[House Report 105-688]
[From the U.S. Government Publishing Office]
105th Congress Rept. 105-688
HOUSE OF REPRESENTATIVES
2d Session Part 1
_______________________________________________________________________
FINANCIAL CONTRACT NETTING IMPROVEMENT ACT OF 1998
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August 21, 1998.--Ordered to be printed
_______________________________________________________________________
Mr. Leach, from the Committee on Banking and Financial Services,
submitted the following
R E P O R T
[To accompany H.R. 4393]
[Including cost estimate of the Congressional Budget Office]
The Committee on Banking and Financial Services, to whom
was referred the bill (H.R. 4393) to revise the banking and
bankruptcy insolvency laws with respect to the termination and
netting of financial contracts, and for other purposes, having
considered the same, report favorably thereon without amendment
and recommend that the bill do pass.
Purpose and Summary
H.R. 4393, the Financial Contract Netting Improvement Act
of 1998 (Act), contains legislative proposals forwarded to
Congress by the nation's financial regulators in order to guard
against systemic risk to the nation's financial system. Except
for Section 14, the provisions of this Act are based on
recommendations made by the President's Working Group on
Financial Markets following a review of current statutory
provisions governing the treatment of qualified financial
contracts and similar financial contracts upon the insolvency
of a counterparty. The Working Group consists of the Securities
and Exchange Commission; the Commodity Futures Trading
Commission; the Federal Deposit Insurance Corporation; the
Department of the Treasury, including the Office of the
Comptroller of the Currency; the Board of Governors of the
Federal Reserve System; and the Federal Reserve Bank of New
York. The recommendations of the Working Group were transmitted
to Congress by Treasury Secretary Rubin in his role as Chairman
of the Working Group on March 16, 1998.
The provisions, forwarded by Secretary Rubin, amend the
U.S. Bankruptcy Code; the Federal Deposit Insurance Act (FDIA),
as amended by the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA); the payment system risk
reduction and netting provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA); and the
Securities Investor Protection Act of 1971 (SIPA). These
amendments address the treatment of certain financial
transactions following the insolvency of a party to such
transactions. The amendments are designed to clarify and
improve consistency between the applicable statutes and to
minimize risk of a disruption within or between financial
markets upon the insolvency of a market participant.
Section 14 of H.R. 4393 incorporates an amendment to the
Federal Reserve Act transmitted to the Committee on Banking and
Financial Services (the Committee) on July 30, 1998, by Alan
Greenspan, Chairman of the Board of Governors of the Federal
Reserve System. This section expands the kinds of assets that
the Federal Reserve can use as collateral to back currency. In
his transmittal letter to the Committee, Chairman Greenspan
stated that the current ``limitations on eligible currency
collateral could become potentially problematic for the
implementation of monetary policy under unusual
circumstances'', citing as an example problems stemming from
the century date change.
Background and Need for Legislation
insolvency provisions
Since its adoption in 1978, the Bankruptcy Code has been
amended several times to afford different treatment for certain
financial transactions upon the bankruptcy of a debtor, as
compared with the treatment of other commercial contracts and
transactions. These amendments were designed to further the
policy goal of minimizing the systemic risk potentially arising
from certain interrelated financial activities and markets.
Similar amendments have been made to the FDIA and FDICIA, and
both the Federal Deposit Insurance Corporation (FDIC) and the
Securities Investor Protection Corporation (SIPC) have issued
policy statements and letters clarifying general issues in this
regard.
Systemic risk is the risk that the failure of a firm or
disruption of a market or settlement system will cause
widespread difficulties at other firms, in other market
segments or in the financial system as a whole. If participants
in certain financial activities are unable to enforce their
rights to terminate financial contracts with an insolvent
entity in a timely manner, or to offset or net their various
contractual obligations, the resulting uncertainty and
potential lack of liquidity could increase the risk of an
inter-market disruption.
The Committee and Congress have taken steps in the past to
ensure that the risk of such systemic events is minimized. For
example, both the Bankruptcy Code and the FDIA contain
provisions that protect the rights of financial participants to
terminate swap agreements, forward contracts, securities
contracts, commodity contracts and repurchase agreements
following the bankruptcy or insolvency of a counterparty to
such contracts or agreements. Furthermore, other provisions
prevent transfers made under such circumstances from being
avoided as preferences or fraudulent conveyances (except when
made with actual intent to defraud). Protections also are
afforded to ensure that the netting, set off and collateral
foreclosure provisions of such transactions and master
agreements for such transactions are enforceable.
In addition, FDICIA, was enacted in 1991 to protect the
enforceability of close-out netting provisions in ``netting
contracts'' between ``financial institutions.'' FDICIA states
that the goal of enforcing netting arrangements is to reduce
systemic risk within the banking system and financial markets.
In simple terms, netting occurs when money payments,
entitlements, or obligations arising under one or more contract
or a clearing arrangement are all offset against each other
leaving one net amount.
The orderly resolution of insolvencies involving
counterparties to such contracts also is an important element
in the reduction of systemic risk. The FDIC allows the receiver
of an insolvent insurance depository institution the
opportunity to review the status of certain contracts to
determine whether to terminate or transfer the contracts to new
counterparties. These provisions provide the receiver with
flexibility in determining the most appropriate resolution for
the failed institution and facilitate the reduction of systemic
risk by permitting the transfer, rather than termination, of
such contracts.
Not only does this Act update legislation initiated by the
Committee in 1989 and 1991 but it also builds on
recommendations first contained in a comprehensive report (Part
3 of Committee hearing record 103-88) on derivatives issued on
October 28, 1993, by the minority staff of the Committee under
the direction of then Ranking Minority Member, Representative
Leach. During preparation of the report, the staff submitted a
series of questions to Federal financial regulatory bodies
concerning the adequacy and consistency of the netting
provisions contained in the Bankruptcy Code, FIRREA, and
FDICIA. In sum, all agencies stated that the netting provisions
should be amended and conformed to provide greater certainty to
the market. The agencies stated that the differences in
coverage provided by the various acts have created legal
uncertainty, emanating mainly from the definitional sections of
FIRREA and the Bankruptcy Code which limit netting to specific
types of contracts expressly enumerated.
In summary, the insolvency provisions of the Act are
designed to clarify the treatment of certain financial
contracts upon the insolvency of a counterparty and to promote
the reduction of systemic risk. These provisions further the
goals of prior amendments to the Bankruptcy Code and the FDIA
on the treatment of those financial contracts and of the
payment system risk reduction provisions in FDICIA. The
insolvency provisions of the Act have four principal purposes:
To strengthen the provisions of the Bankruptcy Code
and the FDIA that protect the enforceability of
termination and close-out netting and related
provisions of certain financial agreements and
transactions.
To harmonize the treatment of these financial
agreements and transactions under the Bankruptcy Code
and the FDIA.
To amend the FDIA and FDICIA to clarify that certain
rights of the FDIC acting as conservator or receiver
for a failed insured depository institution (and in
some situations, rights of SIPC and receivers of
certain uninsured institutions) cannot be defeated by
operation of the terms of FDICIA.
To make other substantive and technical amendments to
clarify the enforceability of financial agreements and
transactions in bankruptcy or insolvency.
All these changes are designed to further minimize systemic
risk to the banking system and the financial markets.
Currency Collateral Requirement
Current law requires that the Federal Reserve collateralize
Federal Reserve notes when they are issued. The list of
eligible collateral includes Treasury and Federal agency
securities, gold certificates, Special Drawing Right
certificates, and foreign currencies. In addition, the legally
eligible backing for currency includes discount window loans
made under section 13 of the Federal Reserve Act. Over the
years, sections were added to the Act that permit lending under
provisions other than section 13 and against a broader range of
collateral than allowed under section 13. However, the currency
collateralization requirement was not similarly amended, thus
limiting the types of loans the Federal Reserve can use to back
the currency.
The Federal Reserve has expressed concern that in recent
years the amount of excess currency collateral has been
dwindling primarily because of the development of retail sweep
accounts--accounts which have been created by depository
institutions to reduce their reserve holdings with the Federal
Reserve System. Since the Federal Reserve uses reserves to
purchase eligible collateral they serve as a source of excess
collateral for currency. The amount of reserves that banks hold
at the Federal Reserve has decreased from $28 billion in 1993
to $8 billion today, again with the reduction being attributed
to the use of retail sweep accounts. As additional sweep
programs are implemented by depository institutions, the amount
of reserves will further decrease, thereby decreasing the
margin of excess currency collateral.
According to the Federal Reserve, the smaller margin of
available collateral poses a potential problem for the Federal
Reserve in its conduct of monetary policy and its duties to
avoid systemic risk to the nation's financial system. In a
Federal Reserve staff analysis which accompanied Chairman
Greenspan's transmittal letter for the legislation, this
potential conflict between the pursuit of both goals was
described as follows:
For example, one or more banks could experience
operational problems (perhaps owing to computer
failures related to the century date change) that
require a large volume of temporary funding from the
discount window. Such banks might not be able to tender
the types of collateral that would qualify for loans
under Section 13. Consequently, any such loans would
need to be made under other provisions of the Act and
under current law would not be eligible to back
currency.
If the aggregate need for such loans exceeded excess
currency collateral, the Federal Reserve would be faced
with an unpalatable choice. Were the Federal Reserve to
extend the credit, it would not be able to absorb all
of the resulting excess reserves by selling Treasury
securities from its portfolio, because selling the
necessary amount would cause a deficiency in currency
collateral. The increase in excess reserves would
reduce short-term interest rates, causing an unintended
shift in the stance of monetary policy. The situation
would persist until the loans were repaid. Were the
Federal Reserve instead to refuse to make the discount
loans in order to maintain the stance of monetary
policy and continue to collateralize the currency, the
depository institutions seeking credit would not be
able to meet their obligations, with possible adverse
implications for the financial system as well as the
individual depository institutions.
To avoid this ``unpalatable choice'' between conducting an
efficacious monetary policy and protecting the nation's
financial system from systemic risk, the Federal Reserve
proposes to amend the Federal Reserve Act to authorize the
Federal Reserve to collateralize the currency with all types of
discount window loans. Section 14 of H.R. 4393 incorporates
such an amendment.
Introduction of Legislation
On July 16, 1998, Representatives Leach, LaFalce, McCollum
and Roukema introduced H.R. 4239, which contained the Working
Group's recommendations as transmitted by Secretary Rubin.
Before the Committee markup of the legislation, staff of the
Working Group forwarded a number of modifications further
perfecting the legislation. The insolvency provisions contained
in H.R. 4393, as introduced on August 4, 1998, and reported,
incorporate the provisions of H.R. 4239 with these
modifications. The changes incorporated into H.R. 4239 include
a clarification of what kinds of financial contracts will
receive differential treatment under the various Federal
insolvency laws. In addition, the Bankruptcy Code is amended to
provide that certain assets transferred to an eligible entity
in connection with an asset-backed securitization generally
will not be included within the bankruptcy estate of the
debtor. H.R. 4393 also incorporates the amendment recommended
by the Federal Reserve Board to expand the kinds of assets the
Federal Reserve can use as collateral to back Federal Reserve
notes.
Hearings
The Committee held two hearings on the derivatives market
generally, H.R. 4062, the Financial Derivatives Supervisory
Improvement Act, and the provisions of this Act.
The first hearing was held on July 17, 1998. Appearing
before the Committee were: Dennis Oakley, Managing Director of
Global Markets, Chase Manhattan Bank; Mark C. Brickell,
Managing Director, J.P. Morgan & Co., Incorporated; George M.
James, Managing Director, Morgan Stanley Dean Witter & Company;
Charles Smithson, Managing Director, CIBC World Markets; Susan
Schmidt Bies, Exec. Vice President of Risk Management, First
Tennessee National Corporation; Wendy Gramm, Distinguished
Senior Fellow, James Buchanan Center, George Mason University
and former CFTC Chairperson; John C. Coffee, Jr., Adolf A.
Berle, Professor, Columbia University Law School; Robert
Mackay, Vice President, National Economic Research Associates;
Martin Regalia, Vice President for Economic Policy and Chief
Economist, U.S. Chamber of Commerce; M. Scott Gordon, Chariman
of the Board of Directors, Chicago Mercantile Exchange; Patrick
H. Arbor, Chairman of the Board, Chicago Board of Trade; and
Daniel Rappaport, Chairman, New York Mercantile Exchange.
Witnesses at this hearing focused their testimony on H.R.
4062 and the derivatives market in general. However, Mr. James
of Morgan Stanley Dean Witter discussed the insolvency issues
surrounding the Act, and stated that the recommended bankruptcy
legislation has the full support of the financial services
industry and reflects consensus among the industry, financial
regulators, and Congress. He stated that the legislation is
necessary to provide market participants with certainty that
their contractual arrangements will be honored in case of
insolvency and to minimize systemic risk. Given the recent
changes in financial accounting standards, the amendments made
in the bill to the bankruptcy code regarding asset
securitization, he maintained, underscore the urgency of the
legislation. The bill, he said, would bring bankruptcy and bank
insolvency laws into line with current market transactions
without threatening the protection of debtors.
A second hearing was held on July 24, 1998. Testifying
before the Committee were: John D. Hawke, Under Secretary, U.S.
Department of the Treasury; Alan Greenspan, Chairman, Board of
Governors of the Federal Reserve System; Brooksley Born,
Chairperson, Commodity Futures Trading Commission; Richard
Lindsey, Director of Market Regulation, Securities and Exchange
Commission; Michael L. Brosnan, Deputy Comptroller for Risk
Evaluation, Office of the Comptroller of the Currency; Kenneth
Ryder, Executive Director of Research, Statistics and Analysis,
Office of Thrift Supervision; Douglas H. Jones, Senior Deputy
General Counsel, Federal Deposit Insurance Corporation; Douglas
E. Harris, Partner, Arthur Andersen; and Richard A. Miller,
Partner, White & Case.
The witnesses, in general, focused their testimony on H.R.
4062 and the derivatives market in general, with the exception
of the FDIC which focused its testimony on this Act. Mr. Hawke
from Treasury and Mr. Brosnan of the OCC stated that the
insolvency reforms contained in the Act would held reduce
systemic risk in financial markets. Mr.Brosnan continued by
stating that the legislation would clarify and ensure consistent
treatment and enhanced enforceability of qualified financial contracts
(QFCs) and other similar contracts in instances of counterparty
insolvency, and that the legislation includes an important OCC proposal
to clarify that a counterparty to a QFC with an uninsured bank would
have the same rights as a counterparty to a QFC with an insured bank.
Federal Reserve Chairman Greenspan stated that the legislation would
shore up the infrastructure of U.S. markets, would enhance U.S. market
competitiveness, and would address the concern that the traditional
insolvency process can create serious risks to counterparties due to
the price volatility of financial assets. The comments of Mr. Jones
from the FDIC regarding H.R. 4393 were extensive. In sum, he stated
that as a result of the legislation, market participants will have a
better understanding of their rights and will be able to more
accurately assess and manage the risks arising from derivative
contracts. He stated that without modification, the current status
governing netting will not adequately address market innovations. The
Act, he said, would benefit the market and fix a problem before it
arises.
