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Public Statements

Financial Services Regulatory Relief Act of 2003 - Part II

Floor Speech

Location: Washington, DC

While the FDIC does not have statutory authority to supervise the parent companies of ILCs, the FDIC does have the authority, in examining any insured depository institution, to examine any affiliate of the institution (under 12 U.S.C. §1820(b)(4)), including its parent company, as may be necessary to determine the relationship between the institution and the affiliate and to determine the effect of such relationship on the institution. In the case of a parent subject to the reporting requirements of another regulatory body covered under the Gramm-Leach-Bliley Act of 1999, such as the Securities and Exchange Commission or a state insurance commissioner, the FDIC has agreements in place to share information with the functional regulator.
In determining whether to grant deposit insurance to an ILC, the FDIC must consider the same statutory factors of section 6 of the FDI Act, 12 U.S.C. §1816, that it considers for all other applications for deposit insurance. These factors are:

The financial history and condition of the depository institution;
The adequacy of its capital structure;
Its future earnings prospects;
The general character and fitness of its management;

The risk presented by such depository institution to the deposit insurance fund;

The convenience and needs of the community to be served by the depository institution; and

Whether its corporate powers are consistent with the purposes of the Act.

The FDIC has determined that there are two limitations in our authority regarding ILCs as compared to other institutions. These two limitations would be addressed by remedies included in the Financial Services Regulatory Relief Act of 2003, as proposed. These are:
Amendment to clarify the FDIC's cross-guarantee authority: As part of the Federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Congress established a system that generally permits the FDIC to assess liability across commonly controlled institutions for FDIC losses caused by the default of one of the institutions. Currently, cross-guarantee liability is limited to insured depository institutions that are commonly controlled as defined in the statute. The definition of "commonly controlled" limits liability to insured depository institutions that are controlled by the same depository institution holding company, i.e., either a bank holding company or a savings and loan holding company. Since the parent company of an ILC is neither a bank holding company nor a savings and loan holding company, ILCs that are owned by the same parent company would not be "commonly controlled." As a result, cross-guarantee liability may not attach to ILCs that are owned by the same parent company. The Financial Services regulatory Relief Act of 2003 contains language that would enhance the FDIC's efforts to protect the deposit insurance funds by establishing parity with other charter types. This discretionary authority would extend only against an insured depository institution under common control with the defaulting institution.
Amendment to clarify the FDIC's Golden Parachute authority: As part of H.R. 1375, there also is an amendment to section 18(k) of the FDI Act, 12 U.S.C. §1828(k), to clarify that the FDIC could prohibit or limit a nonbank holding company's golden parachute payment or indemnification payment. In 1990 Congress authorized the FDIC to prohibit or limit prepayment of salaries or any liabilities or legal expenses of an institution-affiliated party by an insured depository institution or a depository institution holding company. Such payments are prohibited if they are made in contemplation of the insolvency of such institution or holding company or if they prevent the proper application of assets to creditors or create a preference for creditors of the institution. Due to the existing statutory definition of a depository institution holding company, it is not clear that the FDIC is authorized to prohibit these types of payments made by nonbank holding companies (such as ILC parent companies).
What differences, if any, exist between the manner in which the FDIC regulates industrial loan banks compared with commercial banks?
As indicated above, the FDIC regulates ILCs in the same manner as all other state nonmember institutions.
In your view, would ILCs pose a greater risk to the safety and soundness of the banking system than traditional banks if both received enhanced de novo interstate branching authority?
We do not believe that ILCs would pose a greater risk to the safety and soundness of the banking system than traditional banks if both received enhanced de novo interstate branching authority. As described above, insured ILCs are subject to the same Federal supervisory regime that applies to other insured institutions. ILC transactions with their parent companies are subject to the same restrictions that apply to transactions between other insured institutions and their parent companies.
Can you comment generally on the capital adequacy and safety and soundness record of the ILCs and compare these to the performance of commercial banks?
