the balance of my time.
The CHAIRMAN. Without objection, the gentleman from New York (Mr.
Manton) will control the time.
There was no objection.
Mr. MANTON. Madam Chairman, I yield myself 2 minutes.
Today we have before us legislation involving the reform of our
financial services marketplace. As the ranking member of the
Subcomittee on Finance and Hazardous Materials of the Committee on
Commerce, and having seen this particular financial services bill

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die and resurrect itself several times over the last year, I fully
appreciate that simply getting this far is quite a feat.
This legislation is very complex and will dramatically affect both
financial and nonfinancial companies in the way they do business in the
future. There is little disagreement as to the need for reform, the
problem is just how to go about it. I believe the package we have
before us today, while not perfect, is an excellent step in the right
direction and will significantly move this process forward.
This legislation repeals the anti-affiliation provisions of the
Glass-Steagall Act that have kept various financial industries from
affiliating with one another for the last 65 years. While this
restriction may have been a good idea in the 1930's, the landscape has
so significantly changed since that time that maintaining such a
limitation no longer makes sense.
With an increasingly global marketplace, and consolidation within the
industry, the need for this regulation legislation is abundantly clear.
Within the last year alone we have witnessed the merging of large
financial institutions at an unprecedented rate, especially banks
buying up securities firms, while the same securities firms are unable
to acquire banks. Rapdily evolving banking laws have allowed for such
combinations, while potential competitors are still stuck under the
restrictions of Glass-Steagall.
I believe this legislation will create competitive parity and thereby
level the playing field between banks and other financial providers.
The ultimate beneficiaries of this increased competition will be
consumers; who will have a greater number of products and services to
choose from, in a more convenient forum, and at lower prices.
I would like to to take a moment to thank the chairman of the
Committee on Commerce, the gentleman from Virginia (Mr. Bliley), and
the full committee ranking member, the gentleman from Michigan (Mr.
Dingell) for all of their hard work and diligence in ensuring that
adequate consumer and investor protection provisions be built into the
manager's amendment which we will consider later today.
The manager's amendment ensures that consumers will be true
beneficiaries of the increased competition this legislation seeks to
promote. I believe this overall package is a good one, and I urge my
colleagues to support it.
Madam Chairman, I reserve the balance of my time.
Mr. LEACH. Madam Chairman, I yield 2 minutes to the gentleman from
New York (Mr. Lazio), our distinguished colleague and close friend.
Mr. LAZIO of New York. Madam Chairman, I thank the gentleman for
yielding me this time, and I want to begin by complimenting the
chairman, the gentleman from Iowa (Mr. Leach), the chairman, the
gentleman from Virginia (Mr. Bliley), the chairman, the gentleman from
Ohio (Mr. Oxley), and the chairman, the gentleman from New York (Mr.
Manton) for their extraordinary work in moving this forward. This was
never inevitable. Only because of the hard work and the consensus
building that they were able to achieve are we here today.
Let us go back to the early 1930's, Madam Chairman, and the movie the
``Wizard of Oz''. The stock market collapsed. The Securities and
Exchange Commission did not exist and few securities laws were enacted.
Between 1930 and 1933, 8,000 banks with $5 billion of deposits, an
enormous sum at the time, went bankrupt. American families suffered.
Their life's savings, money for food and shelter was lost.
To restore American confidence in our banks, Glass-Steagall erected a
wall between commercial banks and investment banks. Deposit insurance
was created so American families knew their financial nest egg was
safe. In the fragile days of the Great Depression, Glass-Steagall made
sense.
Years ago, families kept the bulk of their savings in banks, earning
low rates of interest. Today, families invest in the stock market. In
the last 7 years stock ownership has doubled. Now, 43 percent of
adults' own them. Americans are seeking higher returns.
Consumer behavior changed because stocks and mutual funds achieved
superior long-term results. People began managing their own retirement
funds. In short, Americans are no longer hiding their savings in their
mattresses.
Today, we stand at the center of an electronic revolution; computer
banking, cash management accounts, on-line mutual fund investing,
moving money to Tokyo and back again in an instant. We can pay our
bills through TV, and a customer can see and speak to a teller via the
Internet. We simply no longer live in the depression era that gave
birth to Glass-Steagall.
Madam Chairman, this bill rids us of the inefficiencies of the
financial services system. American families and small businesses
should have the same investment and borrowing choices that have been
enjoyed for years by large businesses, foreigners and millionaires.
Each year we spend $300 billion for brokerage, insurance and banking
services. Some of that money belongs in the pockets of folks living in
places like Bayshore, Long Island.
Families go to one place to open a checking account, to another to
invest in a mutual fund, then to a third to get an annuity for their
retirement. At each of these stops a transaction fee, or a cost, is
charged.
Mr. BLILEY. Madam Chairman, I yield 2 minutes to the gentleman from
New York (Mr. Lazio).
Mr. LAZIO of New York. Madam Chairman, I thank the distinguished
gentleman for yielding me this time.
While millionaires have been getting the best service at the best
price, one-stop shopping is still not available to working families.
Financial modernization will give families greater choices where and
how to invest their hard-earned savings. Make no mistake, the positive
impact of this bill will stretch from Wall Street to Main Street to M
Street, from the cradle to the wedding to retirement.
This bill breaks the chains of Glass-Steagall that no longer serve
the interests of American families without sweeping us away in the tide
of economic euphoria. This bill sustains us as the caretakers of senior
citizens' nest eggs and ensures that the life savings of working
families are not lost in economic downturns.
We, as legislators, do not know what financial products and services
will be demanded by the public in the future, but we should break down
barriers and encourage competition creating environments for more
innovative products and better prices. A vibrant financial base is at
the core of a healthy economy.
Without this bill, ominous news is in store for some American
financial institutions and thousands of their workers. We risk trapping
some of them by barring them from competition. The United States should
make its destiny. We should not stand on the sidelines while foreign
banks take over America's oldest securities firms.
Madam Chairman, the Congress has tried time and time again to
modernize our financial services laws. I am not certain that we will
get another chance, and we certainly cannot afford to standstill. I
urge my colleagues, Republican and Democrat, to let American finance
step into the future. Support this fine bill, because it will be a
positive, constructive part of America's financial services history.
Mr. LaFALCE. Madam Chairman, I yield 4 minutes to the gentleman from
Minnesota (Mr. Vento), the distinguished ranking Democrat on the
Subcommittee on Financial Institutions and Consumer Credit of the
Committee on Banking and Financial Services.
(Mr. VENTO asked and was given permission to revise and extend his
remarks.)
Mr. VENTO. Madam Chairman, I rise in opposition to H.R. 10. This rule
that has structured our consideration of this bill will, hopefully,
make improvements to the bill, but for now I am opposed to the
substance of this so-called modernization bill.
As I stated earlier, I do not believe it is worthy of its name. This
is sort of a one-size-fits-all bill, forcing, or trying to superimpose
upon the dynamic U.S. marketplace in our economy, probably the most
advanced economy that the world has ever seen, this sort of convoluted
regulatory structure. As I said in the consideration of the rule, our
banks provide the foundation of this dynamic economy.
A bill worthy of the name modernization ought to, in fact, eliminate
some of the barriers. The fact is these barriers have never been black
and white

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with regard to the Glass-Steagall laws. There have been many gray
areas. Banks have been involved in insurance, banks have been involved
in the sale of insurance, they have been involved in the sale of
securities.
We have seen the regulators move banking financial institutions
forward to try and address the reality of the marketplace. And rather
than try and get out in front of that and rationalize that process in
this bill, as my colleague from Texas (Mr. Bentsen) pointed out, this
bill moves to balkanize those issues and to limit financial
institutions, especially the national banks, in terms of the exercise
of those responsibilities and such powers.
The bill in its current form is a step backwards. It denies the
benefits of financial modernization not just to the medium and small
banks that we are talking about but also to the communities that, after
all, are the true beneficiaries, and stacks the deck against these
financial institutions by forcing them to give up profitable, existing,
valid and workable lines of business for no compelling public policy
reasons.
Our national banks have been and remain a source of economic strength
and a solid foundation on which to construct an economic framework for
growth. This bill changes the balance between national and State bank
charters. It will likely result in some charters flipping. If it is all
right for a State bank to conduct an activity in an operating
subsidiary, and it is appropriate for an international U.S. bank to
function in an operating subsidiary, why do we then limit national
banks in that very function and corporate structure, within the
national U.S. economy.
This so-called modernization bill should, in fact, restore
competitive balance, but this bill, at every turn in the policy
decision, fences in activities and tries to protect and insulate and
balkanize what is becoming apparent to all of us, and that is that the
lines of business of insurance, the line of business of securitization
of banking loans is something that has, in fact, greatly changed. These
financial instruments have become a distinction but they really look
and perform no different.
These new limits and proposed law comes with few, if any, competitive
gain for a small or medium sized bank. I hope we can correct that with
the LaFalce-Vento amendment and help consumers and help institutions.
Furthermore, Madam Chairman, the commercial basket in this bill which
again discriminates against banks. I think that a reasonable, a level
playing field with regards to commercial basket should be included. And
I am pleased to have joined in sponsorship of an amendment with the
gentlewoman from New Jersey (Mrs. Roukema), the chairwoman of the
subcommittee, in sponsoring such amendments to this measure.
The bill has any number of flaws that need to be corrected. Clearly,
I think reading the litany of groups against this bill, I think, would
astound the Members, looking at the banking institutions, the consumer
groups, Acorn, many of the other groups that are against the bill. The
fact is, who is for it also tells us or suggests what this bill does.
Obviously, those that need to be for this measure are the Citibanks and
Travelers that have basically entered into agreements which are not
permitted under current law. Therefore, the bill is a must pass measure
for such institutions.
As we see the bill grow, we should also put in place the safeguards
that are absolutely necessary so that the consumer and so that the
economy and the government and the deposit insurance programs are
protected.
Madam Chairman, I rise in opposition to H.R. 10. The rule that
structured our consideration of this bill will hopefully help make
improvements to the bill, but for now I am opposed to the substance of
this so-called ``modernization'' bill.
I would like to be making a statement in strong support of financial
services modernization legislation this afternoon. Our laws need to
catch up with reality by mapping a path of true modernization for
financial institutions in the financial services marketplace for today
and tomorrow. We need to enhance the competitiveness of our financial
services sector and to move forward with predictable, certain, logical,
and uniform regulation.
As written today, H.R. 10 would force banks to move financial
innovation out of the bank, a loss of diversity that is disadvantageous
for many reasons. Structurally, banks would fundamentally be forced to
choose a holding company structure in order to participate in a
meaningful way in the 21st Century financial services landscape. This
is essentially a business decision that should be made on a business
basis, not because options have been closed down by this
``modernization'' bill.
The bill in its current form is a step backwards because it denies
the benefits of financial modernization to communities and consumers,
and stacks the deck against many financial institutions by forcing them
to give up profitable existing, valid and workable lines of business
for no compelling public policy reasons.
Our national banks have been and should remain a source of economic
strength and a solid foundation to construct an economic framework of
growth. This bill changes the balance between the national bank and
state bank charters and may push banks to charter flip to state banks
where flexibility will remain.
True financial reform need not play off one segment of the financial
services industry against another. Rather it should provide competitive
balance. H.R. 10 plainly discriminates against national banks by taking
away existing powers and creating uncertainty in the conduct of their
business. These limits come with few, if any, competitive gains for
small- or medium-sized national banks which today ironically have more
options and exercise more powers than they would under this H.R. 10.
The commercial basket in this bill is not level between banks and
other financial services companies as the bill envisions a limited 5%
basket for financial service holding companies affiliated with banks
and a 15% basket for securities and insurance firms that become
financial holding companies. There is no reason for the competitive
inequity for banks other than it fits with the entire bill in its
antagonism towards banks and their future options.
Furthermore, H.R. 10 would undermine the Community Reinvestment Act
(CRA) by requiring that new financial products and services be offered
outside of banks and their subsidiaries and only in holding company
affiliates. Of course, these concerns could be remedied by adopting the
LaFalce-Vento operating subsidiary amendment and the Roukema-Vento-
Baker-McCollum-LaFalce basket amendment. At this point, however, their
success is not preordained.
This bill has a number of other flaws. It will undermine our federal
banking regulator in the courts by altering the deference standard. If
H.R. 10 were to pass as written now, the precedent could be detrimental
to other areas of law as well. The complex provisions regarding the
interface of state and federal law on insurance have become confusing
at best. I would prefer that the bill return to the Banking Committee's
balanced provision in Section 104 that would have clarified that no
state, by statute, regulation, or order, could prevent or restrict
affiliations between financial companies, nor prevent or restrict
activities authorized under this Act. H.R. 10 now only serves to
confuse the issue and could no doubt send everyone back to the courts
for decades to come.
Financial services modernization must do far more than just pave the
road with a Congressional stamp of approval on the acquisition and
merger phenomena. As I said in the Banking Committee hearing on bank
mergers a couple of weeks ago, we need to be vigilant and the
regulators need to be vigorous in applying the laws we have today. I do
not find heartening, for example, the Federal Reserve Board's current
laissez faire attitude with regard to the Citicorp/Travelers merger. In
fact, I find it less than comforting that the Fed is coming out so
strong in support of the holding company model (as opposed to an op sub
option) when they seem sanguine about this pre-modernization merger.
Nonetheless, these are not mere matters of turf. They are not just
matters of committee jurisdiction. Our nation and economy demands a
strong national bank charter today and tomorrow. Without changes in
this bill to ensure strong national banks, this ``modernization''
initiative will atrophy bank powers that are being employed today. It
will not be worthy of its name or the positive support of Congress.
Madam Chairman, while some of the laws governing the financial
services sector are overdue for reform, we should not be replacing old
law with bad law. Moving the process forward is not enough for this
Member because I cannot logically defend this bill as it is not
written. There must be some reason, some fair rationale.
Financial services modernization for the future should be balanced;
should enhance competition, and should not foster industry
concentration and corporate restructuring at the expense of consumers
and communities. Mr. Chairman, the Administration has made their
concerns known throughout this process. Unfortunately, their input has
been largely ignored and this has resulted in a veto threat for

[[Page H3137]]

this bill. I urge Members to keep these fundamentals in mind as we move
to the amendments on H.R. 10 and to oppose this bill without passage of
LaFalce-Vento and other parity amendments.
Mr. BLILEY. Madam Chairman, I yield 3 minutes to the gentleman from
Ohio (Mr. Oxley), the very able chairman of the subcommittee.
(Mr. OXLEY asked and was given permission to revise and extend his
remarks.)
Mr. OXLEY. Madam Chairman, first I would like to thank the chairman
of the full committee, the gentleman from Virginia (Mr. Bliley), as
well as the ranking member, the gentleman from Michigan (Mr. Dingell),
and my good friend the gentleman from New York (Mr. Manton), the
ranking member of our subcommittee, for their good work in bringing
this bill to the floor today.
We have reached a critical watershed in the evolution of the
financial services industry. Congress has been trying for 63 years to
modernize our financial markets; trying for 63 years to allow banks to
diversify their portfolios, to protect the solvency of the banking
industry, to provide our American companies with some abilities that
their foreign competitors already have, and to provide a fair and
comprehensive system of functional regulation to protect consumers and
the American taxpayer.
When my subcommittee began work on H.R. 10, we focused on three
fundamental goals: Protect consumers, increase competition and maintain
the safety and soundness of our Nation's financial system. This
legislation, H.R. 10, achieves those goals.
H.R. 10 establishes full functional regulation of financial
activities, balancing Federal and State regulations to ensure maximum
protection to consumers. It repeals the depression era 1930's
restrictions on competition so that banks will no longer be forced to
make riskier and riskier investments to hang on to a dwindling share of
consumer savings. And it brings our American financial industry into
the 21st century on an even footing with our foreign competitors with
full competition and consumer choice.
When H.R. 10 came to our committee, it was opposed by almost every
regulator and industry group. Now, after months of hard work by
Republican and Democrat bipartisan committee staff, we have a bill that
has the support of the Federal Reserve and Chairman Greenspan,
Securities and Exchange Commission, Chairman Arthur Levitt, Consumers
First, the National Association of Home Builders, insurance agents,
insurance underwriters, securities firms, mutual funds and banks
representing a quarter of their market.
Most importantly, this bill helps advance the interests of consumers.
Consumers want to be able to go to a financial planner or investment
adviser and take care of all their financial needs. They want to be
able to have the opportunity to choose from a variety of hybrid
products without artificial limits placed on their choices. And they
want to take advantage of the $15 billion per year in consumer savings
that would result from repealing the inefficient and archaic Glass-
Steagall bill.

{time} 1330

The Washington lobbyists and the media have panned this bill from day
one. They said it could not be done. They said the Congress will not
have the will to buck the tide and pass a bill that does not have the
unanimous support of all segments of the financial industry. Each step
of the way we have proved them wrong. We are going to prove them wrong
again today.
Congress will not be paralyzed by lobbyists who get paid to stop good
legislation. At the beginning of this year, the gentleman from Ohio
(Mr. Boehner) and I decided to go around the lobbyists and convened a
meeting with top CEOs of the financial industry for their commitment to
getting financial reform.
Some lawyers are continuing to try to pick apart our efforts. Some
companies do not want to face increased competition and are afraid of
H.R. 10's brave new financial world that forces them to be more
responsive to their consumers. But the leaders of American business
know this bill is good for their shareholders and good for their
country. Eventually they came to us and said, we will support your
efforts.
Let us support H.R. 10. It is a well-balanced and well-crafted piece
of legislation.
Mr. MANTON. Madam Chairman, I yield 2 minutes to the gentlewoman from
Colorado (Ms. DeGette).
Ms. DeGETTE. Madam Chairman, I thank the gentleman for yielding.
I rise in support of H.R. 10, the Financial Services Competitiveness
Act. We have an opportunity today to modernize financial laws that have
not changed since the 1930s. This legislation takes some important
steps to modernize Depression-era banking laws that no longer reflect
the reality of today's marketplace.
I know there are fears about the complexity of this legislation. I
know that those changes make everybody nervous. But this is a complex
issue and it demands a complex solution. The good news is the bill has
the potential to foster free-market competition and protect the
interests of the public with the consumer protections included in the
managers' amendment.
Supporters of this bill have heralded how much it will benefit
consumers. And it will if we pass the managers' amendment, which
includes the very important Bliley-Dingell consumer protection
language.
There is an additional consumer protection that is included in the
underlying bill and deserves recognition. Buried in H.R. 10 is the
first-ever Federal protection aimed at preventing property, casualty
and life insurers from discriminating against survivors of domestic
violence.
I first raised this issue last October during the Committee on
Commerce consideration of H.R. 10. Many of my colleagues on both sides
of the aisle were stunned to learn that insurers routinely use domestic
violence as an underwriting criterion. Many insurers treat a person's
history of abuse as if it were a life-style choice like skydiving or
car racing. Domestic violence is indeed dangerous, but it is in no way
a life-style choice.
During the intense and often acrimonious negotiations over this
legislation, the chairman and ranking member of the Committee on
Commerce did not lose sight of the importance of this issue. I am
grateful to the gentleman from Virginia (Mr. Bliley), the gentleman
from Ohio (Mr. Oxley), the gentleman from Michigan (Mr. Dingell), and
the gentleman from New York (Mr. Manton) for their steadfast commitment
to including these important protections in the underlying bill.
I would also like to thank the gentlewoman from Maryland (Mrs.
Morella) and the gentleman from Vermont (Mr. Sanders), who are the
original sponsors of the legislation upon which the amendment was built
and whose leadership has been instrumental in pushing this issue to the
forefront of debate.
While 23 States have passed this protection, H.R. 10 will help all
victims of domestic abuse. It will also help consumers. I urge support
of the managers' amendment. I urge support of the legislation.
Mr. LEACH. Madam Chairman, I yield 3 minutes to the gentlewoman from
New Jersey (Mrs. Roukema), distinguished chairman of the Subcommittee
on Financial Institutions and Consumer Credit.
(Mrs. ROUKEMA asked and was given permission to revise and extend her
remarks.)
Mrs. ROUKEMA. Madam Chairman, I rise in strong support of this
legislation.
I base my support for this bill on some very fundamental principles.
One, it must preserve the safety and soundness of our Federal deposit
system and the rest of the Federal safety net and protect the
taxpayers. This bill does that. It must protect against concentration
of economic power. And I believe that H.R. 10 maintains both these
fundamental principles.
The bill permits banks, security firms, and insurance companies to
affiliate under one holding company, and the bill grants bank holding
companies the authority to engage in virtually any activity financial
in nature. It grants holding companies the authority it make modest
amounts of investment in commercial activities. And the bill grants
authority to banks to deal in insurance activities while assuring, and
I stress that, assuring that the consumers will be protected.

[[Page H3138]]

But the bill does not permit underwriting of insurance and real
estate investments in the holding company. The bill sets up a nuclear
regulatory structure. And, my colleagues, this is fundamental to
understanding why I support this bill. We are adopting functional
regulation here. While banks, security firms, and insurance companies
will be permitted to affiliate, the banking securities and insurance
regulators will continue to regulate and supervise these entities. This
will provide the so-called level playing field, and it will be level
for all participants in a particular area of financial services
regardless of what that corporate structure may be.
But here I want to get to the safety and soundness question and I
want to stress that the affiliation will not undermine safety and
soundness. The bill protects the Federal deposit system so that it will
not be used to bail out securities or insurance affiliates of the
banks. The transaction with affiliates' ``restrictions'' found in
sections 23(a) and 23(b) will continue to apply to insurance and
securities affiliates in this holding company structure. I stress,
these types of fire walls are absolutely essential to protect the
consumers and the taxpayers.
I would like to tangentially make the point that I oppose the
operating subsidiary amendments which will be offered later, but we
will debate that at the appropriate time.
This legislation is also necessary, absolutely necessary, to keep us
competitive with our foreign competition. Outdated laws need to be
updated, and this bill does that; but as well as protecting us in world
markets, it also protects us here at home.
I want, in conclusion, to say that we need this legislation to set a
statutory framework to direct the regulators who have, I am afraid, in
the absence of congressional action, taken arbitrary and ad hoc actions
and have rewritten the rules. But they are not directly accountable to
the voters, my colleagues. I want to repeat that. The regulators are
not accountable to the voters and the taxpayers. We are.
Today we must take action, act now, and take this away from those
regulators who have been acting in the absence of our action.
Mr. LaFALCE. Madam Chairman, I yield 1 minute to the gentleman from
Florida (Mr. McCollum).
(Mr. McCOLLUM asked and was given permission to revise and extend his
remarks.)
Mr. McCOLLUM. Madam Chairman, today I very reluctantly rise in
opposition to the bill in its present form. Like every other member, I
think, of the Committee on Banking and Financial Services, on both
sides of the aisle, I want very badly to see modernization. But I do
not believe that this bill fulfills the flexibility test that I wish
that it did. And unless we amend it in significant ways that I do not
expect today, I am going to have to vote against it.
I am afraid that it will destroy flexibility in the banking system
and will not allow the innovation that we need to have going into the
21st century. I am worried that it increases the amount of regulation,
rather than decreasing it, on our financial services system. I am
concerned that the bill does not provide, as the committee bills did
out of both Banking and Commerce, for the merger of the bank and thrift
insurance funds, which very much needs to be done for safety and
soundness; and frankly, it is very disappointing we are not doing that
here today. And I am fearful that we will invite more litigation
because of the vague standards that are in this bill. For those
reasons, I am opposed to the bill.
I am not speaking to it for any other reason than to lay out the
predicate for it today. It is a sad moment for me to be here opposing
my chairman on this issue. I respect him a great deal. I respect all of
the people who worked hard on this bill. And I truly hope that we get
to a flexible, innovative financial services modernization piece of
legislation.
Mr. BLILEY. Madam Chairman, I reserve the balance of my time.
Mr. MANTON. Madam Chairman, I yield 4 minutes to the gentleman from
Massachusetts (Mr. Markey).
Mr. MARKEY. Madam Chairman, I thank the gentleman from New York for
yielding me the time, and I want to congratulate him and the gentleman
from Ohio (Mr. Oxley) along with the chairman of the full committee,
the gentleman from Virginia (Mr. Bliley) and the ranking Democrat for
the full committee, the gentleman from Michigan (Mr. Dingell) for their
excellent work on this bill; and all the other members, the gentleman
from New York (Mr. LaFalce) and the gentleman from Iowa (Mr. Leach) and
everyone else who has worked on this bill.
Banking, insurance, securities. Now, to the ordinary person listening
to this debate, it sounds like a struggle between the very rich and the
extremely wealthy. ``What is my stake in this debate?'' the ordinary
person says. Well, it is really a debate about investors and depositors
and businesses and consumers. And, in fact, it is a debate about a
fundamental change being proposed in the capital formation system in
the United States that is the very engine which drives capitalism in
the United States.
Now, back in 1933, when Glass-Steagall was put on the books, it was
in the aftermath of a great economic collapse in the United States, and
there was great concern about the mixture of investment banking with
ordinary banking.
Now many people argue times have changed. And they have. But
something has not changed. That is human nature. It is still the same.
And the very same forces of greed and fear which existed in 1929, 1930,
1931, and 1932, throughout the 1930s, still exists today.
Now, tearing down Glass-Steagall is a good idea if we build in the
proper safeguards, fire walls to protect investors and depositors and
taxpayers. If we do not, it is a disaster for this country and it would
be a great mistake for us to pass legislation here today.
We have tried to pass legislation for the last 15 years or so in this
area. But like the character created by Albert Camus in his famous
novel, ``The Myth of Sisyphus,'' in 1942, Congress has pretty much
engaged in an exercise where we gain great satisfaction from just
trying to get the boulder up to the top of the mountain but never
successfully making it. And in fact, that is how this whole exercise
may actually end. But it is worth the effort.
Over the years, however, it has foundered because, while banks have
wanted the extra powers that would come with repealing Glass-Steagall,
they have always wanted to do so without the requisite safeguards being
put into place so that we do not repeat the past.
The bill before us now has good and bad and ugly, like that old Clint
Eastwood spaghetti western. The good is that we keep out Op-subs. We
will keep hearing that. It will be defined to us as an operating
subsidiary. What Op-sub really stands for is ``ordinary people
subsidizing'' banks. That is what Op-sub means, spreading the Federal
protection for banking activities over into securities, over into
insurance areas. Ordinary people subsidizing risky business, that is
bad. It is not in the bill.
However there are some things in the bill which are bad and ugly. The
Leach amendment seeks to deal with the mixture of commerce and banking.
I support that amendment. It is a good amendment. The Bliley-Dingell
amendment seeks to deal with the deficiencies which exist in the
protections for depositors and investors, and I support that amendment.
They should both be adopted if our goal is to form a more perfect
version of what this legislation should be so that we can move to a
future without Glass-Steagall, but at the same time give the
protections to investors, to depositors, to taxpayers which they
deserve.

{time} 1345

Mr. LEACH. Madam Chairman, I yield 2 minutes to the gentleman from
Delaware (Mr. Castle), my distinguished friend and colleague, the
subcommittee chairman.
Mr. CASTLE. Madam Chairman, I thank the gentleman for yielding.
Madam Chairman, I, too, like most of the other speakers here, rise in
support of the repeal of Glass-Steagall and the modernization of
financial institutions across the United States of America. I think
this is very, very important to do.
I will submit a fuller statement for the Record, but I would just
like to take the little bit of time I have, to first of all, thank all
those who put

[[Page H3139]]

this together, there is too many to mention in 2 minutes, and to state
that the most important reason for supporting this legislation that I
can find and I hope others can find is that it will benefit every
American seeking to improve their family's financial security by saving
and investing more.
This legislation will help them achieve that goal by making more
savings and investment products available in one-stop shopping at
competitive prices. In addition, the bill contains important disclosure
and sales standards that protect consumers as they shop for these
products.
The legislation will help consumers, but it will also benefit the
businesses seeking to provide these financial products. It will enable
banks, insurance companies, and securities firms to affiliate and
operate more competitively, which is good for all of us on a level
playing field.
It will expand the products that these financial services can offer
to their customers while maintaining adequate regulation to preserve
the safety and soundness of the system. That is what it is all about.
We needed to find a piece of legislation after 60 years, and Glass-
Steagall was questioned almost on the day it passed, I might add, but
we needed to find something which we had proper regulation, good
capital requirements, the fire walls that we are concerned about in
order to move it forward.
In my judgment, this piece of legislation does that. H.R. 10 meets
those standards. I am supportive of a number of the amendments which
are going to come up, because I feel it should be tilted a little bit
one way or the other, as others may feel, too. But in the long run, I
intend to support this legislation regardless of how these amendments
may come out.
I must say I have a sense of deja vu about all this. My State went
through this in the 1980s. We liberalized our banking laws a great
deal. Our banks were among the first in the country which were allowed
to do a number of things that are being talked about in this
legislation when the States were allowed to regulate it.
I cannot tell my colleagues how well it has worked. We have regulated
well. We have been careful about what they could do. We have made sure
the capital requirements were high. Delaware has prospered mightily as
a part of all of this.
I would also say that there are many banks who are opposed to this
legislation, and I think we will find in the long run, when we are
through in the House and the Senate, that they will be pleased. So
support the legislation.
Madam Chairman, I rise in support of H.R. 10, the Financial Services
Competition Act. This legislation is long-overdue to modernize our
Nation's banking, securities and insurance laws. While the bill before
us is not perfect, it does represent a fair compromise on important
issues. As is the case with any compromise, not every group is happy.
Banking is very important to my State of Delaware and our banks are
split over the bill. I will support several of the key amendments to
the bill, in an effort to improve some provisions, but regardless of
what happens on those amendments, I believe this legislation is a step
forward and should be passed today.
As a member of the House Banking Committee, I have been directly
involved in the work to modernize our financial services laws since I
came to Congress in 1993. It has been a difficult struggle to update
our laws to keep pace with and manage what is happening in the market
place, while seeking to balance the competing interests of the banking,
securities and insurance industries.
Now is the time to act. We must do this to benefit consumers who need
a variety of financial products to help them plan for their economic
futures. In addition, we must update these laws to allow our financial
services providers to compete effectively in the next century.
The most important reason for supporting this legislation is that it
will benefit every American seeking to improve their family's financial
security by saving and investing more. This legislation will help them
achieve that goal by making more savings and investment products
available in one-stop shopping at competitive prices. In addition, the
bill contains important disclosure and sales standards to protect
consumers as they shop for these products.
This legislation will help consumers, but it will also benefit the
businesses seeking to provide these financial products. It will enable
banks, insurance companies and securities firms to affiliate and
operate more competitively on a level playing field. It will expand the
products that these financial services firms can offer to their
customers, while maintaining adequate regulation to preserve the safety
and soundness of the system.
Madam Chairman, as part of the long deliberations seeking to treat
all financial services providers fairly, I have been particularly
interested in assuring that national banks are permitted to compete
fairly in selling and underwriting insurance products. Bank sales and
underwriting of insurance will be good for competition and good for
American consumers.
To be candid, in my view the provisions in this legislation regarding
banking and insurance are not perfect. I believe the language that was
contained in the Banking Committee's version of H.R. 10 is superior.
The improved compromise language is adequate in protecting the right of
national banks to participate in the insurance business, but it has
been asserted that section 104 could leave some chance that a State
could attempt to treat banks less fairly than other providers of
insurance. We should continue to work to further clarify this provision
in a potential conference on the bill before it becomes law. I am
committed to working toward that goal.
Finally, Madam Chairman, I say to my colleagues that this is historic
legislation that has been a long-time in coming and it has been an
extremely difficult effort to balance all the competing interests
affected by H.R. 10. As I noted, I am not entirely happy with every
provision in this bill, and I will work to improve those provisions
before it becomes law. But overall, H.R. 10 is a well-crafted effort to
make our financial services system ready for the 21st century and to
meet the needs of American consumers and business. I urge my colleagues
to keep this effort alive and pass H.R. 10 today.
Mr. LaFALCE. Madam Chairman, I yield 2 minutes to the gentlewoman
from California (Ms. Waters).
(Ms. WATERS asked and was given permission to revise and extend her
remarks.)
Ms. WATERS. Madam Chairman, I rise in opposition to the Financial
Services Act of 1998. I am not opposed to the reform of our banking
laws. However, I oppose this bill because it sacrifices the needs of
the American consumer and underserved communities in order to benefit
our Nation's huge banking securities and insurance industries.
H.R. 10 undermines the Community Reinvestment Act. Many of us inside
and outside of Congress have struggled to make financial institutions
more accountable to the communities they serve. This bill weakens the
CRA by allowing banks to shift assets to affiliates with no CRA
obligation.
H.R. 10 does not adequately protect consumers. The bill permits the
unprecedented preemption of stronger State consumer protection laws.
State banking laws that prohibit ATM surcharges or require the
provision of low-cost bank accounts would be subject to Federal
preemption.
H.R. 10 allows the dangerous mixing of banking and commerce. H.R. 10
permits banks to merge with retail and manufacturing companies. This
would undermine the critical role of banks as the impartial providers
of credit and concentrate economic power in the hands of just a few
institutions.
None of the national consumer organizations support this bill, and
neither do I. I urge my colleagues to vote against H.R. 10.
Mr. BLILEY. Madam Chairman, I yield 2 minutes to the gentleman from
Ohio (Mr. Boehner), the chairman of the Republican Conference.
Mr. BOEHNER. Madam Chairman, let me first begin by congratulating the
Members from both the Committee on Banking and Financial Services and
the Committee on Commerce from the Democrat and Republican side of the
aisles for their outstanding work in bringing this piece of legislation
to this floor today.
Once again, I think that Congress is about to make history. Despite
countless changes in our economy, there has been no significant reform
of America's financial service laws since the Great Depression, but we
have never been closer to making these changes than we are now. There
is today a broad bipartisan consensus that the time to move forward has
finally come.

[[Page H3140]]

We have worked hard for a consensus bill that ensures that every
American is a winner: consumers, bankers, insurers, brokers. American
consumers deserve the freedom of one-stop shopping for inspection
services which we believe will mean about $15 billion savings directly
passed to themselves and to their families. But we should not forget
that the financial sector of our economy is also the foundation of our
country and the foundation of our economy today.
Madam Chairman, America cannot meet the challenges of the 21st
Century with financial service laws that are designed for the 1930s.
Financial services reform is not about politics. It is about what is
good for America. We are hopeful that the White House would join
Chairman Greenspan, Republicans, Democrats together in this bipartisan
reform of these financial service laws.
Mr. MANTON. Madam Chairman, we have only one speaker left on our
side, and we would inquire of the Chair who has the right to close.
The CHAIRMAN. The gentleman from Iowa (Mr. Leach) has the right to
close. The gentleman from New York (Mr. Manton) has 7 minutes
remaining.
Mr. MANTON. Madam Chairman, I reserve the balance of my time.
Mr. LEACH. Madam Chairman, I yield 1 minute to the distinguished
gentlewoman from New York (Mrs. Kelly).
(Mrs. KELLY asked and was given permission to revise and extend her
remarks.)
Mrs. KELLY. Madam Chairman, one of the most important aspects of H.R.
10 is that it is designed to enhance functional regulation of holding
companies. As such, it is my understanding that insurance companies
within the holding company structure will be regulated by the State
insurance regulators, and securities firms will be regulated by the SCC
and the State securities regulators.
While the Federal Reserve Board will remain the umbrella supervisor,
H.R. 10 will assure that firms within the holding company such as
insurance companies will be able to continue to operate in the manner
in which they operate today.
Madam Chairman, I simply want to confirm with the gentleman from Iowa
(Mr. Leach) that this is his understanding of the bill as well.
Mr. LEACH. Madam Chairman, will the gentlewoman yield?
Mrs. KELLY. I yield to the gentleman from Iowa.
Mr. LEACH. Madam Chairman, the gentlewoman has precisely and
correctly laid out the circumstances of the bill. This bill is designed
to enhance functional regulation as she has described.
Mrs. KELLY. Madam Chairman, I ask unanimous consent to incorporate a
further explanation of this aspect of the bill after consultation with
Chairman Leach.
The CHAIRMAN. A colloquy may not be inserted into the official
Record.
Mr. LaFALCE. Madam Chairman, I yield 1 minute to the gentleman from
Minnesota (Mr. Vento).
Mr. VENTO. Madam Chairman, I thank the gentleman for yielding, and,
again, I would reiterate my opposition. I think this bill, frankly, for
many of us simply reregulates rather than unregulates what is portrayed
as being a modernization bill.
It is grudging in a sense to the point of fencing in many activities
and not being responsive to the market. It tries to superimpose on the
market something that will not work that will continue to frustrate the
efforts of financial institutions to respond to the market.
The opposition from the Clinton administration is very strong. It is
not about turf. It is not about committee jurisdiction. It is about
trying to write laws that make common sense that respond to today's
marketplace and let these capital flows move forward, which, in the
end, serve all the vital purposes of our economy.
National banks functioning under the 1862 bank law which created the
national bank charter, have been a great success and has led to and
provided the economic foundation for today's economy. This bill,
frankly, reneges on that. Again, I would reiterate the importance of
acting on the LaFalce-Vento amendment in the amendment process to
safeguard and preserve the national bank charter.
Mr. BLILEY. Madam Chairman, how much time do I have remaining?
The CHAIRMAN. The gentleman from Virginia (Mr. Bliley) has 2\1/4\
minutes remaining.
Mr. BLILEY. Madam Chairman, I yield myself the balance of the time.
Madam Chairman, I rise in strong support of this bill. The gentleman
from Ohio (Mr. Boehner) who previously spoke in the well met with the
banking industry this week and said, what is your bottom line? What do
you want? The bottom line is they want no bill. Why do they want no
bill? Because the OCC is giving them everything they want. Guess what.
The OCC is leaving. Guess where the OCC is going. It is going to work
for Banker's Trust in New York. Isn't that a surprise. And we will get
a new one.
If we defeat this bill, this issue will be dead in the House and in
the Congress this year. When the Congress goes out this fall for the
elections, and the new Congress between that time and the time the new
Congress comes in, it is this gentleman's prediction that more
authority will be given to the banks. Perhaps they will be allowed into
real estate sales, and then try to move the legislation.
My friends, there is never a perfect time. There is never such a
thing as a perfect piece of legislation as complex as this issue. But
the time is now. For 10 separate Congresses, we have wrestled with this
issue to no avail. Today, we are further along then we have ever been.
We hear that the other body will not take it up. We hear that the
White House might veto it. We will never know until we send it to them.
So let us do our duty. Let us send it to them.
I say to those interested who feel that everything in this bill is
not to their liking, go next-door. Make your case. Perhaps you will be
successful. When we get to the conference, which I hope we will, as the
gentleman from Iowa has so ably pointed out, the administration will
have a seat at the table, and we will attempt to address their
concerns. But the most important thing today is to pass this bill and
send it to the other body.
Mr. MANTON. Madam Chairman, we continue our reservation of time.
Mr. LEACH. Madam Chairman, I would be happy to close, but were there
other speakers that wish to speak to the subject?
Mr. LaFALCE. Madam Chairman, I respect the gentleman's right to
close, and I believe I have a right to speak immediately preceding him.
Therefore, if there are going to be any other speakers from either the
side of the gentleman from Virginia (Mr. Bliley) or the gentleman from
New York (Mr. Manton), they should precede me.
The CHAIRMAN. The gentleman from Virginia (Mr. Bliley) has no more
time remaining. The gentleman from New York (Mr. Manton) has 7 minutes
remaining.
Mr. MANTON. Madam Chairman, does the gentleman from New York have any
speakers besides himself?
Mr. LaFALCE. Madam Chairman, how much time do I have remaining?
The CHAIRMAN. The gentleman from New York (Mr. LaFalce) has 2 minutes
remaining.
Mr. LaFALCE. Madam Chairman, I will be using that 2 minutes.
Mr. MANTON. Madam Chairman, I yield as much time as he may consume to
the gentleman from Michigan (Mr. Dingell), the ranking member of the
Committee on Commerce.
(Mr. DINGELL asked and was given permission to revise and extend his
remarks.)
Mr. DINGELL. Madam Chairman, this is a remarkable day. I never
thought I would live long enough to see us discuss this issue with such
harmony on the House floor. We have a bipartisan bill. We have a
bipartisan managers' amendment, and we have a result which is going to
be in the public interest.
I urge my colleagues to support the managers' amendment. I urge them
to support the bill. This will resolve an issue which has cursed this
Congress for better than 20 years, and it will do it on terms which
meet the public interest.
H.R. 10 provides a safe and sound framework for the financial
services industries of this country. It does so in a way which protects
consumers, which protects investors, and which protects the economy of
this Nation.
It also sees to it that the new global economy of the world is going
to have

[[Page H3141]]

active, vigorous, capable American participants in it. The legislation
will not spur megamergers. Passing it will mean that we will assure
that, if such occurs, there will be reasonable protection for investors
and for consumers.

{time} 1400

H.R. 10 draws a clear line between bank activities, those which are
going to be insured and subsidized by the taxpayers, and far riskier
exercises, such as the sale of securities and other activities of that
sort.
H.R. 10, along with the managers' amendment, protects the consumer.
Just last week NationsBank paid a large fine because their employees
sold risky uninsured derivative securities to elderly holders of
securities of deposit, telling them that their money was as safe as the
Capitol of the United States.
H.R. 10, along with the managers' amendment, protects the investor.
It says you are not going to sell stocks or bonds or other instruments
under conditions which are going to hurt the consumers, and you are
going to have to make, if you do so, the same disclosures and satisfy
the same regulatory requirements as everyone else in the business.
It also says some other things which are important. With the
managers' amendment, it will protect the taxpayer. It prevents FDIC
insurance, which is paid for by the taxpayer, from being extended to
cover the losses that might come from risky, speculative activities.
I would remind my colleagues that not long back we passed legislation
which unleashed the savings & loan industry, and that led to the
problem which was called the savings & loan debacle, which cost the
taxpayers of this country better than $500 billion. This will protect
against that kind of exercise by bank management.
It promotes fair competition. Banks have lower costs of capital. Why?
Because they are taxpayer insured. That is an effective taxpayer
subsidy. In fact, it might even be called corporate welfare. But, if it
is, and if banks are going to function, they should see to it that that
kind of exercise is kept separate from their other activities, so that
they cannot use taxpayer subsidies to compete with others in the
financial services industry, and also to see to it, as the Congress
acted back in the thirties, to assure that banks do not put at risk
Federal taxpayer financed insurance of their activities.
H.R. 10, with the managers' amendment, will prevent an Asian banking
crisis from spreading like Asian flu to the United States, by putting
intelligent limits on the mixing of banking and commerce.
Finally, H.R. 10, with the managers' amendment, does nothing to hurt
the banks. It expands the range of allowable bank activities. Any bank
can engage in any financial activity, so long as it sets up a separate
affiliate. It creates, insofar as humanly possible, a fair, two-way
street for all players. And it does something else: It sees to it that
when bankers are engaged in these kinds of activities, they play by the
same rules that everybody else does.
It does not undermine the Community Reinvestment Act. That is left as
it is. I would urge my colleagues to recognize that that is a good
thing.
The choice is clear. I intend to vote for the managers' amendment; I
intend to vote against other amendments. I intend to try and see to it
that we do not expand high risk activities of banks. I intend to try to
see that we do not include operating subsidies inside the banks which
can pervert the purposes of the managers' amendment or indeed to put at
risk taxpayers' guarantees of bank deposits.
I urge my colleagues to support the managers' amendment and to oppose
other amendments.
Madam Chairman, this is good legislation. With the managers'
amendment, it is an excellent piece of legislation. It resolves the
problems which banks complain about. To the degree that it is proper to
do so, it protects competition inside the financial services industry.
It protects investors, it protects consumers.
I would point out that the bankers have said they are going to oppose
this legislation, regardless of how amended, whether the amendment
offered by my dear friend the gentleman from New York (Mr. LaFalce) is
included or not. I would point out that the consumers of this country,
through the Consumers Union, have said that they support the managers'
amendment.
I would urge my colleagues to vote for the bipartisan legislation and
the bipartisan amendment. It is an opportunity to resolve a long-
standing problem in honorable, effective, decent, public serving, and
public interest ways.
Mr. LaFALCE. Madam Chairman, I yield myself such time as I may
consume.
Madam Chairman, the gentleman from Michigan (Mr. Dingell) said that
today is a remarkable day, and I concur with him. The gentleman comes
before us today and he advocates repeal of Glass-Stegall and
significant changes in the Bank Holding Company Act. You think that is
remarkable, and I concur with him.
This is something I have fought for for 20 years. But, unfortunately,
the bill makes not only those changes; the bill makes significant other
changes. It is those other changes that I am concerned about.
Now, the managers' amendment will add consumer protections that the
gentleman from Michigan (Mr. Dingell) and I were fighting for a month
or so ago as part of the Dingell-LaFalce amendment, but there are
significant other provisions that I wanted addressed that are not
addressed, and that is the way in which the bill undermines the
national bank charter.
National banks have existed within the United States for over 100
years. They have always been controversial. But, thankfully, we have
always been able to preserve their vitality and their viability, and I
think it has been the vitality of our national bank system that has
contributed to the economic growth of the United States of America.
Every administration has wanted to preserve that economic viability
of our national bank system. In our most recent tenure, whether it is
the Carter administration, or the Reagan administration, or the Bush
administration, or now the Clinton administration, they have said do
not undermine the national bank charter; do not undermine the regulator
of the national banks.
This bill does that. It undermines the national bank regulator, it
undermines the national bank charter. That is the principal reason that
the administration says they would veto the bill in its present form,
unless the LaFalce-Vento amendment passes.
The by-product of that, the fact that so many assets would
potentially be removed from the jurisdiction of the Community
Reinvestment Act, is why every consumer group that I am aware of, in
any event, opposes the bill also, or at least the principal reason.
I will offer an amendment to cure these defects. If it goes down, I
will also offer a motion to recommit that would continue the essence of
the bill, the repeal of Glass-Stegall and the changes in the Bank
Holding Company Act and the consumer protections that we all want, but
would not deal with this undermining of the national bank charter.
Mr. LEACH. Madam Chairman, I yield myself such time as I may consume.
Madam Chairman, first I would like to thank my good friend the
gentleman from Virginia (Mr. Bliley) for his leadership, and also the
gentleman from Michigan (Mr. Dingell), the gentleman from New York (Mr.
Manton), and my distinguished friend in dissent, the gentleman from New
York (Mr. LaFalce).
To my colleagues who oppose the bill because they are concerned about
consumers, I ask you, what happens if the bill does not pass? This bill
contains new Federal consumer and CRA protections that are not now the
law of the land. Inaction is anti-consumer.
To my colleagues who object to megamerger trends, I ask, what happens
if the bill does not pass? The mergers will continue, but under a
regulatory regime with undefined cracks and competitive bureaucratic
instincts to regulate weakly. Inaction is simply imprudent.
To my colleagues who, like myself, worry about rural community banks,
I ask what happens if the bill does not pass? Small banks will be
saddled with competition from mega-businesses likely to sweep money
from small communities, unless small institutions are given new powers,
such as access to the

[[Page H3142]]

Federal Home Loan Bank for small business and agricultural lending, and
new restraints on the so-called unitary thrifts that merge so ignobly
commerce and banking.
Simply put, inaction is the friend of the big, not the small.
Inaction puts the taxpayer at grave risk. That is why we need this bill
at this time, and I would urge sympathetic consideration by my
colleagues.
Mr. HASTINGS of Washington. Madam Chairman, I appreciate the
opportunity to share my views on this legislation.
As my colleagues know, this legislation has supporters and
detractors. Several hundred of my own constituents have contacted me on
this issue over the past several months. And while many support our
efforts here today, others, particularly small banks in my district,
are concerned that the legislation does not do enough to assist their
industry.
In particular, I strongly share their concerns about the lack of
relief from the burdensome Community Reinvestment Act. Let me share a
few statistics.
The CRA, first passed in 1977, took only two pages of bill language
when first authored by former Senator William Proxmire. Yet our federal
regulators have now promulgated more than 275 pages of regulations--in
microscopic government type, mind you--governing this provision. As a
result, what was meant to be a community based, largely voluntary
program to infuse private capital into struggling areas has now become
a massive, burdensome, and counterproductive federal mandate.
According to one study, our financial community spends more than $1
billion each year, and 15 million man hours, complying with the CRA.
The impact is particularly hard on smaller banks, which incur three
times the compliance costs of larger institutions.
Some had suggested that CRA requirements be reformed to bring them
back in line with the original intent of the 1977 law. One proposal
would have provided relief for all banks smaller than $100 million in
assets, and for rural banks with assets of under $250 million. This
would have gone a long way towards relieving this tremendous financial
and paperwork burden on the small community banks in my district.
Unfortunately, the bill does not include this common sense reform.
While I am very disappointed with this result, I nonetheless believe
that we must take action to reform our depression era banking statutes.
In addition, many of my constituents have contacted me to urge their
support of this legislation. As a result, I will support this bill
today in an effort to keep the reform effort alive. But I will work
during the next few months to ensure that critical reforms, like CRA
reform, are included in any final package approved by both the House
and the Senate and sent to the President.
Mr. STENHOLM. Madam Chairman, the legislation pending before the
House, H.R. 10, the Financial Services Competition Act, contains
numerous provisions that cause concern. Specifically, I'd like to bring
to the attention of the Members of this body the section of the bill
that proposes to broadly expand the mission of the Federal Home Loan
Bank (FHLB) System. The authorities of the FHLB System would be
expanded to provide advances to commercial banks for a variety of
purposes, including agricultural lending.
I am concerned that this proposal could actually limit credit
availability by adversely affecting the two government sponsored
enterprises chartered to serve rural markets: the Farm Credit System
(FCS) and the Federal Agricultural Mortgage Corporation (FarmerMac).
Expanding the Federal Home Loan Bank mission will convert every
commercial bank with assets of less than $500 million into a retail
GSE.
As the ranking Democrat on the Agriculture Committee, I have had a
keen interest in rural credit availability for many years. Credit is
quite literally the lifeblood of our nation's agricultural producers.
As a result, I am very interested in new ways to provide additional
credit to farmers and rural communities. However, I am concerned that
we have not had ample time to fully consider the serious policy
implications of expanding the FHLB System's mission.
While I support an appropriate expansion of credit for rural
Americans, doing so through the FHLB System, without making important
changes in the lending charter of the Farm Credit System, could
potentially disrupt the competitive balance that exists in rural
markets today. Currently, commercial banks, the Farm Credit System and
FarmerMac work to provide competitively priced credit to those who live
and work in rural America. We all have an interest in seeing that that
competitive balance continues.
The Agriculture Committee is aware of efforts by all participants in
the rural credit markets to expand their lending authority. I am
convinced that if we proceed down the path of expanding authorities,
then we must consider all players that provide rural credit.
Mr. DAVIS of Illinois. Madam Chairman, I rise today in strong
opposition to H.R. 10, the ``Financial Services Competition Act.''
I rise in opposition not because the laws governing our financial
system are immune to change * * * just the opposite, in our rapidly
changing world our financial system is undergoing a veritable
transformation and our legal framework must change to correspond to the
new realities. However, let us remember that many of our financial laws
and regulations grew out of our great failures of the past in
protecting the interests of the great masses of Americans. In
addressing the need for change we must also learn from our history.
H.R. 10 weakens the Community Reinvestment Act, a critical tool for
low-income communities to develop housing, small business and financial
services. CRA should be extended to all bank affiliates: insurance
companies, securities firms and mortgage companies. Instead, H.R. 10
encourages the movement of bank assets beyond the reach of the CRA and,
indeed, beyond the bank charter.
H.R. 10 does not address insurance redlining, still a major problem
in many communities and one which I recently called upon the Attorney
General to investigate in my district as regards to auto insurance.
H.R. 10 should prohibit insurance companies from merging with banks
until the company is in full compliance with the Fair Housing Act and
other relevant legislation.
H.R. 10 breaks down the final protective barriers between banks and
commercial firms and adds a new level of risk to our financial
stability, one we have not seen in our country in generations, but
which we can all see in Southeast Asia today.
H.R. 10 sharply reduces community input, giving automatic approvals
FHCs whose banks have Satisfactory or Outstanding CRA ratings. This
means that 98% of financial institutions will be beyond community
input. It continues a trend brought into sharp national focus with the
publication of William Greider's book Secrets of the Temple in 1987.
Secrets brought to the attention of the nation how the Federal
Reserve had been given greater command over many issues over the years
and how many of the decisions entrusted to them, regardless of how
wrong they might be, were made without public input or control.
H.R. 10 ignores history, ignores the lessons of other nations,
ignores the interests of poor and working Americans, ignores consumer
interests, ignores community reinvestment protections and ignores
increased risk to our financial infrastructure.
Madam Chairman, I urge a vote against this legislation.
Mr. HYDE. Madam Chairman, I rise in support of H.R. 10, the
``Financial Services Competition Act of 1998.'' For many years, we have
been trying to repeal the outdated restrictions that keep banks,
securities firms, and insurance companies from getting into one
another's businesses. After all the debate, I think we have finally
come up with something in this bill that will open up a whole new world
of competition.
Now I know that some of the players in this debate have problems with
this bill. That is always the case with major deregulation bills. But
we cannot ignore the future. Financial services are becoming
increasingly globalized, increasingly computerized, and increasingly
seamless. Banking laws passed during the Depression simply will not do
in the 21st century.
Do I wish that we could maintain a world where everyone knew their
banker on a first name basis and loans were made on a handshake? Sure,
and I think in the new world some banks will provide that kind of
service to those who demand it. But we need not have laws that limit us
to that kind of service, as desirable as it may seem. Everyone is
better off if the market decides what kinds of services all financial
firms will offer.
Just think about the progress we have made in the past 10 years. When
I was a child, only the wealthy owned stocks. Now, with the growth of
the mutual fund industry and self-directed retirement funds, millions
and millions of average Americans not only own stocks, but make their
own investment decisions. These developments create wealth, increase
people's incentive to produce, and relieve some of the entitlement
burden of government. I believe that this bill will bring more such
positive developments.
I want to say a word about my friends Jim Leach, chairman of the
Banking Committee, and Tom Bliley, chairman of the Commerce Committee.
They have done an excellent job of putting this package together. I
commend them for their work in bringing about this bill in a very
difficult and contentious environment.
I especially want to commend them for working with me on the bank
merger provisions of the bill. Under current law, bank mergers are
reviewed under special bank merger statutes, and they do not go through
the Hart-Scott-Rodino merger review process that covers most other
mergers. Now banks

[[Page H3143]]

will be able to get into other businesses which they have not been able
to do before.
The principle that we have tried to follow is that when mergers
occur, the bank part of that merger will be judged under the current
bank merger statutes, and we do not intend any change in that process
or in any of the agencies' respective jurisdictions. The nonbank part
of that merger, which will fall under the new section 6 of the Bank
Holding Company Act, will be subject to the normal Hart-Scott-Rodino
merger review by either the Justice Department or the Federal
Trade Commission. The managers' amendment has language that embodies
that principle. In short, no bank is treated differently than it
otherwise would be because it has some other business within its
corporate family. Likewise, no other business is treated differently
than it otherwise would be because it has a bank within its corporate
family.

We have embodied that same principle with respect to the Federal
Trade Commission's authority to enforce the Federal Trade Commission
Act and other laws. Section 5 of the Federal Trade Commission Act
specifically prohibits the FTC from enforcing the Act against banks
because they are heavily regulated. The language in the managers'
amendment does not change that, but it does clarify that the bank
prohibition does not extend to any other nonbank parts of a bank's
corporate family. I would also note that similar language was not
necessary for the Justice Department because there are no specific
statutory prohibitions on its ability to enforce laws against banks,
other than the Hart-Scott-Rodino exemption that I have already
discussed.
I think that we all agree on this principle both with respect to the
mergers and the other laws, but the specific language may require some
further refinement in conference. For that reason, I will be requesting
Judiciary Committee conferees on this narrow part of the bill, and I
look forward to continuing to work with my Banking Committee and
Commerce Committee colleagues in this area.
I also want to announce that the Judiciary Committee will hold a
hearing on bank mergers on June 3, and I am hopeful that this hearing
will help us determine whether we need to make any further revisions to
this language
Let me again commend my friends Jim Leach and Tom Bliley and everyone
else who has worked on this legislation, and I ask my colleagues to
support it.
Mr. STRICKLAND. Madam Chairman, today's financial services
marketplace is an increasingly complex web of interconnecting products
and service providers. In the 1990's, consumers are going to their bank
not just to deposit money in a traditional passbook savings account,
but also, increasingly, to purchase insurance products. They visit
their insurance broker not only for simple, term life insurance, but
also for insurance products that include a long-term investment
component. Consumers are no longer content with the choices of the
past, but are demanding more advanced financial products and often want
the convenience of ``one stop shopping.'' At the same time, financial
institutions are consolidating at an increasing rate--banks are merging
with other banks and insurance and securities dealers are combining
forces--leading to new types of financial entities.
These changes are enhancing the success of U.S. financial markets.
They stimulate the economy and provide consumers with more savings and
investment options. Unfortunately, the Depression era laws that
regulate our financial markets have not kept pace with these market
forces, leaving American consumers faced with a ``catch 22''. Consumers
have access to more advanced, enhanced financial products, but are not
adequately protected from fraud and abuse by the laws that currently
regulate their financial investments and savings. As a result, the
regulatory agencies responsible for enforcing those laws are forced to
deal with new entities using old formulas that fail to fully appreciate
the complexities of the evolving marketplace.
The world recently witnessed in Asia that unregulated financial
markets can lead to corruption and weakened economic conditions. With
America's financial markets slowly evolving in the same direction as
those in Asia, it is crucial that our country learns from Asia's
misfortune and take the initiative to develop appropriate measures that
will deter similar negative repercussions in our own financial markets.
In the House of Representatives, the House Committees on Commerce and
Banking have worked to develop a legislative response to these changes
for the past year and a half. We recently reached a critical juncture
in the legislative process--the Committees have devised a plan that
lays the groundwork for carrying our financial markets safely and
soundly into the 21st century. As a member of the House Commerce
Committee, I support initiatives that address our antiquated laws and
am committed to ensuring that the legislative process continues
unhindered by powerful special interest groups.
H.R. 10, the Financial Services Act, permits financial entities, such
as banks, insurance and securities groups, to merge, affiliate and
associate activities. One of the most pivotal components of H.R. 10 is
the concept of functional regulation. Functional regulation would
certify that all financial providers would be regulated according to
the services which they provide. For example, a financial holding
company that has an insurance entity as an operating subsidiary would
be regulated by both the state insurance commission (insurance
activities) and the Office of the Comptroller of the Currency and the
Federal Reserve (banking activities). As a result, financial activities
would be regulated by experts in that respective financial field.
The House leadership has reached an agreement on a financial package
that I believe is fair to all industries and best serves the public
interest. The compromise on H.R. 10 will create a modernized financial
system that will allow our country to be financially competitive into
the next century. However, H.R. 10 can still be improved with the
adoption of a package of consumer protection amendments which will be
offered by commerce Committee Chairman Tom Bliley (R-VA) and Ranking
Member John Dingell (D-MI). This amendment will provide the necessary
safeguards for consumers while providing enough freedoms to financial
providers to compete globally on a level playing field.
Congress has waited long enough to enact legislation to guarantee the
solvency of American financial markets. Congress must move the process
forward and provide the necessary consumer protections and regulations
to guarantee that all players, big and small, private and public,
benefit from the financial prosperity of a developing and growing
financial market in the U.S.
Mr. FAZIO of California. Mr. Speaker, the Financial Services Act of
1998 revolutionizes American financial institutions and it ensures the
United States continued cutting edge success in the world market.
The rules and regulations of the Great Depression aren't enough to
maintain a healthy and increasingly globalized interdependent U.S.
economy.
The rules have changed and H.R. 10 recognizes these changes.
In the old days, banking, insurance and security institutions each
provided a distinct, clear financial service. But in the modern
financial marketplace, financial innovations and globalization have
increasingly blurred these institution's activities.
H.R. 10 reflects the dynamic changes occurring in the marketplace.
Republicans and Democrats have crafted a balanced bill that fosters
open, fair competition, protects consumers and promotes U.S. financial
services' competitiveness in the world economy.
Our financial sector contributes over 18 percent to our GNP--this is
an economic force that can't be ignored any longer.
Today, my colleagues from both sides of the aisle have the
opportunity to enhance competition in the financial services and
maintain U.S. prominence in the international economic arena.
I strongly encourage both Republicans and Democrats to vote ``yes''
for fair competition and ``yes'' for a prosperous, strong American
economy that will take us safely into the 21st Century.
The CHAIRMAN. All time for general debate has expired.
Pursuant to the rule, the amendment in the nature of a substitute
printed in part 1 of House Report 105-531 is considered as an original
bill for the purpose of amendment under the 5 minute rule and is
considered read.
The text of the amendment in the nature of a substitute is as
follows:

Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,

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

(a) Short Title.--This Act may be cited as the ``Financial
Services Act of 1998''.
(b) Purposes.--The purposes of this Act are as follows:
(1) To enhance competition in the financial services
industry, in order to foster innovation and efficiency.
(2) To ensure the continued safety and soundness of
depository institutions.
(3) To provide necessary and appropriate protections for
investors and ensure fair and honest markets in the delivery
of financial services.
(4) To provide for appropriate functional regulation of
insurance activities.
(5) To reduce and, to the maximum extent practicable, to
eliminate the legal barriers preventing affiliation among
depository institutions, securities firms, insurance
companies, and other financial service providers and to
provide a prudential framework for achieving that result.
(6) To enhance the availability of financial services to
citizens of all economic circumstances and in all geographic
areas.
(7) To enhance the competitiveness of United States
financial service providers internationally.

[[Page H3144]]

(8) To ensure compliance by depository institutions with
the provisions of the Community Reinvestment Act of 1977 and
enhance the ability of depository institutions to meet the
capital and credit needs of all citizens and communities,
including underserved communities and populations.
(c) Table of Contents.--The table of contents for this Act
is as follows:

Sec. 1. Short title; purposes; table of contents.

TITLE I--FACILITATING AFFILIATION AMONG SECURITIES FIRMS, INSURANCE
COMPANIES, AND DEPOSITORY INSTITUTIONS

Subtitle A--Affiliations

Sec. 101. Glass-Steagall Act reformed.
Sec. 102. Activity restrictions applicable to bank holding companies
which are not financial holding companies.
Sec. 103. Financial holding companies.
Sec. 104. Certain State laws preempted.
Sec. 105. Mutual bank holding companies authorized.
Sec. 106. Prohibition on deposit production offices.
Sec. 107. Clarification of branch closure requirements.
Sec. 108. Amendments relating to limited purpose banks.

Subtitle B--Streamlining Supervision of Financial Holding Companies

Sec. 111. Streamlining financial holding company supervision.
Sec. 112. Elimination of application requirement for financial holding
companies.
Sec. 113. Authority of State insurance regulator and Securities and
Exchange Commission.
Sec. 114. Prudential safeguards.
Sec. 115. Examination of investment companies.
Sec. 116. Limitation on rulemaking, prudential, supervisory, and
enforcement authority of the Board.

