I

104TH CONGRESS

1ST SESSION H. R. 31

To enhance the supervision and regulation of the derivatives activities of

financial institutions, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 4, 1995

Mr. GONZALEZ (for himself, Mr. KANJORSKI, and Mr. MFUME) introduced the

following bill; which was referred to the Committee on Banking and Financial Services

A BILL

To enhance the supervision and regulation of the derivatives

activities of financial institutions, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Derivatives Safety and Soundness Supervision Act of

6 1995’’.

7 (b) TABLE OF CONTENTS.—

Sec. 1. Short title; table of contents.

Sec. 2. Definitions.

TITLE I—ENHANCED SUPERVISION OF DERIVATIVES ACTIVITIES
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Sec. 101. Increased agency oversight of financial institution activities involving

derivative financial instruments.

Sec. 102. Disclosure of amounts, nature, and terms of derivative financial instruments in financial institution call reports.

Sec. 103. Training for examiners and assistant examiners.

Sec. 104. State liaisons.

TITLE II—SUPERVISORY IMPROVEMENTS

Sec. 201. Unsafe or unsound practices.

Sec. 202. Confidential emergency management reporting.

Sec. 203. Internal controls.

Sec. 204. Foreign bank supervision.

TITLE III—FINANCIAL INSTITUTION INSOLVENCY REFORMS

Sec. 301. Treatment of certain swap agreements by conservators or receivers of

insured depository institutions.

Sec. 302. Authority of the corporation with respect to failed and failing institutions.

Sec. 303. Amendments relating to transfers of qualified financial contracts.

Sec. 304. Clarifying amendment relating to master agreements.

Sec. 305. Technical amendments relating to qualified financial contracts.

TITLE IV—INTERNATIONAL REGULATORY COOPERATION

Sec. 401. Study of international regulation and supervision of derivatives activities of financial institutions.

Sec. 402. International negotiations.

TITLE V—GAO STUDY

Sec. 501. Study of speculation and margin and collateral requirements with respect to derivatives activities of financial institutions.

1 SEC. 2. DEFINITIONS.

2 For purposes of this Act the following definitions

3 shall apply:

4 (1) ACTIVE END-USER.—The term ‘‘active end5 user’’ means any financial institution which buys or

6 sells a significant amount of derivative financial in7 struments, or conducts transactions in a wide variety

8 of derivative financial instruments.

9 (2) APPROPRIATE FEDERAL BANKING AGEN10 CY.—The term ‘‘appropriate Federal banking agen-
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1 cy’’ has the same meaning as in section 3(q) of the

2 Federal Deposit Insurance Act.

3 (3) APPROPRIATE FEDERAL REGULATORY

4 AGENCY.—The term ‘‘appropriate Federal regulatory

5 agency’’ means—

6 (A) any appropriate Federal banking agen7 cy, in the case of any insured depository institu8 tion or other entity described in section 3(q) of

9 the Federal Deposit Insurance Act;

10 (B) the National Credit Union Administra11 tion, in the case of any insured credit union;

12 (C) the Office of Federal Housing Enter13 prise Oversight of the Department of Housing

14 and Urban Development, in the case of any fi15 nancial institution which is subject to the over16 sight of such office;

17 (D) the Federal Housing Finance Board,

18 in the case of any Federal home loan bank or

19 the Office of Finance of the Federal home loan

20 banks;

21 (E) the Director of the Office of Thrift Su22 pervision, in the case of any affiliate of any sav23 ings association or savings and loan holding

24 company for which there is no other appro25 priate Federal banking agency;
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1 (F) the Securities and Exchange Commis2 sion, in the case of any financial institution de3 scribed in clause (v), (vi), or (vii) of paragraph

4 (7)(A);

5 (G) the Secretary of the Treasury, in the

6 case of any insurance company;

7 (H) the Commodity Futures Trading Com8 mission, in the case of any financial institution

9 described in clause (viii) of paragraph (7)(A);

10 and

11 (I) the Board of Governors of the Federal

12 Reserve System, in the case of any financial in13 stitution which is not described in any other

14 subparagraph of this paragraph.

15 (4) DEPOSITORY INSTITUTION.—The term ‘‘de16 pository institution’’—

17 (A) has the same meaning as in section

18 3(c) of the Federal Deposit Insurance Act; and

19 (B) includes any Federal credit union and

20 any State credit union (as such terms are de21 fined in section 101 of the Federal Credit

22 Union Act).

23 (5) DERIVATIVES ACTIVITIES.—The term ‘‘de24 rivatives activities’’ means any activity in which a fi-
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1 nancial institution is engaged as a dealer in deriva2 tive financial instruments or as an active end-user.

