II 

114TH CONGRESS 

2D SESSION S. 3505 

To require analysis of various bankruptcy proposals in order to determine 

whether those proposals would reduce systemic risk and moral hazard, 

and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

DECEMBER 6, 2016 

Mr. REED (for himself, Mr. BROWN, Mr. MERKLEY, Mr. WHITEHOUSE, and 

Mr. BLUMENTHAL) introduced the following bill; which was read twice 

and referred to the Committee on the Judiciary 

A BILL 

To require analysis of various bankruptcy proposals in order 

to determine whether those proposals would reduce systemic risk and moral hazard, 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. 

4 This Act may be cited as the ‘‘Bankruptcy Fairness 

5 Act of 2016’’. 

6 SEC. 2. DEFINITIONS. 

7 In this Act— 


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1 (1) the term ‘‘analytical work’’ means an arti2 cle, a thesis, a study, testimony, a speech, or a re3 port that— 

4 (A) is written, given, or conducted by— 

5 (i) a Federal or State agency; 

6 (ii) a Federal Government or State 

7 government official; 

8 (iii) a policy organization; 

9 (iv) a professional association; 

10 (v) an academic; 

11 (vi) a bankruptcy judge, trustee, or 

12 examiner; 

13 (vii) a working group; 

14 (viii) a commission; or 

15 (ix) a person, entity, or body similar 

16 to those described in clauses (i) through 

17 (viii); and 

18 (B) contains an analysis of, and conclu19 sions or recommendations with respect to, a 

20 particular topic; 

21 (2) the term ‘‘avoidance action safe harbor’’ 

22 means subsections (e), (f), (g), (h), and (j) of section 

23 546 of the Bankruptcy Code; 


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1 (3) the term ‘‘bank holding company’’ has the 

2 meaning given the term in section 102 of the Finan3 cial Stability Act of 2010 (12 U.S.C. 5311); 

4 (4) the term ‘‘Bankruptcy Code’’ means title 

5 11, United States Code; 

6 (5) the term ‘‘bridge company’’ means a bridge 

7 company that— 

8 (A) management may create under the 

9 proposed subchapter; and 

10 (B) has no assets and no liabilities; 

11 (6) the term ‘‘business judgment rule’’ means 

12 the standard to which a trustee or debtor in posses13 sion is typically held in a bankruptcy case in deter14 mining whether the assumption, or assumption and 

15 assignment, of an executory contract under section 

16 365 of the Bankruptcy Code is in the best interests 

17 of creditors and the estate; 

18 (7) the term ‘‘collateral haircut’’ means the dif19 ference between the market value of an asset that is 

20 used as loan collateral and the amount of that loan; 

21 (8) the term ‘‘committees of jurisdiction’’ 

22 means— 

23 (A) the Committee on Banking, Housing, 

24 and Urban Affairs of the Senate; 


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1 (B) the Committee on the Judiciary of the 

2 Senate; 

3 (C) the Committee on Financial Services of 

4 the House of Representatives; and 

5 (D) the Committee on the Judiciary of the 

6 House of Representatives; 

7 (9) the term ‘‘Council’’ means the Financial 

8 Stability Oversight Council; 

9 (10) the term ‘‘financial company’’ has the 

10 meaning given the term in section 201(a) of the 

11 Dodd-Frank Wall Street Reform and Consumer Pro12 tection Act (12 U.S.C. 5381(a)); 

13 (11) the term ‘‘hypothetical bank holding com14 pany’’ means a fictional bank holding company that 

15 has— 

16 (A) a corporate organizational structure 

17 typical of the business structure of the 6 largest 

18 bank holding companies based in the United 

19 States, as measured by balance sheet assets on 

20 December 31, 2016, the holdings of which in21 clude commercial banking, capital markets, 

22 global asset management, and transaction serv23 ices; 

24 (B) assets and liabilities representing the 

25 median of the assets and liabilities held by the 


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1 6 largest bank holding companies based in the 

2 United States, as measured by balance sheet 

3 assets on December 31, 2016; and 

4 (C) a global derivatives trading book rep5 resenting the median of the gross notional value 

6 of the 6 largest bank holding companies based 

7 in the United States, as measured by balance 

8 sheet assets on December 31, 2016; 

9 (12) the term ‘‘management’’ means the offi10 cers and members of the board of directors of a fi11 nancial company; 

12 (13) the term ‘‘master netting agreement’’ 

13 means an agreement providing for— 

14 (A) the netting of amounts due between or 

15 among the parties to 2 or more qualified finan16 cial contracts on periodic reset dates; and 

17 (B) the exercise of rights, including rights 

18 of netting, setoff, liquidation, termination, ac19 celeration, or close out, under 1 or more quali20 fied financial contracts upon the occurrence of 

21 an event of default; 

22 (14) the term ‘‘MBS repurchase agreement’’ 

23 means a repurchase agreement that provides for the 

24 transfer of 1 or more— 

25 (A) mortgage related securities; 


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1 (B) mortgage loans; or 

2 (C) interests in mortgage related securities 

3 or mortgage loans; 

4 (15) the term ‘‘mortgage related security’’ has 

5 the meaning given the term in section 3(a) of the 

6 Securities Exchange Act of 1934 (15 U.S.C. 78c(a)); 

7 (16) the term ‘‘Office’’ means the Office of Fi8 nancial Research; 

9 (17) the term ‘‘primary financial regulatory 

10 agency’’ has the meaning given the term in section 

11 2 of the Dodd-Frank Wall Street Reform and Con12 sumer Protection Act (12 U.S.C. 5301); 

13 (18) the term ‘‘proposed subchapter’’ means a 

14 hypothetical new subchapter to chapter 11 of the 

15 Bankruptcy Code that includes provisions specifi16 cally applicable to a financial company bankruptcy 

17 and permits— 

18 (A) management to file, on behalf of the fi19 nancial company controlled by management, a 