Subtitle C--Subsidiaries of National Banks

Sec. 121. Permissible activities for subsidiaries of national banks.
Sec. 122. Misrepresentations regarding depository institution liability
for obligations of affiliates.
Sec. 123. Repeal of stock loan limit in Federal reserve act.

Subtitle D--Wholesale Financial Holding Companies; Wholesale Financial
Institutions

Chapter 1--Wholesale Financial Holding Companies

Sec. 131. Wholesale financial holding companies established.
Sec. 132. Authorization to release reports.
Sec. 133. Conforming amendments.

Chapter 2--Wholesale Financial Institutions

Sec. 136. Wholesale financial institutions.

Subtitle E--Streamlining Antitrust Review of Bank Acquisitions and
Mergers

Sec. 141. Amendments to the Bank Holding Company Act of 1956.
Sec. 142. Amendments to the Federal Deposit Insurance Act to vest in
the Attorney General sole responsibility for antitrust
review of depository institution mergers.
Sec. 143. Information filed by depository institutions; interagency
data sharing.
Sec. 144. Applicability of antitrust laws.
Sec. 145. Clarification of status of subsidiaries and affiliates.
Sec. 146. Effective date.

Subtitle F--Applying the Principles of National Treatment and Equality
of Competitive Opportunity to Foreign Banks and Foreign Financial
Institutions

Sec. 151. Applying the principles of national treatment and equality of
competitive opportunity to foreign banks that are
financial holding companies.
Sec. 152. Applying the principles of national treatment and equality of
competitive opportunity to foreign banks and foreign
financial institutions that are wholesale financial
institutions.

Subtitle G--Federal Home Loan Bank System

Sec. 161. Federal home loan banks-
Sec. 162. Membership and collateral.
Sec. 163. The Office of Finance.
Sec. 164. Management of banks.
Sec. 165. Advances to nonmember borrowers.
Sec. 166. Powers and duties of banks.
Sec. 167. Mergers and consolidations of Federal home loan banks.
Sec. 168. Technical amendments.
Sec. 169. Definitions.
Sec. 170. Resolution funding corporation
Sec. 171. Capital structure of the Federal home loan banks.
Sec. 172. Investments.
Sec. 173. Federal Housing Finance Board.

Subtitle H--Direct Activities of Banks

Sec. 181. Authority of national banks to underwrite certain municipal
bonds

Subtitle I--Effective Date of Title

Sec. 191. Effective date.

TITLE II--FUNCTIONAL REGULATION

Subtitle A--Brokers and Dealers

Sec. 201. Definition of broker.
Sec. 202. Definition of dealer.
Sec. 203. Registration for sales of private securities offerings.
Sec. 204. Sales practices and complaint procedures.
Sec. 205. Information sharing.
Sec. 206. Definition and treatment of banking products.
Sec. 207. Derivative instrument and qualified investor defined.
Sec. 208. Government securities defined.
Sec. 209. Effective date.

Subtitle B--Bank Investment Company Activities

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

Subtitle C--Securities and Exchange Commission Supervision of
Investment Bank Holding Companies

Sec. 231. Supervision of investment bank holding companies by the
Securities and Exchange Commission.

Subtitle D--Study

Sec. 241. Study of methods to inform investors and consumers of
uninsured products.

TITLE III--INSURANCE

Subtitle A--State Regulation of Insurance

Sec. 301. State regulation of the business of insurance.
Sec. 302. Mandatory insurance licensing requirements.
Sec. 303. Functional regulation of insurance.
Sec. 304. Insurance underwriting in national banks.
Sec. 305. New bank agency activities only through acquisition of
existing licensed agents.
Sec. 306. Title insurance activities of national banks and their
affiliates.
Sec. 307. Expedited and equalized dispute resolution for financial
regulators.
Sec. 308. Consumer protection regulations.
``Sec. 45. Consumer protection regulations.''
Sec. 309. Certain State affiliation laws preempted for insurance
companies and affiliates.

Subtitle B--Redomestication of Mutual Insurers

Sec. 311. General application.
Sec. 312. Redomestication of mutual insurers.
Sec. 313. Effect on State laws restricting redomestication.
Sec. 314. Other provisions.
Sec. 315. Definitions.
Sec. 316. Effective date.

Subtitle C--National Association of Registered Agents and Brokers

Sec. 321. State flexibility in multistate licensing reforms.
Sec. 322. National Association of Registered Agents and Brokers.
Sec. 323. Purpose.
Sec. 324. Relationship to the Federal Government.
Sec. 325. Membership.
Sec. 326. Board of directors.
Sec. 327. Officers.
Sec. 328. Bylaws, rules, and disciplinary action.
Sec. 329. Assessments.
Sec. 330. Functions of the NAIC.
Sec. 331. Liability of the Association and the directors, officers, and
employees of the Association.
Sec. 332. Elimination of NAIC oversight.
Sec. 333. Relationship to State law.
Sec. 334. Coordination with other regulators.
Sec. 335. Judicial review.
Sec. 336. Definitions.

TITLE IV--UNITARY SAVINGS AND LOAN HOLDING COMPANIES

Sec. 401. Termination of expanded powers for new unitary S&L holding
companies.

TITLE I--FACILITATING AFFILIATION AMONG SECURITIES FIRMS, INSURANCE
COMPANIES, AND DEPOSITORY INSTITUTIONS

Subtitle A--Affiliations

SEC. 101. GLASS-STEAGALL ACT REFORMED.

(a) Section 20 Repealed.--Section 20 (12 U.S.C. 377) of the
Banking Act of 1933 (commonly referred to as the ``Glass-
Steagall Act'') is repealed.
(b) Section 32 Repealed.--Section 32 (12 U.S.C. 78) of the
Banking Act of 1933 is repealed.

[[Page H3145]]

SEC. 102. ACTIVITY RESTRICTIONS APPLICABLE TO BANK HOLDING
COMPANIES WHICH ARE NOT FINANCIAL HOLDING
COMPANIES.

(a) In General.--Section 4(c)(8) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1843(c)(8)) is amended to read
as follows:
``(8) shares of any company the activities of which had
been determined by the Board by regulation under this
paragraph as of the day before the date of the enactment of
the Financial Services Act of 1998, to be so closely related
to banking as to be a proper incident thereto (subject to
such terms and conditions contained in such regulation,
unless modified by the Board);''.
(b) Conforming Changes to Other Statutes.--
(1) Amendment to the bank holding company act amendments of
1970.--Section 105 of the Bank Holding Company Act Amendments
of 1970 (12 U.S.C. 1850) is amended by striking ``, to engage
directly or indirectly in a nonbanking activity pursuant to
section 4 of such Act,''.
(2) Amendment to the bank service company act.--Section
4(f) of the Bank Service Company Act (12 U.S.C. 1864(f)) is
amended by striking the period and adding at the end the
following: ``as of the day before the date of enactment of
the Financial Services Act of 1998.''.

SEC. 103. FINANCIAL HOLDING COMPANIES.

(a) In General.--The Bank Holding Company Act of 1956 is
amended by inserting after section 5 (12 U.S.C. 1844) the
following new section:

``SEC. 6. FINANCIAL HOLDING COMPANIES.

``(a) Financial Holding Company Defined.--For purposes of
this section, the term `financial holding company' means a
bank holding company which meets the requirements of
subsection (b).
``(b) Eligibility Requirements for Financial Holding
Companies.--
``(1) In general.--No bank holding company may engage in
any activity or directly or indirectly acquire or retain
shares of any company under this section unless the bank
holding company meets the following requirements:
``(A) All of the subsidiary depository institutions of the
bank holding company are well capitalized.
``(B) All of the subsidiary depository institutions of the
bank holding company are well managed.
``(C) All of the subsidiary depository institutions of the
bank holding company have achieved a rating of `satisfactory
record of meeting community credit needs', or better, at the
most recent examination of each such institution under the
Community Reinvestment Act of 1977.
``(D) All of the subsidiary insured depository institutions
of the bank holding company (other than any such depository
institution which does not, in the ordinary course of the
business of the depository institution, offer consumer
transaction accounts to the general public) offer and
maintain low-cost basic banking accounts.
``(E) The company has filed with the Board a declaration
that the company elects to be a financial holding company and
certifying that the company meets the requirements of
subparagraphs (A) through (D).
``(2) Foreign banks and companies.--For purposes of
paragraph (1), the Board shall establish and apply comparable
capital standards to a foreign bank that operates a branch or
agency or owns or controls a bank or commercial lending
company in the United States, and any company that owns or
controls such foreign bank, giving due regard to the
principle of national treatment and equality of competitive
opportunity.
``(3) Limited exclusions from community needs requirements
for newly acquired depository institutions.--
``(A) In general.--If the requirements of subparagraph (B)
are met, any depository institution acquired by a bank
holding company during the 24-month period preceding the
submission of a declaration under paragraph (1)(E) and any
depository institution acquired after the submission of such
declaration may be excluded for purposes of paragraph (1)(C)
until the later of--
``(i) the end of the 24-month period beginning on the date
the acquisition of the depository institution by such company
is consummated; or
``(ii) the date of completion of the 1st examination of
such depository institution under the Community Reinvestment
Act of 1977 which is conducted after the date of the
acquisition of the depository institution.
``(B) Requirements.--The requirements of this subparagraph
are met with respect to any bank holding company referred to
in subparagraph (A) if--
``(i) the bank holding company has submitted an affirmative
plan to the appropriate Federal banking agency to take such
action as may be necessary in order for such institution to
achieve a rating of `satisfactory record of meeting community
credit needs', or better, at the next examination of the
institution under the Community Reinvestment Act of 1977; and
``(ii) the plan has been approved by such agency.
``(c) Engaging in Activities Financial in Nature.--
``(1) In general.--Notwithstanding section 4(a), a
financial holding company and a wholesale financial holding
company may engage in any activity, and acquire and retain
the shares of any company engaged in any activity, which the
Board has determined (by regulation or order) to be financial
in nature or incidental to such financial activities.
``(2) Factors to be considered.--In determining whether an
activity is financial in nature or incidental to financial
activities, the Board shall take into account--
``(A) the purposes of this Act and the Financial Services
Act of 1998;
``(B) changes or reasonably expected changes in the
marketplace in which bank 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 bank holding company and the affiliates of a bank
holding company to--
``(i) compete effectively with any company seeking to
provide financial services in the United States;
``(ii) use any available or emerging technological means,
including any application necessary to protect the security
or efficacy of systems for the transmission of data or
financial transactions, in providing financial services; and
``(iii) offer customers any available or emerging
technological means for using financial services.
``(3) Activities that are financial in nature.--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.
``(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 enactment of the Financial Services Act of 1998, 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 the
United States; and
``(ii) the Board has determined, under regulations issued
pursuant to section 4(c)(13) of this Act (as in effect on the
day before the date of enactment of the Financial Services
Act of 1998) 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 without limitation debt or equity
securities, partnership interests, trust certificates or
other instruments representing ownership) of a company or
other entity, whether or not constituting control of such
company or entity, engaged in 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 a securities affiliate or an affiliate
thereof as part of a bona fide underwriting or merchant
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 only for such a period of time as will permit the sale
or disposition thereof on a reasonable basis consistent with
the nature 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
actively participate in the day to day management or
operation of such company or entity, except insofar as
necessary to achieve the objectives of clause (ii).
``(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 without limitation debt or equity
securities, partnership interests, trust certificates or
other instruments representing ownership) of a company or
other entity, whether or not constituting control of such
company or entity, engaged in 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

[[Page H3146]]

underwriting life, accident and health, or property and
casualty insurance (other than credit-related insurance);
``(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
directly or indirectly participate in the day-to-day
management or operation of the company or entity except
insofar as necessary to achieve the objectives of clauses
(ii) and (iii).
``(4) Actions required.--The Board shall, by regulation or
order, define, consistent with the purposes of this Act, the
following activities as, and the extent to which such
activities are, financial in nature or incidental to
activities which are financial in nature:
``(A) Lending, exchanging, transferring, investing for
others, or safeguarding financial assets other than money or
securities.
``(B) Providing any device or other instrumentality for
transferring money or other financial assets;
``(C) Arranging, effecting, or facilitating financial
transactions for the account of third parties.
``(5) Post consummation notification.--
``(A) In general.--A financial holding company and a
wholesale 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 no later than 30 calendar days after commencing the
activity or consummating the acquisition.
``(B) Approval not required for certain financial
activities.--Except as provided in section 4(j) with regard
to the acquisition of a savings association, a financial
holding company and a wholesale financial holding company may
commence any activity, or acquire any company, pursuant to
paragraph (3) or any regulation prescribed or order issued
under paragraph (4), without prior approval of the Board.
``(d) Provisions Applicable to Financial Holding Companies
That Fail To Meet Requirements.--
``(1) In general.--If the Board finds that a financial
holding company is not in compliance with the requirements of
subparagraph (A), (B), or (C) of subsection (b)(1), the Board
shall give notice of such finding to the company.
``(2) Agreement to correct conditions required.--Within 45
days of receipt by a financial holding company of a notice
given under paragraph (1) (or such additional period as the
Board may permit), the company shall execute an agreement
acceptable to the Board to comply with the requirements
applicable to a financial holding company.
``(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 the company or
any affiliate of the company as the Board determines to be
appropriate under the circumstances.
``(4) Failure to correct.--If, after receiving a notice
under paragraph (1), a financial holding company does not--
``(A) execute and implement an agreement in accordance with
paragraph (2);
``(B) comply with any limitations imposed under paragraph
(3);
``(C) in the case of a notice of failure to comply with
subsection (b)(1)(A), restore each depository institution
subsidiary to well capitalized status before the end of the
180-day period beginning on the date such notice is received
by the company (or such other period permitted by the Board);
or
``(D) in the case of a notice of failure to comply with
subparagraph (B) or (C) of subsection (b)(1), restore
compliance with any such subparagraph by the date the next
examination of the depository institution subsidiary is
completed or by the end of such other period as the Board
determines to be appropriate,
the Board may require such 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 Board's
discretion, to divest control of any depository institution
subsidiary or, at the election of the financial holding
company, instead to cease to engage in any activity conducted
by such company or its subsidiaries pursuant to this section.
``(5) Consultation.--In taking any action under this
subsection, the Board shall consult with all relevant Federal
and State regulatory agencies.
``(e) Safeguards for Bank Subsidiaries.--A financial
holding company shall assure that--
``(1) the procedures of the holding company for identifying
and managing financial and operational risks within the
company, and the subsidiaries of such company, adequately
protect the subsidiaries of such company which are insured
depository institutions from such risks;
``(2) the holding company has reasonable policies and
procedures to preserve the separate corporate identity and
limited liability of such company and the subsidiaries of
such company, for the protection of the company's subsidiary
insured depository institutions; and
``(3) the holding company complies with this section.
``(f) Nonfinancial Activities.--
``(1) In general.--Notwithstanding section 4(a), a
financial holding company may engage in activities which are
not (or have not been determined to be) financial in nature
or incidental to activities which are financial in nature, or
acquire and retain ownership and control of the shares of a
company engaged in such activities, if--
``(A) the aggregate annual gross revenues derived from all
such activities and all such companies does not exceed the
lesser of--
``(i) 5 percent of the consolidated annual gross revenues
of the financial holding company; or
``(ii) $500,000,000;
``(B) the consolidated total assets of any company the
shares of which are acquired by the financial holding company
pursuant to this paragraph are less than $750,000,000 at the
time the shares are acquired by the holding company; and
``(C) the holding company provides notice to the Board
within 30 days of commencing the activity or acquiring the
ownership or control.
``(2) Inclusion of grandfathered activities.--For purposes
of determining the limits contained in paragraph (1)(A), the
gross revenues derived from all activities conducted, and
companies the shares of which are held, under subsection (g)
shall be considered to be derived or held under this
subsection.
``(3) Foreign banks.--In lieu of the limitation contained
in paragraph (1)(A) in the case of a foreign bank or a
company that owns or controls a foreign bank which engages in
any activity or acquires or retains ownership or control of
shares of any company pursuant to paragraph (1), the
aggregate annual gross revenues derived from all such
activities and all such companies in the United States shall
not exceed the lesser of--
``(A) 5 percent of the consolidated annual gross revenues
of the foreign bank or company in the United States derived
from any branch, agency, commercial lending company, or
depository institution controlled by the foreign bank or
company and any subsidiary engaged in the United States in
activities permissible under section 4 or 6; or
``(B) $500,000,000.
``(4) Indexing revenue test.--After December 31, 1998, the
Board shall annually adjust the dollar amount contained in
paragraphs (1)(A) and (3) by the annual percentage increase
in the Consumer Price Index for Urban Wage Earners and
Clerical Workers published by the Bureau of Labor Statistics.
``(5) Nonapplicability of other exemption.--Any foreign
bank or company that owns or controls a foreign bank which
engages in any activity or acquires or retains ownership or
control of shares of any company pursuant to this subsection
shall not be eligible for any exception described in section
2(h).
``(g) Authority To Retain Limited Nonfinancial Activities
and Affiliations.--
``(1) In general.--Notwithstanding subsection (f)(1) and
section 4(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
Financial Services Act of 1998 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,
1997;
``(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, 1997, and other activities
permissible under this Act.
``(2) Predominantly financial.--For purposes of this
subsection, a company is predominantly engaged in financial
activities if, as of the day before the company becomes a
financial holding company, the annual gross revenues derived
by the holding company and all subsidiaries of the holding
company, on a consolidated basis, from engaging in activities
that are financial in nature or are incidental to activities
that are financial in nature under subsection (c) 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 which is engaged in any activity which the Board has
not determined to be financial in nature or incidental to
activities that are financial in nature under subsection (c).
``(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.

[[Page H3147]]

``(5) Cross marketing restrictions applicable to commercial
activities.--A depository institution controlled by a
financial holding company shall not--
``(A) 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,
subsection (f), or subparagraph (H) or (I) of subsection
(c)(3); or
``(B) permit any of its products or services to be offered
or marketed, directly or through any arrangement, by or
through any company described in subparagraph (A).
``(6) Transactions with nonfinancial affiliates.--An
insured depository institution controlled by a financial
holding company may not engage in a covered transaction (as
defined by section 23A(b)(7) of the Federal Reserve Act) with
any affiliate controlled by the company pursuant to this
subsection, subsection (f), or subparagraph (H) or (I) of
subsection (c)(3).
``(h) Developing Activities.--A financial holding company
and a wholesale financial holding company may engage directly
or indirectly, or acquire shares of any company engaged, in
any activity that the Board has not determined to be
financial in nature or incidental to financial activities
under subsection (c) if--
``(1) the holding company reasonably concludes that the
activity is financial in nature or incidental to financial
activities;
``(2) the gross revenues from all activities conducted
under this subsection represent less than 5 percent of the
consolidated gross revenues of the holding company;
``(3) the aggregate total assets of all companies the
shares of which are held under this subsection do not exceed
5 percent of the holding company's consolidated total assets;
``(4) the total capital invested in activities conducted
under this subsection represents less than 5 percent of the
consolidated total capital of the holding company;
``(5) the Board has not determined that the activity is not
financial in nature or incidental to financial activities
under subsection (c); and
``(6) the holding company provides written notification to
the Board describing the activity commenced or conducted by
the company acquired no later than 10 business days after
commencing the activity or consummating the acquisition.''.

SEC. 104. CERTAIN STATE LAWS PREEMPTED.

(a) Affiliations.--No State may by statute, regulation,
order, interpretation, or otherwise, prevent or restrict an
insured depository institution or a wholesale financial
institution from being affiliated with an entity (including
an entity engaged in insurance activities) as authorized by
this Act or any other provision of Federal law.
(b) Activities--.
(1) Except as provided in paragraphs (2) and (3) and
subject to section 18(c) of the Securities Act of 1933, no
State may by statute, regulation, order, interpretation, or
otherwise, prevent or restrict an insured depository
institution or a wholesale financial institution from
engaging, directly or indirectly or in conjunction with an
affiliate, in any activity authorized under this Act or any
other provision of Federal law.<divide>
(2) As stated by the United States Supreme Court in Barnett
Bank of Marion County, N.A. v. Nelson, 116 S.Ct. 1103 (1996),
no State may, by statute, regulation, order, interpretation,
or otherwise, prevent or significantly interfere with the
ability of an insured depository institution or wholesale
financial institution to engage, directly or indirectly, or
in conjunction with an affiliate, in any insurance sales or
solicitation activity, except that--
(A) State statutes and regulations governing insurance
sales and solicitations which are no more restrictive than
provisions in the Illinois ``Act Authorizing and Regulating
the Sale of Insurance by Financial Institutions, Public Act
90-41'' (215 ILCS 5/1400-1416), as in effect on October 1,
1997, shall not be deemed to prevent or significantly
interfere with the ability of an insured depository
institution or wholesale financial institution to engage,
directly or indirectly, or in conjunction with an affiliate,
in any insurance sales or solicitation activity; and
(B) subparagraph (A) shall not create any inference
regarding State statutes, and regulations governing insurance
sales and solicitations which are more restrictive than any
provision in the Illinois ``Act Authorizing and Regulating
the Sale of Insurance by Financial Institutions'', (Public
Act 90-41; 215 ILCS 5/1400-1416), as in effect on October 1,
1997.
(3) State statutes, regulations, orders, and
interpretations which are applicable to and are applied in
the same manner with respect to insurance underwriting
activities of an affiliate of an insured depository
institution or a wholesale financial institution as they are
applicable to and are applied to an insurance underwriter
which is not affiliated with an insured depository
institution or a wholesale financial institution shall not be
preempted under paragraph (1).

SEC. 105. MUTUAL BANK HOLDING COMPANIES AUTHORIZED.

(a) In General.--Section 3(g)(2) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1842(g)(2)) is amended to read
as follows:
``(2) Regulations.--A bank holding company organized as a
mutual holding company shall be regulated on terms, and shall
be subject to limitations, comparable to those applicable to
any other bank holding company.''.

SEC. 106. PROHIBITION ON DEPOSIT PRODUCTION OFFICES.

(a) In General.--Section 109(d) of the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (12
U.S.C. 1835a(d)) is amended--
(1) by inserting ``, the Financial Services Act of 1998,''
after ``pursuant to this title''; and
(2) by inserting ``or such Act'' after ``made by this
title''.
(b) Technical and Conforming Amendment.--Section 109(e)(4)
of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (12 U.S.C. 1835a(e)(4)) is amended by
inserting ``and any branch of a bank controlled by an out-of-
State bank holding company (as defined in section 2(o)(7) of
the Bank Holding Company Act of 1956)'' before the period.

SEC. 107. CLARIFICATION OF BRANCH CLOSURE REQUIREMENTS.

Section 42(d)(4)(A) of the Federal Deposit Insurance Act
(12 U.S.C. 1831r-1(d)(4)(A)) is amended by inserting ``and
any bank controlled by an out-of-State bank holding company
(as defined in section 2(o)(7) of the Bank Holding Company
Act of 1956)'' before the period.

SEC. 108. AMENDMENTS RELATING TO LIMITED PURPOSE BANKS.

Section 4(f) of the Bank Holding Company Act of 1956 (12
U.S.C. 1843(f)) is amended--
(1) in paragraph (2)(A)(ii)--
(A) by striking ``and'' at the end of subclause (IX);
(B) by inserting ``and'' after the semicolon at the end of
subclause (X); and
(C) by inserting after subclause (X) the following new
subclause:

``(XI) assets that are derived from, or are incidental to,
activities in which institutions described in section
2(c)(2)(F) are permitted to engage,'';

(2) in paragraph (2), by striking subparagraph (B) and
inserting the following new subparagraphs:
``(B) any bank subsidiary of such company engages in any
activity in which the bank was not lawfully engaged as of
March 5, 1987, unless the bank is well managed and well
capitalized;
``(C) any bank subsidiary of such company both--
``(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
(and, for purposes of this clause, loans made in the ordinary
course of a credit card operation shall not be treated as
commercial loans); or
``(D) 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 such bank's
account at a Federal reserve bank, on behalf of an affiliate,
other than an overdraft described in paragraph (3).''; and
(3) by striking paragraphs (3) and (4) and inserting the
following new paragraphs:
``(3) Permissible overdrafts described.--For purposes of
paragraph (2)(D), 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; or
``(B) such overdraft--
``(i) is permitted or incurred on behalf of an affiliate
which 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 which 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.
``(4) Divestiture in case of loss of exemption.--If any
company described in paragraph (1) fails to qualify for the
exemption provided under such paragraph 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 that 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) corrected the condition or ceased the activity that
caused the company to fail to continue to qualify for the
exemption; and
``(B) implemented procedures that are reasonably adapted to
avoid the reoccurrence of such condition or activity.''.

Subtitle B--Streamlining Supervision of Financial Holding Companies

SEC. 111. STREAMLINING FINANCIAL HOLDING COMPANY SUPERVISION.

Section 5(c) of the Bank Holding Company Act of 1956 (12
U.S.C. 1844(c)) is amended to read as follows:
``(c) Reports and Examinations.--
``(1) Reports.--
``(A) In general.--The Board from time to time may require
any bank holding company and any subsidiary of such company
to submit reports under oath to keep the Board informed as
to--
``(i) its financial condition, systems for monitoring and
controlling financial and operating risks, and transactions
with depository institution subsidiaries of the holding
company; and

[[Page H3148]]

``(ii) compliance by the company or subsidiary with
applicable provisions of this Act.
``(B) Use of existing reports.--
``(i) In general.--The Board shall, to the fullest extent
possible, accept reports in fulfillment of the Board's
reporting requirements under this paragraph that a bank
holding company or any subsidiary of such company has
provided or been required to provide to other Federal and
State supervisors or to appropriate self-regulatory
organizations.
``(ii) Availability.--A bank holding company or a
subsidiary of such company shall provide to the Board, at the
request of the Board, a report referred to in clause (i).
``(iii) Required use of publicly reported information.--The
Board shall, to the fullest extent possible, accept in
fulfillment of any reporting or recordkeeping requirements
under this Act information that is otherwise required to be
reported publicly and externally audited financial
statements.
``(iv) Reports filed with other agencies.--In the event the
Board requires a report from a functionally regulated
nondepository institution subsidiary of a bank holding
company of a kind that is not required by another Federal or
State regulator or appropriate self-regulatory organization,
the Board shall request that the appropriate regulator or
self-regulatory organization obtain such report. If the
report is not made available to the Board, and the report is
necessary to assess a material risk to the bank holding
company or its subsidiary depository institution or
compliance with this Act, the Board may require such
subsidiary to provide such a report to the Board.
``(C) Definition.--For purposes of this subsection, the
term `functionally regulated nondepository institution'
means--
``(i) a broker or dealer registered under the Securities
Exchange Act of 1934;
``(ii) an investment adviser registered under the
Investment Advisers Act of 1940, with respect to the
investment advisory activities of such investment adviser and
activities incidental to such investment advisory activities;
``(iii) an insurance company subject to supervision by a
State insurance commission, agency, or similar authority; and
``(iv) an entity subject to regulation by the Commodity
Futures Trading Commission, with respect to the commodities
activities of such entity and activities incidental to such
commodities activities.
``(2) Examinations.--
``(A) Examination authority.--
``(i) In general.--The Board may make examinations of each
bank holding company and each subsidiary of a bank holding
company.
``(ii) Functionally regulated nondepository institution
subsidiaries.--Notwithstanding clause (i), the Board may make
examinations of a functionally regulated nondepository
institution subsidiary of a bank holding company only if--

``(I) the Board has reasonable cause to believe that such
subsidiary is engaged in activities that pose a material risk
to an affiliated depository institution, or
``(II) based on reports and other available information,
the Board has reasonable cause to believe that a subsidiary
is not in compliance with this Act or with provisions
relating to transactions with an affiliated depository
institution and the Board cannot make such determination
through examination of the affiliated depository institution
or bank holding company.

``(B) Limitations on examination authority for bank holding
companies and subsidiaries.--Subject to subparagraph (A)(ii),
the Board may make examinations under subparagraph (A)(i) of
each bank holding company and each subsidiary of such holding
company in order to--
``(i) inform the Board of the nature of the operations and
financial condition of the holding company and such
subsidiaries;
``(ii) inform the Board of--

``(I) the financial and operational risks within the
holding company system that may pose a threat to the safety
and soundness of any subsidiary depository institution of
such holding company; and
``(II) the systems for monitoring and controlling such
risks; and

``(iii) monitor compliance with the provisions of this Act
and those governing transactions and relationships between
any subsidiary depository institution and its affiliates.
``(C) Restricted focus of examinations.--The Board shall,
to the fullest extent possible, limit the focus and scope of
any examination of a bank holding company to--
``(i) the bank holding company; and
``(ii) any subsidiary of the holding company that, because
of--

``(I) the size, condition, or activities of the subsidiary;
``(II) the nature or size of transactions between such
subsidiary and any depository institution which is also a
subsidiary of such holding company; or
``(III) the centralization of functions within the holding
company system,

could have a materially adverse effect on the safety and
soundness of any depository institution affiliate of the
holding company.
``(D) Deference to bank examinations.--The Board shall, to
the fullest extent possible, use, for the purposes of this
paragraph, the reports of examinations of depository
institutions made by the appropriate Federal and State
depository institution supervisory authority.
``(E) Deference to other examinations.--The Board shall, to
the fullest extent possible, address the circumstances which
might otherwise permit or require an examination by the Board
by forgoing an examination and instead reviewing the reports
of examination made of--
``(i) any registered broker or dealer or registered
investment adviser by or on behalf of the Securities and
Exchange Commission;
``(ii) any licensed insurance company by or on behalf of
any state regulatory authority responsible for the
supervision of insurance companies; and
``(iii) any other subsidiary that the Board finds to be
comprehensively supervised by a Federal or State authority.
``(3) Capital.--
``(A) In general.--The Board shall not, by regulation,
guideline, order or otherwise, prescribe or impose any
capital or capital adequacy rules, guidelines, standards, or
requirements on any subsidiary of a financial holding company
that is not a depository institution and--
``(i) is in compliance with applicable capital requirements
of another Federal regulatory authority (including the
Securities and Exchange Commission) or State insurance
authority; or
``(ii) is registered as an investment adviser under the
Investment Advisers Act of 1940.
``(B) Rule of construction.--Subparagraph (A) shall not be
construed as preventing the Board from imposing capital or
capital adequacy rules, guidelines, standards, or
requirements with respect to activities of a registered
investment adviser other than investment advisory activities
or activities incidental to investment advisory activities.
``(4) Transfer of board authority to appropriate federal
banking agency.--
``(A) In general.--In the case of any bank holding company
which is not significantly engaged in nonbanking activities,
the Board, in consultation with the appropriate Federal
banking agency, may designate the appropriate Federal banking
agency of the lead insured depository institution subsidiary
of such holding company as the appropriate Federal banking
agency for the bank holding company.
``(B) Authority transferred.--An agency designated by the
Board under subparagraph (A) shall have the same authority as
the Board under this Act to--
``(i) examine and require reports from the bank holding
company and any affiliate of such company (other than a
depository institution) under section 5;
``(ii) approve or disapprove applications or transactions
under section 3;
``(iii) take actions and impose penalties under subsections
(e) and (f) of section 5 and section 8; and
``(iv) take actions regarding the holding company, any
affiliate of the holding company (other than a depository
institution), or any institution-affiliated party of such
company or affiliate under the Federal Deposit Insurance Act
and any other statute which the Board may designate.
``(C) Agency orders.--Section 9 (of this Act) and section
105 of the Bank Holding Company Act Amendments of 1970 shall
apply to orders issued by an agency designated under
subparagraph (A) in the same manner such sections apply to
orders issued by the Board.
``(5) Functional regulation of securities and insurance
activities.--The Board shall defer to--
``(A) the Securities and Exchange Commission with regard to
all interpretations of, and the enforcement of, applicable
Federal securities laws relating to the activities, conduct,
and operations of registered brokers, dealers, investment
advisers, and investment companies; and
``(B) the relevant State insurance authorities with regard
to all interpretations of, and the enforcement of, applicable
State insurance laws relating to the activities, conduct, and
operations of insurance companies and insurance agents.''.

SEC. 112. ELIMINATION OF APPLICATION REQUIREMENT FOR
FINANCIAL HOLDING COMPANIES.

(a) Prevention of Duplicative Filings.--Section 5(a) of the
Bank Holding Company Act of 1956 (12 U.S.C. 1844(a)) is
amended by adding the following new sentence at the end: ``A
declaration filed in accordance with section 6(b)(1)(E) shall
satisfy the requirements of this subsection with regard to
the registration of a bank holding company but not any
requirement to file an application to acquire a bank pursuant
to section 3.''.
(b) Divestiture Procedures.--Section 5(e)(1) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1844(e)(1)) is
amended--
(1) by striking ``Financial Institutions Supervisory Act of
1966, order'' and inserting ``Financial Institutions
Supervisory Act of 1966, at the election of the bank holding
company--
``(A) order''; and
(2) by striking ``shareholders of the bank holding company.
Such distribution'' and inserting ``shareholders of the bank
holding company; or
``(B) order the bank holding company, after due notice and
opportunity for hearing, and after consultation with the
bank's primary supervisor, which shall be the Comptroller of
the Currency in the case of a national bank, and the Federal
Deposit Insurance Corporation and the appropriate State
supervisor in the case of an insured nonmember bank, to
terminate (within 120 days or such longer period as the Board
may direct) the ownership

[[Page H3149]]

or control of any such bank by such company.
``The distribution referred to in subparagraph (A)''.

SEC. 113. AUTHORITY OF STATE INSURANCE REGULATOR AND
SECURITIES AND EXCHANGE COMMISSION.

Section 5 of the Bank Holding Company Act of 1956 (12
U.S.C. 1844) is amended by adding at the end the following
new subsection:
``(g) Authority of State Insurance Regulator and the
Securities and Exchange Commission.--
``(1) In general.--Notwithstanding any other provision of
law, any regulation, order, or other action of the Board
which requires a bank holding company to provide funds or
other assets to a subsidiary insured depository institution
shall not be effective nor enforceable if--
``(A) such funds or assets are to be provided by--
``(i) a bank holding company that is an insurance company
or is a broker or dealer registered under the Securities
Exchange Act of 1934; or
``(ii) an affiliate of the depository institution which is
an insurance company or a broker or dealer registered under
such Act; and
``(B) the State insurance authority for the insurance
company or the Securities and Exchange Commission for the
registered broker or dealer, as the case may be, determines
in writing sent to the holding company and the Board that the
holding company shall not provide such funds or assets
because such action would have a material adverse effect on
the financial condition of the insurance company or the
broker or dealer, as the case may be.
``(2) Notice to state insurance authority or sec
required.--If the Board requires a bank holding company, or
an affiliate of a bank holding company, which is an insurance
company or a broker or dealer described in paragraph (1)(A)
to provide funds or assets to an insured depository
institution subsidiary of the holding company pursuant to any
regulation, order, or other action of the Board referred to
in paragraph (1), the Board shall promptly notify the State
insurance authority for the insurance company or the
Securities and Exchange Commission, as the case may be, of
such requirement.
``(3) Divestiture in lieu of other action.--If the Board
receives a notice described in paragraph (1)(B) from a State
insurance authority or the Securities and Exchange Commission
with regard to a bank holding company or affiliate referred
to in such paragraph, the Board may order the bank holding
company to divest the insured depository institution within
180 days of receiving notice or such longer period as the
Board determines consistent with the safe and sound operation
of the insured depository institution.
``(4) Conditions before divestiture.--During the period
beginning on the date an order to divest is issued by the
Board under paragraph (3) to a bank holding company and
ending on the date the divestiture is completed, the Board
may impose any conditions or restrictions on the holding
company's ownership or operation of the insured depository
institution, including restricting or prohibiting
transactions between the insured depository institution and
any affiliate of the institution, as are appropriate under
the circumstances.''.

SEC. 114. PRUDENTIAL SAFEGUARDS.

Section 5 of the Bank Holding Company Act of 1956 (12
U.S.C. 1844) is amended by inserting after subsection (g) (as
added by section 113 of this subtitle) the following new
subsection:
``(h) Prudential Safeguards.--
``(1) In general.--The Board may, by regulation or order,
impose restrictions or requirements on relationships or
transactions between a depository institution subsidiary of a
bank holding company and any affiliate of such depository
institution (other than a subsidiary of such institution)
which the Board finds is consistent with the public interest,
the purposes of this Act, the Financial Services Act of 1998,
the Federal Reserve Act, and other Federal law applicable to
depository institution subsidiaries of bank holding companies
and the standards in paragraph (2).
``(2) Standards.--The Board may exercise authority under
paragraph (1) if the Board finds that such action will have
any of the following effects:
``(A) Avoid any significant risk to the safety and
soundness of depository institutions or any Federal deposit
insurance fund.
``(B) Enhance the financial stability of bank holding
companies.
``(C) Avoid conflicts of interest or other abuses.
``(D) Enhance the privacy of customers of depository
institutions.
``(E) Promote the application of national treatment and
equality of competitive opportunity between nonbank
affiliates owned or controlled by domestic bank holding
companies and nonbank affiliates owned or controlled by
foreign banks operating in the United States.
``(3) Review.--The Board shall regularly--
``(A) review all restrictions or requirements established
pursuant to paragraph (1) to determine whether there is a
continuing need for any such restriction or requirement to
carry out the purposes of the Act, including any purpose
described in paragraph (2); and
``(B) modify or eliminate any restriction or requirement
the Board finds is no longer required for such purposes.''.

SEC. 115. EXAMINATION OF INVESTMENT COMPANIES.

(a) Exclusive Commission Authority.--
(1) In general.--The Commission shall be the sole Federal
agency with authority to inspect and examine any registered
investment company that is not a bank holding company.
(2) Prohibition on banking agencies.--A Federal banking
agency may not inspect or examine any registered investment
company that is not a bank holding company.
(b) Examination Results and Other Information.--The
Commission shall provide to any Federal banking agency, upon
request, the results of any examination, reports, records, or
other information with respect to any registered investment
company to the extent necessary for the agency to carry out
its statutory responsibilities.
(c) Definitions.--For purposes of this section, the
following definitions shall apply:
(1) Bank holding company.--The term ``bank holding
company'' has the meaning given to such term in section 2 of
the Bank Holding Company Act of 1956.
(2) Commission.--The term ``Commission'' means the
Securities and Exchange Commission.
(3) Federal banking agency.--The term ``Federal banking
agency'' has the meaning given to such term in section 3(z)
of the Federal Deposit Insurance Act.
(4) Registered investment company.--The term ``registered
investment company'' means an investment company which is
registered with the Commission under the Investment Company
Act of 1940.

SEC. 116. LIMITATION ON RULEMAKING, PRUDENTIAL, SUPERVISORY,
AND ENFORCEMENT AUTHORITY OF THE BOARD.

The Bank Holding Company Act of 1956 (12 U.S.C. 1841 et
seq.) is amended by inserting after section 10 the following
new section:

``SEC. 10A. LIMITATION ON RULEMAKING, PRUDENTIAL,
SUPERVISORY, AND ENFORCEMENT AUTHORITY OF THE
BOARD.

``(a) Limitation on Direct Action.--
``(1) In general.--The Board may not prescribe regulations,
issue or seek entry of orders, impose restraints,
restrictions, guidelines, requirements, safeguards, or
standards, or otherwise take any action under or pursuant to
any provision of this Act or section 8 of the Federal Deposit
Insurance Act against or with respect to a regulated
subsidiary of a bank holding company unless the action is
necessary to prevent or redress an unsafe or unsound practice
or breach of fiduciary duty by such subsidiary that poses a
material risk to--
``(A) the financial safety, soundness, or stability of an
affiliated depository institution; or
``(B) the domestic or international payment system.
``(2) Criteria for board action.--The Board shall not take
action otherwise permitted under paragraph (1) unless the
Board finds that it is not reasonably possible to effectively
protect against the material risk at issue through action
directed at or against the affiliated depository institution
or against depository institutions generally.
``(b) Limitation on Indirect Action.--The Board may not
prescribe regulations, issue or seek entry of orders, impose
restraints, restrictions, guidelines, requirements,
safeguards, or standards, or otherwise take any action under
or pursuant to any provision of this Act or section 8 of the
Federal Deposit Insurance Act against or with respect to a
financial holding company or a wholesale financial holding
company where the purpose or effect of doing so would be to
take action indirectly against or with respect to a regulated
subsidiary that may not be taken directly against or with
respect to such subsidiary in accordance with subsection (a).
``(c) Actions Specifically Authorized.--Notwithstanding
subsection (a), the Board may take action under this Act or
section 8 of the Federal Deposit Insurance Act to enforce
compliance by a regulated subsidiary with Federal law that
the Board has specific jurisdiction to enforce against such
subsidiary.
``(d) Regulated Subsidiary Defined.--For purposes of this
section, the term `regulated subsidiary' means any company
that is not a bank holding company and is--
``(1) a broker or dealer registered under the Securities
Exchange Act of 1934;
``(2) an investment adviser registered under the Investment
Advisers Act of 1940, with respect to the investment advisory
activities of such investment adviser and activities
incidental to such investment advisory activities;
``(3) an investment company registered under the Investment
Company Act of 1940;
``(4) an insurance company or an insurance agency subject
to supervision by a State insurance commission, agency, or
similar authority; or
``(5) an entity subject to regulation by the Commodity
Futures Trading Commission, with respect to the commodities
activities of such entity and activities incidental to such
commodities activities.''.

[[Page H3150]]

Subtitle C--Subsidiaries of National Banks

SEC. 121. PERMISSIBLE ACTIVITIES FOR SUBSIDIARIES OF NATIONAL
BANKS.

(a) Financial Subsidiaries of National Banks.--Chapter one
of title LXII of the Revised Statutes of United States (12
U.S.C. 21 et seq.) is amended--
(1) by redesignating section 5136A as section 5136C; and
(2) by inserting after section 5136 (12 U.S.C. 24) the
following new section:

``SEC. 5136A. SUBSIDIARIES OF NATIONAL BANKS.

``(a) Subsidiaries of National Banks Authorized To Engage
in Financial Activities.--
``(1) Exclusive authority.--No provision of section 5136 or
any other provision of this title LXII of the Revised
Statutes shall be construed as authorizing a subsidiary of a
national bank to engage in, or own any share of or any other
interest in any company engaged in, any activity that--
``(A) is not permissible for a national bank to engage in
directly; or
``(B) is conducted under terms or conditions other than
those that would govern the conduct of such activity by a
national bank,
unless a national bank is specifically authorized by the
express terms of a Federal statute and not by implication or
interpretation to acquire shares of or an interest in, or to
control, such subsidiary, such as by paragraph (2) of this
subsection and section 25A of the Federal Reserve Act.
``(2) Specific authorization to conduct agency activities
which are financial in nature.--A national bank may control a
company that engages in agency activities that have been
determined to be financial in nature or incidental to such
financial activities pursuant to and in accordance with
section 6(c) of the Bank Holding Company Act of 1956 if--
``(A) the company engages in such activities solely as
agent and not directly or indirectly as principal,
``(B) the national bank is well capitalized and well
managed, and has achieved a rating of satisfactory or better
at the most recent examination of the bank under the
Community Reinvestment Act of 1977;
``(C) all depository institution affiliates of the national
bank are well capitalized and well managed, and have achieved
a rating of satisfactory or better at the most recent
examination of each such depository institution under the
Community Reinvestment Act of 1977; and
``(D) the bank has received the approval of the Comptroller
of the Currency.
``(3) Definitions.--
``(A) Company; control; subsidiary.--The terms `company',
`control', and `subsidiary' have the meanings given to such
terms in section 2 of the Bank Holding Company Act of 1956.
``(B) Well capitalized.--The term `well capitalized' has
the same meaning as in section 38 of the Federal Deposit
Insurance Act and, for purposes of this section, the
Comptroller shall have exclusive jurisdiction to determine
whether a national bank is well capitalized.
``(C) Well managed.--The term `well managed' means--
``(i) in the case of a bank that has been examined, unless
otherwise determined in writing by the Comptroller--

``(I) the achievement of a composite rating of 1 or 2 under
the Uniform Financial Institutions Rating System (or an
equivalent rating under an equivalent rating system) in
connection with the most recent examination or subsequent
review of the bank; and
``(II) at least a rating of 2 for management, if that
rating is given; or

``(ii) in the case of any national bank that has not been
examined, the existence and use of managerial resources that
the Comptroller determines are satisfactory.
``(b) Limited Exclusions From Community Needs Requirements
for Newly Acquired Depository Institutions.--Any depository
institution which becomes affiliated with a national bank
during the 24-month period preceding the submission of an
application to acquire a subsidiary under subsection (a)(2),
and any depository institution which becomes so affiliated
after the approval of such application, may be excluded for
purposes of subsection (a)(2)(B) during the 24-month period
beginning on the date of such acquisition if--
``(1) the depository institution has submitted an
affirmative plan to the appropriate Federal banking agency
(as defined in section 3 of the Federal Deposit Insurance
Act) to take such action as may be necessary in order for
such institution to achieve a `satisfactory record of meeting
community credit needs', or better, at the next examination
of the institution under the Community Reinvestment Act of
1977; and
``(2) the plan has been approved by the appropriate Federal
banking agency.''.
(b) Limitation on Certain Activities in Subsidiaries.--
Section 21(a)(1) of the Banking Act of 1933 (12 U.S.C.
378(a)(1)) is amended--
(1) by inserting ``, or to be a subsidiary of any person,
firm, corporation, association, business trust, or similar
organization engaged (unless such subsidiary (A) was engaged
in such securities activities as of September 15, 1997, or
(B) is a nondepository subsidiary of a foreign bank and is
not also a subsidiary of a domestic depository
institution),'' after ``to engage at the same time''; and
(2) by inserting ``or any subsidiary of such bank, company,
or institution'' after ``or private bankers''.
(c) Technical and Conforming Amendments.--
(1) Antitying.--Section 106(a) of the Bank Holding Company
Act Amendments of 1970 is amended by adding at the end the
following new sentence: ``For purposes of this section, a
subsidiary of a national bank which engages in activities as
an agent pursuant to section 5136A(a)(2) shall be deemed to
be a subsidiary of a bank holding company, and not a
subsidiary of a bank.''.
(2) Section 23b.--Section 23B(a) of the Federal Reserve Act
(12 U.S.C. 371c-1(a)) is amended by adding at the end the
following new paragraph:
``(4) Subsidiary of national bank.--For purposes of this
section, a subsidiary of a national bank which engages in
activities as an agent pursuant to section 5136A(a)(2) shall
be deemed to be an affiliate of the national bank and not a
subsidiary of the bank.''
(d) Clerical Amendment.--The table of sections for chapter
one of title LXII of the Revised Statutes of the United
States is amended--
(1) by redesignating the item relating to section 5136A as
section 5136C; and
(2) by inserting after the item relating to section 5136
the following new item:

``5136A. Financial subsidiaries of national banks.''.

SEC. 122. MISREPRESENTATIONS REGARDING DEPOSITORY INSTITUTION
LIABILITY FOR OBLIGATIONS OF AFFILIATES.

(a) In General.--Chapter 47 of title 18, United States
Code, is amended by inserting after section 1007 the
following new section:

``Sec. 1008. Misrepresentations regarding financial
institution liability for obligations of affiliates

``(a) In General.--No institution-affiliated party of an
insured depository institution or institution-affiliated
party of a subsidiary or affiliate of an insured depository
institution shall fraudulently represent that the institution
is or will be liable for any obligation of a subsidiary or
other affiliate of the institution.
``(b) Criminal Penalty.--Whoever violates subsection (a)
shall be fined under this title, imprisoned for not more than
1 year, or both.
``(c) Institution-Affiliated Party Defined.--For purposes
of this section, the term `institution-affiliated party' with
respect to a subsidiary or affiliate has the same meaning as
in section 3 except references to an insured depository
institution shall be deemed to be references to a subsidiary
or affiliate of an insured depository institution.
``(d) Other Definitions.--For purposes of this section, the
terms `affiliate', `insured depository institution', and
`subsidiary' have same meanings as in section 3 of the
Federal Deposit Insurance Act.''.
(b) Clerical Amendment.--The table of sections for chapter
47 of title 18, United States Code, is amended by inserting
after the item relating to section 1007 the following new
item:

``1008. Misrepresentations regarding financial institution liability
for obligations of affiliates.''.

SEC. 123. REPEAL OF STOCK LOAN LIMIT IN FEDERAL RESERVE ACT.

Section 11 of the Federal Reserve Act (12 U.S.C. 248) is
amended by striking the paragraph designated as ``(m)'' and
inserting ``(m) [Repealed]''.

Subtitle D--Wholesale Financial Holding Companies; Wholesale Financial
Institutions

CHAPTER 1--WHOLESALE FINANCIAL HOLDING COMPANIES

SEC. 131. WHOLESALE FINANCIAL HOLDING COMPANIES ESTABLISHED.

(a) Definition and Supervision.--Section 10 of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841 et seq.) is
amended to read as follows:

``SEC. 10. WHOLESALE FINANCIAL HOLDING COMPANIES.

``(a) Companies That Control Wholesale Financial
Institutions.--
``(1) Wholesale financial holding company defined.--The
term `wholesale financial holding company' means any company
that--
``(A) is registered as a bank holding company;
``(B) is predominantly engaged in financial activities as
defined in section 6(g)(2);
``(C) controls 1 or more wholesale financial institutions;
``(D) does not control--
``(i) a bank other than a wholesale financial institution;
``(ii) an insured bank other than an institution permitted
under subparagraph (D), (F), or (G) of section 2(c)(2); or
``(iii) a savings association; and
``(E) is not a foreign bank (as defined in section 1(b)(7)
of the International Banking Act of 1978).
``(2) Savings association transition period.--
Notwithstanding paragraph (1)(C)(iii), the Board may permit a
company that controls a savings association and that
otherwise meets the requirements of paragraph (1) to become
supervised under paragraph (1), if the company divests
control of any such savings association within such period
not to exceed 5 years after becoming supervised under
paragraph (1) as permitted by the Board.
``(b) Supervision by the Board.--
``(1) In general.--The provisions of this section shall
govern the reporting, examination, and capital requirements
of wholesale financial holding companies.

[[Page H3151]]

``(2) Reports.--
``(A) In general.--The Board from time to time may require
any wholesale financial holding company and any subsidiary of
such company to submit reports under oath to keep the Board
informed as to--
``(i) the company's or subsidiary's activities, financial
condition, policies, systems for monitoring and controlling
financial and operational risks, and transactions with
depository institution subsidiaries of the holding company;
and
``(ii) the extent to which the company or subsidiary has
complied with the provisions of this Act and regulations
prescribed and orders issued under this Act.
``(B) Use of existing reports.--
``(i) In general.--The Board shall, to the fullest extent
possible, accept reports in fulfillment of the Board's
reporting requirements under this paragraph that the
wholesale financial holding company or any subsidiary of such
company has provided or been required to provide to other
Federal and State supervisors or to appropriate self-
regulatory organizations.
``(ii) Availability.--A wholesale financial holding company
or a subsidiary of such company shall provide to the Board,
at the request of the Board, a report referred to in clause
(i).
``(C) Exemptions from reporting requirements.--
``(i) In general.--The Board may, by regulation or order,
exempt any company or class of companies, under such terms
and conditions and for such periods as the Board shall
provide in such regulation or order, from the provisions of
this paragraph and any regulation prescribed under this
paragraph.
``(ii) Criteria for consideration.--In making any
determination under clause (i) with regard to any exemption
under such clause, the Board shall consider, among such other
factors as the Board may determine to be appropriate, the
following factors:

``(I) Whether information of the type required under this
paragraph is available from a supervisory agency (as defined
in section 1101(7) of the Right to Financial Privacy Act of
1978) or a foreign regulatory authority of a similar type.
``(II) The primary business of the company.
``(III) The nature and extent of the domestic and foreign
regulation of the activities of the company.

``(3) Examinations.--
``(A) Limited use of examination authority.--The Board may
make examinations of each wholesale financial holding company
and each subsidiary of such company in order to--
``(i) inform the Board regarding the nature of the
operations and financial condition of the wholesale financial
holding company and its subsidiaries;
``(ii) inform the Board regarding--

``(I) the financial and operational risks within the
wholesale financial holding company system that may affect
any depository institution owned by such holding company; and
``(II) the systems of the holding company and its
subsidiaries for monitoring and controlling those risks; and

``(iii) monitor compliance with the provisions of this Act
and those governing transactions and relationships between
any depository institution controlled by the wholesale
financial holding company and any of the company's other
subsidiaries.
``(B) Restricted focus of examinations.--The Board shall,
to the fullest extent possible, limit the focus and scope of
any examination of a wholesale financial holding company
under this paragraph to--
``(i) the holding company; and
``(ii) any subsidiary (other than an insured depository
institution subsidiary) of the holding company that, because
of the size, condition, or activities of the subsidiary, the
nature or size of transactions between such subsidiary and
any affiliated depository institution, or the centralization
of functions within the holding company system, could have a
materially adverse effect on the safety and soundness of any
depository institution affiliate of the holding company.
``(C) Deference to bank examinations.--The Board shall, to
the fullest extent possible, use the reports of examination
of depository institutions made by the Comptroller of the
Currency, the Federal Deposit Insurance Corporation, the
Director of the Office of Thrift Supervision or the
appropriate State depository institution supervisory
authority for the purposes of this section.
``(D) Deference to other examinations.--The Board shall, to
the fullest extent possible, address the circumstances which
might otherwise permit or require an examination by the Board
by forgoing an examination and by instead reviewing the
reports of examination made of--
``(i) any registered broker or dealer or any registered
investment adviser by or on behalf of the Commission; and
``(ii) any licensed insurance company by or on behalf of
any State government insurance agency responsible for the
supervision of the insurance company.
``(E) Confidentiality of reported information.--
``(i) In general.--Notwithstanding any other provision of
law, the Board shall not be compelled to disclose any
nonpublic information required to be reported under this
paragraph, or any information supplied to the Board by any
domestic or foreign regulatory agency, that relates to the
financial or operational condition of any wholesale financial
holding company or any subsidiary of such company.
``(ii) Compliance with requests for information.--No
provision of this subparagraph shall be construed as
authorizing the Board to withhold information from the
Congress, or preventing the Board from complying with a
request for information from any other Federal department or
agency for purposes within the scope of such department's or
agency's jurisdiction, or from complying with any order of a
court of competent jurisdiction in an action brought by the
United States or the Board.
``(iii) Coordination with other law.--For purposes of
section 552 of title 5, United States Code, this subparagraph
shall be considered to be a statute described in subsection
(b)(3)(B) of such section.
``(iv) Designation of confidential information.--In
prescribing regulations to carry out the requirements of this
subsection, the Board shall designate information described
in or obtained pursuant to this paragraph as confidential
information.
``(F) Costs.--The cost of any examination conducted by the
Board under this section may be assessed against, and made
payable by, the wholesale financial holding company.
``(4) Capital adequacy guidelines.--
``(A) Capital adequacy provisions.--Subject to the
requirements of, and solely in accordance with, the terms of
this paragraph, the Board may adopt capital adequacy rules or
guidelines for wholesale financial holding companies.
``(B) Method of calculation.--In developing rules or
guidelines under this paragraph, the following provisions
shall apply:
``(i) Focus on double leverage.--The Board shall focus on
the use by wholesale financial holding companies of debt and
other liabilities to fund capital investments in
subsidiaries.
``(ii) No unweighted capital ratio.--The Board shall not,
by regulation, guideline, order, or otherwise, impose under
this section a capital ratio that is not based on appropriate
risk-weighting considerations.
``(iii) No capital requirement on regulated entities.--The
Board shall not, by regulation, guideline, order or
otherwise, prescribe or impose any capital or capital
adequacy rules, standards, guidelines, or requirements upon
any subsidiary that--

``(I) is not a depository institution; and
``(II) is in compliance with applicable capital
requirements of another Federal regulatory authority
(including the Securities and Exchange Commission) or State
insurance authority.

``(iv) Limitation.--The Board shall not, by regulation,
guideline, order or otherwise, prescribe or impose any
capital or capital adequacy rules, standards, guidelines, or
requirements upon any subsidiary that is not a depository
institution and that is registered as an investment adviser
under the Investment Advisers Act of 1940, except that this
clause shall not be construed as preventing the Board from
imposing capital or capital adequacy rules, guidelines,
standards, or requirements with respect to activities of a
registered investment adviser other than investment advisory
activities or activities incidental to investment advisory
activities.
``(v) Appropriate exclusions.--The Board shall take full
account of--

``(I) the capital requirements made applicable to any
subsidiary that is not a depository institution by another
Federal regulatory authority or State insurance authority;
and
``(II) industry norms for capitalization of a company's
unregulated subsidiaries and activities.

``(vi) Internal risk management models.--The Board may
incorporate internal risk management models of wholesale
financial holding companies into its capital adequacy
guidelines or rules and may take account of the extent to
which resources of a subsidiary depository institution may be
used to service the debt or other liabilities of the
wholesale financial holding company.
``(c) Nonfinancial Activities and Investments.--
``(1) Authority for limited amounts of new activities and
investments.--
``(A) In general.--Notwithstanding section 4(a), a
wholesale financial holding company may engage in activities
which are not (or have not been determined to be) financial
in nature or incidental to activities which are financial in
nature, or acquire and retain ownership and control of the
shares of a company engaged in such activities if--
``(i) the aggregate annual gross revenues derived from all
such activities and of all such companies does not exceed 5
percent of the consolidated annual gross revenues of the
wholesale financial holding company or, in the case of a
foreign bank or any company that owns or controls a foreign
bank, the aggregate annual gross revenues derived from any
such activities in the United States does not exceed 5
percent of the consolidated annual gross revenues of the
foreign bank or company in the United States derived from any
branch, agency, commercial lending company, or depository
institution controlled by the foreign bank or company and any
subsidiary engaged in the United States in activities
permissible under section 4 or 6 or this subsection;
``(ii) the consolidated total assets of any company the
shares of which are acquired pursuant to this subsection are
less than $750,000,000 at the time the shares are acquired by
the wholesale financial holding company; and

[[Page H3152]]

``(iii) such company provides notice to the Board within 30
days of commencing the activity or acquiring the ownership or
control.
``(B) Inclusion of grandfathered activities.--For purposes
of determining compliance with the limits contained in
subparagraph (A), the gross revenues derived from all
activities conducted and companies the shares of which are
held under paragraph (2) shall be considered to be derived or
held under this paragraph.
``(C) Report.--No later than 5 years after the date of
enactment of the Financial Services Act of 1998, the Board
shall submit to the Congress a report regarding the
activities conducted and companies held pursuant to this
paragraph and the effect, if any, that affiliations permitted
under this paragraph have had on affiliated depository
institutions. The report shall include recommendations
regarding the appropriateness of retaining, increasing, or
decreasing the limits contained in those provisions.
``(2) Grandfathered activities.--
``(A) In general.--Notwithstanding paragraph (1)(A) and
section 4(a), a company that becomes a wholesale financial
holding company may continue to engage, directly or
indirectly, in any activity and may retain ownership and
control of shares of a company engaged in any activity if--
``(i) on the date of the enactment of the Financial
Services Act of 1998, such wholesale financial holding
company was lawfully engaged in that nonfinancial activity,
held the shares of such company, or had entered into a
contract to acquire shares of any company engaged in such
activity; and
``(ii) the company engaged in such activity continues to
engage only in the same activities that such company
conducted on the date of the enactment of the Financial
Services Act of 1998, and other activities permissible under
this Act.
``(B) No expansion of grandfathered commercial activities
through merger or consolidation.--A wholesale financial
holding company that engages in activities or holds shares
pursuant to this paragraph, or a subsidiary of such wholesale
financial holding company, may not acquire, in any merger,
consolidation, or other type of business combination, assets
of any other company which is engaged in any activity which
the Board has not determined to be financial in nature or
incidental to activities that are financial in nature under
section 6(c).
``(C) Limitation to single exemption.--No company that
engages in any activity or controls any shares under
subsection (f) or (g) of section 6 may engage in any activity
or own any shares pursuant to this paragraph or paragraph
(1).
``(3) Commodities.--
``(A) In general.--Notwithstanding section 4(a), a
wholesale financial holding company which was predominately
engaged as of January 1, 1997, in financial activities in the
United States (or any successor to any such company) may
engage in, or directly or indirectly own or control shares of
a company engaged in, activities related to the trading,
sale, or investment in commodities and underlying physical
properties that were not permissible for bank holding
companies to conduct in the United States as of January 1,
1997, if such wholesale financial holding company, or any
subsidiary of such holding company, was engaged directly,
indirectly, or through any such company in any of such
activities as of January 1, 1997, in the United States.
``(B) Limitation.--Notwithstanding paragraph (1)(A)(i), the
attributed aggregate consolidated assets of a wholesale
financial holding company held under the authority granted
under this paragraph and not otherwise permitted to be held
by all wholesale financial holding companies under this
section may not exceed 5 percent of the total consolidated
assets of the wholesale financial holding company, except
that the Board may increase such percentage of total
consolidated assets by such amounts and under such
circumstances as the Board considers appropriate, consistent
with the purposes of this Act.
``(4) Cross marketing restrictions.--A wholesale financial
holding company shall not permit--
``(A) any company whose shares it owns or controls pursuant
to paragraph (1), (2), or (3) to offer or market any product
or service of an affiliated wholesale financial institution;
or
``(B) any affiliated wholesale financial institution to
offer or market any product or service of any company whose
shares are owned or controlled by such wholesale financial
holding company pursuant to such paragraphs.
``(d) Qualification of Foreign Bank as Wholesale Financial
Holding Company.--
``(1) In general.--Any foreign bank, or any company that
owns or controls a foreign bank, that--
``(A) operates a branch, agency, or commercial lending
company in the United States, including a foreign bank or
company that owns or controls a wholesale financial
institution; and
``(B) owns, controls, or is affiliated with a security
affiliate that engages in underwriting corporate equity
securities,
may request a determination from the Board that such bank or
company be treated as a wholesale financial holding company
for purposes of subsection (c).
``(2) Conditions for treatment as a wholesale financial
holding company.--A foreign bank and a company that owns or
controls a foreign bank may not be treated as a wholesale
financial holding company unless the bank and company meet
and continue to meet the following criteria:
``(A) No insured deposits.--No deposits held directly by a
foreign bank or through an affiliate (other than an
institution described in subparagraph (D) or (F) of section
2(c)(2)) are insured under the Federal Deposit Insurance Act.
``(B) Capital standards.--The foreign bank meets risk-based
capital standards comparable to the capital standards
required for a wholesale financial institution, giving due
regard to the principle of national treatment and equality of
competitive opportunity.
``(C) Transaction with affiliates.--Transactions between a
branch, agency, or commercial lending company subsidiary of
the foreign bank in the United States, and any securities
affiliate or company in which the foreign bank (or any
company that owns or controls such foreign bank) has invested
pursuant to subsection (d) comply with the provisions of
sections 23A and 23B of the Federal Reserve Act in the same
manner and to the same extent as such transactions would be
required to comply with such sections if the bank were a
member bank.
``(3) Treatment as a wholesale financial institution.--Any
foreign bank which is, or is affiliated with a company which
is, treated as a wholesale financial holding company under
this subsection shall be treated as a wholesale financial
institution for purposes of subsection (c)(4) of this section
and subsections (c)(1)(C) and (c)(3) of section 9B of the
Federal Reserve Act, and any such foreign bank or company
shall be subject to paragraphs (3), (4), and (5) of section
9B(d) of the Federal Reserve Act, except that the Board may
adopt such modifications, conditions, or exemptions as the
Board deems appropriate, giving due regard to the principle
of national treatment and equality of competitive
opportunity.
``(4) Nonapplicability of other exemption.--Any foreign
bank or company which is treated as a wholesale financial
holding company under this subsection shall not be eligible
for any exception described in section 2(h).
``(5) Supervision of foreign bank which maintains no
banking presence other than control of a wholesale financial
institution.--A foreign bank that owns or controls a
wholesale financial institution but does not operate a
branch, agency, or commercial lending company in the United
States (and any company that owns or controls such foreign
bank) may request a determination from the Board that such
bank or company be treated as a wholesale financial holding
company for purposes of subsection (c), except that such bank
or company shall be subject to the restrictions of paragraphs
(2)(A), (3), and (4) of this subsection.
``(6) No effect on other provisions.--This section shall
not be construed as limiting the authority of the Board under
the International Banking Act of 1978 with respect to the
regulation, supervision, or examination of foreign banks and
their offices and affiliates in the United States.
``(7) Applicability of community reinvestment act of
1977.--The branches in the United States of a foreign bank
that is, or is affiliated with a company that is, treated as
a wholesale financial holding company shall be subject to
section 9B(b)(11) of the Federal Reserve Act as if the
foreign bank were a wholesale financial institution under
such section. The Board and the Comptroller of the Currency
shall apply the provisions of sections 803(2), 804, and
807(1) of the Community Reinvestment Act of 1977 to branches
of foreign banks which receive only such deposits as are
permissible for receipt by a corporation organized under
section 25A of the Federal Reserve Act, in the same manner
and to the same extent such sections apply to such a
corporation.''.
(b) Uninsured State Banks.--Section 9 of the Federal
Reserve Act (U.S.C. 321 et seq.) is amended by adding at the
end the following new paragraph:
``(24) Enforcement authority over uninsured state member
banks.--Section 3(u) of the Federal Deposit Insurance Act,
subsections (j) and (k) of section 7 of such Act, and
subsections (b) through (n), (s), (u), and (v) of section 8
of such Act shall apply to an uninsured State member bank in
the same manner and to the same extent such provisions apply
to an insured State member bank and any reference in any such
provision to `insured depository institution' shall be deemed
to be a reference to `uninsured State member bank' for
purposes of this paragraph.''.

