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115th Congress   }                                     {       Report
                        HOUSE OF REPRESENTATIVES
 2d Session      }                                     {      115-621

======================================================================



 
               VOLCKER RULE REGULATORY HARMONIZATION ACT

                                _______
                                

 April 5, 2018.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 4790]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 4790) to amend the Volcker rule to give the 
Board of Governors of the Federal Reserve System sole 
rulemaking authority, to exclude community banks from the 
requirements of the Volcker rule, and for other purposes, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill as amended do pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Volcker Rule Regulatory Harmonization 
Act''.

SEC. 2. RULEMAKING AUTHORITY UNDER THE VOLCKER RULE.

  (a) In General.--Paragraph (2) of section 13(b) of the Bank Holding 
Company Act of 1956 (12 U.S.C. 1851(b)(2)) is amended to read as 
follows:
          ``(2) Rulemaking.--
                  ``(A) In general.--The Board may, as appropriate, 
                consult with the Comptroller of the Currency, the 
                Federal Deposit Insurance Corporation, the Securities 
                and Exchange Commission, or the Commodity Futures 
                Trading Commission to adopt rules or guidance to carry 
                out this section, as provided in subparagraph (B).
                  ``(B) Rulemaking requirements.--In adopting a rule or 
                guidance under subparagraph (A), the Board--
                          ``(i) shall consider the findings of the 
                        report required in paragraph (1) and, as 
                        appropriate, subsequent reports;
                          ``(ii) shall assure, to the extent possible, 
                        that such rule or guidance provide for 
                        consistent application and implementation of 
                        the applicable provisions of this section to 
                        avoid providing advantages or imposing 
                        disadvantages to the companies affected by this 
                        subsection and to protect the safety and 
                        soundness of banking entities and nonbank 
                        financial companies supervised by the Board; 
                        and
                          ``(iii) shall include requirements to ensure 
                        compliance with this section, such as 
                        requirements regarding internal controls and 
                        recordkeeping.
                  ``(C) Authority.--The Board shall have sole authority 
                to issue and amend rules under this section after the 
                date of the enactment of this paragraph.
                  ``(D) Conforming authority.--
                          ``(i) Continuity of regulations.--Any rules 
                        or guidance issued under this section prior to 
                        the date of enactment of this paragraph shall 
                        continue in effect until the Board issues a 
                        successor rule or guidance, or amends such rule 
                        or guidance, pursuant to subparagraph (C).
                          ``(ii) Applicable guidance.--In performing 
                        examinations or other supervisory duties, the 
                        appropriate Federal banking agencies, the 
                        Securities and Exchange Commission, and the 
                        Commodity Futures Trading Commission, as 
                        appropriate, shall update any applicable 
                        policies and procedures to ensure that such 
                        policies and procedures are consistent (to the 
                        extent practicable) with any rules or guidance 
                        issued pursuant to subparagraph (C).''.
  (b) Conforming Amendments.--Section 13 of the Bank Holding Company 
Act of 1956 (12 U.S.C. 1851) is amended--
          (1) by striking ``the appropriate Federal banking agencies, 
        the Securities and Exchange Commission, and the Commodity 
        Futures Trading Commission,'' each place it appears and 
        inserting ``the Board'';
          (2) by striking ``appropriate Federal banking agencies, the 
        Securities and Exchange Commission, and the Commodity Futures 
        Trading Commission'' each place it appears and inserting 
        ``Board'';
          (3) in subsection (c)(5), by striking ``Notwithstanding 
        paragraph (2)'' and all that follows through ``provided in 
        subsection (b)(2),'' and inserting ``The Board shall have the 
        authority''; and
          (4) in subsection (d)(1)--
                  (A) in subparagraph (F)(ii)--
                          (i) by striking ``the appropriate Federal 
                        banking agencies''' and inserting ``the 
                        Board''; and
                          (ii) by striking ``have not jointly'' and 
                        inserting ``has not''; and
                  (B) in subparagraph (G)(viii), by striking 
                ``appropriate Federal banking agencies, the Securities 
                and Exchange Commission, or the Commodity Futures 
                Trading Commission,'' and inserting ``Board,''.

SEC. 3. ENFORCEMENT; ANTI-EVASION.

  (a) In General.--Subsection (e) of section 13 of the Bank Holding 
Company Act of 1956 (12 U.S.C. 1851(e)) is amended to read as follows:
  ``(e) Enforcement; Anti-evasion.--
          ``(1) Appropriate federal banking agency.--Notwithstanding 
        any other provision of law except for any rules or guidance 
        issued under subsection (b)(2), whenever the appropriate 
        Federal banking agency has reasonable cause to believe that a 
        banking entity or nonbank financial company supervised by the 
        Board has made an investment or engaged in an activity in a 
        manner that either violates the restrictions under this 
        section, or that functions as an evasion of the requirements of 
        this section (including through an abuse of any permitted 
        activity), such appropriate Federal banking agency shall order, 
        after due notice and opportunity for hearing, the banking 
        entity or nonbank financial company supervised by the Board to 
        terminate the activity and, as relevant, dispose of the 
        investment.
          ``(2) Securities and exchange commission and commodity 
        futures trading commission.--
                  ``(A) In general.--Notwithstanding any other 
                provision of law except for any rules or guidance 
                issued under subsection (b)(2), whenever the Securities 
                and Exchange Commission or the Commodity Futures 
                Trading Commission, as appropriate, has reasonable 
                cause to believe that a covered nonbank financial 
                company for which the respective agency is the primary 
                Federal regulator has made an investment or engaged in 
                an activity in a manner that either violates the 
                restrictions under this section, or that functions as 
                an evasion of the requirements of this section 
                (including through an abuse of any permitted activity), 
                the Securities and Exchange Commission or the Commodity 
                Futures Trading Commission, as appropriate, shall 
                order, after due notice and opportunity for hearing, 
                the covered nonbank financial company to terminate the 
                activity and, as relevant, dispose of the investment.
                  ``(B) Covered nonbank financial company defined.--In 
                this paragraph, the term `covered nonbank financial 
                company' means a nonbank financial company (as defined 
                in section 102 of the Financial Stability Act of 2010) 
                supervised by the Securities and Exchange Commission or 
                the Commodity Futures Trading Commission, as 
                appropriate.''.
  (b) Rule of Construction.--Nothing in this section shall be construed 
to abrogate, reduce, or eliminate the backup authority of the Federal 
Deposit Insurance Corporation authority under the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (12 U.S.C. 5301 et seq.), the 
Federal Deposit Insurance Act (12 U.S.C. 1811), or Federal Deposit 
Insurance Corporation Improvement Act of 1991.

SEC. 4. EXCLUSION OF COMMUNITY BANKS FROM VOLCKER RULE.

  Section 13(h)(1) of the Bank Holding Company Act of 1956 (12 U.S.C. 
1851(h)(1)) is amended--
          (1) in subparagraph (D), by redesignating clauses (i) and 
        (ii) as subclauses (I) and (II), respectively, and adjusting 
        the margins accordingly;
          (2) by redesignating subparagraphs (A), (B), (C), and (D) as 
        clauses (i), (ii), (iii), and (iv), respectively, and adjusting 
        the margins accordingly;
          (3) in the matter preceding clause (i), as so redesignated, 
        in the second sentence, by striking ``institution that 
        functions solely in a trust or fiduciary capacity, if--'' and 
        inserting the following: ``institution--
                  ``(A) that functions solely in a trust or fiduciary 
                capacity, if--'';
          (4) in clause (iv)(II), as so redesignated, by striking the 
        period at the end and inserting ``; or''; and
          (5) by adding at the end the following:
                  ``(B) that does not have and is not controlled by a 
                company that has--
                          ``(i) more than $10,000,000,000 in total 
                        consolidated assets; and
                          ``(ii) total trading assets and trading 
                        liabilities, as reported on the most recent 
                        applicable regulatory filing filed by the 
                        institution, that are more than 5 percent of 
                        total consolidated assets.''.

