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S. 900 (106th): Gramm-Leach-Bliley Act

The text of the bill below is as of May 6, 1999 (Passed the Senate).


S 900 ES

106th CONGRESS

1st Session

S. 900


AN ACT

To enhance competition in the financial services industry by providing a prudential framework for the affiliation of banks, securities firms, insurance companies, and other financial service providers, and for other purposes.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) SHORT TITLE- This Act may be cited as the ‘Financial Services Modernization Act of 1999’.

    (b) TABLE OF CONTENTS- The table of contents for this Act is as follows:

      Sec. 1. Short title; table of contents.

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

Subtitle A--Affiliations

      Sec. 101. Glass-Steagall Act repealed.

      Sec. 102. Financial activities.

      Sec. 103. Conforming amendments.

      Sec. 104. Operation of State law.

Subtitle B--Streamlining Supervision of Bank Holding Companies

      Sec. 111. Streamlining bank holding company supervision.

      Sec. 112. Authority of State insurance regulator and Securities and Exchange Commission.

      Sec. 113. Role of the Board of Governors of the Federal Reserve System.

      Sec. 114. Examination of investment companies.

      Sec. 115. Equivalent regulation and supervision.

      Sec. 116. Interagency consultation.

      Sec. 117. Preserving the integrity of FDIC resources.

Subtitle C--Activities of National Banks

      Sec. 121. Authority of national banks to underwrite municipal revenue bonds.

      Sec. 122. Subsidiaries of national banks.

      Sec. 123. Agency activities.

      Sec. 124. Prohibiting fraudulent representations.

      Sec. 125. Insurance underwriting by national banks.

Subtitle D--National Treatment of Foreign Financial Institutions

      Sec. 151. National treatment of foreign financial institutions.

      Sec. 152. Representative offices.

TITLE II--INSURANCE CUSTOMER PROTECTIONS

      Sec. 201. Functional regulation of insurance.

      Sec. 202. Insurance customer protections.

      Sec. 203. Federal and State dispute resolution.

TITLE III--REGULATORY IMPROVEMENTS

      Sec. 301. Elimination of SAIF and DIF special reserves.

      Sec. 302. Expanded small bank access to S corporation treatment.

      Sec. 303. Meaningful CRA examinations.

      Sec. 304. Financial information privacy protection.

      Sec. 305. Cross marketing restriction; limited purpose bank relief; divestiture.

      Sec. 306. ‘Plain language’ requirement for Federal banking agency rules.

      Sec. 307. Retention of ‘Federal’ in name of converted Federal savings association.

      Sec. 308. Community Reinvestment Act exemption.

      Sec. 309. Bank officers and directors as officers and directors of public utilities.

      Sec. 310. Control of bankers’ banks.

      Sec. 311. Multistate licensing and interstate insurance sales activities.

      Sec. 312. CRA sunshine requirements.

      Sec. 313. Interstate branches and agencies of foreign banks.

      Sec. 314. Disclosures to consumers under the Truth in Lending Act.

      Sec. 315. Approval for purchases of securities.

      Sec. 316. Provision of technical assistance to microenterprises

      Sec. 317. Federal reserve audits.

      Sec. 318. Study and report on advertising practices of online brokerage services.

      Sec. 319. Eligibility of community development financial institution to borrow from the Federal Home Loan Bank system.

TITLE IV--FEDERAL HOME LOAN BANK SYSTEM MODERNIZATION

      Sec. 401. Short title.

      Sec. 402. Definitions.

      Sec. 403. Savings association membership.

      Sec. 404. Advances to members; collateral.

      Sec. 405. Eligibility criteria.

      Sec. 406. Management of banks.

      Sec. 407. Resolution Funding Corporation.

      Sec. 408. GAO study on Federal Home Loan Bank System capital.

TITLE V--FUNCTIONAL REGULATION OF BROKERS AND DEALERS

      Sec. 501. Definition of broker.

      Sec. 502. Definition of dealer.

      Sec. 503. Definition and treatment of banking products.

      Sec. 504. Qualified investor defined.

      Sec. 505. Government securities defined.

      Sec. 506. Effective date.

      Sec. 507. Rule of construction.

TITLE VI--UNITARY SAVINGS AND LOAN HOLDING COMPANIES

      Sec. 601. Prevention of creation of new S&L holding companies with commercial affiliates.

      Sec. 602. Optional conversion of Federal savings associations.

TITLE VII--ATM FEE REFORM

      Sec. 701. Short title.

      Sec. 702. Electronic fund transfer fee disclosures at any host ATM.

      Sec. 703. Disclosure of possible fees to consumers when ATM card is issued.

      Sec. 704. Feasibility study.

      Sec. 705. No liability if posted notices are damaged.

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

Subtitle A--Affiliations

SEC. 101. GLASS-STEAGALL ACT REPEALED.

    (a) SECTION 20 REPEALED- Section 20 of the Banking Act of 1933 (12 U.S.C. 377) (commonly referred to as the ‘Glass-Steagall Act’) is repealed.

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

SEC. 102. FINANCIAL ACTIVITIES.

    (a) IN GENERAL- Section 4 of the Bank Holding Company Act of 1956 (12 U.S.C. 1843) is amended by adding at the end the following new subsections:

    ‘(k) ENGAGING IN ACTIVITIES THAT ARE FINANCIAL IN NATURE-

      ‘(1) IN GENERAL- Notwithstanding subsection (a), a bank holding company may engage in any activity, and may acquire and retain the shares of any company engaged in any activity, that the Board, in coordination with the Secretary of the Treasury, determines (by regulation or order) to be financial in nature or incidental to such financial activities.

      ‘(2) COORDINATION BETWEEN THE BOARD AND THE SECRETARY OF THE TREASURY-

        ‘(A) PROPOSALS RAISED BEFORE THE BOARD-

          ‘(i) CONSULTATION- The Board shall notify the Secretary of the Treasury of, and consult with the Secretary of the Treasury concerning, any request, proposal, or application under this subsection for a determination of whether an activity is financial in nature or incidental to such a financial activity.

          ‘(ii) TREASURY VIEW- The Board shall not determine that any activity is financial in nature or incidental to a financial activity under this subsection if the Secretary of the Treasury notifies the Board in writing, not later than 30 days after the date of receipt of the notice described in clause (i) (or such longer period as the Board determines to be appropriate in light of the circumstances) that the Secretary of the Treasury believes that the activity is not financial in nature or incidental to a financial activity.

        ‘(B) PROPOSALS RAISED BY THE TREASURY-

          ‘(i) TREASURY RECOMMENDATION- The Secretary of the Treasury may, at any time, recommend in writing that the Board find an activity to be financial in nature or incidental to a financial activity.

          ‘(ii) TIME PERIOD FOR BOARD ACTION- Not later than 30 days after the date of receipt of a written recommendation from the Secretary of the Treasury under clause (i) (or such longer period as the Secretary of the Treasury and the Board determine to be appropriate in light of the circumstances), the Board shall determine whether to initiate a public rulemaking proposing that the subject recommended activity be found to be financial in nature or incidental to a financial activity under this subsection, and shall notify the Secretary of the Treasury in writing of the determination of the Board and, in the event that the Board determines not to seek public comment on the proposal, the reasons for that determination.

      ‘(3) FACTORS TO BE CONSIDERED- The Board shall determine that an activity is financial in nature or incidental to financial activities, if the Board finds that such activity is consistent with--

        ‘(A) the purposes of this Act and the Financial Services Modernization Act of 1999;

        ‘(B) changes or reasonably expected changes in the marketplace in which bank holding companies compete;

        ‘(C) changes or reasonably expected changes in the technology for delivering financial services; and

        ‘(D) fostering--

          ‘(i) effective competition with any company seeking to provide financial services in the United States;

          ‘(ii) the efficient delivery of information and services that are financial in nature through the use of technological means, including any application necessary to protect the security or efficacy of systems for the transmission of data or financial transactions; and

          ‘(iii) the provision to customers of any available or emerging technological means for using financial services.

      ‘(4) ACTIVITIES THAT ARE FINANCIAL IN NATURE- For purposes of this subsection, the following activities shall be considered to be financial in nature:

        ‘(A) Lending, exchanging, transferring, investing for others, or safeguarding money or securities.

        ‘(B) Insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death, or providing and issuing annuities, and acting as principal, agent, or broker for purposes of the foregoing, in any State, in full compliance with the laws and regulations of that State that apply to each type of insurance license or authorization in that State.

        ‘(C) Providing financial, investment, or economic advisory services, including advising an investment company (as defined in section 3 of the Investment Company Act of 1940).

        ‘(D) Issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly.

        ‘(E) Underwriting, dealing in, or making a market in securities.

        ‘(F) Engaging in any activity that the Board has determined, by order or regulation that is in effect on the date of enactment of the Financial Services Modernization Act of 1999, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto (subject to the same terms and conditions contained in such order or regulation, unless modified by the Board).

        ‘(G) Engaging, in the United States, in any activity that--

          ‘(i) a bank holding company may engage in outside of the United States; and

          ‘(ii) the Board has determined, under regulations issued pursuant to subsection (c)(13) (as in effect on the day before the date of enactment of the Financial Services Modernization Act of 1999) to be usual in connection with the transaction of banking or other financial operations abroad.

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

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

          ‘(ii) such shares, assets, or ownership interests are acquired and held by--

            (I) a securities affiliate or an affiliate thereof; or

            (II) an affiliate of an insurance company described in paragraph (I)(ii) that provides investment advice to an insurance company and is registered pursuant to the Investment Advisers Act of 1940, or an affiliate of such investment adviser, as part of a bona fide underwriting or merchant banking activity, including investment activities engaged in for the purpose of appreciation and ultimate resale or disposition of the investment.

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

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

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

          ‘(iii) such shares, assets, or ownership interests represent, as determined by the insurance authority of the State of domicile of the insurance company, an investment made in the ordinary course of business of such insurance company in accordance with relevant State law governing such investments.

        ‘(J) Activities that the Board determines (by regulation or order) are complementary to financial activities, or any other service that the Board determines (by regulation or order) not to pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.

      ‘(5) ACTIONS REQUIRED-

        ‘(A) IN GENERAL- The Board shall, by regulation or order, define, consistent with the purposes of this Act, the activities described in subparagraph (B) as financial in nature, and the extent to which such activities are financial in nature or incidental to activities that are financial in nature.

        ‘(B) ACTIVITIES- The activities described in this subparagraph are--

          ‘(i) lending, exchanging, transferring, investing for others, or safeguarding financial assets other than money or securities;

          ‘(ii) providing any device or other instrumentality for transferring money or other financial assets;

          ‘(iii) arranging, effecting, or facilitating financial transactions for the account of third parties; and

          ‘(iv) activities that are complementary to financial activities, or any other service that the Board determines (by regulation or order) not to pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.

      ‘(6) REQUIRED NOTIFICATION-

        ‘(A) IN GENERAL- A bank holding company that acquires any company or commences any activity pursuant to this subsection shall provide written notice to the Board describing the activity commenced or conducted by the company acquired not later than 30 calendar days after commencing the activity or consummating the acquisition, as applicable.

        ‘(B) APPROVAL NOT REQUIRED FOR CERTAIN FINANCIAL ACTIVITIES- Except as provided in subsection (j) with regard to the acquisition of a savings association, a bank holding company may commence any activity, or acquire any company, pursuant to paragraph (4) or any regulation prescribed or order issued under paragraph (5), without prior approval of the Board.

    ‘(l) CONDITIONS FOR ENGAGING IN EXPANDED FINANCIAL ACTIVITIES-

      ‘(1) IN GENERAL- Notwithstanding subsection (k), a bank holding company may not engage in any activity, or directly or indirectly acquire or retain shares of any company engaged in any activity, under subsection (k), other than activities permissible for a bank holding company under subsection (c)(8), unless--

        ‘(A) all of the insured depository institution subsidiaries of the bank holding company are well capitalized;

        ‘(B) all of the insured depository institution subsidiaries of the bank holding company are well managed; and

        ‘(C) the bank holding company has filed with the Board--

          ‘(i) a declaration that the company elects to engage in activities or acquire and retain shares of a company which were not permissible for a bank holding company to engage in or acquire before the enactment of the Financial Services Modernization Act of 1999; and

          ‘(ii) a certification that the company meets the requirements of subparagraphs (A) and (B).

      ‘(2) FOREIGN BANKS- For purposes of paragraph (1), the Board shall apply comparable capital and management standards to a foreign bank that operates a branch or agency or owns or controls a commercial lending company in the United States, giving due regard to the principle of national treatment and equality of competitive opportunity.

      ‘(3) DEFINITIONS- For purposes of this subsection--

        ‘(A) the term ‘well capitalized’ has the same meaning as in section 38 of the Federal Deposit Insurance Act;

        ‘(B) the term ‘well managed’ means--

          ‘(i) in the case of a depository institution that has been examined, unless otherwise determined in writing by the appropriate Federal banking agency--

            ‘(I) the achievement of a composite rating of 1 or 2 under the Uniform Financial Institutions Rating System (or an equivalent rating under an equivalent rating system) in connection with the most recent examination or subsequent review of the depository institution; and

            ‘(II) at least a rating of 2 for management, if that rating is given;

          ‘(ii) in the case of any depository institution that has not been examined, the existence and use of managerial resources that the appropriate Federal banking agency determines are satisfactory; and

          ‘(iii) the terms ‘appropriate Federal banking agency’ and ‘depository institution’ have the same meanings as in section 3 of the Federal Deposit Insurance Act.

    ‘(m) PROVISIONS APPLICABLE TO BANK HOLDING COMPANIES THAT FAIL TO MEET CERTAIN REQUIREMENTS-

      ‘(1) IN GENERAL- If the Board finds that--

        ‘(A) a bank holding company is engaged, directly or indirectly, in any activity under subsection (k), other than activities that are permissible for a bank holding company under subsection (c)(8); and

        ‘(B) such bank holding company is not in compliance with the requirements of subsection (l),

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

      ‘(2) AGREEMENT TO CORRECT CONDITIONS REQUIRED- Not later than 45 days after the date of receipt by a bank holding company of a notice given under paragraph (1) (or such additional period as the Board may permit), the bank holding company shall execute an agreement with the Board to comply with the requirements applicable to a bank holding company under subsection (l).

      ‘(3) BOARD MAY IMPOSE LIMITATIONS- Until the conditions described in a notice to a bank holding company under paragraph (1) are corrected, the Board may impose such limitations on the conduct or activities of that bank holding company or any affiliate of that company as the Board determines to be appropriate under the circumstances and consistent with the purposes of this Act.

      ‘(4) FAILURE TO CORRECT- If the conditions described in a notice to a bank holding company under paragraph (1) are not corrected within 180 days after the date of receipt by the bank holding company of a notice under paragraph (1), the Board may require such bank holding company, under such terms and conditions as may be imposed by the Board and subject to such extension of time as may be granted in the discretion of the Board, either--

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

        ‘(B) to cease to engage in any activity conducted by such bank holding company or its subsidiaries (other than a depository institution or a subsidiary of a depository institution) that is not an activity that is permissible for a bank holding company under subsection (c)(8).

    ‘(n) AUTHORITY TO RETAIN COMMODITY ACTIVITIES AND AFFILIATIONS- Notwithstanding subsection (a), a company that is not a bank holding company or a foreign bank (as defined in section 1(b)(7) of the International Banking Act of 1978) and becomes a bank holding company after the date of enactment of the Financial Services Modernization Act of 1999, may continue to engage in, or directly or indirectly own or control shares of a company engaged in, activities related to the trading, sale, or investment in commodities and underlying physical properties that were not permissible for bank holding companies to conduct in the United States as of September 30, 1997, if--

      ‘(1) the bank holding company, or any subsidiary of the bank holding company, lawfully was engaged, directly or indirectly, in any of such activities as of September 30, 1997, in the United States;

      ‘(2) the attributed aggregate consolidated assets of the company held by the bank holding company pursuant to this subsection, and not otherwise permitted to be held by a bank holding company, are equal to not more than 5 percent of the total consolidated assets of the bank holding company, except that the Board may increase that percentage by such amounts and under such circumstances as the Board considers appropriate, consistent with the purposes of this Act; and

      ‘(3) the bank holding company does not permit--

        ‘(A) any company, the shares of which it owns or controls pursuant to this subsection, to offer or market any product or service of an affiliated insured depository institution; or

        ‘(B) any affiliated insured depository institution to offer or market any product or service of any company, the shares of which are owned or controlled by such bank holding company pursuant to this subsection.’.

    (b) FINANCIAL ACTIVITIES OF BANK HOLDING COMPANIES INELIGIBLE FOR SUBSECTION (k) POWERS-

      (1) IN GENERAL- Section 4(c)(8) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(c)(8)) is amended to read as follows:

      ‘(8) shares of any company, the activities of which had been determined by the Board by regulation or order under this paragraph as of the day before the date of enactment of the Financial Services Modernization Act of 1999, to be so closely related to banking as to be a proper incident thereto (subject to such terms and conditions contained in such regulation, unless modified by the Board);’.

      (2) CONFORMING CHANGES TO OTHER STATUTES-

        (A) AMENDMENT TO THE BANK HOLDING COMPANY ACT AMENDMENTS OF 1970- Section 105 of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1850) is amended by striking ‘, to engage directly or indirectly in a nonbanking activity pursuant to section 4 of such Act,’.

        (B) 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 at the end and inserting the following: ‘as of the day before the date of enactment of the Financial Services Modernization Act of 1999.’.

SEC. 103. CONFORMING AMENDMENTS.

    Section 10(c)(2)(F)(i) of the Home Owners’ Loan Act (12 U.S.C. 1467a(c)(2)(F)(i))is amended--

      (1) by inserting ‘is permitted for bank holding companies under subsection (c) or (k) of section 4 of the Bank Holding Company Act of 1956, or which’ after ‘(i) which’; and

      (2) by striking ‘section 4(c)’ and inserting ‘subsection (c) or (k) of section 4’.

SEC. 104. OPERATION OF STATE LAW.

    (a) STATE REGULATION OF THE BUSINESS OF INSURANCE- The Act entitled ‘An Act to express the intent of Congress with reference to the regulation of the business of insurance’ and approved March 9, 1945 (15 U.S.C. 1011 et seq.), commonly referred to as the ‘McCarran-Ferguson Act’ remains the law of the United States.

    (b) MANDATORY INSURANCE LICENSING REQUIREMENTS- No person or entity shall provide insurance in a State as principal or agent unless such person or entity is licensed, as required by the appropriate insurance regulator of such State in accordance with the relevant State insurance laws, subject to subsections (c), (d), and (e).

    (c) AFFILIATIONS-

      (1) IN GENERAL- Except as provided in paragraph (2), no State may, by statute, regulation, order, interpretation, or other action, prevent or restrict the affiliations authorized or permitted by this Act and the amendments made by this Act.

      (2) INSURANCE- With respect to affiliations between insured depository institutions, or any subsidiary or affiliate thereof, and persons or entities engaged in the business of insurance, paragraph (1) does not prohibit any State from collecting, reviewing, and taking actions on required applications and other documents or reports as may be necessary concerning proposed acquisitions, changes, or continuations of control of any entity engaged in the business of insurance and domiciled in that State, if the State actions do not have the practical effect of discriminating, either intentionally or unintentionally, against an insured depository institution or a subsidiary or affiliate thereof, or against any person or entity based upon affiliation with an insured depository institution.

    (d) ACTIVITIES-

      (1) IN GENERAL- Except as provided in paragraph (3), and except with respect to insurance sales, solicitation, and cross marketing activities, which shall be governed by paragraph (2), no State may, by statute, regulation, order, interpretation or other action, prevent or restrict an insured depository institution or subsidiary or affiliate thereof from engaging directly or indirectly, either by itself or in conjunction with a subsidiary, affiliate, or any other entity or person, in any activity authorized or permitted under this Act and the amendments made by this Act.

      (2) INSURANCE SALES-

        (A) IN GENERAL- In accordance with the legal standards for preemption set forth in the decision of the Supreme Court of the United States in Barnett Bank of Marion County N.A. v. Nelson, 116 S. Ct. 1103 (1996), no State may, by statute, regulation, order, interpretation, or other action, prevent or significantly interfere with the ability of an insured depository institution, or a subsidiary or affiliate thereof, to engage, directly or indirectly, either by itself or in conjunction with a subsidiary, affiliate, or any other party, in any insurance sales, solicitation, or cross-marketing activity.

        (B) CERTAIN STATE LAWS PRESERVED- Notwithstanding subparagraph (A), a State may impose any of the following restrictions, or restrictions that are substantially the same as but no more burdensome or restrictive than those in each of the following clauses:

          (i) Restrictions prohibiting the rejection of an insurance policy solely because the policy has been issued or underwritten by any person not associated with such insured depository institution, or any subsidiary or affiliate thereof, when such insurance is required in connection with a loan or extension of credit.

          (ii) Restrictions prohibiting a requirement for any debtor, insurer, or insurance agent or broker to pay a separate charge in connection with the handling of insurance that is required in connection with a loan or other extension of credit or the provision of another traditional banking product, unless such charge would be required when the insured depository institution, or any subsidiary or affiliate thereof, is the licensed insurance agent or broker providing the insurance.

          (iii) Restrictions prohibiting the use of any advertisement or other insurance promotional material by an insured depository institution, or any subsidiary or affiliate thereof, that would cause a reasonable person to believe mistakenly that--

            (I) a State or the Federal Government is responsible for the insurance sales activities of, or stands behind the credit of, the institution, affiliate, or subsidiary; or

            (II) a State, or the Federal Government guarantees any returns on insurance products, or is a source of payment on any insurance obligation of or sold by the institution, affiliate, or subsidiary.

          (iv) Restrictions prohibiting the payment or receipt of any commission or brokerage fee or other valuable consideration for services as an insurance agent or broker to or by any person, unless such person holds a valid State license regarding the applicable class of insurance at the time at which the services are performed, except that, in this clause, the term ‘services as an insurance agent or broker’ does not include a referral by an unlicensed person of a customer or potential customer to a licensed insurance agent or broker that does not include a discussion of specific insurance policy terms and conditions.

          (v) Restrictions prohibiting any compensation paid to or received by any individual who is not licensed to sell insurance for the referral of a customer that seeks to purchase, or seeks an opinion or advice on, any insurance product to a person that sells or provides opinions or advice on such product, based on the purchase of insurance by the customer.

          (vi) Restrictions prohibiting the release of the insurance information of a customer (defined as information concerning the premiums, terms, and conditions of insurance coverage, including expiration dates and rates, and insurance claims of a customer contained in the records of the insured depository institution, or a subsidiary or affiliate thereof) to any person or entity other than an officer, director, employee, agent, subsidiary, or affiliate of an insured depository institution, for the purpose of soliciting or selling insurance, without the express consent of the customer, other than a provision that prohibits--

            (I) a transfer of insurance information to an unaffiliated insurance company, agent, or broker in connection with transferring insurance in force on existing insureds of the insured depository institution, or subsidiary or affiliate thereof, or in connection with a merger with or acquisition of an unaffiliated insurance company, agent, or broker; or

            (II) the release of information as otherwise authorized by Federal or State law.