SEC. 132. AUTHORIZATION TO RELEASE REPORTS.

(a) Federal Reserve Act.--The last sentence of the 8th
undesignated paragraph of section 9 of the Federal Reserve
Act (12 U.S.C. 326) is amended to read as follows: ``The
Board of Governors of the Federal Reserve System, at its
discretion, may furnish reports of examination or other
confidential supervisory information concerning State member
banks or any other entities examined under any other
authority of the Board to any Federal or State authorities
with supervisory or regulatory authority over the examined
entity, to officers, directors, or receivers of the examined
entity, and to any other person that the Board determines to
be proper.''.
(b) Commodity Futures Trading Commission.--

[[Page H3153]]

(1) Section 1101(7) of the Right to Financial Privacy Act
of 1978 (12 U.S.C. 3401(7)) is amended--
(A) by redesignating subparagraphs (G) and (H) as
subparagraphs (H) and (I), respectively; and
(B) by inserting after subparagraph (F) the following new
subparagraph:
``(G) the Commodity Futures Trading Commission; or'' and
(2) Section 1112(e) of the Right to Financial Privacy Act
(12 U.S.C. 3412(e)) is amended by striking ``and the
Securities and Exchange Commission'' and inserting ``, the
Securities and Exchange Commission, and the Commodity Futures
Trading Commission''.

SEC. 133. CONFORMING AMENDMENTS.

(a) Bank Holding Company Act of 1956.--
(1) Definitions.--Section 2 of the Bank Holding Company Act
of 1956 (12 U.S.C. 1842) is amended by adding at the end the
following new subsections:
``(p) Wholesale Financial Institution.--The term `wholesale
financial institution' means a wholesale financial
institution subject to section 9B of the Federal Reserve Act.
``(q) Commission.--The term `Commission' means the
Securities and Exchange Commission.
``(r) Depository Institution.--The term `depository
institution'--
``(1) has the meaning given to such term in section 3 of
the Federal Deposit Insurance Act; and
``(2) includes a wholesale financial institution.''.
(2) Definition of bank includes wholesale financial
institution.--Section 2(c)(1) of the Bank Holding Company Act
of 1956 (12 U.S.C. 1841(c)(1)) is amended by adding at the
end the following new subparagraph:
``(C) A wholesale financial institution.''.
(3) Incorporated definitions.--Section 2(n) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(n)) is amended by
inserting `` `insured bank','' after `` `in danger of
default',''.
(4) Exception to deposit insurance requirement.--Section
3(e) of the Bank Holding Company Act of 1956 (12 U.S.C.
1842(e)) is amended by adding at the end the following:
``This subsection shall not apply to a wholesale financial
institution.''
(b) Federal Deposit Insurance Act.--Section 3(q)(2)(A) of
the Federal Deposit Insurance Act (12 U.S.C. 1813(q)(2)(A))
is amended to read as follows:
``(A) any State member insured bank (except a District
bank) and any wholesale financial institution as authorized
pursuant to section 9B of the Federal Reserve Act;''.

CHAPTER 2--WHOLESALE FINANCIAL INSTITUTIONS

SEC. 136. WHOLESALE FINANCIAL INSTITUTIONS.

(a) National Wholesale Financial Institutions.--
(1) In general.--Chapter one of title LXII of the Revised
Statutes of the United States (12 U.S.C. 21 et seq.) is
amended by inserting after section 5136A (as added by section
121(a) of this title) the following new section:

``SEC. 5136B. NATIONAL WHOLESALE FINANCIAL INSTITUTIONS.

``(a) Authorization of the Comptroller Required.--A
national bank may apply to the Comptroller on such forms and
in accordance with such regulations as the Comptroller may
prescribe, for permission to operate as a national wholesale
financial institution.
``(b) Regulation.--A national wholesale financial
institution may exercise, in accordance with such
institution's articles of incorporation and regulations
issued by the Comptroller, all the powers and privileges of a
national bank formed in accordance with section 5133 of the
Revised Statutes of the United States, subject to section 9B
of the Federal Reserve Act and the limitations and
restrictions contained therein.
``(c) Community Reinvestment Act of 1977.--A national
wholesale financial institution shall be subject to the
Community Reinvestment Act of 1977.
``(d) Examination Reports.--The Comptroller of the Currency
shall, to the fullest extent possible, use the report of
examinations made by the Board of Governors of the Federal
Reserve System of a wholesale financial institution.''.
(2) Clerical amendment.--The table of sections for chapter
one of title LXII of the Revised Statutes of the United
States is amended by inserting after the item relating to
section 5136A (as added by section 121(d) of this title) the
following new item:

``5136B. National wholesale financial institutions.''.
(b) State Wholesale Financial Institutions.--The Federal
Reserve Act (12 U.S.C. 221 et seq.) is amended by inserting
after section 9A the following new section:

``SEC. 9B. WHOLESALE FINANCIAL INSTITUTIONS.

``(a) Application for Membership as Wholesale Financial
Institution.--
``(1) Application required.--
``(A) In general.--Any bank may apply to the Board of
Governors of the Federal Reserve System to become a wholesale
financial institution and, as a wholesale financial
institution, to subscribe to the stock of the Federal reserve
bank organized within the district where the applying bank is
located.
``(B) Treatment as member bank.--Any application under
subparagraph (A) shall be treated as an application under,
and shall be subject to the provisions of, section 9.
``(2) Insurance termination.--No bank the deposits of which
are insured under the Federal Deposit Insurance Act may
become a wholesale financial institution unless it has met
all requirements under that Act for voluntary termination of
deposit insurance.
``(b) General Requirements Applicable to Wholesale
Financial Institutions.--
``(1) Federal reserve act.--Except as otherwise provided in
this section, wholesale financial institutions shall be
member banks and shall be subject to the provisions of this
Act that apply to member banks to the same extent and in the
same manner as State member insured banks, except that a
wholesale financial institution may terminate membership
under this Act only with the prior written approval of the
Board and on terms and conditions that the Board determines
are appropriate to carry out the purposes of this Act.
``(2) Prompt corrective action.--A wholesale financial
institution shall be deemed to be an insured depository
institution for purposes of section 38 of the Federal Deposit
Insurance Act except that--
``(A) the relevant capital levels and capital measures for
each capital category shall be the levels specified by the
Board for wholesale financial institutions; and
``(B) all references to the appropriate Federal banking
agency or to the Corporation in that section shall be deemed
to be references to the Board.
``(3) Enforcement authority.--Subsections (j) and (k) of
section 7, subsections (b) through (n), (s), and (v) of
section 8, and section 19 of the Federal Deposit Insurance
Act shall apply to a wholesale financial institution in the
same manner and to the same extent as such provisions apply
to State member insured banks and any reference in such
sections to an insured depository institution shall be deemed
to include a reference to a wholesale financial institution.
``(4) Certain other statutes applicable.--A wholesale
financial institution shall be deemed to be a banking
institution, and the Board shall be the appropriate Federal
banking agency for such bank and all such bank's affiliates,
for purposes of the International Lending Supervision Act.
``(5) Bank merger act.--A wholesale financial institution
shall be subject to sections 18(c) and 44 of the Federal
Deposit Insurance Act in the same manner and to the same
extent the wholesale financial institution would be subject
to such sections if the institution were a State member
insured bank.
``(6) Branching.--Notwithstanding any other provision of
law, a wholesale financial institution may establish and
operate a branch at any location on such terms and conditions
as established by the Board and, in the case of a State-
chartered wholesale financial institution, with the approval
of the Board, and, in the case of a national bank wholesale
financial institution, with the approval of the Comptroller
of the Currency.
``(7) Activities of out-of-state branches of wholesale
financial institutions.--
``(A) General.--A State-chartered wholesale financial
institution shall be deemed a State bank and an insured State
bank and a national wholesale financial institution shall be
deemed a national bank for purposes of paragraphs (1), (2),
and (3) of section 24(j) of the Federal Deposit Insurance
Act.
``(B) Definitions.--The following definitions shall apply
solely for purposes of applying paragraph (1):
``(i) Home state.--The term `home State' means--

``(I) with respect to a national wholesale financial
institution, the State in which the main office of the
institution is located; and
``(II) with respect to a State-chartered wholesale
financial institution, the State by which the institution is
chartered.

``(ii) Host state.--The term `host State' means a State,
other than the home State of the wholesale financial
institution, in which the institution maintains, or seeks to
establish and maintain, a branch.
``(iii) Out-of-state bank.--The term `out-of-State bank'
means, with respect to any State, a wholesale financial
institution whose home State is another State.
``(8) Discrimination regarding interest rates.--Section 27
of the Federal Deposit Insurance Act shall apply to State-
chartered wholesale financial institutions in the same manner
and to the same extent as such provisions apply to State
member insured banks and any reference in such section to a
State-chartered insured depository institution shall be
deemed to include a reference to a State-chartered wholesale
financial institution.
``(9) Preemption of state laws requiring deposit insurance
for wholesale financial institutions.--The appropriate State
banking authority may grant a charter to a wholesale
financial institution notwithstanding any State constitution
or statute requiring that the institution obtain insurance of
its deposits and any such State constitution or statute is
hereby preempted solely for purposes of this paragraph.
``(10) Parity for wholesale financial institutions.--A
State bank that is a wholesale financial institution under
this section shall have all of the rights, powers,
privileges, and immunities (including those derived from
status as a federally chartered institution) of and as if it
were a national bank, subject to such terms and conditions as
established by the Board.
``(11) Community reinvestment act of 1977.--A State
wholesale financial institution shall be subject to the
Community Reinvestment Act of 1977.
``(c) Specific Requirements Applicable to Wholesale
Financial Institutions.--
``(1) Limitations on deposits.--

[[Page H3154]]

``(A) Minimum amount.--
``(i) In general.--No wholesale financial institution may
receive initial deposits of $100,000 or less, other than on
an incidental and occasional basis.
``(ii) Limitation on deposits of less than $100,000.--No
wholesale financial institution may receive initial deposits
of $100,000 or less if such deposits constitute more than 5
percent of the institution's total deposits.
``(B) No deposit insurance.--No deposits held by a
wholesale financial institution shall be insured deposits
under the Federal Deposit Insurance Act.
``(C) Advertising and disclosure.--The Board shall
prescribe regulations pertaining to advertising and
disclosure by wholesale financial institutions to ensure that
each depositor is notified that deposits at the wholesale
financial institution are not federally insured or otherwise
guaranteed by the United States Government.
``(2) Minimum capital levels applicable to wholesale
financial institutions.--The Board shall, by regulation,
adopt capital requirements for wholesale financial
institutions--
``(A) to account for the status of wholesale financial
institutions as institutions that accept deposits that are
not insured under the Federal Deposit Insurance Act; and
``(B) to provide for the safe and sound operation of the
wholesale financial institution without undue risk to
creditors or other persons, including Federal reserve banks,
engaged in transactions with the bank.
``(3) Additional requirements applicable to wholesale
financial institutions.--In addition to any requirement
otherwise applicable to State member insured banks or
applicable, under this section, to wholesale financial
institutions, the Board may impose, by regulation or order,
upon wholesale financial institutions--
``(A) limitations on transactions, direct or indirect, with
affiliates to prevent--
``(i) the transfer of risk to the deposit insurance funds;
or
``(ii) an affiliate from gaining access to, or the benefits
of, credit from a Federal reserve bank, including overdrafts
at a Federal reserve bank;
``(B) special clearing balance requirements; and
``(C) any additional requirements that the Board determines
to be appropriate or necessary to--
``(i) promote the safety and soundness of the wholesale
financial institution or any insured depository institution
affiliate of the wholesale financial institution;
``(ii) prevent the transfer of risk to the deposit
insurance funds; or
``(iii) protect creditors and other persons, including
Federal reserve banks, engaged in transactions with the
wholesale financial institution.
``(4) Exemptions for wholesale financial institutions.--The
Board may, by regulation or order, exempt any wholesale
financial institution from any provision applicable to a
member bank that is not a wholesale financial institution, if
the Board finds that such exemption is not inconsistent
with--
``(A) the promotion of the safety and soundness of the
wholesale financial institution or any insured depository
institution affiliate of the wholesale financial institution;
``(B) the protection of the deposit insurance funds; and
``(C) the protection of creditors and other persons,
including Federal reserve banks, engaged in transactions with
the wholesale financial institution.
``(5) Limitation on transactions between a wholesale
financial institution and an insured bank.--For purposes of
section 23A(d)(1) of the Federal Reserve Act, a wholesale
financial institution that is affiliated with an insured bank
shall not be a bank.
``(6) No effect on other provisions.--This section shall
not be construed as limiting the Board's authority over
member banks under any other provision of law, or to create
any obligation for any Federal reserve bank to make,
increase, renew, or extend any advance or discount under this
Act to any member bank or other depository institution.
``(d) Capital and Managerial Requirements.--
``(1) In general.--A wholesale financial institution shall
be well capitalized and well managed.
``(2) Notice to company.--The Board shall promptly provide
notice to a company that controls a wholesale financial
institution whenever such wholesale financial institution is
not well capitalized or well managed.
``(3) Agreement to restore institution.--Within 45 days of
receipt of a notice under paragraph (2) (or such additional
period not to exceed 90 days as the Board may permit), the
company shall execute an agreement acceptable to the Board to
restore the wholesale financial institution to compliance
with all of the requirements of paragraph (1).
``(4) Limitations until institution restored.--Until the
wholesale financial institution is restored to compliance
with all of the requirements of paragraph (1), the Board may
impose such limitations on the conduct or activities of the
company or any affiliate of the company as the Board
determines to be appropriate under the circumstances.
``(5) Failure to restore.--If the company does not execute
and implement an agreement in accordance with paragraph (3),
comply with any limitation imposed under paragraph (4),
restore the wholesale financial institution to well
capitalized status within 180 days after receipt by the
company of the notice described in paragraph (2), or restore
the wholesale financial institution to well managed status
within such period as the Board may permit, the company
shall, 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 Board's discretion, divest control of its
subsidiary depository institutions.
``(6) Well managed defined.--For purposes of this
subsection, the term `well managed' has the same meaning as
in section 2 of the Bank Holding Company Act of 1956.
``(e) Conservatorship Authority.--
``(1) In general.--The Board may appoint a conservator to
take possession and control of a wholesale financial
institution to the same extent and in the same manner as the
Comptroller of the Currency may appoint a conservator for a
national bank under section 203 of the Bank Conservation Act,
and the conservator shall exercise the same powers,
functions, and duties, subject to the same limitations, as
are provided under such Act for conservators of national
banks.
``(2) Board authority.--The Board shall have the same
authority with respect to any conservator appointed under
paragraph (1) and the wholesale financial institution for
which such conservator has been appointed as the Comptroller
of the Currency has under the Bank Conservation Act with
respect to a conservator appointed under such Act and a
national bank for which the conservator has been appointed.
``(f) Exclusive Jurisdiction.--Subsections (c) and (e) of
section 43 of the Federal Deposit Insurance Act shall not
apply to any wholesale financial institution.''.
(c) Voluntary Termination of Insured Status by Certain
Institutions.--
(1) Section 8 designations.--Section 8(a) of the Federal
Deposit Insurance Act (12 U.S.C. 1818(a)) is amended--
(A) by striking paragraph (1); and
(B) by redesignating paragraphs (2) through (10) as
paragraphs (1) through (9), respectively.
(2) Voluntary termination of insured status.--The Federal
Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amended by
inserting after section 8 the following new section:

``SEC. 8A. VOLUNTARY TERMINATION OF STATUS AS INSURED
DEPOSITORY INSTITUTION.

``(a) In General.--Except as provided in subsection (b), an
insured State bank or a national bank may voluntarily
terminate such bank's status as an insured depository
institution in accordance with regulations of the Corporation
if--
``(1) the bank provides written notice of the bank's intent
to terminate such insured status--
``(A) to the Corporation and the Board of Governors of the
Federal Reserve System not less than 6 months before the
effective date of such termination; and
``(B) to all depositors at such bank, not less than 6
months before the effective date of the termination of such
status; and
``(2) either--
``(A) the deposit insurance fund of which such bank is a
member equals or exceeds the fund's designated reserve ratio
as of the date the bank provides a written notice under
paragraph (1) and the Corporation determines that the fund
will equal or exceed the applicable designated reserve ratio
for the 2 semiannual assessment periods immediately following
such date; or
``(B) the Corporation and the Board of Governors of the
Federal Reserve System approved the termination of the bank's
insured status and the bank pays an exit fee in accordance
with subsection (e).
``(b) Exception.--Subsection (a) shall not apply with
respect to--
``(1) an insured savings association; or
``(2) an insured branch that is required to be insured
under subsection (a) or (b) of section 6 of the International
Banking Act of 1978.
``(c) Eligibility for Insurance Terminated.--Any bank that
voluntarily elects to terminate the bank's insured status
under subsection (a) shall not be eligible for insurance on
any deposits or any assistance authorized under this Act
after the period specified in subsection (f)(1).
``(d) Institution Must Become Wholesale Financial
Institution or Terminate Deposit-Taking Activities.--Any
depository institution which voluntarily terminates such
institution's status as an insured depository institution
under this section may not, upon termination of insurance,
accept any deposits unless the institution is a wholesale
financial institution subject to section 9B of the Federal
Reserve Act.
``(e) Exit Fees.--
``(1) In general.--Any bank that voluntarily terminates
such bank's status as an insured depository institution under
this section shall pay an exit fee in an amount that the
Corporation determines is sufficient to account for the
institution's pro rata share of the amount (if any) which
would be required to restore the relevant deposit insurance
fund to the fund's designated reserve ratio as of the date
the bank provides a written notice under subsection (a)(1).
``(2) Procedures.--The Corporation shall prescribe, by
regulation, procedures for assessing any exit fee under this
subsection.
``(f) Temporary Insurance of Deposits Insured as of
Termination.--
``(1) Transition period.--The insured deposits of each
depositor in a State bank or a

[[Page H3155]]

national bank on the effective date of the voluntary
termination of the bank's insured status, less all subsequent
withdrawals from any deposits of such depositor, shall
continue to be insured for a period of not less than 6 months
and not more than 2 years, as determined by the Corporation.
During such period, no additions to any such deposits, and no
new deposits in the depository institution made after the
effective date of such termination shall be insured by the
Corporation.
``(2) Temporary assessments; obligations and duties.--
During the period specified in paragraph (1) with respect to
any bank, the bank shall continue to pay assessments under
section 7 as if the bank were an insured depository
institution. The bank shall, in all other respects, be
subject to the authority of the Corporation and the duties
and obligations of an insured depository institution under
this Act during such period, and in the event that the bank
is closed due to an inability to meet the demands of the
bank's depositors during such period, the Corporation shall
have the same powers and rights with respect to such bank as
in the case of an insured depository institution.
``(g) Advertisements.--
``(1) In general.--A bank that voluntarily terminates the
bank's insured status under this section shall not advertise
or hold itself out as having insured deposits, except that
the bank may advertise the temporary insurance of deposits
under subsection (f) if, in connection with any such
advertisement, the advertisement also states with equal
prominence that additions to deposits and new deposits made
after the effective date of the termination are not insured.
``(2) Certificates of deposit, obligations, and
securities.--Any certificate of deposit or other obligation
or security issued by a State bank or a national bank after
the effective date of the voluntary termination of the bank's
insured status under this section shall be accompanied by a
conspicuous, prominently displayed notice that such
certificate of deposit or other obligation or security is not
insured under this Act.
``(h) Notice Requirements.--
``(1) Notice to the corporation.--The notice required under
subsection (a)(1)(A) shall be in such form as the Corporation
may require.
``(2) Notice to depositors.--The notice required under
subsection (a)(1)(B) shall be--
``(A) sent to each depositor's last address of record with
the bank; and
``(B) in such manner and form as the Corporation finds to
be necessary and appropriate for the protection of
depositors.''.
(3) Definition.--Section 19(b)(1)(A)(i) of the Federal
Reserve Act (12 U.S.C. 461(b)(1)(A)(i)) is amended by
inserting ``, or any wholesale financial institution subject
to section 9B of this Act'' after ``such Act''.

Subtitle E--Streamlining Antitrust Review of Bank Acquisitions and
Mergers

SEC. 141. AMENDMENTS TO THE BANK HOLDING COMPANY ACT OF 1956.

(a) Amendments to Section 3 To Require Filing of
Application Copies With Antitrust Agencies.--Section 3 of the
Bank Holding Company Act of 1956 (12 U.S.C. 1842) is
amended--
(1) in subsection (b) by inserting after paragraph (2) the
following new paragraph:
``(3) Requirement to file information with antitrust
agencies.--Any applicant seeking prior approval of the Board
to engage in an acquisition transaction under this section
must file simultaneously with the Attorney General and, if
the transaction also involves an acquisition under section 4
or 6, the Federal Trade Commission copies of any documents
regarding the proposed transaction required by the Board.'';
and
(2) in subsection (c)--
(A) by striking paragraph (1); and
(B) by redesignating paragraphs (2) through (5) as
paragraphs (1) through (4), respectively.
(b) Amendments to Section 11 To Modify Justice Department
Notification and Post-Approval Waiting Period for Section 3
Transactions.--Section 11 of the Bank Holding Company Act of
1956 (12 U.S.C. 1849) is amended--
(1) in subsection (b)(1)--
(A) by striking ``, if the Board has not received any
adverse comment from the Attorney General of the United
States relating to competitive factors,'';
(B) by striking ``as may be prescribed by the Board with
the concurrence of the Attorney General, but in no event less
than 15 calendar days after the date of approval.'' and
inserting ``as may be prescribed by the appropriate antitrust
agency.''; and
(C) by striking the 3d to last sentence and the penultimate
sentence; and
(2) by striking subsections (c) and (e) and redesignating
subsections (d) and (f) as subsections (c) and (d),
respectively.
(c) Definitions.--Section 2(o) of the Bank Holding Company
Act of 1956 (12 U.S.C. 1841(o)) is amended by adding at the
end the following new paragraphs:
``(8) Antitrust agencies.--The term `antitrust agencies'
means the Attorney General and the Federal Trade Commission.
``(9) Appropriate antitrust agency.--With respect to a
particular transaction, the term `appropriate antitrust
agency' means the antitrust agency engaged in reviewing the
competitive effects of such transaction.''.

SEC. 142. AMENDMENTS TO THE FEDERAL DEPOSIT INSURANCE ACT TO
VEST IN THE ATTORNEY GENERAL SOLE
RESPONSIBILITY FOR ANTITRUST REVIEW OF
DEPOSITORY INSTITUTION MERGERS.

Section 18(c) of the Federal Deposit Insurance Act (12
U.S.C. 1828) is amended--
(1) in paragraph (3)(C) by striking ``during a period at
least as long as the period allowed for furnishing reports
under paragraph (4) of this subsection'';
(2) by striking paragraph (4) and inserting the following
new paragraph:
``(4) Factors to be considered.--In determining whether to
approve a transaction, the responsible agency shall in every
case take into consideration the financial and managerial
resources and future prospects of the existing and proposed
institutions, and the convenience and needs of the community
to be served.'';
(3) by striking paragraph (5) and inserting the following
new paragraph:
``(5) Notice to attorney general.--The responsible agency
shall immediately notify the Attorney General of any approval
by it pursuant to this subsection of a proposed merger
transaction. If the responsible agency has found that it must
act immediately in order to prevent the probable failure of
one of the banks involved, the transaction may be consummated
immediately upon approval by the agency. If the responsible
agency has notified the other Federal banking agencies
referred to in this section of the existence of an emergency
requiring expeditious action and has required the submission
of views and recommendations within 10 days, the transaction
may not be consummated before the 5th calendar day after the
date of approval of the responsible agency. In all other
cases, the transaction may not be consummated before the 30th
calendar day after the date of approval by the agency, or
such shorter period of time as may be prescribed by the
Attorney General.'';
(4) by striking paragraph (6) and redesignating paragraphs
(7) through (11) as paragraphs (6) through (10),
respectively;
(5) in subparagraph (A) of paragraph (6) (as so
redesignated by paragraph (4) of this section)--
(A) by striking ``(5)'' and inserting ``(4)''; and
(B) by striking ``(6)'' and inserting ``(5)'';
(C) by striking ``In any such action, the court shall
review de novo the issues presented.'';
(6) in paragraph (6) (as so redesignated by paragraph (4)
of this section)--
(A) by striking subparagraphs (B) and (D); and
(B) by redesignating subparagraph (C) as subparagraph (B);
(7) in paragraph (8) (as so redesignated by paragraph (4)
of this section)--
(A) by inserting ``and'' after the semicolon at the end of
subparagraph (A):
(B) by striking subparagraph (B); and
(C) by redesignating subparagraph (C) as subparagraph (B);
and
(8) by inserting after paragraph (10) (as so redesignated
by paragraph (4) of this section) the following new
paragraph:
``(11) Requirement to file information with attorney
general.--Any applicant seeking prior written approval of the
responsible Federal banking agency to engage in a merger
transaction under this subsection shall file simultaneously
with the Attorney General copies of any documents regarding
the proposed transaction required by the Federal banking
agency.''.

SEC. 143. INFORMATION FILED BY DEPOSITORY INSTITUTIONS;
INTERAGENCY DATA SHARING.

(a) Format of Notice.--
(1) In general.--Notice of any proposed transaction for
which approval is required under section 3 of the Bank
Holding Company Act of 1956 or section 18(c) of the Federal
Deposit Insurance Act shall be in a format designated and
required by the appropriate Federal banking agency (as
defined in section 3 of the Federal Deposit Insurance Act)
and shall contain a section on the likely competitive effects
of the proposed transaction.
(2) Designation by agency.--The appropriate Federal banking
agency, with the concurrence of the antitrust agencies, shall
designate and require the form and content of the competitive
effects section.
(3) Notice of suspension.--Upon notification by the
appropriate antitrust agency that the competitive effects
section of an application is incomplete, the appropriate
Federal banking agency shall notify the applicant that the
agency will suspend processing of the application until the
appropriate antitrust agency notifies the agency that the
application is complete.
(4) Emergency action.--This provision shall not affect the
appropriate Federal banking agency's authority to act
immediately--
(A) to prevent the probable failure of 1 of the banks
involved; or
(B) to reduce or eliminate a post approval waiting period
in case of an emergency requiring expeditious action.
(5) Exemption for certain filings.--With the concurrence of
the antitrust agencies, the appropriate Federal banking
agency may exempt classes of persons, acquisitions, or
transactions that are not likely to violate the antitrust
laws from the requirement that applicants file a competitive
effects section.
(b) Interagency Data Sharing Requirement.--
(1) In general.--To the extent not prohibited by other law,
the Federal banking agencies shall make available to the
antitrust agencies any data in their possession that

[[Page H3156]]

the antitrust agencies deem necessary for antitrust reviews
of transactions requiring approval under section 3 of the
Bank Holding Company Act of 1956 or section 18(c) of the
Federal Deposit Insurance Act.
(2) Continuation of data collection and analysis.--The
Federal banking agencies shall continue to provide market
analysis, deposit share information, and other relevant
information for determining market competition as needed by
the Attorney General in the same manner such agencies
provided analysis and information under section 18(c) of the
Federal Deposit Insurance Act and 3(c) of the Bank Holding
Company Act of 1956 (as such sections were in effect on the
day before the date of the enactment of this Act) and shall
continue to collect information necessary or useful for such
analysis.
(c) Definitions.--For purposes of this section, the
following definitions shall apply:
(1) Antitrust agencies.--The term ``antitrust agencies''
means the Attorney General and the Federal Trade Commission.
(2) Appropriate antitrust agency.--With respect to a
particular transaction, the term ``appropriate antitrust
agency'' means the antitrust agency engaged in reviewing the
competitive effects of such transaction.

SEC. 144. APPLICABILITY OF ANTITRUST LAWS.

No provision of this subtitle shall be construed as
affecting--
(1) the applicability of antitrust laws (as defined in
section 11(d) of the Bank Holding Company Act of 1956; as so
redesignated pursuant to this subtitle); or
(2) the applicability, if any, of any State law which is
similar to the antitrust laws.

SEC. 145. CLARIFICATION OF STATUS OF SUBSIDIARIES AND
AFFILIATES.

SEC. 146. EFFECTIVE DATE.

This subtitle shall take effect 6 months after the date of
enactment of this Act.

Subtitle F--Applying the Principles of National Treatment and Equality
of Competitive Opportunity to Foreign Banks and Foreign Financial
Institutions

SEC. 151. APPLYING THE PRINCIPLES OF NATIONAL TREATMENT AND
EQUALITY OF COMPETITIVE OPPORTUNITY TO FOREIGN
BANKS THAT ARE FINANCIAL HOLDING COMPANIES.

Section 8(c) of the International Banking Act of 1978 (12
U.S.C. 3106(c)) is amended by adding at the end the following
new paragraph:
``(3) Termination of grandfathered rights.--
``(A) In general.--If any foreign bank or foreign company
files a declaration under section 6(b)(1)(E) or which
receives a determination under section 10(d)(1) of the Bank
Holding Company Act of 1956, any authority conferred by this
subsection on any foreign bank or company to engage in any
activity which the Board has determined to be permissible for
financial holding companies under section 6 of such Act shall
terminate immediately.
``(B) Restrictions and requirements authorized.--If a
foreign bank or company that engages, directly or through an
affiliate pursuant to paragraph (1), in an activity which the
Board has determined to be permissible for financial holding
companies under section 6 of the Bank Holding Company Act of
1956 has not filed a declaration with the Board of its status
as a financial holding company under such section or received
a determination under section 10(d)(1) by the end of the 2-
year period beginning on the date of enactment of the
Financial Services Act of 1998, the Board, giving due regard
to the principle of national treatment and equality of
competitive opportunity, may impose such restrictions and
requirements on the conduct of such activities by such
foreign bank or company as are comparable to those imposed on
a financial holding company organized under the laws of the
United States, including a requirement to conduct such
activities in compliance with any prudential safeguards
established under section 5(h) of the Bank Holding Company
Act of 1956.''.

SEC. 152. APPLYING THE PRINCIPLES OF NATIONAL TREATMENT AND
EQUALITY OF COMPETITIVE OPPORTUNITY TO FOREIGN
BANKS AND FOREIGN FINANCIAL INSTITUTIONS THAT
ARE WHOLESALE FINANCIAL INSTITUTIONS.

Section 8A of the Federal Deposit Insurance Act (as added
by section 136(c)(2) of this Act) is amended by adding at the
end the following new subsection:
``(i) Voluntary Termination of Deposit Insurance.--The
provisions on voluntary termination of insurance in this
section shall apply to an insured branch of a foreign bank
(including a Federal branch) in the same manner and to the
same extent as they apply to an insured State bank or a
national bank.''.

Subtitle G--Federal Home Loan Bank System

SEC. 161. FEDERAL HOME LOAN BANKS-

The 1st sentence of section 3 of the Federal Home Loan Bank
Act (12 U.S.C. 1423) is amended--
(1) by striking ``the continental United States'' and all
that follows through the ``eight''; and
(2) by inserting ``the States into not less than 1'' before
``nor''.

SEC. 162. MEMBERSHIP AND COLLATERAL.

(a) Subsection (f) of section 5 of the Home Owners' Loan
Act (12 U.S.C. 1464) is amended to read as follows:
``(f) Federal Home Loan Bank Membership.--A Federal savings
association may become a member, of the Federal Home Loan
Bank System, and shall qualify for such membership in the
manner provided by the Federal Home Loan Bank Act, beginning
January 1, 1999.''.
(b) Section 10(a)(5) of the Federal Home Loan Bank Act (12
U.S.C. 1430(a)(5)) is amended--
(1) in the 2d sentence, by striking ``and the Board''; and
(2) in the 3d sentence, by striking ``Board'' and inserting
``Bank''.
(c) Section 10(a) of the Federal Home Loan Bank Act (12
U.S.C. 1430(a)) is amended--
(1) in the 2d sentence, by striking ``All long-term
advances'' and inserting ``Except as provided in the
succeeding sentence, all long-term advances'';
(2) by inserting after the 2d sentence, the following
sentence: ``Notwithstanding the preceding sentence, long-term
advances may be made to members insured by the Federal
Deposit Insurance Corporation which have less than
$500,000,000 in total assets for the purpose of funding small
businesses, agriculture, rural development, or low-income
community development (as defined by the Board).''; and
(3) by redesignating paragraph (5) as paragraph (6) and
inserting after paragraph (4) the following new paragraph:
``(5) In the case of any member insured by the Federal
Deposit Insurance Corporation which has total assets of less
than $500,000,000, secured loans for small business,
agriculture, rural development, or low-income community
development, or securities representing a whole interest in
such secured loans.''.
(d) Section 4(a) of the Federal Home Loan Bank Act (12
U.S.C. 1424(a)) is amended by adding at the end the following
new paragraph:
``(3) Eligibility requirements for community financial
institutions.--The requirements of paragraph (2) (other than
subparagraph (B) of such paragraph) shall not apply to any
insured depository institution which has total assets of less
than $500,000,000.
(e) Section 10 of the Federal Home Loan Bank Act (12 U.S.C.
1430) is amended by striking the 1st of the 2 subsections
designated as subsection (e) (relating to qualified thrift
lender status).

SEC. 163. THE OFFICE OF FINANCE.

The Federal Home Loan Bank Act (12 U.S.C. 1421) is amended
by inserting after section 4 the following new section:

``SEC. 5. THE OFFICE OF FINANCE.

``(a) Operation.--The Federal home loan banks shall operate
jointly an office of finance (hereafter in this section
referred to as the `Office') to issue the notes, bonds, and
debentures of the Federal home loan banks in accordance with
this Act.
``(b) Powers.--Subject to the other provisions of this Act
and such safety and soundness regulations as the Finance
Board may prescribe, the Office shall be authorized by the
Federal home loan banks to act as the agent of such banks to
issue Federal home loan bank notes, bonds and debentures
pursuant to section 11 of this Act on behalf of the banks.
``(c) Central Board of Directors.--
``(1) Establishment.--The Federal home loan banks shall
establish a central board of directors of the Office to
administer the affairs of the Office in accordance with the
provisions of this Act.
``(2) Composition of Board.--Each Federal home loan bank
shall annually select 1 individual who, as of the time of the
election, is an officer or director of such bank to serve as
a member of the central board of directors of the Office.
``(d) Status.--Except to the extent expressly provided in
this Act, the Office shall be treated as a Federal home loan
bank for purposes of any law.''.

SEC. 164. MANAGEMENT OF BANKS.

(a) Subsections (a) and (b) of section 7 of the Federal
Home Loan Bank Act (12 U.S.C. 1427(a) and (b)) are amended to
read as follows:
``(a) The management of each Federal home loan bank shall
be vested in a board of 15 directors, 9 of whom shall be
elected by the members in accordance with this section, 6 of
whom shall be appointed by the Board referred to in section
2A, and all of whom shall be citizens of the United States
and bona fide residents of the district in which such bank is
located. At least 2 of the Federal home loan bank directors
who are appointed by the Board shall be representatives
chosen from organizations with more than a 2-year history of
representing consumer or community interests on banking
services, credit needs, housing, or financial consumer

[[Page H3157]]

protections. No Federal home loan bank director who is
appointed pursuant to this subsection may, during such bank
director's term of office, serve as an officer of any Federal
home loan bank or a director or officer of any member of a
bank, or hold shares, or any other financial interest in, any
member of a bank.
``(b) The elective directors shall be divided into three
classes, designated as classes A, B, and C, as nearly equal
in number as possible. Each directorship shall be filled by a
person who is an officer or director of a member located in
that bank's district. Each class shall represent members of
similar asset size, and the Board shall, to the maximum
extent possible, seek to achieve geographic diversity. The
Finance Board shall establish the minimum and maximum asset
size for each class. Any member shall be entitled to nominate
and elect eligible persons for its class of directorship;
such offices shall be filled from such nominees by a
plurality of the votes which members of each class may cast
for nominees in their corresponding class of directors in an
election held for the purpose of filling such offices. Each
member shall be permitted to cast one vote for each share of
Federal home loan bank stock owned by that member. No person
who is an officer or director of a member that fails to meet
any applicable capital requirement is eligible to hold the
office of Federal Home Loan Bank director. As used in this
subsection, the term ``member'' means a member of a Federal
home loan bank which was a member of such Bank as of a record
date established by the Bank.''.
(b) Section 7 of the Federal Home Loan Bank Act (12 U.S.C.
1427) is amended--
(1) by striking subsections (c) and (h); and
(2) by redesignating subsections (d), (e), (f), (g), (i),
(j), and (k) as subsections (c), (d), (e), (f), (g), (h), and
(i), respectively.
(c) Subsection (c) of section 7 of the Federal Home Loan
Bank Act (12 U.S.C. 1427(d)) (as so redesignated by
subsection (b) of this section) is amended by striking the
1st and 2d sentences and inserting the following 2 new
sentences: ``The term of each position of director shall be 3
years. No director serving for 3 consecutive terms, nor any
other officer, director or that member or any affiliated
depository institution, shall be eligible for another term
earlier than 3 years after the expiration of the last
expiring of said 3-year terms. 3 elected directors of
different classes as specified by the Finance Board shall be
elected by ballot annually.''.
(d) Subsection (d) of section 7 of the Federal Home Loan
Bank Act (12 U.S.C. 1427(e)) (as so redesignated by
subsection (b) of this section) is amended to read as
follows:
``(d) Transition Provision.--In the 1st election after the
date of the enactment of the Financial Services Act of 1998,
3 directors shall be elected in each of the 3 classes of
elective directorship. The Finance Board may, in the 1st
election after such date of enactment, designate the terms of
each elected director in each class, not to exceed 3 years,
to assure that, in each subsequent election, 3 directors from
different classes of elective directorships are elected each
year.''.
(e) Subsection (g) of section 7 of the Federal Home Loan
Bank Act (12 U.S.C. 1427(i)) (as so redesignated by
subsection (b) of this section) is amended by striking
``subject to the approval of the board''.

SEC. 165. ADVANCES TO NONMEMBER BORROWERS.

Section 10b of the Federal Home Loan Bank Act (12 U.S.C.
1430b) is amended--
(1) in subsection (a), by striking ``(a) In General.--'';
(2) by striking the 4th sentence of subsection (a), and
inserting ``Notwithstanding the preceding sentence, if an
advance is made for the purpose of facilitating mortgage
lending that benefits individuals and families that meet the
income requirements set forth in section 142(d) or 143(f) of
the Internal Revenue Code of 1986, the advance may be
collateralized as provided in section 10(a) of this Act.'';
and
(3) by striking subsection (b).

SEC. 166. POWERS AND DUTIES OF BANKS.

(a) Subsection (a) of section 11 of the Federal Home Loan
Bank Act (12 U.S.C. 1431(a)) is amended--
(1) by inserting ``through the Office of Finance'' after
``to issue'';
(2) by striking ``Board'' after ``upon such terms and
conditions as the'' and inserting ``board of directors of the
bank''.
(b) Subsection (b) of section 11 of the Federal Home Loan
Bank Act (12 U.S.C. 1431(b)) is amended to read as follows:
``(b) Issuance of Federal Home Loan Bank Consolidated
Bonds.--
``(1) In general.-- The Office of Finance may issue
consolidated Federal home loan bank bonds and other
consolidated obligations on behalf of the banks.
``(2) Joint and several obligation; terms and conditions.--
Consolidated obligations issued by the Office of Finance
under paragraph (1) shall--
``(A) be the joint and several obligations of all the
Federal home loan banks; and
``(B) shall be issued upon such terms and conditions as
shall be established by the Office of Finance subject to such
rules and regulations as the Finance Board may prescribe.''.
(c) Section 11(f) of the Federal Home Loan Bank Act (12
U.S.C. 1430(f) (as designated before the redesignation by
subsection (e) of this section) is amended by striking both
commas immediately following ``permit'' and inserting ``or''.
(d) Subsection (i) of section 11 of the Federal Home Loan
Bank Act (12 U.S.C. 1431(i)) is amended by striking the 2d
undesignated paragraph.
(e) Section 11 of the Federal Home Loan Bank Act (12 U.S.C.
1431) is amended--
(1) by striking subsection (c); and
(2) by redesignating subsections (d) through (k) as
subsections (c) through (j), respectively.

SEC. 167. MERGERS AND CONSOLIDATIONS OF FEDERAL HOME LOAN
BANKS.

Section 26 of the Federal Home Loan Bank Act (12 U.S.C.
1446) is amended by designating the current paragraph as
``(a)'' and adding the following new sections:
``(b) Nothing in this section shall preclude voluntary
mergers, combinations or consolidation by or among the
Federal home loan banks pursuant to such regulations as the
Finance Board may prescribe.
``(c) Number of Elected Directors of Resulting Bank.--
Subject to section 7 of this Act, any bank resulting from a
merger, combination, or consolidation pursuant to this
section may have a number of elected directors equal to or
less than the total number of elected directors of all the
banks which participated in such transaction (as determined
immediately before such transaction).
``(d) Number of Appointed Directors of Resulting Bank.--The
number of appointed directors of any bank resulting from a
merger, combination, or consolidation pursuant to this
section shall be a number that is three less than the number
of elected directors.
``(e) Adjustment of District Boundaries.--After
consummation of any merger, combination, or consolidation of
2 or more Federal home loan banks, the Finance Board shall
adjust the districts established in section 3 of this Act to
reflect such merger, combination, or consolidation.''.

SEC. 168. TECHNICAL AMENDMENTS.

(a) Repeal of Sections 22A and 27.--The Federal Home Loan
Bank Act (12 U.S.C. 1421 et seq.) is amended by striking
sections 22A (12 U.S.C. 1442a) and 27 (12 U.S.C. 1447).
(b) Section 12.--
(1) Section 12(a) of the Federal Home Loan Bank Act (12
U.S.C. 1432(a)) is amended--
(A) by striking ``subject to the approval of the Board''
immediately following ``transaction of its business''; and
(B) by striking ``and, by its Board of directors, to
prescribe, amend, and repeal by-laws, rules, and regulations
governing the manner in which its affairs may be
administered; and the powers granted to it by law may be
exercised and enjoyed subject to the approval of the Board.
The president of a Federal Home Loan Bank may also be a
member of the Board of directors thereof, but no other
officer, employee, attorney, or agent of such bank,'' and
inserting ``and, by the board of directors of the bank, to
prescribe, amend, and repeal by-laws governing the manner in
which its affairs may be administered, consistent with
applicable statute and regulation, as administered by the
Finance Board. No officer, employee, attorney, or agent of a
Federal home loan bank''.
(2) Section 12 of the Federal Home Loan Bank Act (12 U.S.C.
1432) is amended by inserting after subsection (b) the
following new subsection:
``(c) Prohibition on Excessive Compensation.--
``(1) In general.--The Finance Board shall prohibit the
Federal home loan banks from providing compensation to any
officer, director, or employee that is not reasonable and
comparable with the compensation for employment in other
similar businesses involving similar duties and
responsibilities. However, the Finance Board may not
prescribe or set a specific level or range of compensation
for any officer, director, or employee.
``(2) Regulations.--The Finance Board, by regulation, may
provide for the requirements of paragraph (1) to be phased-in
over a period not to exceed 3 years.
``(3) Exception for existing contracts.--Paragraph (1)
shall not apply to any contract entered into before June 1,
1997.''.
(c) Powers and Duties of Federal Housing Finance Board.--
(1) Subsection (a)(1) of section 2B of the Federal Home
Loan Bank Act (12 U.S.C. 1422b(a)(1)) is amended by striking
the period at the end of the sentence and inserting ``; and
to have the same powers, rights, and duties to enforce this
Act with respect to the Federal home loan banks and the
senior officers and directors of such banks as the Office of
Federal Housing Enterprise Oversight has over the Federal
housing enterprises and the senior officers and directors of
such enterprises under the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992.''.
(2) Subsection (b) of section 2B of the Federal Home Loan
Bank Act (12 U.S.C. 1422b(b)) is amended--
(A) by striking ``(1) Board staff.--'';
(B) by striking ``function to any employee, administrative
unit'' and inserting ``function to any employee or
administrative unit'';
(C) by striking the 2d sentence in paragraph (1); and
(D) by striking paragraph (2).
(3) Section 111 of Public Law 93-495 (12 U.S.C. 250) is
amended by striking ``Federal Home Loan Bank Board'' and
inserting ``Federal Housing Finance Board''.
(d) Eligibility to Secure Advances.--
(1) Section 9.--Section 9 of the Federal Home Loan Bank Act
(12 U.S.C. 1429) is amended--
(A) in the second sentence, by striking ``with the approval
of the Board''; and

[[Page H3158]]

(B) in the third sentence, by striking ``, subject to the
approval of the Board,''.
(2) Section 10.--
(A) Subsection (a) of section 10 of the Federal Home Loan
Bank Act (12 U.S.C. 1430(a)) is amended in paragraph (3), by
striking ``Deposits'' and inserting ``Cash or deposits''.
(B) Subsection (c) of section 10 of the Federal Home Loan
Bank Act (12 U.S.C. 1430(c)) is amended--
(i) in the 1st sentence by striking ``Board'' and inserting
``Federal home loan bank''; and
(ii) by striking the 2d sentence.
(C) Subsection (d) of section 10 of the Federal Home Loan
Bank Act (12 U.S.C. 1430(d)) is amended--
(i) in the 1st sentence, by striking ``and the approval of
the Board'';
(ii) in the last sentence, by striking ``Subject to the
approval of the Board, any'' and inserting ``Any''.
(D) Section 10(j) of the Federal Home Loan Bank Act (12
U.S.C. 1430(j)) is amended--
(i) in the 1st sentence of paragraph (1) by striking ``to
subsidize the interest rate on advances'' and inserting ``to
provide subsidies, including subsidized interest rates on
advances'';
(ii) in paragraphs (2), (3), (4), (5), (9), (11), and (12)
by striking ``advances'' and ``subsidized advances'' each
place such terms appear and inserting ``subsidies, including
subsidized advances'';
(iii) in paragraph (1), by inserting ``(A)'' before the 1st
sentence, and inserting the following at the end of the
paragraph:
``(B) Subject to such regulations as the Finance Board may
prescribe, the board of directors of each Federal home loan
bank may approve or disapprove requests from members for
Affordable Housing Program subsidies, and may not delegate
such authority.'';
(iv) in paragraph (2), by striking subparagraph (B) and
inserting the following new subparagraph:
``(B) finance the purchase, construction or rehabilitation
of rental housing if, for a period of at least 15 years,
either 20 percent or more of the units in such housing are
occupied by and affordable for households whose income is 50
percent or less of area median income (as determined by the
Secretary of Housing and Urban Development, and as adjusted
for family size); or 40 percent or more of the units in such
housing are occupied by and affordable for households whose
income is 60 percent or less of area median income (as
determined by the Secretary of Housing and Urban Development,
and as adjusted for family size).'';
(v) in paragraph (5)--

(I) by striking the colon after ``Affordable Housing
Program'';
(II) by striking subparagraphs (A) and (B); and
(III) by striking ``(C) In 1995, and subsequent years,'';

(vi) in paragraph (11)--

(I) by inserting ``, pursuant to a nomination process that
is as broad and as participatory as possible, and giving
consideration to the size of the District and the diversity
of low- and moderate-income housing needs and activities
within the District,'' after ``Advisory Council of 7 to 15
persons'';
(II) by inserting ``a diverse range of'' before ``community
and nonprofit organizations''; and
(III) by inserting after the 1st sentence, the following
new sentence: ``Representatives of no one group shall
constitute an undue proportion of the membership of the
Advisory Council.''; and

(vii) in paragraph (13), by striking subparagraph (D) and
inserting the following new subparagraph:
``(D) Affordable.--For purposes of paragraph (2)(B), the
term ``affordable'' means that the rent with respect to a
unit shall not exceed 30 percent of the income limitation
under paragraph (2)(B) applicable to occupants of such
unit.''.
(e) Section 16.--Subsection (a) of section 16 of the
Federal Home Loan Bank Act (12 U.S.C. 1436) is amended in the
3d sentence by striking ``net earnings'' and inserting
``previously retained earnings or current net earnings''; by
striking ``, and then only with the approval of the Federal
Housing Finance Board''; and by striking the 4th sentence.
(f) Section 18.--Subsection (b) of section 18 of the
Federal Home Loan Bank Act (12 U.S.C. 1438) is amended by
striking paragraph (4).
(g) Section 11.--Section 11 of the Federal Home Loan Bank
Act (12 U.S.C. 1431) is amended by inserting after subsection
(j) (as so redesignated by section 166(e) of this subtitle)
the following subsection:
``(k) Prohibition on Other Activities.--
``(1) A Federal home loan bank may not engage in any
activity other than the activities authorized under this Act
and activities incidental to such authorized activities.
``(2) All activities specified in paragraph (1) are subject
to Finance Board approval.''.

SEC. 169. DEFINITIONS.

Paragraph (3) of section 2 of the Federal Home Loan Bank
Act (12 U.S.C. 1422(3)) is amended to read as follows:
``(3) The term ``State'' in addition to the states of the
United States, includes the District of Columbia, Guam,
Puerto Rico, the United States Virgin Islands, American
Samoa, and the Commonwealth of the Northern Mariana
Islands.''

SEC. 170. RESOLUTION FUNDING CORPORATION

(a) In General.--Section 21B(f)(2)(C) of the Federal Home
Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is amended to read
as follows:
``(C) Payments by federal home loan banks.--To the extent
the amounts available pursuant to subparagraphs (A) and (B)
are insufficient to cover the amount of interest payments,
each Federal home loan bank shall pay to the Funding
Corporation each calendar year 20.75 percent of the net
earnings of such bank (after deducting expenses relating to
subsection (j) of section 10 and operating expenses).''.
(b) Effective Date.--The amendment made by subsection (a)
shall take effect on January 1, 1999.

SEC. 171. CAPITAL STRUCTURE OF THE FEDERAL HOME LOAN BANKS.

(a) In General.--Section 6 of the Federal Home Loan Bank
Act (12 U.S.C. 1426) is amended to read as follows:

``SEC. 6. CAPITAL STRUCTURE OF FEDERAL HOME LOAN BANKS.

``(a) Capital Structure Plan.--On or before January 1,
1999, the board of directors of each Federal home loan bank
shall submit for Finance Board approval a plan establishing
and implementing a capital structure for such bank which--
``(1) the board of directors determines is the best suited
for the condition and operation of the bank and the interests
of the shareholders of the bank;
``(2) meets the requirements of subsection (b); and
``(3) meets the minimum capital standards and requirements
established under subsection (c) and any regulations
prescribed by the Finance Board pursuant to such subsection.
``(b) Contents of Plan.--The capital structure plan of each
Federal home loan bank shall meet the following requirements:
``(1) Stock purchase requirements.--
``(A) In general.--Each capital structure plan of a Federal
home loan bank shall require the shareholders of the bank to
maintain an investment in the stock of the bank in amount not
less than--
``(i) a minimum percentage of the total assets of the
shareholder; and
``(ii) a minimum percentage of the outstanding advances
from the bank to the shareholder.
``(B) Minimum percentage levels.--The minimum percentages
established pursuant to subparagraph (A) shall be set at
levels sufficient to meet the bank's minimum capital
requirements established by the Finance Board under
subsection (c).
``(C) Maximum asset based capital requirement.--The asset-
based capital requirement applicable to any shareholder of a
Federal home loan bank in any year shall not exceed the
lesser of--
``(i) 0.6 percent of a shareholder's total assets at the
close of the preceding year; or
``(ii) $300,000,000.
``(D) Maximum advance-based requirement.--The advance-based
capital requirement applicable to any shareholder of a
Federal home loan bank shall not exceed 6 percent of the
total outstanding advances from the bank to the shareholder.
``(E) Minimum stock purchase requirement authorized.--A
capital structure plan may establish a minimum dollar amount
of stock of a Federal home loan bank in which a shareholder
shall be required to invest.
``(2) Adjustments to stock purchase requirements.--The
capital structure plan adopted by each Federal home loan bank
shall impose a continuing obligation on the board of
directors of the bank to review and adjust as necessary
member stock purchase requirements in order to ensure that
the bank remains in compliance with applicable minimum
capital levels established by the Finance Board.
``(3) Transition rule for stock purchase requirements.--
``(A) In general.--A capital structure plan may allow
shareholders who were members of a Federal home loan bank on
the date of the enactment of the Financial Services Act of
1998 to come into compliance with the asset-based stock
purchase requirement established under paragraph (1) during a
transition period established under the plan of not more than
3 years, if such requirement exceeds the asset-based stock
purchase requirement in effect on such date of enactment.
``(B) Interim purchase requirements.--A capital structure
plan may establish interim asset-based stock purchase
requirements applicable to members referred to in
subparagraph (A) during a transition period established under
subparagraph (A).
``(4) Classes of stock.--
``(A) In general.--Each capital structure plan shall afford
each shareholder of a Federal home loan bank the option of
meeting the shareholder's stock purchase requirements through
the purchase of any combination of Class A or Class B stock.
``(B) Class a stock.--Class A stock shall be stock of a
Federal home loan bank that shall be redeemed in cash and at
par by the bank no later than 12 months following submission
of a written notice by a shareholder of the shareholder's
intention to divest all shares of stock in the bank.
``(C) Class b stock.--Class B stock shall be stock of a
Federal home loan bank that shall be redeemed in cash and at
par by the bank no later than 5 years following submission of
a written notice by a shareholder of the shareholder's
intention to divest all shares of stock in the bank.
``(D) Rights requirement.--The Class B stock of a Federal
home loan bank may receive a dividend premium over that paid
on Class A stock, and may have preferential

[[Page H3159]]

voting rights in the election of Federal home loan bank
directors.
``(E) Lower stock purchase requirements for class b
stock.--A capital structure plan may provide for lower stock
purchase requirements with respect to those shareholder's
that elect to purchase Class B stock in a manner that is
consistent with meeting the bank's own minimum capital
requirements as established by the Finance Board.
``(F) No other classes of stock permitted.--No class of
stock other than the Class A and Class B stock described in
subparagraphs (B) and (C) may be issued by a Federal home
loan bank.
``(5) Limited transferability of stock.--Each capital
structure plan shall provide that any equity securities
issued by the bank shall be available only to, held only by,
and tradable only among shareholders of the bank.
``(c) Capital Standards.--
``(1) In general.--The Finance Board shall prescribe, by
regulation, uniform capital standards applicable to each
Federal home loan bank which shall include--
``(A) a leverage limit in accordance with paragraph (2);
and
``(B) a risk-based capital requirement in accordance with
paragraph (3).
``(2) Minimum leverage limit.--The leverage limit
established by the Finance Board shall require each Federal
home loan bank to maintain total capital in an amount not
less than 5 percent of the total assets of the bank. In
determining compliance with the minimum leverage ratio, the
amount of retained earnings and the paid-in value of Class B
stock, if any, shall be multiplied by 1.5 and such higher
amount shall be deemed to be capital for purposes of meeting
the 5 percent minimum leverage ratio.
``(3) Risk-based capital standard.--The risk-based capital
requirement shall be composed of the following components:
``(A) Capital sufficient to meet the credit risk to which a
Federal home loan bank is subject, based on an amount which
is not less than the amount of tier 1, risk-based capital
required by regulations prescribed, or guidelines issued
under section 38 of the Federal Deposit Insurance Act for a
well capitalized insured depository institution.
``(B) Capital sufficient to meet the interest rate risk to
which a Federal home loan bank is subject, based on an
interest rate stress test applied by the Finance Board that
rigorously tests for changes in interest rates, rate
volatility, and changes in the shape of the yield curve.
``(d) Redemption of Capital.--
``(1) In general.--Any shareholder of a Federal home loan
bank shall have the right to withdraw the shareholder's
membership from a Federal home loan bank and to redeem the
shareholder's stock in accordance with the redemption rights
associated with the class of stock the shareholder holds,
if--
``(A) such shareholder has filed a written notice of an
intention to redeem all such shares; and
``(B) the shareholder has no outstanding advances from any
Federal home loan bank at the time of such redemption.
``(2) Partial redemption.--A shareholder who files notice
of intention to redeem all shares of stock in a Federal home
loan bank may redeem not more than 1/2 of all such shares, in
cash and at par, 6 months before the date by which the bank
is required to redeem such stock pursuant to subparagraph (B)
or (C) of subsection (b)(4).
``(3) Divestiture.--The board of directors of any Federal
home loan bank may, after a hearing, order the divestiture by
any shareholder of all ownership interests of such
shareholder in the bank, if--
``(A) in the opinion of the board of directors, such
shareholder has failed to comply with a provision of this Act
or any regulation prescribed under this Act; or
``(B) the shareholder has been determined to be insolvent,
or otherwise subject to the appointment of a conservator,
receiver, or other legal custodian, by a State or Federal
authority with regulatory and supervisory responsibility for
such shareholder.
``(4) Retirement of excess stock.--Any shareholder may--
``(A) retire shares of Class A stock or, at the option of
the shareholder, shares of Class B stock, or any combination
of Class A and Class B stock, that are excess to the minimum
stock purchase requirements applicable to the shareholder;
and
``(B) receive from the Federal home loan bank a prompt
payment in cash equal to the par value of such stock.
``(5) Impairment of capital.--If the Finance Board or the
board of directors of a Federal home loan bank determines
that the paid-in capital of the bank is, or is likely to be,
impaired as a result of losses in or depreciation of the
assets of the bank, the Federal home loan bank shall withhold
that portion of the amount due any shareholder with respect
to any redemption or retirement of any class of stock which
bears the same ratio to the total of such amount as the
amount of the impaired capital bears to the total amount of
capital allocable to such class of stock.
``(6) Policies.--Subject to the requirements of this
section, the board of directors of each Federal home loan
bank shall promptly establish policies, consistent with this
Act, governing the capital stock of such bank and other
provisions of this section.''.

SEC. 172. INVESTMENTS.

Subsection (j) of section 11 of the Federal Home Loan Bank
Act (12 U.S.C. 1431) (as so redesignated by section 166(e) of
this subtitle) is amended to read as follows:
``(j) Investments.--Each bank shall reduce its investments
to those necessary for liquidity purposes, for safe and sound
operation of the banks, or for housing finance, as
administered by the Finance Board.''.

SEC. 173. FEDERAL HOUSING FINANCE BOARD.

Section 2A(b)(1) of the Federal Home Loan Bank Act (12
U.S.C. 1422(b)(1)) is amended--
(1) by redesignating subparagraphs (A) and (B) as
subparagraphs (B) and (C), respectively;
(2) by inserting before subparagraph (B) (as so
redesignated by paragraph (1) of this section) the following
new subparagraph:
``(A) The Secretary of the Treasury (or the Secretary of
the Treasury's designee), who shall serve without additional
compensation.''; and
(3) in subparagraph (C) (as so redesignated by paragraph
(1) of this section) by striking ``Four'' and inserting
``3''.

Subtitle H--Direct Activities of Banks

SEC. 181. AUTHORITY OF NATIONAL BANKS TO UNDERWRITE CERTAIN
MUNICIPAL BONDS

The paragraph designated the Seventh of section 5136 of the
Revised Statutes of the United States (12 U.S.C. 24(7)) is
amended by adding at the end the following new sentence: ``In
addition to the provisions in this paragraph for dealing in,
underwriting or purchasing securities, the limitations and
restrictions contained in this paragraph as to dealing in,
underwriting, and purchasing investment securities for the
national bank's own account shall not apply to obligations
(including limited obligation bonds, revenue bonds, and
obligations that satisfy the requirements of section
142(b)(1) of the Internal Revenue Code of 1986) issued by or
on behalf of any state or political subdivision of a state,
including any municipal corporate instrumentality of 1 or
more states, or any public agency or authority of any state
or political subdivision of a state, if the national banking
association is well capitalized (as defined in section 38 of
the Federal Deposit Insurance Act).''.

Subtitle I--Effective Date of Title

SEC. 191. EFFECTIVE DATE.

Except with regard to any subtitle or other provision of
this title for which a specific effective date is provided,
this title and the amendments made by this title shall take
effect at the end of the 270-day period beginning on the date
of the enactment of this Act.

TITLE II--FUNCTIONAL REGULATION

Subtitle A--Brokers and Dealers

SEC. 201. DEFINITION OF BROKER.