20 petition under the Bankruptcy Code; 

21 (B) management to create a bridge com22 pany; 

23 (C) management to supervise the drafting 

24 of the governing documents for the bridge com25 pany; 


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1 (D) management to propose the initial di2 rectors and senior officers of the bridge com3 pany; 

4 (E) not later than 48 hours after the filing 

5 of the petition, the assets of the financial com6 pany to be transferred to the bridge company if 

7 the bankruptcy court has determined that— 

8 (i) such a transfer is in the best inter9 ests of the bankruptcy estate of the finan10 cial company; and 

11 (ii) the bridge company is not likely to 

12 fail to meet the obligations of any debt, ex13 ecutory contract, qualified financial con14 tract, or unexpired lease that the bridge 

15 company has assumed; 

16 (F)(i) if the bankruptcy court makes the 

17 determinations described in subparagraph (E), 

18 the bridge company to agree— 

19 (I) to honor, forever, the obligations 

20 of the financial company under all of its 

21 qualified financial contracts; 

22 (II) to pay in full all the claims of any 

23 person that has a qualified financial con24 tract with the financial company; and 


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1 (III) to pay in full the claims of 

2 undersecured creditors of the financial 

3 company that have even a small amount of 

4 collateral; or 

5 (ii) if the bankruptcy court is unable to 

6 make both of the determinations described in 

7 subparagraph (E), all qualified financial con8 tracts and master netting agreements of the fi9 nancial company to be terminated immediately; 

10 (G) management— 

11 (i) to leave behind in the financial 

12 company bankruptcy estate the claims of 

13 all creditors, including employees, sup14 pliers, service providers, and fraud claim15 ants, that have no collateral and no quali16 fied financial contracts with the financial 

17 company; and 

18 (ii) to provide the creditors described 

19 in clause (i) with, instead of a cash pay20 ment, an equity interest in the bridge com21 pany that is payable only after all of the 

22 claims described in subparagraph (F) have 

23 been paid in full; 

24 (H) the bridge company to be placed under 

25 the control of a special trustee proposed by 


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1 management, over whose activities the bank2 ruptcy court has no jurisdiction; 

3 (I) the 20 largest unsecured creditors of 

4 the financial company to receive notice of only 

5 24 hours that the events described in subpara6 graphs (A) through (H) will occur; 

7 (J) the smaller creditors of the financial 

8 company, including the employees, suppliers, 

9 service providers, and fraud claimants of the fi10 nancial company, to receive no notice that the 

11 events described in subparagraphs (A) through 

12 (H) will occur; and 

13 (K) management to avoid being held liable 

14 for most actions taken in connection with the 

15 filing, including the actions described in sub16 paragraphs (A) through (H); 

17 (19) the term ‘‘proposed subchapter with title 

18 II repealed’’ means the proposed subchapter, assum19 ing that title II, including the prohibition against 

20 taxpayer funding of the liquidation of a financial 

21 company under section 214 of that title (12 U.S.C. 

22 5394), has been repealed; 

23 (20) the term ‘‘qualified financial contract’’ 

24 means— 


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1 (A) a commodity contract, commodity op2 tion, foreign future, or leverage transaction, as 

3 those terms are defined in section 761 of the 

4 Bankruptcy Code; 

5 (B) a forward contract, master netting 

6 agreement, repurchase agreement, or swap 

7 agreement, as those terms are defined in sec8 tion 101 of the Bankruptcy Code; or 

9 (C) a securities contract, as that term is 

10 defined in section 741 of the Bankruptcy Code; 

11 (21) the term ‘‘regulatory capital’’ means the 

12 amount of capital that a bank holding company is 

13 required by its primary financial regulatory agency 

14 to hold on its balance sheet; 

15 (22) the term ‘‘repurchase agreement’’ has the 

16 meaning given the term in section 101 of the Bank17 ruptcy Code; 

18 (23) the term ‘‘safe harbor’’ means— 

19 (A) the avoidance action safe harbor; and 

20 (B) the termination and liquidation safe 

21 harbor; 

22 (24) the term ‘‘termination and liquidation safe 

23 harbor’’ means— 

24 (A) paragraphs (6), (7), (17), and (27) of 

25 section 362(b) of the Bankruptcy Code; and 


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1 (B) sections 555, 556, 559, 560, and 561 

2 of the Bankruptcy Code; 

3 (25) the term ‘‘title II’’ means title II of the 

4 Dodd-Frank Wall Street Reform and Consumer Pro5 tection Act (12 U.S.C. 5381 et seq.); and 

6 (26) the term ‘‘Treasury repurchase agree7 ment’’ means a repurchase agreement that provides 

8 for the transfer of securities that are direct obliga9 tions of, or that are fully guaranteed by, the United 

10 States. 

11 SEC. 3. JUDICIAL EXPERTISE IN COMPLEX FINANCIAL MAT12 TERS AND BANKRUPTCY COURT PROCESSES 

13 FOR FINANCIAL COMPANIES. 

14 (a) RECOMMENDATIONS AND REPORT.—The Direc15 tor of the Administrative Office of the United States 

16 Courts, the Director of the Executive Office for United 

17 States Trustees, and the Director of the Federal Judicial 

18 Center shall jointly, in consultation with the Council and 

19 the Office— 

20 (1) develop, and periodically update, rec21 ommendations with respect to— 

22 (A) the type of expertise that would enable 

23 a judge to oversee more effectively the resolu24 tion of a financial company under the Bank25 ruptcy Code in a manner that prevents adverse 


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1 impacts on financial stability in the United 

2 States without creating moral hazard; and 

3 (B) a process for ensuring that a sufficient 

4 number of bankruptcy and district court 

5 judges— 

6 (i) develop and maintain the level of 

7 expertise described in subparagraph (A); 

8 and 

9 (ii) are available in each circuit to 

10 preside over cases that involve financial 

11 companies; 

