[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4503 Introduced in House (IH)]
103d CONGRESS
2d Session
H. R. 4503
To enhance the supervision and regulation of derivatives activities of
financial institutions, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
May 26, 1994
Mr. Gonzalez (for himself, Mr. Leach, Mr. Neal of North Carolina, Mr.
Frank of Massachusetts, Mr. Kanjorski, Mr. Hinchey, and Mr. Kennedy)
introduced the following bill; which was referred to the Committee on
Banking, Finance and Urban Affairs
_______________________________________________________________________
A BILL
To enhance the supervision and regulation of derivatives activities of
financial institutions, 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; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Derivatives Safety
and Soundness Supervision Act of 1994''.
(b) Table of Contents.--
Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
TITLE I--ENHANCED SUPERVISION OF DERIVATIVES ACTIVITIES
Sec. 101. Increased agency oversight of financial institution
activities involving derivative financial
instruments.
Sec. 102. Disclosure of amounts, nature, and terms of derivative
financial instruments in financial
institution call reports.
Sec. 103. Inclusion of FDIC and OCC as principals in interagency task
force.
Sec. 104. Training for examiners and assistant examiners.
Sec. 105. State liaisons.
TITLE II--SUPERVISORY IMPROVEMENTS
Sec. 201. Unsafe or unsound practices.
Sec. 202. Confidential emergency management reporting.
Sec. 203. Internal controls.
Sec. 204. Foreign bank supervision.
TITLE III--FINANCIAL INSTITUTION INSOLVENCY REFORMS
Sec. 301. Treatment of certain swap agreements by conservators or
receivers of insured depository
institutions.
Sec. 302. Authority of the corporation with respect to failed and
failing institutions.
Sec. 303. Amendments relating to transfers of qualified financial
contracts.
Sec. 304. Clarifying amendment relating to master agreements.
Sec. 305. Technical amendments relating to qualified financial
contracts.
TITLE IV--INTERNATIONAL REGULATORY COOPERATION
Sec. 401. Study of international regulation and supervision of
derivatives activities of financial
institutions.
Sec. 402. International negotiations.
TITLE V--GAO STUDY
Sec. 501. Study of speculation and margin and collateral requirements
with respect to derivatives activities of
financial institutions.
SEC. 2. DEFINITIONS.
For purposes of this Act the following definitions shall apply:
(1) Active end-user.--The term ``active end-user'' means
any financial institution which buys or sells a significant
amount (as defined by the appropriate Federal regulatory
agencies) of derivative financial instruments, or conducts
transactions in a wide variety of derivative financial
instruments.
(2) Appropriate federal banking agency.--The term
``appropriate Federal banking agency'' has the same meaning as
in section 3(q) of the Federal Deposit Insurance Act.
(3) Appropriate federal regulatory agency.--The term
``appropriate Federal regulatory agency'' means--
(A) any appropriate Federal banking agency, in the
case of any insured depository institution or other
entity described in section 3(q) of the Federal Deposit
Insurance Act;
(B) the National Credit Union Administration, in
the case of any insured credit union;
(C) the Office of Federal Housing Enterprise
Oversight of the Department of Housing and Urban
Development, in the case of any financial institution
which is subject to the oversight of such office;
(D) the Federal Housing Finance Board, in the case
of any Federal home loan bank or the Office of Finance
of the Federal home loan banks; and
(E) the Board of Governors of the Federal Reserve
System, in the case of any financial institution which
is not described in subparagraph (A), (B), (C), or (D).
(4) Depository institution.--The term ``depository
institution''--
(A) has the same meaning as in section 3(c) of the
Federal Deposit Insurance Act; and
(B) includes any Federal credit union and any State
credit union (as such terms are defined in section 101
of the Federal Credit Union Act).
(5) Derivatives activities.--The term ``derivatives
activities'' means any activity in which a financial
institution is engaged as a dealer in derivative financial
instruments or as an active end-user.
(6) Derivative financial instrument.--The term ``derivative
financial instrument'' means any appropriate qualified
financial contract (as defined in section 11(e)(8)(D) of the
Federal Deposit Insurance Act).
(7) Financial institution.--The term ``financial
institution''--
(A) means--
(i) any depository institution;
(ii) any affiliate of any depository
institution;
(iii) any entity described in any
subparagraph of section 3(q)(2) of the Federal
Deposit Insurance Act;
(iv) any institution which is subject to
the oversight of the Office of Federal Housing
Enterprise Oversight of the Department of
Housing and Urban Development; and
(v) any Federal home loan bank and the
Office of Finance of the Federal home loan
banks; and
(B) does not include any company which is regulated
by the Securities and Exchange Commission or the
Commodities Futures Trading Commission.
