S.Amdt. 4102

SA 4102. Mr. MERKLEY 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 485, strike line 1 and all that follows through
page 496, line 2, and insert the following:
(2) the term ``proprietary trading''--
(A) means purchasing or selling, or otherwise acquiring or
disposing of, stocks, bonds, options, commodities,
derivatives, or other financial instruments by an insured
depository institution, a company that controls, directly or
indirectly, an insured depository institution or is treated
as a bank holding company for purposes of the Bank Holding
Company Act of 1956 (12 U.S.C. 1841 et seq.), and any
subsidiary of such institution or company, for the trading
book (or such other portfolio as the Federal banking agencies
may determine) of such institution, company, or subsidiary,
except that the Federal banking agencies may, for the
purposes of this subparagraph, exclude from the definition of
the term ``insured depository institution'' an institution
that functions principally in a trust or fiduciary capacity;
and
(B) subject to such restrictions as the Federal banking
agencies may determine, does not include purchasing or
selling, or otherwise acquiring or disposing of, stocks,
bonds, options, commodities, derivatives, or other financial
instruments on behalf of a customer, as part of market making
activities, otherwise in connection with or in facilitation
of customer relationships, including risk-mitigating hedging
activities related to such a purchase, sale, acquisition, or
disposal, or in the conduct of regulated insurance
investments;
(3) the term ``sponsoring'', when used with respect to a
hedge fund or private equity fund, means--

[[Page S3939]]

