I have represented J.P. Morgan in its full range of derivatives activities since 1987. In this capacity, I have overall responsibility for reviewing the legal enforceability of derivatives contracts, including enforceability of contract netting provisions. J.P. Morgan is one of the world's largest derivatives dealers and has been active in the global derivatives markets as an end user and dealer since 1985. In these capacities, I have participated extensively in drafting netting agreements that serve as industry templates, reviewing legal opinions relating to netting, and otherwise educating our industry and other interested parties about derivatives transactions and the benefits associated with netting. Mr. Chairman, I commend you for holding this hearing on the need to update bank insolvency laws, particularly as those laws apply to the treatment of swap agreements, repurchase agreements, securities contracts and other similar financial instruments.
Commercial banks use derivative instruments both as end users and as dealers.
As end users, commercial banks, much like other corporations, generally use derivative instruments to manage their own institution's risks and reduce funding costs, thereby enabling them to make credit more widely available in their local communities. It is estimated that approximately 450 banks used derivative contracts in 1998. As both end users and dealers, commercial banks are subject to the insolvency provisions of the FDIA while non-bank participants are subject to the Bankruptcy Code. Congress has previously recognized the importance of having all participants in the derivatives markets operate under insolvency regimes that are consistent. To that end, the FDIA has been amended several times in the past to reduce inconsistencies between the insolvency provisions of the FDIA and the Bankruptcy Code.