S.Amdt. 3931

SA 3931. Mr. MERKLEY (for himself, Mr. Levin, Mr. Brown of Ohio, Mr.
Kaufman, Mrs. Shaheen, Mrs. Feinstein, Mr. Casey, Mr. Nelson of
Florida, Mr. Burris, Mr. Begich, Mr. Inouye, Mr. Whitehouse, Mrs.
McCaskill, Mr. Udall of Colorado, Ms. Mikulski, Mr. Sanders, Mr. Udall
of New Mexico, and Mr. Reed) submitted an amendment intended to be
proposed to amendment SA 3739 proposed by Mr. Reid (for Mr. Dodd (for
himself and Mrs. Lincoln)) to the bill S. 3217, to promote the
financial stability of the United States by improving accountability
and transparency in the financial system, to end ``too big to fail'',
to protect the American taxpayer by ending bailouts, to protect
consumers from abusive financial services practices, and for other
purposes; which was ordered to lie on the table; as follows:

On page 484, strike line 16 and all that follows through
page 497, line 8, and insert the following:

SEC. 619. PROHIBITIONS ON PROPRIETARY TRADING AND CERTAIN
RELATIONSHIPS WITH HEDGE FUNDS AND PRIVATE
EQUITY FUNDS.

The Bank Holding Company Act of 1956 (12 U.S.C. 1841 et
seq.) is amended by adding at the end the following:

``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.--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 the Board, in consultation
with the Securities and Exchange Commission and the Commodity
Futures Trading Commission, 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 be subject to additional capital and additional
quantitative limits as prescribed pursuant to subsection
(d)(3).
``(b) Study and Rulemaking.--
``(1) Study.--
``(A) In general.--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.
``(B) Contents of study.--Not later than 6 months after the
date of enactment of this Act, the Council shall study and
make recommendations on implementing the provisions of this
section so as to--
``(i) promote and enhance the safety and soundness of
banking entities;
``(ii) protect taxpayers and enhance financial stability by
minimizing the risk that depository institutions and the
affiliates of depository institutions will engage in unsafe
and unsound activities;
``(iii) limit the inappropriate transfer of Federal
subsidies from institutions that benefit from deposit
insurance and liquidity facilities of the Federal Government
to unregulated entities;
``(iv) reduce conflicts of interest between the self-
interest of banking entities and nonbank financial companies,
and the interests of the customers of such entities and
companies;
``(v) not unreasonably raise the cost of credit or other
financial services, reduce the availability of credit or
other financial services, or impose other costs on households
and businesses in the United States;
``(vi) limit activities that have caused undue risk or loss
in banking entities and nonbank financial companies, or that
might reasonably be expected to create undue risk or loss in
such banking entities and nonbank financial companies; and
``(vii) 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 an
affiliated insured depository institution and the United
States financial system.
``(2) Rulemaking.--
``(A) In general.--Not later than 9 months after the
completion of the study under paragraph (1), the appropriate
Federal banking agencies, in consultation with the Securities
and Exchange Commission and the Commodity Futures Trading
Commission, (unless otherwise provided in this section) shall
consider the findings of the study under paragraph (1) and
adopt rules to carry out this section.
``(B) Coordinated rulemaking.--
``(i) Coordination, consistency, and comparability.--In
developing and issuing regulations pursuant to this section,
the agencies shall consult and coordinate with each other 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 the banking
entities and nonbank financial companies supervised by the
Board.
``(ii) Council role.--The chairperson of the Council shall
be responsible for coordination of the regulations issued
under this section.
``(c) Effective Date.--The provisions of this section shall
take effect 18 months after the date of adoption of final
rules under subsection (b)(2), but not later than 3 years
after the date of enactment of this section.
``(d) Permitted Activities.--
``(1) In general.--Notwithstanding the restrictions in
subsection (a), to the extent permitted by other laws or
regulations, and subject to the limitations under paragraph
(2) and any restrictions or limitations that the appropriate
Federal banking agencies, in consultation with the Securities
and Exchange Commission and the Commodity Futures Trading
Commission, may jointly 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
(i)(4) in connection with underwriting, market-making, or in
facilitation of customer relationships, to the extent that
any such activities permitted by this subparagraph are
designed to not exceed the reasonably expected near term
demands of clients, customers, or counterparties.
``(C) Risk-mitigating hedging activities designed to reduce
risks to the banking entity or nonbank financial company.
``(D) The purchase, sale, acquisition, or disposition of
securities and other instruments described in subsection
(i)(4) on behalf of customers.
``(E) Investments in one or more small business investment
companies or investments designed primarily to promote the
public welfare, as provided in paragraph (11) of section 5136
of the Revised Statutes of the United States (12 U.S.C. 24).
``(F) The purchase, sale, acquisition, or disposition of
securities and other instruments described in subsection
(i)(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 such activities 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, 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
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
company or the banking entity or the financial stability of
the United States.
``(G) Proprietary trading conducted by a company pursuant
to paragraph (9) or (13) of section 4(c), provided that the
trading occurs solely outside of the United States and that
the company is not directly or indirectly controlled by a
United States person.
``(H) 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
company pursuant to section 4(c) (9) or (13) solely outside
of the United States, provided that no ownership interest in
the hedge fund or private equity fund is offered for sale or
sold to a resident of the United States and that the company
is not directly or indirectly controlled by a company that is
organized in the United States.
``(I) Such other activity as the appropriate Federal
banking agencies, in consultation with the Securities and
Exchange Commission and the Commodity Futures Trading
Commission, jointly determine through regulation, as provided
for in subsection (c), would promote and protect the safety
and soundness of the banking entity or nonbank

