S. 2839 — Introduced in Senate

II 116th CONGRESS 1st Session S. 2839 IN THE SENATE OF THE UNITED STATES November 12, 2019Mr. Kennedy introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To amend the Bank Holding Company Act of 1956 to regulate industrial bank holding companies, and for other purposes. 1. Short title This Act may be cited as the Eliminating Corporate Shadow Banking Act of 2019. 2. Industrial bank holding company regulation (a) Definitions Section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841) is amended— (1) in subsection (c)(2), by redesignating subparagraph (H) as subsection (r), moving that subsection to appear after subsection (q), and adjusting the margins accordingly; (2) in subsection (r), as so redesignated— (A) by striking (r) An industrial and inserting the following: (r) Industrial bank The term industrial bank means an industrial ; and (B) in the flush text following subparagraph (B), by striking subparagraph and inserting subsection; and (3) by adding at the end the following: (s) Covered industrial bank holding company The term covered industrial bank holding company means any company— (1) that, before October 1, 2019, controlled (as determined by the Board pursuant to subsection (a)), directly or indirectly, an industrial bank; (2) that did not acquire control of any other depository institution after October 1, 2019; (3) with respect to which there is no change in control, directly or indirectly, of any depository institution subsidiary after October 1, 2019, that requires a registration under this section or an application under section 7(j) or 18(c) of the Federal Deposit Insurance Act (12 U.S.C. 1817(j), 1828(c)), section 3 of this Act, or section 10 of the Home Owners’ Loan Act (12 U.S.C. 1467a); and (4) that was not— (A) a bank holding company; (B) a savings and loan holding company; (C) a company that is subject to this Act pursuant to section 8(a) of the International Banking Act of 1978 (12 U.S.C. 3106(a)); (D) a holding company regulated by the Securities and Exchange Commission pursuant to section 240.15c3–1(a)(7) of title 17, Code of Federal Regulations, as in effect on August 1, 2019; or (E) controlled by a company described in subparagraph (A), (B), (C), or (D). (t) Capital terms relating to covered industrial bank holding companies (1) Adequately capitalized With respect to a covered industrial bank holding company, the term adequately capitalized means a level of capitalization which meets or exceeds all applicable Federal regulatory capital standards. (2) Well capitalized With respect to a covered industrial bank holding company, the term well capitalized means a level of capitalization which meets or exceeds the required capital levels for well capitalized covered industrial bank holding companies established by the Board. . (b) Covered industrial bank holding company registration and ownership The Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.) is amended by adding at the end the following: 15. Industrial bank holding company regulation (a) Acquisition of industrial bank shares or assets Section 3 of this Act (other than section 3(c)(3)(B)) shall apply to any covered industrial bank holding company in the same manner as that section applies to a company that is or would become a bank holding company, except that for purposes of applying this subsection— (1) any reference to a bank holding company in such section 3 shall be deemed to be a reference to a covered industrial bank holding company; (2) any reference to a bank in such section 3 shall be deemed to be a reference to an industrial bank; (3) any reference to the Bank Holding Company Act Amendments of 1970 in such section 3 shall be deemed to be a reference to the Industrial Bank Holding Company Act of 2019; (4) any reference to a home State in such section 3 shall be deemed to be a reference to— (A) with respect to a covered industrial bank holding company, the State in which the total deposits of all banking subsidiaries of such company were the largest on the later of— (i) October 1, 2019; or (ii) the date on which the company becomes a covered industrial bank holding company under this section; and (B) with respect to an industrial bank, the home State of the bank as determined under section 44(g) of the Federal Deposit Insurance Act (12 U.S.C. 1831u(g)); (5) any reference to a host State in such section 3 shall be deemed to be a reference to— (A) with respect to a covered industrial bank holding company, a State, other than the home State of the company, in which the company controls, or seeks to control, an industrial bank subsidiary; and (B) with respect to an industrial bank, the host State of the bank as determined under section 44(g) of the Federal Deposit Insurance Act (12 U.S.C. 1831u(g)); (6) any reference to an out-of-State bank holding company in such section 3 shall be deemed to be a reference to, with respect to any State, a covered industrial bank holding company whose home State is another State; and (7) any reference