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187 of 203 DOCUMENTS

The American Banker

Legislative Update
June 12, 2003, Thursday

ACTION ON LEGISLATION

Tax Cut

Public Law 108-27

President Bush on May 28 signed legislation providing $350 billion of tax cuts. The centerpiece of the law is a
temporary reduction in the maximum rate that individuals pay on dividends; it expires in 2009.

The law also accelerates the income tax cuts for individuals. The cuts were enacted in 2001 and are scheduled to take
effect in 2006.

The law contains no other provisions the financial services industry had been lobbying for, such as an increase in the
maximum number of shareholders in an S corporation. Nor does it reduce income taxes on interest payments from bank
deposits.

Deposit Insurance

HR 522, S 229

The Treasury Department on May 11 released its long-awaited plan to reform the deposit insurance system in
cooperation with the other banking and thrift regulators. The draft bill would merge the bank and thrift deposit
insurance funds, give the Federal Deposit Insurance Corp. more flexibility in charging premiums, and replace the
statutory designated ratio of reserves to insured deposits with a range. The Treasury plan also provides the banking
industry with a one-time credit for past payments into the fund, and allows the FDIC to give ongoing credits and cash
rebates once the reserve ratio reaches certain levels.

The Treasury proposal has not been formally introduced in legislation by Senate Banking Committee Chairman Richard
Shelby, who at a hearing in February asked the agency to draft it. A spokesman for the Alabama Republican said last
month that whether Sen. Shelby introduces a bill, and how fast he moves it along, will depend on how many changes
are sought by others.

Unlike the bill that passed the House in March, and an earlier Senate bill from Sen. Tim Johnson and Sen. Chuck Hagel,
the Treasury plan does not include any increases in the $100,000 coverage level per account.

Regulatory Relief

HR 1375

The House Financial Services Committee on May 20 approved a bill that would ease a wide range of regulations on
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banks, thrifts, and credit unions.

The bill, introduced on March 27 by Rep. Shelley Moore Capito, R-W.Va., is very similar to legislation that was
debated last year and approved by the committee but not considered in the full House.

Its dozens of provisions include sections that would allow regulators to reduce the frequency of exams for well-run
institutions; reduce the waiting period between an acquisition's approval and the date on which it can be consummated
to five days, from 15; and exempt thrifts and credit unions that offer trust services from registering as investment
advisers with the Securities and Exchange Commission, an exemption commercial banks already enjoy.

The bill contains a controversial provision, opposed by the Federal Reserve Board and community banks, that would
give banks and industrial loan companies the authority to use start-up branches to cross state lines. Committee leaders
are considering adjusting the provision before the bill goes to the full House for a vote. A potential compromise under
consideration would be to prevent new industrial loan companies that are owned by nonfinancial commercial firms from
getting expanded branching powers, but grandfather existing industrial loan companies.

Electronic Check Processing

HR 1474

The House on June 5 voted 405 to 0 to approve check-clearing legislation.

The bill is called the Check 21 Act and is sponsored by Reps. Melissa Hart, R-Pa., and Harold E. Ford Jr., D-Tenn. It
would let banks clear checks electronically, without returning canceled checks to the signers or their banks. Customers
and banks could request "substitute" checks -- reprinted documents that would provide the same information as the
original.

The bill would require that a bank put as much as $2,500 of disputed funds back into a consumer's account if the matter
was not settled in 10 business days, provided the consumer had received a substitute check. Any remainder would be
due in 45 days. (Interest would also be due if the funds were debited from an interest-bearing account.)

When the House Financial Services Committee adopted the bill, on May 20, it added a provision to clarify that existing
consumer protections would be preserved.

The Senate Banking Committee is working on a bipartisan companion bill that panel Chairman Richard Shelby, R-Ala.,
wants to take up this month.

Bankruptcy Netting

HR 2120

The House Financial Services Committee on May 21 approved in a voice vote legislation that would make it easier for
companies to reconcile derivatives contracts if one party becomes insolvent.

The bill, sponsored by Rep. Patrick Toomey, R-Pa., was introduced May 15. It would let financial companies net out
their debts on derivatives contracts with other companies that have filed for bankruptcy, and the process would not have
to wait for bankruptcy court approval.

