Regulatory Capital Rules, Liquidity Coverage Ratio: Interim Final Revisions to the Definition of Qualifying Master Netting Agreement and Related Definitions, 78287-78296 [2014-30218]

Agencies

• FEDERAL RESERVE SYSTEM
• Office of the Comptroller of the Currency
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 79, Number 249 (Tuesday, December 30, 2014)]
[Rules and Regulations]
[Pages 78287-78296]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30218]



========================================================================
Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
Prices of new books are listed in the first FEDERAL REGISTER issue of each 
week.

========================================================================


Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / 
Rules and Regulations

[[Page 78287]]



DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 3 and 50

[Docket ID OCC-2014-0028]
RIN 1557-AD91

FEDERAL RESERVE SYSTEM

12 CFR Parts 217 and 249

[Regulations Q and WW; Docket No. R-1507]
RIN 7100 AE-28


Regulatory Capital Rules, Liquidity Coverage Ratio: Interim Final 
Revisions to the Definition of Qualifying Master Netting Agreement and 
Related Definitions

AGENCY: Office of the Comptroller of the Currency (OCC) and Board of 
Governors of the Federal Reserve System (Board).

ACTION: Interim final rule with request for comment.

-----------------------------------------------------------------------

SUMMARY: The OCC and Board (collectively, the agencies) invite comment 
on an interim final rule that amends the definition of ``qualifying 
master netting agreement'' under the regulatory capital rules, and the 
liquidity coverage ratio rule, as well as under the lending limits rule 
applicable to national banks and Federal savings associations. The 
agencies also are proposing to amend the definitions of ``collateral 
agreement,'' ``eligible margin loan,'' and ``repo-style transaction'' 
under the regulatory capital rules. The amendments are designed to 
ensure that the regulatory capital, liquidity, and lending limits 
treatment of certain financial contracts is not affected by 
implementation of special resolution regimes in foreign jurisdictions 
or by the International Swaps and Derivative Association Resolution 
Stay Protocol.

DATES: This rule is effective on January 1, 2015. Comments must be 
received on or before March 3, 2015.

ADDRESSES: Interested parties are encouraged to submit written comments 
jointly to each of the agencies. Commenters are encouraged to use the 
title ``Regulatory Capital Rules, Liquidity Coverage Ratio: Interim 
Final Revisions to the Definition of Qualifying Master Netting 
Agreement and Related Definitions'' to facilitate the organization and 
distribution of comments among the Agencies.
    OCC: Because paper mail in the Washington, DC area and at the OCC 
is subject to delay, commenters are encouraged to submit comments by 
the Federal eRulemaking Portal or email, if possible. Please use the 
title ``Regulatory Capital Rules, Liquidity Coverage Ratio: Interim 
Final Revisions to the Definition of Qualifying Master Netting 
Agreement and Related Definitions'' to facilitate the organization and 
distribution of the comments. You may submit comments by any of the 
following methods:
     Federal eRulemaking Portal--``Regulations.gov'': Go to 
http://www.regulations.gov. Enter ``Docket ID OCC-2014-0028'' in the 
Search Box and click ``Search.'' Results can be filtered using the 
filtering tools on the left side of the screen. Click on ``Comment 
Now'' to submit public comments.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
submitting or viewing public comments, viewing other supporting and 
related materials, and viewing the docket after the close of the 
comment period.
     Email: regs.comments@occ.treas.gov.
     Mail: Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency, 400 7th Street SW., Suite 
3E-218, Mail Stop 9W-11, Washington, DC 20219.
     Fax: (571) 465-4326.
     Hand Delivery/Courier: 400 7th Street SW., Suite 3E-218, 
Mail Stop 9W-11, Washington, DC 20219.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2014-0028'' in your comment. In general, OCC will enter 
all comments received into the docket and publish them on the 
Regulations.gov Web site without change, including any business or 
personal information that you provide such as name and address 
information, email addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not enclose any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this proposed rulemaking by any of the following methods:
     Viewing Comments Electronically: Go to http://www.regulations.gov. Enter ``Docket ID OCC-2014-0028'' in the Search 
box and click ``Search.'' Comments can be filtered by agency using the 
filtering tools on the left side of the screen.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
viewing public comments, viewing other supporting and related 
materials, and viewing the docket after the close of the comment 
period.
     Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC, 400 7th Street SW., Washington, DC 
20219. For security reasons, the OCC requires that visitors make an 
appointment to inspect comments. You may do so by calling (202) 649-
6700. Upon arrival, visitors will be required to present valid 
government-issued photo identification and submit to security screening 
in order to inspect and photocopy comments.
     Docket: You may also view or request available background 
documents and project summaries using the methods described above.
    Board: When submitting comments, please consider submitting your 
comments by email or fax because paper mail in the Washington, DC area 
and at the Board may be subject to delay. You may submit comments, 
identified by Docket No. R-1507 and RIN 7100 AE 28, by any of the 
following methods:
     Agency Web site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/apps/foia/proposedregs.aspx .
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.

