Financial Modernization Committee Print

H.L.C.

[COMMITTEE PRINT]

June 12, 1997

SECTION 1. SHORT TITLE; PURPOSES; TABLE OF CONTENTS

(a) Short Title.--This Act may be cited as the ``Financial Services Competition Act of 1997''.

(b) Purposes.--The purposes of this Act are as follows:

(1) To ensure the continued safety and soundness of depository institutions.

(2) To reduce and, to the maximum extent practicable, to eliminate the legal barriers to affiliation between depository institutions, securities firms, insurance companies, and other financial service providers and to provide a prudential framework for achieving that result.

(3) To enhance competition in the financial services industry.

(4) To enhance the availability of financial services to citizens of all economic circumstances and in all geographic areas.

(5) To enhance the competitiveness of United States financial service providers internationally.

(6) 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.

TITLE I--POWERS AND AFFILIATIONS OF INSURED DEPOSITORY INSTITUTIONS

Subtitle A--Removing Barriers to Affiliations Between Insured Depository Institutions and Other Financial Institutions

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 Anti-affiliation provisions of Glass-Steagall Act repealed.

Sec. 102. Activity restrictions of Bank Holding Company Act repealed.

Sec. 103. Qualifying bank holding companies.

Sec. 104. Certain State laws preempted.

Sec. 105. Mutual bank holding companies authorized.

Subtitle B--Additional Safeguards

Sec. 111. Firewall safeguards.

Sec. 112. Consumer protection.

Subtitle C--National Council on Financial Services

Sec. 121. Establishment and operation of the Council.

Sec. 122. Functions of the Council.

Subtitle D--Bank Holding Company Supervision

Sec. 131. Streamlining bank holding company supervision.

Sec. 132. Administration of the Bank Holding Company Act.

Sec. 133. Bank holding company capital.

Subtitle E--Subsidiaries of Insured Depository Institutions

Sec. 141. Subsidiaries of national banks authorized to engage in financial activities.

Sec. 142. Activities of subsidiaries of insured State banks.

Sec. 143. Rules applicable to financial subsidiaries.

Subtitle F--Direct Activities of Banks

Sec. 151. Powers of national banks.

Sec. 152. Banking products defined.

Sec. 153. Repeal of stock loan limit in Federal Reserve Act.

Subtitle G--Noninsured Depository Institutions

Sec. 161. Wholesale financial institutions.

Sec. 162. Holding company control of uninsured depository institutions.

Subtitle H--Enhanced Credit Opportunities for Small Business, Agriculture, Rural Development, and Community Banks

Sec. 171. Long-term Federal home loan bank advances for funding small businesses, agriculture, and rural development.

Sec. 172. Eligibility of community financial institutions for membership in Federal Home Loan Bank System.

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

Sec. 181. Amendments to the Bank Holding Company Act of 1956.

Sec. 182. Amendments to the Federal Deposit Insurance Act to vest in the Department of Justice sole responsibility for antitrust review of depository institution mergers.

Sec. 183. Information filed by depository institutions; interagency data sharing.

Sec. 184. Effective date.

Subtitle J--Redomestication of Mutual Insurers

Sec. 191. Redomestication of mutual insurers.

Sec. 192. Effect on State laws restricting redomestication.

Sec. 193. Definitions.

Sec. 194. Effective date.

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

Sec. 195. Applying the principles of national treatment and equality of competitive opportunity to foreign banks and foreign financial institutions.

Sec. 196. Applying the principles of national treatment and equality of competitive opportunity to foreign banks that are qualifying bank holding companies.

Sec. 197. Applying the principles of national treatment and equality of competitive opportunity to foreign banks and foreign financial institutions that are wholesale financial institutions.

Subtitle L--Effective Date of Title.

Sec. 199. Effective date.

TITLE II--FUNCTIONAL REGULATION

Subtitle A--Brokers and Dealers

Sec. 201. Definition of broker.

Sec. 202. Definition of dealer.

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

Sec. 204. Application of this title to banks registered as brokers or dealers.

Sec. 205. Exclusion from SIPC membership of banks registered as brokers or dealers.

Sec. 206. 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. Effective date.

TITLE III--MERGER OF BANK AND THRIFT CHARTERS, REGULATORS, AND INSURANCE FUNDS

Subtitle A--Conversion of Thrift Charters

Sec. 301. Short title.

Sec. 302. Termination of Federal savings associations; treatment of State savings associations as banks for purposes of Federal banking law.

Sec. 303. Treatment of certain activities and affiliations of bank holding companies resulting from this Act.

Sec. 304. Transition provisions for activities of savings associations which convert into or become treated as banks.

Sec. 305. Registration of bank holding companies resulting from conversions of savings associations to banks or treatment of savings associations as banks.

Sec. 306. Additional transition provisions and special rules.

Sec. 307. Technical and conforming amendments.

Sec. 308. References to savings associations and State banks in Federal law.

Sec. 309. Definitions.

Sec. 310. Effective date.

Subtitle B--Elimination of Office of The Thrift Supervision

Sec. 311. Prohibition on merger or consolidation repealed.

Sec. 312. Secretary of the Treasury required to formulate plans for combining Office of Thrift Supervision with Office of the Comptroller of the Currency.

Sec. 313. Office of Thrift Supervision and position of Director of Office of Thrift Supervision abolished.

Sec. 314. Continuation provisions.

Sec. 315. Cost of funds indexes.

Sec. 316. References in Federal law to Director of the Office of Thrift Supervision.

Sec. 317. Reconfiguration of board of directors of FDIC as a result of removal of Director of the Office of Thrift Supervision.

Subtitle C--Merger of BIF and SAIF

Sec. 321. Amendment to Economic Growth and Regulatory Paperwork Reduction Act of 1996.

TITLE IV--UNIFORM MULTISTATE LICENSING OF STATE-LICENSED INSURANCE AGENTS AND BROKERS

Sec. 401. State flexibility in multistate licensing reforms.

Sec. 402. National association of registered agents and brokers.

Sec. 403. Purpose.

Sec. 404. Relationship to the Federal Government.

Sec. 405. Membership.

Sec. 406. Corporate powers.

Sec. 407. Board of directors.

Sec. 408. Chairperson and vice chairperson.

Sec. 409. Officers.

Sec. 410. Meetings of board.

Sec. 411. Bylaws, rules, and disciplinary action.

Sec. 412. Borrowing authority.

Sec. 413. Assessments.

Sec. 414. Functions of the council.

Sec. 415. Liability of NARAB and its directors, officers, and employees.

Sec. 416. Relationship to State law.

Sec. 417. Coordination with other regulators.

Sec. 418. Judicial review.

Sec. 419. Definitions.

TITLE I--POWERS AND AFFILIATIONS OF INSURED DEPOSITORY INSTITUTIONS

Subtitle A--Removing Barriers to Affiliations Between Insured Depository Institutions and Other Financial Institutions

SEC. 101. ANTI-AFFILIATION PROVISIONS OF GLASS-STEAGALL ACT REPEALED.

(a) Section 20 Repealed.--Section 20 of the Banking Act of 1933 (12 U.S.C. 377) is repealed.

(b) Section 32 Repealed.--Section 32 of the Banking Act of 1933 (12 U.S.C. 78) is repealed.

SEC. 102. ACTIVITY RESTRICTIONS OF BANK HOLDING COMPANY ACT REPEALED.

(a) In General.--Section 4 of the Bank Holding Company Act of 1956 (12 U.S.C. 1843) is amended by striking subsections (a), (b), (c), (e), (h), (i), and (j).

(b) Conforming Amendment to the Bank Holding Company Act of 1956 to Reflect Expansion of Insurance Authority.--Section 3(f) of the Bank Holding Company Act of 1956 (12 U.S.C. 1842(f)) is repealed, and subsection (g) is redesignated as subsection (f).

(1) Amendments to the federal reserve act to preserve exemption from section 23a.--Section 23A(d)(5) of the Federal Reserve Act (12 U.S.C. 371c(d)(5)) is amended by striking ``of the kinds described in section 4(c)(1) of the Bank Holding Company Act of 1956'' and inserting ``engaged or to be engaged solely in 1 or more of the following activities:

``(A) Holding or operating properties used wholly or substantially by any bank subsidiary of a bank holding company in the operations of such bank subsidiary or acquired for such future use.

``(B) Conducting a safe deposit business.

``(C) Furnishing services to or performing services for a bank holding company or its bank subsidiaries.

``(D) Liquidating assets acquired from a bank holding company or its bank subsidiaries.''.

