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(3) the Chairperson of the Board of Directors
of the Federal Deposit Insurance Corporation,
(4) the Director of the Office of Thrift Super-
vision,
(5) the Chairman of the Securities and Ex-
change Commission,
(6) the Chairman of the Commodity Futures
Trading Commission, and
(7) the Secretary of Treasury.
(b) CHAIRMANSHIP.—The Chairman of the Commis-
sion shall be the Chairman of the Board of Governors of
the Federal Reserve System.
(c) DESIGNATION OF OFFICERS AND EMPLOYEES.—
The members of the Commission may, from time to time,
designate other officers or employees of their respective
agencies to carry out their duties on the Commission.
(d) COMPENSATION AND EXPENSES.—Each member
of the Commission shall serve without additional com-
pensation but shall be entitled to reasonable expenses in-
curred in carrying out his official duties as such a mem-
ber.
SEC. 104. COSTS AND EXPENSES OF COMMISSION.
One-sixth of the costs and expenses of the Commis-
sion, including the salaries of its employees, shall be paid
by each of the Federal financial institutions regulatory
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agencies. Annual assessments for such share shall be lev-
ied by the Commission based upon its projected budget
for the year, and additional assessments may be made dur-
ing the year if necessary.
SEC. 105. FUNCTIONS OF COMMISSION.
(a) ESTABLISHMENT OF PRINCIPLES AND STAND-
ARDS.—
(1) The Commission shall establish principles
and standards related to capital, accounting, disclo-
sure, suitability, or other appropriate regulatory ac-
tions for the supervision of financial institutions en-
gaged in derivatives activities by the Federal finan-
cial institutions regulatory agencies.
(2) Each Federal financial institutions regu-
latory agency shall issue substantially similar regula-
tions governing derivatives activities for purposes of
implementing paragraph (1), unless it finds that im-
plementation of substantially similar regulations is
not necessary or appropriate in the public interest.
(3) Any financial institution not subject to su-
pervision by a Federal banking agency or the Com-
modity Futures Trading Commission shall be super-
vised by the Securities and Exchange Commission to
the extent of their derivatives activities, except as
otherwise provided by the Commission.
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(b) RECOMMENDATIONS REGARDING SUPERVISORY
ACTIONS.—
(1) In establishing principles and standards
under subsection (a), the Commission shall consider
and may make recommendations for comparable reg-
ulatory action by the Federal financial institutions
regulatory agencies in other matters related to fi-
nancial institutions engaged in derivatives activities,
such as, but not limited to, the need to establish
principles and standards for:
(A) Strong capital requirements (with par-
ticular attention to a leverage ratio where ap-
propriate) to guard generally against risks at fi-
nancial institutions, including added risks that
may be posed by derivatives activities;
(B) Discouraging active trading in deriva-
tives markets by financial institutions, particu-
larly those with access to federally insured de-
posits, unless management can demonstrate
that the institution has both adequate capital
and technical capabilities;
(C) Joint regulatory examinations by the
Federal banking agencies of insured depository
institutions that are derivatives dealers and any
affiliates;
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(D) Board of director responsibility with
respect to the oversight of derivatives activities,
including specific written policies approved by
the board of directors to be in place for dealers
and end users of derivatives setting prudential
standards for management of the risks involved
in derivatives activities and establishing a
framework for internal controls;
(E) Guidelines for the prudent use of col-
lateral by counterparties to derivatives trans-
actions;
(F) The appropriate parameters, models
and simulations of purposes of evaluating a fi-
nancial institution’s credit and market risk
posed by derivatives activities;
(G) Guidelines as to appropriate credit risk
reserves in connection with derivatives activi-
ties;
(H) Increased standardization of docu-
mentation and the use of standard documents
by all market participants;
(I) Minimum prudential practices for mu-
nicipalities and pension funds that may use de-
rivatives;
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(J) Enhanced disclosures to mutual fund
customers of the risks that may be posed to
mutual funds that are end users of derivatives
products;
(K) Guidelines related to legal risk, includ-
ing, but not limited to, foreign legal risk. Such
guidelines may address the steps a financial in-
stitution should take to obtain adequate assur-
ances of legal enforceability of derivatives con-
tracts, including the assurances of legal enforce-
ability of netting provisions that should be ob-
tained before an institution relies on such net-
ting provisions; and
(L) Regulations to protect against systemic
risk.
