Financial Modernization Committee Print

H.L.C.

[COMMITTEE PRINT]

June 12, 1997

SECTION 1. SHORT TITLE; PURPOSES; TABLE OF CONTENTS

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

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

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

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

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

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

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

(6) To ensure compliance by depository institutions with the provisions of the Community Reinvestment Act of 1977 and enhance the ability of depository institutions to meet the capital and credit needs of all citizens and communities, including underserved communities and populations.

TITLE I--POWERS AND AFFILIATIONS OF INSURED DEPOSITORY INSTITUTIONS

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

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 Anti-affiliation provisions of Glass-Steagall Act repealed.

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 Activity restrictions of Bank Holding Company Act repealed.

Sec. 103. Qualifying bank holding companies.

Sec. 104. Certain State laws preempted.

Sec. 105. Mutual bank holding companies authorized.

Subtitle B--Additional Safeguards

Sec. 111. Firewall safeguards.

Sec. 112. Consumer protection.

Subtitle C--National Council on Financial Services

Sec. 121. Establishment and operation of the Council.

Sec. 122. Functions of the Council.

Subtitle D--Bank Holding Company Supervision

Sec. 131. Streamlining bank holding company supervision.

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

Sec. 133. Bank holding company capital.

Subtitle E--Subsidiaries of Insured Depository Institutions

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

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

Sec. 143. Rules applicable to financial subsidiaries.

Subtitle F--Direct Activities of Banks

Sec. 151. Powers of national banks.

Sec. 152. Banking products defined.

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

Subtitle G--Noninsured Depository Institutions

Sec. 161. Wholesale financial institutions.

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

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

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

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

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

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

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

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

Sec. 184. Effective date.

Subtitle J--Redomestication of Mutual Insurers

Sec. 191. Redomestication of mutual insurers.

Sec. 192. Effect on State laws restricting redomestication.

Sec. 193. Definitions.

Sec. 194. Effective date.

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

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

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

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

Subtitle L--Effective Date of Title.

Sec. 199. Effective date.

TITLE II--FUNCTIONAL REGULATION

Subtitle A--Brokers and Dealers

Sec. 201. Definition of broker.

Sec. 202. Definition of dealer.

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

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

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

Sec. 206. Effective date.

Subtitle B--Bank Investment Company Activities

Sec. 211. Custody of investment company assets by affiliated bank.

Sec. 212. Lending to an affiliated investment company.

Sec. 213. Independent directors.

Sec. 214. Additional SEC disclosure authority.

Sec. 215. Definition of broker under the Investment Company Act of 1940.

Sec. 216. Definition of dealer under the Investment Company Act of 1940.

Sec. 217. Removal of the exclusion from the definition of investment adviser for banks that advise investment companies.

Sec. 218. Definition of broker under the Investment Advisers Act of 1940.

Sec. 219. Definition of dealer under the Investment Advisers Act of 1940.

Sec. 220. Interagency consultation.

Sec. 221. Treatment of bank common trust funds.

Sec. 222. Investment advisers prohibited from having controlling interest in registered investment company.

Sec. 223. Conforming change in definition.

Sec. 224. Effective date.

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

Subtitle A--Conversion of Thrift Charters

Sec. 301. Short title.

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

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

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

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

Sec. 306. Additional transition provisions and special rules.

Sec. 307. Technical and conforming amendments.

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

Sec. 309. Definitions.

Sec. 310. Effective date.

Subtitle B--Elimination of Office of The Thrift Supervision

Sec. 311. Prohibition on merger or consolidation repealed.

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

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

Sec. 314. Continuation provisions.

Sec. 315. Cost of funds indexes.

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

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

Subtitle C--Merger of BIF and SAIF

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

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

Sec. 401. State flexibility in multistate licensing reforms.

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

Sec. 403. Purpose.

Sec. 404. Relationship to the Federal Government.

Sec. 405. Membership.

Sec. 406. Corporate powers.

Sec. 407. Board of directors.

Sec. 408. Chairperson and vice chairperson.

Sec. 409. Officers.

Sec. 410. Meetings of board.

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

Sec. 412. Borrowing authority.

Sec. 413. Assessments.

Sec. 414. Functions of the council.

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

Sec. 416. Relationship to State law.

Sec. 417. Coordination with other regulators.

Sec. 418. Judicial review.

Sec. 419. Definitions.

TITLE I--POWERS AND AFFILIATIONS OF INSURED DEPOSITORY INSTITUTIONS

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

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

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

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

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

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

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

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

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

``(B) Conducting a safe deposit business.

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

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

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

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

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

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

(4) Amendment to the bank holding company act amendments of 1970.--Section 105 of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1850) is amended by striking ``to engage directly or indirectly in a nonbanking activity pursuant to section 4 of the Bank Holding Company Act of 1956,''.

(5) Amendment to the bank service company act.--Section 4(f) of the Bank Service Company Act (12 U.S.C. 1864(f)) is amended by striking the period and adding at the end the following: ``(as in effect on the day before the date of enactment of the Financial Services Competition Act of 1997).''.

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

(4))''.

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

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

SEC. 103. QUALIFYING BANK HOLDING COMPANIES.

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

``SEC. 6. QUALIFYING BANK HOLDING COMPANIES.

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

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

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

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

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

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

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

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

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

``(3) Financial activity.--The term `financial activity' means any 1 or more of the following:

``(A) Receiving money subject to a deposit or other repayment obligation.

``(B) Lending, exchanging, transferring, investing, or safeguarding money or other financial assets.

``(C) Providing any device or other instrumentality for transferring money or other financial assets;

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

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

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

``(G) Directly or indirectly acquiring or controlling, whether as principal, on behalf of 1 or more entities (including entities other than depository institutions or subsidiaries of depository institutions that the bank holding company controls), or otherwise, shares, assets, or ownership interests (including without limitation debt or equity securities, partnership interests, trust certificates, or other instruments representing ownership) of a company or other entity, whether or not constituting control of such company or entity, engaged in any activity if--

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

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

``(iii) such shares, assets, or ownership interests are held for such a period as will permit the sale or disposition thereof on a reasonable basis consistent with the nature of the activities described in clause (ii); and

``(iv) during the period such shares, assets, or ownership interests are held, the bank holding company does not actively manage or operate the company or entity, except insofar as necessary to achieve the objectives of clause (ii).

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

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

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

``(iii) such shares, assets, or ownership interests represent an investment made in the ordinary course of business of such insurance affiliate in accordance with relevant State law governing such investments; and

``(iv) during the period such shares, assets, or ownership interests are held, the bank holding company does not directly or indirectly participate in the day-to-day management or operation of the company or entity except insofar as necessary to achieve the objectives of clauses (ii) and (iii).

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

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

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

``(L) Engaging, in the United States, in any activity that--

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

``(ii) the Board determined, under regulations issued pursuant to section 4(c)(13) of this Act (as in effect on the day before the date of enactment of the Financial Services Competition Act of 1997) to be usual in connection with the transaction of banking or other financial operations abroad.

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

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

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

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

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

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

``(I) compete effectively with any company seeking to provide financial services in the United States;

``(II) use any available or emerging technological means, including any application necessary to protect the security or efficacy of systems for the transmission of data or financial transactions, in providing financial services; and

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

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

``(5) Foreign banks and companies.--For purposes of paragraph (1), the Board shall establish and apply comparable capital standards to a foreign bank that operates a branch or agency or owns or controls a bank or commercial lending company in the United States, and any company that owns or controls such foreign bank, giving due regard to the principle of national treatment and equality of competitive opportunity.

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

``(A) the bank holding company has submitted an affirmative plan to the appropriate Federal banking agency to take such action as may be necessary in order for such institution to achieve a rating of `satisfactory', or better, at the next examination of the institution; and

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

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

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

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

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

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

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

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

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

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

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

``(3) Board may impose limitations.--Until the conditions described in a notice to a qualifying bank holding company under paragraph (1) are corrected, the Board may impose such limitations on the conduct or activities of the company or any affiliate of the company as the Board determines to be appropriate under the circumstances.

``(4) Failure to correct.--If the conditions described in a notice to a qualifying bank holding company under paragraph (1) are not corrected within 180 days after receipt by the company of notice under paragraph (1), the Board may require such company, under such terms and conditions as may be imposed by the Board and subject to such extension of time as may be granted in the Board's discretion, either--

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

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

``(e) Safeguards for Bank Subsidiaries.--A qualifying bank holding company shall assure that--

``(1) the procedures of the holding company for identifying and managing financial and operational risks within the company and the subsidiaries of such company which are not insured depository institutions (or subsidiaries of such subsidiaries) adequately protect the subsidiaries of such company which are insured depository institutions from such risks;

``(2) the holding company has reasonable policies and procedures to preserve the separate corporate identity and limited liability of such company and the subsidiaries of such company, for the protection of the company's subsidiary insured depository institutions; and

``(3) the holding company complies with this section.

``(f) Exemptive Authority.--

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

``(B) any bank subsidiary of such company engages in any activity in which the bank was not lawfully engaged as of March 5, 1987, unless the bank is well managed and well capitalized;

``(C) any bank subsidiary of such company both--

``(i) accepts demand deposits or deposits that the depositor may withdraw by check or similar means for payment to 3d parties; and

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

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

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

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

``(B) such overdraft--

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

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

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

``(A) corrected the condition or ceased the activity that caused the company to fail to continue to qualify for the exemption; and

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

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

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

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

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

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

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

``(8) Enforcement.--

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

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

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

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

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

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

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

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

``(B) either--

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SEC. 104. CERTAIN STATE LAWS PREEMPTED.

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

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

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

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

SEC. 105. MUTUAL BANK HOLDING COMPANIES AUTHORIZED.

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

``(2) Regulations.--A bank holding company organized as a mutual holding company shall be regulated on terms, and shall be subject to limitations, comparable to those applicable to any other bank holding company.''.

Subtitle B--Additional Safeguards

SEC. 111. FIREWALL SAFEGUARDS.

(a) Comptroller of the Currency.--

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

(2) Standards.--The Comptroller of the Currency may exercise authority under paragraph (1) if the Comptroller finds that such action will have any of the following effects:

(A) Avoid any significant risk to the safety and soundness of depository institutions or any Federal deposit insurance fund.

(B) Enhance the financial stability of bank holding companies.

(D) Avoid conflicts of interest or other abuses.

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

(F) Promote the application of national treatment and equality of competitive opportunity between nonbank affiliates owned or controlled by domestic bank holding companies and nonbank affiliates owned or controlled by foreign banks operating in the United States.

(3) Review.--The Comptroller of the Currency shall regularly--

(A) review all restrictions or requirements established pursuant to paragraph (1) to determine whether there is a continuing need for any such restriction or requirement to carry out the purposes of the Act, including any purpose described in paragraph (2); and

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

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

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

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

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

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

(2) Standards.--The Board of Governors of the Federal Reserve System may exercise authority under paragraph (1) if the Board finds that such action will have any of the following effects:

(A) Avoid any significant risk to the safety and soundness of depository institutions or any Federal deposit insurance fund.

(B) Enhance the financial stability of bank holding companies.

(D) Avoid conflicts of interest or other abuses.

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

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

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

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

(2) Standards.--The Federal Deposit Insurance Corporation may exercise authority under paragraph (1) if the Corporation finds that such action will have any of the following effects:

(A) Avoid any significant risk to the safety and soundness of depository institutions or any Federal deposit insurance fund.

(B) Enhance the financial stability of bank holding companies.

(D) Avoid conflicts of interest or other abuses.

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

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

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

SEC. 112. CONSUMER PROTECTION.

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

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

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

(3) Improper disclosure of confidential customer information.

(4) Conflicts of interest and other abuses.

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

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

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

(A) Advertising.

(B) Disclosure.

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

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

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

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

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

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

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

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

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

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

(d) Making Disclosure Readily Understandable.--

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

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

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

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

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

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

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

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

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

Subtitle C--National Council on Financial Services

SEC. 121. ESTABLISHMENT AND OPERATION OF THE COUNCIL.

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

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

(1) The Secretary of the Treasury.

(2) The Secretary of Commerce.

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

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

(5) The Comptroller of the Currency.

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

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

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

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

(e) Compensation.--

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

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

(f) Expenses of the Council.--

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

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

(g) Action by the Council.--

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

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

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

SEC. 122. FUNCTIONS OF THE COUNCIL

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

(b) Authority to Issue Regulations.--

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

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

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

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

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

Subtitle D--Bank Holding Company Supervision

SEC. 131. STREAMLINING BANK HOLDING COMPANY SUPERVISION.

Section 5(c) of the Bank Holding Company Act of 1956 (12 U.S.C. 1844(c)) is amended to read as follows:

``(c) Reports and Examinations.--

``(1) Reports.--

``(A) In general.--The Board from time to time may require any bank holding company to submit reports, under oath or otherwise, to enable the Board to determine compliance with the provisions of this Act and regulations and orders issued thereunder.

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

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

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

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

``(C) Exemptions from reporting requirements.--

``(i) In general.--The Board may, by regulation or order, exempt any company or class of companies, under such terms and conditions and for such periods as the Board shall provide, from this paragraph and any regulations prescribed under this paragraph.

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

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

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

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

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

``(2) Examinations.--

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

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

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

``(ii) inform the Board of--

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

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

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

``(C) Restricted focus of examinations.--The Board shall, to the fullest extent possible, limit the focus and scope of any examination of a bank holding company to--

``(i) the bank holding company; and

``(ii) any nonbank subsidiary of the holding company (other than a subsidiary of a depository institution) that, because of--

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

``(II) the nature or size of transactions between such subsidiary and any depository institution which is also a subsidiary of such holding company; or

``(III) the centralization of functions within the holding company system,

could have a materially adverse effect on the safety and soundness of any depository institution affiliate of the holding company.

``(D) Deference to bank examinations.--The Board shall, to the fullest extent possible, use, for the purposes of this section, the reports of examinations of depository institutions made by the appropriate Federal and State depository institution supervisory authority.

``(E) Deference to other examinations.--The Board shall, to the fullest extent possible, use the reports of examination made of--

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

``(ii) any licensed insurance company by or on behalf of any state regulatory authority responsible for the supervision of insurance companies; and

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

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

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

(a) Prevention of Duplicative Filings.--Section 5(a) of the Bank Holding Company Act of 1956 (12 U.S.C. 1844(a)) is amended by adding the following new sentence at the end: ``A declaration filed pursuant to section 6(a)(1)(F) shall satisfy the requirements of this subsection with regard to the registration of a bank holding company but not any requirement to file an application to acquire a bank pursuant to section 3.''.

(b) Divestiture Procedures.--Section 5(e) of the Bank Holding Company Act of 1956 (12 U.S.C. 1844(e)) is amended--

(1) by striking ``Financial Institutions Supervisory Act of 1966, order'' and inserting ``Financial Institutions Supervisory Act of 1966, at the election of the bank holding company--

``(A) order''; and

(2) by striking ``shareholders of the bank holding company. Such distribution'' and inserting ``shareholders of the bank holding company; or

``(B) order the bank holding company, after due notice and opportunity for hearing, and after consultation with the bank's primary supervisor, which shall be the Comptroller of the Currency in the case of a national bank, and the Federal Deposit Insurance Corporation and the appropriate State supervisor in the case of an insured nonmember bank, to terminate (within 120 days or such longer period as the Board may direct) the ownership or control of any such bank by such company.

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

SEC. 133. BANK HOLDING COMPANY CAPITAL.

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

``(h) Capital Adequacy Guidelines.--

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

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

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

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

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

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

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

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

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

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

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

Subtitle E--Subsidiaries of Insured Depository Institutions

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

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

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

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

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

``(a) Subsidiaries of National Banks Authorized to Engage in Financial Activities.--

``(1) In general.--A subsidiary of a national bank may engage in an activity that is not permissible for a national bank to engage in directly, but only if--

``(A) the activity is a financial activity (as defined in paragraph (3));

``(B) the national bank is well capitalized, well managed, and achieved a rating of `satisfactory', or better, at the most recent examination of the bank;

``(C) all depository institution affiliates of such national bank are well capitalized, well managed, and have achieved a rating of `satisfactory', or better, at the most recent examination of each such institution; and

``(D) the bank has received the approval of the Comptroller of the Currency.

``(2) Other subsidiaries prohibited.--A national bank may not control any subsidiary other than a subsidiary--

``(A) which engages solely in activities that are permissible for a national bank to engage in directly or are authorized under paragraph (1); or

``(B) which a national bank may control pursuant to section 25A of the Federal Reserve Act, the Bank Service Company Act, or any other Act that expressly by its terms authorizes national banks to control subsidiaries.

``(3) Financial activity defined.--For purposes of this section and subject to paragraph (5), the term `financial activity' means any 1 or more of the following:

``(A) Receiving money subject to a deposit or other repayment obligation.

``(B) Lending, exchanging, transferring, investing, or safeguarding money or other financial assets.

``(C) Providing any device or other instrumentality for transferring money or other financial assets.

``(D) Acting as agent or broker in the placement of annuities contracts or contracts insuring, guaranteeing, or indemnifying against loss, harm, damage,illness, disability, or death.

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

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

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

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

``(I) Engaging in any activity that was, by regulation or order, permissible for a bank holding company pursuant to section 4(c)(8) of the Bank Holding Company Act of 1956 (as in effect on the day before the date of enactment of the Financial Services Competition Act of 1997).

``(J) Engaging, in the United States, in any activity that--

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

``(ii) the Board of Governors of the Federal Reserve System determined, under regulations issued pursuant to section 4(c)(13) of the Bank Holding Company Act of 1956 (as in effect on the day before the date of enactment of the Financial Services Competition Act of 1997) to be usual in connection with the transaction of banking or other financial operations abroad;

``(K) Owning shares of company to the extent permissible under section 4(c)(7) of the Bank Holding Company Act of 1956 (as in effect on the day before the date of enactment of the Financial Services Competition Act of 1997).

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

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

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

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

``(iii) whether such activity is necessary or appropriate to allow a bank and the subsidiaries of a bank to--

``(I) compete effectively with any company seeking to provide financial services in the United States;

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

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

``(A) Financial subsidiary.--The term `financial subsidiary' means a company which--

``(i) is a subsidiary of a national bank; and

``(ii) is engaged in a financial activity pursuant to paragraph (1) that is not a permissible activity for a national bank to engage in directly.