3 (6) DERIVATIVE FINANCIAL INSTRUMENT.—

4 The term ‘‘derivative financial instrument’’ means

5 any qualified financial contract (as defined in section

6 11(e)(8)(D) of the Federal Deposit Insurance Act),

7 and any other instrument, which the appropriate

8 Federal regulatory agency determines to be a deriva9 tive financial instrument.

10 (7) FINANCIAL INSTITUTION.—The term ‘‘fi11 nancial institution’’—

12 (A) means—

13 (i) any depository institution;

14 (ii) any entity described in section

15 3(q) of the Federal Deposit Insurance Act

16 which is not a depository institution;

17 (iii) any institution which is subject to

18 the oversight of the Office of Federal

19 Housing Enterprise Oversight of the De20 partment of Housing and Urban Develop21 ment; and

22 (iv) any Federal home loan bank and

23 the Office of Finance of the Federal home

24 loan banks;
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1 (v) any broker, dealer, government se2 curities broker, government securities deal3 er, municipal securities broker, or munici4 pal securities dealer (as such terms are de5 fined in the Securities Exchange Act of

6 1934);

7 (vi) any investment company (as de8 fined in section 3(a) of the Investment

9 Company Act of 1940);

10 (vii) any investment adviser (as de11 fined in section 202(a)(11) of the Invest12 ment Advisers Act of 1940);

13 (viii) any futures commission mer14 chant, floor broker, commodity trading ad15 visor, or commodity pool operator (as de16 fined in section 1a of the Commodity Ex17 change Act); and

18 (ix) any insurance company; and

19 (B) includes any affiliate of a depository

20 institution (which is not otherwise described in

21 subparagraph (A)) the derivatives activities of

22 which are determined by the appropriate Fed23 eral regulatory agency to pose a potential risk

24 to the safety and soundness of such depository

25 institution.
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1 (8) INSURED CREDIT UNION.—The term ‘‘in2 sured credit union’’ has the same meaning as in sec3 tion 101(7) of the Federal Credit Union Act.

4 (9) INSURED DEPOSITORY INSTITUTION.—The

5 term ‘‘insured depository institution’’—

6 (A) has the same meaning as in section 3(c)(2)

7 of the Federal Deposit Insurance Act; and

8 (B) includes an insured credit union.

9 TITLE I—ENHANCED SUPER10 VISION OF DERIVATIVES AC11 TIVITIES

12 SEC. 101. INCREASED AGENCY OVERSIGHT OF FINANCIAL

13 INSTITUTION ACTIVITIES INVOLVING DERIV14 ATIVE FINANCIAL INSTRUMENTS.

15 (a) ESTABLISHMENT OF REGULATORY STAND16 ARDS.—The appropriate Federal regulatory agencies shall

17 establish, in consultation with each other such agency,

18 substantially similar standards relating to capital, ac19 counting, disclosure, risk management, and suitability, for

20 the supervision by such agencies of financial institutions

21 engaged in derivatives activities.

22 (b) FACTORS REQUIRED TO BE CONSIDERED IN ES23 TABLISHING STANDARDS.—

24 (1) IN GENERAL.—In establishing standards

25 pursuant to subsection (a), the appropriate Federal
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1 regulatory agencies shall consider the need to re2 quire the following:

3 (A) Capital requirements (with particular

4 attention to a leverage ratio where appropriate)

5 to guard generally against risks at financial in6 stitutions, including added risks that may be

7 posed by derivatives activities.

8 (B) Comprehensive risk management sys9 tems that—

10 (i) are commensurate in scope, size,

11 and complexity to the levels of activities

12 and risks assumed by financial institutions;

13 (ii) include limits and controls with

14 respect to any level of risk regarding

15 counterparty credit, concentration, and

16 other relevant market factors;

17 (iii) ensure that market factors affect18 ing risk exposures are adequately meas19 ured, monitored, and controlled; and

20 (iv) adequately control potential losses

21 and undue risks arising from system defi22 ciencies.

23 (C) To the extent practicable, joint regu24 latory examinations by the appropriate Federal
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1 banking agencies of financial institutions which

2 engage in derivatives activities.

3 (D) The prudent use of collateral by

4 counterparties to derivatives transactions.

5 (E) Appropriate parameters, models, and

6 simulations for the purpose of evaluating a fi7 nancial institution’s exposure to derivatives ac8 tivities and relevant economic scenarios and fur9 ther specifics regarding stress tests.

10 (F) Appropriate credit risk reserves in con11 nection with derivatives activities.

12 (G) Protection against legal risk, including

13 foreign legal risk.

14 (H) Assurance that, consistent with safe

15 and sound banking practices, a financial insti16 tution does not recommend or engage in deriva17 tives activities which are inappropriate for a

18 customer of the institution.

