I
103D CONGRESS
2D SESSION
H. R. 4170
To amend the Federal Deposit Insurance Act and the Federal Credit Union
Act to require insured depository institutions to include information
on derivative financial instruments in reports of condition, and for other
purposes.
IN THE HOUSE OF REPRESENTATIVES
APRIL 12, 1994
Mr. GONZALEZ introduced the following bill; which was referred to the
Committee on Banking, Finance and Urban Affairs
A BILL
To amend the Federal Deposit Insurance Act and the Fed-
eral Credit Union Act to require insured depository insti-
tutions to include information on derivative financial in-
struments in reports of condition, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Derivatives Safety and
Soundness Act of 1994’’.
SEC. 2. DISCLOSURE OF AMOUNTS, NATURE, AND TERMS
OF DERIVATIVE FINANCIAL INSTRUMENTS IN
DEPOSITORY INSTITUTION CALL REPORTS.
(a) INSURED DEPOSITORY INSTITUTIONS.—The Fed-
eral Deposit Insurance Act (12 U.S.C. 1811 et seq.) is
amended by adding at the end the following new section:
‘‘SEC. 44. DISCLOSURE REQUIREMENTS FOR DERIVATIVE
FINANCIAL INSTRUMENTS.
‘‘(a) INFORMATION REQUIRED TO BE INCLUDED IN
CALL REPORTS.—Any report of condition made by any
insured depository institution in accordance with section
7(a) with respect to any period beginning after December
31, 1994, shall include the following information:
‘‘(1) QUANTITATIVE
INFORMATION
WITH
RE-
SPECT
TO
ALL
DERIVATIVE
FINANCIAL
INSTRU-
MENTS.—
‘‘(A) 
GROSS
NOTIONAL
AND
FAIR
VALUE.—The gross notional value and the
gross fair value of any holding, position, or
other interest of the institution in any deriva-
tive financial instrument.
‘‘(B) REVENUE, GAINS, AND LOSSES.—All
revenue, gains, and losses of the institution at-
tributable to any holding, position, or other in-
terest of the institution in any derivative finan-
cial instrument.
‘‘(C) EXPOSURE UNDER BILATERAL NET-
TING CONTRACT.—The net current credit expo-
sure of the institution under legally enforceable
bilateral arrangements with respect to any hold-
ing, position, or other interest of the institution
in any derivative financial instrument.
‘‘(2) TERMS
TO
MATURITY.—Information on
the remaining term to maturity of any holding, posi-
tion, or other interest of the institution in any deriv-
ative financial instrument.
‘‘(3) QUANTITATIVE
INFORMATION
WITH
RE-
SPECT
TO
DERIVATIVE
FINANCIAL
INSTRUMENTS
HELD FOR TRADING PURPOSES.—
‘‘(A) AVERAGE FAIR VALUE BALANCES.—
The average maximum and minimum fair value
balances of the insured depository institution
during the period covered by the report with re-
spect to any holding, position, or other interest
of the institution in any derivative financial in-
strument which is acquired or taken by the in-
stitution for trading purposes.
‘‘(B) REVENUE, GAINS, AND LOSSES.—All
revenue, gains, and losses of the institution at-
tributable to trading account operations involv-
ing any holding, position, or other interest of
the institution in any derivative financial instru-
ment.
‘‘(b) REQUIREMENTS APPLICABLE
TO REPORTING
UNDER SUBSECTION (a).—
‘‘(1) SEPARATE
REPORTING
FOR
EXCHANGE
AND OTC TRADING.—To the maximum extent pos-
sible, information reported pursuant to paragraphs
(1) and (2) of subsection (a) with respect to trans-
actions which are conducted on an exchange, and the
holdings, positions, or other interests in derivative fi-
nancial instruments which are the subjects of such
transactions, shall be provided separately from infor-
mation relating to transactions which are conducted
over the counter, and the holdings, positions, or
other interests in derivative financial instruments
which are the subjects of such transactions.