``(B) Subsidiary.--The term `subsidiary' has the meaning given to such term in section 2 of the Bank Holding Company Act of 1956.

``(C) Well capitalized.--The term `well capitalized' has the same meaning as in section 38 of the Federal Deposit Insurance Act and, for purposes of this section, the Comptroller shall have exclusive jurisdiction to determine whether a national bank is well capitalized.

``(D) Well managed.--The term 'well managed' means--

``(i) in the case of a bank that has been examined, unless otherwise determined in writing by the Comptroller, the achievement of--

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

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

``(ii) in the case of any national bank that has not been examined, the existence and use of managerial resources that the Comptroller determines are satisfactory.

``(5) Insurance underwriting, merchant banking, and direct investment.--No subsidiary of a national bank may underwrite noncredit-related insurance, engage in real estate investment or development activities (except to the extent a national bank is specifically authorized by statute to engage in any such activity directly), or engage in merchant banking (as described in section 6(a)(3)(G) of the Bank Holding Company Act of 1956).

``(6) Limited exclusions from community needs requirements for newly acquired depository institutions.--Any depository institution which becomes affiliated with a national bank during the 12-month period preceding the submission of an application to acquire a financial subsidiary and any depository institution which becomes so affiliated after the approval of such application may be excluded for purposes of paragraph (1)(C) during the 12-month period beginning on the date of such acquisition if--

``(A) the national bank has submitted an affirmative plan to the Comptroller of the Currency to take such action as may be necessary in order for such institution to achieve a `satisfactory record of meeting community credit needs', or better, during the most next examination of the institution; and

``(B) the plan has been accepted by the Comptroller.

``(b) Capital Deduction Required.--

``(1) In general.--In determining compliance with applicable capital standards--

``(A) the amount of a national bank's equity investment in a financial subsidiary shall be deducted from the national bank's assets and tangible equity; and

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

``(2) Regulations required.--The Comptroller shall prescribe regulations implementing this subsection.

``(c) Safeguards for the Bank.--A national bank that establishes or maintains a financial subsidiary shall assure that--

``(1) the bank's procedures for identifying and managing financial and operational risks within the bank and financial subsidiaries of the bank adequately protect the bank from such risks,

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

``(3) the bank complies with this section.

``(d) National Banks Which Do Not Comply With Requirements of This Section.--

``(1) In general.--If the Comptroller determines that a national bank which controls a financial subsidiary, or a depository institution affiliate of such national bank, does not continue to meet the requirements of subsection (a), the Comptroller shall give notice to the bank to that effect, describing the conditions giving rise to the notice.

``(2) Agreement to correct conditions required.--

``(A) Content of agreement.--Within 45 days of the receipt by a depository institution of a notice given under paragraph (1) (or such additional period as the Comptroller may permit), the depository institution failing to meet the requirements of subsection (a) shall execute an agreement with the appropriate Federal banking agency for such institution to correct the conditions described in the notice.

``(B) Comptroller may impose limitations.--Until the conditions giving rise to the notice are corrected, the Comptroller may impose such limitations on the conduct of the business of the national bank or subsidiary of such bank as the Comptroller determines to be appropriate under the circumstances.

``(3) Failure to correct.--If the conditions described in the notice are not corrected within 180 days after the bank receives the notice--

(A) the national bank shall divest control of each subsidiary engaged in an activity that is not permissible for the bank to engage in directly; or

``(B) each subsidiary of the national bank shall cease any activity that is not permissible for the bank to engage in directly.''.

(b) Clerical Amendment.--The table of sections for chapter 1 of title LXII of the Revised Statutes of the United States is amended--

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

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

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

SEC. 142. ACTIVITIES OF SUBSIDIARIES OF INSURED STATE BANKS.

Section 24(d) of the Federal Deposit Insurance Act (12 U.S.C. 1831a(d)) is amended--

(1) by adding at the end the following new paragraphs:

``(3) Conditions on certain activities.--

``(A) In general.--Subject to the approval of the appropriate Federal banking agency, a subsidiary of a State bank may engage in an activity in which a subsidiary of a national bank may engage as principal pursuant to subsection (a)(1) of section 5136A of the Revised Statutes of the United States but only if the State bank meets the same requirements which are applicable to national banks under subparagraphs (B) and (C) of such subsection and subsections (b) and (c) of such section.

``(B) Application of section 5136a of revised statutes.--For purposes of applying section 5136A of the Revised Statutes of the United States with regard to the activities of a subsidiary of a State bank, all references in such section to the Comptroller of the Currency, or regulations and orders of the Comptroller, shall be deemed to be references to the appropriate Federal banking agency with respect to such State bank, and regulations and orders of such agency.

``(4) State banks which fail to comply with paragraph (3) conditions.--

``(A) In general.--If the appropriate Federal banking agency determines that a State bank that controls a subsidiary which is engaged as principal in financial activities pursuant to paragraph (3) does not meet the requirements of subparagraph (A) of such paragraph, the appropriate Federal banking agency shall give notice to the bank to that effect, describing the conditions giving rise to the notice.

``(A) Agreement to correct conditions required.--

``(i) Content of agreement.--Within 45 days of the receipt by a bank of a notice given under paragraph (1) (or such additional period as the appropriate Federal banking agency for such bank may permit), the bank failing to meet the requirements of paragraph (3)(A) shall execute an agreement with the appropriate Federal banking agency for such bank to correct the conditions described in the notice.

``(B) Agency may impose limitations.--Until the conditions giving rise to the notice are corrected, the appropriate Federal banking agency for the State bank may impose such limitations on the conduct of the business of the bank or a subsidiary of the bank as the agency determines to be appropriate under the circumstances.

``(C) Failure to correct.--If the conditions described in the notice are not corrected within 180 days after the bank receives the notice--

``(i) the bank shall divest control of each subsidiary engaged in an activity as principal that is not permissible for the bank to engage in directly; or

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

SEC. 143. RULES APPLICABLE TO FINANCIAL SUBSIDIARIES.

(a) Transactions Between Financial Subsidiaries and Other Affiliates.--Section 23A of the Federal Reserve Act (12 U.S.C. 371c) is amended--

(1) by redesignating subsection (e) as subsection (f); and

(2) by inserting after subsection (d), the following new subsection:

``(e) Rules Relating to Banks With Financial Subsidiaries.--

``(1) Financial subsidiary defined.--For purposes of this section and section 23B, the term `financial subsidiary' means a company which--

``(A) is a subsidiary of a bank; and

``(B) is engaged in a financial activity (as defined in section 5136A(a)(3)) that is not a permissible activity for a national bank to engage in directly.

``(2) Application to transactions between a financial subsidiary of a bank and the bank.--For purposes of applying this section and section 23B to a transaction between a financial subsidiary of a bank and the bank (or between such financial subsidiary and any other subsidiary of the bank which is not a financial subsidiary) and notwithstanding subsection (b)(2) and section 23B(d)(1), the financial subsidiary of the bank--

``(A) shall be an affiliate of the bank and any other subsidiary of the bank which is not a financial subsidiary; and

``(B) shall not be treated as a subsidiary of the bank.

``(3) Application to transactions between financial subsidiary and nonbank affiliates.--

``(A) In general.--A transaction between a financial subsidiary and an affiliate of the financial subsidiary shall not be deemed to be a transaction between a subsidiary of a national bank and an affiliate of the bank for purposes of section 23A or section 23B of the Federal Reserve Act.

``(B) Certain affiliates excluded.--For purposes of subparagraph (A) and notwithstanding paragraph (4), the term `affiliate' shall not include a bank, or a subsidiary of a bank, which is engaged exclusively in activities permissible for a national bank to engage in directly.

``(4) Equity investments excluded subject to the approval of the banking agency.--Subsection (a)(1) shall not apply so as to limit the equity investment of a bank in a financial subsidiary of such bank, except that any investment that exceeds the amount of a dividend that the bank could pay at the time of the investment without obtaining prior approval of the appropriate Federal banking agency and is in excess of the limitation which would apply under subsection (a)(1), but for this paragraph, may be made only with the approval of the appropriate Federal banking agency (as defined in section 3(q) of the Federal Deposit Insurance Act) with respect to such bank.''.

(b) Treatment of Financial Subsidiaries Under Other Provisions of Law.--

(1) Bank Holding Company Act Amendments of 1970.--Section 106(a) of the Bank Holding Company Act Amendments of 1970 is amended by adding at the end the following new sentence: ``For purposes of this section, a financial subsidiary (as defined in section 5136A(a)(4)(A) of the Revised Statutes of the United States or referenced in the 20th undesignated paragraph of section 9 of the Federal Reserve Act or section 24(d)(3)(A) of the Federal Deposit Insurance Act) shall be deemed to be a subsidiary of a bank holding company, and not a subsidiary of a bank.''; and

(2) Federal Reserve Act.--The 20th undesignated paragraph of section 9 of the Federal Reserve Act (12 U.S.C. 335) is amended by adding at the end of the following new sentence: ``To the extent permitted under State law, a State member bank may acquire or establish and retain a financial subsidiary (as defined in section 5136A(a)(3)(A) of the Revised Statutes of the United States, except that all references in that section to the Comptroller of the Currency, the Comptroller, or regulations or orders of the Comptroller shall be deemed to be references to the Board or regulations or orders of the Board.''.

Subtitle F--Direct Activities of Banks

SEC. 151. POWERS OF NATIONAL BANKS.

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

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

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

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

``(1) Existing products.--

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

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

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

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

``(2) New products.--

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

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

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

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

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

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

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

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

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

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

``(D) Hearing.--

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

``(4) Authority.--

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

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

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

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

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

SEC. 152.-BANKING PRODUCTS DEFINED.

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

``(s) Banking Products Definition.--

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

``(A) a deposit account, savings account, certificate of deposit, or other deposit instrument issued by a bank;

``(B) a banker's acceptance;

``(C) a letter of credit issued by a bank;

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

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

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

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

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

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

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

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

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

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

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

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

Subtitle G--Noninsured Depository Institutions

SEC. 161. WHOLESALE FINANCIAL INSTITUTIONS.

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

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

``(a) Authorization of the Comptroller Required.--A national bank may apply to the Comptroller, on such forms and in accordance with such regulations as the Comptroller may prescribe, for permission to operate as a national wholesale financial institution.

``(b) Regulation.--A national wholesale financial institution may exercise, in accordance with such institution's articles of incorporation and regulations issued by the Comptroller, all the powers and privileges of a national bank formed in accordance with section 5133 of the Revised Statutes of the United States, subject to the same limitations and restrictions imposed under section 9B of the Federal Reserve Act.

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

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

``SEC. 9B. STATE WHOLESALE FINANCIAL INSTITUTIONS.

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

``(1) Application required.--

``(A) In general.--Any State bank may apply to the Board of Governors of the Federal Reserve System to become a wholesale financial institution and as a wholesale financial institution, to subscribe to the stock of the Federal reserve bank organized within the district where the applying bank is located.

``(B) Treatment as member bank.--Any application under subparagraph (A) shall be treated as an application under, and shall be subject to the provisions of, section 9.

``(2) Insurance termination.--No bank that is insured under the Federal Deposit Insurance Act may become a wholesale financial institution unless it has met all requirements under that Act for voluntary termination of deposit insurance.

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

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

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

``(A) the relevant capital levels and capital measures for each capital category shall be the levels specified by the Board for wholesale financial institutions; and

``(B) all references to the appropriate Federal banking agency or to the Corporation in that section shall be deemed to be references to the Board.

``(3) Enforcement authority.--Subsections (j) and (k) of section 7, subsections (b) through (n), (s), (u), and (v) of section 8, and section 19 of the Federal Deposit Insurance Act shall apply to a wholesale financial institution in the same manner and to the same extent as such provisions apply to State member insured banks and any reference in such sections to an insured depository institution shall be deemed to include a reference to a wholesale financial institution.

``(4) Certain other statutes applicable.--A wholesale financial institution shall be deemed to be a banking institution, and the Board shall be the appropriate Federal banking agency for such bank and all such bank's affiliates, for purposes of the International Lending Supervision Act.

``(5) Bank merger act.--A wholesale financial institution shall be subject to provisions of sections 18(c) and 44 of the Federal Deposit Insurance Act in the same manner and to the same extent the wholesale financial institution would be subject to such sections if the institution were a State member insured bank.

``(6) Community reinvestment act of 1977.--A State wholesale financial institution shall be subject to the Community Reinvestment Act of 1977.

``(c) Specific Requirements Applicable to Wholesale Financial Institutions.--

``(1) Limitations on deposits.--

``(A) Minimum amount.--

``(i) In general.--No wholesale financial institution may receive initial deposits of $100,000 or less, other than on an incidental and occasional basis.

``(ii) Limitation on deposits of less than $100,000.--No bank may be treated as a wholesale financial institution if the total amount of the initial deposits of $100,000 or less at such bank constitute more than 5 percent of the bank's total deposits.

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

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

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

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

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

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

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

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

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

``(i) the transfer of risk to the deposit insurance funds; or

``(ii) an affiliate from gaining access to, or the benefits of, credit from a Federal reserve bank, including overdrafts at a Federal reserve bank;

``(B) special clearing balance requirements;

``(C) any additional requirements that the Board determines to be appropriate or necessary to--

``(i) promote the safety and soundness of the wholesale financial institution or any insured depository institution affiliate of the wholesale financial institution;

``(ii) prevent the transfer of risk to the deposit insurance funds; or

``(iii) protect creditors and other persons, including Federal reserve banks, engaged in transactions with the wholesale financial institution; and

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

``(4) Exemptions for wholesale financial institutions.--The Board may, by regulation or order, exempt any wholesale financial institution from any provision applicable to a member bank that is not a wholesale financial institution (other than the provisions of this section), if the Board finds that such exemption is not inconsistent with--

``(A) the promotion of the safety and soundness of the wholesale financial institution or any insured depository institution affiliate of the wholesale financial institution;

``(B) the protection of the deposit insurance funds; and

``(C) the protection of creditors and other persons, including Federal reserve banks, engaged in transactions with the wholesale financial institution.

``(5) Limitation on transactions between a wholesale financial institution and an insured bank.--For purposes of section 23A(d)(1) of the Federal Reserve Act, a wholesale financial institution that is affiliated with an insured bank shall not be a bank.

``(6) No effect on other provisions.--This section shall not be construed as limiting the Board's authority over member banks under any other provision of law, or to create any obligation for any Federal reserve bank to make, increase, renew, or extend any advance or discount under this Act to any member bank or other depository institution.

``(d) Conservatorship Authority.--

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

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

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

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

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

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

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

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

(A) by striking paragraph (1); and

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

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

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

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

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

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

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

``(2) either--

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

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

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

``(1) an insured savings association;

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

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

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

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

``(e) Exit Fees.--

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

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

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

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

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

``(g) Advertisements.--

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

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

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

``(h) Notice Requirements.--

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

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

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

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

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

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

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

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

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

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

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

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

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

``(2) Findings and Purposes.--

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

``(C) Commodities.--

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

``(ii) Capital standards.--The foreign bank meets risk-based capital standards comparable to the capital standards required for a wholesale financial institution, giving due regard to the principle of national treatment and equality of competitive opportunity.

``(iii) Transactions with affiliates.--Transactions between a branch, agency, or commercial lending company subsidiary of the foreign bank in the United States, and any affiliate or company in which the foreign bank (or any company that owns or controls such foreign bank) has invested in accordance with this subsection, shall comply with the provisions of sections 23A and 23B of the Federal Reserve Act in the same manner and to the same extent as such transactions would be required to comply with such sections if the bank were a member bank.

``(C) Treatment as a wholesale financial institution.--Any foreign bank which is, or is affiliated with a company which is, treated as a bank holding company which controls a company pursuant to this subsection shall be treated as a wholesale financial institution for purposes of subparagraphs (A) and (B) of paragraph (3) and section 111 of the Financial Services Competition Act of 1997, except that the Board may adopt such modifications, conditions, or exemptions as the Board deems appropriate, giving due regard to the principle of national treatment and equality of competitive opportunity.

``(D) Nonapplicability of other exemption.--Any foreign bank or company which is treated as a bank holding company which controls a company pursuant to this subsection shall not be eligible for any exemption described in section 2(h).''.

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

SEC. 171. LONG-TERM FEDERAL HOME LOAN BANK ADVANCES FOR FUNDING SMALL BUSINESSES, AGRICULTURE, AND RURAL DEVELOPMENT.

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

(1) in the 2d sentence, by striking ``All long-term advances'' and inserting ``Except as provided in the succeeding sentence, all long-term advances'';

(2) by inserting after the 2d sentence, the following sentence: ``Notwithstanding the preceding sentence, long-term advances may be made to members which have less than $1,000,000,000 in total assets for the purpose of funding small businesses, agriculture, or rural development (as defined by the Board).''; and

(3) by redesignating paragraph (5) as paragraph (6) and inserting after paragraph (4) the following new paragraph:

``(5) In the case of any member which has total assets of less than $1,000,000,000, secured loans for small business, agriculture, or rural development or securities representing a whole interest in such secured loans.''.

(b) Conforming Amendments Relating to Members Which are Not Qualified Thrift Lenders.--Section 10(e) of the Federal Home Loan Bank Act (12 U.S.C. 1430(e)) is amended--

(1) in the last sentence of paragraph (1), by inserting ``or, in the case of any member which has total assets of less than $1,000,000,000, for the purposes described in the 3d sentence of subsection (a)'' before the period; and

(2) in paragraph (5)(C), by inserting ``except that, in determining the actual thrift investment percentage of any member which has total assets of less than $1,000,000,000 for purposes of this subsection, the total investment of such member in loans for small business, agriculture, or rural development, or securities representing a whole interest in such loans, shall be treated as a qualified thrift investment (as defined in such section 10(m))'' before the period.

SEC. 172. ELIGIBILITY OF COMMUNITY FINANCIAL INSTITUTIONS FOR MEMBERSHIP IN FEDERAL HOME LOAN BANK SYSTEM.

Section 4(a) of the Federal Home Loan Bank Act (12 U.S.C. 1424(a)) is amended by adding at the end the following new paragraph:

``(3) Eligibility requirements for community financial institutions.--The requirements of paragraph (2) (other than subparagraph (B) of such paragraph) shall not apply to any insured depository institution which has total assets of less than $1,000,000,000.''.