[[Page S3483]]

financial company 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 it--
``(i) would involve or result in a material conflict of
interest (as such term shall be defined jointly by rule)
between the banking entity or the nonbank financial company
and its clients, customers, or counterparties;
``(ii) would result, directly or indirectly, in an unsafe
and unsound exposure by the banking entity or nonbank
financial company to high-risk assets or high-risk trading
strategies (as such terms shall be defined jointly by rule);
``(iii) would pose a threat to the safety and soundness of
such banking entity or nonbank financial company; or
``(iv) would pose a threat to the financial stability of
the United States.
``(B) Rulemaking.--The appropriate Federal banking
agencies, in consultation with the Securities and Exchange
Commission and the Commodity Futures Trading Commission,
shall issue regulations to implement subparagraph (A) as part
of the regulations provided for under subsection (b)(2).
``(3) Capital and quantitative limitations.--The Board, in
consultation with the Securities and Exchange Commission and
the Commodity Futures Trading Commission, shall adopt rules
imposing additional capital requirements and quantitative
limitations regarding the activities permitted under this
section if the Board determines that additional capital and
quantitative limitations are appropriate to protect the
safety and soundness of the banking entities and nonbank
financial companies engaged in such activities.
``(e) Anti-evasion.--
``(1) Rulemaking.--The appropriate Federal banking
agencies, in consultation with the Securities and Exchange
Commission and the Commodity Futures Trading Commission,
shall jointly issue regulations as part of the rulemaking
provided for in subsection (c) 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 or the Securities and
Exchange Commission or Commodity Futures Trading Commission,
as appropriate, has reasonable cause to believe that a
banking entity or nonbank financial company under the
respective agency's jurisdiction has made an investment or
engaged in an activity in a manner that is intended to evade
the requirements of this section (including through an abuse
of any permitted activity), the appropriate Federal banking
agency or the Securities and Exchange Commission or Commodity
Futures Trading Commission, as appropriate, shall order,
after due notice and opportunity for hearing, the banking
entity or nonbank financial company to terminate the activity
and, as relevant, dispose of the investment; provided that
nothing in this subparagraph 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.
``(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 or investment
adviser to a hedge fund or private equity fund may enter into
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.
``(2) Treatment as member bank.--A banking entity that
serves, directly or indirectly, as the investment manager or
investment adviser to a hedge fund or private equity fund
shall be subject to section 23B of the Federal Reserve Act
(12 U.S.C. 371c-1), as if such person were a member bank and
such hedge fund or private equity fund were an affiliate
thereof.
``(g) Limitation on Contrary Authority.--No activity that
is authorized for a banking entity or a nonbank financial
company supervised by the Board under any other provision of
law may be engaged in, directly or indirectly, by a banking
entity or a nonbank financial company supervised by the Board
under such authority or under any other provision of law, if
such activity is prohibited or restricted under this section.
``(h) Rule of Construction.--Nothing in this section may be
construed to limit the inherent authority of any Federal
agency or state regulatory authority under otherwise
applicable provisions of law.
``(i) 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, and any affiliate
or subsidiary of any such entity.
``(2) Hedge fund; private equity fund.--The terms `hedge
fund' and `private equity fund' mean a company or other
entity that is exempt from registration as an investment
company pursuant to section 3(c)(1) or 3(c)(7) of the
Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(1) or 80a-
3(c)(7)), or such similar funds as jointly determined
appropriate by the appropriate Federal banking agencies, the
Securities and Exchange Commission, and the Commodity Futures
Trading Commission.
``(3) Nonbank financial company.--The terms `nonbank
financial company supervised by the Board' and `nonbank
financial company' mean any United States nonbank financial
company or foreign nonbank financial company supervised by
the Board under section 113 of the Financial Stability Act of
2010.
``(4) Proprietary trading.--The term `proprietary trading'
means engaging as a principal for its own trading account in
any transaction to purchase or sell, or otherwise acquire or
dispose of, any security, contract of sale of a commodity for
future delivery, any option on any such contract, swap,
security-based swap, or any other security or financial
instrument that the appropriate Federal banking agencies, in
consultation with the Securities and Exchange Commission and
the Commodity Futures Trading Commission, may jointly, by
rule, determine.
``(5) Trading account.--For all banking entities and
nonbank financial companies covered by this section, the term
`trading account' shall be defined consistent with guidance
issued by the Board with regard to financial statements of
bank holding companies and shall include any account used for
acquiring or taking positions in such items 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, in consultation with the Securities
and Exchange Commission and the Commodity Futures Trading
Commission, may jointly, by rule, determine.
``(6) Sponsor.--The term to `sponsor' a fund means to--
``(A) serve as a general partner, managing member, or
trustee of a fund;
``(B) in any manner select or control (or having employees,
officers, or directors, or agents who constitute) a majority
of the directors, trustees, or management of a fund; or
``(C) share with a fund, for corporate, marketing,
promotional, or other purposes, the same name or a variation
of the same name.''.