‘‘(2) EXEMPTION BY AGENCY PROHIBITED.—A
Federal banking agency may not—
‘‘(A) exempt any insured depository insti-
tution from the requirements of subsection (a);
or
‘‘(B) allow any exception to any such re-
quirement with respect to any insured deposi-
tory institution,
unless the agency determines that such exemption or
exception is in the public interest and submits a
written notice of such determination and a detailed
description of the reasons for the determination to
the Committee on Banking, Finance and Urban Af-
fairs of the House of Representatives and the Com-
mittee on Banking, Housing, and Urban Affairs of
the Senate at least 30 days before the effective date
of the exemption or exception.
‘‘(c) QUALITATIVE REPORTING REQUIREMENTS.—
The Federal banking agencies shall take such action as
may be appropriate to encourage insured depository insti-
tutions to publicly report the following information with
such frequency as the agencies determine to be appro-
priate:
‘‘(1) NATURE OF DERIVATIVE FINANCIAL IN-
STRUMENTS.—A description of—
‘‘(A) the purposes for which any holding,
position, or other interest of the institution in
any derivative financial instrument has been ac-
quired or taken by the institution during the
period since the prior report, including the spe-
cific objectives of the institution;
‘‘(B) the overall operating and investment
strategies of the institution which provide the
context for acquiring or taking any such hold-
ing, position, or other interest in any derivative
financial instrument; and
‘‘(C) the manner in which the institution
acquires or takes a holding, position, or other
interest in a derivative financial instrument in
furtherance of the purposes and objectives for
such activities.
‘‘(2) ACCOUNTING POLICIES AND METHODOL-
OGY FOR DETERMINING FAIR VALUE AND OTHER
AMOUNTS.—A description of the accounting policy
and principles and the methodologies used by the in-
stitution to determine—
‘‘(A) the fair value of the various types of
holdings, positions, and other interests of the
institution in derivative financial instruments;
and
‘‘(B) any other amount required to be re-
ported under subsection (a) with respect to any
such holding, position, or other interest.
‘‘(d) CONFIDENTIAL EMERGENCY MANAGEMENT RE-
PORTING.—
‘‘(1) IN GENERAL.—Before the end of the 1-
year period beginning on the date of the enactment
of the Derivatives Safety and Soundness Act of
1994, the Federal banking agencies shall develop the
means to obtain, on a nightly basis, all necessary in-
formation from any insured depository institution, or
any affiliate of any such institution, which is a deal-
er in derivative financial instruments or is an active
end-user relating to any activity of such institution
or affiliate which involves derivative financial instru-
ments or any holding, position, or other interest in
a derivative financial instrument if the agency deter-
mines that the agency needs such information as a
result of adverse market conditions or other emer-
gency situation (as defined by the agency).
‘‘(2) ACCESSIBILITY OF INFORMATION.—Each
insured depository institution referred to in para-
graph (1) shall—
‘‘(A) obtain such information and make
and keep such records as the appropriate Fed-
eral banking agency may require by regulation
for purposes of such paragraph; and
‘‘(B) promptly provide to the agency any
information requested by the agency pursuant
to such paragraph.
‘‘(3) CONFIDENTIALITY OF INFORMATION PRO-
VIDED.—No information provided to or obtained by
a Federal banking agency pursuant to paragraph (1)
with respect to any insured depository institution or
any affiliate of any such institution may be provided
to any person or entity other than another Federal
regulatory agency with jurisdiction over the insured
depository institution or affiliate without the prior
written approval of the agency.
‘‘(e) ADMINISTRATIVE PROVISIONS.—
‘‘(1) ENHANCED REGULATORY COOPERATION.—
The Federal banking agencies and the National
Credit Union Administration Board shall jointly de-
velop uniform definitions, reporting requirements,
capital standards, and examination guidelines and
procedures with respect to activities of insured de-
pository institutions and insured credit unions which
involve derivative financial instruments or to any
holding, position, or other interest of any such insti-
tution or credit union in any such instrument.
‘‘(2) STANDARDIZED METHODOLOGIES FOR ES-
TIMATING
FAIR
VALUES.—The Federal banking
agencies and the National Credit Union Administra-
tion Board shall jointly take such action as may be
appropriate to encourage insured depository institu-
tions and insured credit unions to develop standard
methodologies and assumptions which may be used
in estimating the fair value of any holding, position,
or other interest of any such institution in any deriv-
ative financial instrument for use in preparing re-
ports of condition.