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

SEC. 181. AMENDMENTS TO THE BANK HOLDING COMPANY ACT OF 1956.

(a) Amendments to Section 3 to Require Filing of Application Copies with Attorney General.--Section 3 of the Bank Holding Company Act of 1956 (12 U.S.C. 1842) is amended--

(1) in subsection (b) by inserting after paragraph (2) the following new paragraph:

(3) Requirement to file information with Attorney General.--Any applicant seeking prior approval of the Board to engage in an acquisition transaction under this section must file simultaneously with the Attorney General copies of any documents regarding the proposed transaction required by the Board. ; and

(2) in subsection (c)--

(A) by striking paragraph (1); and

(B) by redesignating paragraphs (2) through (5) as paragraphs (1) through (4), respectively.

(b) Amendments to Section 11 to Modify Justice Department Notification and Post-Approval Waiting Period for Section 3 Transactions.--Section 11 of the Bank Holding Company Act of 1956 (12 U.S.C. 1849) is amended--

(1) in subsection (b)(1)--

(A) by striking , if the Board has not received any adverse comment from the Attorney General of the United States relating to competitive factors, ;

(B) by striking as may be prescribed by the Board with the concurrence of the Attorney General, but in no event less than 15 calendar days after the date of approval. and inserting in lieu thereof as may be prescribed by the Attorney General. ; and

(C) by striking In any such action, the court shall review de novo the issues presented. In any judicial proceeding attacking any acquisition, merger, or consolidation approved pursuant to section 3 on the ground that such transaction alone and of itself constituted a violation of any antitrust laws other than section 2 of the Act of July 2, 1890 (section 2 of the Sherman Antitrust Act, 15 U.S.C. 2), the standards applied by the court shall be identical with those that the Board is directed to apply under section 3 of this Act ; and

(2) by striking subsections (c) and (e) and redesignating subsections (d) and (f) as subsections (c) and (d), respectively.

SEC. 182. AMENDMENTS TO THE FEDERAL DEPOSIT INSURANCE ACT TO VEST IN THE DEPARTMENT OF JUSTICE SOLE RESPONSIBILITY FOR ANTITRUST REVIEW OF DEPOSITORY INSTITUTION MERGERS.

Section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. 1828) is amended--

(1) in paragraph (3)(C) by striking ``during a period at least as long as the period allowed for furnishing reports under paragraph (4) of this subsection'';

(2) by striking paragraph (4) and inserting the following new paragraph:

``(4) Factors to be considered.--In determining whether to approve a transaction, the responsible agency shall in every case take into consideration the financial and managerial resources and future prospects of the existing and proposed institutions, and the convenience and needs of the community to be served.'';

(3) by striking paragraph (5) and inserting the following new paragraph:

``(5) Notice to attorney general.--The responsible agency shall immediately notify the Attorney General of any approval by it pursuant to this subsection of a proposed merger transaction. If the responsible agency has found that it must act immediately in order to prevent the probable failure of one of the banks involved, the transaction may be consummated immediately upon approval by the agency. If the responsible agency has notified the other Federal banking agencies referred to in this section of the existence of an emergency requiring expeditious action and has required the submission of views and recommendations within 10 days, the transaction may not be consummated before the 5th calendar day after the date of approval of the responsible agency. In all other cases, the transaction may not be consummated before the 30th calendar day after the date of approval by the agency, or such shorter period of time as may be prescribed by the Attorney General.'';

(4) by striking paragraph (6) and redesignating paragraphs (7) through (11) as paragraphs (6) through (10), respectively;

(5) in subparagraph (A) of paragraph (6) (as so redesignated by paragraph (4) of this section))--

(A) by striking ``(5)'' and inserting ``(4)''; and

(B) by striking ``(6)'' and inserting ``(5)'';

(6) in paragraph (6) (as so redesignated by paragraph (4) of this section)--

(A) by striking subparagraphs (B) and (D); and

(B) by redesignating subparagraph (C) as subparagraph (B);

(7) in paragraph (8) (as so redesignated by paragraph (4) of this section)--

(A) by inserting ``and'' after the semicolon at the end of subparagraph (A):

(B) by striking subparagraph (B); and

(8) by inserting after paragraph (10) (as so redesignated by paragraph (4) of this section) the following new paragraph:

``(11) Requirement to file information with Attorney General.--Any applicant seeking prior written approval of the responsible Federal banking agency to engage in a merger transaction under this subsection shall file simultaneously with the Attorney General copies of any documents regarding the proposed transaction required by the Federal banking agency.''.

SEC. 183. INFORMATION FILED BY DEPOSITORY INSTITUTIONS; INTERAGENCY DATA SHARING.

(a) Format of Notice.--

``(1) In general.--Notice of any proposed transaction for which approval is required shall be in a format designated and required by the appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act) and shall contain a section on the likely competitive effects of the proposed transaction.

``(2) Designation by agency.--The appropriate Federal banking agency, with the concurrence of the Attorney General, shall designate and require the form and content of the competitive effects section.

``(3) Notice of suspension.--Upon notification by the Attorney General that the competitive effects section of an application is incomplete, the appropriate Federal banking agency shall notify the applicant that the agency will suspend processing of the application until the Attorney General notifies the agency that the application is complete.

``(4) Emergency action.--This provision shall not affect the appropriate Federal banking agency's authority to act immediately--

``(A) to prevent the probable failure of 1 of the banks involved; or

``(B) to reduce or eliminate a post approval waiting period in case of an emergency requiring expeditious action.

``(5) Exemption for certain filings.--With the concurrence of the Attorney General, the appropriate Federal banking agency may exempt classes of persons, acquisitions, or transactions that are not likely to violate the antitrust laws from the requirement that applicants file a competitive effects section, .

``(b) Interagency Data Sharing Requirement.--To the extent not prohibited by other law, the Federal banking agencies shall make available to the Attorney General any data in their possession that the Attorney General deems necessary for antitrust reviews of transactions requiring approval under section 3 of the Bank Holding Company Act of 1956 or section 18(c) of the Federal Deposit Insurance Act.

SEC. 184. EFFECTIVE DATE.

This subtitle shall become effective 6 months after the date of enactment of this Act.

Subtitle J--Redomestication of Mutual Insurers

SEC. 191. REDOMESTICATION OF MUTUAL INSURERS.

(a) Redomestication.--A mutual insurer organized under the laws of any State may transfer its domicile to a transferee domicile as a step in a reorganization in which, pursuant to the laws of the transferee domicile, the mutual insurer becomes a stock insurer (whether as a direct or indirect subsidiary of a mutual holding company or otherwise).

(b) Resulting Domicile.--Upon complying with the applicable law of the transferee domicile governing transfers of domicile and completion of a transfer pursuant to this section, the mutual insurer shall cease to be a domestic insurer in the transferor domicile and, as a continuation of its corporate existence, shall be a domestic insurer of the transferee domicile.

(c) Licenses Preserved.--The certificate of authority, agents' appointments and licenses, rates, approvals and other items that a licensed State allows and that are in existence immediately prior to the date that a redomesticating insurer transfers its domicile pursuant to this subtitle shall continue in full force and effect upon transfer, if the insurer remains duly qualified to transact the business of insurance in such licensed State.

(d) Effectiveness of Outstanding Policies and Contracts.--

(1) In general.--All outstanding insurance policies and annuities contracts of a redomesticating insurer shall remain in full force and effect and need not be endorsed as to the new domicile of the insurer, unless so ordered by the State insurance regulator of a licensed State, and then only in the case of outstanding policies and contracts whose owners reside in such licensed State.

(2) Forms.--

(A) Applicable State law may require a redomesticating insurer to file new policy forms with the State insurance regulator of a licensed State on or before the effective date of the transfer.

(B) Notwithstanding subparagraph (A), a redomesticating insurer may use existing policy forms with appropriate endorsements to reflect the new domicile of the redomesticating insurer until the new policy forms are approved for use by the State insurance regulator of such licensed State.

(e) Notice.--A redomesticating insurer shall give notice of the proposed transfer to the State insurance regulator of each licensed State and shall file promptly any resulting amendments to corporate documents required to be filed by a foreign licensed mutual insurer with the insurance regulator of each such licensed State.

SEC. 192. EFFECT ON STATE LAWS RESTRICTING REDOMESTICATION.

(a) In General.--Unless otherwise permitted by this subtitle, State laws that conflict with the purposes and intent of this subtitle are preempted, including but not limited to--

(1) any law that has the purpose or effect of impeding the activities of, taking any action against, or applying any provision of law or regulation to, any insurer or an affiliate of such insurer because that insurer or any affiliate plans to redomesticate or has redomesticated pursuant to this subtitle;

(2) any law that has the purpose or effect of impeding the activities of, taking action against, or applying any provision of law or regulation to, any insured or any insurance licensee or other intermediary because such person or entity has procured insurance from or placed insurance with any insurer or affiliate of such insurer that plans to redomesticate or has redomesticated pursuant to this subtitle;

(3) any law that has the purpose or effect of terminating, because of the redomestication of a mutual insurer pursuant to this subtitle, any certificate of authority, agent appointment or license, rate approval or other approval, of any State insurance regulator or other State authority in existence immediately prior to the redomestication in any State other than the transferee domicile.

(b) Differential Treatment Prohibited.--No State law, regulation, interpretation, or functional equivalent thereof, may treat a redomesticating or redomesticated insurer or any affiliate thereof any differently than an insurer operating in that State that is not a redomesticating or redomesticated insurer.

(c) Laws Prohibiting Operations.--If any licensed State fails to issue, delays the issuance of, or seeks to revoke an original or renewal certificate of authority of a redomesticated insurer immediately following redomestication, except on grounds and in a manner consistent with its past practices regarding the issuance of certificates of authority to foreign insurers that are not redomesticating, then the redomesticating insurer shall be exempt from any State law of the licensed State to the extent that such State law or the operation of such State law would make unlawful, or regulate, directly or indirectly, the operation of the redomesticated insurer, except that such licensed State may require the redomesticated insurer to--

(1) comply with the unfair claim settlement practices law of the licensed State;

(2) pay, on a nondiscriminatory basis, applicable premium and other taxes which are levied on licensed insurers or policyholders under the laws of the licensed State;

(3) register with and designate the State insurance regulator as its agent solely for the purpose of receiving service of legal documents or process;

(4) submit to an examination by the State insurance regulator in any licensed state in which the redomesticated insurer is doing business to determine the insurer's financial condition, if--

(A) the State insurance regulator of the transferee domicile has not begun and has refused to initiate an examination of the redomesticated insurer; and

(B) any such examination is coordinated to avoid unjustified duplication and repetition;

(5) comply with a lawful order issued in--

(A) a delinquency proceeding commenced by the State insurance regulator of any licensed State if there has been a judicial finding of financial impairment under paragraph (7); or

(B) a voluntary dissolution proceeding;

(6) comply with any State law regarding deceptive, false, or fraudulent acts or practices, except that if the licensed State seeks an injunction regarding the conduct described in this paragraph, such injunction must be obtained from a court of competent jurisdiction as provided in subsection (d);

(7) comply with an injunction issued by a court of competent jurisdiction, upon a petition by the State insurance regulator alleging that the redomesticating insurer is in hazardous financial condition or is financially impaired;

(8) participate in any insurance insolvency guaranty association on the same basis as any other insurer licensed in the licensed State; and

(9) require a person acting, or offering to act, as an insurance licensee for a redomesticated insurer in the licensed State to obtain a license from that State, except that such State may not impose any qualification or requirement that discriminates against a nonresident insurance licensee.

(d) Judicial Review.--The appropriate United States district court shall have exclusive jurisdiction over litigation arising under this section involving any redomesticating or redomesticated insurer.

(e) Severability.--If any provision of this section, or the application thereof to any person or circumstances, is held invalid, the remainder of the section, and the application of such provision to other persons or circumstances, shall not be affected thereby.

SEC. 193. DEFINITIONS.

For purposes of this subtitle, the following definitions shall apply:

(1) Court of competent jurisdiction.--The term ``court of competent jurisdiction'' means a court authorized pursuant to section 192(d) to adjudicate litigation arising under this subtitle.

(2) Domicile.--The term ``domicile'' means the State in which an insurer is incorporated, chartered, or organized.

(3) Insurance licensee.--The term ``insurance licensee'' means any person holding a license under State law to act as insurance agent, subagent, broker, or consultant.

(4) Institution.--The term ``institution'' means a corporation, joint stock company, limited liability company, limited liability partnership, association, trust, partnership, or any similar entity.

(5) Licensed state.--The term ``licensed State'' means any State, Puerto Rico, or the U.S. Virgin Islands in which the redomesticating insurer has a certificate of authority in effect immediately prior to the redomestication.

(6) Mutual insurer.--The term ``mutual insurer'' means a mutual insurer organized under the laws of any State.

(7) Person.--The term ``person'' means an individual, institution, government or governmental agency, State or political subdivision of a State, public corporation, board, association, estate, trustee, or fiduciary, or other similar entity.

(8) Redomesticated insurer.--The term ``redomesticated insurer'' means a mutual insurer that has redomesticated pursuant to this subtitle.

(9) Redomesticating insurer.--The term ``redomesticating insurer'' means a mutual insurer that is redomesticating pursuant to this subtitle.

(10) Redomestication or transfer.--The terms ``redomestication'' and ``transfer'' mean the transfer of the domicile of a mutual insurer from one State to another State pursuant to this subtitle.

(11) State insurance regulator.--The term ``State insurance regulator'' means the principal insurance regulatory authority of a State or of Puerto Rico, or the U.S. Virgin Islands.

(12) State law.--The term ``State law'' means the statutes of any State or of Puerto Rico, or the U.S. Virgin Islands and any regulation, order, or requirement prescribed pursuant to any such statute.

(13) Transferee domicile.--The term ``transferee domicile'' means the State to which a mutual insurer is redomesticating pursuant to this subtitle.

(14) Transferor domicile.--The term ``transferor domicile'' means the State from which a mutual insurer is redomesticating pursuant to this subtitle.

SEC. 194. EFFECTIVE DATE

This subtitle shall become effective on the date of enactment of this Act.

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

SEC. 195. APPLYING THE PRINCIPLES OF NATIONAL TREATMENT AND EQUALITY OF COMPETITIVE OPPORTUNITY TO FOREIGN BANKS AND FOREIGN FINANCIAL INSTITUTIONS.

The purpose of this subtitle is to apply the reforms of this Act to foreign banks and other foreign financial institutions in a manner consistent with the principles of national treatment and equality of competitive opportunity, without disadvantaging either foreign or domestic banks or other financial institutions in relation to each other.

SEC. 196. APPLYING THE PRINCIPLES OF NATIONAL TREATMENT AND EQUALITY OF COMPETITIVE OPPORTUNITY TO FOREIGN BANKS THAT ARE QUALIFYING BANK HOLDING COMPANIES.

Section 8(c) of the International Banking Act 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 with the Board under section 6(a)(1)(F) of the Bank Holding Company Act of 1956--

``(i) any authority conferred by this subsection on any foreign bank or company to engage in any activity not permissible for a national bank to engage in directly shall terminate immediately; and

``(ii) section 6(a) of the Bank Holding Company Act of 1956 shall apply to such foreign bank or company in the same manner and to the same extent as it applies to domestic qualifying bank holding companies.

``(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 is not permissible for a national bank to engage in directly has not filed a declaration with the Board of its status as a qualifying bank holding company under section 6(a) of the Bank Holding Company Act of 1956 by the end of the second year after the date of enactment of the Financial Services Competition Act of 1997, 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 qualifying bank holding company organized under the laws of the United States, including a requirement to conduct such activities in compliance with the safeguards of section 6 of the Bank Holding Company Act of 1956 and any additional safeguards imposed by the National Council on Financial Services.''.

SEC. 197. APPLYING THE PRINCIPLES OF NATIONAL TREATMENT AND EQUALITY OF COMPETITIVE OPPORTUNITY TO FOREIGN BANKS AND FOREIGN FINANCIAL INSTITUTIONS THAT ARE WHOLESALE FINANCIAL INSTITUTIONS.

(a) Amendments to federal deposit insurance act.--Section 8A of the Federal Deposit Insurance Act (as added by section 172 of this Act) is amended by adding at the end the following new subsection:

``(h) Voluntary Termination of Deposit Insurance.--The provisions on voluntary termination of insurance in this section apply to an insured branch of a foreign bank (including a Federal branch) in the same manner and to the same extent as they apply to an insured State bank or a national bank.''.

(b) Community Reinvestment Act of 1977 Applicable.--For purposes of section 9(B)(b)(6) of the Federal Reserve Act, the term ``wholesale financial institution'' includes the branches in the United States of a foreign bank whose application to be deemed a wholesale financial institution has been approved by the Board under section 7(d) of the International Banking Act of 1978. The Board and the Comptroller of the Currency shall apply sections 803(2), 804, and 807 of the Community Reinvestment Act of 1977 to branches of foreign banks that receive only such deposits as are permissible for receipt by a corporation organized under section 25A of the Federal Reserve Act, in the same manner and to the same extent as such sections apply to such a corporation.

(c) Authority to Impose Additional Restrictions and Requirements.--Section 7(d)(5) of the International Banking Act of 1978 is amended--

(1) by striking ``Consistent'' and inserting the following: ``(1) Conditions to ensure appropriate supervision of foreign banks.--Consistent'';

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

``(2) Additional restrictions and requirements.--The Board may impose any additional requirements on foreign banks that the Board deems to be wholesale financial institutions that are determined to be appropriate or necessary to protect taxpayers and the financial system from risks associated with access to the payments system and availability of discounts, advances, and other extensions of credit from a Federal Reserve bank, giving due regard to the principles of national treatment and equality of competitive opportunity.

Subtitle L--Effective Date of Title.

SEC. 199. EFFECTIVE DATE.

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

TITLE II--FUNCTIONAL REGULATION

Subtitle A--Brokers and Dealers

SEC. 201. DEFINITION OF BROKER.

Section 3(a)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)) is amended to read as follows:

``(4) Broker.--

``(A) In general.--The term `broker' means any person engaged in the business of effecting transactions in securities for the account of others.

