[Congressional Record (Bound Edition), Volume 160 (2014), Part 11]
[House]
[Pages 16268-16276]
[From the U.S. Government Publishing Office, www.gpo.gov]




              FINANCIAL INSTITUTION BANKRUPTCY ACT OF 2014

  Mr. GOODLATTE. Mr. Speaker, I move to suspend the rules and pass the

[[Page 16269]]

bill (H.R. 5421) to amend title 11 of the United States Code in order 
to facilitate the resolution of an insolvent financial institution in 
bankruptcy, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 5421

       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 ``Financial Institution 
     Bankruptcy Act of 2014''.

     SEC. 2. GENERAL PROVISIONS RELATING TO COVERED FINANCIAL 
                   CORPORATIONS.

       (a) Definition.--Section 101 of title 11, United States 
     Code, is amended by inserting the following after paragraph 
     (9):
       ``(9A) The term `covered financial corporation' means any 
     corporation incorporated or organized under any Federal or 
     State law, other than a stockbroker, a commodity broker, or 
     an entity of the kind specified in paragraph (2) or (3) of 
     section 109(b), that is--
       ``(A) a bank holding company, as defined in section 2(a) of 
     the Bank Holding Company Act of 1956; or
       ``(B) a corporation that exists for the primary purpose of 
     owning, controlling and financing its subsidiaries, that has 
     total consolidated assets of $50,000,000,000 or greater, and 
     for which, in its most recently completed fiscal year--
       ``(i) annual gross revenues derived by the corporation and 
     all of its subsidiaries from activities that are financial in 
     nature (as defined in section 4(k) of the Bank Holding 
     Company Act of 1956) and, if applicable, from the ownership 
     or control of one or more insured depository institutions, 
     represents 85 percent or more of the consolidated annual 
     gross revenues of the corporation; or
       ``(ii) the consolidated assets of the corporation and all 
     of its subsidiaries related to activities that are financial 
     in nature (as defined in section 4(k) of the Bank Holding 
     Company Act of 1956) and, if applicable, related to the 
     ownership or control of one or more insured depository 
     institutions, represents 85 percent or more of the 
     consolidated assets of the corporation.''.
       (b) Applicability of Chapters.--Section 103 of title 11, 
     United States Code, is amended by adding at the end the 
     following:
       ``(l) Subchapter V of chapter 11 of this title applies only 
     in a case under chapter 11 concerning a covered financial 
     corporation.''.
       (c) Who May Be a Debtor.--Section 109 of title 11, United 
     States Code, is amended--
       (1) in subsection (b)--
       (A) in paragraph (2), by striking ``or'' at the end;
       (B) in paragraph (3)(B), by striking the period at the end 
     and inserting ``; or''; and
       (C) by adding at the end the following:
       ``(4) a covered financial corporation.''; and
       (2) in subsection (d)--
       (A) by striking ``and'' before ``an uninsured State member 
     bank'';
       (B) by striking ``or'' before ``a corporation''; and
       (C) by inserting ``, or a covered financial corporation'' 
     after ``Federal Deposit Insurance Corporation Improvement Act 
     of 1991''.
       (d) Conversion to Chapter 7.--Section 1112 of title 11, 
     United States Code, is amended by adding at the end the 
     following:
       ``(g) Notwithstanding section 109(b), the court may convert 
     a case under subchapter V to a case under chapter 7 if--
       ``(1) a transfer approved under section 1185 has been 
     consummated;
       ``(2) the court has ordered the appointment of a special 
     trustee under section 1186; and
       ``(3) the court finds, after notice and a hearing, that 
     conversion is in the best interest of the creditors and the 
     estate.''.
       (e)(1) Section 726(a)(1) of title 11, United States Code, 
     is amended by inserting after ``first,'' the following: ``in 
     payment of any unpaid fees, costs, and expenses of a special 
     trustee appointed under section 1186, and then''.
       (2) Section 1129(a) of title 11, United States Code, is 
     amended by inserting after paragraph (16) the following:
       ``(17) In a case under subchapter V, all payable fees, 
     costs, and expenses of the special trustee have been paid or 
     the plan provides for the payment of all such fees, costs, 
     and expenses on the effective date of the plan.
       ``(18) In a case under subchapter V, confirmation of the 
     plan is not likely to cause serious adverse effects on 
     financial stability in the United States.''.
       (f) Section 322(b)(2) of title 11, United States Code, is 
     amended by striking ``The'' and inserting ``In cases under 
     subchapter V, the United States trustee shall recommend to 
     the court, and in all other cases, the''.

     SEC. 3. LIQUIDATION, REORGANIZATION, OR RECAPITALIZATION OF A 
                   COVERED FINANCIAL CORPORATION.

       Chapter 11 of title 11, United States Code, is amended by 
     adding at the end the following:

 ``SUBCHAPTER V--LIQUIDATION, REORGANIZATION, OR RECAPITALIZATION OF A 
                     COVERED FINANCIAL CORPORATION

     ``Sec. 1181. Inapplicability of other sections

       ``Sections 303 and 321(c) do not apply in a case under this 
     subchapter concerning a covered financial corporation.

     ``Sec. 1182. Definitions for this subchapter

       ``In this subchapter, the following definitions shall 
     apply:
       ``(1) The term `Board' means the Board of Governors of the 
     Federal Reserve System.
       ``(2) The term `bridge company' means a newly formed 
     corporation to which property of the estate may be 
     transferred under section 1185(a) and the equity securities 
     of which may be transferred to a special trustee under 
     section 1186(a).
       ``(3) The term `capital structure debt' means all unsecured 
     debt of the debtor for borrowed money for which the debtor is 
     the primary obligor, other than a qualified financial 
     contract and other than debt secured by a lien on property of 
     the estate that is to be transferred to a bridge company 
     pursuant to an order of the court under section 1185(a).
       ``(4) The term `contractual right' means a contractual 
     right of a kind defined in section 555, 556, 559, 560, or 
     561.
       ``(5) The term `qualified financial contract' means any 
     contract of a kind defined in paragraph (25), (38A), (47), or 
     (53B) of section 101, section 741(7), or paragraph (4), (5), 
     (11), or (13) of section 761.
       ``(6) The term `special trustee' means the trustee of a 
     trust formed under section 1186(a)(1).

     ``Sec. 1183. Commencement of a case concerning a covered 
       financial corporation