          (vii) Restrictions prohibiting the use of health information obtained from the insurance records of a customer for any purpose, other than for its activities as a licensed agent or broker, without the express consent of the customer.

          (viii) Restrictions prohibiting the extension of credit (or any product or service that is equivalent to an extension of credit), lease or sale of property of any kind, or furnishing of any services or fixing or varying the consideration for any of the foregoing, on the condition or requirement that the customer obtain insurance from the insured depository institution, a subsidiary or affiliate thereof, or a particular insurer, agent, or broker, other than a prohibition that would prevent any insured depository institution, or any subsidiary or affiliate thereof--

            (I) from engaging in any activity that would not violate section 106 of the Bank Holding Company Act Amendments of 1970, as interpreted by the Board of Governors of the Federal Reserve System; or

            (II) from informing a customer or prospective customer that insurance is required in order to obtain a loan or credit, that loan or credit approval is contingent upon the procurement by the customer of acceptable insurance, or that insurance is available from the insured depository institution, or any subsidiary or affiliate thereof.

          (ix) Restrictions requiring, when an application by a customer for a loan or other extension of credit from an insured depository institution is pending, and insurance is offered or sold to the customer or is required in connection with the loan or extension of credit by the insured depository institution or any subsidiary or affiliate thereof, that a written disclosure be provided to the customer or prospective customer indicating that his or her choice of an insurance provider will not affect the credit decision or credit terms in any way, except that the insured depository institution may impose reasonable requirements concerning the creditworthiness of the insurance provider and scope of coverage chosen.

          (x) Restrictions, requiring clear and conspicuous disclosure, in writing where practicable, to the customer prior to the sale of any insurance policy that such policy--

            (I) is not a deposit;

            (II) is not insured by the Federal Deposit Insurance Corporation;

            (III) is not guaranteed by the insured depository institution or, if appropriate, its subsidiaries or affiliates or any person soliciting the purchase of or selling insurance on the premises thereof; and

            (IV) where appropriate, involves investment risk, including potential loss of principal.

          (xi) Restrictions requiring that, when a customer obtains insurance (other than credit insurance or flood insurance) and credit from an insured depository institution or its subsidiaries or affiliates, or any person soliciting the purchase of or selling insurance on the premises thereof, the credit and insurance transactions be completed through separate documents.

          (xii) Restrictions prohibiting, when a customer obtains insurance (other than credit insurance or flood insurance) and credit from an insured depository institution or its subsidiaries or affiliates, or any person soliciting the purchase of or selling insurance on the premises thereof, inclusion of the expense of insurance premiums in the primary credit transaction without the express written consent of the customer.

          (xiii) Restrictions requiring--

            (I) maintenance of separate and distinct books and records relating to insurance transactions, including all files relating to and reflecting customer complaints; and

            (II) that such insurance books and records be made available to the appropriate State insurance regulator for inspection upon reasonable notice.

        (C) LIMITATIONS-

          (i) OCC DEFERENCE- Section 203(e) does not apply with respect to any State statute, regulation, order, interpretation, or other action regarding insurance sales, solicitation, or cross marketing activities described in subparagraph (A) that was issued, adopted, or enacted before September 3, 1998, and that is not described in subparagraph (B).

          (ii) NONDISCRIMINATION- Subsection (e) does not apply with respect to any State statute, regulation, order, interpretation, or other action regarding insurance sales, solicitation, or cross marketing activities described in subparagraph (A) that was issued, adopted, or enacted before September 3, 1998, and that is not described in subparagraph (B).

          (iii) CONSTRUCTION- Nothing in this paragraph shall be construed--

            (I) to limit the applicability of the decision of the Supreme Court in Barnett Bank of Marion County N.A. v. Nelson, 116 S. Ct. 1103 (1996) with respect to any State statute, regulation, order, interpretation, or other action that is not referred to or described in this paragraph; or

            (II) to create any inference with respect to any State statute, regulation, order, interpretation, or other action that is not referred to in this paragraph.

      (3) INSURANCE ACTIVITIES OTHER THAN SALES- State statutes, regulations, interpretations, orders, and other actions shall not be preempted under paragraph (1) to the extent that they--

        (A) relate to, or are issued, adopted, or enacted for the purpose of regulating the business of insurance in accordance with the Act of March 9, 1945 (commonly known as the ‘McCarran-Ferguson Act’);

        (B) apply only to persons or entities that are not insured depository institutions, but that are directly engaged in the business of insurance (except that they may apply to depository institutions engaged in providing savings bank life insurance as principal to the extent of regulating such insurance);

        (C) do not relate to or directly or indirectly regulate insurance sales, solicitations, or cross marketing activities; and

        (D) are not prohibited under subsection (e).

      (4) FINANCIAL ACTIVITIES OTHER THAN INSURANCE- No State statute, regulation, interpretation, order, or other action shall be preempted under paragraph (1) to the extent that--

        (A) it does not relate to, and is not issued and adopted, or enacted for the purpose of regulating, directly or indirectly, insurance sales, solicitations, or cross marketing activities covered under paragraph (2);

        (B) it does not relate to, and is not issued and adopted, or enacted for the purpose of regulating, directly or indirectly, the business of insurance activities other than sales, solicitations, or cross marketing activities, covered under paragraph (3);

        (C) it does not relate to securities investigations or enforcement actions referred to in subsection (f); and

        (D) it is not prohibited under subsection (e).

    (e) NONDISCRIMINATION- Except as provided in any restriction described in subsection (d)(2)(B), no State may, by statute, regulation, order, interpretation, or other action, regulate the activities authorized or permitted under this Act and the amendments made by this Act, or any other provision of Federal law, of an insured depository institution, or subsidiary or affiliate thereof, to the extent that such statute, regulation, order, interpretation, or other action--

      (1) distinguishes by its terms between insured depository institutions, or subsidiaries or affiliates thereof, and other persons or entities engaged in such activities, in a manner that is in any way adverse to any such insured depository institution, or subsidiary or affiliate thereof;

      (2) as interpreted or applied, has or will have an impact on insured depository institutions, or subsidiaries or affiliates thereof, that is substantially more adverse than its impact on other persons or entities providing the same products or services or engaged in the same activities that are not insured depository institutions, or subsidiaries or affiliates thereof, or persons or entities affiliated therewith;

      (3) effectively prevents an insured depository institution, or subsidiary or affiliate thereof, from engaging in activities authorized or permitted by this Act and the amendments made by this Act, or any other provision of Federal law; or

      (4) conflicts with the intent of this Act and the amendments made by this Act generally to permit affiliations that are authorized or permitted by Federal law.

    (f) LIMITATION- Subsections (c) and (d) shall not be construed to affect--

      (1) the jurisdiction of the securities commission (or any agency or office performing like functions) of any State, under the laws of that State, to investigate and bring enforcement actions, consistent with section 18(c) of the Securities Act of 1933, with respect to fraud or deceit or unlawful conduct by any person, in connection with securities or securities transactions; or

      (2) State laws, regulations, orders, interpretations, or other actions of general applicability relating to the governance of corporations, partnerships, limited liability companies, or other business associations incorporated or formed under the laws of that State or domiciled in that State, or the applicability of the antitrust laws of any State or any State law that is similar to the antitrust laws if such laws, regulations, interpretations, orders, or other actions are not inconsistent with the purposes of this Act to authorize or permit certain affiliations and to remove barriers to such affiliations.

    (g) CERTAIN STATE AFFILIATION LAWS PREEMPTED FOR INSURANCE COMPANIES AND AFFILIATES- Except as provided in subsection (c)(2), no State may, by law, regulation, order, interpretation, or otherwise--

      (1) prevent or restrict the ability of any insurer, or any affiliate of an insurer (whether such affiliate is organized as a stock company, mutual holding company, or otherwise), to become a bank holding company, or to acquire control of an insured depository institution, where the practical effect of such State action would be to discriminate, intentionally or unintentionally, against an insurer, or any affiliate of an insurer, based upon its affiliation with an insured depository institution;

      (2) limit the amount of the assets of an insurer that may be invested in the voting securities of an insured depository institution (or any company that controls such institution), except that the laws of the State of domicile of the insurer may limit the amount of such investment to an amount that is not less than 5 percent of the admitted assets of the insurer; or

      (3) prevent, restrict, or have the authority to review, approve, or disapprove a plan of reorganization by which an insurer proposes to reorganize from mutual form to become a stock insurer (whether as a direct or indirect subsidiary of a mutual holding company or otherwise), unless the State is the State of domicile of the insurer, except that the appropriate regulatory authority of the State of domicile of the insurer shall consult with the appropriate regulatory authority in other States in which the insurer conducts business, regarding issues affecting the best interests of policyholders.

    (h) MOTOR VEHICLE RENTAL AGENCY ACTIVITIES-

      (1) FINDINGS- Congress finds that--

        (A) in many States, the insurance laws are unclear as to whether personal insurance sales in connection with the short-term rental or leasing of motor vehicles should be licensed by the State as an insurance activity; and

        (B) in those States that have not yet implemented regulations governing the offer or sale of insurance in connection with the short-term lease or rental of a motor vehicle, a presumption should exist that no insurance license is required in connection with such sales.

      (2) EXCEPTION FOR CERTAIN INSURANCE PRODUCTS- Subsection (b) does not apply to any person or entity who offers or provides insurance ancillary to a short-term lease or rental transaction of a motor vehicle in a State that does not, by statute, rule, or regulation, impose any licensing, appointment, personal or corporate qualifications, or education requirements on such persons or entities.

      (3) CONSTRUCTION- Nothing in this subsection shall be construed to alter the validity or effect of any State law, or the prospective application of any final State statute, rule, or regulation which, by its specific terms, expressly regulates or exempts from regulation any person or entity who offers or provides insurance ancillary to a short-term lease or rental transaction of a motor vehicle.

      (4) LEASE PERIOD- For purposes of this subsection, a person shall be considered to be providing insurance ancillary to a short-term lease or rental transaction of a motor vehicle if the lease or rental transaction is for 60 days or less, and the insurance is provided for a period of consecutive days not exceeding the length of the lease or rental.

      (5) EFFECT- This subsection shall remain in effect during the period beginning on the date of enactment of this Act and ending 5 years after that date of enactment.

    (i) DEFINITIONS- For purposes of this section--

      (1) the term ‘antitrust laws’ has the same meaning as in subsection (a) of the first section of the Clayton Act, and includes section 5 of the Federal Trade Commission Act (to the extent that such section 5 relates to unfair methods of competition);

      (2) the term ‘insured depository institution’ has the same meaning as in section 3 of the Federal Deposit Insurance Act; and

      (3) the term ‘State’ means any State of the United States, the District of Columbia, any territory of the United States, Puerto Rico, Guam, American Samoa, the Trust Territory of the Pacific Islands, the Virgin Islands, and the Northern Mariana Islands.

Subtitle B--Streamlining Supervision of Bank Holding Companies

SEC. 111. 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 a bank holding company and any subsidiary of such company to submit reports under oath to keep the Board informed as to--

          ‘(i) the financial condition of the bank holding company or subsidiary, systems for monitoring and controlling financial and operating risks, and transactions with depository institution subsidiaries of the bank holding company; and

          ‘(ii) compliance by the company or subsidiary with applicable provisions of this Act.

        ‘(B) USE OF EXISTING REPORTS-

          ‘(i) IN GENERAL- For purposes of compliance with this paragraph, the Board shall, to the fullest extent possible, accept--

            ‘(I) reports that a bank holding company or any subsidiary of such company has provided or been required to provide to other Federal or State supervisors or to appropriate self-regulatory organizations;

            ‘(II) information that is otherwise required to be reported publicly; and

            ‘(III) externally audited financial statements.

          ‘(ii) REPORTS FILED WITH OTHER AGENCIES- In the event that the Board requires a report under this subsection from a functionally regulated subsidiary of a bank holding company of a kind that is not required by another Federal or State regulatory authority or an appropriate self-regulatory organization, the Board shall request that the appropriate regulatory authority or self-regulatory organization obtain such report. If the report is not made available to the Board, and the report is necessary to assess a material risk to the bank holding company or any of its depository institution subsidiaries or compliance with this Act, the Board may require such functionally regulated subsidiary to provide such a report to the Board.

      ‘(2) EXAMINATIONS-

        ‘(A) EXAMINATION AUTHORITY FOR BANK HOLDING COMPANIES AND SUBSIDIARIES- Subject to subparagraph (B), the Board may make examinations of each bank holding company and each subsidiary of such holding company in order--

          ‘(i) to inform the Board of the nature of the operations and financial condition of the holding company and such subsidiaries;

          ‘(ii) to 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 depository institution subsidiary of such holding company; and

            ‘(II) the systems for monitoring and controlling such risks; and

          ‘(iii) to monitor compliance with the provisions of this Act and those governing transactions and relationships between any depository institution subsidiary and its affiliates.

        ‘(B) FUNCTIONALLY REGULATED SUBSIDIARIES- Notwithstanding subparagraph (A), the Board may make examinations of a functionally regulated subsidiary of a bank holding company only if--

          ‘(i) the Board has reasonable cause to believe that such subsidiary is engaged in activities that pose a material risk to an affiliated depository institution; or

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

        ‘(C) RESTRICTED FOCUS OF EXAMINATIONS- The Board shall, to the fullest extent possible, limit the focus and scope of any examination of a bank holding company to--

          ‘(i) the bank holding company; and

          ‘(ii) any subsidiary of the bank holding company that could have a materially adverse effect on the safety and soundness of any depository institution subsidiary of the holding company due to--

            ‘(I) the size, condition, or activities of the subsidiary; or

            ‘(II) the nature or size of transactions between the subsidiary and any depository institution that is also a subsidiary of the bank holding company.

        ‘(D) DEFERENCE TO BANK EXAMINATIONS- The Board shall, to the fullest extent possible, for the purposes of this paragraph, use 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, forego an examination by the Board under this paragraph and instead review the reports of examination made of--

          ‘(i) any registered broker or dealer by or on behalf of the Securities and Exchange Commission;

          ‘(ii) any registered investment adviser properly registered by or on behalf of either the Securities and Exchange Commission or any State;

          ‘(iii) any licensed insurance company by or on behalf of any State regulatory authority responsible for the supervision of insurance companies; and

          ‘(iv) any other subsidiary that the Board finds to be comprehensively supervised by a Federal or State authority.

      ‘(3) CAPITAL-

        ‘(A) IN GENERAL- The Board may not, by regulation, guideline, order, or otherwise, prescribe or impose any capital or capital adequacy rules, guidelines, standards, or requirements on any subsidiary of a bank holding company that--

          ‘(i) is not an insured depository institution; and

          ‘(ii) is--

            ‘(I) in compliance with the applicable capital requirements of another Federal regulatory authority (including the Securities and Exchange Commission) or State insurance authority; or

            ‘(II) properly registered as an investment adviser under the Investment Advisers Act of 1940, or with any State.

        ‘(B) RULE OF CONSTRUCTION- Subparagraph (A) shall not be construed as preventing the Board from imposing capital or capital adequacy rules, guidelines, standards, or requirements with respect to activities of a registered investment adviser other than with respect to investment advisory activities or activities incidental to investment advisory activities.

        ‘(C) LIMITATIONS ON INDIRECT ACTION- In developing, establishing, or assessing bank holding company capital or capital adequacy rules, guidelines, standards, or requirements for purposes of this paragraph, the Board may not take into account the activities, operations, or investments of an affiliated investment company registered under the Investment Company Act of 1940, if the investment company is not--

          ‘(i) a bank holding company; or

          ‘(ii) controlled by a bank holding company by reason of ownership by the bank holding company (including through all of its affiliates) of 25 percent or more of the shares of the investment company, where the shares owned by the bank holding company have a market value equal to more than $1,000,000.

      ‘(4) TRANSFER OF BOARD AUTHORITY TO APPROPRIATE FEDERAL BANKING AGENCY-

        ‘(A) IN GENERAL- In the case of any bank holding company that is not significantly engaged in nonbanking activities, the Board, in consultation with the appropriate Federal banking agency, may designate the appropriate Federal banking agency of the lead insured depository institution subsidiary of such holding company as the appropriate Federal banking agency for the bank holding company.

        ‘(B) AUTHORITY TRANSFERRED- An agency designated by the Board under subparagraph (A) shall have the same authority as the Board under this Act--

          ‘(i) to examine and require reports from the bank holding company and any affiliate of such company (other than a depository institution) under this section;

          ‘(ii) to approve or disapprove applications or transactions under section 3;

          ‘(iii) to take actions and impose penalties under subsections (e) and (f) of this section and under section 8; and

          ‘(iv) to take actions regarding the holding company, any affiliate of the holding company (other than a depository institution), or any institution-affiliated party of such company or affiliate under the Federal Deposit Insurance Act and any other statute that the Board may designate.

        ‘(C) AGENCY ORDERS- Section 9 of this Act and section 105 of the Bank Holding Company Act Amendments of 1970 shall apply to orders issued by an agency designated under subparagraph (A) in the same manner as such sections apply to orders issued by the Board.

      ‘(5) FUNCTIONAL REGULATION OF SECURITIES AND INSURANCE ACTIVITIES-

        ‘(A) SECURITIES ACTIVITIES- Securities activities conducted in a functionally regulated subsidiary of a bank shall be subject to regulation by the Securities and Exchange Commission, and by relevant State securities authorities, as appropriate, subject to section 104 of the Financial Services Modernization Act of 1999, to the same extent as if they were conducted in a nondepository institution subsidiary of a bank holding company.

        ‘(B) INSURANCE ACTIVITIES- Subject to section 104 of the Financial Services Modernization Act of 1999, insurance agency and brokerage activities and activities as principal conducted in a functionally regulated subsidiary of a bank shall be subject to regulation by a State insurance authority to the same extent as if they were conducted in a nondepository institution subsidiary of a bank holding company.

      ‘(6) DEFINITION- For purposes of this subsection, the term ‘functionally regulated subsidiary’ means any company--

        ‘(A) that is not a bank holding company; and

        ‘(B) that is--

          ‘(i) a broker or dealer that is registered under the Securities Exchange Act of 1934;

          ‘(ii) a registered investment adviser, properly registered by or on behalf of either the Securities and Exchange Commission or any State, with respect to the investment advisory activities of such investment adviser and activities incidental to such investment advisory activities;

          ‘(iii) an investment company that is registered under the Investment Company Act of 1940;

          ‘(iv) an insurance company or insurance agency that is subject to supervision by a State insurance commission, agency, or similar authority; or

          ‘(v) an entity that is subject to regulation by the Commodity Futures Trading Commission, with respect to the commodities activities of such entity and activities incidental to such commodities activities.’.

SEC. 112. AUTHORITY OF STATE INSURANCE REGULATOR AND SECURITIES AND EXCHANGE COMMISSION.

    Section 5 of the Bank Holding Company Act of 1956 (12 U.S.C. 1844) is amended by adding at the end the following new subsection:

    ‘(g) AUTHORITY OF STATE INSURANCE REGULATOR AND THE SECURITIES AND EXCHANGE COMMISSION-

      ‘(1) IN GENERAL- Notwithstanding any other provision of law, any regulation, order, or other action of the Board that requires a bank holding company to provide funds or other assets to an insured depository institution subsidiary shall not be effective nor enforceable, if--

        ‘(A) such funds or assets are to be provided by--

          ‘(i) a bank holding company that is an insurance company or that is a broker or dealer registered under the Securities Exchange Act of 1934; or

          ‘(ii) an affiliate of the insured depository institution that is an insurance company or a broker or dealer registered under the Securities Exchange Act of 1934; and

        ‘(B) the State insurance authority for the insurance company or the Securities and Exchange Commission for the registered broker or dealer, as the case may be, determines in a written notice sent to the bank holding company and to the Board that the bank holding company shall not provide such funds or assets because such action would have a material adverse effect on the financial condition of the insurance company or the broker or dealer, as the case may be.

      ‘(2) NOTICE TO STATE INSURANCE AUTHORITY OR SEC REQUIRED- If the Board requires a bank holding company, or an affiliate of a bank holding company, that is an insurance company or a broker or dealer, as described in paragraph (1)(A), to provide funds or assets to an insured depository institution subsidiary of the bank holding company pursuant to any regulation, order, or other action of the Board referred to in paragraph (1), the Board shall promptly notify the State insurance authority for the insurance company or the Securities and Exchange Commission, as the case may be, of such requirement.

      ‘(3) DIVESTITURE IN LIEU OF OTHER ACTION- If the Board receives a notice described in paragraph (1)(B) from a State insurance authority or the Securities and Exchange Commission with regard to a bank holding company or affiliate referred to in that paragraph, the Board may order the bank holding company to divest the insured depository institution subsidiary not later than 180 days after receiving the notice, or such longer period as the Board determines to be consistent with the safe and sound operation of the insured depository institution.

      ‘(4) CONDITIONS BEFORE DIVESTITURE- During the period beginning on the date on which an order to divest is issued by the Board under paragraph (3) to a bank holding company and ending on the date on which the divestiture is completed, the Board may impose any conditions or restrictions on ownership or operation by the bank holding company of the insured depository institution, including restricting or prohibiting transactions between the insured depository institution and any affiliate of the institution, as are appropriate under the circumstances.

      ‘(5) RULE OF CONSTRUCTION- No provision of this subsection may be construed to limit or otherwise affect the regulatory authority, including the scope of the authority, of any Federal agency or department with regard to any entity that is within the jurisdiction of such agency or department.’.

SEC. 113. ROLE OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.

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

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

    ‘(a) LIMITATION ON DIRECT ACTION- The Board may not prescribe regulations, issue or seek entry of orders, impose restraints, restrictions, guidelines, requirements, safeguards, or standards, or otherwise take any action under or pursuant to any provision of this Act or section 8 of the Federal Deposit Insurance Act against or with respect to a functionally regulated subsidiary of a bank holding company unless--

      ‘(1) the action is necessary to prevent or redress an unsafe or unsound practice or breach of fiduciary duty by such subsidiary that poses a material risk to--

        ‘(A) the financial safety, soundness, or stability of an affiliated insured depository institution; or

        ‘(B) the domestic or international payment system; and

      ‘(2) the Board finds that it is not reasonably possible to protect effectively against the material risk at issue through action directed at or against the affiliated insured depository institution or against insured depository institutions generally.

    ‘(b) LIMITATION ON INDIRECT ACTION- The Board may not prescribe regulations, issue or seek entry of orders, impose restraints, restrictions, guidelines, requirements, safeguards, or standards, or otherwise take any action under or pursuant to any provision of this Act or section 8 of the Federal Deposit Insurance Act against or with respect to a bank holding company where the purpose or effect of doing so would be to take action indirectly against or with respect to a functionally regulated subsidiary of a bank holding company that may not be taken directly against or with respect to such subsidiary in accordance with subsection (a).

