AMENDMENTS TO THE FEDERAL RESERVE ACT.

SEC. 102. AMENDMENTS TO THE FEDERAL RESERVE ACT. (a) In General.— The Federal Reserve Act is amended by inserting after section 23A the following: “restrictions on transactions with affiliates “Sec. 23B. (a) In General.— “(1) Terms.— A member bank and its subsidiaries may engage in any of the transactions described in paragraph (2) only— “(A) on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to such bank or its subsidiary, as those prevailing at the time for comparable transactions with or involving other nonaffiliated companies, or “(B) in the absence of comparable transactions, on terms and under circumstances, including credit standards, that in good faith would be offered to, or would apply to, nonaffiliated companies. “(2) Transactions covered.— Paragraph (1) applies to the following: “(A) Any covered transaction with an affiliate. “(B) The sale of securities or other assets to an affiliate, including assets subject to an agreement to repurchase. “(C) The payment of money or the furnishing of services to an affiliate under contract, lease, or otherwise. “(D) Any transaction in which an affiliate acts as an agent or broker or receives a fee for its services to the bank or to any other person. “(E) Any transaction or series of transactions with a third party— “(i) if an affiliate has a financial interest in the third party, or “(ii) if an affiliate is a participant in such transaction or series of transactions. 101 STAT. 565 “(3) Transactions that benefit an affiliate.— For the purpose of this subsection, any transaction by a member bank or its subsidiary with any person shall be deemed to be a transaction with an affiliate of such bank if any of the proceeds of the transaction are used for the benefit of, or transferred to, such affiliate. “(b) Prohibited Transactions.— “(1) In general.— A member bank or its subsidiary— “(A) shall not purchase as fiduciary any securities or other assets from any affiliate unless such purchase is permitted— “(i) under the instrument creating the fiduciary relationship, “(ii) by court order, or “(iii) by law of the jurisdiction governing the fiduciary relationship; and “(B) whether acting as principal or fiduciary, shall not knowingly purchase or otherwise acquire, during the existence of any underwriting or selling syndicate, any security if a principal underwriter of that security is an affiliate of such bank. “(2) Exception.— Subparagraph (B) of paragraph (1) shall not apply if the purchase or acquisition of such securities has been approved, before such securities are initially offered for sale to the public, by a majority of the directors of the bank who are not officers or employees of the bank or any affiliate thereof. “(3) Definitions.— For the purpose of this subsection— “(A) the term ‘security’ has the meaning given to such term in section 3(a)(10) of the Securities Exchange Act of 1934; and “(B) the term ‘principal underwriter’ means any underwriter who, in connection with a primary distribution of securities— “(i) is in privity of contract with the issuer or an affiliated person of the issuer; “(ii) acting alone or in concert with one or more other persons, initiates or directs the formation of an underwriting syndicate; or “(iii) is allowed a rate of gross commission, spread, or other profit greater than the rate allowed another underwriter participating in the distribution. “(c) Advertising Restriction.— A member bank or any subsidiary or affiliate of a member bank shall not publish any advertisement or enter into any agreement stating or suggesting that the bank shall in any way be responsible for the obligations of its affiliates. “(d) Definitions.— For the purpose of this section— “(1) the term ‘affiliate’ has the meaning given to such term in section 23A (but does not include any company described in section (b)(2) of such section or any bank); “(2) the terms ‘bank’, ‘subsidiary’, ‘person’, and ‘security’ (other than security as used in subsection (b)) have the meanings given to such terms in section 23A; and “(3) the term ‘covered transaction’ has the meaning given to such term in section 23A (but does not include any transaction which is exempt from such definition under subsection (d) of such section). 101 STAT. 566 “(e) Regulations.— The Board may prescribe regulations to administer and carry out the purposes of this section, including— “(1) regulations to further define terms used in this section; and “(2) regulations to— “(A) exempt transactions or relationships from the requirements of this section; and “(B) exclude any subsidiary of a bank holding company from the definition of affiliate for purposes of this section, if the Board finds such exemptions or exclusions are in the public interest and are consistent with the purposes of this section.”. (b) Conforming Amendments.— Section 18(j) of the Federal Deposit Insurance Act (12 U.S.C. 1828(j)) is hereby amended— (1) by inserting “and section 23B” after “section 23A” at each place it appears in paragraph (1); and (2) by inserting “, 23B,” after “23A” in paragraph (3)(A). (c) Treatment of Edge Act and Agreement Corporations for Purposes of the Bank Holding Company Act.— (1) In general.— The paragraph of section 25(a) of the Federal Reserve Act which begins “Except as otherwise provided in this section, a majority” (the 11th full paragraph) (12 U.S.C. 619) is amended by adding at the end thereof the following: “Any company, other than a bank as defined in section 2 of the Bank Holding Company Act of 1956, that after March 5, 1987, directly or indirectly acquires control of a corporation organized or operating under the provisions of this section or section 25 shall be subject to the provisions of the Bank Holding Company Act of 1956 in the same manner and to the same extent that bank holding companies are subject thereto, except that such company shall not by reason of this paragraph be deemed a bank holding company for the purpose of section 3 of the Bank Holding Company Act of 1956.”. (2) Exception.— The amendment made by paragraph (1) does not apply to an acquisition pursuant to the application by Midland Bank, plc, London, England, pending before the Board of Governors of the Federal Reserve System on July 1, 1987, to acquire a corporation organized or operating under section 25(a) of the Federal Reserve Act. If Midland Bank, plc, London, England, is not otherwise subject to section 4 of the Bank Holding Company Act of 1956, the financial activities of Midland Bank, plc, London, England, in the United States shall, upon the determination of the Board of Governors of the Federal Reserve System made at any time, be subject to section 4 of the Bank Holding Company Act of 1956.