19 (I) Effective senior management super20 vision and oversight by the board of directors of

21 a financial institution to ensure that derivatives

22 activities are conducted in a safe and sound

23 manner and are consistent with the board of di24 rector’s overall risk management philosophy

25 and the institution’s business strategy.
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1 (2) REPORTS TO BANKING COMMITTEES.—Dur2 ing the 5-year period beginning on the date of the

3 enactment of this Act, section 37(c) of the Federal

4 Deposit Insurance Act shall apply with respect to

5 the standards adopted, prescribed, or issued by any

6 appropriate Federal regulatory agency pursuant to

7 this Act in the same manner such section applies

8 with respect to accounting and capital standards

9 used by appropriate Federal banking agencies.

10 (c) COORDINATION WITH SECTION 37 OF THE FED11 ERAL DEPOSIT INSURANCE ACT.—No provision of this

12 section shall be construed as authorizing the establishment

13 of any standard which is inconsistent with the require14 ments of section 37 of the Federal Deposit Insurance Act.

15 SEC. 102. DISCLOSURE OF AMOUNTS, NATURE, AND TERMS

16 OF DERIVATIVE FINANCIAL INSTRUMENTS IN

17 FINANCIAL INSTITUTION CALL REPORTS.

18 (a) INSURED DEPOSITORY INSTITUTIONS.—The Fed19 eral Deposit Insurance Act (12 U.S.C. 1811 et seq.) is

20 amended by adding at the end the following new section:

21 ‘‘SEC. 44. DISCLOSURE REQUIREMENTS FOR DERIVATIVE

22 FINANCIAL INSTRUMENTS.

23 ‘‘(a) INFORMATION REQUIRED TO BE INCLUDED IN

24 CALL REPORTS.—Each appropriate Federal banking

25 agency shall consider, and may require, disclosures in any
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1 report of condition made by any insured depository insti2 tution in accordance with section 7(a) with respect to any

3 period beginning after December 31, 1995, of the follow4 ing information:

5 ‘‘(1) QUANTITATIVE INFORMATION WITH RE6 SPECT TO ALL DERIVATIVE FINANCIAL INSTRU7 MENTS.—

8 ‘‘(A) GROSS NOTIONAL VALUE.—The gross

9 notional value of each class of derivative finan10 cial instruments.

11 ‘‘(B) REVENUE, GAINS, AND LOSSES.—All

12 revenue, gains, and losses of the institution at13 tributable to each class of derivative financial

14 instruments.

15 ‘‘(C) EXPOSURE UNDER BILATERAL NET16 TING CONTRACT.—The net current credit expo17 sure of the institution under legally enforceable

18 bilateral arrangements with respect to each

19 class of derivative financial instruments.

20 ‘‘(2) TERMS TO MATURITY.—Information on

21 the remaining term to maturity of each class of de22 rivative financial instruments.

23 ‘‘(3) QUANTITATIVE INFORMATION WITH RE24 SPECT TO DERIVATIVE FINANCIAL INSTRUMENTS

25 HELD FOR TRADING PURPOSES.—
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1 ‘‘(A) AVERAGE FAIR VALUE BALANCES.—

2 The average maximum and minimum fair value

3 balances of the insured depository institution

4 with respect to each class of derivative financial

5 instruments used by the institution for trading

6 purposes.

7 ‘‘(B) REVENUE, GAINS, AND LOSSES.—All

8 revenue, gains, and losses of the institution at9 tributable to trading account operations with

10 respect to each class of derivative financial in11 struments.

12 ‘‘(4) ADDITIONAL INFORMATION.—Any addi13 tional information that any appropriate Federal

14 banking agency may consider to be appropriate.

15 ‘‘(b) SEPARATE REPORTING FOR EXCHANGE AND

16 OTC TRADING.—To the maximum extent possible, infor17 mation reported pursuant to subsection (a) with respect

18 to transactions which are conducted on an exchange, and

19 each class of derivative financial instruments which are

20 the subjects of such transactions, shall be provided sepa21 rately from information relating to transactions which are

22 conducted over the counter, and the classes of derivative

23 financial instruments which are the subjects of such trans24 actions.
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1 ‘‘(c) QUALITATIVE REPORTING REQUIREMENTS.—

2 The Federal banking agencies shall take such action as

3 may be appropriate to encourage insured depository insti4 tutions to publicly report the following information with

5 such frequency as the agencies determine to be appro6 priate:

7 ‘‘(1) NATURE OF DERIVATIVE FINANCIAL IN8 STRUMENTS.—A description of—

9 ‘‘(A) the purposes for which each class of

10 derivative financial instruments has been ac11 quired by the institution, including the specific

12 objectives of the institution; and

13 ‘‘(B) the overall operating and investment

14 strategies of the institution which provide the

15 context for acquiring or taking any such hold16 ing, position, or other interest in any derivative

17 financial instrument.