``(B) Exclusion of banks.--The term `broker' does not include a bank unless such bank--

``(i) publicly solicits the business of effecting securities transactions for the account of others; or

``(ii) is compensated for such business by the payment of commissions or similar remuneration based on effecting transactions in securities (other than fees calculated as a percentage of assets under management) in excess of the bank's incremental costs directly attributable to effecting such transactions (hereafter referred to as `incentive compensation').

``(C) Exemption for certain bank activities.--A bank shall not be considered to be a broker because the bank engages in any of the following activities under the conditions described:

``(i) Third party brokerage arrangements.--The bank enters into a contractual or other arrangement with a broker or dealer registered under this title under which the broker or dealer offers brokerage services on or off the premises of the bank if--

``(I) such broker or dealer is clearly identified as the person performing the brokerage services;

``(II) the broker or dealer performs brokerage services in an area that is clearly marked and, unless made impossible by space or personnel considerations, 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 perform only clerical or ministerial functions in connection with brokerage transactions, including scheduling appointments with the associated persons of a broker or dealer and, on behalf of a broker or dealer, transmitting orders or handling customers funds or securities, except that bank employees who are not so qualified may describe in general terms investment vehicles under the contractual or other arrangement and accept customer orders on behalf of the broker or dealer if such employees have received training that is substantially equivalent to the training required for personnel qualified to sell securities pursuant to the requirements of a self-regulatory organization;

``(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 requirements of a self-regulatory organization (as so defined) except that the bank employees may receive nominal cash and noncash compensation for customer referrals if the cash compensation is a one-time 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 which receive any services are fully disclosed to the broker or dealer; and

``(VIII) the 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 engages in trust activities (including effecting transactions in the course of such trust activities) permissible for national banks under the first section of the Act of September 28, 1962, or for State banks under relevant State trust statutes or law (including securities safekeeping, self-directed individual retirement accounts, or managed agency accounts or other functionally equivalent accounts of a bank) unless the bank--

``(I) publicly solicits brokerage business, other than by advertising that it effects transactions in securities in conjunction with advertising its other trust activities; or

``(II) receives incentive compensation for such brokerage activities.

``(iii) Permissible securities transactions.--The bank effects transactions in exempted securities, other than municipal securities, in commercial paper, bankers acceptances, commercial bills, qualified Canadian government obligations as defined in section 5136 of the Revised Statutes, obligations of the Washington Metropolitan Area Transit Authority which are guaranteed by the Secretary of Transportation under section 9 of the National Capital Transportation Act of 1969, obligations of the North American Development Bank, and obligations of any local public agency (as defined in section 110(h) of the Housing Act of 1949) or any public housing agency (as defined in the United States Housing Act of 1937) that are expressly authorized by section 5136 of the Revised Statutes of the United States as permissible for a national bank to underwrite or deal in.

``(iv) Employee and shareholder benefit plans.--The bank effects transactions as part of any bonus, profit-sharing, pension, retirement, thrift, savings, incentive, stock purchase, stock ownership, stock appreciation, stock option, dividend reinvestment, or similar plan for employees or shareholders of an issuer or its subsidiaries.

``(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).

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

``(I) effects sales as part of a primary offering of securities by an issuer, not involving a public offering, pursuant to section 3(b), 4(2), or 4(6) of the Securities Act of 1933 and the rules and regulations issued thereunder; and

``(II) effects such sales exclusively to an accredited investor, as defined in section 2 of the Securities Act of 1933.

``(viii) De minimus exemption.--If the bank does not have a subsidiary or affiliate registered as a broker or dealer under section 15, the bank effects, other than in transactions referred to in clauses (i) through (vii), not more than--

``(I) 800 transactions in any calendar year in securities for which a ready market exists, and

``(II) 200 other transactions in securities in any calendar year.

``(ix) Safekeeping and custody services.--The bank, as part of customary banking activities--

``(I) provides safekeeping or custody services with respect to securities, including the exercise of warrants or other rights on behalf of customers;

``(II) clears or settles transactions in securities;

``(III) effects securities lending or borrowing transactions with or on behalf of customers as part of services provided to customers pursuant to subclauses (I) and (II) or invests cash collateral pledged in connection with such transactions; or

``(IV) holds securities pledged by one customer to another customer or securities subject to resale agreements between customers or facilities the pledging or transfer of such securities by book entry.

``(x) Contracts of insurance.--The bank effects transactions in contracts of insurance.

``(xi) Banking products.--The bank effects transactions in banking products, as defined in section 18 of the Federal Deposit Insurance Act.

``(D) Exemption for entities subject to section 15(e).--The term `broker' does not include a bank that--

``(i) was, immediately prior to the enactment of the Financial Services Competition Act of 1997, subject to section 15(e); and

``(ii) is subject to such restrictions and requirements as the Commission considers appropriate.''.

SEC. 202. DEFINITION OF DEALER.

Section 3(a)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(5)) is amended to read as follows:

``(5) Dealer.--

``(A) In general.--The term `dealer' means any person engaged in the business of buying and selling securities for such person's own account through a broker or otherwise.

``(B) Exception for person not engaged in the business of dealing.--The term `dealer' does not include a person that buys or sells securities for such person's own account, either individually or in a fiduciary capacity, but not as a part of a regular business.

``(C) Exemption 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) The bank buys and sells commercial paper, bankers acceptances, exempted securities (other than municipal securities), qualified Canadian Government obligations as defined in section 5136 of the Revised Statutes, obligations of the Washington Metropolitan Area Transit Authority which are guaranteed by the Secretary of Transportation under section 9 of the National Capital Transportation Act of 1969, obligations of the North American Development Bank, and obligations of any local public agency (as defined in section 110(h) of the Housing Act of 1949) or any public housing agency (as defined in the United States Housing Act of 1937) that are expressly authorized by section 5136 of the Revised Statutes of the United States as permissible for a national bank to underwrite or deal in.

``(ii) The bank buys and sells securities for investment purposes for the bank or for accounts for which the bank acts as a trustee or fiduciary.

``(iii) The bank effects transactions in contracts of insurance.

``(iv) The bank offers or sells, solely to any accredited investor (as defined in section 2 of the Securities Act of 1933) securities backed by or representing an interest in notes, drafts, acceptances, loans, leases, receivables, other obligations, or pools of any such obligations originated or purchased by the bank or any affiliate of the bank.

``(v) The bank buys and sells banking products, as defined in section 18 of the Federal Deposit Insurance Act.''.

SEC. 203. POWER TO EXEMPT FROM THE DEFINITIONS OF BROKER AND DEALER.

Section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c) is amended by adding at the end the following:

``(e) Exemption From Definition of Broker or Dealer.--The Commission, by regulation or order, upon its own motion or upon application, may conditionally or unconditionally exclude any person or class of persons from the definitions of `broker' or `dealer', if the Commission finds that such exclusion is consistent with the public interest, the protection of investors, and the purposes of this title.''.

SEC. 204. APPLICATION OF THIS TITLE TO BANKS REGISTERED AS BROKERS OR DEALERS.

Section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o) is amended by adding at the end the following new subsection:

``(i) Application of This Title to Banks Registered as Brokers or Dealers.--

``(1) Nondiscrimination.--In administering and enforcing this title with respect to banks that are registered brokers or dealers, the Commission shall not treat banks more restrictively than any other entities that are registered as brokers or dealers pursuant to this section.

``(2) Capital requirements.--

``(A) Well-capitalized banks.--Capital requirements for brokers or dealers shall not apply to a bank that is well-capitalized (as defined in section 38 of the Federal Deposit Insurance Act) and determined by the appropriate Federal banking agency (as defined in section 3 of such Act), if the bank's brokerage and dealer activities requiring registration do not represent the predominant portion of the bank`s gross revenues.

``(B) Other banks.--The Commission, in consultation with the appropriate Federal regulatory agencies for banks, shall provide appropriate transitional relief to banks that are registered brokers or dealers, and that cease to be well-capitalized but are adequately capitalized (as defined in section 38 of the Federal Deposit Insurance Act). Such rules shall take account of the purposes of this section and the extent to which bank capital requirements further those purposes.

``(3) Scope of application.--The regulation, under this Act, of any bank registered under this Act as a broker or dealer shall apply only with respect to activities of the bank for which the bank is required under this Act to be registered as a broker or dealer.''.

SEC. 205. EXCLUSION FROM SIPC MEMBERSHIP OF BANKS REGISTERED AS BROKERS OR DEALERS.

Section 3(a)(2)(A) of the Securities Investor Protection Act of 1970 (15 U.S.C. 78ccc(a)(2)(A)) is amended--

(1) in clause (i), by striking ``and'' after the semicolon;

(2) in clause (ii), by striking the period at the end and inserting ``; and''; and

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

``(iii) banks.''.

SEC. 206. EFFECTIVE DATE.

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

Subtitle B--Bank Investment Company Activities

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

(a) Management Companies.--Section 17(f) of the Investment Company Act of 1940 (15 U.S.C. 80aÿ0917(f)) is amended--

(1) by redesignating paragraphs (1), (2), and (3) as subparagraphs (A), (B), and (C), respectively;

(2) by striking ``(f) Every registered'' and inserting

``(f) Custody of Securities.--

``(1) Every registered'';

(3) by designating the 2d, 3d, 4th, and 5th sentences of such subsection as paragraphs (2) through (5), respectively, and indenting the left margin of such paragraphs appropriately; and

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

``(6) Notwithstanding any provision of this subsection, if a bank described in paragraph (1) or an affiliated person of such bank is an affiliated person, promoter, organizer, or sponsor of, or principal underwriter for the registered company, such bank may serve as custodian under this subsection in accordance with such rules, regulations, or orders as the Commission may prescribe, consistent with the protection of investors, after consulting in writing with the appropriate Federal banking agency, as defined in section 3 of the Federal Deposit Insurance Act.''.

(b) Unit Investment Trusts.--Section 26(a)(1) of the Investment Company Act of 1940 (15 U.S.C. 80aÿ096(a)(1)) is amended by inserting before the semicolon at the end the following: ``, except that, if the trustee or custodian described in this subsection is an affiliated person of such underwriter or depositor, the Commission may adopt rules and regulations or issue orders, consistent with the protection of investors, prescribing the conditions under which such trustee or custodian may serve, after consulting in writing with the appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act)''.

(c) Fiduciary Duty of Custodian.--Section 36(a) of the Investment Company Act of 1940 (15 U.S.C. 80aÿ0935(a)) is amended--

(1) in paragraph (1), by striking ``or'' at the end;

(2) in paragraph (2), by striking the period at the end and inserting ``; or ``; and

(3) by inserting after paragraph (2) the following:

``(3) as custodian.''.

SEC. 212. LENDING TO AN AFFILIATED INVESTMENT COMPANY.

Section 18 of the Investment Company Act of 1940 (15 U.S.C. 80aÿ0918) is amended by adding at the end the following:

``(1) Notwithstanding any provision of this section, it shall be unlawful for any affiliated person of a registered investment company or any affiliated person of such a person to loan money to such investment company in contravention of such rules, regulations, or orders as the Commission may prescribe in the public interest and consistent with the protection of investors.''.

SEC. 213. INDEPENDENT DIRECTORS.

(a) In General.--Section 2(a)(19)(A) of the Investment Company Act of 1940 (15 U.S.C. 80aÿ092(a)(19)(A)) is amended--

(1) by striking clause (v) and inserting the following new clause:

``(v) any person (other than a registered investment company) that, at any time during the preceding 6 months, has executed any portfolio transactions for, engaged in any principal transactions with, or distributed shares for--

``(I) the investment company,

``(II) any other investment company having the same investment adviser as such investment company or holding itself out to investors as a related company for purposes of investment or investor services, or

``(III) any account over which the investment company's investment adviser has brokerage placement discretion, or any affiliated person of such a person,'';

(2) by redesignating clause (vi) as clause (vii); and

(3) by inserting after clause (v) the following new clause:

``(vi) any person (other than a registered investment company) that, at any time during the preceding 6 months, has loaned money to--

``(I) the investment company,

``(II) any other investment company having the same investment adviser as such investment

company or holding itself out to investors as a related company for purposes of investment or investor services, or

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

or any affiliated person of such a person, or''.

(b) Conforming Amendment.--Section 2(a)(19)(B) of the Investment Company Act of 1940 (15 U.S.C. 80aÿ092(a)(19)(B)) is amended--

(1) by striking clause (v) and inserting the following new clause:

``(I) any investment company for which the investment adviser or principal underwriter serves as such,

``(II) any investment company holding itself out to investors, for purposes of investment or investor services, as a company related to any investment company for which the investment adviser or principal underwriter serves as such, or

``(III) any account over which the investment adviser has brokerage placement discretion, or any affiliated person of such a person,'';

(2) by redesignating clause (vi) as clause (vii); and

(3) by inserting after clause (v) the following new clause:

``(vi) any person (other than a registered investment company) that, at any time during the preceding 6 months, has loaned money to--

``(I) any investment company for which the investment adviser or principal underwriter serves as such,

``(III) any account for which the investment adviser has borrowing authority,

or any affiliated person of such a person, or''.

(c) Affiliation of Directors.--Section 10(c) of the Investment Company Act of 1940 (15 U.S.C. 80aÿ0910(c)) is amended by striking ``bank, except'' and inserting ``bank (and its subsidiaries) or any single bank holding company (and the affiliates and subsidiaries of such holding company) (as such terms are defined in the Bank Holding Company Act of 1956), except''.

(d) Effective Date.--The provisions of subsection (a) of this section shall take effect at the end of the 1-year period beginning on the date of enactment of this subtitle.

SEC. 214. ADDITIONAL SEC DISCLOSURE AUTHORITY.

(a) Misrepresentation.--Section 35(a) of the Investment Company Act of 1940 (15 U.S.C. 80aÿ0934(a)) is amended to read as follows:

``(a) Misrepresentation of Guarantees.--

``(1) In general.--It shall be unlawful for any person, issuing or selling any security of which a registered investment company is the issuer, to represent or imply in any manner whatsoever that such security or company--

``(A) has been guaranteed, sponsored, recommended, or approved by the United States, or any agency, instrumentality or officer of the United States;

``(B) has been insured by the Federal Deposit Insurance Corporation; or

``(C) is guaranteed by or is otherwise an obligation of any bank or insured depository institution.

``(2) Disclosures.--Any person issuing or selling the securities of a registered investment company shall prominently disclose that the investment company or any security issued by the investment company--

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

``(B) is not guaranteed by an affiliated insured depository institution; and

``(C) is not otherwise an obligation of any bank or insured depository institution,

in accordance with such rules, regulations, or orders as the Commission may prescribe as reasonably necessary or appropriate in the public interest for the protection of investors, after consulting in writing with the appropriate Federal banking agencies.

``(3) Definitions.--The terms `insured depository institution' and `appropriate Federal banking agency' have the meaning given to such terms in section 3 of the Federal Deposit Insurance Act.''.

(b) Deceptive Use of Names.--Section 35(d) of the Investment Company Act of 1940 (15 U.S.C. 80aÿ0934(d)) is amended to read as follows:

``(d) It shall be unlawful for any registered investment company to adopt as part of the name or title of such company, or of any securities of which it is the issuer, any word or words that the Commission finds are materially deceptive or misleading. The Commission may adopt such rules or regulations or issue such orders as are necessary or appropriate to prevent the use of deceptive or misleading names or titles by investment companies.''.

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

Section 2(a)(6) of the Investment Company Act of 1940 (15 U.S.C. 80aÿ092(a)(6)) is amended to read as follows:

``(6) The term `broker' has the same meaning as in the Securities Exchange Act of 1934, except that such term does not include any

person solely by reason of the fact that such person is an underwriter for one or more investment companies.''.

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

Section 2(a)(11) of the Investment Company Act of 1940 (15 U.S.C. 80aÿ092(a)(11)) is amended to read as follows:

``(11) The term `dealer' has the same meaning as in the Securities Exchange Act of 1934, but does not include an insurance company or investment company.''.

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

(a) Investment Adviser.--Section 202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C. 80bÿ092(a)(11)) is amended in subparagraph (A), by striking ``investment company'' and inserting ``investment company, except that the term `investment adviser' includes any bank or bank holding company to the extent that such bank or bank holding company acts as an investment adviser to a registered investment company, or if, in the case of a bank, such services are performed through a

separately identifiable department or division, the department or division, and not the bank itself, shall be deemed to be the investment adviser''.

(b) Separately Identifiable Department or Division.--Section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80bÿ092(a)) is amended by adding at the end the following:

``(25) The term `separately identifiable department or division' of a bank means a unit--

``(A) that is under the direct supervision of an officer or officers designated by the board of directors of the bank as responsible for the day-to-day conduct of the bank's investment adviser activities for one or more investment companies, including the supervision of all bank employees engaged in the performance of such activities; and

``(B) for which all of the records relating to its investment adviser activities are separately maintained in or extractable from such unit's own facilities or the facilities of the bank, and such records are so maintained or otherwise accessible as to permit independent examination and enforcement of this Act or the Investment Company Act of 1940 and rules and regulations promulgated under this Act or the Investment Company Act of 1940.''.

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

Section 202(a)(3) of the Investment Advisers Act of 1940 (15 U.S.C. 80bÿ092(a)(3)) is amended to read as follows:

``(3) The term `broker' has the same meaning as in the Securities Exchange Act of 1934.''.

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

Section 202(a)(7) of the Investment Advisers Act of 1940 (15 U.S.C. 80bÿ092(a)(7)) is amended to read as follows:

``(7) The term `dealer' has the same meaning as in the Securities Exchange Act of 1934, but does not include an insurance company or investment company.''.

SEC. 220. INTERAGENCY CONSULTATION.

The Investment Advisers Act of 1940 (15 U.S.C. 80bÿ091 et seq.) is amended by inserting after section 210 the following new section:

``_ÿ1A210A. Consultation

``(a) Examination Results and Other Information.--

``(1) The appropriate Federal banking agency shall provide the Commission upon request the results of any examination, reports, records, or other information as each may have access to with respect to the investment advisory activities of any bank holding company, bank, or separately identifiable department or division of a bank, that is registered under section 203 of this title, or, in the case of a bank holding company or bank, that has a subsidiary or a separately identifiable department or division registered under that section, to the extent necessary for the Commission to carry out its statutory responsibilities.

