[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 940 Reported in House (RH)]
Union Calendar No. 542
112th CONGRESS
2nd Session
H. R. 940
[Report No. 112-407, Part I]
To establish standards for covered bond programs and a covered bond
regulatory oversight program, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
March 8, 2011
Mr. Garrett (for himself and Mrs. Maloney) introduced the following
bill; which was referred to the Committee on Financial Services, and in
addition to the Committee on Ways and Means, for a period to be
subsequently determined by the Speaker, in each case for consideration
of such provisions as fall within the jurisdiction of the committee
concerned
March 5, 2012
Reported from the Committee on Financial Services with an amendment
[Strike out all after the enacting clause and insert the part printed
in italic]
March 5, 2012
Referral to the Committee on Ways and Means extended for a period
ending no later than March 30, 2012
March 30, 2012
Referral to the Committee on Ways and Means extended for a period
ending no later than May 18, 2012
May 18, 2012
Referral to the Committee on Ways and Means extended for a period
ending no later than June 29, 2012
June 29, 2012
Referral to the Committee on Ways and Means extended for a period
ending no later than September 14, 2012
September 14, 2012
Referral to the Committee on Ways and Means extended for a period
ending no later than November 16, 2012
November 16, 2012
Referral to the Committee on Ways and Means extended for a period
ending no later than November 30, 2012
November 30, 2012
Referral to the Committee on Ways and Means extended for a period
ending no later than December 14, 2012
December 14, 2012
Referral to the Committee on Ways and Means extended for a period
ending no later than December 21, 2012
December 21, 2012
Referral to the Committee on Ways and Means extended for a period
ending no later than December 31, 2012
December 31, 2012
The Committee on Ways and Means discharged; committed to the Committee
of the Whole House on the State of the Union and ordered to be printed
[For text of introduced bill, see copy of bill as introduced on March
8, 2011]
_______________________________________________________________________
A BILL
To establish standards for covered bond programs and a covered bond
regulatory oversight program, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``United States Covered Bond Act of
2011''.
SEC. 2. DEFINITIONS.
For purposes of this Act, the following definitions shall apply:
(1) Ancillary asset.--The term ``ancillary asset'' means--
(A) any interest rate or currency swap associated
with 1 or more eligible assets, substitute assets, or
other assets in a cover pool;
(B) any credit enhancement or liquidity arrangement
associated with 1 or more eligible assets, substitute
assets, or other assets in a cover pool;
(C) any guarantee, letter-of-credit right, or other
secondary obligation that supports any payment or
performance of 1 or more eligible assets, substitute
assets, or other assets in a cover pool; and
(D) any proceeds of, or other property incident to,
1 or more eligible assets, substitute assets, or other
assets in a cover pool.
(2) Corporation.--The term ``Corporation'' means the
Federal Deposit Insurance Corporation.
(3) Cover pool.--The term ``cover pool'' means a dynamic
pool of assets that is comprised of--
(A) in the case of any eligible issuer described in
subparagraph (A), (B), or (C) of paragraph (9)--
(i) 1 or more eligible assets from a single
eligible asset class; and
(ii) 1 or more substitute assets or
ancillary assets; and
(B) in the case of any eligible issuer described in
paragraph (9)(D)--
(i) the covered bonds issued by each
sponsoring eligible issuer; and
(ii) 1 or more substitute assets or
ancillary assets.
(4) Covered bond.--The term ``covered bond'' means any
recourse debt obligation of an eligible issuer that--
(A) has an original term to maturity of not less
than 1 year;
(B) is secured by a perfected security interest in
or other perfected lien on a cover pool that is owned
directly or indirectly by the issuer of the obligation;
(C) is issued under a covered bond program that has
been approved by the applicable covered bond regulator;
(D) is identified in a register of covered bonds
that is maintained by the Secretary; and
(E) is not a deposit (as defined in section 3(l) of
the Federal Deposit Insurance Act (12 U.S.C. 1813(l))).
(5) Covered bond program.--The term ``covered bond
program'' means any program of an eligible issuer under which,
on the security of a single cover pool, 1 or more series or
tranches of covered bonds may be issued.
(6) Covered bond regulator.--The term ``covered bond
regulator'' means--
(A) for any eligible issuer that is subject to the
jurisdiction of an appropriate Federal banking agency
(as defined in section 3(q) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(q))), the appropriate
Federal banking agency;
(B) for any eligible issuer that is described in
paragraph (9)(D), that is not subject to the
jurisdiction of an appropriate Federal banking agency,
and that is sponsored by only 1 eligible issuer, the
covered bond regulator for the sponsor;
(C) for any eligible issuer that is described in
paragraph (9)(D), that is not subject to the
jurisdiction of an appropriate Federal banking agency,
and that is sponsored by more than 1 eligible issuer,
the covered bond regulator for the sponsor whose
covered bonds constitute the largest share of the cover
pool of the issuer; and
(D) for any other eligible issuer that is not
subject to the jurisdiction of an appropriate Federal
banking agency, the Secretary.
(7) Eligible asset.--The term ``eligible asset'' means--
(A) in the case of the residential mortgage asset
class--
(i) any first-lien mortgage loan that is
secured by 1-to-4 family residential property;
(ii) any mortgage loan that is insured
under the National Housing Act (12 U.S.C. 1701
et seq.); and
(iii) any loan that is guaranteed, insured,
or made under chapter 37 of title 38, United
States Code;
(B) in the case of the commercial mortgage asset
class, any commercial mortgage loan (including any
multifamily mortgage loan);
(C) in the case of the public sector asset class--
(i) any security issued by a State,
municipality, or other governmental authority;
(ii) any loan made to a State,
municipality, or other governmental authority;
and
(iii) any loan, security, or other
obligation that is insured or guaranteed, in
full or substantially in full, by the full
faith and credit of the United States
Government (whether or not such loan, security,
or other obligation is also part of another
eligible asset class);
(D) in the case of the auto asset class, any auto
loan or lease;
(E) in the case of the student loan asset class,
any student loan (whether guaranteed or nonguaranteed);
(F) in the case of the credit or charge card asset
class, any extension of credit to a person under an
open-end credit plan;
(G) in the case of the small business asset class,
any loan that is made or guaranteed under a program of
the Small Business Administration; and
(H) in the case of any other eligible asset class,
any asset designated by the Secretary, by rule and in
consultation with the covered bond regulators, as an
eligible asset for purposes of such class.