       ``(a) A case under this subchapter concerning a covered 
     financial corporation may be commenced by the filing of a 
     petition with the court--
       ``(1) by the debtor under section 301 only if the debtor 
     states to the best of its knowledge under penalty of perjury 
     in the petition that it is a covered financial corporation; 
     or
       ``(2) by the Board only if the Board states to the best of 
     its knowledge under penalty of perjury in the petition that--
       ``(A) the debtor is a covered financial corporation that--
       ``(i) has incurred losses that will deplete all or 
     substantially all of the capital of the covered financial 
     corporation, and there is no reasonable prospect for the 
     covered financial corporation to avoid such depletion;
       ``(ii) is insolvent;
       ``(iii) is not paying, or is unable to pay, the debts of 
     the covered financial corporation (other than debts subject 
     to a bona fide dispute as to liability or amount) as they 
     become due; or
       ``(iv) is likely to be in a financial condition specified 
     in clause (i), (ii), or (iii) sufficiently soon such that the 
     immediate commencement of a case under this subchapter is 
     necessary to prevent serious adverse effects on financial 
     stability in the United States; and
       ``(B) the commencement of a case under this title and 
     effecting a transfer under section 1185 is necessary to 
     prevent serious adverse effects on financial stability in the 
     United States.
       ``(b)(1) Unless the debtor consents to an order for relief, 
     the court shall hold a hearing on the Board's petition under 
     subsection (a)(2) as soon as practicable but not later than 
     16 hours after the Board files such a petition, with notice 
     only to--
       ``(A) the covered financial corporation;
       ``(B) the Federal Deposit Insurance Corporation;
       ``(C) the Office of the Comptroller of the Currency of the 
     Department of the Treasury; and
       ``(D) the Secretary of the Treasury.
       ``(2) Only the Board and the entities specified in 
     paragraph (1) and their counsel may participate in a hearing 
     described in this subsection. The Board or the trustee may 
     request that pleadings, hearings, transcripts, and orders in 
     connection with a hearing described in this subsection be 
     sealed if their disclosure could create financial instability 
     in the United States.
       ``(3) All pleadings, hearings, transcripts, and orders 
     sealed under paragraph (2) shall be available to only the 
     court, the appellate panel, the covered financial 
     corporation, the Federal Deposit Insurance Corporation, the 
     Office of the Comptroller of the Currency of the Department 
     of the Treasury, the Secretary of the Treasury, and the 
     Board. Notwithstanding paragraph (2), if the case is 
     dismissed, all court documents, including pleadings, 
     hearings, transcripts, and orders, shall be permanently 
     sealed.
       ``(c)(1) The commencement of a case under subsection (a)(1) 
     constitutes an order for relief under this subchapter.
       ``(2) In a case commenced under subsection (a)(2), after 
     notice and hearing required under subsection (b) and not 
     later than 18 hours after the filing of the Board's petition, 
     the court shall enter--
       ``(A) an order for relief--
       ``(i) if the Board has shown at the hearing under this 
     subsection that the requirements under subsection (a)(2) are 
     supported by a preponderance of the evidence; or
       ``(ii) if the debtor consents to the Board's petition under 
     subsection (a)(2); or
       ``(B) an order dismissing the case.
       ``(d)(1) The covered financial corporation or the Board may 
     appeal to the court of appeals from an order entered by the 
     court under subsection (c)(2) not later than 1 hour after the 
     court enters such order, with notice only to the entities 
     specified in subsection (b)(1) and the Board. Such order 
     shall be stayed pending such appeal.

[[Page 16270]]

       ``(2) The appellate panel specified under section 298(c)(1) 
     of title 28 for the judicial circuit in which the case is 
     pending shall hear the appeal under paragraph (1) within 12 
     hours of the filing of the notice of appeal under this 
     subsection. The standard of review shall be abuse of 
     discretion. The appellate panel shall enter an order 
     determining the matter that is the subject of the appeal not 
     later than 14 hours after the notice of appeal is filed.
       ``(3) The court may not, on account of an appeal from an 
     order for relief under section 1183(d)(1), delay any 
     proceeding under section 1185, except that the court shall 
     not authorize a transfer under section 1185 before the 
     determination of the appeal.
       ``(e) The members of the board of directors (or body 
     performing similar functions) of a covered financial company 
     shall have no liability to shareholders, creditors or other 
     parties in interest for a good faith filing or consenting in 
     good faith to a petition with respect to a case under this 
     subchapter, or for any reasonable action taken in good faith 
     in contemplation of or in connection with such a petition or 
     a transfer under section 1185 or section 1186, whether prior 
     to or after commencement of the case.
       ``(f) Counsel to the debtor or the Board shall provide, to 
     the greatest extent practicable, sufficient confidential 
     notice to the Office of Court Services of the Administrative 
     Office of the United States Courts regarding the potential 
     commencement of a subchapter V case without disclosing the 
     identity of the potential debtor in order to allow such 
     office to randomly designate and ensure the ready 
     availability of one of the bankruptcy judges designated under 
     section 298(b)(1) of title 28 to be available to preside over 
     such subchapter V case.

     ``Sec. 1184. Regulators

       ``The Board, the Securities Exchange Commission, the Office 
     of the Comptroller of the Currency of the Department of the 
     Treasury, and the Federal Deposit Insurance Corporation may 
     raise and may appear and be heard on any issue in any case or 
     proceeding under this subchapter.

     ``Sec. 1185. Special transfer of property of the estate

       ``(a) On request of the trustee or the Board, and after 
     notice and a hearing that shall occur not less than 24 hours 
     after the order for relief, the court may order a transfer 
     under this section of property of the estate, and the 
     assignment of executory contracts, unexpired leases, and 
     qualified financial contracts of the debtor, to a bridge 
     company. Upon the entry of an order approving such transfer, 
     any property transferred, and any executory contracts, 
     unexpired leases, and qualified financial contracts assigned 
     under such order shall no longer be property of the estate. 
     Except as provided under this section, the provisions of 
     sections 363 and 365 shall apply to a transfer and assignment 
     under this section.
       ``(b) Unless the court orders otherwise, notice of a 
     request for an order under subsection (a) shall consist of 
     electronic or telephonic notice of not less than 24 hours 
     to--
       ``(1) the debtor;
       ``(2) the holders of the 20 largest secured claims against 
     the debtor;
       ``(3) the holders of the 20 largest unsecured claims 
     against the debtor;
       ``(4) counterparties to any debt, executory contract, 
     unexpired lease, and qualified financial contract requested 
     to be transferred under this section;
       ``(5) the Board;
       ``(6) the Federal Deposit Insurance Corporation;
       ``(7) the Secretary of the Treasury and the Office of the 
     Comptroller of the Currency of the Treasury;
       ``(8) the Securities and Exchange Commission;
       ``(9) the United States trustee or bankruptcy 
     administrator; and
       ``(10) each primary financial regulatory agency, as defined 
     in section 2(12) of the Dodd-Frank Wall Street Reform and 
     Consumer Protection Act, with respect to any affiliate the 
     equity securities of which are proposed to be transferred 
     under this section.
       ``(c) The court may not order a transfer under this section 
     unless the court determines, based upon a preponderance of 
     the evidence, that--
       ``(1) the transfer under this section is necessary to 
     prevent serious adverse effects on financial stability in the 
     United States;
       ``(2) the transfer does not provide for the assumption of 
     any capital structure debt by the bridge company;
       ``(3) the transfer does not provide for the transfer to the 
     bridge company of any property of the estate that is subject 
     to a lien securing a debt, executory contract, unexpired 
     lease or agreement of the debtor unless--
       ``(A)(i) the bridge company assumes such debt, executory 
     contract, unexpired lease or agreement, including any claims 
     arising in respect thereof that would not be allowed secured 
     claims under section 506(a)(1) and after giving effect to 
     such transfer, such property remains subject to the lien 
     securing such debt, executory contract, unexpired lease or 
     agreement; and
       ``(ii) the court has determined that assumption of such 
     debt, executory contract, unexpired lease or agreement by the 
     bridge company is in the best interests of the estate; or
       ``(B) such property is being transferred to the bridge 
     company in accordance with the provisions of section 363;
       ``(4) the transfer does not provide for the assumption by 
     the bridge company of any debt, executory contract, unexpired 
     lease or agreement of the debtor secured by a lien on 
     property in which the estate has an interest unless the 
     transfer provides for such property to be transferred to the 
     bridge company in accordance with paragraph (3)(A) of this 
     subsection;
       ``(5) the transfer does not provide for the transfer of the 
     equity of the debtor;
       ``(6) the party requesting the transfer under this 
     subsection has demonstrated that the bridge company is not 
     likely to fail to meet the obligations of any debt, executory 
     contract, qualified financial contract, or unexpired lease 
     assumed and assigned to the bridge company;
       ``(7) the transfer provides for the transfer to a special 
     trustee all of the equity securities in the bridge company 
     and appointment of a special trustee in accordance with 
     section 1186;
       ``(8) after giving effect to the transfer, adequate 
     provision has been made for the fees, costs, and expenses of 
     the estate and special trustee; and
       ``(9) the bridge company will have governing documents, and 
     initial directors and senior officers, that are in the best 
     interest of creditors and the estate.
       ``(d) Immediately before a transfer under the section, the 
     bridge company that is the recipient of the transfer shall--
       ``(1) not have any property, executory contracts, unexpired 
     leases, or debts, other than any property acquired or 
     executory contracts, unexpired leases, or debts assumed when 
     acting as a transferee of a transfer under this section; and
       ``(2) have equity securities that are property of the 
     estate, which may be sold or distributed in accordance with 
     this title.