18 ‘‘(2) ACCOUNTING POLICIES.—A description of

19 the accounting policy and principles and the meth20 odologies used by the institution to determine the

21 value of the various classes of derivative financial in22 struments.

23 ‘‘(d) DEFINITIONS.—For purposes of this section, the

24 terms ‘active end-user’ and ‘derivative financial instru-
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1 ment’ have the same meanings as in section 2 of the De2 rivatives Safety and Soundness Supervision Act of 1995.’’.

3 (b) INSURED CREDIT UNIONS.—Section 202(a) of

4 the Federal Credit Union Act (12 U.S.C. 1782(a)) is

5 amended by adding at the end the following new para6 graph:

7 ‘‘(8) DERIVATIVE FINANCIAL INSTRUMENTS.—

8 ‘‘(A) IN GENERAL.—The reports of condi9 tion made by insured credit unions under this

10 section shall include all the information with re11 spect to derivative financial instruments which

12 is required, under section 44 of the Federal De13 posit Insurance Act, to be included in reports of

14 condition made by insured depository institu15 tions (as defined in section 3 of such Act).

16 ‘‘(B) APPLICABILITY OF SECTION 44 OF

17 THE FEDERAL DEPOSIT INSURANCE ACT.—Sec18 tion 44 of the Federal Deposit Insurance Act

19 shall apply with respect to insured credit unions

20 and the Board in the same manner such section

21 applies to insured depository institutions and

22 Federal banking agencies (as such terms are

23 defined in section 3 of such Act) and shall be

24 enforceable by the Board with respect to in25 sured credit unions under this Act.’’.
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1 (c) OTHER FINANCIAL INSTITUTIONS.—

2 (1) IN GENERAL.—Each appropriate Federal

3 regulatory agency of any financial institution which

4 is not an insured depository institution or an insured

5 credit union shall consider requiring, and may re6 quire, such institution to file a quarterly report, with

7 such institution’s appropriate Federal regulatory

8 agency, containing comparable information with re9 spect to derivative financial instruments which is re10 quired, under section 44 of the Federal Deposit In11 surance Act, to be included in reports of condition

12 made by insured depository institutions (as defined

13 in section 3 of such Act).

14 (2) APPLICABILITY OF SECTION 44 OF THE

15 FEDERAL DEPOSIT INSURANCE ACT.—Section 44 of

16 the Federal Deposit Insurance Act shall apply with

17 respect to financial institutions and appropriate

18 Federal regulatory agencies described in paragraph

19 (1) in the same manner such section applies to in20 sured depository institutions and Federal banking

21 agencies (as such terms are defined in section 3 of

22 such Act) and shall be enforceable by such agencies

23 with respect to such financial institutions under any

24 other law which provides such agency with adminis25 trative enforcement authority over such institution.
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1 SEC. 103. TRAINING FOR EXAMINERS AND ASSISTANT EX2 AMINERS.

3 (a) IN GENERAL.—The Financial Institutions Exam4 ination Council shall sponsor training programs concern5 ing derivatives activities for examiners and assistant ex6 aminers employed by any agency represented on such

7 council.

8 (b) ENROLLMENT.—Under such conditions as the Fi9 nancial Institutions Examination Council may establish,

10 training programs sponsored by the council pursuant to

11 subsection (a) shall be open to enrollment by employees

12 of State bank supervisors (as defined in section 3(r) of

13 the Federal Deposit Insurance Act) and employees of the

14 Federal Housing Finance Board and the Office of Federal

15 Housing Enterprise Oversight of the Department of Hous16 ing and Urban Development.

17 (c) RISK MANAGEMENT TRAINING.—The risk man18 agement training provided under section 1009A of the

19 Federal Financial Institutions Examination Council Act of

20 1978 shall include risk management techniques related to

21 derivatives activities, except that the cost of providing

22 training with respect to such activities to employees of fi23 nancial institutions shall be paid by the institutions.

24 SEC. 104. STATE LIAISONS.

25 (a) IN GENERAL.—To encourage the application of

26 uniform examination principles and standards by State
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1 and Federal agencies with respect to derivatives activities

2 of financial institutions, the appropriate Federal regu3 latory agencies shall establish a liaison committee com4 posed of 5 representatives of State agencies which super5 vise financial institutions which shall meet at least twice

6 a year with such Federal agencies.

7 (b) TRAVEL EXPENSES.—Each member of the liaison

8 committee established pursuant to subsection (a) shall re9 ceive travel expenses, including per diem in lieu of subsist10 ence, in accordance with sections 5702 and 5703 of title

11 5, United States Code.