Section 3(a)(4) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(4)) is amended to read as follows:
``(4) Broker.--
``(A) In general.--The term `broker' means any person
engaged in the business of effecting transactions in
securities for the account of others.
``(B) Exception for certain bank activities.--A bank shall
not be considered to be a broker because the bank engages in
any of the following activities under the conditions
described:
``(i) Third party brokerage arrangements.--The bank enters
into a contractual or other arrangement with a broker or
dealer registered under this title under which the broker or
dealer offers brokerage services on or off the premises of
the bank if--

``(I) such broker or dealer is clearly identified as the
person performing the brokerage services;
``(II) the broker or dealer performs brokerage services in
an area that is clearly marked and, to the extent
practicable, physically separate from the routine deposit-
taking activities of the bank;
``(III) any materials used by the bank to advertise or
promote generally the availability of brokerage services
under the contractual or other arrangement clearly indicate
that the brokerage services are being provided by the broker
or dealer and not by the bank;
``(IV) any materials used by the bank to advertise or
promote generally the availability of brokerage services
under the contractual or other arrangement are in compliance
with the Federal securities laws before distribution;
``(V) bank employees (other than associated persons of a
broker or dealer who are qualified pursuant to the rules of a
self-regulatory organization) perform only clerical or
ministerial functions in connection with brokerage
transactions including scheduling appointments with the
associated persons of a broker or dealer, except that bank
employees may forward customer funds or securities and may
describe in general terms the range of investment vehicles
available from the bank and the broker or dealer under the
contractual or other arrangement;
``(VI) bank employees do not directly receive incentive
compensation for any brokerage transaction unless such
employees are associated persons of a broker or dealer and
are qualified pursuant to the rules of a self-regulatory
organization, except that the bank employees may receive
compensation for the referral of any customer if the
compensation is a nominal one-time cash fee of a fixed dollar
amount and the payment of the fee is not contingent on
whether the referral results in a transaction;

[[Page H3160]]

``(VII) such services are provided by the broker or dealer
on a basis in which all customers which receive any services
are fully disclosed to the broker or dealer;
``(VIII) the bank does not carry a securities account of
the customer except in a customary custodian or trustee
capacity; and
``(IX) the bank, broker, or dealer informs each customer
that the brokerage services are provided by the broker or
dealer and not by the bank and that the securities are not
deposits or other obligations of the bank, are not guaranteed
by the bank, and are not insured by the Federal Deposit
Insurance Corporation.

``(ii) Trust activities.--The bank--

``(I) effects transactions in a trustee capacity and is
primarily compensated based on an annual fee (payable on a
monthly, quarterly, or other basis) or percentage of assets
under management, or both; or
``(II) effects transactions in a fiduciary capacity in its
trust department or other department that is regularly
examined by bank examiners for compliance with fiduciary
principles and standards and--

``(aa) is primarily compensated on the basis of either an
annual fee (payable on a monthly, quarterly, or other basis),
a percentage of assets under management, or both, and does
not receive brokerage commissions or other similar
remuneration based on effecting transactions in securities,
other than the cost incurred by the bank in connection with
executing securities transactions for fiduciary customers;
and
``(bb) does not publicly solicit brokerage business, other
than by advertising that it effects transactions in
securities in conjunction with advertising its other trust
activities.
``(iii) Permissible securities transactions.--The bank
effects transactions in--

``(I) commercial paper, bankers acceptances, or commercial
bills;
``(II) exempted securities;
``(III) qualified Canadian government obligations as
defined in section 5136 of the Revised Statutes, in
conformity with section 15C of this title and the rules and
regulations thereunder, or obligations of the North American
Development Bank; or
``(IV) any standardized, credit enhanced debt security
issued by a foreign government pursuant to the March 1989
plan of then Secretary of the Treasury Brady, used by such
foreign government to retire outstanding commercial bank
loans.

``(iv) Certain stock purchase plans.--

``(I) In general.--The bank effects transactions, as part
of its transfer agency activities, in--

``(aa) the securities of an issuer as part of any pension,
retirement, profit-sharing, bonus, thrift, savings,
incentive, or other similar benefit plan for the employees of
that issuer or its subsidiaries, if the bank does not solicit
transactions or provide investment advice with respect to the
purchase or sale of securities in connection with the plan;
``(bb) the securities of an issuer as part of that issuer's
dividend reinvestment plan, if the bank does not--
``(AA) solicit transactions or provide investment advice
with respect to the purchase or sale of securities in
connection with the plan;
``(BB) net shareholders' buy and sell orders, other than
for programs for odd-lot holders or plans registered with the
Commission; or
``(cc) the securities of an issuer as part of a plan or
program for the purchase or sale of that issuer's shares,
if--
``(AA) the bank does not solicit transactions or provide
investment advice with respect to the purchase or sale of
securities in connection with the plan or program;
``(BB) the bank does not net shareholders' buy and sell
orders, other than for programs for odd-lot holders or plans
registered with the Commission; and
``(CC) the bank's compensation for such plan or program
consists of administration fees, or flat or capped per order
processing fees, or both, plus the cost incurred by the bank
in connection with executing securities transactions
resulting from such plan or program.

``(II) Permissible delivery of materials.--The exception to
being considered a broker for a bank engaged in activities
described in subclause (I) will not be affected by a bank's
delivery of written or electronic plan materials to employees
of the issuer, shareholders of the issuer, or members of
affinity groups of the issuer, so long as such materials
are--

``(aa) comparable in scope or nature to that permitted by
the Commission as of the date of the enactment of the
Financial Services Act of 1998; or
``(bb) otherwise permitted by the Commission.
``(v) Sweep accounts.--The bank effects transactions as
part of a program for the investment or reinvestment of bank
deposit funds into any no-load, open-end management
investment company registered under the Investment Company
Act of 1940 that holds itself out as a money market fund.
``(vi) Affiliate transactions.--The bank effects
transactions for the account of any affiliate of the bank (as
defined in section 2 of the Bank Holding Company Act of 1956)
other than--

``(I) a registered broker or dealer; or
``(II) an affiliate that is engaged in merchant banking, as
described in section 6(c)(3)(H) of the Bank Holding company
Act of 1956.

``(vii) Private securities offerings.--The bank--

``(I) effects sales as part of a primary offering of
securities not involving a public offering, pursuant to
section 3(b), 4(2), or 4(6) of the Securities Act of 1933 or
the rules and regulations issued thereunder;
``(II) at any time after one year after the date of
enactment of the Financial Services Act of 1998, is not
affiliated with a broker or dealer that has been registered
for more than one year; and
``(III) effects transactions exclusively with qualified
investors.

``(viii) Safekeeping and custody activities.--

``(I) In general.--The bank, as part of customary banking
activities--

``(aa) provides safekeeping or custody services with
respect to securities, including the exercise of warrants and
other rights on behalf of customers;
``(bb) facilitates the transfer of funds or securities, as
a custodian or a clearing agency, in connection with the
clearance and settlement of its customers' transactions in
securities;
``(cc) effects securities lending or borrowing transactions
with or on behalf of customers as part of services provided
to customers pursuant to division (aa) or (bb) or invests
cash collateral pledged in connection with such transactions;
or
``(dd) holds securities pledged by a customer to another
person or securities subject to purchase or resale agreements
involving a customer, or facilitates the pledging or transfer
of such securities by book entry or as otherwise provided
under applicable law.

``(II) Exception for carrying broker activities.--The
exception to being considered a broker for a bank engaged in
activities described in subclause (I) shall not apply if the
bank, in connection with such activities, acts in the United
States as a carrying broker (as such term, and different
formulations thereof, are used in section 15(c)(3) and the
rules and regulations thereunder) for any broker or dealer,
unless such carrying broker activities are engaged in with
respect to government securities (as defined in paragraph
(42) of this subsection).

``(ix) Banking products.--The bank effects transactions in
traditional banking products, as defined in section 206(a) of
the Financial Services Act of 1998.
``(x) De minimis exception.--The bank effects, other than
in transactions referred to in clauses (i) through (ix), not
more than 500 transactions in securities in any calendar
year, and such transactions are not effected by an employee
of the bank who is also an employee of a broker or dealer.
``(C) Broker dealer execution.--The exception to being
considered a broker for a bank engaged in activities
described in clauses (ii), (iv), and (viii) of subparagraph
(B) shall not apply if the activities described in such
provisions result in the trade in the United States of any
security that is a publicly traded security in the United
States, unless--
``(i) the bank directs such trade to a registered or broker
dealer for execution;
``(ii) the trade is a cross trade or other substantially
similar trade of a security that--

``(I) is made by the bank or between the bank and an
affiliated fiduciary; and
``(II) is not in contravention of fiduciary principles
established under applicable Federal or State law; or

``(iii) the trade is conducted in some other manner
permitted under rules, regulations, or orders as the
Commission may prescribe or issue.
``(D) No effect of bank exemptions on other commission
authority.--The exception to being considered a broker for a
bank engaged in activities described in subparagraphs (B) and
(C) shall not affect the commission's authority under any
other provision of this Act or any other securities law.
``(E) Fiduciary capacity.--For purposes of subparagraph
(B)(ii), the term `fiduciary capacity' means--
``(i) in the capacity as trustee, executor, administrator,
registrar of stocks and bonds, transfer agent, guardian,
assignee, receiver, or custodian under a uniform gift to
minor act, or as an investment adviser if the bank receives a
fee for its investment advice;
``(ii) in any capacity in which the bank possesses
investment discretion on behalf of another; or
``(iii) in any other similar capacity.
``(F) Exception for entities subject to section 15(e).--The
term `broker' does not include a bank that--
``(i) was, immediately prior to the enactment of the
Financial Services Act of 1998, subject to section 15(e); and
``(ii) is subject to such restrictions and requirements as
the Commission considers appropriate.''.

SEC. 202. DEFINITION OF DEALER.

Section 3(a)(5) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(5)) is amended to read as follows:
``(5) Dealer.--
``(A) In general.--The term `dealer' means any person
engaged in the business of buying and selling securities for
such person's own account through a broker or otherwise.
``(B) Exception for person not engaged in the business of
dealing.--The term `dealer' does not include a person that
buys or sells securities for such person's own account,
either individually or in a fiduciary capacity, but not as a
part of a regular business.
``(C) Exception for certain bank activities.--A bank shall
not be considered to be a

[[Page H3161]]

dealer because the bank engages in any of the following
activities under the conditions described:
``(i) Permissible securities transactions.--The bank buys
or sells--

``(I) commercial paper, bankers acceptances, or commercial
bills;
``(II) exempted securities;
``(III) qualified Canadian government obligations as
defined in section 5136 of the Revised Statutes of the United
States, in conformity with section 15C of this title and the
rules and regulations thereunder, or obligations of the North
American Development Bank; or
``(IV) any standardized, credit enhanced debt security
issued by a foreign government pursuant to the March 1989
plan of then Secretary of the Treasury Brady, used by such
foreign government to retire outstanding commercial bank
loans.

``(ii) Investment, trustee, and fiduciary transactions.--
The bank buys or sells securities for investment purposes--

``(I) for the bank; or
``(II) for accounts for which the bank acts as a trustee or
fiduciary.

``(iii) Asset-backed transactions.--The bank engages in the
issuance or sale to qualified investors, through a grantor
trust or otherwise, of securities backed by or representing
an interest in notes, drafts, acceptances, loans, leases,
receivables, other obligations, or pools of any such
obligations predominantly originated by the bank, or a
syndicate of banks of which the bank is a member, or an
affiliate of any such bank other than a broker or dealer.
``(iv) Banking products.--The bank buys or sells
traditional banking products, as defined in section 206(a) of
the Financial Services Act of 1998.
``(v) Derivative instruments.--The bank issues, buys, or
sells any derivative instrument to which the bank is a
party--

``(I) to or from a corporation, limited liability company,
or partnership that owns and invests on a discretionary
basis, not less than $10,000,000 in investments, or to or
from a qualified investor, except that if the instrument
provides for the delivery of one or more securities (other
than a derivative instrument or government security), the
transaction shall be effected with or through a registered
broker or dealer; or
``(II) to or from other persons, except that if the
derivative instrument provides for the delivery of one or
more securities (other than a derivative instrument or
government security), or is a security (other than a
government security), the transaction shall be effected with
or through a registered broker or dealer; or
``(III) to or from any person if the instrument is neither
a security nor provides for the delivery of one or more
securities (other than a derivative instrument).''.

SEC. 203. REGISTRATION FOR SALES OF PRIVATE SECURITIES
OFFERINGS.

Section 15A of the Securities Exchange Act of 1934 (15
U.S.C. 78o-3) is amended by inserting after subsection (i)
the following new subsection:
``(j) Registration for Sales of Private Securities
Offerings.--A registered securities association shall create
a limited qualification category for any associated person of
a member who effects sales as part of a primary offering of
securities not involving a public offering, pursuant to
section 3(b), 4(2), or 4(6) of the Securities Act of 1933 and
the rules and regulations thereunder, and shall deem
qualified in such limited qualification category, without
testing, any bank employee who, in the six month period
preceding the date of enactment of this Act, engaged in
effecting such sales.''.

SEC. 204. SALES PRACTICES AND COMPLAINT PROCEDURES.

Section 18 of the Federal Deposit Insurance Act is amended
by adding at the end the following new subsection:
``(s) Sales Practices and Complaint Procedures With Respect
to Bank Securities Activities.--
``(1) Regulations Required.--Each Federal banking agency
shall prescribe and publish in final form, not later than 6
months after the date of enactment of the Financial Services
Act of 1998, regulations which apply to retail transactions,
solicitations, advertising, or offers of any security by any
insured depository institution or any affiliate thereof other
than a registered broker or dealer or an individual acting on
behalf of such a broker or dealer who is an associated person
of such broker or dealer. Such regulations shall include--
``(A) requirements that sales practices comply with just
and equitable principles of trade that are substantially
similar to the Rules of Fair Practice of the National
Association of Securities Dealers; and
``(B) requirements prohibiting (i) conditioning an
extension of credit on the purchase or sale of a security;
and (ii) any conduct leading a customer to believe that an
extension of credit is conditioned upon the purchase or sale
of a security.
``(2) Procedures required.--The appropriate Federal banking
agencies shall jointly establish procedures and facilities
for receiving and expeditiously processing complaints against
any bank or employee of a bank arising in connection with the
purchase or sale of a security by a customer, including a
complaint alleging a violation of the regulations prescribed
under paragraph (1), but excluding a complaint involving an
individual acting on behalf of such a broker or dealer who is
an associated person of such broker or dealer. The use of any
such procedures and facilities by such a customer shall be at
the election of the customer. Such procedures shall include
provisions to refer a complaint alleging fraud to the
Securities and Exchange Commission and appropriate State
securities commissions.
``(3) Required actions.--The actions required by the
Federal banking agencies under paragraph (2) shall include
the following:
``(A) establishing a group, unit, or bureau within each
such agency to receive such complaints;
``(B) developing and establishing procedures for
investigating, and permitting customers to investigate, such
complaints;
``(C) developing and establishing procedures for informing
customers of the rights they may have in connection with such
complaints;
``(D) developing and establishing procedures that allow
customers a period of at least 6 years to make complaints and
that do not require customers to pay the costs of the
proceeding; and
``(E) developing and establishing procedures for resolving
such complaints, including procedures for the recovery of
losses to the extent appropriate.
``(4) Consultation and joint regulations.--The Federal
banking agencies shall consult with each other and prescribe
joint regulations pursuant to paragraphs (1) and (2), after
consultation with the Securities and Exchange Commission.
``(5) Procedures in addition to other remedies.--The
procedures and remedies provided under this subsection shall
be in addition to, and not in lieu of, any other remedies
available under law.
``(6) Definition.--As used in this subsection--
``(A) the term `security' has the meaning provided in
section 3(a)(10) of the Securities Exchange Act of 1934;
``(B) the term `registered broker or dealer' has the
meaning provided in section 3(a)(48) of such Act; and
``(C) the term `associated person' has the meaning provided
in section 3(a)(18) of such Act.''.

SEC. 205. INFORMATION SHARING.

Section 18 of the Federal Deposit Insurance Act is amended
by adding at the end the following new subsection:
``(t) Recordkeeping Requirements.--
``(1) Requirements.--Each appropriate Federal banking
agency, after consultation with and consideration of the
views of the Commission, shall establish recordkeeping
requirements for banks relying on exceptions contained in
paragraphs (4) and (5) of section 3(a) of the Securities
Exchange Act of 1934. Such recordkeeping requirements shall
be sufficient to demonstrate compliance with the terms of
such exceptions and be designed to facilitate compliance with
such exceptions. Each appropriate Federal banking agency
shall make any such information available to the Commission
upon request.
``(2) Definitions.--As used in this subsection the term
`Commission' means the Securities and Exchange Commission.''.

SEC. 206. DEFINITION AND TREATMENT OF BANKING PRODUCTS.

(a) Definition of Traditional Banking Product.--
(1) In general.--For purposes of paragraphs (4) and (5) of
section 3(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(4), (5)), the term `traditional banking
product' means--
(A) a deposit account, savings account, certificate of
deposit, or other deposit instrument issued by a bank;
(B) a banker's acceptance;
(C) a letter of credit issued or loan made by a bank;
(D) a debit account at a bank arising from a credit card or
similar arrangement;
(E) a participation in a loan which the bank or an
affiliate of the bank (other than a broker or dealer) funds,
participates in, or owns that is sold--
(i) to qualified investors; or
(ii) to other persons that--

``(I) have the opportunity to review and assess any
material information, including information regarding the
borrower's creditworthiness; and
``(II) based on such factors as financial sophistication,
net worth, and knowledge and experience in financial matters,
have the capability to evaluate the information available, as
determined under generally applicable banking standards or
guidelines; or

(F) any derivative instrument, whether or not individually
negotiated, involving or relating to--
(i) foreign currencies, except options on foreign
currencies that trade on a national securities exchange;
(ii) interest rates, except interest rate derivative
instruments (I) that are based on a security; or (II) that
provide for the delivery of one or more securities; or
(iii) commodities, other rates, indices, or other assets,
except derivative instruments that are securities or that
provide for the delivery of one or more securities.
(2) Classification limited.--Classification of a particular
product as a traditional banking product pursuant to this
subsection shall not be construed as finding or implying that
such product is oris not a security for any purpose under the
securities laws, or is or is not an account, agreement,
contract, or transaction for any purpose under the Commodity
Exchange Act.

[[Page H3162]]

(3) Definitions.--For purposes of this subsection--
(A) the term ``bank'' has the meaning provided in section
3(a)(6) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(6);
(B) the term ``qualified investor'' has the meaning
provided in section 3(a)(55) of such Act; and
(C) the term ``Federal banking agency'' has the meaning
provided in section 3(z) of the Federal Deposit Insurance Act
(12 U.S.C. 1813(z)).
(b) Treatment of New Banking Products for Purposes of
Broker/Dealer Requirements.--Section 15 of the Securities
Exchange Act of 1934 (15 U.S.C. 78o) is amended by adding at
the end the following new subsection:
``(i) Rulemaking to Extend Requirements to New Banking
Products.--
``(1) Limitation.--The Commission shall not--
``(A) require a bank to register as a broker or dealer
under this section because the bank engages in any
transaction in, or buys or sells, a new banking product; or
``(B) bring an action against a bank for a failure to
comply with a requirement described in subparagraph (A);

unless the Commission has imposed such requirement by rule or
regulation issued in accordance with this section.
``(2) Criteria for rulemaking.--The Commission shall not
impose a requirement under paragraph (1) of this subsection
with respect to any new banking product unless the Commission
determines that--
``(A) the new banking product is a security; and
``(B) imposing such requirement is necessary or appropriate
in the public interest and for the protection of investors,
consistent with the requirements of section 3(f).
``(3) New banking product.--For purposes of this
subsection, the term `new banking product' means a product
that--
``(A) was not subjected to regulation by the Commission as
a security prior to the date of enactment of this subsection;
and
``(B) is not a traditional banking product, as such term is
defined in section 206(a) of the Financial Services Act of
1998.
``(4) Consultation.--In promulgating rules under this
subsection, the Commission shall consult with and consider
the views of the appropriate regulatory agencies concerning
the proposed rule and the impact on the banking industry.''.

SEC. 207. DERIVATIVE INSTRUMENT AND QUALIFIED INVESTOR
DEFINED.

Section 3(a) of the Securities Exchange Act of 1934 is
amended by adding at the end the following new paragraphs:
``(54) Derivative instrument.--
``(A) Definition.--The term `derivative instrument' means
any individually negotiated contract, agreement, warrant,
note, or option that is based, in whole or in part, on the
value of, any interest in, or any quantitative measure or the
occurrence of any event relating to, one or more commodities,
securities, currencies, interest or other rates, indices, or
other assets, but does not include a traditional banking
product, as defined in section 206(a) of the Financial
Services Act of 1998.
``(B) Classification limited.-- Classification of a
particular contract as a derivative instrument pursuant to
this paragraph shall not be construed as finding or implying
that such instrument is or is not a security for any purpose
under the securities laws, or is or is not an account,
agreement, contract, or transaction for any purpose under the
Commodity Exchange Act.
``(55) Qualified investor.--
``(A) Definition.--For purposes of this title and section
206(a)(1)(E) of the Financial Services Act of 1998, the term
`qualified investor' means--
``(i) any investment company registered with the Commission
under section 8 of the Investment Company Act of 1940;
``(ii) any issuer eligible for an exclusion from the
definition of investment company pursuant to section 3(c)(7)
of the Investment Company Act of 1940;
``(iii) any bank (as defined in paragraph (6) of this
subsection), savings and loan association (as defined in
section 3(b) of the Federal Deposit Insurance Act), broker,
dealer, insurance company (as defined in section 2(a)(13) of
the Securities Act of 1933), or business development company
(as defined in section 2(a)(48) of the Investment Company Act
of 1940);
``(iv) any small business investment company licensed by
the United States Small Business Administration under section
301(c) or (d) of the Small Business Investment Act of 1958;
``(v) any State sponsored employee benefit plan, or any
other employee benefit plan, within the meaning of the
Employee Retirement Income Security Act of 1974, other than
an individual retirement account, if the investment decisions
are made by a plan fiduciary, as defined in section 3(21) of
that Act, which is either a bank, savings and loan
association, insurance company, or registered investment
adviser;
``(vi) any trust whose purchases of securities are directed
by a person described in clauses (i) through (v) of this
subparagraph;
``(vii) any market intermediary exempt under section
3(c)(2) of the Investment Company Act of 1940;
``(viii) any associated person of a broker or dealer other
than a natural person; or
``(ix) any foreign bank (as defined in section 1(b)(7) of
the International Banking Act of 1978).
``(B) Additional qualifications defined.--For purposes of
paragraphs (4)(B)(vii) and (5)(C)(iii) of this subsection,
and section 206(a)(1)(E) of the Financial Services Act of
1998, the term `qualified investor' also means--
``(i) any corporation, company, or partnership that owns
and invests on a discretionary basis, not less than
$10,000,000 in investments;
``(ii) any natural person who owns and invests on a
discretionary basis, not less than $10,000,000 in
investments;
``(iii) any government or political subdivision, agency, or
instrumentality of a government who owns and invests on a
discretionary basis not less than $50,000,000 in investments;
or
``(iv) any multinational or supranational entity or any
agency or instrumentality thereof.
``(C) Additional authority.--The Commission may, by rule or
order, define a `qualified investor' as any other person,
other than a natural person, taking into consideration such
factors as the person's financial sophistication, net worth,
and knowledge and experience in financial matters.''.

SEC. 208. GOVERNMENT SECURITIES DEFINED.

Section 3(a)(42) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(42)) is amended--
(1) by striking ``or'' at the end of subparagraph (C);
(2) by striking the period at the end of subparagraph (D)
and inserting ``; or''; and
(3) by adding at the end the following new subparagraph:
``(E) for purposes of section 15C as applied to a bank, a
qualified Canadian government obligation as defined in
section 5136 of the Revised Statutes.''.

SEC. 209. EFFECTIVE DATE.

This subtitle shall take effect at the end of the 270-day
period beginning on the date of the enactment of this Act.

Subtitle B--Bank Investment Company Activities

SEC. 211. CUSTODY OF INVESTMENT COMPANY ASSETS BY AFFILIATED
BANK.

(a) Management Companies.--Section 17(f) of the Investment
Company Act of 1940 (15 U.S.C. 80a-17(f)) is amended--
(1) by redesignating paragraphs (1), (2), and (3) as
subparagraphs (A), (B), and (C), respectively;
(2) by striking ``(f) Every registered'' and inserting the
following:
``(f) Custody of Securities.--
``(1) Every registered'';
(3) by redesignating the 2d, 3d, 4th, and 5th sentences of
such subsection as paragraphs (2) through (5), respectively,
and indenting the left margin of such paragraphs
appropriately; and
(4) by adding at the end the following new paragraph:
``(6) The Commission may adopt rules and regulations, and
issue orders, consistent with the protection of investors,
prescribing the conditions under which a bank, or an
affiliated person of a bank, either of which is an affiliated
person, promoter, organizer, or sponsor of, or principal
underwriter for, a registered management company may serve as
custodian of that registered management company.''.
(b) Unit Investment Trusts.--Section 26 of the Investment
Company Act of 1940 (15 U.S.C. 80a-26) is amended--
(1) by redesignating subsections (b) through (e) as
subsections (c) through (f), respectively; and
(2) by inserting after subsection (a) the following new
subsection:
``(b) The Commission may adopt rules and regulations, and
issue orders, consistent with the protection of investors,
prescribing the conditions under which a bank, or an
affiliated person of a bank, either of which is an affiliated
person of a principal underwriter for, or depositor of, a
registered unit investment trust, may serve as trustee or
custodian under subsection (a)(1).''.
(c) Fiduciary Duty of Custodian.--Section 36(a) of the
Investment Company Act of 1940 (15 U.S.C. 80a-35(a)) is
amended--
(1) in paragraph (1), by striking ``or'' at the end;
(2) in paragraph (2), by striking the period at the end and
inserting ``; or''; and
(3) by inserting after paragraph (2) the following:
``(3) as custodian.''.

SEC. 212. LENDING TO AN AFFILIATED INVESTMENT COMPANY.

Section 17(a) of the Investment Company Act of 1940 (15
U.S.C. 80a-17(a)) is amended--
(1) by striking ``or'' at the end of paragraph (2);
(2) by striking the period at the end of paragraph (3) and
inserting ``; or''; and
(3) by adding at the end the following new paragraph:
``(4) to loan money or other property to such registered
company, or to any company controlled by such registered
company, in contravention of such rules, regulations, or
orders as the Commission may prescribe or issue consistent
with the protection of investors.''.

SEC. 213. INDEPENDENT DIRECTORS.

(a) In General.--Section 2(a)(19)(A) of the Investment
Company Act of 1940 (15 U.S.C. 80a-2(a)(19)(A)) is amended--
(1) by striking clause (v) and inserting the following new
clause:
``(v) any person or any affiliated person of a person
(other than a registered investment

[[Page H3163]]

company) that, at any time during the 6-month period
preceding the date of the determination of whether that
person or affiliated person is an interested person, has
executed any portfolio transactions for, engaged in any
principal transactions with, or distributed shares for--

``(I) the investment company,
``(II) any other investment company having the same
investment adviser as such investment company or holding
itself out to investors as a related company for purposes of
investment or investor services, or
``(III) any account over which the investment company's
investment adviser has brokerage placement discretion,'';

(2) by redesignating clause (vi) as clause (vii); and
(3) by inserting after clause (v) the following new clause:
``(vi) any person or any affiliated person of a person
(other than a registered investment company) that, at any
time during the 6-month period preceding the date of the
determination of whether that person or affiliated person is
an interested person, has loaned money or other property to--

``(III) any account for which the investment company's
investment adviser has borrowing authority,''.

(b) Conforming Amendment.--Section 2(a)(19)(B) of the
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)(B)) is
amended--
(1) by striking clause (v) and inserting the following new
clause:
``(v) any person or any affiliated person of a person
(other than a registered investment company) that, at any
time during the 6-month period preceding the date of the
determination of whether that person or affiliated person is
an interested person, has executed any portfolio transactions
for, engaged in any principal transactions with, or
distributed shares for--

``(I) any investment company for which the investment
adviser or principal underwriter serves as such,
``(II) any investment company holding itself out to
investors, for purposes of investment or investor services,
as a company related to any investment company for which the
investment adviser or principal underwriter serves as such,
or
``(III) any account over which the investment adviser has
brokerage placement discretion,'';

``(I) any investment company for which the investment
adviser or principal underwriter serves as such,
``(II) any investment company holding itself out to
investors, for purposes of investment or investor services,
as a company related to any investment company for which the
investment adviser or principal underwriter serves as such,
or
``(III) any account for which the investment adviser has
borrowing authority,''.

(c) Affiliation of Directors.--Section 10(c) of the
Investment Company Act of 1940 (15 U.S.C. 80a-10(c)) is
amended by striking ``bank, except'' and inserting ``bank
(together with its affiliates and subsidiaries) or any one
bank holding company (together with its affiliates and
subsidiaries) (as such terms are defined in section 2 of the
Bank Holding Company Act of 1956), except''.
(d) Effective Date.--The amendments made by this section
shall take effect at the end of the 1-year period beginning
on the date of enactment of this subtitle.

SEC. 214. ADDITIONAL SEC DISCLOSURE AUTHORITY.

Section 35(a) of the Investment Company Act of 1940 (15
U.S.C. 80a-34(a)) is amended to read as follows:
``(a) Misrepresentation of Guarantees.--
``(1) In general.--It shall be unlawful for any person,
issuing or selling any security of which a registered
investment company is the issuer, to represent or imply in
any manner whatsoever that such security or company--
``(A) has been guaranteed, sponsored, recommended, or
approved by the United States, or any agency, instrumentality
or officer of the United States;
``(B) has been insured by the Federal Deposit Insurance
Corporation; or
``(C) is guaranteed by or is otherwise an obligation of any
bank or insured depository institution.
``(2) Disclosures.--Any person issuing or selling the
securities of a registered investment company that is advised
by, or sold through, a bank shall prominently disclose that
an investment in the company is not insured by the Federal
Deposit Insurance Corporation or any other government agency.
The Commission may adopt rules and regulations, and issue
orders, consistent with the protection of investors,
prescribing the manner in which the disclosure under this
paragraph shall be provided.
``(3) Definitions.--The terms `insured depository
institution' and `appropriate Federal banking agency' have
the meaning given to such terms in section 3 of the Federal
Deposit Insurance Act.''.

SEC. 215. DEFINITION OF BROKER UNDER THE INVESTMENT COMPANY
ACT OF 1940.

Section 2(a)(6) of the Investment Company Act of 1940 (15
U.S.C. 80a-2(a)(6)) is amended to read as follows:
``(6) The term `broker' has the same meaning as in the
Securities Exchange Act of 1934, except that such term does
not include any person solely by reason of the fact that such
person is an underwriter for one or more investment
companies.''.

SEC. 216. DEFINITION OF DEALER UNDER THE INVESTMENT COMPANY
ACT OF 1940.

Section 2(a)(11) of the Investment Company Act of 1940 (15
U.S.C. 80a-2(a)(11)) is amended to read as follows:
``(11) The term `dealer' has the same meaning as in the
Securities Exchange Act of 1934, but does not include an
insurance company or investment company.''.

SEC. 217. REMOVAL OF THE EXCLUSION FROM THE DEFINITION OF
INVESTMENT ADVISER FOR BANKS THAT ADVISE
INVESTMENT COMPANIES.

(a) Investment Adviser.--Section 202(a)(11) of the
Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(11)) is
amended in subparagraph (A), by striking ``investment
company'' and inserting ``investment company, except that the
term `investment adviser' includes any bank or bank holding
company to the extent that such bank or bank holding company
serves or acts as an investment adviser to a registered
investment company, but if, in the case of a bank, such
services or actions are performed through a separately
identifiable department or division, the department or
division, and not the bank itself, shall be deemed to be the
investment adviser''.
(b) Separately Identifiable Department or Division.--
Section 202(a) of the Investment Advisers Act of 1940 (15
U.S.C. 80b-2(a)) is amended by adding at the end the
following:
``(26) The term `separately identifiable department or
division' of a bank means a unit--
``(A) that is under the direct supervision of an officer or
officers designated by the board of directors of the bank as
responsible for the day-to-day conduct of the bank's
investment adviser activities for one or more investment
companies, including the supervision of all bank employees
engaged in the performance of such activities; and
``(B) for which all of the records relating to its
investment adviser activities are separately maintained in or
extractable from such unit's own facilities or the facilities
of the bank, and such records are so maintained or otherwise
accessible as to permit independent examination and
enforcement by the Commission of this Act or the Investment
Company Act of 1940 and rules and regulations promulgated
under this Act or the Investment Company Act of 1940.''.

SEC. 218. DEFINITION OF BROKER UNDER THE INVESTMENT ADVISERS
ACT OF 1940.

Section 202(a)(3) of the Investment Advisers Act of 1940
(15 U.S.C. 80b-2(a)(3)) is amended to read as follows:
``(3) The term `broker' has the same meaning as in the
Securities Exchange Act of 1934.''.

SEC. 219. DEFINITION OF DEALER UNDER THE INVESTMENT ADVISERS
ACT OF 1940.

Section 202(a)(7) of the Investment Advisers Act of 1940
(15 U.S.C. 80b-2(a)(7)) is amended to read as follows:
``(7) The term `dealer' has the same meaning as in the
Securities Exchange Act of 1934, but does not include an
insurance company or investment company.''.

SEC. 220. INTERAGENCY CONSULTATION.

The Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et
seq.) is amended by inserting after section 210 the following
new section:

``SEC. 210A. CONSULTATION.

``(a) Examination Results and Other Information.--
``(1) The appropriate Federal banking agency shall provide
the Commission upon request the results of any examination,
reports, records, or other information to which such agency
may have access with respect to the investment advisory
activities--
``(A) of any--
``(i) bank holding company,
``(ii) bank, or
``(iii) separately identifiable department or division of a
bank,

that is registered under section 203 of this title; and
``(B) in the case of a bank holding company or bank that
has a subsidiary or a separately identifiable department or
division registered under that section, of such bank or bank
holding company.
``(2) The Commission shall provide to the appropriate
Federal banking agency upon request the results of any
examination, reports, records, or other information with
respect to the investment advisory activities of any bank
holding company, bank, or separately identifiable department
or division of a bank, any of which is registered under
section 203 of this title.
``(b) Effect on Other Authority.--Nothing in this section
shall limit in any respect the authority of the appropriate
Federal banking agency with respect to such bank holding
company, bank, or department or division under any provision
of law.
``(c) Definition.--For purposes of this section, the term
`appropriate Federal banking agency' shall have the same
meaning as in

[[Page H3164]]

section 3 of the Federal Deposit Insurance Act.''.

SEC. 221. TREATMENT OF BANK COMMON TRUST FUNDS.

(a) Securities Act of 1933.--Section 3(a)(2) of the
Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is amended by
striking ``or any interest or participation in any common
trust fund or similar fund maintained by a bank exclusively
for the collective investment and reinvestment of assets
contributed thereto by such bank in its capacity as trustee,
executor, administrator, or guardian'' and inserting ``or any
interest or participation in any common trust fund or similar
fund that is excluded from the definition of the term
`investment company' under section 3(c)(3) of the Investment
Company Act of 1940''.
(b) Securities Exchange Act of 1934.--Section
3(a)(12)(A)(iii) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(12)(A)(iii)) is amended to read as follows:
``(iii) any interest or participation in any common trust
fund or similar fund that is excluded from the definition of
the term `investment company' under section 3(c)(3) of the
Investment Company Act of 1940;''.
(c) Investment Company Act of 1940.--Section 3(c)(3) of the
Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(3)) is
amended by inserting before the period the following: ``,
if--
``(A) such fund is employed by the bank solely as an aid to
the administration of trusts, estates, or other accounts
created and maintained for a fiduciary purpose;
``(B) except in connection with the ordinary advertising of
the bank's fiduciary services, interests in such fund are
not--
``(i) advertised; or
``(ii) offered for sale to the general public; and
``(C) fees and expenses charged by such fund are not in
contravention of fiduciary principles established under
applicable Federal or State law''.

SEC. 222. INVESTMENT ADVISERS PROHIBITED FROM HAVING
CONTROLLING INTEREST IN REGISTERED INVESTMENT
COMPANY.

Section 15 of the Investment Company Act of 1940 (15 U.S.C.
80a-15) is amended by adding at the end the following new
subsection:
``(g) Controlling Interest in Investment Company
Prohibited.--
``(1) In general.--If an investment adviser to a registered
investment company, or an affiliated person of that
investment adviser, holds a controlling interest in that
registered investment company in a trustee or fiduciary
capacity, such person shall--
``(A) if it holds the shares in a trustee or fiduciary
capacity with respect to any employee benefit plan subject to
the Employee Retirement Income Security Act of 1974, transfer
the power to vote the shares of the investment company
through to another person acting in a fiduciary capacity with
respect to the plan who is not an affiliated person of that
investment adviser or any affiliated person thereof; or
``(B) if it holds the shares in a trustee or fiduciary
capacity with respect to any person or entity other than an
employee benefit plan subject to the Employee Retirement
Income Security Act of 1974--
``(i) transfer the power to vote the shares of the
investment company through to--

``(I) the beneficial owners of the shares;
``(II) another person acting in a fiduciary capacity who is
not an affiliated person of that investment adviser or any
affiliated person thereof; or
``(III) any person authorized to receive statements and
information with respect to the trust who is not an
affiliated person of that investment adviser or any
affiliated person thereof;

``(ii) vote the shares of the investment company held by it
in the same proportion as shares held by all other
shareholders of the investment company; or
``(iii) vote the shares of the investment company as
otherwise permitted under such rules, regulations, or orders
as the Commission may prescribe or issue consistent with the
protection of investors.
``(2) Exemption.--Paragraph (1) shall not apply to any
investment adviser to a registered investment company, or any
affiliated person of that investment adviser, that holds
shares of the investment company in a trustee or fiduciary
capacity if that registered investment company consists
solely of assets held in such capacities.
``(3) Safe harbor.--No investment adviser to a registered
investment company or any affiliated person of such
investment adviser shall be deemed to have acted unlawfully
or to have breached a fiduciary duty under State or Federal
law solely by reason of acting in accordance with clause (i),
(ii), or (iii) of paragraph (1)(B).''.

SEC. 223. CONFORMING CHANGE IN DEFINITION.

Section 2(a)(5) of the Investment Company Act of 1940 (15
U.S.C. 80a-2(a)(5)) is amended by striking ``(A) a banking
institution organized under the laws of the United States''
and inserting ``(A) a depository institution (as defined in
section 3 of the Federal Deposit Insurance Act) or a branch
or agency of a foreign bank (as such terms are defined in
section 1(b) of the International Banking Act of 1978)''.

SEC. 224. CONFORMING AMENDMENT.

Section 202 of the Investment Advisers Act of 1940 (15
U.S.C. 80b-2) is amended by adding at the end the following
new subsection:
``(c) Consideration of Promotion of Efficiency,
Competition, and Capital Formation.--Whenever pursuant to
this title the Commission is engaged in rulemaking and is
required to consider or determine whether an action is
necessary or appropriate in the public interest, the
Commission shall also consider, in addition to the protection
of investors, whether the action will promote efficiency,
competition, and capital formation.''.

SEC. 225. EFFECTIVE DATE.

This subtitle shall take effect 90 days after the date of
the enactment of this Act.

Subtitle C--Securities and Exchange Commission Supervision of
Investment Bank Holding Companies

SEC. 231. SUPERVISION OF INVESTMENT BANK HOLDING COMPANIES BY
THE SECURITIES AND EXCHANGE COMMISSION.

(a) Amendment.--Section 17 of the Securities Exchange Act
of 1934 (15 U.S.C. 78q) is amended--
(1) by redesignating subsection (i) as subsection (l); and
(2) by inserting after subsection (h) the following new
subsections:
``(i) Investment Bank Holding Companies.--
``(1) Elective supervision of an investment bank holding
company not having a bank or savings association affiliate.--
``(A) In general.--An investment bank holding company that
is not--
``(i) an affiliate of a wholesale financial institution, an
insured bank (other than an institution described in
subparagraph (D), (F), or (G) of section 2(c)(2), or held
under section 4(f), of the Bank Holding Company Act of 1956),
or a savings association,
``(ii) a foreign bank, foreign company, or company that is
described in section 8(a) of the International Banking Act of
1978, or
``(iii) a foreign bank that controls, directly or
indirectly, a corporation chartered under section 25A of the
Federal Reserve Act,

may elect to become supervised by filing with the Commission
a notice of intention to become supervised, pursuant to
subparagraph (B) of this paragraph. Any investment bank
holding company filing such a notice shall be supervised in
accordance with this section and comply with the rules
promulgated by the Commission applicable to supervised
investment bank holding companies.
``(B) Notification of status as a supervised investment
bank holding company.--An investment bank holding company
that elects under subparagraph (A) to become supervised by
the Commission shall file with the Commission a written
notice of intention to become supervised by the Commission in
such form and containing such information and documents
concerning such investment bank holding company as the
Commission, by rule, may prescribe as necessary or
appropriate in furtherance of the purposes of this section.
Unless the Commission finds that such supervision is not
necessary or appropriate in furtherance of the purposes of
this section, such supervision shall become effective 45 days
after receipt of such written notice by the Commission or
within such shorter time period as the Commission, by rule or
order, may determine.
``(2) Election not to be supervised by the commission as an
investment bank holding company.--
``(A) Voluntary withdrawal.--A supervised investment bank
holding company that is supervised pursuant to paragraph (1)
may, upon such terms and conditions as the Commission deems
necessary or appropriate, elect not to be supervised by the
Commission by filing a written notice of withdrawal from
Commission supervision. Such notice shall not become
effective until one year after receipt by the Commission, or
such shorter or longer period as the Commission deems
necessary or appropriate to ensure effective supervision of
the material risks to the supervised investment bank holding
company and to the affiliated broker or dealer, or to prevent
evasion of the purposes of this section.
``(B) Discontinuation of commission supervision.--If the
Commission finds that any supervised investment bank holding
company that is supervised pursuant to paragraph (1) is no
longer in existence or has ceased to be an investment bank
holding company, or if the Commission finds that continued
supervision of such a supervised investment bank holding
company is not consistent with the purposes of this section,
the Commission may discontinue the supervision pursuant to a
rule or order, if any, promulgated by the Commission under
this section.
``(3) Supervision of investment bank holding companies.--
``(A) Recordkeeping and reporting.--
``(i) In general.--Every supervised investment bank holding
company and each affiliate thereof shall make and keep for
prescribed periods such records, furnish copies thereof, and
make such reports, as the Commission may require by rule, in
order to keep the Commission informed as to--

``(I) the company's or affiliate's activities, financial
condition, policies, systems for monitoring and controlling
financial and operational risks, and transactions and
relationships between any broker or dealer affiliate of the
supervised investment bank holding company; and
``(II) the extent to which the company or affiliate has
complied with the provisions of this Act and regulations
prescribed and orders issued under this Act.

``(ii) Form and contents.--Such records and reports shall
be prepared in such form and according to such specifications
(including certification by an independent public

[[Page H3165]]

accountant), as the Commission may require and shall be
provided promptly at any time upon request by the Commission.
Such records and reports may include--

``(I) a balance sheet and income statement;
``(II) an assessment of the consolidated capital of the
supervised investment bank holding company;
``(III) an independent auditor's report attesting to the
supervised investment bank holding company's compliance with
its internal risk management and internal control objectives;
and
``(IV) reports concerning the extent to which the company
or affiliate has complied with the provisions of this title
and any regulations prescribed and orders issued under this
title.

``(B) Use of existing reports.--
``(i) In general.--The Commission shall, to the fullest
extent possible, accept reports in fulfillment of the
requirements under this paragraph that the supervised
investment bank holding company or its affiliates have been
required to provide to another appropriate regulatory agency
or self-regulatory organization.
``(ii) Availability.--A supervised investment bank holding
company or an affiliate of such company shall provide to the
Commission, at the request of the Commission, any report
referred to in clause (i).
``(C) Examination authority.--
``(i) Focus of examination authority.--The Commission may
make examinations of any supervised investment bank holding
company and any affiliate of such company in order to--

``(I) inform the Commission regarding--

``(aa) the nature of the operations and financial condition
of the supervised investment bank holding company and its
affiliates;
``(bb) the financial and operational risks within the
supervised investment bank holding company that may affect
any broker or dealer controlled by such supervised investment
bank holding company; and
``(cc) the systems of the supervised investment bank
holding company and its affiliates for monitoring and
controlling those risks; and

``(II) monitor compliance with the provisions of this
subsection, provisions governing transactions and
relationships between any broker or dealer affiliated with
the supervised investment bank holding company and any of the
company's other affiliates, and applicable provisions of
subchapter II of chapter 53, title 31, United States Code
(commonly referred to as the `Bank Secrecy Act') and
regulations thereunder.

``(ii) Restricted focus of examinations.--The Commission
shall limit the focus and scope of any examination of a
supervised investment bank holding company to--

``(I) the company; and
``(II) any affiliate of the company that, because of its
size, condition, or activities, the nature or size of the
transactions between such affiliate and any affiliated broker
or dealer, or the centralization of functions within the
holding company system, could, in the discretion of the
Commission, have a materially adverse effect on the
operational or financial condition of the broker or dealer.

``(iii) Deference to other examinations.--For purposes of
this subparagraph, the Commission shall, to the fullest
extent possible, use the reports of examination of an
institution described in subparagraph (D), (F), or (G) of
section 2(c)(2), or held under section 4(f), of the Bank
Holding Company Act of 1956 made by the appropriate
regulatory agency, or of a licensed insurance company made by
the appropriate State insurance regulator.
``(4) Holding company capital.--
``(A) Authority.--If the Commission finds that it is
necessary to adequately supervise investment bank holding
companies and their broker or dealer affiliates consistent
with the purposes of this subsection, the Commission may
adopt capital adequacy rules for supervised investment bank
holding companies.
``(B) Method of calculation.--In developing rules under
this paragraph:
``(i) Double leverage.--The Commission shall consider the
use by the supervised investment bank holding company of debt
and other liabilities to fund capital investments in
affiliates.
``(ii) No unweighted capital ratio.--The Commission shall
not impose under this section a capital ratio that is not
based on appropriate risk-weighting considerations.
``(iii) No capital requirement on regulated entities.--The
Commission shall not, by rule, regulation, guideline, order
or otherwise, impose any capital adequacy provision on a
nonbanking affiliate (other than a broker or dealer) that is
in compliance with applicable capital requirements of another
Federal regulatory authority or State insurance authority.
``(iv) Appropriate exclusions.--The Commission shall take
full account of the applicable capital requirements of
another Federal regulatory authority or State insurance
regulator.
``(C) Internal risk management models.--The Commission may
incorporate internal risk management models into its capital
adequacy rules for supervised investment bank holding
companies.
``(5) Functional regulation of banking and insurance
activities of supervised investment bank holding companies.--
The Commission shall defer to--
``(A) the appropriate regulatory agency with regard to all
interpretations of, and the enforcement of, applicable
banking laws relating to the activities, conduct, ownership,
and operations of banks, and institutions described in
subparagraph (D), (F), and (G) of section 2(c)(2), or held
under section 4(f), of the Bank Holding Company Act of 1956;
and
``(B) the appropriate State insurance regulators with
regard to all interpretations of, and the enforcement of,
applicable State insurance laws relating to the activities,
conduct, and operations of insurance companies and insurance
agents.
``(6) Definitions.--For purposes of this subsection--
``(A) The term `investment bank holding company' means--
``(i) any person other than a natural person that owns or
controls one or more brokers or dealers; and
``(ii) the associated persons of the investment bank
holding company.
``(B) The term `supervised investment bank holding company'
means any investment bank holding company that is supervised
by the Commission pursuant to this subsection.
``(C) The terms `affiliate', `bank', `bank holding
company', `company', `control', and `savings association'
have the meanings given to those terms in section 2 of the
Bank Holding Company Act of 1956 (12 U.S.C. 1841).
``(D) The term `insured bank' has the meaning given to that
term in section 3 of the Federal Deposit Insurance Act.
``(E) The term `foreign bank' has the meaning given to that
term in section 1(b)(7) of the International Banking Act of
1978.
``(F) The terms ``person associated with an investment bank
holding company' and ``associated person of an investment
bank holding company' means any person directly or indirectly
controlling, controlled by, or under common control with, an
investment bank holding company.
``(j) Authority To Limit Disclosure of Information.--
Notwithstanding any other provision of law, the Commission
shall not be compelled to disclose any information required
to be reported under subsection (h) or (i) or any information
supplied to the Commission by any domestic or foreign
regulatory agency that relates to the financial or
operational condition of any associated person of a broker or
dealer, investment bank holding company, or any affiliate of
an investment bank holding company. Nothing in this
subsection shall authorize the Commission to withhold
information from Congress, or prevent the Commission from
complying with a request for information from any other
Federal department or agency or any self-regulatory
organization requesting the information for purposes within
the scope of its jurisdiction, or complying with an order of
a court of the United States in an action brought by the
United States or the Commission. For purposes of section 552
of title 5, United States Code, this subsection shall be
considered a statute described in subsection (b)(3)(B) of
such section 552. In prescribing regulations to carry out the
requirements of this subsection, the Commission shall
designate information described in or obtained pursuant to
subparagraphs (A), (B), and (C) of subsection (i)(5) as
confidential information for purposes of section 24(b)(2) of
this title.''.
(b) Conforming Amendments.--
(1) Section 3(a)(34) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(34)) is amended by adding at the end the
following new subparagraphs:
``(H) When used with respect to an institution described in
subparagraph (D), (F), or (G) of section 2(c)(2), or held
under section 4(f), of the Bank Holding Company Act of 1956--
``(i) the Comptroller of the Currency, in the case of a
national bank or a bank in the District of Columbia examined
by the Comptroller of the Currency;
``(ii) the Board of Governors of the Federal Reserve
System, in the case of a State member bank of the Federal
Reserve System or any corporation chartered under section 25A
of the Federal Reserve Act;
``(iii) the Federal Deposit Insurance Corporation, in the
case of any other bank the deposits of which are insured in
accordance with the Federal Deposit Insurance Act; or
``(iv) the Commission in the case of all other such
institutions.''.
(2) Section 1112(e) of the Right to Financial Privacy Act
of 1978 (12 U.S.C. 3412(e)) is amended--
(A) by striking ``this title'' and inserting ``law''; and
(B) by inserting ``, examination reports'' after
``financial records''.

Subtitle D--Study

SEC. 241. STUDY OF METHODS TO INFORM INVESTORS AND CONSUMERS
OF UNINSURED PRODUCTS.

Within one year after the date of enactment of this Act,
the Comptroller General of the United States shall submit a
report to the Congress regarding the efficacy, costs, and
benefits of requiring that any depository institution that
accepts federally insured deposits and that, directly or
through a contractual or other arrangement with a broker,
dealer, or agent, buys from, sells to, or effects
transactions for retail investors in securities or consumers
of insurance to inform such investors and consumers through
the use of a logo or seal that the security or insurance is
not insured by the Federal Deposit Insurance Corporation.

[[Page H3166]]

TITLE III--INSURANCE

Subtitle A--State Regulation of Insurance

SEC. 301. STATE REGULATION OF THE BUSINESS OF INSURANCE.

The Act entitled ``An Act to express the intent of the
Congress with reference to the regulation of the business of
insurance'' and approved March 9, 1945 (15 U.S.C. 1011 et
seq.), commonly referred to as the ``McCarran--Ferguson
Act'') remains the law of the United States.

SEC. 302. MANDATORY INSURANCE LICENSING REQUIREMENTS.

No person or entity shall provide insurance in a State as
principal or agent unless such person or entity is licensed
as required by the appropriate insurance regulator of such
State in accordance with the relevant State insurance law,
subject to section 104 of this Act.

SEC. 303. FUNCTIONAL REGULATION OF INSURANCE.

The insurance sales activity of any person or entity shall
be functionally regulated by the States, subject to section
104 of this Act.

SEC. 304. INSURANCE UNDERWRITING IN NATIONAL BANKS.

(a) In General.--Except as provided in section 306, a
national bank and the subsidiaries of a national bank may not
provide insurance in a State as principal except that this
prohibition shall not apply to authorized products.
(b) Authorized Products.--For the purposes of this section,
a product is authorized if--
(1) as of January 1, 1997, the Comptroller of the Currency
had determined in writing that national banks may provide
such product as principal, or national banks were in fact
lawfully providing such product as principal;
(2) no court of relevant jurisdiction had, by final
judgment, overturned a determination of the Comptroller of
the Currency that national banks may provide such product as
principal; and
(3) the product is not title insurance, or an annuity
contract the income of which is subject to tax treatment
under section 72 of the Internal Revenue Code of 1986.
(c) Definition.--For purposes of this section, the term
``insurance'' means--
(1) any product regulated as insurance as of January 1,
1997, in accordance with the relevant State insurance law, in
the State in which the product is provided;
(2) any product first offered after January 1, 1997,
which--
(A) a State insurance regulator determines shall be
regulated as insurance in the State in which the product is
provided because the product insures, guarantees, or
indemnifies against liability, loss of life, loss of health,
or loss through damage to or destruction of property,
including, but not limited to, surety bonds, life insurance,
health insurance, title insurance, and property and casualty
insurance (such as private passenger or commercial
automobile, homeowners, mortgage, commercial multiperil,
general liability, professional liability, workers'
compensation, fire and allied lines, farm owners multiperil,
aircraft, fidelity, surety, medical malpractice, ocean
marine, inland marine, and boiler and machinery insurance);
and
(B) is not a product or service of a bank that is--
(i) a deposit product;
(ii) a loan, discount, letter of credit, or other extension
of credit;
(iii) a trust or other fiduciary service;
(iv) a qualified financial contract (as defined in or
determined pursuant to section 11(e)(8)(D)(i) of the Federal
Deposit Insurance Act); or
(v) a financial guaranty, except that this subparagraph (B)
shall not apply to a product that includes an insurance
component such that if the product is offered or proposed to
be offered by the bank as principal--

(I) it would be treated as a life insurance contract under
section 7702 of the Internal Revenue Code of 1986, as
amended; or
(II) in the event that the product is not a letter of
credit or other similar extension of credit, a qualified
financial contract, or a financial guaranty, it would qualify
for treatment for losses incurred with respect to such
product under section 832(b)(5) of the Internal Revenue Code
of 1986, as amended, if the bank were subject to tax as an
insurance company under section 831 of such Code; or

(3) any annuity contract the income on which is subject to
tax treatment under section 72 of the Internal Revenue Code
of 1986, as amended.

SEC. 305. NEW BANK AGENCY ACTIVITIES ONLY THROUGH ACQUISITION
OF EXISTING LICENSED AGENTS.

If a national bank or a subsidiary of a national bank is
not providing insurance as agent in a State as of the date of
the enactment of this Act, the national bank and the
subsidiary of the national bank may provide insurance (which
such bank or subsidiary is otherwise authorized to provide)
as agent in such State after such date only by acquiring a
company which has been licensed by the appropriate State
regulator to provide insurance as agent in such State for not
less than 2 years before such acquisition.

SEC. 306. TITLE INSURANCE ACTIVITIES OF NATIONAL BANKS AND
THEIR AFFILIATES.

(a) Authority.--
(1) In general.--Notwithstanding any other provision of
this Act or any other law, no national bank, and no
subsidiary of a national bank, may engage in any activity
involving the underwriting or sale of title insurance other
than title insurance activities in which such national bank
or subsidiary was actively and lawfully engaged before the
date of the enactment of this Act.
(2) Insurance affiliate.--In the case of a national bank
which has an affiliate which provides insurance as principal
and is not a subsidiary of the bank, the national bank and
any subsidiary of the national bank may not engage in any
activity involving the underwriting or sale of title
insurance pursuant to paragraph (1).
(3) Insurance subsidiary.--In the case of a national bank
which has a subsidiary which provides insurance as principal
and has no affiliate which provides insurance as principal
and is not a subsidiary, the national bank may not engage in
any activity involving the underwriting or sale of title
insurance pursuant to paragraph (1).
(4) Affiliate and subsidiary defined.--For purposes of this
section, the terms ``affiliate'' and ``subsidiary'' have the
meaning given such terms in section 2 of the Bank Holding
Company Act of 1956.
(b) Parity Exception.--Notwithstanding subsection (a), in
the case of any State in which banks organized under the laws
of such State were authorized to sell title insurance as
agent as of January 1, 1997, a national bank and a subsidiary
of a national bank may sell title insurance as agent in such
State in the same manner and to the same extent such State
banks are authorized to sell title insurance as agent in such
State.

SEC. 307. EXPEDITED AND EQUALIZED DISPUTE RESOLUTION FOR
FINANCIAL REGULATORS.

(a) Filing in Court of Appeal.--In the case of a regulatory
conflict between a State insurance regulator and a Federal
regulator as to whether any product is or is not insurance as
defined in section 304(c) of this Act, or whether a State
statute, regulation, order, or interpretation regarding any
insurance sales or solicitation activity is properly treated
as preempted under Federal law, either regulator may seek
expedited judicial review of such determination by the United
States Court of Appeals for the circuit in which the State is
located or in the United States Court of Appeals for the
District of Columbia Circuit by filing a petition for review
in such court.
(b) Expedited Review.--The United States court of appeals
in which a petition for review is filed in accordance with
paragraph (1) shall complete all action on such petition,
including rendering a judgment, before the end of the 60-day
period beginning on the date such petition is filed, unless
all parties to such proceeding agree to any extension of such
period.
(c) Supreme Court Review.--Any request for certiori to the
Supreme Court of the United States of any judgment of a
United States court of appeals with respect to a petition for
review under this section shall be filed with the United
States Supreme Court as soon as practicable after such
judgment is issued.
(d) Statute of Limitation.--No action may be filed under
this section challenging an order, ruling, determination, or
other action of a Federal financial regulator or State
insurance regulator after the later of--
(1) the end of the 12-month period beginning on the date
the first public notice is made of such order, ruling, or
determination in its final form; or
(2) the end of the 6-month period beginning on the date
such order, ruling, or determination takes effect.
(e) Standard of Review.--The court shall decide an action
filed under this section based on its review on the merits of
all questions presented under State and Federal law,
including the nature of the product or activity and the
history and purpose of its regulation under State and Federal
law, without unequal deference.

SEC. 308. CONSUMER PROTECTION REGULATIONS.

(a) Regulations Required.--
(1) In general.--The Federal Deposit Insurance Act (12
U.S.C. 1811 et seq.) is amended by adding at the end the
following new section:

``SEC. 45. CONSUMER PROTECTION REGULATIONS.

``(a) Regulations Required.--
``(1) In general.--The Federal banking agencies shall
prescribe and publish in final form, before the end of the 1-
year period beginning on the date of the enactment of this
Act, consumer protection regulations (which the agencies
jointly determine to be appropriate) that--
``(A) apply to retail sales, solicitations, advertising, or
offers of any insurance product by any insured depository
institution or wholesale financial institution or any person
who is engaged in such activities at an office of the
institution or on behalf of the institution; and
``(B) are consistent with the requirements of this Act and
provide such additional protections for consumers to whom
such sales, solicitations, advertising, or offers are
directed as the agency determines to be appropriate.
``(2) Applicability to subsidiaries.--The regulations
prescribed pursuant to paragraph (1) shall extend such
protections to any subsidiaries of an insured depository
institution, as deemed appropriate by the regulators referred
to in paragraph (3), where such extension is determined to be
necessary to ensure the consumer protections provided by this
section.
``(3) Consultation and joint regulations.--The Federal
banking agencies shall

[[Page H3167]]

consult with each other and prescribe joint regulations
pursuant to paragraph (1), after consultation with the State
insurance regulators, as appropriate.
``(b) Sales Practices.--The regulations prescribed pursuant
to subsection (a) shall include anticoercion rules applicable
to the sale of insurance products which prohibit an insured
depository institution from engaging in any practice that
would lead a consumer to believe an extension of credit, in
violation of section 106(b) of the Bank Holding Company Act
Amendments of 1970, is conditional upon--
``(1) the purchase of an insurance product from the
institution or any of its affiliates or subsidiaries; or
``(2) an agreement by the consumer not to obtain, or a
prohibition on the consumer from obtaining, an insurance
product from an unaffiliated entity.
``(c) Disclosures and Advertising.--The regulations
prescribed pursuant to subsection (a) shall include the
following provisions relating to disclosures and advertising
in connection with the initial purchase of an insurance
product:
``(1) Disclosures.--
``(A) In general.--Requirements that the following
disclosures be made orally and in writing before the
completion of the initial sale and, in the case of clause
(iv), at the time of application for an extension of credit:
``(i) Uninsured status.--As appropriate, the product is not
insured by the Federal Deposit Insurance Corporation, the
United States Government, or the insured depository
institution.
``(ii) Investment risk.--In the case of a variable annuity
or other insurance product which involves an investment risk,
that there is an investment risk associated with the product,
including possible loss of value.
``(iv) Coercion.--The approval of an extension of credit
may not be conditioned on--

``(I) the purchase of an insurance product from the
institution in which the application for credit is pending or
any of its affiliates or subsidiaries; or
``(II) an agreement by the consumer not to obtain, or a
prohibition on the consumer from obtaining, an insurance
product from an unaffiliated entity.