(2) Amendments to the export trading company act of 1982.--Section 206 of the Export Trading Company Act of 1982 (12 U.S.C. 635a-4) is amended--

(A) by striking ``as defined in section 4(c)(14)(F)(i) of this title'' ; and

(B) by inserting at the end of the section the following: ``For purposes of this section, the term `export trading company' means a company that does business under the laws of the United States or any State, that is exclusively engaged in activities related to international trade, and that is organized and operated principally for purposes of exporting goods or services produced in the United States or for purposes of facilitating the exportation of goods or services produced in the United States by unaffiliated persons by providing one or more export trade services. For purposes of this section, the term `export trade services' includes consulting, international market research, advertising, marketing, insurance (other than acting as principal, agent or broker in the sale of insurance on risks resident or located, or activities performed, in the United States, except for insurance covering the transportation of cargo from any point of origin in the United States to a point of final destination outside the United States), product research and design, legal assistance, transportation, including trade and data processing of foreign orders to and for exporters and foreign purchasers, warehousing, foreign exchange, financing, and taking title to goods, when provided in order to facilitate the export of goods or services produced in the United States.''.

(3) Amendment to the federal deposit insurance act to preserve definition of commonly-controlled.--Section 5(e)(9)(A) of the Federal Deposit Insurance Act (12 U.S.C. 1815(e)(9)(A)) is amended by striking ``section 4(f)(6)'' and inserting ``section 6(g)(6)''.

(4) 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 the Bank Holding Company Act of 1956,''.

(5) 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 in effect on the day before the date of enactment of the Financial Services Competition Act of 1997).''.

(6) Amendment to the international banking act of 1978.--Section 8(d) of the International Banking Act of 1978 (12 U.S.C. 3106(d)) is amended by striking ``and the exemptions provided in sections 4(c)(1), 4(c)(2), 4(c)(3), and 4(c)(4) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(c)(1), (2), (3), and

(4))''.

(7) Amendment to the financial privacy act of 1978.--Section 1101(6)(B) of the Right to Financial Privacy Act of 1978 (12 U.S.C. 3401(6)) is amended by striking ``4(f)(1)''and inserting ``6(f)(1)''.

(8) Conforming amendment to the clayton act.--Section 7A(c)(8) of the Clayton Act (15 U.S.C. 18a(c)(8)) is repealed.

SEC. 103. QUALIFYING BANK 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. QUALIFYING BANK HOLDING COMPANIES.

``(a) Definitions.--For purposes of this section, the following definitions shall apply:

``(1) Qualifying bank holding company.--The term `qualifying bank holding company' means any bank holding company--

``(A) all of the subsidiary depository institutions of which are well capitalized;

``(B) all of the subsidiary depository institutions of which are well managed (as defined in section 5136(a)(4)(D) of the Revised Statutes of the United States or in section 24(d)(3)(A) of the Federal Deposit Insurance Act);

``(C) all of the subsidiary depository institutions of which have achieved a rating of `satisfactory', or better, at the most recent examination of each such institution;

``(D) that is deemed under paragraph (2) to be engaged in activities in the United States that are financial in nature or is engaged in activities that are otherwise permissible under this Act;

``(E) which, with respect to any activities engaged in outside of the United States, engages in such activities in conformance with subsection (f) and section 2(h)(2); and

``(F) that has filed with the Board a declaration that it is a qualifying bank holding company.

``(2) Activities financial in nature.--A bank holding company shall be deemed to be engaged in activities that are financial in nature if all of its gross revenues from activities conducted in the United States are derived from financial activities in which such company or any of its subsidiaries engages.

``(3) Financial activity.--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) Insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death, and acting as principal, agent, or broker for purposes of the foregoing.

``(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) Directly or indirectly acquiring or controlling, whether as principal, on behalf of 1 or more entities (including entities other than depository institutions or subsidiaries of depository institutions 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 if--

``(i) the shares, assets, or ownership interests are not acquired or held directly by a depository institution or a subsidiary of a depository institution;

``(ii) such shares, assets, or ownership interests are acquired and held as part of a bona fide underwriting, or investment banking activity (including investment activities engaged in for the purpose of appreciation and ultimate sale or other disposition of the investment);

``(iii) such shares, assets, or ownership interests are held for such a period 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 manage or operate the company or entity, except insofar as necessary to achieve the objectives of clause (ii).

``(H) Directly or indirectly acquiring or controlling, whether as principal, on behalf of 1 or more entities (including any subsidiary of the holding company which is not a depository institution or a subsidiary of a depository institution), or otherwise, shares, assets, or ownership interests (including debt or equity securities, partnership interests, trust certificates, or other instruments representing ownership) of a company or other entity, whether or not constituting control of such company or entity, engaged in activities not authorized pursuant to this section if--

``(i) the shares, assets, or ownership interests are not acquired or held by a depository institution or a subsidiary of a depository institution;

``(ii) such shares, assets, or ownership interests are acquired and held by an insurance company that is predominantly engaged in underwriting life, accident and health, or property and casualty insurance (other than credit-related insurance);

``(iii) such shares, assets, or ownership interests represent an investment made in the ordinary course of business of such insurance affiliate 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).

``(I) Arranging, effecting or facilitating financial transactions for the account of third parties.

``(J) Underwriting, dealing in, or making a market in securities;

``(K) Engaging in any activity that was, by regulation or order, permissible for a bank holding company pursuant to section 4(c)(8) of this Act, as in effect on the day before the date of enactment of the Financial Services Competition Act of 1997.

``(L) 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 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 Competition Act of 1997) to be usual in connection with the transaction of banking or other financial operations abroad.

``(M) Owning shares of any company to the extent permissible under paragraph (6) or (7) of section 4(c) of this Act, as in effect on the day before the date of enactment of the Financial Services Competition Act of 1997.

``(N) Engaging in any activity that the National Council on Financial Services determines, by regulation or order, to be the functional equivalent of any activity described in 1 or more of subparagraphs (A) through (M).

``(O) Engaging in any activity that the National Council on Financial Services determines by regulation or order to be financial, or related to a financial activity, having taken into account--

``(i) changes or reasonably expected changes in the market in which bank holding companies compete;

``(ii) changes or reasonably expected changes in the technology for delivering financial services; and

``(iii) whether such activity is necessary or appropriate to allow a bank holding company and its affiliates 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.

``(4) Well capitalized.--The term `well capitalized' has the same meaning as in section 38 of the Federal Deposit Insurance Act. For purposes of this section, the appropriate Federal banking agency shall have exclusive jurisdiction to determine whether an insured depository institution is well capitalized.

``(5) 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.

``(6) Limited exclusions from community needs requirements for newly acquired depository institutions.--Any depository institution acquired by a bank holding company during the 12-month period preceding the submission of a notice under paragraph (1)(F) and any depository institution acquired after the submission of such notice may be excluded for purposes of paragraph (1)(C) during the 12-month period beginning on the date of such acquisition if--

``(A) 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', or better, at the next examination of the institution; and

``(B) the plan has been accepted by such agency.

``(b) Authority to Engage in Activities Without Notice.--

``(1) In general.--A qualifying bank holding company may engage, directly or through a subsidiary that is not an insured depository institution (or a subsidiary thereof), in any activity to the extent permissible under the Financial Services Competition Act of 1997 without approval from or notice to the Board.

``(2) Rule of construction.--No provision of this section shall be construed as authorizing the acquisition of an depository institution other than in accordance with section 3.

``(c) Restrictions Applicable to Nonqualifying Bank Holding Companies.--A bank holding company that is not a qualifying bank holding company may engage, directly or indirectly through a subsidiary that is not an insured depository institution (or a subsidiary of an insured depository institution), only in managing and controlling depository institutions and in any activity that was permissible under section 4(c) (as in effect on the day before the date of the enactment of the Financial Services Competition Act of 1997) other than underwriting securities which a national bank is not authorized to underwrite.

``(d) Provisions Applicable to Qualifying Bank Holding Companies That Fail to Meet Requirements.--

``(1) In general.--If the Board finds that--

``(A) a qualifying bank holding company is engaged, directly or indirectly, in any activity other than activities described in subsection (c); and

``(B) such company is not in compliance with the requirements of subsection (a)(1),

the Board shall give notice to the company to that effect, describing the conditions giving rise to the notice.

``(2) Agreement to correct conditions required.--Within 45 days of receipt by a qualifying bank holding company of a notice given under paragraph (1) (or such additional period as the Board may permit), the company shall execute an agreement with the Board to comply with the requirements applicable to a qualifying bank holding company.

``(3) Board may impose limitations.--Until the conditions described in a notice to a qualifying bank 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 the conditions described in a notice to a qualifying bank holding company under paragraph (1) are not corrected within 180 days after receipt by the company of notice under paragraph (1), 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, either--

``(A) to divest control of any subsidiary insured depository institutions; or

``(B) to cease to engage in any activity conducted by such company or its subsidiaries (other than a depository institution or a subsidiary of a depository institution) that is not an activity that is permissible under subsection (c).

