FDIC Proposes Rule to Amend Initial Margin Requirements for Inter-Affiliate Swaps

The FDIC today proposed to remove the requirement for covered swap entities to collect initial margin from affiliates, a change long called for by the American Bankers Association. “This sensible change will ensure that U.S. rules are consistent with international standards, which recognize that inter-affiliate swaps are used by banks to centralize risk management, further improving safety and soundness,” said ABA President and CEO Rob Nichols.

In addition to reducing regulatory burden, the proposed rule is also designed to assist with an orderly transition away from the London Interbank Offered Rate, which is used frequently in derivatives contracts. Under the proposal, legacy swaps (to which margin rules do not apply) continue to be treated as such even though they may be amended by replacing existing interest rate provisions based on certain interbank offered rates, including Libor, that are reasonably expected to be discontinued or to have lost their relevance as reliable benchmarks. Comments on the proposal will be due 30 days after publication in the Federal Register.