(8) Eligible asset class.--The term ``eligible asset
class'' means--
(A) a residential mortgage asset class;
(B) a commercial mortgage asset class;
(C) a public sector asset class;
(D) an auto asset class;
(E) a student loan asset class;
(F) a credit or charge card asset class;
(G) a small business asset class; and
(H) any other eligible asset class designated by
the Secretary, by rule and in consultation with the
covered bond regulators.
(9) Eligible issuer.--The term ``eligible issuer'' means--
(A) any insured depository institution and any
subsidiary of such institution;
(B) any bank holding company, any savings and loan
holding company, and any subsidiary of any of such
companies;
(C) any nonbank financial company (as defined in
section 102(a)(4) of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (12 U.S.C. 5311(a)(4)))
that is supervised by the Board of Governors of the
Federal Reserve System under section 113 of the Dodd-
Frank Wall Street Reform and Consumer Protection Act
(12 U.S.C. 5323), including any intermediate holding
company supervised as a nonbank financial company, and
any subsidiary of such a nonbank financial company; and
(D) any issuer that is sponsored by 1 or more
eligible issuers for the sole purpose of issuing
covered bonds on a pooled basis.
(10) Oversight program.--The term ``oversight program''
means the covered bond regulatory oversight program established
under section 3(a).
(11) Secretary.--The term ``Secretary'' means the Secretary
of the Department of the Treasury.
(12) Substitute asset.--The term ``substitute asset''
means--
(A) cash;
(B) any direct obligation of the United States
Government, and any security or other obligation whose
full principal and interest are insured or guaranteed
by the full faith and credit of the United States
Government;
(C) any direct obligation of a United States
Government corporation or Government-sponsored
enterprise of the highest credit quality, and any other
security or other obligation of the highest credit
quality whose full principal and interest are insured
or guaranteed by such corporation or enterprise, except
that the outstanding principal amount of these
obligations in any cover pool may not exceed an amount
equal to 20 percent of the outstanding principal amount
of all assets in the cover pool without the approval of
the applicable covered bond regulator;
(D) any overnight investment in Federal funds;
(E) any other substitute asset designated by the
Secretary, by rule and in consultation with the covered
bond regulators; and
(F) any deposit account or securities account into
which only an asset described in subparagraph (A), (B),
(C), (D), or (E) may be deposited or credited.
SEC. 3. REGULATORY OVERSIGHT OF COVERED BOND PROGRAMS ESTABLISHED.
(a) Establishment.--
(1) In general.--Not later than 180 days after the date of
the enactment of this Act, the Secretary shall, by rule and in
consultation with the covered bond regulators, establish a
covered bond regulatory oversight program that provides for--
(A) covered bond programs to be evaluated according
to reasonable and objective standards in order to be
approved under paragraph (2), including any additional
eligibility standards for eligible assets and any other
criteria determined appropriate by the Secretary to
further the purposes of this Act;
(B) covered bond programs to be maintained in a
manner that is consistent with this Act and safe and
sound asset-liability management and other financial
practices; and
(C) any estate created under section 4 to be
administered in a manner that is consistent with
maximizing the value and the proceeds of the related
cover pool in a resolution under this Act.
(2) Approval of each covered bond program.--
(A) In general.--A covered bond shall be subject to
this Act only if the covered bond is issued by an
eligible issuer under a covered bond program that is
approved by the applicable covered bond regulator.
(B) Approval process.--Each covered bond regulator
shall apply the standards established by the Secretary
under the oversight program to evaluate a covered bond
program that has been submitted by an eligible issuer
for approval. Each covered bond regulator also shall
take into account relevant supervisory factors,
including safety and soundness considerations, in
evaluating a covered bond program that has been
submitted for approval. Each covered bond regulator,
promptly after approving a covered bond program, shall
provide the Secretary with the name of the covered bond
program, the name of the eligible issuer, and all other
information reasonably requested by the Secretary in
order to update the registry under paragraph (3)(A).
Each eligible issuer, promptly after issuing a covered
bond under an approved covered bond program, shall
provide the Secretary with all information reasonably
requested by the Secretary in order to update the
registry under paragraph (3)(B).
(C) Existing covered bond programs.--A covered bond
regulator may approve a covered bond program that is in
existence on the date of the enactment of this Act.
Upon such approval, each covered bond under the covered
bond program shall be subject to this Act, regardless
of when the covered bond was issued.
(D) Multiple covered bond programs permitted.--An
eligible issuer may have more than 1 covered bond
program.
(E) Cease and desist authority.--The applicable
covered bond regulator may direct an eligible issuer to
cease issuing covered bonds under an approved covered
bond program if the covered bond program is not
maintained in a manner that is consistent with this Act
and the oversight program and if, after notice that is
reasonable under the circumstances, the issuer does not
remedy all deficiencies identified by the applicable
covered bond regulator.
(F) Cap on the amount of outstanding covered
bonds.--
(i) In general.--With respect to each
eligible issuer that submits a covered bond
program for approval, the applicable covered
bond regulator shall set, consistent with
safety and soundness considerations and the
financial condition of the eligible issuer, the
maximum amount, as a percentage of the eligible
issuer's total assets, of outstanding covered
bonds that the eligible issuer may issue.
(ii) Review of cap.--The applicable covered
bond regulator may, not more frequently than
quarterly, review the percentage set under
clause (i) and, if safety and soundness
considerations or the financial condition of
the eligible issuer has changed, increase or
decrease such percentage. Any decrease made
pursuant to this clause shall have no effect on
existing covered bonds issued by the eligible
issuer.