12 TITLE II—SUPERVISORY

13 IMPROVEMENTS

14 SEC. 201. UNSAFE OR UNSOUND PRACTICES.

15 (a) EFFECTIVE MANAGEMENT OVERSIGHT.—No fi16 nancial institution may engage in derivatives activities

17 without a written management plan approved by the board

18 of directors of the institution which—

19 (1) ensures that such activities are—

20 (A) conducted with appropriate oversight

21 of the directors and the senior executive officers

22 (as defined pursuant to section 32(f) of the

23 Federal Deposit Insurance Act) of the institu24 tion;
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1 (B) conducted in a safe and sound man2 ner; and

3 (C) consistent with the overall risk man4 agement philosophy and the business strategy

5 of the management of the institution; and

6 (2) establishes prudential standards for the

7 management of the risks involved in such activities

8 and a framework for internal controls with respect

9 to such activities.

10 (b) REQUIREMENT FOR DIRECTORS.—No financial

11 institution may act as a dealer in derivative financial in12 struments or as an active end-user unless the board of

13 directors of such institution is informed of the risks associ14 ated with the derivatives activities of the financial institu15 tion and the total current credit exposure of the institution

16 with respect to any such activities.

17 (c) ENFORCEMENT.—Any failure to comply with the

18 provisions of this section, and the failure of any institu19 tion-affiliated party (as defined in section 3(u) of the Fed20 eral Deposit Insurance Act) engaged in derivatives activi21 ties to have adequate technical expertise with respect to

22 such activities, may be treated by the appropriate Federal

23 regulatory agency as an unsafe or unsound practice in

24 conducting the business of the institution involved.
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1 SEC. 202. CONFIDENTIAL EMERGENCY MANAGEMENT RE2 PORTING.

3 (a) IN GENERAL.—Before the end of the 1-year pe4 riod beginning on the date of the enactment of this Act,

5 the appropriate Federal regulatory agencies shall develop

6 the means to obtain all necessary information relating to

7 any derivatives activity or any class of derivative financial

8 instruments, whenever the appropriate Federal regulatory

9 agency determines such information is needed, from any

10 financial institution which is a dealer in derivative finan11 cial instruments or is an active end-user if the agency de12 termines that the agency needs such information as a re13 sult of adverse market conditions or other emergency situ14 ation (as defined by the agency).

15 (b) ACCESSIBILITY OF INFORMATION.—Each finan16 cial institution referred to in subsection (a) shall—

17 (1) obtain such information and make and keep

18 such records as the appropriate Federal regulatory

19 agency may require by regulation for purposes of

20 such paragraph; and

21 (2) promptly provide to the appropriate Federal

22 regulatory agency any information requested by the

23 agency pursuant to such paragraph.

24 (c) CONFIDENTIALITY OF INFORMATION PRO25 VIDED.—No information provided to or obtained by an ap26 propriate Federal regulatory agency pursuant to sub-
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1 section (a) with respect to any financial institution may

2 be provided to any person or entity other than another

3 Federal regulatory agency with jurisdiction over the finan4 cial institution without the prior written approval of the

5 agency.

6 SEC. 203. INTERNAL CONTROLS.

7 Section 39(a)(1)(A) of the Federal Deposit Insurance

8 Act (12 U.S.C. 1831p–1(a)(1)(A)) is amended by striking

9 ‘‘internal controls’’ and inserting ‘‘internal controls (in10 cluding internal controls for activities involving derivative

11 financial instruments (as defined in section 44(d)))’’.

12 SEC. 204. FOREIGN BANK SUPERVISION.

13 (a) STANDARDS FOR APPROVAL.—Section 7(d)(2)(A)

14 of the International Banking Act of 1978 (12 U.S.C.

15 3105(d)(2)(A)) is amended by inserting before the semi16 colon the following: ‘‘, including, in the case of a foreign

17 bank engaged in derivatives activities (as defined in sec18 tion 2(5) of the Derivatives Safety and Soundness Super19 vision Act of 1995), comprehensive supervision and regu20 lation of such activities.’’.

21 (b) FACTOR FOR CONSIDERATION.—Section 7(d) of

22 the International Banking Act of 1978 (12 U.S.C.

23 3105(d)) is amended by adding at the end the following

24 new paragraph:
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1 ‘‘(6) FACTOR FOR CONSIDERATION.—In making

2 any determination under paragraph (2), the Board

3 shall consider whether the home country of a foreign

4 bank maintains comprehensive supervision and regu5 lation of derivatives activities (as defined in section

6 2(5) of the Derivatives Safety and Soundness Super7 vision Act of 1995), including, where appropriate,

8 capital and disclosure standards, which are not less

9 stringent than United States standards.’’.

