US Codex
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Title II — Ending bank bailouts and restoring market discipline

H.R. 3550 · 113th Congress · Nov 20, 2013 · Lineage

II Ending bank bailouts and restoring market discipline

A Reducing risks to bank depositors and other creditors

Sec. 201 Capital requirements

(a)
In general— Notwithstanding any other provision of law, the appropriate Federal regulators shall set capital standards for financial companies as provided in this section.
(b)
Minimum capital requirement— Each financial company shall be required to maintain sufficient capital to remain adequately capitalized, as defined under subsection (c)(2).
(c)
Capital categories—
(1)
Well capitalized— A financial company is “well capitalized” if the company maintains a capital level of 12 percent or more.
(2)
Adequately capitalized— A financial company is “adequately capitalized” if the company maintains a capital level of 10 percent or more.
(3)
Undercapitalized— A financial company is “undercapitalized” if the company maintains a capital level of less than 10 percent.
(4)
Significantly undercapitalized— A financial company is “significantly undercapitalized” if the company maintains a capital level of less than 6 percent.
(5)
Critically undercapitalized— A financial company is “critically undercapitalized” if the company maintains a capital level of 2 percent or less.
(d)
Capital calculation— In computing a financial company’s capital for purposes of this section—
(1)
the value of capital shall be calculated based on the current market value of the capital, and not by reference to the book value of such capital;
(2)
the percentage of capital maintained by a company shall be based on the total consolidated assets of the company; and
(3)
there shall be no risk-weighting of assets.
(e)
Phase-In period— Notwithstanding subsection (c), during the 6-year period beginning on the date of the enactment of this Act, the percentages contained in paragraphs (1) through (5) of subsection (c) shall be treated as follows:
(1)
During the 1-year period following the date of the enactment of this Act, 6 percent, 4 percent, 4 percent, 3 percent, and 2 percent, respectively.
(2)
During the 1-year period following the period described under paragraph (1), 7 percent, 5 percent, 5 percent, 3.5 percent, and 2 percent, respectively.
(3)
During the 1-year period following the period described under paragraph (2), 8 percent, 6 percent, 6 percent, 4 percent, and 2 percent, respectively.
(4)
During the 1-year period following the period described under paragraph (3), 9 percent, 7 percent, 7 percent, 4.5 percent, and 2 percent, respectively.
(5)
During the 1-year period following the period described under paragraph (4), 10 percent, 8 percent, 8 percent, 5 percent, and 2 percent, respectively.
(6)
During the 1-year period following the period described under paragraph (5), 11 percent, 9 percent, 9 percent, 5.5 percent, and 2 percent, respectively.
(f)
Definitions— For purposes of this section:
(1)
Appropriate Federal regulator— The term appropriate Federal regulator—
(A)
has the meaning given the term appropriate Federal banking agency under section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813);
(B)
means the Board of Governors of the Federal Reserve System, in the case of a nonbank financial company supervised by the Board of Governors; and
(C)
means the National Credit Union Administration Board, in the case of a credit union.
(2)
Capital— The term capital means common equity tier 1 capital and additional tier 1 capital, as such terms are defined in the notice of final rulemaking published in the Federal Register on October 11, 2013 (78 Fed. Reg. 62173–74).
(3)
Credit union— The term credit union includes a Federal credit union and a State credit union, as such terms are defined under section 101 of the Federal Credit Union Act (12 U.S.C. 1752).
(4)
Depository institution— The term depository institution has the meaning given such term under section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).
(5)
Depository institution holding company— The term depository institution holding company has the meaning given such term under section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).
(6)
Financial company— The term financial company means—
(A)
a credit union;
(B)
a depository institution;
(C)
a depository institution holding company; and
(D)
a nonbank financial company supervised by the Board of Governors.
(7)
Nonbank financial company supervised by the Board of Governors— The term nonbank financial company supervised by the Board of Governors has the meaning given such term under section 102 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5311).

Sec. 202 FDIC insurance

(a)
Reduction in maximum insurance amount— Section 11(a)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(1)) is amended—
(1)
by amending subparagraph (E) to read as follows:

“(E) Standard maximum deposit insurance amount defined—For purposes of this Act, the term standard maximum deposit insurance amount means $150,000, adjusted as provided under subparagraph (F).”