(3) Registry.--Under the oversight program, the Secretary
shall maintain a registry that is published on a Web site
available to the public and that, for each covered bond program
approved by a covered bond regulator, contains--
(A) the name of the covered bond program, the name
of the eligible issuer, and all other information that
the Secretary considers necessary to adequately
identify the covered bond program and the eligible
issuer; and
(B) all information that the Secretary considers
necessary to adequately identify all outstanding
covered bonds issued under the covered bond program
(including the reports described in paragraphs (3) and
(4) of subsection (b)).
(4) Fees.--Each covered bond regulator may levy, on the
issuers of covered bonds under the primary supervision of such
covered bond regulator, reasonably apportioned fees that such
covered bond regulator considers necessary, in the aggregate,
to defray the costs of such covered bond regulator carrying out
the provisions of this Act. Such funds shall not be construed
to be Government funds or appropriated monies and shall not be
subject to apportionment for purposes of chapter 15 of title
31, United States Code, or any other provision of law.
(b) Minimum Over-Collateralization Requirements.--
(1) Requirements established.--The Secretary, by rule and
in consultation with the covered bond regulators, shall
establish minimum over-collateralization requirements for
covered bonds backed by each of the eligible asset classes. The
minimum over-collateralization requirements shall be designed
to ensure that sufficient eligible assets and substitute assets
are maintained in the cover pool to satisfy all principal and
interest payments on the covered bonds when due through
maturity and shall be based on the credit, collection, and
interest rate risks (excluding the liquidity risks) associated
with the eligible asset class.
(2) Asset coverage test.--The eligible assets and the
substitute assets in any cover pool shall be required, in the
aggregate, to meet at all times the applicable minimum over-
collateralization requirements.
(3) Monthly reporting.--On a monthly basis, each issuer of
covered bonds shall submit a report on whether the cover pool
that secures the covered bonds meets the applicable minimum
over-collateralization requirements to--
(A) the Secretary;
(B) the applicable covered bond regulator;
(C) the applicable indenture trustee;
(D) the applicable covered bondholders; and
(E) the applicable independent asset monitor.
(4) Independent asset monitor.--
(A) Appointment.--Each issuer of covered bonds
shall appoint the indenture trustee for the covered
bonds, or another unaffiliated entity, as an
independent asset monitor for the applicable cover
pool.
(B) Duties.--An independent asset monitor appointed
under subparagraph (A) shall, on an annual or other
more frequent periodic basis determined by the
Secretary under the oversight program--
(i) verify whether the cover pool meets the
applicable minimum over-collateralization
requirements; and
(ii) report to the Secretary, the
applicable covered bond regulator, the
applicable indenture trustee, and the
applicable covered bondholders on whether the
cover pool meets the applicable minimum over-
collateralization requirements.
(5) No loss of status.--Covered bonds shall remain subject
to this Act regardless of whether the applicable cover pool
ceases to meet the applicable minimum over-collateralization
requirements.
(6) Failure to meet requirements.--
(A) In general.--If a cover pool fails to meet the
applicable minimum over-collateralization requirements,
and if the failure is not cured within the time
specified in the related transaction documents, the
failure shall be an uncured default for purposes of
section 4(a).
(B) Notice required.--An issuer of covered bonds
shall promptly give the Secretary and the applicable
covered bond regulator written notice if the cover pool
securing the covered bonds fails to meet the applicable
minimum over-collateralization requirements, if the
failure is cured within the time specified in the
related transaction documents, or if the failure is not
so cured.
(c) Requirements for Eligible Assets.--
(1) Requirements.--
(A) Loans.--A loan shall not qualify as an eligible
asset for so long as the loan is delinquent for more
than 60 consecutive days.
(B) Securities.--A security shall not qualify as an
eligible asset for so long as the security does not
meet any credit-quality requirement under this Act.
(C) Origination.--An asset shall not qualify as an
eligible asset if the asset was not originated in
compliance with any rule or supervisory guidance of a
Federal agency applicable to the asset at the time of
origination.
(D) No double pledge.--An asset shall not qualify
as an eligible asset for so long as the asset is
subject to a prior perfected security interest or other
prior perfected lien that has been granted in an
unrelated transaction. Nothing in this Act shall affect
such a prior perfected security interest or other prior
perfected lien, and the rights of such lien holders.
(2) Failure to meet requirements.--Subject to paragraph
(1)(D), if an asset in a cover pool does not satisfy any
applicable requirement described in paragraph (1) or any other
applicable standard or criterion described in this Act, the
oversight program, or the related transaction documents, the
asset shall not qualify as an eligible asset for purposes of
the asset coverage test described in subsection (b)(2). A
disqualified asset shall remain in the cover pool unless and
until removed by the issuer in compliance with the provisions
of this Act, the oversight program, and the related transaction
documents. No disqualified asset may be removed from the cover
pool after an estate has been created for the related covered
bond program under section 4(b)(1) or 4(c)(2), except in
connection with the management of the cover pool under section
4(d)(1)(E).
(d) Other Requirements.--
(1) Books and records of issuer.--Each issuer of covered
bonds shall clearly mark its books and records to identify the
assets that comprise the cover pool securing the covered bonds.
(2) Schedule of eligible assets and substitute assets.--
Each issuer of covered bonds shall deliver to the applicable
indenture trustee and the applicable independent asset monitor,
on at least a monthly basis, a schedule that identifies all
eligible assets and substitute assets in the cover pool
securing the covered bonds.
(3) Single eligible asset class.--No cover pool described
in section 2(3)(A) may include eligible assets from more than 1
eligible asset class. No cover poll described in section
2(3)(B) may include covered bonds backed by more than 1
eligible asset class.
SEC. 4. RESOLUTION UPON DEFAULT OR INSOLVENCY.
(a) Uncured Default Defined.--For purposes of this section, the
term ``uncured default'' means a default on a covered bond that has not
been cured within the time, if any, specified in the related
transaction documents.
(b) Default on Covered Bonds Prior to Conservatorship,
Receivership, Liquidation, or Bankruptcy.--
(1) Creation of separate estate.--If an uncured default
occurs on a covered bond before the issuer of the covered bond
enters conservatorship, receivership, liquidation, or
bankruptcy, an estate shall be immediately and automatically
created by operation of law and shall exist and be administered
separate and apart from the issuer or any subsequent
conservatorship, receivership, liquidating agency, or estate in
bankruptcy for the issuer or any other assets of the issuer. A
separate estate shall be created for each affected covered bond
program.
