As part of its efforts to monitor and maintain financial stability, the Federal Reserve is proposing to include new categories of entities under “financial institution” status under the FDIC Improvement Act’s netting provisions, first promulgated in Regulation EE in 1994. FDICIA was intended to provide certainty that netting contracts among financial institutions will be enforced, even in the event of insolvency. Beyond the statutory definition, which covered depository institutions, securities brokers or dealers and futures commission merchants, Reg EE provided both qualitative and quantitative tests for coverage.
Since 1994, however, financial markets and the regulatory architecture have evolved dramatically. As a result, the Fed is proposing to include the following in Reg EE’s financial institution category: foreign banks without U.S. branches or agencies (those with U.S. branches or agencies were already included); swap dealers and security-based swap dealers; major swap participants and major security-based swap participants; nonbanks designated as systemically important by the Financial Stability Oversight Council; derivative clearing organizations and agencies; designated financial market utilities; bridge institutions; and the regional Federal Reserve Banks.
The Fed also proposed to clarify the existing activities-based test under Reg EE. Comments are due by June 30. For more information, contact ABA’s Hu Benton or Ananda Radhakrishnan.