     ``Sec. 1186. Special trustee

       ``(a)(1) An order approving a transfer under section 1185 
     shall require the trustee to transfer to a qualified and 
     independent special trustee, who is appointed by the court, 
     all of the equity securities in the bridge company that is 
     the recipient of a transfer under section 1185 to hold in 
     trust for the sole benefit of the estate, subject to 
     satisfaction of the special trustee's fees, costs, and 
     expenses. The trust of which the special trustee is the 
     trustee shall be a newly formed trust governed by a trust 
     agreement approved by the court as in the best interests of 
     the estate, and shall exist for the sole purpose of holding 
     and administering, and shall be permitted to dispose of, the 
     equity securities of the bridge company in accordance with 
     the trust agreement.
       ``(2) In connection with the hearing to approve a transfer 
     under section 1185, the trustee shall confirm to the court 
     that the Board has been consulted regarding the identity of 
     the proposed special trustee and advise the court of the 
     results of such consultation.
       ``(b) The trust agreement governing the trust shall 
     provide--
       ``(1) for the payment of the fees, costs, expenses, and 
     indemnities of the special trustee from the assets of the 
     debtor's estate;
       ``(2) that the special trustee provide--
       ``(A) quarterly reporting to the estate, which shall be 
     filed with the court; and
       ``(B) information about the bridge company reasonably 
     requested by a party in interest to prepare a disclosure 
     statement for a plan providing for distribution of any 
     securities of the bridge company if such information is 
     necessary to prepare such disclosure statement;
       ``(3) that for as long as the equity securities of the 
     bridge company are held by the trust, the special trustee 
     shall file a notice with the court in connection with--
       ``(A) any change in a director or senior officer of the 
     bridge company;
       ``(B) any modification to the governing documents of the 
     bridge company; and
       ``(C) any material corporate action of the bridge company, 
     including--
       ``(i) recapitalization;
       ``(ii) a material borrowing;
       ``(iii) termination of an intercompany debt or guarantee;
       ``(iv) a transfer of a substantial portion of the assets of 
     the bridge company; or
       ``(v) the issuance or sale of any securities of the bridge 
     company;
       ``(4) that any sale of any equity securities of the bridge 
     company shall not be consummated until the special trustee 
     consults with the Federal Deposit Insurance Corporation and 
     the Board regarding such sale and discloses the results of 
     such consultation with the court;
       ``(5) that, subject to reserves for payments permitted 
     under paragraph (1) provided for in the trust agreement, the 
     proceeds of the sale of any equity securities of the bridge 
     company by the special trustee be held in trust for the 
     benefit of or transferred to the estate;
       ``(6) the process and guidelines for the replacement of the 
     special trustee; and
       ``(7) that the property held in trust by the special 
     trustee is subject to distribution in accordance with 
     subsection (c).

[[Page 16271]]

       ``(c)(1) The special trustee shall distribute the assets 
     held in trust--
       ``(A) if the court confirms a plan in the case, in 
     accordance with the plan on the effective date of the plan; 
     or
       ``(B) if the case is converted to a case under chapter 7, 
     as ordered by the court.
       ``(2) As soon as practicable after a final distribution 
     under paragraph (1), the office of the special trustee shall 
     terminate, except as may be necessary to wind up and conclude 
     the business and financial affairs of the trust.
       ``(d) After a transfer to the special trustee under this 
     section, the special trustee shall be subject only to 
     applicable nonbankruptcy law, and the actions and conduct of 
     the special trustee shall no longer be subject to approval by 
     the court in the case under this subchapter.

     ``Sec. 1187. Temporary and supplemental automatic stay; 
       assumed debt

       ``(a)(1) A petition filed under section 1183 operates as a 
     stay, applicable to all entities, of the termination, 
     acceleration, or modification of any debt, contract, lease, 
     or agreement of the kind described in paragraph (2), or of 
     any right or obligation under any such debt, contract, lease, 
     or agreement, solely because of--
       ``(A) a default by the debtor under any such debt, 
     contract, lease, or agreement; or
       ``(B) a provision in such debt, contract, lease, or 
     agreement, or in applicable nonbankruptcy law, that is 
     conditioned on--
       ``(i) the insolvency or financial condition of the debtor 
     at any time before the closing of the case;
       ``(ii) the commencement of a case under this title 
     concerning the debtor;
       ``(iii) the appointment of or taking possession by a 
     trustee in a case under this title concerning the debtor or 
     by a custodian before the commencement of the case; or
       ``(iv) a credit rating agency rating, or absence or 
     withdrawal of a credit rating agency rating--
       ``(I) of the debtor at any time after the commencement of 
     the case;
       ``(II) of an affiliate during the period from the 
     commencement of the case until 48 hours after such order is 
     entered;
       ``(III) of the bridge company while the trustee or the 
     special trustee is a direct or indirect beneficial holder of 
     more than 50 percent of the equity securities of--

       ``(aa) the bridge company; or
       ``(bb) the affiliate, if all of the direct or indirect 
     interests in the affiliate that are property of the estate 
     are transferred under section 1185; or

       ``(IV) of an affiliate while the trustee or the special 
     trustee is a direct or indirect beneficial holder of more 
     than 50 percent of the equity securities of--

       ``(aa) the bridge company; or
       ``(bb) the affiliate, if all of the direct or indirect 
     interests in the affiliate that are property of the estate 
     are transferred under section 1185.

       ``(2) A debt, contract, lease, or agreement described in 
     this paragraph is--
       ``(A) any debt (other than capital structure debt), 
     executory contract, or unexpired lease of the debtor (other 
     than a qualified financial contract);
       ``(B) any agreement under which the debtor issued or is 
     obligated for debt (other than capital structure debt);
       ``(C) any debt, executory contract, or unexpired lease of 
     an affiliate (other than a qualified financial contract); or
       ``(D) any agreement under which an affiliate issued or is 
     obligated for debt.
       ``(3) The stay under this subsection terminates--
       ``(A) for the benefit of the debtor, upon the earliest of--
       ``(i) 48 hours after the commencement of the case;
       ``(ii) assumption of the debt, contract, lease, or 
     agreement by the bridge company under an order authorizing a 
     transfer under section 1185;
       ``(iii) a final order of the court denying the request for 
     a transfer under section 1185; or
       ``(iv) the time the case is dismissed; and
       ``(B) for the benefit of an affiliate, upon the earliest 
     of--
       ``(i) the entry of an order authorizing a transfer under 
     section 1185 in which the direct or indirect interests in the 
     affiliate that are property of the estate are not transferred 
     under section 1185;
       ``(ii) a final order by the court denying the request for a 
     transfer under section 1185;
       ``(iii) 48 hours after the commencement of the case if the 
     court has not ordered a transfer under section 1185; or
       ``(iv) the time the case is dismissed.
       ``(4) Subsections (d), (e), (f), and (g) of section 362 
     apply to a stay under this subsection.
       ``(b) A debt, executory contract (other than a qualified 
     financial contract), or unexpired lease of the debtor, or an 
     agreement under which the debtor has issued or is obligated 
     for any debt, may be assumed by a bridge company in a 
     transfer under section 1185 notwithstanding any provision in 
     an agreement or in applicable nonbankruptcy law that--
       ``(1) prohibits, restricts, or conditions the assignment of 
     the debt, contract, lease, or agreement; or
       ``(2) accelerates, terminates, or modifies, or permits a 
     party other than the debtor to terminate or modify, the debt, 
     contract, lease, or agreement on account of--
       ``(A) the assignment of the debt, contract, lease, or 
     agreement; or
       ``(B) a change in control of any party to the debt, 
     contract, lease, or agreement.
       ``(c)(1) A debt, contract, lease, or agreement of the kind 
     described in subparagraph (A) or (B) of subsection (a)(2) may 
     not be accelerated, terminated, or modified, and any right or 
     obligation under such debt, contract, lease, or agreement may 
     not be accelerated, terminated, or modified, as to the bridge 
     company solely because of a provision in the debt, contract, 
     lease, or agreement or in applicable nonbankruptcy law--
       ``(A) of the kind described in subsection (a)(1)(B) as 
     applied to the debtor;
       ``(B) that prohibits, restricts, or conditions the 
     assignment of the debt, contract, lease, or agreement; or
       ``(C) that accelerates, terminates, or modifies, or permits 
     a party other than the debtor to terminate or modify, the 
     debt, contract, lease or agreement on account of--
       ``(i) the assignment of the debt, contract, lease, or 
     agreement; or
       ``(ii) a change in control of any party to the debt, 
     contract, lease, or agreement.
       ``(2) If there is a default by the debtor under a provision 
     other than the kind described in paragraph (1) in a debt, 
     contract, lease or agreement of the kind described in 
     subparagraph (A) or (B) of subsection (a)(2), the bridge 
     company may assume such debt, contract, lease, or agreement 
     only if the bridge company--
       ``(A) shall cure the default;
       ``(B) compensates, or provides adequate assurance in 
     connection with a transfer under section 1185 that the bridge 
     company will promptly compensate, a party other than the 
     debtor to the debt, contract, lease, or agreement, for any 
     actual pecuniary loss to the party resulting from the 
     default; and
       ``(C) provides adequate assurance in connection with a 
     transfer under section 1185 of future performance under the 
     debt, contract, lease, or agreement, as determined by the 
     court under section 1185(c)(4).

