Gramm–Leach–Bliley Act Text

Text of the Gramm-Leach Bliley Act

S. 900

One Hundred Sixth Congress

of the

United States of America

AT  T H E  F I R S T  S E S S I O N

Begun and held at the City of Washington on Wednesday,

the sixth day of January, one thousand nine hundred and ninety-nine

An Act

To enhance competition in the financial services industry by providing a prudential

framework for the affiliation of banks, securities firms, insurance companies,

and other financial service providers, and for other purposes.

Be it enacted by the Senate and House of Representatives of

the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Gramm-LeachBliley Act’’.

(b) TABLE OF CONTENTS.—The table of contents for this Act

is as follows:

Sec. 1. Short title; table of contents.

TITLE I—FACILITATING AFFILIATION AMONG BANKS, SECURITIES FIRMS,

AND INSURANCE COMPANIES

Subtitle A—Affiliations

Sec. 101. Glass-Steagall Act repeals.

Sec. 102. Activity restrictions applicable to bank holding companies that are not financial holding companies.

Sec. 103. Financial activities.

Sec. 104. Operation of State law.

Sec. 105. Mutual bank holding companies authorized.

Sec. 106. Prohibition on deposit production offices.

Sec. 107. Cross marketing restriction; limited purpose bank relief; divestiture.

Sec. 108. Use of subordinated debt to protect financial system and deposit funds

from ‘‘too big to fail’’ institutions.

Sec. 109. Study of financial modernization’s effect on the accessibility of small business and farm loans.

Subtitle B—Streamlining Supervision of Bank Holding Companies

Sec. 111. Streamlining bank holding company supervision.

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

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

Sec. 114. Prudential safeguards.

Sec. 115. Examination of investment companies.

Sec. 116. Elimination of application requirement for financial holding companies.

Sec. 117. Preserving the integrity of FDIC resources.

Sec. 118. Repeal of savings bank provisions in the Bank Holding Company Act of

1956.

Sec. 119. Technical amendment.

Subtitle C—Subsidiaries of National Banks

Sec. 121. Subsidiaries of national banks.

Sec. 122. Consideration of merchant banking activities by financial subsidiaries.

Subtitle D—Preservation of FTC Authority

Sec. 131. Amendment to the Bank Holding Company Act of 1956 to modify notification and post-approval waiting period for section 3 transactions.

Sec. 132. Interagency data sharing.S. 900—2

Sec. 133. Clarification of status of subsidiaries and affiliates.

Subtitle E—National Treatment

Sec. 141. Foreign banks that are financial holding companies.

Sec. 142. Representative offices.

Subtitle F—Direct Activities of Banks

Sec. 151. Authority of national banks to underwrite certain municipal bonds.

Subtitle G—Effective Date

Sec. 161. Effective date.

TITLE II—FUNCTIONAL REGULATION

Subtitle A—Brokers and Dealers

Sec. 201. Definition of broker.

Sec. 202. Definition of dealer.

Sec. 203. Registration for sales of private securities offerings.

Sec. 204. Information sharing.

Sec. 205. Treatment of new hybrid products.

Sec. 206. Definition of identified banking product.

Sec. 207. Additional definitions.

Sec. 208. Government securities defined.

Sec. 209. Effective date.

Sec. 210. Rule of construction.

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. Statutory disqualification for bank wrongdoing.

Sec. 223. Conforming change in definition.

Sec. 224. Conforming amendment.

Sec. 225. Effective date.

Subtitle C—Securities and Exchange Commission Supervision of Investment Bank

Holding Companies

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

Exchange Commission.

Subtitle D—Banks and Bank Holding Companies

Sec. 241. Consultation.

TITLE III—INSURANCE

Subtitle A—State Regulation of Insurance

Sec. 301. Functional regulation of insurance.

Sec. 302. Insurance underwriting in national banks.

Sec. 303. Title insurance activities of national banks and their affiliates.

Sec. 304. Expedited and equalized dispute resolution for Federal regulators.

Sec. 305. Insurance customer protections.

Sec. 306. Certain State affiliation laws preempted for insurance companies and affiliates.

Sec. 307. Interagency consultation.

Sec. 308. Definition of State.

Subtitle B—Redomestication of Mutual Insurers

Sec. 311. General application.

Sec. 312. Redomestication of mutual insurers.

Sec. 313. Effect on State laws restricting redomestication.

Sec. 314. Other provisions.S. 900—3

Sec. 315. Definitions.

Sec. 316. Effective date.

Subtitle C—National Association of Registered Agents and Brokers

Sec. 321. State flexibility in multistate licensing reforms.

Sec. 322. National Association of Registered Agents and Brokers.

Sec. 323. Purpose.

Sec. 324. Relationship to the Federal Government.

Sec. 325. Membership.

Sec. 326. Board of directors.

Sec. 327. Officers.

