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108th Congress Rept. 108-152
HOUSE OF REPRESENTATIVES
1st Session Part 2
FINANCIAL SERVICES REGULATORY RELIEF ACT OF 2003
July 14, 2003.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the
R E P O R T
[To accompany H.R. 1375]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 1375) to provide regulatory relief and improve
productivity for insured depository institutions, and for other
purposes, having considered the same, reports favorably thereon
with an amendment and recommends that the bill as amended do
The Amendment.................................................... 2
Purpose and Summary.............................................. 2
Background and Need for the Legislation.......................... 2
Committee Consideration.......................................... 4
Vote of the Committee............................................ 4
Committee Oversight Findings..................................... 4
New Budget Authority and Tax Expenditures........................ 4
Congressional Budget Office Cost Estimate........................ 4
Performance Goals and Objectives................................. 13
Constitutional Authority Statement............................... 13
Section-by-Section Analysis and Discussion....................... 13
Agency Views..................................................... 18
Changes in Existing Law Made by the Bill, as Reported............ 28
Markup Transcript................................................ 28
Additional Views................................................. 145
The amendment adopted by this committee is identical to the
text reported by the Committee on Financial Services shown in
their report filed June 12, 2003 (Rept. 108-152, Part 1).
Purpose and Summary
As reported by the Committee on the Judiciary, H.R. 1375,
the ``Financial Services Regulatory Relief Act of 2003,'' is
intended to alter or eliminate statutory banking provisions in
order to reduce the growing regulatory burden on insured
depository institutions, improve their productivity, and to
make needed technical corrections to current law. H.R. 1375
contains a broad range of constructive provisions that, taken
as a whole, will allow banks and other depository institutions
to devote more resources to the business of lending to
consumers and less to the bureaucratic maze of compliance with
outdated and unneeded regulations. Reducing the regulatory
burden on financial institutions lowers the cost of credit and
will help restore vibrancy to the national economy.
Background and Need for the Legislation
On May 21, 2003, the Committee on Financial Services
reported H.R. 1375, the ``Financial Services Regulatory Relief
Act of 2003.'' \1\ The bill was sequentially referred to the
Committee on the Judiciary for a period ending not later than
July 14, 2003. The sections within the jurisdiction of the
Committee on the Judiciary pertain to the operation of the
Federal courts, claims against the United States, and for
regulation of the banking industry as it pertains to antitrust.
This legislation is substantially identical to H.R. 3951, the
``Financial Services Regulatory Relief Act of 2002,'' which was
reported from the Committee on the Judiciary last Congress.\2\
\1\ See H.R. Rep. No.108-152, Part I (2003).
\2\ See H.R. Rep. No. 107-516, Part II, (2002).
Congress has not passed structural reform of America's
banking industry since the Financial Institutions Reform,
Recovery and Enforcement Act (FIRREA) was enacted in 1989. At
that time, the national banking industry and the broader
economy were recovering from a savings and loan crisis which
undermined public confidence in America's financial
institutions. As a result, Congress enacted FIRREA to help
restore the integrity and reliability of the banking industry.
H.R. 1375 addresses many shortcomings in that law. For example,
economic analysts have estimated that the annual cost of
compliance with various State and Federal banking regulations
is nearly $26 billion. While effective regulation of the
financial services industry is central to the preservation of
public trust in financial institutions, excessive regulation
undermines competition and consumer choice, results in higher
service fees for consumers, and stifles innovation among
H.R. 1375 provides the following regulatory improvements
for national banks: (1) removes the prohibition on national and
State banks expanding across State lines by opening branches;
(2) allows the use of subordinated debt instruments to meet
eligibility requirements for national banks to benefit from
subchapter S tax treatment; (3) eliminates duplicative and
costly reporting requirements on banks regarding lending to
bank officials; (4) changes the exemption from the prohibition
on management interlocks for banks in metropolitan statistical
areas from $20 million in assets to $100 million; and (5)
streamlines bank merger application regulatory requirements.
The legislation provides the following regulatory
improvements for savings associations: (1) gives savings
associations parity with banks with respect to broker-dealer
and investment adviser Securities and Exchange Commission (SEC)
registration requirements; (2) removes auto lending and small
business lending limits and expands business lending limit for
Federal thrifts; (3) allows Federal thrifts to merge with one
or more of their non-thrift subsidiaries or affiliates, as
national banks; (4) permits Federal thrifts to invest in
service companies without regard to geographic restrictions;
and (5) gives Federal thrifts the same authority as national
and State banks to make investments primarily designed to
promote community development.
H.R. 1375 provides the following regulatory improvements
for credit unions: (1) allows privately insured credit unions
to apply for membership to the Federal Home Loan Bank system;
(2) expands the investment authority of Federal credit unions;
(3) permits offering of check cashing and money transfer
services to eligible members; (4) increases the limit on
investment by Federal credit unions in credit union service
organizations from 1 percent to 3 percent of shares and
earnings; and (5) raises the general limit on the term of
Federal credit union loans from 12 to 15 years, and (6) allows
for expedited consideration of credit union mergers.