ILCs currently have an examination rating distribution that is similar to the insured banking universe. Similar to institutions with other charter types, an ILC's capital adequacy and overall safety and soundness is driven by the composition and stability of its lending, investing and funding activities as well as competence of management.
For troubled ILCs, several common issues have generally been evident, each reflecting faulty strategic or tactical decisions rather than issues of permissible activities, commercial affiliations, or the regulatory regime over the larger corporate organization:
Poorly conceived lending strategies, characterized by concentrations in relatively higher-risk loan problems, economic sectors, or borrowers, have resulted in an excessive volume of poor quality credits.
Less than satisfactory internal processes have hampered institutions' ability to identify and respond to changing circumstances, including deterioration in credit quality, which have thwarted timely corrective actions or collection efforts.
Reliance on potentially volatile funds management strategies, including wholesale deposit solicitations, borrowings, and large-scale loan sales, have placed additional strain on the institutions' earnings performance and liquidity posture.
If any institution is identified as troubled, the FDIC modifies its supervisory strategy. In addition, these institutions are generally subject to formal and informal enforcement actions. As a rule, the FDIC's supervisory strategies and specific actions are coordinated with those of the chartering state authority. Further, in those situations in which the parent organization controls multiple insured institutions, the FDIC also coordinates with the other state authorities or primary federal regulators to ensure that a comprehensive strategy is implemented.
Given the concerns some observers have raised about the ILCs' ability to affiliate with a commercial entity, it is important to note that the current group of troubled ILCs have problems that are not unique to the ILC charter, nor do the troubled ILCs have a history of unusual influence from parent companies or affiliates. As described above, the issues facing the troubled institutions are not dissimilar to those encountered under all charter types, including those in a traditional bank holding company framework.
Can you describe the regulatory framework that addresses safety and soundness concerns, or potential conflicts of interest, that may arise from the relationship of ILCs to their parent companies?
In general, the regulatory framework used to address safety and soundness concerns and potential conflicts of interest regarding an ILC and its parent is the same as that applicable to any insured state bank. For example, with regard to safety and soundness, section 8 of the FDI Act, 12 U.S.C. §1818, generally provides the FDIC with the authority to (i) terminate or suspend the insurance of an ILC for unsafe or unsound practices or unsafe or unsound condition, and (ii) order the ILC to cease and desist from engaging in an unsafe or unsound practice, or from the violation of any law, rule, regulation, written condition imposed in connection with the granting of any application, or any written agreement with the FDIC.
We do not believe that the potential for conflicts of interest is any greater for ILCs than for other FDIC-insured institutions operating in a holding company structure. For example, an ILC and its parent company are subject to the tying restrictions of section 106 of the Bank Holding Company Act Amendments of 1970 to the same extent as if the ILC were a "bank" and the parent company were a "bank holding company." Generally, the tying restrictions provide that a bank may not extend credit, sell or lease property, or furnish any service, or fix or vary the consideration for any of the foregoing based upon any of five specific conditions. Those conditions include, for example, that the customer obtain some additional credit, property or service from the holding company or an affiliate.
In order to ensure sufficient autonomy and insulation of the bank from the parent, the state authority or the FDIC typically imposes some or all of the following controls:
Executive ILC management is onsite at the ILC, as opposed to the sometimes distant location of the parent and affiliates;
The ILC Board of Directors consists of local representatives who are capable of providing strong oversight over the operations of the bank and establishing prudent policies and procedures;
Lending files, credit documentation and ILC policies are maintained at the institution and not the parent;
Lending policies and authorities are established and enforced by the ILC;
The bank's policies, processes and activities are consistent with regulatory laws, regulations, policy statements and other regulatory guidance;
Definitive bank-level business plans are established and followed by the bank;
All transactions with the parent or affiliate pass the strictest arms-length scrutiny; and
Sufficient resources are available at the ILC to carry out ILC activities.
With the above-noted prudential factors in place and experienced bankers at the helm of ILCs, we have not noted problems or issues unique to the ILC charter.

