Any U.S. top-tier bank holding company identified as a global systemically important banking organization (GSIB), and some of its subsidiaries, as well as U.S. operations of some foreign GSIBs, would be subject to restrictions on the terms of their non-cleared qualified financial contracts (QFCs), under a final rule to be published by the Federal Reserve Tuesday.
The final rule takes effect in 60 days.
According to the notice in the Federal Register, the restrictions apply to subsidiaries of U.S. bank holding companies (BHCs) that are other than national banks, federal savings associations, state nonmember banks, and state savings associations); the same is true for U.S. operations of foreign banking organization that are other than national banks, federal savings associations,
state nonmember banks, and state savings associations.
The Fed’s notice stated that the final rule takes effect in two ways. First, a covered entity generally is required to ensure that QFCs to which it is party provide that any default rights and restrictions on the transfer of the QFCs are limited to the same extent as they would be under the Dodd-Frank Act and the Federal Deposit Insurance Act (FDIA)
Second, a covered entity generally is prohibited from being party to QFCs that would allow a QFC counterparty to exercise default rights against the covered entity, directly or indirectly, based on the entry into a resolution proceeding under the Dodd-Frank Act or FDIA, “or any other resolution proceeding, of an affiliate of the covered entity.”
The Fed also stated that the final rule amends certain definitions in its capital and liquidity rules. “These amendments are intended to ensure that the regulatory capital and liquidity treatment of QFCs to which a covered entity is party is not affected by the final rule’s restrictions on such QFCs.”
The notice stated that both the OCC and the FDIC are expected to issue final rules that will be “substantively identical” to those outlined in the Fed’s final rule.
Restrictions on Qualified Financial Contracts of Systemically Important U.S. Banking Organizations