10 TITLE III—FINANCIAL INSTITU11 TION INSOLVENCY REFORMS

12 SEC. 301. TREATMENT OF CERTAIN SWAP AGREEMENTS BY

13 CONSERVATORS OR RECEIVERS OF INSURED

14 DEPOSITORY INSTITUTIONS.

15 Section 11(e)(8)(D)(vi)(I) of the Federal Deposit In16 surance Act (12 U.S.C. 1821(e)(8)(D)(vi)(I)) is amend17 ed—

18 (1) by striking ‘‘purchased’’ each place such

19 term appears; and

20 (2) by inserting ‘‘, equity derivative, equity or

21 equity index swap, equity or equity index option,

22 bond option, spot foreign exchange transaction’’

23 after ‘‘currency option’’.
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1 SEC. 302. AUTHORITY OF THE CORPORATION WITH RE2 SPECT TO FAILED AND FAILING INSTITU3 TIONS.

4 Section 11(e)(8) of the Federal Deposit Insurance

5 Act (12 U.S.C. 1821(e)(8)) is amended—

6 (1) in subparagraph (E)—

7 (A) by striking ‘‘paragraph (12) of this

8 subsection’’; and

9 (B) by striking ‘‘subsection (d)(9)’’ and in10 serting ‘‘subsections (d)(9), (e)(10), and

11 (n)(4)(I)’’; and

12 (2) by adding the following new subparagraphs:

13 ‘‘(F) CLARIFICATION.—No provision of law

14 shall be construed as limiting the right or

15 power of the Corporation, or authorizing any

16 court or agency to limit or delay, in any man17 ner, the right or power of the Corporation, to

18 transfer any qualified financial contract in ac19 cordance with paragraphs (9) and (10) or to

20 liquidate any such contract.

21 ‘‘(G) UNDERCAPITALIZED INSURED DE22 POSITORY INSTITUTIONS.—The Corporation, in

23 consultation with the appropriate Federal bank24 ing agencies, shall prescribe regulations requir25 ing more detailed recordkeeping with respect to

26 qualified financial contracts (including market
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1 valuations) by insured depository institutions

2 that are undercapitalized (as defined in section

3 38).’’.

4 SEC. 303. AMENDMENTS RELATING TO TRANSFERS OF

5 QUALIFIED FINANCIAL CONTRACTS.

6 Section 11(e)(10) of the Federal Deposit Insurance

7 Act (12 U.S.C. 1821(e)(10)) is amended—

8 (1) in subparagraph (A)—

9 (A) by striking ‘‘conservator or’’ each place

10 such term appears’’;

11 (B) by striking ‘‘use such conservator’s or

12 receiver’s best efforts to’’; and

13 (C) by striking ‘‘12:00, noon (local time)’’

14 and inserting ‘‘5:00 p.m. (Eastern time)’’;

15 (2) by redesignating subparagraph (B) as sub16 paragraph (E); and

17 (3) by inserting after subparagraph (A) the fol18 lowing new subparagraphs:

19 ‘‘(B) CERTAIN RIGHTS NOT ENFORCE20 ABLE.—

21 ‘‘(i) IN GENERAL.—A person who is a

22 party to a qualified financial contract with

23 an insured depository institution may not

24 exercise any right such person has to net

25 or close out such contract under paragraph
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1 (8)(A) or section 403 or 404 of the Fed2 eral Deposit Insurance Corporation Im3 provement Act of 1991 solely by reason of

4 the appointment of a receiver for the de5 pository institution (or the insolvency or fi6 nancial condition of the institution for

7 which the receiver is been appointed) until

8 the earlier of—

9 ‘‘(I) 5:00 p.m. (Eastern time) of

10 the business day following the date of

11 the appointment of the receiver; or

12 ‘‘(II) the time the person receives

13 notice that the contract has been

14 transferred pursuant to paragraph

15 (9)(A).

16 ‘‘(ii) NOTICE TO LAST-KNOWN AD17 DRESS.—For purposes of this subpara18 graph, the Corporation as receiver of an

19 insured depository institution shall be

20 deemed to have notified a person who is a

21 party to a qualified financial contract with

22 such depository institution if the Corpora23 tion has sent notice to the last address of

24 such person shown on the books and

25 records of the depository institution with
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1 respect to such contract in the manner

2 provided for in the contract or by other

3 means reasonably calculated to reach such

4 person by the time specified in clause

5 (i)(I).

6 ‘‘(iii) EXCEPTION TO RIGHT OF CON7 TRACTING PARTY TO NET OR CLOSE OUT

8 CONTRACTS.—A person who is a party to

9 a qualified financial contract with an in10 sured depository institution may not exer11 cise any right such person has to net or

12 close out a contract under paragraph

13 (8)(E) or section 403 or 404 of Federal

14 Deposit Insurance Corporation Improve15 ment Act of 1991, solely by reason of the

16 appointment of a conservator for the de17 pository institution.