In addition, H.R. 1375 provides the following regulatory
improvements for Federal financial regulatory agencies: (1)
provides agencies the discretion to adjust the examination
cycle for insured depository institutions to permit the most
efficient use of agency resources; (2) allows the agencies to
share confidential supervisory information concerning an
examined institution; (3) modernizes agency record keeping
requirements to allow use of optically imaged or computer
scanned images; (4) clarifies agency authortiy to suspend or
prohibit individuals charged with certain crimes from
participation in the affairs of any depository institution and
not only the institution with which the individual is
associated; (5) allows bank examiners to receive credit cards
from examined depository institutions if issued under the same
terms and conditions as generally offered to the public; and
(6) authorizes the Federal Deposit Insurance Corporation (FDIC)
to take enforcement actions and impose civil monetary penalties
of up to $1 million per day on any individual, corporation, or
other entity for misrepresentation of FDIC insurance coverage.
These improvements will allow financial institutions to devote
more resources to the business of lending to consumers and less
to compliance with outdated and unneeded regulations. Reducing
the regulatory burden will serve to lower credit costs for
consumers and help invigorate the national economy.
No hearings were held in the Committee on the Judiciary on
On Wednesday, July 9, 2002, the Committee met in open
session and ordered favorably reported the bill, H.R. 1375,
with an amendment, by voice vote, a quorum being present. The
amendment consisted of the text of the bill as reported by the
Committee on Financial Services on May 21, 2003.
Vote of the Committee
In compliance with clause 3(b) of Rule XIII of the Rules of
the House of Representatives, the Committee notes that there no
recorded votes on H.R. 1375 during the Committee on the
Judiciary's consideration of the bill.
Committee Oversight Findings
In compliance with clause 3(c)(1) of Rule XIII of the Rules
of the House of Representatives, the Committee reports that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of Rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of House rule XIII is inapplicable because
this legislation does not provide new budgetary authority or
increased tax expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of Rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to H.R. 1375, the following estimate and comparison
prepared by the Director of the Congressional Budget Office
under section 402 of the Congressional Budget Act of 1974:
Congressional Budget Office,
Washington, DC, July 14, 2003.
Hon. F. James Sensenbrenner, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1375, the
Financial Services Regulatory Relief Act of 2003.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Kathy Gramp
and Jenny Lin, who can be reached at 226-2860.
Honorable John Conyers, Jr.
H.R. 1375--Financial Services Regulatory Relief Act of 2003.
H.R. 1375 would affect the operations of financial
institutions and the agencies that regulate them. Some
provisions would address specific sectors: national banks could
more easily operate as S corporations or adopt other
alternative organizational structures; thrift institutions
would be given some of the same investment, lending, and
ownership options available to banks; credit unions would have
new options for investments, lending, mergers, and leasing
Federal property; and certain privately insured credit unions
could become members of the Federal Home Loan Bank system. The
bill would provide the Federal Deposit Insurance Corporation
(FDIC) with new enforcement authorities and modify regulatory
procedures governing certain types of transactions, such as the
establishment of de novo branches and interstate mergers. It
would also give agencies more flexibility in sharing data,
retaining records, and scheduling examinations, and would limit
the legal defenses that the United States could use against
certain claims for monetary damages.
CBO estimates that enacting this bill would reduce Federal
revenues by $37 million over the next 5 years and by a total of
$117 million over the 2004-2013 period. In addition, we
estimate that direct spending would increase by $17 million
over the next 5 years and by a total of $22 million over the
H.R. 1375 contains intergovernmental mandates as defined in
the Unfunded Mandates Reform Act (UMRA), but CBO estimates that
the cost of complying with those requirements would not exceed
the intergovernmental threshold established in UMRA ($59
million in 2003, adjusted annually for inflation).
H.R. 1375 contains several private-sector mandates. Those
mandates would affect certain depository institutions,
nondepository institutions that control depository
institutions, uninsured banks, bank holding companies and their
subsidiaries, savings and loan association holding companies
and their subsidiaries, and Federal Home Loan banks. At the
same time, the bill would relax some restrictions on the
operations of certain financial institutions. CBO estimates
that the aggregate direct cost of complying with the private-
sector mandates in the bill would not exceed the annual
threshold established in UMRA ($117 million in 2003, adjusted
annually for inflation).
ESTIMATED COST TO THE FEDERAL GOVERNMENT
The estimated budgetary impact of H.R. 1375 is shown in the
following table. The costs of this legislation fall within
budget function 370 (commerce and housing credit).
BASIS OF ESTIMATE
Most of the budgetary impacts of this legislation would
result from three provisions: section 101, which would make it
easier for national banks to convert to S corporation status or
alternative organization forms; section 214, which would limit
the government's legal defenses against certain claims for
monetary damages; and section 302, which would allow certain
Federal credit unions to lease Federal land at no charge. For
this estimate, CBO assumes that H.R. 1375 will be enacted in
the fall of 2003.
H.R. 1375 also would affect the workload at agencies that
regulate financial institutions. We estimate that the net
change in agency spending would not be significant. Based on
information from each of the agencies, CBO estimates that the
change in administrative expenses--both costs and potential
savings--would average less than $500,000 a year over the next
several years. Expenditures of the Office of the Comptroller of
the Currency (OCC), the Office of Thrift Supervision (OTS), the
National Credit Union Administration (NCUA), and the FDIC are
classified as direct spending and would be covered by fees or
insurance premiums paid by the institutions they regulate. Any
change in spending by the Federal Reserve would affect net
revenues, while adjustments in the budget of the Securities and
Exchange Commission (SEC) and Federal Trade Commission (FTC)
would be subject to appropriation.
CBO estimates that enacting H.R. 1375 would reduce Federal
tax revenues collected from national and State-chartered banks
and would have an insignificant effect on civil and criminal
penalties collected for violations of the bill's provisions.