SEC. 619A. STUDY OF BANK ACTIVITIES.

(a) Study.--Not later than 18 months after the date of
enactment of this Act, the appropriate Federal banking
agencies shall jointly review and prepare a report on
activities permitted as part of the business of banking under
Federal and State law including activities authorized by
statute and by order, interpretation and guidance and shall
as part of the report review and consider--
(1) the type of activities or investment;
(2) any financial, operational, managerial or reputation
risks associated with or presented as a result of the banking
entity engaged in the activity or making the investment; and,
(3) risk mitigation activities undertaken by the banking
entity with regard to the risks.
(b) Report and Recommendations to the Council and to
Congress.--The appropriate Federal banking agencies shall
submit to the Council, the Committee on Financial Services of
the House of Representatives, and the Committee on Banking,
Housing, and Urban Affairs of the Senate the study conducted
pursuant to subsection (a) no later than two months after its
completion. In addition to the information described in
subsection (a), the report shall include recommendations
regarding--
(1) whether each activity or investment has or could have a
negative effect on the safety and soundness of the banking
entity or the United States financial system;
(2) the appropriateness of the conduct of each activity or
type of investment by banking entities; and,
(3) additional restrictions as may be necessary to address
risks to safety and soundness.

SEC. 619B. CONFLICTS OF INTEREST.

The Securities Act of 1933 (15 U.S.C. 77a et seq.) is
amended by inserting after section 27A the following:

``SEC. 27B. CONFLICTS OF INTEREST RELATING TO CERTAIN
SECURITIZATIONS.

``(a) In General.--An underwriter, placement agent, initial
purchaser, or sponsor, or any affiliate or subsidiary of any
such entity, of an asset-backed security (as such term is
defined in section 3 of the Securities and Exchange Act of
1934 (15 U.S.C. 78c), which for the purposes of this section
shall include a synthetic asset-backed security), shall not,
during such period as the asset-backed security is
outstanding or such lesser period as the Commission
determines is appropriate, engage in any transaction that
would involve or result in any material conflict of interest
with respect to any investor in a transaction arising out of
such activity.
``(b) Rulemaking.--Not later than 180 days after the date
of enactment of this section, The Commission shall issue
rules for the purpose of implementing subsection (a)
including any appropriate disclosures or other measures.
``(c) Exception.--The prohibitions of subsection (a) shall
not apply to risk-mitigating hedging activities necessary to
conduct the underwriting, placement, initial purchase, or
sponsorship, provided that this subparagraph shall not
otherwise limit the application of section 15(G) of the
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.).''.

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