to an out-of-State bank in such section 3 shall be deemed to be a reference to, with respect to any State, an industrial bank whose home State is another State. (b) Application process An application filed under subsection (a) to acquire control of an industrial bank shall be treated as an application for a deposit facility for purposes of this Act and any other Federal law. (c) Registration (1) In general Each covered industrial bank holding company shall register with the Board on forms prescribed by the Board before the end of the 180-day period beginning on the later of— (A) the date the company becomes a covered industrial bank holding company; or (B) the date of enactment of this section. (2) Information to be included Each registration submitted under paragraph (1) shall include such information, under oath, with respect to the financial condition, ownership, operations, management, and intercompany relationships of the covered industrial bank holding company and subsidiaries of the covered industrial bank holding company, and other factors (including information described in subsection (d)(1)(C)), as the Board may determine to be appropriate to carry out the purposes of this section. (3) Extension of time for submitting complete information Upon application by a covered industrial bank holding company and subject to such requirements, factors, and evidence as the Board may require, the Board may extend the period described in paragraph (1) within which the covered industrial bank company shall register and file the requisite information. (d) Reports and examinations (1) Reports (A) Reports required Each covered industrial bank holding company and each subsidiary of a covered industrial bank holding company, other than an industrial bank, shall file with the Board such reports as may be required by the Board. (B) Form and manner Reports filed under subparagraph (A) shall be made under oath and shall be in such form and for such periods as the Board may prescribe. (C) Information Each report filed under subparagraph (A) shall contain such information as the Board may require concerning— (i) the operations of the covered industrial bank holding company and the subsidiaries of the covered industrial bank holding company; (ii) the financial condition of the covered industrial bank holding company and the subsidiaries of the covered industrial bank holding company, together with information on systems maintained within the covered industrial bank holding company or within any subsidiary of the covered industrial bank holding company for monitoring and controlling financial and operating risks, and transactions with insured depository institution subsidiaries of the covered industrial bank holding company; (iii) compliance by the covered industrial bank holding company and the subsidiaries of the covered industrial bank holding company with all applicable Federal and State laws; and (iv) such other information as the Board may require. (D) Acceptance of existing reports For purposes of this paragraph, the Board may accept reports that a covered industrial bank holding company or any subsidiary of a covered industrial bank holding company has provided or has been required to provide to any other Federal or State supervisor or to any appropriate self-regulatory organization. (2) Examinations (A) In general Each covered industrial bank holding company and each subsidiary of each covered industrial bank holding company (other than an industrial bank) shall be subject to such examinations by the Board as the Board may prescribe for purposes of this section. (B) Furnishing reports to other agencies Examination and other reports made or received under this section may be furnished by the Board to any other appropriate Federal agency or any appropriate State bank supervisor or other State financial supervisory agency. (C) Use of reports from other agencies The Board may use, for purposes of this subsection, reports of examination made by any other appropriate Federal agency, any appropriate State bank supervisor, or any other State financial supervisory authority with respect to any covered industrial bank holding company or subsidiary of the covered industrial bank holding company, to the extent the Board may determine such use to be feasible for such purposes. (3) Capital (A) In general The Board may not, by regulation, guideline, order, or otherwise, prescribe or impose any capital or capital adequacy rules, guidelines, standards, or requirements on any functionally regulated affiliate (as defined in section 45 of the Federal Deposit Insurance Act (12 U.S.C. 1831v)) of any depository institution that is controlled by a covered industrial bank holding company that— (i) is not a depository institution; and (ii) is— (I) in compliance with the applicable capital requirements of the appropriate Federal or State supervisory agency of the affiliate (including the Securities and Exchange Commission or State insurance authority); (II) properly registered as an investment