S Corporation Status. Under this bill, some national banks
would find it easier to convert from C corporation status to S
corporation status. Section 101 would allow directors of
national banks to be issued subordinated debt to satisfy the
requirement that directors of a bank own qualifying shares in
the bank. This provision would effectively reduce the number of
shareholders of a bank by removing directors from shareholder
status, making it easier for banks to comply with the 75-
shareholder limit that defines eligibility for subchapter S
Income earned by banks taxed as C corporations is subject
to the corporate income tax, and post-tax income distributed to
shareholders is taxed again at individual income tax rates.
Income earned by banks operating as S corporations is taxed
only at the personal income tax rates of the banks'
shareholders and is not subject to the corporate income tax.
The average effective tax rate on S corporation income is lower
than the average effective tax rate on C corporation income.
CBO estimates that enacting this provision would reduce
revenues by a total of $36 million over the next 5 years and by
$100 million over the 2004-2013 period.
Based on information from the Federal Reserve Board, the
OCC, and private trade associations, CBO expects that most of
the banks that would be affected are small, although banks and
bank holding companies with assets over $500 million would also
be affected. In addition, States are likely to amend the rules
for State-chartered banks to match those for national banks.
CBO expects that most conversions to Subchapter S status would
occur between 2004 and 2006 and that national banks would
convert earlier than State-chartered banks.
Business Organization Flexibility. Under section 110 of
this bill, the Comptroller of the Currency could allow national
banks to organize in noncorporate form, for example as Limited
Liability Corporations (LLCs) as defined by State law. LLCs
generally choose to be taxed as partnerships. Only a few States
currently allow banks to organize as LLCs, however, and the
Internal Revenue Service (IRS) currently taxes State-chartered
bank-LLCs as C corporations. LLCs have more organizational
flexibility than S corporations while retaining the corporate
characteristic of limited liability.
Income earned by banks taxed as C corporations is subject
to the corporate income tax, and post-tax income distributed to
shareholders is taxed again at individual income tax rates.
Income earned by partnerships--like that earned by S
corporations--is taxed only at the personal income tax rates of
the partners and is not subject to the corporate income tax.
The average effective tax rate on partnerships is lower than
the average effective tax rate on C corporation income but is
similar to the average effective tax rate on S corporation
Based on information from the OCC, the FDIC, and private
trade associations, CBO believes that it is quite possible that
the OCC would alter its regulations to allow national banks to
organize in noncorporate form. We expect that, over the next
decade, most States that do not currently allow banks to
organize as LLCs will begin allowing them to do so in order to
be competitive. Under H.R.1375, future IRS tax treatment of
bank-LLCs is uncertain. CBO assumes that the IRS may allow
bank-LLCs to be taxed as partnerships at some point in the next
decade. The estimated revenue effects of section 110 reflect
CBO's estimate of the likelihood of such IRS actions. CBO
anticipates that banks forming as LLCs would most likely be
newly chartered institutions and that, over the next decade,
only a very limited number of banks would convert from C
corporation or S corporation status to LLCs taxed as
CBO estimates that enacting this provision would reduce
Federal revenues by a total of $1 million over the next 5 years
and by $17 million over the 2004-2013 period.
Civil and Criminal Penalties. H.R. 1375 would make all
depository institutions--not just insured institutions--subject
to certain civil and criminal fines for violating rules
regarding breach of trust, dishonesty, and certain other
crimes. It also would authorize the FDIC to take enforcement
action or impose civil penalties of up to $1 million a day on
any individual, corporation, or other entity that falsely
implies that deposits or other funds are insured by the agency.
Based on information from the FDIC, CBO expects that
enforcement actions would likely deter most individuals or
institutions from violating rules regarding breach of trust,
dishonesty, or certain other crimes. As a result, we estimate
that any additional penalty collections under those provisions
would not be significant.
CBO estimates that enacting H.R. 1375 would increase direct
spending by a total of about $15 million over the 2004-2013
period to pay for increased litigation costs and larger
payments for ``goodwill'' claims against the government. The
bill also would reduce offsetting receipts collected from
credit unions that lease Federal facilities, and it could
affect the cost of deposit insurance.
Monetary Damages in Goodwill Cases. Section 214 would
preclude the use of certain legal defenses in claims for
damages against the United States arising out of the
implementation of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (FIRREA). CBO estimates that
enacting this provision would increase the cost of litigating
and resolving such claims by a total of $15 million over the
next 5 years.
Background on Goodwill Cases. Under section 214, courts
could not dismiss a claim arising out of the implementation of
FIRREA on the basis of res judicata, collateral estoppel, or
similar defenses if the defense was based on a decision,
opinion, or order of judgment entered by any court prior to
July 1, 1996. On that date, the Supreme Court decided United
States v. Winstar Corp., 518 U.S. 839 (1996), holding that the
government became liable for damages in breach of contract when
the accounting treatment of ``supervisory goodwill'' that it
had previously approved was prevented by enactment of FIRREA.
About 100 ``goodwill'' cases against the government are still
pending before the courts, with claims totaling about $20
billion. CBO estimates that, under current law, such claims
will cost the government about $1.5 billion over the 2004-2013
period. Judgments, settlements, and litigation expenses for
such claims are paid from the FSLIC Resolution Fund, and such
payments do not require appropriation action.
