FDIC Adopts Final Rule on Qualified Financial Contracts
September 27, 2017
Julianne Fisher Breitbeil
The Federal Deposit Insurance Corporation (FDIC) today adopted a final rule to enhance the resilience and safety and soundness of state savings associations and banks supervised by the FDIC that are affiliated with systemically important U.S. and foreign banking organizations ("covered FDIC-supervised institutions").
Under the final rule, covered FDIC-supervised institutions are required to ensure that their qualified financial contracts (QFCs) do not allow for immediate cancellation or termination under certain circumstances. QFCs include derivatives, securities lending, and short-term funding transactions, such as repurchase agreements. These transactions can pose a threat to financial stability in times of market stress. The final rule requires that QFCs of covered FDIC-supervised institutions, including those with foreign counterparties, clarify that they are subject to temporary stays under U.S. resolution regimes. In addition, QFCs of covered FDIC-supervised institutions are prohibited from allowing the exercise of default rights against, or imposing transfer restrictions on, the covered FDIC-supervised institution based on the entry of an affiliate of the covered FDIC-supervised institution into bankruptcy.
The final rule also amends the definitions of "qualifying master netting agreement" and related terms in the FDIC's capital and liquidity rules to account for the final rule.
The FDIC issued a proposed rule on this issue last year. The final rule reflects changes made to the proposal in response to comments received by the FDIC. Requirements of this final rule are substantively identical to those contained in the final rule recently adopted by the Federal Reserve Board.
Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation's banking system. The FDIC insures deposits at the nation's banks and savings associations, 5,787 as of June 30, 2017. It promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars—insured financial institutions fund its operations.
FDIC press releases and other information are available on the Internet at www.fdic.gov, by subscription electronically (go to www.fdic.gov/about/subscriptions/index.html) and may also be obtained through the FDIC's Public Information Center (877-275-3342 or 703-562-2200). PR-72-2017