[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[S. 3505 Introduced in Senate (IS)]

<DOC>






114th CONGRESS
  2d Session
                                S. 3505

    To require analysis of various bankruptcy proposals in order to 
determine whether those proposals would reduce systemic risk and moral 
                    hazard, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            December 6, 2016

Mr. Reed (for himself, Mr. Brown, Mr. Merkley, Mr. Whitehouse, and Mr. 
  Blumenthal) introduced the following bill; which was read twice and 
               referred to the Committee on the Judiciary

_______________________________________________________________________

                                 A BILL


 
    To require analysis of various bankruptcy proposals in order to 
determine whether those proposals would reduce systemic risk and moral 
                    hazard, 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 ``Bankruptcy Fairness Act of 2016''.

SEC. 2. DEFINITIONS.

    In this Act--
            (1) the term ``analytical work'' means an article, a 
        thesis, a study, testimony, a speech, or a report that--
                    (A) is written, given, or conducted by--
                            (i) a Federal or State agency;
                            (ii) a Federal Government or State 
                        government official;
                            (iii) a policy organization;
                            (iv) a professional association;
                            (v) an academic;
                            (vi) a bankruptcy judge, trustee, or 
                        examiner;
                            (vii) a working group;
                            (viii) a commission; or
                            (ix) a person, entity, or body similar to 
                        those described in clauses (i) through (viii); 
                        and
                    (B) contains an analysis of, and conclusions or 
                recommendations with respect to, a particular topic;
            (2) the term ``avoidance action safe harbor'' means 
        subsections (e), (f), (g), (h), and (j) of section 546 of the 
        Bankruptcy Code;
            (3) the term ``bank holding company'' has the meaning given 
        the term in section 102 of the Financial Stability Act of 2010 
        (12 U.S.C. 5311);
            (4) the term ``Bankruptcy Code'' means title 11, United 
        States Code;
            (5) the term ``bridge company'' means a bridge company 
        that--
                    (A) management may create under the proposed 
                subchapter; and
                    (B) has no assets and no liabilities;
            (6) the term ``business judgment rule'' means the standard 
        to which a trustee or debtor in possession is typically held in 
        a bankruptcy case in determining whether the assumption, or 
        assumption and assignment, of an executory contract under 
        section 365 of the Bankruptcy Code is in the best interests of 
        creditors and the estate;
            (7) the term ``collateral haircut'' means the difference 
        between the market value of an asset that is used as loan 
        collateral and the amount of that loan;
            (8) the term ``committees of jurisdiction'' means--
                    (A) the Committee on Banking, Housing, and Urban 
                Affairs of the Senate;
                    (B) the Committee on the Judiciary of the Senate;
                    (C) the Committee on Financial Services of the 
                House of Representatives; and
                    (D) the Committee on the Judiciary of the House of 
                Representatives;
            (9) the term ``Council'' means the Financial Stability 
        Oversight Council;
            (10) the term ``financial company'' has the meaning given 
        the term in section 201(a) of the Dodd-Frank Wall Street Reform 
        and Consumer Protection Act (12 U.S.C. 5381(a));
            (11) the term ``hypothetical bank holding company'' means a 
        fictional bank holding company that has--
                    (A) a corporate organizational structure typical of 
                the business structure of the 6 largest bank holding 
                companies based in the United States, as measured by 
                balance sheet assets on December 31, 2016, the holdings 
                of which include commercial banking, capital markets, 
                global asset management, and transaction services;
                    (B) assets and liabilities representing the median 
                of the assets and liabilities held by the 6 largest 
                bank holding companies based in the United States, as 
                measured by balance sheet assets on December 31, 2016; 
                and
                    (C) a global derivatives trading book representing 
                the median of the gross notional value of the 6 largest 
                bank holding companies based in the United States, as 
                measured by balance sheet assets on December 31, 2016;
            (12) the term ``management'' means the officers and members 
        of the board of directors of a financial company;
            (13) the term ``master netting agreement'' means an 
        agreement providing for--
                    (A) the netting of amounts due between or among the 
                parties to 2 or more qualified financial contracts on 
                periodic reset dates; and
                    (B) the exercise of rights, including rights of 
                netting, setoff, liquidation, termination, 
                acceleration, or close out, under 1 or more qualified 
                financial contracts upon the occurrence of an event of 
                default;
            (14) the term ``MBS repurchase agreement'' means a 
        repurchase agreement that provides for the transfer of 1 or 
        more--
                    (A) mortgage related securities;
                    (B) mortgage loans; or
                    (C) interests in mortgage related securities or 
                mortgage loans;
            (15) the term ``mortgage related security'' has the meaning 
        given the term in section 3(a) of the Securities Exchange Act 
        of 1934 (15 U.S.C. 78c(a));
            (16) the term ``Office'' means the Office of Financial 
        Research;
            (17) the term ``primary financial regulatory agency'' has 
        the meaning given the term in section 2 of the Dodd-Frank Wall 