‘‘(3) ACCOUNTING
STANDARDS.—The Federal
banking agencies and the National Credit Union Ad-
ministration Board, in consultation with the Finan-
cial Accounting Standards Board, shall develop and
implement accounting standards for derivative finan-
cial instruments which are uniformly applicable to
insured depository institutions and insured credit
unions.
‘‘(4) INCLUSION OF FDIC AND OCC AS PRIN-
CIPALS IN INTERAGENCY TASK FORCE.—The Sec-
retary of the Treasury shall include the Chairperson
of the Federal Deposit Insurance Corporation and
the Comptroller of the Currency as principals on any
interagency task force or working group dealing with
issues relating to derivative financial institutions.
‘‘(f) REQUIREMENTS RELATING TO DIRECTORS AND
SENIOR EXECUTIVE OFFICERS.—
‘‘(1) EFFECTIVE MANAGEMENT OVERSIGHT.—
No insured depository institution may engage in ac-
tivities involving derivative financial instruments
without a management plan which ensures that such
activities are—
Federal banking agency shall, in addition to such
other enforcement action the agency may determine
to be appropriate—
‘‘(A) treat the failure as an unsafe or un-
sound practice in conducting the business of the
institution;
‘‘(B) issue a notice under section 8(e) to
the chairperson of the board of directors of the
institution, and any other director of the insti-
tution the agency determines to be appropriate,
of the agency’s intention to remove the chair-
person or other director from office; and
‘‘(C) assess a civil penalty under section
8(i)(2) on any appropriate institution-affiliated
party.
‘‘(g) DEFINITIONS.—For purposes of this section, the
following definitions shall apply:
‘‘(1) ACTIVE END-USER.—
‘‘(A) IN GENERAL.—The term ‘active end-
user’ means any insured depository institution
or any affiliate of any insured depository insti-
tution which buys or sells high volumes of de-
rivative financial instruments, or conducts
transactions in a wide variety of derivative fi-
nancial instruments, in order to manage the ex-
posure of the institution or affiliate to individ-
ual or multiple market factors.
‘‘(B) OTHER
TERMS.—The terms ‘‘high
volumes’’ and ‘‘wide variety of transactions’’, as
used in subparagraph (A), shall have the mean-
ings prescribed for such terms by the appro-
priate Federal banking agency by regulation.
‘‘(2) DERIVATIVE
FINANCIAL
INSTRUMENT.—
The term ‘derivative financial instrument’ means—
‘‘(A) an instrument the value of which is
derived from the value of other assets, interest
or currency exchange rates, or indexes, includ-
ing qualified financial contracts (as defined in
section 11(e)(8)); and
‘‘(B) any other instrument which an ap-
propriate Federal banking agency determines,
by regulation or order, to be a derivative finan-
cial instrument for purposes of this section.’’.
(b) INSURED CREDIT UNIONS.—Section 202(a) of
the Federal Credit Union Act (12 U.S.C. 1782(a)) is
amended by adding at the end the following new para-
graph:
‘‘(8) DERIVATIVE FINANCIAL INSTRUMENTS.—
‘‘(A) IN GENERAL.—The reports of condi-
tion made by insured credit unions under this
section shall include all the information with re-
spect to derivative financial instruments which
are required, under section 44 of the Federal
Deposit Insurance Act, to be included in reports
of condition made by insured depository institu-
tions (as defined in section 3 of such Act).
‘‘(B) APPLICABILITY
OF
SECTION
OF
THE FEDERAL DEPOSIT INSURANCE ACT.—Sec-
tion 44 of the Federal Deposit Insurance Act
shall apply with respect to insured credit unions
and the Board in the same manner such section
applies to insured depository institutions and
Federal banking agencies (as such terms are
defined in section 3 of such Act) and shall be
enforceable by the Board with respect to in-
sured credit unions under this Act.’’.
SEC. 3. STUDY OF INTERNATIONAL REGULATION AND SU-
PERVISION OF DERIVATIVE FINANCIAL IN-
STRUMENTS.