Committee Consideration and Votes
On August 5, 1998, the full Committee met in open session
to consider H.R. 4393, the Financial Contract Netting
Improvement Act of 1998. A quorum being present, the Committee
by voice vote passed H.R. 4393 final passage and ordered it to
be favorably reported to the full House of Representatives for
consideration. Also, the Committee adopted, by voice vote, a
motion to authorize the Chairman to offer such motions as may
be necessary in the House of Representatives to go to
conference with the Senate on a similar bill.
Committee Oversight Findings
In compliance with clause 2(l)(3)(A) of rule XI of the
Rules of the House of Representatives, the Committee reports
that the findings and recommendations of the Committee, based
on oversight activities under cause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
Committee on Government Reform and Oversight Findings
No findings and recommendations of the Committee on
Government Reform and Oversight were received as referred to in
clause 2(l)(3)(D) of rule XI of the Rules of the House of
Representatives.
Constitutional Authority
In compliance with clause 2(l)(4) of rule XI of the Rules
of the House of Representatives, the constitutional authority
for Congress to enact this legislation is derived from the
power to Congress to make ``uniform laws on the subject of
bankruptcies'' (Clause 4, Section 8, Article I, Constitution)
and the interstate commerce clause (Clause 3, Section 8,
Article I, Constitution). In addition, the power ``to coin
money'' and ``regulate the value thereof'' (Clause 5, Section
8, Article I, Constitution) has been broadly construed to
authorize regulation of every phase of the subject of currency,
including the Federal regulation and chartering of banks.
New Budget Authority and Tax Expenditures
Clause 2(l)(3)(B) of rule XI of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Congressional Accountability Act
The reporting requirement under section 102(b)(3) of the
Congressional Accountability Act (P.L. 104-1) is inapplicable
because this legislation does not relate to terms and
conditions of employment or access to public services or
accommodations.
Congressional Budget Office Cost Estimate and Unfunded Mandates
Analysis
The CBO cost estimates and unfunded mandates analysis for
the bill were requested but were not available at the time the
report was filed. The Committee will provide the analysis in a
subsequent addendum to the report.
Section-by-Section Analysis
Section 1. Short title
Section 1 cites the Act as the ``Financial Contract Netting
Improvement Act of 1998''.
Section 2. Treatment of certain agreements by conservators or receivers
of insured depository institutions
Subsections (a) through (f) amend the FDIA definitions of
``qualified financial contract,'' ``securities contract,''
``commodity contract,'' ``forward contract,'' ``repurchase
agreement'' and ``swap agreement'' to make them consistent with
the definitions in the Bankruptcy Code.
Subsection (b) amends the definitions of ``securities
contract'' to encompass options on securities and margin loans.
The inclusion of ``margin loans'' in the definition is intended
to encompass only those loans commony known in the securities
industry as ``margin loans'' and does not include other loans
utilizing securities as collateral, however documented.
Subsection (b) also specifies that purchase, sale and
repurchase obligations under a participation in a commercial
mortgage load do not constitute ``securities contracts.'' While
a contract for the purchase or sale or a participation may
constitute a ``securities contract'', the purchase, sale or
repurchase obligation embedded in a participation agreement
does not make that agreement a ``securities contract.''
Subsection (e) amends the definition of ``repurchase
agreement'' to codify the substance of the FDIC's 1995
regulation defining repurchase agreement to include those on
qualified foreign government securities. See 12 C.F.R.
Sec. 360.5. The term ``qualified foreign government
securities'' is defined to include those that are direct
obligations of, or fully guaranteed by, central governments of
members of the Organization for Economic Cooperation and
Development (OECD). Subsection (e) reflects developments in the
repurchase agreement markets which increasingly use foreign
government securities as the underlying assets. Any risk
presented by this modification is addressed by limiting it to
those obligating or guaranteed by OECD member states.
Subsection (e), like subsection (b) for ``securities
contracts'', specifies that repurchase obligations under a
participation in an commercial mortgage loan do not make the
participation agreement a ``repurchase agreement.'' Such
repurchase obligations embedded in participations in commercial
loans (such as recourse obligations) do not constitute a
``repurchase agreement.'' However, a repurchase agreement
involving the transfer of participations in commercial mortgage
loans with a simultaneous agreement to repurchase the
participation on demand or at a date certain one year or less
after such transfer could constitute a ``repurchase
agreement.''
Subsection (f) amends the definition of ``swamp agreement''
to include an ``interest rate swap, option, future, or forward
agreement, including a rate floor, rate cap, rate collar,
cross-currency rate swap, and basis swap; a spot, same day-
tomorrow, tomorrow-next forward or other foreign exchange
agreement; a currency swap, option, future, or forward
agreement; an equity index or equity swap, option, future, or
forward agreement; a debt index or debt swap, option, future,
or forward agreement; a credit swap, option, future, or forward
agreement; a commodity swap, option, future, or forward
agreement or any other similar agreement.'' This amendment
would achieve contractual netting across economically similar
over-the-counter products that can be terminated and closed out
on a mark-to-market basis.
The definition of ``swap agreement'' in this subsection
(and section 8) does not include transactions that are, in
substance, commercial, consumer or industrial loans.
Traditional commercial and lending arrangements, or other non-
financial market transactions, such as commercial, residential
or consumer loans, cannot be treaded as ``swaps'' under either
the FDI Act or the Bankruptcy Code because the parties purport
to document or label the transactions as ``swap agreements.''
In addition, these definitions apply only for purposes of the
FDIA and the Bankruptcy Code. These definitions, and the
characterization of a certain transaction as a ``swap
agreement'' are not intended to effect the characterization,
definition, or treatment of any instruments under any other
statute, regulation, or rule including, but not limited to, the
statutes, regulations or rules enumerated in subsection (f).
Subsection (g) amends the FDIA by adding a definition for
``transfer,'' which is a key term used in the FDIA, to ensure
that it is broadly construed to encompass dispositions of
property or interests in property. The definition mirrors that
in section 101(54) of the Bankruptcy Code.
Subsection (h) makes clarifying technical changes to
conform the receivership and conservatorship provisions of the
FDIA. This subsection (h) also clarifies that the FDIA
expressly protects rights under security agreements,
arrangements or other credit enhancement related to one or more
qualified financial contracts (QFCs). An example of a security
arrangement is a right of set off, and examples of other credit
enhancements are letters of credit, guarantees, reimbursement
obligations and other similar agreements.
Subsection (i) clarifies that no provision of Federal or
state law relating to the avoidance or preferential or
fraudulent transfer (including the anti-preference provision of
the National Bank Act) can be invoked to avoid a transfer made
in connection with any QFC of an insured depository institution
in conservatorship or receivership, absent actual fraudulent
intent on the art of the transferee.
Section 3. Authority of the corporation with respect to failed and
failing institutions
Section 3 provides that no provision of law, including
FDICIA, shall be construed to limit the power of the FDIC to
transfer or to repudiate any QFC in accordance with its powers
under the FDIA. As discussed below, there has been some
uncertainty regarding whether or not FDICIA limits the
authority of the FDIC to transfer or to repudiate QFCs of an
insolvent financial institution. Section 3--as well as other
provisions in the Act--clarify that FDICIA does not limit the
transfer powers of the FDIC with respect to QFCs.
Section 3 denies enforcement to ``walkaway'' clauses in
QFCs. A walkaway clause in defined as a provision that, after
calculation of a value of a party's position or an amount due
to or from one of the parties upon termination, liquidation or
acceleration of the QFC, either does not create a payment
obligation of a party or extinguishes a payment obligation of a
party in whole or in part solely because of such party's status
as a non-defaulting party.
Section 4. Amendments relating to transfers of qualified financial
contracts
Subsection (a) amends the FDIA to expand the transfer
authority of the FDIC to permit transfer of QFCs to ``financial
institutions'' as defined in FDICIA or in regulations. This
provision will allow the FDIC to transfer QFCs to a non-
depository financial institutions, provided the institution is
not subject to bankruptcy or insolvency proceedings.
The new FDIA provisions specifies that when the FDIC
transfers QFCs that are subject to the rules of a particular
clearing organization, the transfer will not require the
clearing organization to accept the transferee as a member of
the organization. This provision gives the FDIC flexibility in
resolving QFCs subject to the rules of a clearingorganization,
while preserving the ability of such organizations to enforce
appropriate risk reducing membership requirements.
The new FDIA provision also permits transfers to an
eligible financial institution that is a non-U.S. person, or
the branch or agency of a non-U.S. person if, following the
transfer, the contractual rights of the parties would be
enforceable substantially to the same extent as under the FDIA.
Subsection (b) amends the notification requirements
following a transfer of the QFCs of a failed depository
institution to require the FDIC to notify any party to a
transferred QFC of such transfer by 5:00 p.m. (Eastern Time) on
the business day following the date of the appointment of the
FDIC acting as receiver or following the date of such transfer
by the FDIC acting as a conservator. This amendment is
consistent with the policy statement on QFCs issued by the FDIC
on December 12, 1989.
Subsection (c) amends the FDIA to clarify the relationship
between the FDIA and FDICIA. There has been some uncertainty
whether FDICIA permits counterparties to terminate or liquidate
a QFC before the expiration of the time period provided by the
FDIA during which the FDIC may repudiate or transfer a QFC in a
conservatorship or receivership. Subsection (c) provides that a
party may not terminate a QFC based solely on the appointment
of the FDIC as receiver until 5:00 p.m. (Eastern Time) on the
business day following the appointment of the receiver or after
the person has received notice of a transfer under FDIA section
11(d)(9), or based solely on the appointment of the FDIC as
conservator, notwithstanding the provisions of FDICIA. This
provides the FDIC with an opportunity to undertake an orderly
of the insured depository institution.
The amendment also prohibits the enforcement of rights of
termination or liquidation that are based solely on the
``financial condition'' of the depository institution in
receivership or conservatorship. For example, termination based
on a cross-default provision in a QFC that is triggered upon a
default under another contract could be stayed if such other
default was caused by an acceleration of amounts due under that
other contract, and such acceleration was based solely on the
appointment of a conservator or receiver for that depository
institution. Similarly, a provision in a QFC permitting
termination of the QFC based solely on a downgraded credit
rating of a party will not be enforceable in an FDIC
receivership or conservatorship because the provision is based
solely on the financial condition of the depository institution
in default. However, any payment, delivery or other
performance-based default, or breach of a representation or
covenant putting in question the enforceability of the
agreement, will not be deemed to be based solely on financial
condition for purposes of this provision. The amendment is not
intended to prevent counterparties from taking all actions
permitted and recovering all damages authorized upon
repudiation of any QFC by a conservator or receiver.
The amendment allows the FDIC to meet its obligation to
provide notice to parties to transferred QFCs by taking steps
reasonably calculated to provide notice to such parties by the
required time. This is consistent with the existing policy
statement on QFCs issued by the FDIC on December 12, 1989.
Finally, the amendment permits the FDIC to transfer QFCs of
a failed depository institution to a bridge bank or a
depository institution organized by the FDIC for which a
conservator is appointed either (i) immediately upon the
organization of such institution or (ii) at the time of a
purchase and assumption transaction between the FDIC and the
institution. This provision clarifies that such institutions
are not to be considered financial institutions that are
ineligible to receive such transfers under FDIA section
11(e)(9). This is consistent with the existing policy statement
on QFCs issued by the FDIC on December 12, 1989.
Section 5. Amendments relating to disaffirmance or repudiation of
qualified financial contracts
Section 5 limits the disaffirmance and repudiation
authority of the FDIC with respect to QFCs so that such
authority is consistent with the FDIC's transfer authority
under FDIA section 11(e)(9). This ensures that no disaffimance,
repudiation or transfer authority of the FDIC may be exercised
to ``cherry-pick'' or otherwise treat independently all the
QFCs between a depository institution in default and a person
or any affiliate of such person. The FDIC has announced that
its policy is not to repudiate or disaffirm QFCs selectively.
This unified treatment is fundamental to the reduction of
systemic risk.
Section 6. Clarifying amendment relating to master agreements
Section 6 states that a master agreement for one or more
securities contracts, commodity contracts, forward contracts,
repurchase agreements or swap agreements will be treated as a
single QFC under the FDIA. This provision ensures that cross-
product netting pursuant to a master agreement will be
enforceable under the FDIA. Cross-product netting permits a
wide variety of financial transactions between two parties to
be netted, thereby maximizing the present and potential future
risk-reducing benefits of the netting arrangement between the
parties. Express recognition of the enforceability of such
cross-product master agreements furthers the policy of
increasing legal certainty and reducing systemic risks in the
case of an insolvency of a large financial participant. Similar
Bankruptcy Code clarifications to recognize cross-product
netting both under a master agreement and in the absence of a
master agreement are described below.
Section 7. Federal Deposit Insurance Corporation Improvement Act of
1991
Subsection (a)(1). FDICIA provides that a netting
arrangement will be enforced pursuant to its terms,
notwithstanding the failure of a party to the agreement.
However, the current netting provisions of FDICIA limit this
protection to ``financial institutions,'' which include
depository institutions. This subsection amends the FDICIA
definition of covered institutions to include (i) uninsured
national and State member banks, irrespective of their
eligibility for deposit insurance and (ii) foreign banks
(including the foreign bank and its branches or agencies as a
combined group or only the foreign bank parent of a branch or
agency). The Federal Reserve Board already has by regulation
included certain foreign banks in the definition of a
``financial institution'' for purposes of FDICIA and the latter
change will statutorily extend the protections of FDICIA to
ensurethat U.S. financial organizations participating in
netting agreements with foreign banks are covered by the Act, thereby
enhancing the safety and soundness of these arrangements.
Subsection (a)(2) amends FDICIA to provide that, for
purposes of FDICIA, two or more clearing organizations that
enter into a netting contract are considered ``members'' of
each other. This assures the enforceability of netting
arrangements involving two or more clearing organizations and a
member common to all such organizations, thus reducing systemic
risk in the event of the failure of such a member. Under the
current FDICIA provisions, the enforceability of such
arrangements depends on a case-by-case determination that
clearing organizations could be regarded as members of each
other for purposes of FDICIA.
Subsection (a)(3) amends the FDICIA definition of netting
contract and the general rules applicable to netting contracts.
The current FDICIA provisions require that the netting
agreement must be governed by the law of the United States or a
State to receive the protections of FDICIA. However, many of
these agreements, particularly netting arrangements covering
positions taken in foreign exchange dealings, are governed by
the laws of a foreign country. This subsection broadens the
definition of ``netting contract'' to include those agreements
governed by foreign law, and preserves the FDICIA requirement
that a netting contract is not invalid under, or precluded by,
Federal law.
Subsections (b) and (c) establish two exceptions to
FDICIA's protection of the enforceability of the provisions of
netting contracts between financial institutions and among
clearing organization members.