     ``Sec. 1188. Treatment of qualified financial contracts and 
       affiliate contracts

       ``(a) Notwithstanding sections 362(b)(6), 362(b)(7), 
     362(b)(17), 362(b)(27), 362(o), 555, 556, 559, 560, and 561, 
     a petition filed under section 1183 operates as a stay, 
     during the period specified in section 1187(a)(3)(A), 
     applicable to all entities, of the exercise of a contractual 
     right--
       ``(1) to cause the modification, liquidation, termination, 
     or acceleration of a qualified financial contract of the 
     debtor or an affiliate;
       ``(2) to offset or net out any termination value, payment 
     amount, or other transfer obligation arising under or in 
     connection with a qualified financial contract of the debtor 
     or an affiliate; or
       ``(3) under any security agreement or arrangement or other 
     credit enhancement forming a part of or related to a 
     qualified financial contract of the debtor or an affiliate.
       ``(b)(1) During the period specified in section 
     1187(a)(3)(A), the trustee or the affiliate shall perform all 
     payment and delivery obligations under such qualified 
     financial contract of the debtor or the affiliate, as the 
     case may be, that become due after the commencement of the 
     case. The stay provided under subsection (a) terminates as to 
     a qualified financial contract of the debtor or an affiliate 
     immediately upon the failure of the trustee or the affiliate, 
     as the case may be, to perform any such obligation during 
     such period.
       ``(2) Any failure by a counterparty to any qualified 
     financial contract of the debtor or any affiliate to perform 
     any payment or delivery obligation under such qualified 
     financial contract, including during the pendency of the stay 
     provided under subsection (a), shall constitute a breach of 
     such qualified financial contract by the counterparty.
       ``(c) Subject to the court's approval, a qualified 
     financial contract between an entity and the debtor may be 
     assigned to or assumed by the bridge company in a transfer 
     under section 1185 if and only if--
       ``(1) all qualified financial contracts between the entity 
     and the debtor are assigned to and assumed by the bridge 
     company in the transfer under section 1185;
       ``(2) all claims of the entity against the debtor under any 
     qualified financial contract between the entity and the 
     debtor (other than any claim that, under the terms of the 
     qualified financial contract, is subordinated to the claims 
     of general unsecured creditors) are assigned to and assumed 
     by the bridge company;
       ``(3) all claims of the debtor against the entity under any 
     qualified financial contract between the entity and the 
     debtor are assigned to and assumed by the bridge company; and
       ``(4) all property securing or any other credit enhancement 
     furnished by the debtor for any qualified financial contract 
     described in paragraph (1) or any claim described in 
     paragraph (2) or (3) under any qualified financial contract 
     between the entity and the debtor is assigned to and assumed 
     by the bridge company.
       ``(d) Notwithstanding any provision of a qualified 
     financial contract or of applicable nonbankruptcy law, a 
     qualified financial contract of the debtor that is assumed or 
     assigned in a transfer under section 1185 may

[[Page 16272]]

     not be accelerated, terminated, or modified, after the entry 
     of the order approving a transfer under section 1185, and any 
     right or obligation under the qualified financial contract 
     may not be accelerated, terminated, or modified, after the 
     entry of the order approving a transfer under section 1185 
     solely because of a condition described in section 
     1187(c)(1), other than a condition of the kind specified in 
     section 1187(b) that occurs after property of the estate no 
     longer includes a direct beneficial interest or an indirect 
     beneficial interest through the special trustee, in more than 
     50 percent of the equity securities of the bridge company.
       ``(e) Notwithstanding any provision of any agreement or in 
     applicable nonbankruptcy law, an agreement of an affiliate 
     (including an executory contract, an unexpired lease, 
     qualified financial contract, or an agreement under which the 
     affiliate issued or is obligated for debt) and any right or 
     obligation under such agreement may not be accelerated, 
     terminated, or modified, solely because of a condition 
     described in section 1187(c)(1), other than a condition of 
     the kind specified in section 1187(b) that occurs after the 
     bridge company is no longer a direct or indirect beneficial 
     holder of more than 50 percent of the equity securities of 
     the affiliate, at any time after the commencement of the case 
     if--
       ``(1) all direct or indirect interests in the affiliate 
     that are property of the estate are transferred under section 
     1185 to the bridge company within the period specified in 
     subsection (a);
       ``(2) the bridge company assumes--
       ``(A) any guarantee or other credit enhancement issued by 
     the debtor relating to the agreement of the affiliate; and
       ``(B) any right of setoff, netting arrangement, or debt of 
     the debtor that directly arises out of or directly relates to 
     the guarantee or credit enhancement; and
       ``(3) any property of the estate that directly serves as 
     collateral for the guarantee or credit enhancement is 
     transferred to the bridge company.

     ``Sec. 1189. Licenses, permits, and registrations

       ``(a) Notwithstanding any otherwise applicable 
     nonbankruptcy law, if a request is made under section 1185 
     for a transfer of property of the estate, any Federal, State, 
     or local license, permit, or registration that the debtor or 
     an affiliate had immediately before the commencement of the 
     case and that is proposed to be transferred under section 
     1185 may not be accelerated, terminated, or modified at any 
     time after the request solely on account of--
       ``(1) the insolvency or financial condition of the debtor 
     at any time before the closing of the case;
       ``(2) the commencement of a case under this title 
     concerning the debtor;
       ``(3) the appointment of or taking possession by a trustee 
     in a case under this title concerning the debtor or by a 
     custodian before the commencement of the case; or
       ``(4) a transfer under section 1185.
       ``(b) Notwithstanding any otherwise applicable 
     nonbankruptcy law, any Federal, State, or local license, 
     permit, or registration that the debtor had immediately 
     before the commencement of the case that is included in a 
     transfer under section 1185 shall be valid and all rights and 
     obligations thereunder shall vest in the bridge company.

     ``Sec. 1190. Exemption from securities laws

       ``For purposes of section 1145, a security of the bridge 
     company shall be deemed to be a security of a successor to 
     the debtor under a plan if the court approves the disclosure 
     statement for the plan as providing adequate information (as 
     defined in section 1125(a)) about the bridge company and the 
     security.