Sec. 328. Bylaws, rules, and disciplinary action.

Sec. 329. Assessments.

Sec. 330. Functions of the NAIC.

Sec. 331. Liability of the association and the directors, officers, and employees of

the association.

Sec. 332. Elimination of NAIC oversight.

Sec. 333. Relationship to State law.

Sec. 334. Coordination with other regulators.

Sec. 335. Judicial review.

Sec. 336. Definitions.

Subtitle D—Rental Car Agency Insurance Activities

Sec. 341. Standard of regulation for motor vehicle rentals.

TITLE IV—UNITARY SAVINGS AND LOAN HOLDING COMPANIES

Sec. 401. Prevention of creation of new S&L holding companies with commercial affiliates.

TITLE V—PRIVACY

Subtitle A—Disclosure of Nonpublic Personal Information

Sec. 501. Protection of nonpublic personal information.

Sec. 502. Obligations with respect to disclosures of personal information.

Sec. 503. Disclosure of institution privacy policy.

Sec. 504. Rulemaking.

Sec. 505. Enforcement.

Sec. 506. Protection of Fair Credit Reporting Act.

Sec. 507. Relation to State laws.

Sec. 508. Study of information sharing among financial affiliates.

Sec. 509. Definitions.

Sec. 510. Effective date.

Subtitle B—Fraudulent Access to Financial Information

Sec. 521. Privacy protection for customer information of financial institutions.

Sec. 522. Administrative enforcement.

Sec. 523. Criminal penalty.

Sec. 524. Relation to State laws.

Sec. 525. Agency guidance.

Sec. 526. Reports.

Sec. 527. Definitions.

TITLE VI—FEDERAL HOME LOAN BANK SYSTEM MODERNIZATION

Sec. 601. Short title.

Sec. 602. Definitions.

Sec. 603. Savings association membership.

Sec. 604. Advances to members; collateral.

Sec. 605. Eligibility criteria.

Sec. 606. Management of banks.

Sec. 607. Resolution Funding Corporation.

Sec. 608. Capital structure of Federal home loan banks.

TITLE VII—OTHER PROVISIONS

Subtitle A—ATM Fee Reform

Sec. 701. Short title.

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

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

Sec. 704. Feasibility study.

Sec. 705. No liability if posted notices are damaged.S. 900—4

Subtitle B—Community Reinvestment

Sec. 711. CRA sunshine requirements.

Sec. 712. Small bank regulatory relief.

Sec. 713. Federal Reserve Board study of CRA lending.

Sec. 714. Preserving the Community Reinvestment Act of 1977.

Sec. 715. Responsiveness to community needs for financial services.

Subtitle C—Other Regulatory Improvements

Sec. 721. Expanded small bank access to S corporation treatment.

Sec. 722. ‘‘Plain language’’ requirement for Federal banking agency rules.

Sec. 723. Retention of ‘‘Federal’’ in name of converted Federal savings association.

Sec. 724. Control of bankers’ banks.

Sec. 725. Provision of technical assistance to microenterprises.

Sec. 726. Federal Reserve audits.

Sec. 727. Authorization to release reports.

Sec. 728. General Accounting Office study of conflicts of interest.

Sec. 729. Study and report on adapting existing legislative requirements to online

banking and lending.

Sec. 730. Clarification of source of strength doctrine.

Sec. 731. Interest rates and other charges at interstate branches.

Sec. 732. Interstate branches and agencies of foreign banks.

Sec. 733. Fair treatment of women by financial advisers.

Sec. 734. Membership of loan guarantee boards.

Sec. 735. Repeal of stock loan limit in Federal Reserve Act.

Sec. 736. Elimination of SAIF and DIF special reserves.

Sec. 737. Bank officers and directors as officers and directors of public utilities.

Sec. 738. Approval for purchases of securities.

Sec. 739. Optional conversion of Federal savings associations.

Sec. 740. Grand jury proceedings.

TITLE I—FACILITATING AFFILIATION

AMONG BANKS, SECURITIES FIRMS,

AND INSURANCE COMPANIES

Subtitle A—Affiliations

SEC. 101. GLASS-STEAGALL ACT REPEALS.

(a) SECTION 20 REPEALED.—Section 20 of the Banking Act

of 1933 (12 U.S.C. 377) (commonly referred to as the ‘‘Glass-Steagall

Act’’) is repealed.

(b) SECTION 32 REPEALED.—Section 32 of the Banking Act

of 1933 (12 U.S.C. 78) is repealed.

SEC. 102. ACTIVITY RESTRICTIONS APPLICABLE TO BANK HOLDING

COMPANIES THAT ARE NOT FINANCIAL HOLDING COMPANIES.