        Street Reform and Consumer Protection Act (12 U.S.C. 5301);
            (18) the term ``proposed subchapter'' means a hypothetical 
        new subchapter to chapter 11 of the Bankruptcy Code that 
        includes provisions specifically applicable to a financial 
        company bankruptcy and permits--
                    (A) management to file, on behalf of the financial 
                company controlled by management, a petition under the 
                Bankruptcy Code;
                    (B) management to create a bridge company;
                    (C) management to supervise the drafting of the 
                governing documents for the bridge company;
                    (D) management to propose the initial directors and 
                senior officers of the bridge company;
                    (E) not later than 48 hours after the filing of the 
                petition, the assets of the financial company to be 
                transferred to the bridge company if the bankruptcy 
                court has determined that--
                            (i) such a transfer is in the best 
                        interests of the bankruptcy estate of the 
                        financial company; and
                            (ii) the bridge company is not likely to 
                        fail to meet the obligations of any debt, 
                        executory contract, qualified financial 
                        contract, or unexpired lease that the bridge 
                        company has assumed;
                    (F)(i) if the bankruptcy court makes the 
                determinations described in subparagraph (E), the 
                bridge company to agree--
                            (I) to honor, forever, the obligations of 
                        the financial company under all of its 
                        qualified financial contracts;
                            (II) to pay in full all the claims of any 
                        person that has a qualified financial contract 
                        with the financial company; and
                            (III) to pay in full the claims of 
                        undersecured creditors of the financial company 
                        that have even a small amount of collateral; or
                    (ii) if the bankruptcy court is unable to make both 
                of the determinations described in subparagraph (E), 
                all qualified financial contracts and master netting 
                agreements of the financial company to be terminated 
                immediately;
                    (G) management--
                            (i) to leave behind in the financial 
                        company bankruptcy estate the claims of all 
                        creditors, including employees, suppliers, 
                        service providers, and fraud claimants, that 
                        have no collateral and no qualified financial 
                        contracts with the financial company; and
                            (ii) to provide the creditors described in 
                        clause (i) with, instead of a cash payment, an 
                        equity interest in the bridge company that is 
                        payable only after all of the claims described 
                        in subparagraph (F) have been paid in full;
                    (H) the bridge company to be placed under the 
                control of a special trustee proposed by management, 
                over whose activities the bankruptcy court has no 
                jurisdiction;
                    (I) the 20 largest unsecured creditors of the 
                financial company to receive notice of only 24 hours 
                that the events described in subparagraphs (A) through 
                (H) will occur;
                    (J) the smaller creditors of the financial company, 
                including the employees, suppliers, service providers, 
                and fraud claimants of the financial company, to 
                receive no notice that the events described in 
                subparagraphs (A) through (H) will occur; and
                    (K) management to avoid being held liable for most 
                actions taken in connection with the filing, including 
                the actions described in subparagraphs (A) through (H);
            (19) the term ``proposed subchapter with title II 
        repealed'' means the proposed subchapter, assuming that title 
        II, including the prohibition against taxpayer funding of the 
        liquidation of a financial company under section 214 of that 
        title (12 U.S.C. 5394), has been repealed;
            (20) the term ``qualified financial contract'' means--
                    (A) a commodity contract, commodity option, foreign 
                future, or leverage transaction, as those terms are 
                defined in section 761 of the Bankruptcy Code;
                    (B) a forward contract, master netting agreement, 
                repurchase agreement, or swap agreement, as those terms 
                are defined in section 101 of the Bankruptcy Code; or
                    (C) a securities contract, as that term is defined 
                in section 741 of the Bankruptcy Code;
            (21) the term ``regulatory capital'' means the amount of 
        capital that a bank holding company is required by its primary 
        financial regulatory agency to hold on its balance sheet;
            (22) the term ``repurchase agreement'' has the meaning 
        given the term in section 101 of the Bankruptcy Code;
            (23) the term ``safe harbor'' means--
                    (A) the avoidance action safe harbor; and
                    (B) the termination and liquidation safe harbor;
            (24) the term ``termination and liquidation safe harbor'' 
        means--
                    (A) paragraphs (6), (7), (17), and (27) of section 
                362(b) of the Bankruptcy Code; and
                    (B) sections 555, 556, 559, 560, and 561 of the 
                Bankruptcy Code;
            (25) the term ``title II'' means title II of the Dodd-Frank 
        Wall Street Reform and Consumer Protection Act (12 U.S.C. 5381 
        et seq.); and
            (26) the term ``Treasury repurchase agreement'' means a 
        repurchase agreement that provides for the transfer of 
        securities that are direct obligations of, or that are fully 
        guaranteed by, the United States.