``(B) Making disclosure readily understandable.--
Regulations prescribed under subparagraph (A) shall encourage
the use of disclosure that is conspicuous, simple, direct,
and readily understandable, such as the following:
``(i) `NOT FDIC-INSURED'.
``(ii) `NOT GUARANTEED BY THE BANK'.
``(iii) `MAY GO DOWN IN VALUE'.
``(C) Adjustments for alternative methods of purchase.--In
prescribing the requirements under subparagraphs (A) and (D),
necessary adjustments shall be made for purchase in person,
by telephone, or by electronic media to provide for the most
appropriate and complete form of disclosure and
acknowledgments.
``(D) Consumer acknowledgment.--A requirement that an
insured depository institution shall require any person
selling an insurance product at any office of, or on behalf
of, the institution to obtain, at the time a consumer
receives the disclosures required under this paragraph or at
the time of the initial purchase by the consumer of such
product, an acknowledgment by such consumer of the receipt of
the disclosure required under this subsection with respect to
such product.
``(2) Prohibition on misrepresentations.--A prohibition on
any practice, or any advertising, at any office of, or on
behalf of, the insured depository institution, or any
subsidiary as appropriate, which could mislead any person or
otherwise cause a reasonable person to reach an erroneous
belief with respect to--
``(A) the uninsured nature of any insurance product sold,
or offered for sale, by the institution or any subsidiary of
the institution; or
``(B) in the case of a variable annuity or other insurance
product that involves an investment risk, the investment risk
associated with any such product.
``(d) Separation of Banking and Nonbanking Activities.--
``(1) Regulations required.--The regulations prescribed
pursuant to subsection (a) shall include such provisions as
the Federal banking agencies consider appropriate to ensure
that the routine acceptance of deposits and the making of
loans is kept, to the extent practicable, physically
segregated from insurance product activity.
``(2) Requirements.--Regulations prescribed pursuant to
paragraph (1) shall include the following requirements:
``(A) Separate setting.--A clear delineation of the setting
in which, and the circumstances under which, transactions
involving insurance products should be conducted in a
location physically segregated from an area where retail
deposits are routinely accepted.
``(B) Referrals.--Standards which permit any person
accepting deposits from, or making loans to, the public in an
area where such transactions are routinely conducted in an
insured depository institution to refer a customer who seeks
to purchase any insurance product to a qualified person who
sells such product, only if the person making the referral
receives no more than a one-time nominal fee of a fixed
dollar amount for each referral that does not depend on
whether the referral results in a transaction.
``(C) Qualification and licensing requirements.--Standards
prohibiting any insured depository institution from
permitting any person to sell or offer for sale any insurance
product in any part of any office of the institution, or on
behalf of the institution, unless such person is
appropriately qualified and licensed.
``(e) Domestic Violence Discrimination Prohibition.--
``(1) In general.--In the case of an applicant for, or an
insured under, any insurance product described in paragraph
(2), the status of the applicant or insured as a victim of
domestic violence, or as a provider of services to victims of
domestic violence, shall not be considered as a criterion in
any decision with regard to insurance underwriting, pricing,
renewal, or scope of coverage of insurance policies, or
payment of insurance claims, except as required or expressly
permitted under State law.
``(2) Scope of application.--The prohibition contained in
paragraph (1) shall apply to any insurance product which is
sold or offered for sale, as principal, agent, or broker, by
any insured depository institution or any person who is
engaged in such activities at an office of the institution or
on behalf of the institution.
``(3) Sense of the congress.--It is the sense of the
Congress that, by the end of the 30-month period beginning on
the date of the enactment of this Act, the States should
enact prohibitions against discrimination with respect to
insurance products that are at least as strict as the
prohibitions contained in paragraph (1).
``(4) Domestic violence defined.--For purposes of this
subsection, the term `domestic violence' means the occurrence
of 1 or more of the following acts by a current or former
family member, household member, intimate partner, or
caretaker:
``(A) Attempting to cause or causing or threatening another
person physical harm, severe emotional distress,
psychological trauma, rape, or sexual assault.
``(B) Engaging in a course of conduct or repeatedly
committing acts toward another person, including following
the person without proper authority, under circumstances that
place the person in reasonable fear of bodily injury or
physical harm.
``(C) Subjecting another person to false imprisonment.
``(D) Attempting to cause or cause damage to property so as
to intimidate or attempt to control the behavior of another
person.
``(f) Consumer Grievance Process.--The Federal banking
agencies shall jointly establish a consumer complaint
mechanism, for receiving and expeditiously addressing
consumer complaints alleging a violation of regulations
issued under the section, which shall--
``(1) establish a group within each regulatory agency to
receive such complaints;
``(2) develop procedures for investigating such complaints;
``(3) develop procedures for informing consumers of rights
they may have in connection with such complaints; and
``(4) develop procedures for addressing concerns raised by
such complaints, as appropriate, including procedures for the
recovery of losses to the extent appropriate.
``(g) Effect on Other Authority.--
``(1) No provision of this section shall be construed as
granting, limiting, or otherwise affecting--
``(A) any authority of the Securities and Exchange
Commission, any self-regulatory organization, the Municipal
Securities Rulemaking Board, or the Secretary of the Treasury
under any Federal securities law; or
``(B) any authority of any State insurance commissioner or
other State authority under any State law.
``(2) Regulations prescribed by a Federal banking agency
under this section shall not apply to retail sales,
solicitations, advertising, or offers of any insurance
product by any insured depository institution or wholesale
financial institution or to any person who is engaged in such
activities at an office of such institution or on behalf of
the institution, in a State where the State has in effect
statutes, regulations, orders, or interpretations, that are
inconsistent with or contrary to the regulations prescribed
by the Federal banking agencies.
``(h) Insurance Product Defined.--For purposes of this
section, the term `insurance product' includes an annuity
contract the income of which is subject to tax treatment
under section 72 of the Internal Revenue Code of 1986.''.

SEC. 309. CERTAIN STATE AFFILIATION LAWS PREEMPTED FOR
INSURANCE COMPANIES AND AFFILIATES.

No State may, by law, regulation, order, interpretation, or
otherwise--
(1) prevent or restrict any insurer, or any affiliate of an
insurer (whether such affiliate is organized as a stock
company, mutual holding company, or otherwise), from becoming
a financial holding company or acquiring control of an
insured depository institution;
(2) limit the amount of an insurer's assets that may be
invested in the voting securities of an insured depository
institution (or any company which controls such institution),
except that the laws of an insurer's State of domicile may
limit the amount of such investment to an amount that is not
less than 5 percent of the insurer's admitted assets; or
(3) prevent, restrict, or have the authority to review,
approve, or disapprove a plan of reorganization by which an
insurer proposes to reorganize from mutual form to become a
stock insurer (whether as a direct or indirect

[[Page H3168]]

subsidiary of a mutual holding company or otherwise) unless
such State is the State of domicile of the insurer.

Subtitle B--Redomestication of Mutual Insurers

SEC. 311. GENERAL APPLICATION.

This subtitle shall only apply to a mutual insurance
company in a State which has not enacted a law which
expressly establishes reasonable terms and conditions for a
mutual insurance company domiciled in such State to
reorganize into a mutual holding company.

SEC. 312. REDOMESTICATION OF MUTUAL INSURERS.

(a) Redomestication.--A mutual insurer organized under the
laws of any State may transfer its domicile to a transferee
domicile as a step in a reorganization in which, pursuant to
the laws of the transferee domicile and consistent with the
standards in subsection (f), the mutual insurer becomes a
stock insurer that is a direct or indirect subsidiary of a
mutual holding company.
(b) Resulting Domicile.--Upon complying with the applicable
law of the transferee domicile governing transfers of
domicile and completion of a transfer pursuant to this
section, the mutual insurer shall cease to be a domestic
insurer in the transferor domicile and, as a continuation of
its corporate existence, shall be a domestic insurer of the
transferee domicile.
(c) Licenses Preserved.--The certificate of authority,
agents' appointments and licenses, rates, approvals and other
items that a licensed State allows and that are in existence
immediately prior to the date that a redomesticating insurer
transfers its domicile pursuant to this subtitle shall
continue in full force and effect upon transfer, if the
insurer remains duly qualified to transact the business of
insurance in such licensed State.
(d) Effectiveness of Outstanding Policies and Contracts.--
(1) In general.--All outstanding insurance policies and
annuities contracts of a redomesticating insurer shall remain
in full force and effect and need not be endorsed as to the
new domicile of the insurer, unless so ordered by the State
insurance regulator of a licensed State, and then only in the
case of outstanding policies and contracts whose owners
reside in such licensed State.
(2) Forms.--
(A) Applicable State law may require a redomesticating
insurer to file new policy forms with the State insurance
regulator of a licensed State on or before the effective date
of the transfer.
(B) Notwithstanding subparagraph (A), a redomesticating
insurer may use existing policy forms with appropriate
endorsements to reflect the new domicile of the
redomesticating insurer until the new policy forms are
approved for use by the State insurance regulator of such
licensed State.
(e) Notice.--A redomesticating insurer shall give notice of
the proposed transfer to the State insurance regulator of
each licensed State and shall file promptly any resulting
amendments to corporate documents required to be filed by a
foreign licensed mutual insurer with the insurance regulator
of each such licensed State.
(f) Procedural Requirements.--No mutual insurer may
redomesticate to another State and reorganize into a mutual
holding company pursuant to this section unless the State
insurance regulator of the transferee domicile determines
that the plan of reorganization of the insurer includes the
following requirements:
(1) Approval by board of directors and policyholders.--The
reorganization is approved by at least a majority of the
board of directors of the mutual insurer and at least a
majority of the policyholders who vote after notice,
disclosure of the reorganization and the effects of the
transaction on policyholder contractual rights, and
reasonable opportunity to vote, in accordance with such
notice, disclosure, and voting procedures as are approved by
the State insurance regulator of the transferee domicile.
(2) Continued voting control by policyholders; review of
public stock offering.--After the consummation of a
reorganization, the policyholders of the reorganized insurer
shall have the same voting rights with respect to the mutual
holding company as they had before the reorganization with
respect to the mutual insurer. With respect to an initial
public offering of stock, the offering shall be conducted in
compliance with applicable securities laws and in a manner
approved by the State insurance regulator of the transferee
domicile.
(3) Award of stock or grant of options to officers and
directors.--For a period of 6 months after completion of an
initial public offering, neither a stock holding company nor
the converted insurer shall award any stock options or stock
grants to persons who are elected officers or directors of
the mutual holding company, the stock holding company, or the
converted insurer, except with respect to any such awards or
options to which a person is entitled as a policyholder and
as approved by the State insurance regulator of the
transferee domicile.
(4) Contractual rights.--Upon reorganization into a mutual
holding company, the contractual rights of the policyholders
are preserved.
(5) Fair and equitable treatment of policyholders.--The
reorganization is approved as fair and equitable to the
policyholders by the insurance regulator of the transferee
domicile.

SEC. 313. EFFECT ON STATE LAWS RESTRICTING REDOMESTICATION.

(a) In General.--Unless otherwise permitted by this
subtitle, State laws of any transferor domicile that conflict
with the purposes and intent of this subtitle are preempted,
including but not limited to--
(1) any law that has the purpose or effect of impeding the
activities of, taking any action against, or applying any
provision of law or regulation to, any insurer or an
affiliate of such insurer because that insurer or any
affiliate plans to redomesticate, or has redomesticated,
pursuant to this subtitle;
(2) any law that has the purpose or effect of impeding the
activities of, taking action against, or applying any
provision of law or regulation to, any insured or any
insurance licensee or other intermediary because such person
or entity has procured insurance from or placed insurance
with any insurer or affiliate of such insurer that plans to
redomesticate, or has redomesticated, pursuant to this
subtitle, but only to the extent that such law would treat
such insured licensee or other intermediary differently than
if the person or entity procured insurance from, or placed
insurance with, an insured licensee or other intermediary
which had not redomesticated;
(3) any law that has the purpose or effect of terminating,
because of the redomestication of a mutual insurer pursuant
to this subtitle, any certificate of authority, agent
appointment or license, rate approval, or other approval, of
any State insurance regulator or other State authority in
existence immediately prior to the redomestication in any
State other than the transferee domicile.
(b) Differential Treatment Prohibited.--No State law,
regulation, interpretation, or functional equivalent thereof,
of a State other than a transferee domicile may treat a
redomesticating or redomesticated insurer or any affiliate
thereof any differently than an insurer operating in that
State that is not a redomesticating or redomesticated
insurer.
(c) Laws Prohibiting Operations.--If any licensed State
fails to issue, delays the issuance of, or seeks to revoke an
original or renewal certificate of authority of a
redomesticated insurer immediately following redomestication,
except on grounds and in a manner consistent with its past
practices regarding the issuance of certificates of authority
to foreign insurers that are not redomesticating, then the
redomesticating insurer shall be exempt from any State law of
the licensed State to the extent that such State law or the
operation of such State law would make unlawful, or regulate,
directly or indirectly, the operation of the redomesticated
insurer, except that such licensed State may require the
redomesticated insurer to--
(1) comply with the unfair claim settlement practices law
of the licensed State;
(2) pay, on a nondiscriminatory basis, applicable premium
and other taxes which are levied on licensed insurers or
policyholders under the laws of the licensed State;
(3) register with and designate the State insurance
regulator as its agent solely for the purpose of receiving
service of legal documents or process;
(4) submit to an examination by the State insurance
regulator in any licensed state in which the redomesticated
insurer is doing business to determine the insurer's
financial condition, if--
(A) the State insurance regulator of the transferee
domicile has not begun an examination of the redomesticated
insurer and has not scheduled such an examination to begin
before the end of the 1-year period beginning on the date of
the redomestication; and
(B) any such examination is coordinated to avoid
unjustified duplication and repetition;
(5) comply with a lawful order issued in--
(A) a delinquency proceeding commenced by the State
insurance regulator of any licensed State if there has been a
judicial finding of financial impairment under paragraph (7);
or
(B) a voluntary dissolution proceeding;
(6) comply with any State law regarding deceptive, false,
or fraudulent acts or practices, except that if the licensed
State seeks an injunction regarding the conduct described in
this paragraph, such injunction must be obtained from a court
of competent jurisdiction as provided in section 314(a);
(7) comply with an injunction issued by a court of
competent jurisdiction, upon a petition by the State
insurance regulator alleging that the redomesticating insurer
is in hazardous financial condition or is financially
impaired;
(8) participate in any insurance insolvency guaranty
association on the same basis as any other insurer licensed
in the licensed State; and
(9) require a person acting, or offering to act, as an
insurance licensee for a redomesticated insurer in the
licensed State to obtain a license from that State, except
that such State may not impose any qualification or
requirement that discriminates against a nonresident
insurance licensee.

SEC. 314. OTHER PROVISIONS.

(a) Judicial Review.--The appropriate United States
district court shall have exclusive jurisdiction over
litigation arising under this section involving any
redomesticating or redomesticated insurer.
(b) Severability.--If any provision of this section, or the
application thereof to any person or circumstances, is held
invalid, the remainder of the section, and the application

[[Page H3169]]

of such provision to other persons or circumstances, shall
not be affected thereby.

SEC. 315. DEFINITIONS.

For purposes of this subtitle, the following definitions
shall apply:
(1) Court of competent jurisdiction.--The term ``court of
competent jurisdiction'' means a court authorized pursuant to
section 314(a) to adjudicate litigation arising under this
subtitle.
(2) Domicile.--The term ``domicile'' means the State in
which an insurer is incorporated, chartered, or organized.
(3) Insurance licensee.--The term ``insurance licensee''
means any person holding a license under State law to act as
insurance agent, subagent, broker, or consultant.
(4) Institution.--The term ``institution'' means a
corporation, joint stock company, limited liability company,
limited liability partnership, association, trust,
partnership, or any similar entity.
(5) Licensed state.--The term ``licensed State'' means any
State, the District of Columbia, American Samoa, Guam, Puerto
Rico, or the United States Virgin Islands in which the
redomesticating insurer has a certificate of authority in
effect immediately prior to the redomestication.
(6) Mutual insurer.--The term ``mutual insurer'' means a
mutual insurer organized under the laws of any State.
(7) Person.--The term ``person'' means an individual,
institution, government or governmental agency, State or
political subdivision of a State, public corporation, board,
association, estate, trustee, or fiduciary, or other similar
entity.
(8) Policyholder.--The term ``policyholder'' means the
owner of a policy issued by a mutual insurer, except that,
with respect to voting rights, the term means a member of a
mutual insurer or mutual holding company granted the right to
vote, as determined under applicable State law.
(9) Redomesticated insurer.--The term ``redomesticated
insurer'' means a mutual insurer that has redomesticated
pursuant to this subtitle.
(10) Redomesticating insurer.--The term ``redomesticating
insurer'' means a mutual insurer that is redomesticating
pursuant to this subtitle.
(11) Redomestication or transfer.--The terms
``redomestication'' and ``transfer'' mean the transfer of the
domicile of a mutual insurer from one State to another State
pursuant to this subtitle.
(12) State insurance regulator.--The term ``State insurance
regulator'' means the principal insurance regulatory
authority of a State, the District of Columbia, American
Samoa, Guam, Puerto Rico, or the United States Virgin
Islands.
(13) State law.--The term ``State law'' means the statutes
of any State, the District of Columbia, American Samoa, Guam,
Puerto Rico, or the United States Virgin Islands and any
regulation, order, or requirement prescribed pursuant to any
such statute.
(14) Transferee domicile.--The term ``transferee domicile''
means the State to which a mutual insurer is redomesticating
pursuant to this subtitle.
(15) Transferor domicile.--The term ``transferor domicile''
means the State from which a mutual insurer is
redomesticating pursuant to this subtitle.

SEC. 316. EFFECTIVE DATE.

This subtitle shall take effect on the date of enactment of
this Act.

Subtitle C--National Association of Registered Agents and Brokers

SEC. 321. STATE FLEXIBILITY IN MULTISTATE LICENSING REFORMS.

(a) In General.--The provisions of this subtitle shall
take effect unless by the end of the 3-year period beginning
on the date of the enactment of this Act at least a majority
of the States--
(1) have enacted uniform laws and regulations governing the
licensure of individuals and entities authorized to sell and
solicit the purchase of insurance within the State; or
(2) have enacted reciprocity laws and regulations governing
the licensure of nonresident individuals and entities
authorized to sell and solicit insurance within those States.
(b) Uniformity Required.--States shall be deemed to have
established the uniformity necessary to satisfy subsection
(a)(1) if the States--
(1) establish uniform criteria regarding the integrity,
personal qualifications, education, training, and experience
of licensed insurance producers, including the qualification
and training of sales personnel in ascertaining the
appropriateness of a particular insurance product for a
prospective customer;
(2) establish uniform continuing education requirements for
licensed insurance producers;
(3) establish uniform ethics course requirements for
licensed insurance producers in conjunction with the
continuing education requirements under paragraph (2);
(4) establish uniform criteria to ensure that an insurance
product, including any annuity contract, sold to a consumer
is suitable and appropriate for the consumer based on
financial information disclosed by the consumer; and
(5) do not impose any requirement upon any insurance
producer to be licensed or otherwise qualified to do business
as a nonresident that has the effect of limiting or
conditioning that producer's activities because of its
residence or place of operations, except that counter-
signature requirements imposed on nonresident producers shall
not be deemed to have the effect of limiting or conditioning
a producer's activities because of its residence or place of
operations under this section.
(c) Reciprocity Required.--States shall be deemed to have
established the reciprocity required to satisfy subsection
(a)(2) if the following conditions are met:
(1) Administrative licensing procedures.--At least a
majority of the States permit a producer that has a resident
license for selling or soliciting the purchase of insurance
in its home State to receive a license to sell or solicit the
purchase of insurance in such majority of States as a
nonresident to the same extent such producer is permitted to
sell or solicit the purchase of insurance in its State,
without satisfying any additional requirements other than
submitting--
(A) a request for licensure;
(B) the application for licensure that the producer
submitted to its home State;
(C) proof that the producer is licensed and in good
standing in its home State; and
(D) the payment of any requisite fee to the appropriate
authority,

if the producer's home State also awards such licenses on
such a reciprocal basis.
(2) Continuing education requirements.--A majority of the
States accept an insurance producer's satisfaction of its
home State's continuing education requirements for licensed
insurance producers to satisfy the States' own continuing
education requirements if the producer's home State also
recognizes the satisfaction of continuing education
requirements on such a reciprocal basis.
(3) No limiting nonresident requirements.--A majority of
the States do not impose any requirement upon any insurance
producer to be licensed or otherwise qualified to do business
as a nonresident that has the effect of limiting or
conditioning that producer's activities because of its
residence or place of operations, except that
countersignature requirements imposed on nonresident
producers shall not be deemed to have the effect of limiting
or conditioning a producer's activities because of its
residence or place of operations under this section.
(4) Reciprocal reciprocity.--Each of the States that
satisfies paragraphs (1), (2), and (3) grants reciprocity to
residents of all of the other States that satisfy such
paragraphs.
(d) Determination.--
(1) NAIC determination.--At the end of the 3-year period
beginning on the date of the enactment of this Act, the
National Association of Insurance Commissioners shall
determine, in consultation with the insurance commissioners
or chief insurance regulatory officials of the States,
whether the uniformity or reciprocity required by subsections
(b) and (c) has been achieved.
(2) Judicial review.--The appropriate United States
district court shall have exclusive jurisdiction over any
challenge to the National Association of Insurance
Commissioners' determination under this section and such
court shall apply the standards set forth in section 706 of
title 5, United States Code, when reviewing any such
challenge.
(e) Continued Application.--If, at any time, the uniformity
or reciprocity required by subsections (b) and (c) no longer
exists, the provisions of this subtitle shall take effect
within 2 years, unless the uniformity or reciprocity required
by those provisions is satisfied before the expiration of
that 2-year period.
(f) Savings Provision.--No provision of this section shall
be construed as requiring that any law, regulation,
provision, or action of any State which purports to regulate
insurance producers, including any such law, regulation,
provision, or action which purports to regulate unfair trade
practices or establish consumer protections, including
countersignature laws, be altered or amended in order to
satisfy the uniformity or reciprocity required by subsections
(b) and (c), unless any such law, regulation, provision, or
action is inconsistent with a specific requirement of any
such subsection and then only to the extent of such
inconsistency.

SEC. 322. NATIONAL ASSOCIATION OF REGISTERED AGENTS AND
BROKERS.

(a) Establishment.--There is established the National
Association of Registered Agents and Brokers (hereafter in
this subtitle referred to as the ``Association'')
(b) Status.--The Association shall--
(1) be a nonprofit corporation and be presumed to have the
status of an organization described in section 501(c)(6) of
the Internal Revenue Code of 1986 unless the Secretary of the
Treasury determines that the Association does not meet the
requirements of such section;
(2) have succession until dissolved by an Act of Congress;
(3) not be an agency or establishment of the United States
Government; and
(4) except as otherwise provided in this Act, be subject
to, and have all the powers conferred upon a nonprofit
corporation by the District of Columbia Nonprofit Corporation
Act (D.C. Code, sec. 29y-1001 et seq.).

SEC. 323. PURPOSE.

The purpose of the Association shall be to provide a
mechanism through which uniform licensing, appointment,
continuing education, and other insurance producer sales
qualification requirements and conditions can be adopted and
applied on a multistate basis, while preserving the right of
States to

[[Page H3170]]

license, supervise, and discipline insurance producers and to
prescribe and enforce laws and regulations with regard to
insurance-related consumer protection and unfair trade
practices.

SEC. 324. RELATIONSHIP TO THE FEDERAL GOVERNMENT.

The Association shall be subject to the supervision and
oversight of the National Association of Insurance
Commissioners (hereafter in this subtitle referred to as the
``NAIC'') and shall not be an agency or an instrumentality of
the United States Government.

SEC. 325. MEMBERSHIP.

(a) Eligibility.--
(1) In general.--Any State-licensed insurance producer
shall be eligible to become a member in the Association.
(2) Ineligibility for suspension or revocation of
license.--Notwithstanding paragraph (1), a State-licensed
insurance producer shall not be eligible to become a member
if a State insurance regulator has suspended or revoked such
producer's license in that State during the 3-year preceding
the date such producer applies for membership.
(3) Resumption of eligibility.--Paragraph (2) shall cease
to apply to any insurance producer if--
(A) the State insurance regulator renews the license of
such producer in the State in which the license was suspended
or revoked; or
(B) the suspension or revocation is subsequently
overturned.
(b) Authority To Establish Membership Criteria.--The
Association shall have the authority to establish membership
criteria that--
(1) bear a reasonable relationship to the purposes for
which the Association was established; and
(2) do not unfairly limit the access of smaller agencies to
the Association membership.
(c) Establishment of Classes and Categories.--
(1) Classes of membership.--The Association may establish
separate classes of membership, with separate criteria, if
the Association reasonably determines that performance of
different duties requires different levels of education,
training, or experience.
(2) Categories.--The Association may establish separate
categories of membership for individuals and for other
persons. The establishment of any such categories of
membership shall be based either on the types of licensing
categories that exist under State laws or on the aggregate
amount of business handled by an insurance producer. No
special categories of membership, and no distinct membership
criteria, shall be established for members which are insured
depository institutions or wholesale financial institutions
or for their employees, agents, or affiliates.
(d) Membership Criteria.--
(1) In general.--The Association may establish criteria for
membership which shall include standards for integrity,
personal qualifications, education, training, and experience.
(2) Minimum standard.--In establishing criteria under
paragraph (1), the Association shall consider the highest
levels of insurance producer qualifications established under
the licensing laws of the States.
(e) Effect of Membership.--Membership in the Association
shall entitle the member to licensure in each State for which
the member pays the requisite fees, including licensing fees
and, where applicable, bonding requirements, set by such
State.
(f) Annual Renewal.--Membership in the Association shall be
renewed on an annual basis.
(g) Continuing Education.--The Association shall establish,
as a condition of membership, continuing education
requirements which shall be comparable to or greater than the
continuing education requirements under the licensing laws of
a majority of the States.
(h) Suspension and Revocation.--The Association may--
(1) inspect and examine the records and offices of the
members of the Association to determine compliance with the
criteria for membership established by the Association; and
(2) suspend or revoke the membership of an insurance
producer if--
(A) the producer fails to meet the applicable membership
criteria of the Association: or
(B) the producer has been subject to disciplinary action
pursuant to a final adjudicatory proceeding under the
jurisdiction of a State insurance regulator, and the
Association concludes that retention of membership in the
Association would not be in the public interest.
(i) Office of Consumer Complaints.--
(1) In general.--The Association shall establish an office
of consumer complaints that shall--
(A) receive and investigate complaints from both consumers
and State insurance regulators related to members of the
Association; and
(B) recommend to the Association any disciplinary actions
that the office considers appropriate, to the extent that any
such recommendation is not inconsistent with State law.
(2) Records and referrals.--The office of consumer
complaints of the Association shall--
(A) maintain records of all complaints received in
accordance with paragraph (1) and make such records available
to the NAIC and to each State insurance regulator for the
State of residence of the consumer who filed the complaint;
and
(B) refer, when appropriate, any such complaint to any
appropriate State insurance regulator.
(3) Telephone and other access.--The office of consumer
complaints shall maintain a toll-free telephone number for
the purpose of this subsection and, as practicable, other
alternative means of communication with consumers, such as an
Internet home page.

SEC. 326. BOARD OF DIRECTORS.

(a) Establishment.--There is established the board of
directors of the Association (hereafter in this subtitle
referred to as the ``Board'') for the purpose of governing
and supervising the activities of the Association and the
members of the Association.
(b) Powers.--The Board shall have such powers and authority
as may be specified in the bylaws of the Association.
(c) Composition.--
(1) Members.--The Board shall be composed of 7 members
appointed by the NAIC.
(2) Requirement.--At least 4 of the members of the Board
shall have significant experience with the regulation of
commercial lines of insurance in at least 1 of the 20 States
in which the greatest total dollar amount of commercial-lines
insurance is placed in the United States.
(3) Initial board membership.--
(A) In general.--If, by the end of the 2-year period
beginning on the date of the enactment of this Act, the NAIC
has not appointed the initial 7 members of the Board of the
Association, the initial Board shall consist of the 7 State
insurance regulators of the 7 States with the greatest total
dollar amount of commercial-lines insurance in place as of
the end of such period.
(B) Alternate composition.--If any of the State insurance
regulators described in subparagraph (A) declines to serve on
the Board, the State insurance regulator with the next
greatest total dollar amount of commercial-lines insurance in
place, as determined by the NAIC as of the end of such
period, shall serve as a member of the Board.
(C) Inoperability.--If fewer than 7 State insurance
regulators accept appointment to the Board, the Association
shall be established without NAIC oversight pursuant to
section 332.
(d) Terms.--The term of each director shall, after the
initial appointment of the members of the Board, be for 3
years, with \1/3\ of the directors to be appointed each year.
(e) Board Vacancies.--A vacancy on the Board shall be
filled in the same manner as the original appointment of the
initial Board for the remainder of the term of the vacating
member.
(f) Meetings.--The Board shall meet at the call of the
chairperson, or as otherwise provided by the bylaws of the
Association.

SEC. 327. OFFICERS.

(a) In General.--
(1) Positions.--The officers of the Association shall
consist of a chairperson and a vice chairperson of the Board,
a president, secretary, and treasurer of the Association, and
such other officers and assistant officers as may be deemed
necessary.
(2) Manner of selection.--Each officer of the Board and the
Association shall be elected or appointed at such time and in
such manner and for such terms not exceeding 3 years as may
be prescribed in the bylaws of the Association.
(b) Criteria for Chairperson.-- Only individuals who are
members of the National Association of Insurance
Commissioners shall be eligible to serve as the chairperson
of the board of directors.

SEC. 328. BYLAWS, RULES, AND DISCIPLINARY ACTION.

(a) Adoption and Amendment of Bylaws.--
(1) Copy required to be filed with the naic.--The board of
directors of the Association shall file with the NAIC a copy
of the proposed bylaws or any proposed amendment to the
bylaws, accompanied by a concise general statement of the
basis and purpose of such proposal.
(2) Effective date.--Except as provided in paragraph (3),
any proposed bylaw or proposed amendment shall take effect--
(A) 30 days after the date of the filing of a copy with the
NAIC;
(B) upon such later date as the Association may designate;
or
(C) such earlier date as the NAIC may determine.
(3) Disapproval by the naic.--Notwithstanding paragraph
(2), a proposed bylaw or amendment shall not take effect if,
after public notice and opportunity to participate in a
public hearing--
(A) the NAIC disapproves such proposal as being contrary to
the public interest or contrary to the purposes of this
subtitle and provides notice to the Association setting forth
the reasons for such disapproval; or
(B) the NAIC finds that such proposal involves a matter of
such significant public interest that public comment should
be obtained, in which case it may, after notifying the
Association in writing of such finding, require that the
procedures set forth in subsection (b) be followed with
respect to such proposal, in the same manner as if such
proposed bylaw change were a proposed rule change within the
meaning of such paragraph.
(b) Adoption and Amendment of Rules.--
(1) Filing proposed regulations with the naic.--

[[Page H3171]]

(A) In general.--The board of directors of the Association
shall file with the NAIC a copy of any proposed rule or any
proposed amendment to a rule of the Association which shall
be accompanied by a concise general statement of the basis
and purpose of such proposal.
(B) Other rules and amendments ineffective.--No proposed
rule or amendment shall take effect unless approved by the
NAIC or otherwise permitted in accordance with this
paragraph.
(2) Initial consideration by the naic.--Within 35 days
after the date of publication of notice of filing of a
proposal, or before the end of such longer period not to
exceed 90 days as the NAIC may designate after such date if
the NAIC finds such longer period to be appropriate and sets
forth its reasons for so finding, or as to which the
Association consents, the NAIC shall--
(A) by order approve such proposed rule or amendment; or
(B) institute proceedings to determine whether such
proposed rule or amendment should be modified or disapproved.
(3) NAIC proceedings.--
(A) In general.--Proceedings instituted by the NAIC with
respect to a proposed rule or amendment pursuant to paragraph
(2) shall--
(i) include notice of the grounds for disapproval under
consideration;
(ii) provide opportunity for hearing; and
(iii) be concluded within 180 days after the date of the
Association's filing of such proposed rule or amendment.
(B) Disposition of proposal.--At the conclusion of any
proceeding under subparagraph (A), the NAIC shall, by order,
approve or disapprove the proposed rule or amendment.
(C) Extension of time for consideration.--The NAIC may
extend the time for concluding any proceeding under
subparagraph (A) for--
(i) not more than 60 days if the NAIC finds good cause for
such extension and sets forth its reasons for so finding; or
(ii) for such longer period as to which the Association
consents.
(4) Standards for review.--
(A) Grounds for approval.--The NAIC shall approve a
proposed rule or amendment if the NAIC finds that the rule or
amendment is in the public interest and is consistent with
the purposes of this Act.
(B) Approval before end of notice period.--The NAIC shall
not approve any proposed rule before the end of the 30-day
period beginning on the date the Association files proposed
rules or amendments in accordance with paragraph (1) unless
the NAIC finds good cause for so doing and sets forth the
reasons for so finding.
(5) Alternate procedure.--
(A) In general.--Notwithstanding any provision of this
subsection other than subparagraph (B), a proposed rule or
amendment relating to the administration or organization of
the Association may take effect--
(i) upon the date of filing with the NAIC, if such proposed
rule or amendment is designated by the Association as
relating solely to matters which the NAIC, consistent with
the public interest and the purposes of this subsection,
determines by rule do not require the procedures set forth in
this paragraph; or
(ii) upon such date as the NAIC shall for good cause
determine.
(B) Abrogation by the naic.--
(i) In general.--At any time within 60 days after the date
of filing of any proposed rule or amendment under
subparagraph (A)(i) or (B)(ii), the NAIC may repeal such rule
or amendment and require that the rule or amendment be
refiled and reviewed in accordance with this paragraph, if
the NAIC finds that such action is necessary or appropriate
in the public interest, for the protection of insurance
producers or policyholders, or otherwise in furtherance of
the purposes of this subtitle.
(ii) Effect of reconsideration by the naic.--Any action of
the NAIC pursuant to clause (i) shall--

(I) not affect the validity or force of a rule change
during the period such rule or amendment was in effect; and
(II) not be considered to be final action.

(c) Action Required by the NAIC.--The NAIC may, in
accordance with such rules as the NAIC determines to be
necessary or appropriate to the public interest or to carry
out the purposes of this subtitle, require the Association to
adopt, amend, or repeal any bylaw, rule or amendment of the
Association, whenever adopted.
(d) Disciplinary Action by the Association.--
(1) Specification of charges.--In any proceeding to
determine whether membership shall be denied, suspended,
revoked, and not renewed (hereafter in this section referred
to as a ``disciplinary action''), the Association shall bring
specific charges, notify such member of such charges and give
the member an opportunity to defend against the charges, and
keep a record.
(2) Supporting statement.--A determination to take
disciplinary action shall be supported by a statement setting
forth--
(A) any act or practice in which such member has been found
to have been engaged;
(B) the specific provision of this subtitle, the rules or
regulations under this subtitle, or the rules of the
Association which any such act or practice is deemed to
violate; and
(C) the sanction imposed and the reason for such sanction.
(e) NAIC Review of Disciplinary Action.--
(1) Notice to the naic.--If the Association orders any
disciplinary action, the Association shall promptly notify
the NAIC of such action.
(2) Review by the naic.--Any disciplinary action taken by
the Association shall be subject to review by the NAIC--
(A) on the NAIC's own motion; or
(B) upon application by any person aggrieved by such action
if such application is filed with the NAIC not more than 30
days after the later of--
(i) the date the notice was filed with the NAIC pursuant to
paragraph (1); or
(ii) the date the notice of the disciplinary action was
received by such aggrieved person.
(f) Effect of Review.--The filing of an application to the
NAIC for review of a disciplinary action, or the institution
of review by the NAIC on the NAIC's own motion, shall not
operate as a stay of disciplinary action unless the NAIC
otherwise orders.
(g) Scope of Review.--
(A) In general.--In any proceeding to review such action,
after notice and the opportunity for hearing, the NAIC
shall--
(i) determine whether the action should be taken;
(ii) affirm, modify, or rescind the disciplinary sanction;
or
(iii) remand to the Association for further proceedings.
(B) Dismissal of review.--The NAIC may dismiss a proceeding
to review disciplinary action if the NAIC finds that--
(i) the specific grounds on which the action is based exist
in fact;
(ii) the action is in accordance with applicable rules and
regulations; and
(iii) such rules and regulations are, and were, applied in
a manner consistent with the purposes of this Act.

SEC. 329. ASSESSMENTS.

(a) Insurance Producers Subject to Assessment.--The
Association may establish such application and membership
fees as the Association finds necessary to cover the costs of
its operations, including fees made reimbursable to the NAIC
under subsection (b), except that, in setting such fees, the
Association may not discriminate against smaller insurance
producers.
(b) NAIC Assessments.--The NAIC may assess the Association
for any costs it incurs under this subtitle.

SEC. 330. FUNCTIONS OF THE NAIC.

(a) Administrative Procedure.--Determinations of the NAIC,
for purposes of making rules pursuant to section 328, shall
be made after appropriate notice and opportunity for a
hearing and for submission of views of interested persons.
(b) Examinations and Reports.--
(1) The NAIC may make such examinations and inspections of
the Association and require the Association to furnish it
with such reports and records or copies thereof as the NAIC
may consider necessary or appropriate in the public interest
or to effectuate the purposes of this subtitle.
(2) As soon as practicable after the close of each fiscal
year, the Association shall submit to the NAIC a written
report regarding the conduct of its business, and the
exercise of the other rights and powers granted by this
subtitle, during such fiscal year. Such report shall include
financial statements setting forth the financial position of
the Association at the end of such fiscal year and the
results of its operations (including the source and
application of its funds) for such fiscal year. The NAIC
shall transmit such report to the President and the Congress
with such comment thereon as the NAIC determines to be
appropriate.

SEC. 331. LIABILITY OF THE ASSOCIATION AND THE DIRECTORS,
OFFICERS, AND EMPLOYEES OF THE ASSOCIATION.

(a) In General.--The Association shall not be deemed to be
an insurer or insurance producer within the meaning of any
State law, rule, regulation, or order regulating or taxing
insurers, insurance producers, or other entities engaged in
the business of insurance, including provisions imposing
premium taxes, regulating insurer solvency or financial
condition, establishing guaranty funds and levying
assessments, or requiring claims settlement practices.
(b) Liability of the Association, Its Directors, Officers,
and Employees.--Neither the Association nor any of its
directors, officers, or employees shall have any liability to
any person for any action taken or omitted in good faith
under or in connection with any matter subject to this
subtitle.

SEC. 332. ELIMINATION OF NAIC OVERSIGHT.

(a) In General.--The Association shall be established
without NAIC oversight and the provisions set forth in
section 324, subsections (a), (b), (c), and (e) of section
328, and sections 329(b) and 330 of this subtitle shall cease
to be effective if, at the end of the 2-year period after the
date on which the provisions of this subtitle take effect
pursuant to section 321--
(1) at least a majority of the States representing at least
50 percent of the total United States commercial-lines
insurance premiums have not satisfied the uniformity or
reciprocity requirements of subsections (a) and (b) of
section 321; and
(2) the NAIC has not approved the Association's bylaws as
required by section 328, the NAIC is unable to operate or
supervise the Association, or the Association is not
conducting its activities as required under this Act.
(b) Board Appointments.--If the repeals required by
subsection (a) are implemented--

[[Page H3172]]

(1) General appointment power.--The President, with the
advice and consent of the United States Senate, shall appoint
the members of the Association's Board established under
section 326 from lists of candidates recommended to the
President by the National Association of Insurance
Commissioners.
(2) Procedures for obtaining national association of
insurance commissioners appointment recommendations.--
(A) Initial determination and recommendations.--After the
date on which the provisions of part a of this section take
effect, then the National Association of Insurance
Commissioners shall have 60 days to provide a list of
recommended candidates to the President. If the National
Association of Insurance Commissioners fails to provide a
list by that date, or if any list that is provided does not
include at least 14 recommended candidates or comply with the
requirements of section 326(c), the President shall, with the
advice and consent of the United States Senate, make the
requisite appointments without considering the views of the
NAIC.
(B) Subsequent appointments.--After the initial
appointments, the National Association of Insurance
Commissioners shall provide a list of at least 6 recommended
candidates for the Board to the President by January 15 of
each subsequent year. If the National Association of
Insurance Commissioners fails to provide a list by that date,
or if any list that is provided does not include at least 6
recommended candidates or comply with the requirements of
section 326(c), the President, with the advice and consent of
the Senate, shall make the requisite appointments without
considering the views of the NAIC.
(C) Presidential oversight.--
(i) Removal.--If the President determines that the
Association is not acting in the interests of the public, the
President may remove the entire existing Board for the
remainder of the term to which the members of the Board were
appointed and appoint, with the advice and consent of the
Senate, new members to fill the vacancies on the Board for
the remainder of such terms.
(ii) Suspension of rules or actions.--The President, or a
person designated by the President for such purpose, may
suspend the effectiveness of any rule, or prohibit any
action, of the Association which the President or the
designee determines is contrary to the public interest.
(d) Annual Report.--As soon as practicable after the close
of each fiscal year, the Association shall submit to the
President and to Congress a written report relative to the
conduct of its business, and the exercise of the other rights
and powers granted by this subtitle, during such fiscal year.
Such report shall include financial statements setting forth
the financial position of the Association at the end of such
fiscal year and the results of its operations (including the
source and application of its funds) for such fiscal year.

SEC. 333. RELATIONSHIP TO STATE LAW.

(a) Preemption of State Laws.--State laws, regulations,
provisions, or actions purporting to regulate insurance
producers shall be preempted in the following instances:
(1) No State shall impede the activities of, take any
action against, or apply any provision of law or regulation
to, any insurance producer because that insurance producer or
any affiliate plans to become, has applied to become, or is a
member of the Association.
(2) No State shall impose any requirement upon a member of
the Association that it pay different fees to be licensed or
otherwise qualified to do business in that State, including
bonding requirements, based on its residency.
(3) No State shall impose any licensing, appointment,
integrity, personal or corporate qualifications, education,
training, experience, residency, or continuing education
requirement upon a member of the Association that is
different than the criteria for membership in the Association
or renewal of such membership, except that counter-signature
requirements imposed on nonresident producers shall not be
deemed to have the effect of limiting or conditioning a
producer's activities because of its residence or place of
operations under this section.
(4) No State shall implement the procedures of such State's
system of licensing or renewing the licenses of insurance
producers in a manner different from the authority of the
Association under section 325.
(b) Savings Provision.--Except as provided in subsection
(a), no provision of this section shall be construed as
altering or affecting the continuing effectiveness of any
law, regulation, provision, or action of any State which
purports to regulate insurance producers, including any such
law, regulation, provision, or action which purports to
regulate unfair trade practices or establish consumer
protections, including, but not limited to, countersignature
laws.

SEC. 334. COORDINATION WITH OTHER REGULATORS.

(a) Coordination With State Insurance Regulators.--The
Association shall have the authority to--
(1) issue uniform insurance producer applications and
renewal applications that may be used to apply for the
issuance or removal of State licenses, while preserving the
ability of each State to impose such conditions on the
issuance or renewal of a license as are consistent with
section 333;
(2) establish a central clearinghouse through which members
of the Association may apply for the issuance or renewal of
licenses in multiple States; and
(3) establish or utilize a national database for the
collection of regulatory information concerning the
activities of insurance producers.
(b) Coordination With the National Association of
Securities Dealers.--The Association shall coordinate with
the National Association of Securities Dealers in order to
ease any administrative burdens that fall on persons that are
members of both associations, consistent with the purposes of
this subtitle and the Federal securities laws.

SEC. 335. JUDICIAL REVIEW.

(a) Jurisdiction.--The appropriate United States district
court shall have exclusive jurisdiction over litigation
involving the Association, including disputes between the
Association and its members that arise under this subtitle.
Suits brought in State court involving the Association shall
be deemed to have arisen under Federal law and therefore be
subject to jurisdiction in the appropriate United States
district court.
(b) Exhaustion of Remedies.--An aggrieved person must
exhaust all available administrative remedies before the
Association and the NAIC before it may seek judicial review
of an Association decision.
(c) Standards of Review.--The standards set forth in
section 553 of title 5, United States Code, shall be applied
whenever a rule or bylaw of the Association is under judicial
review, and the standards set forth in section 554 of title
5, United States Code, shall be applied whenever a
disciplinary action of the Association is judicially
reviewed.

SEC. 336. DEFINITIONS.

For purposes of this subtitle, the following definitions
shall apply:
(1) Insurance.--The term ``insurance'' means any product
defined or regulated as insurance by the appropriate State
insurance regulatory authority.
(2) Insurance producer.--The term ``insurance producer''
means any insurance agent or broker, surplus lines broker,
insurance consultant, limited insurance representative, and
any other person that solicits, negotiates, effects,
procures, delivers, renews, continues or binds policies of
insurance or offers advice, counsel, opinions or services
related to insurance.
(3) State law.--The term ``State law'' includes all laws,
decisions, rules, regulations, or other State action having
the effect of law, of any State. A law of the United States
applicable only to the District of Columbia shall be treated
as a State law rather than a law of the United States.
(4) State.--The term ``State'' includes any State, the
District of Columbia, American Samoa, Guam, Puerto Rico, and
the United States Virgin Islands.
(5) Home state.--The term ``home State'' means the State in
which the insurance producer maintains its principal place of
residence and is licensed to act as an insurance producer.

TITLE IV--UNITARY SAVINGS AND LOAN HOLDING COMPANIES

SEC. 401. TERMINATION OF EXPANDED POWERS FOR NEW UNITARY S&L
HOLDING COMPANIES.

(a) In General.--Section 10(c) of the Home Owners' Loan Act
(12 U.S.C. 1467a(c)) is amended by adding at the end the
following new paragraph:
``(9) Termination of expanded powers for new unitary s&l
holding company.--
``(A) In general.--Subject to subparagraph (B), paragraph
(3) shall not apply with respect to any company that becomes
a savings and loan holding company pursuant to an application
filed after March 31, 1998.
``(B) Existing unitary s&l holding companies and the
successors to such companies.--Subparagraph (A) shall not
apply, and paragraph (3) shall continue to apply, to a
company (or any subsidiary of such company) that--
``(i) either--

``(I) acquired 1 or more savings associations described in
paragraph (3) pursuant to applications at least 1 of which
was filed before April 1, 1998; or
``(II) became a savings and loan holding company by
acquiring ownership or control of the company described in
subclause (I); and

``(ii) continues to control the savings associations
referred to in clause (i)(I) or the successor to any such
savings association.''.
(b) Technical and Conforming Amendment.--Section 10(c)(3)
of the Home Owners' Loan Act (12 U.S.C. 1467a(c)(3)) is
amended by striking ``Notwithstanding'' and inserting
``Except as provided in paragraph (9) and notwithstanding''.

The CHAIRMAN. No amendment to that amendment in the nature of a
substitute is in order unless printed in part 2 of that report. Each
amendment may be offered only in the order printed in the report, may
be offered only by a Member designated in the report, shall be
considered read, shall be considered debatable for the time specified
in the report, equally divided and controlled by the proponent and an
opponent, shall not be subject to amendment, and shall not be subject
to a demand for division of the question.
The Chair may postpone a request for a recorded vote on any amendment
and may reduce to a minimum of 5 minutes the time for voting on any
postponed

[[Page H3173]]

question that immediately follows another vote, provided that the time
for voting on the first question shall be a minimum of 15 minutes.
It is now in order to consider Amendment No. 1 printed in part 2 of
House Report 105-531.

Amendment No. 1 Offered by Mr. Bliley

Mr. BLILEY. Madam Chairman, I offer an amendment.
The CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:

Amendment No. 1 printed in part 2 of House Report 105-531
offered by Mr. Bliley:

[1. Customer Fee Disclosure]

At the end of title II of the Amendment in the Nature of a
Substitute, insert the following new subtitle (and conform
the table of contents accordingly):

Subtitle E--Disclosure of Customer Costs of Acquiring Financial
Products

SEC. 251. IMPROVED AND CONSISTENT DISCLOSURE.

(a) Revised Regulations Required.--Within one year after
the date of enactment of this Act, each Federal financial
regulatory authority shall prescribe rules, or revisions to
its rules, to improve the accuracy, simplicity, and
completeness, and to make more consistent, the disclosure of
information by persons subject to the jurisdiction of such
regulatory authority concerning any commissions, fees,
markups, or other costs incurred by customers in the
acquisition of financial products.
(b) Consultation.--In prescribing rules and revisions under
subsection (a), the Federal financial regulatory authorities
shall consult with each other and with appropriate State
financial regulatory authorities.
(c) Consideration of Existing Disclosures.--In prescribing
rules and revisions under subsection (a), the Federal
financial regulatory authorities shall consider the
sufficiency and appropriateness of then existing laws and
rules applicable to persons subject to their jurisdiction,
and may prescribe exemptions from the rules and revisions
required by subsection (a) to the extent appropriate in light
of the objective of this section to increase the consistency
of disclosure practices.
(d) Enforcement.--Any rule prescribed by a Federal
financial regulatory authority pursuant to this section
shall, for purposes of enforcement, be treated as a rule
prescribed by such regulatory authority pursuant to the
statute establishing such regulatory authority's jurisdiction
over the persons to whom such rule applies.
(e) Definition.--As used in this section, the term
``Federal financial regulatory authority'' means the Board of
Governors of the Federal Reserve System, the Securities and
Exchange Commission, the Comptroller of the Currency, the
Federal Deposit Insurance Corporation, the Commodity Futures
Trading Commission, and any self-regulatory organization
under the supervision of any of the foregoing.

[2. SEC Backup Authority]

In section 17(i)(6) of the Securities Exchange Act of 1934,
as amended by section 231(a) of the Amendment in the Nature
of a Substitute, after ``For purposes of this subsection''
insert ``and subsection (j)''.
In section 17 of the Securities Exchange Act of 1934, as
amended by section 231(a) of the Amendment in the Nature of a
Substitute, redesignate subsection (j) as subsection (k) and
before such redesignated subsection (k) insert the following
new subsection:
``(j) Commission Backup Authority.--
``(1) Authority.--The Commission may make inspections of
any wholesale financial holding company that--
``(A) controls a wholesale financial institution,
``(B) is not a foreign bank, and
``(C) does not control an insured bank (other than an
institution permitted under subparagraph (D), (F), or (G) of
section 2(c)(2), or held under section 4(f), of the Bank
Holding Company Act of 1956) or a savings association,

and any affiliate of such company, for the purpose of
monitoring and enforcing compliance by the wholesale
financial holding company with the Federal securities laws.
``(2) Limitation.--The Commission shall limit the focus and
scope of any inspection under paragraph (1) to those
transactions, policies, procedures, or records that are
reasonably necessary to monitor and enforce compliance by the
wholesale financial holding company or any affiliate with the
Federal securities laws.
``(3) Deference to examinations.--To the fullest extent
possible, the Commission shall use, for the purposes of this
subsection, the reports of examinations--
``(A) made by the Board of Governors of the Federal Reserve
System of any wholesale financial holding company that is
supervised by the Board;
``(B) made by or on behalf of any State regulatory agency
responsible for the supervision of an insurance company of
any licensed insurance company; and
``(C) made by any Federal or State banking agency of any
bank or institution described in subparagraph (D), (F), or
(G) of section 2(c)(2), or held under section 4(f), of the
Bank Holding Company Act of 1956.
``(4) Notice.--To the fullest extent possible, the
Commission shall notify the appropriate regulatory agency
prior to conducting an inspection of a wholesale financial
institution or institution described in subparagraph (D),
(F), or (G) of section 2(c)(2), or held under section 4(f),
of the Bank Holding Company Act of 1956.

[3. Savings Clause for CFTC]

At the end of subtitle A of title II of the Amendment in
the Nature of a Substitute, insert the following new section
(and conform the table of contents accordingly):

SEC. 210. RULE OF CONSTRUCTION.

Nothing in this Act shall supersede, affect, or otherwise
limit the scope and applicability of the Commodity Exchange
Act (7 U.S.C. 1 et seq.).

[4. Consumer protection]

In subparagraph (A) of section 45(a)(1) of the Federal
Deposit Insurance Act, as added by section 308(a) of the
Amendment in the Nature of a Substitute, insert ``practices''
after ``retail sales''.
In paragraph (1) of section 45(g) of the Federal Deposit
Insurance Act, as added by section 308(a) of the Amendment in
the Nature of a Substitute, strike ``(1) No provision'' and
insert ``(1) In general.--No provision''.
In paragraph (1)(B) of section 45(g) of the Federal Deposit
Insurance Act, as added by section 308(a) of the Amendment in
the Nature of a Substitute, insert ``except as provided in
paragraph (2),'' after ``(B)''.
In paragraph (2) of section 45(g) of the Federal Deposit
Insurance Act, as added by section 308(a) of the Amendment in
the Nature of a Substitute, strike ``(2) Regulations'' and
insert `` `(2) Coordination with state law.--
``(A) In general.--Except as provided in subparagraph (B),
regulations''.
At the end of paragraph (2) of section 45(g) of the Federal
Deposit Insurance Act, as added by section 308(a) of the
Amendment in the Nature of a Substitute, add the following
new subparagraph:
(B) Preemption.--If, with respect to any provision of the
regulations prescribed under this section, the Board of
Governors of the Federal Reserve System, the Comptroller of
the Currency, and the Board of Directors of the Federal
Deposit Insurance Corporation determine jointly that the
protection afforded by such provision for consumers is
greater than the protection provided by a comparable
provision of the statutes, regulations, orders, or
interpretations referred to in subparagraph (A) of any State,
such provision of the regulations prescribed under this
section shall supersede the comparable provision of such
State statute, regulation, order, or interpretation.

[5. Lifeline banking]

In paragraph (1) of section 6(d) of the Bank Holding
Company Act of 1956, as added by section 103(a) of the
Amendment in the Nature of a Substitute, strike ``or (C)''
and insert ``(C), or (D)''.
In paragraph (4)(D) of section 6(d) of the Bank Holding
Company Act of 1956, as added by section 103(a) of the
Amendment in the Nature of a Substitute, strike ``or (C)''
and insert ``(C), or (D)''.

[6. State Securities and Insurance]

In section 104(a)(1) of the Amendment in the Nature of a
Substitute, strike ``restrict'' and insert ``significantly
interfere with the ability of''.
In section 104(a)(1) of the Amendment in the Nature of a
Substitute, strike ``from being'' and insert ``to be''.
In section 104(b)(1) of the Amendment in the Nature of a
Substitute, strike ``paragraphs (2) and (3) and subject to
section 18(c) of the Securities Act of 1933'' and insert
``paragraphs (2), (3), and (4)''.
In section 104(b)(1) of the Amendment in the Nature of a
Substitute, strike ``restrict'' and insert ``significantly
interfere with the ability of''.
In section 104(b)(1) of the Amendment in the Nature of a
Substitute, strike ``from engaging,'' and insert ``to
engage,''.
In section 104(b)(2) of the Amendment in the Nature of a
Substitute, strike ``As stated by the United States Supreme
Court'' and insert ``In accordance with the decision of the
Supreme Court of the United States''.
In section 104(b)(2) of the Amendment in the Nature of a
Substitute, strike subparagraph (B) and insert the following
new subparagraph:
(B) subparagraph (A) shall not create any inference
regarding State statutes and regulations governing insurance
sales and solicitations other than State statutes and
regulations described in subparagraph (A).
In section 104(b) of the Amendment in the Nature of a
Substitute, strike paragraph (3) and insert the following new
paragraph:
(3) State statutes, regulations, orders, and
interpretations or otherwise shall not be preempted under
paragraph (1) if they--
(A) relate to, or are enacted or issued for the purpose of
regulating, the business of insurance in accordance with the
McCarran-Ferguson Act;
(B) apply only to entities that are not insured depository
institutions or wholesale financial institutions but which
are engaged in the business of insurance;
(C) do not relate to, and are not enacted or issued for the
purpose of regulating--

[[Page H3174]]

(i) cross-marketing; or
(ii) activities, including cross-marketing, which are
subject to paragraph (2);
(D) are applicable to and are applied in the same manner
with respect to an affiliate of an insured depository
institution or a wholesale financial institution as they are
applicable to and are applied to those entities that are not
affiliated with an insured depository institution or a
wholesale financial institution; and
(E) do not prevent or significantly interfere with the
ability of an insured depository institution or wholesale
financial institution to engage in activities authorized for
such institution under this Act or any other provision of
Federal law.
In section 104(b) of the Amendment in the Nature of a
Substitute, after paragraph (3) insert the following new
paragraph:
(4) Paragraphs (1) and (2) shall not be construed as
affecting the jurisdiction of the securities commission (or
any agency or office performing like functions) of any State,
under the laws of such State, to investigate and bring
enforcement actions, consistent with section 18(c) of the
Securities Act of 1933, with respect to fraud or deceit or
unlawful conduct by any person, in connection with securities
or securities transactions.
After section 116 of the Amendment in the Nature of a
Substitute, insert the following new section (and amend the
table of contents accordingly):

SEC. 117. INTERAGENCY CONSULTATION.

(a) Purpose.--It is the intention of Congress that the
Board of Governors of the Federal Reserve System, as the
umbrella supervisor for financial holding companies, and the
State insurance regulators, as the functional regulators of
companies engaged in insurance activities, coordinate efforts
to supervise companies that control both a depository
institution and a company engaged in insurance activities
regulated under State law. In particular, Congress believes
that the Board and the State insurance regulators should
share, on a confidential basis, information relevant to the
supervision of companies that control both a depository
institution and a company engaged in insurance activities,
including information regarding the financial health of the
consolidated organization and information regarding
transactions and relationships between insurance companies
and affiliated depository institutions. The appropriate
Federal banking agencies for depository institutions should
also share, on a confidential basis, information with the
relevant State insurance regulators regarding transactions
and relationships between depository institutions and
affiliated companies engaged in insurance activities. The
purpose of this section is to encourage this coordination and
confidential sharing of information, and to thereby improve
both the efficiency and the quality of the supervision of
financial holding companies and their affiliated depository
institutions and companies engaged in insurance activities.
(b) Examination Results and Other Information.--
(1) Information of the board.--Upon the request of the
appropriate insurance regulator of any State, the Board may
provide any information of the Board regarding the financial
condition, risk management policies, and operations of any
financial holding company that controls a company that is
engaged in insurance activities and is regulated by such
State insurance regulator, and regarding any transaction or
relationship between such an insurance company and any
affiliated depository institution. The Board may provide any
other information to the appropriate State insurance
regulator that the Board believes is necessary or appropriate
to permit the State insurance regulator to administer and
enforce applicable State insurance laws.
(2) Banking agency information.--Upon the request of the
appropriate insurance regulator of any State, the appropriate
Federal banking agency may provide any information of the
agency regarding any transaction or relationship between a
depository institution supervised by such Federal banking
agency and any affiliated company that is engaged in
insurance activities regulated by such State insurance
regulator. The appropriate Federal banking agency may provide
any other information to the appropriate State insurance
regulator that the agency believes is necessary or
appropriate to permit the State insurance regulator to
administer and enforce applicable State insurance laws.
(3) State insurance regulator information.--Upon the
request of the Board or the appropriate Federal banking
agency, a State insurance regulator may provide any
examination or other reports, records, or other information
to which such insurance regulator may have access with
respect to a company which--
(A) is engaged in insurance activities and regulated by
such insurance regulator; and
(B) is an affiliate of an insured depository institution,
wholesale financial institution, or financial holding
company.
(c) Consultation.--Before making any determination relating
to the initial affiliation of, or the continuing affiliation
of, an insured depository institution, wholesale financial
institution, or financial holding company with a company
engaged in insurance activities, the appropriate Federal
banking agency shall consult with the appropriate State
insurance regulator of such company and take the views of
such insurance regulator into account in making such
determination.
(d) Effect on other authority.--Nothing in this section
shall limit in any respect the authority of the appropriate
Federal banking agency with respect to an insured depository
institution, wholesale financial institution, or bank holding
company or any affiliate thereof under any provision of law.
(e) Confidentiality and Privilege.--
(1) Confidentiality.--The appropriate Federal banking
agency shall not provide any information or material that is
entitled to confidential treatment under applicable Federal
banking agency regulations, or other applicable law, to a
State insurance regulator unless such regulator agrees to
maintain the information or material in confidence and to
take all reasonable steps to oppose any effort to secure
disclosure of the information or material by the regulator.
The appropriate Federal banking agency shall treat as
confidential any information or material obtained from a
State insurance regulator that is entitled to confidential
treatment under applicable State regulations, or other
applicable law, and take all reasonable steps to oppose any
effort to secure disclosure of the information or material by
the Federal banking agency.
(2) Privilege.--The provision pursuant to this section of
information or material by a Federal banking agency or State
insurance regulator shall not constitute a waiver of, or
otherwise affect, any privilege to which the information or
material is otherwise subject.
(f) Definitions.--For purposes of this section, the
following definitions shall apply:
(1) Appropriate Federal banking agency; insured depository
institution.--The terms ``appropriate Federal banking
agency'' and ``insured depository institution'' shall have
the same meanings as in section 3 of the Federal Deposit
Insurance Act.
(2) Board; financial holding company; and wholesale
financial institution.--The terms ``Board'', ``financial
holding company'', and ``wholesale financial institution''
shall have the same meanings as in section 2 of the Bank
Holding Company Act of 1956.
In paragraph (1) of section 309 of the Amendment in the
Nature of a Substitute, strike ``restrict'' and insert
``significantly interfere with the ability of''.
In paragraph (1) of section 309 of the Amendment in the
Nature of a Substitute, strike ``from becoming'' and insert
``to become''.
In paragraph (1) of section 309 of the Amendment in the
Nature of a Substitute, strike ``from acquiring'' and insert
``to acquire''.
In paragraph (3) of section 309 of the Amendment in the
Nature of a Substitute, strike ``restrict'' and insert
``significantly interfere with''.

[7. Brokerage Commissions]

In section 3(a)(4)(B) of the Securities Exchange Act of
1934, as amended by section 201 of the Amendment in the
Nature of a Substitute, strike clause (ii) (relating to trust
activities) and insert the following:
``(ii) Trust activities.--The bank effects transactions in
a trustee capacity, or effects transactions in a fiduciary
capacity in its trust department or other department that is
regularly examined by bank examiners for compliance with
fiduciary principles and standards, and (in either case)--
``(I) is primarily compensated on the basis of an
administration or annual fee (payable on a monthly,
quarterly, or other basis), a percentage of assets under
management, or a flat or capped per order processing fee, or
any combination of such fees, but does not otherwise receive
brokerage commissions, or other similar remuneration based on
effecting transactions in securities, that exceed the cost
incurred by the bank in connection with executing securities
transactions for trustee or fiduciary customers; and
``(II) does not publicly solicit brokerage business, other
than by advertising that it effects transactions in
securities in conjunction with advertising its other trust
activities.
In section 3(a)(4)(B) of the Securities Exchange Act of
1934, as amended by section 201 of the Amendment in the
Nature of a Substitute, strike clause (iv) (relating to
certain stock purchase plans) and insert the following:
``(iv) Certain stock purchase plans.--
``(I) Employee benefit plans.--The bank effects
transactions, as part of its transfer agency activities, in
the securities of an issuer as part of any pension,
retirement, profit-sharing, bonus, thrift, savings,
incentive, or other similar benefit plan for the employees of
that issuer or its subsidiaries, if--

[[Page H3175]]

(aa) the bank does not solicit transactions or provide
investment advice with respect to the purchase or sale of
securities in connection with the plan; and
``(bb) the bank's compensation for such plan or program
consists of administration fees, or flat or capped per order
processing fees, or both, but the bank does not otherwise
receive brokerage commissions, or other similar remuneration
based on effecting transactions in securities, that exceed
the cost incurred by the bank in connection with executing
securities transactions under this subclause (I).
``(II) Dividend reinvestment plans.--The bank effects
transactions, as part of its transfer agency activities, in
the securities of an issuer as part of that issuer's dividend
reinvestment plan, if--
``(aa) the bank does not solicit transactions or provide
investment advice with respect to the purchase or sale of
securities in connection with the plan;
``(bb) the bank does not net shareholders' buy and sell
orders, other than for programs for odd-lot holders or plans
registered with the Commission; and
``(cc) the bank's compensation for such plan or program
consists of administration fees, or flat or capped per order
processing fees, or both, but the bank does not otherwise
receive brokerage commissions, or other similar remuneration
based on effecting transactions in securities, that exceed
the cost incurred by the bank in connection with executing
securities transactions under this subclause (II).
``(III) Issuer plans.--The bank effects transactions, as
part of its transfer agency activities, in the securities of
an issuer as part of a plan or program for the purchase or
sale of that issuer's shares, if--
``(aa) the bank does not solicit transactions or provide
investment advice with respect to the purchase or sale of
securities in connection with the plan or program;
``(bb) the bank does not net shareholders' buy and sell
orders, other than for programs for odd-lot holders or plans
registered with the Commission; and
``(cc) the bank's compensation for such plan or program
consists of administration fees, or flat or capped per order
processing fees, or both, but the bank does not otherwise
receive brokerage commissions, or other similar remuneration
based on effecting transactions in securities, that exceed
the cost incurred by the bank in connection with executing
securities transactions under this subclause (III).
``(IV) Permissible delivery of materials.--The exception to
being considered a broker for a bank engaged in activities
described in subclauses (I), (II), and (III) will not be
affected by a bank's delivery of written or electronic plan
materials to employees of the issuer, shareholders of the
issuer, or members of affinity groups of the issuer, so long
as such materials are--
``(aa) comparable in scope or nature to that permitted by
the Commission as of the date of the enactment of the
Financial Services Act of 1998; or
``(bb) otherwise permitted by the Commission.

