[Congressional Record Volume 140, Number 93 (Monday, July 18, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: July 18, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mr. RIEGLE:
  S. 2291. A bill to separate certain activities involving derivative 
financial instruments from the insured deposits of insured depository 
institutions, to provide for regulatory coordination in the 
establishment of principles related to such activities, to provide 
enhanced regulatory oversight, and for other purposes; to the Committee 
on Banking, Housing, and Urban Affairs.


                  derivatives supervision act of 1994

  Mr. RIEGLE. Mr. President, today I rise to introduce the Derivatives 
Supervision Act of 1994. I offer this legislation as a means to achieve 
the appropriate supervision and regulation of the market for derivative 
instruments--a market that has grown since 1980 to more than $12 
trillion in notional amount--the amount of principal in the underlying 
assets. And that figure--as large as it is--does not even include 
exotic mortgage securities or other structured debt issues.
  A derivatives transaction is a contract whose value depends on--or 
derives from--the value of an underlying asset, reference rate or 
index. Derivatives, which can be customized through negotiation between 
counterparties or standardized contracts whose terms are fixed, are 
intended to provide cost-effective protection against risks associated 
with rate and price movements. Basically, derivatives allow the 
transfer of risks from parties less willing or able to manage the risks 
to parties more willing or able to handle them.
  According to the GAO, from 1989 to 1992, the total notional amount of 
derivatives has increased 145 percent. This growth has occurred because 
derivatives meet the needs of customers to manage the financial risks 
associated with their operations more efficiently. Yet there are danger 
signs on the horizon. The rapid growth of the derivative market itself 
reminds us that such growth in any given financial activity has 
historically been a warning sign and should be a source of concern. Add 
to the rate of growth the absolute size of this market and potential 
risks to the financial system become more apparent.
  The warning signs are there. In the past few months, there have been 
numerous reports of major losses stemming from derivatives use by a 
wide variety of firms, including--to name a few--Askin Capital 
Management, Proctor & Gamble, Air Products and Chemicals, Gibson 
Greeting Cards, Mead Corp., and an Atlantic Richfield employee fund. I 
will submit for the record several newspaper articles on some of these 
derivative losses. In recent years, managing the failures of 2 
financial firms--Drexel Burnham and Bank of New England--has been 
greatly complicated by their derivatives positions, although neither 
was a major dealer in derivatives. We have also seen liquidity problems 
develop in derivatives during periods of volatility, such as the 1987 
stock market crash and, more recently, as long-term interest rates have 
risen sharply. We cannot afford to wait to address this issue until 
some more dramatic crisis occurs.
  The Banking Committee's concern about risks associated with 
derivatives is long-standing. The FDIC Improvement Act of 1991 included 
provisions to improve the enforceability of netting contracts, which 
reduce the legal risks stemming from the failure of firms active in 
derivatives. That legislation also required regulators to increase 
capital standards for institutions with significant interest rate risk 
associated with derivatives or other instruments, and it required banks 
to limit their interbank credit exposures from derivatives and other 
sources. The committee worked hard to see that the Futures Trading 
Practices Act of 1992 included language reducing the legal risk in 
trading swaps and that the conference report requested a study of 
derivatives issues by the CFTC. In September 1992, I requested a study 
from the banking regulators on risks posed by the derivatives, 
including their recommendations for regulatory changes. These regulator 
reports were received by the Senate Banking Committee in January 1993. 
Further, over 2 years ago, I requested the GAO to study financial 
derivatives. This study was released just last month, offering numerous 
recommendations that have been included in the bill I am introducing 
today. Finally, I have repeatedly questioned the financial regulators 
about derivatives in their appearances before this Committee.
  The regulators have taken some useful steps. The OCC, last fall, 
called for an interagency task force on derivatives and issued a 
detailed circular to banks on acceptable risk management practices. At 
my suggestion the Treasury reconvened the President's Working Group on 
Financial Markets to consider derivatives issues. More recently 
Comptroller Ludwig said:

       Because of our increasing concern about the risks posed by 
     exotic and complex derivative instruments, we are looking at 
     whether they are appropriate for national banks and, if so, 
     to what extent they are appropriate.

  I applaud the regulators for moving on these initiatives and strongly 
encourage them to take other steps to coordinate their regulation and 
supervision of this market. But many regulatory gaps persist. As 
Comptroller Charles Bowsher testified just last month:

       If we don't get on top of this, then we run the risk of 
     crises in the future that could have been prevented.

  Let me detail just a few of my concerns. The current regulatory 
structure still does not require adequate disclosure about derivatives 
activities by dealers or by firms that are end users. I am very 
concerned that insured deposits are used to fund potentially 
speculative derivatives operations. I think it is dangerous to permit 
major derivatives dealer operations in firms with little or no Federal 
regulation or oversight. I am disappointed that we have not been able 
to achieve international acceptance of appropriate capital standards 
relating to derivatives for all major participants. And I am concerned 
that we have not adequately encouraged the formation of well-designed 
clearinghouses to reduce systemic risk.
  The bill I introduce today is a step in the direction of 
rationalizing and coordinating the regulation of derivatives. The 
Derivatives Supervision Act of 1994 prevents insured depository 
institutions from speculating in the derivatives market and imposes 
stringent controls on such institutions using derivatives for hedging 
or dealing. To protect the Federal deposit insurance funds, and the 
American taxpayer, insured depository institutions would be precluded 
from using exotic or especially complex derivative instruments.
  Since derivatives may offer ways of lowering risk, a bank holding 
company --but not a bank--would be permitted to establish a derivatives 
subsidiary that could engage in a full range of derivatives activities. 
The capital in the derivatives subsidiary could not be used to satisfy 
the capital requirements of the bank holding company, in the same 
manner that the capital of a securities subsidiary of a bank holding 
company may not be counted towards the required capital of the bank 
holding company.
  Further, to fill some of the regulatory gaps, this bill establishes 
the Securities and Exchange Commission as the Federal regulator for any 
major dealer in derivatives such as subsidiaries of broker-dealers or 
insurance firms that are not otherwise regulated at the Federal level. 
This regulatory reform is needed to resolve one of the larger flaws 
with the current regulatory system noted by the GAO in its recent 
report: due to the complexity and patchwork nature of our financial 
regulatory system, some very large derivative dealers are not subject 
to the regulation or oversight of any Federal regulatory agency. By 
establishing the SEC as the Federal regulator, this serious regulatory 
gap is closed.
  Yet the regulatory structure remains flawed because so many different 
Federal financial regulators have jurisdiction over the derivatives 
activities of the institutions they regulate. Greater coordination and 
cooperation is necessary to ensure that derivatives activities are 
regulated similarly in different institutions. To achieve this goal, 
the Derivatives Supervision Act of 1994 requires the Federal financial 
institution regulatory agencies jointly to establish principles and 
standards related to capital, accounting, disclosure, suitability and 
other appropriate regulatory actions; develop minimum capital 
requirements that address credit risk, market risk, operational risk 
and legal risk; issue regulations that are consistent; and jointly 
develop a training program for examiners regarding derivative 
activities. The Federal financial institution regulatory agencies are: 
The Office of the Comptroller of the Currency, the Federal Reserve, the 
Federal Deposit Insurance Corporation, the Office of Thrift 
Supervision, the National Credit Union Administration, the Securities 
and Exchange Commission, the Commodity Futures Trading Commission, the 
Office of Federal Housing Enterprise Oversight, and the Federal Housing 
Finance Board.
  In this bill, regulators would be given authority to define the range 
of derivatives activities covered. They would include, in addition to 
financial options, futures, and forwards; instruments that embody 
similar characteristics, such as exotic structural debt and mortgage 
backed securities.
  In addition to separating certain derivative activities from insured 
deposits, providing for greater regulatory coordination, and providing 
that the SEC regulate the currently unregulated major dealers in 
derivatives, my bill contains several other key provisions.
  In order to help regulators better understand the derivative 
activities of the institutions they regulate, the bill requires that 
insured depository institutions, Fannie Mae, Freddie Mac, the Federal 
Home Loan Banks and major dealers disclose certain specified 
quantitative information with respect to their derivative instruments.
  In addition, the act addresses the gap in the understanding of these 
instruments that often exists between the boards of directors of the 
participants in these markets and the creators and dealers of these 
instruments. In 1992, Gerald Corrigan, then president of the New York 
Federal Reserve Bank, said:

       I hope this sounds like a warning because it is. Off-
     balance sheet activities have a role, but they must be 
     managed and controlled carefully * * * by top management, as 
     well as by traders and rocket scientists.

  Accordingly, the act requires that insured institutions, Government 
sponsored enterprises, and major dealers prepare, as part of their 
internal controls structure, a management plan that sets forth certain 
specified information, such as the purpose of the holdings in 
derivative instruments and the accounting methods that are used to 
value them. The management plan must require that derivative activities 
be conducted with direct oversight by appropriate senior executive 
officers. And, the boards of directors of these institutions must 
periodically review compliance with their institution's management 
plan.
  Another significant concern about derivatives is that through their 
misuse, or as a result of the increased linkages across markets and 
between firms, derivatives could lead to or exacerbate a systemic 
failure in financial markets. As Federal Reserve Chairman Alan 
Greenspan told the Banking Committee just a few weeks ago:

       [D]erivatives essentially arbitrage the primary markets 
     around the world, pull them together. And what that means is 
     that if an unrelated [disaster] occurs * * * the capability 
     of that horrendous problem escalating throughout the 
     financial system more quickly than before is clearly there as 
     a consequence of the improved efficiency.

  Accordingly, the act requires the regulators to address these 
systemic risks by providing markets with the proper incentives to form 
clearinghouses, reduce the buildup of intraday liabilities, and reduce 
settlement times.
  Finally, the act takes a significant step toward the establishment of 
greater international coordination in the regulation and supervision of 
derivative instruments. It requires that the Chairman of the Federal 
Reserve, in consultation with the other Federal financial regulatory 
agencies, coordinate with the governments, central banks and regulatory 
authorities of other industrialized countries to work toward 
maintaining and, where appropriate, adopting comparable supervisory 
standards and regulations for financial institutions engaged in 
derivatives activities.
  Mr. President, the bill I am offering today goes a great distance 
toward protecting the deposit insurance fund--and taxpayers--from 
further crisis in the rapidly expanding and complex market in 
derivative instruments. I urge my colleagues to consider it carefully 
and lend it their support. Such protection is needed if we are going to 
place America's financial system on a sound regulatory footing for our 
generation and generations ahead.
  I ask unanimous consent that three newspaper articles on recent 
losses in the derivatives market, a summary of the bill, and the full 
text of the bill be included in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 2291

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Derivatives Supervision Act 
     of 1994''.

     SEC. 2. DEFINITIONS.

       For purposes of this Act, the following definitions shall 
     apply:
       (1) Appropriate federal banking agency.--The term 
     ``appropriate Federal banking agency'' has the same meaning 
     as in section 3 of the Federal Deposit Insurance Act.
       (2) Capitalization.--The terms ``adequately-capitalized'' 
     and ``well-capitalized'' have the same meanings as in section 
     38 of the Federal Deposit Insurance Act.
       (3) Dealer.--The term ``dealer'' means any person engaged 
     in the business of purchasing, selling, or engaging in 
     transactions involving derivative financial instruments for 
     its own account, through a broker or otherwise, for the 
     purpose of serving customers who are end-users or other 
     dealers.
       (4) Derivative financial instrument.--The term ``derivative 
     financial instrument'' means--
       (A) a qualified financial contract (as defined in section 
     11(e)(8) of the Federal Deposit Insurance Act); and
       (B) any other instrument which an appropriate Federal 
     financial institutions regulatory agency determines, by 
     regulation or order, to be a derivative financial instrument 
     for purposes of this Act.
       (5) Federal financial institutions regulatory agency.--The 
     term ``Federal financial institutions regulatory agency'' 
     means--
       (A) the Office of the Comptroller of the Currency;
       (B) the Board of Governors of the Federal Reserve System;
       (C) the Federal Deposit Insurance Corporation;
       (D) the Office of Thrift Supervision;
       (E) the National Credit Union Administration Board;
       (F) the Securities and Exchange Commission;
       (G) the Commodity Futures Trading Commission;
       (H) the Office of Federal Housing Enterprise Oversight; and
       (I) the Federal Housing Finance Board.
       (6) Hedging transaction.--The term ``hedging transaction'' 
     means any transaction involving a derivative financial 
     instrument if--
       (A) such transaction is entered into in the normal course 
     of business primarily--
       (i) to reduce risk of price change or currency fluctuations 
     with respect to other transactions entered into by the 
     institution, previously or simultaneously, to which the 
     derivative financial instrument transaction relates, either 
     individually or in the aggregate; or
       (ii) to reduce risk of interest rate changes with respect 
     to transactions entered into by the institution, previously 
     or simultaneously, to which the derivative financial 
     instrument transaction relates, either individually or in the 
     aggregate; and
       (B) before the close of the day on which such transaction 
     was entered into (or such earlier time as the appropriate 
     Federal financial regulatory agency may prescribe by 
     regulation), the regulated entity clearly identifies such 
     transaction as a hedging transaction.
       (7) Insured depository institution.--The term ``insured 
     depository institution'' has the same meaning as in section 3 
     of the Federal Deposit Insurance Act and includes an insured 
     credit union, as defined in section 101 of the Federal Credit 
     Union Act.
       (8) Major dealer.--The term ``major dealer'' means any 
     dealer whose ability to meet obligations as they become due 
     is potentially significant to the stability of financial 
     markets, as determined by the Federal financial institutions 
     regulators, based upon size, market share, and the extent of 
     linkages with other market participants.
       (9) Regulated entity.--The term ``regulated entity'' 
     means--
       (A) an insured depository institution;
       (B) a Federal Home Loan Bank, as defined in section 2 of 
     the Federal Home Loan Bank Act;
       (C) the Federal National Mortgage Association and any 
     affiliate thereof; and
       (D) the Federal Home Loan Mortgage Corporation and any 
     affiliate thereof.

