Financial Modernization bill

TABLE OF CONTENTS:

Title I: Financial Services Holding Company Act

Subtitle A: General Provisions

Subtitle B: Securities Activities of Financial Services

Holding Companies

Subtitle C: Insurance and Real Estate Development

Activities of Financial Services Holding Companies

Subtitle D: Redomestication of Mutual Life Insurers

Title II: Conforming Amendments to Other Laws for Financial

Services Holding Companies

Title III: Functional Regulation Amendments to Securities

Laws for Financial Services Holding Companies

Subtitle A: Broker Dealer Provisions

Subtitle B: Investment Company Provisions

Title IV: Wholesale Financial Institutions Owned By

Financial Services Holding Companies

Title V: Merger of Bank and Thrift Charters, Regulators, and

Insurance Funds

Subtitle A: Conversion of Thrift Charters

Subtitle B: Elimination of Office of Thrift Supervision

Subtitle C: Merger of BIF and SAIF

Title VI: National Market Funded Lending Institutions

Title VII: Effective Date

Depository Institution Affiliation and Thrift Charter Conversion Act - Includes among the purposes of this Act: (1) establishment of an alternative legislative framework for the creation and regulation of financial services holding companies; (2) elimination of prohibitions on common ownership and affiliation within a financial services holding company; (3) elimination of the thrift charter, and mandatory conversion of thrifts into banks; (4) merger of the bank and thrift insurance funds; and (5) creation of new State and Federal charters for uninsured wholesale financial institutions.

Title I: Financial Services Holding Company Act - Financial Services Holding Company Act - SuBtitle A: General Provisions - Requires any financial services holding company (FSHC) seeking to acquire control of an insured bank, an insured institution, a bank holding company, or another financial services holding company to comply with certain requirements of the Federal Deposit Insurance Act (FDIA).

(Sec. 104) Subjects FSHCs and certain foreign bank operations to the same restrictions on affiliate transactions that are imposed upon Federal Reserve member banks.

Authorizes the appropriate Federal regulatory agency (the Comptroller of the Currency, the Board of Governors of the Federal Reserve System Federal Reserve Board, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC), or the Federal Home Loan Bank Board) to adopt rules and regulations to prevent an insured depository institution that is controlled by an FSHC from engaging in unsafe or unsound practices.

Authorizes the appropriate Federal banking agency, with the concurrence of the national Financial Services Committee, to exempt any FSHC-controlled depository institution from any Federal Reserve Act requirement.

Requires an FSHC-controlled depository institution (except certain foreign-controlled banks) to obtain the authorization of the National Financial Services Committee before entering into certain credit, indemnity, guarantee, or insurance activities on behalf of any affiliate that is neither a financial services institution nor primarily engaged in financial activities.

(Sec. 105) Requires that each insured depository institution that is controlled by an FSHC be well capitalized.

Requires any FSHC controlling a undercapitalized insured depository institution to: (1) enter into an agreement with the appropriate Federal regulatory agency to return the institution to being well capitalized; or (2) divest control of such bank or institution. Prohibits the appropriate Federal banking agency from imposing any requirements pertaining to the capitalization of an FSHC.

(Sec. 106) Subjects interstate acquisitions of an insured bank by an FSHC to the same restrictions as are applicable to bank holding companies under the Bank Holding Company Act of 1956.

(Sec. 107) Prohibits Federal and State regulatory agencies from enacting laws that discriminate against FSHCs or their affiliates. Preempts any Federal or State provision inconsistent with the purposes of this Act (including any provision impeding any insurance company or its affiliate from becoming an FSHC, or from acquiring control of a depository institution).

(Sec. 108) Subjects FSHCs to the insider lending prohibitions of the Federal Reserve Act.

(Sec. 109) Sets forth reporting, examination and enforcement guidelines, including guidelines for divestiture and criminal penalties in the event the appropriate Federal banking agency determines that a depository institution has engaged in a continuing course of conduct involving its FSHC which may affect the safety and soundness of such institution.

(Sec. 110) Provides for administrative (including divestiture), criminal, and civil penalties for specified violations of this Act, as well as judicial review of adverse administrative orders. Prohibits such agency from requiring any FSHC to serve as a "source of strength" to any of its depository institution affiliates.

(Sec. 114) Establishes a National Financial Services Committee to: (1) establish uniform principles and standards for the examination and supervision of financial services institutions and FSHCs; and (2) recommend to the Congress uniformity in other supervisory matters, as well as additional measures to strengthen the separation of insured banks and institutions controlled by FSHCs from the activities of their affiliates.

Prescribes notice procedure guidelines for determining new financial services institutions and new financial activities.

Subtitle B: Securities Activities of Financial Services Holding Companies - Prescribes guidelines under which an FSHC with a securities affiliate may not permit a depository institution under its control to engage in underwriting securities (except those expressly authorized by Federal law as permissible for a national bank).

(Sec. 122) Prohibits a depository institution with a securities affiliate, except in certain circumstances, from extending credit to the affiliate (or purchasing its financial assets), to enhance the marketability of securities underwritten by the securities affiliate.