(a) IN GENERAL.—Section 4(c)(8) of the Bank Holding Company

Act of 1956 (12 U.S.C. 1843(c)(8)) is amended to read as follows:

‘‘(8) shares of any company the activities of which had

been determined by the Board by regulation or order under

this paragraph as of the day before the date of the enactment

of the Gramm-Leach-Bliley Act, to be so closely related to

banking as to be a proper incident thereto (subject to such

terms and conditions contained in such regulation or order,

unless modified by the Board);’’.

(b) CONFORMING CHANGES TO OTHER STATUTES.—

(1) AMENDMENT TO THE BANK HOLDING COMPANY ACT

AMENDMENTS OF 1970.—Section 105 of the Bank Holding Company Act Amendments of 1970 (12 U.S.C. 1850) is amended

by striking ‘‘, to engage directly or indirectly in a nonbanking

activity pursuant to section 4 of such Act,’’.S. 900—5

(2) AMENDMENT TO THE BANK SERVICE COMPANY ACT.—

Section 4(f) of the Bank Service Company Act (12 U.S.C.

1864(f)) is amended by inserting before the period at the end

the following: ‘‘as of the day before the date of the enactment

of the Gramm-Leach-Bliley Act’’.

SEC. 103. FINANCIAL ACTIVITIES.

(a) IN GENERAL.—Section 4 of the Bank Holding Company

Act of 1956 (12 U.S.C. 1843) is amended by adding at the end

the following new subsections:

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

NATURE.—

‘‘(1) IN GENERAL.—Notwithstanding subsection (a), a financial holding company may engage in any activity, and may

acquire and retain the shares of any company engaged in

any activity, that the Board, in accordance with paragraph

(2), determines (by regulation or order)—

‘‘(A) to be financial in nature or incidental to such

financial activity; or

‘‘(B) is complementary to a financial activity and does

not pose a substantial risk to the safety or soundness

of depository institutions or the financial system generally.

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

‘‘(A) PROPOSALS RAISED BEFORE THE BOARD.—

‘‘(i) CONSULTATION.—The Board shall notify the

Secretary of the Treasury of, and consult with the

Secretary of the Treasury concerning, any request, proposal, or application under this subsection for a determination of whether an activity is financial in nature

or incidental to a financial activity.

‘‘(ii) TREASURY VIEW.—The Board shall not determine that any activity is financial in nature or incidental to a financial activity under this subsection

if the Secretary of the Treasury notifies the Board

in writing, not later than 30 days after the date of

receipt of the notice described in clause (i) (or such

longer period as the Board determines to be appropriate under the circumstances) that the Secretary of

the Treasury believes that the activity is not financial

in nature or incidental to a financial activity or is

not otherwise permissible under this section.

‘‘(B) PROPOSALS RAISED BY THE TREASURY.—

‘‘(i) TREASURY RECOMMENDATION.—The Secretary

of the Treasury may, at any time, recommend in

writing that the Board find an activity to be financial

in nature or incidental to a financial activity.

‘‘(ii) TIME PERIOD FOR BOARD ACTION.—Not later

than 30 days after the date of receipt of a written

recommendation from the Secretary of the Treasury

under clause (i) (or such longer period as the Secretary

of the Treasury and the Board determine to be appropriate under the circumstances), the Board shall determine whether to initiate a public rulemaking proposing

that the recommended activity be found to be financial

in nature or incidental to a financial activity under

this subsection, and shall notify the Secretary of theS. 900—6

Treasury in writing of the determination of the Board

and, if the Board determines not to seek public comment on the proposal, the reasons for that determination.

‘‘(3) FACTORS TO BE CONSIDERED.—In determining whether

an activity is financial in nature or incidental to a financial

activity, the Board shall take into account—

‘‘(A) the purposes of this Act and the Gramm-LeachBliley Act;

‘‘(B) changes or reasonably expected changes in the

marketplace in which financial holding companies compete;

‘‘(C) changes or reasonably expected changes in the

technology for delivering financial services; and

‘‘(D) whether such activity is necessary or appropriate

to allow a financial holding company and the affiliates

of a financial holding company to—

‘‘(i) compete effectively with any company seeking

to provide financial services in the United States;

‘‘(ii) efficiently deliver information and services

that are financial in nature through the use of technological means, including any application necessary to

protect the security or efficacy of systems for the transmission of data or financial transactions; and

‘‘(iii) offer customers any available or emerging

technological means for using financial services or for

the document imaging of data.

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

‘‘(A) Lending, exchanging, transferring, investing for

others, or safeguarding money or securities.

‘‘(B) Insuring, guaranteeing, or indemnifying against

loss, harm, damage, illness, disability, or death, or providing and issuing annuities, and acting as principal, agent,

or broker for purposes of the foregoing, in any State.

‘‘(C) Providing financial, investment, or economic

advisory services, including advising an investment company (as defined in section 3 of the Investment Company

Act of 1940).

‘‘(D) Issuing or selling instruments representing

interests in pools of assets permissible for a bank to hold

directly.

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

in securities.

