Financial Netting Improvements Act of 2006

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

Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days within which to revise and extend their remarks in this legislation and insert extraneous material thereon.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, I am grateful to be on the floor today to have the opportunity to pass this important financial services legislation that Congresswoman Debbie Wasserman Schultz and I were able to work together on on a bipartisan basis.

Now, I must confess this new era of bipartisanship I have somewhat questioned with the recent election results. I am not overly optimistic about the coming bipartisanship. I think it must be and most likely will be more rhetoric than reality. But I am grateful to be on a committee where we have had some level of bipartisanship and cooperation, although imperfect; but on this legislation, Congresswoman Wasserman Schultz and I, as freshmen, were described in the U.S. Today as the ying and yang of the freshman class, the most liberal and the most conservative members of the 109th Congress, the new Members for it. And Debbie and I set out then to work on some legislation together, and I am grateful that we were able to get that done here in the waning days of the 109th Congress.

The legislation that we have before us today is the Financial Netting Improvement Act, which makes a number of technical changes to the financial contract safe harbor provisions for the Federal Deposit Insurance Act and other Federal insolvency laws. The netting provisions reflect years of work within the President's Working Group on Financial Markets, Treasury, Federal Reserve Board, the Securities and Exchange Commission, the Commodity Futures Trading Commission and the FDIC. This is the result and the fruits of that long labor. The amendment on this legislation from the Senate is very minor, and we are able to accept it in the House.

Mr. Speaker, with that, I reserve the balance of my time.

Mr. Speaker, I yield such time as he may consume to the chairman of the Capital Markets Subcommittee on Financial Services, the gentleman from Louisiana (Mr. Baker) who has been a wonderful friend and ally on the committee.

Mr. Speaker, I want to thank the gentleman from Louisiana for his kind words. And with that I would like to close by again thanking the Congresswoman from Florida for her work and assistance on this legislation. As I understand it, she was detained with an important meeting, an event today, from being here on the floor. But I want to thank her for working with me in a bipartisan way, and I am hopeful that this is a new direction for the coming Congress of bipartisanship.

As I said in the beginning, I am not overly optimistic about the opportunities, but I think this may begin that new direction.

I would be delighted to yield.

No.

I believe the gentleman is well versed in the knowledge of what sarcasm means, and perhaps I was a bit sarcastic in my quoting the new direction. I look forward to action in the coming Congress on a bipartisan basis.

Absolutely. I would be happy to yield.

Thank you. I certainly appreciate the gentleman's guidance on signals. I will make sure, going forward, I smile or wave when I am being sarcastic. Or the gentleman, who will be the chairman of my committee in the next Congress, I will simply just speak when I am being sarcastic on your committee in the next Congress, if that would be all right.

Actually, before I close, I want to give one final story. Before I got on the Financial Services Committee, a senior Member told me that with the ranking Democrat from Massachusetts (Mr. Frank) that if he ever asks you to yield in a committee debate, say ``no.'' And I said, why; isn't that rude? He says, well, you have never been in a debate with Barney Frank, have you?

Well, sure enough, 6 months in, I say something and the ranking member asks me to yield. And as a new Member, I mistakenly said ``yes.''

I will not make that mistake going forward. The gentleman is quite able with his arguments, a Harvard educated attorney. I respect his ability to make an argument and to make the opposition look silly.

And with that, as the opposition, I would sit down and say, Mr. Speaker, I have no further requests for time.

Mr. Speaker, I yield back the balance of my time.

Mr. Speaker, on that I demand the yeas and nays.

Madam Speaker, I yield myself as much time as I may consume, and first, let me thank Chairman Oxley and Ranking Member Frank for their stalwart leadership on this and many other issues that have come before the Financial Services Committee in the 109th Congress. Chairman Oxley has heard us say many times, but we will truly miss him after he retires. I believe that the combined leadership that he and my good friend, Ranking Member Frank, have displayed have set the tone for the rest of us on the Financial Services Committee, as well as the staff.

I, too, am pleased to stand here with my good friend and fellow freshman colleague, the gentleman from North Carolina (Mr. McHenry). I made the mistake of telling him that I was going to try to have a little bit of fun in the back and forth here, and I think I could best characterize our professional relationship as being the odd couple. So it is a great day that we have the opportunity to come together on this netting legislation.

