Derivatives Limitations Act of 1994

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Derivatives Limitations Act of 
1994''.

SEC. 2. INSURED DEPOSITORY INSTITUTIONS.

    The Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.) is 
amended by adding at the end the following new section:

``SEC. 44. DERIVATIVE INSTRUMENTS.

    ``(a) Derivatives Activities.--
            ``(1) General prohibition.--Except as provided in paragraph 
        (2), neither an insured depository institution, nor any 
        affiliate thereof, may purchase, sell, or engage in any 
        transaction involving a derivative financial instrument for the 
        account of that institution or affiliate.
            ``(2) Exceptions.--
                    ``(A) Hedging transactions.--An insured depository 
                institution may purchase, sell, or engage in hedging 
                transactions to the extent that such activities are 
                approved by rule, regulation, or order of the 
                appropriate Federal banking agency issued in accordance 
                with paragraph (3).
                    ``(B) Separately capitalized affiliate.--A 
                separately capitalized affiliate of an insured 
                depository institution that is not itself an insured 
                depository institution may purchase, sell, or engage in 
                a transaction involving a derivative financial 
                instrument if such affiliate complies with all rules, 
                regulations, or orders of the appropriate Federal 
                banking agency issued in accordance with paragraph (3).
                    ``(C) De minimis interests.--An insured depository 
                institution may purchase, sell, or engage in 
                transactions involving de minimis interests in 
                derivative financial instruments for the account of 
                that institution to the extent that such activity is 
                defined and approved by rule, regulation, or order of 
                the appropriate Federal banking agency issued in 
                accordance with paragraph (3).
                    ``(D) Existing interests.--During the 3-month 
                period beginning on the date of enactment of this 
                section, nothing in this section shall be construed--
                            ``(i) as affecting an interest of an 
                        insured depository institution in any 
                        derivative financial instrument which existed 
                        on the date of enactment of this section; or
                            ``(ii) as restricting the ability of the 
                        institution to acquire reasonably related 
                        interests in other derivative financial 
                        instruments for the purpose of resolving or 
                        terminating an interest of the institution in 
                        any derivative financial instrument which 
                        existed on the date of enactment of this 
                        section.
            ``(3) Issuance of rules, regulations, and orders.--The 
        appropriate Federal banking agency shall issue appropriate 
        rules, regulations, and orders governing the exceptions 
        provided for in paragraph (2), including--
                    ``(A) appropriate public notice requirements;
                    ``(B) a requirement that any affiliate described in 
                subparagraph (B) of paragraph (2) shall clearly and 
                conspicuously notify the public that none of the assets 
                of the affiliate, nor the risk of loss associated with 
                the transaction involving a derivative financial 
                instrument, are insured under Federal law or otherwise 
                guaranteed by the Federal Government or the parent 
                company of the affiliate; and
                    ``(C) any other requirements that the appropriate 
                Federal banking agency considers appropriate.
    ``(b) Definitions.--For purposes of this section--
            ``(1) the term `derivative financial instrument' means--
                    ``(A) an instrument the value of which is derived 
                from the value of stocks, bonds, other loan 
                instruments, other assets, interest or currency 
                exchange rates, or indexes, including qualified 
                financial contracts (as defined in section 11(e)(8)); 
                and
                    ``(B) any other instrument that an appropriate 
                Federal banking agency determines, by regulation or 
                order, to be a derivative financial instrument for 
                purposes of this section; and
            ``(2) the term `hedging transaction' means any transaction 
        involving a derivative financial instrument if--
                    ``(A) such transaction is entered into in the 
                normal course of the institution's business primarily--
                            ``(i) to reduce risk of price change or 
                        currency fluctuations with respect to property 
                        which is held or to be held by the institution; 
                        or
                            ``(ii) to reduce risk of interest rate or 
                        price changes or currency fluctuations with 
                        respect to loans or other investments made or 
                        to be made, or obligations incurred or to be 
                        incurred, by the institution; and
                    ``(B) before the close of the day on which such 
                transaction was entered into (or such earlier time as 
                the appropriate Federal banking agency may prescribe by 
                regulation), the institution clearly identifies such 
                transaction as a hedging transaction.''.