     SEC. 3. LIMITATIONS ON DERIVATIVE ACTIVITIES.

       (a) General Prohibition.--Except as provided in subsection 
     (b), a regulated entity may not purchase, sell, or engage in 
     any transaction involving a derivative financial instrument 
     for the account of that entity.
       (b) Exceptions.--
       (1) Hedging transactions.--A regulated entity may purchase, 
     sell, or engage in any transaction involving a derivative 
     financial instrument for the account of that entity for the 
     purpose of engaging in a hedging transaction if such activity 
     involves a category of derivative financial instruments 
     approved by rule, regulation, or order of the appropriate 
     Federal financial regulatory agency for such purpose.
       (2) Dealing.--
       (A) Well-capitalized entities.--A well-capitalized insured 
     depository institution may purchase, sell, or engage in a 
     transaction involving a derivative financial instrument as a 
     dealer if such activity involves a category of derivative 
     financial instruments approved for such purpose by rule, 
     regulation, or order of the appropriate Federal banking 
     agency.
       (B) Adequately capitalized institutions.--An insured 
     depository institution or a Federal Home Loan Bank that is 
     adequately capitalized may purchase, sell, or engage in a 
     transaction involving a derivative financial instrument as a 
     dealer if--
       (i) the appropriate Federal financial institutions 
     regulatory agency determines that such activity by the 
     institution is in the public interest; and
       (ii) the category of such derivative financial instrument 
     has been approved for such purpose by any rule, regulation, 
     or order issued under subparagraph (A).
       (c) Prohibition Against Speculation.--Nothing in this 
     section shall be construed to authorize a regulated entity, 
     or any subsidiary of such entity, to purchase, sell, or 
     engage in a transaction involving a derivative financial 
     instrument for its own account for any speculative purpose.

     SEC. 4. REGULATORY COORDINATION.

       (a) Supervision by Federal Financial Institutions 
     Regulatory Agencies.--
       (1) In general.--The Federal financial institutions 
     regulatory agencies shall jointly establish principles and 
     standards related to capital, accounting, disclosure, 
     suitability, internal controls structures, and other 
     appropriate regulatory actions for the supervision of 
     regulated entities and major dealers engaged in activities 
     involving derivative financial instruments.
       (2) Development of minimum capital standards.--In 
     establishing principles, standards, or other regulatory 
     actions under paragraph (1), the Federal financial 
     institutions regulatory agencies shall jointly develop 
     minimum capital requirements (including the leverage ratio, 
     if appropriate) to guard against risks that may be posed by 
     regulated entities and major dealers engaged in activities 
     involving derivative financial instruments, including--
       (A) credit risk;
       (B) market risk;
       (C) operational risk; and
       (D) legal risk.
       (3) Training.--The Federal financial institutions 
     regulatory agencies shall jointly sponsor training programs 
     concerning derivative financial instruments for examiners and 
     assistant examiners employed by the Federal financial 
     institutions regulatory agencies. Such training programs 
     shall be open to enrollment by employees of State financial 
     institutions supervisory agencies.
       (4) Confidential emergency management reporting.--
       (A) In general.--
       (i) Information on a nightly basis.--Not later than 1 year 
     after the date of enactment of this Act, the Federal 
     financial institutions regulatory agencies shall jointly 
     develop a means to obtain, on a nightly basis, all necessary 
     information from a regulated entity or a major dealer.
       (ii) Emergency need.--If any Federal financial institutions 
     regulatory agency determines that such agency needs the 
     information described in clause (i) as a result of adverse 
     market conditions or other emergency situations (as defined 
     by that agency), a regulated entity or a major dealer shall 
     provide such information to its appropriate Federal financial 
     institutions regulatory agency, as may be required by that 
     agency.
       (B) Confidentiality of information provided.--A Federal 
     financial institutions regulatory agency that receives 
     information pursuant to this paragraph with respect to any 
     regulated entity or major dealer may not provide such 
     information to any person or entity other than another 
     Federal financial institutions regulatory agency with 
     jurisdiction over that entity, dealer, or affiliate, without 
     the prior written approval of the appropriate Federal 
     financial institutions regulatory agency.

     SEC. 5. DISCLOSURE REQUIREMENTS.

       (a) Information Required To Be Included in Reports.--Any 
     report of condition or comparable document made by any 
     regulated entity or major dealer in accordance with any 
     applicable provision of law or with respect to any period 
     beginning after December 31, 1994, shall include the 
     following information:
       (1) Quantitative information with respect to all derivative 
     financial instruments.--
       (A) Gross notional and fair value.--The gross notional 
     value and the gross positive and negative fair values of 
     holdings, positions, or other interests of the regulated 
     entity or major dealer in any category of derivative 
     financial instrument.
       (B) Revenue, gains, and losses.--All revenue (identified by 
     source of revenue), gains, and losses of the institution 
     attributable to holdings, positions, or other interests of 
     the regulated entity or major dealer in any category of 
     derivative financial instrument.
       (C) Exposure under bilateral netting contract.--The net 
     current credit exposure of the regulated entity or major 
     dealer under legally enforceable bilateral arrangements with 
     respect to holdings, positions, or other interests of the 
     entity or dealer in any category of derivative financial 
     instrument.
       (D) Exposure to individual counterparties.--The exposure to 
     individual counterparties to any transaction involving 
     holdings, positions, or other interests of the regulated 
     entity or major dealer in any category of derivative 
     financial instrument. The Federal financial institutions 
     regulatory agencies shall determine, by regulation or order, 
     the nature and size of the individual counterparties for 
     which such information shall be required.
       (2) Terms to maturity.--Information on the remaining term 
     to maturity of holdings, positions, or other interests of the 
     regulated entity or major dealer in any category of 
     derivative financial instrument.
       (b) Reporting Requirement.--Information reported pursuant 
     to subsection (a) with respect to derivative financial 
     instruments traded or purchased on an exchange, and the 
     holdings, positions, or other interests in derivative 
     financial instruments which are the subjects of such trades, 
     shall be provided separately from information relating to 
     derivative financial instruments not traded or purchased on 
     an exchange, and the holdings, positions, or other interests 
     in derivative financial instruments which are the subjects of 
     such transactions.

     SEC. 6. MANAGEMENT CONTROLS.

       (a) Requirements Relating to Directors and Senior Executive 
     Officers.--
       (1) Management plan required with respect to all derivative 
     financial instruments.--A regulated entity or a major dealer 
     may not engage in activities involving derivative financial 
     instruments without, as part of its internal controls 
     structure, a management plan that--
       (A) sets forth--
       (i) the purpose of the holdings, positions, or other 
     interests of the regulated entity or major dealer in any 
     category of derivative financial instrument;
       (ii) how such holdings, positions, or other interests in 
     any category of derivative financial instrument is consistent 
     with the overall risk management plan of the regulated entity 
     or major dealer; and
       (iii) how the regulated entity or major dealer acquires 
     holdings, positions, and other interests in any category of 
     derivative financial instruments; and
       (B) describes the accounting methods used to value 
     holdings, positions, or other interests of the regulated 
     entity or major dealer in any category of derivative 
     financial instrument; and
       (C) requires that derivative financial instrument 
     activities are conducted with direct oversight by the 
     appropriate senior executive officers (as defined pursuant to 
     section 32(f) of the Federal Deposit Insurance Act) of the 
     regulated entity or major dealer.
       (2) Familiarity with risks required.--A regulated entity or 
     major dealer may not engage in any transaction involving a 
     derivative financial instrument unless the board of directors 
     of such entity or dealer periodically reviews compliance with 
     the management plan by the appropriate senior executive 
     officers.

     SEC. 7. ENFORCEMENT.

       (a) In General.--Each Federal financial institutions 
     regulatory agency may use the enforcement authority available 
     to that agency under other provisions of law to enforce the 
     provisions of sections 3 through 6 of this Act, and any 
     regulations promulgated in accordance with this Act, as the 
     agency determines to be appropriate.
       (b) Securities and Exchange Commission Enforcement 
     Authority.--The Securities Exchange Act of 1934 (15 U.S.C. 
     78a et seq.) is amended by inserting after section 21C the 
     following new section:


                   ``DERIVATIVE FINANCIAL INSTRUMENTS

       ``Sec. 21D. (a) Supervision by the Commission.--Any major 
     dealer whose activities involving derivative financial 
     instruments are not subject to regulation by a Federal 
     financial institutions regulatory agency under the 
     Derivatives Supervision Act of 1994, shall be subject to 
     appropriate regulation and enforcement by the Commission in 
     accordance with the authority provided to the Commission 
     under this title, and consistent with any principles, 
     standards, or other regulatory actions established in 
     accordance with the Derivatives Supervision Act of 1994.
       ``(b) Definitions.--For purposes of this section, the terms 
     `derivative financial instrument', `Federal financial 
     institutions regulatory agency', and `major dealer' have the 
     same meanings as in section 2 of the Derivatives Supervision 
     Act of 1994.''.

     SEC. 8. INTERNATIONAL COORDINATION.

       The Secretary of the Treasury and the Chairman of the Board 
     of Governors of the Federal Reserve System, in consultation 
     with the Federal financial institutions regulatory agencies, 
     shall encourage governments, central banks, and regulatory 
     authorities of other industrialized countries to work toward 
     maintaining and, where appropriate, adopting comparable 
     supervisory standards, regulations, and capital standards in 
     particular, for regulated entities and major dealers engaged 
     in activities involving derivative financial instruments.

     SEC. 9. BANK HOLDING COMPANIES.

       Section 3 of the Bank Holding Company Act of 1956 (12 
     U.S.C. 1842) is amended by adding at the end the following 
     new subsection:
       ``(h) Derivative Activities.--
       ``(1) In general.--A subsidiary of a bank holding company 
     may purchase, sell, or engage in any transaction involving a 
     derivative financial instrument for the account of that 
     subsidiary if it is not an insured depository institution or 
     a subsidiary of an insured depository institution.
       ``(2) Consolidated capital.--The capital of a subsidiary 
     engaged in activities described in paragraph (1) shall not be 
     included in the consolidated capital of its parent bank 
     holding company for the purpose of determining the compliance 
     of such bank holding company with any applicable capital 
     requirement.
       ``(3) Establishment of subsidiaries.--The Board shall 
     establish, by regulation, appropriate terms and conditions 
     for the establishment of a subsidiary referred to in 
     paragraph (1), consistent with any principles, standards or 
     other regulatory actions established under section 4 of the 
     Derivatives Supervision Act of 1994.
       ``(4) Definitions.--For purposes of this subsection--
       ``(A) the term `derivative financial instrument' means--
       ``(i) an instrument the value of which is derived from the 
     value of other assets, interest or currency exchange rates, 
     or indexes, including qualified financial contracts (as 
     defined in section 11(e)(8) of the Federal Deposit Insurance 
     Act); and
       ``(ii) any other instrument which an appropriate Federal 
     financial institutions regulatory agency determines, by 
     regulation or order, to be a derivative financial instrument 
     for purposes of this section; and
       ``(B) the term `Federal financial institutions regulatory 
     agency' has the same meaning as in section 2 of the 
     Derivatives Supervision Act of 1994.''.

     SEC. 10. SYSTEMIC RISK.

