SUBTITLE A OF TITLE IV OF THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (Pub. L. 102–242, Dec. 19, 1991, 105 Stat. 2371) TITLE IV-MISCELLANEOUS Subtitle A-Payment System Risk SEC. 401. [12 U.S.C. 4401] FINDINGS AND PURPOSE. (1) many financial institutions engage daily in thousands of transactions with other financial institutions directly and through clearing organizations; (2) the efficient processing of such transactions is essential to a smoothly functioning economy; (3) such transactions can be processed most efficiently if, consistent with applicable contractual terms, obligations among financial institutions are netted; (4) such netting procedures would reduce the systemic risk within the banking system and financial markets; and (5) the effectiveness of such netting procedures can be assured only if they are recognized as valid and legally binding in the event of the closing of a financial institution participating in the netting procedures. SEC. 402. [12 U.S.C. 4402] DEFINITIONS. For purposes of this subtitle (1) BROKER OR DEALER.-The term "broker or dealer" means (A) any company that is registered or licensed under Federal or State law to engage in the business of brokering, underwriting, or dealing in securities in the United States; and (B) to the extent consistent with this title, as determined by the Board of Governors of the Federal Reserve System, any company that is an affiliate of a company described in subparagraph (A) and that is engaged in the business of entering into netting contracts. (2) CLEARING ORGANIZATION.-The term "clearing organization" means a clearinghouse, clearing association, clearing corporation, or similar organization (A) that provides clearing, netting, or settlement services for its members and— (i) in which all members other than the clearing organization itself are financial institutions or other clearing organizations; or (ii) which is registered as a clearing agency under the Securities Exchange Act of 1934; or (B) that performs clearing functions for a contract market designated pursuant to the Commodity Exchange Act. (3) COVERED CLEARING OBLIGATION.-The term "covered clearing obligation" means an obligation of a member of a clearing organization to make payment to another member of a clearing organization, subject to a netting contract. (4) COVERED CONTRACTUAL PAYMENT ENTITLEMENT.—The term "covered contractual payment entitlement” means— (A) an entitlement of a financial institution to receive a payment, subject to a netting contract from another financial institution; and (B) an entitlement of a member of a clearing organization to receive payment, subject to a netting contract, from another member of a clearing organization of a covered clearing obligation. (5) COVERED CONTRACTUAL PAYMENT OBLIGATION.—The term "covered contractual payment obligation" means— (A) an obligation of a financial institution to make payment, subject to a netting contract to another financial institution; and (B) a covered clearing obligation. (6) DEPOSITORY INSTITUTION.-The term "depository institution" means— (A) a depository institution as defined in section 19(b)(1)(A) of the Federal Reserve Act (other than clause (vii)); (B) a branch or agency as defined in section 1(b) of the International Banking Act of 1978; (C) a corporation chartered under section 25(a) of the Federal Reserve Act; or (D) a corporation having an agreement or undertaking with the Board of Governors of the Federal Reserve System under section 25 of the Federal Reserve Act. (7) FAILED FINANCIAL INSTITUTION.-The term "failed financial institution” means a financial institution that— (A) fails to satisfy a covered contractual payment obligation when due; (B) has commenced or had commenced against it insolvency, liquidation, reorganization, receivership (including the appointment of a receiver), conservatorship, or similar proceedings; or (C) has generally ceased to meet its obligations when due. (8) FAILED MEMBER.-The term "failed member" means any member that— (A) fails to satisfy a covered clearing obligation when due, (B) has commenced or had commenced against it insolvency, liquidation, reorganization, receivership (including the appointment of a receiver), conservatorship, or similar proceedings, or (C) has generally ceased to meet its obligations when due. (9) FINANCIAL INSTITUTION.-The term "financial institution” means a broker or dealer, a depository institution, a futures commission merchant, or any other institution as determined by the Board of Governors of the Federal Reserve System. (10) FUTURES COMMISSION MERCHANT.-The term "futures commission merchant" means a company that is registered or licensed under Federal law to engage in the business of selling futures and options in commodities. (11) MEMBER.-The term "member" means a member of or participant in a clearing organization, and includes the clearing organization. (12) NET ENTITLEMENT.-The term "net entitlement" means the amount by which the covered contractual payment entitlements of a financial institution or member exceed the covered contractual payment obligations of the institution or member after netting under a netting contract. (13) NET OBLIGATION.-The term "net obligation" means the amount by which the covered contractual payment obligations of a financial institution or member exceed the covered contractual payment entitlements of the institution or member after netting under a netting contract. (14) NETTING CONTRACT. (A) IN GENERAL.-The term "netting contract”— (i) means a contract or agreement between 2 or more financial institutions or members, that (I) is governed by the laws of the United States, any State, or any political subdivision of any State, and (II) provides for netting present or future payment obligations or payment entitlements (including liquidation or close-out values relating to the obligations or entitlements) among the parties to the agreement; and (ii) includes the rules of a clearing organization. (B) INVALID CONTRACTS NOT INCLUDED. The term "netting contract" does not include any contract or agreement that is invalid under or precluded by Federal law. SEC. 403. [12 U.S.C. 4403] BILATERAL NETTING. (a) GENERAL RULE.