adviser— (aa) under the Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.); or (bb) with any State; or (III) is licensed as an insurance agent with the appropriate State insurance authority. (B) Rule of construction Subparagraph (A) shall not be construed as preventing the Board from imposing capital or capital adequacy rules, guidelines, standards, or requirements with respect to— (i) activities of a registered investment adviser other than with respect to investment advisory activities or activities incidental to investment advisory activities; or (ii) activities of a licensed insurance agent other than insurance agency activities or activities incidental to insurance agency activities. (e) Access to information (1) Information provided by board Any confidential supervisory information, including examination or other reports, pertaining to a covered industrial bank holding company furnished by the Board to any other Federal agency or any appropriate State supervisory agency shall remain confidential unless the Board, in writing, otherwise consents. (2) Deference to depository institution examinations Any appropriate Federal supervisory agency of a covered industrial bank holding company shall, to the fullest extent possible, rely on examination reports made by the appropriate Federal banking agency and the appropriate State bank supervisor relating to any depository institution subsidiary of the covered industrial bank holding company in lieu of a direct examination. (3) Information to be provided to board (A) Request to agency Upon request by the Board, an appropriate Federal supervisory agency may provide to the Board information regarding the condition of an industrial bank, any covered industrial bank holding company of the industrial bank, or any other affiliate of any such covered industrial bank holding company that is necessary to assess risk to the industrial bank. (B) Availability from holding company directly Notwithstanding section 45 of the Federal Deposit Insurance Act (12 U.S.C. 1825), section 115 of the Gramm-Leach-Bliley Act (12 U.S.C. 1820a), or any other provision of law (including any regulation), if the information requested under subparagraph (A) is not provided to the Board, and the information is necessary to assess risk to the industrial bank, the Board may require the covered industrial bank holding company or affiliate thereof referred to in such subparagraph with respect to such industrial bank to provide such information to the Board. (4) Examinations by board (A) In general Subject to subparagraph (B) and notwithstanding section 45 of the Federal Deposit Insurance Act (12 U.S.C. 1831v), section 115 of the Gramm-Leach-Bliley Act (12 U.S.C. 1820a), or any other provision of law (including any regulation), no law shall be construed as preventing the Board from examining an affiliate of an industrial bank as may be necessary to disclose fully the relationship between the industrial bank and the affiliate, and the effect of such relationship on the industrial bank, if the Board finds such examination necessary to determine the condition of an industrial bank. (B) Functionally regulated affiliates Before the Board may examine any affiliate of an industrial bank that is a broker, a dealer, an investment company, an investment advisor, or an entity that is subject to consolidated supervision by the Securities and Exchange Commission, other than a depository institution, the Board— (i) shall request the Commission to provide the information that the Board is seeking to obtain through examination; and (ii) may proceed with the examination only if the requested information is not provided by the Commission in a timely manner. (f) Limitation on control (1) In general Except as provided in paragraph (3) or (4), no industrial bank may be controlled, directly or indirectly, by a commercial firm. (2) Commercial firm defined For purposes of this section, the term commercial firm means any entity that derives any amount of revenue from activities that are not financial in nature, or incidental to a financial activity as defined in section 4(k). (3) Pre-2019 exclusions for certain industrial banks (A) Grandfathered institutions Paragraph (1) shall not apply with respect to any industrial bank— (i) that became an insured depository institution before October 1, 2019, or pursuant to an application for deposit insurance that was approved by the Federal Deposit Insurance Corporation before such date; and (ii) with respect to which there is no change in control, directly or indirectly, of the bank after September 30, 2019, that requires a registration under this section or an application under section 7(j) or 18(c) of the Federal Deposit Insurance Act (12 U.S.C. 1817(j), 1828(c)), section 3 of this Act, or section 10 of the Home Owners’ Loan Act (12 U.S.C. 1467a), except a direct or indirect change of control in which— (I) immediately prior to such change in control the acquiring company is a bank holding company, a financial holding company, a