``(2) The Commission shall provide to the appropriate Federal banking agency upon request the results of any examination, reports, records, or other information with respect to the investment advisory activities of any bank holding company, bank, or separately identifiable department or division of a bank, any of which is registered under section 203 of this title, to the extent necessary for the agency to carry out its statutory responsibilities.

``(b) Effect on Other Authority.--Nothing herein shall limit in any respect the authority of the appropriate Federal banking agency with

respect to such bank holding company, bank, or department or division under any provision of law.

``(c) Definition.--For purposes of this section, the term `appropriate Federal banking agency' shall have the same meaning as in section 3 of the Federal Deposit Insurance Act.''.

SEC. 221. TREATMENT OF BANK COMMON TRUST FUNDS.

(a) Securities Act of 1933.--Section 3(a)(2) of the Securities Act of 1993 (15 U.S.C. 77c(a)(2)) is amended by striking ``or any interest or participation in any common trust fund or similar fund maintained by a bank exclusively for the collective investment and reinvestment of assets contributed thereto by such bank in its capacity as trustee, executor, administrator, or guardian'' and inserting ``or any interest or participation in any common trust fund or similar fund that is excluded from the definition of the term `investment company' under section 3(c)(3) of the Investment Company Act of 1940''.

(b) Securities Exchange Act of 1934.--Section 3(a)(12)(A)(iii) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)(A)(iii)) is amended to read as follows:

``(iii) any interest or participation in any common trust fund or similar fund that is excluded from the definition of the term `investment company' under section 3(c)(3) of the Investment Company Act of 1940;''.

(c) Investment Company Act of 1940.--Section 3(c)(3) of the Investment Company Act of 1940 (15 U.S.C. 80aÿ093(c)(3)) is amended by inserting before the period the following: ``, if--

``(A) such fund is employed by the bank solely as an aid to the administration of trusts, estates, or other accounts created and maintained for a fiduciary purpose;

``(B) except in connection with the ordinary advertising of the bank's fiduciary services, interests in such fund are not--

``(i) advertised; or

``(ii) offered for sale to the general public; and

``(C) fees and expenses charged by such fund are not in contravention of fiduciary principles established under applicable Federal or State law''.

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

Section 15 of the Investment Company Act of 1940 (15 U.S.C. 80aÿ0915) is amended by adding at the end the following new subsection:

``(g) Controlling Interest in Investment Company Prohibited.--

``(1) In general.--If any investment adviser to a registered investment company, or an affiliated person of that investment adviser, holds a controlling interest in that registered investment company in a trustee or fiduciary capacity, such person shall--

``(A) if it holds the shares in a trustee or fiduciary capacity with respect to any employee benefit plan subject to the Employee Retirement Income Security Act of 1974, transfer the power to vote the shares of the investment company through to another person acting in a fiduciary capacity with respect to the plan who is not an affiliated person of that investment adviser or any affiliated person thereof; or

``(B) if it holds the shares in a trustee or fiduciary capacity with respect to any other person or entity other than an employee benefit plan subject to the Employee Retirement Income Security Act of 1974--

``(i) transfer the power to vote the shares of the investment company through to--

``(I) the beneficial owners of the shares;

``(II) another person acting in a fiduciary capacity who is not an affiliated person of that investment adviser or any affiliated person thereof; or

``(III) any person authorized to receive statements and information with respect to the trust who is not an affiliated person of that investment adviser or any affiliated person thereof;

``(ii) vote the shares of the investment company held by it in the same proportion as shares held by all other shareholders of the investment company; or

``(iii) vote the shares of the investment company as otherwise permitted under such rules, regulations, or orders as the Commission may prescribe for the protection of investors.

``(2) Exemption.--Paragraph (1) shall not apply to any investment adviser to a registered investment company, or an affiliated person of that investment adviser, holding shares of the investment company in a trustee or fiduciary capacity if that registered investment company consists solely of assets held in such capacities.

``(3) Safe harbor.--No investment adviser to a registered investment company or any affiliated person of such investment adviser shall be deemed to have acted unlawfully or to have breached a fiduciary duty under State or Federal law solely by reason of acting in accordance with clause (i), (ii), or (iii) of paragraph (1)(B).

``(4) Church plan exemption.--Paragraph (1) shall not apply to any investment adviser to a registered investment company, or an affiliated person of that investment adviser, holding shares in such a capacity, if such investment adviser or such affiliated person is an organization described in section 414(e)(3)(A) of the Internal Revenue Code of 1986.''.

SEC. 223. CONFORMING CHANGE IN DEFINITION.

Section 2(a)(5)) of the Investment Company Act of 1940 (15 U.S.C. 80aÿ092(a)(5)) is amended by striking ``(A) a banking institution organized under the laws of the United States'' and inserting ``(A) a depository institution (as defined in section 3 of the Federal Deposit Insurance Act) or a branch or agency of a foreign bank (as such terms are defined in section 101(b) of the International Banking Act of 1978)''.

SEC. 224. EFFECTIVE DATE.

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

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

Subtitle A--Conversion of Thrift Charters

SEC. 301. SHORT TITLE.

This title may be cited as the ``Thrift Charter Conversion Act of 1997''.

SEC. 302. TERMINATION OF FEDERAL SAVINGS ASSOCIATIONS; TREATMENT OF STATE SAVINGS ASSOCIATIONS AS BANKS FOR PURPOSES OF FEDERAL BANKING LAW.

(a) Termination of Federal Savings Association Charters.--

(1) In general.--No later than January 1, 1999, each Federal savings association shall--

(A) convert to a national bank charter;

(B) convert to a State depository institution; or

(2) Conversion to national bank by operation of law.--

(A) In general.--Except as provided in paragraph (1), the requirement under paragraph (1)(A) for a Federal savings association to convert shall be deemed to have been satisfied by operation of law effective 15 days after such association has delivered a conversion registration statement to the Comptroller of the Currency.

(B) Powers, privileges, duties, and liabilities.--After the conversion of a Federal savings association to a national bank by operation of law, such national bank shall, except as otherwise specified by law, have the same powers and privileges and shall be subject to the same duties, liabilities, and regulation as an institution originally organized as a national bank under Federal law.

(3) Conversion registration statement.--A conversion registration statement shall include the following:

(A) A copy of the resolution approved by a majority of the full board of directors of the Federal savings association resolving to convert the association into a national bank.

(B) A certification by the secretary of a Federal savings association attesting to the receipt of any required affirmative vote of shareholders necessary to convert the Federal savings association into a national bank.

(C) A copy of the most recent charter and bylaws of the Federal savings association certified by the Office of Thrift Supervision.

(D) Articles of association and an organizational certificate in accordance with sections 5133, 5134, and 5135 of the Revised Statutes of the United States, except that--

(i) a Federal savings association may include in such articles any provisions in the most recent Federal charter under which it operated as a Federal savings association; and

(ii) references to capital stock, shares, shareholders, and related terms in such sections of the Revised Statutes of the United States shall not apply to a mutual savings association converting to a national bank organized in mutual form.

(4) Effective date of conversion to national bank.--

(A) If the Comptroller of the Currency determines that a conversion registration statement includes all of the documents described in subparagraphs (A) through (D) of subsection (a)(3), the Comptroller of the Currency shall issue a certificate, under the Comptroller's hand and official seal, that such association has complied with all the provisions required herein to be complied with, and that such association is authorized to commence the business of banking effective 15 days after the date of delivery of the conversion registration statement. Such converted association may include in its bylaws as a national bank any provisions in the most recent bylaws under which it operated as a Federal savings association.

(B) If the Comptroller of the Currency determines that a conversion registration statement does not include all of the documents described in subparagraphs (A) through (D) of subsection (a)(3), the Comptroller shall advise the Federal savings association, before the end of the 15-day period beginning on the date of delivery, to resubmit a new statement with the required documents to initiate a new 15-day period. A Federal savings association shall not otherwise be required to take any additional action beyond those specified in paragraphs (2) and (3) of subsection (a) in order to satisfy the requirement of subsection (a)(1)(A).

(5) Termination of savings association charter.--Upon conversion of a Federal savings association to a national bank or State bank pursuant to the requirements of paragraph (1), the association's charter as a savings association shall automatically terminate and be canceled.

(6) No fees or charges.--A Federal savings association that converts to a national bank or State bank pursuant to the requirements of paragraph (1) shall not be required to pay any application fee, examination fee, assessment, or other charge to any Federal agency in connection with such conversion.

(7) Share conversion.--Notwithstanding any other provision of law, upon conversion of a Federal savings association organized in stock form to a national bank or State bank pursuant to the requirements of paragraph (1), the shares of such stock savings association shall automatically convert into shares of such national bank or State bank, each for the same value as they were and with the same terms and conditions as they contained immediately before the conversion.

(8) Directors and officers.--

(A) In general.--Notwithstanding any other provision of law, upon conversion of a Federal savings association to a national bank or State bank pursuant to the requirements of paragraph (1), each person who was a director or officer of such association before such conversion may continue to serve as and be elected a director or officer of such national bank or State bank.

(B) Treatment for certain purposes.--For purposes of section 32 of the Federal Deposit Insurance Act, a national bank or State bank which converted from a savings association pursuant to the requirements of paragraph (1) shall not be treated as having been chartered less than 2 years or having undergone a change in control within the preceding 2 years solely because of its conversion into a national bank or State bank.

(9) Failure to obtain a charter.--

(A) In general.--Any Federal savings association that has not complied with paragraph (1) by January 1, 1999, shall as of that date be subject to all laws, regulations, and orders applicable to a national bank, and the Comptroller of the Currency may determine the terms and conditions upon which the savings association converts into a national bank.

(B) Continuing failure to comply.--A Federal savings association's continuing failure to comply with paragraph (1) may, in the discretion of the Comptroller of the Currency, be considered an unsafe or unsound condition to transact business, or a violation of law for purposes of section 11 of the Federal Deposit Insurance Act.

(10) Association converting in unsafe and unsound condition.--If the Comptroller of the Currency determines that a Federal savings association is operating in an unsafe and unsound condition, the Comptroller may determine the terms and conditions upon which such association converts into a national bank.

(b) Treatment of State Savings Associations as Banks for Purposes of Federal Banking Law.--

(1) Amendments to federal deposit insurance act.--Section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813) is amended--

(A) by striking paragraph (2) of subsection (a) and inserting the following new paragraph: ``(2) State bank.--

``(A) In general.--The term `State bank' means any bank, banking association, trust company, savings bank, industrial bank (or similar depository institution which the Board of Directors finds to be operating substantially in the same manner as an industrial bank), building and loan association, savings and loan association, homestead association, cooperative bank, or other banking institution--

``(i) which is engaged in the business of receiving deposits, other than trust funds (as defined in this section); and

``(ii) which--

``(I) is incorporated under the laws of any State;

``(II) is organized and operating according to the laws of the State in which such institution is chartered or organized; or

``(III) is operating under the Code of Law for the District of Columbia (except a national bank).

``(B) Certain insured banks included.--The term `State bank' includes a cooperative bank or other unincorporated bank the deposits of which were insured by the Corporation on the day before the date of the enactment of the Financial Institutions Reform Recovery, and Enforcement Act of 1989.

``(C) Certain uninsured banks excluded.--The term `State bank' does not include any cooperative bank or other unincorporated bank the deposits of which were not insured by the Corporation on the day before the date of the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.''; and

(B) in subsection (q)--

(i) by inserting ``and'' after the semicolon at the end of paragraph (2);

(ii) by striking ``; and'' at the end of paragraph (3) and inserting a period; and

(iii) by striking paragraph (4).

(2) Amendments to the bank holding company act of 1956.--Section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841) is amended--

(A) by striking subparagraph (E) of subsection (a)(5); and

(B) by striking subparagraphs (B) and (J) of subsection (c)(2).

(3) Amendments to the federal reserve act.--The 2d and 3d paragraphs of the 1st section of the Federal Reserve Act (12 U.S.C. 221) are each amended by inserting ``(as defined in section 3(a)(2) of the Federal Deposit Insurance Act)'' after ``State bank''.

(4) Effective date.--This subsection and the amendments made by this subsection shall take effect on January 1, 1999.

(1) Review of state supervision.--The Corporation shall maintain procedures for reviewing, under standards the Board of Directors of the Corporation shall prescribe in regulations, the manner in which State depository institutions are regulated by a State for the purpose of ensuring that State savings associations are no less rigorously regulated by a State than State banks.

(2) Inadequate state regulations.--If, in connection with a review of State regulation of State depository institutions pursuant to paragraph (2), the Corporation determines that a State regulates savings associations chartered by such State less rigorously than the State regulates banks chartered by such State, the Corporation may take such action under section 8(a) of the Federal Deposit Insurance Act as the Corporation determines to be appropriate which shall be effective no later than the end of the 1-year period beginning on the date of such determination.

(3) Definitions.--The following definitions shall apply for purposes of this subsection:

(A) Corporation.--The term ``Corporation'' means the Federal Deposit Insurance Corporation.

(B) State bank.--The term ``State bank'' has the same meaning as in section 3(a)(2) of the Federal Deposit Insurance Act (as in effect on the date of the enactment of the Thrift Charter Conversion Act of 1997).

(C) State savings association.--The term ``State savings association'' has the same meaning as in section 3(b)(2) of the Federal Deposit Insurance Act (as in effect on the date of the enactment of the Thrift Charter Conversion Act of 1997).

(D) State depository institution.--The term ``State depository institution'' has the same meaning as in section 3(c)(5) of the Federal Deposit Insurance Act.

SEC. 303. TREATMENT OF CERTAIN ACTIVITIES AND AFFILIATIONS OF BANK HOLDING COMPANIES RESULTING FROM THIS ACT.

Section 4 of the Bank Holding Company Act of 1956 (12 U.S.C. 1843) (as amended by title I of this Act) is amended to read as follows:

``SEC. 4. TREATMENT OF CERTAIN COMPANIES.

``(a) Treatment of Companies Resulting From Savings and Loan Holding Companies.--

``(1) In general.--Notwithstanding any other provision of this section (other than paragraph (5)) or any other provision of Federal law including sections 20 and 32

of the Banking Act of 1933, a resulting bank holding company may, after such company becomes a bank holding company--

``(A) maintain or enter into any nonbanking affiliation which such company was authorized to maintain or enter into as of January 1, 1997, or was authorized to maintain following a merger of insured depository institution subsidiaries

pursuant to an application filed no later than such date; and

``(B) engage, directly or through any affiliate described in subparagraph (A) which is not a bank, in any activity in which such company or any affiliate described in subparagraph (A) was authorized to engage as of such date of enactment, or in which such company was authorized to engage following a merger of insured depository institution subsidiaries pursuant to an application filed no later than such date, if the requirements of paragraph (4) are met.

``(2) Resulting bank holding company defined.--For purposes of this subsection, the term `resulting bank holding company' means--

``(A) any company--

``(i) which--

``(I) as of January 1, 1997, was a savings and loan holding company (as defined in section 10(a)(1)(F) of the Home Owners' Loan Act); or

``(II) as of January 1, 1997, has filed an application to charter a de novo Federal savings association and thereafter becomes a savings and loan holding company by virtue of the establishment of such savings association; and

``(ii) which as of January 1, 1997 is not a bank holding company and becomes a bank holding company after such date, or any subsidiary of such company; and

``(B) any bank holding company which as of January 1, 1997--

``(i) was a savings and loan holding company; and

``(ii) is exempt from this section pursuant to an order issued by the Board under section 6(e)(2).

``(3) No loss of section 6(e)(2)exemption.--No resulting bank holding company described in paragraph (2)(B) shall lose the grounds for the exemption under section 6(e)(2) because a savings association which such company controlled, directly or indirectly, as of the date of the enactment of the Thrift Charter Conversion Act, becomes a bank after such date so long as such bank continues to meet the requirements of subparagraphs (A) and (B) of paragraph (4).

``(4) Prerequisites for continuation of grandfathered activities and affiliations.--

``(A) In general.--This subsection shall cease to apply with respect to a resulting bank holding company if, at any time after such company first meets the definition of a resulting bank holding company--

``(i) any insured depository institution controlled by such company which, as of the day before the company first meets the definition of a resulting bank holding company--

``(I) was subject to the requirements contained in section 10(m) of the Home Owners' Loan Act, as in effect on such date, (and regulations in effect on such date under such section) for treatment as a qualified thrift lender under such section; and

``(II) was not a savings association described in section 10(m)(3)(F) of such Act, as in effect on such date,

fails to meet any requirement of such section;

``(ii) any insured depository institution controlled by such company fails to comply with any limitation or restriction on the type of amounts of loans or investments of the institution to which such institution was subject as of the date of the enactment of the Thrift Charter Conversion Act of 1997, other than any limitation relating to qualified thrift investments under section 10(m) of the Home Owners' Loan Act, as in effect on such date, unless such failure to comply is the 1st such failure and the institution returns to compliance within 60 days of having learned or been notified of such noncompliance;

``(iii) the company or any subsidiary of the company acquires more than 5 percent of the shares or assets of any bank or any savings association (as such term is defined in section 3 of the Federal Deposit Insurance Act, as in effect on the date of the enactment of the Thrift Charter Conversion Act) after such date of enactment.

``(B) Requalification as qualified thrift lender.--

``(i) Notification of intention to requalify.--If an institution referred to in subparagraph (A)(i) notifies--

``(I) the Board; or

``(II) in the case of an institution which is controlled by a financial services holding company, the appropriate Federal banking agency for such company's lead depository institution (as defined by the Bank Holding Company Act of 1956),

within 15 days of having learned of such institution's failure to meet such requirements, of the intention of the institution to requalify as a qualified thrift lender pursuant to the requirements of such section, the institution shall be deemed not to have failed to meet the requirements for treatment as a qualified thrift lender for purposes of this paragraph.

``(ii) Failure to requalify.--If an institution referred to in clause (i) notifies an agency described in subclause (I) or (II) of clause (i) in accordance with such clause and thereafter fails to requalify as a qualified thrift lender within 1 year from the date of the institution's initial failure to meet such requirements, the institution shall be deemed to have failed to meet such requirements at the end of such 1-year period.