(2)
in subparagraph (F), by striking “April 1 of 2010,” and inserting “April 1, 2015,”.
(b)
Effective date— The amendments made by this section shall take effect on the day that is the end of the 1-year period beginning on the date of the enactment of this Act.

B Repeal of bailout authorities

Sec. 211 Repeal of FDIC powers under the systemic risk determination

The Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amended—
(1)
in section 11(a)(4)(C) (12 U.S.C. 1821(a)(4)(C)), by striking “other than section 13(c)(4)(G)”; and
(2)
in section 13(c)(4) (12 U.S.C. 1823(c)(4))—
(A)
by striking subparagraph (G); and
(B)
by redesignating subparagraph (H) as subparagraph (G).

Sec. 212 Repeal of unusual and exigent authority of the Federal Reserve

Section 13(3) of the Federal Reserve Act (12 U.S.C. 343(3)) is repealed.

Sec. 213 Exchange Stabilization Fund

(a)
In general— Section 5302 of title 31, United States Code, is amended by striking “stabilization fund” each place such term appears and inserting “Special Drawing Rights Fund”.
(b)
Conforming amendments—
(1)
Balanced Budget and Emergency Deficit Control Act of 1985— Section 255(g)(1)(A) of the Balanced Budget and Emergency Deficit Control Act of 1985 (2 U.S.C. 905(g)(1)(A)) is amended by striking “Exchange Stabilization Fund” and inserting “Special Drawing Rights Fund”.
(2)
Emergency Economic Stabilization Act of 2008— The Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5211 et seq.) is amended—
(A)
in section 131 (12 U.S.C. 5236), by striking “Exchange Stabilization Fund” each place such term appears in headings and text and inserting “Special Drawing Rights Fund”; and
(B)
in the item relating to section 131 in the table of contents of such Act, by striking “Exchange Stabilization Fund” and inserting “Special Drawing Rights Fund”.
(3)
International Financial Institutions Act— Section 1704 of the International Financial Institutions Act (22 U.S.C. 262r–3) is amended by striking “stabilization fund” each place such term appears and inserting “Special Drawing Rights Fund”.
(4)
Special Drawing Rights Act— The Special Drawing Rights Act (22 U.S.C. 286n et seq.) is amended by striking “Exchange Stabilization Fund” each place such term appears and inserting “Special Drawing Rights Fund”.
(c)
References— Any reference in a law, regulation, document, paper, or other record of the United States to the “Exchange Stabilization Fund” shall be deemed a reference to the “Special Drawing Rights Fund”.
(d)
Funds used To reduce the debt— The Secretary of the Treasury shall liquidate all property in the Special Drawing Rights Fund (as so renamed under subsection (a)), other than Special Drawing Rights, and use all such amounts to reduce the public debt.
(e)
Limitation on Fund— Section 5302 of title 31, United States Code, is amended—
(1)
in subsection (a)(1)—
(A)
by striking “is available to carry out” and inserting “is only available to carry out”; and
(B)
by striking “, and for investing in obligations of the United States Government those amounts in the fund the Secretary of the Treasury, with the approval of the President, decides are not required at the time to carry out this section. Proceeds of sales and investments, earnings, and interest shall be paid into the fund and are available to carry out this section. However, the fund is not available to pay administrative expenses”; and
(2)
by striking subsection (b) and inserting the following:

“(b) Fund only To hold Special Drawing Rights—Notwithstanding any other provision of law, only Special Drawing Rights may be deposited into the Special Drawing Rights Fund.”