-Notwithstanding any other provision of law, the covered contractual payment obligations and the covered contractual payment entitlements between any 2 financial institutions shall be netted in accordance with, and subject to the conditions of, the terms of any applicable netting contract. (b) LIMITATION ON OBLIGATION TO MAKE PAYMENT.-The only obligation, if any, of a financial institution to make payment with respect to covered contractual payment obligations to another financial institution shall be equal to its net obligation to such other financial institution, and no such obligation shall exist if there is no net obligation. (c) LIMITATION ON RIGHT TO RECEIVE PAYMENT.-The only right, if any, of a financial institution to receive payments with respect to covered contractual payment entitlements from another financial institution shall be equal to its net entitlement with respect to such other financial institution, and no such right shall exist if there is no net entitlement. (d) PAYMENT OF NET ENTITLEMENT OF FAILED FINANCIAL INSTITUTION.-The net entitlement of any failed financial institution, if any, shall be paid to the failed financial institution in accordance with, and subject to the conditions of, the applicable netting contract. (e) EFFECTIVENESS NOTWITHSTANDING STATUS AS FINANCIAL INSTITUTION. This section shall be given effect notwithstanding that a financial institution is a failed financial institution. SEC. 404. [12 U.S.C. 4404] CLEARING ORGANIZATION NETTING. (a) GENERAL NETTING RULE.-Notwithstanding any other provision of law, the covered contractual payment obligations and covered contractual payment entitlements of a member of a clearing organization to and from all other members of a clearing organization shall be netted in accordance with and subject to the conditions of any applicable netting contract. (b) LIMITATION OF OBLIGATION TO MAKE PAYMENT.-The only obligation, if any, of a member of a clearing organization to make payment with respect to covered contractual payment obligations arising under a single netting contract to any other member of a clearing organization shall be equal to its net obligation arising under that netting contract, and no such obligation shall exist if there is no net obligation. (c) LIMITATION ON RIGHT TO RECEIVE PAYMENT.-The only right, if any, of a member of a clearing organization to receive payment with respect to a covered contractual payment entitlement arising under a single netting contract from other members of a clearing organization shall be equal to its net entitlement arising under that netting contract, and no such right shall exist if there is no net entitlement. (d) ENTITLEMENT OF FAILED MEMBERS.-The net entitlement, if any, of any failed member of a clearing organization shall be paid to the failed member in accordance with, and subject to the conditions of, the applicable netting contract. (e) OBLIGATIONS OF FAILED MEMBERS.-The net obligation, if any, of any failed member of a clearing organization shall be determined in accordance with, and subject to the conditions of, the applicable netting contract. (f) LIMITATION ON CLAIMS FOR ENTITLEMENT.-A failed member of a clearing organization shall have no recognizable claim against any member of a clearing organization for any amount based on such covered contractual payment entitlements other than its net entitlement. (g) EFFECTIVENESS NOTWITHSTANDING STATUS AS MEMBER.—This section shall be given effect notwithstanding that a member is a failed member. no legal proceeding is contemplated against him. The Government authority obtaining the financial records shall promptly notify a customer when a determination has been made that no legal proceeding against him is contemplated. After one hundred and eighty days from the denial of the motion or application, if the Government authority obtaining the records has not initiated such a proceeding, a supervisory official of the Government authority shall certify to the appropriate court that no such determination has been made. The court may require that such certifications be made, at reasonable intervals thereafter, until either notification to the customer has occurred or a legal proceeding is initiated as described in clause (A). (e) The challenge procedures of this title constitute the sole judicial remedy available to a customer to oppose disclosure of financial records pursuant to this title. (f) Nothing in this title shall enlarge or restrict any rights of a financial institution to challenge requests for records made by a Government authority under existing law. Nothing in this title shall entitle a customer to assert the rights of a financial institution. DUTY OF FINANCIAL INSTITUTIONS SEC. 1111. [12 U.S.C. 3411] Upon receipt of a request for financial records made by a Government authority under section 1105 or 1107, the financial institution shall, unless otherwise provided by law, proceed to assemble the records requested and must be prepared to deliver the records to the Government authority upon receipt of the certificate required under section 1103(b). USE OF INFORMATION SEC. 1112. [12 U.S.C. 3412] (a) Financial records originally obtained pursuant to this title shall not be transferred to another agency or department unless the transferring agency or department certifies in writing that there is reason to believe that the records are relevant to a legitimate law enforcement inquiry within the jurisdiction of the receiving agency or department. (b) When financial records subject to this title are tranferred pursuant to subsection (a), the transferring agency or department shall, within fourteen days, send to the customer a copy of the certification made pursuant to subsection (a) and the following notice, which shall state the nature of the law enforcement inquiry with reasonable specificity: "Copies of, or information contained in, your financial records lawfully in possession of have been furnished to pursuant to the Right of Financial Privacy Act of 1978 for for the following purpose: . If you believe that this transfer has not been made to further a legitimate law enforcement inquiry, you may have legal rights under the Financial Privacy Act of 1978 or the Privacy Act of 1974." (c) Notwithstanding subsection (b), notice to the customer may be delayed if the transferring agency or department has obtained a court order delaying notice pursuant to section 1109 (a) and (b) and that order is still in effect, of if the receiving agency or depart |