                          Purpose and Summary

    On January 12, 2018, Representative French Hill introduced 
H.R. 4790, the ``Volcker Rule Regulatory Harmonization Act,'' 
to streamline the regulatory authority established by Section 
619 of the Dodd-Frank Act, also known as the Volcker Rule, and 
provide community banks under $10 billion with an exclusion 
related to the Volcker Rule compliance obligations.
    More specifically, H.R. 4790, as modified by an amendment 
in the nature of a substitute offered by Representative Bill 
Foster and accepted by Representative Hill, achieves these 
objectives by amending Section 619 of the Dodd-Frank Act such 
that the Board of Governors of the Federal Reserve (Federal 
Reserve) has exclusive rulemaking authority and the primary 
Federal regulator for each entity required to comply with the 
rule has sole examination and enforcement authority over that 
entity. The legislation also excludes community banks from 
Volcker Rule compliance if they do not have and are not 
controlled by an entity with $10 billion or more in total 
consolidated assets and total trading assets and trading 
liabilities that are more than five percent of total 
consolidated assets.

                  Background and Need for Legislation

    The goal of H.R. 4790 is to enhance regulatory clarity and 
certainty as well as reduce burdensome and duplicative 
compliance costs associated with Section 619 of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Pub. L. No. 
111-203)--popularly known as the ``Volcker Rule'' after its 
chief proponent, former Federal Reserve Board Chairman Paul 
Volcker.
    The Volcker Rule generally prohibits U.S. bank holding 
companies and their affiliates from engaging in ``proprietary 
trading'' and from sponsoring hedge funds and private equity 
funds. In its design and implementation, however, the Volcker 
Rule far overshot the mark and has created an extraordinarily 
complex and burdensome compliance regime due to several 
factors, including: the scope of firms subject to the rule's 
prohibitions, the number of regulators charged with 
enforcement, ambiguous rules and definitions, and the extensive 
compliance programs that the rule requires firms to adopt. The 
result has chilled market-making functions necessary to ensure 
a healthy level of market liquidity and hedging activity to 
mitigate risk.
    Banks play an extremely important role in U.S. financial 
markets by buying and selling securities on behalf of their 
customers, also known as ``market making.'' Market making is 
crucial to the modern financial system, in which companies 
raise funds by selling equity, bonds, notes, and commercial 
paper. By acting as intermediaries between buyers and sellers, 
banks hold prices down, maintain tight trading spreads and 
facilitate continuous markets. Without market makers, buyers 
and sellers would have to find each other, making transactions 
both more costly and less frequent. Corporations that issue 
debt to pay for capital investments, invest in research and 
development, meet payroll, or hire new workers depend on market 
makers to hold down the cost of credit.
    Market makers also hold down the cost of credit for 
consumers: credit card debt and mortgages are often financed by 
being bundled into securities, which are then bought and sold 
in the capital markets. By acting as a market maker for these 
kinds of securities, banks make it cheaper and easier for 
consumers to use their credit cards or obtain mortgages. 
Savers--through large pension funds, mutual funds, and 
insurance companies--also depend on the willingness of market 
makers to buy and sell securities. These institutional 
investors cannot ``save'' their cash at banks as small 
depositors do, and they must be able to quickly meet calls for 
cash from their investors. The market-making activities of 
banks permit these firms to ``save'' cash by purchasing 
financial assets and ``withdraw'' cash by selling those assets. 
This ability to ``save'' and ``withdraw'' in turn benefits the 
small investors that are the clients of these financial firms.
    The drafters of the Volcker Rule acknowledged the key role 
that market-making plays in ensuring deep, liquid capital 
markets, and as a result attempted to exempt market-making 
activities from prohibition on proprietary trading. But the 
final rules implementing the Volcker Rule make it difficult for 
banks to buy or sell securities for their own inventory in 
anticipation of client demand because managing inventory can 
look like ``proprietary trading''--potentially subjecting the 
firm to regulatory sanctions and monetary penalties. The 
inevitable result of this uncertainty is a reduction of 
liquidity in crucial market sectors--including the corporate 
debt market--which has the perverse effect of making the 
financial system less resilient and more vulnerable to 
destabilizing events like the one that the Dodd-Frank was 
supposed to prevent.
    The economic consequences of a sharp reduction in market 
liquidity--where market participants lose the ability to buy or 
sell securities quickly at a given price--cannot be overstated. 
In addition to higher costs for corporations and consumers, the 
value of assets held by large pension funds, mutual funds, and 
insurance companies--assets which represent the savings of 
millions of small investors--will decline as those assets 
become harder to trade, making those investors worse off. The 
lack of liquidity also means that financial markets have less 
capacity to deal with shocks and will be more likely to seize 
up in a panic, just as they did in the 2008 financial crisis. 
Reduced liquidity in the bond markets amplifies volatility when 
prices begin to decline. Rather than making markets more 
stable, then, the new regulations have made them more brittle.
    H.R. 4790 represents an important first step to address the 
unintended and negative consequences of the Volcker Rule by 
streamlining the rulemaking authority with the Federal Reserve, 
consolidating examination and enforcement authority into a 
single, primary regulator, and excluding from the rule 
community banks under $10 billion in consolidated assets and 
with trading assets and liability less than five percent. 
Outside of full repeal of the Volcker Rule, these measures are 
important and sensible changes to ensure much needed regulatory 
clarity and to reduce burdensome compliance costs.
    A central problem with the Volcker Rule was its design and 
implementation. The Dodd-Frank Act unartfully conferred 
responsibility for both implementing and enforcing the Volcker 
Rule on five different federal financial regulators: the 
Federal Reserve, the Federal Deposit Insurance Corporation 
(FDIC), the Office of the Comptroller of the Currency (OCC), 
the Securities and Exchange Commission (SEC), and the Commodity 
Futures Trading Commission (CFTC). Not surprisingly, given 
their disparate statutory mandates and regulatory missions, 
these agencies struggled to achieve consensus on a regulation 
to implement the Volcker Rule's vague legislative language. On 
December 10, 2013, the agencies voted to approve a final 
regulation implementing the Volcker Rule. The final rule totals 
932 pages and 297,000 words.
    The same five agencies that drafted the Volcker Rule are 
also responsible now for its enforcement. Most bank holding 
companies will likely be overseen by at least two of those 
regulators, and some may be overseen by as many as four. Bank 
holding companies that have a broker-dealer or a futures 
commission merchant will also be subject to examinations by 
self-regulatory organizations for compliance with the SEC's and 
CFTC's rules.
    These five regulators have disparate mandates and 
regulatory philosophies. Bank regulators have traditionally 
focused on the safety and soundness of the institutions they 
supervise, whereas market regulators like the SEC and CFTC have 
emphasized disclosure, conduct, investor protection and market 
functionality and operations. These divergent approaches mean 
that regulated institutions may well face conflicting guidance 
and mandates from the regulators charged with implementing the 
Volcker Rule. As a result of these divergent mandates among the 
regulators, financial institutions may be asked to comply with 
conflicting interpretations about whether a given trade or 
activity violates the rule. Conflicting interpretations and 
regulatory divergence are even more likely to happen because 
the final rule contains no provisions requiring the regulators 
to coordinate oversight and enforcement, or to harmonize the 
different approaches that bank regulators and market regulators 
take towards compliance.
    In response to congressional concerns about the lack of a 
harmonized enforcement approach, the five agencies tasked with 
implementing the Volcker Rule announced in February 2014 that 
they had formed an interagency working group that will meet 
regularly to discuss implementation of the final Volcker Rule. 
Some four years later, the working group has not yet created a 
dedicated and public website at which institutions affected by 
the Volcker Rule can review regulatory guidance, examination 
protocols, or interpretations.
    Regardless, the current regulatory framework results in 
fragmentation and confusion for institutions subject to the 
rule. The CFTC has jurisdiction of futures commission merchants 
and swap dealers; the SEC over brokers, dealers, investment 
companies and advisers, and security-based swap dealers; the 
OCC over national banks; the FDIC over insured nonmember state 
banks; and the Federal Reserve over bank holding companies and 
their subsidiaries not otherwise regulated by other regulators, 
state member banks, and foreign banking organizations. As 
indicated, in some cases multiple agencies have responsibility 
for a single banking entity--i.e., a national bank that is a 
swap dealer, where a single trade and related hedge could be 
booked at two different entities, each of which is regulated by 
a different agency. This fragmentation of responsibility to 
determine how to apply the Volcker rule to a particular banking 
entity or trading desk is inefficient for both the banks and 
the regulators.
    The regulators' existing approach to coordination has not 
worked and, as a result, banks have had difficulty obtaining 
clear, consistent guidance. Even former Federal Reserve 
Governor Daniel Tarullo noted in his farewell remarks, 
``Efforts to achieve consistency in treatment across agencies 
have been both time-consuming and, at times, unsuccessful.'' 
The Committee has learned that at least one regulated entity 
who attempted to schedule a meeting with all five regulators in 
the same room to describe the entity's compliance program and 
solicit feedback from the regulators; but the regulators 
advised the entity that if a joint meeting were to happen, some 
of the agencies would be unable to provide feedback since the 
regulators do not have an inter-agency information-sharing 
agreement which would eliminate protections that otherwise 
exist for bank-to-examiner conversations. The Committee also is 
aware of instances in which the prudential regulators (jointly) 
and the SEC (separately) have undertaken duplicative, 
simultaneous examinations of the same trading desks. Further, 
at least one regulated firm has received conflicting 
instructions regarding trading desk size from multiple 
examining agencies.
    H.R. 4790 addresses the Volcker Rule's fragmented 
regulatory structure by concentrating rulemaking authority in a 
single agency--the Federal Reserve--and giving an entity's 
primary federal regulator sole enforcement and examination 
authority as it relates to the Volcker Rule. During their 
respective testimonies before the Financial Services Committee 
in 2018, both Treasury Secretary Steven Mnuchin and Federal 
Reserve Chairman Jay Powell stated that they would support 
amending the Volcker Rule in a manner that consolidates 
rulemaking authority with the Federal Reserve.
    In performing its rulemaking responsibilities, H.R. 4790 
envisions a revised regulatory structure whereby the Federal 
Reserve may consult with the OCC, FDIC, SEC, and CFTC. The 
Committee also expects that the other four agencies will 
consistently apply and implement the Federal Reserve's rules or 
guidance during examinations and enforcement actions. 
Consistent with these requirements, the Federal Reserve may 
want to consider a method and develop a process to ensure that 
if any agency involved with enforcing the Volcker Rule becomes 
aware of an issue that may best be addressed by an amendment to 
an existing rule or promulgation of a new rule that issue can 
be reported to and, as appropriate, considered by the Federal 
Reserve.
    Consistent with recommendations from the Department of the 
Treasury, in addition to streamlining the regulatory 
implementation of the Volcker Rule, H.R. 4790 also exempts 
banking organizations that do not have and are not controlled 
by an entity with $10 billion or more in total consolidated 
assets and total trading assets and trading liability that are 
more than 5 percent of total consolidated assets. S. 2155, the 
Economic Growth, Regulatory Relief and Consumer Protection Act, 
includes a similar provision to exempt banks with under $10 
billion in assets. The Senate passed S. 2155 by a roll-call 
vote of 67-to-31 on March 14, 2018.
    In light of the disproportionate compliance costs community 
banks face as a result of the Volcker Rule, a bright-line 
exemption like this makes sense because most small banks do not 
even engage in proprietary trading or invest in or sponsor 
private equity or hedge funds. While the Volcker Rule 
regulations purportedly have provided banking entities with 
under $10 billion in assets with relief from the rule's 
compliance program requirements, these banks still must expend 
considerable resources to ensure that their activities do not 
constitute prohibited proprietary trading. Because of the 
Volcker Rule's complexity as implemented, even those community 
banks that do not conduct any proprietary trading have 
nonetheless had to incur large costs simply proving what the 
regulators already know--that they are not engaged in 
activities covered by the rule. For instance, community banks 
must review their investment portfolios to determine whether 
they are purchasing or selling any securities for a ``trading 
account''--a term that can be defined by the Volcker Rule under 
any one of three different tests, one of which requires the 
bank to divine the intent underlying each transaction. 
Community banks also must perform due diligence to determine 
whether each security in their portfolios qualifies for an 
exemption from the rule. Thus, the community bank exemption 
here will remove one more unnecessary regulatory burden 
inflicted on community financial institutions by the Dodd-Frank 
Act.