(8) Insured credit union.--The term ``insured credit
union'' has the same meaning as in section 101(7) of the
Federal Credit Union Act.
(9) Insured depository institution.--The term ``insured
depository institution''--
(A) has the same meaning as in section 3(c)(2) of the
Federal Deposit Insurance Act; and
(B) includes an insured credit union.
TITLE I--ENHANCED SUPERVISION OF DERIVATIVES ACTIVITIES
SEC. 101. INCREASED AGENCY OVERSIGHT OF FINANCIAL INSTITUTION
ACTIVITIES INVOLVING DERIVATIVE FINANCIAL INSTRUMENTS.
(a) Establishment of Principles and Standards.--The appropriate
Federal regulatory agencies shall jointly establish principles and
standards relating to capital, accounting, disclosure, suitability, or
other appropriate regulatory actions for the supervision of financial
institutions engaged in derivatives activities by such agencies.
(b) Administrative Provisions.--
(1) Enhanced regulatory cooperation.--For purposes of
implementing the principles and standards established pursuant
to subsection (a) and the recommendations made pursuant to
subsection (c) and consistent with section 37 of the Federal
Deposit Insurance Act, the appropriate Federal regulatory
agencies shall jointly--
(A) issue substantially similar definitions,
reporting requirements, capital standards, and
examination guidelines and procedures with respect to
any derivatives activity of any financial institution;
and
(B) prescribe such other regulations governing
derivatives activities of financial institutions as the
agencies have identified or recommended as appropriate
for carrying out the purposes of this Act.
(2) Reports to banking committees.--During the 5-year
period beginning on the date of the enactment of this Act,
section 37(c) of the Federal Deposit Insurance Act shall apply
with respect to the principles, standards, requirements,
guidelines, and procedures adopted, prescribed, or issued by
any appropriate Federal regulatory agency pursuant to this Act
in the same manner such section applies with respect to
accounting and capital standards used by appropriate Federal
banking agencies.
(c) Recommendations Regarding Supervisory Actions.--In establishing
principles and standards under subsection (a), the appropriate Federal
regulatory agencies shall consider and may make recommendations for
comparable regulatory action by all such agencies in other matters
relating to financial institutions engaged in derivatives activities,
including the need to establish principles and standards to provide for
the following:
(1) Strong capital requirements (with particular attention
to a leverage ratio where appropriate) to guard generally
against risks at financial institutions, including added risks
that may be posed by derivatives activities.
(2) Comprehensive risk management systems that--
(A) are commensurate in scope, size, and complexity
to the levels of activities and risks assumed by
financial institutions;
(B) include limits and controls with respect to any
level of risk regarding counterparty credit,
concentration, and other relevant market factors;
(C) ensure that market factors affecting risk
exposures are adequately measured, monitored, and
controlled; and
(D) adequately control potential losses and undue
risks arising from system deficiencies.
(3) To the extent practicable, joint regulatory
examinations by the appropriate Federal banking agencies of
financial institutions which engage in derivatives activities.
(4) The prudent use of collateral by counterparties to
derivatives transactions.
(5) Appropriate parameters, models, and simulations for the
purpose of evaluating a financial institution's exposure to
derivatives activities and relevant economic scenarios and
further specifics regarding stress tests.
(6) Appropriate credit risk reserves in connection with
derivatives activities.
(7) Protection against legal risk, including foreign legal
risk.
(8) Protection against systemic risk.
(9) Assurance that a financial institution does not
recommend or engage in derivatives activities that the
institution knows or has reason to believe would be
inappropriate for a customer on the basis of available
information.
(10) Effective senior management supervision and oversight
by the board of directors of a financial institution to ensure
that derivatives activities are conducted in a safe and sound
manner and are consistent with the board of director's overall
risk management philosophy and the institution's business
strategy.
SEC. 102. DISCLOSURE OF AMOUNTS, NATURE, AND TERMS OF DERIVATIVE
FINANCIAL INSTRUMENTS IN FINANCIAL 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.--Each
appropriate Federal banking agency shall consider, and may require,
disclosures in 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, of the following information:
``(1) Quantitative information with respect to all
derivative financial instruments.--
``(A) Gross notional value.--The gross notional
value of each class of derivative financial
instruments.
``(B) Revenue, gains, and losses.--All revenue,
gains, and losses of the institution attributable to
each class of derivative financial instruments.