‘‘(F) Engaging in any activity that the Board has determined, by order or regulation that is in effect on the date

of the enactment of the Gramm-Leach-Bliley Act, to be

so closely related to banking or managing or controlling

banks as to be a proper incident thereto (subject to the

same terms and conditions contained in such order or regulation, unless modified by the Board).

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

that—

‘‘(i) a bank holding company may engage in outside

of the United States; andS. 900—7

‘‘(ii) the Board has determined, under regulations

prescribed or interpretations issued pursuant to subsection (c)(13) (as in effect on the day before the date

of the enactment of the Gramm-Leach-Bliley Act) to

be usual in connection with the transaction of banking

or other financial operations abroad.

‘‘(H) Directly or indirectly acquiring or controlling,

whether as principal, on behalf of 1 or more entities

(including entities, other than a depository institution or

subsidiary of a depository institution, that the bank holding

company controls), or otherwise, shares, assets, or ownership interests (including debt or equity securities, partnership interests, trust certificates, or other instruments representing ownership) of a company or other entity, whether

or not constituting control of such company or entity,

engaged in any activity not authorized pursuant to this

section if—

‘‘(i) the shares, assets, or ownership interests are

not acquired or held by a depository institution or

subsidiary of a depository institution;

‘‘(ii) such shares, assets, or ownership interests

are acquired and held by—

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

or

‘‘(II) an affiliate of an insurance company

described in subparagraph (I)(ii) that provides

investment advice to an insurance company and

is registered pursuant to the Investment Advisers

Act of 1940, or an affiliate of such investment

adviser;

as part of a bona fide underwriting or merchant or

investment banking activity, including investment

activities engaged in for the purpose of appreciation

and ultimate resale or disposition of the investment;

‘‘(iii) such shares, assets, or ownership interests

are held for a period of time to enable the sale or

disposition thereof on a reasonable basis consistent

with the financial viability 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 routinely manage or operate such company or entity except as may be necessary or required

to obtain a reasonable return on investment upon

resale or disposition.

‘‘(I) Directly or indirectly acquiring or controlling,

whether as principal, on behalf of 1 or more entities

(including entities, other than a depository institution or

subsidiary of a depository institution, that the bank holding

company controls) or otherwise, shares, assets, or ownership interests (including debt or equity securities, partnership interests, trust certificates or other instruments representing ownership) of a company or other entity, whether

or not constituting control of such company or entity,

engaged in any activity not authorized pursuant to this

section if—S. 900—8

‘‘(i) the shares, assets, or ownership interests are

not acquired or held by a depository institution or

a subsidiary of a depository institution;

‘‘(ii) such shares, assets, or ownership interests

are acquired and held by an insurance company that

is predominantly engaged in underwriting life, accident

and health, or property and casualty insurance (other

than credit-related insurance) or providing and issuing

annuities;

‘‘(iii) such shares, assets, or ownership interests

represent an investment made in the ordinary course

of business of such insurance company in accordance

with relevant State law governing such investments;

and

‘‘(iv) during the period such shares, assets, or

ownership interests are held, the bank holding company does not routinely manage or operate such company except as may be necessary or required to obtain

a reasonable return on investment.

‘‘(5) ACTIONS REQUIRED.—

‘‘(A) IN GENERAL.—The Board shall, by regulation or

order, define, consistent with the purposes of this Act,

the activities described in subparagraph (B) as financial

in nature, and the extent to which such activities are

financial in nature or incidental to a financial activity.

‘‘(B) ACTIVITIES.—The activities described in this

subparagraph are as follows:

‘‘(i) Lending, exchanging, transferring, investing

for others, or safeguarding financial assets other than

money or securities.

‘‘(ii) Providing any device or other instrumentality

for transferring money or other financial assets.

‘‘(iii) Arranging, effecting, or facilitating financial

transactions for the account of third parties.

‘‘(6) REQUIRED NOTIFICATION.—

‘‘(A) IN GENERAL.—A financial holding company that

acquires any company or commences any activity pursuant

to this subsection shall provide written notice to the Board

describing the activity commenced or conducted by the

company acquired not later than 30 calendar days after

commencing the activity or consummating the acquisition,

as the case may be.

‘‘(B) APPROVAL NOT REQUIRED FOR CERTAIN FINANCIAL

ACTIVITIES.—Except as provided in subsection (j) with

regard to the acquisition of a savings association, a financial holding company may commence any activity, or

acquire any company, pursuant to paragraph (4) or any

regulation prescribed or order issued under paragraph (5),

without prior approval of the Board.

‘‘(7) MERCHANT BANKING ACTIVITIES.—

‘‘(A) JOINT REGULATIONS.—The Board and the Secretary of the Treasury may issue such regulations implementing paragraph (4)(H), including limitations on transactions between depository institutions and companies

controlled pursuant to such paragraph, as the Board and

the Secretary jointly deem appropriate to assure compliance

with the purposes and prevent evasions of this Act andS. 900—9

the Gramm-Leach-Bliley Act and to protect depository

institutions.

