Financial Modernization and Safe Bank Act

Summary

Financial Modernization and Safe Bank Act - Title I: Qualified Affiliates of Bank Holding Companies - Amends the Bank Holding Company Act of 1956 to allow bank holding companies to own shares of qualified securities affiliates which engage in: (1) underwriting, distributing, or dealing in securities of any type; (2) securities brokerage, investment advisory, or other securities activities; and (3) other activities permitted by the Board of Governors of the Federal Reserve System. Establishes criteria for Board approval of such acquisitions. Prohibits mergers between certain large banks or bank holding companies (those having assets of more than $30,000,000,000) and large securities firms (those having assets of more than $15,000,000,000). Establishes criteria (including a notice requirement) for bank holding company investment in securities affiliates. Establishes capital standards to be used by the Board in determining whether a bank holding company meets the acquisition guidelines. Restricts transactions between banks or insured institutions and securities affiliates, including: (1) extensions of credit directly or indirectly benefiting such affiliates; and (2) interlocking directorates. Requires each securities affiliate to prominently disclose to its customers that: (1) the securities affiliate is not a bank or a federally-insured institution and is separate from any affiliated bank or insured institution; and (2) the securities offered or sold are not deposits and are not insured by the Federal Deposit Insurance Corporation (FDIC) and are not guaranteed by an affiliated bank or insured institution. Prohibits a bank, insured institution, or subsidiary from giving investment advice on securities dealt in by a securities affiliate without disclosing that the securities affiliate is underwriting, distributing, or dealing in the securities. Prohibits the disclosure of any nonpublic customer information between a securities affiliate and a bank, insured institution, or subsidiary without the customer's consent. Prohibits a securities affiliate from dealing in asset-related securities originated by an affiliated bank, insured institution, or subsidiary unless such securities are rated by a nationally recognized rating organization and are issued or guaranteed by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, or the Government National Mortgage Association. Requires each appropriate Federal banking agency to establish a program for: (1) enforcing such restrictions; and (2) responding to consumer complaints about violations. Specifies that any securities affiliate of a bank holding company previously approved by the Federal Reserve Board must meet the requirements of this Act, unless the affiliate's activities are specifically authorized by statute for a national bank. Limits securities underwriting, distribution, and dealing by banks affiliated with a securities affiliate. Prohibits a securities affiliate from underwriting, distributing, or dealing in certain types of unsecured corporate debt securities or equity securities unless each of its affiliated banks is in compliance with any applicable risk-based capital standards issued by the appropriate Federal banking agency. Prohibits a securities affiliate from engaging in the underwriting, distribution, or dealing in unsecured corporate debt securities having a maturity of one year or more or securities issued by a registered investment company until 180 days after the enactment of this Act. Prohibits a securities affiliate from underwriting, distributing, or dealing in equity securities (other than those issued by a registered investment company) except pursuant to a joint resolution to be considered by the 103d Congress. Requires that a vote on such joint resolution be taken by April 1, 1993. States that acquisition applications which are not acted upon by the Board within 91 days shall be deemed to be granted. Repeals this requirement four years after enactment of this Act. Preempts State laws which are inconsistent with this Act. Amends the Federal Reserve Act to extend the prohibition against the purchasing of any security by a member bank during the existence of any underwriting or selling syndicate if any affiliate of the bank is a principal underwriter of that security from the day such syndicate terminates until 30 days after such termination. Amends the Federal Deposit Insurance Act to impose additional restrictions on securities affiliates of insured banks and on the distribution or underwriting of municipal revenue bonds by insured banks or affiliates thereof. Authorizes a national bank to: (1) underwrite certain types of State and local government bonds; and (2) sponsor unit investment trusts and distribute investment company securities, if such bank has no securities affiliate. Amends the International Banking Act of 1978 to prohibit: (1) U.S. banking activities by large foreign banks that become affiliated with large investment banking organizations with U.S. offices; and (2) U.S. investment banking activities by large foreign investment banking organizations that become affiliated with large bank holding companies or banks. Amends the