[8. Antitrust]

Strike subtitle E of title I of the Amendment in the Nature
of a Substitute and insert the following new subtitle (and
conform the table of contents accordingly):

Subtitle E--Preservation of FTC Authority

SEC. 141. AMENDMENT TO THE BANK HOLDING COMPANY ACT OF 1956
TO MODIFY NOTIFICATION AND POST-APPROVAL
WAITING PERIOD FOR SECTION 3 TRANSACTIONS.

Section 11(b)(1) of the Bank Holding Company Act of 1956
(12 U.S.C. 1849(b)(1)) is amended by inserting ``and, if the
transaction also involves an acquisition under section 4 or
section 6, the Board shall also notify the Federal Trade
Commission of such approval'' before the period at the end of
the 1st sentence.

SEC. 142. INTERAGENCY DATA SHARING.

To the extent not prohibited by other law, the Comptroller
of the Currency, the Director of the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, and
the Board of Governors of the Federal Reserve System shall
make available to the Attorney General and the Federal Trade
Commission any data in the possession of any such banking
agency that the antitrust agency deems necessary for
antitrust review of any transaction requiring notice to any
such antitrust agency or the approval of such agency under
section 3, 4, or 6 of the Bank Holding Company Act of 1956,
section 18(c) of the Federal Deposit Insurance Act, the
National Bank Consolidation and Merger Act, section 10 of the
Home Owners' Loan Act, or the antitrust laws.

SEC. 143. CLARIFICATION OF STATUS OF SUBSIDIARIES AND
AFFILIATES.

(a) Clarification of Federal Trade Commission
Jurisdiction.--Any person which directly or indirectly
controls, is controlled directly or indirectly by, or is
directly or indirectly under common control with, any bank or
savings association (as such terms are defined in section 3
of the Federal Deposit Insurance Act) and is not itself a
bank or savings association shall not be deemed to be a bank
or savings association for purposes of the Federal Trade
Commission Act or any other law enforced by the Federal Trade
Commission.
(b) Savings Provision.--No provision of this section shall
be construed as restricting the authority of any Federal
banking agency (as defined in section 3 of the Federal
Deposit Insurance Act) under any Federal banking law,
including section 8 of the Federal Deposit Insurance Act.
(c) Hart-Scott-Rodino Amendment.--Section 7A(c)(7) of the
Clayton Act (15 U.S.C. 18a(c)(7)) is amended by inserting
before the semicolon at the end thereof the following: ``,
except that a portion of a transaction is not exempt under
this paragraph if such portion of the transaction (A)
requires notice under section 6 of the Bank Holding Company
Act of 1956; and (B) does not require approval under section
3 or 4 of the Bank Holding Company Act of 1956''.

SEC. 144. ANNUAL GAO REPORT.

(a) In General.--By the end of the 1-year period beginning
on the date of the enactment of this Act and annually
thereafter, the Comptroller General of the United States
shall submit a report to the Congress on market concentration
in the financial services industry and its impact on
consumers.
(b) Analysis.--Each report submitted under subsection (a)
shall contain an analysis of--
(1) the positive and negative effects of affiliations
between various types of financial companies, and of
acquisitions pursuant to this Act and the amendments made by
this Act to other provisions of law, including any positive
or negative effects on consumers, area markets, and
submarkets thereof or on registered securities brokers and
dealers which have been purchased by depository institutions
or depository institution holding companies;
(2) the changes in business practices and the effects of
any such changes on the availability of venture capital,
consumer credit, and other financial services or products and
the availability of capital and credit for small businesses;
and
(3) the acquisition patterns among depository institutions,
depository institution holding companies, securities firms,
and insurance companies including acquisitions among the
largest 20 percent of firms and acquisitions within regions
or other limited geographical areas.

[9. Derivative Instruments]

In section 206(a)(1)(F) of the Amendment in the Nature of a
Substitute, strike clauses (ii) and (iii), and insert the
following:
(ii) interest rates, except interest rate derivative
instruments (I) that are based on a security or a group or
index of securities (other than government securities or a
group or index of government securities); (II) that provide
for the delivery of one or more securities (other than
government securities); or (III) that trade on a national
securities exchange; or
(iii) commodities, other rates, indices, or other assets,
except derivative instruments (I) that are securities or that
are based on a group or index of securities (other than
government securities or a group or index of government
securities); (II) that provide for the delivery of one or
more securities (other than government securities); or (III)
that trade on a national securities exchange.
In section 206(a)(3) of the Amendment in the Nature of a
Substitute, strike ``and'' at the end of subparagraph (B);
redesignate subparagraph (C) as subparagraph (D); and after
subparagraph (B), insert the following new subparagraph:
(C) the term `government securities' has the meaning
provided in section 3(a)(42) of such Act, and, for purposes
of this subsection, commercial paper, bankers acceptances,
and commercial bills shall be treated in the same manner as
government securities; and

[10. Qualified investor]

In paragraph (55)(A) of section 3(a) of the Securities
Exchange Act of 1934, as added by section 207 of the
Amendment in the Nature of a Substitute, strike ``or'' at the
end of clause (viii).
In paragraph (55)(A) of section 3(a) of the Securities
Exchange Act of 1934, as added by section 207 of the
Amendment in the Nature of a Substitute, strike the period at
the end of clause (ix) and insert ``; or''.
In paragraph (55)(A) of section 3(a) of the Securities
Exchange Act of 1934, as added by section 207 of the
Amendment in the Nature of a Substitute, insert the following
new clause after clause (ix):
``(x) the government of any foreign country.

[11. Community Needs]

At the end of subtitle A of title I of the Amendment in the
Nature of a Substitute, insert the following new section (and
amend the table of contents accordingly):

[[Page H3176]]

SEC. 109. RESPONSIVENESS TO COMMUNITY NEEDS FOR FINANCIAL
SERVICES.

(a) Study.--The Secretary of the Treasury, in consultation
with the Federal banking agencies (as defined in section 3(z)
of the Federal Deposit Insurance Act) and the Securities and
Exchange Commission, shall conduct a study of the extent to
which adequate services are being provided as intended by the
Community Reinvestment Act of 1977, including services in
low- and moderate-income neighborhoods and for persons of
modest means, as a result of the enactment of this Act.
(b) Report.--Before the end of the 2-year period beginning
on the date of the enactment of this Act, the Secretary of
the Treasury, in consultation with the Federal banking
agencies and the Securities and Exchange Commission, shall
submit a report to the Congress on the study conducted
pursuant to subsection (a) and shall include such
recommendations as the Secretary determines to be appropriate
for administrative and legislative action with respect to
institutions covered under the Community Reinvestment Act of
1977.

[12. Privacy study]

After section 109 (as so added) of the Amendment in the
Nature of a Substitute, insert the following new section (and
amend the table of contents accordingly):

SEC. 110. REPORTS ON ONGOING FTC STUDY OF CONSUMER PRIVACY
ISSUES.

With respect to the ongoing multistage study being
conducted by the Federal Trade Commission on consumer privacy
issues, the Commission shall submit to the Congress an
interim report on the findings and conclusions of the
Commission, together with such recommendations for
legislative and administrative action as the Commission
determines to be appropriate, at the conclusion of each stage
of such study and a final report at the conclusion of the
study.

[13. Technical correction]

In section 322(b) of the Amendment in the Nature of a
Substitute, strike paragraph (1) and insert the following:
(1) be a nonprofit corporation;

The CHAIRMAN. Is the gentleman from Virginia (Mr. Bliley) the
designee of the gentleman from Iowa (Mr. Leach)?
Mr. LEACH. Yes, Madam Chairman, he certainly is. With great pride I
designate him such.
The CHAIRMAN. Under the rule, the gentleman from Virginia (Mr.
Bliley) does offer the amendment in his own right.
Pursuant to House Resolution 428, the gentleman from Virginia (Mr.
Bliley) and a Member opposed each will control 15 minutes.
The Chair recognizes the gentleman from Virginia (Mr. Bliley).
Mr. BLILEY. Madam Chairman, I yield myself such time as I may
consume.
Madam Chairman, I rise in strong support of the managers' amendment,
which represents a bipartisan, bi-committee agreement that will
significantly improve H.R. 10.
I thank my good friend and ranking Member, John Dingell, and
Committee on Banking and Financial Services chairman, the gentleman
from Iowa (Mr. Leach), for their commitment to this legislation. They
deserve a great deal of credit for being able to roll up their sleeves
and make reasonable compromises. The result is one every Member can be
proud to support, for it promotes good public policy for American
consumers and American businesses.
The managers' amendment will strengthen investor and consumer
protection, clarify regulations for the businesses that have to comply
with them, and make regulatory standards more consistent for all
parties in the insurance business, including banks. The agreement
accomplishes all this without imposing any needless regulatory burdens.
The managers' amendment improves upon investor and consumer
protection by providing for SEC regulatory authority over securities
activities of wholesale financial institutions. It charges Federal
regulators to review the adequacy of the disclosure of fees charged by
financial institutions, but requires those regulators to consider the
sufficiency of existing regulations when making that determination.
Consumers have a rate to understand the fees they are charged by
their financial institutions. This amendment will help ensure they get
or continue to get the disclosure they need.
The amendment preserves the authorities of State insurance and
securities regulators. The amendment also makes the applicability of
the Barnett ``significant interference'' test more uniform throughout
the bill to prevent State insurance regulations from unfairly
interfering with the insurance activities of banks.
The amendment ensures that banks can enter the brave new world of
affiliations and continue to provide and be paid for trust and other
securities-related services.
The managers' amendment also reserve the application of Hart-Scott-
Rodino, the act that requires certain filings with the Justice
Department when big companies merge. The act does not eliminate any
exemption that currently applies under that act. Rather, it preserves
current law as it would apply once H.R. 10 were signed into law.
The managers' amendment enjoys the strong support of Federal Reserve
Board Chairman Greenspan, SEC Chairman Levitt, State securities and
insurance regulators and a wide array of financial service providers.
This amendment will benefit every participant in our Nation's
financial markets, from businesses to consumers. I urge every Member of
this body to support this amendment.
Madam Chairman, I reserve the balance of my time.
Mr. LaFALCE. Madam Chairman, I claim the time in opposition to the
amendment.
The CHAIRMAN. The gentleman from New York (Mr. LaFalce) is recognized
for 15 minutes.
Mr. LaFALCE. Madam Chairman, I yield myself 4 minutes.
Madam Chairman, the bill before us today is extremely complex and
controversial. It would usher in a new era and a new structure for
financial services, one in which banking, investment, insurance and
other services would be merged, and enormous financial resources could
be concentrated in huge financial conglomerates.

{time} 1415

I wish to commend the authors of the manager's amendment, therefore,
for offering a number of important changes in H.R. 10 that I believe
are essential if this legislation is to serve the needs and interests
of consumers and investors.
The amendment would correct a provision relating to consumer
protections in bank sales of insurance products that would otherwise
have permitted any related State statute or regulation to preempt and
nullify the consumer protections in Federal law and regulation.
The manager's amendment clarifies that the stronger Federal or State
standard in terms of these specific protections provided to consumers
will prevail. We had this in the Committee on Banking and Financial
Services product; it is absolutely essential. I am delighted it is in
the manager's amendment.
This change relates to specific consumer protection rules for
insurance sales which, as I said, were in the original Committee on
Banking and Financial Services product. A number of colleagues have
related concerns which I share about how the broader preemption
language in section 104 will affect and possibly preempt other State
consumer statutes. Regrettably, the manager's amendment does not
address this issue.
The amendment corrects a serious shortcoming of the bill relating to
a provision originally sponsored by the gentlewoman from California
(Ms. Waters) that now requires financial services holding companies to
offer and maintain low-cost, basic banking accounts for lower-income
consumers, but provides for no enforcement authority. The amendment,
the manager's amendment, provides this needed authority to assure
ongoing compliance with this important requirement.
The manager's amendment also addresses the problem of potential new
and undisclosed charges to consumers in the cross-marketing of
financial products by banks. It gives the financial regulators
authority to issue new or revised rules that will improve the
disclosure of information about fees, commissions and other costs to
consumers.
The manager's amendment also makes other important changes to enhance
SEC authority, to protect individual investors, to preserve the FTC's

[[Page H3177]]

authority to review the antitrust implications of bank mergers and to
require expanded studies of consumer privacy issues and CRA compliance
by banks.
Madam Speaker, financial modernization presents enormous potential
benefits to consumers in terms of new products, greater convenience and
lower cost. But if we permit this process to undermine consumer rights
and rob their pocketbooks, we have achieved neither reform nor
modernization.
The manager's amendment makes a number of needed changes in H.R. 10
that can help assure that the consumer will benefit. It does not go far
enough, but what it does do it does in the right direction, and
therefore, I would urge adoption of the manager's amendment.
Madam Chairman, I reserve the balance of my time.
Mr. BLILEY. Madam Chairman, I yield 6 minutes to the gentleman from
Michigan (Mr. Dingell) and I ask unanimous consent that he may control
that time.
The CHAIRMAN. Is there objection to the request of the gentleman from
Virginia?
There was no objection.
(Mr. DINGELL asked and was given permission to revise and extend his
remarks.)
Mr. DINGELL. Madam Chairman, I want to thank my good friend, the
gentleman from Virginia (Mr. Bliley), the chairman of the Committee on
Commerce. I yield myself 3 minutes.
Last month, Madam Chairman, USA Today carried an editorial with a
title, ``Protecting Consumers Is a Big Part of Reforming Bank Laws.''
With this amendment, the House will say resoundingly, ``We agree.'' I
would note to my colleagues that we have heard no condemnation nor
criticism of the amendment.
Consumers Union today submitted a letter urging Members to vote for
the manager's amendment, and I will insert that letter, and an
explanation of the manager's amendment, following my remarks.
Breaking down the barriers between financial services industries
raises serious risks to consumers. USA Today raised some of these.
Rip-off risks. The big promise to consumers from merging banking,
securities and insurance firms is one-stop shopping. But that opens
consumers up to enormous pressure to absorb all of the services that
the banks can give. Clearly, a person badly in need of a loan is going
to be extremely responsive to that, hardly a situation which we want.
The manager's amendment protects against that.
Uninsured risks is another. Will bank customers be misled about which
products are insured and which are not? Bank deposits are FDIC insured;
if the bank goes under, taxpayers pony up to cover the deposits, as we
had to do on savings and loans. Stock funds and other investment
vehicles are not. Consumer groups complain that it will be too easy for
banks to woo customers into higher-risk, higher-paying investments with
consumers thinking that their assets are protected. Clear guidelines
are a must, says USA Today. Our amendment provides them.
Taxpayers' risks. Taxpayers are also facing heightened risks. Banks
might be tempted to use insured deposits as leverage to make riskier
investments, knowing that if the investments turn sour, taxpayers will
bail them out. That is what happened to the savings and loans in the
bailouts of the late 1980s. It cost taxpayers hundreds of billions of
dollars.
These are things against which the manager's amendment protects. The
manager's amendment will also protect customers and consumers with
strong protections against risks and abuses as banks move into other
financial fields.
Madam Chairman, I would urge my colleagues to support this amendment,
and at this time I will include for the Record the previously referred
to materials.

Protecting Consumers is Big Part of Reforming Bank Laws

For many, many years, overhauling the banking industry has
been one of Congress' favorite pastimes. Just promise to
change the nation's Depression-era banking laws, and a host
of competing industries starts flooding campaign coffers with
cash in an effort to protest their interests. The trick for
lawmakers was to not actually pass anything.
This week's announcement of an $83 billion merger of
Citicorp and Travelers Group could bring that game to a halt.
The marriage will likely prompt other banks to start courting
insurance and securities firms. All of which will put intense
pressure on lawmakers to get off the dime and kill the 1933
law that sought to minimize risks to depositors by preventing
banks from underwriting securities or insurance products. But
breaking down the financial service industry's firewalls also
raises serious risks to consumers.
Rip-off risks. The big promise to consumers from merging
banking, securities and insurance firms is one-stop shopping.
But will those looking for a mortgage be pressured into
buying other services from the lender? Or will banks offer
package deals that seem appealing but are far more expensive
than if each were bought separately? Some consumer-protection
ground rules are needed here.
Uninsured risks. Will bank customers be misled about which
products are insured and which aren't? Bank deposits are FDIC
insured--if the bank goes under, taxpayers pony up to cover
the deposits. Stock funds and other investment vehicles
aren't. Consumer groups complain that it will be too easy for
banks to woo customers to riskier, higher-paying investments,
with customers thinking their assets are protected. Clear
guidelines are a must.
Taxpayer risks. Taxpayers also face heightened risks. Banks
might be tempted to use insured deposits as leverage to make
riskier investments, knowing that if the investments turn
sour, taxpayers will bail them out. That's what happened in
the S&L bailout of the late '80s. It cost taxpayers hundreds
of billions of dollars. Firms also might be tempted to loan
that money to struggling subsidiaries--again boosting
taxpayer risk. Strong safeguards against this ``moral
hazard'' problem have to be in place.
It is nevertheless clear that banking laws designed for an
economy 65 years ago don't work as well now. The goal of the
1933 Glass-Steagall Act was to keep banks separate from
insurance and securities firms as a way to protect banks.
But the law has weakened banks. They've lost ground at home
and abroad to more flexible foreign financial firms.
Responding to this concern, the Federal Reserve Board over
the past decade used its authority as regulatory of bank
holding companies to chip away slowly at the Glass-Steagall
wall, giving banks more leeway to set up securities
subsidiaries. The Fed has gone about as far as it can under
the law. Congress has to tear down the rest of the wall.
As lawmakers remove obstacles to the brave new world of
finance, they must take care not to leave the consumer
behind.
____

Consumers Union,

Washington, DC, May 13, 1998.

vote for pro-consumer amendments to h.r. 10

Dear Representative: We are writing to urge you to vote for
amendments to H.R. 10 that make substantial improvements for
consumers. If these amendments are not adopted, we urge you
to oppose the bill. The following amendments will help make
the bill better for consumers.
Restoration of Consumer Protections, Basic Banking
Enforcement and Fee Disclosure--Bliley-Dingell-Leach
Amendment: H.R. 10 includes a package of consumer safeguards
against deceptive and misleading bank insurance sales
practices. Section 308(g)(2) would undo these safeguards by
allowing states to preempt them with laws that are ``contrary
or inconsistent'' to the protections provided. The amendment
would fix the standard to conform with other consumer banking
laws, ensuring state laws that provide greater protection
than the federal regulations would not be preempted.
The amendment also mandates ongoing commonplace with H.R.
10's requirement that all depository institutions affiliated
with financial services holding companies provide low-cost,
basic banking accounts. In addition, the amendment requires
improved fee and commission disclosures to enhance comparison
shopping; deletes sections relating to antitrust authority
that would limit the ability of regulators to assess certain
competition problems associated with mergers; preserves the
authority of antitrust regulators; and closes further certain
loopholes in the securities laws as they apply to banks. We
urge you to vote for the amendment.
We strongly urge you to oppose the Baker amendment that
would rollback consumer safeguards for retail sales
activities and eliminate Community Reinvestment Act (CRA)
requirements for institutions with less than $100 million in
assets.
Elimination of Banking and Consumer Provisions--Leach-
Bereuter-Campbell Amendment: The longstanding barrier between
banking and commerce is still needed to prevent our taxpayer-
backed banking system from being exposed to the kinds of
risks that have plagued Asian neighbors. H.R. 10 currently
allows holding companies to derive 5% of their revenues from
commercial activities, with some dollar limits. Some argue
that this is small enough to avoid risks but many large firms
may still come under that limit and the commercial firm can
grow once in financial services holding company. The
amendment would delete the 5% basket. On the other hand, we
urge you to oppose the Roukema-Vento-Baker-McCollum-LaFalce
amendment that would increase the basket to 10% or, in some
cases, 15% and thereby create more risks to taxpayers.

[[Page H3178]]

Even with the adoption of these pro-consumer amendments
that substantially improve the bill, we are extremely
concerned about language that would place at risk state
consumer laws that are critical in this increasingly
complicated marketplace. Section 104(b)(1) would extend a
sweeping preemption standard to any activity authorized not
only under H.R. 10 but also under ``any other provision of
Federal law.'' Although this section was designed to address
regulatory turf disagreements between insurance, securities
and banking interests, this language places at risk a host of
state consumer laws that protect consumers from excessive
fees and otherwise protect consumers and has a chilling
effect on state legislators. The Kucinich amendment, that
would have addressed this problem, was not ruled in order.
Because consumers are still at risk under this bill,
Consumers Union cannot support the bill.
Sincerely,
Mary Griffin.
____

explanation of manager's amendment

The Bliley-Dingell-Leach manager's amendment consists in
the main of the investor and consumer protections originally
contained in the Dingell amendment. It addresses concerns
raised by the Federal and State regulators and consumer
groups, and incorporates the historical positions of the
Commerce Committee on matters within its securities and
insurance jurisdiction under the rules of the House. This
statement is offered as clarification of the meaning of those
provisions and shall constitute the legislative history. I am
pleased to have been able to contribute to this important
effort.
1. Customer Fee Disclosure. Section 251 directs the Federal
financial regulators to review the adequacy of existing
disclosures of fees, commissions, markups, and other costs,
and, using existing authorities, to consider improving their
accuracy, simplicity, completeness, and consistency. It is
the intent of this provision that the regulators, prior to
adopting any new rules or rule amendments pursuant to section
251, would first consult with each other, and with the
appropriate State financial regulators, in determining
whether any new rules or rule amendments are appropriate,
necessary, and in the public interest. It is the intent of
Congress that the Securities and Exchange Commission (SEC)
should take the lead in setting disclosure standards with
respect to securities, and that the Federal bank regulators
should apply the same standards as those adopted by the SEC
with respect to securities sold by banks. It is the intent of
Congress that disclosure for consumers and investors be
improved so that they can make informed decisions. The
Congress intends to give the financial regulators flexibility
to achieve this goal through any effective means, including
increasing the disclosure of prices for debt securities.
2. SEC Backup Authority. Section 231(a) adds a new
subsection (j) to section 17 of the Securities Exchange Act
to give the SEC explicit securities inspection backup
authority over wholesale financial holding companies and
other bank affiliates for the purpose of monitoring and
enforcing compliance with the Federal securities laws. In the
same manner as bank regulators are required to rely on the
SEC's oversight before inspecting registered broker-dealer
affiliates of banks, the SEC is required, to the fullest
extent possible, to defer to the reports of examinations of
banks made by bank regulators and of insurance companies made
by insurance regulators and to provide notice to the
appropriate regulatory agency. Reasonable limits are imposed
on the scope of any inspection under this subsection. It is
the intent of Congress that this Act maintain the SEC's
ability to enforce the Federal securities laws vigorously for
the protection of investors.
3. Saving Clause For CFTC: By letter dated March 19, 1998,
the Commodity Futures Trading Commission (CFTC) complained
that the bill designates many CFTC-regulated products as
``traditional banking products,'' thereby creating a
misconception that banks dealing in certain defined
derivatives might need only comply with Federal banking laws
and not the Commodity Exchange Act (CEA). This is not the
intent of the Congress. This bill and this amendment do not
address the scope of the CFTC's jurisdiction under the CEA.
Accordingly, section 210 explicitly preserves the current
extent of the authority of the CFTC under the CEA.
4. Consumer Protection. Section 308 of the bill adds a new
section 45 of the Federal Deposit Insurance Act directing the
Federal banking agencies to prescribe consumer protection
regulations for insurance sales by insured depository
institutions and wholesale financial institutions. The
regulations cover retail sales practices, disclosures and
advertising (especially with respect to uninsured status,
investment risk, and coercion), prohibition on
misrepresentations and domestic violence discrimination,
separation of some activities, and the establishment of a
consumer grievance mechanism. The amendment responds to
concerns of consumer groups and banks with the effect of this
provision on other laws. It provides that the regulations
prescribed under section 45 will preempt State law only if
the Federal Reserve, Comptroller of the Currency, and FDIC
jointly determine that the joint Federal regulations provide
consumers with greater protection. It is not the intention of
Congress that this preemption provision shall override or be
read in a manner inconsistent with section 104 of this Act.
5. Lifeline Banking. Section 103 of the bill adds new
section 6 to the Bank Holding Company Act. Section 6(b)
establishes eligibility criteria for forming a financial
holding company and engaging in its expanded activities. One
of the requirements is that the subsidiary insured depository
institutions of such company offer and maintain low-cost
basic banking accounts. The amendment provides for ongoing
compliance as is the case with the other requirements. The
provision does not affect banks who choose not to form
financial holding companies.
6. State Securities and Insurance. Section 104 of the bill
would preempt all State laws, including State securities law
and State insurance solvency laws, not specifically preserved
with regard to affiliations and activities authorized by this
Act or any other provision of Federal law. The amendment adds
a new paragraph (4) to section 104(b) to preserve State
regulation of securities. State regulation of insurance
underwriting is preserved under a new paragraph (3) that sets
forth five tests that must be met. The amendment makes clear
that the U.S. Supreme Court Barnett Bank decision's ``prevent
or significantly interfere'' standard will be applicable to
both affiliations and activities with respect to allowable
State regulation of bank insurance sales. Federal banking and
State insurance regulators are directed to share information
(consistent with applicable confidentiality and other
privileges) regarding financial holding companies that own
insurance companies, and Federal banking agencies shall
consult with the appropriate State insurance regulator before
making any determination regarding initial or continued
affiliations with insurance companies. It is the intent of
Congress that these regulators cooperate in order to enhance
the safety and soundness of the financial system and the
protection of consumers.
7. Brokerage Commission. Title II of the bill requires the
functional regulation of bank securities activities. Subtitle
A amends the Securities Exchange Act of 1934 to eliminate the
outdated blanket exceptions for banks from the definitions of
``broker'' and ``dealer.'' The bill preserves specific
exceptions for some existing bank securities activities based
on the limited nature of those activities. In general, the
fifteen exceptions reflect our intent to exclude certain
existing banking activities while ensuring that activities
that require securities regulation are subject to the
securities laws. These exceptions are designed to assure that
activities that most need to be subject to securities
regulation in an era of financial modernization and
increasing competition do not escape that regulation.
It is the intent of Congress that banks that act like
brokerage firms must be regulated as brokerage firms unless
these activities are limited in nature, narrowly constrained,
and subject to limits to preclude the concerns that require
broker-dealer oversight. To that end, the amendment makes
clear that a bank will not be considered a ``broker'' only
when it effects transactions in a trustee capacity, or in a
fiduciary capacity in its trust department, subject to key
limitations, or when, acting in its transfer agent capacity,
it conducts brokerage transactions for: (1) employee benefit
plans, (2) dividend reinvestment plans, and (3) open
enrollment plans, as long as the bank does not solicit
transactions, or provide investment advice concerning the
purchase and sale of securities, or receive brokerage
commissions exceeding the bank's execution costs. To take
advantage of this exception, these excepted bank activities
must be regularly examined by bank examiners for compliance
with fiduciary principles and standards. It is the intent of
Congress that such examinations be specifically focused on
these activities and rigorous in nature. The amendment also
spells out that banks that use these exceptions may be
primarily compensated by an administration or annual fee, a
percentage of assets under management, a flat or capped per
order processing fee, or any combination of such fees. Such
fees must not be structured in such a way that they give rise
to the sales incentives inherent in brokerage commissions.
8. Antitrust. The bill substantially streamlines antitrust
review of bank acquisitions and mergers under the Federal
Reserve. The amendment strikes that language and replaces it
with language preserving the authority of the appropriate
antitrust regulators, the Attorney General and the Federal
Trade Commission. It provides for interagency data sharing to
facilitate antitrust reviews and requires a GAO report on
market concentration in the financial services industry and
its impact on consumers. It is the intent of Congress that
the ongoing consolidation and merger activity in the
financial services industry undergo complete and rigorous
review in order to preserve competition and protect
consumers.
9. Derivative Instruments. The bill preserves the ability
of the SEC to determine what is a ``security,'' and when new
bank products are ``securities,'' by providing a definition
of ``traditional banking product'' as a stand-alone statute--
not in the Federal securities laws or in the banking laws.
The definition includes such things as deposit accounts,
letters of credit, credit card debit accounts, certain loan
participations, and certain derivative instruments that
traditionally have not been regulated as securities. If banks
sell products within the scope of this definition, they are
not required to register as a broker or a dealer.

[[Page H3179]]

Derivatives involving or relating to foreign currencies,
interest rates, commodities, other rates, indices or other
assets, except instruments that are (1) based on a security
including a group or index of securities, (2) that provide
for the delivery of one or more securities, or (3) that trade
on a national securities exchange, are defined as traditional
banking products. If a derivative other than an interest rate
swap or a foreign currency swap is a security, it would not
qualify as a traditional banking product unless it was based
on a government security, commercial paper, banker's
acceptance or commercial bill or a group or index of one of
more of these products. The amendment makes technical and
clarifying changes to this provision to ensure that the SEC
maintains jurisdiction over derivatives that are securities.
The bill includes a new provision that establishes a
process by which the SEC shall decide whether banks that sell
``new banking products'' that are securities must register
with the SEC as brokers, dealers, or both. Specifically, the
SEC must engage in a rulemaking proceeding and must determine
(1) that the new product is a security and (2) that imposing
a registration requirement on a bank to sell the new product
is necessary or appropriate in the public interest and for
the protection of investors. Under this provision, during the
rulemaking process, the SEC is also required to consult with
and consider the views of the appropriate banking agencies
concerning the proposed rules and the impact of those rules
on the banking industry.
10. Qualified Investors. The amendment expands the bill's
definition of ``qualified investor'' to include the
governments of foreign countries.
11. Community Needs. The amendment responds to the concerns
of consumer and community groups about the impact of this
bill and the recent megamergers on the cost and availability
of financial services to communities and persons of modest
means. The amendment requires the Treasury Department, in
consultation with the Federal banking regulators and the SEC,
to study the impact of the changes affected by this Act on
Community Reinvestment Act obligations and performance, and
to submit a report to Congress with any appropriate
recommendations based on the results of that study.
12. Privacy Study. The amendment requires the Federal Trade
Commission to submit to Congress an interim report on its
ongoing study of consumer privacy issues together with
recommendations for legislative and administrative action.
This responds to growing concerns about the use and sharing
of confidential customer information for cross-marketing and
other purposes.

Madam Chairman, I reserve the balance of my time.
Mr. LaFALCE. Madam Chairman, I yield 2 minutes to the gentlewoman
from Texas (Ms. Jackson-Lee).
(Ms. JACKSON-LEE of Texas asked and was given permission to revise
and extend her remarks.)
Ms. JACKSON-LEE of Texas. Madam Chairman, on Court TV we always hear
``order in the court'' as one of the calling cries of that popular
show. I think this manager's amendment brings order to the financial
services structure that is so much needed by the consumers.
It particularly regulates and protects the consumers as they come
into the banking institution needing a variety of services, maybe
needing only one and winding up buying or going away with two or three,
because it is attractive to come in and buy a variety of services. I
think there is a great need for that. It certainly protects and
regulates the whole question of dealing with what is insured and what
is not insured, and provides that kind of security for the consumer
that uses these services. It brings a sense of balance between our
insurance entities and, as well, our banking entities; and I would say,
Madam Chairman, that it helps us understand this merging market and
brings protection there as well.
I simply say that we are going in the right direction, but I would
also argue very vigorously against the Baker amendment that seeks to
eliminate the Community Reinvestment Act. We can protect small banks,
but we need to protect small business owners and minority communities
who have yet to participate in the financial structure of this Nation.
The Community Reinvestment Act has for long years provided investment
in the inner cities, rebuilding homes and businesses. How dare we go to
move to eliminate an act that has just begun? We may need some
tinkering, but we do not need any elimination.
I stand on behalf of the women business owners in inner-city
communities, minorities, Hispanics, African Americans and Asians who
are seeking to rebuild their communities, the innovative American
community who is just beginning to use the Community Reinvestment Act
and having banking institutions that are supportive.
The Baker amendment is wrong-directed in eliminating the Community
Reinvestment Act. The manager's amendment does attack the problem from
a consumer's perspective and brings the right kind of balancing to this
industry. I thank the ranking member, and as well the chairman of this
committee for this legislation.
Mr. BLILEY. Madam Chairman, I yield such time as he may consume to
the gentleman from Iowa (Mr. Leach), chairman of the Committee on
Banking and Financial Services.
Mr. LEACH. Madam Chairman, I thank my distinguished friend for
yielding to me.
I rise also in support of this manager's amendment. The amendment
before us was negotiated on a bipartisan, multiple-committee basis. It
contains changes requested by the Committee on Agriculture, the
Committee on the Judiciary, and the Committee on Ways and Means. The
most significant changes are the insurance provisions and the
provisions relating to antitrust.
The revisions contained in the amendment relating to the insurance
provisions are intended to help strike an appropriate balance between
the need of the States to regulate insurance activities in banks and
the ability of national banks to engage in insurance activities without
being subject to State laws that prevent or significantly interfere
with that activity.
This House has been a firm supporter of States' rights and, in
particular, leaving the regulation of insurance to the States. However,
this House also believes that States should not regulate the manner
which has, either directly or indirectly, the effect of preventing or
significantly interfering with the ability of a bank to engage in
activities that it is properly authorized to do by Federal law. The
manager's amendment addresses this issue by clarifying these
relationships.
Second, the manager's amendment at my request strengthens the
antitrust laws in a number of ways. It restores the Federal Reserve's
ability to consider anticompetitive issues in reviewing the acquisition
of banks; it bolsters the Federal Trade Commission's antitrust
authority, and it assures that financial affiliations that will be
permissible under this bill will receive appropriate antitrust review
by the Department of Justice and the FTC.
Other provisions of the manager's amendment incorporate amendments
that were filed by the gentleman from Michigan (Mr. Dingell), the
gentleman from Massachusetts (Mr. Markey), the gentleman from New York
(Mr. LaFalce), and the gentleman from Minnesota (Mr. Vento) last month
and during the most recent consideration of the bill.
Finally, the manager's amendment includes a number of subtleties as
well as a number of studies and consumer provisions. I believe it is
well-balanced and thoughtful, protects the consumer, as well as
establishes a clear guideline for certain competition in financial
services. I think it deserves the support of this body.
Mr. LaFALCE. Madam Chairman, I yield 1 minute to the gentleman from
Minnesota (Mr. Vento).
Mr. VENTO. Madam Chairman, I intend to enter into a colloquy with the
gentleman from Iowa (Mr. Leach), chairman of the Committee on Banking
and Financial Services.
Madam Chairman, I would ask the gentleman to clarify that it is our
mutual understanding that the soon-to-be created electronic accounts,
ETA accounts, would be one way to satisfy the low-cost, basic banking
provisions in the bill and the requirement that banks help meet the
credit needs of local communities under the Community Reinvestment Act.
The ETA accounts are those that are required to be established for
Americans to receive Federal benefits or payments by the Debt
Collection Improvement Act of 1996 (Chapter 10, Public Law 104-134).
Mr. LEACH. Madam Chairman will the gentleman yield?
Mr. VENTO. I yield to the gentleman from Iowa.
Mr. LEACH. Madam Chairman, that is precisely my understanding, and I
would like to compliment the gentleman for his work in this field as
well as for his articulation of a very common-sense approach.
Mr. VENTO. Madam Chairman, reclaiming my time, I want to thank the

[[Page H3180]]

chairman for his clarification, and I would urge Members to support
this amendment, and I intend to speak on it further myself.
Mr. BLILEY. Madam Chairman, could I inquire as to how much time I
have remaining?
The CHAIRMAN. The gentleman from Virginia (Mr. Bliley), has 4
minutes, the gentleman from Michigan (Mr. Dingell) has 3 minutes, and
the gentleman from New York (Mr. LaFalce) has 8\1/2\ minutes.
Mr. BLILEY. Madam Chairman, do I have the right to close?
The CHAIRMAN. The gentleman is correct.
Mr. BLILEY. Madam Chairman, I reserve the balance of my time.
Mr. LaFALCE. Madam Chairman, I yield 2 minutes to the gentleman from
Texas (Mr. Bentsen).
(Mr. BENTSEN asked and was given permission to revise and extend his
remarks.)
Mr. BENTSEN. Madam Chairman, this is an amendment on which I am in
profound agreement with my colleague from Michigan (Mr. Dingell) and
the two managers of the bill, the gentleman from Virginia (Mr. Bliley),
and the gentleman from Iowa (Mr. Leach).
When H.R. 10 left the Committee on Banking and Financial Services
last year, it included an amendment that I and our colleague, the
gentleman from North Carolina (Mr. Watt), had drafted which would
provide for securities sales in banks to be under the auspices of the
National Association of Security Dealers. I think that the idea of
increasing SEC regulatory oversight of Bank Securities sales that is in
the manager's amendment is a step in the right direction. I commend the
gentleman for offering it.

{time} 1430

I think we should have functional regulation, and I think we have to
have market modernization, but I think we also need to ensure that
consumers are protected, and that the playing field is equal between
both in-bank and out-of-bank securities sales. This amendment moves in
that direction.
I would encourage my colleagues to vote for the manager's amendment.
We obviously have profound disagreements on other issues, but this is,
I think, a good amendment. As the gentleman mentioned the issue of
proper regulation of bank mutual fund sales has come up, and we know
that the Federal bank regulators have had difficulties in their ability
to properly regulate the sales of these instruments and protect
investors. This amendment should go a long way toward correcting this
matter.
I appreciate the gentleman for offering it, and I intend to support
it.
Mr. LaFALCE. Madam Chairman, I yield 3 minutes to the gentleman from
Minnesota (Mr. Vento).
Mr. VENTO. Madam Chairman, I thank the gentleman for yielding me the
time.
Madam Chairman, I rise in support of this manager's amendment, which
include the Vento amendment antitrust provisions with respect to the
required ongoing GAO annual reports, the different cultures that exist
within the financial entities, insurance, securities, and banking. I am
very concerned what this may do in terms of venture capital and the
other capacities.
The consumer protection provisions with regard to this, I think there
are some concerns that banks have even with this manager's amendment
concerning what happens with insurance sales. Obviously, the banks are
not satisfied even with the LaFalce-Vento amendment, but I think we are
willing to accept that and move forward; such provisions represent
progress.
I appreciate the lifeline provisions and note the CRA study
provisions and question the focus. What is conspicuously absent from
this, of course, is the good work in terms of extending CRA that was
actually initiated in a previous March 30 Dingell-LaFalce amendment.
I would also like to comment on SEC enforcement, and the National
Association of Securities Dealers, enforcement they do very important
regulatory work. My colleague from the Committee on Banking and
Financial Services just pointed out the important work in terms of
having functional regulation.
In 1996, as an example, the Securities and Exchange Commission, under
its authority, actually imposed over $325 million worth of assessments
reflected in terms of illegal profits, and $67 million worth of civil
penalties. The S.E.C. in 1996 noted 180 civil actions, 239
administrative proceedings and 32 civil and criminal contempt
proceedings.
It has been pointed out repeatedly here that Nations Securities,
NationsBank's Nations Securities, has had a penalty most recently
reported in the paper derived from a 1994 incident. Incidentally, it
was not just Nations Securities, it was Dean Witter and Nation's Bank
who jointly owned Nation's Securities. Dean Witter, of course, is a
securities firm, but other firms have also had some problems. It was,
of course, functional regulation that, in that instance, actually
penalized Nations Securities. That is not changed in this measure or in
the LaFalce-Vento amendment.
But other firms also have had some very significant fines in 1996,
and I realize it is very important we see this type of discipline, this
regulatory enforcement. A securities firm Lazard along with Merrill
Lynch had a $10 million fine in 1996. PaineWebber was fined in a number
of instances, as were many others. I could go through the entire list
and point out the violations of securities firms--mistakes have been
made and penalties exacted.
Suffice it to say that the Securities and Exchange Commission is
doing its job. I commend them for that. I commend them for the work
they did with Nations Bank and Dean Witter, the owners of Nations
Securities. It is interesting to note that, but functional regulation
would not change under this bill, under the operating subsidiary, any
different from what actually happened in the recent penalty that is
being highlighted by my colleagues. It is exactly this type of rigorous
regulation and rigorous exercise by the regulators that will prevent
the type of abuses that occurred with the S&L crisis. Without rigorous
regulation no corporate structure will suffice. The law must provide
for enforcement and a willing watch dog.
We worked mightily in 1989 and 1991 to pass new regulations on banks
and S&Ls to prevent any repeat of that type of crisis. We hope that law
works. We have not seen the ups and downs in the economy to demonstrate
that it will work, I will admit freely, but I think we have some pretty
sound law in place to deal with that, forged in the heat of a red hot
furnace catastrophe, the S&L crisis.
I think what is proved or demonstrated by the reports that we have
had here with regard to Nations Bank/Dean Witter role with
NationsSecurities, is that the operating subsidiary, when functionally
regulated, can be adequately controlled and penalized, just as we
control securities firms when indeed they do run afoul of the law, as
we did in 1996 with $325 million worth payback and $67 million in
fines.
Mr. DINGELL. Madam Chairman, I yield 1 minute to the distinguished
gentleman from New York (Mr. Manton), the ranking member of the
subcommittee.
Mr. MANTON. Madam Chairman, I rise in strong support of the manager's
amendment. By voting for the manager's amendment, we ensure the most
important goal of this legislation is realized.
This amendment will make certain that consumers and investors receive
clear and meaningful fee disclosure when buying products from a
financial institution. Simply stated, this means that when someone buys
a product from a bank, they will be provided with information on all of
the costs associated with that purchase.
This amendment also considers how the Community Reinvestment Act
should be incorporated under this new holding company structure, where
financial holding companies or their subsidiaries can potentially hold
the assets of a bank.
This amendment requires that a study be conducted on whether adequate
services are being provided to low- and moderate-income neighborhoods.
Because the new holding company regime will allow for greater
flexibility in how financial institutions are structured and financed,
how CRA will be affected should certainly be examined by the regulators
that oversee them.
These are just a few of the consumer and investors' protections built
into the manager's amendment. I believe H.R. 10 is improved
significantly by

[[Page H3181]]

this amendment, and I urge all of my colleagues to support it.
Mr. DINGELL. Madam Chairman, I yield 1 minute to the distinguished
gentlewoman from Colorado (Ms. DeGette).
Ms. DeGETTE. Madam Chairman, I thank the gentleman for yielding me
the time.
Madam Chairman, I am in strong support of the manager's amendment,
primarily because of the numerous consumer protection provisions that
it contains. I am particularly concerned about preservation of the
community services that are intended by the Community Reinvestment Act.
The Community Reinvestment Act is vitally important to many, many
areas in this country. In my district in Denver, for example, the
Community Reinvestment Act has been used to revitalize our local urban
economy.
I was concerned in the underlying bill that because of the
structuring, that the Community Reinvestment Act would be undermined. I
retain those concerns, but I feel that the 2-year review period
contained in the manager's amendment will give us ample time to see the
effect of H.R. 10 on the CRA.
I hope and I urge that Congress, at the end of this 2-year period,
will take a strong look as if the CRA is being preserved and expanded,
and take quick legislative action if it is not, so our urban
communities, our small women- and minority-owned businesses, can be
preserved, while at the same time we have financial expansion and
modernization.
Mr. DINGELL. Madam Chairman, I yield 1 minute to my distinguished
friend, the gentleman from Massachusetts (Mr. Markey).
Mr. MARKEY. Madam Chairman, I thank the gentleman for yielding me the
time, and I want to congratulate him and the gentleman from Virginia
(Mr. Bliley) and the gentleman from New York (Mr. LaFalce), and all
those that worked to put together this bipartisan manager's amendment,
because it really does help to close up a lot of the problem areas that
had developed in the drafting of the legislation with regard to how
investors and depositors were going to be protected in the legislation.
Specifically, I speak here as the ranking Democrat on the
Subcommittee on Telecommunications, Trade, and Consumer Protection. We
had real questions about whether or not the Federal Trade Commission
was going to have the authority to be able to follow these antitrust
questions, as banks affiliated with insurance or with financial
institutions, securities institutions, or even with nonfinancial
institutions.
In this amendment, we clarify that the Federal Trade Commission has
the antitrust authority to be able to look at these transactions, and
that the Hart-Scott-Rodino antitrust review is retained in a way that
covers these bank mergers with financial and nonfinancial institutions.
I thank the gentleman for making that possible.
The CHAIRMAN. All time of the gentleman from Michigan (Mr. Dingell)
has expired.
The gentleman from New York (Mr. LaFalce) has 4 minutes remaining.
Mr. LaFALCE. Madam Chairman, I yield myself such time as I may
consume.
Madam Chairman, I am delighted that everyone who has spoken has
spoken in support of this manager's amendment, because the objectives
that it would effectuate are certainly in the public interest.
There are still, however, even after we pass this manager's
amendment, a number of deficiencies. One of them has not been mentioned
very much, and I would like to address that now. That is the issue of
the redomestication of mutual insurance companies. I am very concerned
about that.
It is my understanding that there are approximately 70 million
Americans who have ownership in mutual insurance companies. It is my
understanding that this bill has a provision within it that would allow
State law to preempt Federal law, not when the State law gives greater
consumer protection, but when the State law gives lesser consumer
protection. Further, I understand that this State law then could become
the operative national law for these mutual insurance holding
companies.
This is very worrisome to me, because there are a good many States
that want to protect the rights of individuals who own a stake in
mutual insurance companies. This Federal legislation will permit
certain State legislatures to enact legislation which would then entice
the transfer of the corporate headquarters to their State, and enable
them to operate on a national basis on the basis of the lowest common
denominator. The manager's amendment does not deal with this issue.
The other big provision, of course, is the Community Reinvestment
Act. This is very fundamental. The manager's amendment does nothing
about the mandate in the bill that if they want to engage in new,
innovative products and services, they must, they must move their
activities into an affiliate that is not subject to the Community
Reinvestment Act; that is, if they want to remain a national bank.
So they have the option of either becoming a financial services
holding company, which most small national banks would not want to do,
or they have the option of converting from the national bank charter to
a State bank charter, because most State banks would permit them to
conduct these activities in operating subsidiaries, where the
regulators have said that you have as much safety and soundness as you
would in the affiliate. So it would permit the undermining of the
Community Reinvestment Act, the undermining of the national bank
system.
The manager's amendment does not deal with that. So vote yes on the
manager's amendment, but that is not enough to turn a bad bill into a
good bill.
Mr. BLILEY. Madam Chairman, I yield myself such time as I may
consume.
Madam Chairman, this has been a good debate. It is now coming to a
close, and we will shortly have a vote. This amendment is a good
amendment. It represents the House at its best: two committees, two
parties working side by side in the interests of the Nation. That is
the way it should be more often. Sadly, unfortunately, it is not. But
this is a good amendment. We are going to have a long day, so let us
have the question.
Madam Chairman, I yield back the balance of my time.
The CHAIRMAN. The question is on the amendment offered by the
gentleman from Virginia (Mr. Bliley).
The question was taken; and the Chairman announced that the ayes
appeared to have it.

Recorded Vote

Mr. BLILEY. Madam Chairman, I demand a recorded vote.
A recorded vote was ordered.
The vote was taken by electronic device, and there were--ayes 407,
noes 11, not voting 14, as follows:

[Roll No. 143]

AYES--407

Abercrombie
Ackerman
Aderholt
Allen
Andrews
Archer
Armey
Baesler
Baker
Baldacci
Ballenger
Barcia
Barr
Barrett (NE)
Barrett (WI)
Bartlett
Barton
Bass
Becerra
Bentsen
Bereuter
Berman
Berry
Bilbray
Bilirakis
Bishop
Blagojevich
Bliley
Blumenauer
Blunt
Boehlert
Boehner
Bonilla
Bonior
Bono
Borski
Boswell
Boucher
Boyd
Brady
Brown (CA)
Brown (FL)
Brown (OH)
Bryant
Bunning
Burr
Burton
Buyer
Callahan
Calvert
Camp
Campbell
Canady
Cannon
Capps
Cardin
Carson
Castle
Chabot
Chambliss
Chenoweth
Clayton
Clement
Clyburn
Coble
Coburn
Collins
Combest
Condit
Conyers
Cook
Cooksey
Costello
Cox
Coyne
Cramer
Crane
Crapo
Cubin
Cummings
Cunningham
Danner
Davis (FL)
Davis (IL)
Davis (VA)
Deal
DeFazio
DeGette
Delahunt
DeLauro
DeLay
Deutsch
Diaz-Balart
Dickey
Dicks
Dingell
Dixon
Doggett
Dooley
Doolittle
Doyle
Duncan
Dunn
Edwards
Ehlers
Ehrlich
Emerson
Engel
English
Ensign
Eshoo
Etheridge
Evans
Everett
Ewing
Farr
Fawell
Fazio
Filner
Foley
Forbes
Ford
Fossella
Fowler
Fox
Frank (MA)
Franks (NJ)
Frelinghuysen
Frost
Furse
Gallegly
Ganske
Gejdenson
Gekas
Gephardt
Gillmor
Gilman
Goodlatte
Goodling
Gordon
Goss
Graham
Granger
Green
Greenwood
Gutierrez
Gutknecht
Hall (OH)
Hall (TX)
Hamilton
Hansen
Hastert
Hastings (FL)

[[Page H3182]]

Hastings (WA)
Hayworth
Hefley
Herger
Hill
Hilleary
Hinchey
Hinojosa
Hobson
Hoekstra
Holden
Hooley
Horn
Hostettler
Houghton
Hoyer
Hulshof
Hunter
Hutchinson
Hyde
Inglis
Istook
Jackson (IL)
Jackson-Lee (TX)
Jefferson
Jenkins
John
Johnson (CT)
Johnson (WI)
Johnson, E.B.
Jones
Kanjorski
Kaptur
Kasich
Kelly
Kennedy (MA)
Kennedy (RI)
Kennelly
Kildee
Kim
Kind (WI)
King (NY)
Kingston
Kleczka
Klink
Klug
Knollenberg
Kolbe
Kucinich
LaFalce
Lampson
Lantos
Largent
Latham
LaTourette
Lazio
Leach
Lee
Levin
Lewis (CA)
Lewis (GA)
Lewis (KY)
Linder
Lipinski
Livingston
LoBiondo
Lofgren
Lowey
Lucas
Luther
Maloney (CT)
Maloney (NY)
Manton
Manzullo
Markey
Martinez
Mascara
Matsui
McCarthy (MO)
McCarthy (NY)
McCrery
McDade
McDermott
McGovern
McHale
McHugh
McInnis
McIntosh
McIntyre
McKeon
McKinney
McNulty
Meehan
Meek (FL)
Meeks (NY)
Menendez
Metcalf
Mica
Millender-McDonald
Miller (CA)
Miller (FL)
Minge
Mink
Moakley
Mollohan
Moran (KS)
Moran (VA)
Morella
Murtha
Myrick
Nadler
Neal
Nethercutt
Neumann
Ney
Northup
Norwood
Nussle
Oberstar
Obey
Olver
Ortiz
Owens
Oxley
Packard
Pallone
Pappas
Parker
Pascrell
Pastor
Paul
Paxon
Payne
Pease
Pelosi
Peterson (MN)
Peterson (PA)
Petri
Pickering
Pickett
Pitts
Pombo
Pomeroy
Porter
Portman
Poshard
Price (NC)
Pryce (OH)
Quinn
Rahall
Ramstad
Rangel
Redmond
Regula
Reyes
Riggs
Rivers
Rodriguez
Roemer
Rogan
Rogers
Rohrabacher
Ros-Lehtinen
Rothman
Roukema
Roybal-Allard
Royce
Rush
Ryun
Sabo
Salmon
Sanchez
Sanders
Sandlin
Sanford
Sawyer
Saxton
Schaefer, Dan
Schumer
Scott
Sensenbrenner
Serrano
Sessions
Shadegg
Shaw
Shays
Sherman
Shimkus
Shuster
Sisisky
Skeen
Skelton
Slaughter
Smith (MI)
Smith (NJ)
Smith (OR)
Smith (TX)
Smith, Adam
Smith, Linda
Snowbarger
Snyder
Solomon
Souder
Spence
Spratt
Stabenow
Stark
Stearns
Stenholm
Stokes
Strickland
Stump
Stupak
Sununu
Talent
Tanner
Tauscher
Tauzin
Taylor (MS)
Taylor (NC)
Thomas
Thompson
Thornberry
Thurman
Tierney
Torres
Towns
Traficant
Turner
Upton
Velazquez
Vento
Visclosky
Walsh
Wamp
Waters
Watkins
Watt (NC)
Watts (OK)
Waxman
Weldon (FL)
Weldon (PA)
Weller
Wexler
Weygand
Whitfield
Wicker
Wise
Wolf
Woolsey
Wynn
Yates
Young (AK)
Young (FL)

NOES--11

Bachus
Dreier
Goode
Johnson, Sam
LaHood
McCollum
Riley
Scarborough
Schaffer, Bob
Thune
Tiahrt

NOT VOTING--14

Bateman
Christensen
Clay
Fattah
Gibbons
Gilchrest
Gonzalez
Harman
Hefner
Hilliard
Kilpatrick
Radanovich
Skaggs
White

{time} 1503

Mr. BACHUS changed his vote from ``aye'' to ``no.''
Mr. HEFLEY and Mr. BOSWELL changed their vote from ``no'' to ``aye.''
So the amendment was agreed to.
The result of the vote was announced as above recorded.
The CHAIRMAN pro tempore (Mr. Dickey). It is now in order to consider
amendment No. 2 printed in part 2 of House Report 105-531.

Amendment No. 2 Offered by Mr. LaFalce

Mr. LaFALCE. Mr. Chairman, I offer an amendment.
The CHAIRMAN pro tempore. The Clerk will designate the amendment.
The text of the amendment is as follows:

Part 2, Amendment No. 2, printed in House Report 105-531
offered by Mr. LaFalce:

[1. Insurance]

In section 104(b)(2) of the Amendment in the Nature of a
Substitute, strike ``As stated by the United States Supreme
Court'' and insert ``In accordance with the decision of the
Supreme Court of the United States''.
In section 104(b)(2) of the Amendment in the Nature of a
Substitute, strike ``to engage'' each place such term appears
and insert ``, or any subsidiary or other affiliate thereof,
from engaging''.
In section 104(b)(2) of the Amendment in the Nature of a
Substitute, strike subparagraph (B) and insert the following
new subparagraph:
(B) subparagraph (A) shall not apply after the end of the
5-year period beginning on the date of the enactment of this
Act.
In section 104(b)(3) of the Amendment in the Nature of a
Substitute, insert ``not relating to crossmarketing
activities subject to paragraph (2)'' after ``orders, and
interpretations''.
In section 104(b)(3) of the Amendment in the Nature of a
Substitute, insert ``to the extent that such statutes,
regulations, orders, and interpretations do not have a
disparate impact on insurance underwriters affiliated with an
insured depository institution or wholesale financial
institution'' before the period at the end.

[2. Op-subs]

Strike the heading for subtitle C of title I of the
Amendment in the Nature of a Substitute and insert the
following new heading:
Subtitle C--Subsidiaries of Insured Depository Institutions
Strike section 121 of the Amendment in the Nature of a
Substitute and insert the following new sections (and
redesignate subsequent sections and amend the table of
contents accordingly):

SEC. 121. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED TO ENGAGE
IN FINANCIAL ACTIVITIES.

``SEC. 5136A. FINANCIAL SUBSIDIARIES OF NATIONAL BANKS.

``(a) Subsidiaries of National Banks Authorized to Engage
in Financial Activities.--
``(1) In general.--A subsidiary of a national bank may
engage in an activity that is not permissible for a national
bank to engage in directly, but only if--
``(A) the activity is a financial activity (as defined in
paragraph (4));
``(B) the national bank is well capitalized, well managed,
and achieved a rating of `satisfactory record of meeting
community credit needs', or better, at the most recent
examination of the bank;
``(C) all depository institution affiliates of such
national bank are well capitalized, well managed, and have
achieved a rating of `satisfactory record of meeting
community credit needs', or better, at the most recent
examination of each such institution; and
``(D) the bank has received the approval of the Comptroller
of the Currency.
``(2) No effect on edge act or agreement corporations.--
Paragraph (1) shall not apply with respect to any subsidiary
which is a corporation organized under section 25A of the
Federal Reserve Act or a corporation operating under section
25 of such Act.
``(3) Other subsidiaries prohibited.--A national bank may
not control any subsidiary other than a subsidiary--
``(A) which engages solely in activities that are
permissible for a national bank to engage in directly or are
authorized under paragraph (1); or
``(B) which a national bank may control pursuant to section
25 or 25A of the Federal Reserve Act, the Bank Service
Company Act, or any other Act that expressly by its terms
authorizes national banks to control subsidiaries.
``(4) Financial activity defined.--For purposes of this
section and subject to paragraph (5), the term `financial
activity' means any 1 or more of the following:
``(A) Receiving money subject to a deposit or other
repayment obligation.
``(B) Lending, exchanging, transferring, investing, or
safeguarding money or other financial assets.
``(C) Providing any device or other instrumentality for
transferring money or other financial assets.
``(D) Acting as agent or broker in the placement of
annuities contracts or contracts insuring, guaranteeing, or
indemnifying against loss, harm, damage, illness, disability,
or death.
``(E) Providing financial, investment, or economic advisory
or information services, including advising an investment
company (as defined in section 3 of the Investment Company
Act of 1940).
``(F) Issuing or selling instruments representing interests
in pools of assets permissible for a bank to hold directly.
``(G) Arranging, effecting, or facilitating financial
transactions for the account of third parties.
``(H) Directly or indirectly acquiring or controlling,
whether as principal, on behalf of 1 or more entities
(including entities that the financial subsidiary controls)
or otherwise, shares, assets, or ownership interests
(including without limitation debt or equity securities,
partnership interests, trust certificates or other
instruments representing ownership) of a company or other
entity, whether or not constituting control of such company
or entity, engaged in 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;
``(ii) such shares, assets, or ownership interests are
acquired and held by a securities affiliate or an affiliate
thereof as part of a bona fide underwriting or merchant
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 only for such a period of time as will permit the sale
or disposition

[[Page H3183]]

thereof on a reasonable basis consistent with the nature of
the activities described in clause (ii); and
``(iv) during the period such shares, assets, or ownership
interests are held, the financial subsidiary does not
actively participate in the day to day management or
operation of such company or entity, except insofar as
necessary to achieve the objectives of clause (ii).
``(I) Underwriting, dealing in, or making a market in
securities.
``(J) Engaging in any activity that was, by regulation or
order, permissible for a bank holding company pursuant to
section 4(c)(8) of the Bank Holding Company Act of 1956 (as
in effect on the day before the date of enactment of the
Financial Services Act of 1998).
``(K) Engaging, in the United States, in any activity
that--
``(i) a bank holding company may engage in outside the
United States; and
``(ii) the Board of Governors of the Federal Reserve System
determined, under regulations issued pursuant to section
4(c)(13) of the Bank Holding Company Act of 1956 (as in
effect on the day before the date of enactment of the
Financial Services Act of 1998) to be usual in connection
with the transaction of banking or other financial operations
abroad;
``(L) Owning shares of a company to the extent permissible
under section 4(c)(7) of the Bank Holding Company Act of 1956
(as in effect on the day before the date of enactment of the
Financial Services Act of 1998).
``(M) Engaging in any activity that the Comptroller of the
Currency determines by regulation or order is the functional
equivalent of any activity described in 1 or more of
subparagraphs (A) through (K).
``(N) Engaging in any activity that the Comptroller of the
Currency determines by regulation or order to be financial,
or related to a financial activity, having taken into
account--
``(i) the purposes of this title and the Financial Services
Act of 1998;
``(ii) changes or reasonably expected changes in the market
in which bank subsidiaries compete;
``(iii) changes or reasonable expected changes in the
technology delivering financial services; and
``(iv) whether such activity is necessary or appropriate to
allow a bank and the subsidiaries of a bank to--

``(I) compete effectively with any company seeking to
provide financial services in the United States;
``(II) use any available or emerging technological means,
including any application necessary to protect the security
or efficacy of systems for the transmission of data or
financial transactions, in providing financial services; and
``(III) offer customers any available or emerging
technological means for using financial services.