     ``Sec. 1191. Inapplicability of certain avoiding powers

       ``A transfer made or an obligation incurred by the debtor 
     to an affiliate prior to or after the commencement of the 
     case, including any obligation released by the debtor or the 
     estate to or for the benefit of an affiliate, in 
     contemplation of or in connection with a transfer under 
     section 1185 is not avoidable under section 544, 547, 
     548(a)(1)(B), or 549, or under any similar nonbankruptcy law.

     ``Sec. 1192. Consideration of financial stability

       ``The court may consider the effect that any decision in 
     connection with this subchapter may have on financial 
     stability in the United States.''.

     SEC. 4. AMENDMENTS TO TITLE 28, UNITED STATES CODE.

       (a) Amendment to Chapter 13.--Chapter 13 of title 28, 
     United States Code, is amended by adding at the end the 
     following:

     ``Sec. 298. Judge for a case under subchapter V of chapter 11 
       of title 11

       ``(a) Notwithstanding section 295, the Chief Justice of the 
     United States shall designate not fewer than 3 judges of the 
     courts of appeals in not fewer than 4 circuits to serve on an 
     appellate panel to be available to hear an appeal under 
     section 1183 of title 11 in a case under such title 
     concerning a covered financial corporation. Appellate judges 
     may request to be considered by the Chief Justice of the 
     United States for such designation.
       ``(b)(1) Notwithstanding section 295, the Chief Justice of 
     the United States shall designate not fewer than 10 
     bankruptcy judges to be available to hear a case under 
     subchapter V of chapter 11 of title 11. Bankruptcy judges may 
     request to be considered by the Chief Justice of the United 
     States for such designation.
       ``(2) Notwithstanding section 155, a case under subchapter 
     V of chapter 11 of title 11 shall be heard under section 157 
     by a bankruptcy judge designated under paragraph (1), who 
     shall be assigned to hear such case by the chief judge of the 
     court of appeals for the circuit embracing the district in 
     which the case is pending. To the greatest extent 
     practicable, the approvals required under section 155 should 
     be obtained.
       ``(3) If the bankruptcy judge assigned to hear a case under 
     paragraph (2) is not assigned to the district in which the 
     case is pending, the bankruptcy judge shall be temporarily 
     assigned to the district.
       ``(c)(1) The court of appeals shall have jurisdiction of 
     appeals from all orders for relief and orders of dismissal 
     under section 1183 of title 11.
       ``(2) Notwithstanding section 295, in an appeal under 
     paragraph (1) in a case under title 11 concerning a covered 
     financial corporation shall be heard by--
       ``(A) 3 judges selected from the appellate panel designated 
     under subsection (a); or
       ``(B) if the 3 judges of such panel are not immediately 
     available to hear the case, 3 judges designated under 
     subsection (a) from another circuit and assigned by the Chief 
     Justice of the United States to hear the case.
       ``(3) If any of the judges of the appellate panel specified 
     in paragraph (2) is not assigned to the circuit in which the 
     appeal is pending, the judges shall be temporarily assigned 
     to the circuit.
       ``(4) A case under subchapter V of chapter 11 of title 11, 
     and all proceedings in the case, shall take place in the 
     district in which the case is pending.
       ``(d) In this section, the term `covered financial 
     corporation' has the meaning given that term in section 
     101(9A) of title 11.''.
       (b) Amendment to Section 1334.--Section 1334 of title 28, 
     United States Code, is amended by adding at the end the 
     following:
       ``(f) This section does not grant jurisdiction to the 
     district court after a transfer pursuant to an order under 
     section 1185 of title 11 of any proceeding related to a 
     special trustee appointed, or to a bridge company formed, in 
     connection with a case under subchapter V of chapter 11 of 
     title 11.''.
       (c) Technical and Conforming Amendment.--The table of 
     sections for chapter 13 of title 28, United States Code, is 
     amended by adding at the end the following:

``298. Judge for a case under subchapter V of chapter 11 of title 
              11.''.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Virginia (Mr. Goodlatte) and the gentleman from Michigan (Mr. Conyers) 
each will control 20 minutes.
  The Chair recognizes the gentleman from Virginia.


                             General Leave

  Mr. GOODLATTE. Mr. Speaker, I ask unanimous consent that all Members 
may have 5 legislative days within which to revise and extend their 
remarks and include extraneous materials on H.R. 5421, currently under 
consideration.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Virginia?
  There was no objection.
  Mr. GOODLATTE. Mr. Speaker, I yield myself such time as I may 
consume.
  Today, we take an important step toward preventing the taxpayer-
funded bailouts that characterized the 2008 financial crisis. The 
legislation before us, the Financial Institution Bankruptcy Act, 
enhances the Bankruptcy Code to facilitate the resolution of a failing 
financial institution through the bankruptcy process. In doing so, this 
will help to ensure that private creditors, not taxpayers, bear the 
losses related to a failing financial institution.
  The Financial Institution Bankruptcy Act is the culmination of years 
of review and research by the Judiciary Committee; other committees; 
and experts from the financial, regulatory, legal, and academic 
communities who helped to examine how best to prevent another financial 
crisis from occurring and avert the use of taxpayer moneys to bail out 
failing firms.
  The Judiciary Committee has participated in and promoted this review 
with the aim of examining whether the bankruptcy laws could be improved 
to enhance the prospects of resolving a financial institution through 
the bankruptcy process.
  During the course of two oversight hearings this Congress, the 
Subcommittee on Regulatory Reform, Commercial, and Antitrust Law 
received testimony that the Bankruptcy Code could be improved to better 
facilitate a resolution of a financial firm

[[Page 16273]]