‘‘(B) SUNSET OF RESTRICTIONS ON MERCHANT BANKING

ACTIVITIES OF FINANCIAL SUBSIDIARIES.—The restrictions

contained in paragraph (4)(H) on the ownership and control

of shares, assets, or ownership interests by or on behalf

of a subsidiary of a depository institution shall not apply

to a financial subsidiary (as defined in section 5136A of

the Revised Statutes of the United States) of a bank, if

the Board and the Secretary of the Treasury jointly

authorize financial subsidiaries of banks to engage in merchant banking activities pursuant to section 122 of the

Gramm-Leach-Bliley Act.

‘‘(l) CONDITIONS FOR ENGAGING IN EXPANDED FINANCIAL ACTIVITIES.—

‘‘(1) IN GENERAL.—Notwithstanding subsection (k), (n), or

(o), a bank holding company may not engage in any activity,

or directly or indirectly acquire or retain shares of any company

engaged in any activity, under subsection (k), (n), or (o), other

than activities permissible for any bank holding company under

subsection (c)(8), unless—

‘‘(A) all of the depository institution subsidiaries of

the bank holding company are well capitalized;

‘‘(B) all of the depository institution subsidiaries of

the bank holding company are well managed; and

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

Board—

‘‘(i) a declaration that the company elects to be

a financial holding company to engage in activities

or acquire and retain shares of a company that were

not permissible for a bank holding company to engage

in or acquire before the enactment of the GrammLeach-Bliley Act; and

‘‘(ii) a certification that the company meets the

requirements of subparagraphs (A) and (B).

‘‘(2) CRA  REQUIREMENT.—Notwithstanding subsection (k)

or (n) of this section, section 5136A(a) of the Revised Statutes

of the United States, or section 46(a) of the Federal Deposit

Insurance Act, the appropriate Federal banking agency shall

prohibit a financial holding company or any insured depository

institution from—

‘‘(A) commencing any new activity under subsection

(k) or (n) of this section, section 5136A(a) of the Revised

Statutes of the United States, or section 46(a) of the Federal

Deposit Insurance Act; or

‘‘(B) directly or indirectly acquiring control of a company engaged in any activity under subsection (k) or (n)

of this section, section 5136A(a) of the Revised Statutes

of the United States, or section 46(a) of the Federal Deposit

Insurance Act (other than an investment made pursuant

to subparagraph (H) or (I) of subsection (k)(4), or section

122 of the Gramm-Leach-Bliley Act, or under section 46(a)

of the Federal Deposit Insurance Act by reason of such

section 122, by an affiliate already engaged in activities

under any such provision);

if any insured depository institution subsidiary of such financial

holding company, or the insured depository institution or anyS. 900—10

of its insured depository institution affiliates, has received in

its most recent examination under the Community Reinvestment Act of 1977, a rating of less than ‘satisfactory record

of meeting community credit needs’.

‘‘(3) FOREIGN BANKS.—For purposes of paragraph (1), the

Board shall apply comparable capital and management standards to a foreign bank that operates a branch or agency or

owns or controls a commercial lending company in the United

States, giving due regard to the principle of national treatment

and equality of competitive opportunity.

‘‘(m) PROVISIONS APPLICABLE TO FINANCIAL HOLDING COMPANIES THAT FAIL TO MEET CERTAIN REQUIREMENTS.—

‘‘(1) IN GENERAL.—If the Board finds that—

‘‘(A) a financial holding company is engaged, directly

or indirectly, in any activity under subsection (k), (n), or

(o), other than activities that are permissible for a bank

holding company under subsection (c)(8); and

‘‘(B) such financial holding company is not in compliance with the requirements of subsection (l)(1);

the Board shall give notice to the financial holding company

to that effect, describing the conditions giving rise to the notice.

‘‘(2) AGREEMENT TO CORRECT CONDITIONS REQUIRED.—Not

later than 45 days after the date of receipt by a financial

holding company of a notice given under paragraph (1) (or

such additional period as the Board may permit), the financial

holding company shall execute an agreement with the Board

to comply with the requirements applicable to a financial

holding company under subsection (l)(1).

‘‘(3) BOARD MAY IMPOSE LIMITATIONS.—Until the conditions

described in a notice to a financial holding company under

paragraph (1) are corrected, the Board may impose such limitations on the conduct or activities of that financial holding

company or any affiliate of that company as the Board determines to be appropriate under the circumstances and consistent

with the purposes of this Act.