(2) When a recommendation of the Commission
is found unacceptable by one or more of the applica-
ble Federal financial institutions regulatory agencies,
the agency or agencies shall submit to the Commis-
sion, within a time period specified by the Commis-
sion, a written statement of the reasons the rec-
ommendation is unacceptable and such statement
shall be published in the Federal Register.
(c) DEVELOPMENT OF UNIFORM REPORTING SYS-
TEM.—The Commission shall develop uniform reporting
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systems for financial institutions engaged in derivatives
activities. The authority to develop uniform reporting sys-
tems shall not restrict or amend the requirements of sec-
tion 781(i) of title 15 of the United States Code.
(d) TRAINING FOR EXAMINERS AND ASSISTANT EX-
AMINERS.—The Commission shall sponsor training pro-
grams concerning derivatives activities for examiners and
assistant examiners employed by the Federal financial in-
stitutions regulatory agencies. Such training programs
shall be open to enrollment by employees of State financial
institutions supervisory agencies and employees of the
Federal Housing Finance Board and the Department of
Housing and Urban Development’s Office of Federal
Housing Enterprise Oversight under conditions specified
by the Commission.
(e) EFFECT ON FEDERAL REGULATORY AGENCY RE-
SEARCH AND DEVELOPMENT OF NEW FINANCIAL INSTI-
TUTIONS SUPERVISORY METHODS.—Nothing in this title
shall be construed to limit or discourage Federal financial
institution regulatory agency research and development of
new financial institutions supervisory methods and tools
related to derivatives activities, nor to preclude the field
testing of any innovation devised by any Federal financial
institution regulatory agency.
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(f) ANNUAL REPORT.—Not later than April 1 of each
year, the Commission shall prepare a report covering its
activities during the preceding calendar year.
SEC. 106. STATE LIAISON.
To encourage the application of uniform examination
principles and standards by State and Federal supervisory
agencies, the Commission shall establish a liaison commit-
tee composed of five representatives of State agencies
which supervise financial institutions which shall meet at
least twice a year with the Commission. Members of the
liaison committee shall receive a reasonable allowance for
necessary expenses incurred in attending meetings.
SEC. 107. ADMINISTRATION.
(a) AUTHORITY OF CHAIRMAN OF COMMISSION.—
The Chairman of the Commission is authorized to carry
out and to delegate the authority to carry out the internal
administration of the Commission, including the appoint-
ment and supervision of employees and the distribution
of business among members, employees, and administra-
tive units.
(b) USE OF PERSONNEL, SERVICES, AND FACILITIES
OF FEDERAL FINANCIAL
INSTITUTIONS REGULATORY
AGENCIES.—In addition to any other authority conferred
upon it by this title, in carrying out its functions under
this title, the Commission may utilize, with their consent
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and to the extent practical, the personnel, services, and
facilities of the Federal financial institutions regulatory
agencies, with or without reimbursement therefor.
(c) COMPENSATION, AUTHORITY, AND DUTIES OF
OFFICERS AND EMPLOYEES; EXPERTS AND CONSULT-
ANTS.—In addition, the Commission may—
(1) subject to the provisions of title 5 relating
to the competitive service, classification, and General
Schedule pay rates, appoint and fix the compensa-
tion of such officers and employees as are necessary
to carry out the provisions of this title, and to pre-
scribe the authority and duties of such officers and
employees; and
(2) obtain the services of such experts and con-
sultants as are necessary to carry out the provisions
of this title.
SEC. 108. RISK MANAGEMENT TRAINING.
The Commission shall develop training seminars in
risk management techniques related to derivatives activi-
ties for employees of the Federal financial institution reg-
ulatory agencies and the employees of financial institu-
tions.
