Final FDIC rule on QFCs set for publication Monday; effective Jan. 1

A final rule on qualified financial contracts (QFCs) by the Federal Deposit Insurance Corp. (FDIC) covering state banks and savings associations for which the agency is the primary federal regulator is set to be published Monday (Oct. 30).

The 151-page final rule, adopted by the FDIC Board late last month, becomes effective on Jan. 1 — except for amendatory instruction no. 6 in the regulation, which is delayed until the OCC adopts its related final rule. The FDIC said that once the OCC rule is published, the FDIC will publish a document announcing the effective date of the amendatory instruction.

According to summary of the regulation published by the FDIC, the final rule requires that institutions covered under the regulation (state savings associations and state-chartered banks that are not members of the Federal Reserve System for which the FDIC is the primary federal regulator, collectively “FSIs,” short for “FDIC-supervised institutions”), and their subsidiaries, must ensure that covered QFCs to which they are a party provide that any default rights and restrictions on the transfer of the contracts are limited to the same extent as they would be under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and the Federal Deposit Insurance Act (FDI Act).

In addition, according to the rule summary, covered FSIs are generally prohibited from being party to QFCs that would allow a contract counterparty to exercise default rights against the covered FSI based on the entry into a resolution proceeding under the FDI Act, or any other resolution proceeding of an affiliate of the covered FSI.

The final rule also amends the definition of “qualifying master netting agreement” in the FDIC’s capital and liquidity rules, and certain related terms in the FDIC’s capital rules, the summary states.

“These amendments are intended to ensure that the regulatory capital and liquidity treatment of QFCs to which a covered FSI is party would not be affected by the restrictions on such QFCs,” the summary states.

Restrictions on Qualified Financial Contracts of Certain FDIC-Supervised Institutions; Revisions to the Definition of Qualifying Master Netting Agreement and Related Definitions