By eliminating some defenses currently available to the
United States in such cases, section 214 would increase the
likelihood that some claims would reach a hearing on the
merits, thereby allowing cases to proceed further in the
judicial process than may otherwise be likely. According to the
Department of Justice (DOJ) and the FDIC, this provision would
affect only a few of the goodwill cases; claims in the affected
cases could total about $200 million. (This provision also
could affect cases in which the FDIC is the plaintiff as the
receiver of a failed thrift, but any monetary awards to the
FDIC would be intragovernmental payments and would have no net
effect on the Federal budget.)
Estimated Cost of This Provision. CBO expects that enacting
section 214 would increase the cost of litigation and potential
settlements or judgments against the United States. Whether
those costs are large or small would depend on the role those
defenses would otherwise play in the outcome of each case. For
example, the cost could be significant if the loss of those
defenses resulted in a judgment for plaintiffs on the merits
but could be negligible if the judgment were against the
For this estimate, CBO assumes that defenses of res
judicata and collateral estoppel would be just two of several
possible defenses and other factors affecting awards of
monetary damages and that barring them would therefore have a
small effect on the potential costs of such claims. We estimate
that enacting this provision would increase expected payments
for such claims by about $10 million--or 5 percent of the
roughly $200 million in claims that might be affected by this
provision. Given the pace of such litigation, we expect that
those added costs would occur in 2007 and 2008. In addition,
CBO estimates that DOJ's administrative costs would increase by
an average of about $1 million a year as a result of the added
time and workload associated with those cases. This estimate is
based on historical trends in the cost of litigating such
Nongoodwill Cases. Because section 214 would not limit the
affected claims to goodwill cases, this provision also could
affect other types of claims for monetary damages arising out
of the implementation of FIRREA that meet the criteria in the
bill. This provision could encourage the filing of such claims
that were resolved prior to July 1, 1996; however, DOJ is
currently unaware of any such claims.
Offsetting Receipts From Federal Leases. Section 302 would
allow Federal agencies to lease land to Federal credit unions
without charge under certain conditions. Under existing law,
agencies may allocate space in Federal buildings without charge
if at least 95 percent of the credit union's members are or
were Federal employees. Some credit unions, primarily those
serving military bases, have leased Federal land to build a
facility. Prior to 1991, leases awarded by the Department of
Defense (DoD) were free of charge and for terms of up to 25
years; a statutory change enacted that year limited the term of
such leases to 5 years and required the lessee to pay a fair
market value for the property. According to DoD, about 35
credit unions have leased land since 1991 and are paying a
total of about $525,000 a year to lease Federal property. Those
proceeds are recorded as offsetting receipts, and any spending
of those payments is subject to appropriation.
CBO expects that enacting this provision would result in a
loss of offsetting receipts from all credit union leases. Those
lessees currently paying a fee would stop making those payments
after they renew their current leases, all of which should
expire within the next 5 years. In addition, credit unions that
have long-term, no-cost leases would be able to renew them
without becoming subject to the fees they otherwise would pay
under current law. CBO estimates that enacting this provision
would cost a total of about $2 million over the next 5 years
and an average of about $700,000 annually after 2008.
Deposit Insurance. Several provisions in the bill could
affect the cost of Federal deposit insurance. For example, the
bill would streamline the approval process for mergers,
branching, and affiliations, which could give eligible
institutions the opportunity to diversify and compete more
effectively with other financial businesses. In some cases,
such efficiencies could reduce the risk of insolvency. It is
also possible, however, that some of the new lending and
investment options could increase the risk of losses to the
deposit insurance funds.
CBO has no clear basis for predicting the direction or the
amount of any change in spending for insurance that could
result from the new investment, lending, and operational
arrangements authorized by this bill. The net budgetary impact
of such changes would be negligible over time, however, because
any increase or decrease in costs would be offset by
adjustments in the insurance premiums paid by banks, thrifts,
or credit unions.
Spending Subject to Appropriation
Section 201 provides thrift institutions with exemptions
from broker-dealer and investment-advisor registration
requirements similar to those accorded banks. Section 313
provides similar exemptions for federally insured credit
unions. Based on information from the SEC, CBO estimates that
the budgetary effects of those exemptions would not be
Section 312 would exempt federally insured credit unions
from filing certain acquisition or merger notices with the FTC.
Under current law, the FTC charges filing fees ranging from
$45,000 to $280,000, depending on the value of the transaction.
The collection of such fees is contingent on appropriation
action. Based on information from the FTC, CBO estimates that
this exemption would have no significant effect on the amounts
collected from such fees.
ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS
H.R. 1375 would preempt certain State laws and place new
requirements on certain State agencies that regulate financial
institutions. Both the preemptions and the new requirements
would be mandates as defined in UMRA. CBO estimates that the
cost of those mandates taken together would not exceed the
threshold established in UMRA ($59 million in 2003, adjusted
annually for inflation).
Section 209 would preempt certain State securities laws by
prohibiting States from requiring agents representing a Federal
savings association to register as brokers or dealers if they
sell deposit products (CDs) issued by the savings association.
Such a preemption would impose costs (in the form of lost
revenues) on those States that currently require such
registration. Based on information from representatives of the
securities industry and securities regulators, CBO estimates
that losses to States as a result of this prohibition would
total less than $1 million a year.
Section 301 would authorize certain privately insured
credit unions to apply for membership in a Federal Home Loan
Bank (FHLB). Part of the application process would require
State regulators of credit unions to determine whether an
applicant is eligible for Federal deposit insurance. This
requirement would be a mandate, but because the regulators
already make that determination under State law, the additional
cost to comply with the requirement would be minimal.