                                Hearings

    The subcommittee on Capital Markets, Securities, and 
Investment held hearings examining matters relating to H.R. 
4790 on March 29, 2017, April 26, 2017, and April 28, 2017.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
March 21, 2018 and ordered H.R. 4790 to be reported favorably 
to the House, as amended by a recorded vote of 50 yeas to 10 
nays (recorded vote no. FC-171), a quorum being present. Before 
the motion to report was offered, the Committee adopted an 
amendment in the nature of a substitute offered by Mr. Foster 
by voice vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole recorded vote was on a motion by Chairman Hensarling to 
report the bill favorably to the House as amended. The motion 
was agreed to by a recorded vote of 50 yeas to 10 nays (Record 
vote no. FC-171), a quorum being present.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, 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.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 4790, 
as amended, will provide regulatory clarity and efficiencies 
and eliminate burdensome costs to community banks by amending 
the Volcker Rule to grant the Federal Reserve the sole 
rulemaking authority, provide an entity's primary Federal 
regulator with sole examination and enforcement authority, and 
exempt community banks if they do not have and are not 
controlled by an entity with $10 billion or more in total 
consolidated assets and total trading assets and trading 
liabilities that are more than 5 percent of total consolidated 
assets.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, April 4, 2018.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4790, the Volcker 
Rule Regulatory Harmonization Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Nathaniel 
Frentz.
            Sincerely,
                                             Mark P. Hadley
                                        (For Keith Hall, Director).
    Enclosure.

H.R. 4790--The Volcker Rule Regulatory Harmonization Act

    The Volcker Rule restricts financial institutions insured 
by the Federal Deposit Insurance Corporation from engaging in 
certain proprietary trading of securities, derivatives, 
commodity futures, and options on those instruments. With some 
exceptions, the rule also prohibits those institutions from 
owning, sponsoring, or having certain relationships with hedge 
funds and private equity funds. Rulemaking responsibilities 
under the Volcker Rule are shared among a group of financial 
regulatory institutions, including the Board of Governors of 
the Federal Reserve System.
    H.R. 4790 would amend current law to grant the Federal 
Reserve's Board of Governors sole authority for that 
rulemaking. The bill also would exclude community banks those 
with less than $10 billion in assets and that meet certain 
other criteria from the Volcker Rule's requirements.
    CBO estimates that the change would not significantly 
affect the budgets of any of the federal regulators because 
final rules implementing the Volcker Rule have already been 
adopted. Using information from affected agencies, CBO 
estimates that any future costs to amend rules would be 
insignificant. CBO also estimates that the exemption of 
community banks would not significantly affect the workload or 
other administrative costs of the relevant regulators.
    Although CBO estimates that there is some probability of 
civil penalties' being collected over the 2018-2027 period for 
violations of the Volcker Rule, the bill's exemption for 
community banks is unlikely to significantly affect the amount 
of such penalties. CBO estimates that those penalties would be 
small if they are assessed at all for such banks.
    Because enacting the bill would affect direct spending and 
revenues, pay-as-you-go procedures apply. However, CBO 
estimates that any net changes in direct spending or revenues 
would not be significant.
    CBO estimates that enacting H.R. 4790 would not 
significantly increase net direct spending or on-budget 
deficits in any of the four consecutive 10-year periods 
beginning in 2028.
    H.R. 4790 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Nathaniel 
Frentz. The estimate was approved by John McClelland, Assistant 
Director for Tax Analysis, and Theresa Gullo, Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed 
rulemakings: The Committee estimates that the bill requires no 
directed rulemakings within the meaning of such section.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section cites H.R. 4790, as ``The Volcker Rule 
Regulatory Harmonization Act''.