(2) Assets and liabilities of estate.--Any estate created
under paragraph (1) shall be comprised of the cover pool
(including over-collateralization in the cover pool) that
secures the covered bond. The cover pool shall be immediately
and automatically released to and held by the estate free and
clear of any right, title, interest, or claim of the issuer or
any conservator, receiver, liquidating agent, or trustee in
bankruptcy for the issuer or any other assets of the issuer.
The estate shall be fully liable on the covered bond and all
other covered bonds and related obligations of the issuer
(including obligations under related derivative transactions)
that are secured by a perfected security interest in or other
perfected lien on the cover pool when the estate is created.
The estate shall not be liable on any obligation of the issuer
that is not secured by a perfected security interest in or
other perfected lien on the cover pool when the estate is
created. No conservator, receiver, liquidating agent, or
trustee in bankruptcy for the issuer may charge or assess the
estate for any claim of the conservator, receiver, liquidating
agent, or trustee in bankruptcy or the conservatorship,
receivership, liquidating agency, or estate in bankruptcy and
may not obtain or perfect a security interest in or other lien
on the cover pool to secure such a claim.
(3) Retention of claims.--Any holder of a covered bond or
related obligation for which an estate has become liable under
paragraph (2) shall retain a claim against the issuer for any
deficiency with respect to the covered bond or related
obligation. If the issuer enters conservatorship, receivership,
liquidation, or bankruptcy, any contingent claim for such a
deficiency shall be allowed as a provable claim in the
conservatorship, receivership, liquidating agency, or
bankruptcy case. The contingent claim shall be estimated by the
conservator, receiver, liquidating agent, or bankruptcy court
for purposes of allowing the claim as a provable claim if
awaiting the fixing of the contingent claim would unduly delay
the resolution of the conservatorship, receivership,
liquidating agency, or bankruptcy case.
(4) Residual interest.--
(A) Issuance of residual interest.--Upon the
creation of an estate under paragraph (1), a residual
interest in the estate shall be immediately and
automatically issued by operation of law to the issuer.
(B) Nature of residual interest.--The residual
interest under subparagraph (A) shall--
(i) be an exempted security as described in
section 5;
(ii) represent the right to any surplus
from the cover pool after the covered bonds and
all other liabilities of the estate have been
fully and irrevocably paid; and
(iii) be evidenced by a certificate
executed by the trustee of the estate.
(5) Obligations of issuer.--
(A) In general.--After the creation of an estate
under paragraph (1), the issuer shall--
(i) transfer to or at the direction of the
trustee for the estate all property of the
estate that is in the possession or under the
control of the issuer, including all tangible
or electronic books, records, files, and other
documents or materials relating to the assets
and liabilities of the estate; and
(ii) at the election of the trustee or a
servicer or administrator for the estate,
continue servicing the applicable cover pool
for 120 days after the creation of the estate
in return for a fair-market-value fee, as
determined by the trustee in consultation with
the applicable covered bond regulator, that
shall be payable from the estate as an
administrative expense.
(B) Obligations absolute.--Neither the issuer,
whether acting as debtor in possession or in any other
capacity, nor any conservator, receiver, liquidating
agent, or trustee in bankruptcy for the issuer or any
other assets of the issuer may disaffirm, repudiate, or
reject the obligation to turn over property or to
continue servicing the cover pool as provided in
subparagraph (A).
(c) Default on Covered Bonds Upon Conservatorship, Receivership,
Liquidation, or Bankruptcy.--
(1) Corporation conservatorship or receivership.--
(A) In general.--If the Corporation is appointed as
conservator or receiver for an issuer of covered bonds
before an uncured default results in the creation of an
estate under subsection (b), the Corporation as
conservator or receiver shall have an exclusive right,
during the 1-year period beginning on the date of the
appointment, to transfer any cover pool owned by the
issuer in its entirety, together with all covered bonds
and related obligations that are secured by a perfected
security interest in or other perfected lien on the
cover pool, to another eligible issuer that meets all
conditions and requirements specified in the related
transaction documents. The Corporation as conservator
or receiver may not remove any asset from the cover
pool, except to the extent otherwise agreed by a
transferee that has assumed the covered bond program
pursuant to subparagraph (C).
(B) Obligations during 1-year period.--During the
1-year period described in subparagraph (A), the
Corporation as conservator or receiver shall fully and
timely satisfy all monetary and nonmonetary obligations
of the issuer under all covered bonds and the related
transaction documents and shall fully and timely cure
all defaults by the issuer (other than its
conservatorship or receivership) under the applicable
covered bond program, in each case, until the earlier
of--
(i) the transfer of the applicable covered
bond program to another eligible issuer as
provided in subparagraph (A); or
(ii) the delivery to the Secretary, the
applicable covered bond regulator, the
applicable indenture trustee, and the
applicable covered bondholders of a written
notice from the Corporation as conservator or
receiver electing to cease further performance
under the applicable covered bond program.
(C) Assumption by transferee.--If the Corporation
as conservator or receiver transfers a covered bond
program to another eligible issuer within the 1-year
period as provided in subparagraph (A), the transferee
shall take ownership of the applicable cover pool and
shall become fully liable on all covered bonds and
related obligations of the issuer that are secured by a
perfected security interest in or other perfected lien
on the cover pool.