‘‘(4) FAILURE TO CORRECT.—If the conditions described in

a notice to a financial holding company under paragraph (1)

are not corrected within 180 days after the date of receipt

by the financial holding company of a notice under paragraph

(1), the Board may require such financial holding company,

under such terms and conditions as may be imposed by the

Board and subject to such extension of time as may be granted

in the discretion of the Board, either—

‘‘(A) to divest control of any subsidiary depository

institution; or

‘‘(B) at the election of the financial holding company

instead to cease to engage in any activity conducted by

such financial holding company or its subsidiaries (other

than a depository institution or a subsidiary of a depository

institution) that is not an activity that is permissible for

a bank holding company under subsection (c)(8).

‘‘(5) CONSULTATION.—In taking any action under this subsection, the Board shall consult with all relevant Federal and

State regulatory agencies and authorities.

‘‘(n) AUTHORITY TO RETAIN LIMITED NONFINANCIAL ACTIVITIES

AND AFFILIATIONS.—S. 900—11

‘‘(1) IN GENERAL.—Notwithstanding subsection (a), a company that is not a bank holding company or a foreign bank

(as defined in section 1(b)(7) of the International Banking Act

of 1978) and becomes a financial holding company after the

date of the enactment of the Gramm-Leach-Bliley Act may

continue to engage in any activity and retain direct or indirect

ownership or control of shares of a company engaged in any

activity if—

‘‘(A) the holding company lawfully was engaged in the

activity or held the shares of such company on September

30, 1999;

‘‘(B) the holding company is predominantly engaged

in financial activities as defined in paragraph (2); and

‘‘(C) the company engaged in such activity continues

to engage only in the same activities that such company

conducted on September 30, 1999, and other activities

permissible under this Act.

‘‘(2) PREDOMINANTLY FINANCIAL.—For purposes of this subsection, a company is predominantly engaged in financial activities if the annual gross revenues derived by the holding company and all subsidiaries of the holding company (excluding

revenues derived from subsidiary depository institutions), on

a consolidated basis, from engaging in activities that are financial in nature or are incidental to a financial activity under

subsection (k) represent at least 85 percent of the consolidated

annual gross revenues of the company.

‘‘(3) NO EXPANSION OF GRANDFATHERED COMMERCIAL ACTIVITIES THROUGH MERGER OR CONSOLIDATION.—A financial holding

company that engages in activities or holds shares pursuant

to this subsection, or a subsidiary of such financial holding

company, may not acquire, in any merger, consolidation, or

other type of business combination, assets of any other company

that is engaged in any activity that the Board has not determined to be financial in nature or incidental to a financial

activity under subsection (k), except this paragraph shall not

apply with respect to a company that owns a broadcasting

station licensed under title III of the Communications Act of

1934 and the shares of which are under common control with

an insurance company since January 1, 1998, unless such company is acquired by, or otherwise becomes an affiliate of, a

bank holding company that, at the time such acquisition or

affiliation is consummated, is 1 of the 5 largest domestic bank

holding companies (as determined on the basis of the consolidated total assets of such companies).

‘‘(4) CONTINUING REVENUE LIMITATION ON GRANDFATHERED

COMMERCIAL ACTIVITIES.—Notwithstanding any other provision

of this subsection, a financial holding company may continue

to engage in activities or hold shares in companies pursuant

to this subsection only to the extent that the aggregate annual

gross revenues derived from all such activities and all such

companies does not exceed 15 percent of the consolidated

annual gross revenues of the financial holding company

(excluding revenues derived from subsidiary depository institutions).

‘‘(5) CROSS MARKETING RESTRICTIONS APPLICABLE TO

COMMERCIAL ACTIVITIES.—S. 900—12

‘‘(A) IN GENERAL.—A depository institution controlled

by a financial holding company shall not—

‘‘(i) offer or market, directly or through any

arrangement, any product or service of a company

whose activities are conducted or whose shares are

owned or controlled by the financial holding company

pursuant to this subsection or subparagraph (H) or

(I) of subsection (k)(4); or

‘‘(ii) permit any of its products or services to be

offered or marketed, directly or through any arrangement, by or through any company described in clause

(i).

‘‘(B) RULE OF CONSTRUCTION.—Subparagraph (A) shall

not be construed as prohibiting an arrangement between

a depository institution and a company owned or controlled

pursuant to subsection (k)(4)(I) for the marketing of products or services through statement inserts or Internet

websites if—

‘‘(i) such arrangement does not violate section 106

of the Bank Holding Company Act Amendments of

1970; and

‘‘(ii) the Board determines that the arrangement

is in the public interest, does not undermine the separation of banking and commerce, and is consistent

with the safety and soundness of depository institutions.

‘‘(6) TRANSACTIONS WITH NONFINANCIAL AFFILIATES.—A

depository institution controlled by a financial holding company

may not engage in a covered transaction (as defined in section

23A(b)(7) of the Federal Reserve Act) with any affiliate controlled by the company pursuant to this subsection.