Section 2. Rulemaking authority under the Volcker Rule

    This section amends Section 13(b) of the Bank Holding 
Company Act of 1956, to give sole rulemaking authority to the 
Federal Reserve. In doing so, it provides that the Board may, 
as appropriate, consult with the OCC, FDIC, SEC, and CFTC to 
adopt rules or guidance and provides certain rulemaking 
requirements that the Federal Reserve shall perform as part of 
its rulemaking function. Additionally, this section clarifies 
that any rules or guidance that were issued prior to enactment 
of this Act shall remain in effect until the Federal Reserve 
issues a successor rule or guidance or amends such rule or 
guidance. The section further makes clear that the Federal 
Reserve, OCC, FDIC, SEC, and CFTC shall update any applicable 
policies and procedures to ensure that such are consistent with 
any rules or guidance issued by the Federal Reserve. Finally, 
this section provides for a series of conforming amendments 
consistent with providing the Federal Reserve sole rulemaking 
authority.

Section 3. Enforcement; anti-evasion

    This section amends Subsection (e) of section 13 of the 
Bank Holding Company Act of 1956, to give the appropriate 
Federal banking agency the sole examination and enforcement 
authority over the respective banking entity under its 
supervision or nonbank financial company under supervision by 
the Federal Reserve. Similarly, this section also provides the 
sole examination and enforcement authority to the SEC and CFTC 
over a covered nonbank financial company for which the 
respective agency is the primary Federal regulator.

Section 4. Exclusion of community banks from Volcker Rule

    This section amends Section 13(h)(1) of the Bank Holding 
Company Act of 1956, to exclude community banks that do not 
have and are not controlled by a company that has total 
consolidated assets of $10,000,000,000 and total trading assets 
and trading liabilities that are more than 5 percent of total 
consolidated assets.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                    BANK HOLDING COMPANY ACT OF 1956




           *       *       *       *       *       *       *
SEC. 13. PROHIBITIONS ON PROPRIETARY TRADING AND CERTAIN RELATIONSHIPS 
                    WITH HEDGE FUNDS AND PRIVATE EQUITY FUNDS.

