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Special Issue 2000
The Financial Services
Modernization Act of 1999
A brief summary of
Gramm-Leach-Bliley
It is certainly telling about the complexity of the Financial
Services Modernization Act that the summary of its provisions,
as presented by the Senate Banking Committee, comes to six single-spaced
pages. This is also a clue to the reader that the following synopsis
only begins to describe the entire bill. For those interested
in a more complete summary, and for links to other sites related
to the new law, go to Gramm-Leach-Bliley.
Out With the Old
The 1933 Glass-Steagall Act's prohibitions on affiliations between
banks and securities companies are repealed, as are the prohibitions
on affiliations between the banking and insurance industries under
the 1956 Bank Holding Company Act.
In With the New Activities
Provisions of Gramm-Leach-Bliley:
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Repeal the existing limitations on the ability of banks to affiliate
with securities and insurance firms.
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Create a new organizational form that allows banking organizations
to carry out new powers. This new entity will be called a "financial
holding company," and its nonbanking subsidiaries will be allowed
to engage in financial activities such as insurance and securities
underwriting.
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Allow banks with a federal charter to engage in new financial activities
but they must do so in new "financial subsidiaries." Among other restrictions,
these subsidiaries can do some, but not all, of the new activities
available to the holding company.
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Creates a new system for regulating the exercise of the new powers.
Community Reinvestment Act
In 1977, the Congress enacted the Community Reinvestment Act (CRA) to
encourage banks and thrifts to help meet the credit needs of their entire
communities, including low- and moderate-income neighborhoods, consistent
with safe and sound lending practices. While the bill clarifies that nothing
in the act repeals any provision of the CRA, it does make changes in how
often banks are examined for their compliance, and also creates additional
disclosures relating to CRA.
Privacy
The bill requires clear disclosure by all financial institutions
of their privacy policy regarding the sharing of nonpublic personal
information with both affiliates and third parties. The bill also
requires a notice to consumers and an opportunity to "opt-out"
of sharing of nonpublic personal information with nonaffiliated
third parties subject to certain exceptions.
The Federal Home Loan Bank System
The Federal Home Loan Bank System provides relatively low-cost
loans to local lenders. This helps fund the lenders' activities.
The bill makes it easier for small banks to join the system and
increases their capacity to borrow from it.
Unitary Thrift Holding Companies
The unitary thrift holding company structure permits a commercial
firm to own a thrift, which are predominantly consumer lending
institutions. The bill forbids regulators from approving any applications
to become a unitary thrift holding company received after May
4, 1999. Moreover, the bill allows existing unitary thrift holding
companies to be sold to financial companies. These provisions
had the effect of preventing Wal-Mart from taking on this charter.
Other Provisions
There are many other provisions, some dealing with the above topics and
just as many addressing other issues, such as disclosure of ATM fees,
regulation of specific activities and a provision that requires plain
language" from federal banking regulators in rules published after
Jan.
1, 2000.
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