       (a) In General.--Not later than 18 months after the date of 
     enactment of this Act, the Federal financial institutions 
     regulatory agencies shall, in order to reduce the risk 
     associated with potential systemic financial market failure, 
     promulgate appropriate regulations to require regulated 
     entities and major dealers to--
       (1) increase use of clearinghouses and multilateral netting 
     agreements;
       (2) reduce intraday debit positions;
       (3) shorten intervals between financial transactions in 
     cash markets and their final settlement;
       (4) shorten intervals between delivery of and payment for 
     financial products; and
       (5) otherwise reduce payments and settlement risk.
       (b) Considerations.--In implementing this section, the 
     Federal financial institutions regulatory agencies shall 
     consider, as appropriate--
       (1) the costs imposed on or benefits granted to regulated 
     entities and major dealers by regulatory actions taken under 
     this section;
       (2) the public benefits of reducing systemic risk; and
       (3) the effects of any proposed action on the international 
     competitive position of United States financial institutions.
       (c) Effective Date of Regulations.--The regulations 
     promulgated under subsection (a) shall become effective 3 
     years after the date of enactment of this Act, and shall be 
     fully implemented 5 years after the date of enactment of this 
     Act.

     SEC. 11. REGULATORY CLARIFICATION AMENDMENTS.

       (a) Federal Deposit Insurance Act Amendments.--
       (1) Definitions of certain terms.--Section 11(e)(8)(D) of 
     the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)(D)) 
     is amended--
       (A) in clause (iv), by striking ``section 101(24)'' and 
     inserting ``section 101(25)'';
       (B) in clause (v)(I), by striking ``section 101(41)'' and 
     inserting ``section 101(47)'';
       (C) in clause (vi)(I)--
       (i) by inserting ``equity or equity index swap, equity or 
     equity index option, bond option,'' after ``commodity 
     swap,''; and
       (ii) by striking ``purchased'' each place it appears; and
       (D) by striking clause (vii) and inserting the following:
       ``(vii) Treatment of master agreement as 1 agreement.--Any 
     master agreement for any qualified financial contract, as 
     defined in clauses (i) through (vi) (or any master agreement 
     there for), together with all supplements thereto, shall be 
     treated as a single agreement and a single qualified 
     financial contract.''.
       (2) Default against corporation as conservator.--Section 
     11(e)(8)(E) of the Federal Deposit Insurance Act (12 U.S.C. 
     1821(e)(8)(E)) is amended--
       (A) by striking ``paragraph (12) of this subsection,''; and
       (B) by striking ``subsection (d)(9)'' and inserting 
     ``paragraph (10) of this subsection, subsections (d)(9) and 
     (n)(4)(I)''.
       (3) Notification of transfer; rights enforceable against 
     receiver or conservator.--Section 11(e)(10) of the Federal 
     Deposit Insurance Act (12 U.S.C. 1821(e)(10)) is amended--
       (A) in the heading, by inserting ``; rights enforceable 
     against conservator or receiver'' before the period;
       (B) by redesignating subparagraph (B) as subparagraph (C); 
     and
       (C) by striking subparagraph (A) and inserting the 
     following:
       ``(A) In general.--The receiver for an insured depository 
     institution in default shall notify any person who is a party 
     to a qualified financial contract, not later than 5:00 p.m. 
     (Eastern Time) on the business day following the appointment 
     of the receiver, of any transfer made by the receiver of the 
     assets and liabilities of such institution that includes such 
     qualified financial contract.
       ``(B) Certain rights not enforceable.--
       ``(i) Rights against a receiver.--A person who is a party 
     to a qualified financial contract with an insured depository 
     institution may not exercise any right such person may have 
     to net or close out such contract under paragraph (8)(A) of 
     this subsection, or section 403 or 404 of the Federal Deposit 
     Insurance Corporation Improvement Act of 1991, solely by 
     reason of the appointment of a receiver for the depository 
     institution (or insolvency or financial condition of the 
     institution for which the receiver is appointed)--

       ``(I) before 5:00 p.m. (Eastern Time) on the business day 
     following the appointment of the receiver; or
       ``(II) after the person has received notice that the 
     contract has been transferred pursuant to paragraph (9)(A).

       ``(ii) Timing of notification.--For purposes of clause 
     (i)(II), the Corporation, as receiver of an insured 
     depository institution, shall be deemed to have provided 
     notice if such notice was sent to the last address shown in 
     the records of the insured depository institution by the 
     means, if any, provided for in the subject qualified 
     financial contract, or by other means reasonably calculated 
     to reach that person not later than the time specified in 
     clause (i)(I).
       ``(iii) Rights against conservator.--A person who is a 
     party to a qualified financial contract with an insured 
     depository institution may not exercise any right such person 
     has to net or close out such contract under paragraph (8)(E) 
     of this subsection, or section 403 or 404 of the Federal 
     Deposit Insurance Corporation Improvement Act of 1991, solely 
     by reason of the appointment of a conservator for the insured 
     depository institution.''.
       (4) Agreements against interest of corporation.--Section 
     13(e) of the Federal Deposit Insurance Act (12 U.S.C. 
     1823(e)) is amended--
       (A) by inserting the following before ``No agreement'':
       ``(1) In general.--'';
       (B) by redesignating paragraphs (1) through (4) as 
     subparagraphs (A) through (D), respectively; and
       (C) by adding at the end the following new paragraph:
       ``(2) Exemptions from contemporaneous execution 
     requirement.--An agreement to provide for the lawful 
     collateralization of--
       ``(A) deposits of, or other credit extension by, a Federal, 
     State, or local governmental entity, including an agreement 
     to provide collateral in lieu of a surety bond;
       ``(B) bankruptcy estate funds pursuant to section 345(b)(2) 
     of title 11, United States Code;
       ``(C) extensions of credit, including any overdraft, from a 
     Federal Reserve Bank or Federal Home Loan Bank; or
       ``(D) a qualified financial contract, as defined in section 
     11(e)(8)(D);

     shall not be deemed to be invalid pursuant to subparagraph 
     (B) of paragraph (1) solely because such agreement was not 
     executed contemporaneously with the acquisition of the 
     collateral or because of pledges, delivery, and substitution 
     of the collateral made in accordance with such agreement.''.
       (b) Federal Deposit Insurance Corporation Improvement Act 
     Amendments.--Sections 403(a) and 404(a) of the Federal 
     Deposit Insurance Corporation Improvement Act of 1991 (12 
     U.S.C. 4403(a), 4404(a)) are each amended by striking ``other 
     provision of law'' each place such term appears, and 
     inserting ``provision of law, other than paragraphs (8)(E) 
     and (10)(B) of section 11(e) of the Federal Deposit Insurance 
     Act''.
       (c) Bankruptcy Code Amendments.--
       (1) Definitions.--Section 101 of title 11, United States 
     Code, is amended--
       (A) in paragraph (55)(A) (the first place paragraph (55) 
     appears)--
       (i) by inserting ``equity or equity index swap, equity or 
     equity index option, bond option,'' after ``basis swap,'';
       (ii) by inserting ``interest rate future,'' after 
     ``commodity swap,'';
       (iii) by striking ``forward foreign exchange'' and 
     inserting ``foreign exchange''; and
       (iv) by inserting ``currency future,'' after ``cross-
     currency rate swap agreement,'';
       (B) by redesignating paragraphs (54) through (57), the 
     second place those paragraphs appear, as paragraphs (58) 
     through (61), respectively;
       (C) in paragraph (60), as redesignated, by striking 
     ``and'';
       (D) in paragraph (61), as redesignated, by striking the 
     period at the end and inserting a semicolon; and
       (E) by adding at the end the following new paragraphs:
       ``(62) `master netting agreement' means an agreement 
     providing for the exercise of rights, including rights of 
     setoff, liquidation, termination, acceleration, or closeout, 
     in connection with one or more contracts with the debtor that 
     are described in paragraphs (1) through (5) of section 
     561(a); and
       ``(63) `master netting agreement participant' means an 
     entity that, at any time before the filing of the petition, 
     has an outstanding master netting agreement covering any of 
     the contracts described in section 561 with the debtor.''.
       (2) Automatic stay.--Section 362(b) of title 11, United 
     States Code, is amended--
       (A) in paragraph (13), by striking ``or'' at the end;
       (B) by redesignating paragraphs (15) and (16) as paragraphs 
     (16) and (17), respectively;
       (C) by redesignating paragraph (14), the second place such 
     paragraph appears, as paragraph (15); and
       (D) by amending paragraph (14) to read as follows:
       ``(14) under subsection (a), of the setoff by a swap 
     participant or master netting agreement participant of any 
     mutual debt and claim under or in connection with any swap 
     agreement or master netting agreement that constitutes the 
     setoff of a claim against the debtor for any payment due from 
     the debtor under or in connection with any such agreement 
     against--
       ``(A) any payment due to the debtor from such participant 
     under or in connection with any such agreement; or
       ``(B) cash, securities, or other property of the debtor 
     held by or due from such participant to guarantee, secure, or 
     settle any such agreement;''.
       (3) Limitations on avoiding powers.--Section 546(g) of 
     title 11, United States Code, is amended--
       (A) by inserting ``or a master netting agreement covering 
     any of the contracts described in section 561'' after ``under 
     a swap agreement'';
       (B) by inserting ``or a master netting agreement 
     participant'' after ``swap participant''; and
       (C) by inserting ``or any master netting agreement'' after 
     ``with a swap agreement''.
       (4) Fraudulent transfers and obligations.--Section 
     548(d)(2) of title 11, United States Code, is amended--
       (A) in subparagraph (C), by striking ``and'';
       (B) in subparagraph (D), by striking the period and 
     inserting ``; and''; and
       (C) by adding at the end the following new subparagraph:
       ``(E) a master netting agreement participant that receives 
     a transfer in connection with a master netting agreement 
     covering any of the contracts described in section 561 takes 
     for value to the extent of such transfer.''.
       (5) Contractual right to liquidate a securities contract.--
     Section 555 of title 11, United States Code, is amended--
       (A) in the section heading, by inserting ``, terminate, or 
     accelerate'' after ``liquidate''; and
       (B) in the first sentence, by inserting ``, termination, or 
     acceleration'' after ``liquidation''.
       (6) Contractual right to liquidate a commodities contract 
     or forward contract.--Section 556 of title 11, United States 
     Code, is amended--
       (A) in the section heading, by inserting ``, terminate, or 
     accelerate'' after ``liquidate''; and
       (B) in the first sentence, by inserting ``, termination, or 
     acceleration'' after ``liquidation''.
       (7) Contractual right to liquidate a repurchase 
     agreement.--Section 559 of title 11, United States Code, is 
     amended--
       (A) in the section heading, by inserting ``, terminate, or 
     accelerate'' after ``liquidate''; and
       (B) in the first sentence, by inserting ``, termination, or 
     acceleration'' after ``liquidation''.
       (8) Contractual right to liquidate a swap agreement.--
     Section 560 of title 11, United States Code, is amended--
       (A) in the section heading, by striking ``terminate'' and 
     inserting ``liquidate, terminate, or accelerate''; and
       (B) in the first sentence, by striking ``termination'' and 
     inserting ``liquidation, termination, or acceleration''.
       (9) Contractual right to terminate, liquidate, accelerate, 
     or offset a master netting agreement.--Chapter 5 of title 11, 
     United States Code, is amended by adding at the end the 
     following new section:

     ``Sec. 561. Contractual right to terminate, liquidate, 
       accelerate, or offset under a master netting agreement

       ``(a) In General.--Subject to subsection (b), the exercise 
     of any contractual right, because of a condition of the kind 
     specified in section 365(e)(1), to cause termination, 
     liquidation, acceleration, offset, or netting of values or 
     payment amounts arising under or in connection with one or 
     more--
       ``(1) securities contracts, as defined in section 741(7);
       ``(2) commodities contracts, as defined in section 761(4);
       ``(3) forward contracts;
       ``(4) repurchase agreements; or
       ``(5) swap agreements;

     under a master netting agreement covering such contracts 
     shall not be stayed, avoided, or otherwise limited by 
     operation of any provision of this title or by any order of a 
     court or administrative agency in any proceeding under this 
     title.
       ``(b) Exception.--A party may exercise a contractual right 
     described in subsection (a) only if that party could exercise 
     such a right under section 555, 556, 559, or 560 for each 
     individual contract covered by the master netting agreement 
     in issue.
       ``(c) Definition.--As used in this section, the term 
     `contractual right' includes a right, whether or not 
     evidenced in writing, arising under common law, under law 
     merchant, or by reason of normal business practice, a right 
     set forth in a rule or bylaw of a national securities 
     exchange, a national securities association or a securities 
     clearing agency, and a right set forth in a bylaw of a 
     clearing organization or contract market or in a resolution 
     of the governing board thereof.''.
       (9) Debts of a municipality.--Section 901(a) of title 11, 
     United States Code, is amended--
       (A) by inserting ``555, 556,'' after ``553,''; and
       (B) by inserting ``559, 560, 561'' after ``557,''.