First, the termination provisions of netting contracts will
not be enforceable based solely on (i) the appointment of a
conservator for an insolvent depository institution under the
FDIA or (ii) the appointment of a receiver for such institution
under the FDIA, if such receiver transfers or repudiates QFCs
in accordance with the FDIA and gives notice of a transfer by
5:00 p.m. on the business day following the appointment of a
receiver. This change is made to confirm the FDIC's flexibility
to transfer or repudiate the QFCs of an insolvent depository
institution in accordance with the terms of the FDIA. This
modification also provides important legal certainty regarding
the treatment of QFCs under the FDIA, because the current
relationship between the FDIA and FDICIA is unclear.
The second exception provides that FDICIA does not override
a stay order under SIPA with respect to foreclosure on
securities (but not cash) collateral of a debtor (section 12
makes a conforming change to SIPA).
Subsections (b) and (c) also clarify that a security
agreement or other credit enhancement related to a netting
contract is enforceable to the same extent as the underlying
netting contract.
Subsection (d) adds a new section 407 to FDICIA. This new
section provides that, notwithstanding any other law, QFCs with
uninsured national banks or uninsured Federal branches or
agencies that are placed in receivership or conservatorship
will be treated in the same manner as if the contract were with
an insured national bank or insured Federal branch for which a
receiver or conservator was appointed. This provision will
ensure that parties to QFCs with uninsured national banks or
uninsured Federal branches or agencies will have the same
rights and obligations as parties entering into the same
agreements with insured depository institutions. The new
section also specifically limits the powers of a receiver or
conservator for an uninsured national bank or uninsured Federal
branch or agency to those contained in 12 U.S.C.
Sec. Sec. 1821(e) (8), (9), and (11), which address QFCs.
While the amendment would apply the same rules to uninsured
national banks and Federal branches and agencies that apply to
insured institutions, the provision would not change the rules
that apply to insured institutions. Nothing in this section
would amend the International Banking Act, the Federal Deposit
Insurance Act, the National Bank Act, or other statutory
provisions with respect to receivership of insured national
banks or Federal branches. It is noted that new section 407 may
need to be amended if legislation is enacted to permit the
creation of so-called ``wholesale financial institutions.''
Section 8. Bankruptcy Code amendments
Subsection (a)(1) amends the Bankruptcy Code definitions of
``repurchase agreement'' and ``swap agreement'' to conform with
the amendments to the FDIA contained in sections 2(e) and 2(f)
of the Act.
In connection with the definition of ``repurchase
agreement,'' the term ``qualified foreign government
securities'' is defined to include securities that are direct
obligations of, or fully guaranteed by, central governments of
members of the Organization for Economic Cooperation and
Development (OECD). This language reflects developments in the
repurchase agreement markets, which increasingly use foreign
government securities as the underlying asset. Any risk
presented by this modification is addressed by limiting it to
those obligating or guaranteed by OECD member states.
Subsection (a)(1) specifies that repurchase obligations
under a participation in an commercial mortgage loan do not
make the participation agreement a ``repurchase agreement.''
Such repurchase obligations embedded in participations in
commercial loans (such as recourse obligations) do not
constitute a ``repurchase agreement.'' However, a repurchase
agreement involving the transfer of participations in
commercial mortgage loans with a simultaneous agreement to
repurchase the participation on demand or at a date certain one
year or less after such transfer could constitute a
``repurchase agreement.''
The amendments to the definition of ``repurchase
agreement'' are not intended to affect the interpretation of
the definition of ``securities contract.''
The definition of ``swap agreement,'' in conjunction with
the addition of ``spot foreign exchange transactions'' that was
added to the definition in 1994, will achieve contractual
netting across economically similar over-the-counter products
that can be terminated and closed out on a mark-to-market
basis.
The definition of ``swap agreement'' originally was
intended to provide sufficient flexibility to avoid the need to
amend the definition as the nature and use of swap transactions
matured. For that reason, the phrase ``or any other similar
agreement'' was included in the definition. The phrase ``other
similar agreement'' encompasses any agreement that is, or in
the future becomes, regularly entered into in the swap market
that is a forward, swap or option on one or more rates,
currencies, commodities, equity or debt securities or
instruments, economic indices or measures of economic risk or
value. However, traditional commercial and lending
arrangements, or other non-financial market transactions, such
as commercial, residential or consumer loans, cannot be treated
as ``swaps'' under either the FDI Act or the Bankruptcy Code
because the parties purport to document or label the
transactions as ``swap agreements.'' Subsection (a)(1)(C)
specifies that this definition of swap agreement applies only
for purposes of the Bankruptcy Code and is inapplicable to the
other statutes, rules and regulations enumerated in that
section.
The definition also includes any security agreement or
arrangement, or other credit enhancement, related to a swap
agreement. this ensures that any such agreement, arrangement or
enhancement is itself deemed to be a swap agreement, and
therefore eligible for treatment as such for purposes of
termination, liquidation, acceleration, offset and netting
under the Bankruptcy Code and the FDIA. Similar changes are
made in the definition of ``forward contract,'' ``commodity
contract'' and ``repurchase agreement.'' An example of a
security arrangement is a right of set off; examples of other
credit enhancements are letters of credit, guarantees,
reimbursement obligations and other similar agreements.
Subsections (a)(2) and (a)(3) amend the Bankruptcy Code
definitions of ``securities contract'' and ``forward
contract,'' respectively, to conform them to the definition in
the FDIA, and also to include any security agreements or
arrangements or other credit enhancements related to one or
more such contracts. Subsection (a)(2), like the amendments to
the FDIA amends the definition of ``securities contract'' to
encompass options on securities and margin loans. The inclusion
of ``margin loans'' in the definition is intended to encompass
only those loans commonly known in the securities industry as
``margin loans'' and does not include other loans utilizing
securities as collateral, however documented.
Subsection (a)(2) also specifies that purchase, sale and
repurchase obligations under a participation in a commercial
mortgage loan do not constitute ``securities contracts.'' While
a contract for the purchase or sale or a participation may
constitute a ``securities contract'', the purchase, sale or
repurchase obligation embedded in a participation agreement
does not make that agreement a ``securities contract.''
Subsection (b) amends the Bankruptcy Code definitions of
``financial institution'' and ``forward contract merchant.''
The definition for ``financial institution'' includes Federal
Reserve Banks and the receivers or conservators of insolvent
depository institutions.
Subsection (b) also adds a new definition of ``financial
participant'' to limit the potential impact of insolvencies
upon other major market participants. This definition will
allow such market participants to close-out and net agreements
with insolvent entities under sections 362(b)(6), 546, 548,
555, and 556 even if the creditor could not qualify as, for
example, a commodity broker. The new subsection preserves the
limitations of the right to close-out and net such contracts,
in most cases, to entities who qualify under the Bankruptcy
Code's counterparty limitations. However, where the
counterparty has transactions with a total gross dollar value
of at least $1 billion in notional principal amount outstanding
on any day during the previous 15-month period, or has gross
mark-to-market positions of at least $100 million (aggregated
across counterparties) in one or more agreements or
transactions on any day during the previous 15-month period,
the new subsection and corresponding amendments would permit it
to exercise netting rights irrespective of its inability
otherwise to satisfy those counterparty limitations. This
change will help prevent systemic impacts upon the markets from
a single failure.
Subsection (c) adds to the Bankruptcy Code new definitions
for the terms ``master netting agreement'' and ``master netting
agreement participant.'' The definition of ``master netting
agreement'' is designed to protect the termination and close-
out netting provisions of cross-product master agreements
between parties. Such an agreement may be used (i) to document
a wide variety of securities contracts, commodity contracts,
forward contracts, repurchase agreements and swap agreements or
(ii) as an umbrella agreement for separate master agreements
between the same parties, each of which is used to document a
discrete type of transaction. The definition includes security
agreements or arrangements or other credit enhancements related
to one or more such agreements and clarifies that a master
netting agreement will be treated as such even if it documents
transactions that are not within the enumerated categories of
qualifying transactions (but the provisions of the Bankruptcy
Code relating to master netting agreements and the other
categories of transactions will not apply to such other
transactions).
A ``master netting agreement participant'' is any entity
that is a party to an outstanding master netting agreement with
a debtor before the filing of a bankruptcy petition.
Subsection (d) amends section 362(b) of the Bankruptcy Code
to protect enforcement, free from the automatic stay, of setoff
or netting provisions in swap agreements and in master netting
agreements and security agreements or arrangements related to
one or more swap agreements or master netting agreements. This
provision parallels the other provisions of the Bankruptcy Code
that protect netting provisions of securities contracts,
commodity contracts, forward contracts, and repurchase
agreements. Because the relevant definitions include related
security agreements, the reference to ``setoff'' in this
provisions, as well as in section 362(b) (6) and (7) of the
Bankruptcy Code, are intended to refer also to rights to
foreclose on, and to set off against, obligations to return
collateral security swap agreements, master netting
arrangements, repurchase agreements, securities contracts,
commodity contracts, or forward contracts. Collateral may be
pledged to cover the cost of replacing the defaulted
transactions in the relevant market, as well as other costs and
expenses incurred or estimated to be incurred for the purpose
of hedging or reducing the risks arising out of such
termination. Enforcement of these agreements and arrangements
is consistent with the policy goal of minimizing systemic risk.
Subsection (d) also clarifies that the provisions
protecting setoff and foreclosure in relation to securities
contracts, commodity contracts, forward contracts, repurchase
agreements, swap agreements, and master netting agreements free
from the automatic stay apply to collateral pledged by the
debtor that is under the control of the creditor but that
cannot technically be ``held by'' the creditor, such as
receivables and book-entry securities, and to collateral that
has been repledged by the creditor.
Subsection (e) amends section 546 of the Bankruptcy Code to
provide that transfers made under or in connection with a
master netting agreement may not be avoided by a trustee except
where such transfer is made with actual intent to hinder, delay
or defraud. This Section of the Act also clarifies the
limitations on a trustee's power to avoid transfers made under
swap agreements.
The current codification of section 546 of the Bankruptcy
Code contains two subsections designated as ``(g)''; subsection
(e) corrects this error.
Subsection (f) amends section 548(d) of the Bankruptcy Code
to provide that transfers made under or in connection with a
master netting agreement may not be avoided by a trustee except
where such transfer is made with actual intent to hinder, delay
or defraud. This amendment provides the same protections for
transfers made under, or in connection with, master netting
agreements as currently is provided for margin payments and
settlement payments received by commodity brokers, forward
contract merchants, stockbrokers, financial institutions,
securities clearing agencies, repo participants, and swap
participant under paragraphs (B), (C) and (D) of section
548(d).
Subsections (g), (h), (i) and (j) clarify that the
provisions of the Bankruptcy Code that protect (i) rights of
liquidation under securities contracts, commodity contracts,
forward contracts and repurchase agreements also protect rights
of termination or acceleration under such contracts, and (ii)
rights to terminate under swap agreements also protect rights
of liquidation and acceleration.
Subsection (k) adds a new section 561 to the Bankruptcy
Code to protect the contractual right of a master netting
agreement participant to enforce any rights of termination,
liquidation, acceleration, offset or netting under a master
netting agreement. Such rights include rights arising (i) from
the rules of a securities exchange or clearing organization,
(ii) under common law, law merchant or (iii) by reason of
normal business practice. This is consistent with the current
treatment of rights under swap agreements under section 560 of
the Bankruptcy Code.
For the purposes of Bankruptcy Code sections 555, 556, 559,
560 and 561, it is intended that the normal business practice
in the event of a default of a party based on bankruptcy or
insolvency is to terminate, liquidate or accelerate securities
contracts, commodity contracts, forward contracts, repurchase
agreements, swap agreements and master netting agreements with
the bankruptcy or insolvent party.
The protection of netting and offset rights in sections 560
and 561 is in addition to the protections afforded in sections
362(b)(6), (b)(7) and (b)(17). For example, cross-product
netting will be protected from the automatic stay under section
561 even in the absence of a master netting agreement.
Sections 561(b) (2) and (3) limit the exercise of
contractual rights to net or to offset obligations where one
leg of the obligations sought to be netted relates to commodity
contracts. Under subsection (b)(2), netting or offset is not
permitted if the obligations are not mutual. This means, for
example, that proprietary obligations cannot be netted or
offset against obligations held for, or on behalf of, some
other party. Even if the obligations are mutual, under
subsection (b)(3) netting or offset is not permitted in a
commodity broker bankruptcy if the party seeking to net or to
offset has no positive net equity in the commodity account at
the debtor. Subsections (b)(2) and (b)(3) limit the depletion
of assets available for distribution to customers of commodity
brokers. This is consistent with the principle of Subchapter IV
of Chapter 7 of the Bankruptcy Code, which gives priority to
customer claims in the bankruptcy of a commodity broker.
Under the Act, the termination, liquidation or acceleration
rights of a master netting agreement participant are subject to
limitations contained in other provisions of the Bankruptcy
Code relating to securities contracts and repurchase
agreements. In particular, if a securities contract or
repurchase agreement is documented under a master netting
agreement, a party's termination, liquidation and acceleration
rights would be subject to the provisions of the Bankruptcy
Code relating to orders authorized under the provisions of SIPA
or any statute administered by the SEC. In addition, the
netting rights of a party to a master netting agreement would
be subject to any contractual terms between the parties
limiting or waiving netting or set off rights. Similarly, a
waiver by a bank or a counterparty of netting or set off rights
in connection with QFCs would be enforceable under the FDIA.
Subsection (1) clarifies that, with respect to municipal
bankruptcies, all the provisions of the Bankruptcy Code
relating to securities contracts, commodity contracts, forward
contracts, repurchase agreements, swap agreements and master
netting agreements (which by their terms are intended to apply
in all proceedings under title 11) will apply in a Chapter 9
proceeding for a municipality. Although sections 555, 556, 559
and 560 provide that they apply in any proceeding under the
Bankruptcy Code, this subsection makes a technical amendment in
Chapter 9 to clarify the applicability of these provisions.
Subsection (m) clarifies that the provisions of the
Bankruptcy Code related to securities contracts, commodity
contracts, forward contracts, repurchase agreements, swap
agreements and master netting agreements apply in a section 304
proceeding ancillary to a foreign insolvency proceeding.
Subsections (n) and (o) amend those provisions in the
Bankruptcy Code concerning the liquidation of commodity brokers
and stockbrokers. Subchapter III of Chapter 7 of the Bankruptcy
Code details specific rules for the liquidation of
stockbrokers. Subchapter IV of Chapter 7 of the Bankruptcy Code
and regulations of the CFTC detail specific rules for the
liquidation of commodity brokers. These authorities are
designed to protect customers and customer property of an
insolvent stockbroker or commodity broker.
Subsections (n) and (o) clarify the rights of parties to
commodity contracts, securities contracts, forward contracts,
swap agreements, repurchase agreements and master netting
agreements with an insolvent commodity broker or stockbroker.
They ensure that noncustomers will not defeat the priority
scheme of Subchapter III or IV priority by gaining access to
assets held in segregated customer accounts. The subsections
also clarify that the exercise of termination and netting
rights will not otherwise affect customer property or
distributions by the trustee of the insolvent commodity broker
or stockbroker after the exercise of such rights.
Subsection (p) amends section 553 of the Bankruptcy Code to
clarify that the acquisition by a creditor of set off rights in
connection with swap agreements, repurchase agreements,
securities contracts, forward contracts, commodity contracts
and master netting agreements cannot be avoided as a
preference.