``(e) Safeguards for Bank Subsidiaries.--A qualifying bank 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 which are not insured depository institutions (or subsidiaries of such subsidiaries) 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) Exemptive Authority.--

``(1) Foreign Banks and Foreign Investments.--The Board may grant exemptions from any restriction on nonfinancial activities or investments which is otherwise applicable to a bank holding company, including a qualifying bank holding company--

``(A) for shares held or activities conducted by a company organized under the laws of a foreign company the greater part of whose business is conducted outside the United States; or

``(B) for shares held of, or activities conducted by, any company which does no business in the United States except as an incident to such company's international or foreign business,

if the Board, by regulation or order, determines that, under the circumstances and subject to any condition set forth in the regulation or order, the exemption would not be substantially at variance with the purposes of this Act or the Financial Services Competition Act of 1997 and would be in the public interest.

``(2) Continuation of prior exemption.--To the extent that such action would not be substantially at variance with the purposes of this Act and subject to such conditions as the Board considers necessary to protect the public interest, the Board by order, after opportunity for hearing, may grant exemptions from the provisions of subsection (c) to any bank holding company which controlled 1 bank prior to July 1, 1968, and has not thereafter acquired the control of any other bank in order--

``(A) to avoid disrupting business relationships that have existed over a long period of years without adversely affecting the banks or communities involved;

``(B) to avoid forced sales of small locally owned banks to purchasers not similarly representative of community interests; or

``(C) to allow retention of banks that are so small in relation to the holding company's total interests and so small in relation to the banking market to be served as to minimize the likelihood that the bank's powers to grant or deny credit may be influenced by a desire to further the holding company's other interests.

``(g) Certain Companies Not Treated as Bank Holding Companies.--

``(1) In general.--Except as provided in paragraph (9), any company which--

``(A) on March 5, 1987, controlled an institution which became a bank as a result of the enactment of the Competitive Equality Amendments of 1987; and

``(B) was not a bank holding company on the day before the date of the enactment of the Competitive Equality Amendments of 1987,

shall not be treated as a bank holding company for purposes of this Act solely by virtue of such company's control of such institution.

``(2) Loss of exemption.--Subject to paragraph (3), a company described in paragraph (1) shall no longer qualify for the exemption provided under such paragraph if--

``(A) such company directly or indirectly--

``(i) acquires control of an additional bank or an insured institution (other than an insured institution described in paragraph (10) or (12) of this subsection) after March 5, 1987; or

``(ii) acquires control of more than 5 percent of the shares or assets of an additional bank or a savings association other than--

``(I) shares held as a bona fide fiduciary (whether with or without the sole discretion to vote such shares);

``(II) shares held by any person as a bona fide fiduciary solely for the benefit of employees of either the company described in paragraph (1) or any subsidiary of that company and the beneficiaries of those employees;

``(III) shares held temporarily pursuant to an underwriting commitment in the normal course of an underwriting business;

``(IV) shares held in an account solely for trading purposes;

``(V) shares over which no control is held other than control of voting rights acquired in the normal course of a proxy solicitation;

``(VI) loans or other accounts receivable acquired in the normal course of business;

``(VII) shares or assets acquired in securing or collecting a debt previously contracted in good faith, during the 2-year period beginning on the date of such acquisition or for such additional time (not exceeding 3 years) as the Board may permit if the Board determines that such an extension will not be detrimental to the public interest;

``(VIII) shares or assets of a savings association described in paragraph (10) or (12) of this subsection;

``(IX) shares of a savings association held by any insurance company, as defined in section 2(a)(17) of the Investment Company Act of 1940, except as provided in paragraph (11);

``(X) shares issued in a qualified stock issuance under section 10(q) of the Home Owners' Loan Act; and

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

except that the aggregate amount of shares held under this clause (other than under subclauses (I), (II), (III), (IV), (V), and (VIII)) may not exceed 15 percent of all outstanding shares or of the voting power of a savings association;

``(B) any bank subsidiary of such company 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 3d 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).

``(3) Permissible overdrafts described.--For purposes of paragraph (2)(C), an overdraft is described in this paragraph if--

``(A) such overdraft results from an inadvertent computer or accounting error that is beyond the control of both the bank and the affiliate; 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.

``(5) Subsection ceases to apply under certain circumstances.--This subsection shall cease to apply to any company described in paragraph (1) if such company--

``(A) registers as a bank holding company under section 5(a) of this Act;

``(B) immediately upon such registration, complies with all of the requirements of this Act, and regulations prescribed by the Board pursuant to this Act, including the nonbanking restrictions of this section; and

``(C) does not, at the time of such registration, control banks in more than one State, the acquisition of which would be prohibited by section 3(d) of this Act if an application for such acquisition by such company were filed under section 3(a) of this Act.

``(6) Information requirement.--Each company described in paragraph (1) shall, within 60 days after the date of enactment of the Competitive Equality Amendments of 1987, provide the Board with the name and address of such company, the name and address of each bank such company controls, and a description of each such bank's activities.

``(7) Examination.--The Board may, from time to time, examine a company described in paragraph (1), or a bank controlled by such company, or require reports under oath from appropriate officers or directors of such company or bank solely for purposes of assuring compliance with the provisions of this subsection and enforcing such compliance.

``(8) Enforcement.--

``(A) In general.--In addition to any other power of the Board, the Board may enforce compliance with the provisions of this Act which are applicable to any company described in paragraph (1), and any bank controlled by such company, under section 8 of the Federal Deposit Insurance Act and such company or bank shall be subject to such section (for such purposes) in the same manner and to the same extent as if such company or bank were a State member insured bank.

``(B) Application of other act.--Any violation of this Act by any company described in paragraph (1), and any bank controlled by such company, may also be treated as a violation of the Federal Deposit Insurance Act for purposes of subparagraph (A).

``(C) No effect on other authority.--No provision of this paragraph shall be construed as limiting any authority of the Comptroller of the Currency or the Federal Deposit Insurance Corporation.

``(9) Tying provisions.--A company described in paragraph (1) shall be--

``(A) treated as a bank holding company for purposes of section 106 of the Bank Holding Company Act Amendments of 1970 and section 22(h) of the Federal Reserve Act and any regulation prescribed under any such section; and

``(B) subject to the restrictions of section 106 of the Bank Holding Company Act Amendments of 1970, in connection with any transaction involving the products or services of such company or affiliate and those of a bank affiliate, as if such company or affiliate were a bank and such bank were a subsidiary of a bank holding company.

``(10) Exemption unaffected by certain emergency acquisitions.--For purposes of clauses (i) and (ii)(VIII) of paragraph (2)(A), an insured institution is described in this paragraph if--

``(A) the insured institution was acquired (or any shares or assets of such institution were acquired) by a company described in paragraph (1) in an acquisition under section 408(m) of the National Housing Act or section 13(k) of the Federal Deposit Insurance Act; and

``(B) either--

``(i) the insured institution is located in a State in which such company controlled a bank on March 5, 1987; or

``(ii) the insured institution has total assets of $500,000,000 or more at the time of such acquisition.

``(11) Shares held by insurance affiliates.--Shares described in clause (ii)(IX) of paragraph (2)(A) shall not be excluded for purposes of clause (ii) of such paragraph if--

``(A) all shares held under such clause (ii)(IX) by all insurance company affiliates of such savings association in the aggregate exceed 5 percent of all outstanding shares or of the voting power of the savings association; or

``(B) such shares are acquired or retained with a view to acquiring, exercising, or transferring control of the savings association.

``(12) Exemption unaffected by certain other acquisitions.--For purposes of clauses (i) and (ii)(VIII) of paragraph (2)(A), an insured institution is described in this paragraph if the insured institution was acquired (or any shares or assets of such institution were acquired) by a company described in paragraph (1)--

``(A) from the Resolution Trust Corporation, the Federal Deposit Insurance Corporation, or the Director of the Office of Thrift Supervision, in any capacity; or

``(B) in an acquisition in which the insured institution has been found to be in danger of default (as defined in section 3 of the Federal Deposit Insurance Act) by the appropriate Federal or State authority.

``(13) Special rule relating to shares acquired in a qualified stock issuance.--A company described in paragraph (1) that holds shares issued in a qualified stock issuance pursuant to section 10(q) of the Home Owners' Loan Act by any savings association or savings and loan holding company (neither of which is a subsidiary) shall not be deemed to control such savings association or savings and loan holding company solely because such company holds such shares unless--

``(A) the company fails to comply with any requirement or condition imposed by paragraph (2)(A)(ii)(X) or section 10(q) of the Home Owners' Loan Act with respect to such shares; or

``(B) the shares are acquired or retained with a view to acquiring, exercising, or transferring control of the savings association or savings and loan holding company.

``(h) Limitations on Certain Banks.--

``(1) In general.--Notwithstanding any other provision of this section (other than the last sentence of subsection (a)(2)), a bank holding company which controls an institution that became a bank as a result of the enactment of the Competitive Equality Amendments of 1987 may retain control of such institution if such institution does not--

``(A) engage in any activity after the date of the enactment of such Amendments which would have caused such institution to be a bank (as defined in section 2(c), as in effect before such date) if such activities had been engaged in before such date; or

``(B) increase the number of locations from which such institution conducts business after March 5, 1987.

