House Banking Committee Chairman Jim Leach introduced legislation Thursday designed to minimize the impact on financial markets and the banking system if a party to a derivatives contract fails.
The Financial Contract Netting Improvement Act would amend a number of laws including the Federal Deposit Insurance Act and the bankruptcy code to protect the enforceability of netting agreements in derivatives contracts.
"This legislation will reduce the potential of systematic risk which could arise from the insolvency of one party to certain financial transactions, such as swap agreements," Rep. Leach said.
The President's Working Group on Financial Markets helped draft the legislation, which is co-sponsored by many of House Banking's leaders. It could be attached to the broad bankruptcy reform bill wending its way through Congress.