Prohibits an FSHC, with certain exceptions, from extending or arranging for the extension of credit secured by or for the purpose of purchasing a security (or making payments on principal) that is the subject of a distribution in which an affiliate of the FSHC participates as underwriter or member of a selling group.

Prohibits an FSHC with a securities affiliate, with certain exceptions, from extending credit to an issuer of securities underwritten by such securities affiliate for the purpose of making payments on those securities.

Requires the appropriate Federal banking agency to prescribe circumstances under which directors and senior executive officers of a securities affiliate may serve simultaneously as directors or senior executive officers of an affiliated depository institution. Exempts small FSHCs (total assets under $500 million) and certain foreign affiliates from such regulations.

Prescribes public disclosure requirements for securities affiliates and insured depository institutions.

Prohibits a securities affiliate from underwriting securities secured by or representing an interest in mortgages or other obligations originated or purchased by an affiliated depository institution, unless one of four specified requirements is met.

Proscribes certain reciprocal arrangements between FSHCs.

Allocates Federal oversight responsibilities among the Securities and Exchange Commission (SEC) and the appropriate Federal banking agencies.

Prescribes circumstances in which a branch, agency, or commercial lending company that is operated by a foreign bank that is a financial services holding company is not subject to specified limitations placed upon securities activities of depository institutions with securities affiliates.

Exempts a wholesale financial institution and transactions between it and its securities affiliates, from the requirements of this section, except those providing for additional safeguards and certain compliance programs. Applies this same exemption to a national market lending institution controlled by an FSHC.

States that Federal prescriptions governing the FSHCs are subject to the approval of the National Financial Services Committee (NFSC).

(Sec. 123) States that the NFSC shall prescribe standards applicable to any FSHC affiliated-depository institution that is not an SEC-registered broker, but effects retail securities transactions. Outlines the scope of such standards.

Subtitle C: Insurance and Real Estate Development Activities of Financial Services Holding Companies - Prohibits FSHC-affiliated depository institutions from directly engaging in insurance underwriting, or real estate investment or development.

(Sec. 132) Prohibits FSHC entry into new insurance agency activities, unless they are conducted through an existing insurance agency acquired by the FSHC (or through any successor agency) which was actively engaged in insurance activities during the two years before acquisition.

Subtitle D: Redomestication of Mutual Life Insurers - Sets forth parameters within which a mutual life insurer may transfer its domicile from one State to a transferee domicile (in another State) as a step in a reorganization in which the mutual life insurer becomes a stock life insurer, whether as a direct or indirect subsidiary of a mutual holding company or otherwise ("redomestication"). Preempts State laws restricting redomestication.

Title II: Conforming Amendments to Other Laws for Financial Services Holding Companies - Makes conforming amendments to affected banking laws to exclude FSHCs from their purview, including: (1) the Bank Holding Company Act of 1956; (2) the Banking Act of 1933; (3) the Federal Deposit Insurance Act (FDIA); (4) the Federal Power Act; and (5) the International Banking Act. Amends the FDIA and the Revised Statutes of the United States to preclude their authorization of an examination of al affiliate od either an insured depository institution or a national bank if such institution or bank is an affiliate of an FSHC. Title III: Functional Regulation Amendments to Securities Laws for Financial Services Holding Companies - Subtitle A: Broker Dealer Provisions - Amends the Securities Exchange Act of 1934 to define specified banks as "brokers" and "dealers." (Current law excludes banks from such definition).

(Sec. 303) Authorizes the SEC to exempt any person from the definition of "broker" or "dealer" consistent with the public interest and the purposes of this Act.

(Sec. 304) Exempts loans made by a member bank (or any other person that has entered into a certain kind of agreement with the Federal Reserve Board) to a broker or dealer from Board-prescribed margin requirements if the loan proceeds are to be used in the ordinary course of business (other than for the purpose of funding securities purchases for the account of such broker or dealer).

Subtitle B: Investment Company Provisions - Amends the Investment Company Act of 1940 to permit: (1) custody of investment company assets by an affiliated bank (or an affiliated person of such bank); and (2) a unit investment trust to designate an affiliated Bank as trustee (currently a prohibited practice).

(Sec. 311) Permits the SEC to bring a civil action for breach of fiduciary duty involving personal misconduct against an FSHC- affiliated custodian of a registered investment company.

(Sec. 312) States that an affiliate of an investment company for a bank must comply with SEC rules when lending money to an investment company.

(Sec. 313) Modifies the definition of "interested person" with respect to an investment company to include any FSHC-affiliated person that, during the preceding six months, has executed one or more transactions of a specified kind.

Prohibits a registered investment company from having a majority of its board of directors consisting of personnel or senior officers of any one FSHC-affiliated bank, or of any single FSHC (and its affiliates and subsidiaries).

(Sec. 314) Modifies the guidelines pertaining to unlawful misrepresentation of guarantees and the deceptive use of names.

(Sec. 315) Modifies the definition of "broker" to state that it does not include any person solely because such person is an underwriter for one or more investment companies.

(Sec. 316) Modifies the definition of "dealer" to exclude an insurance or an investment company.