(2) Other circumstances.--An estate shall be immediately
and automatically created by operation of law and shall exist
and be administered separate and apart from an issuer of
covered bonds and any conservatorship, receivership,
liquidating agency, or estate in bankruptcy for the issuer or
any other assets of the issuer, if--
(A) a conservator, receiver, liquidating agent, or
trustee in bankruptcy, other than the Corporation, is
appointed for the issuer before an uncured default
results in the creation of an estate under subsection
(b); or
(B) in the case of the appointment of the
Corporation as conservator or receiver as described in
paragraph (1)(A), the Corporation as conservator or
receiver--
(i) does not complete the transfer of the
applicable covered bond program to another
eligible issuer within the 1-year period as
provided in paragraph (1)(A);
(ii) delivers to the Secretary, the
applicable covered bond regulator, the
applicable indenture trustee, and the
applicable covered bondholders a written notice
electing to cease further performance under the
applicable covered bond program; or
(iii) fails to fully and timely satisfy all
monetary and nonmonetary obligations of the
issuer under the covered bonds and the related
transaction documents or to fully and timely
cure all defaults by the issuer (other than its
conservatorship or receivership) under the
applicable covered bond program.
A separate estate shall be created for each affected covered
bond program.
(3) Assets and liabilities of estate.--Any estate created
under paragraph (2) shall be comprised of the cover pool
(including over-collateralization in the cover pool) that
secures the covered bonds. The cover pool shall be immediately
and automatically released to and held by the estate free and
clear of any right, title, interest, or claim of the issuer or
any conservator, receiver, liquidating agent, or trustee in
bankruptcy for the issuer or any other assets of the issuer.
The estate shall be fully liable on the covered bonds and all
other covered bonds and related obligations of the issuer
(including obligations under related derivative transactions)
that are secured by a perfected security interest in or other
perfected lien on the cover pool when the estate is created.
The estate shall not be liable on any obligation of the issuer
that is not secured by a perfected security interest in or
other perfected lien on the cover pool when the estate is
created. No conservator, receiver, liquidating agent, or
trustee in bankruptcy for the issuer may charge or assess the
estate for any claim of the conservator, receiver, liquidating
agent, or trustee in bankruptcy or the conservatorship,
receivership, liquidating agency, or estate in bankruptcy and
may not obtain or perfect a security interest in or other lien
on the cover pool to secure such a claim.
(4) Contingent claim.--Any contingent claim against an
issuer for a deficiency with respect to a covered bond or
related obligation for which an estate has become liable under
paragraph (3) shall be allowed as a provable claim in the
conservatorship, receivership, liquidating agency, or
bankruptcy case for the issuer. The contingent claim shall be
estimated by the conservator, receiver, liquidating agent, or
bankruptcy court for purposes of allowing the claim as a
provable claim if awaiting the fixing of the contingent claim
would unduly delay the resolution of the conservatorship,
receivership, liquidating agency, or bankruptcy case.
(5) Residual interest.--
(A) Issuance of residual interest.--Upon the
creation of an estate under paragraph (2), and
regardless of whether any contingent claim described in
paragraph (4) becomes fixed or is estimated, a residual
interest in the estate shall be immediately and
automatically issued by operation of law to the
conservator, receiver, liquidating agent, or trustee in
bankruptcy for the issuer.
(B) Nature of residual interest.--The residual
interest under subparagraph (A) shall--
(i) be an exempted security as described in
section 5;
(ii) represent the right to any surplus
from the cover pool after the covered bonds and
all other liabilities of the estate have been
fully and irrevocably paid; and
(iii) be evidenced by a certificate
executed by the trustee of the estate.
(6) Obligations of issuer.--
(A) In general.--After the creation of an estate
under paragraph (2), the issuer and its conservator,
receiver, liquidating agent, or trustee in bankruptcy
shall--
(i) transfer to or at the direction of the
trustee for the estate all property of the
estate that is in the possession or under the
control of the issuer or its conservator,
receiver, liquidating agent, or trustee in
bankruptcy, including all tangible or
electronic books, records, files, and other
documents or materials relating to the assets
and liabilities of the estate; and
(ii) at the election of the trustee or a
servicer or administrator for the estate,
continue servicing the applicable cover pool
for 120 days after the creation of the estate
in return for a fair-market-value fee, as
determined by the trustee in consultation with
the applicable covered bond regulator, that
shall be payable from the estate as an
administrative expense.
(B) Obligations absolute.--Neither the issuer,
whether acting as debtor in possession or in any other
capacity, nor any conservator, receiver, liquidating
agent, or trustee in bankruptcy for the issuer or any
other assets of the issuer may disaffirm, repudiate, or
reject the obligation to turn over property or to
continue servicing the cover pool as provided in
subparagraph (A).
(d) Administration and Resolution of Estates.--
(1) Trustee, servicer, and administrator.--
(A) In general.--Upon the creation of any estate
under subsection (b)(1) or (c)(2), the applicable
covered bond regulator shall--
(i) appoint the trustee for the estate;
(ii) appoint 1 or more servicers or
administrators for the cover pool held by the
estate; and
(iii) give the Secretary, the applicable
indenture trustee, the applicable covered
bondholders, and the owner of the residual
interest written notice of the creation of the
estate.
(B) Terms and conditions of appointment.--All terms
and conditions of any appointment under paragraph (1),
including the terms and conditions relating to
compensation, shall conform to the requirements of this
Act and the oversight program and otherwise shall be
determined by the applicable covered bond regulator.
(C) Qualification.--The applicable covered bond
regulator may require the trustee or any servicer or
administrator for an estate to post in favor of the
United States, for the benefit of the estate, a bond
that is conditioned on the faithful performance of the
duties of the trustee or the servicer or administrator.
The covered bond regulator shall determine the amount
of any bond required under this subparagraph and the
sufficiency of the surety on the bond. A proceeding on
a bond required under this subparagraph may not be
commenced after two years after the date on which the
trustee or the servicer or administrator was
discharged.
(D) Powers and duties of trustee.--The trustee for
an estate is the representative of the estate and,
subject to the provisions of this Act, has capacity to
sue and be sued. The trustee shall--
(i) administer the estate in compliance
with this Act, the oversight program, and the
related transaction documents;
(ii) be accountable for all property of the
estate that is received by the trustee;
(iii) make a final report and file a final
account of the administration of the estate
with the applicable covered bond regulator; and
(iv) after the estate has been fully
administered, close the estate.