SEC. 109. INTERNATIONAL NEGOTIATIONS.
The Chairman of the Board of Governors of the Fed-
eral Reserve System, in consultation with the members of
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the Commission, shall encourage governments, central
banks, and regulatory authorities of other industrialized
countries to work toward maintaining and, where appro-
priate, adopting comparable supervisory standards and
regulations, particularly capital standards, for financial
institutions engaged in derivatives activities.
SEC. 110. CREDIT UNIONS.
Insured credit unions (as defined in section 101(7)
of the Federal Credit Union Act) shall be supervised for
purposes of derivatives activities by the National Credit
Union Administration under standards no less stringent
than standards under which Federal depository institu-
tions (as defined in section 3(c) of the Federal Deposit
Insurance Act) are supervised by the Federal banking
agencies.
TITLE II—SUPERVISORY IMPROVEMENTS
SEC. 201. UNSAFE OR UNSOUND BANKING PRACTICES.
(a) IN GENERAL.—Failure of an institution-affiliated
party engaged in derivatives activities to have adequate
technical expertise may be deemed by the appropriate Fed-
eral banking agency to constitute an unsafe or unsound
banking practice within the meaning of section 8 of the
Federal Deposit Insurance Act (12 U.S.C. 1818).
(b) RULE OF CONSTRUCTION.—This section shall be
in addition to and not in derogation of the authority of
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any appropriate Federal banking agency under section 8
of the Federal Deposit Insurance Act to determine unsafe
or unsound banking practices.
SEC. 202. INTERNAL CONTROLS.
Section 39(a)(1)(A) of the Federal Deposit Insurance
Act (12 U.S.C. 1831p–1(a)(1)(A)) is amended by striking
‘‘internal controls’’ and inserting ‘‘internal controls (in-
cluding internal controls for derivatives activities’’.
SEC. 203. FOREIGN BANK SUPERVISION.
Section 7(d)(2)(A) of the International Banking Act
of 1978 (12 U.S.C. 3105(d)(2)(A)) is amended after
‘‘country’’ by inserting ‘‘, including, in the case of a for-
eign bank engaged in derivatives activities, comprehensive
supervision and regulation for derivatives activities (as
that term is defined in the Derivatives Supervision Act
of 1994). In making any determination under this para-
graph, the Board shall consider whether the home country
maintains comprehensive supervision and regulation of de-
rivatives activities, including capital and disclosure stand-
ards, not less stringent than United States standards.’’.
TITLE III—FINANCIAL INSTITUTION
INSOLVENCY REFORMS
SEC. 301. CONFORMING DEFINITIONS.
(a) Section 11(e)(8)(D)(vi) of the Federal Deposit In-
surance Act (12 U.S.C. 1821(e)(8)(D)(vi)) is amended—
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(1) by striking ‘‘purchased’’ each time it ap-
pears; and
(2) after ‘‘currency option’’ inserting ‘‘, equity
derivative, equity or equity index swap, equity or eq-
uity index option, bond option, spot foreign exchange
transaction’’.
(b) Section 101(55) of the Bankruptcy Code (11
U.S.C. 101(55)) is amended—
(1) in paragraph (A), by inserting ‘‘any quali-
fied financial contract within the meaning of section
1821(e)(8)(D)(i) of title 12, United States Code,’’
after ‘‘currency option,’’; and
(2) in paragraph (C) by inserting ‘‘and trans-
actions documented thereunder.’’ after ‘‘supple-
mental’’.
SEC. 302. FAILED AND FAILING INSTITUTIONS.
Section 11(e)(8) of the Federal Deposit Insurance
Act (12 U.S.C. 1821(e)(8)) is amended by adding the fol-
lowing new subparagraphs:
‘‘(F) PREEMPTION.—Notwithstanding any
other provision of law, no automatic stay, in-
junction, avoidance, moratorium, or other re-
straint, whether issued or granted by a bank-
ruptcy court or any other judicial body, any ad-
ministrative body, or whether created by statute
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or otherwise, shall limit or delay the ability of
the Corporation, in any capacity, to exercise its
authority, rights or powers in accordance with
section 11(e)(8) of this Act. This provision shall
not limit any other right, power or authority of
the Corporation in any capacity.