I can tell you that we want to make sure on our side that Ranking Member Frank has suggested that we make sure the people understand that even though we have the next generation of Members managing the time on this bill, people should understand we are not high school kids. We are actually real live Members of Congress, you and I, and came here like everybody else.

I am pleased to join Mr. McHenry as an original cosponsor of H.R. 5585, and I am very pleased that we were able to come together on legislation because we have talked about that for a long time.

We could not have brought this bill to the floor without the support of the House Judiciary Committee on which I also sit, and I want to especially thank Subcommittee Ranking Member Mel Watt for working with us, also a gentleman from North Carolina, and for agreeing to help us move this bill forward.

As you know, as the gentleman from North Carolina has said, netting is simply the manner in which debts and credits are calculated between parties, and it is a critically important tool to unravel complex financial transactions which have, until now, been denied to our Nation's financial institutions.

This is in spite of broad-based, bipartisan support. In fact, the origin of this legislation is grounded in the collapse of the infamous hedge fund, Long Term Capital Management, after which former Federal Reserve Board Chairman Alan Greenspan implored Congress to pass the netting provision. Netting was also supported by the former Clinton and the current Bush administrations.

The primary goal of our legislation is to minimize systemic risks in situations when the procedure for resolving a single insolvency could trigger other failures elsewhere in the market.

H.R. 5585 protects the rights of market participants to terminate complex financial agreements. It also ensures that the Federal Government, like private entity creditors, will be able to enforce and net out qualified contracts with financial institutions during insolvency proceedings.

Additionally, this bill includes a fee increase provision in order to pay bankruptcy trustees.

I want to thank my good friend and colleague Congressman Watt for working us with. At his request, this bill was modified in two respects, and as a result of those modifications, Madam Speaker, more debtors will be eligible for the fee waiver.

However, the fundamental issue before to us today is support for netting provisions in the bankruptcy settlement of major market participants.

I encourage my colleagues to support this bill, and I ask our colleagues in the Senate to act on this before the end of the 109th Congress. This bill would codify commonsense business practices. These provisions have a long bipartisan legislative history in Congress, which continues today.

It is a privilege to work with Mr. McHenry, and there is no reason for us to stall any further. I know you join me in urging the Senate to take action on this bill after we do.

Madam Speaker, I reserve the balance of my time.

General Leave

Madam Speaker, I, too, have no further requests for time, and I want to reiterate the comments of my colleague from North Carolina. It has been a pleasure to work with him, and I look forward to this being the first of many opportunities to do that.

Madam Speaker, I yield back the balance of my time.

Madam Speaker, I move to suspend the rules and pass the bill (H.R. 5585) to improve the netting process for financial contracts, and for other purposes, as amended.

Madam Speaker, I certainly appreciate the opportunity to speak about the Financial Netting Improvement Act of 2006, a piece of legislation that I, along with my colleague from Florida, Debbie Wasserman Schultz, have sponsored and have brought through the committee process to the floor here today.

I first want to commend both the chairman of the Financial Services Committee, Mike Oxley, for his leadership on this important issue, as well as the ranking Democrat, Barney Frank of Massachusetts, for his leadership and support on this issue as well.

It is certainly an interesting opportunity, Madam Speaker, for a freshman Member of the House to be on this floor and sponsoring a piece of legislation with a colleague from across the aisle who is also a freshman.

And it is also personally interesting to me because, on the opening day of Congress, we were described as the Yin and the Yang of the 109th Congress. At that point, I thought it would be an interesting opportunity to sponsor legislation with what USA Today deemed my polar opposite.

While we may be opposites on a number of issues, we do have similar values, and that is the value of good government. We do serve on the Financial Services Committee together as well. And she, as well as I, had the conversation earlier on that it would be exciting for us to sponsor legislation together. This is a wonderful opportunity. I want to thank her for her friendship and help.

Having said those things about her, some of her liberal colleagues may find her suspect. But I would say that she has been a fantastic leader for the other party and a strong legislator here in the House as well as her previous experience in Florida.

The Financial Netting Improvement Act of 2006 makes technical changes to the netting and financial contracts safe harbor provisions of the Federal Deposit Insurance Act, the Federal Credit Union Act, the Federal Deposit Insurance Corporation Improvement Act, and the Bankruptcy Code.

Broadly speaking, these safe harbor provisions allow certain types of creditors to exercise their self-help rights to terminate defined financial market contracts like swap agreements and exercise their offset rights and choose on how to deal with the foreclosure on collateral free from the power of a receiver or bankruptcy trustee that would otherwise impair the exercise of those rights.