savings and loan holding company, or a holding company regulated by the Securities and Exchange Commission pursuant to section 240.15c3–1(a)(7) of title 17, Code of Federal Regulations, as in effect on August 1, 2019; (II) the resulting holding company is a bank holding company, a financial holding company, a savings and loan holding company, or a holding company regulated by the Securities and Exchange Commission pursuant to section 240.15c3–1(a)(7) of title 17, Code of Federal Regulations, as in effect on October 1, 2019; and (III) the resulting ultimate holding company is subject to consolidated supervision by the Board or a holding company regulated by the Securities and Exchange Commission pursuant to section 240.15c3–1(a)(7) of title 17, Code of Federal Regulations, as in effect on October 1, 2019. (B) Corporate reorganizations permitted The acquisition of direct or indirect control of an industrial bank referred to in subparagraph (A)(ii) shall not be treated as a change in control for purposes of that subparagraph if— (i) the company acquiring control is itself directly or indirectly controlled by a company that was an affiliate of the industrial bank on the date referred to in that subparagraph, and remains an affiliate at all times after that date; and (ii) the transaction through which the company acquired control of the industrial bank constituted solely a corporate reorganization of a company that controlled the industrial bank on the date referred to in that subparagraph. (4) Pre-2019 exclusions for commercial firms (A) Grandfathered commercial firms Paragraph (1) shall not apply to any commercial firm— (i) that became a covered industrial bank holding company by virtue of acquiring control of an industrial bank before October 1, 2019; (ii) that did not acquire control of any other depository institution after October 1, 2019; (iii) with respect to which there is no change in control, directly or indirectly, of any depository institution subsidiary after October 1, 2019, that requires a registration under this section or an application under section 7(j) or 18(c) of the Federal Deposit Insurance Act (12 U.S.C. 1817(j), 1828(c)), section 3 of this Act, or section 10 of the Home Owners’ Loan Act (12 U.S.C. 1467a); and (iv) each industrial bank subsidiary of which remains in compliance with the limitations contained in subparagraph (B). (B) Activity and branching limitations An industrial bank subsidiary of a commercial firm described in clauses (i), (ii), and (iii) of subparagraph (A) is in compliance with the requirements of this subparagraph for purposes of subparagraph (A)(iv) if the industrial bank— (i) engages only in activities in which the industrial bank was engaged on October 1, 2019; and (ii) does not acquire, establish, or operate any branch, deposit production office, loan production office, automated teller machine, or remote service unit in any State other than the home State of the bank or any host State in which such bank operated branches on October 1, 2019. (C) Corporate reorganizations permitted The acquisition of direct or indirect control of a depository institution subsidiary referred to in subparagraph (A)(iii) shall not be treated as a change in control for purposes of that subparagraph if— (i) the company acquiring control is itself directly or indirectly controlled by a company that was an affiliate of such subsidiary on the date referred to in that subparagraph, and remains an affiliate at all times after that date; and (ii) the transaction through which the company acquired control of the depository institution constituted solely a corporate reorganization of a company that controlled the depository institution on the date referred to in that subparagraph. (g) Procedures and timing for termination of activities or divestiture (1) Transition provision (A) In general Any covered industrial bank holding company that fails to comply with the provisions of subsection (f) shall divest its ownership or control of each industrial bank subsidiary of the covered industrial bank holding company not later than the end of the 2-year period beginning on the first date that the covered industrial bank holding company ceased to comply with subsection (f). (B) Extension of time period (i) In general Upon application by a covered industrial bank holding company, the appropriate Federal supervisory agency of the covered industrial bank holding company may extend the 2-year period referred to in subparagraph (A) with respect to the covered industrial bank holding company for not more than 1 year if, in the judgment of the Federal supervisory agency, the extension would not be detrimental to the public interest. (ii) Factors In making any decision to grant an extension under clause (i) to a covered industrial bank holding company, the appropriate Federal supervisory agency of the covered industrial bank holding company shall consider whether— (I) the covered industrial bank holding company has made a good faith effort to divest those interests; and (II) such extension is necessary to avert substantial loss to the covered industrial bank holding company. (2) Conditions before divestiture During the 2-year period referred to in paragraph (1)(A) with respect to any covered industrial bank holding company and any extension of that period, the appropriate Federal supervisory agency may impose any conditions or restrictions on the covered industrial bank holding company or any subsidiary of the covered industrial bank holding company (other than a bank), including restricting or prohibiting transactions between the covered industrial bank holding company or subsidiary and any depository institution subsidiary of the covered industrial bank holding company, as are appropriate under the circumstances. (3) Termination of activities or divestiture of nonbank subsidiaries constituting serious risk (A) In general Notwithstanding any other provision of this section, the appropriate Federal supervisory agency may, whenever such agency has reasonable cause to believe that the continuation by a covered industrial bank holding company of any activity or of ownership or control of any nonbank subsidiary of the covered industrial bank holding company, other than a nonbank subsidiary of a depository institution, constitutes a serious risk to the financial safety, soundness, or stability of a depository institution subsidiary of the covered industrial bank holding company and is inconsistent with sound banking principles or with the purposes of this section, at the election of the covered industrial bank holding company— (i) order the covered industrial bank holding company or any nonbank subsidiary of the covered industrial bank holding company, after due notice and opportunity for hearing, and after considering the views of the appropriate Federal banking agency and, if applicable, appropriate State bank supervisor, to terminate those activities or to terminate (within 120 days or such longer period as the appropriate Federal supervisory agency may direct in unusual circumstances) the ownership or control by the covered industrial bank holding company or nonbank subsidiary of the depository institution subsidiary either by sale or by distribution of the shares of the depository institution subsidiary, in accordance with subparagraph (B), to the shareholders of the covered industrial bank holding company; or (ii) order the covered industrial bank holding company, after due notice and opportunity for hearing, and after consultation with the appropriate State bank supervisor for the industrial bank controlled by the covered industrial bank holding company, to terminate (within 120 days or such longer period as the appropriate Federal supervisory agency may direct) the ownership or control of any such industrial bank by the covered industrial bank holding company. (B) Pro rata distribution Any distribution to shareholders referred to in clause (i) shall be pro rata with respect to all of the shareholders of the distributing covered industrial bank holding company, and the distributing covered industrial bank holding company shall not make any charge to any shareholder in connection with that distribution. (4) Holding company responsibility (A) Source of strength Notwithstanding section 45 of the Federal Deposit Insurance Act (12 U.S.C. 1831v), a covered industrial bank holding company— (i) shall serve as a source of financial and managerial strength to the subsidiary banks of the covered industrial bank holding company in the same manner as required under section 38A of the Federal Deposit Insurance Act (12 U.S.C. 1831o–1); and (ii) shall not conduct the operations of the covered industrial bank holding company in an unsafe or unsound manner. (B) Implementation The appropriate Federal supervisory agency of a covered industrial bank holding company shall implement the requirements under subparagraph (A) with respect to that industrial bank holding company. (h) Foreign bank ownership After October 1, 2019, no foreign bank may acquire, directly or indirectly, control of an industrial bank. (i) Administrative provisions (1) Agent for service of process The Board may require any covered industrial bank holding company, or persons connected with the covered industrial bank holding company if it is not a corporation, to execute and file a prescribed form of irrevocable appointment of agent for service of process. (2) Release from registration The Board may at any time, upon a motion by the Board or upon application, release a registered covered industrial bank holding company from any registration previously made by the covered industrial bank holding company, if the Board determines that the covered industrial bank holding company no longer controls any industrial bank. (j) Definition In this section: (1) Appropriate federal supervisory agency The term appropriate Federal supervisory agency means, with respect to a company that controls an industrial bank— (A) the Board, in the case of a company that is a bank holding company, a