    ‘(c) ACTIONS SPECIFICALLY AUTHORIZED- Notwithstanding subsection (a), the Board may take action under this Act or section 8 of the Federal Deposit Insurance Act to enforce compliance by a functionally regulated subsidiary of a bank holding company with Federal law that the Board has specific jurisdiction to enforce against such subsidiary.

    ‘(d) ‘FUNCTIONALLY REGULATED SUBSIDIARY’ DEFINED- For purposes of this section, the term ‘functionally regulated subsidiary’ has the same meaning as in section 5(c)(6).’.

SEC. 114. EXAMINATION OF INVESTMENT COMPANIES.

    (a) EXCLUSIVE COMMISSION AUTHORITY- Except as provided in subsection (c), a Federal banking agency may not inspect or examine any registered investment company that is not a bank holding company or a savings and loan holding company.

    (b) EXAMINATION RESULTS AND OTHER INFORMATION- The Commission shall provide to any Federal banking agency, upon request, the results of any examination, reports, records, or other information with respect to any registered investment company to the extent necessary for the agency to carry out its statutory responsibilities.

    (c) CERTAIN EXAMINATIONS AUTHORIZED- Nothing in this section shall prevent the Corporation, if the Corporation finds it necessary to determine the condition of an insured depository institution for insurance purposes, from examining an affiliate of any insured depository institution, pursuant to its authority under section 10(b)(4) of the Federal Deposit Insurance Act, as may be necessary to disclose fully the relationship between the insured depository institution and the affiliate, and the effect of such relationship on the insured depository institution.

    (d) DEFINITIONS- For purposes of this section, the following definitions shall apply:

      (1) BANK HOLDING COMPANY- The term ‘bank holding company’ has the same meaning as in section 2 of the Bank Holding Company Act of 1956.

      (2) CORPORATION- The term ‘Corporation’ means the Federal Deposit Insurance Corporation.

      (3) COMMISSION- The term ‘Commission’ means the Securities and Exchange Commission.

      (4) FEDERAL BANKING AGENCY- The term ‘Federal banking agency’ has the same meaning as in section 3(z) of the Federal Deposit Insurance Act.

      (5) REGISTERED INVESTMENT COMPANY- The term ‘registered investment company’ means an investment company that is registered with the Commission under the Investment Company Act of 1940.

      (6) SAVINGS AND LOAN HOLDING COMPANY- The term ‘savings and loan holding company’ has the same meaning as in section 10(a)(1)(D) of the Home Owners’ Loan Act.

SEC. 115. EQUIVALENT REGULATION AND SUPERVISION.

    (a) IN GENERAL- Notwithstanding any other provision of law, the provisions of--

      (1) section 5(c) of the Bank Holding Company Act of 1956 (as amended by this Act) that limit the authority of the Board of Governors of the Federal Reserve System to require reports from, to make examinations of, or to impose capital requirements on holding companies and their functionally regulated subsidiaries or that require deference to other regulators;

      (2) section 5(g) of the Bank Holding Company Act of 1956 (as added by this Act) that limit the authority of the Board to require capital from a functionally regulated subsidiary of a holding company to an insured depository institution subsidiary of the holding company and to take certain actions including requiring divestiture of the insured depository institution; and

      (3) section 10A of the Bank Holding Company Act of 1956 (as added by this Act) that limit whatever authority the Board might otherwise have to take direct or indirect action with respect to holding companies and their functionally regulated subsidiaries,

    shall also limit whatever authority that a Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act) might otherwise have under applicable Federal law to require reports, make examinations, impose capital requirements, or take any other direct or indirect action with respect to any functionally regulated subsidiary of an insured depository institution, subject to the same standards and requirements as are applicable to the Board under those provisions.

    (b) CERTAIN EXEMPTION AUTHORIZED- Nothing in this section shall prevent the Federal Deposit Insurance Corporation, if the Corporation finds it necessary to determine the condition of an insured depository institution for insurance purposes, from examining an affiliate of any insured depository institution, pursuant to its authority under section 10(b)(4) of the Federal Deposit Insurance Act, as may be necessary to disclose fully the relationship between the depository institution and the affiliate, and the effect of such relationship on the depository institution.

    (c) ‘FUNCTIONALLY REGULATED SUBSIDIARY’ DEFINED- For purposes of this section, the term ‘functionally regulated subsidiary’ has the same meaning as in section 5(c)(6) of the Bank Holding Company Act of 1956, as amended by this Act.

SEC. 116. INTERAGENCY CONSULTATION.

    (a) EXAMINATION RESULTS AND OTHER INFORMATION-

      (1) INFORMATION OF THE BOARD- Upon the request of the appropriate insurance regulator of any State, the Board may provide to that regulator any information of the Board regarding the financial condition, risk management policies, and operations of any bank holding company that controls a company that is engaged in insurance activities and is regulated by that State insurance regulator, and regarding any transaction or relationship between such an insurance company and any affiliated depository institution. The Board may provide any other information to the appropriate State insurance regulator that the Board believes is necessary or appropriate to permit the State insurance regulator to administer and enforce applicable State insurance laws.

      (2) BANKING AGENCY INFORMATION- Upon the request of the appropriate insurance regulator of any State, the appropriate Federal banking agency may provide to that regulator any information of the agency regarding any transaction or relationship between a depository institution supervised by that Federal banking agency and any affiliated company that is engaged in insurance activities regulated by the State insurance regulator. The appropriate Federal banking agency may provide any other information to the appropriate State insurance regulator that the agency believes is necessary or appropriate to permit the State insurance regulator to administer and enforce applicable State insurance laws.

      (3) STATE INSURANCE REGULATOR INFORMATION- Upon the request of the appropriate Federal banking agency, a State insurance regulator may provide any examination or other reports, records, or other information to which the State insurance regulator may have access with respect to a company that--

        (A) is engaged in insurance activities and is regulated by that insurance regulator; and

        (B) is an affiliate of an insured depository institution or a bank holding company.

    (b) CONSULTATION- Before making any determination relating to the initial affiliation of, or the continuing affiliation of, an insured depository institution or bank holding company with a company engaged in insurance activities, the appropriate Federal banking agency shall consult with the appropriate State insurance regulator of such company and take the views of such insurance regulator into account in making such determination.

    (c) EFFECT ON OTHER AUTHORITY- Nothing in this section shall limit in any respect the authority of the appropriate Federal banking agency with respect to an insured depository institution or bank holding company or any affiliate thereof under any provision of law.

    (d) CONFIDENTIALITY AND PRIVILEGE-

      (1) CONFIDENTIALITY- The appropriate Federal banking agency may not provide any information or material that is entitled to confidential treatment under applicable Federal banking agency regulations, or other applicable law, to a State insurance regulator, unless such regulator agrees to maintain the information or material in confidence and to take all reasonable steps to oppose any effort to secure disclosure of the information or material by the regulator. The appropriate Federal banking agency shall treat as confidential any information or material obtained from a State insurance regulator that is entitled to confidential treatment under applicable State regulations, or other applicable law, and take all reasonable steps to oppose any effort to secure disclosure of the information or material by the Federal banking agency.

      (2) PRIVILEGE- The provision pursuant to this section of information or material by a Federal banking agency or a State insurance regulator shall not constitute a waiver of, or otherwise affect, any privilege to which the information or material is otherwise subject.

    (e) DEFINITIONS- For purposes of this section, the following definitions shall apply:

      (1) APPROPRIATE FEDERAL BANKING AGENCY; INSURED DEPOSITORY INSTITUTION- The terms ‘appropriate Federal banking agency’ and ‘insured depository institution’ have the same meanings as in section 3 of the Federal Deposit Insurance Act.

      (2) BOARD; BANK HOLDING COMPANY- The terms ‘Board’ and ‘bank holding company’ have the same meanings as in section 2 of the Bank Holding Company Act of 1956.

SEC. 117. PRESERVING THE INTEGRITY OF FDIC RESOURCES.

    Section 11(a)(4)(B) of the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(4)(B)) is amended by striking ‘to benefit any shareholder of’ and inserting ‘to benefit any shareholder, affiliate (other than an insured depository institution that receives assistance in accordance with the provisions of this Act), or subsidiary of’.

Subtitle C--Activities of National Banks

SEC. 121. AUTHORITY OF NATIONAL BANKS TO UNDERWRITE MUNICIPAL REVENUE BONDS.

    The paragraph designated the Seventh of section 5136 of the Revised Statutes of the United States (12 U.S.C. 24(7)) is amended by adding at the end the following:

    ‘The limitations and restrictions contained in this paragraph as to dealing in, underwriting, and purchasing investment securities for the national bank’s own account do 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. 122. SUBSIDIARIES OF NATIONAL BANKS.

    (a) IN GENERAL- Chapter one of title LXII of the Revised Statutes of the United States (12 U.S.C. 21 et seq.) is amended--

      (1) by redesignating section 5136A as section 5136C; and

      (2) by inserting after section 5136 (12 U.S.C. 24) the following new section:

‘SEC. 5136A. SUBSIDIARIES OF NATIONAL BANKS.

    ‘(a) AUTHORIZATION TO CONDUCT IN OPERATING SUBSIDIARIES CERTAIN ACTIVITIES THAT ARE FINANCIAL IN NATURE-

      ‘(1) IN GENERAL- Subject to paragraph (2), a national bank may control a financial subsidiary, or hold an interest in a financial subsidiary, only if--

        ‘(A) the consolidated total assets of the national bank do not exceed $1,000,000,000;

        ‘(B) the national bank is not an affiliate of a bank holding company;

        ‘(C) the subject activities are not real estate development or real estate investment activities, unless otherwise expressly authorized by law;

        ‘(D) the national bank and each insured depository institution affiliate of the national bank is well capitalized and well managed; and

        ‘(E) the national bank has received the approval of the Comptroller of the Currency to engage in such activities, which approval shall be based solely upon the factors set forth in subparagraph (D) and factors set forth in subsection (c).

      ‘(2) REGULATIONS REQUIRED- The Comptroller of the Currency shall, by regulation, prescribe procedures for the enforcement of this section.

    ‘(b) SAFETY AND SOUNDNESS FIRE WALLS-

      ‘(1) CAPITAL REDUCTION REQUIRED- In determining compliance with applicable capital standards for purposes of subsection (a)(1)(D)--

        ‘(A) the aggregate amount of outstanding equity investments by a national bank in a financial subsidiary shall be deducted from the assets and tangible equity of the national bank; and

        ‘(B) the assets and liabilities of the financial subsidiary shall not be consolidated with those of the national bank.

      ‘(2) INVESTMENT LIMITATION- A national bank may not, without the prior approval of the Comptroller of the Currency, make any equity investment in a financial subsidiary of the bank if that investment would, when made, exceed the amount that the national bank could pay as a dividend without obtaining prior regulatory approval.

    ‘(c) SAFEGUARDS FOR THE BANK- A national bank that establishes or maintains a financial subsidiary shall assure that--

      ‘(1) the procedures of the national bank for identifying and managing financial and operational risks within the national bank and financial subsidiary adequately protect the national bank from such risks;

      ‘(2) the bank has, for the protection of the national bank, reasonable policies and procedures to preserve the separate corporate identity and limited liability of the national bank and the financial subsidiaries of the national bank; and

      ‘(3) the national bank is in compliance with this section.

    ‘(d) STREAMLINING REGULATION AND SUPERVISION AND ENCOURAGING CONSULTATION AMONG FEDERAL AND STATE REGULATORS-

      ‘(1) IN GENERAL- To the extent that a national bank engages in activities that are authorized by subsection (a) through a functionally regulated financial subsidiary, the regulation and supervision of such subsidiary by the Comptroller of the Currency, including its ability to require a contribution of capital or assets to the national bank from that functionally regulated financial subsidiary, shall be limited, as set forth under section 115 of the Financial Services Modernization Act of 1999.

      ‘(2) INTERAGENCY CONSULTATION- The provisions of section 116 of the Financial Services Modernization Act of 1999, relating to interagency consultation, shall apply to the Comptroller of the Currency and the appropriate State regulators of functionally regulated financial subsidiaries of a national bank.

    ‘(e) PRESERVATION OF EXISTING OPERATING SUBSIDIARY AUTHORITY- Notwithstanding any other provision of this section--

      ‘(1) a national bank may retain control of a company, or retain an interest in a company, and conduct through such company any activities lawfully conducted therein as of the date of enactment of the Financial Services Modernization Act of 1999; and

      ‘(2) a national bank may own shares of or any other interest in any company that is engaged only in activities that are permissible for the national bank to engage in directly, if such activities are engaged in under the same terms and conditions that would govern the conduct if conducted by a national bank directly.

    ‘(f) DEFINITIONS- For purposes of this section, the following definitions shall apply:

      ‘(1) FINANCIAL SUBSIDIARY- The term ‘financial subsidiary’ means a company that--

        ‘(A) is a subsidiary of a national bank; and

        ‘(B) is engaged as principal in any activity that is permissible for a bank holding company under section 4(k) of the Bank Holding Company Act of 1956 and is not permissible for national banks to engage in directly.

      ‘(2) FUNCTIONALLY REGULATED- The term ‘functionally regulated financial subsidiary’ means a financial subsidiary that is--

        ‘(A) a broker or dealer that is registered under the Securities Exchange Act of 1934;

        ‘(B) an investment adviser that is registered under the Investment Advisers Act of 1940, or with any State, with respect to the investment advisory activities of such investment adviser and activities incidental to such investment advisory activities;

        ‘(C) an insurance company that is subject to supervision by a State insurance commission, agency, or similar authority; and

        ‘(D) an entity that is subject to regulation by the Commodity Futures Trading Commission, with respect to the commodities activities of such entity and activities incidental to such commodities activities.

      ‘(3) SUBSIDIARY- The term ‘subsidiary’ has the same meaning as in section 2 of the Bank Holding Company Act of 1956.

      ‘(4) WELL CAPITALIZED- The term ‘well capitalized’ has the same meaning as in section 38 of the Federal Deposit Insurance Act.

      ‘(5) WELL MANAGED- The term ‘well managed’ means--

        ‘(A) in the case of a depository institution that has been examined, unless otherwise determined in writing by the appropriate Federal banking agency--

          ‘(i) the achievement of a composite rating of 1 or 2 under the Uniform Financial Institutions Rating System (or an equivalent rating under an equivalent rating system) in connection with the most recent examination or subsequent review of the depository institution; and

          ‘(ii) at least a rating of 2 for management, if such rating is given; or

        ‘(B) in the case of any depository institution that has not been examined, the existence and use of managerial resources that the appropriate Federal banking agency determines are satisfactory.

      ‘(6) INCORPORATED DEFINITIONS- The terms ‘appropriate Federal banking agency’, ‘depository institution’, and ‘insured depository institution’, have the same meanings as in section 3 of the Federal Deposit Insurance Act.’.

    (b) LIMITING THE CREDIT EXPOSURE OF A NATIONAL BANK TO A FINANCIAL SUBSIDIARY TO THE AMOUNT OF PERMISSIBLE CREDIT EXPOSURE TO AN AFFILIATE- 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 NATIONAL BANKS WITH FINANCIAL SUBSIDIARIES-

      ‘(1) FINANCIAL SUBSIDIARY DEFINED- For purposes of this section and section 23B, the term ‘financial subsidiary’ has the same meaning as in section 5136A(f) of the Revised Statutes of the United States.

      ‘(2) APPLICATION TO TRANSACTIONS BETWEEN A FINANCIAL SUBSIDIARY OF A NATIONAL BANK AND THE NATIONAL BANK- For purposes of applying this section and section 23B to a transaction between a financial subsidiary of a national bank and the national bank (or between such financial subsidiary and any other subsidiary of the national bank that is not a financial subsidiary), and notwithstanding subsection (b)(2) of this section or section 23B(d)(1)--

        ‘(A) the financial subsidiary of the national bank--

          ‘(i) shall be deemed to be an affiliate of the national bank and of any other subsidiary of the bank that is not a financial subsidiary; and

          ‘(ii) shall not be deemed to be a subsidiary of the national bank; and

        ‘(B) a purchase of or investment in equity securities issued by the financial subsidiary shall not be deemed to be a covered transaction.

      ‘(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 (that is not a subsidiary of a national bank) shall not be deemed to be a transaction between a subsidiary of a national bank and an affiliate of that bank for purposes of section 23A or section 23B.

        ‘(B) CERTAIN AFFILIATES EXCLUDED- For purposes of this paragraph, the term ‘affiliate’ does not include a national bank, or a subsidiary of a national bank that is engaged exclusively in activities permissible for a national bank to engage in directly or agency activities permitted under section 123 of the Financial Services Modernization Act of 1999.’.

    (c) ANTITYING- Section 106(a) of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1971) is amended by adding at the end the following: ‘For purposes of this section, a financial subsidiary of a national bank engaging in activities pursuant to section 5136A(a) of the Revised Statutes of the United States shall be deemed to be a subsidiary of a bank holding company, and not a subsidiary of a bank.’.

    (d) CLERICAL AMENDMENT- The table of sections for chapter one of title LXII of the Revised Statutes of the United States is amended--

      (1) by redesignating the item relating to section 5136A as relating to section 5136C; and

      (2) by inserting after the item relating to section 5136 the following new item:

      ‘5136A. Subsidiaries of national banks.’.

SEC. 123. AGENCY ACTIVITIES.

    A national bank may control a company, or hold an interest in a company that engages in agency activities that have been determined by the Comptroller of the Currency to be permissible for national banks or to be financial in nature or incidental to such financial activities (as determined pursuant to section 4(k) of the Bank Holding Company Act of 1956) if the company engages in such activities solely as agent and not directly or indirectly as principal.

SEC. 124. PROHIBITING FRAUDULENT REPRESENTATIONS.

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

‘SEC. 1008. MISREPRESENTATIONS REGARDING FINANCIAL INSTITUTION LIABILITY FOR OBLIGATIONS OF AFFILIATES.

    ‘(a) PROHIBITION- It shall be unlawful for an institution-affiliated party of an insured depository institution or institution-affiliated party of a subsidiary or affiliate of an insured depository institution to fraudulently represent that the institution is or will be liable for any obligation of a subsidiary or other affiliate of the institution.

    ‘(b) PENALTIES- Whoever violates subsection (a) shall be fined under this title, imprisoned not more than 1 year, or both.

    ‘(c) INSTITUTION-AFFILIATED PARTY DEFINED- For purposes of this section, the term ‘institution-affiliated party’ has the same meaning as in section 3 of the Federal Deposit Insurance Act, except that references to an insured depository institution shall be deemed to include references to a subsidiary or affiliate of an insured depository institution.

    ‘(d) OTHER DEFINITIONS- For purposes of this section, the terms ‘affiliate’, ‘insured depository institution’, and ‘subsidiary’ have same meanings as in section 3 of the Federal Deposit Insurance Act.’.

    (b) CLERICAL AMENDMENT- The table of sections for chapter 47 of title 18, United States Code, is amended by inserting after the item relating to section 1007 the following new item:

      ‘1008. Misrepresentations regarding financial institution liability for obligations of affiliates.’.

SEC. 125. INSURANCE UNDERWRITING BY NATIONAL BANKS.

    (a) IN GENERAL-

      (1) IN GENERAL- Except as provided in paragraph (2), a national bank and the subsidiaries of a national bank may only provide insurance in a State as principal in accordance with section 5136A(a) of the Revised Statutes of the United States, as added by this Act.

      (2) EXCEPTION- A national bank and the subsidiaries of a national bank may provide authorized insurance products as principal without regard to section 5136A(a) of the Revised Statutes of the United States, as added by this Act.

    (b) AUTHORIZED INSURANCE PRODUCTS- For purposes of this section, a product is an ‘authorized insurance product’ if--

      (1) as of January 1, 1999, the Comptroller of the Currency had determined in writing that national banks may provide such product as principal, or national banks were in fact lawfully providing such product as principal;

      (2) no court of relevant jurisdiction had, by final judgment, overturned a determination of the Comptroller of the Currency that national banks may provide such product as principal; and

      (3) the product is not an annuity contract, the income of which is subject to tax treatment under section 72 of the Internal Revenue Code of 1986.

    (c) DEFINITION- For purposes of this section, the term ‘insurance’ means--

      (1) any product regulated as insurance as of January 1, 1999, in accordance with the relevant State insurance law, in the State in which the product is provided;

      (2) any product first offered after January 1, 1999, which--

        (A) a State insurance regulator determines shall be regulated as insurance in the State in which the product is provided because the product insures, guarantees, or indemnifies against liability, loss of life, loss of health, or loss through damage to or destruction of property, including surety bonds, life insurance, health insurance, title insurance, and property and casualty insurance (such as private passenger or commercial automobile, homeowners, mortgage, commercial multiperil, general liability, professional liability, workers’ compensation, fire and allied lines, farm owners multiperil, aircraft, fidelity, surety, medical malpractice, ocean marine, inland marine, and boiler and machinery insurance); and

        (B) is not a product or service of a bank that is--

          (i) a deposit product;

          (ii) a loan, discount, letter of credit, or other extension of credit;

          (iii) a trust or other fiduciary service;

          (iv) a qualified financial contract (as defined in or determined pursuant to section 11(e)(8)(D)(i) of the Federal Deposit Insurance Act); or

          (v) a financial guaranty, except that this subparagraph shall not apply to a product that includes an insurance component such that if the product is offered or proposed to be offered by the bank as principal--

            (I) it would be treated as a life insurance contract under section 7702 of the Internal Revenue Code of 1986; or

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

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

Subtitle D--National Treatment of Foreign Financial Institutions

SEC. 151. NATIONAL TREATMENT OF FOREIGN FINANCIAL INSTITUTIONS.

    Section 8(c) of the International Banking Act of 1978 (12 U.S.C. 3106(c)) is amended by adding at the end the following new paragraph:

    ‘(3) TERMINATION OF GRANDFATHERED RIGHTS-

      ‘(A) IN GENERAL- If any foreign bank or foreign company files a declaration under section 4() of the Bank Holding Company Act of 1956, any authority conferred by this subsection on any foreign bank or company to engage in any activity that the Board has determined to be permissible for bank holding companies under section 4(k) of that Act shall terminate immediately.

      ‘(B) RESTRICTIONS AND REQUIREMENTS AUTHORIZED- If a foreign bank or company that engages, directly or through an affiliate pursuant to paragraph (1), in an activity that the Board determines to be permissible for bank holding companies under section 4(k) of the Bank Holding Company Act of 1956, has not filed a declaration with the Board of its status as a bank holding company under section 4(l) of that Act by the end of the 2-year period beginning on the date of enactment of the Financial Services Modernization Act of 1999, the Board, giving due regard to the principle of national treatment and equality of competitive opportunity, may impose such restrictions and requirements on the conduct of such activities by such foreign bank or company as are comparable to those imposed on a bank holding company organized under the laws of the United States, including a requirement to conduct such activities in compliance with any prudential safeguards established under section 10A of the Bank Holding Company Act of 1956.’.

