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The
Gramm-Leach-Bliley Financial Services Modernization Act
Gramm-Leach-Bliley Summary of Provisions
TITLE I -- FACILITATING AFFILIATION
AMONG BANKS, SECURITIES FIRMS, AND INSURANCE COMPANIES
Repeals the restrictions on banks affiliating with
securities firms contained in sections 20 and 32 of the
Glass-Steagall Act.
Creates a new
"financial holding company"
under section 4 of the Bank Holding Company Act.
Such
holding company can engage in
a statutorily provided list of financial activities, including
insurance and securities underwriting and agency activities,
merchant banking and insurance company portfolio investment
activities.
Activities that are
"complementary" to financial activities also are authorized.
The
nonfinancial activities
of firms predominantly engaged in financial activities (at least
85% financial) are grandfathered for at least 10 years, with a
possibility for a five year extension.
The Federal
Reserve may not permit
a company to form a financial holding company if any of its
insured depository institution subsidiaries are not well
capitalized and well managed, or did not receive at least a
satisfactory rating in their most recent CRA exam.
If
any insured depository institution or insured depository
institution affiliate of a financial holding company received
less than a satisfactory rating in its most recent CRA exam,
the appropriate Federal
banking agency may not approve any additional new activities or
acquisitions under the authorities granted under the Act.
Provides for State regulation
of insurance, subject to a standard that no State may
discriminate against persons affiliated with a bank.
Provides that bank holding companies organized as a mutual
holding companies will be regulated on terms comparable to other
bank holding companies.
Lifts some restrictions
governing nonbank banks.
Provides for a study of the use
of subordinated debt to protect the financial system and deposit
funds from "too big to fail" institutions and a study on the
effect of financial modernization on the accessibility of small
business and farm loans.
Streamlines bank holding
company supervision by clarifying the regulatory roles of the
Federal Reserve as the umbrella holding company supervisor, and
the State and other Federal financial regulators which
‘functionally' regulate various affiliates.
Provides for
Federal bank regulators to prescribe prudential safeguards for
bank organizations engaging in new financial activities.
Prohibits FDIC assistance to affiliates and subsidiaries of
banks and thrifts.
Allows a national bank to engage in
new financial activities in a financial subsidiary, except for
insurance underwriting, merchant banking, insurance company
portfolio investments, real estate development and real estate
investment, so long as the aggregate assets of all financial
subsidiaries do not exceed 45% of the parent bank's assets or
$50 billion, whichever is less.
To take advantage of the new
activities through a financial subsidiary, the national bank
must be well capitalized and well managed.
In addition, the top 100
banks are required to have an issue of outstanding subordinated
debt. Merchant banking activities may be approved as a
permissible activity beginning 5 years after the date of
enactment of the Act.
Ensures that appropriate
anti-trust review is conducted for new financial combinations
allowed under the Act.
Provides for national treatment
for foreign banks wanting to engage in the new financial
activities authorized under the Act.
Allows national
banks to underwrite municipal revenue bonds.
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TITLE II -- FUNCTIONAL REGULATION
Amends the Federal
securities laws to incorporate functional regulation of bank
securities activities.
The broad exemptions banks have
from broker-dealer regulation would be replaced by more limited
exemptions designed to permit banks to continue their current
activities and to develop new products.
Provides for
limited exemptions from broker-dealer registration for
transactions in the following areas: trust, safekeeping,
custodian, shareholder and employee benefit plans, sweep
accounts, private placements (under certain conditions), and
third party networking arrangements to offer brokerage services
to bank customers, among others.
Allows banks to
continue to be active participants in the derivatives business
for all credit and equity swaps (other than equity swaps to
retail customers).
Provides for a "jump ball" rulemaking
and resolution process between the SEC and the Federal Reserve
regarding new hybrid products.
Amends the Investment
Company Act to address potential conflicts of interest in the
mutual fund business and amendments to the Investment Advisers
Act to require banks that advise mutual funds to register as
investment advisers.
TITLE III -- INSURANCE
Provides for the functional regulation of insurance
activities.