It faces an uphill battle to get through the full House and over to the Senate; it mirrors a key section of a comprehensive
and more controversial bankruptcy reform bill with a history of stalling because of unrelated ideological issues.
Sponsors of the bankruptcy bill do not want to move the netting section separately.
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Internet Gambling

HR 2143, S 627

The House on Tuesday voted 319 to 104 in favor of the Unlawful Internet Gambling Funding Prohibition Act, which
would bar the use of any bank instrument, such as credit cards, to pay for illegal online gambling.

The core of the bill, sponsored by Rep. Spencer Bachus, R-Ala., would require financial companies to block illegal
Internet bets. Regulators would establish a system to notify banks which transactions they would be required to block.

However, the bill, which financial companies have endorsed, does not offer legal protection for banks that block illegal
gambling transactions as directed by the bank regulators. An earlier version, sponsored by Rep. Jim Leach, R-Iowa,
would have shielded banks from prosecution for any illegal bets that were not blocked provided they had followed
regulators' instructions, but it was removed because of jurisdictional concerns of the House Judiciary Committee.

In the Senate, Sen. Jon Kyl, R-Ariz., and Sen. Dianne Feinstein, D-Calif., introduced a companion bill on March 13. It
was the subject of a March 18 hearing in the Senate Banking Committee, whose chairman, Sen. Richard Shelby, R-Ala.,
said he supported the bill and wanted to move it quickly. There has been no action since the March hearing.

NEW LEGISLATION

GSEs

HR 2022, 2117

A bipartisan pair of lawmakers reintroduced legislation on May 7 that would eliminate Fannie Mae and Freddie Mac's
exemption from registering their common stock and debt with the Securities and Exchange Commission.

The "Leave No Securities Behind Act," sponsored by Reps. Christopher Shays, R-Conn., and Ed Markey, D-Mass., is
similar to a bill introduced in the last Congress that made little progress. It would require Fannie and Freddie to
register their debt securities and mortgage-backed securities with the SEC. The government-sponsored enterprises have
long resisted such a move on the grounds that it would harm the mortgage market.

Separately on May 15, Rep. Pete Stark, D-Calif., introduced a bill that would repeal the tax exemption Fannie Mae and
Freddie Mac receive from local and state income taxes.

Identity Theft

HR 2035

A bipartisan House Financial Services Committee bill designed to help consumers avoid identity theft was introduced
May 8. The primary sponsors are Reps. Darlene Hooley, D-Ore., and Steven C. LaTourette, R-Ohio.

Among other things, it would stipulate that stores print only the last four digits of a customer's credit or debit card on a
receipt, that everyone have access to one free credit report a year, and that any financial institution offering credit use
up-to-date technologies to resolve discrepancies.

Basel II

HR 2043

A bipartisan group of House Financial Services Committee members on May 9 introduced legislation that they said
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would guarantee that the Basel II capital plan, which would change international capital standards for banks, would not
put U.S. financial services firms at a competitive disadvantage.

Chairman Michael G. Oxley, R-Ohio, Rep. Barney Frank, D-Mass., Rep. Carolyn Maloney, D-N.Y., and Rep. Spencer
Bachus, R-Ala., sponsored the legislation, which the committee said would create a panel "responsible for unifying the
United States' position and reporting to Congress on the impact that changes to the Basel Accord would have on the
domestic and global financial systems."

Separately, the Senate Banking Committee has scheduled a June 18 hearing into the plan. The committee will take
testimony from officials of the Federal Reserve Board, the Federal Deposit Insurance Corp., the Office of the
Comptroller of the Currency, and the Office of Thrift Supervision. Industry representatives also will testify.

Investor Restitution

HR 2179

House Financial Services Committee Chairman Michael G. Oxley, R-Ohio, and capital markets subcommittee chairman
Richard Baker, R-La., on May 21 introduced the Securities Fraud Deterrence and Investor Restitution Act, which
among other things would increase the fines for securities fraud and return more money to defrauded investors.

The bill would also give the SEC authority to obtain bank records without notifying the customer. Under current law the
SEC needs court authorization to get bank records if it does not contact the customer. A summary of the bill says that
"important investigative objectives can be compromised by the inherent delay in obtaining the necessary court order."

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