SEC. 3. JUDICIAL EXPERTISE IN COMPLEX FINANCIAL MATTERS AND BANKRUPTCY 
              COURT PROCESSES FOR FINANCIAL COMPANIES.

    (a) Recommendations and Report.--The Director of the Administrative 
Office of the United States Courts, the Director of the Executive 
Office for United States Trustees, and the Director of the Federal 
Judicial Center shall jointly, in consultation with the Council and the 
Office--
            (1) develop, and periodically update, recommendations with 
        respect to--
                    (A) the type of expertise that would enable a judge 
                to oversee more effectively the resolution of a 
                financial company under the Bankruptcy Code in a manner 
                that prevents adverse impacts on financial stability in 
                the United States without creating moral hazard; and
                    (B) a process for ensuring that a sufficient number 
                of bankruptcy and district court judges--
                            (i) develop and maintain the level of 
                        expertise described in subparagraph (A); and
                            (ii) are available in each circuit to 
                        preside over cases that involve financial 
                        companies;
            (2) identify, and periodically update the identification 
        of--
                    (A) provisions in the Bankruptcy Code and the 
                Federal Rules of Bankruptcy Procedure that--
                            (i) increase the severity of the failure of 
                        a financial company;
                            (ii) complicate or impede the resolution of 
                        a financial company;
                            (iii) unfairly increase the risk of loss by 
                        ordinary creditors of a financial company;
                            (iv) shift the costs of the resolution of a 
                        financial company, or the risks of loss in such 
                        a resolution, away from persons that are in a 
                        position to prevent or reduce such 
                        complications, impediments, risks, or costs;
                            (v) decrease the likelihood that a 
                        financial company will be able to obtain enough 
                        private financing to emerge successfully from 
                        bankruptcy without the need for a taxpayer 
                        bailout or other government financial 
                        assistance; or
                            (vi) otherwise pose a threat to financial 
                        stability in the United States;
                    (B) amendments to the Bankruptcy Code, the Federal 
                Rules of Bankruptcy Procedure, and other statutes and 
                procedural rules that could help prevent or mitigate 
                the complications, impediments, risks, and costs 
                described in subparagraph (A); and
                    (C) ways in which financial companies and their 
                customers, investors, and counterparties could adjust 
                business practices to prevent or reduce the 
                complications, impediments, risks, and costs described 
                in subparagraph (A); and
            (3) not later than 1 year after the date of enactment of 
        this Act, and every other year thereafter, submit to the 
        committees of jurisdiction a report that sets forth 
        recommendations and issues that may help--
                    (A) facilitate further the resolution of a 
                financial company under the Bankruptcy Code; and
                    (B) prevent or mitigate risks to financial 
                stability in the United States.
    (b) Issuance of Rule.--Not later than 18 months after the initial 
report required under subsection (a)(3) is submitted, the Supreme Court 
of the United States, in consultation with the Council, the Office, the 
Director of the Administrative Office of the United States Courts, and 
the Director of the Executive Office for United States Trustees, shall 
issue a rule under section 2075 of title 28, United States Code, that 
provides for the orderly appointment, by the chief judge of the court 
of appeals for the circuit embracing the district in which a financial 
company has filed a petition, of a bankruptcy judge or district court 
judge having expertise in the resolution of financial companies under 
the Bankruptcy Code.

SEC. 4. ROLE OF REGULATORS IN FINANCIAL COMPANY BANKRUPTCY CASES.

    The Bankruptcy Code is amended--
            (1) in section 101, by inserting after paragraph (21B) the 
        following:
            ``(21C) The term `financial company' has the meaning given 
        the term in section 201(a) of the Dodd-Frank Wall Street Reform 
        and Consumer Protection Act (12 U.S.C. 5381(a)).'';
            (2) in section 307--
                    (A) by striking ``The United States'' and inserting 
                the following:
    ``(a) In General.--The United States''; and
                    (B) by adding at the end the following:
    ``(b) Financial Companies.--The Board of Governors of the Federal 
Reserve System, the Federal Deposit Insurance Corporation, any primary 
financial regulatory agency of the debtor or an affiliate, and the 
Chairperson of the Financial Stability Oversight Council may raise and 
may appear and be heard on any issue in any case or proceeding under 
this title in which the debtor is a financial company.
    ``(c) Definition.--In this section, the term `primary financial 
regulatory agency' has the meaning given the term in section 2 of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 
5301).'';
            (3) in section 322(b)(1), by inserting ``, or any trustee 
        appointed under section 1104(f),'' after ``The United States 
        trustee''; and
            (4) in section 1104--
                    (A) in subsection (b)(1), in the first sentence, by 
                inserting ``subsection (f) and'' after ``as provided 
                in''; and
                    (B) by adding at the end the following:
    ``(f)(1) If the debtor is a financial company--
            ``(A) the Board of Governors of the Federal Reserve System 
        and the Federal Deposit Insurance Corporation, as soon as 
        practicable after the order for relief, shall submit a list of 
        5 disinterested persons that are qualified and willing to serve 
        as trustees in the case; and
            ``(B) the United States trustee shall appoint 1 of the 
        persons from the list submitted under subparagraph (A) to serve 
        as trustee in the case.
    ``(2) The residence and office requirements set forth in section 
321(a) shall not apply to a trustee appointed under this subsection.''.

SEC. 5. STUDIES AND REPORT.

