[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4170 Introduced in House (IH)]

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 Federal Credit Union 
 Act to require insured depository institutions to include information 
 on derivative financial instruments in reports of condition, and for 
                            other purposes.

    Be it enacted by the Senate and House of Representatives 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 Federal 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 respect to all 
        derivative financial instruments.--
                    ``(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 
                derivative financial instrument.
                    ``(B) Revenue, gains, and losses.--All revenue, 
                gains, and losses of the institution attributable to 
                any holding, position, or other interest of the 
                institution in any derivative financial instrument.
                    ``(C) Exposure under bilateral netting contract.--
                The net current credit exposure of the institution 
                under legally enforceable bilateral arrangements with 
                respect to any holding, 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, position, or other interest of the 
        institution in any derivative financial instrument.
            ``(3) Quantitative information with respect 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 respect to any holding, position, or other 
                interest of the institution in any derivative financial 
                instrument which is acquired or taken by the 
                institution for trading purposes.
                    ``(B) Revenue, gains, and losses.--All revenue, 
                gains, and losses of the institution attributable to 
                trading account operations involving any holding, 
                position, or other interest of the institution in any 
                derivative financial instrument.
    ``(b) Requirements Applicable to Reporting Under Subsection (a).--
            ``(1) Separate reporting for exchange and otc trading.--To 
        the maximum extent possible, information reported pursuant to 
        paragraphs (1) and (2) of subsection (a) with respect to 
        transactions which are conducted on an exchange, and the 
        holdings, positions, or other interests in derivative financial 
        instruments which are the subjects of such transactions, shall 
        be provided separately from information 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 institution 
                from the requirements of subsection (a); or
                    ``(B) allow any exception to any such requirement 
                with respect to any insured depository 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 
        Affairs of the House of Representatives and the Committee 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 institutions to publicly report the following 
information with such frequency as the agencies determine to be 
appropriate:
            ``(1) Nature of derivative financial instruments.--A 
        description of--
                    ``(A) the purposes for which any holding, position, 
                or other interest of the institution in any derivative 
                financial instrument has been acquired or taken by the 
                institution during the period since the prior report, 
                including the specific objectives of the institution;
                    ``(B) the overall operating and investment 
                strategies of the institution which provide the context 
                for acquiring or taking any such holding, 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 methodology for determining 
        fair value and other amounts.--A description of the accounting 
        policy and principles and the methodologies used by the 
        institution 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 reported 
                under subsection (a) with respect to any such holding, 
                position, or other interest.
    ``(d) Confidential Emergency Management Reporting.--
            ``(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 information from any insured depository institution, 
        or any affiliate of any such institution, which is a dealer in 
        derivative financial instruments or is an active end-user 
        relating to any activity of such institution or affiliate which 
        involves derivative financial instruments or any holding, 
        position, or other interest in a derivative financial 
        instrument if the agency determines that the agency needs such 
        information as a result of adverse market conditions or other 
        emergency situation (as defined by the agency).
            ``(2) Accessibility of information.--Each insured 
        depository institution referred to in paragraph (1) shall--
                    ``(A) obtain such information and make and keep 
                such records as the appropriate Federal 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 provided.--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 develop uniform definitions, reporting 
        requirements, capital standards, and examination guidelines and 
        procedures with respect to activities of insured depository 
        institutions and insured credit unions which involve derivative 
        financial instruments or to any holding, position, or other 
        interest of any such institution or credit union in any such 
        instrument.
            ``(2) Standardized methodologies for estimating fair 
        values.--The Federal banking agencies and the National Credit 
        Union Administration Board shall jointly take such action as 
        may be appropriate to encourage insured depository institutions 
        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 derivative financial instrument for use in 
        preparing reports of condition.
            ``(3) Accounting standards.--The Federal banking agencies 
        and the National Credit Union Administration Board, in 
        consultation with the Financial Accounting Standards Board, 
        shall develop and implement accounting standards for derivative 
        financial instruments which are uniformly applicable to insured 
        depository institutions and insured credit unions.
            ``(4) Inclusion of fdic and occ as principals in 
        interagency task force.--The Secretary 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 activities involving 
        derivative financial instruments without a management plan 
        which ensures that such activities are--
                    ``(A) conducted with appropriate direct oversight 
                of the directors and the senior executive officers (as 
                defined pursuant to section 32(f)) of the institution;
                    ``(B) conducted in a safe and sound manner; and
                    ``(C) consistent with the overall risk management 
                philosophy and the business strategy of the management 
                of the institution.
            ``(2) Requirement for directors.--No insured depository 
        institution may act as a dealer in derivative financial 
        instruments or as an active end-user unless a sufficient number 
        of the directors of such institution are familiar with the 
        risks associated with each holding, position, or other interest 
        of the institution in any derivative financial instrument and 
        the total current credit exposure of the institution with 
        respect to the holdings, positions, and other interests of the 
        institution in derivative financial instruments and activities 
        of the institution relating to such holdings, positions, and 
        other interests.
            ``(3) Enforcement.--In the case of the failure of any 
        insured depository institution to comply with the requirements 
        of this subsection, the appropriate 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 unsound 
                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 institution 
                the agency determines to be appropriate, of the 
                agency's intention to remove the chairperson 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 institution which buys or sells 
                high volumes of derivative financial instruments, or 
                conducts transactions in a wide variety of derivative 
                financial instruments, in order to manage the exposure 
                of the institution or affiliate to individual or 
                multiple market factors.
                    ``(B) Other terms.--The terms ``high volumes'' and 
                ``wide variety of transactions'', as used in 
                subparagraph (A), shall have the meanings prescribed 
                for such terms by the appropriate 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, including qualified 
                financial contracts (as defined in section 11(e)(8)); 
                and
                    ``(B) any other instrument which an appropriate 
                Federal banking agency determines, by regulation or 
                order, to be a derivative financial 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 paragraph:
            ``(8) Derivative financial instruments.--
                    ``(A) In general.--The reports of condition made by 
                insured credit unions under this section shall include 
                all the information with respect 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 
                institutions (as defined in section 3 of such Act).
                    ``(B) Applicability of section 44 of the federal 
                deposit insurance act.--Section 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 insured credit unions under 
                this Act.''.