This subsection also adds set off of the kinds described in
sections 555, 556, 559, 560, and 561 of the Bankruptcy Code to
the types of set off excepted from section 553(b).
Section 9. Recordkeeping requirements
Section 9 amends section 11(e)(8) of the Federal Deposit
Insurance Act to explicitly authorize the FDIC, in consultation
with appropriate Federal banking agencies, to prescribe
regulations on recordkeeping with respect to QFCs. Adequate
recordkeeping for such transactions is essential to effective
risk management and to the reduction of systemic risk permitted
by the orderly resolution of depository institutions utilizing
QFCs.
Section 10. Exemptions from contemporaneous execution requirement
Section 10 amends FDIA section 13(e)(2) to provide that an
agreement for the collateralization of governmental deposits,
bankruptcy estate funds, Federal Reserve Bank or Federal Home
Loan Bank extensions of credit or one or more QFCs shall not be
deemed invalid solely because such agreement was not entered
into contemporaneously with the acquisition of the collateral
or because of pledges, delivery or substitution of the
collateral made in accordance with such agreement.
The amendment codifies portions of policy statements issued
by the FDIC regarding the application of section 13(e), which
codifies the ``D'Oench Duhme'' doctrine. With respect to QFCs,
this codification recognizes that QFCs often are subject to
collateral and other security arrangements that may require
posting and return of collateral on an ongoing basis based on
the mark-to-market values of the collateralized transactions.
The codification of only portions of the existing FDIC policy
statements on these and related issues should not give rise to
any negative implication regarding the continued validity of
these policy statements.
Section 11. Damage measure
Section 11 adds a new section 562 to the Bankruptcy Code
providing that damages under any swap agreement, securities
contract, forward contract, commodity contract, repurchase
agreement or master netting agreement will be calculated as of
the earlier of (i) the date of rejection of such agreement by a
trustee or (ii) the date of liquidation, termination or
acceleration of such contract or agreement.
New section 562 provides important legal certainty and
makes the Bankruptcy Code consistent with the current
provisions related to the timing of the calculation of damages
under QFCs in the FDIA.
Section 12. Asset-backed securitizations
Section 12 amends section 541 of the Bankruptcy Code to
provide that certain assets transferred to an eligible entity
in connection with an asset-backed securitization generally
will not be included within the bankruptcy estate of the
debtor. This provision recognizes that a valid transfer of such
assets to the eligible entity, which is defined as an issuer or
an entity engaged exclusively in such securitization
transactions, generally eliminates the debtor's legal or
equitable interests in those assets. Accordingly, subject to
the avoidance powers in section 548(a), the transfer will be
treated as a sale of those assets not subject to avoidance. A
significant exception to this provision is that if the trustee
avoids the transfer from the debtor under section 548(a), then
those assets will be included within the bankruptcy estate.
Section 13. SIPC stay
Section 13 amends SIPA to provide that an order or decree
issued pursuant to SIPA shall not operate as a stay of any
right of liquidation, termination, acceleration, offset or
netting under one or more securities contracts, commodity
contracts, forward contracts, repurchase agreements, swap
agreements or matter netting agreements (as defined in the
Bankruptcy Code and including rights of foreclosure on
collateral), except that such order or decree may stay any
right to foreclose on securities (but not cash) collateral
pledged by the debtor or sold by the debtor under a repurchase
agreement (a corresponding amendment to FDICIA is made by
section 7). A creditor that was stayed in exercising rights
against securities collateral would be entitled to post-
insolvency interest to the extent of the collateral.
Section 14. Federal Reserve collateral requirements
Section 16 of the Federal Reserve Act (FRA) specifies the
types of assets the Federal Reserve may use to back the
currency. These assets include U.S. Treasury and agency
securities that the Federal Reserve holds in its portfolio and,
among other things, discount window loans extended under the
provisions of section 13 of the FRA. Over the years, sections
were added to the FRA that permit lending under provisions
other than section 13 and against a broader range of collateral
than allowed under that section. Section 14 of this bill would
broaden the range of discount window loans eligible to back
currency to include not only those extended under section 13
but also those extended under section 10A of the FRA relating
to emergency advances to groups of member banks, section 10B
relating to emergency advances to individual member banks, and
section 13A relating to the discount of agricultural paper.
Section 15. Severability; effective date; application of amendments
Subsection (a) provides that if any provision of or
amendment made by this Act is unconstitutional, the remaining
provisions of the Act shall not be affected thereby.
Subsection (b) provides that the amendments made by the Act
take effect on the date of enactment.
Subsection (c) provides that the amendments made by the Act
shall not apply with respect to cases commenced, or to
conservator/receiver appointments made, before the date of
enactment.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3 of rule XIII of the Rules of the
House of Representatives, changes in existing law made by the
bill, as reported, are shown as follows (existing law proposed
to be omitted is enclosed in black brackets, new matter is
printed in italic, existing law in which no change is proposed
is shown in roman):
FEDERAL DEPOSIT INSURANCE ACT
* * * * * * *
Sec. 11. (a) * * *
* * * * * * *
(e) Provisions Relating to Contracts Entered Into Before
Appointment of Conservator or Receiver.--
(1) * * *
* * * * * * *
(8) Certain qualified financial contracts.--
(A) Rights of parties to contracts.--Subject
to [paragraph] paragraphs (9) and (10) of this
subsection and notwithstanding any other
provision of this Act (other than subsection
(d)(9) of this section and section 13(e)), any
other Federal law, or the law of any State, no
person shall be stayed or prohibited from
exercising--
(i) any right [to cause the
termination or liquidation] such person
has to cause the termination,
liquidation, or acceleration of any
qualified financial contract with an
insured depository institution which
arises upon the appointment of the
Corporation as receiver for such
institution at any time after such
appointment;
[(ii) any right under any security
arrangement relating to any contract or
agreement described in clause (i); or]
(ii) any right under any security
agreement or arrangement or other
credit enhancement related to 1 or more
qualified financial contracts described
in clause (i);
* * * * * * *
(C) Certain transfers not avoidable.--
(i) In general.--Notwithstanding
paragraph (11), section 5242 of the
Revised Statutes (12 U.S.C. 91) or any
other Federal or State law relating to
the avoidance of preferential or
fraudulent transfers, the Corporation,
whether acting as such or as
conservator or receiver of an insured
depository institution, may not avoid
any transfer of money or other property
in connection with any qualified
financial contract with an insured
depository institution.
* * * * * * *
(D) Certain contracts and agreements
defined.--For purposes of this subsection--
(i) Qualified financial contract.--
The term ``qualified financial
contract'' means any securities
contract, commodity contract, forward
contract, repurchase agreement, swap
agreement, and any similar agreement
that the Corporation determines by
regulation, resolution or order to be a
qualified financial contract for
purposes of this paragraph.
[(ii) Securities contract.--The term
``securities contract''--
[(I) has the meaning given to
such term in section 741 of
title 11, United States Code,
except that the term
``security'' (as used in such
section) shall be deemed to
include any mortgage loan, any
mortgage-related security (as
defined in section 3(a)(41) of
the Securities Exchange Act of
1934), and any interest in any
mortgage loan or mortgage-
related security; and
[(II) does not include any
participation in a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
participation within the
meaning of such term.
[(iii) Commodity contract.--The term
``commodity contract'' has the meaning
given to such term in section 761 of
title 11, United States Code.
[(iv) Forward contract.--The term
``forward contract'' has the meaning
given to such term in section 101 of
title 11, United States Code.
[(v) Repurchase agreement.--The term
``repurchase agreement''--
[(I) has the meaning given to
such term in section 101 of
title 11, the United States
Code, except that the items (as
described in such section)
which may be subject to any
such agreement shall be deemed
to include mortgage-related
securities (as such term is
defined in section 3(a)(41) of
the Securities Exchange Act of
1934), any mortgage loan, and
any interest in any mortgage
loan; and
[(II) does not include any
participation in a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
participation within the
meaning of such term.
[(vi) Swap agreement.--The term
``swap agreement''--
[(I) means any agreement,
including the terms and
conditions incorporated by
reference in any such
agreement, which is a rate swap
agreement, basis swap,
commodity swap, forward rate
agreement, interest rate
future, interest rate option
purchased, forward foreign
exchange agreement, rate cap
agreement, rate floor
agreement, rate collar
agreement, currency swap
agreement, cross-currency rate
swap agreement, currency
future, or currency option
purchased or any other similar
agreement, and
[(II) includes any
combination of such agreements
and any option to enter into
any such agreement.
[(vii) Treatment of master agreement
as 1 swap agreement.--Any master
agreement for any agreements described
in clause (vi)(I) together with all
supplements to such master agreement
shall be treated as 1 swap agreement.
[(viii) Transfer.--The term
``transfer'' has the meaning given to
such term in section 101 of title 11,
United States Code.]
(ii) Securities contract.--The term
``securities contract''--
(I) means a contract for the
purchase, sale, or loan of a
security, or any mortgage loan,
mortgage related security (as
defined in section 3(a)(41) of
the Securities Exchange Act of
1934) or interest therein,
including an option for the
purchase or sale of a security,
certificate of deposit, or
group or index of securities
(including any interest therein
or based on the value thereof)
or any option entered into on a
national securities exchange
relating to foreign currencies,
or the guarantee of any
settlement of cash or
securities by or to a
securities clearing agency, or
any other similar agreement;
(II) does not include any
participation in or servicing
agreement for a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
participation within the
meaning of such term;
(III) means any option
entered into on a national
securities exchange relating to
foreign currencies;
(IV) means the guarantee by
or to any securities clearing
agency of any settlement of
cash, securities, certificates
of deposit, mortgage loans or
interest therein, or group or
index of securities,
certificates of deposit, or
mortgage loans or interests
therein (including any interest
therein or based on the value
thereof) or option on any of
the foregoing, including any
option to purchase or sell any
such security, certificate of
deposit, loan, interest, group
or index or option;
(V) means any margin loan;
(VI) means any other
agreement or transaction that
is similar to any agreement or
transaction referred to in this
clause;
(VII) means any combination
of the agreements or
transactions referred to in
this clause;
(VIII) means any option to
enter into any agreement or
transaction referred to in this
clause;
(IX) means a master agreement
that provides for an agreement
or transaction referred to in
subclause (I), (II), (III),
(IV), (V), (VI) or (VII),
together with all supplements
to any such master agreement,
without regard to whether the
master agreement provides for
an agreement or transaction
that is not a securities
contract under this clause,
except that the master
agreement shall be considered
to be a securities contract
under this clause only with
respect to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (II), (III),
(IV), (V), (VI) or (VII); and
(X) means any security
agreement or arrangement or
other credit enhancement
related to any agreement or
transaction referred to in this
clause.
(iii) Commodity contract.--The term
``commodity contract'' means--
(I) with respect to a futures
commission merchant, a contract
for the purchase or sale of a
commodity for future delivery
on, or subject to the rules of,
a contract market or board of
trade;
(II) with respect to a
foreign futures commission
merchant, a foreign future;
(III) with respect to a
leverage transaction merchant,
a leverage transaction;
(IV) with respect to a
clearing organization, a
contract for the purchase or
sale of a commodity for future
delivery on, or subject to the
rules of, a contact market or
board of trade that is cleared
by such clearing organization,
or commodity option traded on,
or subject to the rules of, a
contact market or board of
trade that is cleared by such
clearing organization;
(V) with respect to a
commodity options dealer, a
commodity option;
(VI) any other agreement or
transaction that is similar to
any agreement or transaction
referred to in this clause;
(VII) any combination of the
agreements or transactions
referred to in this clause;
(VIII) any option to enter
into any agreement or
transaction referred to in this
clause;
(IX) a master agreement that
provides for an agreement or
transaction referred to in
subclause (I), (II), (III),
(IV), (V), (VI), (VII) or
(VIII), together with
supplements to any such master
agreement, without regard to
whether the master agreement
provides for an agreement or
transaction that is not a
commodity contract under this
clause, except that the master
agreement shall be considered
to be a commodity contract
under this clause only with
respect to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (II), (III),
(IV), (V), (VI), (VII) or
(VIII); or
(X) a security agreement or
arrangement or other credit
enhancement related to any
agreement or transaction
referred to in this clause.
(iv) Forward contract.--The term
``forward contract'' means--
(I) a contract (other than a
commodity contract) for the
purchase, sale, or transfer of
a commodity or any similar
good, article, service, right,
or interest which is presently
or in the future becomes the
subject of dealing in the
forward contract trade, or
product or byproduct thereof,
with a maturity date more than
2 days after the date the
contract is entered into,
including a repurchase
agreement, consignment, lease,
swap, hedge transaction,
deposit, loan, option,
allocated transaction,
unallocated transaction, or any
other similar agreement;
(II) any combination of
agreements or transactions
referred to in subclauses (I)
and (III);
(III) any option to enter
into any agreement or
transaction referred to in
subclause (I) or (II);
(IV) a master agreement that
provides for an agreement or
transaction referred to in
subclauses (I), (II), or (III),
together with all supplements
to any such master agreement,
without regard to whether the
master agreement provides for
an agreement or transaction
that is not a forward contract
under this clause, except that
the master agreement shall be
considered to be a forward
contract under this paragraph
only with respect to each
agreement or transaction under
the master agreement that is
referred to in subclause (I),
(II) or (III); or
(V) a security agreement or
arrangement or other credit
enhancement related to any
agreement or transaction
referred to in subclause (I),
(II), (III) or (IV).
(v) Repurchase agreement.--The term
``repurchase agreement'' (which also
applies to a reverse repurchase
agreement)--
(I) means an agreement,
including related terms, that
provides for the transfer of
certificates of deposit,
mortgage-related securities (as
such term is defined in section
3(a)(41) of the Securities
Exchange Act of 1934), any
mortgage loan, and any interest
in any mortgage loan, eligible
bankers' acceptances, qualified
foreign government securities
or securities that are direct
obligations of, or that are
fully guaranteed as to
principal and interest by, the
United States or any agency of
the United States against the
transfer of funds by the
transferee of such certificates
of deposit, eligible bankers'
acceptances, or securities with
a simultaneous agreement by
such transferee to transfer to
the transferor thereof
certificates of deposit,
mortgage-related securities,
and mortgage loan, and any
interest in any mortgage loan,
eligible bankers' acceptances,
or securities as described
above, at a date certain not
later than 1 year after such
transfers or on demand, against
the transfer of funds, or any
other similar agreement;
(II) does not include any
participation in a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
participation within the
meaning of such term;
(III) means any combination
of agreements or transactions
referred to in subclauses (I)
and (III);
(IV) means any option to
enter into any agreement or
transaction referred to in
subclause (I) or (II);
(V) means a master agreement
that provides for an agreement
or transaction referred to in
subclause (I), (II) or (III),
together with all supplements,
without regard to whether the
master agreement provides for
an agreement or transaction
that is not a repurchase
agreement under this section,
except that the master
agreement shall be considered
to be a repurchase agreement
under this subclause only with
respect to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (II) or
(III); and
(VI) means a security
agreement or arrangement or
other credit enhancement
related to any agreement or
transaction referred to in
subclause (I), (II), (III), or
(IV).
