Fed Grants Non-U.S. Banks Parity Under Swap Push-Out Rule

On June 5, 2013, the Board of Governors of the Federal Reserve System released an interim final rule (the “Interim Final Rule”) that treats the U.S. branches of non-U.S. banks in the same manner as insured U.S. banks for purposes of Section 716 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as the Lincoln Amendment or the “swaps push-out rule.”  The Interim Final Rule addresses a long-standing concern of foreign banks that the Lincoln Amendment puts their U.S. branches at a significant disadvantage when compared to U.S. banks.  Under the Interim Final Rule, U.S. branches of non-U.S. banks are eligible for, among other things, the exception to the swaps push-out rule for swaps referencing interest rates and other “bank-permissible” assets and will be able to seek an extension of the Lincoln Amendment’s effective date, in each case to the same extent as insured U.S. banks.  Without the relief provided by the Interim Final Rule, non-U.S. banks that engage in significant derivatives dealing or hold significant derivatives positions in their U.S. branch would have had to transfer that activity to a separate entity by July 16, 2013 while U.S. banking organizations would be able to maintain a significant portion of their derivatives business in their insured banks.

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