``(2) Limitations cease to apply under certain circumstances.--The limitations contained in paragraph (1) shall cease to apply to a bank described in such paragraph at such time as the acquisition of such bank, by the bank holding company referred to in such paragraph, would not be prohibited under section 3(d) of this Act if--

``(A) an application for such acquisition were filed under section 3(a) of this Act; and

``(B) such bank were treated as an additional bank (under section 3(d)).''.

(b) Grandfather Shares Held Under Prior Exception.--A company that, on the date of the enactment of this Act, holds shares on the basis of an exception provided under section 4 of the Bank Holding Company Act of 1956, as in effect on the day before such date of enactment, may continue to retain such shares after such date subject to the same terms and conditions as were applicable, in accordance with such section 4 (as in effect on such day), to the retention of the shares by the company before such date of enactment.

(c) Technical and Conforming Amendment.--Section 4 of the Bank Holding Company Act of 1956 (12 U.S.C. 1843) is amended by striking subsections (d), (f), and (g).

SEC. 104. CERTAIN STATE LAWS PREEMPTED.

(a) In General.--No State may by law, regulation, order, interpretation, or otherwise, prevent or restrict an insured depository institution or a wholesale financial institution (as defined by section 161 of this Act) from--

(1) being affiliated with an entity (including an entity engaged in insurance activities) as authorized by this Act or any other provision of law; or

(2) engaging, directly or indirectly or in conjunction with such affiliate, in any activity (including insurance activity) authorized under this Act or any other provision of law.

(b) Rule of Construction.--No provision of subsection (a) shall be construed so as to prohibit a State regulator (after giving notice to the appropriate Federal banking agency to the extent practicable) from exercising, with respect to an affiliate of an insured depository institution, such authority as such State regulator may have under State law relating to the rehabilitation, conservatorship, receivership, or liquidation of the affiliate.

SEC. 105. MUTUAL BANK HOLDING COMPANIES AUTHORIZED.

(a) In General.--Section 3(f)(2) of the Bank Holding Company Act of 1956 (12 U.S.C. 1842(f)(2)) (as redesignated by section 102(b) of this Act) 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.''.

Subtitle B--Additional Safeguards

SEC. 111. FIREWALL SAFEGUARDS.

(a) Comptroller of the Currency.--

(1) In general.--The Comptroller of the Currency may, by regulation or order, impose restrictions or requirements on relationships or transactions between a national bank and a subsidiary of the national bank which the Comptroller finds is consistent with the public interest, the purposes of this Act, title LXII of the Revised Statutes of the United States, and other Federal law applicable to national banks, and the standards in paragraph (2).

(2) Standards.--The Comptroller of the Currency may exercise authority under paragraph (1) if the Comptroller 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.

(D) Avoid conflicts of interest or other abuses.

(E) Enhance the privacy of customers of the national bank or any subsidiary of the bank.

(F) 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 Comptroller of the Currency 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 Comptroller finds is no longer required for such purposes.

(b) Board of Governors of the Federal Reserve System.--

(1) In general.--The Board of Governors of the Federal Reserve System may, by regulation or order, impose restrictions or requirements on relationships or transactions--

(A) between a depository institution subsidiary of a bank holding company and any affiliate of such depository institution (other than a subsidiary of such institution); or

(B) between a State member bank and a subsidiary of such bank,

which the Board finds is consistent with the public interest, the purposes of this Act, the Bank Holding Company Act of 1956, the Federal Reserve Act and other Federal law applicable to depository institution subsidiaries of bank holding companies or State banks (as the case may be), and the standards in paragraph (2).

(2) Standards.--The Board of Governors of the Federal Reserve System 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.

(D) Avoid conflicts of interest or other abuses.

(E) Enhance the privacy of customers of the State member bank or any subsidiary of the bank.

(3) Review.--The Board of Governors of the Federal Reserve System shall regularly--

(B) modify or eliminate any restriction or requirement the Board finds is no longer required for such purposes.

(1) In general.--The Federal Deposit Insurance Corporation may, by regulation or order, impose restrictions or requirements on relationships or transactions between a State nonmember depository institution (as defined in section (3) of the Federal Deposit Insurance Act) and a subsidiary of the State nonmember depository institution which the Corporation finds is consistent with the public interest, the purposes of this Act, the Federal Deposit Insurance Act, or other Federal law applicable to State nonmember depository institution, and the standards in paragraph (2).

(2) Standards.--The Federal Deposit Insurance Corporation may exercise authority under paragraph (1) if the Corporation 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.

(D) Avoid conflicts of interest or other abuses.

(E) Enhance the privacy of customers of the State nonmember bank or any subsidiary of the bank.

(3) Review.--The Federal Deposit Insurance Corporation shall regularly--

(B) modify or eliminate any restriction or requirement the Corporation finds is no longer required for such purposes.

SEC. 112. CONSUMER PROTECTION.

(a) Purposes.--The purposes of this section are to avoid the following in connection with retail sales of nondeposit investment products:

(1) Customer confusion about the applicability and scope of insurance by the Federal Deposit Insurance Corporation.

(2) Customer confusion about the applicability and scope of insurance by the Securities Investor Protection Corporation.

(3) Improper disclosure of confidential customer information.

(4) Conflicts of interest and other abuses.

(b) Safeguards Applicable to Retail Sales of Nondeposit Investment Products by Insured Depository Institutions Not Registered As Brokers.--

(1) In general.--The appropriate Federal banking agencies, in consultation with the Securities and Exchange Commission, shall carry out the purposes of this section by jointly prescribing regulations governing the retail sale of nondeposit investment products by insured depository institutions that are not registered as brokers under the Securities Exchange Act of 1934.

- (2) Scope of regulations.--Regulations prescribed under paragraph (1) shall, at a minimum, deal with the following:

(A) Advertising.

(B) Disclosure.

(D) Qualifications and training of sales personnel, including training in ascertaining the appropriateness of a particular investment product for a prospective customer.

(E) Any compensation of sales personnel that is based on transactions or referrals.

(F) The circumstances under which transactions and referrals occur.

(3) Comparability Requirement.--Insofar as regulations prescribed under paragraph (1) apply to transactions in securities (including securities issued by an investment company) or annuities, those regulations shall be comparable to the standards applicable to brokers and dealers registered under the Securities Exchange Act of 1934, except to the extent that the National Council on Financial Services determines that comparable standards are not necessary or appropriate to carry out the purposes of this section.

(1) In general.--The Securities and Exchange Commission, in consultation with the appropriate Federal banking agencies, shall carry out the purposes of this section by prescribing rules regarding sales of securities by--

(A) any insured depository institution registered as a broker under the Securities Exchange Act of 1934; or

(B) any registered broker or dealer that is a subsidiary or affiliate of an insured depository institution.

(2) Scope of regulations.--Regulations prescribed under paragraph (1) shall, at a minimum, establish requirements with respect to--

(A) disclosures of information concerning coverage under the Securities Investor Protection Act of 1970 and the Federal Deposit Insurance Act; and

(B) disclosures of the financial interest of the depository institution or any securities subsidiary or securities affiliate with respect to referrals or transactions.

(d) Making Disclosure Readily Understandable.--

(1) Written Disclosure.--Regulations prescribed under subsection (b) or (c) shall encourage the use of disclosure that is simple, direct, and readily understandable, such as the following:

(A) ``NOT FDIC-INSURED OR SIPC-INSURED''.

(B) ``NOT GUARANTEED BY THE BANK''.

(2) Oral disclosure.--Regulations prescribed under subsection (b) or (c) shall encourage the use of oral disclosure as a supplement to written disclosure.

(e) Authority of National Council on Financial Services.--To carry out the purposes of this section, the National Council on Financial Services may--

(1) prescribe regulations under subsection (b) that are more stringent than those prescribed by the appropriate Federal banking agencies; and

(2) prescribe regulations under subsection (c) that are more stringent than those prescribed by the Securities and Exchange Commission.

(f) Biennial Review of Regulations.--Beginning on June 30, 2001, the National Council on Financial Services shall biennially review the regulations prescribed under this section to determine whether they adequately carry out the purposes of this section.

(h) Definitions.--For purposes of this section, the terms ``appropriate Federal banking agency'' and ``insured depository institution'' have the same meanings as in section 3 of the Federal Deposit Insurance Act.

Subtitle C--National Council on Financial Services

SEC. 121. ESTABLISHMENT AND OPERATION OF THE COUNCIL.

(a) Establishment and Purposes.--As of the date of enactment of this Act, there is established a National Council on Financial Services (hereinafter the Council ), which, among other functions specified in this Act, shall seek generally to improve the efficiency and competitiveness of the U.S. financial services system by increasing coordination among regulators of financial services providers and monitoring innovations in the delivery of financial services for the benefit of the U.S. economy and consumers.

(b) Membership.--The Council shall consist of the following members:

(1) The Secretary of the Treasury.

(2) The Secretary of Commerce.

(3) The Chairman of the Board of Governors of the Federal Reserve System.

(4) The Chairperson of the Federal Deposit Insurance Corporation.