Upon becoming members, those credit unions would be
eligible for loans from the FHLB. To preserve the value of
those loans, section 301 would preempt certain State contract
laws that otherwise would allow defaulting credit unions to
avoid certain contractual obligations. Because those credit
unions are not currently eligible for membership in a Federal
home loan bank, and accordingly, have no contracts for credit,
this preemption, while a mandate, would impose no costs on
State, local, or tribal governments.
Section 302 would require State regulators of credit unions
to provide certain information when requested by the NCUA.
Because this provision would not require States to prepare any
additional reports, merely to provide them to NCUA upon
request, CBO estimates that the cost to States would be
Section 401 would expand an existing preemption of State
laws related to mergers between insured depository institutions
chartered in different States. Current law preempts State laws
that restrict mergers between insured banks with different home
States. This section would expand that preemption to cover
mergers between insured banks and other insured depository
institutions or trust companies with different home States.
This expansion of a preemption would be a mandate under UMRA
but would impose little or no cost on States.
Section 401 also would preempt State laws that regulate
certain fiduciary activities performed by insured banks and
other depository institutions. The bill would allow banks and
trusts of a State (the home State) to locate a branch in
another State (the host State) as long as the services provided
by the branch are not in contravention of home State or host
State law. Further, if the host State allows other types of
entities to offer the same services as the branch bank or trust
seeking to locate in the host State, home State approval of the
branch would not be in contravention of host State law. This
provision could preempt laws of the host State but would impose
no costs on them.
Section 619 provides that, except where expressly provided
in a cooperative agreement, only the bank supervisor of the
home State of an insured State bank may impose supervisory fees
on the bank. To the extent that State laws permit such charges,
this provision would preempt State authority. However, based on
information from the Conference of State Bank Supervisors,
under current practice, host States rarely if ever charge such
fees, and therefore, we estimate that enacting this provision
would have no significant effect on State revenues.
ESTIMATED IMPACT ON THE PRIVATE SECTOR
H.R. 1375 contains several private-sector mandates as
defined by UMRA. At the same time, the bill would relax some
restrictions on the operations of certain financial
institutions. CBO estimates that the aggregate direct costs of
mandates in the bill would not exceed the annual threshold
established in UMRA ($117 million in 2003, adjusted annually
The bill would impose mandates on depository institutions
controlled by companies other than depository institution
holding companies; nondepository institutions that control
insured depository institutions; uninsured banks; bank holding
companies and their subsidiaries; savings and loan association
holding companies and their subsidiaries; and Federal Home Loan
Banks. Mandates in the bill include an expansion of the
authority of the FDIC over certain insured depositories and
companies that control insured depositories, a prohibition on
participation in the affairs of financial institutions of
people convicted of certain crimes, and additional reporting
requirements for FHLBs.
Expansion of the FDIC's Authorities. The Gramm-Leach-Bliley
Act allowed new forms of affiliations among depositories and
other financial services firms. Consequently, insured
depository institutions may now be controlled by a company
other than a depository institution holding company (DIHC).
H.R. 1375 would amend current law to give the FDIC certain
authorities concerning troubled or failing depository
institutions held by those new forms of holding companies.
Under current law, if the FDIC suffers a loss from
liquidating or selling a failed depository institution, the
FDIC has the authority to obtain reimbursement from any insured
depository institution within the same DIHC. Section 407 would
expand the scope of the FDIC's reimbursement power to include
all insured depository institutions controlled by the same
company, not just those controlled by the same DIHC.
The cost of this mandate would depend, among other things,
on the probability of failure of the additional institutions
subject to this authority and the probability that the FDIC
would incur a loss as a result of those failures. The new
authority would apply only to a handful of depository
institutions. Based on information from the FDIC, CBO estimates
that the cost of this mandate would not be substantial.
In addition, section 408 would allow the FDIC to prohibit
or limit any company that controls an insured depository from
making ``golden parachute'' payments or indemnification
payments to institution-affiliated parties of troubled or
failing insured depositories. (Institution-affiliated parties
include directors, officers, employees, and controlling
shareholders. Institution-affiliated parties also include
independent contractors such as accountants or lawyers who
participate in violations of the law or undertake unsound
business practices that may cause a financial loss to, or
adverse effect on, the insured depository institution.)
Based on information from the FDIC, CBO expects that only a
few institutions would be covered by the new authority. In the
event that the FDIC exercises this authority, CBO expects that
the cost to institutions of withholding such payments would be
administrative in nature and minimal, if any.
Prohibitions on Convicted Individuals. Current law
prohibits a person convicted of a crime involving dishonesty, a
breach of trust, or money laundering from participating in the
affairs of an insured depository institution without FDIC
approval. The bill would extend that prohibition so that
uninsured banks, bank holding companies and their subsidiaries,
and savings and loan holding companies and their subsidiaries
could not allow such persons to participate in their affairs
without the prior written consent of their designated Federal
Assuming that those institutions already screen potential
directors, officers, and employees for criminal offenses, the
incremental cost of complying with this mandate would be small.
Reporting Requirements for Federal Home Loan Banks. Section
616 would require the Federal Home Loan Banks to report the
compensation and expenses paid to directors in their annual
reports. CBO expects that the cost of complying with this
mandate would be minimal.
PREVIOUS CBO ESTIMATE
On June 11, 2003, CBO transmitted a cost estimate for H.R.