12 (2) identify, and periodically update the identi13 fication of— 

14 (A) provisions in the Bankruptcy Code and 

15 the Federal Rules of Bankruptcy Procedure 

16 that— 

17 (i) increase the severity of the failure 

18 of a financial company; 

19 (ii) complicate or impede the resolu20 tion of a financial company; 

21 (iii) unfairly increase the risk of loss 

22 by ordinary creditors of a financial com23 pany; 

24 (iv) shift the costs of the resolution of 

25 a financial company, or the risks of loss in 


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1 such a resolution, away from persons that 

2 are in a position to prevent or reduce such 

3 complications, impediments, risks, or costs; 

4 (v) decrease the likelihood that a fi5 nancial company will be able to obtain 

6 enough private financing to emerge suc7 cessfully from bankruptcy without the need 

8 for a taxpayer bailout or other government 

9 financial assistance; or 

10 (vi) otherwise pose a threat to finan11 cial stability in the United States; 

12 (B) amendments to the Bankruptcy Code, 

13 the Federal Rules of Bankruptcy Procedure, 

14 and other statutes and procedural rules that 

15 could help prevent or mitigate the complica16 tions, impediments, risks, and costs described in 

17 subparagraph (A); and 

18 (C) ways in which financial companies and 

19 their customers, investors, and counterparties 

20 could adjust business practices to prevent or re21 duce the complications, impediments, risks, and 

22 costs described in subparagraph (A); and 

23 (3) not later than 1 year after the date of en24 actment of this Act, and every other year thereafter, 

25 submit to the committees of jurisdiction a report 


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1 that sets forth recommendations and issues that 

2 may help— 

3 (A) facilitate further the resolution of a fi4 nancial company under the Bankruptcy Code; 

5 and 

6 (B) prevent or mitigate risks to financial 

7 stability in the United States. 

8 (b) ISSUANCE OF RULE.—Not later than 18 months 

9 after the initial report required under subsection (a)(3) 

10 is submitted, the Supreme Court of the United States, in 

11 consultation with the Council, the Office, the Director of 

12 the Administrative Office of the United States Courts, and 

13 the Director of the Executive Office for United States 

14 Trustees, shall issue a rule under section 2075 of title 28, 

15 United States Code, that provides for the orderly appoint16 ment, by the chief judge of the court of appeals for the 

17 circuit embracing the district in which a financial company 

18 has filed a petition, of a bankruptcy judge or district court 

19 judge having expertise in the resolution of financial com20 panies under the Bankruptcy Code. 

21 SEC. 4. ROLE OF REGULATORS IN FINANCIAL COMPANY 

22 BANKRUPTCY CASES. 

23 The Bankruptcy Code is amended— 

24 (1) in section 101, by inserting after paragraph 

25 (21B) the following: 


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1 ‘‘(21C) The term ‘financial company’ has the 

2 meaning given the term in section 201(a) of the 

3 Dodd-Frank Wall Street Reform and Consumer Pro4 tection Act (12 U.S.C. 5381(a)).’’; 

5 (2) in section 307— 

6 (A) by striking ‘‘The United States’’ and 

7 inserting the following: 

8 ‘‘(a) IN GENERAL.—The United States’’; and 

9 (B) by adding at the end the following: 

10 ‘‘(b) FINANCIAL COMPANIES.—The Board of Gov11 ernors of the Federal Reserve System, the Federal Deposit 

12 Insurance Corporation, any primary financial regulatory 

13 agency of the debtor or an affiliate, and the Chairperson 

14 of the Financial Stability Oversight Council may raise and 

15 may appear and be heard on any issue in any case or pro16 ceeding under this title in which the debtor is a financial 

17 company. 

18 ‘‘(c) DEFINITION.—In this section, the term ‘primary 

19 financial regulatory agency’ has the meaning given the 

20 term in section 2 of the Dodd-Frank Wall Street Reform 

21 and Consumer Protection Act (12 U.S.C. 5301).’’; 

22 (3) in section 322(b)(1), by inserting ‘‘, or any 

23 trustee appointed under section 1104(f),’’ after ‘‘The 

24 United States trustee’’; and 

25 (4) in section 1104— 


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1 (A) in subsection (b)(1), in the first sen2 tence, by inserting ‘‘subsection (f) and’’ after 

3 ‘‘as provided in’’; and 

4 (B) by adding at the end the following: 

5 ‘‘(f)(1) If the debtor is a financial company— 

6 ‘‘(A) the Board of Governors of the Federal Re7 serve System and the Federal Deposit Insurance 

8 Corporation, as soon as practicable after the order 

9 for relief, shall submit a list of 5 disinterested per10 sons that are qualified and willing to serve as trust11 ees in the case; and 

12 ‘‘(B) the United States trustee shall appoint 1 

13 of the persons from the list submitted under sub14 paragraph (A) to serve as trustee in the case. 

15 ‘‘(2) The residence and office requirements set forth 

16 in section 321(a) shall not apply to a trustee appointed 

17 under this subsection.’’. 

18 SEC. 5. STUDIES AND REPORT. 

19 (a) IN GENERAL.—Not later than 18 months after 

20 the date of enactment of this Act, and every 2 years there21 after, the Office, in consultation with the Council, authors 

22 of relevant analytical works, members drawn from the Fi23 nancial Research Advisory Committee of the Office, and 

24 other relevant experts, shall submit to the committees of 

25 jurisdiction a report that contains— 


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1 (1) a summary and evaluation of the relevant 

2 analytical works published in the 10 years preceding 

3 the date of submission of the report with respect to 

4 the issues described in subsections (b) through (e); 

5 (2) a statement identifying which analytical 

6 works described in paragraph (1) were prepared or 

7 paid for by a person, organization, or entity that— 

8 (A) has or had a financial interest in the 

9 subject matter of the analytical work; or 

10 (B) represents, has represented, or has re11 ceived funding or compensation from such a 

12 person, organization, or entity; and 

13 (3) the results of each of the studies described 

14 in subsections (b) through (e), including rec15 ommendations drawn from— 

16 (A) the original research conducted by the 

17 Office; and 

18 (B) the analytical work summarized and 

19 evaluated under paragraph (1). 