``(5) Other definitions.--For purposes of this section, the
following definitions shall apply:
``(A) Financial subsidiary.--The term `financial
subsidiary' means a company which--
``(i) is a subsidiary of a national bank (other than a
corporation organized under section 25A of the Federal
Reserve Act or a corporation operating under section 25 of
such Act); and
``(ii) is engaged in a financial activity pursuant to
paragraph (1) that is not a permissible activity for a
national bank to engage in directly.
``(B) Subsidiary.--The term `subsidiary' has the meaning
given to such term in section 2 of the Bank Holding Company
Act of 1956.
``(C) Well capitalized.--The term `well capitalized' has
the same meaning as in section 38 of the Federal Deposit
Insurance Act and, for purposes of this section, the
Comptroller shall have exclusive jurisdiction to determine
whether a national bank is well capitalized.
``(D) Well managed.--The term `well managed' means--
``(i) in the case of a bank that has been examined, unless
otherwise determined in writing by the Comptroller, the
achievement of--

``(I) a composite rating of 1 or 2 under the Uniform
Financial Institutions Rating System (or an equivalent rating
under an equivalent rating system) in connection with the
most recent examination or subsequent review of the bank; and
``(II) at least a rating of 2 for management, if that
rating is given; or

``(ii) in the case of any national bank that has not been
examined, the existence and use of managerial resources that
the Comptroller determines are satisfactory.
``(6) Insurance underwriting and direct investment.--Except
as provided in title III of the Financial Services Act of
1998, no subsidiary of a national bank (other than a
corporation organized under section 25A of the Federal
Reserve Act or a corporation operating under section 25 of
such Act) may underwrite noncredit-related insurance or
engage in real estate investment or development activities
(except to the extent a national bank is specifically
authorized by statute to engage in any such activity
directly).
``(7) Limited exclusions from community needs requirements
for newly acquired depository institutions.--Any depository
institution which becomes affiliated with a national bank
during the 12-month period preceding the submission of an
application to acquire a financial subsidiary and any
depository institution which becomes so affiliated after the
approval of such application may be excluded for purposes of
paragraph (1)(C) during the 12-month period beginning on the
date of such acquisition if--
``(A) the national bank has submitted an affirmative plan
to the Comptroller of the Currency to take such action as may
be necessary in order for such institution to achieve a
`satisfactory record of meeting community credit needs', or
better, during the most next examination of the institution;
and
``(B) the plan has been accepted by the Comptroller.
``(b) Capital Deduction Required.--
``(1) In general.--In determining compliance with
applicable capital standards--
``(A) the amount of a national bank's equity investment in
a financial subsidiary shall be deducted from the national
bank's assets and tangible equity; and
``(B) the financial subsidiary's assets and liabilities
shall not be consolidated with those of the national bank.
``(2) Regulations required.--The Comptroller shall
prescribe regulations implementing this subsection.
``(c) Safeguards for the Bank.--A national bank that
establishes or maintains a financial subsidiary shall assure
that--
``(1) the bank's procedures for identifying and managing
financial and operational risks within the bank and financial
subsidiaries of the bank adequately protect the bank from
such risks;
``(2) the bank has, for the protection of the bank,
reasonable policies and procedures to preserve the separate
corporate identity and limited liability of the bank and
subsidiaries of the bank; and
``(3) the bank complies with this section.
``(d) National Banks Which Do Not Comply With Requirements
of This Section.--
``(1) In general.--If the Comptroller determines that a
national bank which controls a financial subsidiary, or a
depository institution affiliate of such national bank, does
not continue to meet the requirements of subsection (a), the
Comptroller shall give notice to the bank to that effect,
describing the conditions giving rise to the notice.
``(2) Agreement to correct conditions required.--
``(A) Content of agreement.--Within 45 days of the receipt
by a depository institution of a notice given under paragraph
(1) (or such additional period as the Comptroller may
permit), the depository institution failing to meet the
requirements of subsection (a) shall execute an agreement
with the appropriate Federal banking agency for such
institution to correct the conditions described in the
notice.
``(B) Comptroller may impose limitations.--Until the
conditions giving rise to the notice are corrected, the
Comptroller may impose such limitations on the conduct of the
business of the national bank or subsidiary of such bank as
the Comptroller determines to be appropriate under the
circumstances.
``(3) Failure to correct.--If the conditions described in
the notice are not corrected within 180 days after the bank
receives the notice, the Comptroller may require, under such
terms and conditions as may be imposed by the Comptroller and
subject to such extensions of time as may be granted in the
discretion of the Comptroller--
(A) the national bank to divest control of each subsidiary
engaged in an activity that is not permissible for the bank
to engage in directly; or
``(B) each subsidiary of the national bank to cease any
activity that is not permissible for the bank to engage in
directly.''.
(b) Clerical Amendment.--The table of sections for chapter
one of title LXII of the Revised Statutes of the United
States is amended--
(1) by redesignating the item relating to section 5136A as
section 5136C; and
(2) by inserting after the item relating to section 5136
the following new item:

``5136A. Financial subsidiaries of national banks.''.

SEC. 122. ACTIVITIES OF SUBSIDIARIES OF INSURED STATE BANKS.

Section 24(d) of the Federal Deposit Insurance Act (12
U.S.C. 1831a(d)) is amended--
(1) by adding at the end the following new paragraphs:
``(3) Conditions on certain activities.--
``(A) In general.--Subject to the approval of the
appropriate Federal banking agency, a subsidiary of a State
bank may engage in an activity in which a subsidiary of a
national bank may engage as principal pursuant to subsection
(a)(1) of section 5136A of the Revised Statutes of the United
States but only if the State bank meets the same requirements
which are applicable to national banks under subparagraphs
(B) and (C) of such subsection and subsections (b) and (c) of
such section.
``(B) Application of section 5136a of revised statutes.--
For purposes of applying section 5136A of the Revised
Statutes of the United States with regard to the activities
of a subsidiary of a State bank, all references in such
section to the Comptroller of the Currency, or regulations
and orders of the Comptroller, shall be deemed to be
references to the appropriate Federal banking agency with
respect to such State bank, and regulations and orders of
such agency.
``(4) State banks which fail to comply with paragraph (3)
conditions.--
``(A) In general.--If the appropriate Federal banking
agency determines that a State

[[Page H3184]]

bank that controls a subsidiary which is engaged as principal
in financial activities pursuant to paragraph (3) does not
meet the requirements of subparagraph (A) of such paragraph,
the appropriate Federal banking agency shall give notice to
the bank to that effect, describing the conditions giving
rise to the notice.
``(A) Agreement to correct conditions required.--
``(i) Content of agreement.--Within 45 days of the receipt
by a bank of a notice given under paragraph (1) (or such
additional period as the appropriate Federal banking agency
for such bank may permit), the bank failing to meet the
requirements of paragraph (3)(A) shall execute an agreement
with the appropriate Federal banking agency for such bank to
correct the conditions described in the notice.
``(B) Agency may impose limitations.--Until the conditions
giving rise to the notice are corrected, the appropriate
Federal banking agency for the State bank may impose such
limitations on the conduct of the business of the bank or a
subsidiary of the bank as the agency determines to be
appropriate under the circumstances.
``(C) Failure to correct.--If the conditions described in
the notice are not corrected within 180 days after the bank
receives the notice, the appropriate Federal banking agency
for the State may require, under such terms and conditions as
may be imposed by such agency and subject to such extensions
of time as may be granted in the discretion of the agency--
``(i) the bank to divest control of each subsidiary engaged
in an activity as principal that is not permissible for the
bank to engage in directly; or
``(ii) each subsidiary of the bank to cease any activity as
principal that is not permissible for the bank to engage in
directly.''.

SEC. 123. RULES APPLICABLE TO FINANCIAL SUBSIDIARIES.

(a) Transactions Between Financial Subsidiaries and Other
Affiliates.--Section 23A of the Federal Reserve Act (12
U.S.C. 371c) is amended--
(1) by redesignating subsection (e) as subsection (f); and
(2) by inserting after subsection (d), the following new
subsection:
``(e) Rules Relating to Banks With Financial
Subsidiaries.--
``(1) Financial subsidiary defined.--For purposes of this
section and section 23B, the term `financial subsidiary'
means a company which--
``(A) is a subsidiary of a bank (other than a corporation
organized under section 25A of the Federal Reserve Act or a
corporation operating under section 25 of such Act); and
``(B) is engaged in a financial activity (as defined in
section 5136A(a)(4)) that is not a permissible activity for a
national bank to engage in directly.
``(2) Application to transactions between a financial
subsidiary of a bank and the bank.--For purposes of applying
this section and section 23B to a transaction between a
financial subsidiary of a bank and the bank (or between such
financial subsidiary and any other subsidiary of the bank
which is not a financial subsidiary) and notwithstanding
subsection (b)(2) and section 23B(d)(1), the financial
subsidiary of the bank--
``(A) shall be an affiliate of the bank and any other
subsidiary of the bank which is not a financial subsidiary;
and
``(B) shall not be treated as a subsidiary of the bank.
``(3) Application to transactions between financial
subsidiary and nonbank affiliates.--
``(A) In general.--A transaction between a financial
subsidiary and an affiliate of the financial subsidiary shall
not be deemed to be a transaction between a subsidiary of a
national bank and an affiliate of the bank for purposes of
section 23A or section 23B of the Federal Reserve Act.
``(B) Certain affiliates excluded.--For purposes of
subparagraph (A) and notwithstanding paragraph (4), the term
`affiliate' shall not include a bank, or a subsidiary of a
bank, which is engaged exclusively in activities permissible
for a national bank to engage in directly.
``(4) Equity investments excluded subject to the approval
of the banking agency.--Subsection (a)(1) shall not apply so
as to limit the equity investment of a bank in a financial
subsidiary of such bank, except that any investment that
exceeds the amount of a dividend that the bank could pay at
the time of the investment without obtaining prior approval
of the appropriate Federal banking agency and is in excess of
the limitation which would apply under subsection (a)(1), but
for this paragraph, may be made only with the approval of the
appropriate Federal banking agency (as defined in section
3(q) of the Federal Deposit Insurance Act) with respect to
such bank.''.
(b) Treatment of Financial Subsidiaries Under Other
Provisions of Law.--
(1) Bank Holding Company Act Amendments of 1970.--Section
106(a) of the Bank Holding Company Act Amendments of 1970 is
amended by adding at the end the following new sentence:
``For purposes of this section, a financial subsidiary (as
defined in section 5136A(a)(5)(A) of the Revised Statutes of
the United States or referenced in the 20th undesignated
paragraph of section 9 of the Federal Reserve Act or section
24(d)(3)(A) of the Federal Deposit Insurance Act) shall be
deemed to be a subsidiary of a bank holding company, and not
a subsidiary of a bank.''; and
(2) Federal Reserve Act.--The 20th undesignated paragraph
of section 9 of the Federal Reserve Act (12 U.S.C. 335) is
amended by adding at the end of the following new sentence:
``To the extent permitted under State law, a State member
bank may acquire or establish and retain a financial
subsidiary (as defined in section 5136A(a)(3)(A) of the
Revised Statutes of the United States, except that all
references in that section to the Comptroller of the
Currency, the Comptroller, or regulations or orders of the
Comptroller shall be deemed to be references to the Board or
regulations or orders of the Board.''.

[3. Consumer protection]

In paragraph (1) of section 45(a) of the Federal Deposit
Insurance Act, as added by section 308(a) of the Amendment in
the Nature of a Substitute, insert ``governing sales
practices'' after ``regulations'' in the portion of such
paragraph which precedes subparagraph (A).
In paragraph (1) of section 45(d) of the Federal Deposit
Insurance Act, as added by section 308(a) of the Amendment in
the Nature of a Substitute, strike ``and the making of
loans''.
Strike paragraph (2) of section 45(g) of the Federal
Deposit Insurance Act, as added by section 308(a) of the
Amendment in the Nature of a Substitute, and insert the
following new paragraph:
``(2) Effect on other laws.--Subject to section 104,
regulations prescribed by a Federal banking agency under this
section shall not be construed as superseding, altering, or
affecting the statutes, regulations, orders, or
interpretations in effect in any State, except to the extent
that such statutes, regulations, orders, or interpretations
are inconsistent with the regulations prescribed by a Federal
banking agency under this section and then only to the extent
of the inconsistency. For purposes of this paragraph, a State
statute, regulation, order, or interpretation is not
inconsistent with the regulations prescribed by a Federal
banking agency under this section if the protection such
statute, regulation, order, or interpretation affords any
consumer is greater than the protection provided by the
regulations under this section.

[4. Lifeline banking]

[5. Deference]

In section 307(e) of the Amendment in the Nature of a
Substitute, strike ``, without unequal deference''.

[6. GAO study--antitrust]

After section 145 of the Amendment in the Nature of a
Substitute, insert the following new section (and redesignate
the subsequent section and conform the table of contents
accordingly):

SEC. 146. ANNUAL GAO REPORT.

[7. Privacy study]

After section 108 of the Amendment in the Nature of a
Substitute, insert the following new section (and amend the
table of contents accordingly):

SEC. 110. REPORTS ON ONGOING FTC STUDY OF CONSUMER PRIVACY
ISSUES.

With respect to the ongoing multistage study being
conducted by the Federal Trade Commission on consumer privacy
issues, the Commission shall submit an interim report on the
findings and conclusions of the Commission, together with
such recommendations for legislative and administrative
action as the Commission determines to be appropriate, to the
Committee on Commerce and the Committee on Banking and
Financial Services of the House of Representatives

[[Page H3185]]

and the Committee on Banking, Housing, and Urban Affairs of
the Senate at the conclusion of each stage of such study and
a final report at the conclusion of the study.

The CHAIRMAN pro tempore. Pursuant to House Resolution 428, the
gentleman from New York (Mr. LaFalce) and a Member opposed each will
control 20 minutes.
Is the gentleman from Virginia (Mr. Bliley) opposed to the amendment?
Mr. BLILEY. I am, Mr. Chairman.
The CHAIRMAN pro tempore. The gentleman from Virginia (Mr. Bliley)
will be recognized for 20 minutes.
The Chair recognizes the gentleman from New York (Mr. LaFalce).
Mr. LaFALCE. Mr. Chairman, I yield myself such time as I may consume.
(Mr. LaFALCE asked and was given permission to revise and extend his
remarks.)
Mr. LaFALCE. Mr. Chairman, the bill in its current form is a frontal
attack on the national bank system. That is why this administration,
past administrations, any future administration would veto the bill
before us.
The bill before us promotes the movement of assets out of those
institutions covered by the Community Reinvestment Act. It undermines
the national bank charter and the authority of the national bank
regulator. It places small and mid-sized banks at an enormous
competitive disadvantage vis-a-vis the giant conglomerates this bill
helps facilitate. It permits discrimination against banks as providers
of new financial services, and it would create a serious competitive
imbalance between nationally and State chartered banks and between big
banks which can and small banks which cannot use a holding company
structure.
The amendment the gentleman from Minnesota (Mr. Vento) and I offer,
along with a good many others, would correct these problems. It would
correct these problems by permitting national banks to offer a broad
range of new financial services efficiently and safely through
subsidiaries so that these assets remain covered by CRA. It would
ensure that banks are not subject to discriminatory restrictions when
providing new financial services, and it would maintain for the
national bank regulator the same authority traditionally granted all,
each and every, Federal regulator to interpret Federal law.
The treasury secretary has repeatedly pointed out there is no safety
and soundness reason whatsoever, none, zero, and no competitive reason
that would justify a radical shift from the operation of a bank
subsidiary to a wholesale transfer of assets out of the national bank
system, out of the jurisdiction of the Comptroller of the Currency, the
Federal bank regulator, into the hands of the Federal Reserve Board.
The chairman of the FDIC, present and past, has concurred in that
judgment. The State bank regulators have concurred in that judgment.
Now, why should we care? Why should we care whether national banks are
disadvantaged in this bill? Is this just an esoteric debate about
corporate structure? It is not.
There are sound public policy reasons to value national banks and
their ability to offer new financial services through their own
subsidiaries. Fundamentally, adopting this amendment will ensure that a
significant portion of America's financial assets continue to flow
through banks. That is good for consumers. That is good for
communities.
If we want a law, rather than a one-House bill, we will adopt this
amendment and we then will ultimately bring with us the support of the
administration and produce something that can be enacted into law. If
this amendment goes down, we may or may not get a one-House bill but we
will not get a law.
Mr. Chairman, I reserve the balance of my time.
Mr. BLILEY. Mr. Chairman, I yield myself 3 minutes.
(Mr. BLILEY asked and was given permission to revise and extend his
remarks.)
Mr. BLILEY. Mr. Chairman, I rise in opposition to the amendment
offered by my friends, the gentleman from New York (Mr. LaFalce) and
the gentleman from Minnesota (Mr. Vento). I have three concerns with
this amendment.
One, it puts taxpayer money at risk. It does this by expanding the
subsidy provided by Federal deposit insurance and the Federal safety
net; two, these operating subsidies are not truly separate from banks
and will confuse customers; and three, it undoes the careful compromise
on insurance we have reached so that disputes over insurance will be
treated equally without unfair deference to one side or the other.
This amendment represents a radically different course in this
legislation. It grants new powers for banks in operating subsidiaries.
These new powers include full securities underwriting and merchant
banking.
I remember when Congress made the disastrous mistake of expanding the
powers and the insurance coverage of savings and loan institutions. The
result of that legislation was that the taxpayers had to spend billions
to bail out the S&Ls that had invested in casinos, strip malls, and
other developments. I resolved that never would we do something like
that again.
I believe that expansion of operating subsidiaries powers poses the
same dangers as did the expansion of the powers of savings and loans.
Alan Greenspan, the distinguished chairman of the Federal Reserve, has
testified both before the Committee on Banking and Financial Services
and the Committee on Commerce that granting banks additional authority
in operating subsidiaries expands the reach of the taxpayer subsidy.
This expansion of Federal subsidy is both anti-competitive and
dangerous to taxpayers.
Operating subsidiaries are anti-competitive because securities or
merchant banking done in operating subsidiaries will be able to take
advantage of the Federal subsidy to finance their business more cheaply
than their competitors. Congress is abolishing subsidies. We ended farm
subsidies in the last Congress. Wall Street firms made over $14 billion
last year. They need open competition, not subsidies.
Operating subsidiaries are dangerous to taxpayers. If a child takes
the family car and goes on a joy ride smashing into a building, who is
on the hook? The parents. Similarly, if operating subsidiaries get into
trouble, who will hold the bag? The Federal taxpayers. That is why
Americans For Tax Reform is opposed to this amendment.
I believe that operating subsidiaries pose dangers to consumers. Last
week the SEC brought an enforcement action against a major bank
operating subsidiary for selling billions of dollars in unsuitable
investments to elderly people. These people had maturing CDs at the
bank. Officers of the operating subsidiary called them up and sold them
dangerous strip derivatives claiming they were treasury securities. The
OCC could have done something about this but the OCC did not. They
waited for the SEC to have to bring an action to stop this fraud. I
believe we should not expand powers of operating subsidiaries in the
face of abuses like this.

{time} 1515

Mr. LaFALCE. Mr. Chairman, I yield 3 minutes to the gentleman from
Massachusetts (Mr. Frank).
Mr. FRANK of Massachusetts. Mr. Chairman, I rise in support of the
amendment.
Our good friend from Virginia made me want to call the history
police. The misuse of history is one of the downsides of our debate.
No, this has nothing to do with why the savings and loans got in
trouble. We had tax changes. We had a real estate bubble. We had a lot
of other reasons.
This is a very important amendment. I must say that if this amendment
were to be adopted, I could vote for a bill which I will otherwise feel
constrained to oppose. The smaller banks that I deal with in the State
of Massachusetts are banks which have been responsible, which have
tried to meet the needs of local communities, so oppose the bill
without this amendment. That is a major cause of opposition because
what it says to the smaller banks is, none of these new powers are in
fact available to them, and indeed much of what they may have been
doing they will have to stop doing.
This greatly disadvantages the smaller banks, who are then forced
either to forgo getting into these new activities or to get out of the
ones they are in, because they will not be able to set up the holding
companies. The notion that if we have a holding company with siblings,
they do not implicate each other,

[[Page H3186]]

but if we have an operating subsidy, they do, does not seem to me to
hold water.
The analogies of the gentleman, I must say, do not seem to me any
more persuasive than his history. I was sorry to hear about the kid who
stole his parents' car and had an accident. What it has to do with
banking it will probably take me till Sunday to figure out, but it
certainly does not have anything to do with this particular issue.
Yes, we are talking about the same overall entity being in both
insured and noninsured activities. Whether or not they do it through a
holding company or operating subsidiaries does not affect the quality
of regulation, nor will it affect the drain on the insured deposit.
What it will do is weaken the ability of small banks and, further,
and maybe this is partly what some had in mind, obviously not all, it
weakens the reach of the Community Reinvestment Act because the
activities conducted in the operating subsidiaries will be covered by
the Community Reinvestment Act. If, in fact, it becomes the holding
company, they will not be. So the effect of the bill without this
amendment will be to diminish some of the reach of the Community
Reinvestment Act.
Now, I realize that is not enough for some people who would like to
totally cut off the arms of the Community Reinvestment Act in a later
amendment. But I must also say that one surefire way to guarantee that
no legislation goes forward is to cut back on the Community
Reinvestment Act, which many of us believe to have been a significant
improvement in our communities which most need it.
So I hope in the interest of getting reasonable legislation through,
that the amendment is adopted.
Mr. BLILEY. Mr. Chairman, I yield 3 minutes to the gentleman from
Michigan (Mr. Dingell), ranking minority member of the Committee on
Commerce.
(Mr. DINGELL asked and was given permission to revise and extend his
remarks.)
Mr. DINGELL. Mr. Chairman, bankers said it this morning, and I want
my colleagues to hear what the ABA had to say. They said, ``No
amendment or combination of amendments will be offered that will make
the bill acceptable.''
Do not think, Mr. Speaker, that voting for this amendment is going to
buy us any peace or approval from the bankers. I want my colleagues to
understand that.
Now, I want to say a word of respect and affection for my good
friend, the gentleman from New York (Mr. LaFalce), the author of the
amendment. I think that the bill is a good bill. It helps the banks. It
allows them to underwrite municipal revenue bonds. It allows them to
engage in all kinds of financial activity as the agent of the bank in
an operating subsidiary. It knocks down current Glass-Steagall and Bank
Holding Company Act barriers against affiliations between banks,
securities firms, insurance companies, and other firms.
The bankers trade association, the ABA, does not want a bill. It
never did. So voting for this amendment is not going to buy us peace
with the banks.
But voting for this bill and voting against the LaFalce amendment is
going to buy us a bill which is good and in the public interest, which
helps banks, and which does something else, which protects people
against the abuses that the banks committed which brought about the
crash of 1929.
The Fed is right. Listen to Mr. Greenspan. Listen to Chairman Levitt.
Listen to other former chairmen of the SEC, pointing out the need to
have real separation between banks and between nonbank subsidiaries.
Operating subs are permitted to do all kinds of interesting things:
accounting games, shifting of assets back and forth between the sub and
the parent company, and opportunities for committing all kinds of,
quite honestly, improper and doubtful practices which are nonetheless
fully legal.
The simple fact of the matter is that just recently we saw an in-
house subsidiary of a bank engaging in grotesquely improper practices,
selling to old folks securities which they cast as being government
guaranteed. They were not. And they wound up having to pay a $7 million
fine. That tells us that bankers are willing to do whatever is
necessary to make money and to compete in a hard world.
The only way that we can protect investors against this is to see to
it that the banks are situated in a situation where they can be fully
observed, where their accounting can be properly watched, and where
they cannot shift assets back and forth, and where the bank has no
incentive to engage in either bad accounting practices, or to achieve
the permission of the regulators to engage in special accounting
practices, which will protect them against the failure or the loss of a
subsidiary to the dissatisfaction of the public at large.
Remember the abuses that brought about the savings and loan crash?
They were caused by in-house actions by the savings and loans. Do not
repeat it with the banks.
Mr. LaFALCE. Mr. Chairman, I yield 3 minutes to the gentleman from
Minnesota (Mr. Vento), coauthor of the amendment.
(Mr. VENTO asked and was given permission to revise and extend his
remarks.)
Mr. VENTO. Mr. Chairman, I rise in strong support of the LaFalce-
Vento amendment, and I urge my colleagues to support it.
Now, it may be true that in fact the banks are not going to support
this bill with the LaFalce-Vento amendment, but there are a lot of good
reasons to support it in spite of that. The fact is that I think it
will be a better bill with this and it is the right policy path that we
should pursue.
We should not be superimposing a type of corporate structure on these
entities unless there is good reason to do so. The fact is that this
amendment is good for small- and medium-size banks that they can
participate and exercise some of the new powers that are anticipated by
virtue of this modernization policy to exercise powers that they do
today in the structure that serves them. And, this amendment will help
our communities through the application of the Community Reinvestment
Act.
This is an important amendment. In fact, this amendment goes a long
way towards resolving and reconciling the issue with regard to
insurance. We adopt in this amendment the same language with regard to
the Illinois case that is part of this basic text. We reached out to
try to find compromise that is workable. And, of course, trying to
preserve the National Bank Charter is immensely important, an entity
that has been in existence for 135 years and has served our Nation
very, very well in terms of building the economic foundation of banking
in this country, which is, of course, the envy of the world.
There is no greater security under a holding company, affiliate-type
structure than there is under a subsidiary corporate structure. That is
why the current and past chairpersons of the Federal Deposit Insurance
Corporation, which has the principal responsibility to safeguard the
public funds the deposit insurance program, I think, that there is
absolutely no safety or soundness reason to oppose having in a
subsidiary version an affiliate or holding company corporate form.
The fact is that the same procedures, the same laws, the same
regulations apply, 23(a) and (b) under the Holding Company Act; 23(a)
and (b) a similar type of regulations exercised by the Comptroller of
the Currency. And the FDIC can step in and avert types of action which
are improper in any instance.
As a matter of fact, as far as the bank is concerned and the
insurance funds, the money flows in a one-way direction out of a
subsidiary to, in fact, support the source of strength with regards to
a bank and thereby protect the taxpayer to a greater extent. This is a
good amendment for small- and medium-size banks. While we cannot win
the support of all the bankers, the fact is it is good for our economy
and it is good in terms of permitting bank to serve communities.
Now, with regard to allegations here regarding functional regulation
and penalties, as I was pointing out in my statement previously, there
have been nearly $325 million in 1996 of misbegotten funds that have
been assessed and recovered from securities firms, and there were $67
million worth of fines in 1996 from these securities firms.
So there has been and this is functional regulation at its best. And
this

[[Page H3187]]

entity, NationsSecurities, was owned by NationsBank and the securities
company Dean Witter when the events and violations occurred. This is
not a sound basis upon which to oppose one corporate form over another.
The LaFalce-Vento amendment will provide a better balance, a more
appropriate direction for a competitive future financial services
industry.
As I stated earlier in the general debate, the underlying bill is
fundamentally flawed for national banks, the national bank regulator,
and ultimately, consumers and communities.
This amendment makes some technical changes in Section 104. Left to
my druthers, I would have preferred the Banking Committee's version of
Section 104, or at the very least, a grandfathering of the Illinois
State law test. These cut and bite amendments, however, are reasonable,
and I think are reflected in some if not all of the changes made by the
Manager's amendment.
The changes to section 308 would ensure that with regard to consumer
protections, the stronger law, whether State or Federal law, would
apply. That is a bare minimum for consumers across this Nation who will
be impacted by this legislation.
Our amendment carries three other provisions that were included in
the Manager's amendment: the enforcement provisions for lifeline
banking, the annual antitrust report, and the privacy study.
Importantly, the LaFalce-Vento amendment would address the deference
issue. As written, H.R. 10 will undermine our Federal banking regulator
in the courts by altering the deference standard. If H.R. 10 were to
pass as written now, the precedent could be detrimental to other areas
of law as well.
Last but by no means least, the LaFalce-Vento amendment would make a
critical correction in the bill by allowing for the creation of
financially viable and safe operating subsidiary for national banks.
The amendment would permit all financial activities within the
operating subsidiary with the exception of insurance underwriting, and
real estate investment and development.
As written today, H.R. 10 would force banks to move financial
innovation out of the bank, a loss of diversity that is disadvantageous
for many reasons.
Structurally, banks would fundamentally be forced to choose a holding
company structure in order to participate in a meaningful way in the
21st Century financial services landscape. This is essentially a
business decision that should be made on a business basis, not because
options have been closed down by this ``modernization'' bill.
Small- and medium-sized banks may not wish to form such a corporate
holding company structure, a much more complex and difficult process
than creating a subsidiary. For example, a bank would need to form the
company through a filing or reorganization, chartering an interim bank,
merger the ``two'' banks, obtain approval by shareholders with public
review, DOJ review and OCC approval, obtain approval to engage in non-
banking activity with public notice requirements. As a subsidiary, the
bank only works to obtain OCC approval with public notice and hearing
if applicable (4 steps vs. 1 step). This loss of flexibility through
limiting the powers of the operating subsidiary will not further
competition in the marketplace nor improve consumer service in many
communities across this Nation.
Contrary to some of the rhetoric we will hear today, this lack of
diversity within a bank's portfolio does not benefit the deposit
insurance funds. The FDIC has opined more than once that operating
subsidiaries are not more risky to a bank than affiliates in a holding
company. The LaFalce-Vento amendment provides that only well-
capitalized and well-managed banks could have operating subsidiaries
that are engaged in these expanded financial activities. Because the
bank's equity investment in the subsidiary would be deducted from the
bank's assets and equity capital while the bank remains well-
capitalized, this structure should pose no additional risk to the
deposit insurance funds. In fact, these operating subsidiaries should
instead provide additional, positive revenues for banks. The same
restrictions on transactions applied to holding company affiliates by
the FRB, 23(A) and (B), would apply between banks and financial
subsidiaries.
Without our amendment, there is yet another disadvantage for the
communities in which banks are located. Without the viable operating
subsidiary provided in the LaFalce-Vento amendment, bank assets will be
shifted away from coverage under the Community Reinvestment Act (CRA)
into a bank holding company or financial holding company affiliate,
which are not as yet covered by community investment requirements. The
OCC is the only bank regulator to count the assets of subsidiaries in
terms of analyzing CRA capacity of a bank.
Some may assert that operating subsidiaries will be renegades that
will subvert laws, such as securities laws. On the contrary, op subs
will be doubly regulated in the instance of securities activities--both
by the financial securities regulators--the SEC and the NASD--and the
OCC. While bank subs have had their problems, as highlighted by the
recent Nations Securities fine, they do not have a corner of the market
for less than scrupulous practices. With regard to Nations Securities,
the SEC and the NASD were the primary regulators, not the OCC.
Unfortunately, that cannot prevent a breaching of suitability and
product selection processes.
As to safety and soundness, let me reiterate that the FDIC, the
entity responsible for deposit insurance, has not found op subs to be
more risky than affiliates. As to arguments that this will bring on the
next S&L crisis, I would remind my colleagues that diversity is a good
thing. The thrifts got in trouble for a number of reasons, including a
mightmare-ish interest rate situation, bad loans and bad investment.
Among those that survived without cost to the taxpayers, were the
thrifts associated in the more diverse unitary thrift holding
companies. Further, following the S&L crisis, Congress enacted two
strong laws, FIRREA and FDICIA, that greatly empowered the regulator,
specifically the FDIC. If the FDIC finds any activity by any banks is
too risky, they can stop that activity from happening under section 24
of the FDI Act.
As to true competitive parity, without the LaFalce-Vento amendment,
national banks will not have a subsidiary option that state banks have
and that banks, regulated by the Federal Reserve Board, have when
operating abroad.
If the LaFalce-Vento amendment were to pass, the Administration has
indicated they will take another look at this bill. If it doesn't pass,
the veto recommendation will stand. There is no strong public policy
reason that this amendment should not pass. I urge my colleagues to
vote for this amendment.
Mr. BLILEY. Mr. Chairman, I yield 2\1/2\ minutes to the gentleman
from Ohio (Mr. Oxley), chairman of the subcommittee.
(Mr. OXLEY asked and was given permission to revise and extend his
remarks.)
Mr. OXLEY. Mr. Chairman, the LaFalce amendment would strike down any
ability of a State to regulate bank affiliated insurance agents. I want
to make that very clear. The gentleman from Minnesota stated quite the
opposite, that this amendment would provide functional regulation. I
would challenge him on that.
For example, if a bank-affiliated insurance agent commits fraud by
representing health care coverage, for example, the result of this
amendment offered by the gentleman from Minnesota and the gentleman
from New York would mean that we would have virtually no regulatory
authority whatsoever at the State level.
Now, if we believe in functional regulation and we believe strongly
that State insurance regulators have the ability to regulate insurance,
then we have to oppose this amendment. The State insurance regulators
have indicated very strongly that they believe this amendment would be
catastrophic. It would go beyond the fact that we would have no
discrimination, but it would result in no regulation at all.
Now, those of us who believe in State regulation and functional
regulation also believe, I think, that the States are the laboratories
for democracy. Let us take a real-life look at what happened in banking
sales of insurance in the real world.
Our committee held hearings on this bill, and we had the president of
the State Bankers Association from Illinois and the president of the
State Insurance Agents from Illinois testify about the fact that they
had gotten together, worked out a compromise on State bank sales of
insurance, had gone to the State legislature in Illinois, not an
insignificant State, probably represents a great microcosm of this
country, and passed that legislation unanimously and signed by the
governor.
We decided in our committee, after a lot of hard work and a lot of
head-knocking between the parties, to basically provide that the
Illinois statute become a safe harbor for legislation, so if the States
had regulation, they would be able to put it up against what Illinois
had done. This was the real world. This was a compromise that was
worked out very effectively.
Before my time runs out, let me tell my colleagues the States that
would be deleted from protecting different State laws. Let me just list
the States if I could, Mr. Chairman. These regulatory functions would
be struck down in these States if the LaFalce amendment becomes law.

[[Page H3188]]

States of Texas, Virginia, Tennessee, Pennsylvania, Michigan, Maine,
Louisiana, Indiana, Connecticut, Colorado, Arkansas, Massachusetts, New
Hampshire, New Mexico, Rhode Island, West Virginia, Florida, Georgia,
and Vermont. All of those State regulatory laws would be out the window
if the LaFalce amendment passes.
All of my colleagues who represent those States, and everybody else,
let us defeat the LaFalce amendment and preserve the integrity of this
regulatory process.
Mr. LaFALCE. Mr. Chairman, I yield myself 15 seconds simply to say
that the gentleman from Ohio is in error in his interpretation of our
amendment. We leave the Illinois law and less restrictive State
statutes as a safe harbor. We keep the language of the bill on that.
Mr. Chairman, I yield 2 minutes to the gentleman from Massachusetts
(Mr. Kennedy).
Mr. KENNEDY of Massachusetts. Mr. Chairman, this rhetoric that we are
hearing on the House floor today really, I think, centers around one
issue and one issue only, and that is cutting the cake. It is a
determination as to whether or not the Committee on Banking and
Financial Services is going to gain greater jurisdiction by having more
and more of these larger institutions under a regulator that the
Committee on Banking and Financial Services oversees, or whether or not
the securities industry is going to be the winner and, therefore, the
Committee on Commerce is going to oversee the jurisdiction.

{time} 1530

That is what this is all about. It is not about whether or not we are
going to look after the interests of the taxpayer. It is not about
whether we are going to look out after the interests of working
families. It is not about whether we are going to make sure that the
insurance companies are going to provide insurance policies to all
parts of our country, to people of every race, creed, and color. It is
not about whether or not we are going to make certain the banks lend
into the communities from which they take their deposits. It is about
one thing. It is about power.
All I say is it is fine with me for these institutions to gobble one
another up, to get stronger, to be able to compete internationally, to
be able to compete here in the United States. But if we are going to do
that, then we darn well ought to make sure that working families and
the poor have every bit of right of access to these institutions, to
the creation of wealth as anybody else.
That is what is wrong with this bill, because this bill does not
provide the assurance that makes sure that these banks and insurance
companies and securities firms cannot discriminate. It does not make
certain that they are going to lend money back into the communities
from which they suck out their deposits.
That is why I believe we should support the LaFalce amendment,
because at a very minimum, at a very minimum, it suggests that these
institutions, these powerful companies are not going to be able to
serve out to their affiliates their requirements under the Community
Reinvestment Act to lend back to the communities from which they take
their deposit. It is a minimal standard. It is a very small crumb to
provide to the working families of America.
Support the LaFalce amendment. Stand up for the working people of our
country.
Mr. BLILEY. Mr. Chairman, I yield 2 minutes to the distinguished
gentleman from California (Mr. Fazio), the chairman of the Democratic
Caucus.
Mr. FAZIO of California. Mr. Chairman, I rise to commend the efforts
of my colleagues, the gentleman from New York (Mr. LaFalce) and the
gentleman from Minnesota (Mr. Vento), but to oppose their amendment.
Their hard work and dedication is going to be required if we are
going to pass this bill, and sometime down the road, see it enacted
into law. We hope that, in the months ahead, we can find the key to
bringing this bill into law.
But if we agree to the amendment of the gentleman from New York (Mr.
LaFalce) today, it promises to undermine not only the very intent of
H.R. 10, but also the manager's amendment we just overwhelmingly
adopted.
It gets us no support from the banks, and it earns us the undying
opposition of the entire insurance industry. It, therefore, is the
killer amendment that will determine whether or not we pass a bill
today and move it along in the process so that we can confront our
differences and do something about modernizing this industry that so
clearly needs it, before it becomes a wholly-owned subsidiary of
foreign investors.
Instead of igniting reform and competition, the amendment of the
gentleman from New York (Mr. LaFalce) gives banking institutions
extended privileges I fear they lack the mechanisms to properly
administer; and the insured deposits of those entities, means this is a
problem for the rest of us, for the taxpayers.
The gentleman from Massachusetts (Mr. Frank) has told us it is not an
appropriate analogy to talk about the S&L crisis, but the same
underlying problem exists. History reminds us of that bailout. The
crisis, that drained the savings of millions of Americans, cost
taxpayers billions and embarrassed this country and the financial
institutions within it on a global basis.
This amendment leads American financial institutions to a potentially
similar economic disaster and places the financial burden of risky
banking activity on the shoulders of the average taxpayer. We cannot
allow that to occur.
I think we need to support this bill, hopefully in numbers that will
give the Senate a message that they need to deal with it, and then sit
down with the administration and find a common solution so that we can
do what we all say we want to do, and that is, modernize the laws and
rules and regulations of our financial institutions.
If we vote for this amendment, we might as well fold our tent, pull
the bill, and close it down for another year, another failure. How many
times in these past 2 decades are we going to go down that road? I urge
a no vote on this amendment.
Mr. LaFALCE. Mr. Chairman, I yield 2 minutes to the gentleman from
North Carolina (Mr. Watt).
Mr. WATT of North Carolina. Mr. Chairman, I thank the gentleman for
yielding, and I rise in support of the LaFalce-Vento amendment.
I am a little surprised that people who typically talk about giving
businesses more flexibility are now on the other side of this issue,
saying we want to remove flexibility from businesses. Typically, the
byword is, let us give businesses the opportunity to organize and
operate in a fashion that they believe is most advantageous to them.
Yet, here we are, apparently, in this bill, willing to take away that
kind of flexibility from banks.
It has a particularly bad impact on small- and medium-sized banks,
because they are not going to run out and spend the time and money to
create these holding companies. It is just not going to happen.
Consequently, this bill is, and the additional powers that we are
giving to them are going to be of less value to them than to the larger
banks. So for that reason, the increased flexibility reason, I support
this amendment.
Another reason that I support the amendment is because I think, to
the maximum extent we can, we need to bring assets into the bank and
under the bank in such a way that those assets are subjected to the
Community Reinvestment Act.
Our communities need a strong commitment from financial institutions,
and banks in my congressional district have made that kind of strong
commitment. I do not think we ought to be giving them any incentives to
take assets away from that commitment.
Mr. BLILEY. Parliamentary inquiry, Mr. Chairman. How much time
remains on this side?
The CHAIRMAN pro tempore (Mr. Dickey). The gentleman from Virginia
(Mr. Bliley) has 9\1/2\ minutes remaining. The gentleman from New York
(Mr. LaFalce) has 6 minutes remaining.
Mr. BLILEY. Further parliamentary inquiry, Mr. Chairman. Who has the
right to close?
The CHAIRMAN pro tempore. The gentleman from Virginia (Mr. Bliley)
has the right to close.
Mr. BLILEY. Mr. Chairman, I yield 1 minute to the distinguished
gentleman from Georgia (Mr. Kingston).
Mr. KINGSTON. Mr. Chairman, I thank the gentleman for yielding to me.

[[Page H3189]]

Mr. Chairman, let me just say there are three reasons to oppose this
well-intended amendment. Number one, it does get around the McCarran-
Ferguson Act, which says States regulate insurance. It would supersede
laws in Texas, Georgia, Virginia, Pennsylvania, and Michigan, just to
name a few. This is a time when we are trying to decentralize power out
of Washington. We do not want to usurp it from the States.
Number two, this law will have the unintended consequences of rapid
bank investment and expansion into nonbanking activities. Look at the
Asian model. Here we are with the Asian markets right now in absolute
disaster, which the American taxpayers have been asked to contribute
$18 billion to help correct and help bail them out. We do not need
another S&L-type crisis in America.
Number three and finally, this is corporate welfare. Why should hard-
working, middle-class taxpayers who are busting their tail to get to
work in the morning and making ends meet at the end of the month, why
should they give a subsidy to an industry that made $14 billion in
profit last year? American taxpayers do not need more corporate welfare
for folks who are already making money.
Those are three good reasons to vote against this amendment. Let us
vote it down. Pass the bill as is.
Mr. LaFALCE. Mr. Chairman, I yield 2 minutes to the gentleman from
Texas (Mr. Bentsen).
(Mr. BENTSEN asked and was given permission to revise and extend his
remarks.)
Mr. BENTSEN. Mr. Chairman, the colleague that just spoke before me
was wrong on at least two of his counts and possibly on three.
But let me start out, I want to quote Alan Greenspan, because we have
heard him talked a lot about. This quote is from the hearing on May 21,
22, 1997 in the House Committee on Banking and Financial Services, and
this is in response to a question which I asked about safety and
soundness with respect to operating subsidiaries.
He says, ``My concerns are not safety and soundness.'' So once and
for all, this is Alan Greenspan and what he said. With respect to the
subsidy, if we read the rest of the testimony, he says, The issue here
is that the amount of the subsidization that is employed by the holding
company in financing a section 20 securities affiliate is significantly
less than it would be were it being financed as a subsidiary of a bank.
Mr. Greenspan says that while there is no safety and soundness issue
with respect to operating subsidiaries, there is a subsidy that occurs
in both the holding company model as well as in the operating
subsidiary model. Of course, he did not provide any evidence of that,
and no one else has.
Let me ask a question, a question of the subsidy: How does the
marketplace see it? If the marketplace sees a tombstone for bond issue
offering that are being underwritten by NationsBank Montgomery
Securities, do they see that as a subsidy, an implicit guarantee that
is going from the bank or from the Federal Government? Even though that
is a holding company and an affiliate model, the marketplace is
sophisticated enough to understand it.
Let me say also what this bill does. This creates an inequity between
the national bank charter and the holding company charter. It shifts
regulation of the Nation's banking system away from the elected
government, through the Comptroller of the Currency, to the Federal
Reserve, an appointed entity.
If we were talking about doing that with the Securities and Exchange
Commission, a number of us, including both the gentlemen from the
Committee on Commerce, would be down here raising a lot of Cain, as
would I.
The fact is, this is not a safety and soundness issue. This is a
parity issue. It does affect CRA. And, to assert that somehow this is
tied to the savings and loan crisis is just factually incorrect.
I urge my colleagues to support the amendment offered by the
gentleman from New York (Mr. LaFalce) and the gentleman from Minnesota
(Mr. Vento).
Mr. Chairman, I insert the following:
Mr. Chairman, I rise in support of the LaFalce-Vento amendment and
ask unanimous consent to revise and extend my remarks.
As currently drafted H.R. 10 allows banks to engage in securities
underwriting through a holding company structure regulated by the
Federal Reserve System, but not through a national bank regulated by
the Comptroller of the Currency.
As a result, this legislation will restrict some national banks from
offering comprehensive financial services for consumers while allowing
it for others. The LaFalce-Vento amendment would also ensure that there
is a level playing field for all types of financial institutions by
allowing banks to make decisions based upon good business strategy
rather than the one-size-fits-all bank holding company structure.
I am also convinced that there is no safety and soundness risk
associated with operating subsidiaries vs. affiliates. When I
questioned Federal Reserve Chairman Alan Greenspan about this issue in
the House Banking Committee, he agreed there was no safety and
soundness problem associated with an operating subsidiary structure.
Rather, he argued that a subsidiary structure extends an implicit
taxpayer subsidy to that subsidiary. There is no evidence to back up
this claim and in fact Mr. Greenspan goes on to admit that affiliates
under a holding company structure also benefits from a subsidy.
Further, some argue that the market will interpret a subsidy in an op-
sub but not an affiliate. Again, there is no evidence to back up this
claim. First, when one sees Nationsbank Montgomery Securities, do they
see an implicit subsidy and bank guarantee? But that is an affiliate,
not an op-sub.
I also believe that permitting operating subsidiaries is good banking
practice. If the operating subsidiary is making profits, its profits
will flow up to the parent bank. However, the LaFalce-Bentsen amendment
includes proper safeguards that will prevent the operating subsidiary
from impacting their parent bank just as the holding company structure
attempts to prevent the affiliate from dragging down the holding
company and thus the bank. The LaFalce/Vento amendment would only
permit national banks that are well-capitalized and well-managed to
establish operating subsidiaries. The LaFalce/Vento amendment also
requires operating subsidiaries to separately capitalize their
operations and keep their operations completely separate from the
parent bank. And it subjects the operating subsidiary to full
functional regulation. I believe both of these safeguards should ensure
that taxpayers are not at risk with operating subsidiaries any more
than they would be with a holding company/affiliate structure.

The LaFalce/Vento amendment would also ensure that all of the assets
of the bank are subject to the Community Reinvestment Act (CRA). This
is critical when many banks are restructuring and being merged with
other financial companies. If banks are required to establish
affiliates, all of their capital and operations that are directly
associated with their affiliate are not subject to CRA. This would have
the effect of reducing the amount of assets that are subject to CRA and
would reduce the investment that banks are currently making into their
communities. I am a strong supporter of CRA and believe that we must
ensure that banks continue to invest in their communities.
The LaFalce/Vento amendment corrects the inequity in the underlying
bill by providing parity between national banks and bank holding
companies. To do otherwise would eviscerate the national bank charter
and result in a dramatic shift in regulatory authority over the banking
system from the elected to the appointed branch of government. If we
proposed that with the Securities and Exchange Commission, I think many
would object.
Finally, with respect to section 104 and bank insurance sales, this
would correct the provision in the bill that would effectively reverse
the Chevron precedent set by the Supreme Court. I must admit that I am
ambivalent on this issue.
I strongly support a level playing field with respect to regulation
of bank insurance sales. Since McCarran-Ferguson provides for insurance
to be regulated at the state level, banks should be subject to state
regulation so long as such regulation does not have the effect of
discriminating and prohibiting bank insurance sales contrary to the
Barnett decision.
In all honesty, I was prepared to accept section 104 as written so
long as the operating subsidiary language was also accepted and in fact
Mr. Vento and I had proposed such an amendment, but that was not
allowed under the rule. I believe the only true fix to the bank
insurance sale power question will come as a result of practice because
compromise among the parties has been impossible.
In the end it is necessary that the House adopt the LaFalce/Vento
amendment to H.R. 10 to make this bill live up to its name of financial
modernization.
Mr. BLILEY. Mr. Chairman, it gives me great, great pleasure to yield
2 minutes to the gentleman from Massachusetts (Mr. Markey).
Mr. MARKEY. Mr. Chairman, again, let us go back. What are we talking
about? Separate subsidiary means we are putting it over here in a
separate

[[Page H3190]]

operation that makes it possible for the SEC, for insurance regulators,
to know what we are doing. An Op-sub is an operating subsidiary. That
is what they want to call it. That means it will be right inside the
bank, hard for the SEC, hard for the insurance regulators to get inside
to know what is going on. Op-sub really stands for ``ordinary people
subsidizing'' risky business by banks.
Alan Greenspan, here is what he said in a letter to the gentleman
from Michigan (Mr. Dingell) on May 4, last week, ``Operating
subsidiaries also pose serious risks to banks and their deposit
insurance funds, and potentially the taxpayer, and will cause serious
conflicts in the ability of functional regulators to carry out their
supervisory responsibilities.''
Chairman Breeden, George Bush's chair of the Securities and Exchange
Commission, he says that it will cause a ``dulling narcotic effect of
those subsidies and the related bureaucratic nannyism will work a
prompt and significant alteration on the culture of Wall Street.''
We can create a level playing field allowing each of these industries
to compete and to consolidate without having the inherent bias that is
built in, the conflicts that are built in by having the expansion of
the Federal safety net blur over into these operating subsidiaries and
causing real dangers to depositors and taxpayers alike.
Vote no on the LaFalce amendment if we do not want to see a
repetition of some of the financial shenanigans which we have all come
to see during our lifetime.
Mr. LaFALCE. Mr. Chairman, how much time do we have remaining on this
side?
The CHAIRMAN pro tempore. The gentleman from New York (Mr. LaFalce)
has 4 minutes remaining.
Mr. LaFALCE. Mr. Chairman, is there a speaker other than the closing
speaker?
Mr. BLILEY. Mr. Chairman, we have another speaker.
Mr. LaFALCE. Mr. Chairman, I yield 1 minute to the gentleman from
Ohio (Mr. Kucinich).
Mr. KUCINICH. Mr. Chairman, I rise for the purpose of entering into a
colloquy with the gentleman from Iowa (Mr. Leach).
Mr. Chairman, there is some uncertainty about what, and I quote,
``any other provision of Federal law'' means in section 104(b)(1) of
the bill. Some consumer groups expressed concern that this language
might be unnecessarily broad and might unintentionally preempt a broad
range of consumer laws.
Will the gentleman from Iowa work with me on this matter as this bill
moves forward to conference, through the Senate to conference, that
this language will be reviewed so as not to be interpreted in an overly
broad manner?
Mr. Chairman, I yield to the gentleman from Iowa (Mr. Leach).
Mr. LEACH. Mr. Chairman, the gentleman has raised probably the most
controversial section of the bill in terms of subtleties of language. I
share some of his concerns, and I will assure the gentleman, as we move
forward there, this language will be carefully reviewed. I cannot
guarantee an outcome because there are people on all sides of this
issue, but I do believe that a careful review is warranted, and I
assure the gentleman that we will continue to look at that precise
language.

{time} 1545

Mr. BLILEY. Mr. Chairman, I yield one minute to the distinguished
gentleman from Nebraska (Mr. Bereuter).
(Mr. BEREUTER asked and was given permission to revise and extend his
remarks.)
Mr. BEREUTER. Mr. Chairman, I rise in opposition to the amendment as
a member of the Committee on Banking and Financial Services. I
understand the greater flexibility for small and middle size banks, and
that is important. But there is something more important, and I want to
remind my colleagues that this Congress listens, the Americans listen,
and the world listens to Alan Greenspan when he speaks.
Alan Greenspan has been quoted here several times. Here is what he
had to say before the House Committee on Banking and Financial Services
on May 22, and he made a similar statement on July 17 to the Committee
on Commerce:

The Federal Reserve Board is of the view that the risks
from securities and insurance underwriting are manageable
using the holding company framework as compared to the
operating subsidiaries. But there is another risk, the risk
of transference to nonbank affiliates of the subsidy implicit
in the Federal safety net. Deposit insurance, the discount
window and access to the payment window with attendant moral
hazard. As the committee knows, the Board believes that the
subsidiary is more readily transferable to a subsidiary of
the insured deposit institution than to its affiliates, and
the holding company structure creates the best framework for
limiting this leakage.

The Federal Reserve Board will oppose this bill if we approve the
LaFalce amendment.
Mr. LaFALCE. Mr. Chairman, I yield one minute to the gentleman from
Texas (Mr. Bentsen).
Mr. BENTSEN. Mr. Chairman, I want to respond to my colleague from
Nebraska. At that same hearing, Mr. Greenspan again said, ``My concerns
are not safety and soundness,'' and, again if you read the testimony,
he does make the argument that there is an implicit subsidy that goes
through an operating subsidiary.
He says the same subsidy exists through a bank holding company with
an affiliate structure. But then he went on to make an unsubstantiated
argument that somehow the subsidy is less through a holding company
structure than it is through an operating subsidiary.
But Ricki Helfer, the then-Chairman of the FDIC, as the gentleman
will recall, went on to say that in the FDIC's study of the issue, not
only did they find there was no safety and soundness concern with
respect to an operating subsidiary compared to an affiliate through a
holding company structure, but, furthermore, that they saw no
difference in the subsidy whatsoever, if in fact there is such a
subsidy. So the gentleman will recall from the hearing, it was a year
ago, but it was very clear where Mr. Greenspan stood on the issue at
the time. The chairman of the Federal Reserve says a lot of things.
Sometimes he is consistent, and, quite frankly, sometimes he is not. On
this issue, he has apparently not been very consistent.
Mr. BLILEY. Mr. Chairman, I yield two minutes to the gentlewoman from
New Jersey (Mrs. Roukema).
Mrs. ROUKEMA. Mr. Chairman, I must say that this is a safety and
soundness issue, and I am rising in opposition to this amendment.
I must say also that one of the things that Mr. Greenspan has been
quite careful to enunciate is that there are heightened concerns in
these days of mega-mergers. We should be giving much more attention to
the implication of the subsidy.
It is a safety and soundness issue, and this dictates that new
activities must be an affiliate under a holding company. The new
activities will not pose a threat to the bank or the deposit insurance
fund if they are conducted through an affiliate, not a subsidiary. We
should not permit operating subsidiaries to pose this kind of danger.
I want to say, my friend, the gentleman from Massachusetts (Mr.
Frank) is not here right now, but I do want to say this does bring to
mind ``deja vu all over again'' to the ghost of the savings & loan
debacle.
Make no mistake about that, my colleagues. This subsidiary proposal
severely violates the functional regulatory structure that we have at
the heart of this legislation.
I want to repeat again, I believe that the gentleman from Nebraska
(Mr. Bereuter) correctly quoted Mr. Greenspan in context, stating his
opposition to the operating subsidiary, both in terms of the subsidy,
as well as in terms of the safety and soundness.
In addition to Mr. Greenspan being opposed to this, Mr. Levitt, the
chairman of the Securities and Exchange Commission, is also opposed to
it, and I might say that there is significant opposition from my
colleagues, and bipartisan opposition, on the Committee on Commerce.
I stand here ready to alert my colleagues that this would be really
undermining the whole purpose of this bill if this amendment were
passed, so I would urge a no vote.
Mr. Chairman, I rise today, in opposition to this amendment. I
support many of the provisions in this package of amendments. In fact,

[[Page H3191]]

I asked the Rules Committee to let me offer 3 insurance amendments
which are similar to some of the insurance provisions in this package.
In addition, I support a small bank CRA exemption. However, I continue
to have grave reservations about the operating subsidiary and will vote
against the package based on this.
The operating subsidiary is a bad idea, and the House should vote it
down.
Proponents argue that an operating subsidiary is necessary to keep
the national bank charter vital and flexible. Some even say that it
will promote CRA.
The operating subsidiary is not necessary for any of these reasons.
On flexibility and vitality--national banks will be permitted to engage
in many new opportunities under the bill. They just have to do it over
in the holding company.
The debate here is over where the activities must be housed. Should
the new activities be as affiliates under the holding company or should
they be subsidiaries under the national bank.
This is a safety and soundness issue. And heightened concern in these
days of mega mergers. Safety and soundness dictates that the new
activities take place in an affiliate under the holding company. These
new activities will not pose a threat to the bank or the Federal
deposit insurance funds if they are conducted through an affiliate. We
should not permit operating subsidiaries to pose a risk to safety and
soundness. This does bring deja vous all over again to the savings and
loan debacle. This subsidiary proposal severely violates the functional
regulatory structure we have as the heart of the legislation.
I am not alone in opposing the operating subsidiary. The operating
subsidiary is opposed by Mr. Greenspan, the Chairman of the Federal
Reserve Board. It is also opposed by Mr. Levitt, the Chairman of the
Securities and Exchange Commission. There is bipartisan opposition to
the operating subsidiary. I am joined by Mr. Bliley and Mr. Dingell as
well as many other members of the Banking Committee. Much has been made
about Secretary Rubin supporting the operating subsidiary. Many seem to
forget that Treasury Secretary Regan during the Reagan Administration
opposed the operating subsidiary.
Don't make a safety and soundness mistake. Vote no on the operating
subsidiary.
Mr. LaFALCE. Mr. Chairman, I yield myself such time as I may consume.
Mr. Chairman, first of all, the primary issue is the Community
Reinvestment Act. If we pass this amendment, we will permit a structure
where you can retain assets under the jurisdiction of the CRA. If we
reject this amendment, we mandate that a good many present activities,
and most all future activities, would go outside of the jurisdiction of
the Community Reinvestment Act. That is fundamental.
Secondly, with respect to safety and soundness, Chairman Greenspan
testified before the Committee on Banking and Financial Services on two
separate occasions, this is not a safety and soundness issue. So sayeth
Alan Greenspan before the Committee on Banking and Financial Services
when he was not negotiating with legislators for a particular bill.
Secondly, this was the testimony of the State banking regulators.
Third, this was the testimony of the present chairman and the past
chairman of the Federal Deposit Insurance Commission. This is the not a
safety and soundness issue. The safety and soundness can be conducted
just as well or better under the operating subsidiary concept as under
the separate affiliate concept.
Secondly, with respect to functional regulation, there is no
difference. We would have the same functional regulation under an
operating subsidiary by the SEC, by the State insurance commissioners,
et cetera, that we would have under the separate financial holding
company affiliate. That is a non-issue.
Big banks, they really do not care. They are going to the financial
services holding company routes. The security firms, they do not really
care. They want a bill to accomplish repeal of Glass-Stegall and
changes the bank holding company law.
The ones that care are the consumers who will not be subject to the
Community Reinvestment Act, whose communities will not be subject to
it, and the smaller banks, because these smaller banks will be forced
to either be taken over or to convert to State chartered institutions.
That is this amendment, and we have the chance of passing a law,
rather than a one House bill.
Mr. BLILEY. Mr. Chairman, it is a great pleasure for me to yield the
balance of my time to the gentleman from Iowa (Mr. Leach), the
distinguished chairman of the Committee on Banking and Financial
Services, who has been so helpful and so cooperative in working
together on this bill.
The CHAIRMAN pro tempore (Mr. Dickey). The distinguished chairman of
the Committee on Banking and Financial Services is recognized for 3\1/
2\ minutes.
(Mr. LEACH asked and was given permission to revise and extend his
remarks.)
Mr. LEACH. Mr. Chairman, with reluctance, I stand in opposition to
this amendment.
Let me say what is in the bill is a compromise between the Committee
on Banking and Financial Services and the Committee on Commerce. If
this amendment had gone back to the Committee on Banking and Financial
Services' position, I probably would have been obligated to support it.
But I will tell you, it goes further. What it does, it adds under the
power of a bank, merchant banking authority. This is authority that is
very, very significant.
Merchant banking constitutes direct ownership and control of
commercial investments. I used to argue in the 1980's that the two
dirtiest words in the American language were ``direct investment,''
rights which were authorized S&L's in half a dozen states to use
Federally insured deposits to make investments in entities that they
would then control. Instead of making loans to people, they would
simply own things. Here let me just comment on common sense. If you are
an outsider listening to this debate, the esoterics of an operating
subsidiary versus affiliate must seem very large. But does any common-
sense American think that a bank ought to be able to come in and under
its own volition start to own commercial businesses, rather than simply
make loans, in ways that involve potentially the deposit insurance
system and what could be a subsidy involved thereof?
I know the subsidy issue is controversial. The Fed says one thing,
the Treasury something else. In my time in public life, I always found
the argument that a subsidy exists to be valid.
Secondly, let me say there is a question of history that has been
articulated. That is, the Department of Treasury has said no Treasury
could support any position the one being taken. The gentleman from New
York has suggested that his is a historical position of all Treasuries.
Well, that, frankly, is not precisely the case. I would like to
direct both the Treasury and my good friends to this statement of the
Honorable Donald T. Regan, the Department of the Treasury Secretary
under the Reagan Administration.
Secretary Regan said, ``The administration,'' meaning the Reagan
Administration:

Does not believe that non-depository institution activities
should be conducted through a subsidiary or service
corporation in which a bank or a thrift has a direct equity
investment. The investment would be at risk if the
subsidiary's activities were to falter and the funds for the
investment would be raised with Federal assistance not
available to non-depository institution competitors and a
cost advantage to the bank or the thrift.

I raise this simply to note, as this testimony reflects, that the
Reagan Administration was in opposition to this administration's
position on this subject, and in consonance with this bill and with the
position of Mr. Greenspan.
Finally, let me just stress that there are articulated differences
that relate to CRA. The Federal Reserve has a very profound letter out
on this subject, and I commend it to my colleagues, which shows that
the CRA argument has been widely exaggerated, and that the differences
in CRA treatment of a national bank and a bank under the supervision of
the Federal Reserve is very, very similar.
This bill expands CRA, it does not contract it, in significant ways.
What are the unarticulated differences, or some of the differences,
between the Treasury and the Fed in which there is a major battle
underway?
Mr. Chairman, I would simply inform the membership that the rest of
the words would have been extraordinarily compelling.
Mr. Chairman, truth be told, the CRA argument on this bill is
proffered to mask the extraordinary differences between the Treasury

[[Page H3192]]

and the Federal Reserve Board on which institutions should be the
primary federal regulator of the banking system. Just as the Fed
perhaps exaggerates a bit the importance of the subsidy that exists
with the offering of insured deposits, the Treasury magnifies the CRA
argument. The reason these arguments are so critical to these two
institutions is that the Treasury believes Congress will tilt to it if
a case can be made that Fed supervised institutions have lower CRA
obligations, and the Fed believes Congress may tilt to it if it can be
shown that competitive advantages accrue to institutions with
subsidized federally insured deposits.
Actually, Congress has historically considered the Federal Reserve to
be the appropriate principal regulator for new power approaches for a
different set of reasons: (1) It is the Fed which has the predominance
of experience with holding company regulations. (2) It is the Fed, and
only the Fed, which has the resources to act on a moment's notice in a
time of emergency. While the Treasury has no treasury, the Fed has the
capacity to liquify virtually any problem of any size. (3) With its
functional and precise regulatory approach, the bill is designed to
resolve issues of regulatory turf in such a way that financial
companies can't engage in regulatory arbitrage thus precipitating
weaker regulation. (4) While sometimes controversial in its monetary
policy deliberations, the Fed has a sterling record for being above
politics on the regulatory front.
From the very beginning of development of this bill I have been
impressed with how much support exists for the general framework of
change but how extraordinary the divisions on the subtleties are.
In the private sector there are natural maximization of profit
motivations; on the public side, there are maximization of power
concerns. Ironically, as we come to the conclusion of the House
consideration process, the rivalry between the Fed and the Treasury has
come more to the fore than rivalries between and within industrial
groupings.
One of the most profound observations of the month was that of a
prominent New York banker who told me: ``All I want is to get out of
the Fed-Treasury crossfire.'' The bill provides certitude as well as
fairness.
The CHAIRMAN. The question is on the amendment offered by the
gentleman from New York (Mr. LaFalce).
The question was taken; and the Chairman pro tempore announced that
the noes appeared to have it.

