Treasury Official Urges Congress To Pass Financial Netting Reforms

The American Bankruptcy Institute reports that a senior Treasury official stated that Congress should find a way to pass financial netting legislation, even if the pending means-testing reform legislation stalls. "Whether as part of comprehensive bankruptcy reform legislation or as a stand-alone bill, we believe that Congress should enact netting legislation this year. Further delays would unnecessarily place the financial system at greater risk," said Sheila Bair, assistant secretary for financial institutions. Bair, speaking before an American Bar Association committee, said that there was an immediate need for the proposal, which would make it easier for banks and businesses to settle financial contracts if one of the parties becomes insolvent.

"The relevant provisions are a non-controversial portion of broader legislation to revise the bankruptcy laws," she said. "We are concerned, however, that the controversial issues of the broader legislation may not be resolved soon enough to allow its passage this year." The proposed changes would limit market disruptions in the event of insolvency and also reduce the risks to federally regulated participants and to the overall financial system, Bair said.