Establishes which insurance products banks
and bank subsidiaries may provide as principal.
Prohibits national banks not currently engaged in underwriting
or sale of title insurance from commencing that activity.
However, sales activities by banks are permitted in States that
specifically authorize such sales for State banks, but only on
the same conditions.
National bank subsidiaries are
permitted to sell all types of insurance including title
insurance. Affiliates may underwrite or sell all types of
insurance including title insurance.
State insurance and
Federal regulators may seek an expedited judicial review of
disputes with equalized deference.
The Federal banking
agencies are directed to establish consumer protections
governing bank insurance sales.
Preempts state laws
interfering with affiliations.
Provides for interagency
consultation and confidential sharing of information between the
Federal Reserve Board and State insurance regulators.
Allows mutual insurance companies to re-domesticate.
Allows multi-state insurance agency licensing.
TITLE IV -- UNITARY SAVINGS AND LOAN
HOLDING COMPANIES
De
novo unitary thrift holding company applications received by the
Office of Thrift Supervision after May 4, 1999, shall not be
approved.
Existing unitary thrift holding companies may
only be sold to financial companies.
TITLE V -- PRIVACY
Requires clear disclosure by
all financial institutions of their privacy policy regarding the
sharing of non-public personal information with both affiliates
and third parties.
Requires a notice to consumers and an
opportunity to "opt-out" of sharing of non-public personal
information with non affiliated third parties subject to certain
limited exceptions.
Addresses a potential imbalance
between the treatment of large financial services conglomerates
and small banks by including an exception, subject to strict
controls, for joint marketing arrangements between financial
institutions.
Clarifies that the disclosure of a
financial institution's privacy policy is required to take place
at the time of establishing a customer relationship with a
consumer and not less than annually during the continuation of
such relationship.
Provides for a separate rather than
joint rulemaking to carry out the purposes of the subtitle; the
relevant agencies are directed, however, to consult and
coordinate with one another for purposes of assuring to the
maximum extent possible that the regulations that each
prescribes are consistent and comparable with those prescribed
by the other agencies.
Allows the functional regulators
sufficient flexibility to prescribe necessary exceptions and
clarifications to the prohibitions and requirements of section
502.
Clarifies that the remedies described in section
505 are the exclusive remedies for violations of the subtitle.
Clarifies that nothing in this title is intended to
modify, limit, or supersede the operation of the Fair Credit
Reporting Act.
Extends the time period for completion of
a study on financial institutions' information-sharing practices
from 6 to 18 months from date of enactment.
Requires
that rules for the disclosure of institutions' privacy policies
must be issued by regulators within 6 months of the date of
enactment. The rules will become effective 6 months after they
are required to be prescribed unless the regulators specify a
later date.
Assigns authority for enforcing the
subtitle's provisions to the Federal Trade Commission and the
Federal banking agencies, the National Credit Union
Administration, the Securities and Exchange Commission,
according to their respective jurisdictions, and provides for
enforcement of the subtitle by the States.
TITLE VI -- FEDERAL HOME LOAN BANK
SYSTEM MODERNIZATION
Banks with less than $500 million in assets may use long-term
advances for loans to small businesses, small farms and small
agri-businesses.
A new, permanent capital structure for
the Federal Home Loan Banks is established.
Two classes
of stock are authorized, redeemable on 6-months and 5-years
notice.
Federal Home Loan Banks must meet a 5% leverage
minimum tied to total capital and a risk-based requirement tied
to permanent capital
Equalizes the stock purchase
requirements for banks and thrifts.
Voluntary membership
for Federal savings associations takes effect six months after
enactment.
The current annual $300 million funding
formula for the REFCORP obligations of the Federal Home Loan
Banks is changed to 20% of annual net earnings.
Governance of the Federal Home Loan Banks is decentralized from
the Federal Housing Finance Board to the individual Federal Home
Loan Banks. Changes include the election of chairperson and vice
chairperson of each Federal Home Loan Bank by its directors
rather than the Finance Board, and a statutory limit on Federal
Home Loan Bank directors' compensation.