18 ‘‘(C) TREATMENT OF BRIDGE BANKS.—A

19 bridge bank shall not be treated as a depository

20 institution in default for purposes of this para21 graph.

22 ‘‘(D) TREATMENT OF CERTAIN

23 CONSERVATORSHIPS.—An institution organized

24 by the Corporation for which a conservator is

25 appointed—
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1 ‘‘(i) immediately upon the organiza2 tion of the institution; or

3 ‘‘(ii) at the time of a purchase and as4 sumption transaction between such institu5 tion and a failed depository institution for

6 which the Corporation has been appointed

7 receiver,

8 shall not be treated as a depository institution

9 in default for purposes of this paragraph.’’.

10 SEC. 304. CLARIFYING AMENDMENT RELATING TO MASTER

11 AGREEMENTS.

12 Section 11(e)(8)(D)(vii) of the Federal Deposit In13 surance Act (12 U.S.C. 1821(e)(8)(D)(vii)) is amended to

14 read as follows:

15 ‘‘(vii) TREATMENT OF MASTER

16 AGREEMENT AS 1 AGREEMENT.—Any mas17 ter agreement for any contract or agree18 ment described in any preceding clause of

19 this subparagraph, together with all sup20 plements to such master agreement, shall

21 be treated as a single agreement and a sin22 gle qualified financial contract.’’.
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1 SEC. 305. TECHNICAL AMENDMENTS RELATING TO QUALI2 FIED FINANCIAL CONTRACTS.

3 (a) DEFINITION OF QUALIFIED FINANCIAL CON4 TRACT.—Section 11(e)(8)(D) of the Federal Deposit In5 surance Act (12 U.S.C. 1821(e)(8)(D)) is amended—

6 (1) in clause (i), by inserting ‘‘spot contract,’’

7 after ‘‘swap agreement,’’;

8 (2) in clause (iv), by striking ‘‘(24)’’ and insert9 ing ‘‘(25)’’; and

10 (3) in clause (v), by striking ‘‘101(41)’’ and in11 serting ‘‘101(47)’’.

12 (b) LIMITATION ON RIGHTS OF COUNTERPARTIES IN

13 EVENT OF DEFAULT DUE TO APPOINTMENT OF A CON14 SERVATOR.—Section 11(e)(8)(E)(i) of the Federal De15 posit Insurance Act (12 U.S.C. 1821(e)(8)(E)(i)) is

16 amended—

17 (1) by striking ‘‘paragraph (12)’’ and inserting

18 ‘‘paragraph (10)’’; and

19 (2) by striking ‘‘subsection (d)(9)’’ and insert20 ing ‘‘subsections (d)(9) and (n)(4)(I)’’.

21 (c) FEDERAL DEPOSIT INSURANCE CORPORATION

22 IMPROVEMENT ACT OF 1991.—Sections 403(a) and

23 404(a) of the Federal Deposit Insurance Corporation Im24 provement Act of 1991 (12 U.S.C. 4403(a), 4404(a)) are

25 each amended by inserting ‘‘other than paragraph (8)(E)
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1 and (10)(B)(iii) of section 11(e) of the Federal Deposit

2 Insurance Act’’ after ‘‘other provisions of law’’.

3 TITLE IV—INTERNATIONAL

4 REGULATORY COOPERATION

5 SEC. 401. STUDY OF INTERNATIONAL REGULATION AND SU6 PERVISION OF DERIVATIVES ACTIVITIES OF

7 FINANCIAL INSTITUTIONS.

8 (a) IN GENERAL.—Before the end of the 30-day pe9 riod beginning on the date of the enactment of this Act,

10 the Secretary of the Treasury shall request a meeting with

11 the appropriate representatives of the other major indus12 trialized countries to plan a study to examine the adequacy

13 of the international regulation and supervision of deriva14 tives activities of financial institutions.

15 (b) GOALS OF STUDY.—The goals of the study as

16 proposed by the Secretary of the Treasury pursuant to

17 subsection (a) with respect to derivatives activities of fi18 nancial institutions shall be as follows:

19 (1) To foster a greater understanding of the

20 manner in which derivative financial instruments af21 fect the stability of the world’s financial systems and

22 markets.

23 (2) To examine the adequacy of international

24 regulation and supervision of derivative financial ac25 tivities.
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1 (3) To make recommendations for improving

2 the international regulation and supervision of deriv3 ative financial activities.

4 (4) To foster greater cooperation between all

5 regulatory agencies with jurisdiction over derivatives

6 activities.

7 (5) To make recommendations for action by the

8 financial regulators in the respective countries that

9 would facilitate the safe and sound conduct of enti10 ties involved in derivative financial activities.