For purposes of this clause, the term
``qualified foreign government
security'' means a security that is a
direct obligation of, or that is fully
guaranteed by, the central government
of a member of the Organization for
Economic Cooperation and Development
(as determined by regulation or order
adopted by the appropriate Federal
banking authority).
(vi) Swap agreement.--The term ``swap
agreement'' means--
(I) any agreement, including
the terms and conditions
incorporated by reference in
any such agreement, which is an
interest rate swap, option,
future, or forward agreement,
including a rate floor, rate
cap, rate collar, cross-
currency rate swap, and basis
swap; a spot, same day-
tomorrow, tomorrow-next,
forward or other foreign
exchange agreement; a currency
swap, option, future, or
forward agreement; an equity
index or equity swap, option,
future, or forward agreement; a
debt index or debt swap,
option, future, or forward
agreement; a credit swap,
option, future, or forward
agreement; a commodity swap,
option, future, or forward
agreement or any other similar
agreement;
(II) an agreement or
transaction similar to any
other agreement or transaction
referred to in this clause that
is presently, or in the future
becomes, regularly entered into
in the swap agreement market
(including terms and conditions
incorporated by reference in
such agreement) and that is a
forward, swap, future, or
option on 1 or more rates,
currencies, commodities, equity
securities or other equity
instruments, debt securities or
other debt instruments, or
economic indices or measures of
economic risk or value;
(III) any combination of
agreements or transactions
referred to in this clause;
(IV) any option to enter into
any agreement or transaction
referred to in this clause;
(V) a master agreement that
provides for an agreement or
transaction referred to in
subclause (I), (II), (III), or
(IV), together with all
supplements to such master
agreement, without regard to
whether the master agreement
contains an agreement or
transaction that is described
in any of those subclauses,
except that the master
agreement shall be considered
to be a swap agreement only
with respect to each agreement
or transaction under the master
agreement that is referred to
in subclause (I), (II), (III),
or (IV); and
(VI) any security agreement
or arrangement or other credit
enhancement related to any
agreements or transactions
referred to in subparagraph
(I), (II), (III), or (IV).
Such term shall not be construed or
applied so as to challenge or affect
the characterization, definition, or
treatment of any swap agreement or any
instrument defined as a swap agreement
herein, under any other statute,
regulation, or rule, including the
Securities Act of 1933, the Securities
Exchange Act of 1934, the Public
Utility Holding Company Act of 1935,
the Trust Indenture Act of 1939, the
Investment Company Act of 1940, the
Investment Advisers Act of 1940, the
Securities Investor Protection Act of
1970, the Commodity Exchange Act, and
the regulations promulgated by the
Securities and Exchange Commission or
the Commodity Futures Trading
Commission.
(vii) Treatment of master agreement
as 1 agreement.--Any master agreement
for any contract or agreement described
in any preceding clause of this
subparagraph (or any master agreement
for such master agreement or
agreements), together with all
supplements to such master agreement,
shall be treated as a single agreement
and a single qualified financial
contract. If a master agreement
contains provisions relating to
agreements or transactions that are not
themselves qualified financial
contracts, the master agreement shall
be deemed to be a qualified financial
contract only with respect to those
transactions that are themselves
qualified financial contracts.
(viii) Transfer.--The term
``transfer'' means every mode, direct
or indirect, absolute or conditional,
voluntary or involuntary, of disposing
of or parting with property or with an
interest in property, including
retention of title as a security
interest and foreclosure of the
debtor's equity of redemption.
(E) Certain protections in event of
appointment of conservator.--Notwithstanding
any other provision of this Act ([other than
paragraph (12) of this subsection, subsection
(d)(9)] other than subsections (d)(9) and
(d)(10) of this section, and section 13(e) of
this Act), any other Federal law, or the law of
any State, no person shall be stayed or
prohibited from exercising--
(i) any right such person has to
cause the termination, liquidation, or
acceleration of any qualified financial
contract with a depository institution
in a conservatorship based upon a
default under such financial contract
which is enforceable under applicable
noninsolvency law;
[(ii) any right under any security
arrangement relating to such qualified
financial contracts; or]
(ii) any right under any security
agreement or arrangement or other
credit enhancement related to 1 or more
qualified financial contracts described
in clause (i);
(iii) any right to offset or net out
any termination values, payment
amounts, or other transfer obligations
arising under or in connection with
such qualified financial contracts.
(F) Clarification.--No provision of law shall
be construed as limiting the right or power of
the Corporation, or authorizing any court or
agency to limit or delay, in any manner, the
right or power of the Corporation to transfer
any qualified financial contract in accordance
with paragraphs (9) and (10) of this subsection
or to disaffirm or repudiate any such contract
in accordance with subsection (e)(1) of this
section.
(G) Walkaway clauses not effective.--
(i) In general.--Notwithstanding the
provisions of subparagraphs (A) and
(E), and sections 403 and 404 of the
Federal Deposit Insurance Corporation
Improvement Act of 1991, no walkaway
clause shall be enforceable in a
qualified financial contract of an
insured depository institution in
default.
(ii) Walkaway clause defined.--For
purposes of this subparagraph, the term
``walkaway clause'' means a provision
in a qualified financial contract that,
after calculation of a value of a
party's position or an amount due to or
from 1 of the parties in accordance
with its terms upon termination,
liquidation, or acceleration of the
qualified financial contract, either
does not create a payment obligation of
a party or extinguishes a payment
obligation of a party in whole or in
part solely because of such party's
status as a nondefaulting party.
(H) Recordkeeping requirements.--The
Corporation, in consultation with the
appropriate Federal banking agencies, may
prescribe regulations requiring more detailed
recordkeeping with respect to qualified
financial contracts (including market
valuations) by insured depository institutions.
[(9) Transfer of qualified financial contracts.--In
making any transfer of assets or liabilities of a
depository institution in default which includes any
qualified financial contract, the conservator or
receiver for such depository institution shall either--
[(A) transfer to 1 depository institution
(other than a depository institution in
default)--
[(i) all qualified financial
contracts between--
[(I) any person or any
affiliate of such person; and
[(II) the depository
institution in default;
[(ii) all claims of such person or
any affiliate of such person against
such depository institution under any
such contract (other than any claim
which, under the terms of any such
contract, is subordinated to the claims
of general unsecured creditors of such
institution);
[(iii) all claims of such depository
institution against such person or any
affiliate of such person under any such
contract; and
[(iv) all property securing any claim
described in clause (ii) or (iii) under
any such contract; or
[(B) transfer none of the financial
contracts, claims, or property referred to in
subparagraph (A) (with respect to such person
and any affiliate of such person).]
(9) Transfer of qualified financial contracts.--
(A) In general.--In making any transfer of
assets or liabilities of a depository
institution in default which includes any
qualified financial contract, the conservator
or receiver for such depository institution
shall either--
(i) transfer to 1 financial
institution, other than a financial
institution for which a conservator,
receiver, trustee in bankruptcy, or
other legal custodian has been
appointed or which is otherwise the
subject of a bankruptcy or insolvency
proceeding--
(I) all qualified financial
contracts between any person or
any affiliate of such person
and the depository institution
in default;
(II) all claims of such
person or any affiliate of such
person against such depository
institution under any such
contract (other than any claim
which, under the terms of any
such contract, is subordinated
to the claims of general
unsecured creditors of such
institution);
(III) all claims of such
depository institution against
such person or any affiliate of
such person under any such
contract; and
(IV) all property securing
any claim described in
subclause (II) or (III) under
any such contract, or any other
credit enhancement for any
contract described in clause
(I); or
(ii) transfer none of the qualified
financial contracts, claims, or
property referred to in clause (i)
(with respect to such person and any
affiliate of such person).
(B) Transfer to foreign bank, foreign
financial institution, or branch or agency of a
foreign bank or financial institution.--In
transferring any qualified financial contracts
and related claims and property pursuant to
subparagraph (A)(i), the conservator or
receiver for such depository institution shall
not make such transfer to a foreign bank,
financial institution organized under the laws
of a foreign country, or a branch or agency of
a foreign bank or financial institution unless,
under the law applicable to such bank,
financial institution, branch or agency, to the
qualified financial contracts, and to any
netting contract, the contractual rights of the
parties to such qualified financial contracts
are enforceable substantially to the same
extent as permitted under this section.
(C) Transfer of contracts subject to the
rules of a clearing organization.--In the event
that a conservator or receiver transfers any
qualified financial contract and related claims
and property pursuant to subparagraph (A)(i)
and such contract is subject to the rules of a
clearing organization, the clearing
organization shall not be required to accept
the transferee as a member by virtue of the
transfer.
(D) Definition.--For purposes of this
section, the term ``financial institution''
means a broker or dealer, a depository
institution, a futures commission merchant, or
any other institution as determined by the
Corporation by regulation to be a financial
institution.
(10) Notification of transfer.--
(A) In general.--If--
(i) the conservator or receiver for
an insured depository institution in
default makes any transfer of the
assets and liabilities of such
institution; and
(ii) the transfer includes any
qualified financial contract,
[the conservator or receiver shall use such
conservator's or receiver's best efforts to
notify any person who is a party to any such
contract of such transfer by 12:00, noon (local
time) on the business day following such
transfer.] the conservator or receiver shall
notify any person who is a party to any such
contract of such transfer by 5:00 p.m. (eastern
time) on the business day following the date of
the appointment of the receiver, in the case of
a receivership, or the business day following
such transfer, in the case of a
conservatorship.
(B) Certain rights not enforceable.--
(i) Receivership.--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 terminate, liquidate, or net
such contract under paragraph (8)(A) or
section 403 or 404 of the Federal
Deposit Insurance Corporation
Improvement Act of 1991 solely by
reason of or incidental to the
appointment of a receiver for the
depository institution (or the
insolvency or financial condition of
the depository institution for which
the receiver has been appointed)--
(I) until 5:00 p.m. (eastern
time) on the business day
following the date of 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) Conservatorship.--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 terminate,
liquidate, or net such contract under
paragraph (8)(E) or sections 403 or 404
of the Federal Deposit Insurance
Corporation Improvement Act of 1991,
solely by reason of or incidental to
the appointment of a conservator for
the depository institution (or the
insolvency or financial condition of
the depository institution for which
the conservator has been appointed).
(iii) Notice.--For purposes of this
subsection, the Corporation as receiver
or conservator of an insured depository
institution shall be deemed to have
notified a person who is a party to a
qualified financial contract with such
depository institution if the
Corporation has taken steps reasonably
calculated to provide notice to such
person by the time specified in
subparagraph (A) of this subsection.
(C) Treatment of bridge banks.--The following
institutions shall not be considered a
financial institution for which a conservator,
receiver, trustee in bankruptcy, or other legal
custodian has been appointed or which is
otherwise the subject of a bankruptcy or
insolvency proceeding for purposes of
subsection (e)(9)--
(i) a bridge bank; or
(ii) a depository institution
organized by the Corporation, for which
a conservator is appointed either--
(I) immediately upon the
organization of the
institution; or
(II) at the time of a
purchase and assumption
transaction between such
institution and the Corporation
as receiver for a depository
institution in default.
[(B)] (D) Business day defined.--For purposes
of this paragraph, the term ``business day''
means any day other than any Saturday, Sunday,
or any day on which either the New York Stock
Exchange or the Federal Reserve Bank of New
York is closed.
(11) Disaffirmance or repudiation of qualified
financial contracts.--In exercising the rights of
disaffirmance or repudiation of a conservator or
receiver with respect to any qualified financial
contract to which an insured depository institution is
a party, the conservator or receiver for such
institution shall either--
(A) disaffirm or repudiate all qualified
financial contracts between--
(i) any person or any affiliate of
such person; and
(ii) the depository institution in
default; or
(B) disaffirm or repudiate none of the
qualified financial contracts referred to in
subparagraph (A) (with respect to such person
or any affiliate of such person).
[(11)] (12) Certain security interests not
avoidable.--No provision of this subsection shall be
construed as permitting the avoidance of any legally
enforceable or perfected security interest in any of
the assets of any depository institution except where
such an interest is taken in contemplation of the
institution's insolvency or with the intent to hinder,
delay, or defraud the institution or the creditors of
such institution.
[(12)] (13) Authority to enforce contracts.--
(A) In general.--The conservator or receiver
may enforce any contract, other than a
director's or officer's liability insurance
contract or a depository institution bond,
entered into by the depository institution
notwithstanding any provision of the contract
providing for termination, default,
acceleration, or exercise of rights upon, or
solely by reason of, insolvency or the
appointment or the exercise of rights or powers
of a conservator or receiver.
(B) Certain rights not affected.--No
provision of this paragraph may be construed as
impairing or affecting any right of the
conservator or receiver to enforce or recover
under a director's or officer's liability
insurance contract or depository institution
bond under other applicable law.
[(13)] (14) Exception for federal reserve and federal
home loan banks.--No provision of this subsection shall
apply with respect to--
(A) any extension of credit from any Federal
home loan bank or Federal Reserve bank to any
insured depository institution; or
(B) any security interest in the assets of
the institution securing any such extension of
credit.
[(14)] (15) Selling credit card accounts
receivable.--
(A) * * *
* * * * * * *
[(15)] (16) Certain credit card customer lists
protected.--
(A) In general.--If any insured depository
institution sells credit card accounts
receivable under an agreement negotiated at
arm's length that provides for the sale of the
institution's credit card customer list, the
Corporation shall prohibit any party to a
transaction with respect to the institution
under this section or section 13 from using the
list, except as permitted under the agreement.
(B) Fraudulent transactions excluded.--
Subparagraph (A) does not limit the
Corporation's authority to repudiate any
agreement entered into with the intent to
hinder, delay, or defraud the institution, the
institution's creditors, or the Corporation.
* * * * * * *
Sec. 13. (a) * * *
* * * * * * *
(e) Agreements Against Interests of Corporation.--
(1) * * *
[(2) Public deposits.--An agreement to provide for
the lawful collateralization of deposits of a Federal,
State, or local governmental entity or of any depositor
referred to in section 11(a)(2) shall not be deemed to
be invalid pursuant to paragraph (1)(B) solely because
such agreement was not executed contemporaneously with
the acquisition of the collateral or with any changes
in the collateral made in accordance with such
agreement.]
(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, or of any depositor referred to in
section 11(a)(2), 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) 1 or more qualified financial contracts,
as defined in section 11(e)(8)(D),
shall not be deemed invalid pursuant to paragraph
(1)(B) solely because such agreement was not executed
contemporaneously with the acquisition of the
collateral or because of pledges, delivery, or
substitution of the collateral made in accordance with
such agreement.
* * * * * * *
----------
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
* * * * * * *
TITLE IV--MISCELLANEOUS PROVISIONS
Subtitle A--Payment System Risk Reduction
* * * * * * *
SEC. 402. DEFINITIONS.