SEC. 152. REPRESENTATIVE OFFICES.

    (a) DEFINITION OF ‘REPRESENTATIVE OFFICE’- Section 1(b)(15) of the International Banking Act of 1978 (12 U.S.C. 3101(15)) is amended by striking ‘State agency, or subsidiary of a foreign bank’ and inserting ‘or State agency’.

    (b) EXAMINATIONS- Section 10(c) of the International Banking Act of 1978 (12 U.S.C. 3107(c)) is amended by adding at the end the following: ‘The Board may also make examinations of any affiliate of a foreign bank conducting business in any State, if the Board deems it necessary to determine and enforce compliance with this Act, the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.), or other applicable Federal banking law.’.

TITLE II--INSURANCE CUSTOMER PROTECTIONS

SEC. 201. FUNCTIONAL REGULATION OF INSURANCE.

    The insurance activity of any person or entity shall be functionally regulated by the States, subject to subsections (c), (d), and (e) of section 104.

SEC. 202. INSURANCE CUSTOMER PROTECTIONS.

    The Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amended by adding at the end the following new section:

‘SEC. 45. INSURANCE CUSTOMER PROTECTIONS.

    ‘(a) REGULATIONS REQUIRED-

      ‘(1) IN GENERAL- The Federal banking agencies shall prescribe and publish in final form, before the end of the 1-year period beginning on the date of enactment of the Financial Services Modernization Act of 1999, customer protection regulations (which the agencies jointly determine to be appropriate) that--

        ‘(A) apply to retail sales practices, solicitations, advertising, or offers of any insurance product by any insured depository institution or any person that is engaged in such activities at an office of the institution or on behalf of the institution; and

        ‘(B) are consistent with the requirements of this Act and provide such additional protections for customers to whom such sales, solicitations, advertising, or offers are directed.

      ‘(2) APPLICABILITY TO SUBSIDIARIES- The regulations prescribed pursuant to paragraph (1) shall extend such protections to any subsidiaries of an insured depository institution as deemed appropriate by the Federal banking agencies, where such extension is determined to be necessary to ensure the customer protections provided by this section.

      ‘(3) CONSULTATION AND JOINT REGULATIONS- The Federal banking agencies shall consult with each other and prescribe joint regulations pursuant to paragraph (1), after consultation with the State insurance regulators, as appropriate.

    ‘(b) SALES PRACTICES- The regulations prescribed pursuant to subsection (a) shall include antitying and anticoercion rules applicable to the sale of insurance products that prohibit an insured depository institution from engaging in any practice that would lead a customer to believe an extension of credit, in violation of section 106(b) of the Bank Holding Company Act Amendments of 1970, is conditional upon--

      ‘(1) the purchase of an insurance product from the institution or any of its affiliates or subsidiaries; or

      ‘(2) an agreement by the customer not to obtain, or a prohibition on the customer from obtaining, an insurance product from an unaffiliated entity.

    ‘(c) DISCLOSURES AND ADVERTISING- The regulations prescribed pursuant to subsection (a) shall include the following provisions relating to disclosures and advertising in connection with the initial purchase of an insurance product:

      ‘(1) DISCLOSURES-

        ‘(A) IN GENERAL- Requirements that the following disclosures be made orally and in writing before the completion of the initial sale and, in the case of clauses (iii) and (iv), at the time of application for an extension of credit:

          ‘(i) UNINSURED STATUS- As appropriate, the product is not insured by the Federal Deposit Insurance Corporation, the United States Government, or the insured depository institution.

          ‘(ii) INVESTMENT RISK- In the case of a variable annuity or insurance product that involves an investment risk, that there is an investment risk associated with the product, including possible loss of value.

          ‘(iii) ANTITYING; ANTICOERCION- The approval of an extension of credit may not be conditioned on--

            ‘(I) the purchase of an insurance product from the institution in which the application for credit is pending or any of its affiliates or subsidiaries; or

            ‘(II) an agreement by the customer not to obtain, or a prohibition on the customer from obtaining, an insurance product from an unaffiliated entity.

          ‘(iv) PROHIBITION ON ENHANCED TREATMENT DUE TO OTHER PURCHASES OR SERVICES- The processing of an extension of credit or the delivery of any other financial product or service will not be expedited depending upon the purchase by the customer of any additional product or service from an affiliated person or entity of the insured depository institution.

        ‘(B) MAKING DISCLOSURE READILY UNDERSTANDABLE- Regulations prescribed under subparagraph (A) shall encourage the use of disclosure that is conspicuous, simple, direct, and readily understandable, such as the following:

          ‘(i) ‘NOT FDIC-INSURED’.

          ‘(ii) ‘NOT GUARANTEED BY THE BANK’.

          ‘(iii) ‘MAY GO DOWN IN VALUE’.

        ‘(C) LIMITATION- Nothing in this paragraph requires the inclusion of the foregoing disclosures in advertisements of a general nature describing or listing the services or products offered by an institution.

        ‘(D) MEANINGFUL DISCLOSURES- Disclosures shall not be considered to be meaningfully provided under this paragraph if the institution or its representative states that disclosures required by this subsection were available to the customer in printed material available for distribution, where such printed material is not provided and such information is not orally disclosed to the customer.

        ‘(E) ADJUSTMENTS FOR ALTERNATIVE METHODS OF PURCHASE- In prescribing the requirements under subparagraphs (A) and (F), necessary adjustments shall be made for purchase in person, by telephone, or by electronic media to provide for the most appropriate and complete form of disclosure and acknowledgments.

        ‘(F) CUSTOMER ACKNOWLEDGMENT- A requirement that an insured depository institution shall require any person selling an insurance product at any office of, or on behalf of, the institution to obtain, at the time at which a customer receives the disclosures required under this paragraph or at the time of the initial purchase by the customer of such product, an acknowledgment by such customer of the receipt of the disclosure required under this paragraph with respect to such product.

      ‘(2) PROHIBITION ON MISREPRESENTATIONS- A prohibition on any practice, or any advertising, at any office of, or on behalf of, the insured depository institution, or any subsidiary, as appropriate, that could mislead any person or otherwise cause a reasonable person to reach an erroneous belief with respect to--

        ‘(A) the uninsured nature of any insurance product sold, or offered for sale, by the institution or any subsidiary of the institution; or

        ‘(B) in the case of a variable annuity or insurance product that involves an investment risk, the investment risk associated with any such product.

    ‘(d) SEPARATION OF BANKING AND NONBANKING ACTIVITIES-

      ‘(1) REGULATIONS REQUIRED- The regulations prescribed pursuant to subsection (a) shall include such provisions as the Federal banking agencies consider appropriate to ensure that the routine acceptance of deposits is kept, to the extent practicable, physically segregated from insurance product activity.

      ‘(2) REQUIREMENTS- Regulations prescribed pursuant to paragraph (1) shall include the following requirements:

        ‘(A) SEPARATE SETTING- A clear delineation of the setting in which, and the circumstances under which, transactions involving insurance products should be conducted in a location physically segregated from an area where retail deposits are routinely accepted.

        ‘(B) REFERRALS- Standards that permit any person accepting deposits from the public in an area where such transactions are routinely conducted in an insured depository institution to refer a customer who seeks to purchase any insurance product to a qualified person who sells such product, only if the person making the referral receives no more than a one-time nominal fee of a fixed dollar amount for each referral that does not depend on whether the referral results in a transaction.

        ‘(C) QUALIFICATION AND LICENSING REQUIREMENTS- Standards prohibiting any insured depository institution from permitting any person to sell or offer for sale any insurance product in any part of any office of the institution, or on behalf of the institution, unless such person is appropriately qualified and licensed.

    ‘(e) EFFECT ON OTHER AUTHORITY-

      ‘(1) IN GENERAL- No provision of this section shall be construed as granting, limiting, or otherwise affecting--

        ‘(A) any authority of the Securities and Exchange Commission, any self-regulatory organization, the Municipal Securities Rulemaking Board, or the Secretary of the Treasury under any Federal securities law; or

        ‘(B) except as provided in paragraph (2), any authority of any State insurance commission (or any agency or office performing like functions), or of any State securities commission (or any agency or office performing like functions), or other State authority under any State law.

      ‘(2) COORDINATION WITH STATE LAW-

        ‘(A) IN GENERAL- Except as provided in subparagraph (B), insurance customer protection regulations prescribed by a Federal banking agency under this section shall not apply to retail sales, solicitations, advertising, or offers of any insurance product by any insured depository institution or to any person who is engaged in such activities at an office of such institution or on behalf of the institution, in a State where the State has in effect statutes, regulations, orders, or interpretations, that are inconsistent with or contrary to the regulations prescribed by the Federal banking agencies.

        ‘(B) PREEMPTION-

          ‘(i) IN GENERAL- If, with respect to any provision of the regulations prescribed under this section, the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, and the Board of Directors of the Corporation determine jointly that the protection afforded by such provision for customers is greater than the protection provided by a comparable provision of the statutes, regulations, orders, or interpretations referred to in subparagraph (A) of any State, the appropriate State regulatory authority shall be notified of such determination in writing.

          ‘(ii) CONSIDERATIONS- Before making a final determination under clause (i), the Federal agencies referred to in clause (i) shall give appropriate consideration to comments submitted by the appropriate State regulatory authorities relating to the level of protection afforded to consumers under State law.

          ‘(iii) FEDERAL PREEMPTION AND ABILITY OF STATES TO OVERRIDE FEDERAL PREEMPTION- If the Federal agencies referred to in clause (i) jointly determine that any provision of the regulations prescribed under this section affords greater protections than a comparable State law, rule, regulation, order, or interpretation, those agencies shall send a written preemption notice to the appropriate State regulatory authority to notify the State that the Federal provision will preempt the State provision and will become applicable unless, not later than 3 years after the date of such notice, the State adopts legislation to override such preemption.

    ‘(f) NON-DISCRIMINATION AGAINST NON-AFFILIATED AGENTS- The Federal banking agencies shall ensure that the regulations prescribed pursuant to subsection (a) shall not have the practical effect of discriminating, either intentionally or unintentionally, against any person engaged in insurance sales or solicitations that is not affiliated with an insured depository institution.’.

SEC. 203. FEDERAL AND STATE DISPUTE RESOLUTION.

    (a) FILING IN COURT OF APPEALS- In the case of a regulatory conflict between a State insurance regulator and a Federal regulator regarding insurance issues, including whether a State law, rule, regulation, order, or interpretation regarding any insurance sales or solicitation activity is properly treated as preempted under Federal law, either regulator may seek expedited judicial review of such determination by the United States Court of Appeals for the circuit in which the State is located or in the United States Court of Appeals for the District of Columbia Circuit by filing a petition for review in such court.

    (b) EXPEDITED REVIEW- The United States Court of Appeals in which a petition for review if filed in accordance with subsection (a) shall complete all action on such petition, including rendering a judgment, before the end of the 60-day period beginning on the date on which such petition is filed, unless all parties to such proceedings agree to any extension of such period.

    (c) SUPREME COURT REVIEW- Any request for certiorari to the Supreme Court of the United States of any judgment of a United States Court of Appeals with respect to a petition for review under this section shall be filed with the Supreme Court of the United States as soon as practicable after such judgment is issued.

    (d) STATUTE OF LIMITATION- No action may be filed under this section challenging an order, ruling, determination, or other action of a Federal regulator or State insurance regulator after the later of--

      (1) the end of the 12-month period beginning on the date on which the first public notice is made of such order, ruling, determination or other action in its final form; or

      (2) the end of the 6-month period beginning on the date on which such order, ruling, determination, or other action takes effect.

    (e) STANDARD OF REVIEW- The court shall decide an action filed under subsection (a) based on its review on the merits of all questions presented under State and Federal law, including the nature of the product or activity and the history and purpose of its regulation under State and Federal law, according equal deference to the Federal regulator and the State insurance regulator.

TITLE III--REGULATORY IMPROVEMENTS

SEC. 301. ELIMINATION OF SAIF AND DIF SPECIAL RESERVES.

    (a) SAIF SPECIAL RESERVE- Section 11(a)(6) of the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(6)) is amended by striking subparagraph (L).

    (b) DIF SPECIAL RESERVE- Section 2704 of the Deposit Insurance Funds Act of 1996 (12 U.S.C. 1821 note) is amended--

      (1) by striking subsection (b); and

      (2) in subsection (d)--

        (A) by striking paragraph (4);

        (B) in paragraph (6)(C)(i), by striking ‘(6) and (7)’ and inserting ‘(5), (6), and (7)’; and

        (C) in paragraph (6)(C), by striking clause (ii) and inserting the following:

          ‘(ii) by redesignating paragraph (8) as paragraph (5).’.

    (c) EFFECTIVE DATE- This section and the amendments made by this section shall become effective on the date of enactment of this Act.

SEC. 302. EXPANDED SMALL BANK ACCESS TO S CORPORATION TREATMENT.

    (a) STUDY- The Comptroller General of the United States shall conduct a study of--

      (1) possible revisions to the rules governing S corporations, including--

        (A) increasing the permissible number of shareholders in such corporations;

        (B) permitting shares of such corporations to be held in individual retirement accounts;

        (C) clarifying that interest on investments held for safety, soundness, and liquidity purposes should not be considered to be passive income;

        (D) discontinuation of the treatment of stock held by bank directors as a disqualifying personal class of stock for such corporations; and

        (E) improving Federal tax treatment of bad debt and interest deductions; and

      (2) what impact such revisions might have on community banks.

    (b) REPORT TO CONGRESS- Not later than 6 months after the date of enactment of this Act, the Comptroller General of the United States shall submit a report to the Congress on the results of the study conducted under subsection (a).

    (c) DEFINITION- For purposes of this section, the term ‘S corporation’ has the same meaning as in section 1361(a)(1) of the Internal Revenue Code of 1986.

SEC. 303. MEANINGFUL CRA EXAMINATIONS.

    (a) COMPLIANCE- Notwithstanding any other provision of law, an insured depository institution rated as ‘satisfactory’ or better in its most recent examination under the Community Reinvestment Act of 1977, and in each such examination during the immediately preceding 36-month period shall be deemed to be in compliance with the requirements of that Act until the completion of a subsequent regularly scheduled examination under that Act, unless substantial verifiable information arising since the time of its most recent examination under that Act demonstrating noncompliance is filed with the appropriate Federal banking agency.

    (b) OBJECTIONS-

      (1) AGENCY DETERMINATION- The appropriate Federal banking agency shall determine, on a timely basis, whether the information filed by any person under subsection (a) provides sufficient proof that the subject insured depository institution is no longer in compliance with the requirements of the Community Reinvestment Act of 1977, as provided in subsection (a).

      (2) BURDEN OF PROOF- A person filing information under subsection (a) shall bear the burden of proving to the satisfaction of the appropriate Federal banking agency, the substantial verifiable nature of that information.

    (c) DEFINITIONS- In this section, the terms ‘insured depository institution’ and ‘appropriate Federal banking agency’ have the same meanings as in section 3 of the Federal Deposit Insurance Act.

SEC. 304. FINANCIAL INFORMATION PRIVACY PROTECTION.

    (a) FINANCIAL INFORMATION ANTI-FRAUD- The Consumer Credit Protection Act (15 U.S.C. 1601 et seq.) is amended by adding at the end the following:

‘TITLE X--FINANCIAL INFORMATION PRIVACY PROTECTION

‘SEC. 1001. SHORT TITLE; TABLE OF CONTENTS.

    ‘(a) SHORT TITLE- This title may be cited as the ‘Financial Information Anti-Fraud Act of 1999’.

    ‘(b) TABLE OF CONTENTS- The table of contents for this title is as follows:

‘TITLE X--FINANCIAL INFORMATION PRIVACY PROTECTION

      ‘Sec. 1001. Short title; table of contents.

      ‘Sec. 1002. Definitions.

      ‘Sec. 1003. Privacy protection for customer information of financial institutions.

      ‘Sec. 1004. Administrative enforcement.

      ‘Sec. 1005. Civil liability.

      ‘Sec. 1006. Criminal penalty.

      ‘Sec. 1007. Relation to State laws.

      ‘Sec. 1008. Agency guidance.

‘SEC. 1002. DEFINITIONS.

    ‘For purposes of this title, the following definitions shall apply:

      ‘(1) CUSTOMER- The term ‘customer’ means, with respect to a financial institution, any person (or authorized representative of a person) to whom the financial institution provides a product or service, including that of acting as a fiduciary.

      ‘(2) CUSTOMER INFORMATION OF A FINANCIAL INSTITUTION- The term ‘customer information of a financial institution’ means any information maintained by a financial institution which is derived from the relationship between the financial institution and a customer of the financial institution and is identified with the customer.

      ‘(3) DOCUMENT- The term ‘document’ means any information in any form.

      ‘(4) FINANCIAL INSTITUTION-

        ‘(A) IN GENERAL- The term ‘financial institution’ means any institution engaged in the business of providing financial services to customers who maintain a credit, deposit, trust, or other financial account or relationship with the institution.

        ‘(B) CERTAIN FINANCIAL INSTITUTIONS SPECIFICALLY INCLUDED- The term ‘financial institution’ includes any depository institution (as defined in section 19(b)(1)(A) of the Federal Reserve Act), any loan or finance company, any credit card issuer or operator of a credit card system, and any consumer reporting agency that compiles and maintains files on consumers on a nationwide basis (as defined in section 603(p)).

        ‘(C) FURTHER DEFINITION BY REGULATION- The Board of Governors of the Federal Reserve System may prescribe regulations further defining the term ‘financial institution’, in accordance with subparagraph (A), for purposes of this title.

‘SEC. 1003. PRIVACY PROTECTION FOR CUSTOMER INFORMATION OF FINANCIAL INSTITUTIONS.

    ‘(a) PROHIBITION ON OBTAINING CUSTOMER INFORMATION BY FALSE PRETENSES- It shall be a violation of this title for any person to obtain or attempt to obtain, or cause to be disclosed or attempt to cause to be disclosed to any person, customer information of a financial institution relating to another person--

      ‘(1) by knowingly making a false, fictitious, or fraudulent statement or representation to an officer, employee, or agent of a financial institution with the intent to deceive the officer, employee, or agent into relying on that statement or representation for purposes of releasing the customer information;

      ‘(2) by knowingly making a false, fictitious, or fraudulent statement or representation to a customer of a financial institution with the intent to deceive the customer into relying on that statement or representation for purposes of releasing the customer information or authorizing the release of such information; or

      ‘(3) by knowingly providing any document to an officer, employee, or agent of a financial institution, knowing that the document is forged, counterfeit, lost, or stolen, was fraudulently obtained, or contains a false, fictitious, or fraudulent statement or representation, if the document is provided with the intent to deceive the officer, employee, or agent into relying on that document for purposes of releasing the customer information.

    ‘(b) PROHIBITION ON SOLICITATION OF A PERSON TO OBTAIN CUSTOMER INFORMATION FROM FINANCIAL INSTITUTION UNDER FALSE PRETENSES- It shall be a violation of this title to request a person to obtain customer information of a financial institution, knowing or consciously avoiding knowing that the person will obtain, or attempt to obtain, the information from the institution in any manner described in subsection (a).

    ‘(c) NONAPPLICABILITY TO LAW ENFORCEMENT AGENCIES- No provision of this section shall be construed so as to prevent any action by a law enforcement agency, or any officer, employee, or agent of such agency, to obtain customer information of a financial institution in connection with the performance of the official duties of the agency.

    ‘(d) NONAPPLICABILITY TO FINANCIAL INSTITUTIONS IN CERTAIN CASES- No provision of this section shall be construed to prevent any financial institution, or any officer, employee, or agent of a financial institution, from obtaining customer information of such financial institution in the course of--

      ‘(1) testing the security procedures or systems of such institution for maintaining the confidentiality of customer information;

      ‘(2) investigating allegations of misconduct or negligence on the part of any officer, employee, or agent of the financial institution; or

      ‘(3) recovering customer information of the financial institution which was obtained or received by another person in any manner described in subsection (a) or (b).

    ‘(e) NONAPPLICABILITY TO CERTAIN TYPES OF CUSTOMER INFORMATION OF FINANCIAL INSTITUTIONS- No provision of this section shall be construed to prevent any person from obtaining customer information of a financial institution that otherwise is available as a public record filed pursuant to the securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934).

‘SEC. 1004. ADMINISTRATIVE ENFORCEMENT.

    ‘(a) ENFORCEMENT BY FEDERAL TRADE COMMISSION- Except as provided in subsection (b), compliance with this title shall be enforced by the Federal Trade Commission in the same manner and with the same power and authority as the Commission has under the Fair Debt Collection Practices Act to enforce compliance with that title.

    ‘(b) ENFORCEMENT BY OTHER AGENCIES IN CERTAIN CASES-

      ‘(1) IN GENERAL- Compliance with this title shall be enforced under--

        ‘(A) section 8 of the Federal Deposit Insurance Act, in the case of--

          ‘(i) national banks, and Federal branches and Federal agencies of foreign banks, by the Office of the Comptroller of the Currency;

          ‘(ii) member banks of the Federal Reserve System (other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25A of the Federal Reserve Act, by the Board;

          ‘(iii) banks insured by the Federal Deposit Insurance Corporation (other than members of the Federal Reserve System and national nonmember banks) and insured State branches of foreign banks, by the Board of Directors of the Federal Deposit Insurance Corporation; and

          ‘(iv) savings associations the deposits of which are insured by the Federal Deposit Insurance Corporation, by the Director of the Office of Thrift Supervision; and

        ‘(B) the Federal Credit Union Act, by the Administrator of the National Credit Union Administration with respect to any Federal credit union.

      ‘(2) VIOLATIONS OF THIS TITLE TREATED AS VIOLATIONS OF OTHER LAWS- For the purpose of the exercise by any agency referred to in paragraph (1) of its powers under any Act referred to in that paragraph, a violation of this title shall be deemed to be a violation of a requirement imposed under that Act. In addition to its powers under any provision of law specifically referred to in paragraph (1), each of the agencies referred to in that paragraph may exercise, for the purpose of enforcing compliance with this title, any other authority conferred on such agency by law.

    ‘(c) STATE ACTION FOR VIOLATIONS-

      ‘(1) AUTHORITY OF STATES- In addition to such other remedies as are provided under State law, if the chief law enforcement officer of a State, or an official or agency designated by a State, has reason to believe that any person has violated or is violating this title, the State--

        ‘(A) may bring an action to enjoin such violation in any appropriate United States district court or in any other court of competent jurisdiction;

        ‘(B) may bring an action on behalf of the residents of the State to recover damages of not more than $1,000 for each violation; and

        ‘(C) in the case of any successful action under subparagraph (A) or (B), shall be awarded the costs of the action and reasonable attorney fees as determined by the court.