20 (b) BANKRUPTCY CODE EFFECTIVENESS STUDY.— 

21 The study described in this subsection shall— 

22 (1) analyze— 

23 (A) the effectiveness of the Bankruptcy 

24 Code, as in effect on the date the analysis is 

25 undertaken, in facilitating the orderly resolution 


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1 of a financial company, including whether there 

2 are provisions in such Code that— 

3 (i) increase the likelihood or severity 

4 of failure of a financial company; 

5 (ii) complicate or impede such a reso6 lution; 

7 (iii) pose risks to financial stability in 

8 the United States; 

9 (iv) shift the costs of such a resolu10 tion, or the risks of loss in such a resolu11 tion, away from persons that are in a posi12 tion to prevent or reduce such complica13 tions, impediments, or risks; or 

14 (v) create the risk that such a resolu15 tion could safely occur only with financial 

16 support from the Federal Government; 

17 (B) whether other amendments to the 

18 Bankruptcy Code, as in effect on the date the 

19 analysis is undertaken, could enhance the abil20 ity of the bankruptcy court to resolve a finan21 cial company in a manner that could minimize 

22 the risk of adverse impacts in financial markets 

23 while— 

24 (i) providing for fair distribution to 

25 creditors; 


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1 (ii) preserving financial stability in 

2 the United States; and 

3 (iii) preventing moral hazard; and 

4 (C) whether amendments to the Bank5 ruptcy Code, as in effect on the date the anal6 ysis is undertaken, and other laws relating to 

7 insolvency to modify the treatment of qualified 

8 financial contracts and master netting agree9 ments in future situations of insolvency could 

10 reduce— 

11 (i) losses in the value of the financial 

12 company and its assets; 

13 (ii) losses to other parties in interest; 

14 (iii) moral hazard; and 

15 (iv) risks to financial stability in the 

16 United States; 

17 (2) in addition to the analyses required under 

18 paragraph (1), analyze the impacts on— 

19 (A) the ability of employees, other credi20 tors, and parties in interest to recover amounts 

21 owed; 

22 (B) the behavior of counterparties and the 

23 economy of the United States before a bank24 ruptcy case is filed, including the impacts durVerDate Sep 11 2014 00:18 Dec 07, 2016 Jkt 069200 PO 00000 Frm 00019 Fmt 6652 Sfmt 6201 E:\BILLS\S3505.IS S3505

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1 ing normal economic conditions and during pe2 riods of financial stress on— 

3 (i) the level of care and caution exer4 cised before entering into qualified finan5 cial contracts; 

6 (ii) the collateral haircuts applied to 

7 the products described in paragraph (3); 

8 and 

9 (iii) the level of risk and leverage 

10 counterparties are willing to accept with 

11 respect to the products described in para12 graph (3); and 

13 (C) financial stability in the United States 

14 after a bankruptcy case is filed; 

15 (3) in conducting the analysis required under 

16 paragraph (1) and paragraph (2), separately con17 sider the impact of and on— 

18 (A) Treasury repurchase agreements; 

19 (B) MBS repurchase agreements; 

20 (C) securities lending agreements; 

21 (D) interest rate swap agreements; 

22 (E) foreign exchange forward agreements; 

23 and 


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1 (F) any type of qualified financial contract 

2 that is not listed in subparagraphs (A) through 

3 (E) and that— 

4 (i) is cleared under section 2(h) of the 

5 Commodity Exchange Act (7 U.S.C. 2(h)) 

6 or section 3C of the Securities Exchange 

7 Act of 1934 (15 U.S.C. 78c–3); or 

8 (ii)(I) is not cleared under section 

9 2(h) of the Commodity Exchange Act (7 

10 U.S.C. 2(h)) or section 3C of the Securi11 ties Exchange Act of 1934 (15 U.S.C. 

12 78c–3); and 

13 (II) with respect to which the termi14 nation of the quantity held by a hypo15 thetical bank holding company, within the 

16 timeframe permitted under the bankruptcy 

17 laws in effect on the date the analysis is 

18 undertaken, could cause a negative impact, 

19 including a negative impact on— 

20 (aa) the price of the collateral; 

21 (bb) the termination value of the 

22 qualified financial contract; or 

23 (cc) the availability of liquidity to 

24 the bank holding company or a 

25 counterparty; 


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1 (4) in conducting the analysis required under 

2 paragraphs (1), (2), and (3), consider the impact on 

3 and of the qualified financial products described in 

4 paragraph (3), separately assuming that each cat5 egory of qualified financial contract described in 

6 paragraph (3) that may be terminated is termi7 nated— 

8 (A) immediately upon the filing of a bank9 ruptcy petition; 

10 (B) 14 days after the filing of a bank11 ruptcy petition; 

12 (C) 30 days after the filing of a bank13 ruptcy petition; 

14 (D) 180 days after the filing of a bank15 ruptcy petition; and 

16 (E) on the earlier of— 

17 (i) the date on which each qualified fi18 nancial contract matures under its applica19 ble non-default terms, assuming that the 

20 range of maturity dates is typical of the 

21 qualified financial contracts held by the hy22 pothetical bank holding company; and 

23 (ii) the date on which the nondebtor 

24 counterparty is no longer adequately pro25 tected, assuming that ‘‘adequate protecVerDate Sep 11 2014 00:18 Dec 07, 2016 Jkt 069200 PO 00000 Frm 00022 Fmt 6652 Sfmt 6201 E:\BILLS\S3505.IS S3505

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1 tion’’ means continued receipt of variation 