and that an amendment to chapter 11 to provide for a specialized 
subchapter would be the most efficient approach to that goal.
  Following these hearings, the committee worked in a bipartisan 
fashion to draft legislation that built on this record and integrated 
witnesses' and leading experts' recommendations. These efforts 
culminated in a discussion draft of the Financial Institution 
Bankruptcy Act of 2014, which was the subject of a legislative hearing 
on July 15, 2014. All witnesses at the hearing testified that, subject 
to a few modifications, the Financial Institution Bankruptcy Act should 
be enacted into law.
  In connection with the July 15 hearing, the committee circulated the 
draft legislation to a number of interested parties, including the 
Federal Reserve, the Federal Deposit Insurance Corporation, the Office 
of the Comptroller of the Currency, the Administrative Office of the 
United States Courts, the National Conference of Bankruptcy Judges, the 
National Bankruptcy Conference, and the International Swaps and 
Derivatives Association.
  The committee again, in a bipartisan fashion, received, reviewed, and 
incorporated multiple comments submitted by these and other parties. 
The bill was introduced and approved by the committee by voice vote on 
September 10 of this year.
  The bill on the floor today is a reflection of the careful, 
deliberate, thorough, and bipartisan process the bill received and is 
the product of a diverse range of views from a variety of interested 
parties.
  The Financial Institution Bankruptcy Act makes several improvements 
to the Bankruptcy Code in order to enhance the prospect of an efficient 
resolution of a financial firm through the bankruptcy process. The bill 
allows for a speedy transfer of the operating assets of a financial 
firm over the course of a weekend.
  This quick transfer allows the financial firm to continue operating 
in the normal course, which preserves the value of the enterprise for 
the firm's creditors without having a significant impact on the firm's 
employees, suppliers, and customers.
  The bill also requires an expedited judicial review by judges 
designated in advance and selected by the chief justice for their 
experience, expertise, and willingness to preside over these complex 
cases; furthermore, the legislation provides for key input from the 
financial institution's regulators during the process.
  The Financial Institution Bankruptcy Act is a bipartisan, balanced 
approach that increases transparency and predictability in the 
resolution of a financial firm.
  I am pleased that the ranking member of the House Judiciary 
Committee, Mr. Conyers, joined in introducing this important 
legislation, and I want to thank him and his staff for working hand in 
hand with us during the development of this bill.
  I also would like to thank the chairman of the Subcommittee on 
Regulatory Reform, Commercial, and Antitrust Law, Mr. Bachus, for 
introducing the Financial Institution Bankruptcy Act.
  It is no mistake that the former chairman of the Financial Services 
Committee is the lead sponsor of this legislation. Mr. Bachus has been 
a longstanding champion of the bankruptcy process, and that was 
reflected in the multiple subcommittee hearings he chaired on this 
issue.
  This legislation is a tribute to his many years dedicated to 
financial services and bankruptcy issues, and he will be sorely missed 
next Congress. I wish him all the best during the next chapter of his 
life.
  I urge my colleagues to support this important legislation, and I 
reserve the balance of my time.
  Mr. CONYERS. Mr. Speaker, I yield myself such time as I may consume.
  Ladies and gentlemen of the House, I rise in strong support of H.R. 
5421, as amended, the Financial Institution Bankruptcy Act of 2014.
  It is intended to ensure that the resolution of large, complex 
financial institutions on the verge of insolvency can be better 
facilitated under the Bankruptcy Code. I support this legislation for 
several reasons.
  First, it addresses a real need, which is recognized by the 
regulatory agencies, bankruptcy experts, and the private sector, that 
the bankruptcy law must be amended, so that it can expeditiously 
restore trust in the financial marketplace after the collapse of a 
major financial institution.
  Such was the case with the failure of Lehman Brothers in 2008, for 
example, which caused a worldwide freeze on the availability of credit, 
wreaking havoc on Wall Street, as well as on Main Street. The near 
collapse of our Nation's economy that resulted from Lehman's failure 
revealed that current bankruptcy law is, unfortunately, ill-equipped to 
deal with complex financial institutions that are in economic distress.
  This legislation, accordingly, creates a court-supervised, orderly 
liquidation mechanism that will be guided by the regulators.
  In sum, this process will allow a failing financial institution to 
transfer its assets to a newly-formed bridge company over a single 
weekend, which will promote confidence in the financial marketplace.
  The institution's equity and debt will remain in the bankruptcy case 
to be administered by a trustee under court supervision. As a result, 
value assets will be maximized for the benefit of creditors, and the 
marketplace will be stabilized.
  Additionally, I support the legislation because it appropriately 
recognizes the important role the Dodd-Frank Act has in the regulation 
of large financial institutions. Without a doubt, the Great Recession 
was a direct result of the regulatory equivalent of the Wild West.
  The Dodd-Frank Act goes a long way toward reinvigorating a regulatory 
system that makes the financial marketplace more accountable and, 
hopefully, more resilient. The act also institutes long-needed consumer 
protections that have up until now not been available.
  Title II of the Dodd-Frank Act establishes a mandatory 
administratively-driven resolution process to wind down large financial 
institutions. Title II is a critical enforcement tool for bank 
regulators to facilitate compliance with the act's heightened 
regulatory requirements for large companies.
  Nevertheless, the Dodd-Frank Act clearly recognizes that bankruptcy 
should be a first resort and that the title II's orderly liquidation 
process should be a last resort.
  In fact, title I of the act explicitly requires these companies to 
write so-called ``living wills'' that must explain how they will 
resolve their financial difficulties in a hypothetical bankruptcy 
scenario. This is because bankruptcy law has, for more than 100 years, 
enabled some of the Nation's largest companies to regain their 
financial footing.
  I am from Detroit, and I remember that General Motors and the 
Chrysler Corporation were major beneficiaries. H.R. 5421 will ensure 
that bankruptcy is a truly viable alternative to the Dodd-Frank Act's 
resolution process.
  I am pleased to note, as has been referenced by the chairman of the 
Judiciary Committee, that this legislation is the product of a very 
collaborative, bipartisan, and deliberate process, which should be the 
norm, not the exception, when it comes to drafting legislation, so a 
tip of my hat to Chairman Goodlatte and to the subcommittee chairman 
for the work that they have done in bringing this legislation to this 
point.
  For example, this bill, unlike similar legislation in the Senate, 
doesn't include any controversial provisions aimed at undoing the 
important protections of the Dodd-Frank Act.
  I should also note, however, that H.R. 5421 does not include any 
provision allowing companies to have access to lenders of last resort. 
Nearly every expert recognizes that such access, even if it is the 
Federal Government, is a necessary element to ensure financial 
stability.
  I want to acknowledge the excellent level of cooperation on both 
sides of the aisle on the Judiciary Committee in producing the 
legislation that is

[[Page 16274]]

pending before us today, and I urge my colleagues to support this 
measure.
  I would like to just add that my friend, Spencer Bachus of Alabama, 
is a longtime Member who has been particularly active over the years in 
the areas of administrative law, as well as immigration and criminal 
justice.
  I find him an individual of principle who has worked on many 
bipartisan initiatives. I understand Representative Bachus' father 
often used the adage, ``If you can't say anything nice about a person, 
don't say anything at all.''
  Mr. Bachus has certainly adhered to that advice, as he was a 
consummate gentleman who wielded the gavel with fairness at all times 
when it was his turn to sit in the chair.
  Mr. Speaker, I reserve the balance of my time.

                              {time}  1615

  Mr. GOODLATTE. Mr. Speaker, at this time, it is my pleasure to yield 
5 minutes to the gentleman from Alabama (Mr. Bachus), the chairman of 
the Subcommittee on Regulatory Reform, Commercial and Antitrust Law, 
and the chief sponsor of this legislation.
  Mr. BACHUS. Mr. Speaker, first let me thank Chairman Goodlatte and 
Ranking Member Conyers--former Chairman Conyers--for those kind 
remarks. I have been fortunate to associate with both of you gentlemen 
over the past years and appreciate the confidence you have entrusted in 
me, and I take those kind words to heart.
  I want to thank both of you for this legislation because, as we know 
in the legislative process, this went by regular order, which is how 
all bills should proceed. And the gentleman from Tennessee (Mr. Cohen), 
who was then my subcommittee ranking member, and now the gentleman from 
Georgia (Mr. Johnson) were both very cooperative.
  We also know that good legislation has to have a good staff, and on 
the subcommittee, we were blessed by three fine individuals and their 
support staffs: Anthony Grossi and Daniel Flores on the majority side, 
and sitting over there next to Mr. Conyers is Susan Jensen. And they 
worked together. They worked for what was best. I saw no partisanship, 
no gamesmanship. It was a group effort.
  They were also backed by the National Bankruptcy Conference, the 
Administrative Office of Courts, the Bankruptcy Judicial Conference, as 
well as the attorneys bar both for creditors and debtors, both for 
consumers and for the institution. They all came together. We had many 
people from the academic world, experts in bankruptcy, and they pretty 
much identified how it ought to go.
  The history of all of this really is the financial crisis of 2008, 
which none of us want to go through again. Now, we may go through 
something similar, but we want to do everything we can do to avoid 
that, and that is what this bill is all about. It is to proceed under 
an established procedure rule of law, which separates the United States 
from many, many countries. This bill follows the rule of law.
  If you look at Bear Stearns and Lehman Brothers and you see the total 
different paths that were taken, if you see in other bankruptcies where 
people were put out of jobs unnecessarily--and there were tremendous 
job losses--there was a consensus, in looking back, that that could 
have been avoided, much of that, except that bankruptcy didn't give us 
the tools to address it.
  Now, there were two reasons, things that we have heard often during 
the financial crisis. One was that term ``derivatives,'' credit default 
swaps, straddles, a lot of these new financial instruments. The 
Bankruptcy Code simply had not been updated to address derivatives.
  And then the global economy. You have almost every large bank holding 
company, almost every large financial company which have both foreign 
subsidiaries and domestic subsidiaries, so you have got multiple 
jurisdictions trying to handle pieces of this. And through, really, a 
consensus, we came together and said we are going to let the U.S. 
operating subsidiaries and the foreign operating subsidiaries--and that 
is where 99 percent of your employees work and probably where 99 
percent of the transactions with customers, creditors, debtors, the 
general public, that is where they transact. We allow that to continue.
  We put the bank holding company alone, through a single point of 
entry, goes into bankruptcy. So there are not these tremendous 
disruptions that we saw first with Bear Stearns and then in a cascading 
effect. We hopefully can avoid a lot of that.
  I see my time has almost expired, but let me close by saying this: 
Dodd-Frank said let's go to GAO, let's go to the Federal Reserve.
  The SPEAKER pro tempore. The time of the gentleman has expired.
  Mr. GOODLATTE. Mr. Speaker, I am happy to yield an additional 2 
minutes to the gentleman from Alabama.
  Mr. BACHUS. I thank the gentleman from Virginia.
  They actually called for us to have this procedure. And that part of 
Dodd-Frank--I have sometimes said ``the good, the bad, and the ugly''--
that was a good part. We needed to structure bankruptcy where it could 
handle these situations if at all possible.
  We consulted with the Comptroller of the Currency, with the Federal 
Reserve, with the FDIC, and this is a rare consensus. There is a bill 
over in the Senate by Senator Cornyn of Texas and Senator Pat Toomey of 
Pennsylvania that is similar to this bill. Hopefully we will have a 
conference with the Senate and get this done.
  Some people may say, well, it is not enough. Well, we need to do what 
we can do in a consensus way and do what we can. It is probably never 
enough. Sometimes it is too much. But at least this is in our general 
agreement.
  With that, I would like to now introduce a memorandum on this bill 
which includes the section-by-section comments for the Record. This is 
basically a detailed narrative for the courts and those that would look 
at this to give illumination to exactly how this works.