(E) Powers and duties of servicer or
administrator.--Any servicer or administrator for an
estate--
(i) shall--
(I) collect, realize on (by
liquidation or other means), and
otherwise manage the cover pool held by
the estate in compliance with this Act,
the oversight program, and the related
transaction documents and in a manner
consistent with maximizing the value
and the proceeds of the cover pool;
(II) deposit or invest all proceeds
and funds received in compliance with
this Act, the oversight program, and
the related transaction documents and
in a manner consistent with maximizing
the net return to the estate, taking
into account the safety of the deposit
or investment; and
(III) apply, or direct the trustee
for the estate to apply, all proceeds
and funds received and the net return
on any deposit or investment to make
distributions in compliance with
paragraphs (3) and (4);
(ii) may borrow funds or otherwise obtain
credit, for the benefit of the estate, in
compliance with paragraph (2) on a secured or
unsecured basis and on a priority, pari passu,
or subordinated basis;
(iii) shall, at the times and in the manner
required by the applicable covered bond
regulator, submit to the covered bond
regulator, the Secretary, the applicable
indenture trustee, the applicable covered
bondholders, the owner of the residual
interest, and any other person designated by
the covered bond regulator, reports that
describe the activities of the servicer or
administrator on behalf of the estate, the
performance of the cover pool held by the
estate, and distributions made by the estate;
and
(iv) shall assist the trustee in preparing
the final report and the final account of the
administration of the estate.
(F) Supervision of trustee, servicer, and
administrator.--The applicable covered bond regulator
shall supervise the trustee and any servicer or
administrator for an estate. The covered bond regulator
shall require that all reports submitted under
subparagraph (E)(iii) do not contain any untrue
statement of a material fact and do not omit to state a
material fact necessary in order to make the statements
made, in light of the circumstances under which they
are made, not misleading.
(G) Removal and replacement of trustee, servicer,
and administrator.--If the covered bond regulator
determines that it is in the best interests of an
estate, the covered bond regulator may remove or
replace the trustee or any servicer or administrator
for the estate. The removal of the trustee or any
servicer or administrator does not abate any pending
action or proceeding involving the estate, and any
successor or other trustee, servicer, or administrator
shall be substituted as a party in the action or
proceeding.
(H) Professionals.--The trustee or any servicer or
administrator for an estate may employ 1 or more
attorneys, accountants, appraisers, auctioneers, or
other professional persons to represent or assist the
trustee or the servicer or administrator in carrying
out its duties. The employment of any professional
person and all terms and conditions of employment,
including the terms and conditions relating to
compensation, shall conform to the requirements of this
Act and the oversight program and otherwise shall be
subject to the approval of the applicable covered bond
regulator.
(I) Approved fees and expenses.--Unless otherwise
provided in the applicable terms and conditions of
appointment or employment, all approved fees and
expenses of the trustee, any servicer or administrator,
or any professional person employed by the trustee or
any servicer or administrator shall be payable from the
estate as administrative expenses.
(J) Actions by or on behalf of estate.--The trustee
or any servicer or administrator for an estate may
commence or continue judicial, administrative, or other
actions, in the name of the estate or in its own name
on behalf of the estate, for the purpose of collecting,
realizing on, or otherwise managing the cover pool held
by the estate or exercising its other powers or duties
on behalf of the estate.
(K) Actions against estate.--No court may issue an
attachment or execution on any property of an estate.
Except at the request of the applicable covered bond
regulator or as otherwise provided in this subparagraph
or subparagraph (J), no court may take any action to
restrain or affect the resolution of an estate under
this Act. No person (including the applicable indenture
trustee and any applicable covered bondholder) may
commence or continue any judicial, administrative, or
other action against the estate, the trustee, or any
servicer or administrator or take any other act to
affect the estate, the trustee, or any servicer or
administrator that is not expressly permitted by this
Act, the oversight program, and the related transaction
documents, except for a judicial or administrative
action to compel the release of funds that--
(i) are available to the estate;
(ii) are permitted to be distributed under
this Act and the oversight program; and
(iii) are permitted and required to be
distributed under the related transaction
documents and any contracts executed by or on
behalf of the estate.
(L) Sovereign immunity.--Except in connection with
a guarantee provided under paragraph (4) or any other
contract executed by the applicable covered bond
regulator under this section 4, the Secretary and the
covered bond regulator shall be entitled to sovereign
immunity in carrying out the provisions of this Act.
(2) Borrowings and credit.--
(A) In general.--Any servicer or administrator for
an estate created under subsection (b)(1) or (c)(2) may
borrow funds or otherwise obtain credit, on behalf of
and for the benefit of the estate, from any person in
compliance with this paragraph (2) solely for the
purpose of providing liquidity in the case of timing
mismatches among the assets and the liabilities of the
estate. Except with respect to an underwriter, section
5 of the Securities Act of 1933, the Trust Indenture
Act of 1939, and any State or local law requiring
registration for an offer or sale of a security or
registration or licensing of an issuer of, underwriter
of, or broker or dealer in a security does not apply to
the offer or sale under this paragraph (2) of a
security that is not an equity security.
(B) Conditions.--A servicer or administrator may
borrow funds or otherwise obtain credit under
subparagraph (A)--
(i) on terms affording the lender only
claims or liens that are fully subordinated to
the claims and interests of the applicable
indenture trustee and the applicable covered
bondholders and all other claims against and
interests in the estate, except for the
residual interest, if the servicer or
administrator certifies to the applicable
covered bond regulator that, in the business
judgment of the servicer or administrator, the
borrowing or credit is in the best interests of
the estate and is expected to maximize the
value and the proceeds of the cover pool held
by the estate; or
(ii) on terms affording the lender claims
or liens that have priority over or are pari
passu with the claims or interests of the
applicable indenture trustee or the applicable
covered bondholders or other claims against or
interests in the estate, if--
(I) the servicer or administrator
certifies to the applicable covered
bond regulator that, in the business
judgment of the servicer or
administrator, the borrowing or credit
is in the best interests of the estate
and is expected to maximize the value
and the proceeds of the cover pool held
by the estate; and
(II) the applicable covered bond
regulator authorizes the borrowing or
credit.
