[Congressional Record (Bound Edition), Volume 152 (2006), Part 17]
[House]
[Pages 22027-22028]
[From the U.S. Government Publishing Office, www.gpo.gov]




               FINANCIAL NETTING IMPROVEMENTS ACT OF 2006

  Mr. McHENRY. Mr. Speaker, I move to suspend the rules and concur in 
the Senate amendments to the bill (H.R. 5585) to improve the netting 
process for financial contracts, and for other purposes.
  The Clerk read as follows:

       Senate amendments:
       Strike section 7 (relating to compensation of chapter 7 
     trustees; chapter 7 filing fees).
       In section 8 (relating to scope of application), strike the 
     section heading and all that follows through ``the amendments 
     made'' and insert the following:

     ``SEC. 7. SCOPE OF APPLICATION.

       ``The amendments made''.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
North Carolina (Mr. McHenry) and the gentleman from Massachusetts (Mr. 
Frank) each will control 20 minutes.
  The Chair recognizes the gentleman from North Carolina.


                             General Leave

  Mr. McHENRY. Mr. Speaker, I ask unanimous consent that all Members 
may have 5 legislative days within which to revise and extend their 
remarks in this legislation and insert extraneous material thereon.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from North Carolina?
  There was no objection.
  Mr. McHENRY. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I am grateful to be on the floor today to have the 
opportunity to pass this important financial services legislation that 
Congresswoman Debbie Wasserman Schultz and I were able to work together 
on on a bipartisan basis.
  Now, I must confess this new era of bipartisanship I have somewhat 
questioned with the recent election results. I am not overly optimistic 
about the coming bipartisanship. I think it must be and most likely 
will be more rhetoric than reality. But I am grateful to be on a 
committee where we have had some level of bipartisanship and 
cooperation, although imperfect; but on this legislation, Congresswoman 
Wasserman Schultz and I, as freshmen, were described in the U.S. Today 
as the ying and yang of the freshman class, the most liberal and the 
most conservative members of the 109th Congress, the new Members for 
it. And Debbie and I set out then to work on some legislation together, 
and I am grateful that we were able to get that done here in the waning 
days of the 109th Congress.
  The legislation that we have before us today is the Financial Netting 
Improvement Act, which makes a number of technical changes to the 
financial contract safe harbor provisions for the Federal Deposit 
Insurance Act and other Federal insolvency laws. The netting provisions 
reflect years of work within the President's Working Group on Financial 
Markets, Treasury, Federal Reserve Board, the Securities and Exchange 
Commission, the Commodity Futures Trading Commission and the FDIC. This 
is the result and the fruits of that long labor. The amendment on this 
legislation from the Senate is very minor, and we are able to accept it 
in the House.
  Mr. Speaker, with that, I reserve the balance of my time.
  Mr. FRANK of Massachusetts. Mr. Speaker, I concur with the 
substantive discussion of this bill from the gentleman from North 
Carolina. His comments on bipartisanship seem to me rather odd, and I 
will not dwell further on them. It does seem to me if you were trying 
to promote bipartisanship, as we all are, beginning by attacking the 
sincerity of those who will be in charge of it is not a good idea. But 
the gentleman is free to speculate as he wishes.
  The bill itself is, as he described it, a good idea. We originally 
passed it with an amendment from the Judiciary Committee. Frankly, I 
was not in favor of that amendment. I think what the Senate has done 
has improved the bill; and that is not a sentence I always get to say, 
but I do want to say in this case. I think it is now a good bill and 
more consumer friendly.
  The gentlewoman from Florida was very much interested in this, and 
quite right to push for it. Our colleague from North Carolina (Mr. 
Watt) had some concerns about some potential negative effects on 
consumers. It has all been worked out, so it is now a bill that 
improves the administration of the system, and I generally support it.
  With that, Mr. Speaker, I yield back the balance of my time.
  Mr. McHENRY. Mr. Speaker, I yield such time as he may consume to the 
chairman of the Capital Markets Subcommittee on Financial Services, the 
gentleman from Louisiana (Mr. Baker) who has been a wonderful friend 
and ally on the committee.
  Mr. BAKER. Mr. Speaker, I thank the gentleman for yielding, and wish 
to express appreciation to my friends on the other side for their work 
in this arena.
  It flows from the problems that erupted during the fall of 1998 when 
the then largest hedge fund in the world, LTCM, pursuant to a Russian 
currency crisis, found itself unable to meet its financial obligations. 
When the New York Fed arrived at the meeting location to determine how 
to best resolve this uncertainty, they were surprised to find the scope 
and complexity of the financial relationships that LTCM had with 
significant and large financial institutions, both U.S. and abroad. 
There was not in place at that time a mechanism where counter-party 
obligations could be unwound without wreaking havoc and some sort of 
domino effect,