     SEC. 12. REGULATIONS.

       Each of the Federal financial institutions regulatory 
     agencies shall issue consistent regulations governing 
     activities involving derivative financial instruments for the 
     purpose of implementing this Act.

     SEC. 13. EFFECTIVE DATES.

       (a) In General.--Except as provided in subsection (b), this 
     Act shall become effective 1 year after the date of enactment 
     of this Act.
       (b) Exception.--The amendments made by section 11 shall 
     become effective on the date of enactment of this Act.
                                  ____


                    For P.& G., a Bet That Backfired

                           (By Saul Hansell)

       It is eye catching, of course, when speculators like George 
     Soros, or banks like Bankers Trust, acknowledge that they 
     have lost millions of dollars by trading in the bond and 
     currency markets, but that is the business they are in.
       In many ways, it was far more surprising the Procter & 
     Gamble Company, the nation's premier maker of soap and 
     diapers, confessed yesterday that it would take a $102 
     million charge because of financial-market positions that 
     backfired when American and German interest rates rose 
     sharply.
       P.& G. is not a Wall Street firm, and its investors do not 
     expect the volatility in its earnings due to trading 
     positions that they would, say, for a firm like Salomon 
     Brothers. So why did this industrial corporation turn into a 
     trader?
       P.& G. says it was a mistake and * * * policy to avoid 
     financial market speculation was not followed in two isolated 
     incidents. And it replaced the executive who oversaw that 
     area, Raymond D. Mains, vice president and treasurer, and put 
     him on a ``special assignment.''
       But the company is only one of a growing number of 
     nonfinancial concerns that have acknowledged losses due to 
     trading positions that lost money in the face of capricious 
     turns of the markets. Tiny Gibson Greetings Inc., a 
     Cincinnati neighbor of P.& G., said it had lost at least $2 
     million recently from interest rate swaps. And 
     Metallgesellschaft A.G., the German commodities company, has 
     lost at least $500 million from oil futures.


                            like home buyers

       Corporations have been lured into speculating in markets 
     largely because their fortunes are tied to commodity prices 
     and to interest rates. Every day, the treasurers of large 
     corporations face the same kind of agonizing choice that 
     prospective home buyers must make: to take the fixed- or the 
     floating-rate loan.
       The corporate treasurer's job is to borrow money for the 
     corporation at the lowest rate. As a result, he or she is, in 
     effect, a bond trader, betting on whether rates will go up or 
     down.
       In recent years, treasurers have increasingly used interest 
     rate swaps to do their job. Interest rate swaps one of the 
     highly publicized financial instruments known as derivatives 
     were invented to help corporations easily lock in fixed rates 
     when they thought interest rates would rise and to slide into 
     floating rates when they thought rates would fall.
       Many corporations try a conservative approach to this task, 
     keeping a mix between fixed- and floating-rate debt. But 
     many, like homeowners refinancing their debt, recently bet 
     that rates were nearing their lows and locked in fixed-rate 
     borrowing.
       Some companies have been inclined to try to get fancier, 
     entering into more complex transactions to cut their interest 
     costs by another one- or two-tenths of 1 percent. That is 
     what appears to have happened with Procter & Gamble.
       Neither P.& G. nor Bankers Trust, the New York bank it 
     worked with will describe the swap transactions in detail. 
     But derivative experts suggest they probably went something 
     like this:
       P.& G. entered into two interest rate swaps, reportedly for 
     five years, to convert the interest it owed on borrowed money 
     from a fixed to a floating rate. For the first six months, 
     the deal was similar to a normal swap: the company received 
     fixed payments from Bankers Trust to cover the interest due 
     on its bonds. In return, the company paid interest to the 
     bank based on a floating rate.


                              a lower rate

       What was different about these transactions was that P.& G. 
     was apparently able to negotiate a lower rate in exchange for 
     an unusual feature: every six months, the variable rate it 
     paid would be adjusted according to a very complex formula. 
     While that formula has not been disclosed, it apparently 
     sharply increased the interest that P.& G. was obligated to 
     pay if interest rates rose.
       Last year, this must have seemed like an easy bet. Few 
     people were expecting interest rates to rise as quickly or as 
     much as they have so far this year. Indeed, many bond traders 
     have lost money largely because the consensus was that rates 
     in Europe would continue to fall.
       When they read the fine print on their swap agreement, top 
     executives at P.& G. appeared to have discovered that they 
     had far more in common with those bond traders than they had 
     expected.
       The incident underscores the warnings that derivatives 
     experts have been raising for some time: that the biggest 
     potential problems in derivatives lie not with the banks and 
     brokers that specialize in them, but in the corporations and 
     investors that use them.
       The reason is that the derivatives dealers have invested 
     tens of millions of dollars in sophisticated computer systems 
     that monitor and react to their risks on a minute-by-minute 
     basis. Most corporations--even those using derivatives--have 
     not felt the need to make such investments, as they in theory 
     have a longer-term view.
       Yet Bankers Trust said it had repeatedly and formally 
     advised Proctor and Gamble to get out of its position to 
     avoid taking further losses. This is the sort of ``stop 
     loss'' tactic that is common practice in the best trading 
     rooms, but is lacking in many corporations.


                          unanswered questions

       There are many unanswered questions at this point. For one, 
     there is the appropriateness of Bankers Trust's sales 
     practices. Did they push a risky product on a company that 
     did not understand what it was doing? Or is this case similar 
     to the investor who threatens to sue his broker after a trade 
     goes the wrong way, even though he was fully aware of the 
     risks?
       P.& G. says it is considering legal action against Bankers 
     Trust, which denies it has done anything wrong.
       Also unanswered is whether P.& G.'s loss on the swaps is 
     offset by a gain in some area that it was meant to hedge. If 
     the swaps were meant to convert fixed debt to a floating 
     rate, the company would have benefited by locking in the 
     fixed-rate financing before rates rose.
       ``People tend to think hedges are good when they make money 
     to offset losses in other areas,'' said Steven Benardete, a 
     derivatives executive at Morgan Stanley & Company. ``But they 
     don't think hedges are so good when there is a loss that 
     mitigates what would have been a windfall gain.''
                                  ____


            Mortgage Derivatives Claim Victims Big and Small

                           (By Laura Jereski)

       The bloodbath in mortgage derivatives is claiming new 
     casualties as investors and dealers continue to rush for the 
     exits, feeding a vicious cycle of falling prices and 
     evaporating demand.
       The damage is hitting high and low, from sophisticated 
     players such as Cargill Inc. and Kidder Peabody & Co., and 
     several respected mutual funds, all the way to a little-known 
     New Jersey brokerage firm that hawked these bonds to credit 
     unions and individual investors.
       The mortgage market has been one of the worst hit by rising 
     interest rates, which have also rocked hedge funds, Wall 
     Street firms and other investors in bonds and securities 
     derived from bonds.
       A $420 million hedge fund managed by Cargill, the privately 
     held commodity powerhouse, based in Minneapolis, is the most 
     prominent of the latest victims. Cargill's fund, known as the 
     Minnetonka Fund, ran afoul of a supposedly ``market neutral'' 
     strategy that relied on esoteric mortgage-backed derivatives 
     and borrowed money to generate high yields with what was 
     expected to be very low risk. That approach failed 
     notoriously at the Minnetonka Fund, as it did at the Granite 
     hedge funds run by New York-based Askin Capital Management, 
     which earlier this month was forced to seek protection in 
     bankruptcy court.


                           worsening the toll

       The Minnetonka Fund lost $90 million or more of the money 
     it managed for Cargill and other investors during the bond 
     market's March downdraft, traders say. Plummeting prices in 
     emerging-market debt, which the fund also owned, are said to 
     have contributed to the damage. Meanwhile, continuing turmoil 
     in the mortgage securities market in April appears to have 
     worsened the toll, the traders add.
       ``There's a feeling out there that no one has been able to 
     keep up with the pace of declines in the securities,'' says 
     one trader.
       Rising interest rates have caused the mortgage-backed 
     securities market to unravel unpredictably across the board. 
     Even under the best of circumstances, these bonds are 
     difficult to manage, because their values depend on 
     assumptions about how fast homeowners will prepay the 
     mortgages that back these securities.
       The recent interest-rate volatility has badly roiled those 
     assumptions, so that in today's market it's almost anyone's 
     guess what ``fair'' prices of these bonds should be. Dealers' 
     estimates of what's fair are often heavily influenced by 
     their own appetite for taking on more risk.


                           risky derivatives

       Mortgage derivatives, known as ``collateralized mortgage 
     obligations,'' constitute about half of the $1.5 trillion of 
     mortgage-backed securities outstanding.
       The problems are most evident in risky mortgage 
     derivatives, such as ``principal only'' strips and ``inverse 
     floaters,'' but losses in those sectors are infecting more 
     docile sectors of the mortgage-backed market. As their names 
     suggest, POs pay investors only the principal on the 
     underlying mortgages, while inverse floaters have yields that 
     are designed to fall when interest rates rise, and vice 
     versa.
       Making a bad situation worse, Wall Street dealers have been 
     reluctant to make markets in these esoteric securities 
     because they're afraid of additional losses. Kidder and other 
     major Wall Street firms have taken sizable hits from being 
     forced to take such bonds back from troubled customers, 
     including Mr. Askin. As these dealers make themselves scarce, 
     that tends to leave investors in the lurch.
       ``You are seeing the ugly side of the Street now,'' says a 
     large institutional investor. ``The problem is that Wall 
     Street created these bonds. They are the only ones who can 
     price them. And they are not supporting their bonds.''
       Indeed, traders say Minnetonka's losses were deepened by 
     the fund's inability to get good prices from its dealers. 
     Cargill officials won't comment about the funds, its outside 
     investors or the size of the loss.
       However, in a statement released yesterday, Cargill said, 
     ``The earnings of Cargill's financial business are derived 
     from a broad base of diverse operations. Their performances 
     this year remains very strong despite recent market 
     developments and, in fact, is on pace for record earnings in 
     this fiscal year.'' Last year, Cargill's financial-services 
     unit contributed about one-third of the company's $358 
     million in net income, according to a Cargill official.
       Investors report that dealers are so loath to quote prices 
     for many collateralized mortgage obligations, or CMOs--out of 
     fear that investors will demand to trade at those prices--
     that so-called bid-offer spreads have widened to 10 points, 
     or $100 on a bond with a $1,000 face value. The ``bid'' 
     indicates that price at which dealers are willing to sell 
     bonds. Such wide spreads hurt fund managers who use bid 
     quotes to ``mark to market,'' or value their portfolios for 
     reporting purposes.
       ``When there's a panic in the market, all the brokers who 
     are asked to mark bonds to market just low-ball the numbers, 
     because they're afraid to step up to the plate'' if customers 
     want to unload their bonds, says Douglas Breeden, chief 
     executive of Smith Breeden Associates Inc., a money manager 
     specializing in mortgage-backed securities who hasn't run 
     into problems. Even in normal times, ``we get off-the-wall 
     marks from dealers on a routine basis,'' and that problem 
     ``only gets worse'' in times of turmoil, he adds.
       Just how much of a problem has this been? Ramin Rouhani, a 
     managing director at CDC Investment Management Corp., which 
     holds $3.5 billion of mortgage securities primarily invested 
     in esoterica, grouses that `` this market doesn't work like a 
     market should.'' Last week, he says, he circulated a $25 
     million floating-rate bond to 11 dealers and got bids that 
     ended up three points apart, or $30 on a bond with a $1,000 
     face value. That's about ten times the usual spread for a 
     bond like that, he says.
       For some, the problems are even graver. Several mutual 
     funds run by Worth Bruntjen, a portfolio manager at 
     Minneapolis-based Piper Capital Management, hold so many 
     hard-to-value CMOs that their pricing service has found it 
     difficult on some days to value these portfolios in time to 
     post their daily net asset values. That's made it tough for 
     investors to know what their holdings are currently worth, or 
     what price they must accept to enter or leave the funds.
       ``Our pricing service has a very short time to collect 
     those prices, and during tumultuous markets, the calculations 
     are delayed,'' says Mr. Bruntjen, who manages five funds with 
     a total of $1.7 billion in assets. ``I think dealers are 
     tying to avoid adding [volatile CMOs] to inventory.''
       Mr. Bruntjen's largest fund, the Piper Jaffray 
     Institutional Government Income fund, is estimated to have 
     lost nearly 10% for the six months ended March 31, according 
     to Lipper Analytical Services, compared with an average 
     decline of 0.9% for 62 funds with similar investment 
     objectives. The net asset value has continued to slip since 
     then, according to other fund managers. The fund's net asset 
     value was quoted yesterday at $9.35 a shared, down 21 cents 
     from the previous day. It is down 17.3% so far this year.
       Meanwhile, HYM Financial Inc. of Clifton, N.J., has been 
     even harder hit. The small brokerage firm had built up a huge 
     position in mortgage-securities at the end of the year to 
     distribute among its clients, principally individuals and 
     credit unions. But the sharp movement in interest rates 
     caused its inventory to drop so sharply in value that the 
     firm not only lost its $8 million of capital but still owes 
     Wall Street firms an additional $4 million, according to 
     former employees. HYM was told to cease trading on Friday by 
     the National Association of Securities Dealers. Philip 
     Eitman, who headed the firm, says he cannot comment about 
     what happened.
                                  ____


