FINANCIAL ACTIVITIES.

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 the 113 STAT. 1343Treasury 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-Leach-Bliley 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; and113 STAT. 1344 “(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—113 STAT. 1345 “(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 and 113 STAT. 1346the 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 Gramm-Leach-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 any 113 STAT. 1347of 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 (1)(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 (1)(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—113 STAT. 1348 “(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.—113 STAT. 1349 “(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;113 STAT. 1350 “(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(1)(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(1)(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 1956.113 STAT. 1351 “(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(1)(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.113 STAT. 1352