Mr. ROSS. Mr. Chairman, I am pleased to yield such time as he may consume to the gentleman from Utah (Mr. Matheson), my colleague on the Committee on Financial Services and someone who has worked tirelessly on this piece of bipartisan commonsense legislation.

Mr. MATHESON. Mr. Chairman, I have listened to the debate today and there have been a couple of items that I think deserve some comment.
We have heard a lot of misinformation, in my opinion, about industrial loan companies. I think it is important that this Congress needs to go through an exercise in education about these institutions to learn about what they are and what they are not, and I want to address some of those things.
First of all, some people seem to think there is a lack of regulation; that ILCs are unregulated. That is not true. The FDIC regulates ILCs in the same manner as other State nonmember institutions. ILCs are subject to the FDIC safety and soundness regulations, as well as Federal consumer protections.
How about another thing that I often hear that I believe is a myth about this subject; that ILCs pose a threat to the safety and soundness of the national banking system. The fact is, overall, it is the FDIC's view that the ILC charters pose no greater safety and soundness risk than other charter types.
Another misconception out there about ILCs. Some people seem to think that ILCs may allow for inappropriate mixing of banking and commerce. The fact is, as the FDIC has said, they do not believe that the potential for conflict is any greater for ILCs than for other FDIC-insured institutions operating in a holding company structure. My colleague, the gentleman from California (Mr. Royce), is submitting a letter that was written by Chairman Powell from the FDIC that will provide greater expansion on those particular thoughts.
I voted for this bill when it came out of committee. I supported the regulatory relief bill, and I still think many components of the underlying bill are very good and positive. I am concerned about the components of the manager's amendment that tend to place restrictions on the branching capabilities of industrial loan companies.
Now, you will hear a lot of people, in the earlier debate on the rule and whatnot, saying these provisions do not go far enough; that we need greater restrictions. I want to point out there is another point of view, which is that I think these go too far. I do not think it is helpful. I think it is important we should talk about just what ILCs mean to this country, just so people will know.
Industrial loan banks are FDIC-regulated depository institutions. And, yes, they are chartered in five different States. There are more than 50 industrial loan banks in operation. They have been in operation for many years. They are subject to the same banking laws and are regulated in the same manner as other depository institutions. They are supervised and examined both by the States that charter them and by the FDIC. They are subject to the same general safety and soundness, consumer protection deposit insurance, Community Reinvestment Act, and other requirements that apply to other FDIC-insured depository institutions, and they have an exemplary record in serving the communities in which they operate.
Industrial loan banks have already been subject to the same rules regarding interstate branching as other banks. And although they have rarely used this authority, these banks have been authorized to open branches by acquisition, where State laws allow.
Most owners of industrial loan banks are exempted from the Bank Holding Company Act regulation through a specific provision added to the Bank Holding Company Act in 1987. This is neither a loophole nor a particularly unique provision. Similar Bank Holding Company Act exemptions apply to many institutions not owned by other companies, and to financial institutions that do not offer a full range of banking services, such as credit card banks, Edge Act banks, grandfathered "nonbank banks," grandfathered "unitary thrifts," and trust banks. These exemptions benefit bank customers. They introduce additional competition into the marketplace without increased risk to the deposit insurance system.
As I said earlier, some people will claim that these industrial loan banks are unregulated. That is just not true. They are subject to many of the same requirements as bank holding companies, such as strict restrictions on transactions with their bank affiliates. They are regulated under State law and are subject to examination by the FDIC and to prompt corrective action and capital guarantee requirements if the banks they control encounter financial difficulties. These tools, in the words of FDIC Chairman Donald Powell, allow the FDIC to manage the relationships between industrial loan banks and their parents "with little or no risk to the deposit insurance funds, and no subsidy transferred to the nonbank parent."
I think that it is important to note that what we are talking about here is choices. We have heard about, oh, these are only chartered in 5 States and that is to the detriment of 45 other States. This is about American consumers being given more choices; more choices and more efficiency in our economy. We should not be afraid of competition. There are various interest groups out there that are going to oppose ILCs. And I think they oppose them because they are saying, oh, gee, we are disadvantaged. I think they are trying to protect an advantage. Competition is good. Competition is a good thing in our country and in our economy here. It is something I would advocate for.
And I think the people have been well served in the many years in which ILCs have been in existence, and I think that businesses and consumers will continue to be served in all 50 States by the benefits of the services that industrial loan companies provide.
So as I said at the outset, a lot of things have been said. I think there is a lot of confusion about what ILCs are and are not. I have tried to walk through some of the fundamental comments that have been made that raise concern for me, and I would also suggest that this manager's amendment, which is a purported compromise, is not necessarily something that I agree with. I think it goes too far in being restrictive, and I think that it gives me concerns for a bill that otherwise passed through committee with very little controversy.

Mr. LEACH. Mr. Chairman, will the gentleman yield?

Mr. MATHESON. I yield to the gentleman from Iowa.

Mr. LEACH. Mr. Chairman, the gentleman is, of course, correct in part of what he says on regulation. But the reason that ILCs were exempted from the Bank Holding Company Act was they did not have all the powers of a bank. Now they are being given all the powers of a bank and also want to stay exempt from the Bank Holding Company Act.
What the Bank Holding Company Act says is that the parent of an ILC will be examined in a consolidated way, the way Europe is moving to, the same as the United States has attempted to establish in principle. But with this bill we make a breach in principle of profound dimensions. It is that examination of the bank holding company that is critical to an understanding of how you protect the taxpayer and how you protect the financial system. That is what is so important in this debate.

Mr. MATHESON. Reclaiming my time, Mr. Chairman, I appreciate the comments of the gentleman from Iowa. We have had discussions about this in the past and we tend to take a little bit different point of view on this issue.
But I do appreciate his mentioning some actions that are taking place within the European Union. Financial owners of industrial loan banks may very well soon be subject to further regulation, and holding company supervision will be driven by the European Union mandate that institutions doing business there be subject to consolidated holding company supervision.
It is my understanding the Securities and Exchange Commission has proposed a consolidated supervisory regime for holding companies predominantly engaged in securities business.

I do acknowledge that there are some other actions taking place to address this holding company issue and I am glad the gentleman raised that point. That being said, I guess I would just repeat one more time that I do believe that these are entities where, according to the Federal agency that regulates them now, the FDIC, they do not see any relationship in terms of, substantive, between the holding company and the bank component of the business.
Mr. LEACH. If the gentleman will yield on that point, as the gentleman knows there is a profound difference between the Federal Reserve and the FDIC on this point. The Federal Reserve holds the exact opposite position. The Federal Reserve is what is in charge of the payment system, and by this bill we are allowing people access to the payment system without thorough oversight of the parent company. All I am asking is that ILCs come under the same national law as everybody else that operates as the equivalent of a full service bank, nothing less, nothing more. But it does have the effect of devaluing all other financial institution charters. That is a concern, although the principal concern is protection of the public purse. In that regard, I agree that the FDIC has a different position.
But I only make one final point. Under the Gramm-Leach-Bliley Act, the effort was to have coordination of all the Federal banking regulators. Here you have one banking regulator that wants to operate outside coordination of all the others. In that regard, I have some concerns about FDIC judgment which I believe is driven by a desire to regulate a greater body of institutions. That is a personal view. Maybe they have other motives. I do not know. But I want Federal coordination. I want public protection to the maximum degree possible.