      ‘(2) RIGHTS OF FEDERAL REGULATORS-

        ‘(A) PRIOR NOTICE- The State shall serve prior written notice of any action under paragraph (1) upon the Federal Trade Commission and, in the case of an action which involves a financial institution described in section 1004(b)(1), the agency referred to in such section with respect to such institution and provide the Federal Trade Commission and any such agency with a copy of its complaint, except in any case in which such prior notice is not feasible, in which case the State shall serve such notice immediately upon instituting such action.

        ‘(B) RIGHT TO INTERVENE- The Federal Trade Commission or an agency described in subsection (b) shall have the right--

          ‘(i) to intervene in an action under paragraph (1);

          ‘(ii) upon so intervening, to be heard on all matters arising therein;

          ‘(iii) to remove the action to the appropriate United States district court; and

          ‘(iv) to file petitions for appeal.

      ‘(3) INVESTIGATORY POWERS- For purposes of bringing any action under this subsection, no provision of this subsection shall be construed as preventing the chief law enforcement officer, or an official or agency designated by a State, from exercising the powers conferred on the chief law enforcement officer or such official by the laws of such State to conduct investigations or to administer oaths or affirmations or to compel the attendance of witnesses or the production of documentary and other evidence.

      ‘(4) LIMITATION ON STATE ACTION WHILE FEDERAL ACTION PENDING- If the Federal Trade Commission or any agency described in subsection (b) has instituted a civil action for a violation of this title, no State may, during the pendency of such action, bring an action under this section against any defendant named in the complaint of the Federal Trade Commission or such agency for any violation of this title that is alleged in that complaint.

‘SEC. 1005. CIVIL LIABILITY.

    ‘Any person, other than a financial institution, who fails to comply with any provision of this title with respect to any financial institution or any customer information of a financial institution shall be liable to such financial institution or the customer to whom such information relates in an amount equal to the sum of the amounts determined under each of the following paragraphs:

      ‘(1) ACTUAL DAMAGES- The greater of--

        ‘(A) the amount of any actual damage sustained by the financial institution or customer as a result of such failure; or

        ‘(B) any amount received by the person who failed to comply with this title, including an amount equal to the value of any nonmonetary consideration, as a result of the action which constitutes such failure.

      ‘(2) ADDITIONAL DAMAGES- Such additional amount as the court may allow.

      ‘(3) ATTORNEYS’ FEES- In the case of any successful action to enforce any liability under paragraph (1) or (2), the costs of the action, together with reasonable attorneys’ fees.

‘SEC. 1006. CRIMINAL PENALTY.

    ‘(a) IN GENERAL- Whoever violates, or attempts to violate, section 1003 shall be fined in accordance with title 18, United States Code, or imprisoned for not more than 5 years, or both.

    ‘(b) ENHANCED PENALTY FOR AGGRAVATED CASES- Whoever violates, or attempts to violate, section 1003 while violating another law of the United States or as part of a pattern of any illegal activity involving more than $100,000 in a 12-month period shall be fined twice the amount provided in subsection (b)(3) or (c)(3) (as the case may be) of section 3571 of title 18, United States Code, imprisoned for not more than 10 years, or both.

‘SEC. 1007. RELATION TO STATE LAWS.

    ‘(a) IN GENERAL- This title shall not be construed as superseding, altering, or affecting the statutes, regulations, orders, or interpretations in effect in any State, except to the extent that such statutes, regulations, orders, or interpretations are inconsistent with the provisions of this title, and then only to the extent of the inconsistency.

    ‘(b) GREATER PROTECTION UNDER STATE LAW- For purposes of this section, a State statute, regulation, order, or interpretation is not inconsistent with the provisions of this title if the protection such statute, regulation, order, or interpretation affords any person is greater than the protection provided under this title.

‘SEC. 1008. AGENCY GUIDANCE.

    ‘In furtherance of the objectives of this title, each Federal banking agency (as defined in section 3(z) of the Federal Deposit Insurance Act) shall issue advisories to depository institutions under the jurisdiction of the agency, in order to assist such depository institutions in deterring and detecting activities proscribed under section 1003.’.

    (b) REPORT TO CONGRESS ON FINANCIAL PRIVACY- Not later than 18 months after the date of enactment of this Act, the Comptroller General of the United States, in consultation with the Federal Trade Commission, the Federal banking agencies, and other appropriate Federal law enforcement agencies, shall submit to the Congress a report on--

      (1) the efficacy and adequacy of the remedies provided in the amendments made by subsection (a) in addressing attempts to obtain financial information by fraudulent means or by false pretenses; and

      (2) any recommendations for additional legislative or regulatory action to address threats to the privacy of financial information created by attempts to obtain information by fraudulent means or false pretenses.

    (c) REPORTS ON ONGOING FTC STUDY OF CONSUMER PRIVACY ISSUES- With respect to the ongoing multistage study being conducted by the Federal Trade Commission on consumer privacy issues, the Commission shall submit to the Congress an interim report on the findings and conclusions of the Commission, together with such recommendations for legislative and administrative action as the Commission determines to be appropriate, at the conclusion of each stage of such study and a final report at the conclusion of the study.

    (d) CONSUMER GRIEVANCE PROCESS- The Federal banking agencies (as that term is defined in section 3 of the Federal Deposit Insurance Act) shall jointly establish a consumer complaint mechanism, for receiving and expeditiously addressing consumer complaints alleging a violation of regulations issued under section 45 of the Federal Deposit Insurance Act (as added by section 202 of this Act), which mechanism shall--

      (1) establish a group within each Federal banking agency to receive such complaints; and

      (2) develop procedures for--

        (A) investigating such complaints;

        (B) informing consumers of rights they may have in connection with such complaints; and

        (C) addressing concerns raised by such complaints, as appropriate, including procedures for the recovery of losses, to the extent appropriate.

SEC. 305. CROSS MARKETING RESTRICTION; LIMITED PURPOSE BANK RELIEF; DIVESTITURE.

    (a) CROSS MARKETING RESTRICTION- Section 4(f) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(f)) is amended by striking paragraph (3).

    (b) DAYLIGHT OVERDRAFTS- Section 4(f) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(f)) is amended by inserting after paragraph (2) the following new paragraph:

      ‘(3) PERMISSIBLE OVERDRAFTS DESCRIBED- For purposes of paragraph (2)(C), an overdraft is described in this paragraph if--

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

        ‘(B) such overdraft--

          ‘(i) is permitted or incurred on behalf of an affiliate that is monitored by, reports to, and is recognized as a primary dealer by the Federal Reserve Bank of New York; and

          ‘(ii) is fully secured, as required by the Board, by bonds, notes, or other obligations that are direct obligations of the United States or on which the principal and interest are fully guaranteed by the United States or by securities and obligations eligible for settlement on the Federal Reserve book entry system; or

        ‘(C) such overdraft--

          ‘(i) is permitted or incurred by, or on behalf of, an affiliate that is engaged in activities that are so closely related to banking, or managing or controlling banks, as to be a proper incident thereto; and

          ‘(ii) does not cause the bank to violate any provision of section 23A or 23B of the Federal Reserve Act, either directly, in the case of a bank that is a member of the Federal Reserve System, or by virtue of section 18(j) of the Federal Deposit Insurance Act, in the case of a bank that is not a member of the Federal Reserve System.’.

    (c) INDUSTRIAL LOAN COMPANIES; AFFILIATE OVERDRAFTS- Section 2(c)(2)(H) of the Bank Holding Company Act of 1956 (12 U.S.C. 1841(c)(2)(H)) is amended by inserting before the period at the end ‘, or that is otherwise permissible for a bank controlled by a company described in section 4(f)(1)’.

    (d) ACTIVITIES LIMITATIONS- Section 4(f)(2) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(f)(2)) is amended--

      (1) by striking ‘Paragraph (1) shall cease to apply to any company described in such paragraph if--’ and inserting ‘Subject to paragraph (3), a company described in paragraph (1) shall no longer qualify for the exemption provided under that paragraph if--’;

      (2) in subparagraph (A)--

        (A) in clause (ii)(IX), by striking ‘and’ at the end;

        (B) in clause (ii)(X), by inserting ‘and’ after the semicolon;

        (C) in clause (ii), by inserting after subclause (X) the following:

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

        (D) by striking ‘or’ at the end; and

      (3) by striking subparagraph (B) and inserting the following:

        ‘(B) any bank subsidiary of such company--

          ‘(i) accepts demand deposits or deposits that the depositor may withdraw by check or similar means for payment to third parties; and

          ‘(ii) engages in the business of making commercial loans (except that, for purposes of this clause, loans made in the ordinary course of a credit card operation shall not be treated as commercial loans); or

        ‘(C) after the date of enactment of the Competitive Equality Amendments of 1987, any bank subsidiary of such company permits any overdraft (including any intraday overdraft), or incurs any such overdraft in the account of the bank at a Federal reserve bank, on behalf of an affiliate, other than an overdraft described in paragraph (3).’.

    (e) DIVESTITURE REQUIREMENT- Section 4(f)(4) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(f)(4)) is amended to read as follows:

      ‘(4) DIVESTITURE IN CASE OF LOSS OF EXEMPTION- If any company described in paragraph (1) fails to qualify for the exemption provided under paragraph (1) by operation of paragraph (2), such exemption shall cease to apply to such company and such company shall divest control of each bank it controls before the end of the 180-day period beginning on the date on which the company receives notice from the Board that the company has failed to continue to qualify for such exemption, unless, before the end of such 180-day period, the company has--

        ‘(A) either--

          ‘(i) corrected the condition or ceased the activity that caused the company to fail to continue to qualify for the exemption; or

          ‘(ii) submitted a plan to the Board for approval to cease the activity or correct the condition in a timely manner (which shall not exceed 1 year); and

        ‘(B) implemented procedures that are reasonably adapted to avoid the reoccurrence of such condition or activity.’.

SEC. 306. ‘PLAIN LANGUAGE’ REQUIREMENT FOR FEDERAL BANKING AGENCY RULES.

    (a) IN GENERAL- Each Federal banking agency shall use plain language in all proposed and final rulemakings published by the agency in the Federal Register after January 1, 2000.

    (b) REPORT- Not later than March 1, 2001, each Federal banking agency shall submit to the Congress a report that describes how the agency has complied with subsection (a).

    (c) DEFINITIONS- For purposes of this section, the terms ‘Federal banking agency’ and ‘State bank supervisor’ have the same meanings as in section 3 of the Federal Deposit Insurance Act.

SEC. 307. RETENTION OF ‘FEDERAL’ IN NAME OF CONVERTED FEDERAL SAVINGS ASSOCIATION.

    Section 2 of the Act entitled ‘An Act to enable national banking associations to increase their capital stock and to change their names or locations’, approved May 1, 1886 (12 U.S.C. 30), is amended by adding at the end the following new subsection:

    ‘(d) RETENTION OF ‘FEDERAL’ IN NAME OF CONVERTED FEDERAL SAVINGS ASSOCIATION-

      ‘(1) IN GENERAL- Notwithstanding subsection (a) or any other provision of law, any depository institution, the charter of which is converted from that of a Federal savings association to a national bank or a State bank after the date of enactment of the Financial Services Modernization Act of 1999 may retain the term ‘Federal’ in the name of such institution if such institution remains an insured depository institution.

      ‘(2) DEFINITIONS- For purposes of this subsection, the terms ‘depository institution’, ‘insured depository institution’, ‘national bank’, and ‘State bank’ have the same meanings as in section 3 of the Federal Deposit Insurance Act.’.

SEC. 308. COMMUNITY REINVESTMENT ACT EXEMPTION.

    (a) IN GENERAL- No community financial institution shall be subject to the Community Reinvestment Act of 1977 (12 U.S.C. 2901 et seq.).

    (b) DEFINITION OF COMMUNITY FINANCIAL INSTITUTION- As used in this section, the term ‘community financial institution’ means an insured depository institution (as defined in section 3 of the Federal Deposit Insurance Act), that has aggregate assets of not more than $100,000,000, and that is located in a non-metropolitan area.

    (c) ADJUSTMENTS- The dollar amount referred to in subsection (b) shall be adjusted annually after December 31, 1999, by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers published by the Bureau of Labor Statistics.

    (d) DEFINITION- For purposes of this section, the term ‘non-metropolitan area’ means any area, no part of which is within an area designated as a metropolitan statistical area by the Office of Management and Budget.

SEC. 309. BANK OFFICERS AND DIRECTORS AS OFFICERS AND DIRECTORS OF PUBLIC UTILITIES.

    Section 305(b) of the Federal Power Act (16 U.S.C. 825d(b)) is amended--

      (1) by striking ‘(b) After six’ and inserting the following:

    ‘(b) INTERLOCKING DIRECTORATES-

      ‘(1) IN GENERAL- After 6’; and

      (2) by adding at the end the following:

      ‘(2) APPLICABILITY-

        ‘(A) IN GENERAL- In the circumstances described in subparagraph (B), paragraph (1) shall not apply to a person that holds or proposes to hold the positions of--

          ‘(i) officer or director of a public utility; and

          ‘(ii) officer or director of a bank, trust company, banking association, or firm authorized by law to underwrite or participate in the marketing of securities of a public utility.

        ‘(B) CIRCUMSTANCES- The circumstances described in this subparagraph are that--

          ‘(i) a person described in subparagraph (A) does not participate in any deliberations or decisions of the public utility regarding the selection of a bank, trust company, banking association, or firm to underwrite or participate in the marketing of securities of the public utility, if the person serves as an officer or director of a bank, trust company, banking association, or firm that is under consideration in the deliberation process;

          ‘(ii) the bank, trust company, banking association, or firm of which the person is an officer or director does not engage in the underwriting of, or participate in the marketing of, securities of the public utility of which the person holds the position of officer or director;

          ‘(iii) the public utility for which the person serves or proposes to serve as an officer or director selects underwriters by competitive procedures; or

          ‘(iv) the issuance of securities the public utility for which the person serves or proposes to serve as an officer or director has been approved by all Federal and State regulatory agencies having jurisdiction over the issuance.’.

SEC. 310. CONTROL OF BANKERS’ BANKS.

    Section 2(a)(5)(E)(i) of the Bank Holding Company Act of 1956 (12 U.S.C. 1841(a)(5)(E)(i)) is amended by inserting ‘one or more’ before ‘thrift institutions’.

SEC. 311. MULTISTATE LICENSING AND INTERSTATE INSURANCE SALES ACTIVITIES.

    (a) FINDINGS- Congress finds that--

      (1) the States regulate the business of insurance, including the licensing of insurance agents and brokers;

      (2) the current State insurance licensing system requires insurance agents and brokers to obtain licenses on a line-by-line, class-by-class, producer-by-producer, State-by-State basis;

      (3) in the commercial and industrial insurance arena, this State-based system usually requires a single agent or broker to hold scores of licenses if that agent or broker intends to sell or broker insurance on a nationwide basis;

      (4) because of the duplicative licensing requirements both within States and from State to State, a single insurance agent or broker must satisfy literally hundreds of administrative filing requirements to become fully licensed to engage in the sale of a full range of insurance products on a nationwide basis;

      (5) these administrative requirements appear to be essentially unrelated to any requisite standards of professionalism;

      (6) many States impose certain requirements on insurance agents and brokers that pose an undue, discriminatory burden on nonresident agents, including some States that ban solicitation of insurance clients by nonresident agents and brokers;

      (7) many States impose anticompetitive post-licensure requirements on nonresident agents and brokers, including countersignature laws that require an agent or broker servicing the needs of an out-of-State client to have any insurance policy that is sold ‘countersigned’ by a resident agent;

      (8) in some cases, such countersignature laws also require a nonresident agent or broker to pay at least half of any commission earned in a State in which the agent or broker is not a resident to a resident agent or broker; and

      (9) such duplicative and onerous filing requirements and anticompetitive burdens inhibit interstate commerce, constitute unjustifiable trade barriers, greatly undermine the competition that this Act seeks to foster.

    (b) SENSE OF CONGRESS- It is the sense of the Congress that--

      (1) by the end of the 36-month period beginning on the date of enactment of this Act, the States should--

        (A) implement uniform insurance agent and broker licensing application and qualification requirements that result in a fully reciprocal licensing system; and

        (B) eliminate any pre- or post-licensure requirements that have the practical effect of discriminating, directly or indirectly, against nonresident insurance agents or brokers;

      (2) if such actions are not taken, Congress should take steps to directly rectify the problems identified in subsection (a); and

      (3) any entity established by the Congress to so rectify the problems should be under the supervision and oversight of the National Association of Insurance Commissioners.

SEC. 312. CRA SUNSHINE REQUIREMENTS.

    (a) DISCLOSURE AND REPORTING- The Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), is amended by adding at the end thereof the following new section:

‘SEC. 46. CRA SUNSHINE REQUIREMENTS.

    ‘(a) PUBLIC DISCLOSURE OF AGREEMENTS- Any agreement entered into by an insured depository institution or affiliate with a nongovernmental entity or person made pursuant to or in connection with the Community Reinvestment Act involving funds or other resources of such insured depository institution or affiliate shall be in its entirety fully disclosed, and the full text thereof made available to the appropriate Federal banking agency with supervisory responsibility over the insured depository institution and to the public and shall obligate each party to comply with the provisions of this section.

    ‘(b) ANNUAL REPORT OF ACTIVITY- Each party to the agreement shall report, as applicable, to the appropriate Federal banking agency with supervisory responsibility over the insured depository institution, no less frequently than once each year, such information as the Federal banking agency may by rule require relating to the following actions taken by the party pursuant to an agreement described in subsection (a) during the previous 12-month period--

      ‘(1) payments, fees or loans made to any party to the agreement or received from any party to the agreement and the terms and conditions of the same; and

      ‘(2) aggregate data on loans, investments and services provided by each party in its community or communities pursuant to the agreement; and

      ‘(3) such other pertinent matters as determined by rule by the appropriate Federal banking agency with supervisory responsibility over the insured depository institution.

    The Federal banking agency shall ensure that the regulations implementing this section do not impose an undue burden on the parties and that proprietary and confidential information is protected.

    ‘(c) EXISTING AGREEMENTS- The requirements of subsection (b) (1), (2), and (3) shall be deemed to be fulfilled with respect to any agreement made prior to May 5, 1999.

    ‘(d) SECONDARY AGREEMENTS- Any agreement made on or after May 5, 1999 pursuant to an agreement described in subsection (a) also is subject to the requirements of subsections (a) and (b).

    ‘(e) DEFINITIONS-

      ‘(1) AGREEMENT- As used in this section, the term ‘agreement’ refers to any written contract, written arrangement, or other written understanding with a value in excess of $10,000 annually, or a group of substantively related contracts with an aggregate value of $10,000 annually, made pursuant to or in connection with the Community Reinvestment Act of 1977, at least one party to which is an insured depository institution or affiliate thereof, or entity owned or controlled by an insured depository institution or affiliate, whether organized on a profit or not-for-profit basis. The term ‘agreement’ shall not include any specific contract or commitment for a loan or extension of credit to individuals, businesses, farms, or other entities, where the purpose of the loan or extension of credit does not include any re-lending of the borrowed funds to other parties.

      ‘(2) APPROPRIATE FEDERAL BANKING AGENCY AND INSURED DEPOSITORY INSTITUTION- As used in this section, the terms ‘appropriate Federal banking agency’ and ‘insured depository institution’ have the same meanings as defined in section 3 of this Act.

    ‘(d) VIOLATIONS- Any violation of the provisions of this section shall be considered a violation of this Act. If the party to the agreement that is not an insured depository institution or affiliate fails to comply with this section, the agreement shall not be enforceable after being given notice and a reasonable period of time to perform or comply.

    ‘(e) LIMITATION- Nothing in this section is intended to provide any authority upon any appropriate Federal banking agency to enforce the provisions of the agreements that are subject to the requirements of subsection (a).

    ‘(f) REGULATIONS- Each appropriate Federal banking agency shall prescribe regulations requiring procedures reasonably designed to assure and monitor compliance with the requirements of this section.’.

SEC. 313. INTERSTATE BRANCHES AND AGENCIES OF FOREIGN BANKS.

    Section 5 of the International Banking Act of 1978, as amended (12 U.S.C. 3103), is amended by striking subsection (a)(7) and substituting the following:

‘(7) Additional authority for interstate branches and agencies of foreign banks; upgrades of certain foreign bank agencies and branches

    ‘Notwithstanding paragraphs (1) and (2), a foreign bank may--

      ‘(A) with the approval of the Board and the Comptroller of the Currency, establish and operate a Federal branch or Federal agency or, with the approval of the Board and the appropriate State bank supervisor, a State branch or State agency in any State outside the foreign bank’s home State if--

        ‘(i) the establishment and operation of such branch or agency is permitted by the State in which the branch or agency is to be established; and

        ‘(ii) in the case of a Federal or State branch, the branch receives only such deposits as would be permitted for a corporation organized under section 25A of the Federal Reserve Act (12 U.S.C. 611 et seq.); or

      ‘(B) with the approval of the Board and the relevant licensing authority (the Comptroller in the case of a Federal branch or the appropriate State supervisor in the case of a State branch), upgrade an agency, or a branch of the type referred to in subsection (a)(7)(A)(ii), located in a State outside the foreign bank’s home State, into a Federal or State branch if the establishment and operation of such branch is permitted by such State and--

        ‘(i) such agency or branch was in operation in such State on the day before September 29, 1994, or

        ‘(ii) such agency or branch has been in operation in such State for a period of time that meets the State’s minimum age requirement permitted under section 1831u(a)(5) of title 12, United States Code.’.

SEC. 314. DISCLOSURES TO CONSUMERS UNDER THE TRUTH IN LENDING ACT.

    (a) DISCLOSURE OF LATE PAYMENT DEADLINES AND PENALTIES- Section 127(b) of the Truth in Lending Act (15 U.S.C. 1637(b)) is amended by adding at the end the following:

      ‘(12) If a charge is to be imposed due to the failure of the obligor to make payment on or before a required payment due date, the date that payment is due or, if different, the date on which a late payment fee will be charged, shall be stated prominently in a conspicuous location on the billing statement, together with the amount of the charge to be imposed if payment is made after such date.’.

    (b) DISCLOSURES RELATED TO ‘TEASER RATES’- Section 127(c) (15 U.S.C. 1637(c)) is amended by inserting after paragraph (5) (as so redesignated by section 4 of this Act) the following:

      ‘(6) ADDITIONAL NOTICE CONCERNING ‘TEASER RATES’-

        ‘(A) IN GENERAL- An application or solicitation for a credit card for which a disclosure is required under this subsection shall contain the disclosure contained in subparagraph (B) or (C), as appropriate, if the application or solicitation offers, for an introductory period of less than 1 year, an annual percentage rate of interest that--

          ‘(i) is less than the annual percentage rate of interest that will apply after the end of the introductory period; or

          ‘(ii) in the case of an annual percentage rate that varies in accordance with an index, is less than the current annual percentage rate under the index that will apply after the end of such period.