    (a) In General.--Not later than 18 months after the date of 
enactment of this Act, and every 2 years thereafter, the Office, in 
consultation with the Council, authors of relevant analytical works, 
members drawn from the Financial Research Advisory Committee of the 
Office, and other relevant experts, shall submit to the committees of 
jurisdiction a report that contains--
            (1) a summary and evaluation of the relevant analytical 
        works published in the 10 years preceding the date of 
        submission of the report with respect to the issues described 
        in subsections (b) through (e);
            (2) a statement identifying which analytical works 
        described in paragraph (1) were prepared or paid for by a 
        person, organization, or entity that--
                    (A) has or had a financial interest in the subject 
                matter of the analytical work; or
                    (B) represents, has represented, or has received 
                funding or compensation from such a person, 
                organization, or entity; and
            (3) the results of each of the studies described in 
        subsections (b) through (e), including recommendations drawn 
        from--
                    (A) the original research conducted by the Office; 
                and
                    (B) the analytical work summarized and evaluated 
                under paragraph (1).
    (b) Bankruptcy Code Effectiveness Study.--The study described in 
this subsection shall--
            (1) analyze--
                    (A) the effectiveness of the Bankruptcy Code, as in 
                effect on the date the analysis is undertaken, in 
                facilitating the orderly resolution of a financial 
                company, including whether there are provisions in such 
                Code that--
                            (i) increase the likelihood or severity of 
                        failure of a financial company;
                            (ii) complicate or impede such a 
                        resolution;
                            (iii) pose risks to financial stability in 
                        the United States;
                            (iv) shift the costs of such a resolution, 
                        or the risks of loss in such a resolution, away 
                        from persons that are in a position to prevent 
                        or reduce such complications, impediments, or 
                        risks; or
                            (v) create the risk that such a resolution 
                        could safely occur only with financial support 
                        from the Federal Government;
                    (B) whether other amendments to the Bankruptcy 
                Code, as in effect on the date the analysis is 
                undertaken, could enhance the ability of the bankruptcy 
                court to resolve a financial company in a manner that 
                could minimize the risk of adverse impacts in financial 
                markets while--
                            (i) providing for fair distribution to 
                        creditors;
                            (ii) preserving financial stability in the 
                        United States; and
                            (iii) preventing moral hazard; and
                    (C) whether amendments to the Bankruptcy Code, as 
                in effect on the date the analysis is undertaken, and 
                other laws relating to insolvency to modify the 
                treatment of qualified financial contracts and master 
                netting agreements in future situations of insolvency 
                could reduce--
                            (i) losses in the value of the financial 
                        company and its assets;
                            (ii) losses to other parties in interest;
                            (iii) moral hazard; and
                            (iv) risks to financial stability in the 
                        United States;
            (2) in addition to the analyses required under paragraph 
        (1), analyze the impacts on--
                    (A) the ability of employees, other creditors, and 
                parties in interest to recover amounts owed;
                    (B) the behavior of counterparties and the economy 
                of the United States before a bankruptcy case is filed, 
                including the impacts during normal economic conditions 
                and during periods of financial stress on--
                            (i) the level of care and caution exercised 
                        before entering into qualified financial 
                        contracts;
                            (ii) the collateral haircuts applied to the 
                        products described in paragraph (3); and
                            (iii) the level of risk and leverage 
                        counterparties are willing to accept with 
                        respect to the products described in paragraph 
                        (3); and
                    (C) financial stability in the United States after 
                a bankruptcy case is filed;
            (3) in conducting the analysis required under paragraph (1) 
        and paragraph (2), separately consider the impact of and on--
                    (A) Treasury repurchase agreements;
                    (B) MBS repurchase agreements;
                    (C) securities lending agreements;
                    (D) interest rate swap agreements;
                    (E) foreign exchange forward agreements; and
                    (F) any type of qualified financial contract that 
                is not listed in subparagraphs (A) through (E) and 
                that--
                            (i) is cleared under section 2(h) of the 
                        Commodity Exchange Act (7 U.S.C. 2(h)) or 
                        section 3C of the Securities Exchange Act of 
                        1934 (15 U.S.C. 78c-3); or
                            (ii)(I) is not cleared under section 2(h) 
                        of the Commodity Exchange Act (7 U.S.C. 2(h)) 
                        or section 3C of the Securities Exchange Act of 
                        1934 (15 U.S.C. 78c-3); and
                            (II) with respect to which the termination 
                        of the quantity held by a hypothetical bank 
                        holding company, within the timeframe permitted 
                        under the bankruptcy laws in effect on the date 
                        the analysis is undertaken, could cause a 
                        negative impact, including a negative impact 
                        on--
                                    (aa) the price of the collateral;
                                    (bb) the termination value of the 
                                qualified financial contract; or
                                    (cc) the availability of liquidity 
                                to the bank holding company or a 
                                counterparty;
            (4) in conducting the analysis required under paragraphs 
        (1), (2), and (3), consider the impact on and of the qualified 
        financial products described in paragraph (3), separately 
        assuming that each category of qualified financial contract 
        described in paragraph (3) that may be terminated is 
        terminated--
                    (A) immediately upon the filing of a bankruptcy 
                petition;
                    (B) 14 days after the filing of a bankruptcy 
                petition;
                    (C) 30 days after the filing of a bankruptcy 
                petition;
                    (D) 180 days after the filing of a bankruptcy 
                petition; and
                    (E) on the earlier of--
                            (i) the date on which each qualified 
                        financial contract matures under its applicable 
                        non-default terms, assuming that the range of 
                        maturity dates is typical of the qualified 
                        financial contracts held by the hypothetical 
                        bank holding company; and
                            (ii) the date on which the nondebtor 
                        counterparty is no longer adequately protected, 
                        assuming that ``adequate protection'' means 
                        continued receipt of variation margin, as 
                        provided for by contract, and that the ability 