Mr. MATHESON. I appreciate those comments. I would just say I understand there is a difference between the FDIC and the Federal Reserve and there is a difference on this particular issue. I just want to point out that this is not just an ILC issue, though. There are other entities that are also not regulated by the Federal Reserve.

Mr. OXLEY. Mr. Chairman, I am pleased to yield 2 minutes to the gentleman from Indiana (Mr. Chocola).

(Mr. CHOCOLA asked and was given permission to revise and extend his remarks.)

Mr. CHOCOLA. I thank the gentleman for yielding me this time.
Mr. Chairman, the banking industry estimates that it spends approximately $25 billion annually to comply with the regulatory requirements imposed at the Federal and State levels of government. While some of these regulations help to ensure the reliability of our financial services sector, many of the mandates that emerge from Washington, D.C. are overly burdensome, unnecessarily costly, and oftentimes hinder profitability, innovation and competition. Whenever we can identify examples of unnecessary regulatory obstacles, Congress should act to eliminate them.
H.R. 1375, the Financial Services Regulatory Relief Act of 2004, is a well-crafted bill that does exactly that. It allows credit unions, savings associations, and national banks to devote more of their resources to the business of lending to consumers and less to the bureaucratic maze of compliance with outdated and unnecessary regulations. It contains a broad range of provisions that, taken as a whole, will help grant parity among financial institutions of all characters and sizes as well as the agencies that regulate them and, most importantly, the customers they serve.
Of the many important provisions in this bill, several are significant for Indiana's credit unions. For example, access to the Federal Home Loan Bank is available only for financial institutions that are federally insured. H.R. 1375 contains a provision that would allow privately insured financial institutions to join the Federal Home Loan Bank. The Federal Home Loan Bank is a significant low-cost source of funds that a credit union can use to expand loan products, especially mortgage loans, to its members. Indiana has more than 20 privately insured credit unions, including Elkhart County Farm Bureau Credit Union, whose members could benefit from access to the Federal Home Loan Bank.
Currently, credit unions may only offer check cashing and money transfer services to members. H.R. 1375 contains a provision that allows credit unions to offer these services to anyone who is eligible for membership but has not yet joined the credit union. This would allow credit unions to extend services to underserved consumers at a lower cost than check cashers and money transfer providers, while introducing them to mainstream financial services.
By passing this legislation, Congress will demonstrate its commitment to reducing the regulatory burden. I urge all of my colleagues to support H.R. 1375.

Mr. OXLEY. Mr. Chairman, I yield myself the balance of my time. I would simply say this has been a very good debate and, in fact, a great representation of the legislative process at work. We have had a lot of strong opinions, particularly on the ILC issue. But overall this is an attempt to provide regulatory relief to institutions who have undertaken a tremendous burden, particularly under the PATRIOT Act strictures. For that reason, this bill needs to go forward.

[Begin Insert]

Ms. LEE. Mr. Chairman, although I do have some reservations about this bill, I rise in support of the vast majority of the underlying bill and want to praise the excellent bipartisan leadership exercised in crafting it and moving it to the floor today. It was a long time in the making and I congratulate my colleagues on their hard work.
The bill provides much needed regulatory relief to credit unions, national banks, and savings and loan institutions. We all know that regulations can do great good, but they need to be reexamined and refined from time to time, especially when new consumer protections are warranted and where they can provide needed flexibility to enhance efficiency.
This bill does exactly that and I am pleased with many of its provisions, especially those that will help the credit unions compete, thrive and improve their services to consumers.
Mr. Chairman, I hope that we will improve the bill before us today by adopting the Manager's amendment, and Waters amendment, among others.

Mr. CANTOR. Mr. Chairman, I rise today to speak in favor of The Financial Services Regulatory Relief Act. This important legislation will help relieve several of the regulatory burdens that hinder the business practices of financial institutions throughout our Nation. By lifting these regulations, banks, credit unions, and other institutions will be able to better serve the average American.
Particularly, I would like to mention the importance of Section 208 of this legislation. This provision would remove a limitation on savings associations that prevents them from offering a larger percentage of automobile loans to their customers.
Presently, automobile loans are included in the household or consumer loan restriction limit of 35% of an institution's assets. Many savings associations will be forced to stop or limit the number of automobile loan products they offer because of this restriction. With less competition in the marketplace, the American people will be left with fewer options to purchase automobiles.
The language currently in this legislation will remove automobile loans from household or consumer loan restriction. This provision will help guard against predatory practices and add flexibility to the lending industry by creating better marketplace options for the American consumer.
For over 150 years, thrift banks have focused on providing consumers with the necessary means to obtain the American dream of ownership. We should not limit Americans in that dream.
Mr. Chairman, I would like to thank the Financial Services Committee and Chairman OXLEY for including this important provision in H.R. 1375. I urge that we pass this legislation, and I yield back the balance of my time.