Recorded Vote

Mr. LaFALCE. Mr. Chairman, I demand a recorded vote.
A recorded vote was ordered.
The vote was taken by electronic device, and there were--ayes 115,
noes 306, not voting 11, as follows:

[Roll No. 144]

AYES--115

Allen
Baesler
Barrett (WI)
Becerra
Bentsen
Berman
Bishop
Blumenauer
Boehlert
Bonior
Borski
Boswell
Brown (CA)
Capps
Cardin
Carson
Castle
Clayton
Clyburn
Conyers
Davis (IL)
Davis (VA)
DeFazio
Dixon
Dreier
Eshoo
Evans
Farr
Fattah
Filner
Frank (MA)
Gibbons
Goode
Goodlatte
Green
Gutierrez
Hall (OH)
Hastings (FL)
Hinchey
Hooley
Hostettler
Hoyer
Jackson (IL)
Jackson-Lee (TX)
Jefferson
Johnson (WI)
Johnson, E. B.
Kanjorski
Kaptur
Kelly
Kennedy (MA)
Kennedy (RI)
Kind (WI)
Kleczka
Kucinich
LaFalce
Lampson
Lantos
LaTourette
Lee
Lewis (GA)
Luther
Maloney (CT)
Maloney (NY)
Martinez
McDermott
McHale
McInnis
McIntosh
McKinney
Meehan
Meek (FL)
Meeks (NY)
Millender-McDonald
Miller (CA)
Moakley
Mollohan
Moran (VA)
Myrick
Oberstar
Obey
Olver
Ortiz
Owens
Pastor
Payne
Pelosi
Petri
Price (NC)
Ramstad
Roybal-Allard
Rush
Sabo
Sanders
Sandlin
Schumer
Serrano
Sherman
Slaughter
Smith, Adam
Snyder
Souder
Stark
Stokes
Thompson
Thurman
Tierney
Torres
Velazquez
Vento
Visclosky
Waters
Watt (NC)
Weygand
Woolsey

NOES--306

Abercrombie
Ackerman
Aderholt
Andrews
Archer
Armey
Bachus
Baker
Baldacci
Ballenger
Barcia
Barr
Barrett (NE)
Bartlett
Barton
Bass
Bereuter
Berry
Bilbray
Bilirakis
Blagojevich
Bliley
Blunt
Boehner
Bonilla
Bono
Boucher
Boyd
Brady
Brown (FL)
Brown (OH)
Bryant
Bunning
Burr
Burton
Buyer
Callahan
Calvert
Camp
Campbell
Canady
Cannon
Chabot
Chambliss
Chenoweth
Clement
Coble
Coburn
Collins
Combest
Condit
Cook
Cooksey
Costello
Cox
Coyne
Cramer
Crane
Crapo
Cubin
Cummings
Cunningham
Danner
Davis (FL)
Deal
DeGette
Delahunt
DeLauro
DeLay
Deutsch
Diaz-Balart
Dickey
Dicks
Dingell
Doggett
Dooley
Doolittle
Doyle
Duncan
Dunn
Edwards
Ehlers
Ehrlich
Emerson
Engel
English
Ensign
Etheridge
Everett
Ewing
Fawell
Fazio
Foley
Forbes
Ford
Fossella
Fowler
Fox
Franks (NJ)
Frelinghuysen
Frost
Furse
Gallegly
Ganske
Gejdenson
Gekas
Gephardt
Gillmor
Gilman
Goodling
Gordon
Goss
Graham
Granger
Greenwood
Gutknecht
Hall (TX)
Hamilton
Hansen
Hastert
Hastings (WA)
Hayworth
Hefley
Herger
Hill
Hilleary
Hinojosa
Hobson
Hoekstra
Holden
Horn
Houghton
Hulshof
Hunter
Hutchinson
Hyde
Inglis
Istook
Jenkins
John
Johnson (CT)
Johnson, Sam
Jones
Kasich
Kennelly
Kildee
Kim
King (NY)
Kingston
Klink
Klug
Knollenberg
Kolbe
LaHood
Largent
Latham
Lazio
Leach
Levin
Lewis (CA)
Lewis (KY)
Linder
Lipinski
Livingston
LoBiondo
Lofgren
Lowey
Lucas
Manton
Manzullo
Markey
Mascara
Matsui
McCarthy (MO)
McCarthy (NY)
McCollum
McCrery
McDade
McGovern
McHugh
McIntyre
McKeon
McNulty
Menendez
Metcalf
Mica
Miller (FL)
Minge
Mink
Moran (KS)
Morella
Murtha
Nadler
Neal
Nethercutt
Neumann
Ney
Northup
Norwood
Nussle
Oxley
Packard
Pallone
Pappas
Parker
Pascrell
Paul
Paxon
Pease
Peterson (MN)
Peterson (PA)
Pickering
Pickett
Pitts
Pombo
Pomeroy
Porter
Portman
Poshard
Pryce (OH)
Quinn
Rahall
Rangel
Redmond
Regula
Reyes
Riggs
Riley
Rivers
Rodriguez
Roemer
Rogan
Rogers
Rohrabacher
Ros-Lehtinen
Rothman
Roukema
Royce
Ryun
Salmon
Sanchez
Sanford
Sawyer
Saxton
Scarborough
Schaefer, Dan
Schaffer, Bob
Scott
Sensenbrenner
Sessions
Shadegg
Shaw
Shays
Shimkus
Shuster
Sisisky
Skeen
Skelton
Smith (MI)
Smith (NJ)
Smith (OR)
Smith (TX)
Smith, Linda
Snowbarger
Solomon
Spence
Spratt
Stabenow
Stearns
Stenholm
Strickland
Stump
Stupak
Sununu
Talent
Tanner
Tauscher
Tauzin
Taylor (MS)
Taylor (NC)
Thomas
Thornberry
Thune
Tiahrt
Towns
Traficant
Turner
Upton
Walsh
Wamp
Watkins
Watts (OK)
Waxman
Weldon (FL)
Weldon (PA)
Weller
Wexler
White
Whitfield
Wicker
Wise
Wolf
Wynn
Yates
Young (AK)
Young (FL)

NOT VOTING--11

Bateman
Christensen
Clay
Gilchrest
Gonzalez
Harman
Hefner
Hilliard
Kilpatrick
Radanovich
Skaggs

{time} 1619

Messrs. COBURN, INGLIS of South Carolina, PICKETT, STENHOLM, Mrs.
LOWEY, and Messrs. LEVIN, MASCARA, and FORBES changed their vote from
``aye'' to ``no.''
Messrs. BISHOP, FARR of California, MOAKLEY, GOODLATTE, GIBBONS, Ms.
ESHOO, and Messrs. OLVER, McINTOSH, DAVIS of Virginia, and MORAN of
Virginia changed their vote from ``no'' to ``aye.''
So the amendment was rejected.
The result of the vote was announced as above recorded.

personal explanation

Ms. KILPATRICK. Madam Chairman, because I was unavoidably detained in
the 15th Congressional District, I missed several roll call votes. Had
I been present, I would have voted Nay on roll call number 142, Aye on
roll call vote number 143, and Aye on roll call number 144.
The CHAIRMAN. It is now in order to consider amendment No. 3 printed
in part 2 of House Report 105-531.

Amendment No. 3 Offered by Mr. Baker

Mr. BAKER. Madam Chairman, I offer an amendment under the rule.
The CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:

Part 2, amendment No. 3, printed in House Report 105-531,
offered by Mr. Baker:
After section 181, insert the following new sections (and
conform the table of contents accordingly):

SEC. 182. CRA AMENDMENT.

[[Page H3193]]

In section 305 of the Amendment in the Nature of a
Substitute, insert the following new subsections after
subsection (a) (as so redesignated):
(b) State Waiver.--If, in any community served by a
national bank or a subsidiary of a national bank, there is no
company licensed by the appropriate State regulator to
provide insurance as agent which is available for
acquisition, the State insurance regulator may, upon
application by the national bank or subsidiary, waive the
limitation of subsection (a) with respect to the provision of
insurance as agent by such bank or subsidiary within such
community.
(c) Sunset.--This section shall cease to be effective at
the end of the 3-year period beginning on the date of the
enactment of this Act.
In paragraph (1) of section 45(d) of the Federal Deposit
Insurance Act, as added by section 308(a) of the Amendment in
the Nature of a Substitute, strike ``and the making of
loans''.
In paragraph (2) of section 45(g) of the Federal Deposit
Insurance Act, as added by section 308(a) of the Amendment in
the Nature of a Substitute, strike ``Regulations prescribed''
and insert ``Subject to section 104, regulations
prescribed''.
After section 309 of the Amendment in the Nature of a
Substitute, add the following new section (and conform the
table of contents accordingly):

SEC. 310. STUDY OF EFFECTIVENESS OF SAFE HARBOR.

(a) Study Required.--3 years after the date of the
enactment of this Act, the Comptroller of the Currency shall
study, in conjunction with the National Association of
Insurance Commissioners should such Association choose to
participate, the effectiveness of the provisions of section
104(b)(2)(A) in establishing a safe harbor for the regulation
by States of insurance sales and solicitation activity.
(b) Report.--The Comptroller of the Currency, together with
the National Association of Insurance Commissioners should
such Association choose to participate, shall submit a report
to the Congress before the end of the 6-month period
beginning 3 years after the date of the enactment of this Act
on findings made and conclusions reached with regard to the
study required under subsection (a), together with such
recommendations for legislative or administrative action as
the Comptroller and the Association determine to be
appropriate.
Paragraph (9) of section 10(c) of the Home Owners' Loan
Act, as added by section 401 of the Amendment in the Nature
of a Substitute, is amended by adding at the end the
following new subparagraph:
``(C) No acquisition of grandfathered unitaries by
unregulated nonfinancial companies.--Notwithstanding
subparagraph (B), paragraph (3) shall not apply to any
company described in subparagraph (B)(i)(II) which is not, at
the time of the acquisition referred to in such subparagraph,
subject to licensing, regulation, or examination by a Federal
banking agency, the Securities and Exchange Commission, the
Commodities Futures Trading Commission, or a State insurance
regulator.''.
Strike the heading of subtitle C of title I of the
Amendment in the Nature of a Substitute and insert the
following new heading (and amend the table of contents
accordingly):

Subtitle C--Subsidiaries of Insured Depository Institutions

Strike section 121 of the Amendment in the Nature of a
Substitute and insert the following new sections (and
redesignate subsequent sections and amend the table of
contents accordingly):

SEC. 121. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED TO ENGAGE
IN FINANCIAL ACTIVITIES.

``SEC. 5136A. FINANCIAL SUBSIDIARIES OF NATIONAL BANKS.

``(a) Subsidiaries of National Banks Authorized to Engage
in Financial Activities.--
``(1) In general.--A subsidiary of a national bank may
engage in an activity that is not permissible for a national
bank to engage in directly, but only if--
``(A) the activity is a financial activity (as defined in
paragraph (4));
``(B) the national bank is well capitalized, well managed,
and achieved a rating of `satisfactory record of meeting
community credit needs', or better, at the most recent
examination of the bank;
``(C) all depository institution affiliates of such
national bank are well capitalized, well managed, and have
achieved a rating of `satisfactory record of meeting
community credit needs', or better, at the most recent
examination of each such institution; and
``(D) the bank has received the approval of the Comptroller
of the Currency.
``(2) No effect on edge act or agreement corporations.--
Paragraph (1) shall not apply with respect to any subsidiary
which is a corporation organized under section 25A of the
Federal Reserve Act or a corporation operating under section
25 of such Act.
``(3) Other subsidiaries prohibited.--A national bank may
not control any subsidiary other than a subsidiary--
``(A) which engages solely in activities that are
permissible for a national bank to engage in directly or are
authorized under paragraph (1); or
``(B) which a national bank may control pursuant to section
25 or 25A of the Federal Reserve Act, the Bank Service
Company Act, or any other Act that expressly by its terms
authorizes national banks to control subsidiaries.
``(4) Financial activity defined.--For purposes of this
section and subject to paragraphs (5) and (6), the term
`financial activity' means any activity determined under
section 6(c) of the Bank Holding Company Act of 1956 to be
financial in nature or incidental to financial activities.
``(5) Other definitions.--For purposes of this section, the
following definitions shall apply:
``(A) Financial subsidiary.--The term `financial
subsidiary' means a company which--
``(i) is a subsidiary of a national bank (other than a
corporation organized under section 25A of the Federal
Reserve Act or a corporation operating under section 25 of
such Act); and
``(ii) is engaged in a financial activity pursuant to
paragraph (1) that is not a permissible activity for a
national bank to engage in directly.
``(B) Subsidiary.--The term `subsidiary' has the meaning
given to such term in section 2 of the Bank Holding Company
Act of 1956.
``(C) Well capitalized.--The term `well capitalized' has
the same meaning as in section 38 of the Federal Deposit
Insurance Act and, for purposes of this section, the
Comptroller shall have exclusive jurisdiction to determine
whether a national bank is well capitalized.
``(D) Well managed.--The term `well managed' means--
``(i) in the case of a bank that has been examined, unless
otherwise determined in writing by the Comptroller, the
achievement of--

[[Page H3194]]

continue to meet the requirements of subsection (a), the
Comptroller shall give notice to the bank to that effect,
describing the conditions giving rise to the notice.
``(2) Agreement to correct conditions required.--
``(A) Content of agreement.--Within 45 days of the receipt
by a depository institution of a notice given under paragraph
(1) (or such additional period as the Comptroller may
permit), the depository institution failing to meet the
requirements of subsection (a) shall execute an agreement
with the appropriate Federal banking agency for such
institution to correct the conditions described in the
notice.
``(B) Comptroller may impose limitations.--Until the
conditions giving rise to the notice are corrected, the
Comptroller may impose such limitations on the conduct of the
business of the national bank or subsidiary of such bank as
the Comptroller determines to be appropriate under the
circumstances.
``(3) Failure to correct.--If the conditions described in
the notice are not corrected within 180 days after the bank
receives the notice, the Comptroller may require, under such
terms and conditions as may be imposed by the Comptroller and
subject to such extensions of time as may be granted in the
discretion of the Comptroller--
(A) the national bank to divest control of each subsidiary
engaged in an activity that is not permissible for the bank
to engage in directly; or
``(B) each subsidiary of the national bank to cease any
activity that is not permissible for the bank to engage in
directly.
``(e) Functional Regulation.--
``(1) In general.--A financial subsidiary of a national
bank shall not be treated as a bank for purposes of any
definition of bank in the Federal securities laws.
``(2) Deference to sec.--The Comptroller shall defer to the
Securities and Exchange Commission with regard to all
interpretations of, and the enforcement of, applicable
Federal securities laws relating to the activities, conduct,
and operations of registered brokers, dealers, investment
advisers, and investment companies.
``(3) Deference to examinations.--In the case of a
financial subsidiary of a national bank which is a registered
broker or dealer or a registered investment adviser, the
Comptroller shall, to the fullest extent possible, address
the circumstances which might otherwise permit or require an
examination by the Comptroller by forgoing an examination and
instead reviewing the reports of examination made of such
subsidiary by or on behalf of the Securities and Exchange
Commission.''.
(b) Clerical Amendment.--The table of sections for chapter
one of title LXII of the Revised Statutes of the United
States is amended--
(1) by redesignating the item relating to section 5136A as
section 5136C; and
(2) by inserting after the item relating to section 5136
the following new item:

``5136A. Financial subsidiaries of national banks.''.

SEC. 122. ACTIVITIES OF SUBSIDIARIES OF INSURED STATE BANKS.

Section 24(d) of the Federal Deposit Insurance Act (12
U.S.C. 1831a(d)) is amended--
(1) by adding at the end the following new paragraphs:
``(3) Conditions on certain activities.--
``(A) In general.--A subsidiary of a State bank may engage
in an activity in which a subsidiary of a national bank may
engage as principal pursuant to subsection (a)(1) of section
5136A of the Revised Statutes of the United States but only
if the State bank meets the same requirements which are
applicable to national banks under subparagraphs (B) and (C)
of such subsection and subsections (b) and (c) of such
section.
``(B) Application of section 5136a of revised statutes.--
For purposes of applying section 5136A of the Revised
Statutes of the United States with regard to the activities
of a subsidiary of a State bank, all references in such
section to the Comptroller of the Currency, or regulations
and orders of the Comptroller, shall be deemed to be
references to the appropriate Federal banking agency with
respect to such State bank, and regulations and orders of
such agency.
``(4) State banks which fail to comply with paragraph (3)
conditions.--
``(A) In general.--If the appropriate Federal banking
agency determines that a State bank that controls a
subsidiary which is engaged as principal in financial
activities pursuant to paragraph (3) does not meet the
requirements of subparagraph (A) of such paragraph, the
appropriate Federal banking agency shall give notice to the
bank to that effect, describing the conditions giving rise to
the notice.
``(A) Agreement to correct conditions required.--
``(i) Content of agreement.--Within 45 days of the receipt
by a bank of a notice given under paragraph (1) (or such
additional period as the appropriate Federal banking agency
for such bank may permit), the bank failing to meet the
requirements of paragraph (3)(A) shall execute an agreement
with the appropriate Federal banking agency for such bank to
correct the conditions described in the notice.
``(B) Agency may impose limitations.--Until the conditions
giving rise to the notice are corrected, the appropriate
Federal banking agency for the State bank may impose such
limitations on the conduct of the business of the bank or a
subsidiary of the bank as the agency determines to be
appropriate under the circumstances.
``(C) Failure to correct.--If the conditions described in
the notice are not corrected within 180 days after the bank
receives the notice, the appropriate Federal banking agency
for the State may require, under such terms and conditions as
may be imposed by such agency and subject to such extensions
of time as may be granted in the discretion of the agency--
``(i) the bank to divest control of each subsidiary engaged
in an activity as principal that is not permissible for the
bank to engage in directly; or
``(ii) each subsidiary of the bank to cease any activity as
principal that is not permissible for the bank to engage in
directly.''.

SEC. 123. RULES APPLICABLE TO FINANCIAL SUBSIDIARIES.

(a) Transactions Between Financial Subsidiaries and Other
Affiliates.--Section 23A of the Federal Reserve Act (12
U.S.C. 371c) is amended--
(1) by redesignating subsection (e) as subsection (f); and
(2) by inserting after subsection (d), the following new
subsection:
``(e) Rules Relating to Banks With Financial
Subsidiaries.--
``(1) Financial subsidiary defined.--For purposes of this
section and section 23B, the term `financial subsidiary'
means a company which--
``(A) is a subsidiary of a bank (other than a corporation
organized under section 25A of the Federal Reserve Act or a
corporation operating under section 25 of such Act); and
``(B) is engaged in a financial activity (as defined in
section 5136A(a)(4)) that is not a permissible activity for a
national bank to engage in directly.
``(2) Application to transactions between a financial
subsidiary of a bank and the bank.--For purposes of applying
this section and section 23B to a transaction between a
financial subsidiary of a bank and the bank (or between such
financial subsidiary and any other subsidiary of the bank
which is not a financial subsidiary) and notwithstanding
subsection (b)(2) and section 23B(d)(1), the financial
subsidiary of the bank--
``(A) shall be an affiliate of the bank and any other
subsidiary of the bank which is not a financial subsidiary;
and
``(B) shall not be treated as a subsidiary of the bank.
``(3) Application to transactions between financial
subsidiary and nonbank affiliates.--
``(A) In general.--A transaction between a financial
subsidiary and an affiliate of the financial subsidiary shall
not be deemed to be a transaction between a subsidiary of a
national bank and an affiliate of the bank for purposes of
section 23A or section 23B of the Federal Reserve Act.
``(B) Certain affiliates excluded.--For purposes of
subparagraph (A) and notwithstanding paragraph (4), the term
`affiliate' shall not include a bank, or a subsidiary of a
bank, which is engaged exclusively in activities permissible
for a national bank to engage in directly.
``(4) Equity investments excluded subject to the approval
of the banking agency.--Subsection (a)(1) shall not apply so
as to limit the equity investment of a bank in a financial
subsidiary of such bank, except that any investment that
exceeds the amount of a dividend that the bank could pay at
the time of the investment without obtaining prior approval
of the appropriate Federal banking agency and is in excess of
the limitation which would apply under subsection (a)(1), but
for this paragraph, may be made only with the approval of the
appropriate Federal banking agency (as defined in section
3(q) of the Federal Deposit Insurance Act) with respect to
such bank.''.
(b) Treatment of Financial Subsidiaries Under Other
Provisions of Law.--
(1) Bank holding company act amendments of 1970.--Section
106(a) of the Bank Holding Company Act Amendments of 1970 is
amended by adding at the end the following new sentence:
``For purposes of this section, a financial subsidiary (as
defined in section 5136A(a)(5)(A) of the Revised Statutes of
the United States or referenced in the 20th undesignated
paragraph of section 9 of the Federal Reserve Act or section
24(d)(3)(A) of the Federal Deposit Insurance Act) shall be
deemed to be a subsidiary of a bank holding company, and not
a subsidiary of a bank.''; and
(2) Federal reserve act.--The 20th undesignated paragraph
of section 9 of the Federal Reserve Act (12 U.S.C. 335) is
amended by adding at the end of the following new sentence:
``To the extent permitted under State law, a State member
bank may acquire or establish and retain a financial
subsidiary (as defined in section 5136A(a)(3)(A) of the
Revised Statutes of the United States, except that all
references in that section to the Comptroller of the
Currency, the Comptroller, or regulations or orders of the
Comptroller shall be deemed to be references to the Board or
regulations or orders of the Board.''.

The CHAIRMAN. Pursuant to House Resolution 428, the gentleman from
Louisiana (Mr. Baker) and a Member opposed each will control 20
minutes.
The Chair recognizes the gentleman from Louisiana (Mr. Baker).

[[Page H3195]]

Request for Modification to Amendment No. 3 Offered by Mr. Baker

Mr. BAKER. Madam Chairman, I ask unanimous consent to modify the
amendment.
The CHAIRMAN. The Clerk will report the modification.
The Clerk read as follows:

Amendment, as modified, offered by Mr. Baker:
After section 181, insert the following new sections (and
conform the table of contents accordingly):

SEC. 182. CRA AMENDMENT.

Section 803(2) of the Community Reinvestment Act of 1977
(12 U.S.C. 2902(2)) is amended by inserting ``which has total
assets of more than $100,000,000'' before the semicolon at
the end.
In section 305 of the Amendment in the Nature of a
Substitute, strike ``If a national bank'' and insert ``(a) In
General.--If a national bank''.
In section 305 of the Amendment in the Nature of a
Substitute, insert the following new subsections after
subsection (a) (as so redesignated):
(b) State Waiver.--If, in any community served by a
national bank or a subsidiary of a national bank, there is no
company licensed by the appropriate State regulator to
provide insurance as agent which is available for
acquisition, the State insurance regulator may, upon
application by the national bank or subsidiary, waive the
limitation of subsection (a) with respect to the provision of
insurance as agent by such bank or subsidiary within such
community.
(c) Sunset.--This section shall cease to be effective at
the end of the 3-year period beginning on the date of the
enactment of this Act.
In paragraph (1) of section 45(d) of the Federal Deposit
Insurance Act, as added by section 308(a) of the Amendment in
the Nature of a Substitute, strike ``and the making of
loans''.
After section 309 of the Amendment in the Nature of a
Substitute, add the following new section (and conform the
table of contents accordingly):

SEC. 310. STUDY OF EFFECTIVENESS OF SAFE HARBOR.

(a) Study Required.--3 years after the date of the
enactment of this Act, the Comptroller of the Currency shall
study, in conjunction with the National Association of
Insurance Commissioners should such Association choose to
participate, the effectiveness of the provisions of section
104(b)(2)(A) in establishing a safe harbor for the regulation
by States of insurance sales and solicitation activity.
(b) Report.--The Comptroller of the Currency, together with
the National Association of Insurance Commissioners should
such Association choose to participate, shall submit a report
to the Congress before the end of the 6-month period
beginning 3 years after the date of the enactment of this Act
on findings made and conclusions reached with regard to the
study required under subsection (a), together with such
recommendations for legislative or administrative action as
the Comptroller and the Association determine to be
appropriate.
Paragraph (9) of section 10(c) of the Home Owners' Loan
Act, as added by section 401 of the Amendment in the Nature
of a Substitute, is amended by adding at the end the
following new subparagraph:
``(C) No acquisition of grandfathered unitaries by
unregulated nonfinancial companies.--
``(i) In general.--Notwithstanding subparagraph (B),
paragraph (3) shall not apply to any company described in
subparagraph (B)(i)(II) which is not, at the time of the
acquisition referred to in such subparagraph, subject to
licensing, regulation, or examination by a Federal banking
agency, the Securities and Exchange Commission, the
Commodities Futures Trading Commission, or a State insurance
regulator.''.
``(ii) Sunset provision.--This subparagraph shall cease to
be effective at the end of the 5-year period beginning on the
date of the enactment of the Financial Services Act of
1998.''.
Strike the heading of subtitle C of title I of the
Amendment in the Nature of a Substitute and insert the
following new heading (and amend the table of contents
accordingly):

Subtitle C--Subsidiaries of Insured Depository Institutions

Strike section 121 of the Amendment in the Nature of a
Substitute and insert the following new sections (and
redesignate subsequent sections and amend the table of
contents accordingly):

SEC. 121. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED TO ENGAGE
IN FINANCIAL ACTIVITIES.

``SEC. 5136A. FINANCIAL SUBSIDIARIES OF NATIONAL BANKS.

``(a) Subsidiaries of National Banks Authorized to Engage
in Financial Activities.--
``(1) In general.--A subsidiary of a national bank may
engage in an activity that is not permissible for a national
bank to engage in directly, but only if--
``(A) the activity is a financial activity (as defined in
paragraph (4));
``(B) the national bank is well capitalized, well managed,
and achieved a rating of `satisfactory record of meeting
community credit needs', or better, at the most recent
examination of the bank;
``(C) all depository institution affiliates of such
national bank are well capitalized, well managed, and have
achieved a rating of `satisfactory record of meeting
community credit needs', or better, at the most recent
examination of each such institution; and
``(D) the bank has received the approval of the Comptroller
of the Currency.
``(2) No effect on edge act or agreement corporations.--
Paragraph (1) shall not apply with respect to any subsidiary
which is a corporation organized under section 25A of the
Federal Reserve Act or a corporation operating under section
25 of such Act.
``(3) Other subsidiaries prohibited.--A national bank may
not control any subsidiary other than a subsidiary--
``(A) which engages solely in activities that are
permissible for a national bank to engage in directly or are
authorized under paragraph (1); or
``(B) which a national bank may control pursuant to section
25 or 25A of the Federal Reserve Act, the Bank Service
Company Act, or any other Act that expressly by its terms
authorizes national banks to control subsidiaries.
``(4) Financial activity defined.--For purposes of this
section and subject to paragraphs (5) and (6), the term
`financial activity' means any activity determined under
section 6(c) of the Bank Holding Company Act of 1956 to be
financial in nature or incidental to financial activities.
``(5) Other definitions.--For purposes of this section, the
following definitions shall apply:
``(A) Financial subsidiary.--The term `financial
subsidiary' means a company which--
``(i) is a subsidiary of a national bank (other than a
corporation organized under section 25A of the Federal
Reserve Act or a corporation operating under section 25 of
such Act); and
``(ii) is engaged in a financial activity pursuant to
paragraph (1) that is not a permissible activity for a
national bank to engage in directly.
``(B) Subsidiary.--The term `subsidiary' has the meaning
given to such term in section 2 of the Bank Holding Company
Act of 1956.
``(C) Well capitalized.--The term `well capitalized' has
the same meaning as in section 38 of the Federal Deposit
Insurance Act and, for purposes of this section, the
Comptroller shall have exclusive jurisdiction to determine
whether a national bank is well capitalized.
``(D) Well managed.--The term `well managed' means--
``(i) in the case of a bank that has been examined, unless
otherwise determined in writing by the Comptroller, the
achievement of--

[[Page H3196]]

``(ii) the amount equal to the sum of the retained earnings
of each financial subsidiary,

shall be deducted from the national bank's assets and
tangible equity; and
``(B) the financial subsidiary's assets and liabilities
shall not be consolidated with those of the national bank.
``(2) Regulations required.--The Comptroller shall
prescribe regulations implementing this subsection.
``(c) Safeguards for the Bank.--
``(1) In general.--A national bank that establishes or
maintains a financial subsidiary shall assure that--
``(A) the bank's procedures for identifying and managing
financial and operational risks within the bank and financial
subsidiaries of the bank adequately protect the bank from
such risks;
``(B) the bank has, for the protection of the bank,
reasonable policies and procedures to preserve the separate
corporate identity and limited liability of the bank and
subsidiaries of the bank; and
``(C) the bank complies with this section.
``(2) Prohibition on piercing the corporate veil.--
Notwithstanding any other law (including any law relating to
insurance), no obligation of a financial subsidiary of a
national bank arising more than 270 days after the date of
enactment of the Financial Services Act of 1998 may be
charged against such bank by reason of any ruling,
determination, or judgment disregarding the separate
corporate identity or limited liability of the bank or the
financial subsidiary.
``(3) Maintenance of separate corporate identity and
separate legal status--
``(A) In general.--The Comptroller shall take steps,
including conducting the review required by subparagraph (B),
to assure that each national bank observes the separate
corporate identity and separate legal status of each of the
bank's financial subsidiaries.
``(B) Examinations.--The Comptroller, when examining a
national bank, shall review whether the bank is observing the
separate corporate identity and separate legal status of the
bank's financial subsidiaries.
``(d) National Banks Which Do Not Comply With Requirements
of This Section.--
``(1) In general.--If the Comptroller determines that a
national bank which controls a financial subsidiary, or a
depository institution affiliate of such national bank, does
not continue to meet the requirements of subsection (a), the
Comptroller shall give notice to the bank to that effect,
describing the conditions giving rise to the notice.
``(2) Agreement to correct conditions required.--
``(A) Content of agreement.--Within 45 days of the receipt
by a depository institution of a notice given under paragraph
(1) (or such additional period as the Comptroller may
permit), the depository institution failing to meet the
requirements of subsection (a) shall execute an agreement
with the appropriate Federal banking agency for such
institution to correct the conditions described in the
notice.
``(B) Comptroller may impose limitations.--Until the
conditions giving rise to the notice are corrected, the
Comptroller may impose such limitations on the conduct of the
business of the national bank or subsidiary of such bank as
the Comptroller determines to be appropriate under the
circumstances.
``(3) Failure to correct.--If the conditions described in
the notice are not corrected within 180 days after the bank
receives the notice, the Comptroller may require, under such
terms and conditions as may be imposed by the Comptroller and
subject to such extensions of time as may be granted in the
discretion of the Comptroller--
``(A) the national bank to divest control of each
subsidiary engaged in an activity that is not permissible for
the bank to engage in directly; or
``(B) each subsidiary of the national bank to cease any
activity that is not permissible for the bank to engage in
directly.
``(e) Functional Regulation.--
``(1) In general.--A financial subsidiary of a national
bank shall not be treated as a bank for purposes of any
definition of bank in the Federal securities laws.
``(2) Deference to sec.--The Comptroller shall defer to the
Securities and Exchange Commission with regard to all
interpretations of, and the enforcement of, applicable
Federal securities laws relating to the activities, conduct,
and operations of registered brokers, dealers, investment
advisers, and investment companies.
``(3) Deference to examinations.--In the case of a
financial subsidiary of a national bank which is a registered
broker or dealer or a registered investment adviser, the
Comptroller shall, to the fullest extent possible, address
the circumstances which might otherwise permit or require an
examination by the Comptroller by forgoing an examination and
instead reviewing the reports of examination made of such
subsidiary by or on behalf of the Securities and Exchange
Commission.''.
(b) Clerical Amendment.--The table of sections for chapter
one of title LXII of the Revised Statutes of the United
States is amended--
(1) by redesignating the item relating to section 5136A as
section 5136C; and
(2) by inserting after the item relating to section 5136
the following new item:

``5136A. Financial subsidiaries of national banks.''.

SEC. 122. ACTIVITIES OF SUBSIDIARIES OF INSURED STATE BANKS.

Section 24(d) of the Federal Deposit Insurance Act (12
U.S.C. 1831a(d)) is amended--
(1) by adding at the end the following new paragraphs:
``(3) Conditions on certain activities.--
``(A) In general.--A subsidiary of a State bank may engage
in an activity in which a subsidiary of a national bank may
engage as principal pursuant to subsection (a)(1) of section
5136A of the Revised Statutes of the United States but only
if the State bank meets the same requirements which are
applicable to national banks under subparagraphs (B) and (C)
of such subsection and subsections (b) and (c) of such
section.
``(B) Application of section 5136a of revised statutes.--
For purposes of applying section 5136A of the Revised
Statutes of the United States with regard to the activities
of a subsidiary of a State bank, all references in such
section to the Comptroller of the Currency, or regulations
and orders of the Comptroller, shall be deemed to be
references to the appropriate Federal banking agency with
respect to such State bank, and regulations and orders of
such agency.
``(4) State banks which fail to comply with paragraph (3)
conditions.--
``(A) In general.--If the appropriate Federal banking
agency determines that a State bank that controls a
subsidiary which is engaged as principal in financial
activities pursuant to paragraph (3) does not meet the
requirements of subparagraph (A) of such paragraph, the
appropriate Federal banking agency shall give notice to the
bank to that effect, describing the conditions giving rise to
the notice.
``(A) Agreement to correct conditions required.--
``(i) Content of agreement.--Within 45 days of the receipt
by a bank of a notice given under paragraph (1) (or such
additional period as the appropriate Federal banking agency
for such bank may permit), the bank failing to meet the
requirements of paragraph (3)(A) shall execute an agreement
with the appropriate Federal banking agency for such bank to
correct the conditions described in the notice.
``(B) Agency may impose limitations.--Until the conditions
giving rise to the notice are corrected, the appropriate
Federal banking agency for the State bank may impose such
limitations on the conduct of the business of the bank or a
subsidiary of the bank as the agency determines to be
appropriate under the circumstances.
``(C) Failure to correct.--If the conditions described in
the notice are not corrected within 180 days after the bank
receives the notice, the appropriate Federal banking agency
for the State may require, under such terms and conditions as
may be imposed by such agency and subject to such extensions
of time as may be granted in the discretion of the agency--
``(i) the bank to divest control of each subsidiary engaged
in an activity as principal that is not permissible for the
bank to engage in directly; or
``(ii) each subsidiary of the bank to cease any activity as
principal that is not permissible for the bank to engage in
directly.''.

SEC. 123. RULES APPLICABLE TO FINANCIAL SUBSIDIARIES.

[[Page H3197]]

bank, which is engaged exclusively in activities permissible
for a national bank to engage in directly.
``(4) Equity investments excluded subject to the approval
of the banking agency.--Subsection (a)(1) shall not apply so
as to limit the equity investment of a bank in a financial
subsidiary of such bank, except that any investment that
exceeds the amount of a dividend that the bank could pay at
the time of the investment without obtaining prior approval
of the appropriate Federal banking agency and is in excess of
the limitation which would apply under subsection (a)(1), but
for this paragraph, may be made only with the approval of the
appropriate Federal banking agency (as defined in section
3(q) of the Federal Deposit Insurance Act) with respect to
such bank.''.
(b) Treatment of Financial Subsidiaries Under Other
Provisions of Law.--
(1) Bank Holding Company Act Amendments of 1970.--Section
106(a) of the Bank Holding Company Act Amendments of 1970 is
amended by adding at the end the following new sentence:
``For purposes of this section, a financial subsidiary (as
defined in section 5136A(a)(5)(A) of the Revised Statutes of
the United States or referenced in the 20th undesignated
paragraph of section 9 of the Federal Reserve Act or section
24(d)(3)(A) of the Federal Deposit Insurance Act) shall be
deemed to be a subsidiary of a bank holding company, and not
a subsidiary of a bank.''; and
(2) Federal Reserve Act.--The 20th undesignated paragraph
of section 9 of the Federal Reserve Act (12 U.S.C. 335) is
amended by adding at the end of the following new sentence:
``To the extent permitted under State law, a State member
bank may acquire or establish and retain a financial
subsidiary (as defined in section 5136A(a)(3)(A) of the
Revised Statutes of the United States, except that all
references in that section to the Comptroller of the
Currency, the Comptroller, or regulations or orders of the
Comptroller shall be deemed to be references to the Board or
regulations or orders of the Board.''.

Mr. BAKER (during the reading). Madam Chairman, I ask unanimous
consent that the amendment, as modified, be considered as read and
printed in the Record.
The CHAIRMAN. Is there objection to the request of the gentleman from
Louisiana?

Parliamentary Inquiry

Mr. DINGELL. Point of parliamentary inquiry, Madam Chairman.
Are we reading the amendment, or discussing the amendment which is
authorized by the rule, or something different?
The CHAIRMAN. The reading of the modification was just dispensed
with.
Is there objection to modifying the amendment offered by Mr. Baker?
Mr. DINGELL. Reserving the right to object, Madam Chairman, we have
not had a chance to review this or what it means. The Committee on
Rules has spoken rather clearly on it, and with great respect and
affection for the distinguished gentleman from Louisiana (Mr. Baker), I
have to object. I do object.
The CHAIRMAN. Objection is heard.
The Chair recognizes the gentleman from Louisiana (Mr. Baker).
Mr. BAKER. Madam Chairman, I yield myself such time as I may consume.
Madam Chairman, I would like to respond just briefly to the intent to
modify, so that the distinguished individual can understand our intent.
Madam Chairman, under the provisions of the consolidated amendment,
there is one small element of the insurance provisions----

Parliamentary Inquiry

Mr. SOLOMON. Parliamentary inquiry, Madam Chairman. Are we under
regular order? Is time being consumed on the 40 minutes now? Because
that is regular order.
The CHAIRMAN. That is correct.
Mr. BAKER. Madam Chairman, I would like to respond to the gentleman's
inquiry. Under the provisions of the insurance portions of the
amendment, there was a technical reference to section 104 being cross-
referenced with section 308; stated in other words, consumer protection
standards for the sales of insurance by banks.
Given the fact that some in the insurance community had expressed
concerns about the consequences of those provisions, I simply chose to
remove that section from the consideration from the House, thinking
that that would be moving in the gentleman's direction in the
consideration of this amendment. I regret that he was unable to allow
that modification to be considered.
Madam Chairman, the amendment before us is substantive and quite
broad-based. Simply stated, it is an amendment which addresses many of
the community banks' concerns who, in the process of financial
modernization, have felt, frankly, not only left out, but all too often
stepped on.
Just last month this House passed H.R. 1151, which gave credit unions
the unfettered right to continue to provide services to their
consumers. Unfortunately for most small banks in this country, they are
feeling increased competitive pressures from the mergers and
consolidations, increased regulatory oversight, and little ability to
offer new products to their shrinking consumer base.
Madam Chairman, reemphasizing the point, there is little in this
bill, as it now stands, that is attractive to the community banker who
is struggling to survive with high end regulatory costs.
This amendment makes four simple changes. It exempts community banks
under $100 million in asset size from compliance with CRA; it amends
the insurance provisions to allow enhanced flexibility for the
marketing of insurance products; it provides an operating subsidiary
structure reported out by the Committee on Banking and Financial
Services months ago, which does not allow for merchant banking,
underwriting of insurance, or direct investment in real estate; it
provides for a prohibition on the sale of unitary thrifts to commercial
enterprises.
Many of my colleagues on the other side of this issue are very much
concerned about the merger of commerce and finance, and the giant
corporations gobbling up small town banks. We now have in law what is
known as a unitary thrift, a unique financial creature which combines
the resources of commercial enterprises with financial resources.
This amendment would prohibit the future sale of those enterprises to
the Microsofts, the General Electrics, the General Motors. It is, in
fact, a protection against the further breach of banking and commerce.
This is an extraordinarily important amendment, and I would suggest
that unless the amendment is adopted, it is highly unlikely that many
of the hometown bankers now calling Members' offices and complaining
about the consideration of this bill will find an ability to tolerate
the provisions of H.R. 10, without the inclusion of this amendment.
Madam Chairman, I reserve the balance of my time.
Mr. BLILEY. Madam Chairman, I claim the time in opposition.
The CHAIRMAN. The gentleman from Virginia (Mr. Bliley) is recognized
for 20 minutes.

Parliamentary Inquiry

Mr. LaFALCE. Parliamentary inquiry, Madam Chairman.
The CHAIRMAN. The gentleman will state it.
Mr. LaFALCE. Madam Chairman, should the time in opposition be given
to a member of the same party in opposition, or to a member of the
opposition party in opposition?
The CHAIRMAN. The time in opposition has been given to the manager of
the bill.
Mr. BLILEY. Madam Chairman, I yield myself 1\1/2\ minutes.
Madam Chairman, I will see that the gentleman from New York (Mr.
LaFalce) gets time.
Madam Chairman, this amendment is similar to the amendment offered by
the gentleman from New York (Mr. LaFalce) and the gentleman from
Minnesota (Mr. Vento) in that it expands the powers of operating
subsidiaries. It undoes the insurance compromise we have crafted to end
deference to the OCC. It also restricts other provisions.
Like Alan Greenspan, like Americans for Tax Reform, like Ronald
Reagan's Treasury, I am opposed to expanding the powers in operating
subsidiaries.

{time} 1630

The reason I am opposed is that these are not free; they increase
risk to taxpayers. Americans for Tax Reform say that operating
subsidiaries pose just that danger. I do not think it is worth the
risk.
H.R. 10 gives bank affiliates full securities, insurance and merchant
banking powers. It does it in an affiliate structure that protects
taxpayers. No one, other than the bureaucrats at the OCC, care about
operating subsidiaries. Protecting taxpayers is more important than
protecting them. I urge Members to oppose this amendment.

[[Page H3198]]

Please note that even if this Baker amendment passes, the community
banks will not support this bill.
Madam Chairman, I reserve the balance of my time.
Mr. BAKER. Madam Chairman, I yield 4 minutes to the gentleman from
New York (Mr. Lazio).
Mr. LAZIO of New York. Madam Chairman, I thank the gentleman for his
hard work and for his effort to try and improve this bill, at least as
it affects banks.
Let me explain the operating subsidiary provisions in the amendment
before the House. First, these provisions are similar to the operating
subsidiary provisions adopted by the Committee on Banking and Financial
Services.
Second, the powers of a bank op-sub are limited to those powers
granted to a bank holding company under the bill. Third, op-subs are
not authorized to engage in insurance underwriting, merchant banking
and real estate. In that sense, fourth, they push out the most risky
business.
Fifth, the safeguards of section 23A and 23B of the Federal Reserve
Act apply. Section 23A limits how many transactions a bank can have
within its op-sub. Section 23B says every one of those transactions
must be conducted at arm's length. The Federal Reserve writes the rules
for op-subs.
Sixth, the bank must be well managed, well capitalized and meet
community credit needs before it can have an operating subsidiary.
Seventh and most importantly, any bank investment in the op-sub must
be deducted from the bank's regulatory capital, so a bank can lose its
entire stake in the subsidiary and it will be protected and remain well
capitalized.
These provisions further reinforce that securities activities will be
regulated by the SEC, and it empowers State securities officials to
regulate these activities.
There are even more safety provisions. If the bank is not well
capitalized or well managed, regulators have authority to impose
additional terms and conditions. Failure to comply with these
conditions may result in divestiture.
Then FDIC Chairwoman Ricki Helfer submitted testimony to the House
Committee on Banking and Financial Services on March 5, 1997. She said,
``With appropriate safeguards, having earnings from new activities in
bank subsidiaries lowers the probability of failure and thus provides
greater protection for the insurance fund than having the earnings from
new activities in bank holding company affiliates.'' This from one of
our top regulators.
Two experts, Gerard Lynch and Peter Strauss, state further in the
October 1997 issue of the Columbia Law Review that banks should not be
denied the use of operating subsidiaries. For years U.S. banks
operating overseas have had separate op-subs with these powers. Banks
in most G-10 countries have long, and successfully, engaged in these
financial services in a subsidiary, including underwriting and
brokering securities, which is what we are pushing now.
A survey of bank failures in the United States over the last 20 years
demonstrates that the cause of failures is typically due to
deterioration in the quality of the traditional assets that they hold,
not to involvement in nonbanking activities.
These op-sub provisions were contained in the amendment that I filed
with the Committee on Rules along with the gentleman from Louisiana
(Mr. Baker), the gentleman from Delaware (Mr. Castle) and the gentleman
from Iowa (Mr. Leach). They represent a reasonable, rational, safe and
sound approach to expanding an op-sub's ability to engage in new powers
and are reflective of our need and desire to modernize our financial
services in this country.
Mr. BLILEY. Madam Chairman, I ask unanimous consent to yield 10
minutes to the gentleman from New York (Mr. LaFalce) and that he may be
permitted to control the time, and that the balance of my time be under
the control of the gentleman from Ohio (Mr. Gillmor).
The CHAIRMAN. Is there objection to the request of the gentleman from
Virginia?
There was no objection.
Mr. LaFALCE. Madam Chairman, I yield myself 1 minute. I thank the
distinguished chairman of the Committee on Commerce for his generosity.
I have tremendous respect for the gentleman from Louisiana (Mr.
Baker). We attempted to work out an amendment together. I wish that we
could have done it, because right now I think the Committee on Rules
has divided us and maybe, by dividing us, hoped to conquer. If the
gentleman could have joined with me, I think we would have done much
better.
The difficulty I have in joining with him is his provision that
repeals the requirements of CRA for banks $100 million or less. That is
a poison pill for Democrats. We simply cannot support it.
So prescinding from the relative merits or demerits of the rest of
his amendment, so long as it contains this provision, a repeal of CRA
for banks with $100 million or less, we are constrained to oppose it.
Madam Chairman, I reserve the balance of my time.
Mr. BAKER. Madam Chairman, I yield 2 minutes to the gentleman from
Alabama (Mr. Bachus), another distinguished member of Committee on
Banking and Financial Services.
Mr. BACHUS. Madam Chairman, I would like to say that the gentleman
from New York said something that I agree with. That is, that we are
mixing a lot of things in this amendment. And I wish that the Committee
on Rules had given us an opportunity to address CRA reform in a
separate amendment. I had offered an amendment to exempt the community
banks of CRA up to $250 million, but this House is not going to get to
address that.
However, in this amendment, there is a provision which will exempt
the small banks up to $100 million in assets from CRA. Let me tell my
colleagues, this is not a revolutionary idea. In fact, the gentleman
from Pennsylvania (Mr. Kanjorski), Democratic Member of this body,
offered and the Subcommittee on Financial Institutions and Consumer
Credit of the Committee on Banking and Financial Services passed a
provision which exempted banks up to $150 million and rural banks up to
$250 million in 1991. We continue to back-pedal on this issue.
In the Senate, 12 Democratic Senators have endorsed the idea of a
two-tier approach to CRA. Forty-one Democrats have joined in the House,
saying that we need to have a two-tier approach. But first of all, we
are not going to get to vote on that in a clear shot. I wish we all
did.
I wish that the Committee on Rules had seen in their wisdom to let us
take a stand on this issue. All we will get to do today is vote on this
provision, and one of the things it has in it that I strongly support
is an exemption for banks up to $100 million in assets. And who are
these banks? Seventy-five percent of them are in communities of 10,000
people and less; 45 percent of them, the majority of their loans are
agricultural loans to small farmers. These banks are simply being
driven out of the market by the cost of compliance. It is open season
on the small banks.
H.R. 10 is going to continue to put them at a disadvantage and put
them out of business, but at least this amendment gives them a little
bit of relief, not as much as the Democratic House of Representatives
in 1991 gave them, because we obviously love regulation today more than
we did then, not as much as this entire House did when it passed the
provisions a few years ago.
We are back-pedalling, making the exemption smaller, giving less
relief, but good gosh, can we not at least do this?
Mr. GILLMOR. Madam Chairman, I yield 2 minutes to the distinguished
gentlewoman from New Jersey (Mrs. Roukema).
Mrs. ROUKEMA. Madam Chairman, I thank the gentleman for yielding time
to me.
I rise today in opposition to this amendment. I do so reluctantly
because there are parts of this package that I really supported. For
example, the insurance amendments, where I wanted amendments of my own
on the insurance question. But they were not permitted in the rule. And
also I think the small bank CRA exemption has merit.
However, I want my colleagues to understand this, and it is
interesting that it follows on the Vento-LaFalce operating subsidiary
question that we just

[[Page H3199]]

voted on. Make no mistake about it, the core of this package, the
essence of this amendment is the operating subsidiary provision. This
is the core issue, none other.
So I must repeat again what I said in the prior debate, that
particularly in this time of megamergers, we have to be very concerned
about how the operating subsidiary relates to the safety and soundness
issue. As far as I am concerned, this actually just goes to the heart
and violates the very heart of the bill we have before us.
The reason I am for this mixture of modernization of financial
institutions is because I am sure that we have a sound regulatory
structure, but this amendment, if adopted with the operating
subsidiary, will really violate the essence of the functional
regulation and the bank holding company structure that we have in this
bill. So I must again oppose the amendment, and again, I guess I have
got to repeat, because there are an awful lot of us around who either
were here or taxpayers at home, when we remember the savings and loan
debacle and how that came about at the end of the 1980s, it built up
through the 1980s, came there at the end of the 1980s, and we are still
living with the cost to the taxpayer of that issue.
I do not want to make, even have a potential opening for that kind of
mistake again. I must reluctantly oppose this package because of the
operating sub provision.
Mr. BAKER. Madam Chairman, I yield 2 minutes to the gentleman from
Utah (Mr. Cook).
Mr. COOK. Madam Chairman, I rise today in support of the amendment
offered by my good friend, the gentleman from Louisiana (Mr. Baker).
Although the Baker amendment has several components, I would like to
focus on one section that is particularly important to the health of
small banks across our Nation. The Baker amendment would remove
Community Reinvestment Act obligations from banks with less than $100
million in assets.
I respect very much the views of my friends on the other side of the
aisle who believe the CRA is important for helping underserved
communities, rural and urban alike, but CRA, as it was intended, does
not work efficiently in practice, particularly with small banks. Let me
take a moment to share a bit of anecdotal evidence.
An acquaintance of mine recently received a CRA loan for a home
purchase. The loan was well below the going interest rate with no
points or origination fees. This person makes a good income, has no
family to support and could easily handle an identical mortgage at
standard rates, but this person makes just under the median income of
57,000 in the area where he is from. The loan recipient told me that
his experience is an example of how CRA has good intentions, but does
not really work in practice.
This person himself does not believe that he is the intended
recipient of CRA assistance. The problem is not with the financial
institution who granted this discounted loan; the problem is with the
Federal law that forces banks to make such loans just in order to
receive high CRA ratings.
This is especially true with small, community-based financial
institutions that probably have a personal relationship with their loan
applicants. In reality, small institutions are deeply engaged with the
communities they serve. If they were not, they would simply be out of
business. CRA obligations are onerous burdens that tie the hands of
small institutions, cause an increase in bank fees, and make car, home
and business loans out of reach for many Americans.
For these reasons, I urge my colleagues to support the Baker
amendment.
Mr. LaFALCE. Mr. Chairman, I yield 2 minutes to the gentleman from
Massachusetts (Mr. Neal).
Mr. NEAL of Massachusetts. Madam Chairman, sometimes in this Chamber
we act as though we have a collective sense of amnesia.
I want to stand in opposition to the Baker amendment today, an issue
that the gentleman from Louisiana (Mr. Baker) and I engaged in some
years ago, as well, and with great regard for the gentleman's
abilities. But I would like to point out that oftentimes we forget what
has occurred here.
In 1991, I offered this amendment on the House floor that would call
for the opportunity for lending institutions to do a better job of
keeping track of the loans that they made to small business and to
small farms. At that time, I had the support of Andy Ireland, who was
the ranking member on the Committee on Small Business, but in the end
we were able to come to an agreement that allowed the call report to be
amended so that we could do a better job of tracking this information
as it applied again to small business and to small farms.

{time} 1645

Now, the FIDICIA act of 1991, in the midst of the magic words that
some of us also might remember here, the credit crunch, where we had
regulators arguing that there was no credit crunch, what the real
argument was about was they were unable to secure the necessary data
that accompanied that information so that we could have done a better
job beyond anecdotal evidence, as highlighted by the previous speaker.
We need to be in a position where we can secure this information so
that we can act accordingly.
Now, let me talk, if I can about that FIDICIA markup. At that time my
amendment was included in the final package, and to this day we are
able to go and retrieve that information in a timely manner. I offered
that amendment at the time to collect evidence that small banks were
not lending to small businesses. I was pleased at the time that the
data was included, and I believe it encouraged banks to make loans to
small businesses, which we oftentimes celebrate here as the engine of
economic growth.
Now, I know the economy today is not in the same state that it was in
in 1991. The banks are reporting record profits. And I do not think
anybody here would argue that there still exists a credit crunch. But
who in this chamber knows how long that is going to last?
We should reject the Baker amendment, stick with the CRA
requirements, and retrieve this information in a timely manner so that
we can make better decisions.
Mr. BAKER. Madam Chairman, I yield 3 minutes to the gentleman from
California (Mr. Dreier), a distinguished member of the Committee on
Rules and former member of the Committee on Banking and Financial
Services.
Mr. DREIER. Madam Chairman, I thank my friend from Baton Rouge for
yielding me this time, and I would like to begin by congratulating him
for his excellent work as chairman of the Subcommittee on Capital
Markets, Securities and Government Sponsored Enterprises of the
Committee on Banking and Financial Services, where he has been the
driving force for this whole issue of the three-way street
affiliations, which are very important, so that we can continue our
quest to meet the consumer demand.
I rise in very strong support of his amendment for a number of
reasons. I think one of the most important is, in fact, to counter the
argument that was just provided by my friend, the gentleman from
Springfield, Massachusetts (Mr. Neal). I believe the provisions that
were initially put forward by our friend, the gentleman from Alabama
(Mr. Bachus), are very important to deal with that tremendous
regulatory burden which has been placed onto the shoulders of those
small banks that are trying to deliver financial services to people in
small communities.
I think that we have a tremendous chance with this amendment to
greatly improve what I think is a flawed measure. And so I think that
as we look at the work that has been done by the gentleman from
Louisiana (Mr. Baker) and others in this effort, that this amendment
deserves our very, very serious consideration and support. And I urge
my colleagues to join in doing just that.
Mr. GILLMOR. Madam Chairman, I yield 2 minutes to the gentleman from
New York (Mr. Solomon), chairman of the Committee on Rules.
Mr. SOLOMON. Madam Chairman, I spoke from this side of the well
earlier, almost on the same subject. I am going to switch and talk to
my Republican colleagues in particular over here.
What I asked earlier of my good friends on the Democratic side of the

[[Page H3200]]

aisle was did they remember what happened in the early 1980s. Do we
remember? The gentleman from New York (Mr. LaFalce) and others were
here back in 1980 when this Congress brought an innocuous bill to the
floor which caused the S&L crisis.
What we did at that time was that we raised the guaranty on simple
deposits by our constituents from $25,000 up to $100,000. Then we said
they could place $100,000 in 50 banks across the country, if they
wanted to, and the Federal Government is going to guaranty every nickel
of it.
So what happened is, people like me, who had sold their businesses,
had a little bit of money, we said, sure, we can invest in these new
banks that are starting up, and let them go into the high risk knowing
that we are going to get our money back if it fails. And lo and behold
they did fail. They failed by the dozens all over this country. Not in
my neck of the woods, up in the Adirondacks, in the Hudson Valley. They
are prudent, cautious, conservative bankers, and none of them failed,
but they failed in other places. And yet we, our investors, our
depositors and our taxpayers, had to bail out these others.
My colleagues, we have not seen anything yet. We let this legislation
go down the drain, and if this amendment passes, regardless of its
merits, and I have great respect for the sponsor, he is one of the most
respected Members and the most knowledgeable Member in this House on
these issues, but if we let this legislation fail, we are going to see
4 or 5 years from now that we are going to be bailing out much larger,
mega, mega bailouts than we have in the past, and it will be all our
taxpayers that are doing it.
That is why we need this legislation today. Defeat this amendment.
Let us go to the Senate and then let us work as a team with the
administration together to try to fashion a bill that will protect the
consumers, protect the investors, the depositors and, above all else,
protect the taxpayers. Please defeat the amendment.
Mr. BAKER. May I inquire of the Chair how much time is remaining?
The CHAIRMAN. The gentleman from Louisiana (Mr. Baker) has 7\1/2\
minutes remaining, the gentleman from Ohio (Mr. Gillmor) has 4\1/2\
minutes remaining, and the gentleman from New York (Mr. LaFalce) has 7
minutes remaining.
Mr. LaFALCE. Madam Chairman, I yield 2 minutes to the gentleman from
Minnesota (Mr. Vento).
Mr. VENTO. Madam Chair, I rise in opposition to the amendment.
Fundamentally, I am concerned. This amendment, I think, is a grudging
recognition of the importance of the operating subsidiary which has
been turned down in the previous amendment.
I will not reiterate the arguments for an operating subsidiary. This
is a more limited operating subsidiary. It is set forth, in fact, with
the permission of the Federal Reserve Board. So I guess the Fed already
provides operating subsidiaries in U.S. banks that operate abroad, and
this tries to give them some of the same powers. But the fact is that
in giving powers to an operating subsidiary, we give it to them so that
they can serve the communities. So this amendment gives with one hand
but then it takes back with the other.
If I remember correctly, about 80 percent of the banks would not be
subject to CRA. And what is CRA, after all? It is a successful law that
assures that financial institutions are actually participating in
providing creditworthy activity within the communities that they serve.
Where they are taking deposits, they make loans. Where they are taking
deposits, they finance businesses and farms and make home loans.
That is what Community Reinvestment Act has provided. It is workable.
The new program that has been put together with the lead of the
Comptroller of the Currency, incidentally, working with the Fed and
working with the Federal Deposit Insurance Corporation, has, in fact,
put a CRA program in place that emphasizes performance, not paperwork.
It is working.
There are many examples. I said jokingly before that not many will
get up and say I love my bank, as my colleague did with regard to other
financial institutions. But the fact is that many small and medium-
sized banks within my community in Minnesota are, in fact, performing
tremendous service in the community, both as volunteers but, most
importantly, fulfilling that important work.
In fact, what we are finding with CRA is that a lot of loans are
being made that before were not recognized as being creditworthy. CRA
works and we ought to keep it in place.
Mr. GILLMOR. Madam Chairman, I yield 2 minutes to the gentleman from
Michigan (Mr. Dingell), the ranking member of the Committee on
Commerce.
(Mr. DINGELL asked and was given permission to revise and extend his
remarks.)
Mr. DINGELL. Madam Chairman, I would like to commend and compliment
my colleagues. This has been one of the most constructive and, I
believe, gentlemanly debates I have seen in my career in this Congress.
And I particularly want to pay tribute to my friend from New York
(Mr. LaFalce), and my colleagues on the other side, the gentleman from
Virginia (Mr. Bliley) and the gentleman from Louisiana (Mr. Baker), and
the other Members of the Congress who have participated.
I would like to speak about the amendment, and I would like to point
out several things. First of all, if my colleagues voted against the
LaFalce amendment earlier, because it allowed for operating
subsidiaries inside the banks to engage in nonbank activities, they
should oppose this because this amendment does exactly the same thing.
Now, a large number of my other colleagues voted for the LaFalce
amendment because they said it kept intact the community reinvestment
requirements that are in the CRA. That was a valid reason for my
colleagues to vote that way, although I do not think that was
controlling in that particular matter. I would observe, however, if
that was the reason for my colleagues voting that way on that
amendment, they should vote ``no'' on this amendment because this
amendment removes the requirements of the CRA from community banks,
small banks, it is said. But the number of the banks that are absolved
of those responsibilities are 6,500. Sixty-five hundred banks no longer
have to meet that requirement if this amendment is adopted.
Now, this also violates the compromise which was achieved with the
insurance agents and brokers. I would assume that if Members voted
against the provisions of the LaFalce amendment, or if Members voted
for it because they were concerned about CRA, they would vote against
this amendment in the firm knowledge that they have every reason to so
do.
Now, there is one other point to be made. A lot of my colleagues are
still troubled about the concerns of the banks, and very truthfully I
am, too, because banks are important to this country and to the
economy. But I would observe for my colleagues, clearly, that the banks
have made it plain that the adoption of this or any other amendment is
not going to make this bill acceptable to them.
Mr. LaFALCE. Madam Chairman, how much time do I have remaining?
The CHAIRMAN. The gentleman from New York (Mr. LaFalce) has 5 minutes
remaining.
Mr. LaFALCE. Madam Chairman, I yield 2 minutes to the gentleman from
Massachusetts (Mr. Kennedy).
Mr. KENNEDY of Massachusetts. Madam Chairman, I think that it is
interesting that the way this bill is now being debated is whether or
not we can use the excuse to merge and acquire more and more banks,
more insurance companies, more securities firms to actually undercut
and drop back the bar on our investments to the poorest communities in
this country. That is what we have come to in the Congress of the
United States.
It seems if we are really serious about looking at the effects of
CRA, let us take a look at the fact that since 1977 the regulators have
indicated that over $400 billion have been invested in the poorer
communities of this country. Not communities where banks lose money,
but rather communities where banks have invested, the communities have
grown and prospered, and we see home ownership rates rising among
blacks and Hispanics and Asians, as well as poor whites.
We see communities that have been neglected for years and years,
despite the fact that they put deposits in banks. Banks sucked up those
deposits

[[Page H3201]]

and then turned around and lent the money someplace else. All CRA says
is put the money back into the communities from which the deposits are
taken.
Why would anybody try to undercut that basic fundamental premise? Why
would we say that they should not do that? Why should we say that small
banks have less of an obligation to do that than big banks, when if we
look at the data, the fact of the matter is that small banks have worse
records in terms of lending to minorities, lending to people of color,
lending into the poorer communities than the bigger banks.
Sixty-five percent of all the banks in the United States would be
exempted by virtue of the amendment that we are currently debating.
Sixty-five percent. We are going to turn around and say to 65 percent
of the banks in the United States that they can go ahead and buy each
other up, they can merge and acquire one another, they can go into the
insurance industry, go into the securities industry, but, boy, they
really do not have to go back to Main Street; they do not have to go
back and lend money into the communities from which they take their
deposits.
It is a crime for us to be suggesting that we want to allow that kind
of pullback on our commitment to the poorest people in this country as
a provision in order to allow the bigger banks to get even bigger.
Mr. LaFALCE. Madam Chairman, I yield 1\1/2\ minutes to the
gentlewoman from California (Ms. Waters).
Ms. WATERS. Madam Chairman, I rise to voice my strong opposition to
the Baker amendment. If passed, the Baker amendment would exempt more
than 60 percent of all banks from the requirements of the Community
Reinvestment Act. This amendment is a frontal attack on the Community
Reinvestment Act and has absolutely no place in this bill.
The fact of the matter is the Baker amendment tries to solve a
problem that does not exist. The new CRA regulations have already
streamlined the exam process for small banks. Under the new rule, banks
with assets of less than $250 million are no longer required to
collect, report or disclose any data. Instead, examiners look at a
small bank's loan-to-deposit ratio and distribution of loans across
geography and income levels.

{time} 1700

Even though the new rule went into effect in January of 1996, the
effect is already being felt. According to the Office of the
Comptroller of the Currency, over 80 percent of all banks covered by
CRA qualify for the streamlined performance standards for small banks
and thrifts. They also report that the actual time spent in community
banks on CRA examinations have been reduced by 30 percent. To argue
that small banks are still suffering under unfair burdens is absolutely
preposterous.
CRA works. The Community Reinvestment Act has been an extremely hard-
fought reform of our banking sector that has brought over $400 billion
in resources to poor and minority communities. This has meant the
availability of critically needed lending for community, small
business, and housing developments.
That is why the friend of my colleague got some money. He lives in a
community that had not been getting the money, and now he has got it.
It has nothing to do with affirmative action. So we have a successful
law. It should not be dismantled. Vote against this amendment.
The CHAIRMAN. The Committee will rise informally.
The SPEAKER pro tempore (Mr. Nethercutt) assumed the Chair.

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