Derivatives Safety and Soundness Supervision Act of 1994

TABLE OF CONTENTS:

Title I: Enhanced Supervision of Derivatives Activities

Title II: Supervisory Improvements

Title III: Financial Institution Insolvency Reforms

Title IV: International Regulatory Cooperation

Title V: GAO Study

Derivatives Safety and Soundness Supervision Act of 1994 - Title I: Enhanced Supervision of Derivatives Activities - Directs the appropriate Federal regulatory agencies to jointly: (1) establish guidelines for capital, accounting, disclosure, suitability or other oversight actions regarding the derivatives activities of financial institutions; and (2) issue substantially similar regulations regarding such activities.

(Sec. 101) Directs such agencies to consider comparable regulatory action by all such agencies in other matters regarding financial institutions engagd in derivatives activities, including the need for: (1) strong capital requirements; (2) comprehensive risk management systems; (3) joint regulatory examinations; (4) prudent use of collateral by counterparties to derivatives transactions; (5) evaluation tools regarding a financial institution's exposure to derivatives activities; (6) protections against credit, legal, and systemic risks; and (7) supervision of senior management by the board of directors of a financial institution regarding the prudence of derivatives activities.

(Sec. 102) Amends the Federal Deposit Insurance Act (FDIA) and the Federal Credit Union Act to authorize Federal banking agencies to require that specified disclosures of derivatives activities be set forth in financial institution reports of condition ("call reports"). Subjects non-insured financial institutions and credit unions to the same disclosure requirements with respect to their derivatives activities.

(Sec. 103) Includes the Chairperson of the Federal Deposit Insurance Corporation (FDIC) and the Comptroller of the Currency as principals on any interagency task force dealing with issues regarding derivative financial instruments.

(Sec. 104) Directs the Financial Institutions Examination Council to sponsor training programs concerning derivatives activities for examiners and assistant examiners employed by any agency represented on the Council. Mandates that the Council's risk management training include techniques related to derivatives activities.

(Sec. 105) Directs the appropriate Federal regulatory agencies to establish liaison committees with State agencies which supervise financial institutions.

Title II: Supervisory Improvements - Prohibits a financial institution from: (1) engaging in derivatives activities without a specified written management plan approved by its board of directors; or (2) acting as a dealer in derivative financial instruments or as an active end-user unless its board of directors is familiar with specified attendant risks. Authorizes the appropriate Federal regulatory agency to treat noncompliance with this Act as an unsafe or unsound practice.

(Sec. 202) Mandates that the appropriate Federal regulatory agencies develop the means to obtain all necessary information regarding derivatives activities or instruments whenever it determines an emergency situation exists.

(Sec. 203) Amends the FDIA to require each appropriate Federal banking agency to prescribe safety and soundness standards relating to internal control for activities involving derivative financial instruments for insured depository institutions and depository institution holding companies.

(Sec. 204) Amends the International Banking Act of 1978 to include as a prerequisite of Federal approval of an application to establish a foreign bank office in the United States the comprehensive supervision and regulation of derivatives activities by the applicant's home country.

Title III: Financial Institution Insolvency Reforms - Amends the FDIA regarding the treatment of certain swap agreements by conservators or receivers of insured depository institutions to include within the definition of such agreements: equity derivative, equity or equity index swap, equity or equity index option, bond option, and spot foreigh exchange transactions.

(Sec. 302) Prohibits any construction of Federal law that would place any legal or judicial constraints upon the power of the Federal Deposit Insurance Corporation (FDIC) to transfer or liquidate any qualified financial contract. Requires the FDIC to prescribe regulations requiring more detailed recordkeeping for qualified financial contracts by undercapitalized insured depository institutions.

(Sec. 303) Modifies the guidelines governing transfers of qualified financial contracts with respect to notification guidelines and the treatment of bridge banks.

Title IV: International Regulatory Cooperation - Instructs the Secretary of the Treasury to request a meeting with representatives of major industrialized countries to plan a study to examine the adequacy of the international regulation and supervision of derivatives activities of financial institutions. Prescribes study goals and issues.

(Sec. 402) Directs the Chairman of the Board of Governors of the Federal Reserve System and the Comptroller of the Currency to encourage central banks and regulatory authorities of other industrialized countries to maintain and adopt comparable supervisory and capital standards and regulations for financial institutions engaged in derivatives activities.

Title V: GAO Study - Directs the Comptroller General to study and report to the Congress on speculative transactions by financial institutions involving derivative financial instruments and the feasibility of imposing margin and collateral requirements upon them.