Mr. TERRY. Mr. Chairman, I rise today in reluctant opposition to H.R. 1375.
The United States is a government of limited powers and of Federalism. We defer to the States to make their own determinations to ensure the health, welfare, and consumer protection of their citizens.
During my legislative career, I have fought to ease the regulatory burden on our Nation's businesses, our Nation's engines for growth. I have fought against unwarranted government intrusion.
As much as I support the removal of unnecessary and onerous regulatory burdens on our Nation's businesses, I am also a strong supporter of States rights.
In America we do not take a one-size-fits-all approach to government. One reason why we enjoy the highest standard of living in the world is because we have a laboratory of our States who are given the freedom to set their own paths. Similar to completion in the private sector, we allow States to offer competing plans to protect the safety and welfare of their citizens.
H.R. 1375 has many admirable provisions to ease the regulatory environment on our Nation's financial service industry; however, the bill amends the interstate branching laws to permit de novo interstate branching, thus eliminating the State's role in "entry-by-acquisition" only rules that apply under Federal law today. This is an unjustified unsurpation of State regulatory authority.
Currently, de novo interstate branching may occur only if a State's law expressly permits it. Seventeen States have passed laws that permit de novo branching, while thirty-three States, like Nebraska, do not.
It is for this reason only I reluctantly cannot support H.R. 1375.

Mr. CASTLE. Mr. Chairman, I rise today in support of H.R. 1375, the "Financial Services Regulatory Relief Act." I commend Chairman OXLEY and Subcommittee Chairman BACHUS for continuing the Financial Services Committee's efforts to address regulatory relief for our financial institutions.
This legislation will address regulatory relief for a number of financial institution systems; banks, savings associations and credit unions. It eases regulatory burden which in turn will improve productivity, ultimately benefiting consumers and small businesses.
As Members of Congress it is important for us not to forget our role in oversight of the laws and regulations that we create and address the regulations as needed. We should ensure that the laws and regulations we create follow our original intent and are not overly burdensome. I commend our committee for revisiting the regulatory requirements. It is essential we make sure we have streamlined them for efficiency and not made them overly onerous.
Mr. Chairman, this legislation is a good bipartisan bill that members of the Financial Services Committee held a number of hearings on. I am pleased today that we have brought this much needed bill to the floor. I urge my colleagues on both sides of the aisle to join me in supporting this important and very necessary legislation.

Mr. BEREUTER. Mr. Chairman, this Member has been a strong supporter of regulatory burden relief for our financial institutions in the past. However, this Member will oppose the Financial Services Regulatory Relief Act of 2003 (H.R. 1375) because of the provisions which preempt the laws of over 30 states on either interstate bank branching, the bank acquisition "age" requirements or both. As a former State senator in the Nebraska Unicameral legislature, this Member believes Congress should continue to defer to State legislatures on these questions. Under current Federal law, State and national chartered banks can branch de novo into a new State only if the State explicitly permits de novo interstate branching. This provision of Federal law was enacted in the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Furthermore, under Riegle-Neal, bank holding companies are permitted to acquire an existing bank in any State. However, under this law, a state can adopt "age" laws which provide that a bank holding company located out-of-State can only acquire a bank in the State if the bank has been in existence for a certain amount of time (up to 5 years) as determined by the State.
Section 401 of H.R. 1375 would preempt State laws as they relate to both interstate bank branching and the "age" requirement for the acquisition of existing banks. In the 107th Congress, this Member did offer an amendment on this subject during a Financial Services Committee Markup of the Financial Services Regulatory Relief Act of 2002. This Member's amendment would have deleted the provision of this bill which preempted the laws of States on bank branching and bank acquisition. Unfortunately, the amendment was defeated by a vote of 13 to 32.
In conclusion, this Member will oppose H.R. 1375 because of the provisions in Section 401 which preempted the laws of over 30 States. This Member strongly believes that these banking questions should be left to our State legislatures.

Mr. GUTIERREZ. Mr. Chairman, I had intended to offer an amendment on this legislation regarding the OCC preemption rules, but withdrew it in anticipation of revisiting that important issue soon on other legislation.
I do, however, want to state my strong support for a particular provision of H.R. 1375, the Financial Services Regulatory Relief Act of 2003. I am very pleased that credit unions will be permitted to offer remittance products to nonmembers under this legislation. I want to thank Chairman OXLEY, Ranking Member FRANK, CHARLIE GONZALEZ and DOUG OSE for their work on this important provision. Credit unions offer the lowest cost remittance products and the best exchange rates on the market. In addition, increased competition in this arena will provide more favorable options for consumers.
This is most important because many purveyors of remittance products charge extremely high fees and provide very unfavorable exchange rates to their consumers, and they often fail to provide adequate disclosure. I have legislation that addresses this issue, requiring meaningful disclosure of fees and rates, in the language that is used to advertise and/or transact business with consumers. I hope this meaningful legislation will soon advance to floor consideration.
Again, thank you, Chairman OXLEY and Ranking Member FRANK, for including this important remittance provision in the legislation.