        ‘(B) FIXED ANNUAL PERCENTAGE RATE- If the annual percentage rate that will apply after the end of the introductory period will be a fixed rate, the application or solicitation shall include the following disclosure: ‘The annual percentage rate of interest applicable during the introductory period is not the annual percentage rate that will apply after the end of the introductory period. The permanent annual percentage rate will apply after [insert applicable date] and will be [insert applicable percentage rate].’.

        ‘(C) VARIABLE ANNUAL PERCENTAGE RATE- If the annual percentage rate that will apply after the end of the introductory period will vary in accordance with an index, the application or solicitation shall include the following disclosure: ‘The annual percentage rate of interest applicable during the introductory period is not the annual percentage rate that will apply after the end of the introductory period. The permanent annual percentage rate will be determined by an index, and will apply after [insert applicable date]. If the index that will apply after such date were applied to your account today, the annual percentage rate would be [insert applicable percentage rate].’.

        ‘(D) CONDITIONS FOR INTRODUCTORY RATES- If the annual percentage rate of interest that will apply during the introductory period described in subparagraph (A) is revocable or otherwise conditioned upon any action by the obligor, including any failure by the obligor to pay the minimum payment amount or finance charge or to make any payment by the stated monthly payment due date, the application or solicitation shall include disclosure of--

          ‘(i) the conditions that the obligor must meet to retain the annual percentage rate of interest during the introductory period; and

          ‘(ii) the annual percentage rate of interest that will apply as a result of the failure of the obligor to meet such conditions.

        ‘(E) FORM OF DISCLOSURE- The disclosures required under this paragraph shall be made in a clear and conspicuous manner, in a prominent fashion.’.

SEC. 315. APPROVAL FOR PURCHASES OF SECURITIES.

    Section 23B(b)(2) of the Federal Reserve Act (12 U.S.C. 371c-1) is amended to read as follows:

    ‘Subparagraph (B) of paragraph (1) shall not apply if the purchase or acquisition of such securities has been approved, before such securities are initially offered for sale to the public, by a majority of the directors of the bank based on a determination that the purchase is a sound investment for the bank irrespective of the fact that an affiliate of the bank is a principal underwriter of the securities.’.

SEC. 316. PROVISION OF TECHNICAL ASSISTANCE TO MICROENTERPRISES.

    (a) IN GENERAL- Title I of the Riegle Community Development and Regulatory Improvement Act of 1994 (12 U.S.C. 4701 et seq.) is amended by adding at the end the following:

‘Subtitle C--Microenterprise Technical Assistance and Capacity Building Program

‘SEC. 171. SHORT TITLE.

    ‘This subtitle may be cited as the ‘Program for Investment in Microentrepreneurs Act of 1999’, also referred to as the ‘PRIME Act’.

‘SEC. 172. DEFINITIONS.

    ‘For purposes of this subtitle--

      ‘(1) the term ‘Administrator’ has the same meaning as in section 103;

      ‘(2) the term ‘capacity building services’ means services provided to an organization that is, or is in the process of becoming a microenterprise development organization or program, for the purpose of enhancing its ability to provide training and services to disadvantaged entrepreneurs;

      ‘(3) the term ‘collaborative’ means 2 or more nonprofit entities that agree to act jointly as a qualified organization under this subtitle;

      ‘(4) the term ‘disadvantaged entrepreneur’ means a microentrepreneur that is--

        ‘(A) a low-income person;

        ‘(B) a very low-income person; or

        ‘(C) an entrepreneur that lacks adequate access to capital or other resources essential for business success, or is economically disadvantaged, as determined by the Administrator;

      ‘(5) the term ‘Fund’ has the same meaning as in section 103;

      ‘(6) the term ‘Indian tribe’ has the same meaning as in section 103;

      ‘(7) the term ‘intermediary’ means a private, nonprofit entity that seeks to serve microenterprise development organizations and programs as authorized under section 175;

      ‘(8) the term ‘low-income person’ has the same meaning as in section 103;

      ‘(9) the term ‘microentrepreneur’ means the owner or developer of a microenterprise;

      ‘(10) the term ‘microenterprise’ means a sole proprietorship, partnership, or corporation that--

        ‘(A) has fewer than 5 employees; and

        ‘(B) generally lacks access to conventional loans, equity, or other banking services;

      ‘(11) the term ‘microenterprise development organization or program’ means a nonprofit entity, or a program administered by such an entity, including community development corporations or other nonprofit development organizations and social service organizations, that provides services to disadvantaged entrepreneurs or prospective entrepreneurs;

      ‘(12) the term ‘training and technical assistance’ means services and support provided to disadvantaged entrepreneurs or prospective entrepreneurs, such as assistance for the purpose of enhancing business planning, marketing, management, financial management skills, and assistance for the purpose of accessing financial services; and

      ‘(13) the term ‘very low-income person’ means having an income, adjusted for family size, of not more than 150 percent of the poverty line (as defined in section 673(2) of the Community Services Block Grant Act (42 U.S.C. 9902(2), including any revision required by that section).

‘SEC. 173. ESTABLISHMENT OF PROGRAM.

    ‘The Administrator shall establish a microenterprise technical assistance and capacity building grant program to provide assistance from the Fund in the form of grants to qualified organizations in accordance with this subtitle.

‘SEC. 174. USES OF ASSISTANCE.

    ‘A qualified organization shall use grants made under this subtitle--

      ‘(1) to provide training and technical assistance to disadvantaged entrepreneurs;

      ‘(2) to provide training and capacity building services to microenterprise development organizations and programs and groups of such organizations to assist such organizations and programs in developing microenterprise training and services;

      ‘(3) to aid in researching and developing the best practices in the field of microenterprise and technical assistance programs for disadvantaged entrepreneurs; and

      ‘(4) for such other activities as the Administrator determines are consistent with the purposes of this subtitle.

‘SEC. 175. QUALIFIED ORGANIZATIONS.

    ‘For purposes of eligibility for assistance under this subtitle, a qualified organization shall be--

      ‘(1) a nonprofit microenterprise development organization or program (or a group or collaborative thereof) that has a demonstrated record of delivering microenterprise services to disadvantaged entrepreneurs;

      ‘(2) an intermediary;

      ‘(3) a microenterprise development organization or program that is accountable to a local community, working in conjunction with a State or local government or Indian tribe; or

      ‘(4) an Indian tribe acting on its own, if the Indian tribe can certify that no private organization or program referred to in this paragraph exists within its jurisdiction.

‘SEC. 176. ALLOCATION OF ASSISTANCE; SUBGRANTS.

    ‘(a) ALLOCATION OF ASSISTANCE-

      ‘(1) IN GENERAL- The Administrator shall allocate assistance from the Fund under this subtitle to ensure that--

        ‘(A) activities described in section 174(1) are funded using not less than 75 percent of amounts made available for such assistance; and

        ‘(B) activities described in section 174(2) are funded using not less than 15 percent of amounts made available for such assistance.

      ‘(2) LIMIT ON INDIVIDUAL ASSISTANCE- No single organization or entity may receive more than 10 percent of the total funds appropriated under this subtitle in a single fiscal year.

    ‘(b) TARGETED ASSISTANCE- The Administrator shall ensure that not less than 50 percent of the grants made under this subtitle are used to benefit very low-income persons, including those residing on Indian reservations.

    ‘(c) SUBGRANTS AUTHORIZED-

      ‘(1) IN GENERAL- A qualified organization receiving assistance under this subtitle may provide grants using that assistance to qualified small and emerging microenterprise organizations and programs, subject to such rules and regulations as the Administrator determines to be appropriate.

      ‘(2) LIMIT ON ADMINISTRATIVE EXPENSES- Not more than 7.5 percent of assistance received by a qualified organization under this subtitle may be used for administrative expenses in connection with the making of subgrants under paragraph (1).

    ‘(d) DIVERSITY- In making grants under this subtitle, the Administrator shall ensure that grant recipients include both large and small microenterprise organizations, serving urban, rural, and Indian tribal communities and racially and ethnically diverse populations.

‘SEC. 177. MATCHING REQUIREMENTS.

    ‘(a) IN GENERAL- Financial assistance under this subtitle shall be matched with funds from sources other than the Federal Government on the basis of not less than 50 percent of each dollar provided by the Fund.

    ‘(b) SOURCES OF MATCHING FUNDS- Fees, grants, gifts, funds from loan sources, and in-kind resources of a grant recipient from public or private sources may be used to comply with the matching requirement in subsection (a).

    ‘(c) EXCEPTION-

      ‘(1) IN GENERAL- In the case of an applicant for assistance under this subtitle with severe constraints on available sources of matching funds, the Administrator may reduce or eliminate the matching requirements of subsection (a).

      ‘(2) LIMITATION- Not more than 10 percent of the total funds made available from the Fund in any fiscal year to carry out this subtitle may be excepted from the matching requirements of subsection (a), as authorized by paragraph (1) of this subsection.

‘SEC. 178. APPLICATIONS FOR ASSISTANCE.

    ‘An application for assistance under this subtitle shall be submitted in such form and in accordance with such procedures as the Fund shall establish.

‘SEC. 179. RECORDKEEPING.

    ‘The requirements of section 115 shall apply to a qualified organization receiving assistance from the Fund under this subtitle as if it were a community development financial institution receiving assistance from the Fund under subtitle A.

‘SEC. 180. AUTHORIZATION.

    ‘In addition to funds otherwise authorized to be appropriated to the Fund to carry out this title, there are authorized to be appropriated to the Fund to carry out this subtitle--

      ‘(1) $15,000,000 for fiscal year 2000;

      ‘(2) $15,000,000 for fiscal year 2001;

      ‘(3) $15,000,000 for fiscal year 2002; and

      ‘(4) $15,000,000 for fiscal year 2003.

‘SEC. 181. IMPLEMENTATION.

    ‘The Administrator shall, by regulation, establish such requirements as may be necessary to carry out this subtitle.’.

    (b) ADMINISTRATIVE EXPENSES- Section 121(a)(2)(A) of the Riegle Community Development and Regulatory Improvement Act of 1994 (12 U.S.C. 4718(a)(2)(A)) is amended--

      (1) by striking ‘$5,550,000’ and inserting ‘$6,100,000’; and

      (2) in the first sentence, by inserting before the period ‘, including costs and expenses associated with carrying out subtitle C’.

    (c) CONFORMING AMENDMENTS- Section 104(d) of the Riegle Community Development and Regulatory Improvement Act of 1994 (12 U.S.C. 4703(d)) is amended--

      (1) in paragraph (2)--

        (A) by striking ‘15’ and inserting ‘17’;

        (B) in subparagraph (G)--

          (i) by striking ‘9’ and inserting ‘11’;

          (ii) by redesignating clauses (iv) and (v) as clauses (v) and (vi), respectively; and

          (iii) by inserting after clause (iii) the following:

          ‘(iv) 2 individuals who have expertise in microenterprises and microenterprise development;’; and

      (2) in paragraph (4), in the first sentence, by inserting before the period ‘and subtitle C’.

SEC. 317. FEDERAL RESERVE AUDITS.

    (a) IN GENERAL- The Federal Reserve Act (12 U.S.C. 221 et seq.) is amended by inserting after section 11A the following:

‘SEC. 11B. ANNUAL INDEPENDENT AUDITS OF FEDERAL RESERVE BANKS.

    ‘(a) AUDIT REQUIRED- Each Federal reserve bank shall annually obtain an audit of the financial statements of each Federal reserve bank (which shall have been prepared in accordance with generally accepted accounting principles) using generally accepted auditing standards from an independent auditor that meets the requirements of subsection (b).

    ‘(b) AUDITOR’S QUALIFICATIONS- The independent auditor referred to in subsection (a) shall--

      ‘(1) be a certified public accountant who is independent of the Federal Reserve System; and

      ‘(2) meet any other qualifications that the Board may establish.

    ‘(c) CERTIFICATION REQUIRED- In each audit required under subsection (a), the auditor shall certify to the Federal reserve bank and to the Board that the auditor--

      ‘(1) is a certified public accountant and is independent of the Federal Reserve System; and

      ‘(2) conducted the audit using generally accepted auditing standards.

    ‘(d) CERTIFICATION BY FEDERAL RESERVE BANK- Not later than 30 days after the completion of each audit required under subsection (a), the Federal reserve bank shall provide to the Comptroller General of the United States--

      ‘(1) a certification that--

        ‘(A) the Federal reserve bank has obtained the audit required under subsection (a);

        ‘(B) the Federal reserve bank has received the certifications of the auditor required under subsection (c); and

        ‘(C) the audit fully complies with subsection (a).

    ‘(e) DETECTION OF ILLEGAL ACTS-

      ‘(1) AUDIT PROCEDURES- Each audit required by this section shall include procedures designed to provide reasonable assurance of detecting illegal acts that would have a direct and material effect on the determination of financial statement amounts.

      ‘(2) REPORTING POSSIBLE ILLEGALITIES- If, in the course of conducting an audit required by this section, the independent auditor detects or otherwise becomes aware of information indicating that an illegal act (whether or not perceived to have an effect on the financial statements of the Federal reserve bank) has or may have occurred, the auditor--

        ‘(A) shall determine whether it is likely that the illegal act has occurred; and

        ‘(B) shall, if the auditor determines that the illegal act is likely to have occurred--

          ‘(i) determine and consider the possible effect of the illegal act on the financial statements of the Federal reserve bank; and

          ‘(ii) as soon as practicable, inform the Board that the illegal act is likely to have occurred.

      ‘(3) REPORT TO CONGRESS- The independent auditor under this section shall, as soon as practicable, directly report its conclusions to the Committee on Governmental Affairs of the Senate and the Committee on Government Reform of the House of Representatives with regard to any possible illegal act that has been detected or has otherwise come to the attention of the auditor during the course of the audit required by this section, if, after determining that the Board is adequately informed with respect to such possible illegal act, the auditor concludes that--

        ‘(A) the possible illegal act has a direct and material effect on the financial statements of the Federal reserve bank;

        ‘(B) the Board has not taken timely and appropriate remedial actions with respect to the possible illegal act; and

        ‘(C) the failure to take remedial action is reasonably expected to warrant departure from a standard report of the auditor when made, or warrant resignation from the audit engagement.

      ‘(4) RESIGNATION OF AUDITOR- If an independent auditor resigns from its engagement to audit a Federal reserve bank under paragraph (3), the auditor shall furnish to the Committee on Governmental Affairs of the Senate and the Committee on Government Reform of the House of Representatives, not later than 1 business day after such resignation, a copy of the report of the auditor (or documentation of any oral report given).

    ‘(f) RECORDKEEPING- To facilitate compliance with this section, each Federal reserve bank shall--

      ‘(1) ensure that the books, records, and accounts of the Federal reserve bank are maintained and kept in sufficient detail to accurately and fairly reflect the transactions and dispositions of the assets of the bank;

      ‘(2) devise and maintain a system of internal controls sufficient to provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets;

      ‘(3) ensure that access to assets of the Federal reserve bank is permitted only in accordance with the general or specific authorization of the Board; and

      ‘(4) ensure that--

        ‘(A) the recorded accountability for assets is compared with the existing assets at reasonable intervals; and

        ‘(B) appropriate action is taken with respect to any differences.

    ‘(g) REPORTS TO BOARD, CONGRESS- Not later than April 30 of each year, each Federal reserve bank shall submit a copy of each audit conducted under this section to the Board, and to the Committee on Governmental Affairs of the Senate and the Committee on Government Reform of the House of Representatives.

‘SEC. 11C. INDEPENDENT AUDITS OF FEDERAL RESERVE SYSTEM AND FEDERAL RESERVE BOARD.

    ‘(a) AUDIT OF RESERVE SYSTEM- The Board shall annually obtain an audit of the consolidated financial statements of the Federal Reserve System (which shall have been prepared in accordance with generally accepted accounting principles) from an independent auditor, using generally accepted auditing standards, based on reports of audits of Federal reserve banks submitted to the Board under section 11B(g) and the audit of the Board under subsection (b) of this section.

    ‘(b) AUDIT OF BOARD-

      ‘(1) IN GENERAL- The Board shall annually obtain an audit of the financial statements of the Board (which shall have been prepared in accordance with generally accepted accounting principles) from an independent auditor, using generally accepted auditing standards.

      ‘(2) PRICED SERVICES AUDIT-

        ‘(A) IN GENERAL- As part of each audit of the Board required by this subsection, the auditor shall--

          ‘(i) audit the calculation of the private sector adjustment factor established by the Board pursuant to section 11A(c)(3) for the year that is the subject of the audit; and

          ‘(ii) audit the pro forma balance sheet and income statement for the services described in section 11A(b), including the determination of revenue, expenses, and income before income taxes for each service listed in that section (in accordance with the criteria specified in section 11A(c)(3)).

        ‘(B) REPORT TO THE BOARD- The auditor shall report the results of the audit under subparagraph (A)(ii) to the Board in written form.

      ‘(3) LIMITATION- The evaluations and audits required by this subsection shall not include deliberations, decisions, or actions on monetary policy matters, including discount authority under section 13, reserves of national banks, securities credit, interest on deposits, and open market operations.

    ‘(c) AUDITOR’S QUALIFICATIONS- An independent auditor referred to in this section shall--

      ‘(1) be a certified public accountant and be independent of the Federal Reserve System; and

      ‘(2) meet any other qualifications that the Board may establish.

    ‘(d) CERTIFICATION REQUIRED- In each audit required under this section, the auditor shall certify to the Board that the auditor--

      ‘(1) is a certified public accountant and is independent of the Federal Reserve System; and

      ‘(2) conducted the audit using generally accepted auditing standards.

    ‘(e) DETECTION OF ILLEGAL ACTS-

      ‘(1) AUDIT PROCEDURES- Each audit required by this section shall include procedures designed to provide reasonable assurance of detecting illegal acts that would have a direct and material affect on the determination of financial statement amounts.

      ‘(2) REPORTING POSSIBLE ILLEGALITIES- If, in the course of conducting an audit of the Federal Reserve System or the Board as required by this section, the independent auditor detects or otherwise becomes aware of information indicating that an illegal act (whether or not perceived to have an effect on the financial statements of the Federal reserve bank) has or may have occurred, the auditor--

        ‘(A) shall determine whether it is likely that the illegal act has occurred; and

        ‘(B) shall, if the auditor determines that the illegal act is likely to have occurred--

          ‘(i) determine and consider the possible effect of the illegal act on the financial statements of the Federal Reserve System or the Board, as applicable; and

          ‘(ii) as soon as practicable, inform the Board that the illegal act is likely to have occurred.

      ‘(3) REPORT TO CONGRESS- An independent auditor under this section shall directly report, as soon as practicable, its conclusions to the Committee on Governmental Affairs of the Senate and the Committee on Government Reform of the House of Representatives, with regard to any possible illegal act that has been detected or has otherwise come to the attention of the auditor during the course of an audit of the Federal Reserve System or the Board required by this section, if, after determining that the Board is adequately informed with respect to such possible illegal act, the auditor concludes that--

        ‘(A) the possible illegal act has a direct and material effect on the financial statements of the Federal Reserve System or the Board, as applicable;

        ‘(B) the Board has not taken timely and appropriate remedial actions with respect to the possible illegal act; and

        ‘(C) the failure to take remedial action is reasonably expected to warrant departure from a standard report of the auditor when made, or warrant resignation from the audits engagement.

      ‘(4) RESIGNATION OF AUDITOR- If an independent auditor resigns from its engagement to audit the Federal Reserve System or the Board under paragraph (3), the auditor shall furnish to the Committee on Governmental Affairs of the Senate and the Committee on Government Reform of the House of Representatives, not later than 1 business day after such resignation, a copy of the report of the auditor (or documentation of any oral report given).

    ‘(f) RECORDKEEPING- To facilitate compliance with this section, the Board shall--

      ‘(1) ensure that the books, records, and accounts of the Board are maintained and kept in sufficient detail to accurately and fairly reflect the transactions and dispositions of assets;

      ‘(2) devise and maintain a system of internal controls sufficient to provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets;

      ‘(3) ensure that access to assets of the Board is permitted only in accordance with general or specific authorization of the Board; and

      ‘(4) ensure that--

        ‘(A) the recorded accountability for assets is compared with the existing assets at reasonable intervals; and

        ‘(B) appropriate action is taken with respect to any differences.

    ‘(g) REPORTS TO CONGRESS- Not later than May 31 of each year, the Board shall make available all audits and reports required by this section to the Committee on Governmental Affairs of the Senate and the Committee on Government Reform of the House of Representatives.’.

    (b) FEDERAL RESERVE REQUIREMENTS-

      (1) CLARIFICATION OF FEE SCHEDULE REQUIREMENTS-

        (A) IN GENERAL- Section 11A(b) of the Federal Reserve Act (12 U.S.C. 248a(b)) is amended--

          (i) by redesignating paragraphs (7) and (8) as paragraphs (8) and (9), respectively; and

          (ii) by inserting after paragraph (6) the following:

      ‘(7) transportation of paper checks in the clearing process;’.

        (B) PUBLICATION OF REVISED SCHEDULE- Not later than 60 days after the date of enactment of this Act, the Board of Governors of the Federal Reserve System shall publish a revision of the schedule of fees required under section 11A of the Federal Reserve Act that reflects the changes made in the schedule in accordance with the amendments made by subparagraph (A) of this paragraph.

      (2) CLARIFICATION OF APPLICABLE PRICING CRITERIA- Section 11A(c) of the Federal Reserve Act (12 U.S.C. 248a(c)) is amended by striking paragraph (3) and inserting the following:

      ‘(3)(A) In each fiscal year, fees shall be established for each service provided by the Federal reserve banks on the basis of all direct and indirect costs actually incurred (excluding the effect of any pension cost credit) in providing each of the services, including interest on items credited prior to actual collection, overhead, and an allocation of imputed costs, which takes into account the taxes that would have been paid and the return on capital that would have been provided had the services been provided by a private business firm.

      ‘(B) The pricing principles referred to in subparagraph (A) shall be carried out with due regard to competitive factors and the provision of an adequate level of such services nationwide.

      ‘(C)(i) Not later than 1 year after the date of enactment of the Financial Services Modernization Act of 1999, and not less frequently than once every 3 years thereafter, the Board shall conduct a comprehensive review of the methodology used to calculate the private sector adjustment factor pursuant to section 11A(c)(3), including a public notice and comment period.

      ‘(ii) In conducting the review under clause (i), the Board shall publish in the Federal Register all elements of the methodology in use by the Board in the calculation of the private sector adjustment factor pursuant to section 11A(c)(3) provide notice and solicit public comment on the methodology, requesting commentators to identify areas of the methodology that are outdated, inappropriate, unnecessary, or that contribute to an inaccurate result in the calculation of the private sector adjustment factor.