``(C) Exposure under bilateral netting contract.--
The net current credit exposure of the institution
under legally enforceable bilateral arrangements with
respect to each class of derivative financial
instruments.
``(2) Terms to maturity.--Information on the remaining term
to maturity of each class of derivative financial instruments.
``(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 with respect to each class of
derivative financial instruments used by the
institution for trading purposes.
``(B) Revenue, gains, and losses.--All revenue,
gains, and losses of the institution attributable to
trading account operations with respect to each class
of derivative financial instruments.
``(4) Additional information.--Any additional information
that any appropriate Federal banking agency may consider to be
appropriate.
``(b) Separate Reporting for Exchange and OTC Trading.--To the
maximum extent possible, information reported pursuant to subsection
(a) with respect to transactions which are conducted on an exchange,
and each class of 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 classes of derivative financial instruments which are
the subjects of such transactions.
``(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 each class of
derivative financial instruments has been acquired by
the institution, including the specific objectives of
the institution; and
``(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.
``(2) Accounting policies.--A description of the accounting
policy and principles and the methodologies used by the
institution to determine the value of the various classes of
derivative financial instruments.
``(d) Definitions.--For purposes of this section, the terms `active
end-user' and `derivative financial instrument' have the same meanings
as in section 2 of the Derivatives Safety and Soundness Supervision Act
of 1994.''.
(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 is 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.''.
(c) Other Financial Institutions.--
(1) In general.--A financial institution which is not an
insured depository institution or an insured credit union shall
file a quarterly report, with such institution's appropriate
Federal regulatory agency, containing all the information with
respect to derivative financial instruments which is 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).
(2) Applicability of section 44 of the federal deposit
insurance act.--Section 44 of the Federal Deposit Insurance Act
shall apply with respect to financial institutions and
appropriate Federal regulatory agencies described in paragraph
(1) 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 such agencies with respect to such financial
institutions under any other law which provides such agency
with administrative enforcement authority over such
institution.
SEC. 103. INCLUSION OF FDIC AND OCC AS PRINCIPALS IN INTERAGENCY TASK
FORCE.
The Chairperson of the Federal Deposit Insurance Corporation and
the Comptroller of the Currency shall be included as principals on any
interagency task force or working group dealing with issues relating to
derivative financial instruments.
SEC. 104. TRAINING FOR EXAMINERS AND ASSISTANT EXAMINERS.
(a) In General.--The Financial Institutions Examination Council
shall sponsor training programs concerning derivatives activities for
examiners and assistant examiners employed by such any agency
represented on such council.
(b) Enrollment.--Under such conditions as the Financial
Institutions Examination Council may establish, training programs
sponsored by the council pursuant to subsection (a) shall be open to
enrollment by employees of State bank supervisors (as defined in
section 3(r) of the Federal Deposit Insurance Act) and employees of the
Federal Housing Finance Board and the Office of Federal Housing
Enterprise Oversight of the Department of Housing and Urban
Development.
(c) Risk Management Training.--The risk management training
provided under section 1009A of the Federal Financial Institutions
Examination Council Act of 1978 shall include risk management
techniques related to derivatives activities, except that the cost of
providing training with respect to such activities to employees of
financial institutions shall be paid by the institutions.
SEC. 105. STATE LIAISONS.
(a) In General.--To encourage the application of uniform
examination principles and standards by State and Federal agencies with
respect to derivatives activities of financial institutions, the
appropriate Federal regulatory agencies shall establish a liaison
committee composed of 5 representatives of State agencies which
supervise financial institutions which shall meet at least twice a year
with such Federal agencies.
(b) Travel Expenses.--Each member of the liaison committee
established pursuant to subsection (a) shall receive travel expenses,
including per diem in lieu of subsistence, in accordance with sections
5702 and 5703 of title 5, United States Code.
TITLE II--SUPERVISORY IMPROVEMENTS
SEC. 201. UNSAFE OR UNSOUND PRACTICES.
(a) Effective Management Oversight.--No financial institution may
engage in derivatives activities without a written management plan
approved by the board of directors of the institution which--
(1) 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 Federal
Deposit Insurance Act) 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; and
(2) establishes prudential standards for the management of
the risks involved in such activities and a framework for
internal controls with respect to such activities.
(b) Requirement for Directors.--No financial 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 any class of derivative
financial instruments involved in any derivatives activity of a
financial institution and the total current credit exposure of the
institution with respect to any such class, and activities of the
institution relating to such class of instruments.