‘‘(G) UNDERCAPITALIZED
INSURED
DE-
POSITORY INSTITUTIONS.—The Corporation, in
consultation with the appropriate Federal bank-
ing agencies, shall prescribe regulations requir-
ing expanded recordkeeping for qualified finan-
cial contracts (including market valuations) by
insured 
depository 
institutions 
that 
are
undercapitalized as defined in section 38 of the
Federal Deposit Insurance Act (12 U.S.C.
1831o).’’.
SEC. 303. QUALIFIED FINANCIAL CONTRACT TRANSFERS.
Section 11(e)(10) of the Federal Deposit Insurance
Act, (12 U.S.C. 1821(e)(10)), is amended by adding the
following new subparagraphs:
‘‘(C) EFFECT
OF
NOTICE.—If a person
who is a party to a qualified financial contract
is notified by the Corporation as receiver of a
depository institution by the close of business
(Eastern Standard Time) on the business day
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following its appointment as receiver that the
Corporation has transferred all qualified finan-
cial contracts between the depository institution
and such person or its affiliates pursuant to
subparagraph (9)(A), then the provisions of
subparagraph (8)(A) shall not apply. For pur-
poses of this subparagraph, the Corporation as
receiver shall be deemed to have notified a per-
son if it has taken steps reasonably calculated
to provide notice to such person.
‘‘(D) NOTICE EXTENSION.—The Corpora-
tion may extend the notice period described in
paragraph (C) for a reasonable period not to
exceed 5 days, if the Corporation determines
that such an extension may maximize the net
present value return from the sale or disposi-
tion of such qualified financial contracts.
‘‘(E) TREATMENT
OF
BRIDGE
BANKS.—
Neither a bridge bank nor an institution orga-
nized by the Corporation and immediately
placed into conservatorship or placed into
conservatorship at the time of a purchase and
assumption transaction with the receiver of a
failed depository institution for which the Cor-
poration has been appointed receiver shall be
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considered a depository institution in default
for purposes of this paragraph, paragraph 8
and paragraph 9 of this section.’’.
SEC. 304. CLARIFYING AMENDMENTS.
Section 11(e)(8)(D)(vii) of the Federal Deposit In-
surance Act (12 U.S.C. 1821(e)(8)(D)(vii)) is amended to
read as follows: ‘‘(vii) Notwithstanding any other provision
of law, any master agreements for contracts or agreements
described in clause (ii), (iii), (iv), or (vi), together with
all supplements to such master agreement shall be treated
as 1 swap agreement for purposes of this Act and title
11 of the United States Code.’’.
SEC. 305. TECHNICAL AMENDMENTS.
(a) Section 11(e)(8)(D) of the Federal Deposit Insur-
ance Act (12 U.S.C. 1821(e)(8)(D)) is amended—
(1) in clause (i) by inserting ‘‘spot contract,’’
after ‘‘swap agreement,’’.
(2) in clause (iv) by striking ‘‘(24)’’ and insert-
ing ‘‘(25)’’;
(3) in clause (v) by striking ‘‘101(41)’’ and in-
serting ‘‘101(47)’’.
(b) Section 11(e)(8)(E)(i) of the Federal Deposit In-
surance Act (12 U.S.C. 1821(e)(8)(E)(i)) is amended by
striking ‘‘;’’ and inserting ‘‘, other than a default based
solely upon the appointment of a conservator;’’.
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TITLE IV—MISCELLANEOUS
SEC. 401. SAVINGS PROVISION.
The provisions of this Act shall be in addition to and
not in derogation of any existing authority of a Federal
financial institution regulatory agency to supervise or reg-
ulate derivatives activities provided under any other appli-
cable law.
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