OCC Proposes Limits on Qualified Financial Contracts

The OCC today proposed a rule that would establish restrictions on qualified financial contracts — such as derivative transactions, repurchase agreements, reverse repurchase agreements, and securities lending and borrowing agreements — of national banks and federal thrifts that are subsidiaries of U.S. and foreign-based global systemically important banks. The objective of the proposal is to facilitate the orderly resolution of a failed institution by limiting the ability of the firm’s QFC counterparties to terminate contracts immediately upon the entry of the covered entity or one of its affiliates into resolution.

The rule is “substantively identical” to the QFC rule proposed earlier this year by the Federal Reserve that would require G-SIBs’ QFCs to contain contractual provisions that recognize the automatic stay of termination provisions and transfer provisions applied in resolutions under the Dodd-Frank Act and the Federal Deposit Insurance Act. Comments are due by Oct. 18. For more information, contact ABA’s Hu Benton or Jason Shafer.