2 margin, as provided for by contract, and 

3 that the ability of the hypothetical bank 

4 holding company to provide such adequate 

5 protection is correlated with— 

6 (I) the initial margin and vari7 ation margin that such hypothetical 

8 bank holding company and its 

9 counterparty are likely to negotiate if 

10 the Bankruptcy Code is— 

11 (aa) as in effect on the date 

12 of enactment of this Act; and 

13 (bb) amended to eliminate 

14 the right to terminate all quali15 fied financial contracts imme16 diately upon the petition date; 

17 and 

18 (II) the quantity of debtor in 

19 possession financing that the hypo20 thetical bank holding company is like21 ly to be able to attract, as determined 

22 by the study conducted under sub23 section (d); and 

24 (5) based on the analyses performed under 

25 paragraphs (1) through (4)— 


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1 (A) analyze how financial companies and 

2 their customers, investors, and counterparties 

3 could adjust their business practices if the safe 

4 harbors were no longer available to counterpar5 ties; 

6 (B) recommend any changes to the treat7 ment of qualified financial contracts and master 

8 netting agreements by the Bankruptcy Code, as 

9 in effect on the date the analysis is undertaken, 

10 that would— 

11 (i) prevent potential risks to financial 

12 stability in the United States; and 

13 (ii) help— 

14 (I) preserve value for distribution 

15 to creditors; 

16 (II) prevent fluctuations in asset 

17 prices; and 

18 (III) counterparties receive the 

19 benefit of the non-default terms of 

20 their qualified financial contracts; and 

21 (C) recommend any other legislative or 

22 regulatory changes that could help address any 

23 legislative or regulatory gaps, vulnerabilities, or 

24 suggestions identified by the analysis. 


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1 (c) BRIDGE COMPANY STUDY.—The study described 

2 in this subsection shall analyze the impact of the proposed 

3 subchapter on systemic risk, moral hazard, the availability 

4 of liquidity, the ability to reorganize successfully and re5 store profitability, and the ability to hold accountable the 

6 persons responsible for the failure of a financial company, 

7 with consideration given to— 

8 (1) the effects of severely limiting, by statute, 

9 the ability to hold the board of directors of a finan10 cial company accountable for actions relating to its 

11 failure and bankruptcy filing; 

12 (2) the risks that may impede successful cap13 italization and financing of the bridge company 

14 under the proposed subchapter and the likelihood 

15 that such risks will prevent such capitalization and 

16 financing within 48 hours of the commencement of 

17 a bankruptcy; 

18 (3) the potential impact on financial stability in 

19 the United States if a bankruptcy is commenced and 

20 capitalization and financing of the bridge company 

21 cannot be successfully completed within 48 hours; 

22 (4) the extent to which, if capitalization and fi23 nancing of the bridge company under the proposed 

24 subchapter does not succeed within 48 hours— 


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1 (A) there is a means, under the proposed 

2 subchapter, to prevent risk to financial stability 

3 in the United States; and 

4 (B) there would be a means, under the 

5 proposed subchapter with title II repealed, to 

6 prevent risk to financial stability in the United 

7 States; 

8 (5) whether requiring the bridge company to as9 sume all obligations under the qualified financial 

10 contracts of the financial company, and requiring 

11 the bridge company to assume the obligation to pay 

12 in full a secured claim where the value of the collat13 eral is less than the claim, may— 

14 (A) leave the bridge company with inad15 equate regulatory capital; or 

16 (B) create a risk that the bridge company 

17 would be unable to secure adequate capital and 

18 liquidity during the timeframe and in the quan19 tity in which such capital and liquidity are 

20 needed to pay— 

21 (i) the obligations assumed; 

22 (ii) the operating expenses of the 

23 bridge company; 

24 (iii) the fees and expenses of the spe25 cial trustee; and 


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1 (iv) the debt service on the new fi2 nancing; 

3 (6) whether the transfer to the bridge company 

4 of a material part of the assets of the debtor, with 

5 less than 48 hours of notice given to a limited num6 ber of the creditors of the debtor and parties in in7 terest, and with no notice given to other creditors 

8 and parties in interest, may— 

9 (A) violate the due process rights of some 

10 of those creditors or parties in interest; or 

11 (B) expose the bridge company to potential 

12 liability due to the lack of adequate notice to 

13 such creditors or parties in interest; 

14 (7) whether, if there is a violation of due proc15 ess rights or the potential for successor liability, as 

16 described in paragraph (6), there is a risk that the 

17 restructuring may not be accomplished within 48 

18 hours; 

19 (8) whether— 

20 (A) in light of the failure of the prede21 cessor of the bridge company and the possibility 

22 of ongoing issues in the operating entities 

23 transferred to the bridge company, there is a 

24 risk that financial markets may consider the 


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1 bridge company unattractive as a potential bor2 rower or investment opportunity; and 

3 (B) the bankruptcy filing, in the absence 

4 of certainty of adequate financial support to en5 sure a positive outcome, could disrupt financial 

6 markets; 

7 (9) whether the rights of all creditors whose 

8 claims are not assumed by the bridge company, in9 cluding the claims of employees, suppliers, service 

10 providers, and fraud claimants of the financial com11 pany, will be adequately represented in the absence 

12 of— 

13 (A) a secure source of funds to pay for the 

14 fees and expenses of counsel to a creditors’ 

15 committee appointed under section 1102 of the 

16 Bankruptcy Code; and 

17 (B) bankruptcy court jurisdiction and su18 pervision over the bridge company and the spe19 cial trustee’s management of the assets trans20 ferred to the bridge company; 

21 (10) whether, under the proposed subchapter, 

22 48 hours is a sufficient amount of time to allow— 

23 (A) a trustee of a financial company in 

24 bankruptcy to— 

25 (i) assess— 


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1 (I) the future liquidity needs of 

2 the bridge company; and 

3 (II) the ability of the bridge com4 pany to access sufficient liquidity to 

5 meet such needs; 

