The Senate approved S. 900, the Financial Services Modernization Act of 1999, on May 6, 1999. Here are the major provisions of the bill:

• Repeal of Glass-Steagall. Repeals Depression-era restrictions and allows U.S. providers of financial services, including banks, securities firms, and insurance companies, to affiliate with each other and enter each other's markets. The affiliation of financial services providers allows open and free competition in the financial services industry.

• Bank holding company structure. National banks with total assets exceeding $1 billion must conduct financial activities through holding company affiliates. National banks of any size may engage in financial activities on an agency basis through an operating subsidiary. National banks lawfully conducting activities through operating subsidiaries as of the date of enactment will be permitted to continue such activities.

• Operating subsidiaries. Allows national banks with total assets of $1 billion or less to conduct financial activities through operating subsidiaries. In order to conduct such activities through a subsidiary, the national bank and all insured depository institution affiliates must be well capitalized and well managed and the national bank must receive the approval of the OCC based on those criteria. A national bank subsidiary engaging in such activities will be subject to affiliate transaction restrictions and to anti-tying prohibitions. The bank also must deduct from capital the amount of its investment in the subsidiary.

• Municipal revenue bond underwriting. Authorized as a permissible banking activity. Therefore, this activity may be conducted by the bank directly or in an operating subsidiary.

• Functional regulation. Relies on strong functional regulation of the banking, insurance and securities components of the holding company, and establishes the Federal Reserve as the umbrella regulator.

• Reduces regulatory burdens. Streamlines regulatory burdens by requiring the Federal Reserve as umbrella supervisor of holding companies to rely to the extent possible on reports and examinations conducted by other functional regulators, such as the SEC.

• Competition protection rules. Requires the Federal banking agencies to issue joint consumer protection regulations governing the retail sale of insurance products by banks, their employees, or others who engage in such activities on behalf of the banks. Federal banking regulators must consult with the states in the process of formulating their joint rules. Provisions of federal rules deemed more protective will preempt state law or rules unless within three years of federal notification the State legislatures enact laws opting out of such coverage.

• Expedited dispute resolution process. Establishes a dispute resolution process between Federal banking regulators and state insurance regulators as to whether any product is or is not insurance. The court is directed to decide the action on the merits, according equal deference to the Federal regulator and the State insurance regulators.

• Elimination of SAIF special reserve funds. The FDIC will be able to reverse an accounting entry designating about $1 billion of SAIF dollars to a SAIF special reserve, which is not 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.

• GAO study of S corporation revisions and impact on community banks. Provide for a GAO study to be completed within 6 months on the impact of certain changes to S corporation rules such as increasing the number of allowable shareholders, and the potential impact of such changes on community banks.

• CRA meaningful examinations. Establishes a rebuttable presumption of CRA compliance with respect to an insured depository institution that has achieved a "satisfactory" or better rating in its most recent CRA exam and in each of its CRA exams during the immediately preceding 36-month period. The presumption of compliance may be rebutted by any person presenting substantial verifiable information to the contrary.

• CRA exemption for small rural banks and savings and loan association. Banks and savings and loan associations with total assets less than $100 million and located in nonmetropolitan areas are exempted from the provisions of the CRA. This exemption only applies to 38% of all banks and savings and loans, which control only 2.8% of banking assets nationwide.

• Bank securities activities. While taking away the broad exemption that banks have from registration as a broker or dealer under the securities laws, the bill makes clear that banks serving as custodians to self-directed IRAs will not be required to push these activities out of the bank and into a registered broker or dealer. Banks often function as service providers to pension, retirement, profit sharing, bonus, thrift, savings, incentive and other similar plans. The Senate bill adds service providers to these plans to the definition of fiduciary, ensuring that these activities will not have to be moved out of the bank and into a registered broker-dealer subject to SEC regulation. The Senate bill allows banks to function as stock transfer agents without having to push these functions out to a separate subsidiary or affiliate. The SEC, with the concurrence of the Federal Reserve Board, may determine by regulation those new products which, if offered or sold by a bank, would subject it to registration with the SEC. A bank may offer or sell "traditional banking products," as defined in this section, without becoming subject to registration with the SEC.

• Federal Home Loan Bank reforms. Includes certain provisions to modernize the operations of the Federal Home Loan Bank System. As of June 1, 2000, membership in the Federal Home Loan Bank System will be voluntary. Community banks (those banks with total assets less than $500 million) will be able to become members without regard to the percentage of total assets represented by residential mortgage loans. Community banks will be able to use advances for small business, small farm and small agribusiness lending. Modifies the governance structure of the system to give more authority to the regional banks. Rather than address Federal Home Loan Bank System capital in this legislation, the Senate Committee bill directs the GAO to conduct a study of possible revisions to the capital structure of the Federal Home Loan Bank System.

Amendments to S. 900 on the Senate floor added these provisions, among others:

• Public disclosure of CRA agreements. Requires disclosure of all CRA-related agreements signed after May 5, 1999, that are worth $10,000 or more per year. The agreements must be filed with federal bank and thrift regulators and made available to the public. The legislation also requires annual reports on each agreement, including data on loans, investments and services provided by the bank and the community group as a result of the agreement.

• Privacy protections. Provides criminal and civil penalties for pretext calls, in which callers pose as customers to obtain confidential information from banks and other financial-service providers. The amendment also directs federal banking agencies to establish a consumer grievance process to deal with privacy violations. In addition, the GAO is directed to prepare a report on the effectiveness of remedies for pretext calling.