(C) Limited liability.--A servicer or administrator
shall not be liable for any error in business judgment
when borrowing funds or otherwise obtaining credit
under this paragraph (2) unless the servicer or
administrator acted in bad faith or in willful
disregard of its duties.
(D) Study on borrowings and credit.--The
Comptroller General of the United States shall conduct
a study on whether the Federal reserve banks should be
authorized to lend funds or otherwise extend credit to
an estate under this paragraph (2) and, if so, what
conditions and limits should be established to mitigate
any risk that the United States Government could absorb
credit losses on the cover pool held by the estate. The
Comptroller General shall submit a report to the
Committee on Banking, Housing, and Urban Affairs of the
Senate and the Committee on Financial Services of the
House of Representatives on the results of the study
not later than 6 months after the date of enactment of
this Act.
(3) Distributions by estate.--All payments or other
distributions by an estate shall be made at the times, in the
amounts, and in the manner set forth in the covered bonds, the
related transaction documents, and any contracts executed by or
on behalf of the estate in compliance with this Act and the
oversight program. To the extent that the relative priority of
the liabilities of the estate are not specified in or otherwise
ascertainable from their terms, distributions shall be made on
each distribution date under the covered bonds, the related
transaction documents, or any contracts executed by or on
behalf of the estate--
(A) first, to pay accrued and unpaid superpriority
claims under paragraph (2)(B)(ii);
(B) second, to pay accrued and unpaid
administrative expense claims under paragraph (1)(I),
paragraph (2)(B)(ii), section 4(b)(5)(A), or section
4(c)(6)(A);
(C) third, to pay--
(i) accrued and unpaid claims under the
covered bonds and the related transaction
documents according to their terms; and
(ii) accrued and unpaid pari passu claims
under paragraph (2)(B)(ii); and
(D) fourth, to pay accrued and unpaid subordinated
claims under paragraph (2)(B)(i).
(4) Distributions on residual interest.--After all other
claims against and interests in an estate have been fully and
irrevocably paid or defeased, the trustee shall or shall cause
a servicer or administrator to distribute the remainder of the
estate to or at the direction of the owner of the residual
interest. No interim distribution on the residual interest may
be made before that time, unless the applicable covered bond
regulator--
(A) approves the distribution after determining
that all other claims against and interests in the
estate will be fully, timely, and irrevocably paid
according to their terms; and
(B) provides an indemnity, for the benefit of the
estate, assuring that all other claims against and
interests in the estate will be fully, timely, and
irrevocably paid according to their terms.
(5) Closing of estate.--After an estate has been fully
administered, the trustee shall close the estate and, except as
otherwise directed by the applicable covered bond regulator,
shall destroy all records of the estate.
(6) No loss to taxpayers.--Taxpayers shall bear no losses
from the resolution of an estate under this Act. To the extent
that the Secretary and the Corporation jointly determine that
the Deposit Insurance Fund incurred actual losses that are
higher because the covered bond program of an insured
depository institution was subject to resolution under this Act
rather than as part of the receivership of the institution
under the Federal Deposit Insurance Act (12 U.S.C. 1811 et
seq.), the Corporation may exercise the powers available under
section 7(b) of the Federal Deposit Insurance Act (12 U.S.C.
1817(b)) to recover an amount equal to those losses after
consulting with the Secretary.
SEC. 5. SECURITIES LAW PROVISIONS.
(a) Existing Exemptions Applicable to Covered Bonds.--
(1) Treatment of certain banks and other entities.--Any
covered bond issued or guaranteed by a bank or by an eligible
issuer described in section 2(9)(D) and sponsored solely by 1
or more banks for the sole purpose of issuing covered bonds is
and shall be treated as a security issued or guaranteed by a
bank under section 3(a)(2) of the Securities Act of 1933 (15
U.S.C. 77c(a)(2)), section 3(c)(3) of the Investment Company
Act of 1940 (15 U.S.C. 80a-3(c)(3)), and section 304(a)(4)(A)
of the Trust Indenture Act of 1939 (15 U.S.C. 77ddd(a)(4)(A)).
No covered bond issued or guaranteed by a bank or by an
eligible issuer described in section 2(9)(D) and sponsored
solely by 1 or more banks for the sole purpose of issuing
covered bonds shall be treated as an asset-backed security (as
defined in section 3 of the Securities and Exchange Act of 1934
(15 U.S.C. 78c)). Each covered bond regulator for 1 or more
banks shall adopt disclosure and reporting regulations for
offers or sales of covered bonds by a bank or an eligible
issuer described in this paragraph. Such regulations shall
provide for uniform and consistent standards for such covered
bond issuers, to the extent possible, and shall be consistent
with existing regulations governing offers or sales of
nonconvertible debt.
(2) Treatment of certain associations and cooperative
banks.--Any covered bond issued by an entity described in
section 3(a)(5)(A) of the Securities Act of 1933 (15 U.S.C.
77c(a)(5)(A)) or by an eligible issuer described in section
2(9)(D) and sponsored solely by 1 or more such entities for the
sole purpose of issuing covered bonds is and shall be treated
as a security issued by such an entity under section 3(a)(5)(A)
of the Securities Act of 1933 (15 U.S.C. 77c(a)(5)(A)), section
3(c)(3) of the Investment Company Act of 1940 (15 U.S.C. 80a-
3(c)(3)), and section 304(a)(4)(A) of the Trust Indenture Act
of 1939 (15 U.S.C. 77ddd(a)(4)(A)). No covered bond issued by
an entity described in section 3(a)(5)(A) of the Securities Act
of 1933 (15 U.S.C. 77c(a)(5)(A)) or by an eligible issuer
described in section 2(9)(D) and sponsored solely by 1 or more
such entities for the sole purpose of issuing covered bonds
shall be treated as an asset-backed security (as defined in
section 3 of the Securities and Exchange Act of 1934 (15 U.S.C.