company that is a covered industrial bank holding company, a company that is a savings and loan holding company, or a company that is subject to this Act pursuant to section 8(a) of the International Banking Act of 1978 (12 U.S.C. 3106(a)); or (B) the Securities and Exchange Commission, in the case of a company that is regulated by the Commission pursuant to section 240.15c3–1(a)(7) of title 17, Code of Federal Regulations, as in effect on August 1, 2019. (2) Rule of construction Under the definition of the term appropriate Federal supervisory agency in paragraph (1), more than 1 agency may be an appropriate Federal supervisory agency with respect to any given company that controls an industrial bank. . (c) Enforcement Section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818) is amended— (1) in subsection (b), by adding at the end the following: (11) Industrial bank holding companies This subsection and subsections (c) through (s) and subsection (u) of this section shall apply to any covered industrial bank holding company and to any subsidiary (other than a depository institution) of a covered industrial bank holding company in the same manner as those subsections apply to State nonmember insured banks. ; (2) in subsection (h)(2), by striking Any party to and inserting Any party aggrieved by an order of any appropriate Federal supervisory agency under section 15 of the Bank Holding Company Act of 1956 or any party to; and (3) in subsection (i), by striking or 39 each place that term appears and inserting , 39, or section 15 of the Bank Holding Company Act of 1956. (d) Prompt corrective action Section 38(f)(2)(H) of the Federal Deposit Insurance Act (12 U.S.C. 1831o(f)(2)(H)) is amended— (1) in the subparagraph heading, by inserting or industrial bank holding company after company; (2) by striking Prohibiting any bank and inserting the following: (i) Bank holding company Prohibiting any bank ; and (3) by adding at the end the following: (ii) Industrial bank holding company Prohibiting any covered industrial bank holding company having control of the insured depository institution from making any capital distribution without the prior approval of the Board. . (e) Technical and conforming amendments (1) Bank Holding Company Act of 1956 Section 14(a)(2) of the Bank Holding Company Act of 1956 (12 U.S.C. 1852(a)(2)) is amended— (A) in subparagraph (E), by striking and at the end; and (B) by inserting after subparagraph (F) the following: (G) a covered industrial bank holding company; and . (2) Federal Deposit Insurance Act Section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813) is amended— (A) in subsection (a), by adding at the end the following: (4) Industrial bank The term industrial bank has the meaning given the term in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841). ; (B) in subsection (q)(3)— (i) in subparagraph (F), by striking and at the end; (ii) in subparagraph (G), by striking the period and inserting ; and; and (iii) by inserting after subparagraph (G) the following: (H) any covered industrial bank holding company, and any subsidiary of an industrial bank holding company (other than a depository institution). ; and (C) in subsection (w)— (i) in paragraph (1), by striking or a savings and loan holding company and inserting , a savings and loan holding company, or a covered industrial bank holding company; and (ii) by adding at the end the following: (8) Covered industrial bank holding company The term covered industrial bank holding company has the meaning given the term in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841). . (3) Gramm-Leach Bliley Act Section 115 of the Gramm-Leach-Bliley Act (12 U.S.C. 1820a) is amended— (A) in subsection (a), by striking or after bank holding company and inserting , covered industrial bank holding company, or; and (B) in subsection (d)— (i) by redesignating paragraphs (5), (6), and (7) as paragraphs (6), (7), and (8), respectively; and (ii) by inserting after paragraph (4) the following: (5) Covered industrial bank holding company The term covered industrial bank holding company has the meaning given the term in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841). . (4) Home Mortgage Disclosure Act of 1975 Section 304(g)(1) of the Home Mortgage Disclosure Act of 1975 (12 U.S.C. 2803(g)(1)) is amended by inserting , covered industrial bank holding company (as defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841), after bank holding company. (5) Right to Financial Privacy Act of 1978 Section 1101(6) of the Right to Financial Privacy Act of 1978 (12 U.S.C. 3401(6)) is amended— (A) in subparagraph (A), by striking and at the end; and (B) by adding at the end the following: (C) any covered industrial bank holding company (as defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841)); and . 3. Regulations The Board of Governors of the Federal Reserve System shall prescribe such regulations as the Board determines to be appropriate to carry out the amendments made by this Act.