11 (6) To evaluate the feasibility of establishing a

12 single governing body to regulate international deriv13 ative financial activities.

14 (c) ISSUES TO STUDY.—The Secretary of the Treas15 ury shall propose that the study with respect to derivatives

16 activities of financial institutions include the following

17 factors:

18 (1) Identification of the manner in which deriv19 ative financial instruments affect the stability of the

20 world’s financial systems and markets.

21 (2) Identification of the various regulatory enti22 ties and mechanisms that are used to regulate and

23 supervise derivative financial activities around the

24 world.
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1 (3) Analysis of the adequacy of the cooperation

2 between the various regulatory entities and mecha3 nisms referred to in paragraph (2).

4 (4) Identification of problems that inhibit the

5 safe and sound conduct of worldwide derivatives ac6 tivities.

7 (5) Analysis of the extent to which derivative fi8 nancial activities in countries other than the major

9 industrialized countries affect the safety and sound10 ness of the world’s financial systems and markets.

11 (6) Identification of uniform accounting and

12 public reporting standards for derivative financial in13 struments.

14 (7) Evaluation of the feasibility of establishing

15 a single governing body to regulate international de16 rivatives activities.

17 (d) UTILIZATION OF INFORMATION AND RE18 SOURCES.—The Secretary of the Treasury shall propose

19 that, in conducting the study under this section with re20 spect to derivatives activities of financial institutions, the

21 major industrialized countries should—

22 (1) gather information from a wide variety of

23 sources including government agencies, central

24 banks, market participants, and the consumers of

25 the derivative financial instruments;
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1 (2) to the extent feasible, obtain and use infor2 mation from the International Monetary Fund, the

3 Bank for International Settlements, and other multi4 lateral organizations; and

5 (3) utilize all available information and conclu6 sions from studies conducted by any multilateral or7 ganization, central bank, or any group consisting of

8 representatives of major industrialized countries.

9 SEC. 402. INTERNATIONAL NEGOTIATIONS.

10 The Chairman of the Board of Governors of the Fed11 eral Reserve System and the Comptroller of the Currency

12 shall encourage central banks, and regulatory authorities

13 of the other industrialized countries to work toward main14 taining and, where appropriate, adopting comparable su15 pervisory standards and regulations, particularly capital

16 standards, for financial institutions engaged in derivatives

17 activities.

18 TITLE V—GAO STUDY

19 SEC. 501. STUDY OF SPECULATION AND MARGIN AND COL20 LATERAL REQUIREMENTS WITH RESPECT TO

21 DERIVATIVES ACTIVITIES OF FINANCIAL IN22 STITUTIONS.

23 (a) STUDY REQUIRED.—

24 (1) IN GENERAL.—The Comptroller General of

25 the United States shall conduct a study of the spec-
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1 ulative uses of derivative financial instruments by fi2 nancial institutions and the feasibility of imposing

3 margin and collateral requirements on speculative

4 transactions engaged in by financial institutions

5 which involve derivative financial instruments.

6 (2) REPORT.—The Comptroller General shall

7 submit a report on the study conducted pursuant to

8 paragraph (1) to the Congress before the end of the

9 18-month period beginning on the date of the enact10 ment of this Act.

11 (b) ISSUES INVOLVING SPECULATIVE TRANSACTIONS

12 INVOLVING DERIVATIVE FINANCIAL INSTRUMENTS.—In

13 conducting the study under subsection (a)(1), the Comp14 troller General shall—

15 (1) define the term ‘‘speculation’’ as such term

16 is used in connection with derivative financial instru17 ments;

18 (2) determine the extent to which financial in19 stitutions use the various classes of derivative finan20 cial instruments to engage in speculation for the in21 stitution’s own trading account; and

22 (3) determine the extent to which financial in23 stitutions engage in derivatives activities involving

24 the various classes of derivative financial instru25 ments with speculators.
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1 (c) ISSUES INVOLVING MARGIN AND COLLATERAL

2 REQUIREMENTS.—In conducting the study under sub3 section (a)(1), the Comptroller General shall—

4 (1) determine which classes of derivative finan5 cial instruments are subject to margin and collateral

6 requirements and the amount and purpose of the

7 margin and collateral requirement;

8 (2) determine the extent to which the trans9 actions of financial institutions which involve any

10 class of derivative financial instruments are con11 ducted over the counter and evaluate the feasibility

12 of imposing margin and collateral requirements on

13 such transactions;

14 (3) evaluate the feasibility of imposing margin

15 and collateral requirements on any class of deriva16 tive financial instruments which were acquired or

17 taken for speculative purposes; and

18 (4) evaluate the competitive impact of imposing

19 margin and collateral requirements on the various

20 classes of derivative financial instruments which

21 were acquired or taken for speculative purposes.

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