(c) Enforcement.--Any failure to comply with the provisions of this
subsection, and the failure of any institution-affiliated party (as
defined in section 3(u) of the Federal Deposit Insurance Act) engaged
in derivatives activities to have adequate technical expertise with
respect to such activities, may be treated by the appropriate Federal
regulatory agency as an unsafe or unsound practice in conducting the
business of the institution involved.
SEC. 202. CONFIDENTIAL EMERGENCY MANAGEMENT REPORTING.
(a) In General.--Before the end of the 1-year period beginning on
the date of the enactment of this Act, the appropriate Federal
regulatory agencies shall develop the means to obtain all necessary
information relating to any derivatives activity or any class of
derivative financial instruments, whenever the appropriate Federal
regulatory agency determines such information is needed, from any
financial institution which is a dealer in derivative financial
instruments or is an active end-user 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).
(b) Accessibility of Information.--Each financial institution
referred to in paragraph (1) shall--
(1) obtain such information and make and keep such records
as the appropriate Federal regulatory agency may require by
regulation for purposes of such paragraph; and
(2) promptly provide to the appropriate Federal regulatory
agency any information requested by the agency pursuant to such
paragraph.
(c) Confidentiality of Information Provided.--No information
provided to or obtained by an appropriate Federal regulatory agency
pursuant to paragraph (1) with respect to any financial institution may
be provided to any person or entity other than another Federal
regulatory agency with jurisdiction over the financial institution
without the prior written approval of the agency.
SEC. 203. 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 (including internal controls for
activities involving derivative financial instruments (as defined in
section 44(d)))''.
SEC. 204. FOREIGN BANK SUPERVISION.
(a) Standards for Approval.--Section 7(d)(2)(A) of the
International Banking Act of 1978 (12 U.S.C. 3105(d)(2)(A)) is amended
by inserting before the semicolon the following: ``, including, in the
case of a foreign bank engaged in derivatives activities (as defined in
section 2(5) of the Derivatives Safety and Soundness Supervision Act of
1994), comprehensive supervision and regulation of such activities.''.
(b) Factor for Consideration.--Section 7(d) of the International
Banking Act of 1978 (12 U.S.C. 3105(d)) is amended by adding at the end
the following new paragraph:
``(6) Factor for consideration.--In making any
determination under paragraph (2), the Board shall consider
whether the home country of a foreign bank maintains
comprehensive supervision and regulation of derivatives
activities (as defined in section 2(5) of the Derivatives
Safety and Soundness Supervision Act of 1994), including, where
appropriate, capital and disclosure standards, which are not
less stringent than United States standards.''.
TITLE III--FINANCIAL INSTITUTION INSOLVENCY REFORMS
SEC. 301. TREATMENT OF CERTAIN SWAP AGREEMENTS BY CONSERVATORS OR
RECEIVERS OF INSURED DEPOSITORY INSTITUTIONS.
Section 11(e)(8)(D)(vi) of the Federal Deposit Insurance Act (12
U.S.C. 1821(e)(8)(D)(vi)) is amended--
(1) by striking ``purchased'' each place such term appears;
and
(2) by inserting ``, equity derivative, equity or equity
index swap, equity or equity index option, bond option, spot
foreign exchange transaction'' after ``currency option''.
SEC. 302. AUTHORITY OF THE CORPORATION WITH RESPECT TO 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 following new subparagraphs:
``(F) Clarification.--No provision of law shall be
construed as limiting the right or power of the
Corporation, or authorizing any court or agency to
limit or delay, in any manner, the right or power of
the Corporation, to transfer any qualified financial
contract in accordance with paragraphs (9) and (10) or
to liquidate any such contract.
``(G) Undercapitalized insured depository
institutions.--The Corporation, in consultation with
the appropriate Federal banking agencies, shall
prescribe regulations requiring more detailed
recordkeeping with respect to qualified financial
contracts (including market valuations) by insured
depository institutions that are undercapitalized (as
defined in section 38).''.
SEC. 303. AMENDMENTS RELATING TO TRANSFERS OF QUALIFIED FINANCIAL
CONTRACTS.
Section 11(e)(10) of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(10)) is amended--
(1) by redesignating subparagraph (B) as subparagraph (E);
(2) by inserting after subparagraph (A) the following new
subparagraphs:
``(B) Effect of notice.--If a conservator or
receiver for an insured depository institution in
default has taken steps reasonably calculated to
provide notice, pursuant to subparagraph (A), to any
person by the close of business (local time) on the
business day following the appointment of the
conservator or receiver for such institution that the
conservator or receiver has transferred, pursuant to
paragraph (9)(A), all qualified financial contracts
between the depository institution and such person, or
any affiliate of such person, paragraph (8)(A) shall
not apply with respect to such person or affiliate in
connection with any such contract.
