WASHINGTON -- A House Banking Committee panel plans to hold a hearing next Tuesday on a bill that calls for federal regulators to establish comprehensive derivatives standards for banks, credit unions, and government-sponsored agencies.
The banking committee's financial institutions supervision, regulation, and deposit insurance subcommittee has asked bank regulatory agencies and industry groups to testify at the hearing on the derivatives bill that was introduced in May by Rep. Henry Gonzalez, D-Tex., and Rep. Jim Leach, R-Iowa.
Gonzalez is the Banking Committee's chairman and Leach is its top Republican.
The agencies and groups scheduled to testify at the hearing include the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Deposit Insurance Corp., the International Swaps and Derivatives Association, and the American Bankers Association.
The subcommittee is chaired by Rep. Stephen Neal, D-N.C., a cosponsor of the derivatives bill.
But it would be the full committee, rather than the subcommittee, that votes on the bill sometime later this summer, committee aides said. It is not yet clear how soon the banking committee would be able to take up the derivatives bill. The committee is currently preparing to hold a hearing on the Whitewater controversy later this month.
But Gonzalez has said he wants Congress to act on the bill sometime during this congressional session.
Gonzalez's call for action comes as Rep. John Dingell, chairman of the House Energy and Commerce Committee, has nixed any possibility of derivatives legislation in his committee this year.
The Michigan Democrat sent a letter to regulators and industry officials recently, saying he first needs their input on the General Accounting Office's recommendations for derivatives legislation.
The derivatives bill introduced by Gonzalez and Leach calls for the bank regulators, the Office of Federal Housing Enterprise Oversight, the Federal Housing Finance Board, and the National Credit Union Administration to jointly establish comprehensive and consistent standards for the derivatives activities of banks, government-sponsored agencies, and federal credit unions.
The bill would require the regulators to establish uniform capital, accounting, disclosure, suitability, and examinations standards for derivatives for banks, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corp., and federal credit unions.
The bill would also:
* Prohibit a financial institution from engaging in derivatives activities unless they are conducted under a written management plan containing "prudential standards" that are approved by a board of directors.
* Require a "sufficient number" of directors of a derivatives dealer or end-user to be familiar with the risks associated with any derivatives activities undertaken.
* Require federal regulators, within one year, to set up a system under which they can obtain the kind of derivatives information that would be needed in an emergency situation.
* Require the president to include top officials from the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency on the interagency Working Group on Financial Markets or any other interagency group that deals with derivatives.
* Require the Federal Financial Institutions Examination Council to sponsor training programs on derivatives for federal and state bank examiners as well as employees of the Office of Federal Housing Enterprise Oversight, the Federal Housing Finance Board, and the National Credit Union Administration.
* Require the General Accounting Office to study the speculative use of derivatives and the feasibility of imposing margin and collateral requirements on speculative transactions.
* Require the secretary of the Treasury to seek a meeting with other major industrialized nations to study the adequacy of international regulation and supervision of derivatives.
* Require the Federal Reserve and Office of the Comptroller of the Currency to encourage the central banks and regulatory authorities of other nations to work toward adopting comparable standards on derivatives.
* Amend the Federal Deposit Insurance Act to ensure that certain derivative instruments are covered under the banking law's new netting and settlement provisions.
Under the bill, a bank or other financial institution would be deemed to be operating in an "unsafe and unsound manner" if it did not conduct its derivatives activities according to a written plan based on prudent standards or ensure its directors are aware of the risks of those activities.
The bill calls for regulators to establish strong capital requirements for derivatives activities. It would also encourage regulators to require banks and other institutions to disclose more quantitative and qualitative information about their derivatives activities.