For purposes of this subtitle--
(1) * * *
* * * * * * *
(6) Depository institution.--The term ``depository
institution'' means--
(A) a depository institution as defined in
section 19(b)(1)(A) of the Federal Reserve Act
(other than clause (vii));
[(B) a branch or agency as defined in section
1(b) of the International Banking Act of 1978;]
(B) an uninsured national bank or an
uninsured State bank that is a member of the
Federal Reserve System if the national bank or
State member bank is not eligible to make
application to become an insured bank under
section 5 of the Federal Deposit Insurance Act;
(C) a branch or agency of a foreign bank, a
foreign bank and any branch or agency of the
foreign bank, or the foreign bank that
established the branch or agency, as those
terms are defined in section 1(b) of the
International Banking Act of 1978;
[(C)] (D) a corporation chartered under
section 25(a) of the Federal Reserve Act; or
[(D)] (E) a corporation having an agreement
or undertaking with the Board of Governors of
the Federal Reserve System under section 25 of
the Federal Reserve Act.
* * * * * * *
(11) Member.--The term ``member'' means a member of
or participant in a clearing organization, and includes
the clearing organization and any other clearing
organization with which such clearing organization has
a netting contract.
* * * * * * *
(14) Netting contract.--
(A) In general.--The term ``netting
contract''--
[(i) means a contract or agreement
between 2 or more financial
institutions or members, that--
[(I) is governed by the laws
of the United States, any
State, or any political
subdivision of any State, and
[(II) provides for netting
present or future payment
obligations or payment
entitlements (including
liquidation or close-out values
relating to the obligations or
entitlements) among the parties
to the agreement; and]
(i) means a contract or agreement
between 2 or more financial
institutions, clearing organizations,
or members that provides for netting
present or future payment obligations
or payment entitlements (including
liquidation or closeout values relating
to such obligations or entitlements)
among the parties to the agreement; and
* * * * * * *
(15) Payment.--The term ``payment'' means a payment
of United States dollars, another currency, or a
composite currency, and a noncash delivery, including a
payment or delivery to liquidate an unmatured
obligation.
* * * * * * *
SEC. 403. BILATERAL NETTING.
[(a) General Rule.--Notwithstanding any other provision of
law, the covered contractual payment obligations and the
covered contractual payment entitlements between any 2
financial institutions shall be netted in accordance with, and
subject to the conditions of, the terms of any applicable
netting contract.]
(a) General Rule.--Notwithstanding any other provision of
State or Federal law (other than paragraphs (8)(E), (8)(F), and
(10)(B) of section 11(e) of the Federal Deposit Insurance Act
or any order authorized under section 5(b)(2) of the Securities
Investor Protection Act of 1971, the covered contractual
payment obligations and the covered contractual payment
entitlements between any 2 financial institutions shall be
netted in accordance with, and subject to the conditions of,
the terms of any applicable netting contract.
* * * * * * *
(f) Enforceability of Security Agreements.--The provisions of
any security agreement or arrangement or other credit
enhancement related to 1 or more netting contracts between any
2 financial institutions shall be enforceable in accordance
with their terms and shall not be stayed, avoided, or otherwise
limited by any State or Federal law (other than paragraphs
(8)(E), (8)(F), and (10)(B) of section 11(e) of the Federal
Deposit Insurance Act and section 5(b)(2) of the Securities
Investor Protection Act of 1971).
SEC. 404. CLEARING ORGANIZATION NETTING.
[(a) General Netting Rule.--Notwithstanding any other
provision of law, the covered contractual payment obligations
and covered contractual payment entitlements of a member of a
clearing organization to and from all other members of a
clearing organization shall be netted in accordance with and
subject to the conditions of any applicable netting contract.]
(a) General Rule.--Notwithstanding any other provision of
State or Federal law (other than paragraphs (8)(E), (8)(F), and
(10)(B) of section 11(e) of the Federal Deposit Insurance Act
and any order authorized under section 5(b)(2) of the
Securities Investor Protection Act of 1971, the covered
contractual payment obligations and the covered contractual
payment entitlements of a member of a clearing organization to
and from all other members of a clearing organization shall be
netted in accordance with and subject to the conditions of any
applicable netting contract.
* * * * * * *
(h) Enforceability of Security Agreements.--The provisions of
any security agreement or arrangement or other credit
enhancement related to 1 or more netting contracts between any
2 members of a clearing organization shall be enforceable in
accordance with their terms and shall not be stayed, avoided,
or otherwise limited by any State or Federal law other than
paragraphs (8)(E), (8)(F), and (10)(B) of section 11(e) of the
Federal Deposit Insurance Act and section 5(b)(2) of the
Securities Investor Protection Act of 1971.
* * * * * * *
SEC. 407. TREATMENT OF CONTRACTS WITH UNINSURED NATIONAL BANKS AND
UNINSURED FEDERAL BRANCHES AND AGENCIES.
(a) In General.--Notwithstanding any other provision of law,
paragraphs (8), (9), and (11) of section 11(e) of the Federal
Deposit Insurance Act shall apply to an uninsured national bank
or uninsured Federal branch or Federal agency except--
(1) any reference to the ``Corporation as receiver''
or ``the receiver or the Corporation'' shall refer to
the receiver of an uninsured national bank or uninsured
Federal branch or Federal agency appointed by the
Comptroller of the Currency;
(2) any reference to the ``Corporation'' (other than
in section 11(e)(8)(D) of such Act), the ``Corporation,
whether acting as such or as conservator or receiver'',
a ``receiver'', or a ``conservator'' shall refer to the
receiver or conservator of an uninsured national bank
or uninsured Federal branch or Federal agency appointed
by the Comptroller of the Currency; and
(3) any reference to an ``insured depository
institution'' or ``depository institution'' shall refer
to an uninsured national bank or an uninsured Federal
branch or Federal agency.
(b) Liability.--The liability of a receiver or conservator of
an uninsured national bank or uninsured Federal branch or
agency shall be determined in the same manner and subject to
the same limitations that apply to receivers and conservators
of insured depository institutions under section 11(e) of the
Federal Deposit Insurance Act.
(c) Regulatory Authority.--
(1) In general.--The Comptroller of the Currency, in
consultation with the Federal Deposit Insurance
Corporation, may promulgate regulations to implement
this section.
(2) Specific requirement.--In promulgating
regulations to implement this section, the Comptroller
of the Currency shall ensure that the regulations
generally are consistent with the regulations and
policies of the Federal Deposit Insurance Corporation
adopted pursuant to the Federal Deposit Insurance Act.
(d) Definitions.--For purposes of this section, the terms
``Federal branch'', ``Federal agency'', and ``foreign bank''
have the same meaning as in section 1(b) of the International
Banking Act.
SEC. [407.] 408. NATIONAL EMERGENCIES.
The provisions of this subtitle may not be construed to limit
the authority of the President under the Trading With the Enemy
Act (50 U.S.C. App. 1 et seq.) or the International Emergency
Economic Powers Act (50 U.S.C. 1701 et seq.).
* * * * * * *
----------
TITLE 11, UNITED STATES CODE
* * * * * * *
CHAPTER 1--GENERAL PROVISIONS
Sec. 101. Definitions
In this title--
(1) * * *
* * * * * * *
[(22) ``financial institution'' means a person that
is a commercial or savings bank, industrial savings
bank, savings and loan association, or trust company
and, when any such person is acting as agent or
custodian for a customer in connection with a
securities contract, as defined in section 741 of this
title, such customer;]
(22) the term ``financial institution'' means a
Federal reserve bank, or a person that is a commercial
or savings bank, industrial savings bank, savings and
loan association, trust company, or receiver or
conservator for such person and, when any such Federal
reserve bank, receiver, or conservator or person acting
as agent or custodian for a customer in connection with
a securities contract, as defined in section 741(7) of
this title, such customer;
(22A) the term ``financial participant'' means any
entity that, at the time it enters into a securities
contract, commodity contract or forward contract, or at
the time of the filing of the petition, has 1 or more
agreements or transactions that is described in section
561(a)(2) with the debtor or any other entity (other
than an affiliate) of a total gross dollar value of at
least $1,000,000,000 in notional or actual principal
amount outstanding on any day during the previous 15-
month period, or has gross mark-to-market positions of
at least $100,000,000 (aggregated across
counterparties) in 1 or more such agreements or
transactions with the debtor or any other entity (other
than an affiliate) on any day during the previous 15-
month period;
* * * * * * *
(25) ``forward contract'' [means a contract] means--
(A) a contract (other than a commodity
contract) for the purchase, sale, or transfer
of a commodity, as defined in section 761(8) of
this title, or any similar good, article,
service, right, or interest which is presently
or in the future becomes the subject of dealing
in the forward contract trade, or product or
byproduct thereof, with a maturity date more
than two days after the date the contract is
entered into, including, but not limited to, a
repurchase transaction, reverse repurchase
transaction, consignment, lease, swap, hedge
transaction, deposit, loan, option, allocated
transaction, unallocated transaction[, or any
combination thereof or option thereon;], or any
other similar agreement;
(B) any combination of agreements or
transactions referred to in subparagraphs (A)
and (C);
(C) any option to enter into any agreement or
transaction referred to in subparagraph (A) or
(B);
(D) a master agreement that provides for an
agreement or transaction referred to in
subparagraph (A), (B) or (C), together with all
supplements to any such master agreement,
without regard to whether the master agreement
provides for an agreement or transaction that
is not a forward contract under this paragraph,
except that the master agreement shall be
considered to be a forward contract under this
paragraph only with respect to each agreement
or transaction under the master agreement that
is referred to in subparagraph (A), (B) or (C);
or
(E) a security agreement or arrangement or
other credit enhancement related to any
agreement or transaction referred to in
subparagraph (A), (B), (C) or (D);
[(26) ``forward contract merchant'' means a person
whose business consists in whole or in part of entering
into forward contracts as or with merchants in a
commodity, as defined in section 761(8) of this title,
or any similar good, article, service, right, or
interest which is presently or in the future becomes
the subject of dealing in the forward contract trade;]
(26) the term ``forward contract merchant'' means a
Federal reserve bank, or a person whose business
consists in whole or in part of entering into forward
contracts as or with merchants or in a commodity, as
defined or in section 761(8) of this title, or any
similar good, article, service, right, or interest
which is presently or in the future becomes the subject
of dealing or in the forward contract trade;
* * * * * * *
(38A) the term ``master netting agreement'' means an
agreement providing for the exercise of rights,
including rights of netting, setoff, liquidation,
termination, acceleration, or closeout, under or in
connection with 1 or more contracts that are described
in any 1 or more of paragraphs (1) through (5) of
section 561(a), or any security agreement or
arrangement or other credit enhancement related to 1 or
more of the foregoing. If a master netting agreement
contains provisions relating to agreements or
transactions that are not contracts described in
paragraphs (1) through (5) of section 561(a), the
master netting agreement shall be deemed to be a master
netting agreement only with respect to those agreements
or transactions that are described in any 1 or more of
the paragraphs (1) through (5) of section 561(a);
(38B) the term ``master netting agreement
participant'' means an entity that, at any time before
the filing of the petition, is a party to an
outstanding master netting agreement with the debtor;
* * * * * * *
[(47) ``repurchase agreement'' (which definition also
applies to a reverse repurchase agreement) means an
agreement, including related terms, which provides for
the transfer of certificates of deposit, eligible
bankers' acceptances, or securities that are direct
obligations of, or that are fully guaranteed as to
principal and interest by, the United States or any
agency of the United States against the transfer of
funds by the transferee of such certificates of
deposit, eligible bankers' acceptances, or securities
with a simultaneous agreement by such transferee to
transfer to the transferor thereof certificates of
deposit, eligible bankers' acceptances, or securities
as described above, at a date certain not later than
one year after such transfers or on demand, against the
transfer of funds;]
(47) the term ``repurchase agreement'' (which
definition also applies to a reverse repurchase
agreement)--
(A) means--
(i) an agreement, including related
terms, which provides for the transfer
of 1 or more certificates of deposit,
mortgage-related securities (as such
term is defined in the Securities
Exchange Act of 1934), mortgage loans,
interests in mortgage-related
securities or mortgage loans, eligible
bankers' acceptances, qualified foreign
government securities or securities
that are direct obligations of, or that
are fully guaranteed as to principal
and interest by, the United States or
any agency of the United States against
the transfer of funds by the transferee
of such certificates of deposit,
eligible bankers' acceptances,
securities, loans or interests with a
simultaneous agreement by such
transferee to transfer to the
transferor thereof certificates of
deposit, eligible bankers' acceptances,
securities, loans, or interests as
described above, at a date certain not
later than 1 year after such transfers
or on demand, against the transfer of
funds; or any other similar agreement;
and
(ii) any combination of agreements or
transactions referred to in clauses (i)
and (iii);
(iii) any option to enter into any
agreement or transaction referred to in
clause (i) or (ii);
(iv) a master agreement that provides
for an agreement or transaction
referred to in clauses (i), (ii) or
(iii), together with all supplements,
without regard to whether the master
agreement provides for an agreement or
transaction that is not a repurchase
agreement under this subparagraph,
except that the master agreement shall
be considered to be a repurchase
agreement under this subparagraph only
with respect to each agreement or
transaction under the master agreement
that is referred to in clause (i), (ii)
or (iii); or
(v) a security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in clauses (i), (ii), (iii)
or (iv); and
(B) does not include any repurchase
obligation under a participation in a
commercial mortgage loan,
and, for purposes of this paragraph, the term
``qualified foreign government security'' means a
security that is a direct obligation of, or that is
fully guaranteed by, the central government of a member
of the Organization for Economic Cooperation and
Development.
* * * * * * *
[(53B) ``swap agreement'' means--
[(A) an agreement (including terms and
conditions incorporated by reference therein)
which is a rate swap agreement, basis swap,
forward rate agreement, commodity swap,
interest rate option, forward foreign exchange
agreement, spot foreign exchange agreement,
rate cap agreement, rate floor agreement, rate
collar agreement, currency swap agreement,
cross-currency rate swap agreement, currency
option, any other similar agreement (including
any option to enter into any of the foregoing);
[(B) any combination of the foregoing; or
[(C) a master agreement for any of the
foregoing together with all supplements;]
(53B) the term ``swap agreement''--
(A) means--
(i) any agreement, including the
terms and conditions incorporated by
reference in any such agreement, which
is an interest rate swap, option,
future, or forward agreement, including
a rate floor, rate cap, rate collar,
cross-currency rate swap, and basis
swap; a spot, same day-tomorrow,
tomorrow-next, forward, or other
foreign exchange or precious metals
agreement; a currency swap, option,
future, or forward agreement; an equity
index or equity swap, option, future,
or forward agreement; a debt index or
debt swap, option, future, or forward
agreement; a credit spread or credit
swap, option, future, or forward
agreement; a commodity index or
commodity swap, option, future, or
forward agreement;
(ii) any agreement similar to any
other agreement or transaction referred
to in this subparagraph that--
(I) is presently, or in the
future becomes, regularly
entered into in the swap
agreement market (including
terms and conditions
incorporated by reference
therein); and
(II) is a forward, swap,
future, or option on 1 or more
rates, currencies, commodities,
equity securities or other
equity instruments, debt
securities or other debt
instruments, or economic
indices or measures of economic
risk or value;
(iii) any combination of agreements
or transactions referred to in this
subparagraph;
(iv) any option to enter into any
agreement or transaction referred to in
this subparagraph;
(v) a master agreement that provides
for an agreement or transaction
referred to in clause (i), (ii), (iii),
or (iv), together with all supplements
to any such master agreement, without
regard to whether the master agreement
contains an agreement or transaction
that is described in any of such
clause, except that the master
agreement shall be considered to be a
swap agreement only with respect to
each agreement or transaction under the
master agreement that is referred to in
clause (i), (ii), (iii), or (iv); or
(C) is applicable for purposes of this title
only and shall not be construed or applied to
challenge or affect the characterization,
definition, or treatment of any swap agreement
or any instrument defined as a swap agreement
herein, under any other statute, regulation, or
rule, including the Securities Act of 1933, the
Securities Exchange Act of 1934, the Public
Utility Holding Company Act of 1935, the Trust
Indenture Act of 1939, the Investment Company
Act of 1940, the Investment Advisers Act of
1940, the Securities Investor Protection Act of
1970, the Commodity Exchange Act, and the
regulations prescribed by the Securities and
Exchange Commission or the Commodity Futures
Trading Commission.
