Although the FDI Act and the Bankruptcy Code embody similar approaches to the insolvency treatment of derivatives, there are three major differences. First, while virtually any counterparty can contractually terminate and net its positions under the banking laws, the Bankruptcy Code limits those rights to specific counterparties for some contracts.

Second, the FDI Act and the Bankruptcy Code have slightly different definitions for the contracts that can be terminated and netted. Both statutes define five types of contracts that receive special treatment: repurchase agreements, securities contracts, commodity contracts, forward contracts, and swap agreements. But under the Bankruptcy Code, for example, it is unclear whether a repurchase agreement or securities contract including mortgage loans, interests in mortgage loans, and mortgage-related securities could be terminated and netted.

Third, while the FDI Act allows a receiver for a failed bank or thrift to transfer or terminate these five types of contracts–known legally as qualified financial contracts (QFCs)–in order to improve the financial condition of the receivership estate, the Bankruptcy Code does not provide similar rights to a bankruptcy trustee. These rights give bank receivers greater flexibility and also reduce systemic risks by providing a mechanism to maintain ongoing hedge transactions or other derivatives that continue to benefit the solvent counterparties.