(5) The Comptroller of the Currency.

(6) The Chairman of the Securities and Exchange Commission.

(7) The Chairman of the Commodity Futures Trading Commission.

(8) 2 individuals with current or prior experience in insurance regulation at the State level who shall be appointed by the President, with the advice and consent of the Senate, for a term of 3 years.

(d) Vice Chairperson.--The Chairman of the Board of Governors of the Federal Reserve System shall be the Vice-Chairperson of the Council.

(e) Compensation.--

(1) Agency Members.--Each member of the Council specified in paragraphs (1) through (7) of subsection (b) (hereafter in this section referred to as ``agency members'') shall serve without additional compensation.

(2) Individual Member.--The members of the Council described in subsection (b)(8) shall serve without compensation, but shall be entitled, per diem, to reasonable expenses directly related to duties carried out as a member of the Council.

(f) Expenses of the Council.--

(1) Agency member expenses.--The agency of each agency member of the Council shall be responsible for expenses associated with the agency member's participation in the functions of the Council.

(2) Other expenses.--Any other expenses of the Council, including expenses described in subsection (e)(2), shall be shared pro rata among the agencies of the agency members.

(g) Action by the Council.--

(1) Quorum.--A majority of members of the Council shall constitute a quorum.

(2) Final Action by the Council.--On matters determined by the Council to require an affirmative vote to constitute final action by the Council, such vote shall require a majority of a quorum of Council members.

(3) Direct voting.--Members of the Council shall not vote through any designee.

SEC. 122. FUNCTIONS OF THE COUNCIL

(a) In General.--In addition to the authority conferred on the Council by other provisions of this Act, the Council shall have the authority specified in this section.

(b) Authority to Issue Regulations.--

(1) Calculation of gross revenues test.--Before the end of the 9-month period beginning on the date of enactment of this Act, the Council shall issue final regulations prescribing the method for calculating compliance with the gross revenues test for purposes of section 6(a)(2) of the Bank Holding Company Act of 1956.

(2) Resolution of disputes involving the definition of insurance.--The Council shall determine whether an activity or product is an insurance activity or product or a banking activity or product in accordance with the procedures and definitions in section 5136(b) of the Revised Statutes of the United States.

(3) Definition of financial activity and activity related to a financial activity.--The Council may issue regulations or orders finding an activity to be financial or related to a financial activity, for purposes of section 6(a)(3) of the Bank Holding Company Act of 1956 or section 5136A of the Revised Statutes.

(4) Additional safeguards.--The Council may, by regulation or order, impose restrictions or requirements on relationships or transactions involving a depository institution and any affiliate or subsidiary of any such institution engaged in any activity that is not permissible for a national bank to engage in directly, if the Council finds that such restrictions or requirements will promote safety and soundness in the financial services system.

(c) Enforcement of Council Actions.--Actions taken by the Council shall be binding on the agencies represented on the Council and enforced by the agency responsible for supervising an entity to which an action of the Council applies.

Subtitle D--Bank Holding Company Supervision

SEC. 131. STREAMLINING BANK 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 to submit reports, under oath or otherwise, to enable the Board to determine compliance with the provisions of this Act and regulations and orders issued thereunder.

``(B) Use of existing reports.--

``(i) In general.--The Board shall not require any report pursuant to subparagraph (A) if information sufficient for the Board to make the determinations required under subparagraph (A) is reasonably available from any other source.

``(ii) Use.--The Board shall, as far as possible, use the report of examinations or comparable reports prepared by any Federal or State regulatory agency, or any self-regulatory organization for purposes of subparagraph (A).

``(iii) Availability.--Each Federal and State regulatory agency and self-regulatory organization referred to in clause (ii) shall make the reports referred to in such clause available to the Board upon request.

``(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, from this paragraph and any regulations prescribed under this paragraph.

``(ii) Criteria for exemption.--In granting an exemption under clause (i), the Board shall consider, among other factors--

``(I) whether information of the type required under this paragraph is available from a supervisory agency (as defined in section 1101(7) of the Right to Financial Privacy Act of 1978), the Commodity Futures Trading Commission, or a foreign regulatory body of a similar type;

``(II) the primary business of the company;

``(III) the nature and extent of domestic or foreign regulation of the activities of such company; and

``(IV) the absolute and relative size within the company of the subsidiary depository institutions of the company.

``(2) Examinations.--

``(A) Examination authority.--The Board may make examinations of each bank holding company and each subsidiary thereof, the cost of which shall be assessed against, and made payable by such holding company.

``(B) Limitations on examination authority for bank holding companies and nonbank subsidiaries.--The Board may make examinations of each bank holding company and each nonbank subsidiary (other than a subsidiary of a depository institution) 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 insured depository institution of such holding company; and

``(II) the systems of the holding company; and

``(iii) monitor compliance with the provisions of this Act and those governing transactions and relationships between any subsidiary depository institution and such subsidiaries.

``(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 nonbank subsidiary of the holding company (other than a subsidiary of a depository institution) 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 section, 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, use the reports of examination made of--

``(i) any registered broker or dealer 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) Notice to banking agencies of financial and operational concerns.--Any agency represented on the National Council on Financial Services or any State supervisory authority shall notify the Board and the appropriate Federal banking agency or State bank supervisor of significant financial or operational risks to any depository institution resulting from the activities of any affiliate of a depository institution.''.

SEC. 132. ADMINISTRATION OF THE BANK HOLDING COMPANY ACT.

(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 pursuant to section 6(a)(1)(F) 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) of the Bank Holding Company Act of 1956 (12 U.S.C. 1844(e)) 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 or control of any such bank by such company.

``The distribution referred to in subparagraph (A)''.

SEC. 133. BANK HOLDING COMPANY CAPITAL.

Section 5 of the Bank Holding Company Act (12 U.S.C. 1844) is amended by adding at the end the following new subsection:

``(h) Capital Adequacy Guidelines.--

``(1) Capital adequacy provisions.--The Board may adopt capital adequacy rules or guidelines for bank holding companies.

``(2) Methods of calculation.--In developing rules or guidelines under paragraph (1)--

``(A) Focus on double leverage.--The Board shall address the use by bank holding companies of debt and other liabilities to fund capital investments in subsidiary depository institutions.

``(B) No unweighted capital ratio.--The Board shall not, by rule, regulation, guideline, order, or otherwise, impose a capital ratio that is not based on appropriate risk-weighting considerations.

``(C) No capital requirement on regulated entities.--The Board shall not, by rule, regulation, guideline, order, or otherwise, impose any capital adequacy provision on a nondepository institution subsidiary that is in compliance with applicable capital requirements of another Federal or State regulatory authority.

``(D) Appropriate exclusions.--The Board shall take full account of--

``(i) the capital requirements made applicable to any nondepository institution subsidiary by another Federal or State regulatory authority; and

``(ii) industry norms for capitalization of a company's unregulated subsidiaries and activities.

``(E) Consultation with other supervisors.--The Board shall consult with the appropriate Federal or State regulatory authority in developing capital adequacy guidelines for bank holding companies that are predominantly engaged, either directly or through nondepository institution subsidiaries, in activities that are supervised by that authority.

``(F) Appropriate differentiation of holding companies.--The Board may differentiate between different classes or categories of bank holding companies, in particular between bank holding companies that are predominantly engaged in owning and operating insured depository institutions, bank holding companies which do not own or control insured depository institutions, and bank holding companies which are predominantly engaged in activities that are supervised by another Federal or State regulatory authority.

``(G) Internal risk management models.--The Board may incorporate internal risk management models into its capital adequacy guidelines or rules.''.

Subtitle E--Subsidiaries of Insured Depository Institutions

SEC. 141. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED TO ENGAGE IN FINANCIAL ACTIVITIES.

(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. 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 (3));

``(B) the national bank is well capitalized, well managed, and achieved a rating of `satisfactory', 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', 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) 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 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.

``(3) 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) Underwriting, dealing in, or making a market in securities.

``(I) 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 Competition Act of 1997).

``(J) 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 Competition Act of 1997) to be usual in connection with the transaction of banking or other financial operations abroad;

``(K) Owning shares of 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 Competition Act of 1997).

``(L) Engaging in any activity that the National Council on Financial Services determines by regulation or order is the functional equivalent of any activity described in 1 or more of subparagraphs (A) through (K).

``(M) Engaging in any activity that the National Council on Financial Services determines by regulation or order to be financial, or related to a financial activity, having taken into account--

``(i) changes or reasonably expected changes in the market in which bank subsidiaries compete;

``(ii) changes or reasonable expected changes in the technology delivering financial services; and

``(iii) 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;

``(III) offer customers any available or emerging technological means for using financial services.

``(4) 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; 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.

``(5) Insurance underwriting, merchant banking, and direct investment.--No subsidiary of a national bank may underwrite noncredit-related insurance, 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), or engage in merchant banking (as described in section 6(a)(3)(G) of the Bank Holding Company Act of 1956).