                        of the hypothetical bank holding company to 
                        provide such adequate protection is correlated 
                        with--
                                    (I) the initial margin and 
                                variation margin that such hypothetical 
                                bank holding company and its 
                                counterparty are likely to negotiate if 
                                the Bankruptcy Code is--
                                            (aa) as in effect on the 
                                        date of enactment of this Act; 
                                        and
                                            (bb) amended to eliminate 
                                        the right to terminate all 
                                        qualified financial contracts 
                                        immediately upon the petition 
                                        date; and
                                    (II) the quantity of debtor in 
                                possession financing that the 
                                hypothetical bank holding company is 
                                likely to be able to attract, as 
                                determined by the study conducted under 
                                subsection (d); and
            (5) based on the analyses performed under paragraphs (1) 
        through (4)--
                    (A) analyze how financial companies and their 
                customers, investors, and counterparties could adjust 
                their business practices if the safe harbors were no 
                longer available to counterparties;
                    (B) recommend any changes to the treatment of 
                qualified financial contracts and master netting 
                agreements by the Bankruptcy Code, as in effect on the 
                date the analysis is undertaken, that would--
                            (i) prevent potential risks to financial 
                        stability in the United States; and
                            (ii) help--
                                    (I) preserve value for distribution 
                                to creditors;
                                    (II) prevent fluctuations in asset 
                                prices; and
                                    (III) counterparties receive the 
                                benefit of the non-default terms of 
                                their qualified financial contracts; 
                                and
                    (C) recommend any other legislative or regulatory 
                changes that could help address any legislative or 
                regulatory gaps, vulnerabilities, or suggestions 
                identified by the analysis.
    (c) Bridge Company Study.--The study described in this subsection 
shall analyze the impact of the proposed subchapter on systemic risk, 
moral hazard, the availability of liquidity, the ability to reorganize 
successfully and restore profitability, and the ability to hold 
accountable the persons responsible for the failure of a financial 
company, with consideration given to--
            (1) the effects of severely limiting, by statute, the 
        ability to hold the board of directors of a financial company 
        accountable for actions relating to its failure and bankruptcy 
        filing;
            (2) the risks that may impede successful capitalization and 
        financing of the bridge company under the proposed subchapter 
        and the likelihood that such risks will prevent such 
        capitalization and financing within 48 hours of the 
        commencement of a bankruptcy;
            (3) the potential impact on financial stability in the 
        United States if a bankruptcy is commenced and capitalization 
        and financing of the bridge company cannot be successfully 
        completed within 48 hours;
            (4) the extent to which, if capitalization and financing of 
        the bridge company under the proposed subchapter does not 
        succeed within 48 hours--
                    (A) there is a means, under the proposed 
                subchapter, to prevent risk to financial stability in 
                the United States; and
                    (B) there would be a means, under the proposed 
                subchapter with title II repealed, to prevent risk to 
                financial stability in the United States;
            (5) whether requiring the bridge company to assume all 
        obligations under the qualified financial contracts of the 
        financial company, and requiring the bridge company to assume 
        the obligation to pay in full a secured claim where the value 
        of the collateral is less than the claim, may--
                    (A) leave the bridge company with inadequate 
                regulatory capital; or
                    (B) create a risk that the bridge company would be 
                unable to secure adequate capital and liquidity during 
                the timeframe and in the quantity in which such capital 
                and liquidity are needed to pay--
                            (i) the obligations assumed;
                            (ii) the operating expenses of the bridge 
                        company;
                            (iii) the fees and expenses of the special 
                        trustee; and
                            (iv) the debt service on the new financing;
            (6) whether the transfer to the bridge company of a 
        material part of the assets of the debtor, with less than 48 
        hours of notice given to a limited number of the creditors of 
        the debtor and parties in interest, and with no notice given to 
        other creditors and parties in interest, may--
                    (A) violate the due process rights of some of those 
                creditors or parties in interest; or
                    (B) expose the bridge company to potential 
                liability due to the lack of adequate notice to such 
                creditors or parties in interest;
            (7) whether, if there is a violation of due process rights 
        or the potential for successor liability, as described in 
        paragraph (6), there is a risk that the restructuring may not 
        be accomplished within 48 hours;
            (8) whether--
                    (A) in light of the failure of the predecessor of 
                the bridge company and the possibility of ongoing 
                issues in the operating entities transferred to the 
                bridge company, there is a risk that financial markets 
                may consider the bridge company unattractive as a 
                potential borrower or investment opportunity; and
                    (B) the bankruptcy filing, in the absence of 
                certainty of adequate financial support to ensure a 
                positive outcome, could disrupt financial markets;
            (9) whether the rights of all creditors whose claims are 
        not assumed by the bridge company, including the claims of 
        employees, suppliers, service providers, and fraud claimants of 
        the financial company, will be adequately represented in the 
        absence of--
                    (A) a secure source of funds to pay for the fees 
                and expenses of counsel to a creditors' committee 
                appointed under section 1102 of the Bankruptcy Code; 
                and
                    (B) bankruptcy court jurisdiction and supervision 
                over the bridge company and the special trustee's 
                management of the assets transferred to the bridge 
                company;
            (10) whether, under the proposed subchapter, 48 hours is a 
        sufficient amount of time to allow--
                    (A) a trustee of a financial company in bankruptcy 
                to--
                            (i) assess--
                                    (I) the future liquidity needs of 
                                the bridge company; and
                                    (II) the ability of the bridge 
                                company to access sufficient liquidity 
                                to meet such needs;
                            (ii) make informed decisions about--
                                    (I) which qualified financial 
                                contract portfolios the bridge company 
                                can reasonably expect to perform if the 
                                trustee's only choice is to assume or 