``(iii) 1 election to requalify.--An institution referred to in clause (i) may elect to requalify as a qualified thrift lender under this subparagraph only once.

``(5) Nontransferable.--This subsection shall not apply with respect to any resulting bank holding company if, after January 1, 1997--

``(A) any person not under common control with such company acquires, directly or indirectly, control of the company; or

``(B) the company is the subject of any merger, consolidation, or other similar transaction as a result of which a person not under common control with such company acquires, directly or indirectly, control of such company.

``(6) Enforcement.--In addition to any other power of the Board, the Board may enforce compliance with the provisions of this subsection with respect to any resulting bank holding company and any bank controlled by such company under section 8 of the Federal Deposit Insurance Act.''.

SEC. 304. TRANSITION PROVISIONS FOR ACTIVITIES OF SAVINGS ASSOCIATIONS WHICH CONVERT INTO OR BECOME TREATED AS BANKS.

(a) In General.--Notwithstanding any other provision of Federal law, any insured depository institution which, as of the date of the enactment of the Thrift Charter Conversion Act, is a savings association (as defined in section 3(b) of the Federal Depository Insurance Act (as in effect on such date)) and after such date converts to a national or State bank charter or becomes treated as a State bank pursuant to the amendment made by section 302(b), may continue to engage, directly or indirectly, in any activity in which such institution was lawfully engaged as of such date during the 2-year period beginning on the effective date of such conversion or the effective date of such amendments, as the case may be.

(b) Two 1-Year Extensions Authorized.--The 2-year period described in subsection (a) with respect to any insured depository institution may be extended for such institution not to exceed two additional times for not more than 1 year each time if the appropriate Federal banking agency determines that such extension is necessary to avert substantial loss to the institution and is otherwise consistent with the safety and soundness of the institution.

SEC. 305. REGISTRATION OF BANK HOLDING COMPANIES RESULTING FROM CONVERSIONS OF SAVINGS ASSOCIATIONS TO BANKS OR TREATMENT OF SAVINGS ASSOCIATIONS AS BANKS.

Section 3 of the Bank Holding Company Act of 1956 (12 U.S.C. 1842) is amended by adding at the end the following new subsections:

``(h) Registration of Certain Bank Holding Companies.--A company which, as of January 1, 1997, is a savings and loan holding company (as defined in section 10(a)(1)(D) of the Home Owners' Loan Act, as in effect on such date) and is not a bank holding company shall not be required to obtain the approval of the Board under subsection (a) to become a bank holding company after such date of enactment, as a result of the conversion of any insured depository institution subsidiary of such company into a bank or by virtue of the treatment of any insured depository institution subsidiary of such company as a bank pursuant to the amendments made by the Thrift Charter Conversion Act of 1997, if such company--

``(1) registers as a bank holding company with the Board in accordance with section 5(a); and

``(2) does not acquire, directly or indirectly, ownership or control of any additional insured depository institution or other company in connection with such conversion or treatment.

``(i) Regulation of Resulting Bank Holding Companies.--The Board shall regulate resulting bank holding companies (as defined in section 4(a)(2)) in a manner consistent with--

``(1) the regulation of such companies by the Director of the Office of Thrift Supervision before the date of the enactment of the Thrift Charter Conversion Act; and

``(2) the safety and soundness of insured depository institution subsidiaries of such companies.

``(j) Opportunity to Become a Bank Holding Company or a Qualified Bank Holding Company.--

``(1) Election.--A company described in subsection (h) may elect to conform the activities of the company to those activities permitted for a qualified bank holding company or a bank holding company which is not a qualified bank holding company.

``(2) Transition period.--A company which makes an election under paragraph (1) shall have a 6-month period beginning on the date of the enactment of the Thrift Charter Conversion Act to conform the activities of the company to those permitted for a nonqualified bank holding company or a qualified bank holding company, as the case may be.

``(3) Exemption during transition period.--During the 6-month period described in paragraph (2), a company which makes an election under paragraph (1) shall be exempt from the requirements imposed on a resulting bank holding company.''.

SEC. 306. ADDITIONAL TRANSITION PROVISIONS AND SPECIAL RULES.

(a) Mutual National Banks Authorized; Conversion of Mutual Savings Associations Into National Banks.--

(1) In general.--Chapter one of title LXII of the Revised Statutes of the United States (12 U.S.C. 21 et seq.) is amended by inserting after section 5133 the following new section:

``SEC. 5133A. MUTUAL NATIONAL BANKS.

``(a) In General.--Notwithstanding the paragraph designated the ``Third'' of section 5134, the Comptroller of the Currency may charter national banks organized in the mutual form either de novo or through a conversion of any stock national or State bank (as defined in section

3 of the Federal Deposit Insurance Act) or any State mutual bank or credit union, subject to regulations prescribed by the Comptroller of the Currency in accordance with this section.

``(b) Regulations.--

``(1) Transition rules.--National banks organized in the mutual form shall be subject to the regulations of the Director of the Office of Thrift Supervision governing corporate organization, governance, and conversion of mutual institutions, as in effect on January 1, 1997, including parts 543, 544, 546, 563b, and 563c) of chapter V of title 12 of the Code of Federal Regulations (as in effect on such date), during the 3-year period beginning on the date of the enactment of the Thrift Charter Conversion Act of 1997.

``(2) Regulations of the comptroller.--The Comptroller of the Currency shall prescribe appropriate regulations for national banks organized in the mutual form, effective as of the end of the 3-year period referred to in paragraph (1).

``(3) Applicability of capital stock requirements.--The Comptroller of the Currency shall prescribe regulations regarding the manner in which requirements of title LXII of the Revised Statutes of the United States with respect to capital stock, and limitations imposed on national banks under such title based on capital stock, shall apply to national banks organized in mutual form pursuant to subsection (a).

``(c) Conversions.--

``(1) Conversion to stock national bank.--Subject to such regulations as the Comptroller of the Currency may prescribe for the protection of depositors' rights and for any other purpose the Comptroller of the Currency may consider appropriate, any national bank which is organized in mutual form pursuant to paragraph (1) may reorganize as a stock national bank.

``(2) Conversions to state banks.--Any national mutual bank may convert to a State bank charter in accordance with regulations prescribed by the Comptroller of the Currency and applicable State law.''.

(2) Mutual bank holding companies.--Subsection (g) of section 3 of the Bank Holding Company Act of 1956 (12 U.S.C. 1842(g)) is amended to read as follows:

``(g) Mutual Bank Holding Companies.--

``(1) In general.--A national mutual bank may reorganize so as to become a holding company by--

``(A) chartering an interim national bank, the stock of which is to be wholly owned, except as otherwise provided in this section by the national mutual bank; and

``(B) transferring the substantial part of the national mutual bank's assets and liabilities, including all of the bank's insured liabilities, to the interim national bank.

``(2) Directors and certain account holders'' approval of plan required.--A reorganization is not authorized under this subsection unless--

``(A) a plan providing for such reorganization has been approved by a majority of the board of directors of the national mutual bank; and

``(B) in the case of a national mutual bank in which holders of accounts and obligers exercise voting rights, such plan has been submitted to an approved by a majority of such individuals at a meeting held at the call of the directors in accordance with the procedures prescribed by the bank's charter and bylaws.

``(3) Notice to the board; disapproval period.--

``(A) Notice required.--

``(i) In general.--At least 60 days before taking any action described in paragraph (1), a national mutual bank seeking to establish a mutual holding company shall provide written notice to the Board.

``(ii) Contents of notice.--The notice shall contain such relevant information as the Board shall require by regulation or by specific request in connection with any particular notice.

``(B) Transaction allowed if not disapproved.--Unless the Board within such 60-day notice period disapproves the proposed holding company formation, or extends for another 30 days the period during which such disapproval may be issued, the national mutual bank providing such notice may proceed with the transaction, if the requirements of paragraph (2) have been met.

``(C) Grounds for disapproval.--The Board may disapprove any proposed holding company formation only if--

``(i) such disapproval is necessary to prevent unsafe or unsound practices;

``(ii) the financial or management resources of the national mutual bank involved warrant disapproval;

``(iii) the national mutual bank fails to furnish the information required under subparagraph (A); or

``(iv) the national mutual bank fails to comply with the requirement of paragraph (2).

``(D) Retention of capital assets.--In connection with the transaction described in paragraph (1), a national mutual bank may, subject to the approval of the Board, retain capital assets at the holding company level to the extent that the capital retained at the holding company is in excess of the amount of capital required in order for the interim national bank to meet all relevant capital standards established by the Comptroller of the Currency for national banks.

``(4) Ownership.--

``(A) In general.--Persons having ownership rights in the national mutual bank under section 5133A of the Revised Statutes of the United States (including paragraph 575.5 of chapter V of title 12 of the Code of Federal Regulations, as in effect on January 1, 1997, and applicable to national mutual banks pursuant to such section) or State law shall have the same ownership rights with respect to the mutual holding company.

``(B) Holders of certain accounts.--Holders of savings, demand, or other accounts of--

``(i) a national bank chartered as part of a transaction described in paragraph (1); or

``(ii) a mutual bank acquired pursuant to paragraph (5)(B),

shall have the same ownership rights with respect to the mutual holding company as persons described in subparagraph (A) of this paragraph.

``(5) Permitted activities.--A mutual holding company may engage only in the following activities:

``(A) Investing in the stock of a national or State bank.

``(B) Acquiring a mutual bank through the merger of such bank into a national bank subsidiary of such holding company or an interim national bank subsidiary of such holding company.

``(C) Subject to paragraph (6), merging with or acquiring another holding company, one of whose subsidiaries is a national mutual bank.

``(D) Investing in a corporation the capital stock of which is available for purchase by a national mutual bank under Federal law or under the law of any State where the home office of any subsidiary bank is located.

``(E) Engaging in the activities in which a bank holding company which is not a qualified bank holding company may engage under section 6(c) of the Bank Holding Company Act of 1956.

``(F) Engaging in the activities permitted for bank holding companies under the Bank Holding Company Act of 1956, if such company elects to be a qualified bank holding company.

``(6) Limitations on certain activities of acquired holding companies.--

``(A) New activities.--If a mutual holding company acquires or merges with another holding company under paragraph (5)(C), the holding company acquired or the holding company resulting from such merger or acquisition may only invest in assets and engage in activities which are authorized under paragraph (5).

``(B) Grace period for divesting prohibited or discontinuing prohibited activities.--Not later than 2 years following a merger or acquisition described in paragraph (5)(C), the acquired holding company or the holding company resulting from such merger or acquisition shall--

``(i) dispose of any asset which is an asset in which a mutual holding company may not invest under paragraph (5); and

``(ii) cease any activity which is an activity in which a mutual holding company may not engage under paragraph (5).

``(7) Chartering and other requirements.--

``(A) In general.--A mutual holding company shall be chartered by the Board and shall be subject to such regulations as the Board may prescribe.

``(B) Other requirements.--Unless the context otherwise required, a mutual holding company shall be subject to the other requirements of this Act regarding regulation of holding companies.

``(8) Capital improvement.--

``(A) Pledge of stock of savings association subsidiary.--This section shall not prohibit a mutual holding company from pledging all or a portion of the stock of a national bank chartered as part of a transaction described in paragraph (1) to raise capital for such bank.

``(B) Issuance of nonvoting shares.--No provision of this Act shall be construed as prohibiting a national bank chartered as part of a transaction described in paragraph (1) from issuing any nonvoting shares or less than 50 percent of the voting shares of such bank to any person other than the mutual holding company.

``(9) Insolvency and liquidation.--

``(A) In general.--Notwithstanding any provision of law, upon--

``(i) the default of any national bank--

``(I) the stock of which is owned by any mutual holding company; and

``(II) which was chartered in a transaction described in paragraph (1);

``(ii) the default of a mutual holding company; or

``(iii) a foreclosure on a pledge by a mutual holding company described in paragraph (8)(A),

A trustee shall be appointed receiver of such mutual holding company and such trustee shall have the authority to liquidate the assets of, and satisfy the liabilities of, such mutual holding company pursuant to title 11, United States Code.

``(B) Distribution of net proceeds.--Except as provided in subparagraph (C), the net proceeds of any liquidation of any mutual holding company pursuant to subparagraph (A)

shall be transferred to persons who hold ownership interests in such mutual holding company.

``(C) Recovery by federal deposit insurance corporation.--If the Federal Deposit Insurance Corporation incurs a loss as a result of the default of any depository institution subsidiary of a mutual holding company which is liquidated pursuant to subparagraph (A), the Federal Deposit Insurance Corporation shall succeed to the ownership interest of the depositors of such depository institution in the mutual holding company, to the extent of the Federal Deposit Insurance Corporation's loss.

``(10) State mutual bank holding company.--

``(A) In general.--Notwithstanding any provision of Federal law, a State bank operating in mutual form may reorganize so as to form a holding company under State law.

``(B) Regulation of state mutual holding company.--A corporation organized as a holding company in accordance with subparagraph (A) shall be regulated on the same terms and be subject to the same limitations as any other holding company which controls a bank.

``(11) Regulations.--

``(A) Transition rules.--Mutual bank holding companies organized under this subsection shall be subject to the regulations of the Director of the Office of Thrift Supervision governing corporate organization, governance, and conversion of mutual institutions, as in effect on January 1, 1997, including part 575 of chapter V of title 12 of the Code of Federal Regulations (as in effect on such date), during the 3-year period beginning on the date of the enactment of the Thrift Charter Conversion Act of 1997.

``(B) Regulations of the board.--The Board shall prescribe appropriate regulations for mutual holding companies, effective at the end of the 3-year period referred to in subparagraph (A).

``(12) No change of control.--Any second stage conversion of a mutual holding company to full stock form shall not be deemed to be a change of control if, in connection with such conversion, no company, directly or indirectly, acquires control of such mutual holding company or any successor to such company.

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

``(A) Mutual holding company.--The term `mutual holding company' means a corporation organized as a holding company under this subsection.

``(B) Default.--The term `default' means an adjudication or other official determination of a court of competent jurisdiction or other public authority pursuant to which a conservator, receiver, or other legal custodian is appointed.

``(C) National mutual bank.--The term `national mutual bank' means a national bank organized in mutual form under section 5133A of the Revised Statutes of the United States.''.

(3) Limitation on federal regulation of state banks.--Except as otherwise provided in Federal law, the Comptroller of the Currency, Board of Governors of the Federal Reserve System, and Federal Deposit Insurance Corporation may not adopt or enforce any regulation which contravenes the corporation governance rules prescribed by State law or regulation for State banks unless the Comptroller, Board, or Corporation finds that such Federal regulation is necessary to assure the safety and soundness of such State banks.

(4) Conversions of mutual savings association to mutual national banks by operation of law.--Notwithstanding any other provision of Federal or State law, any savings association (as defined in section 3 of the Federal Deposit Insurance Act (as in effect on January 1, 1997)) which is organized in mutual form as of the date of the enactment of this Act may become a national mutual bank by operation of law if the association--

(A) files the articles of association and organization certificate with the Comptroller of the Currency before January 1, 1998, in accordance with chapter one of the LXII of the Revised Statutes of the United States; and

(B) provides such other document or information as the Comptroller of the Currency may prescribe in regulations consistent with this section and section 5133A of the Revised Statutes of the United States (as added by paragraph (1) of this subsection).

(b) Membership in Federal Home Loan Banks.--Any insured depository institution which--

(1) as of the date of the enactment of this Act, is a Federal savings association which, pursuant to section 6(e) of the Federal Home Loan Bank Act, may not voluntarily withdraw from membership in a federal home loan bank; and

(2) after such date converts from a Federal savings association to a national bank, shall continue to be subject to the prohibition under such section on voluntary withdrawal from such membership as though such bank were still a Federal savings association until January 1, 1999.

(1) In general.--Notwithstanding any provision of the Federal Deposit Insurance Act, the Bank Holding Company Act of 1956, or any other Federal or State law, any depository institution which--

(A) as of the date of the enactment of this Act, is a savings association; and

(B) becomes a bank before January 1, 1999, or, pursuant to the amendments made by this subsection, is treated as a bank as of such date under the Federal Deposit Insurance Act,

and any depository institution or bank holding company which acquires such depository institution, may continue, after the depository institution becomes or commences to be treated as a bank, to operate any branch or agency which the savings association was operating as a branch or agency on January 1, 1997.

(2) No additional branches.--Paragraph (1) shall not be construed as authorizing the establishment, acquisition, or operation of any additional branch of a depository institution, or the conversion of any agency to a branch, in any State by virtue of the operation by such institution of a branch or agency in such State pursuant to such paragraph except to the extent such establishment, acquisition, operation, or conversion is permitted under the Federal Deposit Insurance Act, Bank Holding Company Act of 1956, and any other applicable Federal or State law.

(3) Branching rights obtained In assisted acquisitions.--Notwithstanding any other provision of law, if a depository institution has branching rights under a contract entered into with the Federal Home Loan Bank Board or the Federal Savings and Loan Insurance Corporation or pursuant to a resolution of the Federal Home Loan Bank Board or action of the Office of Thrift Supervision or Resolution Trust Corporation as part of a transaction in which the depository institution acquired or merged with a failed or failing savings association (before January 1, 1992), the depository institution may continue to branch in a manner consistent with such contract, resolution, or action.

(d) Transition Provision Relating to Limitations on Loans to One Borrower.--Section 5200 of the Revised Statutes of the United States (12 U.S.C. 84) is amended by adding at the end the following new subsection:

``(e) Transition Provisions for Savings Associations Converting to National Banks.--In the case of any depository institution which, as of the date of the enactment of the Thrift Charter Conversion Act, is a savings association (as defined in section 3(b) of the Federal Deposit Insurance Act (as in effect on such date)) and becomes a national bank on or before January 1, 1999, any loan, or legally binding commitment to make a loan, made or entered into by such institution becomes a national bank may continue to be held without regard to any limitation contained in this section and any such loan may be renewed, modified or extended after the savings association becomes a national bank except that any increase in the aggregate amount of funds disbursed under such loan shall be subject to prior approval by the Comptroller of the Currency.''.