6 (ii) make informed decisions about— 

7 (I) which qualified financial con8 tract portfolios the bridge company 

9 can reasonably expect to perform if 

10 the trustee’s only choice is to assume 

11 or reject the qualified financial con12 tracts of a given counterparty on an 

13 ‘‘all or nothing’’ basis; 

14 (II) the potential consequences of 

15 rejecting the qualified financial con16 tracts of a given counterparty on fi17 nancial stability in the United States 

18 if the trustee’s only choice is to as19 sume or reject the qualified financial 

20 contracts of a given counterparty on 

21 an ‘‘all or nothing’’ basis; 

22 (III) which encumbered assets 

23 may be transferred to the bridge com24 pany without triggering an obligation 

25 to pay an undersecured claim that is 


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1 too large for the bridge company real2 istically to pay; and 

3 (IV) which qualified financial 

4 contracts may be assumed without 

5 triggering an obligation to pay an un6 secured claim owed to the 

7 counterparty that is too large for the 

8 bridge company realistically to pay; 

9 and 

10 (iii) assemble and fairly present evi11 dence supporting the decisions described in 

12 clauses (i) and (ii) to the bankruptcy judge 

13 and other parties in interest; and 

14 (B) a bankruptcy judge to hear and con15 sider sufficient evidence to make an informed 

16 decision with respect to whether the actions 

17 proposed in clauses (i) and (ii) of subparagraph 

18 (A)— 

19 (i) are in the best interests of credi20 tors; and 

21 (ii) will not pose risks to financial sta22 bility in the United States; 

23 (11) if there is a risk that the bridge company 

24 capitalization will not be accomplished successfully 


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1 within 48 hours, the likely market and legal con2 sequences, including— 

3 (A) whether mass termination of the quali4 fied financial contracts could be avoided; 

5 (B) whether an extended period of finan6 cial market disruption is possible; 

7 (C) what steps would be needed to contain 

8 the potential fallout from the events described 

9 in subparagraphs (A) and (B); and 

10 (D) what legal authority exists to take the 

11 steps that would be needed to contain the fall12 out described in subparagraph (C); 

13 (12) with respect to the proposed subchapter 

14 with title II repealed— 

15 (A) whether repealing title II is an effec16 tive way to prevent systemic risk and moral 

17 hazard; 

18 (B) whether there would be an increased 

19 likelihood of taxpayer bailouts in the absence of 

20 title II; and 

21 (C) the effects of losing title II as a last 

22 resort if— 

23 (i) the financial company is unable to 

24 resolve itself under chapter 11 of the 

25 Bankruptcy Code; or 


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1 (ii) the bridge company is unable to 

2 repay all of the obligations assumed by the 

3 bridge company under the proposed sub4 chapter; and 

5 (13) any other material issues with respect to 

6 the bridge company that may pose a threat to— 

7 (A) financial stability in the United States; 

8 or 

9 (B) the laws, procedures, or regulations es10 tablished to prevent or mitigate risks to finan11 cial stability in the United States. 

12 (d) FINANCING AND LIQUIDITY STUDY.— 

13 (1) IN GENERAL.—The study described in this 

14 subsection shall report on— 

15 (A) the amount of liquidity needed by a 

16 hypothetical bank holding company in bank17 ruptcy, the availability of private financing to 

18 fulfill that need, and the likelihood of attracting 

19 that financing; and 

20 (B) whether amending the Bankruptcy 

21 Code to permit pre-arranging a debtor in pos22 session financing facility for a financial com23 pany, particularly a hypothetical bank holding 

24 company, that is enforceable after the filing of 

25 a bankruptcy petition, would— 


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1 (i) increase the level of certainty that 

2 the private financing described in subpara3 graph (A) would be available when needed; 

4 (ii) pose risks to lenders of the private 

5 financing described in subparagraph (A) 

6 that could not be mitigated in advance 

7 by— 

8 (I) assessing the credit risk posed 

9 by the financial company; 

10 (II) taking and perfecting a secu11 rity interest in collateral owned by the 

12 financial company; 

13 (III) limiting the size of a lend14 er’s exposure to a particular financial 

15 company; or 

16 (IV) taking any other steps simi17 lar to those described in subclauses 

18 (I) through (III); 

19 (iii) pose risks to financial stability in 

20 the United States; or 

21 (iv) have other effects. 

22 (2) CONSIDERATIONS.—In conducting the study 

23 required under paragraph (1), the Office shall— 

24 (A) project the amount of financing that 

25 the trustee would need during the 2-year period 


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1 immediately following the petition date of a hy2 pothetical bank holding company— 

3 (i) with an operating company that 

4 has suffered an unexpected loss of 

5 $10,000,000,000 one week before the peti6 tion date due to fraud and a lack of inter7 nal controls; and 

8 (ii) that, immediately before the loss 

9 described in clause (i), had exactly the 

10 minimum amount of regulatory capital and 

11 liquidity required; 

12 (B) conduct a market survey of, and, if 

13 necessary, use analytical techniques to deter14 mine, the potential sources of private financing 

15 to cover the projected shortfall, if any, under 

16 each set of conditions established by the Board 

17 of Governors of the Federal Reserve System 

18 under section 165(i)(1)(B)(i) of the Financial 

19 Stability Act of 2010 (12 U.S.C. 

20 5365(i)(1)(B)(i)) that is in effect on the date 

21 the survey is conducted; 

22 (C) based on the market survey conducted 

23 and, if applicable, the analytical techniques 

24 used under subparagraph (B), describe the 

25 amount of private financing that is likely to be 


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1 available to the hypothetical bank holding com2 pany and the terms and conditions under which 

3 it is likely to be available; 

4 (D) describe the timeline and logistics for 

5 obtaining the private financing described in 

6 subparagraph (C), assuming that the need for 

7 such financing became apparent at the time of 

8 the loss described in subparagraph (A)(i); 

9 (E) assess— 

10 (i) the likelihood that the trustee will 

11 be successful in obtaining the amount of 

12 private financing needed, on terms that a 

13 hypothetical bank holding company can af14 ford and within the timeframe in which 

15 such financing is needed— 

16 (I) under the circumstances de17 scribed in subparagraph (A); and 

18 (II) in light of the results of the 

19 market survey and analytical tech20 niques described in subparagraph (B); 

21 and 

22 (ii) the potential risks that could pre23 vent the trustee from obtaining the financ24 ing described in clause (i); and 


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1 (F) assess whether a bridge company with 

2 the ability to pre-arrange private financing, as 

3 described in paragraph (1)(B), would be able to 

4 obtain an adequate amount of financing more 

5 easily than a financial company that is a debtor 

6 under the provisions of chapter 11 of the Bank7 ruptcy Code that are in effect on the date the 

8 analysis is undertaken. 