1375 as ordered reported by the House Committee on Financial
Services on May 21, 2003. H.R. 1375 as approved by the House
Committee on the Judiciary is identical to the version of the
bill reported by the House Committee on Financial Services.
ESTIMATE PREPARED BY:
Federal Costs: Kathy Gramp and Jenny Lin (226-2860)
Federal Revenues: Pam Greene (226-2680)
Impact on State, Local, and Tribal Governments: Victoria Heid
Impact on the Private Sector: Judith Ruud (226-2940)
ESTIMATE APPROVED BY:
Robert A. Sunshine
Assistant Director for Budget Analysis
G. Thomas Woodward
Assistant Director for Tax Analysis
Performance Goals and Objectives
H.R. 1375 does not authorize funding. Therefore, clause
3(c)(4) of Rule XIII of the Rules of the House of
Representatives is inapplicable.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of Rule XIII of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in article I, section 8 of the Constitution.
Section-by-Section Analysis and Discussion
The following section-by-section analysis describes the
sections of H.R. 1375 as reported that fall within the rule X
jurisdiction of the Committee on the Judiciary. For a
description of the other sections of the bill, please refer to
the report of the Committee on Financial Services.\3\
\3\ See H.R. Rep. No.108-152 Part I (2003).
TITLE I--NATIONAL BANKS
Section 106. Clarification of Waiver of Publication Requirements for
Bank Merger Notices.
Section 106 amends the National Bank Consolidation and
Merger Act (12 U.S.C. Sec. Sec. 215(a) and 215(a)(2)) to
provide the Comptroller with authority to waive the publication
of notice requirement for bank mergers if the Comptroller
determines that an emergency justifies such a waiver or if
shareholders of the association or State bank agree by
unanimous action to waive the publication requirement for their
TITLE II--SAVINGS ASSOCIATIONS PROVISIONS
Section 203. Mergers and Consolidations of Federal Savings Associations
with Nondepository Institution Affiliates.
This section amends the Home Owners Loan Act (12 U.S.C.
Sec. 1464) to permit a Federal savings association to merge
with any nondepository institution affiliate of the savings
Section 213. Citizenship of Federal Savings Associations for
Determining Federal Court Diversity Jurisdiction.
This section amends the Home Owners' Loan Act (12 U.S.C.
Sec. 1464) to establish that a Federal savings association
shall be considered--for purposes of establishing diversity
jurisdiction--a citizen only of the State where the savings
association locates its main office. Diversity jurisdiction
requires complete diversity among all parties to a lawsuit,
i.e. that all parties be citizens of different States, and for
there to be a minimum sum of $75,000 in controversy. Since they
are chartered by the Federal Government and not incorporated in
a State, it has been held that federally-chartered savings
associations that conduct business in more than one State are
not considered to be a citizen of any State. In contrast,
federally-chartered savings associations that confine their
business to a single State are considered to be a citizen of
that State. This section will provide parity among federally-
chartered savings associations. This section also ensures
greater parity between federally-chartered savings associations
and national banking associations by providing that each is
considered to be a citizen of the State where it is located for
purposes of diversity jurisdiction.
Section 214. Applicability of Certain Procedural Doctrines.
This section amends Section 11A(d) of the Federal Deposit
Insurance Act (12 U.S.C. Sec. 1821a(d)) by prohibiting courts
from dismissing a claim for monetary damages against the United
States, or any agency or official thereof, where any recovery
would be paid from the Federal Savings & Loan Insurance
Corporation (FSLIC) Resolution Fund or any supplements thereto,
where liability is alleged to be based upon actions of the
FSLIC or the Federal Home Loan Bank Board prior to their
respective dissolutions, where the claim arose from the
implementation of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (FIRREA), on the basis of res
judicata, collateral estoppel, or similar issue preclusion
defenses if the defense is based upon a decision, opinion, or
order of judgment entered by a court prior to the U.S. Supreme
Court's decision in United States v. Winstar.\4\ During the
savings and loan crisis of the 1980's, Federal thrift
regulators sought to avoid incurring additional deposit
insurance liabilities by encouraging healthy thrifts and
outside investors to acquire ailing thrifts through
``supervisory mergers.'' In exchange, the Federal thrift
regulators pledged to treat a failed thrift's negative net
worth as supervisory goodwill and include it in calculating
regulatory capital. In 1989, Congress enacted FIRREA,
prohibiting thrifts from counting supervisory goodwill as
regulatory capital. In the 1996 Winstar decision, the Supreme
Court held that the government entered into contracts with the
acquiring thrifts and breached those contracts by implementing
FIRREA's prohibitions on including supervisory goodwill in
calculating regulatory capital. Section 214 seeks to ensure
that all institutions entitled to pursue claims against the
government under Winstar's reasoning are afforded an
opportunity to have their claims adjudicated on the merits.
\4\ 518 U.S. 839 (1996).
TITLE III--CREDIT UNION PROVISIONS
Section 312. Exemption from Pre-merger Notification Requirement of the
This section amends the Clayton Act to exempt credit unions
from provisions of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (15 U.S.C. Sec. 18a) which require certain acquired
and acquiring persons--including federally insured credit
unions--to file a notification and report form with the Federal
Trade Commission (FTC) to provide advance notification of
mergers and acquisitions when the value of the transaction
exceeds $50 million.