  (a) In General.--
          (1) Prohibition.--Unless otherwise provided in this 
        section, a banking entity shall not--
                  (A) engage in proprietary trading; or
                  (B) acquire or retain any equity, 
                partnership, or other ownership interest in or 
                sponsor a hedge fund or a private equity fund.
          (2) Nonbank financial companies supervised by the 
        board.--Any nonbank financial company supervised by the 
        Board that engages in proprietary trading or takes or 
        retains any equity, partnership, or other ownership 
        interest in or sponsors a hedge fund or a private 
        equity fund shall be subject, by rule, as provided in 
        subsection (b)(2), to additional capital requirements 
        for and additional quantitative limits with regards to 
        such proprietary trading and taking or retaining any 
        equity, partnership, or other ownership interest in or 
        sponsorship of a hedge fund or a private equity fund, 
        except that permitted activities as described in 
        subsection (d) shall not be subject to the additional 
        capital and additional quantitative limits except as 
        provided in subsection (d)(3), as if the nonbank 
        financial company supervised by the Board were a 
        banking entity.
  (b) Study and Rulemaking.--
          (1) Study.--Not later than 6 months after the date of 
        enactment of this section, the Financial Stability 
        Oversight Council shall study and make recommendations 
        on implementing the provisions of this section so as 
        to--
                  (A) promote and enhance the safety and 
                soundness of banking entities;
                  (B) protect taxpayers and consumers and 
                enhance financial stability by minimizing the 
                risk that insured depository institutions and 
                the affiliates of insured depository 
                institutions will engage in unsafe and unsound 
                activities;
                  (C) limit the inappropriate transfer of 
                Federal subsidies from institutions that 
                benefit from deposit insurance and liquidity 
                facilities of the Federal Government to 
                unregulated entities;
                  (D) reduce conflicts of interest between the 
                self-interest of banking entities and nonbank 
                financial companies supervised by the Board, 
                and the interests of the customers of such 
                entities and companies;
                  (E) limit activities that have caused undue 
                risk or loss in banking entities and nonbank 
                financial companies supervised by the Board, or 
                that might reasonably be expected to create 
                undue risk or loss in such banking entities and 
                nonbank financial companies supervised by the 
                Board;
                  (F) appropriately accommodate the business of 
                insurance within an insurance company, subject 
                to regulation in accordance with the relevant 
                insurance company investment laws, while 
                protecting the safety and soundness of any 
                banking entity with which such insurance 
                company is affiliated and of the United States 
                financial system; and
                  (G) appropriately time the divestiture of 
                illiquid assets that are affected by the 
                implementation of the prohibitions under 
                subsection (a).
          [(2) Rulemaking.--
                  [(A) In general.--Unless otherwise provided 
                in this section, not later than 9 months after 
                the completion of the study under paragraph 
                (1), the appropriate Federal banking agencies, 
                the Securities and Exchange Commission, and the 
                Commodity Futures Trading Commission, shall 
                consider the findings of the study under 
                paragraph (1) and adopt rules to carry out this 
                section, as provided in subparagraph (B).
                  [(B) Coordinated rulemaking.--
                          [(i) Regulatory authority.--The 
                        regulations issued under this paragraph 
                        shall be issued by--
                                  [(I) the appropriate Federal 
                                banking agencies, jointly, with 
                                respect to insured depository 
                                institutions;
                                  [(II) the Board, with respect 
                                to any company that controls an 
                                insured depository institution, 
                                or that is treated as a bank 
                                holding company for purposes of 
                                section 8 of the International 
                                Banking Act, any nonbank 
                                financial company supervised by 
                                the Board, and any subsidiary 
                                of any of the foregoing (other 
                                than a subsidiary for which an 
                                agency described in subclause 
                                (I), (III), or (IV) is the 
                                primary financial regulatory 
                                agency);
                                  [(III) the Commodity Futures 
                                Trading Commission, with 
                                respect to any entity for which 
                                the Commodity Futures Trading 
                                Commission is the primary 
                                financial regulatory agency, as 
                                defined in section 2 of the 
                                Dodd-Frank Wall Street Reform 
                                and Consumer Protection Act; 
                                and
                                  [(IV) the Securities and 
                                Exchange Commission, with 
                                respect to any entity for which 
                                the Securities and Exchange 
                                Commission is the primary 
                                financial regulatory agency, as 
                                defined in section 2 of the 
                                Dodd-Frank Wall Street Reform 
                                and Consumer Protection Act.
                          [(ii) Coordination, consistency, and 
                        comparability.--In developing and 
                        issuing regulations pursuant to this 
                        section, the appropriate Federal 
                        banking agencies, the Securities and 
                        Exchange Commission, and the Commodity 
                        Futures Trading Commission shall 
                        consult and coordinate with each other, 
                        as appropriate, for the purposes of 
                        assuring, to the extent possible, that 
                        such regulations are comparable and 
                        provide for consistent application and 
                        implementation of the applicable 
                        provisions of this section to avoid 
                        providing advantages or imposing 
                        disadvantages to the companies affected 
                        by this subsection and to protect the 
                        safety and soundness of banking 
                        entities and nonbank financial 
                        companies supervised by the Board.
                          [(iii) Council role.--The Chairperson 
                        of the Financial Stability Oversight 
                        Council shall be responsible for 
                        coordination of the regulations issued 
                        under this section.]
          (2) Rulemaking.--
                  (A) In general.--The Board may, as 
                appropriate, consult with the Comptroller of 
                the Currency, the Federal Deposit Insurance 
                Corporation, the Securities and Exchange 
                Commission, or the Commodity Futures Trading 
                Commission to adopt rules or guidance to carry 
                out this section, as provided in subparagraph 
                (B).
                  (B) Rulemaking requirements.--In adopting a 
                rule or guidance under subparagraph (A), the 
                Board--
                          (i) shall consider the findings of 
                        the report required in paragraph (1) 
                        and, as appropriate, subsequent 
                        reports;
                          (ii) shall assure, to the extent 
                        possible, that such rule or guidance 
                        provide for consistent application and 
                        implementation of the applicable 
                        provisions of this section to avoid 
                        providing advantages or imposing 
                        disadvantages to the companies affected 
                        by this subsection and to protect the 
                        safety and soundness of banking 
                        entities and nonbank financial 
                        companies supervised by the Board; and
                          (iii) shall include requirements to 
                        ensure compliance with this section, 
                        such as requirements regarding internal 
                        controls and recordkeeping.
                  (C) Authority.--The Board shall have sole 
                authority to issue and amend rules under this 
                section after the date of the enactment of this 
                paragraph.
                  (D) Conforming authority.--
                          (i) Continuity of regulations.--Any 
                        rules or guidance issued under this 
                        section prior to the date of enactment 
                        of this paragraph shall continue in 
                        effect until the Board issues a 
                        successor rule or guidance, or amends 
                        such rule or guidance, pursuant to 
                        subparagraph (C).
                          (ii) Applicable guidance.--In 
                        performing examinations or other 
                        supervisory duties, the appropriate 
                        Federal banking agencies, the 
                        Securities and Exchange Commission, and 
                        the Commodity Futures Trading 
                        Commission, as appropriate, shall 
                        update any applicable policies and 
                        procedures to ensure that such policies 
                        and procedures are consistent (to the 
                        extent practicable) with any rules or 
                        guidance issued pursuant to 
                        subparagraph (C).
  (c) Effective Date.--
          (1) In general.--Except as provided in paragraphs (2) 
        and (3), this section shall take effect on the earlier 
        of--
                  (A) 12 months after the date of the issuance 
                of final rules under subsection (b); or
                  (B) 2 years after the date of enactment of 
                this section.
          (2) Conformance period for divestiture.--A banking 
        entity or nonbank financial company supervised by the 
        Board shall bring its activities and investments into 
        compliance with the requirements of this section not 
        later than 2 years after the date on which the 
        requirements become effective pursuant to this section 
        or 2 years after the date on which the entity or 
        company becomes a nonbank financial company supervised 
        by the Board. The Board may, by rule or order, extend 
        this two-year period for not more than one year at a 
        time, if, in the judgment of the Board, such an 
        extension is consistent with the purposes of this 
        section and would not be detrimental to the public 
        interest. The extensions made by the Board under the 
        preceding sentence may not exceed an aggregate of 3 
        years.
          (3) Extended transition for illiquid funds.--
                  (A) Application.--The Board may, upon the 
                application of a banking entity, extend the 
                period during which the banking entity, to the 
                extent necessary to fulfill a contractual 
                obligation that was in effect on May 1, 2010, 
                may take or retain its equity, partnership, or 
                other ownership interest in, or otherwise 
                provide additional capital to, an illiquid 
                fund.
                  (B) Time limit on approval.--The Board may 
                grant 1 extension under subparagraph (A), which 
                may not exceed 5 years.
          (4) Divestiture required.--Except as otherwise 
        provided in subsection (d)(1)(G), a banking entity may 
        not engage in any activity prohibited under subsection 
        (a)(1)(B) after the earlier of--
                  (A) the date on which the contractual 
                obligation to invest in the illiquid fund 
                terminates; and
                  (B) the date on which any extensions granted 
                by the Board under paragraph (3) expire.
          (5) Additional capital during transition period.--
        [Notwithstanding paragraph (2), on the date on which 
        the rules are issued under subsection (b)(2), the 
        appropriate Federal banking agencies, the Securities 
        and Exchange Commission, and the Commodity Futures 
        Trading Commission shall issue rules, as provided in 
        subsection (b)(2),] The Board shall have the authority 
        to impose additional capital requirements, and any 
        other restrictions, as appropriate, on any equity, 
        partnership, or ownership interest in or sponsorship of 
        a hedge fund or private equity fund by a banking 
        entity.
          (6) Special rulemaking.--Not later than 6 months 
        after the date of enactment of this section, the Board 
        shall issues rules to implement paragraphs (2) and (3).
  (d) Permitted Activities.--
          (1) In general.--Notwithstanding the restrictions 
        under subsection (a), to the extent permitted by any 
        other provision of Federal or State law, and subject to 
        the limitations under paragraph (2) and any 
        restrictions or limitations that [the appropriate 
        Federal banking agencies, the Securities and Exchange 
        Commission, and the Commodity Futures Trading 
        Commission,] the Board may determine, the following 
        activities (in this section referred to as ``permitted 
        activities''') are permitted:
                  (A) The purchase, sale, acquisition, or 
                disposition of obligations of the United States 
                or any agency thereof, obligations, 
                participations, or other instruments of or 
                issued by the Government National Mortgage 
                Association, the Federal National Mortgage 
                Association, the Federal Home Loan Mortgage 
                Corporation, a Federal Home Loan Bank, the 
                Federal Agricultural Mortgage Corporation, or a 
                Farm Credit System institution chartered under 
                and subject to the provisions of the Farm 
                Credit Act of 1971 (12 U.S.C. 2001 et seq.), 
                and obligations of any State or of any 
                political subdivision thereof.
                  (B) The purchase, sale, acquisition, or 
                disposition of securities and other instruments 
                described in subsection (h)(4) in connection 