9 (3) RECOMMENDATIONS.—The study described 

10 in this subsection shall contain recommendations re11 garding any legislative or regulatory changes that 

12 are necessary or would be helpful to address any 

13 gaps, vulnerabilities, or suggestions identified in the 

14 study. 

15 (e) MASTER NETTING AGREEMENT STUDY.— 

16 (1) IN GENERAL.—The study described in this 

17 subsection shall analyze and report on whether, con18 sidering the size and complexity of the master net19 ting agreements of a hypothetical bank holding com20 pany— 

21 (A) the laws in effect on the date of enact22 ment of this Act with respect to assumption 

23 and assignment of qualified financial contracts 

24 and master netting agreements could pose risks 

25 to financial stability in the United States; 


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1 (B) any risks described in subparagraph 

2 (A) could be avoided or mitigated by changes in 

3 the law that would— 

4 (i)(I) require master netting agree5 ments to be more limited in size and scope; 

6 and 

7 (II) permit master netting agreements 

8 to be assigned to separate assignees; 

9 (ii)(I) allow master netting agree10 ments to remain as configured on the date 

11 of enactment of this Act, as long as a fi12 nancial company is not in bankruptcy; and 

13 (II) following a bankruptcy petition, if 

14 no qualified assignee were able to assume 

15 all obligations under a master netting 

16 agreement, or if such an assignment would 

17 pose systemic risk, allow the trustee to— 

18 (aa) divide qualified financial 

19 contracts that are under a single mas20 ter netting agreement into groups 

21 based on product type and level of 

22 risk; and 

23 (bb) assign the qualified financial 

24 contracts that have been divided as 


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1 described in item (aa) to separate as2 signees; or 

3 (iii) permit or require other actions; and 

4 (C) there is an alternative means of as5 suming and assigning, or winding down, the 

6 qualified financial contracts and master netting 

7 agreements of the hypothetical bank holding 

8 company without posing risks to financial sta9 bility in the United States. 

10 (2) CONSIDERATIONS.—In conducting the study 

11 required under paragraph (1), the Office shall sepa12 rately model and quantify the potential direct and 

13 indirect economic consequences, including the con14 sequences described in subparagraphs (B), (C), and 

15 (G) of section 203(a)(2) of the Dodd-Frank Wall 

16 Street Reform and Consumer Protection Act (12 

17 U.S.C. 5383(a)(2)), of the disposition of the master 

18 netting agreements typical of those of a hypothetical 

19 bank holding company under each of the 5 scenarios 

20 described in paragraph (3). 

21 (3) SCENARIOS.—The 5 scenarios described in 

22 this subparagraph are as follows: 

23 (A) The Bankruptcy Code, as in effect on 

24 the date of enactment of this Act, remains in 

25 effect and the course of dealing among bank 


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1 holding companies is similar to that commonly 

2 in practice on December 31, 2016, including 

3 the following conditions: 

4 (i) The trustee or receiver for a hypo5 thetical bank holding company may not as6 sume, or assume and assign, the qualified 

7 financial contracts or master netting agree8 ments of the hypothetical bank holding 

9 company to a third party because those 

10 contracts are considered financial accom11 modations under section 365(c)(2) of the 

12 Bankruptcy Code. 

13 (ii) Because of the safe harbors, 

14 counterparties may, immediately upon the 

15 filing of the petition— 

16 (I) liquidate, terminate, and ac17 celerate qualified financial contracts 

18 and master netting agreements; and 

19 (II) retrieve their collateral. 

20 (B) The facts are as provided in subpara21 graph (A), except that— 

22 (i) the Bankruptcy Code has been 

23 amended to allow for the assumption, but 

24 not the assignment, of qualified financial 


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1 contracts and master netting agreements 

2 by a hypothetical bank holding company; 

3 (ii) the choice of the hypothetical 

4 bank holding company is limited to assum5 ing— 

6 (I) all of the qualified financial 

7 contracts and master netting agree8 ments between the debtor and a par9 ticular counterparty; or 

10 (II) none of the qualified finan11 cial contracts or master netting agree12 ments between the debtor and the 

13 counterparty described in subclause 

14 (I); and 

15 (iii) the hypothetical bank holding 

16 company assumes all of the qualified finan17 cial contracts and master netting agree18 ments without conducting an analysis of 

19 its future cash flow. 

20 (C) The facts are as provided in subpara21 graph (B), except that— 

22 (i) the hypothetical bank holding com23 pany has sufficient liquidity to perform the 

24 obligations under only 2 of the 5 master 

25 netting agreements with the largest 


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1 counterparties of the hypothetical bank 

2 holding company; and 

3 (ii) any remaining master netting 

4 agreements would be terminated imme5 diately. 

