[Federal Register Volume 78, Number 5 (Tuesday, January 8, 2013)]
[Notices]
[Pages 1306-1307]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00093]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
[Docket ID OCC-2013-0001]
Transition Period Under Section 716 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act
AGENCY: Office of the Comptroller of the Currency, Department of the
Treasury.
ACTION: Notice of guidance.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
notifying insured Federal depository institutions \1\ that are or may
become swap dealers that the OCC is prepared to consider favorably
requests for a transition period pursuant to section 716(f) of the
Dodd-Frank Act, provided that such requests conform to the procedures
and conditions established in this notice.
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\1\ Insured Federal depository institution means an entity that
is a Federal depository institution and an insured depository
institution under the Federal Deposit Insurance Act. See 12 U.S.C.
1813(c)(2) and (4). National banks, Federal savings associations and
insured Federal Branches are insured Federal depository
institutions.
DATES: This guidance is effective immediately. Written requests for
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transition periods should be submitted to the OCC by January 31, 2013.
FOR FURTHER INFORMATION CONTACT: Roman Goldstein, Senior Attorney, Ted
Dowd, Assistant Director, or Ellen Broadman, Director, Securities and
Corporate Practices Division, (202) 649-5510, 400 7th St. SW.,
Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
A. Background
Section 716 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) prohibits providing Federal assistance
to swaps entities, a term that includes Federal depository institutions
\2\ that are swap dealers.\3\ The prohibition does not apply to insured
depository institutions that limit their swap activities to those
activities specified in section 716(d) (conforming swap activities).
The OCC, Board of Governors of the Federal Reserve System (Board), and
Federal Deposit Insurance Corporation (FDIC) jointly issued guidance
that section 716's effective date is July 16, 2013.\4\
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\2\ 12 U.S.C. 1813(c)(4).
\3\ Except as otherwise specified, this notice refers to both
swaps and security-based swaps as swaps, and both swap dealers and
security-based swap dealers as swap dealers.
\4\ Guidance on the Effective Date of Section 716, 77 FR 27465
(May 10, 2012).
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Section 716(f) provides that the appropriate Federal banking agency
shall permit a transition period, as appropriate, for insured
depository institution swap entities to divest or cease nonconforming
swap activities.\5\ The prohibition on Federal assistance does not
apply during this transition period. The transition period, which
begins on the effective date, initially may be up to 24 months, as
determined by the insured depository institution's appropriate Federal
banking agency \6\ in consultation with the Commodity Futures Trading
Commission (CFTC) and the Securities and Exchange Commission (SEC). The
appropriate Federal banking agency, after consulting with the CFTC and
SEC, may extend the transition period for up to one additional year.
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\5\ See Dodd-Frank Act section 716(f), 15 U.S.C. 8305(f).
\6\ The OCC is the appropriate Federal banking agency of Federal
depository institutions. 12 U.S.C. 1813(q)(1).
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In establishing the length of a transition period for an insured
depository institution, the appropriate Federal banking agency must
take into account and make written findings regarding the potential
impact of the divestiture or cessation of nonconforming swap activities
on the institution's (1) mortgage lending, (2) small business lending,
(3) job creation, and (4) capital formation versus the potential
negative impact on insured depositors and the FDIC's Deposit Insurance
Fund (DIF). The appropriate Federal banking agency may consider such
other factors as it deems appropriate.
[[Page 1307]]
B. Transition Period
For the following reasons, the OCC has concluded that transition
periods should be provided to insured Federal depository institutions
to provide sufficient opportunity for institutions to conform their
swaps activities in an orderly manner. First, section 716 assumes a
regulatory framework that is not yet complete. Further development of
the Title VII regulatory framework is necessary for insured Federal
depository institutions to make well-informed determinations concerning
business restructurings that may be necessary for section 716
conformance.\7\ Second, the provision of transition periods while the
Title VII regulatory framework continues to develop will provide
regulatory certainty for insured Federal depository institutions in the
near term and will mitigate potential disruptions to client
services.\8\ Third, transition periods will mitigate operational and
credit risks for insured Federal depository institutions.\9\
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\7\ Furthermore, mandatory clearing rules are not in place for
many standardized credit default swaps (CDS) and the market has not
moved to cleared CDS for a variety of products. Section 716(d)(3)
provides that an insured depository institution may act as a swaps
entity for CDS if they are cleared.
\8\ The Commodity Futures Trading Commission recently exempted
certain swap dealers from certain requirements imposed by title VII
of the Dodd-Frank Act in order to ensure an orderly transition to
the new regulatory regime and to provide greater legal certainty to
market participants. Final Exemptive Order Regarding Compliance with
Certain Swap Regulation, at 58 (Dec. 21, 2012), available at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/federalregister122112.pdf.
\9\ Transition periods will provide appropriate time for
institutions to negotiate and document new master swap agreements
individually with each of their clients, customers, and
counterparties as necessary for section 716 conformance.
Additionally, a transition period will provide more time for the
transfer of non-conforming swaps activities to affiliates, including
in some cases the establishment of new affiliates entailing
requisite regulatory approvals from the SEC, CFTC, and state
authorities, and in all cases the transfer of back-office functions
and the making of necessary arrangements for the custody of customer
margin collateral.
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Section 716 anticipates that transition periods will be provided to
avoid unwanted adverse consequences from premature implementation of
section 716. For the reasons discussed above, the OCC believes that
implementation of section 716 without transition periods would cause
unwanted adverse consequences and that transition periods therefore are
appropriate. Accordingly, an insured Federal depository institution
that is or will be a swaps entity and that seeks a transition period
for its nonconforming swaps activities should formally request a
transition period from the OCC.\10\ The OCC is prepared to consider
such requests favorably, provided that the requests conform to the
guidance provided below.
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\10\ An insured depository institution whose swap activities are
presently limited to conforming swap activities is not eligible for
a transition period because it would not be subject to the
prohibition on Federal assistance. See Dodd-Frank Act section
716(f), 15 U.S.C. 8305(f).
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Each request must be written and specify the transition period
appropriate to the institution, up to a two-year transition period
commencing from July 16, 2013. The request must also discuss:
1. The institution's plan for conforming its swap activities;
2. How the requested transition period would mitigate adverse
effects on mortgage lending, small business lending, job creation, and
capital formation;
3. The extent to which the requested transition period could have a
negative impact on the institution's insured depositors and the DIF;
4. Operational risks and other safety and soundness concerns that a
transition period would mitigate.
5. Other facts that the institution believes the OCC should
consider.
An insured Federal depository institution that is unsure if or when it
will be or become a swaps entity may request a transition period. The
request must contain the elements described above and additionally
explain why the institution believes it might be or become a swaps
entity under the CFTC's definition of swap dealer or the SEC's
definition of security-based swap dealer.\11\ The OCC may require a
requesting insured Federal depository institution to provide additional
information before establishing a transition period. The OCC may impose
such conditions on a transition period as it deems necessary and
appropriate.\12\
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\11\ See Further Definition of Swap Dealer, 77 FR 30595 (May 23,
2012).
\12\ See Dodd-Frank Act section 716(f), 15 U.S.C. 8305(f).(
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Authority: 15 U.S.C. 8305.
Dated: December 31, 2012.
Thomas J. Curry,
Comptroller of the Currency.
[FR Doc. 2013-00093 Filed 1-7-13; 8:45 am]
BILLING CODE P