    H.R. 5421. The ``Financial Institution Bankruptcy Act of 2014''

       The orderly resolution of financial companies presents 
     unique challenges to the U.S. Bankruptcy Code for many 
     reasons, including these institutions' interconnectedness 
     and, in the case of larger institutions, a potential to pose 
     ``systemic risk.'' H.R. 5421, the ``Financial Institution 
     Bankruptcy Act of 2014,'' amends chapter 11 of the Bankruptcy 
     Code to address better the unique challenges presented by the 
     insolvency of a financial institution and better allow such 
     an institution to be resolved through the bankruptcy process.


                             I. BACKGROUND

     A. Brief Overview of Chapter 11
       Chapter 11 of the Bankruptcy Code primarily is designed to 
     allow a business to restructure its debt obligations while 
     maintaining its operations. The underlying principle is that 
     a business in its entirety is more valuable than its assets 
     each valued independently. Preservation of a business through 
     chapter 11, and in turn its enterprise value, can benefit 
     both creditors, who should receive a higher recovery as a 
     result of a debtor's restructuring than they would otherwise 
     obtain through a liquidation, and debtors, which benefit from 
     the ability to remain in business. Employees, suppliers, 
     customers, and others can also benefit if the debtor remains 
     in business.
       A chapter 11 case begins by the filing of a petition for 
     relief with the relevant bankruptcy court. Once the petition 
     is filed, an ``automatic stay'' is put into place that 
     prevents, with some exceptions, creditors of the debtors from 
     taking actions to recover their debts. The automatic stay 
     allows a debtor the breathing room necessary to organize its 
     operations, negotiate with creditors, and achieve consensus 
     on a chapter 11 plan. The inflection point of a chapter 11 
     case is the chapter 11 plan, which dictates what each of the 
     creditors will receive as a recovery. The chapter 11 plan 
     must be approved by the debtor's creditors and the Bankruptcy 
     Court. Once a chapter 11 plan is approved, creditors of the 
     debtor may only pursue recoveries as provided by the chapter 
     11 plan, and the reorganized company is treated as a new 
     corporate entity.
       There are generally two primary paths for a debtor to 
     restructure under chapter 11. The first path is a traditional 
     reorganization of a debtor's capital structure. A simple 
     example of this type of reorganization would involve a 
     debtor's shareholders not receiving any recovery on account 
     of their shares, and the debtor's secured creditors becoming 
     the new equity holders of the reorganized company. The second 
     path is a sale of a debtor's primary business, with the 
     proceeds of the sale used to provide recoveries to the 
     debtor's creditors. The sale of a business as a whole is

[[Page 16275]]