Bank Holding Company Act to allow the establishment of diversified financial holding companies. Defines a "diversified financial holding company" as a company that directly or indirectly controls a bank and which: (1) engages only in financial activities; (2) devotes 80 percent or more of its consolidated assets to certain activities permissible under the Bank Holding Company Act; (3) has not more than 20 percent of its consolidated assets consisting of insured banks or thrift institutions; (4) has not more than 40 percent of its consolidated assets consisting of all types of banks or thrift institutions (insured, uninsured, domestic, or foreign); and (5) gives written notice to the Federal Reserve Board of its intent to be treated as a diversified financial holding company. Specifies that a diversified financial holding company shall not be considered as a bank holding company, but shall be subject to applicable Federal statutes relating to bank holding companies. Provides exemptions for diversified financial holding companies with respect to: (1) grandfathered rights to continue to engage in nonconforming financial activities; and (2) normal bank holding company examination and capital requirements. Subjects such diversified companies and subsidiary banks to restrictions applicable to bank holding companies with respect to joint marketing of affiliate services and lending to affiliates engaged in nonconforming activities. Permits the Federal Reserve Board to order a diversified company to divest any subsidiary bank not meeting capital standards. Directs the Federal Reserve Board to conduct a study and submit a report to the Congress concerning the steps necessary to ensure the integrity and reliability of the large-dollar payments system in the United States. Sets forth expedited procedures for the consideration and vote by the 103d Congress on whether or not to permit securities affiliates to underwrite, distribute, and deal in equity securities. Title II: Expedited Procedures - Amends the Bank Holding Company Act of 1956 to establish (under limited circumstances, where a company acquires control of a bank in a reorganization) expedited procedures for forming a bank holding company. Requires any bank holding company seeking to engage in certain nonbanking activities (as determined by the Board) to notify the Board of such intentions. Allows the Board 60 days to: (1) disapprove the proposal; or (2) extend the time period for Board consideration. Provides limited exceptions to such notice requirements. Requires the Board, in determining whether to disapprove an application under this Act, to consider whether the activity described would produce benefits to the public that outweigh possible adverse effects. Allows the Board to reduce the post-approval waiting period for: (1) bank holding company acquisitions; and (2) bank mergers. Provides that a national bank may own the stock of a bankers' bank or a bankers' bank holding company if such bankers' bank or holding company is owned exclusively by either banks or holding companies. Allows a bankers' bank chartered by the Comptroller of the Currency to be organized within a holding company provided that the holding company for the bankers' bank is owned by depository institutions and their holding companies. Permits the Federal Reserve Board to increase the limit for member banks on loans secured by stock or bond collateral to any one person to 15 percent of a bank's unimpaired capital and surplus. Allows certain exceptions for bankers' banks serving minority banks. Title III: Safe Bank Holding Companies - Safe Bank Holding Company Act - Amends the Bank Holding Company Act of 1956 to allow a bank holding company to hold shares of any company without regard to the prohibitions of such Act if the holding company has or acquires a bank subsidiary which: (1) is an insured bank; (2) does not accept deposits from any of its nonbank affiliates; (3) reports its assets and liabilities at market value for purposes of complying with applicable securities laws and the regulations of the appropriate banking agency; and (4) maintains investments in an aggregate amount equal to its insured deposits in specified types of obligations and securities such as obligations of the U.S. Government, investment grade securities and obligations of State and local government, and any other securities or obligations of comparable marketability and liquidity. Allows a holding company to elect to qualify for such treatment by transmitting a notice of such election to the Federal Reserve Board. Requires each bank owned by such holding company to comply with the specified investment requirements within five years after such election. Sets forth a scheduled phase-in of such investment requirements over such five-year period. Sets forth capital requirements for such a bank holding company and its bank subsidiaries. Imposes the same prohibitions on extensions of credit between affiliates of such a holding company as those prohibitions placed on holding companies not electing such treatment. Repeals certain authorities of the Federal Reserve Board respecting applications, examinations, or other proceedings effective five years and six months after