[End Insert]

Mr. OXLEY. Mr. Chairman, I yield back the balance of my time.

The CHAIRMAN pro tempore (Mr. Simmons). All time for general debate has expired.

Pursuant to the rule, the committee amendment in the nature of a substitute printed in the bill shall be considered as an original bill for the purpose of amendment under the 5-minute rule and shall be considered read.

The text of the committee amendment in the nature of a substitute is as follows:

H.R. 1375

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

(a) SHORT TITLE.-This Act may be cited as the "Financial Services Regulatory Relief Act of 2003".
(b) TABLE OF CONTENTS.-The table of contents for this Act is as follows:
Sec..1..Short title; table of contents.
Sec..101..National bank directors.
Sec..102..Voting in shareholder elections.
Sec..103..Simplifying dividend calculations for national banks.
Sec..104..Repeal of obsolete limitation on removal authority of the Comptroller of the Currency.
Sec..105..Repeal of intrastate branch capital requirements.
Sec..106..Clarification of waiver of publication requirements for bank merger notices.
Sec..107..Capital equivalency deposits for Federal branches and agencies of foreign banks.
Sec..108..Equal treatment for Federal agencies of foreign banks.
Sec..109..Maintenance of a Federal branch and a Federal agency in the same State.
Sec..110..Business organization flexibility for national banks.
Sec..111..Clarification of the main place of business of a national bank.
Sec..201..Parity for savings associations under the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.
Sec..202..Investments by Federal savings associations authorized to promote the public welfare.
Sec..203..Mergers and consolidations of Federal savings associations with nondepository institution affiliates.
Sec..204..Repeal of statutory dividend notice requirement for savings association subsidiaries of savings and loan holding companies.
Sec..205..Modernizing statutory authority for trust ownership of savings associations.
Sec..206..Repeal of overlapping rules governing purchased mortgage servicing rights.
Sec..207..Restatement of authority for Federal savings associations to invest in small business investment companies.
Sec..208..Removal of limitation on investments in auto loans.
Sec..209..Selling and offering of deposit products.
Sec..210..Funeral- and cemetery-related fiduciary services.
Sec..211..Repeal of qualified thrift lender requirement with respect to out-of-state branches.
Sec..212..Small business and other commercial loans.
Sec..213..Clarifying citizenship of Federal savings associations for Federal court jurisdiction.
Sec..214..Clarification of applicability of certain procedural doctrines.
Sec..301..Privately insured credit unions authorized to become members of a Federal home loan bank.
Sec..302..Leases of land on Federal facilities for credit unions.
Sec..303..Investments in securities by Federal credit unions.
Sec..304..Increase in general 12-year limitation of term of Federal credit union loans to 15 years.
Sec..305..Increase in 1 percent investment limit in credit union service organizations.
Sec..306..Member business loan exclusion for loans to nonprofit religious organizations.
Sec..307..Check cashing and money transfer services offered within the field of membership.
Sec..308..Voluntary mergers involving multiple common-bond credit unions.
Sec..309..Conversions involving common-bond credit unions.
Sec..310..Credit union governance.
Sec..311..Providing the National Credit Union Administration with greater flexibility in responding to market conditions.
Sec..312..Exemption from pre-merger notification requirement of the Clayton Act.
Sec..313..Treatment of credit unions as depository institutions under securities laws.
Sec..401..Easing restrictions on interstate branching and mergers.
Sec..402..Statute of limitations for judicial review of appointment of a receiver for depository institutions.
Sec..403..Reporting requirements relating to insider lending.
Sec..404..Amendment to provide an inflation adjustment for the small depository institution exception under the Depository Institution Management Interlocks Act.
Sec..405..Enhancing the safety and soundness of insured depository institutions.
Sec..406..Investments by insured savings associations in bank service companies authorized.
Sec..407..Cross guarantee authority.
Sec..408..Golden parachute authority and nonbank holding companies.
Sec..409..Amendments relating to change in bank control.
Sec..501..Clarification of cross marketing provision.
Sec..502..Amendment to provide the Federal Reserve Board with discretion concerning the imputation of control of shares of a company by trustees.
Sec..503..Eliminating geographic limits on thrift service companies.
Sec..504..Clarification of scope of applicable rate provision.
Sec..601..Waiver of examination schedule in order to allocate examiner resources.
Sec..602..Interagency data sharing.
Sec..603..Penalty for unauthorized participation by convicted individual.
Sec..604..Amendment permitting the destruction of old records of a depository institution by the FDIC after the appointment of the FDIC as receiver.