TITLE IV--DEPOSITORY INSTITUTION PROVISIONS
Section 402. Statute of Limitations for Judicial Review of Appointment
of a Receiver for Depository Institutions.
This section amends the National Bank Receivership Act (12
U.S.C. Sec. 191), the Federal Deposit Insurance Act (12 U.S.C.
Sec. 1821(c)(7)), and the Federal Credit Union Act (12 U.S.C.
Sec. 1787(a)(1)), to establish a uniform 30-day statute of
limitations for national banks, State chartered non-member
banks, and credit unions to challenge decisions by the Office
of the Comptroller of the Currency, Federal Deposit Insurance
Corporation, and the National Credit Union Administration to
appoint a receiver. Current law generally provides that
challenges to a decision by the Federal Deposit Insurance
Corporation or the Office of Thrift Supervision to appoint a
receiver for an insured State bank or savings association must
be raised within 30 days of the appointment. (See 12 U.S.C.
Sec. Sec. 1821(c)(7) & 1464(d)(2)(B)). However, there is no
statutory limitation on national banks' ability to challenge a
decision by the Office of the Comptroller of the Currency to
appoint a receiver of an insured or uninsured national bank. As
a result, the general 6-year statute of limitations currently
applies to national banks in these instances. This protracted
time period severely limits the Office of the Comptroller of
the Currency's authority to manage insolvent national banks
that are placed in receivership and the ability of the Federal
Deposit Insurance Corporation to wind up the affairs of an
insured national bank in a timely manner with legal
\5\ James Madison, Ltd. v. Ludwig 82 F.3d 1085 (1996).
TITLE VI--BANKING AGENCY PROVISIONS
Section 607. Streamlining Depository Institution Merger Application
This section amends the Federal Deposit Insurance Act (12
U.S.C. Sec. 1828) to require the Attorney General to provide
within 30 days a report on the competitive factors associated
with a depository institution merger to a requesting agency.
This section reduces this period to 10 days if the requesting
agency advises the Attorney General that an emergency exists
requiring expeditious action.
Section 609. Shortening of Post-approval Antitrust Review Waiting
Period for Bank Acquisitions and Mergers with the Agreement of
the Attorney General.
Currently, banks and bank holding companies must delay
consummating any bank acquisition or merger for at least 15
days after the transaction has been approved by a Federal
banking agency. This waiting period is designed to allow the
Attorney General to challenge the transaction, if the Attorney
General believes the transaction would significantly harm
competition. Section 609 would allow the banking agency to
reduce the waiting period to 5 days, but only in cases where
the Attorney General has agreed in advance that the acquisition
or merger would not have serious anti-competitive effects. In
such circumstances, a longer waiting period is not needed to
allow the Attorney General to review the transaction and merely
delays the ability of the banking organizations to achieve
their business objectives. This section does not shorten the
time period for private parties to challenge the banking
agency's approval of the transaction under the Community
Reinvestment Act or banking laws.
Section 613. Examiners of Financial Institutions.
This section amends 18 U.S.C. Sec. 212 to establish a fine
and a prison sentence not more than 1 year, or both, as well as
a further sum equal to the amount of the credit extended, for
an officer, director or employee of a financial institution who
extends credit to any examiner which the examiner is prohibited
from accepting. In addition, this section authorizes limited
waivers from the prohibition on examiners accepting credit from
a bank being examined, if the examiner fully discloses the
nature and circumstances of the loan and receives a
determination from the examiner's employer that the loan would
not affect the integrity of the examination. Examiners are
permitted to receive credit cards on terms and conditions no
more favorable to the examiner than those generally applicable
to other consumers.
Section 615. Enforcement Against Misrepresentations Regarding FDIC
Deposit Insurance Coverage.
This section amends 18 U.S.C. Sec. 709 to authorize the
FDIC to take enforcement actions and impose civil monetary
penalties of up to $1 million per day on any individual,
corporation, or other entity for misrepresentation of FDIC
insurance coverage. This section does not prohibit the
imposition of otherwise applicable sanctions for its violation,
and sets time periods within which the FDIC may assess and
recover such civil penalties.
Changes in Existing Law Made by the Bill, as Reported
The bill was referred to this committee for consideration
of such provisions of the bill and amendment as fall within the
jurisdiction of this committee pursuant to clause 1(k) of Rule
X of the Rules of the House of Representatives. The changes
made to existing law by the amendment reported by the Committee
on Financial Services are shown in the report filed by that
committee (Rept. 108-152, Part 1).
WEDNESDAY, JULY 9, 2003
House of Representatives,
Committee on the Judiciary,
The Committee met, pursuant to notice, at 10:00 a.m., in
Room 2141, Rayburn House Office Building, Hon. F. James
Sensenbrenner, Jr., [Chairman of the Committee] presiding.
* * * * *
Chairman Sensenbrenner. Now pursuant to notice, I call up
the bill H.R. 1375, the ``Financial Services Regulatory Relief
Act of 2003'' for purposes of markup and move its favorable
recommendation to the House. Without objection, the bill will
be considered as read and open for amendment at any point. The
text of the bill as reported by the Committee on Financial
Services, which the Members have before them, will be
considered as read, considered as the original text for
purposes of amendment, and open for amendment at any point.
[The Committee Print for H.R. 1375 follows:]
Chairman Sensenbrenner. The Chair has a long-winded
statement which he will put in the record, without objection.