‘‘(7) SUNSET OF GRANDFATHER.—A financial holding company engaged in any activity, or retaining direct or indirect

ownership or control of shares of a company, pursuant to this

subsection, shall terminate such activity and divest ownership

or control of the shares of such company before the end of

the 10-year period beginning on the date of the enactment

of the Gramm-Leach-Bliley Act. The Board may, upon application by a financial holding company, extend such 10-year period

by a period not to exceed an additional 5 years if such extension

would not be detrimental to the public interest.

‘‘(o) REGULATION OF CERTAIN FINANCIAL HOLDING COMPANIES.—Notwithstanding subsection (a), a company that is not a

bank holding company or a foreign bank (as defined in section

1(b)(7) of the International Banking Act of 1978) and becomes

a financial holding company after the date of enactment of the

Gramm-Leach-Bliley Act, may continue to engage in, or directly

or indirectly own or control shares of a company engaged in, activities related to the trading, sale, or investment in commodities

and underlying physical properties that were not permissible for

bank holding companies to conduct in the United States as of

September 30, 1997, if—

‘‘(1) the holding company, or any subsidiary of the holding

company, lawfully was engaged, directly or indirectly, in any

of such activities as of September 30, 1997, in the United

States;S. 900—13

‘‘(2) the attributed aggregate consolidated assets of the

company held by the holding company pursuant to this subsection, and not otherwise permitted to be held by a financial

holding company, are equal to not more than 5 percent of

the total consolidated assets of the bank holding company,

except that the Board may increase that percentage by such

amounts and under such circumstances as the Board considers

appropriate, consistent with the purposes of this Act; and

‘‘(3) the holding company does not permit—

‘‘(A) any company, the shares of which it owns or

controls pursuant to this subsection, to offer or market

any product or service of an affiliated depository institution;

or

‘‘(B) any affiliated depository institution to offer or

market any product or service of any company, the shares

of which are owned or controlled by such holding company

pursuant to this subsection.’’.

(b) COMMUNITY REINVESTMENT REQUIREMENT.—Section 804 of

the Community Reinvestment Act of 1977 (12 U.S.C. 2903) is

amended by adding at the end the following new subsection:

‘‘(c) FINANCIAL HOLDING COMPANY REQUIREMENT.—

‘‘(1) IN GENERAL.—An election by a bank holding company

to become a financial holding company under section 4 of the

Bank Holding Company Act of 1956 shall not be effective if—

‘‘(A) the Board finds that, as of the date the declaration

of such election and the certification is filed by such holding

company under section 4(l)(1)(C) of the Bank Holding Company Act of 1956, not all of the subsidiary insured depository institutions of the bank holding company had achieved

a rating of ‘satisfactory record of meeting community credit

needs’, or better, at the most recent examination of each

such institution; and

‘‘(B) the Board notifies the company of such finding

before the end of the 30-day period beginning on such

date.

‘‘(2) LIMITED EXCLUSIONS FOR NEWLY ACQUIRED INSURED

DEPOSITORY INSTITUTIONS.—Any insured depository institution

acquired by a bank holding company during the 12-month

period preceding the date of the submission to the Board of

the declaration and certification under section 4(l)(1)(C) of the

Bank Holding Company Act of 1956 may be excluded for purposes of paragraph (1) 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 financial supervisory agency to take such action as may be necessary

in order for such institution to achieve a rating of ‘satisfactory record of meeting community credit needs’, or better,

at the next examination of the institution; and

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

‘‘(3) DEFINITIONS.—For purposes of this subsection, the following definitions shall apply:

‘‘(A) BANK HOLDING COMPANY; FINANCIAL HOLDING COMPANY.—The terms ‘bank holding company’ and ‘financial

holding company’ have the meanings given those terms

in section 2 of the Bank Holding Company Act of 1956.S. 900—14

‘‘(B) BOARD.—The term ‘Board’ means the Board of

Governors of the Federal Reserve System.

‘‘(C) INSURED DEPOSITORY INSTITUTION.—The term

‘insured depository institution’ has the meaning given the

term in section 3(c) of the Federal Deposit Insurance Act.’’.

(c) TECHNICAL AND CONFORMING AMENDMENTS.—

(1) DEFINITIONS.—Section 2 of the Bank Holding Company

Act of 1956 (12 U.S.C. 1841) is amended—

(A) in subsection (n), by inserting ‘‘ ‘depository institution’,’’ after ‘‘the terms’’; and

(B) by adding at the end the following new subsections:

‘‘(p) FINANCIAL HOLDING COMPANY.—For purposes of this Act,

the term ‘financial holding company’ means a bank holding company

that meets the requirements of section 4(l)(1).

‘‘(q) INSURANCE COMPANY.—For purposes of sections 4 and 5,

the term ‘insurance company’ includes any person engaged in the

business of insurance to the extent of such activities.’’.