(a) IN GENERAL.—Before the end of the 30-day pe-
riod beginning on the date of the enactment of this Act,
the Secretary of the Treasury shall request a meeting with
the appropriate representatives of the other major indus-
trialized countries to plan a study to examine the adequacy
of the international regulation and supervision of deriva-
tive financial instruments (as defined in section 44(f)(2)
of the Federal Deposit Insurance Act).
(b) GOALS OF STUDY.—The goals of the study as
proposed by the Secretary of the Treasury shall be as
follows:
(1) To foster a greater understanding of the
manner in which derivative financial instruments af-
fect the stability of the world’s financial systems and
markets.
(2) To examine the adequacy of international
regulation and supervision of derivative financial
activities.
(3) To make recommendations for improving
the international regulation and supervision of deriv-
ative financial activities.
(4) To foster greater cooperation between all
regulatory agencies with jurisdiction over derivative
financial activities.
(5) To make recommendations for action by the
financial regulators in the respective countries that
would facilitate the safe and sound conduct of enti-
ties involved in derivative financial activities.
(6) To evaluate the feasibility of establishing a
single governing body to regulate international deriv-
ative financial activities.
(c) ISSUES TO STUDY.—The Secretary of the Treas-
ury shall propose that the study include the following
factors:
(1) Identification of the manner in which deriv-
ative financial instruments affect the stability of the
world’s financial systems and markets.
(2) Identification of the various regulatory enti-
ties and mechanisms that are used to regulate and
supervise derivative financial activities around the
world.
(3) Analysis of the adequacy of the cooperation
between the various regulatory entities and mecha-
nisms referred to in paragraph (2).
(4) Identification of problems that inhibit the
safe and sound conduct of world-wide derivative fi-
nancial activities.
(5) Analysis of the extent to which derivative fi-
nancial activities in countries other than the major
industrialized countries affect the safety and sound-
ness of the world’s financial systems and markets.
(6) Identification of uniform accounting and
public reporting standards for derivative financial in-
struments.
(7) Evaluation of the feasibility of establishing
a single governing body to regulate international de-
rivative financial activities.
(d) UTILIZATION
OF
INFORMATION
AND
RE-
SOURCES.—The Secretary of the Treasury shall propose
that, in conducting the study under this section, the major
industrialized countries should—
(1) gather information from a wide variety of
sources including government agencies, central
banks, market participants, and the consumers of
the derivative financial instruments; and
(2) to the extent feasible, obtain and use infor-
mation from the International Monetary Fund, the
Bank for International Settlements, and other multi-
lateral organizations.
SEC. 4. GAO STUDY OF SPECULATION, TRANSACTION
TAXES, AND MARGIN REQUIREMENTS WITH
RESPECT TO DERIVATIVE FINANCIAL IN-
STRUMENTS.
(a) STUDY REQUIRED.—
(1) IN GENERAL.—The Comptroller General of
the United States shall conduct a study of the spec-
ulative uses of derivative financial instruments (as
defined in section 44 of the Federal Deposit Insur-
ance Act) and the feasibility of imposing taxes and
(1) determine which holdings, position, or other
interests in a derivative financial instrument are
subject to margin requirements and the amount and
purpose of the margin requirement;
(2) determine the extent to which the trans-
actions of insured depository institutions which in-
volve a holding, position, or other interest in a deriv-
ative financial instrument are conducted over the
counter and evaluate the feasibility of imposing mar-
gin requirements on such transactions;
(3) evaluate the feasibility of imposing margin
requirements on any holding, position, or other in-
terest in a derivative financial instrument which was
acquired or taken for speculative purposes; and
(4) evaluate the competitive impact of imposing
margin requirements on any holding, position, or
other interest in a derivative financial instrument
which was acquired or taken for speculative pur-
poses.
(e) ACCESS TO INFORMATION.—The head of any de-
partment or agency of the Federal Government and any
insured depository institution shall provide, upon the re-
quest of the Comptroller General, such information to the
General Accounting Office as the Comptroller General
may determine to be appropriate for purposes of carrying
out the study required under this section.
Æ
HR 4170 IH——2