May 26, 2020

May 26, 2020

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FDIC Proposes Amendments to Prudential Regulator Swap Margin Rules

On September 17, the directors of the Federal Deposit Insurance Corporation (FDIC) approved a joint notice of proposed rulemaking (NPR) with respect to the prudential regulator margin rules for non-cleared swaps. The joint form of the NPR indicates that the other prudential swap regulators (the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Farm Credit Administration and the Federal Housing Finance Agency) will all be approving the same NPR in the near future.

The proposed rulemaking will make the following amendments to the prudential regulator swap margin rules:

  1. Add the additional phase-in year for initial margin (IM) that was recommended in July by The Basel Committee on Banking Supervision and the International Organization of Securities Commissions, so the initial margin phase-in threshold for 2020 will be $50 billion.

  2. Repeal the requirement that a swap dealer must collect initial margin from its affiliates.

  3. Permit swap dealers to postpone documentation with a financial counterparty until such time as initial margin or variation margin is actually required to be collected or posted.

  4. Allow parties to amend swaps executed before the compliance date of the margin rules without having the amended swap become subject to the margin rules if the reason for the amendment relates to (a) benchmark replacement; (b) portfolio compression; or (c) the reduction of the notional amount due to a novation.

A 30-day comment period will be open following publication in the Federal Register.

This approval strongly suggests that the CFTC and the SEC will be making similar changes to their respective swap margin rules.

The text of the NPR is available here. An FDIC Fact Sheet concerning the NPR is available here.

FDIC Director Gruenberg dissented from the approval, which is available here.

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About this Author

Guy Dempsey Jr., Bank Regulations Legal Specialist, Katten Muchin

Guy C. Dempsey Jr. concentrates his practice on derivatives and structured products and on bank regulation. He advises clients on derivatives transactions of all types across all asset classes, as well as on the corporate governance, regulatory, collateral, compliance, insolvency and litigation issues associated with such products.

Much of Guy’s work involves helping bank and non-bank clients analyze the details and impact of the Dodd-Frank Act. He maintains deep knowledge of the banking laws and regulations relating to capital markets activities....