(2) NOTICE PROCEDURES.—Section 4(j) of the Bank Holding

Company Act of 1956 (12 U.S.C. 1843(j)) is amended—

(A) in each of subparagraphs (A) and (E) of paragraph

(1), by inserting ‘‘or in any complementary activity under

subsection (k)(1)(B)’’ after ‘‘subsection (c)(8) or (a)(2)’’; and

(B) in paragraph (3)—

(i) by inserting ‘‘, other than any complementary

activity under subsection (k)(1)(B),’’ after ‘‘to engage

in any activity’’; and

(ii) by inserting ‘‘or a company engaged in any

complementary activity under subsection (k)(1)(B)’’

after ‘‘insured depository institution’’.

(d) REPORT.—

(1) IN GENERAL.—By the end of the 4-year period beginning

on the date of the enactment of this Act, the Board of Governors

of the Federal Reserve System and the Secretary of the

Treasury shall submit a joint report to the Congress containing

a summary of new activities, including grandfathered commercial activities, in which any financial holding company is

engaged pursuant to subsection (k)(1) or (n) of section 4 of

the Bank Holding Company Act of 1956 (as added by subsection

(a)).

(2) OTHER CONTENTS.—The report submitted to the Congress pursuant to paragraph (1) shall also contain the following:

(A) A discussion of actions by the Board of Governors

of the Federal Reserve System and the Secretary of the

Treasury, whether by regulation, order, interpretation, or

guideline or by approval or disapproval of an application,

with regard to activities of financial holding companies

that are incidental to activities that are financial in nature

or complementary to such financial activities.

(B) An analysis and discussion of the risks posed by

commercial activities of financial holding companies to the

safety and soundness of affiliate depository institutions.

(C) An analysis and discussion of the effect of mergers

and acquisitions under section 4(k) of the Bank Holding

Company Act of 1956 on market concentration in the financial services industry.S. 900—15

SEC. 104. OPERATION OF STATE LAW.

(a) STATE REGULATION OF THE BUSINESS OF INSURANCE.—The

Act entitled ‘‘An Act to express the intent of Congress with reference

to the regulation of the business of insurance’’ and approved March

9, 1945 (15 U.S.C. 1011 et seq.) (commonly referred to as the

‘‘McCarran-Ferguson Act’’) remains the law of the United States.

(b) MANDATORY INSURANCE LICENSING REQUIREMENTS.—No

person shall engage in the business of insurance in a State as

principal or agent unless such person is licensed as required by

the appropriate insurance regulator of such State in accordance

with the relevant State insurance law, subject to subsections (c),

(d), and (e).

(c) AFFILIATIONS.—

(1) IN GENERAL.—Except as provided in paragraph (2), no

State may, by statute, regulation, order, interpretation, or other

action, prevent or restrict a depository institution, or an affiliate

thereof, from being affiliated directly or indirectly or associated

with any person, as authorized or permitted by this Act or

any other provision of Federal law.

(2) INSURANCE.—With respect to affiliations between

depository institutions, or any affiliate thereof, and any insurer,

paragraph (1) does not prohibit—

(A) any State from—

(i) collecting, reviewing, and taking actions

(including approval and disapproval) on applications

and other documents or reports concerning any proposed acquisition of, or a change or continuation of

control of, an insurer domiciled in that State; and

(ii) exercising authority granted under applicable

State law to collect information concerning any proposed acquisition of, or a change or continuation of

control of, an insurer engaged in the business of insurance in, and regulated as an insurer by, such State;

during the 60-day period preceding the effective date of

the acquisition or change or continuation of control, so

long as the collecting, reviewing, taking actions, or exercising authority by the State does not have the effect of

discriminating, intentionally or unintentionally, against a

depository institution or an affiliate thereof, or against

any other person based upon an association of such person

with a depository institution;

(B) any State from requiring any person that is

acquiring control of an insurer domiciled in that State

to maintain or restore the capital requirements of that

insurer to the level required under the capital regulations

of general applicability in that State to avoid the requirement of preparing and filing with the insurance regulatory

authority of that State a plan to increase the capital of

the insurer, except that any determination by the State

insurance regulatory authority with respect to such requirement shall be made not later than 60 days after the date

of notification under subparagraph (A); or

(C) any State from restricting a change in the ownership of stock in an insurer, or a company formed for the

purpose of controlling such insurer, after the conversion

of the insurer from mutual to stock form so long as suchS. 900—16

restriction does not have the effect of discriminating, intentionally or unintentionally, against a depository institution

or an affiliate thereof, or against any other person based

upon an association of such person with a depository

institution.

(d) ACTIVITIES.—

(1) IN GENERAL.—Except as provided in paragraph (3), and

except with respect to insurance sales, solicitation, and cross

marketing activities, which shall be governed by paragraph

(2), no State may, by statute, regulation, order, interpretation,

or other action, prevent or restrict a depository institution

or an affiliate thereof from engaging directly or indirectly,

either by itself or in con

Related Topics