     distinct from a liquidation, in that the enterprise typically 
     will continue to run in substantially the same manner under 
     new, third party ownership. In a liquidation, the debtor's 
     assets are sold in piecemeal fashion or simply handed over to 
     secured creditors.
     B. The Existing Bankruptcy Code and Addressing Financial 
         Institution Insolvencies
       The bankruptcy process has been the traditional mechanism 
     for handling the orderly resolution of distressed companies 
     in the U.S. because of bankruptcy's established history of 
     laws, precedent and impartial administration. According to a 
     report by the Federal Deposit Insurance Corporation (FDIC) 
     and the Bank of England (Resolving Globally Active, 
     Systemically Important, Financial Institutions, December 
     2012), ``[t]he U.S. would prefer that large financial 
     organizations be resolvable through ordinary bankruptcy.'' 
     However, the report added that ``the U.S. bankruptcy process 
     may not be able to handle the failure of a systemic financial 
     institution without significant disruption to the financial 
     system.'' Smaller financial companies are also eligible to 
     restructure their operations under the Bankruptcy Code in the 
     event of material financial distress or failure.
       In the wake of the 2008 financial crisis, the Dodd-Frank 
     Wall Street Reform and Consumer Protection Act, Pub. L. No. 
     111-203, directed the Federal Reserve and the Governmental 
     Accountability Office (GAO) to study the Bankruptcy Code and 
     international issues related to the insolvency of financial 
     institutions as part of an overall goal of reducing systemic 
     risk within the financial sector. The studies identified a 
     number of issues specific to the resolution of insolvent 
     financial institutions and discussed theories regarding how 
     to address such issues, without offering specific 
     recommendations or independent opinions regarding potential 
     revisions to the Bankruptcy Code.
       One of the concepts discussed in the Federal Reserve and 
     GAO reports is the resolution of a financial institution 
     through a ``single point of entry.'' This resolution approach 
     relies on placing a parent holding company into receivership 
     while maintaining the operations and solvency of its 
     operating subsidiaries. The ``single point of entry'' 
     approach is also the FDIC's intended method for implementing 
     its resolution/orderly liquidation authority under Title II 
     of the Dodd-Frank Act, a non-bankruptcy resolution process 
     the Dodd-Frank legislation made available for large, 
     systemically important financial institutions. Under this 
     approach, the FDIC would be appointed receiver of the parent 
     holding company and could transfer the parent company's 
     assets into a bridge financial holding company, impose losses 
     on the shareholders and creditors of the parent company, and 
     eventually transition ownership of the bridge financial 
     company into private hands.
       Some commentators have suggested that the single point of 
     entry approach should also be made available in the 
     Bankruptcy Code. There are two principal proposals to amend 
     the Bankruptcy Code to facilitate use of this approach. The 
     first proposal is referred to as ``chapter 14'' and would 
     introduce an entirely new chapter to the Bankruptcy Code. On 
     December 19, 2013, Senators Cornyn and Toomey introduced 
     legislation that would, among other things, create a chapter 
     14 of the Bankruptcy Code. The second proposal is referred to 
     as ``Subchapter V'' and would create an entirely new 
     subchapter within chapter 11.
       As explained in additional detail below, both the chapter 
     14 and subchapter V proposals are designed to address the 
     unique issues presented by a financial institution's 
     bankruptcy. chapter 14 and subchapter V would, among other 
     elements: apply to financial institutions; allow not just the 
     debtor institution, but also the financial institution's 
     primary regulator, to initiate and have standing in the 
     institution's bankruptcy proceeding; designate a select group 
     of appellate and bankruptcy judges to oversee these 
     bankruptcies; and, provide specialized treatment for 
     derivative contracts. Advocates of these approaches argue 
     that a transparent judicial process that allows for the 
     reorganization, rather than liquidation, of a large financial 
     institution is a preferable resolution strategy.
       The Committee has conducted two separate hearings on the 
     topic of enhancing the Bankruptcy Code to address the 
     resolution of a financial institution through the bankruptcy 
     process. On December 3, 2013, the Subcommittee on Regulatory 
     Reform, Commercial and Antitrust Law conducted a hearing 
     entitled ``The Bankruptcy Code and Financial Institution 
     Insolvencies.'' At the hearing, witnesses testified that a 
     financial institution's bankruptcy presents unique issues 
     that the existing Bankruptcy Code could be equipped better to 
     address. On March 26, 2014, the Subcommittee the Subcommittee 
     on Regulatory Reform, Commercial and Antitrust Law conducted 
     a hearing entitled ``Exploring Chapter 11 Reform: Corporate 
     and Financial Institution Insolvencies; Treatment of 
     Derivatives.'' During this hearing, there was testimony in 
     support of amending the Bankruptcy Code to create a 
     subchapter V under chapter 11 to allow the resolution of a 
     financial institution through the bankruptcy process. In 
     addition, as detailed below, on July 15, 2014, the 
     Subcommittee on Regulatory Reform, Commercial and Antitrust 
     Law conducted a hearing on a discussion draft of the 
     Financial Institution Bankruptcy Act.
     C. The Challenges Presented by a Financial Institution 
         Insolvency and How the Financial Institution Bankruptcy 
         Act Addresses These Challenges
       There are a number of challenges posed by the insolvency of 
     a financial institution, particularly the insolvency of a 
     large, multi-national financial institution. A resolution of 
     a financial institution must be swift, transparent, and 
     account for the potential impact on the general financial 
     system, due to the typically liquid and quickly transferable 
     assets of a financial institution. While the existing 
     Bankruptcy Code possesses many of the provisions necessary to 
     resolve a large, failing firm, commentators have suggested 
     that improvements are necessary to resolve effectively a 
     financial institution.
       As explained above, commentators generally agree that the 
     ``single point of entry'' approach is the most efficient 
     proposal to provide for an expeditious resolution of a 
     financial firm. There are several provisions contained in 
     H.R. ___, the ``Financial Institution Bankruptcy Act of 
     2014'' (referred to herein as ``Subchapter V'') to allow the 
     ``single point of entry'' approach to be utilized in the 
     bankruptcy process. Subchapter V allows the debtor holding 
     company that sits atop the financial firm's corporate 
     structure to transfer its assets, including the equity in all 
     of its operating subsidiaries, to a newly-formed bridge 
     company over a single weekend. The debt and equity held at 
     the holding company will remain in the bankruptcy process and 
     absorb the losses of the financial institution. Identifying 
     the debt and equity to remain in the bankruptcy process 
     allows existing creditors of the debtor to price 
     appropriately their dealings and investment with the debtor 
     prior to any bankruptcy proceeding.
       Furthermore, the Subchapter V ``single point of entry'' 
     approach allows all of the financial institution's operating 
     subsidiaries to remain out of the bankruptcy process. Keeping 
     these entities out of an insolvency proceeding is 
     particularly helpful for multi-national firms that otherwise 
     could be required to comply with multiple, and potentially, 
     conflicting insolvency jurisdictions.
       To account for the potential of a financial firm's 
     insolvency to impact the general financial markets, 
     Subchapter V allows the Federal Reserve to initiate a 
     bankruptcy case. In order to commence a case over the 
     objection of the subject financial institution, the Federal 
     Reserve must demonstrate to the presiding bankruptcy court, 
     which must agree with the Federal Reserve's assessment, that 
     initiating a Subchapter V case is ``necessary to prevent 
     serious adverse effects on financial stability in the United 
     States.'' By allowing the Federal Reserve to commence a 
     Subchapter V case, subject to careful judicial oversight, a 
     near-failing financial firm may be resolved quickly and 
     potentially in advance of its losses spreading to the 
     financial markets.
       Subchapter V also includes provisions designed to deal with 
     the types of transactions that financial institutions engage 
     in routinely--derivative and similarly-structured 
     transactions. Currently, the Bankruptcy Code contains 
     exemptions for counterparties to derivative and similarly-
     structured transactions to collect on outstanding debts 
     notwithstanding the commencement of a chapter 11 case and the 
     consequent ``automatic stay.'' This exemption stands in 
     contrast to the treatment of other contracts and debts under 
     the Bankruptcy Code, which typically requires creditors to 
     wait until a chapter 11 plan is approved before they receive 
     a recovery on account of their relationship with the debtor. 
     Subchapter V overrides the exemption for derivative and 
     similarly-structured transactions contained in the Bankruptcy 
     Code for two days to allow for the effective transfer of the 
     financial institution's operations to a bridge company. 
     Without overriding the existing exemptions, counterparties to 
     derivatives and similarly-structured transactions could 
     terminate their relationships with the debtor upon the 
     commencement of a bankruptcy case, which likely would 
     endanger the successful transfer and continued operation of 
     the bridge company and potentially threaten other entities 
     within the broader financial system.
       The draft bill also recognizes that overseeing a Subchapter 
     V case requires a presiding bankruptcy judge or a judge 
     sitting on appeal in such a case to have a certain level of 
     expertise and experience with either financial industry cases 
     or large corporate reorganizations. To that end, Subchapter V 
     contains provisions that require the advance designation of 
     select bankruptcy and appellate judges who can be available 
     to hear these cases and appeals from them.


  II. The Hearing on a Discussion Draft of the Financial Institution 
       Bankruptcy Act and Ensuing Legislative Refinement Process

       On July 15, 2014, the Subcommittee on Regulatory Reform, 
     Commercial and Antitrust Law conducted a hearing on a 
     discussion draft of the Financial Institution Bankruptcy Act. 
     The witnesses at the hearing were: Donald S. Bernstein, Esq., 
     partner and

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     head of Davis Polk & Wardwell LLP's Insolvency and 
     Restructuring Practice; Stephen E. Hessler, Esq., Partner, 
     Kirkland & Ellis, LLP; Professor Thomas H. Jackson, Simon 
     Business School, University of Rochester; and, Professor 
     Stephen J. Lubben, Seton Hall Law School. All four witnesses, 
     including the Minority witness, testified that they believed 
     the Financial Institution Bankruptcy Act, subject to certain 
     technical modifications, should be enacted into law.
       Following the hearing, the Committee received comments on 
     the Financial Institution Bankruptcy Act from, among others, 
     the Federal Reserve, the FDIC, the Office of the Comptroller 
     of the Currency, the Administrative Office of the U.S. 
     Courts, the National Conference of Bankruptcy Judges, the 
     National Bankruptcy Conference, and the International Swaps 
     and Derivatives Association. The comments received from these 
     parties served as the basis for the revisions to the 
     discussion draft that was the subject of the July 15 
     Subcommittee hearing.

  Mr. BACHUS. Again, I thank the chairmen, the ranking members, and 
their staff for putting this together.
  The resolution process for financial institutions is one of the 
pieces of unfinished business from the 2008 financial crisis, and we 
will finish some of that business hopefully before the year is out. The 
American people are hungry for us to do some good things in a spirit of 
bipartisanship, and they are getting that today.
  Mr. CONYERS. Mr. Speaker, I yield back the balance of my time.
  Mr. GOODLATTE. Mr. Speaker, I urge my colleagues to support this 
important legislation, and I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Virginia (Mr. Goodlatte) that the House suspend the 
rules and pass the bill, H.R. 5421, as amended.
  The question was taken; and (two-thirds being in the affirmative) the 
rules were suspended and the bill, as amended, was passed.
  A motion to reconsider was laid on the table.

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