(Sec. 317) Amends the Investment Advisers Act of 1940 to modify the definitions of investment adviser to remove the exclusion from such definition of an investment adviser for banks that advise investment companies. Revises the definitions of broker and dealer.

(Sec. 320) Mandates interagency consultation between the appropriate Federal banking agency and the SEC regarding examination results and other information pertaining to the investment advisory activities of any registered bank holding company and its departments or divisions.

(Sec. 321) Amends the Securities Act of 1933 and the Securities Exchange Act of 1934 to revise the exclusion from their purview of certain bank common trust funds to specify the exclusion of any interest or participation in any common trust fund or similar fund that is excluded from the definition of "investment company" under the Investment Company Act of 1940. Amends the Investment Company Act of 1940 to revise such exclusion guidelines for certain bank common trust funds.

(Sec. 322) Amends the Investment Company Act of 1940 to prescribe circumstances under which an investment adviser holding shares of an investment company in a fiduciary capacity must transfer the power to vote such shares to the beneficial owners or to another fiduciary who is not an affiliate of such adviser.

Title IV: Wholesale Financial Institutions Owned by Financial Services Holding Companies - Amends: (1) the Revised Statutes of the United States to prescribe procedural guidelines on obtaining a Federal charter from the Comptroller of the Currency to organize as a national wholesale financial institution; and (2) the Federal Reserve Act to prescribe procedural guidelines for membership in the Federal Reserve System as a national wholesale financial institution.

(Sec. 403) Amends the FDIA to prescribe a procedure by which an insured State-chartered bank or a national bank may voluntarily terminate its status as an insured depository institution. Requires any such terminated bank to become a wholesale financial institution in order to accept any deposits.

Title V: Merger of Bank and Thrift Charters, Regulators, and Insurance Funds - Subtitle A: Conversion of Thrift Charters - Thrift Charter Conversion Act of 1997 - Prescribes procedural guidelines for the termination of Federal savings association charters and their conversion into national bank charters (by operation of law) or State depository institution charters. Amends the Federal Deposit Insurance Act (FDIA) to treat State Savings Associations as banks for purposes of Federal banking law. Includes as State banks any cooperative bank or other unincorporated bank whose deposits were insured by the FDIC on the day before enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 but excludes from State bank treatment any such banks whose deposits were not FDIC-insured before such date.

(Sec. 502) Requires the FDIC to review State supervision of depository institutions in order to ensure that State savings associations are regulated as rigorously as State banks.

(Sec. 503) Amends the Bank Holding Company Act of 1956 (BHCA) to permit continuation of grandfathered bank holding company activities and affiliations, including requalification as a qualified thrift lender in the event of failure to meet requirements for grandfathered status. Prohibits certain insured depository institutions from identifying themselves as national banks, but shields them from any liability for fraudulent misrepresentation for not representing themselves as a national bank.

(Sec. 504) Sets forth transition provisions for: (1) activities of savings associations and mutual savings associations which have converted into or become treated as banks; and (2) registration of bank holding companies resulting from conversions of savings associations to banks, or treatment of savings associations as banks. Places qualified bank holding companies under the regulatory jurisdiction of the Board of Governors of the Federal Reserve System (the Board).

(Sec. 506) Amends the National Bank Act to prescribe procedural guidelines under which the Comptroller of the Currency is authorized to charter national mutual or State mutual banks.

Amends the BHCA to prescribe procedural guidelines under which a national mutual bank may reorganize to become a holding company. Cites permissible activities.

Provides for the conversion of mutual savings associations to mutual national banks by operation of law.

Transfers regulatory jurisdiction over a mutual holding company to the Board. Subjects a Federal mutual holding company in existence on the date of enactment of this Act to certain BHCA provisions.

(Sec. 509) Repeals the Home Owners' Loan Act.

Subtitle B: Elimination of Office of the Thrift Supervision - Abolishes the Office of Thrift Supervision and the position of Director of such Office. Transfers its functions, personnel, and property to the Office of the Comptroller of the Currency, the FDIC, or the Board.

Sets forth the rights of such transferred personnel.

(Sec. 514) Requires that any cost of funds index based upon certain characteristics of Federal home loan banks be calculated using data only from insured depository institutions which were bank members and whose data was previously included in such index.

Subtitle C: Merger of BIF and SAIF - Amends the Economic Growth and Regulatory Paperwork Reduction Act of 1996 to advance the effective date for the merger of the Bank Insurance Fund and the Savings Association Insurance Fund from January 1, 1999, to the date of enactment of this Act.

Title VI: National Market Funding Lending Institutions - Amends the Revised Statutes to prescribe guidelines under which a company (or five or more natural persons) may petition the Comptroller of the Currency for permission to organize a federally chartered national market funded lending institution.

(Sec. 601) Prescribes requirements for such institution. Vests exclusive oversight authority for it in the Comptroller (including examination, enforcement, charter revocation and appointment of a conservator).

Provides for conversions of depository institutions into national market funded lending institutions upon approval of the Comptroller.

Title VII: Effective Date - Makes January 1, 1998, the effective date of this Act.