``(6) 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--

(A) the national bank shall 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 shall cease any activity that is not permissible for the bank to engage in directly.''.

(b) Clerical Amendment.--The table of sections for chapter 1 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. 142. 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 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--

``(i) the bank shall 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 shall cease any activity as principal that is not permissible for the bank to engage in directly.''.

SEC. 143. 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; and

``(B) is engaged in a financial activity (as defined in section 5136A(a)(3)) 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)(4)(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.''.

Subtitle F--Direct Activities of Banks

SEC. 151. POWERS OF NATIONAL BANKS.

(a) National Bank Insurance Activities.--Section 5136 of the Revised Statutes of the United States (12 U.S.C. 24) is amended--

(1) by striking ``Upon duly making and filing articles of association'' and inserting ``(a) In General.--Upon duly making and filing articles of association''; and

(2) by adding at the end of the following new subsections:

``(b) Scope of Principal activities.--

``(1) Existing products.--

``(A) In general.--Subject to subparagraph (B), a national bank may not provide insurance in a State as principal.

``(B) Exception.--Except for title insurance and annuity contracts as described in paragraph (3)(A), subparagraph (A) shall not apply to--

``(i) insurance that national banks or subsidiaries of national banks had authority to provide as principal pursuant to subsection (a) as of January 1, 1997; or

``(ii) principal activities that were regulated as insurance as of January 1, 1997, by the appropriate insurance regulatory authority of the State in which the activities are to be engaged in but cease to be so regulated after the date of enactment of the Financial Services Competition Act of 1997.

``(2) New products.--

``(A) In general.--This paragraph shall apply with regard to any activity or product which--

``(i) is not described in paragraph (1); and

``(ii) the Comptroller of the Currency has determined a national bank may provide as principal.

``(B) Petition for definition of other products.--

``(i) In general.--Any State insurance supervisory agency may petition the National Council of Financial Services (hereafter in this paragraph referred to as the `Council') for a determination under 122(b)(2) of the Financial Services Competition Act of 1997 whether an activity or product described in subparagraph (A) constitutes an insurance activity or product or a banking activity or product.

``(ii) Filing with comptroller of the currency.--A copy of any petition filed with the Council under clause (i) shall be filed with the Comptroller of the Currency at the same time as such filing.

``(C) Participation of comptroller of the currency.--

``(i) Response by comptroller.--The Comptroller of the Currency may file, before the end of the 60-day period beginning on the date of the filing of any petition with the Council under subparagraph (B)(i), a response to such petition with the Council.

``(ii) Participation in hearing.--The Comptroller of the Currency may participate, as a party, in any hearing under subparagraph (D).

``(iii) Prohibition on participating in consideration by council.--If the Comptroller of the Currency files a response to a petition in accordance with clause (i) or participates, as a party, in any hearing under subparagraph (D), neither the Comptroller nor any employee, agent, or other representative of the Comptroller may participate in the consideration of such petition, or any determination of an issue presented in the petition, by the Council.

``(D) Hearing.--

``(i) Request.--The State insurance supervisory agency or the Comptroller of the Currency may request a hearing by the Council on any petition filed with the Council in accordance with subparagraph (B).

``(ii) Notice and selection of hearing officer.--If a hearing is requested pursuant to clause (i), the Council shall promptly--

``(I) notify the State insurance supervisory agency and the Comptroller of the Currency of such request and the time and place for such hearing; and

``(II) select a hearing officer from among administrative law judges who are employed by agencies that are not represented on the Council.

``(iii) Time.--Any hearing under this subparagraph shall commence before the end of the 60-day period beginning on the date a request for such hearing is filed with the Council under clause (i) and shall be conducted and concluded expeditiously.

``(iv) Hearing on a record.--In any hearing under this subparagraph, all issues shall be determined on a record in accordance with section 554 of title 5, United States Code.

``(v) Recommended opinion.--Upon the conclusion of any hearing under this subparagraph, the administrative law judge shall promptly submit a recommended opinion on all issues considered in such hearing to the Council.

``(E) Final decision by council.--

``(i) Determination after hearing.--If a hearing was requested under this paragraph, the Council shall, before the end of the 60-day period beginning on the date the recommended opinion of the administrative law judge is filed with the Council, make a final determination regarding the matter on the basis of the record of the hearing.

``(ii) Determination if no hearing is requested.--If a hearing was not requested with regard to a petition filed with the Council under subparagraph (A)(i), the Council shall, before the end of the 60-day period beginning on the date by which the Council received such petition and any response to such petition pursuant to subparagraph (B)(i), make a final determination regarding the matter.

``(F) Appeal of final decision.--

``(i) In general.--Any State insurance supervisory agency which filed a petition under subparagraph (A)(i) or the Comptroller of the Currency (if the Comptroller filed a response to such petition or participated as a party in a hearing with regard to such petition) may obtain judicial review of the final decision of the Council with regard to such petition by the United States court of appeals for the circuit in which the State insurance supervisory agency or the United States Circuit Court of Appeals for the District of Columbia Circuit, in accordance with section 706 of title 5, United States Code, and title 28 of such Code, by filing a notice of appeal in such court within 10 days after the date of the final determination of the Council.

``(ii) Notice to council and other party.--Any party who petitions for judicial review of any final decision of the Council under this paragraph shall simultaneously send a copy of such petition to the Council and the Comptroller of the Currency or the State insurance supervisory agency, as the case may be, by registered or certified mail.

``(iii) Submission of record.--The Council shall promptly certify and file in the appropriate court of appeal the record on which a final decision was based.

``(3) Insurance defined.--For purposes of this subsection, the term `insurance' shall include 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 to be provided, any new form of such product that is developed after January 1, 1997, and any annuity contract the income on which is tax deferred under section 72 of the Internal Revenue Code of 1986.

``(4) Authority.--

``(A) In general.--For purposes of this subsection, national banks had authority to provide a product in any State as of January 1, 1997, if on or before such date--

``(i) the Comptroller of the Currency had determined, in writing, that national banks may provide the product; or

``(ii) national banks were providing the product.

``(B) Exception.--Notwithstanding subparagraph (A), national banks did not have authority to provide a product in a State as of January 1, 1997, if on or before such date a court of relevant jurisdiction for such State had, by final judgment, overturned a determination of the Comptroller of the Currency that national banks may provide such product.''.

(b) Authority to Underwrite Certain Municipal Bonds.--The paragraph designated the Seventh of section 5136(a) of the Revised Statutes of the United States (12 U.S.C. 24(7)) (as amended by subsection (a) of this section) 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).''.

SEC. 152.-BANKING PRODUCTS DEFINED.

Section 18 of the Federal Deposit Insurance Act (12 U.S.C. 1828) is amended by adding at the end the following new subsection:

``(s) Banking Products Definition.--

``(1) Definition.--The term `banking product', as used in paragraphs (4) and (5) of section 3(a) of the Securities Exchange Act of 1934, 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 by a bank;

``(D) a debit account at a bank arising from a credit card or similar arrangement;

``(E) a loan or loan participation issued in the ordinary course of bank business, including any debt security issued in connection with sovereign debt restructuring which a bank purchases and sells pursuant to such bank's lending authority;

``(F) a qualified financial contract (as defined in section 11(e)(D)(i)), except that such term does not include--

``(i) any securities contract (as defined in section 11(e)(8)(D)(ii)) that is based on or directly relates to a security that section 5136 of the Revised Statutes of the United States does not expressly authorize a national bank to underwrite or deal in, unless the appropriate Federal banking agency determines that such securities contract is appropriate for a bank to underwrite or deal in, taking into account other qualified financial contracts which a bank is permitted to underwrite or deal in; and

``(ii) any agreement, contract, or transaction that the Corporation determines (in a regulation prescribed after the date of the enactment of the Financial Services Competition Act of 1997) to be a qualified financial contract, unless the appropriate Federal banking agency determines that such agreement, contract, or transaction shall be treated as a qualified financial contract for purposes of this subsection; and

``(G) any other product that is available in the course of a banking business if the Board of Governors of the Federal Reserve System, after consultation with the Securities and Exchange Commission, determines by order or regulation--

``(i) that the product is more appropriately regulated as a banking product; and

``(ii) that regulation of the product as a banking product is consistent with the maintenance of fair and orderly markets and the protection of investors.

``(2) Securitization.--Paragraph (1) does not authorize any agency to exempt from the requirements of paragraphs (4) and (5) of section 3(a) of the Securities Exchange Act of 1934 securities backed by or representing an interest in notes, drafts, acceptances, loans, leases, receivables, other obligations, or pools of any such obligations.

``(3) Exemption limited.--Exemption of a particular product as a banking product pursuant to this subsection shall not be construed as finding or implying that such product is or is not a security for any purpose other than defining the term `banking product' in paragraphs (4) and (5) of section 3(a) of the Securities Exchange Act of 1934.''.

SEC. 153. REPEAL OF STOCK LOAN LIMIT IN FEDERAL RESERVE ACT.