                with underwriting or market-making-related 
                activities, to the extent that any such 
                activities permitted by this subparagraph are 
                designed not to exceed the reasonably expected 
                near term demands of clients, customers, or 
                counterparties.
                  (C) Risk-mitigating hedging activities in 
                connection with and related to individual or 
                aggregated positions, contracts, or other 
                holdings of a banking entity that are designed 
                to reduce the specific risks to the banking 
                entity in connection with and related to such 
                positions, contracts, or other holdings.
                  (D) The purchase, sale, acquisition, or 
                disposition of securities and other instruments 
                described in subsection (h)(4) on behalf of 
                customers.
                  (E) Investments in one or more small business 
                investment companies, as defined in section 102 
                of the Small Business Investment Act of 1958 
                (15 U.S.C. 662), investments designed primarily 
                to promote the public welfare, of the type 
                permitted under paragraph (11) of section 5136 
                of the Revised Statutes of the United States 
                (12 U.S.C. 24), or investments that are 
                qualified rehabilitation expenditures with 
                respect to a qualified rehabilitated building 
                or certified historic structure, as such terms 
                are defined in section 47 of the Internal 
                Revenue Code of 1986 or a similar State 
                historic tax credit program.
                  (F) The purchase, sale, acquisition, or 
                disposition of securities and other instruments 
                described in subsection (h)(4) by a regulated 
                insurance company directly engaged in the 
                business of insurance for the general account 
                of the company and by any affiliate of such 
                regulated insurance company, provided that such 
                activities by any affiliate are solely for the 
                general account of the regulated insurance 
                company, if--
                          (i) the purchase, sale, acquisition, 
                        or disposition is conducted in 
                        compliance with, and subject to, the 
                        insurance company investment laws, 
                        regulations, and written guidance of 
                        the State or jurisdiction in which each 
                        such insurance company is domiciled; 
                        and
                          (ii) [the appropriate Federal banking 
                        agencies] the Board, after consultation 
                        with the Financial Stability Oversight 
                        Council and the relevant insurance 
                        commissioners of the States and 
                        territories of the United States, [have 
                        not jointly] has not determined, after 
                        notice and comment, that a particular 
                        law, regulation, or written guidance 
                        described in clause (i) is insufficient 
                        to protect the safety and soundness of 
                        the banking entity, or of the financial 
                        stability of the United States.
                  (G) Organizing and offering a private equity 
                or hedge fund, including serving as a general 
                partner, managing member, or trustee of the 
                fund and in any manner selecting or controlling 
                (or having employees, officers, directors, or 
                agents who constitute) a majority of the 
                directors, trustees, or management of the fund, 
                including any necessary expenses for the 
                foregoing, only if--
                          (i) the banking entity provides bona 
                        fide trust, fiduciary, or investment 
                        advisory services;
                          (ii) the fund is organized and 
                        offered only in connection with the 
                        provision of bona fide trust, 
                        fiduciary, or investment advisory 
                        services and only to persons that are 
                        customers of such services of the 
                        banking entity;
                          (iii) the banking entity does not 
                        acquire or retain an equity interest, 
                        partnership interest, or other 
                        ownership interest in the funds except 
                        for a de minimis investment subject to 
                        and in compliance with paragraph (4);
                          (iv) the banking entity complies with 
                        the restrictions under paragraphs (1) 
                        and (2) of subparagraph (f);
                          (v) the banking entity does not, 
                        directly or indirectly, guarantee, 
                        assume, or otherwise insure the 
                        obligations or performance of the hedge 
                        fund or private equity fund or of any 
                        hedge fund or private equity fund in 
                        which such hedge fund or private equity 
                        fund invests;
                          (vi) the banking entity does not 
                        share with the hedge fund or private 
                        equity fund, for corporate, marketing, 
                        promotional, or other purposes, the 
                        same name or a variation of the same 
                        name;
                          (vii) no director or employee of the 
                        banking entity takes or retains an 
                        equity interest, partnership interest, 
                        or other ownership interest in the 
                        hedge fund or private equity fund, 
                        except for any director or employee of 
                        the banking entity who is directly 
                        engaged in providing investment 
                        advisory or other services to the hedge 
                        fund or private equity fund; and
                          (viii) the banking entity discloses 
                        to prospective and actual investors in 
                        the fund, in writing, that any losses 
                        in such hedge fund or private equity 
                        fund are borne solely by investors in 
                        the fund and not by the banking entity, 
                        and otherwise complies with any 
                        additional rules of the [appropriate 
                        Federal banking agencies, the 
                        Securities and Exchange Commission, or 
                        the Commodity Futures Trading 
                        Commission,] Board, as provided in 
                        subsection (b)(2), designed to ensure 
                        that losses in such hedge fund or 
                        private equity fund are borne solely by 
                        investors in the fund and not by the 
                        banking entity.
                  (H) Proprietary trading conducted by a 
                banking entity pursuant to paragraph (9) or 
                (13) of section 4(c), provided that the trading 
                occurs solely outside of the United States and 
                that the banking entity is not directly or 
                indirectly controlled by a banking entity that 
                is organized under the laws of the United 
                States or of one or more States.
                  (I) The acquisition or retention of any 
                equity, partnership, or other ownership 
                interest in, or the sponsorship of, a hedge 
                fund or a private equity fund by a banking 
                entity pursuant to paragraph (9) or (13) of 
                section 4(c) solely outside of the United 
                States, provided that no ownership interest in 
                such hedge fund or private equity fund is 
                offered for sale or sold to a resident of the 
                United States and that the banking entity is 
                not directly or indirectly controlled by a 
                banking entity that is organized under the laws 
                of the United States or of one or more States.
                  (J) Such other activity as the [appropriate 
                Federal banking agencies, the Securities and 
                Exchange Commission, and the Commodity Futures 
                Trading Commission] Board determine, by rule, 
                as provided in subsection (b)(2), would promote 
                and protect the safety and soundness of the 
                banking entity and the financial stability of 
                the United States.
          (2) Limitation on permitted activities.--
                  (A) In general.--No transaction, class of 
                transactions, or activity may be deemed a 
                permitted activity under paragraph (1) if the 
                transaction, class of transactions, or 
                activity--
                          (i) would involve or result in a 
                        material conflict of interest (as such 
                        term shall be defined by rule as 
                        provided in subsection (b)(2)) between 
                        the banking entity and its clients, 
                        customers, or counterparties;
                          (ii) would result, directly or 
                        indirectly, in a material exposure by 
                        the banking entity to high-risk assets 
                        or high-risk trading strategies (as 
                        such terms shall be defined by rule as 
                        provided in subsection (b)(2));
                          (iii) would pose a threat to the 
                        safety and soundness of such banking 
                        entity; or
                          (iv) would pose a threat to the 
                        financial stability of the United 
                        States.
                  (B) Rulemaking.--The [appropriate Federal 
                banking agencies, the Securities and Exchange 
                Commission, and the Commodity Futures Trading 
                Commission] Board shall issue regulations to 
                implement subparagraph (A), as part of the 
                regulations issued under subsection (b)(2).
          (3) Capital and quantitative limitations.--The 
        [appropriate Federal banking agencies, the Securities 
        and Exchange Commission, and the Commodity Futures 
        Trading Commission] Board shall, as provided in 
        subsection (b)(2), adopt rules imposing additional 
        capital requirements and quantitative limitations, 
        including diversification requirements, regarding the 
        activities permitted under this section if the 
        [appropriate Federal banking agencies, the Securities 
        and Exchange Commission, and the Commodity Futures 
        Trading Commission] Board determine that additional 
        capital and quantitative limitations are appropriate to 
        protect the safety and soundness of banking entities 
        engaged in such activities.
          (4) De minimis investment.--
                  (A) In general.--A banking entity may make 
                and retain an investment in a hedge fund or 
                private equity fund that the banking entity 
                organizes and offers, subject to the 
                limitations and restrictions in subparagraph 
                (B) for the purposes of--
                          (i) establishing the fund and 
                        providing the fund with sufficient 
                        initial equity for investment to permit 
                        the fund to attract unaffiliated 
                        investors; or
                          (ii) making a de minimis investment.
                  (B) Limitations and restrictions on 
                investments.--
                          (i) Requirement to seek other 
                        investors.--A banking entity shall 
                        actively seek unaffiliated investors to 
                        reduce or dilute the investment of the 
                        banking entity to the amount permitted 
                        under clause (ii).
                          (ii) Limitations on size of 
                        investments.--Notwithstanding any other 
                        provision of law, investments by a 
                        banking entity in a hedge fund or 
                        private equity fund shall--
                                  (I) not later than 1 year 
                                after the date of establishment 
                                of the fund, be reduced through 
                                redemption, sale, or dilution 
                                to an amount that is not more 
                                than 3 percent of the total 
                                ownership interests of the 
                                fund;
                                  (II) be immaterial to the 
                                banking entity, as defined, by 
                                rule, pursuant to subsection 
                                (b)(2), but in no case may the 
                                aggregate of all of the 
                                interests of the banking entity 
                                in all such funds exceed 3 
                                percent of the Tier 1 capital 
                                of the banking entity.
                          (iii) Capital.--For purposes of 
                        determining compliance with applicable 
                        capital standards under paragraph (3), 
                        the aggregate amount of the outstanding 
                        investments by a banking entity under 
                        this paragraph, including retained 
                        earnings, shall be deducted from the 
                        assets and tangible equity of the 
                        banking entity, and the amount of the 
                        deduction shall increase commensurate 
                        with the leverage of the hedge fund or 
                        private equity fund.
                  (C) Extension.--Upon an application by a 
                banking entity, the Board may extend the period 
                of time to meet the requirements under 
                subparagraph (B)(ii)(I) for 2 additional years, 
                if the Board finds that an extension would be 
                consistent with safety and soundness and in the 
                public interest.
  [(e) Anti-evasion.--
          [(1) Rulemaking.--The appropriate Federal banking 
        agencies, the Securities and Exchange Commission, and 
        the Commodity Futures Trading Commission shall issue 
        regulations, as part of the rulemaking provided for in 
        subsection (b)(2), regarding internal controls and 
        recordkeeping, in order to insure compliance with this 
        section.
          [(2) Termination of activities or investment.--
        Notwithstanding any other provision of law, whenever an 
        appropriate Federal banking agency, the Securities and 
        Exchange Commission, or the Commodity Futures Trading 
        Commission, as appropriate, has reasonable cause to 
        believe that a banking entity or nonbank financial 
        company supervised by the Board under the respective 
        agency's jurisdiction has made an investment or engaged 
        in an activity in a manner that functions as an evasion 