SEC. 3. STUDY OF INTERNATIONAL REGULATION AND SUPERVISION OF DERIVATIVE 
              FINANCIAL INSTRUMENTS.

    (a) In General.--Before the end of the 30-day period 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 industrialized countries to plan a study to examine the 
adequacy of the international regulation and supervision of derivative 
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 affect 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 derivative 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 entities involved in derivative 
        financial activities.
            (6) To evaluate the feasibility of establishing a single 
        governing body to regulate international derivative financial 
        activities.
    (c) Issues to Study.--The Secretary of the Treasury shall propose 
that the study include the following factors:
            (1) Identification of the manner in which derivative 
        financial instruments affect the stability of the world's 
        financial systems and markets.
            (2) Identification of the various regulatory entities 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 mechanisms referred to in 
        paragraph (2).
            (4) Identification of problems that inhibit the safe and 
        sound conduct of world-wide derivative financial activities.
            (5) Analysis of the extent to which derivative financial 
        activities in countries other than the major industrialized 
        countries affect the safety and soundness of the world's 
        financial systems and markets.
            (6) Identification of uniform accounting and public 
        reporting standards for derivative financial instruments.
            (7) Evaluation of the feasibility of establishing a single 
        governing body to regulate international derivative financial 
        activities.
    (d) Utilization of Information and Resources.--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 information from 
        the International Monetary Fund, the Bank for International 
        Settlements, and other multilateral organizations.

SEC. 4. GAO STUDY OF SPECULATION, TRANSACTION TAXES, AND MARGIN 
              REQUIREMENTS WITH RESPECT TO DERIVATIVE FINANCIAL 
              INSTRUMENTS.

    (a) Study Required.--
            (1) In general.--The Comptroller General of the United 
        States shall conduct a study of the speculative uses of 
        derivative financial instruments (as defined in section 44 of 
        the Federal Deposit Insurance Act) and the feasibility of 
        imposing taxes and margin requirements on speculative 
        transactions involving derivative financial instruments.
            (2) Report.--The Comptroller General shall submit a report 
        on the study conducted pursuant to paragraph (1) to the 
        Congress before the end of the 18-month period beginning on the 
        date of the enactment of this Act.
    (b) Issues Involving Speculative Transactions Involving Derivative 
Financial Instruments.--In conducting the study under subsection 
(a)(1), the Comptroller General shall--
            (1) define the term ``speculation'' as such term is used in 
        connection with derivative financial instruments;
            (2) determine the extent to which depository institutions, 
        including credit unions, use holdings, positions, and other 
        interests in derivative financial instruments to engage in 
        speculation for the institution's own trading account; and
            (3) determine the extent to which depository institutions, 
        including credit unions, sell holdings, positions, or other 
        interests in derivative financial instruments to--
                    (A) speculators such as hedge funds; or
                    (B) consumers of such financial instruments who are 
                engaged in the use of such holdings, positions, or 
                other interests in derivative financial instruments for 
                purposes other than hedging against risks.
    (c) Issues Involving Transaction Taxes and Fees.--In conducting the 
study under subsection (a)(1), the Comptroller General shall--
            (1) determine the extent to which any holding, position, or 
        other interest in a derivative financial instrument is subject 
        to Federal or State transaction tax or fee, the entity imposing 
        the tax or fee, the purpose of the tax or fee, and the amount 
        of annual revenue derived from the tax or fee;
            (2) evaluate the feasibility of imposing a tax or fee on 
        the acquisition or taking of a holding, position, or other 
        interest in a derivative financial instrument for speculative 
        purposes and estimate the revenue which would result from such 
        a tax or fee; and
            (3) evaluate the competitive impact of the imposition of a 
        tax or fee described in paragraph (2).
    (d) Issues Involving Margin Requirements.--In conducting the study 
under subsection (a)(1), the Comptroller General shall--
            (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 transactions of 
        insured depository institutions which involve a holding, 
        position, or other interest in a derivative financial 
        instrument are conducted over the counter and evaluate the 
        feasibility of imposing margin requirements on such 
        transactions;
            (3) evaluate the feasibility of imposing margin 
        requirements on any holding, position, or other interest 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 purposes.
    (e) Access to Information.--The head of any department or agency of 
the Federal Government and any insured depository institution shall 
provide, upon the request 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.

                                 <all>

HR 4170 IH----2