              Employee Fund at Arco Posts Derivatives Loss

                          (By Georgette Jasen)

       An investment fund run by Atlantic Richfield Co. for 
     employees and retirees had a $22 million pretax loss last 
     month as a result of investments in derivatives.
       An Arco spokesman declined to disclose the nature of the 
     derivatives, except to say that they were ``principal-at-
     risk'' securities and didn't include investments backed by 
     mortgages. He said the securities involved have been 
     liquidated and Arco is pursuing the necessary approvals from 
     government agencies to reimburse participants in the company 
     savings and capital accumulation plan, which includes 401(k) 
     retirement assets. The loss amounted to 5.3% of the fund's 
     assets.
       Derivatives are complex financial arrangements whose values 
     are derived from changes in underlying variables, such as 
     interest rates, currencies, commodity prices and stock 
     markets here and abroad. They are used by banks, brokers and 
     their customers to defray the risk of market changes, and 
     sometimes by money managers to boost yields.


                       losses at other companies

       Lately, some companies have reported big losses from 
     derivative transactions. Procter & Gamble Co., for example, 
     last month reported a $157 million pretax charge while Air 
     Products & Chemicals Inc. and Gibson Greetings Inc. were 
     among companies reporting smaller hits.
       Arco notified about 17,000 participants in its plan of the 
     loss in a letter. The spokesman said the plan's managers have 
     changed their investment strategy and in the future the fund 
     that sustained the loss, called the Money Market Plus fund, 
     will be managed in a way ``closer to traditional money-market 
     funds.''
       Money Market Plus, with about $400 million in assets, is 
     one of four investment options in the $1.5 billion savings 
     plan managed by Arco Investment Management Co., a unit of the 
     big oil company. Employees of Arco, its 83.3%-owned Arco 
     Chemical Co. unit and 49.9%-owned Lyondell Petrochemical Co. 
     can also put money into company stock, a bond fund or a 
     diversified equity fund.
       * * * Treasury bills, but is not a money market mutual 
     fund.
       The Arco spokesman said the plan's guidelines permitted the 
     fund to invest in derivatives and that all required 
     disclosure was made to participants.
       The letter to plan participants said that, while such 
     losses are always a ``possibility in this kind of plan,'' the 
     company is ``disappointed.'' The letter noted that from 1989 
     to 1993, the fund's performance was ``well ahead'' of 
     traditional money-market funds. The loss was reported in the 
     Los Angeles Times on Friday.
       Traditional money-market mutual funds are closely regulated 
     by the Securities and Exchange Commission, which limit their 
     investments to top-rated securities that generally mature in 
     one year or less. They are considered among the safest 
     investments because they are structured so their net asset 
     value remains stable and only the yield varies.


                               sec rules

       Although some funds do invest in floating-rate notes, whose 
     yield is reset periodically as interest rates change, the SEC 
     has barred funds from investing in so-called inverse-
     floaters, which carry yields that vary inversely to 
     prevailing interest rates, and other potentially risky 
     securities. The SEC also limits use of the term ``money-
     market'' in a fund's name to those funds that meet its 
     guidelines.
       Company retirement plans typically are regulated by the 
     U.S. Department of Labor under the Employee Retirement Income 
     Security Act, which doesn't have such specific investment 
     guidelines. The plans are required to operate in the 
     interests of participants and beneficiaries. They also are 
     required to make certain disclosures to participants.
       At Arco, Mr. Greenstein said, the participants in the 
     savings and capital accumulation plan are mostly employees, 
     but some are retirees. He said Arco already has begun 
     discussions with the Internal Revenue Service because of the 
     tax consequences of reimbursements to participants. He noted 
     that obtaining necessary government approval for such 
     reimbursements could take some time.
                                  ____


                  Derivatives Supervision Act of 1994


 separation of certain derivative activities from the insured deposits 
                   of insured depository institutions

       The Act states that derivative activities may not be 
     conducted in a federally insured depository institution for 
     the account of that institution unless:
       (i) the insured depository institution is engaging in the 
     derivatives activity in order to hedge the bank's own 
     portfolio (and the category of derivatives activity has been 
     approved by the appropriate federal banking agency); or
       (ii) the insured bank is engaging in the derivatives 
     activity as a dealer (and the bank is well-capitalized and 
     the category of derivatives activity has been approved by the 
     appropriate federal banking agency; or, if the bank is not 
     well-capitalized but is adequately capitalized, the category 
     of derivatives activity has not only been approved by the 
     appropriate federal banking agency but also has been 
     determined by the appropriate federal banking agency to be in 
     the public interest).
       These restrictions also apply to the derivative activities 
     of federally insured credit unions, the Federal Home Loan 
     Banks, Fannie Mae and Freddie Mac.
       Speculating with derivative instruments is permitted only 
     in subsidiaries of bank holding companies or in institutions 
     entirely unaffiliated with banks. The Federal Reserve must 
     approve the establishment of any subsidiary of a bank holding 
     company that intends to engage in speculation with derivative 
     instruments as a major dealer, and the Securities and 
     Exchange Commission will regulate the activities of such 
     subsidiary.


                        regulatory coordination

       Regulation: The OCC, the Federal Reserve, the FDIC, the 
     OTS, the NCUA, the SEC, the CFTC, the Office of Federal 
     Housing Enterprise Oversight and the Federal Housing Finance 
     Board must:
       (i) jointly establish principles and standards related to 
     capital, accounting, disclosure, suitability, and other 
     appropriate regulatory actions;
       (ii) develop minimum capital requirements that address 
     credit risk, market risk, operational risk and legal risk;
       (iii) issue regulations that are consistent;
       (iv) jointly develop a training program for examiners 
     regarding derivative activities.
       Emergency management reporting: The regulators must develop 
     a reporting system that allows them to obtain, in emergency 
     situations and on a confidential basis, certain information 
     from insured depository institutions (including insured 
     credit unions), Fannie Mae, Freddie Mac, the Federal Home 
     Loan Banks and major dealers in derivative instruments.


                               disclosure

       The Act requires that insured depository institutions 
     (including insured credit unions), Fannie Mae, Freddie Mac, 
     the Federal Home Loan Banks and major dealers disclose 
     certain specified quantitative information with respect to 
     their derivative instruments (for example, gross national 
     values and gross positive and negative fair values, revenues, 
     gains and losses, current credit exposures, exposures of 
     individual counterparties and remaining terms to maturity). 
     To the extent possible, such quantitative information is to 
     be provided separately for exchange-traded and over-the-
     counter instruments.


                          management controls

       In addition, the Act requires that the above institutions 
     prepare, as part of their internal controls structure, a 
     management plan that sets forth the purpose of the holdings 
     in the derivative instruments, how the holdings are 
     consistent with the risk management plan of the institution 
     and how the institution acquires its derivative instruments. 
     The management plan must describe the accounting methods that 
     are used to value the derivative holdings and must also 
     require that derivative activities be conducted with direct 
     oversight by appropriate senior executive officers. The 
     boards of directors of these institutions must periodically 
     review compliance with their institution's management plan.


                     sec regulation and enforcement

       The Act provides that any major dealer that is not subject 
     to regulation by one of the above regulators be regulated by 
     the SEC. The SEC and each of the above regulators have 
     available to them any of the enforcement tools existing under 
     other provisions of law.
       The term ``major dealer'' is defined to mean any dealer 
     whose ability to meet obligations as they become due is 
     potentially significant to the stability of financial 
     markets, as determined by the above regulators, based upon 
     size, market share and the extent of linkages with other 
     market participants. (A dealer is any person engaged in the 
     business of purchasing, selling, or engaging in transactions 
     involving derivative financial instruments for its own 
     account, through a broker or otherwise, for the purpose of 
     serving customers.)


                       international coordination

       The Chairman of the Federal Reserve, in consultation with 
     the OCC, the FDIC, the OTS, the NCUA, the SEC, the CFTC, the 
     Office of Federal Housing Enterprise Oversight and the 
     Federal Housing Finance Board, shall coordinate with 
     governments, central banks and regulatory authorities of 
     other industrialized countries to work toward maintaining 
     and, where appropriate, adopting comparable supervisory 
     standards, regulations and capital standards in particular, 
     for financial institutions engaged in derivatives activities.


                             systemic risk

       The Act requires within 18 months of enactment that 
     regulations be implemented that reduce the risk associated 
     with potential systemic financial market failure. Such 
     regulations must encourage the regulated entities to increase 
     their use of clearinghouses and multilateral netting 
     agreements; reduce their intraday debit positions; shorten 
     intervals between financial transactions in cash markets and 
     their final settlement; shorten intervals between delivery of 
     and payment for financial products; and otherwise reduce 
     payments and settlement risk.


                        regulatory clarification

       The Act provides several technical amendments that address, 
     among other things, the treatment of master agreements, 
     collateralization, exceptions to the automatic stay for 
     setoffs by swap participants, exceptions to fraudulent 
     transfers by master netting agreements participants that 
     receive certain transfers, and the liquidation of commodities 
     contracts, forward contracts and master netting agreements.


                             effective day

       The Act is to become effective one year after enactment.
                                 ______

      By Mr. HATFIELD:
  S. 2292. A bill to amend the Watershed Protection and Flood 
Prevention Act to establish a Waterways Restoration Program, and for 
other purposes; to the Committee on Agriculture, Nutrition, and 
Forestry.


                       waterways restoration act

 Mr. HATFIELD. Mr. President, development of the water 
resources of the United States has been a vital factor in the growth 
and prosperity of this country. Our water resources have brought us a 
strong agricultural base, power generation, navigation and domestic and 
industrial water supplies. However, the gains we have made in terms of 
productivity and efficiency have in many cases exacted a toll on our 
water resources. Despite a concerted effort to improve the quality of 
our waterways, recent estimates indicate that 38 percent of our rivers, 
44 percent of our lakes, and 97 percent of the Great Lakes remain 
degraded.
  This is a continuing problem worthy of the earnest efforts of each of 
us. The Clean Water Act has made great improvements in the quality of 
the Nation's waterways. The goals of the Clean Water Act 
reauthorization legislation now pending on the Senate Calendar 
certainly focus much needed attention on the continuing dilemma we face 
with respect to our water resources.
  Today I am introducing the Waterways Restoration Act in the hope of 
providing an additional tool to improve the waterways of the United 
States. The legislation I introduce today is the companion to House 
Resolution 4289, introduced by Congresswoman Elizabeth Furse of Oregon. 
I compliment Congresswoman Furse for her fine leadership in this area 
and I am proud to introduce the Senate version of this fine proposal.
  The Waterways Restoration Act would establish a technical assistance 
and grant program for waterway restoration program within the Soil and 
Conservation Service [SCS] at the U.S. Department of Agriculture. No 
new money would be required to fund this program. Rather, the program 
would draw on existing funds by redirecting 20 percent of the SCS's 
existing Watershed Protection and Flood Prevention Program budget to 
fund nonstructural, community-based projects.

  Waterway restoration is a cost effective way to control flooding, 
erosion and pollution runoff. This legislation would fund local 
projects to establish riparian zones, stabilize steam banks and the 
restore areas polluted by urban runoff. Both urban and rural areas 
would be eligible for project funding. The bill also contains an 
environmental justice provision that would place a priority on projects 
in historically disadvantaged communities overlooked by Federal cleanup 
efforts.
  Mr. President, this is sound, progressive legislation. It addresses 
in an effective way the pressing water resource problems continuing to 
face this Nation. As we search for ways to reinvent our Government to 
make it more responsive to the citizens of this country, we should look 
more and more to proposals--like this one--that draw on the initiative 
and ingenuity bubbling over in our communities rather than one-size-
fits-all, top-down Federal programs. As Congresswoman Furse has noted, 
this is a funded Federal non-mandate, which allows communities to 
design and implement the restoration projects they want for the 
streams, creeks and rivers in their neighborhoods.
  I look forward to working with members of the Senate Agriculture 
Committee to advance this meritorious proposal. I ask unanimous consent 
that the bill be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2292

       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 ``Waterways Restoration Act of 
     1994''.