                                reject the qualified financial 
                                contracts of a given counterparty on an 
                                ``all or nothing'' basis;
                                    (II) the potential consequences of 
                                rejecting the qualified financial 
                                contracts of a given counterparty on 
                                financial stability in the United 
                                States if the trustee's only choice is 
                                to assume or reject the qualified 
                                financial contracts of a given 
                                counterparty on an ``all or nothing'' 
                                basis;
                                    (III) which encumbered assets may 
                                be transferred to the bridge company 
                                without triggering an obligation to pay 
                                an undersecured claim that is too large 
                                for the bridge company realistically to 
                                pay; and
                                    (IV) which qualified financial 
                                contracts may be assumed without 
                                triggering an obligation to pay an 
                                unsecured claim owed to the 
                                counterparty that is too large for the 
                                bridge company realistically to pay; 
                                and
                            (iii) assemble and fairly present evidence 
                        supporting the decisions described in clauses 
                        (i) and (ii) to the bankruptcy judge and other 
                        parties in interest; and
                    (B) a bankruptcy judge to hear and consider 
                sufficient evidence to make an informed decision with 
                respect to whether the actions proposed in clauses (i) 
                and (ii) of subparagraph (A)--
                            (i) are in the best interests of creditors; 
                        and
                            (ii) will not pose risks to financial 
                        stability in the United States;
            (11) if there is a risk that the bridge company 
        capitalization will not be accomplished successfully within 48 
        hours, the likely market and legal consequences, including--
                    (A) whether mass termination of the qualified 
                financial contracts could be avoided;
                    (B) whether an extended period of financial market 
                disruption is possible;
                    (C) what steps would be needed to contain the 
                potential fallout from the events described in 
                subparagraphs (A) and (B); and
                    (D) what legal authority exists to take the steps 
                that would be needed to contain the fallout described 
                in subparagraph (C);
            (12) with respect to the proposed subchapter with title II 
        repealed--
                    (A) whether repealing title II is an effective way 
                to prevent systemic risk and moral hazard;
                    (B) whether there would be an increased likelihood 
                of taxpayer bailouts in the absence of title II; and
                    (C) the effects of losing title II as a last resort 
                if--
                            (i) the financial company is unable to 
                        resolve itself under chapter 11 of the 
                        Bankruptcy Code; or
                            (ii) the bridge company is unable to repay 
                        all of the obligations assumed by the bridge 
                        company under the proposed subchapter; and
            (13) any other material issues with respect to the bridge 
        company that may pose a threat to--
                    (A) financial stability in the United States; or
                    (B) the laws, procedures, or regulations 
                established to prevent or mitigate risks to financial 
                stability in the United States.
    (d) Financing and Liquidity Study.--
            (1) In general.--The study described in this subsection 
        shall report on--
                    (A) the amount of liquidity needed by a 
                hypothetical bank holding company in bankruptcy, the 
                availability of private financing to fulfill that need, 
                and the likelihood of attracting that financing; and
                    (B) whether amending the Bankruptcy Code to permit 
                pre-arranging a debtor in possession financing facility 
                for a financial company, particularly a hypothetical 
                bank holding company, that is enforceable after the 
                filing of a bankruptcy petition, would--
                            (i) increase the level of certainty that 
                        the private financing described in subparagraph 
                        (A) would be available when needed;
                            (ii) pose risks to lenders of the private 
                        financing described in subparagraph (A) that 
                        could not be mitigated in advance by--
                                    (I) assessing the credit risk posed 
                                by the financial company;
                                    (II) taking and perfecting a 
                                security interest in collateral owned 
                                by the financial company;
                                    (III) limiting the size of a 
                                lender's exposure to a particular 
                                financial company; or
                                    (IV) taking any other steps similar 
                                to those described in subclauses (I) 
                                through (III);
                            (iii) pose risks to financial stability in 
                        the United States; or
                            (iv) have other effects.
            (2) Considerations.--In conducting the study required under 
        paragraph (1), the Office shall--
                    (A) project the amount of financing that the 
                trustee would need during the 2-year period immediately 
                following the petition date of a hypothetical bank 
                holding company--
                            (i) with an operating company that has 
                        suffered an unexpected loss of $10,000,000,000 
                        one week before the petition date due to fraud 
                        and a lack of internal controls; and
                            (ii) that, immediately before the loss 
                        described in clause (i), had exactly the 
                        minimum amount of regulatory capital and 
                        liquidity required;
                    (B) conduct a market survey of, and, if necessary, 
                use analytical techniques to determine, the potential 
                sources of private financing to cover the projected 
                shortfall, if any, under each set of conditions 
                established by the Board of Governors of the Federal 
                Reserve System under section 165(i)(1)(B)(i) of the 
                Financial Stability Act of 2010 (12 U.S.C. 
                5365(i)(1)(B)(i)) that is in effect on the date the 
                survey is conducted;
                    (C) based on the market survey conducted and, if 
                applicable, the analytical techniques used under 
                subparagraph (B), describe the amount of private 
                financing that is likely to be available to the 
                hypothetical bank holding company and the terms and 
                conditions under which it is likely to be available;
                    (D) describe the timeline and logistics for 
                obtaining the private financing described in 
                subparagraph (C), assuming that the need for such 
                financing became apparent at the time of the loss 
                described in subparagraph (A)(i);
                    (E) assess--
                            (i) the likelihood that the trustee will be 
                        successful in obtaining the amount of private 
                        financing needed, on terms that a hypothetical 