Sec..605..Modernization of recordkeeping requirement.
Sec..606..Clarification of extent of suspension, removal, and prohibition authority of Federal banking agencies in cases of certain crimes by institution-affiliated parties.
Sec..607..Streamlining depository institution merger application requirements.
Sec..608..Inclusion of Director of the Office of Thrift Supervision in list of banking agencies regarding insurance customer protection regulations.
Sec..609..Shortening of post-approval antitrust review period with the agreement of the Attorney General.
Sec..610..Protection of confidential information received by Federal banking regulators from foreign banking supervisors.
Sec..611..Prohibition on the participation in the affairs of bank holding company or Edge Act or agreement corporations by convicted individual.
Sec..612..Clarification that notice after separation from service may be made by an order.
Sec..613..Examiners of financial institutions.
Sec..614..Parity in standards for institution-affiliated parties.
Sec..615..Enforcement against misrepresentations regarding FDIC deposit insurance coverage.
Sec..616..Compensation of Federal home loan bank directors.
Sec..617..Extension of terms of Federal home loan bank directors.
Sec..618..Biennial reports on the status of agency employment of minorities and women.
Sec..619..Coordination of State examination authority.
Sec..701..Clerical amendments to the Home Owners' Loan Act.
Sec..702..Technical corrections to the Federal Credit Union Act.
Sec..703..Other technical corrections.
Sec..704..Repeal of obsolete provisions of the Bank Holding Company Act of 1956.

Section 5146 of the Revised Statutes of the United States (12 U.S.C. 72) is amended-
(1) by striking "SEC. 5146. Every director must during" and inserting the following:
"(a) RESIDENCY REQUIREMENTS.-Every director of a national bank shall, during";
(2) by striking "total number of directors. Every director must own in his or her own right" and inserting "total number of directors.
"(1) IN GENERAL.-Every director of a national bank shall own, in his or her own right,"; and
(3) by adding at the end the following new paragraph:
"(2) EXCEPTION FOR SUBORDINATED DEBT IN CERTAIN CASES.-In lieu of the requirements of paragraph (1) relating to the ownership of capital stock in the national bank, the Comptroller of the Currency may, by regulation or order, permit an individual to serve as a director of a national bank that has elected, or notifies the Comptroller of the bank's intention to elect, to operate as a S corporation pursuant to section 1362(a) of the Internal Revenue Code of 1986, if that individual holds debt of at least $1,000 issued by the national bank that is subordinated to the interests of depositors and other general creditors of the national bank.".
Section 5144 of the Revised Statutes of the United States (12 U.S.C. 61) is amended-
(1) by striking "or to cumulate" and inserting "or, if so provided by the articles of association of the national bank, to cumulate";
(2) by striking the comma after "his shares shall equal"; and
(3) by adding at the end the following new sentence: "The Comptroller of the Currency may prescribe such regulations to carry out the purposes of this section as the Comptroller determines to be appropriate.".
(a) IN GENERAL.-Section 5199 of the Revised Statutes of the United States (12 U.S.C. 60) is amended to read as follows:
"(a) IN GENERAL.-Subject to subsection (b), the directors of any national bank may declare a dividend of so much of the undivided profits of the bank as the directors judge to be expedient.
"(b) APPROVAL REQUIRED UNDER CERTAIN CIRCUMSTANCES.-A national bank may not declare and pay dividends in any year in excess of an amount equal to the sum of the total of the net income of the bank for that year and the retained net income of the bank in the preceding two years, minus any transfers required by the Comptroller of the Currency (including any transfers required to be made to a fund for the retirement of any preferred stock), unless the Comptroller of the Currency approves the declaration and payment of dividends in excess of such amount.".
(b) CLERICAL AMENDMENT.-The table of sections for chapter three of title LXII of the Revised Statutes of the United States is amended by striking the item relating to section 5199 and inserting the following new item:
"5199. National bank dividends.".
Section 8(e)(4) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(4)) is amended by striking the 5th sentence.
Section 5155© of the Revised Statutes of the United States (12 U.S.C. 36©) is amended-
(1) in the 2nd sentence, by striking ", without regard to the capital requirements of this section,"; and
(2) by striking the last sentence.
The last sentence of sections 2(a) and 3(a)(2) of the National Bank Consolidation and Merger Act (12 U.S.C. 215(a) and 215a(a)(2), respectively) are each amended by striking "Publication of notice may be waived, in cases where the Comptroller determines that an emergency exists justifying such waiver, by unanimous action of the shareholders of the association or State bank" and inserting "Publication of notice may be waived if the Comptroller determines that an emergency exists justifying such waiver or if the shareholders of the association or State bank agree by unanimous action to waive the publication requirement for their respective institutions".
Section 4(g) of the International Banking Act of 1978 (12 U.S.C. 3102(g)) is amended to read as follows:
"(1) IN GENERAL.-Upon the opening of a Federal branch or agency of a foreign bank in any State and thereafter, the foreign bank, in addition to any deposit requirements imposed under section 6, shall keep on deposit, in accordance with such regulations as the Comptroller of the Currency may prescribe in accordance with paragraph (2), dollar deposits, investment securities, or other assets in such amounts as the Comptroller of the Currency determines to be necessary for the protection of depositors and other investors and to be consistent with the principles of safety and soundness.
"(2) LIMITATION.-Notwithstanding paragraph (1), regulations prescribed under such paragraph shall not permit a foreign bank to keep assets on deposit in an amount that is less than the amount required for a State licensed branch or agency of a foreign bank under the laws and regulations of the State in which the Federal agency or branch is located.".
The 1st sentence of section 4(d) of the International Banking Act of 1978 (12 U.S.C. 3102(d)) is amended by inserting "from citizens or residents of the United States" after "deposits".
Section 4(e) of the International Banking Act of 1978 (12 U.S.C. 3102(e)) is amended by inserting "if the maintenance of both an agency and a branch in the State is prohibited under the law of such State" before the period at the end.
(a) IN GENERAL.-Chapter one of title LXII of the Revised Statutes of the United States (12 U.S.C. 21 et seq.) is amended by inserting after section 5136B the following new section:
"(a) IN GENERAL.-The Comptroller of the Currency may prescribe regulations-
"(1) to permit a national bank to be organized other than as a body corporate; and
"(2) to provide requirements for the organizational characteristics of a national bank organized and operating other than as a body corporate, consistent with the safety and soundness of the national bank.
"(b) EQUAL TREATMENT.-Except as provided in regulations prescribed under subsection (a), a national bank that is operating other than as a body corporate shall have the same rights and privileges and shall be subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations as a national bank that is organized as a body corporate.".
(b) TECHNICAL AND CONFORMING AMENDMENT.-Section 5136 of the Revised Statutes of the United States (12 U.S.C. 24) is amended, in the matter preceding the paragraph designated as the "First", by inserting "or other form of business organization provided under regulations prescribed by the Comptroller of the Currency under section 5136C" after "a body corporate".
© CLERICAL AMENDMENT.-The table of sections for 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 the item relating to section 5136B the following new item:
"5136C. Alternative business organization.".
Title LXII of the Revised Statutes of the United States is amended-
(1) in the paragraph designated the "Second" of section 5134 (12 U.S.C. 22), by striking "The place where its operations of discount and deposit are to be carried on" and inserting "The place where the main office of the national bank is, or is to be, located"; and
(2) in section 5190 (12 U.S.C. 81), by striking "the place specified in its organization certificate" and inserting "the main office of the national bank".