     SEC. 2. FINDINGS AND POLICY.

       (a) Findings.--Congress finds that--
       (1) restoring degraded streams, rivers, wetlands, and other 
     waterways to their natural state is a cost effective and 
     environmentally sensitive means to control flooding, 
     excessive erosion, sedimentation, and nonpoint pollution, 
     including stormwater runoff;
       (2) protecting and restoring watersheds provides critical 
     ecological benefits by restoring and maintaining 
     biodiversity, providing fish and wildlife habitat, filtering 
     pollutants, and performing other important ecological 
     functions;
       (3) waterway restoration and protection projects can 
     provide important economic benefits by rejuvenating 
     waterfront areas, providing recreational opportunities, and 
     creating community service jobs and job training 
     opportunities in environmental restoration for disadvantaged 
     youth, displaced resource harvesters, and other unemployed 
     residents; and
       (4) restoring waterways helps to increase the fishing 
     potential of waterways and restore diminished fisheries, 
     which are important to local and regional cultures and 
     economies and to low-income and ethnic cultural groups who 
     rely heavily on fish as a food source.
       (b) Policy.--Congress declares it is in the national 
     interest to--
       (1) protect and restore the chemical, biological, and 
     physical components of streams and rivers and associated 
     wetland systems in order to restore the biological and 
     physical structures, diversity, functions, and dynamics of 
     the stream and wetland ecological systems;
       (2) replace deteriorating stormwater structural 
     infrastructures and physical waterway alterations that are 
     environmentally destructive with cost effective, low 
     maintenance, and environmentally sensitive projects;
       (3) promote the use of nonstructural means to manage and 
     convey streamflow, stormwater, and flood waters;
       (4) increase the involvement of the public and youth 
     conservation and service corps in the monitoring, 
     inventorying, and restoration of watersheds in order to 
     improve public education, prevent pollution, and develop 
     coordinated citizen and governmental partnerships to restore 
     damaged waterways; and
       (5) benefit business districts, local economies, and 
     neighborhoods through the restoration of waterways.

     SEC. 3. WORKS OF IMPROVEMENT DEFINED.

       Section 2 of the Watershed Protection and Flood Prevention 
     Act (16 U.S.C. 1002) is amended by striking the following 
     sentence: ``Each project must contain benefits directly 
     related to agriculture, including rural communities, that 
     account for at least 20 percent of the total benefits of the 
     project.''.

     SEC. 4. WATERWAYS RESTORATION PROGRAM.

       The Watershed Protection and Flood Prevention Act (16 
     U.S.C. 1001 et seq.) is amended by adding at the end the 
     following new section:

     ``SEC. 14. WATERWAYS RESTORATION PROGRAM.