SEC. 3. INSURED CREDIT UNIONS.

    Title II of the Federal Credit Union Act (12 U.S.C. 1781 et seq.) 
is amended by adding at the end the following new section:

``SEC. 215. DERIVATIVE INSTRUMENTS.

    ``(a) Derivative Activities.--Except as provided in subsection (b), 
neither an insured credit union, nor any affiliate thereof, may 
purchase, sell, or engage in any transaction involving a derivative 
financial instrument.
    ``(b) Applicability of Section 44 of the Federal Deposit Insurance 
Act.--Section 44 of the Federal Deposit Insurance Act shall apply with 
respect to insured credit unions and affiliates thereof and to the 
Board in the same manner that such section applies to insured 
depository institutions and affiliates thereof (as those terms are 
defined in section 3 of that Act) and shall be enforceable by the Board 
with respect to insured credit unions and affiliates under this Act.
    ``(c) Derivative Financial Instrument.--For purposes of this 
section, the term `derivative financial instrument' means--
            ``(1) an instrument the value of which is derived from the 
        value of stocks, bonds, other loan instruments, other assets, 
        interest or currency exchange rates, or indexes, including 
        qualified financial contracts (as defined in section 
        207(c)(8)(D)); and
            ``(2) any other instrument that the Board determines, by 
        regulation or order, to be a derivative financial instrument 
        for purposes of this section.''.

SEC. 4. BANK HOLDING COMPANIES.

    Section 3 of the Bank Holding Company Act of 1956 (12 U.S.C. 1842) 
is amended by adding at the end the following new subsection:
    ``(h) Derivatives Activities.--
            ``(1) In general.--A subsidiary of a bank holding company 
        may purchase, sell, or engage in any transaction involving a 
        derivative financial instrument for the account of that 
        subsidiary if it--
                    ``(A) is not an insured depository institution or a 
                subsidiary of an insured depository institution; and
                    ``(B) is separately capitalized from any affiliated 
                insured depository institution.
            ``(2) Applicability of section 44 of the federal deposit 
        insurance act.--Section 44 of the Federal Deposit Insurance Act 
        shall apply with respect to bank holding companies and the 
        Board in the same manner that those such subsections apply to 
        an insured depository institution (as defined in section 3 of 
        that Act) and shall be enforceable by the Board with respect to 
        bank holding companies under this Act.
            ``(3) Derivative financial instrument.--For purposes of 
        this subsection, the term `derivative financial instrument' 
        means--
                    ``(A) an instrument the value of which is derived 
                from the value of stocks, bonds, other loan 
                instruments, other assets, interest or currency 
                exchange rates, or indexes, including qualified 
                financial contracts (as defined in section 
                207(c)(8)(D)); and
                    ``(B) any other instrument that the Board 
                determines, by regulation or order, to be a derivative 
                financial instrument for purposes of this 
                subsection.''.

Summary: Derivatives Limitations Act of 1994 - Amends the Federal Deposit Insurance Act and the Federal Credit Union Act to prohibit an insured depository institution or credit union from engaging in any transaction for its own account which involves derivative financial instruments. Exempts from this prohibition specified transactions conducted in compliance with certain Federal banking agency regulations. Directs the Federal banking agencies to promulgate regulations governing such exceptions, including conspicuous public disclosure by affiliates that their assets and the risk of loss associated with derivatives transactions are neither federally insured nor guaranteed by the affiliate's parent company. Amends the Bank Holding Company Act of 1956 to permit a subsidiary of a bank holding company to engage in derivatives transactions for its account if: (1) it is neither an insured depository institution nor a subsidiary of one. And (2) it is separately capitalized from any affiliated insured depository institution.