article: SECTION 1. SHORT TITLE. This Act may be cited as the ``Derivatives Limitations Act of 1995''. SEC. 2. INSURED DEPOSITORY INSTITUTIONS. The Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amended by adding at the end the following new section: ``SEC. 45. DERIVATIVE INSTRUMENTS. ``(a) Derivatives Activities.-- ``(1) General prohibition.--Except as provided in paragraph (2), neither an insured depository institution, nor any affiliate thereof, may purchase, sell, or engage in any transaction involving a derivative financial instrument for the account of that institution or affiliate. ``(2) Exceptions.-- ``(A) Hedging transactions.--An insured depository institution may purchase, sell, or engage in hedging transactions to the extent that such activities are approved by rule, regulation, or order of the appropriate Federal banking agency issued in accordance with paragraph (3). ``(B) Separately capitalized affiliate.--A separately capitalized affiliate of an insured depository institution that is not itself an insured depository institution may purchase, sell, or engage in a transaction involving a derivative financial instrument if such affiliate complies with all rules, regulations, or orders of the appropriate Federal banking agency issued in accordance with paragraph (3). ``(C) De minimis interests.--An insured depository institution may purchase, sell, or engage in transactions involving de minimis interests in derivative financial instruments for the account of that institution to the extent that such activity is defined and approved by rule, regulation, or order of the appropriate Federal banking agency issued in accordance with paragraph (3). ``(D) Existing interests.--During the 3-month period beginning on the date of enactment of this section, nothing in this section shall be construed-- ``(i) as affecting an interest of an insured depository institution in any derivative financial instrument that existed on the date of enactment of this section; or ``(ii) as restricting the ability of the institution to acquire reasonably related interests in other derivative financial instruments for the purpose of resolving or terminating an interest of the institution in any derivative financial instrument that existed on the date of enactment of this section. ``(3) Issuance of rules, regulations, and orders.--The appropriate Federal banking agency shall issue appropriate rules, regulations, and orders governing the exceptions provided for in paragraph (2), including-- ``(A) appropriate public notice requirements; ``(B) a requirement that any affiliate described in paragraph (2)(B) shall clearly and conspicuously notify the public that none of the assets of the affiliate, nor the risk of loss associated with the transaction involving a derivative financial instrument, are insured under Federal law or otherwise guaranteed by the Federal Government or the parent company of the affiliate; and ``(C) any other requirements that the appropriate Federal banking agency considers to be appropriate. ``(b) Definitions.--For purposes of this section-- ``(1) the term `derivative financial instrument' means-- ``(A) an instrument the value of which is derived from the value of stocks, bonds, other loan instruments, other assets, interest or currency exchange rates, or indexes, including qualified financial contracts (as defined in section 11(e)(8)); and ``(B) any other instrument that an appropriate Federal banking agency determines, by regulation or order, to be a derivative financial instrument for purposes of this section; and ``(2) the term `hedging transaction' means any transaction involving a derivative financial instrument if-- ``(A) such transaction is entered into in the normal course of the institution's business primarily-- ``(i) to reduce risk of price change or currency fluctuations with respect to property that is held or to be held by the institution; or ``(ii) to reduce risk of interest rate or price changes or currency fluctuations with respect to loans or other investments made or to be made, or obligations incurred or to be incurred, by the institution; and ``(B) before the close of the day on which such transaction was entered into (or such earlier time as the appropriate Federal banking agency may prescribe by regulation), the institution clearly identifies such transaction as a hedging transaction.''. SEC. 3. INSURED CREDIT UNIONS. Title II of the Federal Credit Union Act (12 U.S.C. 1781 et seq.) is amended by adding at the end the following new section: ``SEC. 215. DERIVATIVE INSTRUMENTS. ``(a) Derivative Activities.--Except as provided in subsection (b), neither an insured credit union, nor any affiliate thereof, may purchase, sell, or engage in any transaction involving a derivative financial instrument. ``(b) Applicability of Section 44 of the Federal Deposit Insurance Act.--Section 44 of the Federal Deposit Insurance Act shall apply with respect to insured credit unions and affiliates thereof and to the Board in the same manner that such section applies to insured depository institutions and affiliates thereof (as those terms are defined in section 3 of that Act) and shall be enforceable by the Board with respect to insured credit unions and affiliates under this Act. ``(c) Derivative Financial Instrument.--For purposes of this section, the term `derivative financial instrument' means-- ``(1) an instrument the value of which is derived from the value of stocks, bonds, other loan instruments, other assets, interest or currency exchange rates, or indexes, including qualified financial contracts (as such term is defined in section 207(c)(8)(D)); and ``(2) any other instrument that the Board determines, by regulation or order, to be a derivative financial instrument for purposes of this section.''. SEC. 4. BANK HOLDING COMPANIES. Section 3 of the Bank Holding Company Act of 1956 (12 U.S.C. 1842) is amended by adding at the end the following new subsection: ``(h) Derivatives Activities.-- ``(1) In general.--A subsidiary of a bank holding company may purchase, sell, or engage in any transaction involving a derivative financial instrument for the account of that subsidiary if that subsidiary-- ``(A) is not an insured depository institution or a subsidiary of an insured depository institution; and ``(B) is separately capitalized from any affiliated insured depository institution. ``(2) Applicability of section 44 of the federal deposit insurance act.--Section 44 of the Federal Deposit Insurance Act shall apply with respect to bank holding companies and the Board in the same manner that those subsections apply to an insured depository institution (as such term is defined in section 3 of that Act) and shall be enforceable by the Board with respect to bank holding companies under this Act. ``(3) Derivative financial instrument.--For purposes of this subsection, the term `derivative financial instrument' means-- ``(A) an instrument the value of which is derived from the value of stocks, bonds, other loan instruments, other assets, interest or currency exchange rates, or indexes, including qualified financial contracts (as such term is defined in section 207(c)(8)(D)); and ``(B) any other instrument that the Board determines, by regulation or order, to be a derivative financial instrument for purposes of this subsection.''.
summary: Derivatives Limitations Act of 1995 - Amends the Federal Deposit Insurance Act to prohibit an insured depository institution (and any affiliate) from engaging in any transaction involving a derivative financial instrument either for its own account, or that of an affiliate. Permits exceptions for: (1) hedging transactions; (2) a separately capitalized affiliate (not itself an insured depository insitution) of an insured depository institution; and (3) transactions involving de minimis interest in derivative financial instruments sanctioned by a Federal banking regulatory agency. Requires the appropriate Federal banking agency to promulgate rules governing such exceptions. Amends the Federal Credit Union Act to prohibit an insured credit union and any affiliates from engaging in derivative financial instruments transactions. Subjects credit unions and their affiliates to the interstate bank merger provisions of the Federal Deposit Insurance Act. Amends the Bank Holding Company Act of 1956 to allow a bank holding company subsidiary to engage in derivative financial instrument transactions for its own account if it: (1) is not an insured depository institution or a subsidiary of one; and (2) is separately capitalized from any affiliated insured depository institution. Subjects bank holding companies to the interstate bank merger provisions of the Federal Deposit Insurance Act.