[Congressional Record Volume 146, Number 111 (Tuesday, September 19, 2000)]
[Extensions of Remarks]
[Page E1528]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 DELAY OF CONSIDERATION OF THE FINANCIAL CONTRACT NETTING ACT OF 2000, 
                               H.R. 1161

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                      Tuesday, September 19, 2000

  Mr. LaFALCE. Mr. Speaker, last Friday, notice of expedited floor 
action on H.R. 1161, legislation to insure against potentially 
destabilizing legal uncertainties in the financial markets, was 
circulated in the House. The Committee on Banking and Financial 
Services has reported favorably. In fact, all committees of 
jurisdiction on the Financial Contract Netting Act of 2000 have acted. 
Controversy on this bill is virtually non-existent. Broad bipartisan 
support for the measure is assured. Signature by the President has long 
been assumed should Congress complete action of the bill. Moreover, the 
bill, as a separate noncontroversial part of the more general and 
contentious Bankruptcy Reform Act, has passed both the House and the 
Senate. The bankruptcy legislation itself has not, of course, been 
finally adopted due to its long-pending conference and highly 
contentious provisions.
  Yesterday, the netting bill was pulled from consideration on the 
suspension calendar. The precipitous action of the Republican 
leadership calls into very serious question the ability of Congress, 
given the short time until adjournment, to enact this vital legislation 
under the most favorable of circumstances.
  H.R. 1161, while highly technical and complex legislation, has broad 
support because of the critical need it fills. The legislation is a top 
priority of the Federal Reserve and the Treasury Department. It is 
essential to provide an orderly structure through which financial 
corporations can work out their debts in bankruptcy without 
destabilizing financial markets. It is consensus, must-pass 
legislation.
  In contrast, the successful conclusion of the longstanding conference 
on the Bankruptcy Reform Act is increasingly in doubt, because of 
fundamental problems and substantial controversy surrounding that 
underlying legislation. Apparently, companies supporting passage of 
that controversial legislation have now mustered the political clout to 
block the non-controversial H.R. 1161. I deplore what I view as a 
cynical effort by some industry lobbyists to hold the vital netting 
legislation hostage. Doing so will not save the otherwise controversial 
bankruptcy bill, and such tactics are irresponsible in the extreme. Not 
only are they contrary to good and necessary public policy, they are 
also very risky for many of the affiliated banks and brokerage firms of 
the obstructing companies involved. These firms are also active in the 
very sophisticated financial markets which risk being thrown into 
disarray in the event of failure of a major domestic or, indeed, 
foreign financial institution, absent the netting legislation.
  The Financial Contract Netting Act is essential to ensure that 
financial markets function smoothly, especially in the event of the 
failure of a large institution. Monetary experts have been strongly 
urging the approach of H.R. 1161 since the Promisel Report in 1991. 
From then to the present, the need for this legislation has become more 
acute each year, because of the increasingly outdated nature of 
statutes which are supposed to set the bankruptcy and receivership 
rules for financial firms. The rise of the $40-50 trillion swaps market 
is the main force which has rendered these statutes increasingly 
irrelevant and effectively inoperable.
  Under H.R. 1161, a bankrupt financial firm's debts, that are related 
to financial instruments in the exposed process of transfer, can be 
quickly reduced to clear, single amounts owed to other healthy 
financial companies, according to their respective claims. Under 
present law, such simplification might well not be able to occur due to 
inconsistencies among governing statutes. Needless litigation and 
disavowal of debt could therefore occur. Such disruption is highly 
risky in an environment where clarity regarding debt obligations and 
payment is a must if our value and claims transfer system is to work 
with the flawlessness demanded by this increasingly sophisticated 
economy.
  The public dangers here are quite real. I deplore the fact that 
companies pressing for bankruptcy legislation seem focused only on 
their narrow interests without giving due consideration to stability of 
the financial markets these companies heedlessly jeopardize and the 
broader issues confronting American finance. In particular, potential 
financial disruptions due to stresses on the energy supply and in the 
currency markets make the netting legislation imperative before 
Congress adjourns sine die.
  I urge expeditious and independent action on the netting legislation.

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