                        bank holding company can afford and within the 
                        timeframe in which such financing is needed--
                                    (I) under the circumstances 
                                described in subparagraph (A); and
                                    (II) in light of the results of the 
                                market survey and analytical techniques 
                                described in subparagraph (B); and
                            (ii) the potential risks that could prevent 
                        the trustee from obtaining the financing 
                        described in clause (i); and
                    (F) assess whether a bridge company with the 
                ability to pre-arrange private financing, as described 
                in paragraph (1)(B), would be able to obtain an 
                adequate amount of financing more easily than a 
                financial company that is a debtor under the provisions 
                of chapter 11 of the Bankruptcy Code that are in effect 
                on the date the analysis is undertaken.
            (3) Recommendations.--The study described in this 
        subsection shall contain recommendations regarding any 
        legislative or regulatory changes that are necessary or would 
        be helpful to address any gaps, vulnerabilities, or suggestions 
        identified in the study.
    (e) Master Netting Agreement Study.--
            (1) In general.--The study described in this subsection 
        shall analyze and report on whether, considering the size and 
        complexity of the master netting agreements of a hypothetical 
        bank holding company--
                    (A) the laws in effect on the date of enactment of 
                this Act with respect to assumption and assignment of 
                qualified financial contracts and master netting 
                agreements could pose risks to financial stability in 
                the United States;
                    (B) any risks described in subparagraph (A) could 
                be avoided or mitigated by changes in the law that 
                would--
                            (i)(I) require master netting agreements to 
                        be more limited in size and scope; and
                            (II) permit master netting agreements to be 
                        assigned to separate assignees;
                            (ii)(I) allow master netting agreements to 
                        remain as configured on the date of enactment 
                        of this Act, as long as a financial company is 
                        not in bankruptcy; and
                            (II) following a bankruptcy petition, if no 
                        qualified assignee were able to assume all 
                        obligations under a master netting agreement, 
                        or if such an assignment would pose systemic 
                        risk, allow the trustee to--
                                    (aa) divide qualified financial 
                                contracts that are under a single 
                                master netting agreement into groups 
                                based on product type and level of 
                                risk; and
                                    (bb) assign the qualified financial 
                                contracts that have been divided as 
                                described in item (aa) to separate 
                                assignees; or
                    (iii) permit or require other actions; and
                    (C) there is an alternative means of assuming and 
                assigning, or winding down, the qualified financial 
                contracts and master netting agreements of the 
                hypothetical bank holding company without posing risks 
                to financial stability in the United States.
            (2) Considerations.--In conducting the study required under 
        paragraph (1), the Office shall separately model and quantify 
        the potential direct and indirect economic consequences, 
        including the consequences described in subparagraphs (B), (C), 
        and (G) of section 203(a)(2) of the Dodd-Frank Wall Street 
        Reform and Consumer Protection Act (12 U.S.C. 5383(a)(2)), of 
        the disposition of the master netting agreements typical of 
        those of a hypothetical bank holding company under each of the 
        5 scenarios described in paragraph (3).
            (3) Scenarios.--The 5 scenarios described in this 
        subparagraph are as follows:
                    (A) The Bankruptcy Code, as in effect on the date 
                of enactment of this Act, remains in effect and the 
                course of dealing among bank holding companies is 
                similar to that commonly in practice on December 31, 
                2016, including the following conditions:
                            (i) The trustee or receiver for a 
                        hypothetical bank holding company may not 
                        assume, or assume and assign, the qualified 
                        financial contracts or master netting 
                        agreements of the hypothetical bank holding 
                        company to a third party because those 
                        contracts are considered financial 
                        accommodations under section 365(c)(2) of the 
                        Bankruptcy Code.
                            (ii) Because of the safe harbors, 
                        counterparties may, immediately upon the filing 
                        of the petition--
                                    (I) liquidate, terminate, and 
                                accelerate qualified financial 
                                contracts and master netting 
                                agreements; and
                                    (II) retrieve their collateral.
                    (B) The facts are as provided in subparagraph (A), 
                except that--
                            (i) the Bankruptcy Code has been amended to 
                        allow for the assumption, but not the 
                        assignment, of qualified financial contracts 
                        and master netting agreements by a hypothetical 
                        bank holding company;
                            (ii) the choice of the hypothetical bank 
                        holding company is limited to assuming--
                                    (I) all of the qualified financial 
                                contracts and master netting agreements 
                                between the debtor and a particular 
                                counterparty; or
                                    (II) none of the qualified 
                                financial contracts or master netting 
                                agreements between the debtor and the 
                                counterparty described in subclause 
                                (I); and
                            (iii) the hypothetical bank holding company 
                        assumes all of the qualified financial 
                        contracts and master netting agreements without 
                        conducting an analysis of its future cash flow.
                    (C) The facts are as provided in subparagraph (B), 
                except that--
                            (i) the hypothetical bank holding company 
                        has sufficient liquidity to perform the 
                        obligations under only 2 of the 5 master 
                        netting agreements with the largest 
                        counterparties of the hypothetical bank holding 
                        company; and
                            (ii) any remaining master netting 
                        agreements would be terminated immediately.
                    (D) The facts are as provided in subparagraph (B), 
                except that--
                            (i) the Bankruptcy Code has been amended to 
                        allow the trustee or receiver for a 
                        hypothetical bank holding company to separately 
                        assign 1 or more of its master netting 
                        agreements to 1 or more third parties that have 
                        the ability to perform such master netting 
                        agreements; and
                            (ii) the number of third parties that would 