``(C) Treatment of bridge banks.--If a bridge bank
or other institution is organized by the Corporation
and a conservator is appointed for such bank or
institution--
``(i) immediately upon the organization of
the bank or institution; or
``(ii) at the time of a purchase and
assumption transaction between such bank or
institution and a failed depository institution
for which the Corporation has been appointed
receiver,
the bridge bank or other institution shall not be
considered a depository institution in default for
purposes of this paragraph and paragraphs (8) and
(9).''.
SEC. 304. CLARIFYING AMENDMENT RELATING TO MASTER AGREEMENTS.
Section 11(e)(8)(D)(vii) of the Federal Deposit Insurance Act (12
U.S.C. 1821(e)(8)(D)(vii)) is amended to read as follows:
``(vii) Treatment of master agreement as 1
swap agreement.--Notwithstanding any other
provision of law, any master agreement for any
contract or agreement 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 paragraph.''.
SEC. 305. TECHNICAL AMENDMENTS RELATING TO QUALIFIED FINANCIAL
CONTRACTS.
(a) Definition of Qualified Financial Contract.--Section
11(e)(8)(D) of the Federal Deposit Insurance 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 inserting
``(25)''; and
(3) in clause (v), by striking ``101(41)'' and inserting
``101(47)''.
(b) Limitation on Rights of Counterparties in Event of Default Due
to Appointment of a Conservator.--Section 11(e)(8)(E)(i) of the Federal
Deposit Insurance Act (12 U.S.C. 1821(e)(8)(E)(i)) is amended by
inserting ``, other than a default based solely upon the appointment of
a conservator'' before the semicolon at the end.
TITLE IV--INTERNATIONAL REGULATORY COOPERATION
SEC. 401. STUDY OF INTERNATIONAL REGULATION AND SUPERVISION OF
DERIVATIVES ACTIVITIES OF FINANCIAL INSTITUTIONS.
(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 derivatives
activities of financial institutions.
(b) Goals of Study.--The goals of the study as proposed by the
Secretary of the Treasury pursuant to subsection (a) with respect to
derivatives activities of financial institutions 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 derivatives 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 with respect to derivatives activities of financial
institutions 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 worldwide derivatives 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 derivatives
activities.
(d) Utilization of Information and Resources.--The Secretary of the
Treasury shall propose that, in conducting the study under this section
with respect to derivatives activities of financial institutions, 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;
(2) to the extent feasible, obtain and use information from
the International Monetary Fund, the Bank for International
Settlements, and other multilateral organizations; and
(3) utilize all available information and conclusions from
studies conducted by any multilateral organization, central
bank, or any group consisting of representatives of major
industrialized countries.
SEC. 402. INTERNATIONAL NEGOTIATIONS.
The Chairman of the Board of Governors of the Federal Reserve
System and the Comptroller of the Currency shall encourage central
banks, and regulatory authorities of the other industrialized countries
to work toward maintaining and, where appropriate, adopting comparable
supervisory standards and regulations, particularly capital standards,
for financial institutions engaged in derivatives activities.
TITLE V--GAO STUDY
SEC. 501. STUDY OF SPECULATION AND MARGIN AND COLLATERAL REQUIREMENTS
WITH RESPECT TO DERIVATIVES ACTIVITIES OF FINANCIAL
INSTITUTIONS.
(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 by financial institutions and
the feasibility of imposing margin and collateral requirements
on speculative transactions engaged in by financial
institutions which involve 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 financial institutions
use the various classes of derivative financial instruments to
engage in speculation for the institution's own trading
account; and
(3) determine the extent to which financial institutions
engage in derivatives activities involving the various classes
of derivative financial instruments with speculators.
(c) Issues Involving Margin and Collateral Requirements.--In
conducting the study under subsection (a)(1), the Comptroller General
shall--
(1) determine which classes of derivative financial
instruments are subject to margin and collateral requirements
and the amount and purpose of the margin and collateral
requirement;
(2) determine the extent to which the transactions of
financial institutions which involve any class of derivative
financial instruments are conducted over the counter and
evaluate the feasibility of imposing margin and collateral
requirements on such transactions;
(3) evaluate the feasibility of imposing margin and
collateral requirements on any class of derivative financial
instruments which were acquired or taken for speculative
purposes; and
(4) evaluate the competitive impact of imposing margin and
collateral requirements on the various classes of derivative
financial instruments which were acquired or taken for
speculative purposes.
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HR 4503 IH----2
HR 4503 IH----3