Section 11(m) of the Federal Reserve Act (12 U.S.C. 248(m)) is repealed.

Subtitle G--Noninsured Depository Institutions

SEC. 161. WHOLESALE FINANCIAL INSTITUTIONS.

(a) National Wholesale Financial Institutions.--Chapter 1 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 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 the same limitations and restrictions imposed under section 9B of the Federal Reserve Act.

``(c) Community Reinvestment Act of 1977.--A national wholesale financial institution shall be subject to the Community Reinvestment Act of 1977.''.

(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. STATE WHOLESALE FINANCIAL INSTITUTIONS.

``(a) Application for Membership as Wholesale Financial Institution.--

``(1) Application required.--

``(A) In general.--Any State 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 that is insured under the Federal Deposit Insurance Act may become a wholesale financial institution unless it has met all requirements under that Act for voluntary termination of deposit insurance.

``(b) General Requirements Applicable to Wholesale Financial Institutions.--

``(1) Federal reserve act.--Except as otherwise provided in this section, wholesale financial institutions shall be member banks and shall be subject to the provisions of this Act that apply to member banks to the same extent and in the same manner as State member insured banks, except that a wholesale financial institution may terminate membership under this Act only with the prior written approval of the Board and on terms and conditions that the Board determines are appropriate to carry out the purposes of this Act.

``(2) Prompt corrective action.--A wholesale financial institution shall be deemed to be an insured depository institution for purposes of section 38 of the Federal Deposit Insurance Act except that--

``(A) the relevant capital levels and capital measures for each capital category shall be the levels specified by the Board for wholesale financial institutions; 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), (u), and (v) of section 8, and section 19 of the Federal Deposit Insurance Act shall apply to a wholesale financial institution in the same manner and to the same extent as such provisions apply to State member insured banks and any reference in such sections to an insured depository institution shall be deemed 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 provisions of sections 18(c) and 44 of the Federal Deposit Insurance Act in the same manner and to the same extent the wholesale financial institution would be subject to such sections if the institution were a State member insured bank.

``(6) 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.--

``(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 bank may be treated as a wholesale financial institution if the total amount of the initial deposits of $100,000 or less at such bank constitute more than 5 percent of the bank's total deposits.

``(B) No deposit insurance.--No deposits held by a wholesale financial institution shall be insured deposits under the Federal Deposit Insurance Act.

``(C) Advertising and disclosure.--The Board shall prescribe regulations pertaining to advertising and disclosure by wholesale financial institutions to ensure that each depositor is notified that deposits at the wholesale financial institution are not federally insured or otherwise guaranteed by the United States Government.

``(2) Special capital requirements applicable to wholesale financial institutions.--

``(A) In general.--The Board shall, by regulation, adopt capital requirements for wholesale financial institutions--

``(i) to account for the status of wholesale financial institutions as institutions that accept deposits that are not insured under the Federal Deposit Insurance Act; and

``(ii) to provide for the safe and sound operation of the wholesale financial institution without undue risk to creditors or other persons, including Federal reserve banks, engaged in transactions with the bank.

``(B) Minimum tier 1 capital ratio.--The minimum ratio of tier 1 capital to total risk-weighted assets of wholesale financial institutions shall be not less than the level required for a State member insured bank to be well capitalized unless the Board determines otherwise, consistent with safety and soundness.

``(3) Additional requirements applicable to wholesale financial institutions.--In addition to any requirement otherwise applicable to State member banks or applicable, under this section, to wholesale financial institutions, the Board may prescribe, by regulation or order, for wholesale financial institutions--

``(A) limitations on transactions with affiliates to prevent--

``(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;

``(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; and

``(D) any additional requirements that the Board determines to be appropriate or necessary to assure compliance with the Community Reinvestment Act of 1977.

``(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 (other than the provisions of this section), 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) Conservatorship Authority.--

``(1) In general.--The Board may appoint a conservator to take possession and control of a wholesale financial institution to the same extent and in the same manner as the Comptroller of the Currency may appoint a conservator for a national bank under section 203 of the Bank Conservation Act, and the conservator shall exercise the same powers, functions, and duties, subject to the same limitations, as are provided under such Act for conservators of national banks.

``(2) Board authority.--The Board shall have the same authority with respect to any conservator appointed under paragraph (1) and the wholesale financial institution for which such conservator has been appointed as the Comptroller of the Currency has under the Bank Conservation Act with respect to a conservator appointed under such Act and a national bank for which the conservator has been appointed.

``(e) Exclusive Jurisdiction.--Subsections (c) and (e) of section 43 of the Federal Deposit Insurance Act shall not apply to any wholesale financial institution.''.

(1) Definition of bank.--Section 2(c)(1) of the Bank Holding Company Act of 1956 (12 U.S.C. 1841(c)(1)) is amended by inserting after subparagraph (B) the following new subparagraph:

``(C) A wholesale financial institution chartered under section 5136B of the Revised Statutes of the United States or section 9B of the Federal Reserve Act the deposits of which are not insured by the Federal Deposit Insurance Corporation.''.

(2) Exception to insured bank requirement.--Section 3(e) of the Bank Holding Company Act of 1956 (12 U.S.C. 1842(e)) is amended by striking ``Every bank'' and inserting ``Except with regard to a wholesale financial institution described in section (2)(c)(1)(C), every bank''.

(d) Voluntary Termination of Insured Status by Certain Institutions.--

(1) Section 8 designations.--Section 8(a) of the Federal Deposit Insurance Act (12 U.S.C. 1818(a)) is amended--

(A) by striking paragraph (1); and

(B) by redesignating paragraphs (2) through (9) as paragraphs (1) through (8), respectively.

(2) Voluntary termination of insured status.--The Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amended by inserting after section 8 the following new section:

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

``(a) In General.--Except as provided in subsection (b), an insured State bank or a national bank may voluntarily terminate such bank's status as an insured depository institution in accordance with regulations of the Corporation if--

``(1) the bank provides written notice of the bank's intent to terminate such insured status--

``(A) to the Corporation and the Board of Governors of the Federal Reserve System not less than 6 months before the effective date of such termination; and

``(B) to all depositors at such bank, not less than 6 months before the effective date of the termination of such status; and

``(2) either--

``(A) the deposit insurance fund of which such bank is a member equals or exceeds the fund's designated reserve ratio as of the date the bank provides a written notice under paragraph (1) and the Corporation determines that the fund will equal or exceed the applicable designated reserve ratio for the 2 semiannual assessment periods immediately following such date; or

``(B) the Corporation and the Board of Governors of the Federal Reserve System approve the termination of the bank's insured status and the bank pays an exit fee in accordance with subsection (e).

``(b) Exception.--Subsection (a) shall not apply with respect to--

``(1) an insured savings association;

``(2) an insured branch that is required to be insured under subsection (a) or (b) of section 6 of the International Banking Act of 1978; or

``(3) any institution described in section 2(c)(2) of the Bank Holding Company Act of 1956.

``(c) Eligibility for Insurance Terminated.--Any bank that voluntarily elects to terminate the bank's insured status under subsection (a) shall not be eligible for insurance on any deposits or any assistance authorized under this Act after the period specified in subsection (f)(1).

``(d) Institution Must Become Wholesale Financial Institution or Terminate Deposit-Taking Activities.--Any depository institution which voluntarily terminates such institution's status as an insured depository institution under this section may not, upon termination of insurance, accept any deposits unless the institution is a wholesale financial institution under section 9B of the Federal Reserve Act.

``(e) Exit Fees.--

``(1) In general.--Any bank that voluntarily terminates such bank's status as an insured depository institution under this section shall pay an exit fee in an amount that the Corporation determines is sufficient to account for the institution's pro rata share of the amount (if any) which would be required to restore the relevant deposit insurance fund to the fund's designated reserve ratio as of the date the bank provides a written notice under subsection (a)(1).

``(2) Procedures.--The Corporation shall prescribe, by regulation, procedures for assessing any exit fee under this subsection.

``(f) Temporary Insurance of Deposits Insured as of Termination.--

``(1) Transition period.--The insured deposits of each depositor in a State bank or a national bank on the effective date of the voluntary termination of the bank's insured status, less all subsequent withdrawals from any deposits of such depositor, shall continue to be insured for a period of not less than 6 months and not more than 2 years, as determined by the Corporation. During such period, no additions to any such deposits, and no new deposits in the depository institution made after the effective date of such termination shall be insured by the Corporation.

``(2) Temporary assessments; obligations and duties.--During the period specified in paragraph (1) with respect to any bank, the bank shall continue to pay assessments under section 7 as if the bank were an insured depository institution. The bank shall, in all other respects, be subject to the authority of the Corporation and the duties and obligations of an insured depository institution under this Act during such period, and in the event that the bank is closed due to an inability to meet the demands of the bank's depositors during such period, the Corporation shall have the same powers and rights with respect to such bank as in the case of an insured depository institution.