      ‘(iii) The Board shall--

        ‘(I) publish in the Federal Register a summary of the comments received under this subparagraph, identifying significant issues raised; and

        ‘(II) provide comment on such issues and make changes to the methodology to the extent that the Board considers to be appropriate.

      ‘(iv) Not later than 30 days after the completion of each review under clause (i), the Board shall submit to Congress a report which shall include--

        ‘(I) a summary of any significant issues raised by public comments received by the Board under this subparagraph and the relative merits of such issues; and

        ‘(II) an analysis of whether the Board is able to address the concerns raised, or whether such concerns should be addressed by legislation.’.

SEC. 318. STUDY AND REPORT ON ADVERTISING PRACTICES OF ONLINE BROKERAGE SERVICES.

    (a) STUDY- The Securities and Exchange Commission (hereafter in this section referred to as the ‘Commission’), in consultation with the National Association of Securities Dealers and other interested parties, shall conduct a study of--

      (1) the nature and content of advertising by online brokerage services in all media, including television, on the Internet, radio, and in print;

      (2) if such advertising influences investors and potential investors to make investment decisions, and if such advertising improperly influences those investors and potential investors to make inappropriate investment decisions;

      (3) whether such advertising properly discloses the risks associated with trading and investing in the capital markets; and

      (4) whether--

        (A) there are appropriate regulatory mechanisms in place to prevent any improper or deceptive advertising; and

        (B) the Commission has or needs additional resources or authority to actively participate in such regulation.

    (b) REPORT- Not later than 180 days after the date of enactment of this Act, the Commission shall submit a report to the Congress on the results of the study conducted under subsection (a), together with any recommendations for changes that it considers necessary to protect investors and potential investors from improper or deceptive advertising.

SEC. 319. ELIGIBILITY OF COMMUNITY DEVELOPMENT FINANCIAL INSTITUTION TO BORROW FROM THE FEDERAL HOME LOAN BANK SYSTEM.

    Section 10b of the Federal Home Loan Bank Act (12 U.S.C. 1430b) is amended--

      (1) in subsection (a) by striking the second sentence and inserting the following two sentences: ‘Such mortgagees must be (i) chartered institutions having succession and (ii) subject to the inspection and supervision of some governmental agency or a community development financial institution (other than an insured depository institution or a subsidiary thereof) that, at the time the advance is made, is certified under the Community Development Banking and Financial Institutions Act of 1994. The principal activity of such mortgagees in the mortgage field must consist of lending their own funds and any advances may be subject to the same collateralization requirements as applied to other nonmember borrowers.’;

      (2) in the last sentence of subsection (a) by replacing the word ‘such’ with ‘the same’ and by replacing the phrase ‘shall be determined by the board’ with the phrase ‘are comparable extensions of credit to members’; and

      (3) in subsection (b) by inserting in the first sentence between the words ‘agency’ and ‘for’ the following phrase: ‘or a certified community development financial institution’.

TITLE IV--FEDERAL HOME LOAN BANK SYSTEM MODERNIZATION

SEC. 401. SHORT TITLE.

    This title may be cited as the ‘Federal Home Loan Bank System Modernization Act of 1999’.

SEC. 402. DEFINITIONS.

    Section 2 of the Federal Home Loan Bank Act (12 U.S.C. 1422) is amended--

      (1) in paragraph (1), by striking ‘term ‘Board’ means’ and inserting ‘terms ‘Finance Board’ and ‘Board’ mean’;

      (2) by striking paragraph (3) and inserting the following:

      ‘(3) STATE- The term ‘State’, in addition to the States of the United States, includes the District of Columbia, Guam, Puerto Rico, the United States Virgin Islands, American Samoa, and the Commonwealth of the Northern Mariana Islands.’; and

      (3) by adding at the end the following new paragraph:

      ‘(13) COMMUNITY FINANCIAL INSTITUTION-

        ‘(A) IN GENERAL- The term ‘community financial institution’ means a member--

          ‘(i) the deposits of which are insured under the Federal Deposit Insurance Act; and

          ‘(ii) that has, as of the date of the transaction at issue, less than $500,000,000 in average total assets, based on an average of total assets over the 3 years preceding that date.

        ‘(B) ADJUSTMENTS- The $500,000,000 limit referred to in subparagraph (A)(ii) shall be adjusted annually by the Finance Board, based on the annual percentage increase, if any, in the Consumer Price Index for all urban consumers, as published by the Department of Labor.’.

SEC. 403. SAVINGS ASSOCIATION MEMBERSHIP.

    (a) FEDERAL HOME LOAN BANK MEMBERSHIP- Section 5(f) of the Home Owners’ Loan Act (12 U.S.C. 1464(f)) is amended to read as follows:

    ‘(f) FEDERAL HOME LOAN BANK MEMBERSHIP- On and after June 1, 2000, a Federal savings association may become a member of the Federal Home Loan Bank System, and shall qualify for such membership in the manner provided by the Federal Home Loan Bank Act.’.

    (b) WITHDRAWAL- Section 6(e) of the Federal Home Loan Bank Act (12 U.S.C. 1426(e)) is amended by striking ‘Any member other than a Federal savings and loan association may withdraw’ and inserting ‘Any member may withdraw if, on the date of withdrawal there is in effect a certification by the Finance Board that the withdrawal will not cause the Federal Home Loan Bank System to fail to meet its obligation under section 21B(f)(2)(C) to contribute to the debt service for the obligations issued by the Resolution Funding Corporation’.

SEC. 404. ADVANCES TO MEMBERS; COLLATERAL.

    (a) IN GENERAL- Section 10(a) of the Federal Home Loan Bank Act (12 U.S.C. 1430(a)) is amended--

      (1) by redesignating paragraphs (1) through (4) as subparagraphs (A) through (D), respectively, and indenting appropriately;

      (2) by striking ‘(a) Each’ and inserting the following:

    ‘(a) IN GENERAL-

      ‘(1) ALL ADVANCES- Each’;

      (3) by striking the second sentence and inserting the following:

      ‘(2) PURPOSES OF ADVANCES- A long-term advance may only be made for the purposes of--

        ‘(A) providing funds to any member for residential housing finance; and

        ‘(B) providing funds to any community financial institution for small businesses, small farms, and small agri-businesses.’;

      (4) by striking ‘A Bank’ and inserting the following:

      ‘(3) COLLATERAL- A Bank’;

      (5) in paragraph (3) (as so designated by paragraph (4) of this subsection)--

        (A) in subparagraph (C) (as so redesignated by paragraph (1) of this subsection) by striking ‘Deposits’ and inserting ‘Cash or deposits’;

        (B) in subparagraph (D) (as so redesignated by paragraph (1) of this subsection), by striking the second sentence; and

        (C) by inserting after subparagraph (D) (as so redesignated by paragraph (1) of this subsection) the following new subparagraph:

        ‘(E) Secured loans for small business, agriculture, or securities representing a whole interest in such secured loans, in the case of any community financial institution.’;

      (6) in paragraph (5)--

        (A) in the second sentence, by striking ‘and the Board’;

        (B) in the third sentence, by striking ‘Board’ and inserting ‘Federal Home Loan Bank’; and

        (C) by striking ‘(5) Paragraphs (1) through (4)’ and inserting the following:

      ‘(4) ADDITIONAL BANK AUTHORITY- Subparagraphs (A) through (E) of paragraph (3)’; and

      (7) by adding at the end the following:

      ‘(5) REVIEW OF CERTAIN COLLATERAL STANDARDS- The Board may review the collateral standards applicable to each Federal Home Loan Bank for the classes of collateral described in subparagraphs (D) and (E) of paragraph (3), and may, if necessary for safety and soundness purposes, require an increase in the collateral standards for any or all of those classes of collateral.

      ‘(6) DEFINITIONS- For purposes of this subsection, the terms ‘small business’, ‘agriculture’, ‘small farm’, and ‘small agri-business’ shall have the meanings given those terms by rule or regulation of the Finance Board.’.

    (b) CLERICAL AMENDMENT- The section heading for section 10 of the Federal Home Loan Bank Act (12 U.S.C. 1430) is amended to read as follows:

‘SEC. 10. ADVANCES TO MEMBERS.’.

SEC. 405. ELIGIBILITY CRITERIA.

    Section 4(a) of the Federal Home Loan Bank Act (12 U.S.C. 1424(a)) is amended--

      (1) in paragraph (2)(A), by inserting, ‘(other than a community financial institution)’ after ‘institution’;

      (2) in the matter immediately following paragraph (2)(C)--

        (A) by striking ‘An insured’ and inserting the following:

      ‘(3) CERTAIN INSTITUTIONS- An insured’; and

        (B) by striking ‘preceding sentence’ and inserting ‘paragraph (2)’; and

      (3) by adding at the end the following new paragraph:

      ‘(4) LIMITED EXEMPTION FOR COMMUNITY FINANCIAL INSTITUTIONS- A community financial institution that otherwise meets the requirements of paragraph (2) may become a member without regard to the percentage of its total assets that is represented by residential mortgage loans, as described in subparagraph (A) of paragraph (2).’.

SEC. 406. MANAGEMENT OF BANKS.

    (a) BOARD OF DIRECTORS- Section 7(d) of the Federal Home Loan Bank Act (12 U.S.C. 1427(d)) is amended--

      (1) by striking ‘(d) The term’ and inserting the following:

    ‘(d) TERMS OF OFFICE- The term’; and

      (2) by striking ‘shall be two years’.

    (b) COMPENSATION- Section 7(i) of the Federal Home Loan Bank Act (12 U.S.C. 1427(i)) is amended by striking ‘subject to the approval of the board’.

    (c) REPEAL OF SECTIONS 22A AND 27- The Federal Home Loan Bank Act (12 U.S.C. 1421 et seq.) is amended by striking sections 22A (12 U.S.C. 1442a) and 27 (12 U.S.C. 1447).

    (d) SECTION 12- Section 12 of the Federal Home Loan Bank Act (12 U.S.C. 1432) is amended--

      (1) in subsection (a)--

        (A) by striking ‘, but, except’ and all that follows through ‘ten years’;

        (B) by striking ‘subject to the approval of the Board’ each place that term appears;

        (C) by striking ‘and, by its Board of directors,’ and all that follows through ‘agent of such bank,’ and inserting ‘and, by the board of directors of the Bank, to prescribe, amend, and repeal by-laws governing the manner in which its affairs may be administered, consistent with applicable laws and regulations, as administered by the Finance Board. No officer, employee, attorney, or agent of a Federal Home Loan Bank’; and

        (D) by striking ‘Board of directors’ each place that term appears and inserting ‘board of directors’; and

      (2) in subsection (b), by striking ‘loans banks’ and inserting ‘loan banks’.

    (e) POWERS AND DUTIES OF FEDERAL HOUSING FINANCE BOARD-

      (1) ISSUANCE OF NOTICES OF VIOLATIONS- Section 2B(a) of the Federal Home Loan Bank Act (12 U.S.C. 1422b(a)) is amended by adding at the end the following new paragraphs:

      ‘(5) To issue and serve a notice of charges upon a Federal Home Loan Bank or upon any executive officer or director of a Federal Home Loan Bank if, in the determination of the Finance Board, the Bank, executive officer, or director is engaging or has engaged in, or the Finance Board has reasonable cause to believe that the Bank, executive officer, or director is about to engage in, any conduct that violates any provision of this Act or any law, order, rule, or regulation or any condition imposed in writing by the Finance Board in connection with the granting of any application or other request by the Bank, or any written agreement entered into by the Bank with the agency, in accordance with the procedures provided in section 1371(c) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992. Such authority includes the same authority to take affirmative action to correct conditions resulting from violations or practices or to limit activities of a Bank or any executive officer or director of a Bank as appropriate Federal banking agencies have to take with respect to insured depository institutions under paragraphs (6) and (7) of section 8(b) of the Federal Deposit Insurance Act, and to have all other powers, rights, and duties to enforce this Act with respect to the Federal Home Loan Banks and their executive officers and directors as the Office of Federal Housing Enterprise Oversight has to enforce the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, the Federal National Mortgage Association Charter Act, or the Federal Home Loan Mortgage Corporation Act with respect to the Federal housing enterprises under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992.

      ‘(6) To sue and be sued, by and through its own attorneys.’.

      (2) TECHNICAL AMENDMENT- Section 111 of Public Law 93-495 (12 U.S.C. 250) is amended by inserting ‘Federal Housing Finance Board,’ after ‘Director of the Office of Thrift Supervision,’.

    (f) ELIGIBILITY TO SECURE ADVANCES-

      (1) SECTION 9- Section 9 of the Federal Home Loan Bank Act (12 U.S.C. 1429) is amended--

        (A) in the second sentence, by striking ‘with the approval of the Board’; and

        (B) in the third sentence, by striking ‘, subject to the approval of the Board,’.

      (2) SECTION 10- Section 10 of the Federal Home Loan Bank Act (12 U.S.C. 1430) is amended--

        (A) in subsection (c)--

          (i) in the first sentence, by striking ‘Board’ and inserting ‘Federal Home Loan Bank’; and

          (ii) in the second sentence, by striking ‘held by’ and all that follows before the period; and

        (B) in subsection (d)--

          (i) in the first sentence, by striking ‘and the approval of the Board’; and

          (ii) by striking ‘Subject to the approval of the Board, any’ and inserting ‘Any’.

    (g) SECTION 16- Section 16(a) of the Federal Home Loan Bank Act (12 U.S.C. 1436(a)) is amended--

      (1) in the third sentence--

        (A) by striking ‘net earnings’ and inserting ‘previously retained earnings or current net earnings’; and

        (B) by striking ‘, and then only with the approval of the Federal Housing Finance Board’; and

      (2) by striking the fourth sentence.

    (h) SECTION 18- Section 18(b) of the Federal Home Loan Bank Act (12 U.S.C. 1438(b)) is amended by striking paragraph (4).

SEC. 407. RESOLUTION FUNDING CORPORATION.

    (a) IN GENERAL- Section 21B(f)(2)(C) of the Federal Home Loan Bank Act (12 U.S.C. 1441b(f)(2)(C)) is amended to read as follows:

        ‘(C) PAYMENTS BY FEDERAL HOME LOAN BANKS-

          ‘(i) IN GENERAL- To the extent that the amounts available pursuant to subparagraphs (A) and (B) are insufficient to cover the amount of interest payments, each Federal Home Loan Bank shall pay to the Funding Corporation in each calendar year, 20.75 percent of the net earnings of that Bank (after deducting expenses relating to section 10(j) and operating expenses).

          ‘(ii) ANNUAL DETERMINATION- The Board annually shall determine the extent to which the value of the aggregate amounts paid by the Federal Home Loan Banks exceeds or falls short of the value of an annuity of $300,000,000 per year that commences on the issuance date and ends on the final scheduled maturity date of the obligations, and shall select appropriate present value factors for making such determinations.

          ‘(iii) PAYMENT TERM ALTERATIONS- The Board shall extend or shorten the term of the payment obligations of a Federal Home Loan Bank under this subparagraph as necessary to ensure that the value of all payments made by the Banks is equivalent to the value of an annuity referred to in clause (ii).

          ‘(iv) TERM BEYOND MATURITY- If the Board extends the term of payment obligations beyond the final scheduled maturity date for the obligations, each Federal Home Loan Bank shall continue to pay 20.75 percent of its net earnings (after deducting expenses relating to section 10(j) and operating expenses) to the Treasury of the United States until the value of all such payments by the Federal Home Loan Banks is equivalent to the value of an annuity referred to in clause (ii). In the final year in which the Federal Home Loan Banks are required to make any payment to the Treasury under this subparagraph, if the dollar amount represented by 20.75 percent of the net earnings of the Federal Home Loan Banks exceeds the remaining obligation of the Banks to the Treasury, the Finance Board shall reduce the percentage pro rata to a level sufficient to pay the remaining obligation.’.

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall become effective on June 1, 2000. Payments made by a Federal Home Loan Bank before that effective date shall be counted toward the total obligation of that Bank under section 21B(f)(2)(C) of the Federal Home Loan Bank Act, as amended by this section.

SEC. 408. GAO STUDY ON FEDERAL HOME LOAN BANK SYSTEM CAPITAL.

    (a) STUDY- The Comptroller General of the United States shall conduct a study of--

      (1) possible revisions to the capital structure of the Federal Home Loan Bank System, including the need for--

        (A) more permanent capital;

        (B) a statutory leverage ratio; and

        (C) a risk-based capital structure; and

      (2) what impact such revisions might have on the operations of the Federal Home Loan Bank System, including the obligation of the Federal Home Loan Bank System under section 21B(f)(2)(C) of the Federal Home Loan Bank Act.

    (b) REPORT TO CONGRESS- Not later than 1 year after the date of enactment of this Act, the Comptroller General of the United States shall submit a report to the Congress on the results of the study conducted under subsection (a).

TITLE V--FUNCTIONAL REGULATION OF BROKERS AND DEALERS

SEC. 501. DEFINITION OF BROKER.

    (a) It is the intention of this Act subject to carefully defined exceptions which do not undermine the dominant principle of functional regulation to ensure that securities transactions effected by a bank are regulated by securities regulators, notwithstanding any other provision of this Act.

    (b) Section 3(a)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)) is amended to read as follows:

      ‘(4) BROKER-

        ‘(A) IN GENERAL- The term ‘broker’ means any person engaged in the business of effecting transactions in securities for the account of others.

        ‘(B) EXCEPTION FOR CERTAIN BANK ACTIVITIES- A bank shall not be considered to be a broker because the bank engages in any of the following activities under the conditions described:

          ‘(i) THIRD PARTY BROKERAGE ARRANGEMENTS- The bank enters into a contractual or other arrangement with a broker or dealer registered under this title under which the broker or dealer offers brokerage services on or off the premises of the bank, if--

            ‘(I) such broker or dealer is clearly identified as the person performing the brokerage services;

            ‘(II) the broker or dealer performs brokerage services in an area of the bank that is clearly marked and, to the extent practicable, physically separate from the routine deposit-taking activities of the bank;

            ‘(III) any materials used by the bank to advertise or promote generally the availability of brokerage services under the contractual or other arrangement clearly indicate that the brokerage services are being provided by the broker or dealer and not by the bank;

            ‘(IV) any materials used by the bank to advertise or promote generally the availability of brokerage services under the contractual or other arrangement are in compliance with the Federal securities laws before distribution;

            ‘(V) bank employees (other than associated persons of a broker or dealer who are qualified pursuant to the rules of a self-regulatory organization) perform only clerical or ministerial functions in connection with brokerage transactions including scheduling appointments with the associated persons of a broker or dealer, except that bank employees may forward customer funds or securities and may describe in general terms the range of investment vehicles available from the bank and the broker or dealer under the contractual or other arrangement;

            ‘(VI) bank employees do not directly receive incentive compensation for any brokerage transaction, unless such employees are associated persons of a broker or dealer and are qualified pursuant to the rules of a self-regulatory organization, except that the bank employees may receive compensation for the referral of any customer if the compensation is a nominal one-time cash fee of a fixed dollar amount and the payment of the fee is not contingent on whether the referral results in a transaction;

            ‘(VII) such services are provided by the broker or dealer on a basis in which all customers that receive any services are fully disclosed to the broker or dealer;

            ‘(VIII) the bank does not carry a securities account of the customer, except in a customary custodian or trustee capacity; and

            ‘(IX) the bank, broker, or dealer informs each customer that the brokerage services are provided by the broker or dealer and not by the bank, and that the securities are not deposits or other obligations of the bank, are not guaranteed by the bank, and are not insured by the Federal Deposit Insurance Corporation.

          ‘(ii) TRUST ACTIVITIES- The bank effects transactions in a trustee capacity, or effects transactions in a fiduciary capacity in its trust department or other department that is regularly examined by bank examiners for compliance with fiduciary principles and standards, and does not publicly solicit brokerage business, other than by advertising that it effects transactions in securities in conjunction with advertising its other trust activities.

          ‘(iii) PERMISSIBLE SECURITIES TRANSACTIONS- The bank effects transactions in--

            ‘(I) commercial paper, bankers acceptances, or commercial bills;

            ‘(II) exempted securities;

            ‘(III) qualified Canadian Government obligations, as defined in section 5136 of the Revised Statutes of the United States, in conformity with section 15C of this title and the rules and regulations thereunder, or obligations of the North American Development Bank; or

            ‘(IV) any standardized, credit enhanced debt security issued by a foreign government pursuant to the March 1989 plan of then Secretary of the Treasury Brady, used by such foreign government to retire outstanding commercial bank loans.

          ‘(iv) CERTAIN STOCK PURCHASE PLANS-

            ‘(I) EMPLOYEE BENEFIT PLANS- The bank effects transactions, as part of its transfer agency activities, in the securities of an issuer as part of any pension, retirement, profit-sharing, bonus, thrift, savings, incentive, or other similar benefit plan for the employees of that issuer or its subsidiaries, if the bank does not solicit transactions or provide investment advice with respect to the purchase or sale of securities in connection with the plan.

            ‘(II) DIVIDEND REINVESTMENT PLANS- The bank effects transactions, as part of its transfer agency activities, in the securities of an issuer as part of that issuer’s dividend reinvestment plan, if--

‘(aa) the bank does not solicit transactions or provide investment advice with respect to the purchase or sale of securities in connection with the plan; and

‘(bb) the bank does not net shareholders’ buy and sell orders, other than for programs for odd-lot holders or plans registered with the Commission.

            ‘(III) ISSUER PLANS- The bank effects transactions, as part of its transfer agency activities, in the securities of an issuer as part of a plan or program for the purchase or sale of that issuer’s shares, if--

‘(aa) the bank does not solicit transactions or provide investment advice with respect to the purchase or sale of securities in connection with the plan or program; and

‘(bb) the bank does not net shareholders’ buy and sell orders, other than for programs for odd-lot holders or plans registered with the Commission.

            ‘(IV) PERMISSIBLE DELIVERY OF MATERIALS- The exception to being considered a broker for a bank engaged in activities described in subclauses (I), (II), and (III) will not be affected by delivery of written or electronic plan materials by a bank to employees of the issuer, shareholders of the issuer, or members of affinity groups of the issuer, so long as such materials are--

‘(aa) comparable in scope or nature to that permitted by the Commission as of the date of the enactment of the Financial Services Modernization Act of 1999; or

‘(bb) otherwise permitted by the Commission.

          ‘(v) SWEEP ACCOUNTS- The bank effects transactions as part of a program for the investment or reinvestment of bank deposit funds into any no-load, open-end management investment company registered under the Investment Company Act of 1940 that holds itself out as a money market fund.

          ‘(vi) AFFILIATE TRANSACTIONS- The bank effects transactions for the account of any affiliate of the bank (as defined in section 2 of the Bank Holding Company Act of 1956) other than--

            ‘(I) a registered broker or dealer; or

            ‘(II) an affiliate that is engaged in merchant banking, as described in section 4(k)(4)(H) of the Bank Holding Company Act of 1956.