       ``(a) Definitions.--As used in this section:
       ``(1) Biotechnical slope protection.--The term 
     `biotechnical slope protection' means the use of live and 
     dead plant material to repair and fortify a watershed slope, 
     roadcut, stream bank, or other site that is vulnerable to 
     excessive erosion, using such systems as brush piling, brush 
     layering, brush matting, fascines, joint plantings, and wood 
     cribwalls.
       ``(2) Channelization.--The term `channelization' means 
     removing the meanders and vegetation from a river or stream 
     for purposes of accelerating storm flow velocity, filling 
     habitat to accommodate land development and existing 
     structures, or stabilizing a bank with concrete or riprap.
       ``(3) Eligible entity.--The term `eligible entity' means--
       ``(A) any tribal or local government, flood control 
     district, water district, conservation district (as defined 
     in section 1201(a)(2) of the Food Security Act of 1985 (16 
     U.S.C. 3801(a)(2)), agricultural extension 4-H program, 
     nonprofit organization, or watershed council; or
       ``(B) any unincorporated neighborhood organization, 
     watershed council, or small citizen nongovernmental or 
     nonprofessional organization for which an incorporated 
     nonprofit organization acts as a fiscal agent.
       ``(4) Fiscal agent.--The term `fiscal agent' means an 
     incorporated nonprofit organization that--
       ``(A) acts as a legal entity that is authorized to accept 
     government or private funds and pass them onto an 
     unincorporated community, cultural, or neighborhood 
     organization; and
       ``(B) has entered into a written agreement with such an 
     unincorporated organization that specifies the funding, 
     program, and working arrangements for carrying out a project 
     under the program.
       ``(5) Nonprofit organization.--The term `nonprofit 
     organization' means any organization with a tax exempt status 
     under section 501(c)(3) of the Internal Revenue Code of 1986.
       ``(6) Program.--The term `program' means the Waterways 
     Restoration Program established by the Secretary under 
     subsection (b).
       ``(7) Secretary.--The term `Secretary' means the Secretary 
     of Agriculture, acting through the Chief of the Soil 
     Conservation Service.
       ``(8) Stream channel quasi-equilibrium.--The term `stream 
     channel quasi-equilibrium' means restoring channel 
     geometrics, meanders, and slopes so that channel dimensions 
     are appropriately sized to the watershed and the slope of the 
     watershed, bankfull discharges, and sediment sizes and 
     transport rates for the purpose of correcting excessive 
     channel erosion and deposition.
       ``(9) Watershed council.--The term `watershed council' 
     means a representative group of local watershed residents 
     (including the private, public, government, and nonprofit 
     sectors) organized to develop and carry out a consensus 
     watershed restoration plan that includes restoration, 
     acquisition, and other activities.
       ``(10) Waterway.--The term `waterway' means any natural, 
     degraded, seasonal, or created wetland on private or public 
     land, including a river, stream, riparian area, marsh, pond, 
     bog, mudflat, lake, or estuary. The term includes any natural 
     or humanmade watercourse on public or private land that is 
     culverted, channelized, or vegetatively cleared, including a 
     canal, irrigation ditch, drainage way, or navigation, 
     industrial, flood control, or water supply channel.
       ``(11) Youth conservation and service corps.--The term 
     `youth conservation and service corps program' means a full-
     time, year-round youth corps program or a full-time summer 
     youth corps program described in section 122(a)(2) of the 
     National and Community Service Act of 1990 (42 U.S.C. 
     12572(a)(2)).
       ``(b) Establishment.--The Secretary, acting through the 
     Chief of the Soil Conservation Service, shall establish and 
     carry out a Waterways Restoration Program in accordance with 
     this section. Under the program, the Secretary shall provide 
     technical assistance and grants, on a competitive basis, to 
     eligible entities to assist the entities in carrying out 
     waterway restoration projects.
       ``(c) Project Eligibility.--
       ``(1) Project objectives.--A project shall be eligible for 
     assistance under the program if the project is designed to 
     achieve ecological restoration or protection and 1 or more of 
     the following objectives:
       ``(A) Flood damage reduction.
       ``(B) Erosion control.
       ``(C) Stormwater management.
       ``(D) Water quality enhancement.
       ``(2) Location of projects.--A project may be carried out 
     under the program on Federal lands or on State or private 
     lands in any case in which the State or the private land 
     owner is a sponsor or cosponsor of the project.
       ``(3) Project descriptions.--A project eligible for 
     assistance under the program shall include a project 
     established for any of the following purposes:
       ``(A) Restoration and monitoring of degraded waterways, 
     including revegetation, restoration of biological 
     communities, and changes in land management practices.
       ``(B) Reestablishment of stream channel quasi-equilibrium.
       ``(C) Restoration or establishment of wetland and riparian 
     environments as part of a multiobjective stormwater 
     management system in which the restored or established areas 
     provide stormwater storage, detention, and retention, 
     nutrient filtering, wildlife habitat, and increased 
     biological diversity.
       ``(D) Reduction of runoff.
       ``(E) Stream bank restoration using the principles of 
     biotechnical slope protection.
       ``(F) Creation and acquisition of multiobjective floodplain 
     riparian zones, including removal of natural or humanmade 
     levees, for floodwater and sediment storage, wildlife 
     habitat, and recreation.
       ``(G) Removal of culverts and storm drains to establish 
     natural environmental conditions.
       ``(H) Organization of local watershed councils in 
     conjunction with the implementation of on-the-ground action 
     education or restoration projects.
       ``(I) Training of participants, including youth 
     conservation and service corps program participants, in 
     restoration techniques in conjunction with the implementation 
     of on-the-ground action education or restoration projects.
       ``(J) Development of waterway restoration or watershed 
     plans that are intended for use within the grant agreement 
     period to carry out specific restoration projects.
       ``(K) Restoration of any stream channel to reestablish a 
     meandering, bankfull flow channel, riparian vegetation, and 
     floodplain in order--
       ``(i) to restore the functions and dynamics of a natural 
     stream system to a previously channelized waterway; or
       ``(ii) to convey larger flood flows as an alternative to a 
     channelization project.
       ``(L) Release of reservoir flows to restore riparian and 
     instream habitat.
       ``(M) Carrying out watershed or wetland programs that have 
     undergone planning pursuant to other Federal, State, tribal, 
     or local programs and laws and have received necessary 
     environmental review and permits.
       ``(N) Carrying out early action projects that a watershed 
     council wants to carry out prior to the completion of the 
     required final consensus watershed plan of the council, if 
     the council determines that the project meets the watershed 
     management objectives of the council and is useful in 
     fostering citizen involvement in the planning process.
       ``(4) Priority projects.--Projects that have any of the 
     following attributes shall be given priority by 
     interdisciplinary teams established under subsection (g) in 
     determining funding priorities:
       ``(A) Projects located in or directly benefiting low-income 
     or economically depressed areas adversely impacted by poor 
     watershed management.
       ``(B) Projects that will restore or create businesses or 
     occupations in the project area.
       ``(C) Projects providing opportunities for participants in 
     Federal, State, tribal, and local youth conservation and 
     service corps and provide training in environmental 
     restoration, monitoring, and inventory work.
       ``(D) Projects serving communities composed of minorities 
     or Native Americans, including the development of outreach 
     programs to facilitate the participation by the groups in the 
     program.
       ``(E) Projects identified as regional priorities that have 
     been planned within a regional context and coordinated with 
     Federal, State, tribal, and local agencies.
       ``(F) Projects that will restore wildlife or fisheries of 
     commercial, recreational, subsistence, or scientific concern.
       ``(G) Projects training and employing fishers and other 
     resource harvesters whose livelihoods have been adversely 
     impacted by habitat degradation.
       ``(H) Projects providing significant improvements in 
     ecological values and functions in the project area.
       ``(I) Projects previously approved under this Act that meet 
     or are redesigned to meet the requirements of this section.
       ``(5) Cost-benefit analysis.--A project shall be eligible 
     for assistance under the program if an interdisciplinary team 
     established under subsection (g) determines that the local 
     social, economic, ecological, and community benefits of the 
     project based on local needs, problems, and conditions equal 
     or exceed the financial and social costs of the project.
       ``(6) Flood damage reduction.--A project for which 1 of the 
     purposes is to reduce flood damages shall be designed for the 
     level of risk selected by the local sponsor and cosponsor of 
     the project, taking into account local needs for the 
     reduction of flood risks, the ability of the sponsor and 
     cosponsor to pay project costs, and community objectives to 
     protect or restore environmental quality.
       ``(7) Ineligible projects.--A project involving 
     channelization, stream bank stabilization using a method 
     other than a biotechnical slope protection method, or 
     construction of a reservoir shall not be eligible for 
     assistance under the program.
       ``(d) Program Administration.--
       ``(1) Designation of program administrators.--The Secretary 
     shall designate a program administrator for each State who 
     shall be responsible for administering the program in the 
     State. Except as provided by paragraph (2), the Secretary 
     shall designate the State Conservationist of the Soil 
     Conservation Service of a State as the program administrator 
     of the State.
       ``(2) Approval of state agencies.--
       ``(A) In general.--A State may submit to the Secretary an 
     application for designation of a State agency to serve as the 
     program administrator of the State.
       ``(B) Criteria.--The Secretary shall approve an application 
     of a State submitted under subparagraph (A) if the 
     application demonstrates--
       ``(i) the ability of the State agency to solicit, select, 
     and fund projects within a 1-year grant administration cycle;
       ``(ii) the responsiveness of the State agency to the 
     administrative needs and limitations of small nonprofit 
     organizations and low-income or minority communities;
       ``(iii) the success of the State agency in carrying out 
     State or local programs with objectives similar to the 
     objectives of this section; and
       ``(iv) the ability of the State agency to jointly plan and 
     carry out with Indian tribes programs with objectives similar 
     to this section.
       ``(C) Redesignation.--If the Secretary determines, after a 
     public hearing, that a State agency with an approved 
     application under this paragraph no longer meets the criteria 
     set forth in subparagraph (B), the Secretary shall so notify 
     the State and, if appropriate corrective action has not been 
     taken within a reasonable time, withdraw the designation of 
     the State agency as the program administrator of the State 
     and designate the State Conservationist of the Soil 
     Conservation Service of the State as the program 
     administrator of the State.
       ``(3) Technical assistance.--The State Conservationist of a 
     State shall continue to carry out the technical assistance 
     portion of the program in the State even if the State 
     receives approval of an application submitted under paragraph 
     (2)(A).
       ``(e) Grant Application Cycle.--
       ``(1) In general.--A grant under the program shall be 
     awarded on an annual basis.
       ``(2) Grant agreements.--The program administrator of a 
     State may enter into a grant agreement with an eligible 
     entity to permit the entity to phase in a project under the 
     program for a period of not to exceed 3 years, except that 
     the project shall remain subject to reevaluation each year as 
     part of the annual funding cycle.
       ``(f) Selection of Projects.--
       ``(1) Applications.--To receive assistance to carry out a 
     project under the program in a State, an eligible entity 
     shall submit to the program administrator of the State an 
     application that is in such form and contains such 
     information as the Secretary may by regulation require.
       ``(2) Review of applications by interdisciplinary teams.--
       ``(A) Transmittal.--Each application for assistance under 
     the program received by the program administrator of a State 
     shall be transmitted to the interdisciplinary team of the 
     State established pursuant to subsection (g).
       ``(B) Review.--On an annual basis, the interdisciplinary 
     team of each State shall--
       ``(i) review applications transmitted to the team pursuant 
     to subparagraph (A);
       ``(ii) determine the eligibility of proposed projects for 
     funding under the program;
       ``(iii) make recommendations concerning funding priorities 
     for the eligible projects; and
       ``(iv) transmit the findings and recommendations of the 
     team to the program administrator of the State.
       ``(C) Project opposition by federal representatives.--If 2 
     or more of the members of an interdisciplinary team of a 
     State appointed pursuant to clause (ii), (iii), or (iv) of 
     subsection (g)(2)(B) are opposed to a project that is 
     supported by a majority of the members of the 
     interdisciplinary team, a determination on whether the 
     project is eligible to receive assistance under the program 
     shall be made by the Chief of the Soil Conservation Service. 
     In making a determination under this subparagraph, the Chief 
     shall consult with the Administrator of the Environmental 
     Protection Agency, the Director of the Fish and Wildlife 
     Service, and, in a coastal area, the Assistant Administrator 
     of the National Marine Fisheries Service. The Secretary shall 
     conduct such monitoring activities as are necessary to ensure 
     the success and effectiveness of project determinations made 
     pursuant to this subparagraph.
       ``(3) Final selection.--The final determination on whether 
     to provide assistance for a project under the program shall 
     be made by the program administrator of the State and shall 
     be based on the recommendations of the interdisciplinary team 
     of the State transmitted pursuant to paragraph (2)(B).
       ``(g) Appointment of Interdisciplinary Teams.--
       ``(1) In general.--There shall be established in each State 
     an interdisciplinary team of specialists to assist in 
     reviewing project applications under the program.
       ``(2) Appointment.--The interdisciplinary team of a State 
     shall be composed of the following members:
       ``(A) Appointees of the program administrator.--Individuals 
     to be appointed on an annual basis by the program 
     administrator of the State, including at least 1 
     representative of each of the following specialties:
       ``(i) Hydrologists.
       ``(ii) Plant ecologists.
       ``(iii) Aquatic biologists.
       ``(iv) Biotechnical slope protection experts.
       ``(v) Landscape architect or planners.
       ``(vi) Members of the agricultural community.
       ``(vii) Representatives of the fish and wildlife agency of 
     the State.
       ``(viii) Representatives of the soil and water conservation 
     agency of the State.
       ``(B) Representatives of federal agencies.--One 
     representative of each of the following Federal agencies to 
     be appointed on an annual basis by the appropriate regional 
     or State director of the agency:
       ``(i) The Soil Conservation Service.
       ``(ii) The Environmental Protection Agency.
       ``(iii) The National Marine Fisheries Service (in a coastal 
     State).
       ``(iv) The United States Fish and Wildlife Service.
       ``(3) Affiliation of members.--A member appointed pursuant 
     to paragraph (2)(A) may be an employee of a Federal, State, 
     tribal, or local agency or nonprofit organization.
       ``(4) Federal advisory committee act.--The Federal Advisory 
     Committee Act (5 U.S.C. App. 2) shall not apply to an 
     interdisciplinary team established under this subsection.
       ``(h) Conditions for Receiving Assistance.--
       ``(1) Project sponsors and cosponsors.--
       ``(A) Requirement.--To be eligible for assistance under the 
     program, a project shall have as project participants both a 
     citizens organization and a State, regional, tribal, or local 
     governing body, agency, or district.
       ``(B) Project sponsor.--One of the project participants 
     described in subparagraph (A) shall be designated as the 
     project sponsor. The project sponsor shall act as the 
     principal party making the grant application and have the 
     primary responsibility for executing the grant agreement, 
     submitting invoices, and receiving reimbursements.
       ``(C) Project cosponsor.--The other project participant 
     described in subparagraph (A) shall be designated as the 
     project cosponsor. The project cosponsor shall, jointly with 
     the project sponsor, support and actively participate in the 
     project. There may be more than 1 cosponsor for any project.
       ``(2) Use of grant funds.--Grant funds made available under 
     the program shall not supplant other available funds for 
     waterway restoration projects, including developer fees, 
     mitigation, or compensation required as a permit condition or 
     as a result of a violation of the Federal Water Pollution 
     Control Act (33 U.S.C. 1251 et seq.) or any other law.
       ``(3) Maintenance requirement.--At least 1 project sponsor 
     or cosponsor shall be designated as responsible for ongoing 
     maintenance of the project.
       ``(i) Non-Federal Share.--
       ``(1) In general.--Except as provided by paragraph (2), the 
     non-Federal share of the cost of a project under this 
     section, including structural and nonstructural features, 
     shall be 25 percent.
       ``(2) Economically depressed communities.--The Secretary 
     may waive all or part of the non-Federal share of the cost of 
     any project that is to be carried out under the program in an 
     economically depressed community.
       ``(3) In-kind contributions.--Non-Federal interests may 
     meet any portion of the non-Federal share of the cost of a 
     project under this section through in-kind contributions, 
     including contributions of labor, involvement of youth 
     service and conservation corps program participants, 
     materials, equipment, consulting services, and land.
       ``(4) Regulations.--Not later than 1 year after the date of 
     enactment of this section, the Secretary shall issue 
     regulations to establish procedures for granting waivers 
     under paragraph (2).
       ``(j) Limitations on Costs of Administration and Technical 
     Assistance.--Of the total amount made available for any 
     fiscal year to carry out this section--
       ``(1) not to exceed 15 percent may be used for 
     administrative expenses; and
       ``(2) not to exceed 25 percent may be used for providing 
     technical assistance.
       ``(k) Consultation With Federal Agencies.--In establishing 
     and carrying out the program, the Secretary shall consult 
     with the heads of appropriate Federal agencies, including--
       ``(1) the Administrator of the Environmental Protection 
     Agency;
       ``(2) the Assistant Secretary of the Army for Civil Works;
       ``(3) the Director of the United States Fish and Wildlife 
     Service;
       ``(4) the Commissioner of the Bureau of Reclamation;
       ``(5) the Director of the Geological Survey;
       ``(6) the Chief of the Forest Service; and
       ``(7) the Assistant Administrator for the National Marine 
     Fisheries Service.
       ``(l) Citizens Oversight Committee.--
       ``(1) Establishment.--The Governor of each State shall 
     establish a citizens oversight committee to evaluate 
     management of the program in the State. The membership of a 
     citizens oversight committee shall represent a diversity of 
     regions, cultures, and watershed management interests.
       ``(2) Program components.--A citizens oversight committee 
     established under paragraph (1) shall evaluate the following 
     program components:
       ``(A) Program outreach, accessibility, and service to low-
     income and minority ethnic communities and displaced resource 
     harvesters.
       ``(B) The manageability of grant application procedures, 
     contracting transactions, and invoicing for disbursement for 
     small nonprofit organizations.
       ``(C) The success of the program in supporting the range of 
     the program objectives, including evaluation of the 
     environmental impacts of the program as carried out.
       ``(D) The number of jobs created for identified target 
     groups.
       ``(E) The diversity of job skills fostered for long-term 
     watershed related employment.
       ``(F) The extent of involvement of youth conservation and 
     service corps programs.
       ``(3) Annual report.--The program administrator of each 
     State shall issue an annual report summarizing the program 
     evaluation under paragraph (1). The report shall be signed by 
     each member of the citizens oversight committee of the State 
     and shall be submitted to the Secretary.
       ``(4) Federal advisory committee act.--The Federal Advisory 
     Committee Act (5 U.S.C. App. 2) shall not apply to a citizens 
     oversight committee established under this subsection.
       ``(m) Funding.--
       ``(1) Minimum amounts.--Not less than 20 percent of the 
     total amount made available to carry out this Act for any 
     fiscal year beginning after September 30, 1994, shall be used 
     by the Secretary to carry out this section.
       ``(2) Transferred funds.--The Secretary may accept 
     transfers of funds from other Federal agencies to carry out 
     this section.
       ``(3) Applicability of requirements.--Funds made available 
     to carry out this section, and financial assistance provided 
     with the funds, shall not be subject to any requirements of 
     this Act other than the requirements of this 
     section.''.
                                 ______

      By Mr. KERRY:
  S. 2293. A bill to modify the negotiating objectives of the United 
States for future trade agreements, and for other purposes; to the 
Committee on Finance.


            trade and environment harmonization act of 1994

 Mr. KERRY. Mr. President, I am proud today to introduce the 
Trade and Environment Harmonization Act of 1994 which seeks to increase 
the compatibility of trade agreements with environmental protection, 
conservation, and sustainable development. It no longer makes sense, 
economically or politically, to discuss trade issues without including 
environmental considerations. This bill will ensure that future trade 
negotiations consider environmental issues.
  Although it is widely accepted that trade and international trade 
rules can have environmental consequences, under current practice, 
environmental issues are neglected during initial negotiations of trade 
agreements and then must be addressed hastily in the final days of 
negotiation or during the political debate over implementation 
legislation. This means that procedures for assessing environmental 
consequences have been bogged down in legal debates and partisan 
discussions after a trade agreement has been negotiated.
  This practice undermines the ability of our trade negotiators to be 
fully informed about environmental ramifications of an agreement's 
provisions during negotiation. It undermines their ability to ensure 
that U.S. environmental interests are given full weight. And it is 
undermining longstanding bipartisan support for expanded trade. This 
bill will ensure that the environmental impact is considered as a trade 
agreement is being negotiated in the first place.

  Further, this legislation will ensure that future trade agreements do 
not lower domestic environmental standards. Rather, it will ensure that 
future trade agreements promote higher international standards. This 
bill recognizes the link between trade and the environment in the 
following general ways:
  It will include environmental objectives among the negotiating goals 
of future trade agreements;
  It will formally include environmental representatives as members of 
the private sector trade advisory committees so that such consultation 
with trade negotiators will include an environmental perspective; and
  It will formalize the participation of the Environmental Protection 
Agency, the Department of the Interior, and the National Oceanic and 
Atmospheric Administration in the interagency trade committees so that 
the environmental perspective is presented and considered.
  This bill will not require renegotiation of GATT. The achievements of 
the Uruguay round are substantial. The round will lower international 
barriers to trade, which will lead to increased trade volume, global 
wealth, and U.S. jobs. This bill does not undermine these achievements 
in the slightest. Rather, it is intended to enhance them by 
acknowledging that at the same time we are breaking down barriers to 
trade we must replace them with clear rules of the game for the new 
global market.
  If we do not think before we act, we run the risk of creating a new 
era of robber baron capitalism, in which nations, competing for 
capital, drive labor and environmental standards down to the least 
common denominator. Most of us would prefer a future of enlightened 
capitalism in which the number of U.S. jobs increase, the world economy 
grows, and international standards are raised to the highest achievable 
levels.
  I urge my colleagues to support the Trade and Environment 
Harmonization Act of 1994 and to support inclusion of its provisions in 
the Uruguay round implementing legislation.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2293

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. TRADE NEGOTIATING OBJECTIVES.