Certainly after explaining the bill, it is a technical bill; and, broadly speaking, this is a necessarily technical correction that the other side of the aisle, as well as our side of the aisle, the President's Working Group on Financial Markets and all of the stakeholders have come to agreement on. I look very much forward to the House approving this measure tonight.

Madam Speaker, I reserve the balance of my time.

Madam Speaker, I ask unanimous consent that all Members have 5 legislative days within which to revise and extend their remarks on this legislation and to insert extraneous material thereon.

Madam Speaker, I am prepared to yield back. I have no further speakers on this side, but before I close, I simply want to commend my colleague from Florida. It has been a delight working with her and resolving some of the more technical issues in this piece of legislation that popped up late in the committee process, but she was very adept at handling those issues, and I want to thank her for her leadership.

Madam Speaker, I yield back the balance of my time.

Mr. Speaker, I thank the gentleman for yielding, and wish to express appreciation to my friends on the other side for their work in this arena.

It flows from the problems that erupted during the fall of 1998 when the then largest hedge fund in the world, LTCM, pursuant to a Russian currency crisis, found itself unable to meet its financial obligations. When the New York Fed arrived at the meeting location to determine how to best resolve this uncertainty, they were surprised to find the scope and complexity of the financial relationships that LTCM had with significant and large financial institutions, both U.S. and abroad. There was not in place at that time a mechanism where counter-party obligations could be unwound without wreaking havoc and some sort of domino effect, potentially bringing significant adverse financial consequences to large numbers of individuals who had no knowledge of their exposure to the LTCM instability.

Further, at the time of LTCM's demise at the end of 1998, they had approximately $1.5 trillion in notional amounts of derivative positions held worldwide. And their leverage ratio exceeded 28 to 1. In other words, this was not a good thing. They were significantly larger in scope than any of the

largest commercial banks. And although others enjoyed higher leverage ratios, few had the sophisticated relationships with counter parties that were engaged by LTCM.

The provisions of the bill now suggested by the gentleman from North Carolina is the ability to close out what are called netting relationships to prevent the failure of one entity from causing a domino effect of more serious disruption, known as systemic risk. Absent the adoption of these provisions with the growth in size of hedge funds and in number of hedge funds, there is considerable market uncertainty as to how a bankruptcy proceeding would affect market liquidity. The unwinding of these obligations, and let me quickly add that it is in scope much larger than impact just in hedge funds; it does go to the broader financial marketplace, all of which have in common that these transactions are put in place through intermediaries such as stock brokers, smaller financial institutions, securities clearing agencies that often hedge their risk on transactions through securities collateral received pursuant to these obligations.

As a result, this will provide a safe and secure mechanism to unwind complex financial relationships, minimizing market instability, providing market liquidity and ensuring that our economic system is not adversely impacted by the demise of a hedge fund. In essence, that is a good thing, and I commend the gentleman for his work product.

Mr. Speaker, I concur with the substantive discussion of this bill from the gentleman from North Carolina. His comments on bipartisanship seem to me rather odd, and I will not dwell further on them. It does seem to me if you were trying to promote bipartisanship, as we all are, beginning by attacking the sincerity of those who will be in charge of it is not a good idea. But the gentleman is free to speculate as he wishes.

The bill itself is, as he described it, a good idea. We originally passed it with an amendment from the Judiciary Committee. Frankly, I was not in favor of that amendment. I think what the Senate has done has improved the bill; and that is not a sentence I always get to say, but I do want to say in this case. I think it is now a good bill and more consumer friendly.

The gentlewoman from Florida was very much interested in this, and quite right to push for it. Our colleague from North Carolina (Mr. Watt) had some concerns about some potential negative effects on consumers. It has all been worked out, so it is now a bill that improves the administration of the system, and I generally support it.

With that, Mr. Speaker, I yield back the balance of my time.

Will the gentleman yield?

When the gentleman from North Carolina says he hopes this is a new direction that will lead to bipartisanship, does that not mean that he believes that under his party's rule there was none?

That the old direction was partisanship?

Will the gentleman yield further?

I will confess to sometimes starting slow, and I am getting old. It would probably be helpful in the future if the gentleman would find some way to signal when he was being sarcastic. That would help my understanding.