HR 1062 Rep.Jim Leach, R-Iowa

New powers:

Banking companies would be able to underwrite any kind of securities through a separately capitalized securities affiliate. Securities firms would be able to purchase an insured bank through a parent holding company.

Ownership structure:

A single financial services holding company can be created to own both a bank and a separate securities unit. Alternatively, a securities firm can establish an investment bank holding company to own an uninsured wholesale institution and a securities unit.

Regulatory structure:

The Federal Reserve would oversee the holding company, but each unit would be regulated according to function. The Fed receives certain preemptive authority in administering firewall provisions.

Foreign banks:

Institutions would be treated on the same footing as U.S.-based banks.

Firewalls for FSHCs:

Banks cannot purchase securities underwritten by affiliates or finance their principal, interest, or dividends. The affiliate cannot securitize loans generated by the bank unless they are independently rated. The bill also sets limits on officer and director interlocks, regulates transactions between affiliates, and bars securities affiliates from accepting deposits for the bank.

Unitary thrifts:

The special powers granted to unitary thrifts, such as insurance and securities underwriting and, particularly, their eligibility for ownership by commercial and industrial companies, are repealed. Existing unitary thrifts are exempted.

S 337

Sen. Alfonse D'Amato


New powers:

A single company would be permitted to own a bank, insurance company, and securities firm, as well as a commercial or industrial company.

Ownership structure:

The parent financial services holding company can own any kind of financial or nonfinancial unit. Capital requirements apply only to the insured institution, rather than the parent. Most nonbanking activities, such as securities and insurance, would be moved outside the bank.

Regulatory structure:

Financial units would be regulated by function. However, a National Financial Services Oversight Committee would provide general oversight and coordination and would issue rules governing agencies' examination and supervision of financial institutions. In case of problems in the insured institution, regulators could seek an injunction without first having to initiate administrative cease and desist procedures.

Foreign banks:

No provisions.


Regulators are empowered to issue rules to prevent banks from engaging in transactions that would compromise safety and soundness or jeopardize deposit insurance. Transactions between affiliates must be conducted at arm's length, and a bank cannot extend credit to an affiliate, or either purchase or guarantee securities underwritten by an affiliate. A bank cannot extend credit to an affiliated investment company. A financial services holding company would be required to divest a bank that became undercapitalized.

Administration proposal:

New powers: Banks would be permitted to own or affiliate with a securities firm or insurance company; either type of company would be permitted to own a bank.

Affiliation structure:

The bank can own a securities firm or insurance company directly, or indirectly as an affiliate of a parent holding company.

Regulatory structure:

Each unit would be regulated by function. A new National Council on Financial Services would be created to serve as an interagency policy forum.

Foreign banks:

Institutions would be treated on the same footing as U.S.-based financial companies.


An insured bank generally may not extend credit to its securities affiliate or provide guarantees for the securities it underwrites. Regulators would be required to issue rules to prevent officer and director interlocks and to prohibit extensions of credit for principal, interest, or dividends on securities underwritten by affiliates. The insured institution would not be permitted to provide financial guarantees for securities underwritten by affiliates.

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