       Section 1101 of the Omnibus Trade and Competitiveness Act 
     of 1988 (19 U.S.C. 2901) is amended as follows:
       (1) Overall trade negotiating objectives.--Subsection (a) 
     is amended--
       (A) in paragraph (2) by striking ``and'' after the 
     semicolon;
       (B) in paragraph (3) by striking the period and inserting 
     ``; and''; and
       (C) by adding after paragraph (3) the following:
       ``(4) increased compatibility of trade agreements with 
     environmental protection, conservation, and sustainable 
     development.''.
       (2) Principal trade negotiating objectives.--Subsection (b) 
     is amended as follows:
       (A) Dispute settlement.--Paragraph (1)(B) is amended to 
     read as follows:
       ``(B) to ensure that such mechanisms within trade 
     agreements to which the United States is a party provide for 
     more effective and expeditious resolution of disputes, 
     improve transparency and public participation, and enable 
     better enforcement of United States rights, including those 
     relating to environment and conservation.''.
       (B) Transparency.--Paragraph (3) is amended by inserting 
     ``, including those related to environment and 
     conservation,'' after ``trade matters''.
       (C) Developing countries.--Paragraph (4) is amended--
       (i) in subparagraph (A) by striking ``and'' after the 
     semicolon;
       (ii) in subparagraph (B) by striking the period and 
     inserting ``; and''; and
       (iii) by adding after subparagraph (B) the following:
       ``(C) to take into account the particular needs of 
     developing countries in trade matters relating to environment 
     and conservation.''.
       (D) Unfair trade practices.--Paragraph (8)(A) is amended--
       (i) by striking ``the GATT and nontariff measure'' and 
     inserting ``trade''; and
       (ii) by inserting ``and other practices potentially harmful 
     to the environment'' after ``resource input subsidies''.
       (E) Intellectual property.--Paragraph (10) is amended--
       (i) in subparagraph (C) by striking ``and'' after the 
     semicolon;
       (ii) in subparagraph (D) by striking the period and 
     inserting ``; and''; and
       (iii) by adding at the end the following:
       ``(E) to promote compatibility of established standards of 
     the World Trade Organization relating to intellectual 
     property with existing international biological diversity 
     conventions.''.
       (F) Foreign investment.--Paragraph (11) is amended--
       (i) by striking ``direct'' in the paragraph heading and 
     each place it appears in the text; and
       (ii) in subparagraph (A)(ii)--

       (I) by striking ``and'' at the end of subclause (I);
       (II) by striking the period at the end of subclause (II) 
     and inserting ``, and''; and
       (III) by adding at the end the following:
       ``(III) will promote environmentally sensitive foreign 
     investment and discourage countries from attracting or 
     maintaining foreign investment by relaxing domestic health, 
     safety, or environmental measures.''.

       (G) Additional objectives.--Subsection (b) is amended by 
     adding at the end the following:
       ``(17) Environment and conservation.--The principal 
     negotiating objectives of the United States regarding 
     environment and conservation issues related to trade and 
     foreign investment are to--
       ``(A) promote compatibility between trade agreements and 
     sustainable development, and foster the continual protection 
     and improvement of the environment, while recognizing 
     national sovereignty;
       ``(B) increase cooperation on trade-related environmental 
     policies to better conserve, protect, and enhance the 
     environment;
       ``(C) avoid trade distortions or barriers that undermine 
     environmental protection and conservation or that constitute 
     disguised protectionism;
       ``(D) promote transparency and public participation, and 
     increase consumer information in the development of 
     environmental laws, regulations, and policies; and
       ``(E) promote compatibility of trade agreements with 
     international environmental agreements to protect shared 
     global resources.
       ``(18) Wood and wood products.--The principal negotiating 
     objectives of the United States regarding trade in wood and 
     wood products are to--
       ``(A) promote sustainable forestry practices; and
       ``(B) increase market access for value-added wood products 
     and wood products that are produced from timber that is 
     sustainably harvested.''.

     SEC. 2. CITIZEN PARTICIPATION.

       Section 135 of the Trade Act of 1974 (19 U.S.C. 2155) is 
     amended as follows:
       (1) Advisory committee for trade policy and negotiations.--
     Subsection (b)(1) is amended by inserting ``nongovernmental 
     environmental and conservation organizations,'' after 
     ``governments,''.
       (2) General policy, sectoral, or functional committees.--
     Subsection (c) is amended--
       (A) in paragraph (1)--
       (i) by inserting ``environment and conservation,'' after 
     ``general policy advisory committees for'';
       (ii) by inserting ``environment and conservation,'' after 
     ``representative of all'';
       (iii) by striking ``and the Secretaries'' and all that 
     follows through ``or other executive'' and inserting ``, the 
     Secretaries of the Interior, Commerce, Defense, Labor, 
     Agriculture, and the Treasury, and the Administrators of the 
     Environmental Protection Agency and the National Oceanic and 
     Atmospheric Administration, or the heads of other 
     executive''; and
       (iv) by inserting ``and Administrators'' after ``such 
     Secretaries'';
       (B) in paragraph (2)--
       (i) by inserting ``environment and conservation,'' after 
     ``representative of all'';
       (ii) by striking ``and the Secretaries'' and all that 
     follows through ``or other executive'' and inserting ``, the 
     Secretaries of the Interior, Commerce, Labor, Agriculture, 
     and the Treasury, and the Administrators of the Environmental 
     Protection Agency and the National Oceanic and Atmospheric 
     Administration, or the heads of other executive''; and
       (iii) in subparagraph (B)--

       (I) by redesignating clauses (iii) through (v) as clauses 
     (iv) through (vi), respectively; and
       (II) by inserting after clause (ii) the following:
       ``(iii) environmental impacts of liberalized trade and 
     investment,''.

       (3) Advice and information.--Subsection (d) is amended by 
     striking ``and the Secretaries'' and all that follows through 
     ``or other executive'' and inserting ``, the Secretaries of 
     the Interior, Agriculture, Commerce, Labor, and Defense, and 
     the Administrators of the Environmental Protection Agency and 
     the National Oceanic and Atmospheric Administration, or the 
     heads of other executive''.
       (4) Meetings at close of negotiations.--Subsection (e) is 
     amended by adding at the end the following:
       ``(4) The report of the appropriate sectoral or functional 
     committee or committees under paragraph (1) shall include an 
     advisory opinion as to the significant environmental effects 
     of trade conducted within the sector or within the functional 
     area.''.
       (5) Trade secrets and confidential information.--Subsection 
     (g)(3) is amended by striking ``and the Secretaries'' and all 
     that follows through ``or other executive'' and inserting ``, 
     the Secretaries of the Interior, Commerce, Labor, Defense, 
     and Agriculture, and the Administrators of the Environmental 
     Protection Agency and the National Oceanic and Atmospheric 
     Administration, or the heads of other executive''.
       (6) Advisory committee support.--Subsection (h) is amended 
     by striking ``and the Secretaries'' and all that follows 
     through ``or other executive'' and inserting ``, the 
     Secretaries of the Interior, Commerce, Labor, Defense, 
     Agriculture, and the Treasury, and the Administrators of the 
     Environmental Protection Agency and the National Oceanic and 
     Atmospheric Administration, or the heads of other 
     executive''.
       (7) Consultation with advisory committees.--Subsection (i) 
     is amended--
       (A) by inserting ``the Interior,'' after Secretaries of''; 
     and
       (B) by striking ``the Treasury, or other executive'' and 
     inserting ``and the Treasury and the Administrator of the 
     Environmental Protection Agency and the National Oceanic and 
     Atmospheric Administration, or the heads of other 
     executive''.
       (8) Private organizations or groups.--Subsection (j) is 
     amended by inserting ``environment and conservation,'' after 
     ``government''.

     SEC. 3. ADDITIONAL NEGOTIATING OBJECTIVES.

       Section 1101 of the Omnibus Trade and Competitiveness Act 
     of 1988 is amended by adding at the end the following:
       ``(c) Specific Objectives for Particular Forums.--
       ``(1) WTO.--The principal negotiating objectives of the 
     United States regarding environment and conservation in the 
     World Trade Organization and the Committee on Trade and 
     Environment of the World Trade Organization are--
       ``(A) to develop guidelines for the use of national trade 
     and investment measures designed to protect the environment, 
     including those related to the product life cycle;
       ``(B) to increase transparency, openness, and public 
     participation in dispute settlement procedures;
       ``(C) to improve the rules and agreements of the World 
     Trade Organization regarding measures to protect domestic 
     environmental standards and conservation measures;
       ``(D) to promote greater compatibility of the rules and 
     agreements of the World Trade Organization with international 
     environmental agreements that rely upon trade sanctions for 
     enforcement;
       ``(E) to consider incentives, including improved market 
     access, that might promote resolution of environmental issues 
     relating to international trade;
       ``(F) to consider intellectual property rules that may 
     promote greater protection of biodiversity;
       ``(G) to develop guidelines with respect to trade in 
     domestically prohibited or severely restricted goods;
       ``(H) to achieve progress toward eliminating agricultural 
     subsidies that distort trade and harm the environment; and
       ``(I) to create an open process to consider continually new 
     trade-related initiatives to promote sustainable development, 
     internalize environmental costs, and enhance environmental 
     protection and the effectiveness of conservation measures.
       ``(2) Bilateral trade or nafta accession.--The principal 
     negotiating objectives of the United States with respect to 
     bilateral trade accession to the North American Free Trade 
     Agreement shall include--
       ``(A) to establish, where relevant for the country seeking 
     accession, minimum environmental safeguards that are not less 
     than those contained in the North American Free Trade 
     Agreement and the North American Agreement on Environmental 
     Cooperation; and
       ``(B) to implement such additional measures as may be 
     needed to address country-specific trade and environment 
     issues.
       ``(3) Asia-pacific economic cooperation forum.--The 
     principal negotiating objectives of the United States in the 
     Asia-Pacific Economic Cooperation forum (APEC) shall 
     include--
       ``(A) to develop a program relating to environment and 
     conservation measures of relevance to member countries of 
     APEC; and
       ``(B) to establish a permanent institutional mechanism or 
     secretariat and a timetable for implementing the program 
     developed under subparagraph (A).''.
                                 ______

      By Mr. INOUYE (for himself, Mr. Akaka, Mr. Baucus, Mr. Bingaman, 
        Mr. Boren, Mrs. Boxer, Mr. Bradley, Mr. Bryan, Mr. Burns, Mr. 
        Campbell, Mr. Chafee, Mr. Cochran, Mr. Cohen, Mr. Conrad, Mr. 
        Craig, Mr. Daschle, Mr. DeConcini, Mr. Dodd, Mr. Domenici, Mr. 
        Dorgan, Mr. Durenberger, Mr. Exon, Mr. Gorton, Mr. Graham, Mr. 
        Hatch, Mr. Heflin, Mr. Hollings, Mrs. Kassebaum, Mr. 
        Kempthorne, Mr. Kennedy, Mr. Lautenberg, Mr. Levin, Mr. 
        Mathews, Mr. McCain, Mr. Mitchell, Mr. Murkowski, Mrs. Murray, 
        Mr. Nickles, Mr. Pell, Mr. Reid, Mr. Roth, Mr. Simon, Mr. 
        Specter, Mr. Stevens, and Mr. Wellstone):
  S.J. Res. 210. A joint resolution to designate the month of November 
1994 as ``National Native American Heritage Month''; to the Committee 
on the Judiciary.


                     national native american month

 Mr. INOUYE. Mr. President, on behalf of myself and 44 
colleagues, we are pleased to present to the Senate a Senate joint 
resolution that will designate the month of November 1994 as ``National 
Native American Month.''
  With the passage of this resolution every 2 years, native Americans 
have shared their cultural heritage with the non-Indians. Activities 
that have enhanced public awareness of our native Americans have been 
especially beneficial to teachers from elementary schools to 
universities. Activities such as bringing in native American speakers, 
artists, dancers, crafts people and native American elders to share 
their cultural heritage with the non-Indians.
  Agencies within the Federal Government, various organizations, and 
interested corporations set up funding on a yearly basis to plan their 
activities. These events are geared to educating the public about 
native Americans.
  Native Americans themselves are especially encouraged during this 
time to share their stories and their art with the world.
  Therefore, I ask you to join me in this special gesture in 
recognizing the original peoples of this land, the true native 
Americans. They deserve a special month to honor their significant 
contributions to our country as much as other Americans have been 
recognized with a commemorative month every year.

                          ____________________