* * * * * * *
Sec. 104. Adjustment of dollar amounts
(a) * * *
* * * * * * *
(c) Exception For Certain Defined Terms.--No adjustments
shall be made under this section to the dollar amounts set
forth in the definition of the term ``financial participant''
in section 101(22A).
* * * * * * *
CHAPTER 3--CASE ADMINISTRATION
* * * * * * *
SUBCHAPTER I--COMMENCEMENT OF A CASE
* * * * * * *
Sec. 304. Cases ancillary to foreign proceedings
(a) * * *
* * * * * * *
(d) Any provisions of this title relating to securities
contracts, commodity contracts, forward contracts, repurchase
agreements, swap agreements, or master netting agreements shall
apply in a case ancillary to a foreign proceeding under this
section or any other section of this title so that enforcement
of contractual provisions of such contracts and agreements in
accordance with their terms will not be stayed or otherwise
limited by operation of any provision of this title or by order
of a court in any proceeding under this title, and to limit
avoidance powers to the same extent as in a proceeding under
chapter 7 or 11 of this title (such enforcement not to be
limited based on the presence or absence of assets of the
debtor in the United States).
* * * * * * *
SUBCHAPTER IV--ADMINISTRATIVE POWERS
* * * * * * *
Sec. 362. Automatic stay
(a) * * *
(b) The filing of a petition under section 301, 302, or 303
of this title, or of an application under section 5(a)(3) of
the Securities Investor Protection Act of 1970, does not
operate as a stay--
(1) * * *
* * * * * * *
(6) under subsection (a) of this section, of the
setoff by a commodity broker, forward contract
merchant, stockbroker, [financial institutions,]
financial institution, financial participant or
securities clearing agency of any mutual debt and claim
under or in connection with commodity contracts, as
defined in section 761 of this title, forward
contracts, or securities contracts, as defined in
section 741 of this title, that constitutes the setoff
of a claim against the debtor for a margin payment, as
defined in section 101, 741, or 761 of this title, or
settlement payment, as defined in section 101 or 741 of
this title, arising out of commodity contracts, forward
contracts, or securities contracts against cash,
securities, or other property held by, pledged to, and
under the control of, or due from such commodity
broker, forward contract merchant, stockbroker,
[financial institutions,] financial institution,
financial participant or securities clearing agency to
margin, guarantee, secure, or settle commodity
contracts, forward contracts, or securities contracts;
(7) under subsection (a) of this section, of the
setoff by a repo participant, of any mutual debt and
claim under or in connection with repurchase agreements
that constitutes the setoff of a claim against the
debtor for a margin payment, as defined in section 741
or 761 of this title, or settlement payment, as defined
in section 741 of this title, arising out of repurchase
agreements against cash, securities, or other property
held by, pledged to, and under the control of, or due
from such repo participant to margin, guarantee, secure
or settle repurchase agreements;
* * * * * * *
[(17) under subsection (a) of this section, of the
setoff by a swap participant, of any mutual debt and
claim under or in connection with any swap agreement
that constitutes the setoff of a claim against the
debtor for any payment due from the debtor under or in
connection with any swap agreement against any payment
due to the debtor from the swap participant under or in
connection with any swap agreement or against cash,
securities, or other property of the debtor held by or
due from such swap participant to guarantee, secure or
settle any swap agreement; or]
(17) under subsection (a), of the setoff by a swap
participant of any mutual debt and claim under or in
connection with 1 or more swap agreements that
constitute the setoff of a claim against the debtor for
any payment due from the debtor under or in connection
with any swap agreement against any payment due to the
debtor from the swap participant under or in connection
with any swap agreement or against cash, securities, or
other property of the debtor held by, pledged to, and
under the control of, or due from such swap participant
to guarantee, secure, or settle any swap agreement;
(18) under subsection (a) of the creation or
perfection of a statutory lien for an ad valorem
property tax imposed by the District of Columbia, or a
political subdivision of a State, if such tax comes due
after the filing of the petition[.]; or
(19) under subsection (a), of the setoff by a master
netting agreement participant of a mutual debt and
claim under or in connection with 1 or more master
netting agreements to the extent such participant could
offset the claim under paragraph (6), (7), or (17) for
each individual contract covered by the master netting
agreement in issue.
* * * * * * *
(i) Limitation.--The exercise of rights not subject to the
stay arising under subsection (a) pursuant to paragraph (6),
(7), (17), or (19) of subsection (b) shall not be stayed by any
order of a court or administrative agency in any proceeding
under this title.
* * * * * * *
CHAPTER 5--CREDITORS, THE DEBTOR, AND THE ESTATE
* * * * * * *
SUBCHAPTER I--CREDITORS AND CLAIMS
* * * * * * *
Sec. 502. Allowance of claims or interests
(a) * * *
* * * * * * *
(g)(1) A claim arising from the rejection, under section 365
of this title or under a plan under chapter 9, 11, 12, or 13 of
this title, of an executory contract or unexpired lease of the
debtor that has not been assumed shall be determined, and shall
be allowed under subsection (a), (b), or (c) of this section or
disallowed under subsection (d) or (e) of this section, the
same as if such claim had arisen before the date of the filing
of the petition.
(2) A claim for damages calculated in accordance with
section 562 of this title shall be allowed under subsection
(a),(b), or (c) of this section or disallowed under subsection
(d) or (e) of this section as if such claim had arisen before
the date of the filing of the petition.
* * * * * * *
SUBCHAPTER III--THE ESTATE
* * * * * * *
Sec. 541. Property of the estate
(a) * * *
(b) Property of the estate does not include--
(1) * * *
* * * * * * *
(4) any interest of the debtor in liquid or gaseous
hydrocarbons to the extent that--
(A) * * *
(B)(i) the debtor has transferred such
interest pursuant to a written conveyance of a
production payment to an entity that does not
participate in the operation of the property
from which such production payment is
transferred; and
(ii) but for the operation of this paragraph,
the estate could include the interest referred
to in clause (i) only by virtue of section 542
of this title; [or]
(5) any eligible asset (or proceeds thereof), to the
extent that such eligible asset was transferred by the
debtor, before the date of commencement of the case, to
an eligible entity in connection with an asset-backed
securitization, except to the extent such asset (or
proceeds or value thereof) may be recovered by the
trustee under section 550 by virtue of avoidance under
section 548(a); or
[(5)] (6) any interest in cash or cash equivalents
that constitute proceeds of a sale by the debtor of a
money order that is made--
(A) on or after the date that is 14 days
prior to the date on which the petition is
filed; and
(B) under an agreement with a money order
issuer that prohibits the commingling of such
proceeds with property of the debtor
(notwithstanding that, contrary to the
agreement, the proceeds may have been
commingled with property of the debtor),
unless the money order issuer had not taken action, prior to
the filing of the petition, to require compliance with the
prohibition.
* * * * * * *
(e) Definitions.--For purposes of this section, the following
definitions shall apply:
(1) Asset-backed securitization.--The term ``asset-
backed securitization'' means a transaction in which
eligible assets transferred to an eligible entity are
used as the source of payment on securities, the most
senior of which are rated investment grade by 1 or more
nationally recognized securities rating organizations,
issued by an issuer;
(2) Eligible asset.--The term ``eligible asset''
means--
(A) financial assets (including interests
therein and proceeds thereof), either fixed or
revolving, including residential and commercial
mortgage loans, consumer receivables, trade
receivables, and lease receivables, that, by
their terms, convert into cash within a finite
time period, plus any rights or other assets
designed to assure the servicing or timely
distribution of proceeds to security holders;
(B) cash; and
(C) securities.
(3) Eligible entity.--The term ``eligible entity''
means--
(A) an issuer; or
(B) a trust, corporation, partnership, or
other entity engaged exclusively in the
business of acquiring and transferring eligible
assets directly or indirectly to an issuer and
taking actions ancillary thereto;
(4) Issuer.--The term ``issuer'' means a trust,
corporation, partnership, or other entity engaged
exclusively in the business of acquiring and holding
eligible assets, issuing securities backed by eligible
assets, and taking actions ancillary thereto.
(5) Transferred.--The term ``transferred'' means the
debtor, pursuant to a written agreement, represented
and warranted that eligible assets were sold,
contributed, or otherwise conveyed with the intention
of removing them from the estate of the debtor pursuant
to subsection (b)(5), irrespective, without limitation
of--
(A) whether the debtor directly or indirectly
obtained or held an interest in the issuer or
in any securities issued by the issuer;
(B) whether the debtor had an obligation to
repurchase or to service or supervise the
servicing of all or any portion of such
eligible assets; or
(C) the characterization of such sale,
contribution, or other conveyance for tax,
accounting, regulatory reporting, or other
purposes.
* * * * * * *
Sec. 546. Limitations on avoiding powers
(a) * * *
* * * * * * *
(e) Notwithstanding sections 544, 545, 547, 548(a)(2), and
548(a)(1)(B) of this title, the trustee may not avoid a
transfer that is a margin payment, as defined in section 101,
741, or 761 of this title, or settlement payment, as defined in
section 101 or 741 of this title, made by or to a commodity
broker, forward contract merchant, stockbroker, financial
institution, financial participant or securities clearing
agency, that is made before the commencement of the case,
except under section 548(a)(1)(A) of this title.
* * * * * * *
(g) Notwithstanding sections 544, 545, 547, 548(a)(2) and
548(b) of this title, the trustee may not avoid a transfer
[under a swap agreement], made by or to a swap participant, [in
connection with a swap agreement] under or in connection with
any swap agreement and that is made before the commencement of
the case, except under section 548(a)(1) of this title.
(h) Notwithstanding sections 544, 545, 547, 548(a)(2), and
548(b) of this title, to the extent that under subsection (e),
(f), or (g), the trustee may not avoid a transfer made by or to
a master netting agreement participant under or in connection
with each individual contract covered by any master netting
agreement that is made before the commencement of the case, the
trustee may not avoid a transfer made by or to such master
netting agreement participant under or in connection with the
master netting agreement in issue, except under section
548(a)(1) of this title.
[(g)] (i) Notwithstanding the rights and powers of a trustee
under sections 544(a), 545, 547, 549, and 553, if the court
determines on a motion by the trustee made not later than 120
days after the date of the order for relief in a case under
chapter 11 of this title and after notice and a hearing, that a
return is in the best interests of the estate, the debtor, with
the consent of a creditor, may return goods shipped to the
debtor by the creditor before the commencement of the case, and
the creditor may offset the purchase price of such goods
against any claim of the creditor against the debtor that arose
before the commencement of the case.
* * * * * * *
Sec. 548. Fraudulent transfers and obligations
(a) * * *
* * * * * * *
(d)(1) * * *
(2) In this section--
(A) ``value'' means property, or satisfaction or
securing of a present or antecedent debt of the debtor,
but does not include an unperformed promise to furnish
support to the debtor or to a relative of the debtor;
(B) a commodity broker, forward contract merchant,
stockbroker, financial institution, financial
participant or securities clearing agency that receives
a margin payment, as defined in section 101, 741, or
761 of this title, or settlement payment, as defined in
section 101 or 741 of this title, takes for value to
the extent of such payment;
(C) a repo participant that receives a margin
payment, as defined in section 741 or 761 of this
title, or settlement payment, as defined in section 741
of this title, in connection with a repurchase
agreement, takes for value to the extent of such
payment; [and]
(D) a swap participant that receives a transfer in
connection with a swap agreement takes for value to the
extent of such transfer[.]; and
(E) a master netting agreement participant that
receives a transfer in connection with a master netting
agreement takes for value to the extent of such
transfer, but only to the extent that such participant
would take for value under paragraph (B), (C), or (D)
for each individual contract covered by the master
netting agreement in issue.
* * * * * * *
Sec. 553. Setoff
(a) Except as otherwise provided in this section and in
sections 362 and 363 of this title, this title does not affect
any right of a creditor to offset a mutual debt owing by such
creditor to the debtor that arose before the commencement of
the case under this title against a claim of such creditor
against the debtor that arose before the commencement of the
case, except to the extent that--
(1) * * *
* * * * * * *
(3) the debt owed to the debtor by such creditor was
incurred by such creditor--
(A) after 90 days before the date of the
filing of the petition;
(B) while the debtor was insolvent; and
(C) for the purpose of obtaining a right of
setoff against the debtor (except for a setoff
of a kind described in section 362(b)(6),
362(b)(7), 362(b)(17), 555, 556, 559, 560, or
561 of this title).
(b)(1) Except with respect to a setoff of a kind described in
section 362(b)(6), 362(b)(7), [362(b)(14),] 362(b)(17), 555,
556, 559, 560, 561, 365(h), 546(h), or 365(i)(2) of this title,
if a creditor offsets a mutual debt owing to the debtor against
a claim against the debtor on or within 90 days before the date
of the filing of the petition, then the trustee may recover
from such creditor the amount so offset to the extent that any
insufficiency on the date of such setoff is less than the
insufficiency on the later of--
(A) * * *
* * * * * * *
Sec. 555. [Contractual right to liquidate a securities contract]
Contractual right to liquidate, terminate, or
accelerate a securities contract
The exercise of a contractual right of a stockbroker,
financial institution, financial participant, or securities
clearing agency to cause the [liquidation] liquidation,
termination, or acceleration of a securities contract, as
defined in section 741 of this title, because of a condition of
the kind specified in section 365(e)(1) of this title shall not
be stayed, avoided, or otherwise limited by operation of any
provision of this title or by order of a court or
administrative agency in any proceeding under this title unless
such order is authorized under the provisions of the Securities
Investor Protection Act of 1970 or any statute administered by
the Securities and Exchange Commission, a right set forth in a
bylaw of a clearing organization or contract market or in a
resolution of the governing board thereof, and a right, whether
or not in writing, arising under common law, under law
merchant, or by reason of normal business practice. As used in
this section, the term ``contractual right'' includes a right
set forth in a rule or bylaw of a national securities exchange,
a national securities association, or a securities clearing
agency.