[The statement of Mr. Sensenbrenner follows:]
Prepared Statement of the Honorable F. James Sensenbrenner, Jr., a
Representative in Congress From the State of Wisconsin
The ``Financial Services Regulatory Relief Act of 2003'' was
reported by the Committee on Financial Services on May 21, 2003 and was
sequentially referred to the Judiciary Committee for a period ending
not later than July 14, 2003. This legislation is nearly identical to
H.R. 3951, the ``Financial Services Regulatory Relief Act of 2002,''
which was reported from this Committee last Congress.
H.R. 1375 makes several changes to existing law to provide a
measure of relief to highly regulated financial institutions. The
legislation contains regulatory improvements for savings associations,
credit unions, and federal financial regulatory agencies.
The following sections contain matters within the Rule X
jurisdiction of the Judiciary Committee: Section 106 of the legislation
clarifies bank merger notice requirements, while Section 203 of the
bill allows a Federal savings association to merge with any
nondepository institution affiliate of the savings association.
Section 213 of the legislation ensures that all federal thrifts are
considered to be a citizen of a State for purposes of establishing
diversity jurisdiction. This provision extends to federal savings
associations that operate across State lines the same possibility of
establishing diversity jurisdiction currently enjoyed by national
banks, State-chartered banks, and savings associations. Currently,
federally-chartered savings associations that conduct businesses in
more than one State may, under some circumstances, be considered to not
be a citizen of any State in which they operate.
Section 214 of the legislation requires federal courts to ensure
that all institutions having claims for relief under the Supreme
Court's 1996 Winstar decision be permitted to have those claims
considered on the merits. The provision is an equitable one.
It is intended to ensure that financial institutions which took
over failed thrifts in the 1980's only after receiving specific
material assurances from federal regulators--terms that the Supreme
Court ruled were later breached by the federal government--have the
ability to present their claims for breach of contract in federal
Section 312 of the legislation, would exempt credit unions from
having to file Hart-Scott-Rodino pre-merger antitrust review.
Section 402 establishes a uniform 30-day statute of limitations on
various financial institutions to appeal decisions by the Comptroller,
FDIC, and National Credit Union Administration to appoint a receiver.
Section 607 streamlines merger applications for depository
institutions while Section 609 would shorten the post-approval process
during which banks can complete merging or acquiring another bank if
the Attorney General agrees in advance that the acquisition or merger
would not have serious anticompetitive effects. Finally, Section 615
would allow for the imposition of up to $1 million a day fine on any
individual or corporation for misrepresentation of FDIC insurance
H.R. 1375 represents meaningful reform of a financial services
industry in need of structural regulatory modernization, and I urge
I now turn to Mr. Conyers for his opening remarks.
Chairman Sensenbrenner. Without objection, all Members may
put statements in the record. And are there amendments? The
gentlewoman from California, do you have an amendment to this
Chairman Sensenbrenner. Okay. Are there amendments?
If not, the Chair notes the presence of a reporting quorum.
All those in favor of reporting the bill favorably will say
aye? Opposed, no?
The ayes appear to have it. The ayes have it, and the bill
is reported favorably.
Without objection, the Chairman is authorized to move to go
to conference pursuant to House rules. Without objection, the
staff is directed to make any technical and conforming changes,
and all Members will be given 2 days as provided by House rules
in which to submit additional, dissenting, supplemental, or
And the Committee is recessed until 10:00 a.m. tomorrow.
[Whereupon, at 4:54 p.m., the Committee was recessed, to
reconvene at 10:00 a.m., Thursday, July 10, 2003.]
We generally support the version of H.R. 1375 as reported
out of the Committee on the Judiciary, but we have one
reservation about a provision that was not addressed at the
Committee markup. Section 609 of H.R. 1375 amends section 11(b)
of the Bank Holding Company Act of 1956, 12 U.S.C.
Sec. 1849(b), and section 18(c)(6) of the Federal Deposit
Insurance Act, 12 U.S.C. Sec. 1828(c)(6), by reducing the
minimum waiting period from 15 calendar days to five calendar
days for banks and bank holding companies to merge with or
acquire other banks or bank holding companies. Although no
amendment was offered at the Committee, we feel that this
provision should be struck from the bill.
Community organizations have raised concerns about this
provision, which reduces to 5 days the pre-merger, mandatory
15-day waiting period with the Attorney General's approval.
During the course of a bank merger process, both the Federal
financial supervisory agency and the Department of Justice
review the merger proposal for competitive concerns. After a
Federal banking agency approves a merger, DOJ has 30 days to
decide whether to challenge the merger approval on antitrust
grounds. At a minimum, the merging banks must now wait 15 days
before completing their merger. Currently, banking law allows
third parties (other than Federal banking agencies or DOJ) to
file suit during the post-approval waiting period. As proposed,
section 609 would reduce the minimum 15-day waiting period to 5
days when DOJ indicates it will not file suit challenging the
merger approval order.
We believe this provision is anti-Community Reinvestment
Act (``CRA'') and strips the organizations' right to seek
judicial review of Federal bank merger approval orders. Without
such review, community organizations will be deprived of
impartial means and mechanisms for ensuring that CRA
performance obligations are taken into account when considering
merger approvals. Community-based organizations use such suits
to obtain information about the merger and ensure that the
merger will not result in disproportionate branch closures in
low-income or minority communities. We believe they play an
important role in the public interest and would like to
reaffirm our desire that the mandatory 15-day waiting period
remain and that section 609 be struck from the bill.
John Conyers, Jr.
William D. Delahunt.
Linda T. Sanchez.