On January 21, 2015, the Federal Deposit Insurance Corporation (FDIC) released for comment a notice of proposed rulemaking (NPR) that would amend the definition of "qualifying master netting agreement" under:

The FDIC also proposed amendments to the definitions of "collateral agreement," "eligible margin loan," and "repo-style transaction" under US bank regulatory capital rules.

These amendments are aimed to ensure that the regulatory capital and liquidity treatment of certain financial contracts generally would not be affected by implementation of special resolution regimes in foreign jurisdictions if such regimes are substantially similar to those in Title II of the Dodd-Frank Act, or by the ISDA Resolution Stay Protocol, which provides for contractual submission to such regimes (see ISDA: Major Banks Agree to Stay on Swap Agreement Termination Rights in Event of Failure).

In December 2014, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board adopted a joint interim final rule that is related to this proposed rule (see Legal Update, US Bank Regulators Accommodate Stay on Early Termination of Derivatives Contracts).

Under the current definition of "qualifying master netting agreement" found in these rules, default rights under an MNA may be stayed if the financial company is in receivership, conservatorship or resolution under Title II of the Dodd-Frank Act or under the Federal Deposit Insurance Act (FDI Act). However, the definition was established when no other jurisdiction had adopted a special resolution regime relevant to the definition, and therefore "qualifying master netting agreement" does not recognize that default rights may be stayed where a master netting agreement (MNA) is subject to limited stays under foreign special resolution regimes or where counterparties agree through contract that a special resolution regime would apply.

The EU has recently finalized its Bank Recovery and Resolution Directive (BRRD), which prescribes aspects of a special resolution regime for EU member nations. Additionally, several US banking organizations opting to adhere to ISDA's Resolution Stay Protocol (RSP), which amends the terms of ISDA Master Agreements between counterparties that adhere to the RSP, imposing a brief stay on certain default rights and other remedies provided under the agreement. Under current US regulatory capital and liquidity rules, if an MNA's default rights are stayed under the BRRD or the ISDA RSP, that MNA would no longer qualify as a qualifying master netting agreement.

Therefore, the FDIC proposes to permit an otherwise non-qualifying master netting agreement to qualify if either:

The amendments to the definition would maintain existing treatment for these contracts while recognizing the recent changes contemplated by the BRRD and the ISDA RSP.

The FDIC is also proposing to revise the definitions of:

under US regulatory capital rules to ensure that a counterparty's default rights can be stayed under a foreign special resolution regime or under a special resolution regime incorporated by contract.

Comments on this NPR must be received 60 days after publication in the Federal Register.