Sec. 556. [Contractual right to liquidate a commodities contract or
forward contract] Contractual right to liquidate,
terminate, or accelerate a commodities contract or
forward contract
The contractual right of a commodity broker, financial
participant, or forward contract merchant to cause the
[liquidation] liquidation, termination, or acceleration of a
commodity contract, as defined in section 761 of this title, or
forward contract because of a condition of the kind specified
in section 365(e)(1) of this title, and the right to a
variation or maintenance margin payment received from a trustee
with respect to open commodity contracts or forward contracts,
shall not be stayed, avoided, or otherwise limited by operation
of any provision of this title or by the order of a court in
any proceeding under this title. As used in this section, the
term ``contractual right'' includes a right set forth in a rule
or bylaw of a clearing organization or contract market or in a
resolution of the governing board thereof and a right, whether
or not evidenced in writing, arising under common law, under
law merchant or by reason of normal business practice.
* * * * * * *
Sec. 559. [Contractual right to liquidate a repurchase agreement]
Contractual right to liquidate, terminate, or
accelerate a repurchase agreement
The exercise of a contractual right of a repo participant to
cause the [liquidation] liquidation, termination, or
acceleration of a repurchase agreement because of a condition
of the kind specified in section 365(e)(1) of this title shall
not be stayed, avoided, or otherwise limited by operation of
any provision of this title or by order of a court or
administrative agency in any proceeding under this title,
unless, where the debtor is a stockbroker or securities
clearing agency, such order is authorized under the provisions
of the Securities Investor Protection Act of 1970 or any
statute administered by the Securities and Exchange Commission.
In the event that a repo participant liquidates one or more
repurchase agreements with a debtor and under the terms of one
or more such agreements has agreed to deliver assets subject to
repurchase agreements to the debtor, any excess of the market
prices received on liquidation of such assets (or if any such
assets are not disposed of on the date of liquidation of such
repurchase agreements, at the prices available at the time of
liquidation of such repurchase agreements from a generally
recognized source or the most recent closing bid quotation from
such a source) over the sum of the stated repurchase prices and
all expenses in connection with the liquidation of such
repurchase agreements shall be deemed property of the estate,
subject to the available rights of setoff. As used in this
section, the term ``contractual right'' includes a right set
forth in a rule or bylaw, applicable to each party to the
repurchase agreement, of a national securities exchange, a
national securities association, or a securities clearing
agency, and a right, whether or not evidenced in writing,
arising under common law, under law merchant or by reason of
normal business practice.
Sec. 560. [Contractual right to terminate a swap agreement] Contractual
right to liquidate, terminate, or accelerate a swap
agreement
The exercise of any contractual right of any swap participant
to cause the [termination of a swap agreement] liquidation,
termination, or acceleration of 1 or more swap agreements
because of a condition of the kind specified in section
365(e)(1) of this title or to offset or net out any termination
values or payment amounts arising under or [in connection with
any swap agreement] liquidation, termination, or acceleration
of 1 or more swap agreements shall not be stayed, avoided, or
otherwise limited by operation of any provision of this title
or by order of a court or administrative agency in any
proceeding under this title. 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.
Sec. 561. Contractual right to terminate, liquidate, accelerate, or
offset under a master netting agreement and across
contracts
(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 the termination,
liquidation, or acceleration of or to offset, or net
termination values, payment amounts or other transfer
obligations arising under or in connection with the
termination, liquidation, or acceleration of 1 or more--
(1) securities contracts, as defined in section
741(7);
(2) commodity contracts, as defined in section
761(4);
(3) forward contracts;
(4) repurchase agreements;
(5) swap agreements; or
(6) master netting agreements,
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.--
(1) A party may exercise a contractual right
described in subsection (a) to terminate, liquidate, or
accelerate only to the extent that such 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.
(2)(A) A party may not exercise a contractual right
described in subsection (a) to offset or to net
obligations arising under, or in connection with, a
commodity contract against obligations arising under,
or in connection with, any instrument listed in
subsection (a) if the obligations are not mutual.
(B) If a debtor is a commodity broker subject to
subchapter IV of chapter 7 of this title, a party may
not net or offset an obligation to the debtor arising
under, or in connection with, a commodity contract
against any claim arising under, or in connection with,
other instruments listed in subsection (a) if the party
has no positive net equity in the commodity account at
the debtor, as calculated under subchapter IV.
(c) Definition.--As used in this section, the term
``contractual right'' includes a right set forth in a rule or
bylaw of a national securities exchange, a national securities
association, or a securities clearing agency, a right set forth
in a bylaw of a clearing organization or contract market or in
a resolution of the governing board thereof, and a right
whether or not evidenced in writing arising under common law,
under law merchant, or by reason of normal business practice.
Sec. 562. Damage measure in connection with swap agreements, securities
contracts, forward contracts, commodity contracts,
repurchase agreements, or master netting agreements
If the trustee rejects a swap agreement, securities contract
as defined in section 741 of this title, forward contract,
repurchase agreement, or master netting agreement pursuant to
section 365(a) of this title, or if a forward contract
merchant, stockbroker, financial institution, securities
clearing agency, repo participant, master netting agreement
participant, or swap participant liquidates, terminates, or
accelerates any such contract or agreement, damages shall be
measured as of the earlier of--
(1) the date of such rejection; or
(2) the date of such liquidation, termination, or
acceleration.
* * * * * * *
CHAPTER 7--LIQUIDATION
* * * * * * *
SUBCHAPTER III--STOCKBROKER LIQUIDATION
* * * * * * *
Sec. 741. Definitions for this subchapter
In this subchapter--
(1) * * *
* * * * * * *
[(7) ``securities contract'' means contract for the
purchase, sale, or loan of a security, including an
option for the purchase or sale of a security,
certificate of deposit, or group or index of securities
(including any interest therein or based on the value
thereof), or any option entered into on a national
securities exchange relating to foreign currencies, or
the guarantee of any settlement of cash or securities
by or to a securities clearing agency;]
(7) the term ``securities contract''--
(A) means--
(i) a contract for the purchase,
sale, or loan of a security, a
certificate of deposit, a mortgage loan
or any interest in a mortgage loan, or
a group or index of securities,
certificates of deposit, or mortgage
loans or interests therein (including
any interest therein or based on the
value thereof) or option on any of the
foregoing, including any option to
purchase or sell any such security,
certificate of deposit, loan, interest,
group or index or option;
(ii) any option entered into on a
national securities exchange relating
to foreign currencies;
(iii) the guarantee by or to any
securities clearing agency of any
settlement of cash, securities,
certificates of deposit, mortgage loans
or interest therein, or group or index
of securities, certificates of deposit,
or mortgage loans or interests therein
(including any interest therein or
based on the value thereof) or option
on any of the foregoing, including any
option to purchase or sell any such
security, certificate of deposit, loan,
interest, group or index or option;
(iv) any margin loan;
(v) any other agreement or
transaction that is similar to any
agreement or transaction referred to in
this subparagraph;
(vi) any combination of the
agreements or transactions referred to
in this subparagraph;
(vii) any option to enter into any
agreement or transaction referred to in
this subparagraph;
(viii) a master agreement that
provides for an agreement or
transaction referred to in clause (i),
(ii), (iii), (iv), (v), (vi), or (vii),
together with all supplements to any
such master agreement, without regard
to whether the master agreement
provides for an agreement or
transaction that is not a securities
contract under this subparagraph,
except that the master agreement shall
be considered to be a securities
contract under this subparagraph only
with respect to each agreement or
transaction under the master agreement
that is referred to in clause (i),
(ii), (iii), (iv), (v), (vi), or (vii);
and
(ix) any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in this subparagraph; and
(B) does not include any purchase, sale, or
repurchase obligation under a participation in
or servicing agreement for a commercial
mortgage loan.
* * * * * * *
Sec. 753. Stockbroker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial
institutions, securities clearing agencies, swap
participants, repo participants, and master netting
agreement participants
Notwithstanding any other provision of this title, the
exercise of rights by a forward contract merchant, commodity
broker, stockbroker, financial institution, securities clearing
agency, swap participant, repo participant, or master netting
agreement participant under this title shall not affect the
priority of any unsecured claim it may have after the exercise
of rights or affect the provisions of this subchapter regarding
customer property or distributions.
* * * * * * *
SUBCHAPTER IV--COMMODITY BROKER LIQUIDATION
* * * * * * *
Sec. 761. Definitions for this subchapter
In this subchapter--
(1) * * *
* * * * * * *
(4) ``commodity contract'' means--
(A) * * *
* * * * * * *
(D) with respect to a clearing organization,
contract for the purchase or sale of a
commodity for future delivery on, or subject to
the rules of, a contract market or board of
trade that is cleared by such clearing
organization, or commodity option traded on, or
subject to the rules of, a contract market or
board of trade that is cleared by such clearing
organization; [or]
(E) with respect to a commodity options
dealer, commodity option;
(F) any other agreement or transaction that
is similar to any agreement or transaction
referred to in this paragraph;
(G) any combination of the agreements or
transactions referred to in this paragraph;
(H) any option to enter into any agreement or
transaction referred to in this paragraph;
(I) a master agreement that provides for an
agreement or transaction referred to in
subparagraph (A), (B), (C), (D), (E), (F), (G)
or (H), together with all supplements to any
such master agreement, without regard to
whether the master agreement provides for an
agreement or transaction that is not a
commodity contract under this paragraph, except
that the master agreement shall be considered
to be a commodity contract under this paragraph
only with respect to each agreement or
transaction under the master agreement that is
referred to in subparagraph (A), (B), (C), (D),
(E), (F), (G) or (H); or
(J) a security agreement or arrangement or
other credit enhancement related to any
agreement or transaction referred to in this
paragraph;
* * * * * * *
Sec. 767. Commodity broker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial
institutions, securities clearing agencies, swap
participants, repo participants, and master netting
agreement participants
Notwithstanding any other provision of this title, the
exercise of rights by a forward contract merchant, commodity
broker, stockbroker, financial institution, securities clearing
agency, swap participant, repo participant, or master netting
agreement participant under this title shall not affect the
priority of any unsecured claim it may have after the exercise
of such rights or affect the provisions of this subchapter IV
regarding customer property or distributions.
* * * * * * *
CHAPTER 9--ADJUSTMENT OF DEBTS OF A MUNICIPALITY
* * * * * * *
SUBCHAPTER I--GENERAL PROVISIONS
Sec. 901. Applicability of other sections of this title
(a) Sections 301, 344, 347(b), 349, 350(b), 361, 362, 364(c),
364(d), 364(e), 364(f), 365, 366, 501, 502, 503, 504, 506,
507(a)(1), 509, 510, 524(a)(1), 524(a)(2), 544, 545, 546, 547,
548, 549(a), 549(c), 549(d), 550, 551, 552, 553, 555, 556, 557,
559, 560, 561, 562, 1102, 1103, 1109, 1111(b), 1122,
1123(a)(1), 1123(a)(2), 1123(a)(3), 1123(a)(4), 1123(a)(5),
1123(b), 1124, 1125, 1126(a), 1126(b), 1126(c), 1126(e),
1126(f), 1126(g), 1127(d), 1128, 1129(a)(2), 1129(a)(3),
1129(a)(6), 1129(a)(8), 1129(a)(10), 1129(b)(1), 1129(b)(2)(A),
1129(b)(2)(B), 1142(b), 1143, 1144, and 1145 of this title
apply in a case under this chapter.
* * * * * * *
----------
SECTION 5 OF THE SECURITIES INVESTOR PROTECTION ACT OF 1970
SEC. 5. PROTECTION OF CUSTOMERS.
(a) * * *
* * * * * * *
(b) Court Action.--
(1) * * *
(2) Jurisdiction and powers of court.--
(A) * * *
* * * * * * *
(C) Exception from stay.--
(i) Notwithstanding section 362 of
title 11, neither the filing of an
application under subsection (a)(3) nor
any order or decree obtained by
Securities Investor Protection
Corporation from the court shall
operate as a stay of any contractual
rights of a creditor to liquidate,
terminate, or accelerate a securities
contract, commodity contract, forward
contract, repurchase agreement, swap
agreement, or master netting agreement,
each as defined in title 11, to offset
or net termination values, payment
amounts, or other transfer obligations
arising under or in connection with 1
or more of such contracts or
agreements, or to foreclose on any cash
collateral pledged by the debtor
whether or not with respect to 1 or
more of such contracts or agreements.
(ii) Notwithstanding clause (i), such
application, order, or decree may
operate as a stay of the foreclosure on
securities collateral pledged by the
debtor, whether or not with respect to
1 or more of such contracts or
agreements, or securities sold by the
debtor under a repurchase agreement.
(iii) As used in this section, the
term ``contractual right'' includes a
right set forth in a rule or bylaw of a
national securities exchange, a
national securities association, or a
securities clearing agency, a right set
forth in a bylaw of a clearing
organization or contract market or in a
resolution of the governing board
thereof, and a right, whether or not in
writing, arising under common law,
under law merchant, or by reason of
normal business practice.
* * * * * * *
----------
SECTION 16 OF THE FEDERAL RESERVE ACT
note issues
Sec. 16. Federal Reserve notes, to be issued at the
discretion of the Board of Governors of the Federal Reserve
System for the purpose of making advances to Federal Reserve
banks through the Federal reserve agents as hereinafter set
forth and for no other purpose, are hereby authorized. The said
notes shall be obligations of the United States and shall be
receivable by all national and member banks and Federal Reserve
banks and for all taxes, customs, and other public dues. They
shall be redeemed in lawful money on demand at the Treasury
Department of the United States, in the city of Washington,
District of Columbia, or at any Federal Reserve bank.
Any Federal Reserve bank may make application to the local
Federal Reserve agent for such amount of the Federal Reserve
notes hereinbefore provided for as it may require. Such
application shall be accompanied with a tender to the local
Federal Reserve agent of collateral in amount equal to the sum
of the Federal Reserve notes thus applied for and issued
pursuant to such application. The collateral security thus
offered shall be notes, drafts, bills of exchange, or
[acceptances acquired under the provisions of section 13 of
this Act] acceptances acquired under section 10A, 10B, 13, or
13A of this Act, or bills of exchange endorsed by a member bank
of any Federal Reserve district and purchased under the
provisions of section 14 of this Act, or bankers' acceptances
purchased under the provisions of said section 14, or gold
certificates, or Special Drawing Right certificates, or any
obligations which are direct obligations of, or are fully
guaranteed as to principal and interest by, the United States
or any agency thereof, or assets that Federal Reserve banks may
purchase or hold under section 14 of this Act. In no event
shall such collateral security be less than the amount of
Federal Reserve notes applied for. The Federal Reserve agent
shall each day notify the Board of Governors of the Federal
Reserve System of all issues and withdrawals of Federal Reserve
notes to and by the Federal Reserve bank to which he is
accredited. The said Board of Governors of the Federal Reserve
System may at any time call upon a Federal Reserve bank for
additional security to protect the Federal Reserve notes issued
to it. Collateral shall not be required for Federal Reserve
notes which are held in the vaults of Federal Reserve banks.
* * * * * * *