(e) Rights and Authority of Banks Resulting From Conversions of Savings Associations.--

(1) In general.--Upon conversion of a savings association to a national or State bank in accordance with this Act and the amendments made by this title or other provisions of law--

(A) the national or State bank shall succeed to all rights, benefits, privileges, powers and franchises, and be subject to all the obligations, duties, restrictions, and disabilities, of such savings association under any contract, agreement, document, or instrument in effect at the time of such conversion to which such savings association was a party; and

(B) any reference to the savings association in any such contract, agreement, document, or instrument shall be deemed to be a reference to such national or State bank.

(2) Treatment of bank or savings association.--If the application of paragraph (1) with respect to any national or State bank referred to in such paragraph would--

(A) be inconsistent or in conflict with any contract, agreement, document, or instrument described in such paragraph;

(B) constitute a default under the contract, agreement, document, or instrument;

(C) cause such national or State bank to be in default or breach under any provision of the contract, agreement, document, or instrument, the national or State bank shall be deemed to be, and treated as, a savings association for purposes of the contract, agreement, document, or instrument.

(f) Transfer and Grandfather of Mutual Holdings Companies.--

(1) Supervision and regulation of mutual holdings companies.--

(A) In general.--The supervision and regulation of any mutual holding company in existence as of the date of the enactment of this Act is hereby transferred to the Board of Governors of the Federal Reserve System.

(B) Transition rules.--Mutual bank holding companies described in subparagraph (A) shall be subject to the regulations of the Director of the Office of Thrift Supervision, as

in effect on January 1, 1997, including part 575 of chapter V of title 12 of the Code of Federal Regulations (as in effect on such date), during the 3-year period beginning on the date of the enactment of the Thrift Charter Conversion Act of 1997.

(2) Grandfather of existing federal mutual holding companies.--

(A) In general.--Any Federal mutual holding company in existence as of the date of the enactment of this Act shall be subject to section 4(a) of the Bank Holding Company Act of 1956 (as added by section 303 of this title).

(B) Treatment under section 4(a).--Any treatment of a Federal mutual holding company under section 4(a) shall not be construed as a change in control unless, as a result of the transaction, the holding company no longer controls the entity.

(g) Treatment of Institutions Specializing in Housing Finance.--Section 18(o)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1828(o)(2)) is amended by adding at the end the following new subparagraph:

``(C) Treatment of institutions specializing in housing finance.--No depository institution shall be subject to regulatory criticism, enforcement action of any type, or increased capital requirements by the appropriate Federal banking agency based on credit concentration concerns resulting from maintaining a portfolio that reflects the institution's specialization in residential housing finance.''.

SEC. 307. TECHNICAL AND CONFORMING AMENDMENTS.

(a) Amendments to the Federal Deposit Insurance Act.--

(1) Section 3(z) of the Federal Deposit Insurance Act (12 U.S.C. 1813(z)) is amended by striking ``, the Director of the Office of Thrift Supervision''.

(2) Section 8(b) of the Federal Deposit Insurance Act (12 U.S.C. 1818(b)) is amended by striking paragraph (9).

(3) Section 13 of the Federal Deposit Insurance Act (12 U.S.C. 1823) is amended by striking subsection (k).

(4) Subsections (c)(2) and (i)(2) of section 18 of the Federal Deposit Insurance Act (12 U.S.C. 1828) are each amended--

(A) in the subparagraph (B), by inserting ``and'' after the semicolon;

(B) in subparagraph (C), by striking ``; and'' and inserting a period; and

(5) Section 18 of the Federal Deposit Insurance Act (12 U.S.C. 1828) is amended by striking subsection (m).

(6) The Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amended by striking 28.

(b) Amendments to the Bank Holding Company Act of 1956.--

(1) Section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841) is amended by striking subsections (i) and (j).

(2) Section 4(c)(8) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(c)(8)) is amended by striking the sentence preceding the penultimate sentence.

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

(A) in paragraph (2)(A)(i), by striking ``or an insured institution'' and all that follows through ``of this subsection)'';

(B) in paragraph (2)(A)(ii)--

(i) by striking ``or a savings association'' where such term appears in the portion of such paragraph which precedes subclause (I));

(ii) by inserting ``and'' at the end of subclause (VI);

(iii) by striking subclauses (VIII), (IX), and (X); and

(iv) by striking ``(V), and (VIII)'', where such term appears in the portion of such paragraph which appears after the end of subclause (VII), and inserting ``and (V)''; and

(4) Section 4(i) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(i)) is amended--

(A) by striking paragraphs (1) and (2); and

(B) in paragraph (3)(A), by striking ``any Federal savings association'' and all that follows through the period at the end of such paragraph and inserting ``such association was authorized to engage under this section as of January 1, 1997.''

(1) Section 804(a) of the Alternative Mortgage Transaction Parity Act of 1982 (12 U.S.C. 3803) is amended.--

(A) in the portion of such subsection which precedes paragraph (1)--

(i) by striking ``, and other nonfederally chartered housing creditors,''; and

(ii) by inserting ``and in order to permit other nonfederally chartered housing creditors to make, purchase, and enforce alternative mortgage transactions,'' after ``enforcing alternative mortgage transactions,''; and

(B) in paragraph (1), by inserting ``(as such term is defined in section 3(a) of the Federal Deposit Insurance Act)'' after ``with respect to banks''.

(2) Section 205 of the Depository Institution Management Interlock Act (12 U.S.C. 3204) is amended--

(A) in the portion of paragraph (8)(A) which precedes clause (i), by striking ``diversified savings'' and all that follows through ``with respect to'' and inserting ``depository institution holding company which, as of January 1, 1997, and at all times thereafter, satisfies the consolidated net worth and consolidated net earnings requirements for a diversified savings and loan holding company (as set forth in section 10(1)(F) of Home Owners' Loan Act, as such section is in effect on such date, which shall be applicable for purposes of this paragraph without regard to the fact that a depository institution subsidiary of such holding company has ceased to be a savings association after January 1, 1997) with respect to''; and

(B) by striking paragraph (9).

(3) Section 19(b)(1)(A) of the Federal Reserve Act (12 U.S.C. 461(b)(1)(A)) is amended--

(A) by inserting ``and'' after the semicolon at the end of clause (v); and

(B) by striking clause (vi).

(4) Subparagraphs (A), (B), and (C) of section 10(e)(5) of the Federal Home Loan Bank Act (12 U.S.C. 1430(e)(5)) are each amended by inserting before the period at the end ``(as such section is in effect on January 1, 1997)''.

(d) Repeal of Home Owners' Loan Act.--Effective January 1, 1999, the Home Owners' Loan Act (12 U.S.C. 1461 et seq.) is repealed.

SEC. 308. REFERENCES TO SAVINGS ASSOCIATIONS AND STATE BANKS IN FEDERAL LAW.

Effective January 1, 1999, any reference in any Federal banking law to--

(1) the term ``savings association'' shall be deemed to be a reference to a bank as defined in section 3(a) of the Federal Deposit Insurance Act; and

(2) the term ``State bank'' shall be deemed to include any depository institution included in the definition of such term in section 3(a)(2) of such Act.

SEC. 309. DEFINITIONS.

For purposes of this subtitle, the terms ``appropriate Federal banking agency'', ``bank holding company'', ``depository institution'', ``Federal savings association'', ``insured depository institution'', ``savings association'', and ``State bank'' have the same meanings as in section 3 of the Federal Deposit Insurance Act (as in effect on the date of the enactment of this Act).

SEC. 310. EFFECTIVE DATE.

Except as otherwise provided in this subtitle, this subtitle and the amendments made by this subtitle shall take effect on January 1, 1999.

Subtitle B--Elimination of Office of The Thrift Supervision

SEC. 311. PROHIBITION ON MERGER OR CONSOLIDATION REPEALED.

Section 321 of title 31, United States Code is amended by striking subsection (e).

SEC. 312. SECRETARY OF THE TREASURY REQUIRED TO FORMULATE PLANS FOR COMBINING OFFICE OF THRIFT SUPERVISION WITH OFFICE OF THE COMPTROLLER OF THE CURRENCY.

(a) In General.--Not later than 9 months after the date of the enactment of this Act, the Secretary of the Treasury, in consultation with the Director of the Office of Thrift Supervision and the Comptroller of the Currency, shall formulate a plan for consolidating the Office of Thrift Supervision with the Office of the Comptroller of the Currency by January 1, 1999.

(b) Implementation.--The Director of the Office of Thrift Supervision and the Comptroller of the Currency shall implement that plan, notwithstanding any other provision of Federal banking law.

SEC. 313. OFFICE OF THRIFT SUPERVISION AND POSITION OF DIRECTOR OF OFFICE OF THRIFT SUPERVISION ABOLISHED.

Effective January 1, 1999, the Office of Thrift Supervision and the position of Director of the Office of Thrift Supervision are abolished.

SEC. 314. CONTINUATION PROVISIONS.

(a) Continuation of Orders, Resolutions, Determinations and Regulations.--All orders, resolutions, determinations and regulations of the Office of Thrift Supervision that have been issued, made, prescribed or allowed to become effective by the Office of Thrift Supervision (including orders, resolutions, determinations and regulations that relate to the conduct of conservatorship and receiverships), or by a court of competent jurisdiction, and are in effect on the day before the date of the enactment of this Act, shall continue in effect according to the terms of such orders, resolutions, determinations, and regulations and shall be enforceable by or against the appropriate successor agency until modified, terminated, set aside or superseded in accordance with applicable law by the appropriate successor agency or by a court of competent jurisdiction or by operation of law.

(b) Continuation of Suits.--No action or other proceeding commenced by or against the Office of Thrift Supervision shall abate because of the enactment of this Act, except that the appropriate successor agency to the Office of Thrift Supervision shall be substituted for the Office of Thrift Supervision as a party to any such action or proceeding.

(c) Continuation of agency services.--Any agency, department, or other instrumentality of the United States, and any successor to such agency, department, or instrumentality, that was providing supporting services to the Office of Thrift Supervision shall--

(1) continue to provide such services, on a reimbursable basis or as otherwise agreed before the date of the enactment of this Act, to the Office of Thrift Supervision; and

(2) consult with the Office of Thrift Supervision to coordinate and facilitate a prompt and reasonable completion or termination of such services.

(d) Transfer of Property.--

(1) In general.--Not later than January 1, 1999, all property of the Office of Thrift Supervision shall be transferred to the Office of the Comptroller of the Currency, or another appropriate successor agency, in accordance with the division of responsibilities and activities effected by this Act.

(2) Property defined.--For purposes of this subsection, the term ``property'' includes all interests in real property and all personal property, including financial assets, computer hardware and software, furniture, fixtures, books, accounts, records, reports of examination, work papers and correspondence related to such reports of examination, and any information, materials, property, and assets not specifically listed. (3) Dispute resolution.--The Secretary of the Treasury shall resolve any disagreement between successor agencies.

(e) Treatment of References in Adjustable Rate Mortgages Issued Before FIRREA.--

(1) References in prior law.--For purposes of section 402(e) of Financial Institutions Reform, Recovery, and Enactment Act of 1989 (12 U.S.C. 1437 note), any reference in such section to--

(A) the Director of the Office of Thrift Supervision shall be deemed to be a reference to the Secretary of the Treasury; and

(B) a Savings Association Insurance Fund member shall be deemed to be a reference to an insured depository institution (as defined in section 3 of the Federal Deposit Insurance Act).

(f) Treatment of References in Adjustable Rate Mortgages Instruments Issued After FIRREA.--

(1) In general.--For purposes of adjustable rate mortgage instruments that are in effect as of the date of enactment of this Act, any reference in the instrument to the Director of the Office of Thrift Supervision or Savings Association Insurance Fund members shall be treated as a reference to the Secretary of the Treasury or insured depository institutions (as defined in section 3 of the Federal Deposit Insurance Act), as appropriate.

(2) Substitution for indexes.--If any index used to calculate the applicable interest rate on any adjustable rate mortgage instrument is no longer calculated and made available as a direct or indirect result of the enactment of this title, any index--

(A) made available by the Secretary of the Treasury; or

(B) determined by the Secretary of the Treasury, pursuant to paragraph (4), to be substantially similar to the index which is no longer calculated or made available,

may be substituted by the holder of any such adjustable rate mortgage instrument upon notice to the borrower.

(3) Agency action required to provide continued availability of indexes.--Promptly after the enactment of this subsection, the Secretary of the Treasury, the Chairperson of the Federal Deposit Insurance Corporation, and the Comptroller of the Currency shall take such action as may be necessary to assure that the indexes prepared by the Director of the Office of Thrift Supervision immediately before the enactment of this subsection and used to calculate the interest rate on adjustable rate mortgage instruments continue to be available.

(4) Requirements relating to substitute indexes.--If any agency can no longer make available an index pursuant to paragraph (3), an index that is substantially similar to such index may be substituted for such index for purposes of paragraph (2) if the Secretary of the Treasury determines, after notice and opportunity for comment, that--

(A) the new index is based upon data substantially similar to that of the original index; and

(B) the substitution of the new index will result in an interest rate substantially similar to the rate in effect at the time the original index became unavailable.

SEC. 315. COST OF FUNDS INDEXES.

(a) Cost of Funds Index Defined.--The term ``cost of funds indexed'' means any index that is published by a Federal home loan bank and is based, in whole or in part, upon the cost of funds of such bank's members.

(b) Calculations Based on Type of Charter and Insurance Fund Membership of Members.-- If any cost of funds index includes data based on charter type, insurance fund membership, or other similar characteristics of members of a Federal home loan ban, such index shall be calculated after the date of the enactment of this Act using data only from insured depository institutions which were bank members and whose data was included in such index on or before such date of enactment.

(1) In general.--Each insured depository institution the data from which is required to compile a cots of funds index in accordance with subsection (b) shall provide to the Federal home loan bank which maintains the index such information as may be necessary, and in such form as may be appropriate, for the bank to calculate and publish the index.

(2) Enforcement by banking agencies.--Each appropriate Federal banking agency shall take such action as may be necessary to ensure that insured depository institutions which are required to provide information to any Federal home loan bank under paragraph (1) furnish such information on a timely basis and in the form required by the bank.

(3) Treatment of institutions.--Notwithstanding any other provision of law, an insured depository institution which furnishes information to a Federal home loan bank pursuant to this section for use in compiling a cost of funds index shall not be deemed to control, directly, or indirectly, such index.

(d) Certain Data Excluded.--Notwithstanding subsections (b) and (c), no cost of funds index shall include any data from any insured depository institution which results from the merger, consolidation, or other combination of a member of a Federal home loan bank with a nonmember of any such bank if--

(1) the total assets of the nonmember exceed the total assets of the bank member at the time of such merger, consolidation, or other combination; or

(2) in the case of a merger, consolidation, or other merger in which a member of a Federal home loan bank is the resulting insured depository institution, combined ration of the average amount of single-family loan balances to average total assets of all insured depository institutions involved in such merger, consolidation, or other combination for the 12-months period ending on the date of such transaction is less than 70 percent.

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

SEC. 316. REFERENCES IN FEDERAL LAW TO DIRECTOR OF THE OFFICE OF THRIFT SUPERVISION.

Effective January 1, 1999, any reference in any Federal law to the Director of the office of Thrift Supervision or the Office of Thrift supervision shall be deemed to be a reference to the appropriate Federal banking agency (as defined in section 3(q) of the Federal Deposit insurance Act).

SEC. 317. RECONFIGURATION OF BOARD OF DIRECTORS OF FDIC AS A RESULT OF REMOVAL OF DIRECTOR OF THE OFFICE OF THRIFT SUPERVISION.

(a) In General.--Section 2(a)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1812(a)(1)) is amended to read as follows:

``(1) In general.--The management of the Corporation shall be vested in a Board of Directors consisting of 5 members--

(A) 1 of whom shall be the Comptroller of the Currency; and

(B) 4 of whom shall be appointed by the President, and with the advice and consent of the Senate, from among individuals who are citizens of the United States, 1 of whom shall have State bank supervisory experience''.

(b) Technical and Conforming Amendments.--

(1) Section 2(d)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1812(d)(2)) is amended--

(A) by striking ``or the Office of Director of the Office of Thrift Supervision'';

(B) by striking ``or such Director'';

(D) by striking ``or Director''.

(2) Section 2(f)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1812(f)(2)) is amended by striking ``or of the Office of Thrift Supervision''.

Subtitle C--Merger of BIF and SAIF

SEC. 321. AMENDMENT TO ECONOMIC GROWTH AND REGULATORY PAPERWORK REDUCTION ACT OF 1996.

Section 2704(c) of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 is amended to read as follows:

``(c) Effective Date.--This section and the amendments made by this section shall become effective on January 1, 1999.''.

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

SEC. 401. STATE FLEXIBILITY IN MULTISTATE LICENSING REFORMS.

(a) In General.--The provisions of this title shall take effect if, and only if, no later than 3 years from the effective date of this Act, a majority of the States have not enacted uniform laws and regulations governing the licensure of individuals and entities authorized to sell and solicit the purchase of insurance within the State.

(b) Uniformity Required.--States shall be deemed to have established the uniformity necessary to satisfy subsection (a) if they--

(1) establish uniform criteria regarding the integrity, personal qualifications, education, training, and experience, of licensed insurance producers;

(2) establish uniform continuing education requirements for licensed insurance producers;

(3) do not impose any requirement upon any licensed insurance producer that has the effect of limiting or conditioning that producer's activities because of its residence or place of operations.

(c) Determination.--At the end of the 3-year period beginning on the date of the enactment of this Act, the National Association of Insurance Commissioners (hereafter in this title referred to as ``NAIC'') shall determine, in consultation with the insurance commissioners or chief insurance regulatory officials of the States, whether the uniformity required by subsections (a) and (b) has been achieved.

(d) Continued Application.--If at any time after 3 years from the effective date of this Act, the uniformity required by subsections (a) and (b) no longer exists, the provisions of this title shall take effect.

SEC. 402. NATIONAL ASSOCIATION OF REGISTERED AGENTS AND BROKERS.

There is established a body corporate to be known as the ``National Association of Registered Agents and Brokers'' (hereafter in this title referred to as ``NARAB''). NARAB shall be a nonprofit corporation and shall have succession until dissolved by an Act of Congress. NARAB shall--

(1) not be an agency or establishment of the United States Government; and

(2) except as otherwise provided in this Act, be subject to, and have all the powers conferred upon a nonprofit corporation by the District of Columbia Nonprofit Corporation Act (D.C. Code, sec. 29ÿ091001 et seq.).