(f)
Conforming amendments—
(1)
Bretton Woods Agreements Act— Section 18 of the Bretton Woods Agreements Act (22 U.S.C. 286e–3) is hereby repealed.
(2)
Support for East European Democracy (SEED) Act of 1989— The Support for East European Democracy (SEED) Act of 1989 (22 U.S.C. 5401 et seq.) is amended—
(A)
in section 101(b)(1) (22 U.S.C. 5411(b)(1)), by striking “such as—” and all that follows through the end of the paragraph and inserting “such as the authority provided in section 102(c) of this Act.”; and
(B)
in section 102(a) (22 U.S.C. 5412(a)), by striking “section 101(b)—” and all that follows through the end of the subsection and inserting “section 101(b), should work closely with the European Community and international financial institutions to determine the extent of emergency assistance required by Poland for the fourth quarter of 1989.”.
(g)
Treatment of certain funds— Funds that would otherwise have been deposited into the Special Drawing Rights Fund (as so renamed under subsection (a)), but for the amendments made by this section, shall instead be paid to the Secretary of the Treasury, and the Secretary of the Treasury shall use such funds to reduce the public debt.
(h)
Wind-Down period for certain transactions— Notwithstanding any other provision of this section, during the 3-year period beginning on the date of the enactment of this Act, property other than Special Drawing Rights may be deposited, and maintained, in the Special Drawing Rights Fund as needed to fulfill any outstanding obligations on the Fund.

C Bankruptcy, not bailouts, for complex financial institutions

Sec. 221 Reforming the bankruptcy code to accommodate failing financial institutions

(a)
Findings— The Congress finds the following:
(1)
Bailouts undermine market discipline and the rule of law, resulting in doubt about property rights and insulating recipients from the consequences of their mistakes.
(2)
A number of complex financial institutions are widely considered to be “too big to fail”.
(3)
An aggravating factor in the 2008 financial crisis was uncertainty about the security and priority of claims stemming from cross-border resolution of complex financial institutions.
(4)
The Federal Deposit Insurance Corporation (FDIC) has historically resolved most failing U.S. depository institutions and has the necessary expertise and discretionary authority to conduct such resolutions quickly.
(5)
The FDIC’s authority did not extend to all components of very large, complex financial institutions, such as insurance, stockbroker, and commodity broker operations.
(6)
The U.S. Constitution authorizes Congress to establish “uniform laws on the subject of Bankruptcies through the United States”.
(7)
Bankruptcy provides predictable priority for claims under the rule of law through the jurisdiction of an Article III court.
(8)
The lengthy adjudication of claims to ensure equality under the law of similarly situated creditors under bankruptcy can be problematic in the case of financial institutions but can be amended to preserve and protect value.
(9)
The Dodd-Frank Wall Street Reform and Consumer Protection Act did not establish a non-discretionary, rule-of-law-based resolution process to provide certainty for creditors of failing institutions.
(10)
A credible resolution process could eliminate the use of bailouts and other political interventions.
(11)
Additional reforms are necessary to bring certainty and predictability to the failure of large, complex, multinational financial institutions.
(b)
Sense of Congress— It is the sense of Congress that the Committees on the Judiciary and Financial Services of the House of Representatives and the Committees on the Judiciary and Banking, Housing, and Urban Affairs of the Senate should each report legislation proposing changes to existing law within each committee’s jurisdiction with provisions to accommodate bankruptcy proceedings for failing multinational financial institutions. Such committees should consider reforms that—
(1)
establish a new chapter of the bankruptcy code specifically for financial institutions, to be used in conjunction with the existing chapter 7 liquidation or chapter 11 reorganization process;
(2)
replace or supplement existing resolution authorities for certain kinds of institutions;
(3)
clarify that such resolution proceedings occur at the holding company level;
(4)
designate particular judges in the Second and D.C. Circuits who will hear these cases and who may appoint special masters with technical expertise to aid in the resolution;
(5)
continue to use FDIC expertise to resolve such institutions under the oversight of the court;
(6)
remove exemptions from bankruptcy proceedings for certain subsidiaries of complex financial institutions, such as insurance and brokerage operations;
(7)
allow primary regulators to petition for involuntary bankruptcy cases against a financial institution, to have standing and raise motions, and to file plans of reorganization;
(8)
establish procedures for debtor-in-possession financing to provide partial or complete payouts to some or all creditors in certain circumstances;
(9)
develop rules for the applicability of short-term automatic stays for certain qualified financial contracts;
(10)
recapitalize reorganized institutions at the holding company level, possibly by converting long-term debt into equity;
(11)
collaborate with foreign governments to avoid domestic “ring-fencing” of failing multinational financial institutions whose holding companies are located elsewhere;
(12)
ensure that institutions in conservatorship do not receive advantageous tax or regulatory treatment over comparable financial institutions outside of the bankruptcy process; and
(13)
such other additional and conforming reforms as the Committees consider necessary.