[[Page 22028]]

potentially bringing significant adverse financial consequences to 
large numbers of individuals who had no knowledge of their exposure to 
the LTCM instability.
  Further, at the time of LTCM's demise at the end of 1998, they had 
approximately $1.5 trillion in notional amounts of derivative positions 
held worldwide. And their leverage ratio exceeded 28 to 1. In other 
words, this was not a good thing. They were significantly larger in 
scope than any of the largest commercial banks. And although others 
enjoyed higher leverage ratios, few had the sophisticated relationships 
with counter parties that were engaged by LTCM.
  The provisions of the bill now suggested by the gentleman from North 
Carolina is the ability to close out what are called netting 
relationships to prevent the failure of one entity from causing a 
domino effect of more serious disruption, known as systemic risk. 
Absent the adoption of these provisions with the growth in size of 
hedge funds and in number of hedge funds, there is considerable market 
uncertainty as to how a bankruptcy proceeding would affect market 
liquidity. The unwinding of these obligations, and let me quickly add 
that it is in scope much larger than impact just in hedge funds; it 
does go to the broader financial marketplace, all of which have in 
common that these transactions are put in place through intermediaries 
such as stock brokers, smaller financial institutions, securities 
clearing agencies that often hedge their risk on transactions through 
securities collateral received pursuant to these obligations.
  As a result, this will provide a safe and secure mechanism to unwind 
complex financial relationships, minimizing market instability, 
providing market liquidity and ensuring that our economic system is not 
adversely impacted by the demise of a hedge fund. In essence, that is a 
good thing, and I commend the gentleman for his work product.
  Mr. McHENRY. Mr. Speaker, I want to thank the gentleman from 
Louisiana for his kind words. And with that I would like to close by 
again thanking the Congresswoman from Florida for her work and 
assistance on this legislation. As I understand it, she was detained 
with an important meeting, an event today, from being here on the 
floor. But I want to thank her for working with me in a bipartisan way, 
and I am hopeful that this is a new direction for the coming Congress 
of bipartisanship.
  As I said in the beginning, I am not overly optimistic about the 
opportunities, but I think this may begin that new direction.
  Mr. FRANK of Massachusetts. Will the gentleman yield?
  Mr. McHENRY. I would be delighted to yield.
  Mr. FRANK of Massachusetts. When the gentleman from North Carolina 
says he hopes this is a new direction that will lead to bipartisanship, 
does that not mean that he believes that under his party's rule there 
was none?
  Mr. McHENRY. No.
  Mr. FRANK of Massachusetts. That the old direction was partisanship?
  Mr. McHENRY. I believe the gentleman is well versed in the knowledge 
of what sarcasm means, and perhaps I was a bit sarcastic in my quoting 
the new direction. I look forward to action in the coming Congress on a 
bipartisan basis.
  Mr. FRANK of Massachusetts. Will the gentleman yield further?
  Mr. McHENRY. Absolutely. I would be happy to yield.
  Mr. FRANK of Massachusetts. I will confess to sometimes starting 
slow, and I am getting old. It would probably be helpful in the future 
if the gentleman would find some way to signal when he was being 
sarcastic. That would help my understanding.
  Mr. McHENRY. Thank you. I certainly appreciate the gentleman's 
guidance on signals. I will make sure, going forward, I smile or wave 
when I am being sarcastic. Or the gentleman, who will be the chairman 
of my committee in the next Congress, I will simply just speak when I 
am being sarcastic on your committee in the next Congress, if that 
would be all right.
  Actually, before I close, I want to give one final story. Before I 
got on the Financial Services Committee, a senior Member told me that 
with the ranking Democrat from Massachusetts (Mr. Frank) that if he 
ever asks you to yield in a committee debate, say ``no.'' And I said, 
why; isn't that rude? He says, well, you have never been in a debate 
with Barney Frank, have you?
  Well, sure enough, 6 months in, I say something and the ranking 
member asks me to yield. And as a new Member, I mistakenly said 
``yes.''
  I will not make that mistake going forward. The gentleman is quite 
able with his arguments, a Harvard educated attorney. I respect his 
ability to make an argument and to make the opposition look silly.
  And with that, as the opposition, I would sit down and say, Mr. 
Speaker, I have no further requests for time.
  Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from North Carolina (Mr. McHenry) that the House suspend the 
rules and concur in the Senate amendments to the bill, H.R. 5585.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds of 
those voting have responded in the affirmative.
  Mr. McHENRY. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX and the 
Chair's prior announcement, further proceedings on this question will 
be postponed.

                          ____________________