(1) DEFINITION OF BANK.-Section 3(a)(6) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(6)) is amended-
(A) in subparagraph (A), by inserting "or a Federal savings association, as defined in section 2(5) of the Home Owners' Loan Act" after "a banking institution organized under the laws of the United States"; and
(B) in subparagraph (C)--
(i) by inserting "or savings association as defined in section 2(4) of the Home Owners' Loan Act," after "banking institution,"; and
(ii) by inserting "or savings associations" after "having supervision over banks".
(A) in subparagraph (A)--
(i) in clause (ii), by striking "(i) or (iii)" and inserting "(i), (iii), or (iv)";
(ii) by striking "and" at the end of clause (iii);
(iii) by redesignating clause (iv) as clause (v); and
(iv) by inserting the following new clause after clause (iii):
"(iv) the Director of the Office of Thrift Supervision, in the case of a savings association (as defined in section 3(b) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b))) the deposits of which are insured by the Federal Deposit Insurance Corporation, a subsidiary or a department or division of any such savings association, or a savings and loan holding company; and";
(B) in subparagraph (B)--
(i) in clause (ii), by striking "(i) or (iii)" and inserting "(i), (iii), or (iv)";
(ii) by striking "and" at the end of clause (iii);
(iii) by redesignating clause (iv) as clause (v); and
(iv) by inserting the following new clause after clause (iii):
"(iv) the Director of the Office of Thrift Supervision, in the case of a savings association (as defined in section 3(b) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b))) the deposits of which are insured by the Federal Deposit Insurance Corporation, or a subsidiary of any such savings association, or a savings and loan holding company; and";
© in subparagraph ©--
(i) in clause (ii), by striking "(i) or (iii)" and inserting "(i), (iii), or (iv)";
(ii) by striking "and" at the end of clause (iii);
(iii) by redesignating clause (iv) as clause (v); and
(iv) by inserting the following new clause after clause (iii):
"(iv) the Director of the Office of Thrift Supervision, in the case of a savings association (as defined in section 3(b) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b))) the deposits of which are insured by the Federal Deposit Insurance Corporation, a savings and loan holding company, or a subsidiary of a savings and loan holding company when the appropriate regulatory agency for such clearing agency is not the Commission; and";
(D) in subparagraph (D)--
(i) by striking "and" at the end of clause (ii);
(ii) by redesignating clause (iii) as clause (iv); and
(iii) by inserting the following new clause after clause (ii):
"(iii) the Director of the Office of Thrift Supervision, in the case of a savings association (as defined in section 3(b) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b))) the deposits of which are insured by the Federal Deposit Insurance Corporation; and";

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