                        have the ability to perform, and be likely 
                        assignees of, the master netting agreement with 
                        1 of the 5 largest counterparties of the 
                        hypothetical bank holding company, based on 
                        gross notional amount as of December 31, 2016, 
                        is similar to the number of parties that would 
                        have the ability to perform and would be 
                        interested in assuming such master netting 
                        agreements under each set of economic 
                        conditions established by the Board under 
                        section 165(i)(1)(B)(i) of the Financial 
                        Stability Act of 2010 (12 U.S.C. 
                        5365(i)(1)(B)(i)) that is in effect on the date 
                        the study is conducted.
                    (E) The facts are as provided in subparagraph (B), 
                except that--
                            (i) the Bankruptcy Code has been amended to 
                        allow the trustee for a hypothetical bank 
                        holding company to divide the qualified 
                        financial contracts under each master netting 
                        agreement into several smaller groups, each of 
                        which--
                                    (I) contains 1 product class and, 
                                within that product class, 1 risk 
                                level; and
                                    (II) may be separately--
                                            (aa) assumed;
                                            (bb) assumed and assigned; 
                                        or
                                            (cc) rejected; and
                            (ii) the potential assignees are similar to 
                        the parties that would have the ability to 
                        perform, and would be likely interested 
                        purchasers, of such group under each set of 
                        economic conditions established by the Board 
                        under section 165(i)(1)(B)(i) of the Financial 
                        Stability Act of 2010 (12 U.S.C. 
                        5365(i)(1)(B)(i)) that is in effect on the date 
                        the study is conducted.
            (4) Factors.--In conducting the study required under this 
        subsection, the Office shall analyze factors that include--
                    (A) the data needed to determine whether the 
                qualified financial contracts under each master netting 
                agreement are in the money or out of the money, 
                including--
                            (i) the contractual terms of the master 
                        netting agreements and qualified financial 
                        contracts of the debtor;
                            (ii) current market pricing, interest 
                        rates, foreign exchange rates, and similar 
                        data;
                            (iii) data on potential future market 
                        trends during the remaining term of the 
                        qualified financial contracts, taking into 
                        consideration potential short term market 
                        disruptions as a consequence of the conditions 
                        that led to the filing of a bankruptcy petition 
                        by the hypothetical bank holding company;
                            (iv) the existence, location, and format of 
                        the data described in clause (iii); and
                            (v) the legal authority of the trustee to 
                        access the data described in clause (iii);
                    (B) the data needed to determine whether the 
                qualified financial contracts under each master netting 
                agreement will be valuable to the reorganized debtor, 
                including--
                            (i) the proposed future business 
                        configuration, capitalization, borrowing 
                        capacity, and cash flow projections of the 
                        hypothetical bank holding company when it 
                        becomes a reorganized debtor; and
                            (ii) the ability of the trustee to service 
                        the qualified financial contracts and master 
                        netting agreements until the debtor is 
                        reorganized;
                    (C) the existence of systems architecture and 
                programs to analyze the data described in subparagraphs 
                (A) and (B) (in this paragraph referred to as ``the 
                systems and programs'') in order to draw the 
                conclusions necessary to exercise business judgment;
                    (D) the capacity of the systems and programs to 
                process the data described in subparagraphs (A) and 
                (B);
                    (E) the legal authority of the trustee to access 
                the systems and programs;
                    (F) the professional skills and quantity of 
                personnel needed to run the systems and programs and 
                draw conclusions from the data described in 
                subparagraphs (A) and (B), including the availability 
                of such personnel; and
                    (G) the amount of time needed for--
                            (i) gathering or developing the data 
                        described in subparagraphs (A) and (B);
                            (ii) identifying and retaining the 
                        personnel needed to run the systems and 
                        programs;
                            (iii) testing and running the systems and 
                        programs;
                            (iv) assembling the results of the data 
                        analysis;
                            (v) developing conclusions and 
                        recommendations based on the results described 
                        in clause (iv);
                            (vi) presenting and explaining the 
                        conclusions and recommendations described in 
                        clause (v) to the trustee;
                            (vii) determining whether assumption, 
                        assumption and assignment, or rejection of the 
                        qualified financial contracts and master 
                        netting agreements described in subparagraph 
                        (A)--
                                    (I) is consistent with the business 
                                judgment rule; and
                                    (II) even if consistent with the 
                                business judgment rule, could impact 
                                financial stability in the United 
                                States;
                            (viii) providing notice to creditors 
                        articulating how the trustee's determination 
                        under clause (vii) is consistent with the 
                        business judgment rule; and
                            (ix) allowing creditors a reasonable 
                        opportunity to review and object to the 
                        proposed course of action of the trustee.
            (5) Assumptions.--In conducting the study required under 
        this subsection, the Office shall assume that--
                    (A) except as otherwise expressly provided, the 
                laws in effect on the date of enactment of this Act 
                remain in effect;
                    (B) the qualified financial contract and master 
                netting agreement configurations that are typical in 
                the market on December 31, 2016, remain in effect; and
                    (C) the projected availability of financing and 
                liquidity to perform the master netting agreements 
                described in subparagraph (B) is consistent with the 
                amount determined to be available under subsection 
                (d)(2)(C).
            (6) Recommendations.--The study described in this 
        subsection shall contain recommendations regarding any 
        legislative or regulatory changes that could help address any 
        gaps or vulnerabilities identified in the study.
                                 <all>