          ‘(vii) PRIVATE SECURITIES OFFERINGS- The bank effects sales as part of a primary offering of securities not involving a public offering, pursuant to section 3(b), 4(2), or 4(6) of the Securities Act of 1933, or the rules and regulations issued thereunder.

          ‘(viii) SAFEKEEPING AND CUSTODY ACTIVITIES-

            ‘(I) IN GENERAL- The bank, as part of customary banking activities--

‘(aa) provides safekeeping or custody services with respect to securities, including the exercise of warrants and other rights on behalf of customers;

‘(bb) facilitates the transfer of funds or securities, as a custodian or a clearing agency, in connection with the clearance and settlement of its customers’ transactions in securities;

‘(cc) effects securities lending or borrowing transactions with or on behalf of customers as part of services provided to customers pursuant to division (aa) or (bb) or invests cash collateral pledged in connection with such transactions; or

‘(dd) holds securities pledged by a customer to another person or securities subject to purchase or resale agreements involving a customer, or facilitates the pledging or transfer of such securities by book entry or as otherwise provided under applicable law.

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

          ‘(ix) BANKING PRODUCTS- The bank effects transactions in traditional banking products, as defined in section 503(a) of the Financial Services Modernization Act of 1999.

          ‘(x) DE MINIMIS EXCEPTION- The bank effects, other than in transactions referred to in clauses (i) through (ix), not more than 500 transactions in securities in any calendar year, and such transactions are not effected by an employee of the bank who is also an employee of a broker or dealer.

        ‘(C) EXECUTION BY BROKER OR DEALER- The exception to being considered a broker for a bank engaged in activities described in clauses (ii), (iv), and (viii) of subparagraph (B) shall not apply if the activities described in such provisions result in the trade in the United States of any security that is a publicly traded security in the United States, unless--

          ‘(i) the bank directs such trade to a registered broker or dealer for execution;

          ‘(ii) the trade is a cross trade or other substantially similar trade of a security that--

            ‘(I) is made by the bank or between the bank and an affiliated fiduciary; and

            ‘(II) is not in contravention of fiduciary principles established under applicable Federal or State law; or

          ‘(iii) the trade is conducted in some other manner permitted under such rules, regulations, or orders as the Commission may prescribe or issue.

        ‘(D) NO EFFECT OF BANK EXEMPTIONS ON OTHER COMMISSION AUTHORITY- The exception to being considered a broker for a bank engaged in activities described in subparagraphs (B) and (C) shall not affect the authority of the Commission under any other provision of this title or any other securities law.

        ‘(E) FIDUCIARY CAPACITY- For purposes of subparagraph (B)(ii) of this paragraph and paragraph (5)(C), the term ‘fiduciary capacity’ means--

          ‘(i) in the capacity as trustee, executor, administrator, registrar of stocks and bonds, transfer agent, guardian, assignee, receiver, or custodian, either under a uniform gift to minor act or for an individual retirement account, or as an investment adviser if the bank receives a fee for its investment advice or services, or as a service provider to any pension, retirement, profit sharing, bonus, thrift, savings, incentive, or other similar benefit plan;

          ‘(ii) in any capacity in which the bank possesses investment discretion on behalf of another; or

          ‘(iii) in any other similar capacity.

        ‘(F) EXCEPTION FOR ENTITIES SUBJECT TO SECTION 15(e)- The term ‘broker’ does not include a bank that--

          ‘(i) was, on the day before the date of enactment of the Financial Services Modernization Act of 1999, subject to section 15(e); and

          ‘(ii) is subject to such restrictions and requirements as the Commission considers appropriate.’.

SEC. 502. DEFINITION OF DEALER.

    Section 3(a)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(5)) is amended to read as follows:

      ‘(5) DEALER-

        ‘(A) IN GENERAL- The term ‘dealer’ means any person engaged in the business of buying and selling securities for such person’s own account through a broker or otherwise.

        ‘(B) EXCEPTION FOR PERSON NOT ENGAGED IN THE BUSINESS OF DEALING- The term ‘dealer’ does not include a person that buys or sells securities for such person’s own account, either individually or in a fiduciary capacity, but not as a part of a regular business.

        ‘(C) EXCEPTION FOR CERTAIN BANK ACTIVITIES- A bank shall not be considered to be a dealer because the bank engages in any of the following activities under the conditions described:

          ‘(i) PERMISSIBLE SECURITIES TRANSACTIONS- The bank buys or sells--

            ‘(I) commercial paper, bankers acceptances, or commercial bills;

            ‘(II) exempted securities;

            ‘(III) qualified Canadian government obligations as defined in section 5136 of the Revised Statutes of the United States, in conformity with section 15C of this title and the rules and regulations thereunder, or obligations of the North American Development Bank; or

            ‘(IV) any standardized, credit enhanced debt security issued by a foreign government pursuant to the March 1989 plan of then Secretary of the Treasury Brady, used by such foreign government to retire outstanding commercial bank loans.

          ‘(ii) INVESTMENT, TRUSTEE, AND FIDUCIARY TRANSACTIONS- The bank buys or sells securities for investment purposes--

            ‘(I) for the bank; or

            ‘(II) for accounts for which the bank acts in a trustee capacity or fiduciary capacity.

          ‘(iii) ASSET-BACKED TRANSACTIONS- The bank engages in the issuance or sale to qualified investors, through a grantor trust or otherwise, of securities backed by or representing an interest in notes, drafts, acceptances, loans, leases, receivables, other obligations, or pools of any such obligations predominantly originated by the bank, or a syndicate of banks of which the bank is a member, or an affiliate of any such bank other than a broker or dealer.

          ‘(iv) BANKING PRODUCTS- The bank buys or sells traditional banking products, as defined in section 503(a) of the Financial Services Modernization Act of 1999.’.

SEC. 503. DEFINITION AND TREATMENT OF BANKING PRODUCTS.

    (a) DEFINITION OF TRADITIONAL BANKING PRODUCT- For purposes of this title and paragraphs (4) and (5) of section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4), (5)), as amended by this title, the term ‘traditional banking product’ means--

      (1) a deposit account, savings account, certificate of deposit, or other deposit instrument issued by a bank;

      (2) a banker’s acceptance;

      (3) a letter of credit issued or loan made by a bank;

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

      (5) a participation in a loan which the bank or an affiliate of the bank (other than a broker or dealer) funds, participates in, or owns that is sold--

        (A) to qualified investors; or

        (B) to other persons that--

          (i) have the opportunity to review and assess any material information, including information regarding the borrower’s creditworthiness; and

          (ii) based on such factors as financial sophistication, net worth, and knowledge and experience in financial matters, have the capability to evaluate the information available, as determined under generally applicable banking standards or guidelines; and

      (6) any swap agreement (as defined in section 11(e)(8)(D)(vi) of the Federal Deposit Insurance Act), including credit swaps and equity swaps, unless the appropriate Federal banking agency determines that credit swaps and equity swaps shall not be included in the definition of such term.

    (b) TRANSACTIONS INVOLVING HYBRID PRODUCTS-

      (1) COMMISSION AUTHORITY- The Commission may, with the concurrence of the Board, determine, by regulation published in the Federal Register, that a bank that effects transactions in, or buys or sells, a new product should be subject to the registration requirements of this section.

      (2) LIMITATION- The Commission may not impose the registration requirements of this section on any bank that effects transactions in, or buys or sells, a product under this subsection unless the Commission, with the concurrence of the Board, determines in the regulations described in paragraph (1) that--

        (A) the subject product is a new product;

        (B) the subject product is a security; and

        (C) imposing the registration requirements of this section is necessary or appropriate in the public interest and for the protection of investors.

    (c) CLASSIFICATION LIMITED- Classification of a particular product or instrument as a traditional banking product pursuant to this section shall not be construed as finding or implying that such product or instrument is or is not a security for any purpose under the securities laws, or is or is not an account, agreement, contract, or transaction for any purpose under the Commodity Exchange Act.

    (d) NO LIMITATION ON OTHER AUTHORITY TO CHALLENGE- Nothing in this section shall affect the right or authority of the Board, any appropriate Federal banking agency, or any interested party under any other provision of law to object to or seek judicial review as to whether a product or instrument is or is not appropriately classified as a traditional banking product under subsection (a).

    (e) OTHER DEFINITIONS- For purposes of this section--

      (1) the term ‘appropriate Federal banking agency’ has the same meaning as in section 3 of the Federal Deposit Insurance Act;

      (2) the term ‘bank’ has the same meaning as in section 3(a)(6) of the Securities Exchange Act of 1934;

      (3) the term ‘Board’ means the Board of Governors of the Federal Reserve System;

      (4) the term ‘Commission’ means the Securities and Exchange Commission;

      (5) the term ‘government securities’ has the same meaning as in section 3(a)(42) of the Securities Exchange Act of 1934, and, for purposes of this subsection, commercial paper, bankers acceptances, and commercial bills shall be treated in the same manner as government securities;

      (6) the term ‘new product’ means a product or instrument offered or provided by a bank that--

        (i) was not subject to regulation by the Commission as a security under the Federal securities laws before the date of enactment of this Act; and

        (ii) is not a traditional banking product; and

      (7) the term ‘qualified investor’ has the same meaning as in section 3(a)(54) of the Securities Exchange Act of 1934, as added by this title.

SEC. 504. QUALIFIED INVESTOR DEFINED.

    Section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended by adding at the end the following new paragraphs:

      ‘(54) QUALIFIED INVESTOR-

        ‘(A) DEFINITION- The term ‘qualified investor’ means--

          ‘(i) any investment company registered with the Commission under section 8 of the Investment Company Act of 1940;

          ‘(ii) any issuer eligible for an exclusion from the definition of ‘investment company’ pursuant to section 3(c)(7) of the Investment Company Act of 1940;

          ‘(iii) any bank (as defined in paragraph (6)), savings association (as defined in section 3(b) of the Federal Deposit Insurance Act), broker, dealer, insurance company (as defined in section 2(a)(13) of the Securities Act of 1933), or business development company (as defined in section 2(a)(48) of the Investment Company Act of 1940);

          ‘(iv) any small business investment company licensed by the Small Business Administration under subsection (c) or (d) of section 301 of the Small Business Investment Act of 1958;

          ‘(v) any State sponsored employee benefit plan, or any other employee benefit plan, within the meaning of the Employee Retirement Income Security Act of 1974, other than an individual retirement account, if the investment decisions are made by a plan fiduciary, as defined in section 3(21) of that Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser;

          ‘(vi) any trust whose purchases of securities are directed by a person described in clauses (i) through (v) of this subparagraph;

          ‘(vii) any market intermediary that is exempt under section 3(c)(2) of the Investment Company Act of 1940;

          ‘(viii) any associated person of a broker or dealer, other than a natural person;

          ‘(ix) any foreign bank (as defined in section 1(b)(7) of the International Banking Act of 1978);

          ‘(x) the government of any foreign country;

          ‘(xi) any corporation, company, or partnership that owns and invests on a discretionary basis, not less than $10,000,000 in investments;

          ‘(xii) any natural person who owns and invests on a discretionary basis, not less than $10,000,000 in investments;

          ‘(xiii) any government or political subdivision, agency, or instrumentality of a government who owns and invests on a discretionary basis, not less than $50,000,000 in investments; or

          ‘(xiv) any multinational or supranational entity or any agency or instrumentality thereof.

        ‘(B) ADDITIONAL AUTHORITY- The Commission may, by rule or order, define a ‘qualified investor’ as any other person not described in subparagraph (A), taking into consideration such factors as the financial sophistication of the person, net worth, and knowledge and experience in financial matters.’.

SEC. 505. GOVERNMENT SECURITIES DEFINED.

    Section 3(a)(42) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(42)) is amended--

      (1) by striking ‘or’ at the end of subparagraph (C);

      (2) by striking the period at the end of subparagraph (D) and inserting ‘; or’; and

      (3) by adding at the end the following new subparagraph:

        ‘(E) for purposes of section 15C, as applied to a bank, a qualified Canadian Government obligation, as defined in section 5136 of the Revised Statutes of the United States.’.

SEC. 506. EFFECTIVE DATE.

    This title shall become effective at the end of the 1-year period beginning on the date of enactment of this Act.

SEC. 507. RULE OF CONSTRUCTION.

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

TITLE VI--UNITARY SAVINGS AND LOAN HOLDING COMPANIES

SEC. 601. PREVENTION OF CREATION OF NEW S&L HOLDING COMPANIES WITH COMMERCIAL AFFILIATES.

    (a) IN GENERAL- Section 10(c) of the Home Owners’ Loan Act (12 U.S.C. 1467a(c)) is amended by adding at the end the following new paragraph:

      ‘(9) PREVENTION OF NEW AFFILIATIONS BETWEEN S&L HOLDING COMPANIES AND COMMERCIAL FIRMS-

        ‘(A) IN GENERAL- Notwithstanding paragraph (3), no company may directly or indirectly, including through any merger, consolidation, or other type of business combination, acquire control of a savings association after May 4, 1999, unless the company is engaged, directly or indirectly (including through a subsidiary other than a savings association), only in activities that are permitted--

          ‘(i) under paragraph (1)(C) or (2) of this subsection; or

          ‘(ii) for financial holding companies under section 4(k) of the Bank Holding Company Act of 1956.

        ‘(B) PREVENTION OF NEW COMMERCIAL AFFILIATIONS- Notwithstanding paragraph (3), no savings and loan holding company may engage directly or indirectly (including through a subsidiary other than a savings association) in any activity other than as described in clauses (i) and (ii) of subparagraph (A).

        ‘(C) PRESERVATION OF AUTHORITY OF EXISTING UNITARY S&L HOLDING COMPANIES- Subparagraphs (A) and (B) do not apply with respect to any company that was a savings and loan holding company on May 4, 1999, or that becomes a savings and loan holding company pursuant to an application pending before the Office on or before that date, and that--

          ‘(i) meets and continues to meet the requirements of paragraph (3); and

          ‘(ii) continues to control not fewer than 1 savings association that it controlled on May 4, 1999, or that it acquired pursuant to an application pending before the Office on or before that date, or the successor to such savings association.

        ‘(D) CORPORATE REORGANIZATIONS PERMITTED- This paragraph does not prevent a transaction that--

          ‘(i) involves solely a company under common control with a savings and loan holding company from acquiring, directly or indirectly, control of the savings and loan holding company or any savings association that is already a subsidiary of the savings and loan holding company; or

          ‘(ii) involves solely a merger, consolidation, or other type of business combination as a result of which a company under common control with the savings and loan holding company acquires, directly or indirectly, control of the savings and loan holding company or any savings association that is already a subsidiary of the savings and loan holding company.

        ‘(E) AUTHORITY TO PREVENT EVASIONS- The Director may issue interpretations, regulations, or orders that the Director determines necessary to administer and carry out the purpose and prevent evasions of this paragraph, including a determination that, notwithstanding the form of a transaction, the transaction would in substance result in a company acquiring control of a savings association.

        ‘(F) PRESERVATION OF AUTHORITY FOR FAMILY TRUSTS- Subparagraphs (A) and (B) do not apply with respect to any trust that becomes a savings and loan holding company with respect to a savings association, if--

          ‘(i) not less than 85 percent of the beneficial ownership interests in the trust are continuously owned, directly or indirectly, by or for the benefit of members of the same family, or their spouses, who are lineal descendants of common ancestors who controlled, directly or indirectly, such savings association on May 4, 1999, or a subsequent date, pursuant to an application pending before the Office on or before May 4, 1999; and

          ‘(ii) at the time at which such trust becomes a savings and loan holding company, such ancestors or lineal descendants, or spouses of such descendants, have directly or indirectly controlled the savings association continuously since May 4, 1999, or a subsequent date, pursuant to an application pending before the Office on or before May 4, 1999.’.

    (b) CONFORMING AMENDMENT- Section 10(o)(5)(E) of the Home Owners’ Loan Act (15 U.S.C. 1467a(o)(5)(E)) is amended by striking ‘, except subparagraph (B)’ and inserting ‘or (c)(9)(A)(ii)’.

SEC. 602. OPTIONAL CONVERSION OF FEDERAL SAVINGS ASSOCIATIONS.

    Section 5(i) of the Home Owners’ Loan Act (12 U.S.C. 1464(i)) is amended by adding at the end the following new paragraph:

      ‘(5) CONVERSION TO NATIONAL BANK- Notwithstanding any other provision of law, any Federal savings association chartered and in operation prior to the date of enactment of the Financial Services Modernization Act of 1999, with branches in one or more States, may convert, at its option, with the approval of the Comptroller of the Currency, into one or more National banks, each of which may encompass one or more of the branches of the Federal savings association in one or more States; but only if the resulting National bank or banks will meet any and all financial, management, and capital requirements applicable to National banks.’.

TITLE VII--ATM FEE REFORM

SEC. 701. SHORT TITLE.

    This title may be cited as the ‘ATM Fee Reform Act of 1999’.

SEC. 702. ELECTRONIC FUND TRANSFER FEE DISCLOSURES AT ANY HOST ATM.

    Section 904(d) of the Electronic Fund Transfer Act (15 U.S.C. 1693b(d)) is amended by adding at the end the following:

      ‘(3) FEE DISCLOSURES AT AUTOMATED TELLER, MACHINES-

        ‘(A) IN GENERAL- The regulations prescribed under paragraph (1) shall require any automated teller machine operator who imposes a fee on any consumer for providing host transfer services to such consumer to provide notice in accordance with subparagraph (B) to the consumer (at the time the service is provided) of--

          ‘(i) the fact that a fee is imposed by such operator for providing the service; and

          ‘(ii) the amount of any such fee.

        ‘(B) NOTICE REQUIREMENTS-

          ‘(i) ON THE MACHINE- The notice required under clause (i) of subparagraph (A) with respect to any fee described in such subparagraph shall be posted in a prominent and conspicuous location on or at the automated teller machine at which the electronic fund transfer is initiated by the consumer; and

          ‘(ii) ON THE SCREEN- The notice required under clauses (i) and (ii) of subparagraph (A) with respect to any fee described in such subparagraph shall appear on the screen of the automated teller machine, or on a paper notice issued from such machine, after the transaction is initiated and before the consumer is irrevocably committed to completing the transaction.

        ‘(C) PROHIBITION ON FEES NOT PROPERLY DISCLOSED AND EXPLICITLY ASSUMED BY CONSUMER- No fee may be imposed by any automated teller machine operator in connection with any electronic fund transfer initiated by a consumer for which a notice is required under subparagraph (A), unless--

          ‘(i) the consumer receives such notice in accordance with subparagraph (B); and

          ‘(ii) the consumer elects to continue in the manner necessary to effect the transaction after receiving such notice.

        ‘(D) DEFINITIONS- For purposes of this paragraph, the following definitions shall apply:

          ‘(i) ELECTRONIC FUND TRANSFER- The term ‘electronic fund transfer’ includes a transaction which involves a balance inquiry initiated by a consumer in the same manner as an electronic fund transfer, whether or not the consumer initiates a transfer of funds in the course of the transaction.

          ‘(ii) AUTOMATED TELLER MACHINE OPERATOR- The term ‘automated teller machine operator’ means any person who--

            ‘(I) operates an automated teller machine at which consumers initiate electronic fund transfers; and

            ‘(II) is not the financial institution which holds the account of such consumer from which the transfer is made.

          ‘(iii) HOST TRANSFER SERVICES- The term ‘host transfer services’ means any electronic fund transfer made by an automated teller machine operator in connection with a transaction initiated by a consumer at an automated teller machine operated by such operator.’.

SEC. 703. DISCLOSURE OF POSSIBLE FEES TO CONSUMERS WHEN ATM CARD IS ISSUED.

    Section 905(a) of the Electronic Fund Transfer Act (15 U.S.C. 1693c(a)) is amended--

      (1) by striking ‘and’ at the end of paragraph (8);

      (2) by striking the period at the end of paragraph (9) and inserting ‘; and’; and

      (3) by inserting after paragraph (9) the following:

      ‘(10) a notice to the consumer that a fee may be imposed by--

        ‘(A) an automated teller machine operator (as defined in section 904(d)(3)(D)(ii)) if the consumer initiates a transfer from an automated teller machine which is not operated by the person issuing the card or other means of access; and

        ‘(B) any national, regional, or local network utilized to effect the transaction.’.

SEC. 704. FEASIBILITY STUDY.

    (a) IN GENERAL- The Comptroller General of the United States shall conduct a study of the feasibility of requiring, in connection with any electronic and transfer initiated by a consumer through the use of an automated teller machine--

      (1) a notice to be provided to the consumer before the consumer is irrevocably committed to completing the transaction, which clearly states the amount of any fee which will be imposed upon the consummation of the transaction by--

        (A) any automated teller machine operator (as defined in section 904(d)(2)(D)(ii) of the Electronic Fund Transfer Act) involved in the transaction;

        (B) the financial institution holding the account of the consumer;

        (C) any national, regional, or local network utilized to effect the transaction; and

        (D) any other party involved in the transfer; and

      (2) the consumer to elect to consummate the transaction after receiving the notice described in paragraph (1).

    (b) FACTORS TO BE CONSIDERED- In conducting the study required under subsection (a) with regard to the notice requirement described in such subsection, the Comptroller General shall consider the following factors:

      (1) The availability of appropriate technology.

      (2) Implementation and operating costs.

      (3) The competitive impact any such notice requirement would have on various sizes and types of institutions, if implemented.

      (4) The period of time which would be reasonable for implementing any such notice requirement.

      (5) The extent to which consumers would benefit from any such notice requirement.

      (6) Any other factor the Comptroller General determines to be appropriate in analyzing the feasibility of imposing any such notice requirement.

    (c) REPORT TO CONGRESS- Before the end of the 6-month period beginning on the date of the enactment of this Act, the Comptroller General shall submit a report to the Congress containing--

      (1) the findings and conclusions of the Comptroller General in connection with the study required under subsection (a); and

      (2) the recommendation of the Comptroller General with regard to the question of whether a notice requirement described in subsection (a) should be implemented and, if so, how such requirement should be implemented.

SEC. 705. NO LIABILITY IF POSTED NOTICES ARE DAMAGED.

    Section 910 of the Electronic Fund Transfer Act (15 U.S.C. 1693h) is amended by adding at the end the following new subsection:

    ‘(d) EXCEPTION FOR DAMAGED NOTICES- If the notice required to be posted pursuant to section 904(d)(3)(B)(i) by an automated teller machine operator has been posted by such operator in compliance with such section and the notice is subsequently removed, damaged, or altered by any person other than the operator of the automated teller machine, the operator shall have no liability under this section for failure to comply with section 904(d)(3)(B)(i).’.

Passed the Senate May 6, 1999.

Attest:

Secretary.

106th CONGRESS

1st Session

S. 900

AN ACT

To enhance competition in the financial services industry by providing a prudential framework for the affiliation of banks, securities firms, insurance companies, and other financial service providers, and for other purposes.

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