        of the requirements of this section (including through 
        an abuse of any permitted activity) or otherwise 
        violates the restrictions under this section, the 
        appropriate Federal banking agency, the Securities and 
        Exchange Commission, or the Commodity Futures Trading 
        Commission, as appropriate, shall order, after due 
        notice and opportunity for hearing, the banking entity 
        or nonbank financial company supervised by the Board to 
        terminate the activity and, as relevant, dispose of the 
        investment. Nothing in this paragraph shall be 
        construed to limit the inherent authority of any 
        Federal agency or State regulatory authority to further 
        restrict any investments or activities under otherwise 
        applicable provisions of law.]
  (e) Enforcement; Anti-evasion.--
          (1) Appropriate federal banking agency.--
        Notwithstanding any other provision of law except for 
        any rules or guidance issued under subsection (b)(2), 
        whenever the appropriate Federal banking agency has 
        reasonable cause to believe that a banking entity or 
        nonbank financial company supervised by the Board has 
        made an investment or engaged in an activity in a 
        manner that either violates the restrictions under this 
        section, or that functions as an evasion of the 
        requirements of this section (including through an 
        abuse of any permitted activity), such appropriate 
        Federal banking agency shall order, after due notice 
        and opportunity for hearing, the banking entity or 
        nonbank financial company supervised by the Board to 
        terminate the activity and, as relevant, dispose of the 
        investment.
          (2) Securities and exchange commission and commodity 
        futures trading commission.--
                  (A) In general.--Notwithstanding any other 
                provision of law except for any rules or 
                guidance issued under subsection (b)(2), 
                whenever the Securities and Exchange Commission 
                or the Commodity Futures Trading Commission, as 
                appropriate, has reasonable cause to believe 
                that a covered nonbank financial company for 
                which the respective agency is the primary 
                Federal regulator has made an investment or 
                engaged in an activity in a manner that either 
                violates the restrictions under this section, 
                or that functions as an evasion of the 
                requirements of this section (including through 
                an abuse of any permitted activity), the 
                Securities and Exchange Commission or the 
                Commodity Futures Trading Commission, as 
                appropriate, shall order, after due notice and 
                opportunity for hearing, the covered nonbank 
                financial company to terminate the activity 
                and, as relevant, dispose of the investment.
                  (B) Covered nonbank financial company 
                defined.--In this paragraph, the term ``covered 
                nonbank financial company'' means a nonbank 
                financial company (as defined in section 102 of 
                the Financial Stability Act of 2010) supervised 
                by the Securities and Exchange Commission or 
                the Commodity Futures Trading Commission, as 
                appropriate.
  (f) Limitations on Relationships With Hedge Funds and Private 
Equity Funds.--
          (1) In general.--No banking entity that serves, 
        directly or indirectly, as the investment manager, 
        investment adviser, or sponsor to a hedge fund or 
        private equity fund, or that organizes and offers a 
        hedge fund or private equity fund pursuant to paragraph 
        (d)(1)(G), and no affiliate of such entity, may enter 
        into a transaction with the fund, or with any other 
        hedge fund or private equity fund that is controlled by 
        such fund, that would be a covered transaction, as 
        defined in section 23A of the Federal Reserve Act (12 
        U.S.C. 371c), with the hedge fund or private equity 
        fund, as if such banking entity and the affiliate 
        thereof were a member bank and the hedge fund or 
        private equity fund were an affiliate thereof.
          (2) Treatment as member bank.--A banking entity that 
        serves, directly or indirectly, as the investment 
        manager, investment adviser, or sponsor to a hedge fund 
        or private equity fund, or that organizes and offers a 
        hedge fund or private equity fund pursuant to paragraph 
        (d)(1)(G), shall be subject to section 23B of the 
        Federal Reserve Act (12 U.S.C. 371c 1), as if such 
        banking entity were a member bank and such hedge fund 
        or private equity fund were an affiliate thereof.
          (3) Permitted services.--
                  (A) In general.--Notwithstanding paragraph 
                (1), the Board may permit a banking entity to 
                enter into any prime brokerage transaction with 
                any hedge fund or private equity fund in which 
                a hedge fund or private equity fund managed, 
                sponsored, or advised by such banking entity 
                has taken an equity, partnership, or other 
                ownership interest, if--
                          (i) the banking entity is in 
                        compliance with each of the limitations 
                        set forth in subsection (d)(1)(G) with 
                        regard to a hedge fund or private 
                        equity fund organized and offered by 
                        such banking entity;
                          (ii) the chief executive officer (or 
                        equivalent officer) of the banking 
                        entity certifies in writing annually 
                        (with a duty to update the 
                        certification if the information in the 
                        certification materially changes) that 
                        the conditions specified in subsection 
                        (d)(1)(g)(v) are satisfied; and
                          (iii) the Board has determined that 
                        such transaction is consistent with the 
                        safe and sound operation and condition 
                        of the banking entity.
                  (B) Treatment of prime brokerage 
                transactions.--For purposes of subparagraph 
                (A), a prime brokerage transaction described in 
                subparagraph (A) shall be subject to section 
                23B of the Federal Reserve Act (12 U.S.C. 371c-
                1) as if the counterparty were an affiliate of 
                the banking entity.
          (4) Application to nonbank financial companies 
        supervised by the board.--The [appropriate Federal 
        banking agencies, the Securities and Exchange 
        Commission, and the Commodity Futures Trading 
        Commission] Board shall adopt rules, as provided in 
        subsection (b)(2), imposing additional capital charges 
        or other restrictions for nonbank financial companies 
        supervised by the Board to address the risks to and 
        conflicts of interest of banking entities described in 
        paragraphs (1), (2), and (3) of this subsection.
  (g) Rules of Construction.--
          (1) Limitation on contrary authority.--Except as 
        provided in this section, notwithstanding any other 
        provision of law, the prohibitions and restrictions 
        under this section shall apply to activities of a 
        banking entity or nonbank financial company supervised 
        by the Board, even if such activities are authorized 
        for a banking entity or nonbank financial company 
        supervised by the Board.
          (2) Sale or securitization of loans.--Nothing in this 
        section shall be construed to limit or restrict the 
        ability of a banking entity or nonbank financial 
        company supervised by the Board to sell or securitize 
        loans in a manner otherwise permitted by law.
          (3) Authority of federal agencies and state 
        regulatory authorities.--Nothing in this section shall 
        be construed to limit the inherent authority of any 
        Federal agency or State regulatory authority under 
        otherwise applicable provisions of law.
  (h) Definitions.--In this section, the following definitions 
shall apply:
          (1) Banking entity.--The term ``banking entity'' 
        means any insured depository institution (as defined in 
        section 3 of the Federal Deposit Insurance Act (12 
        U.S.C. 1813)), any company that controls an insured 
        depository institution, or that is treated as a bank 
        holding company for purposes of section 8 of the 
        International Banking Act of 1978, and any affiliate or 
        subsidiary of any such entity. For purposes of this 
        paragraph, the term ``insured depository institution'' 
        does not include an [institution that functions solely 
        in a trust or fiduciary capacity, if--] institution-- 
                  (A) that functions solely in a trust or 
                fiduciary capacity, if-- 
                          [(A)] (i) all or substantially all of 
                        the deposits of such institution are in 
                        trust funds and are received in a bona 
                        fide fiduciary capacity;
                          [(B)] (ii) no deposits of such 
                        institution which are insured by the 
                        Federal Deposit Insurance Corporation 
                        are offered or marketed by or through 
                        an affiliate of such institution;
                          [(C)] (iii) such institution does not 
                        accept demand deposits or deposits that 
                        the depositor may withdraw by check or 
                        similar means for payment to third 
                        parties or others or make commercial 
                        loans; and
                          [(D)] (iv) such institution does 
                        not--
                                  [(i)] (I) obtain payment or 
                                payment related services from 
                                any Federal Reserve bank, 
                                including any service referred 
                                to in section 11A of the 
                                Federal Reserve Act (12 U.S.C. 
                                248a); or
                                  [(ii)] (II) exercise discount 
                                or borrowing privileges 
                                pursuant to section 19(b)(7) of 
                                the Federal Reserve Act (12 
                                U.S.C. 461(b)(7))[.]; or
                  (B) that does not have and is not controlled 
                by a company that has--
                          (i) more than $10,000,000,000 in 
                        total consolidated assets; and
                          (ii) total trading assets and trading 
                        liabilities, as reported on the most 
                        recent applicable regulatory filing 
                        filed by the institution, that are more 
                        than 5 percent of total consolidated 
                        assets.
          (2) Hedge fund; private equity fund.--The terms 
        ``hedge fund'' and ``private equity fund'' mean an 
        issuer that would be an investment company, as defined 
        in the Investment Company Act of 1940 (15 U.S.C. 80a-1 
        et seq.), but for section 3(c)(1) or 3(c)(7) of that 
        Act, or such similar funds as the [appropriate Federal 
        banking agencies, the Securities and Exchange 
        Commission, and the Commodity Futures Trading 
        Commission] Board may, by rule, as provided in 
        subsection (b)(2), determine.
          (3) Nonbank financial company supervised by the 
        board.--The term ``nonbank financial company supervised 
        by the Board'' means a nonbank financial company 
        supervised by the Board of Governors, as defined in 
        section 102 of the Financial Stability Act of 2010.
          (4) Proprietary trading.--The term ``proprietary 
        trading'', when used with respect to a banking entity 
        or nonbank financial company supervised by the Board, 
        means engaging as a principal for the trading account 
        of the banking entity or nonbank financial company 
        supervised by the Board in any transaction to purchase 
        or sell, or otherwise acquire or dispose of, any 
        security, any derivative, any contract of sale of a 
        commodity for future delivery, any option on any such 
        security, derivative, or contract, or any other 
        security or financial instrument that the [appropriate 
        Federal banking agencies, the Securities and Exchange 
        Commission, and the Commodity Futures Trading 
        Commission] Board may, by rule as provided in 
        subsection (b)(2), determine.
          (5) Sponsor.--The term to ``sponsor'' a fund means--
                  (A) to serve as a general partner, managing 
                member, or trustee of a fund;
                  (B) in any manner to select or to control (or 
                to have employees, officers, or directors, or 
                agents who constitute) a majority of the 
                directors, trustees, or management of a fund; 
                or
                  (C) to share with a fund, for corporate, 
                marketing, promotional, or other purposes, the 
                same name or a variation of the same name.
          (6) Trading account.--The term ``trading account'' 
        means any account used for acquiring or taking 
        positions in the securities and instruments described 
        in paragraph (4) principally for the purpose of selling 
        in the near term (or otherwise with the intent to 
        resell in order to profit from short-term price 
        movements), and any such other accounts as the 
        [appropriate Federal banking agencies, the Securities 
        and Exchange Commission, and the Commodity Futures 
        Trading Commission] Board may, by rule as provided in 
        subsection (b)(2), determine.
          (7) Illiquid fund.--
                  (A) In general.--The term ``illiquid fund'' 
                means a hedge fund or private equity fund 
                that--
                          (i) as of May 1, 2010, was 
                        principally invested in, or was 
                        invested and contractually committed to 
                        principally invest in, illiquid assets, 
                        such as portfolio companies, real 
                        estate investments, and venture capital 
                        investments; and
                          (ii) makes all investments pursuant 
                        to, and consistent with, an investment 
                        strategy to principally invest in 
                        illiquid assets. In issuing rules 
                        regarding this subparagraph, the Board 
                        shall take into consideration the terms 
                        of investment for the hedge fund or 
                        private equity fund, including 
                        contractual obligations, the ability of 
                        the fund to divest of assets held by 
                        the fund, and any other factors that 
                        the Board determines are appropriate.
                  (B) Hedge fund.--For the purposes of this 
                paragraph, the term ``hedge fund'' means any 
                fund identified under subsection (h)(2), and 
                does not include a private equity fund, as such 
                term is used in section 203(m) of the 
                Investment Advisers Act of 1940 (15 U.S.C. 80b-
                3(m)).