``(g) Advertisements.--

``(1) In general.--A bank that voluntarily terminates the bank's

insured status under this section shall not advertise or hold itself out as having insured deposits, except that the bank may advertise the temporary insurance of deposits under subsection (f) if, in connection with any such advertisement, the advertisement also states with equal prominence that additions to deposits and new deposits made after the effective date of the termination are not insured.

``(2) Certificates of deposit, obligations, and securities.--Any certificate of deposit or other obligation or security issued by a State bank or a national bank after the effective date of the voluntary termination of the bank's insured status under this section shall be accompanied by a conspicuous, prominently displayed notice that such certificate of deposit or other obligation or security is not insured under this Act.

``(h) Notice Requirements.--

``(1) Notice to the corporation.--The notice required under subsection (a)(1)(A) shall be in such form as the Corporation may require.

``(2) Notice to depositors.--The notice required under subsection (a)(1)(B) shall be--

``(A) sent to each depositor's last address of record with the bank; and

``(B) in such manner and form as the Corporation finds to be necessary and appropriate for the protection of depositors.''.

(3) Definition.--Section 19(b)(1)(A)(i) of the Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i)) is amended after ``such Act'' by inserting ``, or any wholesale financial institution as defined in section 9B of this Act''.

(e) Reports on Discounts and Advances to Wholesale Financial Institutions.--Section 10B of the Federal Reserve Act (12 U.S.C. 347(b)) is amended by adding at the end the following new subsection:

``(c) Reports on Discounts and Advances to Wholesale Financial Institutions.--

``(1) In general.--The Board shall submit a report to the Congress at the end of any year in which any wholesale financial institution has obtained a discount, advance, or other extension of credit from a Federal reserve bank.

``(2) Contents.--Any report submitted under paragraph (1) shall explain the circumstances and need for any discount, advance, or other extension of credit to a wholesale financial institution during the period covered by the report, including the type and amount of credit extended and the amount of credit remaining outstanding as of the date of the report.''.

SEC. 162. HOLDING COMPANY CONTROL OF UNINSURED DEPOSITORY INSTITUTIONS.

(a) In General.--Section 6 of the Bank Holding Company Act of 1956 (as added by section 103 of this Act) is amended by adding at the end the following new subsection:

``(i) Control of Uninsured Depository Institutions.--

``(1) Scope of application.--This subsection shall apply to bank holding companies which control only wholesale financial institutions and control no insured depository institution (other than an institution described in subparagraph (C) or (G) of section 2(c)(2)).

``(2) Findings and Purposes.--

``(A) Findings.--The Congress finds as follows:

``(i) Some investment banking, insurance, and other financial companies invest in nonfinancial companies--

``(I) as an incident to their core business; or

``(II) in recognition of an unusual investment opportunity.

``(ii) Such ownership, which would not otherwise be permitted under this Act if the investment banking, insurance, or other financial company were a bank holding company--

``(I) is in most cases small in relation to the overall size of the company, generally no more than 5 percent of the total consolidated revenue of such company's revenues; and

``(II) in no way detracts from the financial focus of the company's planning, operations, resource allocation, and risk management.

``(iii) Investments of this type should not disqualify an investment banking, insurance, or other financial company from an affiliation with an uninsured depository institution.

``(B) Purpose.--It is the purpose of this subsection to provide the flexibility necessary to accommodate limited investments in nonfinancial firms that wish to control an uninsured depository institution (and do not otherwise control any insured depository institution) while maintaining the separation of banking and commerce intended by this Act.

``(2) Limited investments allowed by financial companies controlling only uninsured depository institutions.--Consistent with the purposes of this subsection, the Board shall, by regulation or order, allow bank holding companies to control the shares of nonfinancial companies so long as--

``(A) the nonfinancial firm is sufficiently small such that the financial nature of the bank holding company is unaffected by the control of such shares;

``(B) the bank holding company does not control any depository institution (other than a wholesale financial institution or an institution described in subparagraph (C) or (G) of section 2(c)(2); and

``(C) the purposes of this Act, including the separation of banking and commerce and the preservation of the safety and soundness of depository institutions, are fulfilled.

``(3) Provisions applicable to holding companies with investments under this subsection.--

``(A) Cross marketing restrictions.--A wholesale financial institution or other depository institution controlled by a bank holding company which also controls a company pursuant to this subsection shall not--

``(i) offer or market, directly or through any arrangement, any product or service of an affiliate whose shares are owned or controlled by the bank holding company pursuant to this subsection; or

``(ii) permit any product or service of such wholesale financial institution or other institution to be offered or marketed, directly or through any arrangement, by or through any such affiliate.

``(B) Use of common name.--A bank holding company shall not permit a wholesale financial institution or other depository institution subsidiary to adopt a name which is the same as or similar to, or a variation of, the name or title of an affiliate engaged in activities pursuant to this subsection.

``(C) Commodities.--

``(i) In general.--A bank holding company which controls a company pursuant to this subsection and was predominately engaged as of January 1, 1995, in securities activities in the United States (or any successor to any such company) may engage in, or directly or indirectly own or control shares of a company engaged in, activities related to the trading, sale, or investment in commodities and underlying physical properties that were not permissible for bank holding companies to conduct in the United States as of January 1, 1995, if such bank holding company, or any subsidiary of such holding company, was engaged directly, indirectly, or through any such company in any of such activities as of January 1, 1995, in the United States.

``(ii) Limitation.--Notwithstanding any other provision of this subsection, the aggregate investment by a bank holding company in activities under this subparagraph (other than those otherwise permitted for all bank holding companies under this Act) shall not at any time exceed 5 percent of the total consolidated assets of such bank holding company.

``(iii) Successor defined.--For purposes of clause (i), the term `successor' means, with respect to any bank holding company described in clause (i), any company that merges with, or acquires control of, such investment bank holding company.

``(D) Qualified investor in a bank holding company which controls a company under this subsection.--

``(i) In general.--Notwithstanding any other provision of Federal or State law, a qualified investor--

``(I) shall not be, or be deemed to be, a bank holding company or any similar organization; and

``(II) shall not be deemed to control or be affiliated with any such company or organization or any subsidiary of any such company or organization (other than for purposes of section 23A and 23B of the Federal Reserve Act),

by virtue of the investor's ownership or control of shares of a bank holding company which controls a company pursuant to this subsection.

``(ii) Qualified investor defined.--For purposes of this subparagraph, the term `qualified investor' means any United States company (including a parent company and all subsidiaries of which the parent company holds at least 80 percent of the total voting equity securities) which since February 27, 1995, has directly or indirectly owned or controlled shares of capital stock representing at least 10 percent, and not more than 45 percent, of the outstanding voting shares or voting power of a company that--

``(I) becomes a bank holding company which controls a company pursuant to this subsection or a subsidiary of any such bank holding company; and

``(II) before the company became a bank holding company which controls a company pursuant to this subsection, or a subsidiary of a any such bank holding company, had more than 50 percent of the company's assets employed directly or indirectly in securities activities.

``(iii) Cross-marketing and common name.--A wholesale financial institution or other uninsured depository institution which is controlled by a bank holding company which controls a company pursuant to this subsection shall not--

``(I) offer or market products or services of a qualified investor in the bank holding company of which the wholesale financial institution is an affiliate;

``(II) permit the products or services of such wholesale financial institution or uninsured depository institution to be offered or marketed in connection with products or services of such qualified investor; or

``(III) adopt a name which is the same as or similar to, or a variation of, the name or title of such qualified investor.

``(iv) Examination and reporting.--Notwithstanding any other provision of law, the Board may conduct examinations of, or require reports from, a qualified investor only to the extent that the Board reasonably determines that such examinations or reports are necessary--

``(I) to ensure compliance with this subparagraph; or

``(II) to the extent that the qualified investor is an affiliate of a wholesale financial institution for purposes of section 23A of the Federal Reserve Act, to ensure compliance with restrictions imposed by law or regulation on transactions between the qualified investor and such wholesale financial institution.

``(4) No deposit insurance fund liability.--No Federal deposit insurance funds may be used in connection with the failure of, or any proposed assistance to, a wholesale financial institution or other uninsured depository institution controlled by a bank holding company which controls a company pursuant to this subsection.

``(5) Qualification of foreign bank as bank holding company with investments pursuant to this subsection.--

``(A) In general.--Any foreign bank that operates a branch, agency or commercial lending company in the United States (and any company that owns or controls such foreign bank), including a foreign bank that does not own or control a wholesale financial institution, may request a determination from the Board that such bank or company be treated as a bank holding company which controls a company pursuant to this subsection.

``(B) Conditions for treatment as a bank holding company subject to this subsection.--A foreign bank and a company that owns or controls a foreign bank may not be treated, under this paragraph, as a bank holding company which controls a company pursuant to this subsection, unless the bank and company meet and continue to meet the following criteria:

``(i) No insured deposits.--No deposits which are held directly by a foreign bank or through an affiliate are insured under the Federal Deposit Insurance Act.

``(ii) 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