>FINANCIAL SERVICES REGULATORY RELIEF ACT OF 2006

(Senate - September 29, 2006)

(c) Report.--Not later than 1 year after the date of enactment of this Act, the Comptroller General of the United States shall submit a report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives on the results of the study required by this section.

   SECTION 702--INSURED DEPOSITORY INSTITUTIONS

   Mr. SHELBY. Mr. President, I rise to engage the distinguished Senators in a colloquy.

   Section 702 of the Financial Services Regulatory Relief Act of 2006 clarifies that written conditions in applications and written agreements with institution-affiliated parties are enforceable in order to protect the safety and soundness of insured depository institutions. Institution affiliated parties can include bank directors, officers and principal shareholders. This provision was included at the request of the regulatory agencies, and we have heard some concerns that the regulatory agencies may use this language to require personal guarantees from bank directors and officers in inappropriate circumstances.

   I ask Senator Crapo if he can explain the legislative intent behind Section 702?

   Mr. CRAPO. In adopting this provision, it is our intention that the regulatory agencies utilize Section 702 with care and precision. Specifically, we do not intend that the regulatory agencies use it routinely in connection with corporate applications, notices or requests to impose financial or other conditions on bank directors or officers that contain a personal guarantee against loss by the institution. In particular, it is not our intention that the regulatory agencies use it routinely to require directors or officers of insured depository institutions to enter into capital maintenance agreements with the agencies as a condition of granting a charter or providing deposit insurance. Nor is it our intention that the regulatory agencies use it routinely to require bank directors or officers to maintain the capital of a troubled insured depository institution without the director's or officer's agreement.

   In utilizing their authority under Section 702 to enforce agreements to protect the deposit insurance fund, banking agencies should be mindful of the fact that our national banking policies should encourage the participation of highly qualified people on the boards of depository institutions. Creation of an environment where the threat of personal liability may cause bank directors to resign or keep well-qualified people from becoming directors in the first place would be counterproductive. We intend to monitor closely how this provision is applied by the regulatory agencies to ensure that such an environment does not result.

   Mr. JOHNSON. I thank the Senator for his explanation. I understand that the regulatory agencies, specifically the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation agree with this interpretation as does the House of Representatives.

   Mr. CRAPO. That is correct. I ask unanimous consent to have printed in the RECORD a copy of a joint letter from the regulatory agencies confirming this.

   There being no objection, the material was ordered to be printed in the Record, as follows:

   Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Office of Thrift Supervision, Federal Deposit Insurance Corporation,

   Washington, DC, August 7, 2006.
HON. MIKE CRAPO,
U.S. Senate,
Washington, DC.

   DEAR SENATOR CRAPO: This responds to your letter dated July 28, 2006, concerning section 702 of S. 2856, ``The Financial Services Regulatory Relief Act of 2006.''

   We agree completely that banking policies should welcome the participation of qualified individuals on the boards of directors of insured depository institutions. We believe that enactment of this section would be fully consistent with that goal and that the provision should be implemented in that spirit, if enacted.

   Section 702 is intended to enable the appropriate Federal banking agency to enforce conditions imposed in writing in connection with any action on an application, notice or other request, and written agreements between a Federal banking agency and a depository institution or an institution-affiliated party, in accordance with the terms of the condition or agreement, without the necessity of showing unjust enrichment or reckless disregard for the law, applicable regulations, or prior order of the appropriate Federal banking agency. The language is intended to address the effect of court decisions in a few cases that questioned the authority of the banking agencies to enforce such conditions or agreements without first establishing that the institution-affiliated party was unjustly enriched or engaged in reckless disregard for the law or previous agency orders.

   It is our intention to utilize this provision with care and precision. Specifically, we do not intend to use it routinely in connection with corporate applications, notices or requests to impose financial or other conditions on bank directors or officers that contain a personal guarantee against loss by the institution. In particular, it is not our intention to use it routinely to require directors or officers of insured depository institutions to enter into capital maintenance agreements with the agencies as a condition of granting a charter or providing deposit insurance. Nor is it our intention to use it routinely to require bank directors or officers to maintain the capital of a troubled insured depository institution without the director's or officer's agreement.

   We hope this addresses your concerns.

   Sincerely,

JOHN C. DUGAN,
Comptroller of the Currency.
JOHN M. REICH,
Director, Office of Thrift Supervision.    
BEN S. BERNANKE,
Chairman, Board of Governors of the Federal Reserve System.
SHEILA C. BAIR,   
Chairman, Federal Deposit Insurance Corporation.

   Mr. FRIST. Mr. President, I ask unanimous consent that the Senate concur in the House amendment, the motion to reconsider be laid upon the table, and any statements relating to the bill be printed in the RECORD.
   The PRESIDING OFFICER. Without objection, it is so ordered.