6 (D) The facts are as provided in subpara7 graph (B), except that— 

8 (i) the Bankruptcy Code has been 

9 amended to allow the trustee or receiver 

10 for a hypothetical bank holding company 

11 to separately assign 1 or more of its mas12 ter netting agreements to 1 or more third 

13 parties that have the ability to perform 

14 such master netting agreements; and 

15 (ii) the number of third parties that 

16 would have the ability to perform, and be 

17 likely assignees of, the master netting 

18 agreement with 1 of the 5 largest counter19 parties of the hypothetical bank holding 

20 company, based on gross notional amount 

21 as of December 31, 2016, is similar to the 

22 number of parties that would have the abil23 ity to perform and would be interested in 

24 assuming such master netting agreements 

25 under each set of economic conditions esVerDate Sep 11 2014 00:18 Dec 07, 2016 Jkt 069200 PO 00000 Frm 00041 Fmt 6652 Sfmt 6201 E:\BILLS\S3505.IS S3505

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1 tablished by the Board under section 

2 165(i)(1)(B)(i) of the Financial Stability 

3 Act of 2010 (12 U.S.C. 5365(i)(1)(B)(i)) 

4 that is in effect on the date the study is 

5 conducted. 

6 (E) The facts are as provided in subpara7 graph (B), except that— 

8 (i) the Bankruptcy Code has been 

9 amended to allow the trustee for a hypo10 thetical bank holding company to divide 

11 the qualified financial contracts under each 

12 master netting agreement into several 

13 smaller groups, each of which— 

14 (I) contains 1 product class and, 

15 within that product class, 1 risk level; 

16 and 

17 (II) may be separately— 

18 (aa) assumed; 

19 (bb) assumed and assigned; 

20 or 

21 (cc) rejected; and 

22 (ii) the potential assignees are similar 

23 to the parties that would have the ability 

24 to perform, and would be likely interested 

25 purchasers, of such group under each set 


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1 of economic conditions established by the 

2 Board under section 165(i)(1)(B)(i) of the 

3 Financial Stability Act of 2010 (12 U.S.C. 

4 5365(i)(1)(B)(i)) that is in effect on the 

5 date the study is conducted. 

6 (4) FACTORS.—In conducting the study re7 quired under this subsection, the Office shall analyze 

8 factors that include— 

9 (A) the data needed to determine whether 

10 the qualified financial contracts under each 

11 master netting agreement are in the money or 

12 out of the money, including— 

13 (i) the contractual terms of the mas14 ter netting agreements and qualified finan15 cial contracts of the debtor; 

16 (ii) current market pricing, interest 

17 rates, foreign exchange rates, and similar 

18 data; 

19 (iii) data on potential future market 

20 trends during the remaining term of the 

21 qualified financial contracts, taking into 

22 consideration potential short term market 

23 disruptions as a consequence of the condi24 tions that led to the filing of a bankruptcy 


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1 petition by the hypothetical bank holding 

2 company; 

3 (iv) the existence, location, and format 

4 of the data described in clause (iii); and 

5 (v) the legal authority of the trustee 

6 to access the data described in clause (iii); 

7 (B) the data needed to determine whether 

8 the qualified financial contracts under each 

9 master netting agreement will be valuable to 

10 the reorganized debtor, including— 

11 (i) the proposed future business con12 figuration, capitalization, borrowing capac13 ity, and cash flow projections of the hypo14 thetical bank holding company when it be15 comes a reorganized debtor; and 

16 (ii) the ability of the trustee to service 

17 the qualified financial contracts and mas18 ter netting agreements until the debtor is 

19 reorganized; 

20 (C) the existence of systems architecture 

21 and programs to analyze the data described in 

22 subparagraphs (A) and (B) (in this paragraph 

23 referred to as ‘‘the systems and programs’’) in 

24 order to draw the conclusions necessary to exer25 cise business judgment; 


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1 (D) the capacity of the systems and pro2 grams to process the data described in subpara3 graphs (A) and (B); 

4 (E) the legal authority of the trustee to ac5 cess the systems and programs; 

6 (F) the professional skills and quantity of 

7 personnel needed to run the systems and pro8 grams and draw conclusions from the data de9 scribed in subparagraphs (A) and (B), includ10 ing the availability of such personnel; and 

11 (G) the amount of time needed for— 

12 (i) gathering or developing the data 

13 described in subparagraphs (A) and (B); 

14 (ii) identifying and retaining the per15 sonnel needed to run the systems and pro16 grams; 

17 (iii) testing and running the systems 

18 and programs; 

19 (iv) assembling the results of the data 

20 analysis; 

21 (v) developing conclusions and rec22 ommendations based on the results de23 scribed in clause (iv); 


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1 (vi) presenting and explaining the 

2 conclusions and recommendations de3 scribed in clause (v) to the trustee; 

4 (vii) determining whether assumption, 

5 assumption and assignment, or rejection of 

6 the qualified financial contracts and mas7 ter netting agreements described in sub8 paragraph (A)— 

9 (I) is consistent with the business 

10 judgment rule; and 

11 (II) even if consistent with the 

12 business judgment rule, could impact 

13 financial stability in the United 

14 States; 

15 (viii) providing notice to creditors ar16 ticulating how the trustee’s determination 

17 under clause (vii) is consistent with the 

18 business judgment rule; and 

19 (ix) allowing creditors a reasonable 

20 opportunity to review and object to the 

21 proposed course of action of the trustee. 

22 (5) ASSUMPTIONS.—In conducting the study re23 quired under this subsection, the Office shall assume 

24 that— 


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1 (A) except as otherwise expressly provided, 

2 the laws in effect on the date of enactment of 

3 this Act remain in effect; 

4 (B) the qualified financial contract and 

5 master netting agreement configurations that 

6 are typical in the market on December 31, 

7 2016, remain in effect; and 

8 (C) the projected availability of financing 

9 and liquidity to perform the master netting 

10 agreements described in subparagraph (B) is 

11 consistent with the amount determined to be 

12 available under subsection (d)(2)(C). 

13 (6) RECOMMENDATIONS.—The study described 

14 in this subsection shall contain recommendations re15 garding any legislative or regulatory changes that 

16 could help address any gaps or vulnerabilities identi17 fied in the study. 

Æ 


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