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    H.R. 4790 is the latest attempt to weaken the Volcker Rule, 
a cornerstone of Wall Street reform enacted in the wake of the 
financial crisis that prohibits taxpayer-backed banks from 
risky proprietary trading and from owning hedge and private 
equity funds. The bill would create a dangerous loophole by 
providing a blanket exemption from the Volcker Rule for banks 
with consolidated assets of $10 billion or less and with less 
than 5% of those assets in trading assets. The bill would also 
delegate sole rulemaking authority on the Volcker Rule to the 
Federal Reserve, inappropriately and unnecessarily taking away 
the jurisdiction of the Federal Deposit Insurance Corporation 
(FDIC), Office of the Comptroller of Currency (OCC), Securities 
and Exchange Commission (SEC), and Commodity Futures Trading 
Commission (CFTC) and making it easier for the Trump 
Administration to weaken or repeal the rule.
    Leading up to the financial crisis, Wall Street megabanks 
engaged in ``proprietary trading,'' which is essentially 
speculative, highly-leveraged bets that benefit their bottom 
line, but use federally-insured loans backed by the U.S. 
taxpayer. When the housing bubble finally burst, these bets in 
risky credit-default swaps and subprime mortgage-backed 
securities led to massive losses and a federal bailout. To 
protect the American taxpayer and the economy from this sort of 
risky trading, Congress included the Volcker Rule as part of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act.
    Seven years later, the Volcker Rule is largely in place. It 
has resulted in less reckless risk-taking by Wall Street 
megabanks and a stronger financial system. And, despite dire 
predictions by opponents, our markets are adapting and 
thriving. For example, in the bond market, which has long been 
dominated by bank dealers, we have seen record new bond 
issuances by companies seeking to raise funds and record 
trading volumes in those bonds. Most other metrics also show a 
healthy, liquid corporate bond market.
    Nevertheless, H.R. 4790 would provide an exemption from the 
Volcker Rule's prohibitions against proprietary trading and 
owning hedge and private equity funds for entities with 
consolidated assets of $10 billion or less and with less than 
5% of those assets in trading assets. While most community 
banks currently do not engage in such risky activities, a 
blanket exemption sends them the Congressional thumbs-up for 
them to do so in the future instead of focusing on the 
traditional business of banking. This blanket exemption is 
opposed by former Fed Chairman Paul Volcker, FDIC Chairman 
Martin Gruenberg, FDIC Vice Chairman Thomas Hoenig, and 
investor advocates. According to Mr. Hoenig, the exemption 
could ``open a loophole that would invite abuse of the safety 
net in the future.'' If we truly want to support our community 
banks while ensuring that they remain in the traditional 
business of banking, we should be looking at other ways to 
reduce their compliance burden, such as by creating a 
presumption of compliance with the Volcker Rule.
    H.R. 4790 would also repeal the requirement that the 
Federal Reserve, OCC, FDIC, CFTC, and SEC jointly implement the 
rule. Instead, the bill would delegate sole rulemaking 
authority to the Federal Reserve, which could choose to consult 
with the other banking regulators, the SEC or the CFTC. This 
would unreasonably cut the FDIC out of any future rule changes, 
even though it is the regulator charged with protecting deposit 
insurance against the very risky, speculative activities the 
Volcker Rule was designed to prevent. It also cuts the SEC and 
CFTC out from the rulemaking process, even though those 
agencies have the expertise and jurisdiction over broker-
dealers and futures traders and their market making activities. 
Worse, this change would make it easier for the Trump 
administration to weaken and repeal the rule even though it was 
efficiently promulgated in 2 years and the regulators are now 
working together to make appropriate changes. While the bill 
would at least allow the appropriate banking regulators, SEC, 
and CFTC to enforce the rule, such enforcement authority is 
meaningless if the Volcker rule is effectively gutted by the 
Trump Administration.
    For these reasons, we oppose H.R. 4790.

                                   Maxine Waters.
                                   Michael E. Capuano.
                                   Al Green.
                                   Carolyn B. Maloney.
                                   Nydia M. Velazquez.

                                  [all]