SEC. 403. PURPOSE.

The purpose of NARAB is to provide a mechanism by which the multistate services of State-licensed insurance producers may be more efficiently provided to policyholders, while preserving the right of States to license, supervise, and discipline insurance producers.

SEC. 404. RELATIONSHIP TO THE FEDERAL GOVERNMENT.

NARAB shall be subject to the supervision and oversight of the National Financial Services Council (hereafter in this title referred to as the ``Council''). Funds held by or due to NARAB shall not be included in the budget of the United States nor may the United States borrow or pledge such funds.

SEC. 405. MEMBERSHIP.

(a) In General.--All State-licensed insurance agents, brokers, surplus lines brokers, insurance consultants, and limited insurance representatives (hereinafter referred to as ``insurance producers'') are eligible for membership in NARAB.

(b) Authority To Establish Membership Criteria.--NARAB shall have the authority to establish membership criteria that--

(1) bear a reasonable relationship to the purposes for which NARAB was established; and

(2) do not unfairly limit the access of smaller agencies to NARAB membership.

(c) Classes of Membership.--NARAB shall have the authority to establish separate classes of membership, with separate criteria, where it reasonably determines that performance of different duties requires different levels of education, training, or experience. NARAB shall have the authority to establish separate categories of membership for individuals and for other persons.

(d) Membership Criteria.--NARAB shall have the authority to establish membership criteria to establish the integrity, personal qualifications, education, training, and experience of members, and any criteria reasonably incidental thereto. In establishing such criteria, NARAB shall be guided by the highest levels set by the States with regard to their comparable licensing laws.

(e) Effect of Membership.--Membership in NARAB shall operate as licensure in each State in which the NARAB member pays the licensing fee set by such State, subject to section 416.

(f) Annual Renewal.--Membership in NARAB shall be renewed on an annual basis and shall be subject to reasonable continuing education requirements.

(g) Suspension and Revocation.--NARAB shall have the authority to inspect and examine its members to determine compliance with NARAB criteria and to suspend or revoke membership upon showing that--

(1) applicable membership criteria are no longer being met; or

(2) a member has been subject to disciplinary proceedings under the jurisdiction of a State insurance regulator and NARAB concludes that retention of membership would not be in the public interest.

SEC. 406. CORPORATE POWERS.

NARAB shall have the power--

(1) to sue and be sued, in its corporate name and through its own counsel in any State, Federal, or other court;

(2) to adopt, alter, and use a corporate seal, which shall be judicially noticed;

(3) to adopt, amend, and repeal, by its Board of Directors, such bylaws and rules as may be necessary or appropriate to carry out the purposes of this title, including bylaws relating to--

(A) the conduct of business; and

(B) the indemnity of its directors, officers, and employees for liabilities and expenses actually and reasonably incurred by any such person in connection with the defense or settlement of an action or suit if such person acted in good faith and in a manner reasonably believed to be consistent with the purposes of this title;

(4) to adopt, amend, and repeal, by its Board of Directors such rules as may be necessary or appropriate to carry out the purposes of this title, including rules relating to--

(A) the definition of terms used in this title, other than those terms for which a definition is provided herein;

(B) the procedures for payment of NARAB assessments; and

(5) to conduct its business (including the carrying on of operations and the maintenance of offices) and to exercise all other rights and powers granted to it by this title in any State or other jurisdiction without regard to any qualification, licensing, or other statutory requirement in such State or other jurisdiction;

(6) to lease, purchase, accept gifts or donations or otherwise acquire, to own, hold, improve, use, or otherwise deal in or with, and to sell, convey, mortgage, pledge, lease, exchange, or otherwise dispose of any property, real, personal or mixed, or any interest therein, wherever situated;

(7) to elect or appoint such officers, attorneys, employees, and agents as may be required, to determine their qualifications, to define their duties, to fix their salaries, require bonds for them, and fix the penalty thereof;

(8) to enter into contracts, to execute instruments, to incur liabilities, and to do any and all other acts and things as may be necessary or incidental to the conduct of its business and the exercise of all other rights and powers granted to NARAB by this title;

(9) to suspend or revoke NARAB membership in the manner provided elsewhere in this title;

(10) to levy and collect assessments upon its members, in the manner and, to the extent provided elsewhere in this title; to cover the administrative expenses of NARAB in a manner that does not unfairly discriminate against smaller insurance producers; and

(11) to provide advice and recommendations to Congress, the courts, the National Association of Insurance Commissioners, State insurance regulators, and the Council on matters pertaining to the regulation and practices of insurance producers.

SEC. 407. BOARD OF DIRECTORS.

(a) Powers.--The Board of Directors shall be the governing body of NARAB and shall be vested with all powers necessary for the management and administration of the affairs of the Corporation and the promotion of its purposes as authorized by this title. The Board's authority shall be specified in the bylaws of NARAB.

(b) Composition.--The Board shall be composed of 7 members or such higher number as determined by the Board and as approved by the Council. At least 50 percent of the Board shall be composed of members of the NAIC. All directors shall be elected by the membership of NARAB. The bylaws of NARAB shall require that directors be selected in a manner fairly representing the various types of insurance producers which are eligible to become NARAB members.

(c) Terms.--The term of each director shall, after the first election, be for 3 years, with one-third of the directors to stand for election each year. Directors may be elected to serve for any number of terms.

(d) Vacancies.--A vacancy in the Board shall be filled in the same manner as the original appointment.

(e) Compensation.--All matters relating to compensation of directors shall be as provided in the bylaws of NARAB.

(f) Initial Appointments.--The NAIC shall appoint an initial Board to carry out the establishment of the bylaws and the first elections of NARAB.

SEC. 408. CHAIRPERSON AND VICE CHAIRPERSON.

(a) Election.--The members of NARAB shall select the chairperson and vice chairperson from among those candidates for the Board. The chairperson shall, at all times, be drawn from the membership of the NAIC.

(b) Initial Appointments.--The NAIC shall select the initial chairperson and vice chairperson from among the initial appointments to the Board under section 407. The persons so selected shall carry out the authorities of office until the first election by the members. They shall act to ensure that such election is scheduled at the earliest appropriate time.

SEC. 409. OFFICERS.

The officers of NARAB shall consist of a chairperson, a vice chairperson, a president, a secretary, and a treasurer, and may include 1 or more vice presidents and such other officers and assistant officers as may be deemed necessary, each of whom shall be elected or appointed at such time and in such manner and for such terms not exceeding 3 years as may be prescribed by bylaw. In the absence of any such provision, all officers shall be elected or appointed annually by the Board of Directors.

SEC. 410. MEETINGS OF BOARD.

The Board of Directors shall meet at the call of its chairperson, or as otherwise provided by the bylaws of NARAB.

SEC. 411. BYLAWS, RULES, AND DISCIPLINARY ACTION.

(a) Adoption and Amendment of Bylaws.--The Board of Directors of NARAB shall file with the Council a copy of the proposed bylaws or any proposed amendment to the bylaws, accompanied by a concise general statement of the basis and purpose of such proposal. The proposed bylaws and each proposed amendment shall take effect 30 days after the date of the filing of a copy thereof with the Council, or upon such later date as NARAB may designate or such earlier date as the Council may determine, unless--

(1) the Council, by notice to NARAB setting forth the reasons therefore, disapproves such proposal as being contrary to the public interest or contrary to the purposes of this title; or

(2) the Council finds that such proposal involves a matter of such significant public interest that public comment should be obtained, in which case it may, after notifying NARAB in writing of such finding, require that the procedures set forth in subsection (b) be followed with respect to such proposal, in the same manner as if such proposed bylaw change were a proposed rule change within the meaning of such paragraph.

(b) Adoption and Amendment of Rules.--

(1) The Board of Directors of NARAB shall file with the Council a copy of any proposed rule or any proposed amendment to a rule of NARAB accompanied by a concise general statement of the basis and purpose of such proposal. The Council shall, upon the filing of any proposal, publish notice thereof, together with the terms of substance of such proposal or a description of the subjects and issues involved. The Council shall give interested persons an opportunity to submit written views and arguments with respect to such proposal. No proposed rule or amendment shall take effect unless approved by the Council or otherwise permitted in accordance with this paragraph.

(2) Within 35 days after the date of publication of notice of filing of a proposal, or within such longer period as the Council may designate of not more than 90 days after such date if it finds such longer period to be appropriate and publishes its reasons for so finding, or as to which NARAB consents, the Council shall--

(A) by order approve such proposed rule or amendment; or

(B) institute proceedings to determine whether such proposed rule or amendment should be modified or disapproved.

(3) Proceedings instituted with respect to a proposed rule or amendment pursuant to paragraph (2) shall include notice of the grounds for disapproval under consideration and opportunity for hearing and shall be concluded within 180 days after the date of publication of notice of the filing of such proposed rule or amendment. At the conclusion of such proceedings, the Council shall, by order, approve or disapprove such proposed rule or amendment. The Council may extend the time for conclusion of such proceedings for not more than 60 days if it finds good cause for such extension and publishes its reasons for so finding, or for such longer period as to which NARAB consents.

(4) The Council shall approve a proposed rule or amendment if it finds that it is in the public interest and is consistent with the purposes of this Act, and any proposed rule or amendment so approved shall be given force and effect as if promulgated by the Council. The Council shall disapprove a proposed rule or amendment if it does not make the finding referred to in the preceding sentence. The Council shall not approve any proposed rule change prior to 30 days after the date of publication of notice of the filing thereof, unless the Council finds good cause for so doing and publishes its reasons for so finding.

(5) Notwithstanding any provision of this subsection, a proposed rule or amendment may take effect--

(A) upon the date of filing with the Council, if such proposed rule or amendment is designated by NARAB as relating solely to matters which the Council, consistent with the public interest and the purposes of this subsection, determines by rule do not require the procedures set forth in this paragraph; or

(B) upon such date as the Council shall for good cause determine, except that any proposed rule or amendment, which takes effect under this subparagraph, shall be filed promptly thereafter and reviewed in accordance with paragraph (1). At any time within 60 days after the date of filing of any proposed rule or amendment under subparagraph (A) or (B), the Council may summarily abrogate such rule or amendment and require that it be refiled and reviewed in accordance with this paragraph, if the Council finds that such action is necessary or appropriate in the public interest, for the protection of insurance producers or policyholders, or otherwise in furtherance of the purposes of this title. Any action of the Council pursuant to the preceding sentence shall not affect the validity or force of a rule change during the period it was in effect and shall not be subject to judicial review or be considered to be final agency action.

(c) Action Required by the Council.--The Council may, by such rules as it determines to be necessary or appropriate to the public interest or to carry out the purposes of this title, require NARAB to adopt, amend, or repeal any NARAB bylaw or rule, whenever adopted.

(d) Legal Effect of Bylaws and Rules.--The bylaws and rules adopted pursuant to this section shall be subject to judicial review in the same manner as the regulations of the Council.

(e) Disciplinary Action by NARAB.--In any proceeding to determine whether membership shall be denied, suspended, revoked, and not renewed (hereinafter referred to as ``disciplinary action''), NARAB shall bring specific charges, notify such member of, and give the member an opportunity to defend against such charges and keep a record. A determination to take disciplinary action shall be supported by a statement setting forth--

(1) any act or practice in which such member has been found to have been engaged;

(2) the specific provision of this Act, the rules or regulations thereunder, or the rules of NARAB which any such act or practice is deemed to violate; and

(3) the sanction imposed and the reason therefore.

(f) Council Review of Disciplinary Action.--If NARAB orders any disciplinary action, it shall promptly notify the Council. Such disciplinary action shall be subject to review by the Council on its own motion, or upon application by any person aggrieved thereby filed within 30 days after the date such notice was filed with the Council and received by such aggrieved person. Application to the Council for review, or the institution of review by the Council on its own motion, shall not operate as a stay of disciplinary action unless the Council otherwise orders. In any proceeding to review such action, after notice and the opportunity for hearing, the Council shall--

(1) determine whether the action should be taken;

(2) affirm, modify, or rescind the disciplinary sanction; or

(3) remand to NARAB for further proceedings.

The Council shall also have the authority to dismiss a proceeding to review disciplinary action if the Council finds that the specific grounds on which the action is based exist in fact; that the action is in accordance with applicable rules and regulations; and that such rules and regulations are, and were, applied in a manner consistent with the purposes of this Act.

SEC. 412. BORROWING AUTHORITY.

NARAB shall have the authority to borrow as necessary and upon prior approval of the Board of Directors. Any such borrowing shall be made upon such terms and conditions as the Board determines, except that any funds so borrowed shall be repaid out of the assessments as collected. To secure the payment of principal and interest on any such borrowing the Corporation may pledge future assessments.

SEC. 413. ASSESSMENTS.

All insurance producers that are members of NARAB shall be subject to assessments for the costs of considering their applications, on acceptance as members, and annually each year thereafter. Such assessments shall be set by NARAB by rule and shall cover the costs of operation of NARAB.

SEC. 414. FUNCTIONS OF THE COUNCIL.

(a) Administrative Procedure.--Determinations of the Council, for purposes of making rules pursuant to section 411, shall be made after appropriate notice and opportunity for a hearing and for submission of views of interested persons, in accordance with the rulemaking procedures specified in section 553 of title 5, United States Code.

(b) Examinations and Reports.--

(1) The Council may make such examinations and inspections of NARAB and require NARAB to furnish it with such reports and records or copies thereof as the Council may consider necessary or appropriate in the public interest or to effectuate the purposes of this title.

(2) As soon as practicable after the close of each fiscal year, NARAB shall submit to the Council a written report relative to the conduct of its business, and the exercise of the other rights and powers granted by this title, during such fiscal year. Such report shall include financial statements setting forth the financial position of NARAB at the end of such fiscal year and the results of its operations (including the source and application of its funds) for such fiscal year. The financial statements so included shall be examined by an independent accountant in the same manner as for the financial reports of federally certified insurers under this Act, and shall be accompanied by the report thereon by such accountant. The Council shall transmit such report to the President and the Congress with such comment thereon as the Council determines to be appropriate.

SEC. 415. LIABILITY OF NARAB AND ITS DIRECTORS, OFFICERS, AND EMPLOYEES.

(a) In General.--NARAB shall not be deemed to be an insurer or insurance producer within the meaning of any State law, rule, regulation, or order regulating or taxing insurers, insurance producers, or other entities engaged in the business of insurance, including provisions imposing premium taxes, regulating insurer solvency or financial condition, establishing guaranty funds and levying assessments, or requiring claims settlement practices. The Corporation additionally shall be exempt from all taxes, assessments, or other levies imposed by any State, municipal, county, or local government.

(b) Liability of NARAB, Its Directors, Officers, and Employees.--Neither NARAB nor any of its directors, officers, or employees shall have any liability to any person for any action taken or omitted in good faith under or in connection with any matter subject to this title.

SEC. 416. RELATIONSHIP TO STATE LAW.

(a) In General.--Except as set forth in subsection (b), all State laws, regulations, provisions, or actions purporting to regulate insurance producers shall remain in full force and effect.

(b) Preemption of State Laws.--State laws, regulations, provisions, or actions purporting to regulate insurance producers shall be preempted in the following instances:

(1) No State shall impede the activities of, take any action against, or apply any provision of law or regulation to, any insurance producer because that insurance producer or any affiliate plans to become, has applied to become, or is, a member of NARAB.

(2) No State shall impose any requirement upon a member of NARAB that has the effect of limiting or conditioning that member's activities because of its residence or place of operations including, but not limited to, any requirement that a licensed insurance producer be a resident of a particular State, any requirement that it comply with the conditions of a counter signature law, or any requirement that it pay a different licensing fee based on its residency.

(3) No State shall impose any requirement upon a member of NARAB that is different than the criteria for NARAB membership or renewal thereof.

(4) No State shall implement the procedures of its system of licensing or renewing the licenses of insurance producers in a manner different from NARAB authority, as set forth in section 405.

(c) Preemption Authority.--The State laws, regulations, provisions, and actions enumerated in subsection (b) shall be preempted on the date of the enactment of this Act. Where it is unclear whether State laws or regulations fall into the categories enumerated in subsection (b), the Council shall have the authority, by regulation, to define those State laws and regulations that have been preempted by this Act. The Council shall also have the authority to issue, after the opportunity for a hearing on the record, an order that stays the effect of any State law or regulation which is preempted until the Council can complete the issuance of a regulation defining such preemption.

SEC. 417. COORDINATION WITH OTHER REGULATORS.

(a) Coordination With State Insurance Regulators.--NARAB shall have the authority to--

(1) issue uniform insurance producer applications and renewal applications that may be used to apply for the issuance or removal of State licenses, while preserving the ability of each State to impose such conditions on the issuance or renewal of a license as are consistent with section 416;

(2) establish a central clearinghouse through which NARAB members may apply for the issuance or renewal of licenses in multiple States; and

(3) establish or utilize a national database for the collection of regulatory information concerning the activities of insurance producers.

(b) Coordination With the National Association of Securities Dealers.--NARAB shall coordinate with the National Association of Securities Dealers in order to ease any administrative burdens that fall on persons that are members of both associations, consistent with the purposes of this title and the Federal securities laws.

SEC. 418. JUDICIAL REVIEW.

(a) Jurisdiction.--The appropriate United States district court shall have exclusive jurisdiction over litigation involving NARAB, including disputes between NARAB and its members that arise under this title. Suits brought in State court involving NARAB shall be deemed to have arisen under Federal law and therefore be subject to jurisdiction in the appropriate United States district court.

(b) Exhaustion of Remedies.--An aggrieved person must exhaust the administrative remedies before NARAB before it may seek judicial review of the NARAB decision.

SEC. 419. DEFINITIONS.

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

(1) Insurance.--The term ``insurance'' means any product defined or regulated as insurance by the appropriate State insurance regulatory authority.

(2) State law.--The term ``State law'' includes all laws, decisions, rules, regulations, or other State action having the effect of law, of any State. A law of the United States applicable only to the District of Columbia shall be treated as a State law rather than a law of the United States.

(3) State.--The term ``State'' includes any State, the District of Columbia, territory of the United States, and any political subdivision, agency, or instrumentality thereof.