(A) serving as a general partner, managing member, or
trustee of the fund;
(B) 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; or
(C) sharing with the fund, for corporate, marketing,
promotional, or other purposes, the same name or a variation
of the same name.
(b) Prohibition on Proprietary Trading.--
(1) In general.--Subject to the recommendations of the
Council under subsection (g), and except as provided in
paragraph (2) or (3), the appropriate Federal banking
agencies shall, through a rulemaking under subsection (g),
jointly prohibit proprietary trading by an insured depository
institution, a company that controls, directly or indirectly,
an insured depository institution or is treated as a bank
holding company for purposes of the Bank Holding Company Act
of 1956 (12 U.S.C. 1841 et seq.), and any subsidiary of such
institution or company.
(2) Excepted obligations.--
(A) In general.--The prohibition under this subsection
shall not apply with respect to an investment that is
otherwise authorized by Federal law in--
(i) obligations of the United States or any agency of the
United States, including obligations fully guaranteed as to
principal and interest by the United States or an agency of
the United States;
(ii) 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, or other similar Government-
sponsored enterprises, including obligations fully guaranteed
as to principal and interest by such entities; and
(iii) obligations of any State or any political subdivision
of a State.
(B) Conditions.--The appropriate Federal banking agencies
may impose conditions on the conduct of investments described
in subparagraph (A).
(C) Rule of construction.--Nothing in subparagraph (A) may
be construed to grant any authority to any person that is not
otherwise provided in Federal law.
(3) Foreign activities.--An investment or activity
conducted by a company pursuant to paragraph (9) or (13) of
section 4(c) of the Bank Holding Company Act of 1956 (12
U.S.C. 1843(c)) solely outside of the United States shall not
be subject to the prohibition under paragraph (1), provided
that the company is not directly or indirectly controlled by
a company that is organized under the laws of the United
States or of a State.
(c) Prohibition on Sponsoring and Investing in Hedge Funds
and Private Equity Funds.--
(1) In general.--Except as provided in paragraph (2), and
subject to the recommendations of the Council under
subsection (g), the appropriate Federal banking agencies
shall, through a rulemaking under subsection (g), jointly
prohibit an insured depository institution, a company that
controls, directly or indirectly, an insured depository
institution or is treated as a bank holding company for
purposes of the Bank Holding Company Act of 1956 (12 U.S.C.
1841 et seq.), or any subsidiary of such institution or
company, from sponsoring or investing in a hedge fund or a
private equity fund.
(2) Application to foreign activities of foreign firms.--An
investment or activity conducted by a company pursuant to
paragraph (9) or (13) of section 4(c) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1843(c)) solely outside of the
United States shall not be subject to the prohibitions and
restrictions under paragraph (1), provided that the company
is not directly or indirectly controlled by a company that is
organized under the laws of the United States or of a State.
(d) Investments in Small Business Investment Companies and
Investments Designed To Promote the Public Welfare.--
(1) In general.--A prohibition imposed by the appropriate
Federal banking agencies under subsection (c) shall not apply
with respect an investment otherwise authorized under Federal
law that is--
(A) an investment in a small business investment company,
as that term is defined in section 103 of the Small Business
Investment Act of 1958 (15 U.S.C. 662); or
(B) designed primarily to promote the public welfare, as
provided in the 11th paragraph of section 5136 of the Revised
Statutes (12 U.S.C. 24).
(2) Rule of construction.--Nothing in paragraph (1) may be
construed to grant any authority to any person that is not
otherwise provided in Federal law.
(e) Limitations on Relationships With Hedge Funds and
Private Equity Funds.--
(1) Covered transactions.--An insured depository
institution, a company that controls, directly or indirectly,
an insured depository institution or is treated as a bank
holding company for purposes of the Bank Holding Company Act
of 1956 (12 U.S.C. 1841 et seq.), and any subsidiary of such
institution or company that serves, directly or indirectly,
as the investment manager or investment adviser to a hedge
fund or private equity fund may not enter into a covered
transaction, as defined in section 23A of the Federal Reserve
Act (12 U.S.C. 371c) with such hedge fund or private equity
fund.
(2) Affiliation.--An insured depository institution, a
company that controls, directly or indirectly, an insured
depository institution or is treated as a bank holding
company for purposes of the Bank Holding Company Act of 1956
(12 U.S.C. 1841 et seq.), and any subsidiary of such
institution or company 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
institution, company, or subsidiary were a member bank and
such hedge fund or private equity fund were an affiliate.
(f) Capital and Quantitative Limitations for Certain
Nonbank Financial Companies.--
(1) In general.--Except as provided in paragraph (2), and
subject to the recommendations of the Council under
subsection (g), the Board of Governors shall adopt rules
imposing additional capital requirements and specifying
additional quantitative limits for nonbank financial
companies supervised by the Board of Governors under section
113 that engage in proprietary trading or sponsoring and
investing in hedge funds and private equity funds.
(2) Exceptions.--The rules under this subsection shall not
apply with respect to the trading of an investment that is
otherwise authorized by Federal law--
(A) in obligations of the United States or any agency of
the United States, including obligations fully guaranteed as
to principal and interest by the United States or an agency
of the United States;
(B) in 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, or other similar
Government-sponsored enterprises, including obligations fully
guaranteed as to principal and interest by such entities;
(C) in obligations of any State or any political
subdivision of a State;
(D) in a small business investment company, as that term is
defined in section 103 of the Small Business Investment Act
of 1958 (15 U.S.C. 662); or
(E) that is designed primarily to promote the public
welfare, as provided in the 11th paragraph of section 5136 of
the Revised Statutes (12 U.S.C. 24).
(g) Council Study and Rulemaking.--
(1) Study and recommendations.--Not later than 6 months
after the date of enactment of this Act, the Council--
(A) shall complete a study of the definitions under
subsection (a) and the other provisions under subsections (b)
through (f), to assess the manner in which to implement this
section so as to--
(i) promote and enhance the safety and soundness of
depository institutions and the affiliates of depository
institutions;
(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 inappropriate conflicts of interest between the
self-interest of depository institutions, affiliates of
depository institutions, and financial companies supervised
by the Board, and the interests of the customers of such
institutions and companies;
(v) not 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 depository institutions, affiliates of depository
institutions, and financial companies supervised by the Board
of Governors, or that might reasonably be expected to create
undue risk or loss in such institutions, affiliates, and
companies; and
(vii) appropriately accommodates the business of insurance
within an insurance company subject to regulation in
accordance with State insurance company investment laws;
(B) shall make recommendations regarding the definitions
under subsection (a) and the implementation of other
provisions under subsections (b) through (f).
(2) Rulemaking.--Not earlier than the date of completion of
the study required under paragraph (1), and not later than 9
months after the date of completion of such study--
(A) the appropriate Federal banking agencies shall--
(i) jointly issue final regulations implementing
subsections (b) through (e); and
(ii) evaluate and consider any recommendations made by the
Council pursuant to paragraph (1)(B); and
(B) the Board of Governors shall--
(i) issue final regulations implementing subsection (f);
and
(ii) evaluate and consider any recommendations made by the
Council pursuant to paragraph (1)(B).
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