the date of enactment of this Act. Amends the Federal Deposit Insurance Act to allow the assessment base of a bank owned by such a holding company to be set at a lower amount than those banks owned by holding companies not electing the treatment allowed by this Act. Sets forth special procedures for the receivership of such banks. Prohibits a State from authorizing a State insured bank to engage in any activity, unless: (1) such activity is an activity that a national bank may engage in; (2) such activity is an activity in which such State insured bank was authorized to engage in on January 25, 1991; or (3) such bank has deposits of $250,000,000 or less. Title IV: Brokers and Dealers - Amends the Securities Exchange Act of 1934 to revise the definition of "broker" to include a bank which publicly solicits brokerage business or receives compensation for such business in excess of the bank's transaction costs ("incentive compensation"). Provides that a bank shall not be considered to be a "broker" under such Act because it engages in certain exempted activities, including: (1) networking arrangements; (2) trust activities; (3) transactions in municipal and certain other securities; (4) transactions in employee benefit accounts, money market sweep accounts, or affiliate accounts; (5) private placement activities; and (6) less than 1,000 other securities transactions per year, provided the bank does not have a subsidiary or affiliate registered as a broker or dealer. Revises the definition of "dealer" to exclude banks which engage in certain exempted activities, including: (1) transactions in commercial paper, bankers' acceptances, commercial bills, or exempted securities; (2) transactions in municipal securities, provided the bank does not have a securities affiliate; (3) trust or fiduciary activities; and (4) securitization activities. Authorizes the SEC to exempt any person or class of persons from the definition of "broker" or "dealer" upon a finding that such an exemption is consistent with the public interest, the protection of investors, or the purposes of the Securities Exchange Act. Prohibits a bank from acting as a broker or dealer, except on an exclusively intrastate basis. Title V: Bank Investment Company Activities - Amends the Investment Company Act of 1940 to require a registered investment company which places its assets with a bank that is an affiliated person, promoter, sponsor, organizer, or principal underwriter for such a company to do so only in accordance with regulations the SEC may adopt after written consultation with the appropriate Federal banking agency. Requires a unit investment trust which designates an affiliated bank as a trustee to do so only in accordance with regulations that the SEC may adopt after written consultation with the appropriate Federal banking agency. Prohibits an investment company from knowingly acquiring securities during an underwriting where the proceeds will be used to retire indebtedness owed to an affiliated bank. Prohibits a mutual fund from borrowing from an affiliated bank except pursuant to regulations adopted by the SEC. Revises the definition of "interested person" for purposes of the Investment Company Act to include any person (including a bank) that acts as custodian, or transfer agent, or engages in specific types of transactions with an investment company within the preceding six-month period. Extends the prohibition against officers, directors, and employees of any one bank constituting the majority of the board of directors of a registered investment company to the officers and directors of any one bank and its subsidiaries, or any one bank holding company and its affiliates and subsidiaries. Prohibits a registered investment company or persons who sell securities issued by a registered investment company from representing or implying that the company or security is insured by the FDIC or FSLIC or is guaranteed by, or is otherwise an obligation of, any insured institution. Authorizes the SEC to issue regulations to require such a company or person to disclose that such securities are not so insured or guaranteed. Revises the definition of "broker" and dealer" for purposes of the Investment Company Act and the Investment Advisers Act to conform to the revised definition of such terms in the Securities Exchange Act. Amends the Investment Advisers Act of 1940 to remove the exclusion from the definition of "investment adviser" for banks that advise investment companies. Requires the SEC to notify the appropriate Federal banking agency before initiating any examination, investigation, or enforcement action against any bank holding company, bank, or department or division of a bank registered or required to be registered under the Investment Advisers Act. Authorizes the SEC to share information with Federal, State, foreign, and self-regulatory organizations, officials, or agencies for law enforcement and regulatory purposes.

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• Introduced in Senate (text)

  Introduced in Senate · EN

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• Introduced in Senate

  summary · EN · 30 January 1991

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