78c)). Each covered bond regulator for 1 or more entities
described in section 3(a)(5)(A) of the Securities Act of 1933
(15 U.S.C. 77c(a)(5)(A)) shall adopt, as part of the securities
regulations of the covered bond regulator, a separate scheme of
registration, disclosure, and reporting obligations and
exemptions for offers or sales of covered bonds that are
described in this paragraph. Such regulations shall provide for
uniform and consistent standards for such covered bond issuers,
to the extent possible, and shall be consistent with
regulations governing offers or sales of similar securities.
(3) Construction.--No provision of this Act, including
paragraph (1) or (2), may be construed or applied in a manner
that impairs or limits any other exemption that is available
under applicable securities laws.
(b) Exemptions for Estates.--Any estate that is or may be created
under section 4(b)(1) or 4(c)(2) shall be exempt from all securities
laws but--
(1) shall be subject to the reporting requirements
established by the applicable covered bond regulator under
section 4(d)(1)(E)(iii); and
(2) shall succeed to any requirement of the issuer to file
such periodic information, documents, and reports in respect of
the covered bonds as specified in section 13(a) of the
Securities and Exchange Act of 1934 (15 U.S.C. 78m(a)) or rules
established by an appropriate Federal banking agency.
(c) Exemptions for Residual Interests.--Any residual interest in an
estate that is or may be created under section 4(b)(1) or 4(c)(2) shall
be exempt from all securities laws.
SEC. 6. MISCELLANEOUS PROVISIONS.
(a) Domestic Securities.--Section 106(a)(1) of the Secondary
Mortgage Market Enhancement Act of 1984 (15 U.S.C. 77r-1(a)(1)) is
amended--
(1) in subparagraph (C), by striking ``or'' at the end;
(2) in subparagraph (D), by adding ``or'' at the end; and
(3) by inserting after subparagraph (D) the following:
``(E) covered bonds (as defined in section 2 of the United
States Covered Bond Act of 2011),''.
(b) No Tax Implications.--Any estate created under section 4(b)(1)
or 4(c)(2) shall not be treated as an entity subject to taxation
separate from the owner of the residual interest for purposes of the
Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.), including by
reason of the taxable mortgage pool provisions of section 7701(i) of
the Internal Revenue Code of 1986 (26 U.S.C. 7701(i)), but instead
shall be treated as a disregarded entity that is owned by the owner of
the residual interest for such purposes as described in applicable
regulations of the Secretary, as in effect on the date of the enactment
of this Act. No transfer or assumption of any asset or liability to or
by an estate or an eligible issuer under section 4(b) or 4(c) shall
cause or constitute an event in which gain or loss shall be recognized
under section 1001 of the Internal Revenue Code of 1986 (26 U.S.C.
1001).
(c) Real Estate Mortgage Investment Conduits.--Section 860G(a)(3)
of the Internal Revenue Code of 1986 (26 U.S.C. 860G(a)(3)) is
amended--
(1) in subparagraph (B), by striking ``and'' at the end;
(2) in subparagraph (C), by striking the period and
inserting ``, and''; and
(3) by inserting after subparagraph (C) the following:
``(D) covered bonds that are secured by eligible
assets from the residential mortgage asset class or the
commercial mortgage asset class, as such terms are
defined in section 2 of the United States Covered Bond
Act of 2011.''.
(d) Real Estate Investment Trusts.--To the extent provided by
regulations that may be promulgated by the Secretary, a covered bond
described in section 860G(a)(3)(D) of the Internal Revenue Code of 1986
shall be treated as a real estate asset in the same manner as a regular
interest in a REMIC for purposes of section 856(c)(5)(E) of such Code.
(e) Investment Treatment for Tax Purposes.--The acquisition of any
covered bond shall be treated as an acquisition of an investment
security, and not as an acquisition of an interest in a loan or
otherwise as a lending transaction, for purposes of determining the
character of any related trade or business activity of the acquirer or
any asset held by the acquirer under the Internal Revenue Code of 1986
(26 U.S.C. 1 et seq.).
(f) State and Local Taxes.--The Secretary may promulgate
regulations under this Act that are similar to the provisions of
section 346 of title 11, United States Code, including regulations to
provide that--
(1) if an estate created under section 4(b)(1) or 4(c)(2)
is not treated as an entity subject to taxation separate from
the owner of the residual interest for purposes of the Internal
Revenue Code of 1986 (26 U.S.C. 1 et seq.), no separate taxable
entity shall be created with respect to the estate for purposes
of any State or local law imposing a tax on or measured by
income; and
(2) if a transfer or assumption of an asset or liability to
or by an estate or an eligible issuer under section 4(b) or
4(c) does not cause or constitute an event in which gain or
loss is recognized under section 1001 of the Internal Revenue
Code of 1986 (26 U.S.C. 1001), the transfer or assumption shall
not cause or constitute a disposition for purposes of any
provision assigning tax consequences to a disposition in
connection with any State or local law imposing a tax on or
measured by income.
(g) No Conflict.--The provisions of this Act shall apply,
notwithstanding any provision of the Federal Deposit Insurance Act (12
U.S.C. 1811 et seq.), title 11, United States Code, title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C.
5381 et seq.), or any other provision of Federal law with respect to
conservatorship, receivership, liquidation, or bankruptcy. No provision
of the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), title
11, United States Code, title II of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (12 U.S.C. 5381 et seq.), or any other
provision of Federal law with respect to conservatorship, receivership,
liquidation, or bankruptcy may be construed or applied in a manner that
defeats or interferes with the purpose or operation of this Act.
(h) Annual Report to Congress.--The covered bond regulators shall,
annually--
(1) submit a joint report to the Congress describing the
current state of the covered bond market in the United States;
and
(2) testify on the current state of the covered bond market
in the United States before the Committee on Financial Services
of the House of Representatives and the Committee on Banking,
Housing, and Urban Affairs of the Senate.
Union Calendar No. 542
112th CONGRESS
2nd Session
H. R. 940
[Report No. 112-407, Part I]
_______________________________________________________________________
A BILL
To establish standards for covered bond programs and a covered bond
regulatory oversight program, and for other purposes.
_______________________________________________________________________
December 31, 2012
The Committee on Ways and Means discharged; committed to the Committee
of the Whole House on the State of the Union and ordered to be printed