TITLE VII -- OTHER PROVISIONS
Requires ATM operators who
impose a fee for use of an ATM by a non-customer to post a
notice on the machine that a fee will be charged and on the
screen that a fee will be charged and the amount of the fee.
This notice must be posted before the consumer is
irrevocably committed to completing the transaction. A paper
notice issued from the machine may be used in lieu of a posting
on the screen.
No surcharge may be imposed unless the
notices are made and the consumer elects to proceed with the
transaction. Provision is made for those older machines that are
unable to provide the notices required.
Requires a
notice when ATM cards are issued that surcharges may be imposed
by other parties when transactions are initiated from ATMs not
operated by the card issuer.
Exempts ATM operators from
liability if properly placed notices on the machines are
subsequently removed, damaged, or altered by anyone other than
the ATM operator.
Clarifies that nothing in the act
repeals any provision of the CRA.
Requires full public
disclosure of all CRA agreements.
Requires each bank and
each non-bank party to a CRA agreement to make a public report
each year on how the money and other resources involved in the
agreement were used.
Grants regulatory relief regarding
the frequency of CRA exams to small banks and savings and loans
(those with no more than $250 million in assets).
Small
institutions having received an outstanding rating at their most
recent CRA exam shall not receive a routine CRA exam more often
than once each 5 years. Small institutions having received a
satisfactory rating at their most recent CRA exam shall not
receive a routine CRA exam more often than once each 4 years.
Directs the Federal Reserve Board to conduct a study of
the default rates, delinquency rates, and profitability of CRA
loans.
Directs the Treasury, in consultation with the
bank regulators, to study the extent to which adequate services
are being provided as intended by the CRA.
Requires a
GAO study of possible revisions to S corporation rules that may
be helpful to small banks.
Requires Federal banking
regulators to use plain language in their rules published after
January 1, 2000.
Allows Federal savings associations
converting to national or State bank charters to retain the term
"Federal" in their names.
Allows one or more thrifts to
own a banker's bank.
Provides for technical assistance
to miccroenterprises (meaning businesses with fewer than 5
employees that lack access to conventional loans, equity, or
other banking services).
This program will be
administered by the Small Business Administration.
Requires annual independent audits of the financial statements
of each Federal Reserve bank and the Board of Governors of the
Federal Reserve System.
Authorizes information sharing
among the Federal Reserve Board and Federal or State
authorities.
Requires a GAO study analyzing the conflict
of interest faced by the Board of Governors of the Federal
Reserve System between its role as a primary regulator of the
banking industry and its role as a vendor of services to the
banking and financial services industry.
Requires the
Federal banking agencies to conduct a study of banking
regulations regarding the delivery of financial services, and
recommendations on adapting those rules to online banking and
lending activities.
Protects FDIC resources by
restricting claims for the return of assets transferred from a
holding company to an insolvent subsidiary bank.
Provides relief to out-of-State banks generally by allowing them
to charge interest rates in certain host states that are no
higher than rates in their home states.
Allows foreign
banks generally to establish and operate Federal branches or
agencies with the approval of the Federal Reserve Board and the
appropriate banking regulator if the branch has been in
operation since September 29, 1994 or the applicable period
under appropriate State law.
Expresses the sense of the
Congress that individuals offering financial advice and products
should offer such services and products in a non discriminatory,
non gender-specific manner.
Permits the Chairman of the
Federal Reserve Board and the Chairman of the Securities and
Exchange Commission to substitute designees to serve on the
Emergency Oil and Gas Guarantee Loan Guarantee Board and the
Emergency Steel Loan Guarantee Board.
Repeals section
11(m) of the Federal Reserve Act, removing the stock collateral
restriction on the amount of a loan made by a State bank member
of the Federal Reserve System.
Allows the FDIC to
reverse an accounting entry designating about $1 billion of SAIF
dollars to a SAIF special reserve, which would not otherwise be
available to the FDIC unless the SAIF designated reserve ratio
declines by about 50% and would be expected to remain at that
level for more than one year.
Allow directors serving on
the boards of public utility companies to also serve on the
boards of banks.
To learn more:
http://banking.senate.gov
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