[[Page 78288]]

     Email: regs.comments@federalreserve.gov. Include the 
docket number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Robert deV. Frierson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue NW., 
Washington, DC 20551.
    All public comments will be made available on the Board's Web site 
at http://www.federalreserve.gov/apps/foia/proposedregs.aspx as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper form in Room MP-500 of the Board's Martin Building (20th and C 
Streets NW., Washington, DC 20551) between 9:00 a.m. and 5:00 p.m. on 
weekdays.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Margot Schwadron, Senior Risk Expert, (202) 649-6982; or 
Nicole Billick, Risk Expert, (202) 649-7932, Capital Policy; or Valerie 
Song, Senior Attorney, (202) 649-5500, Bank Activities and Structure, 
or Carl Kaminski, Counsel, or Ron Shimabukuro, Senior Counsel, 
Legislative and Regulatory Activities Division, (202) 649-5490, for 
persons who are deaf or hard of hearing, TTY, (202) 649-5597, Office of 
the Comptroller of the Currency, 400 7th Street SW., Washington, DC 
20219.
    Board: Constance M. Horsley, Assistant Director, (202) 452-5239, 
Thomas Boemio, Manager (202) 452-2982, or Kevin R. Tran, Supervisory 
Financial Analyst, (202) 452-2309, Capital and Regulatory Policy, 
Division of Banking Supervision and Regulation; or Laurie Schaffer, 
Associate General Counsel, (202) 452-2277, Christine Graham, Counsel, 
(202) 452-3005, Will Giles, Counsel, (202) 452-3351, or Trevor 
Feigleson, Attorney, (202) 475-3274, Legal Division, Board of Governors 
of the Federal Reserve System, 20th and C Streets NW., Washington DC 
20551. For the hearing impaired only, Telecommunication Device for the 
Deaf (TDD), (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

I. Summary

    The agencies' regulatory capital rules permit a banking 
organization to measure exposure from certain types of financial 
contracts on a net basis and recognize the risk-mitigating effect of 
financial collateral for other types of exposures, provided that the 
contracts are subject to a ``qualifying master netting agreement'' or 
agreement that provides for certain rights upon a counterparty 
default.\1\ The agencies, by rule, have defined a qualifying master 
netting agreement as a netting agreement that permits a banking 
organization to terminate, apply close-out netting, and promptly 
liquidate or set-off collateral upon an event of default of the 
counterparty (default rights), thereby reducing its counterparty 
exposure and market risks.\2\ On the whole, measuring the amount of 
exposure of these contracts on a net basis, rather than a gross basis, 
results in a lower measure of exposure, and thus, a lower capital 
requirement under the regulatory capital rules.
---------------------------------------------------------------------------

    \1\ See 12 CFR part 3 (OCC) and 12 CFR part 217 (Board). All 
references to sections in the regulatory capital rules should be 
read to mean references to the corresponding sections to the 
applicable CFR part of each agency's rules. The term ``banking 
organization'' includes national banks, state member banks, savings 
associations, and top-tier bank holding companies domiciled in the 
United States not subject to the Board's Small Bank Holding Company 
Policy Statement (12 CFR part 225, appendix C), as well as top-tier 
savings and loan holding companies domiciled in the United States, 
except for certain savings and loan holding companies that are 
substantially engaged in insurance underwriting or commercial 
activities.
    \2\ See section 2 of the regulatory capital rules.
---------------------------------------------------------------------------

    The current definition of ``qualifying master netting agreement'' 
recognizes that default rights may be stayed if the financial company 
is in receivership, conservatorship, or resolution under Title II of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act),\3\ or the Federal Deposit Insurance Act (FDI Act).\4\ 
Accordingly, transactions conducted under netting agreements where 
default rights may be stayed under Title II of the Dodd-Frank Act or 
the FDI Act may qualify for the favorable capital treatment described 
above. However, the current definition of ``qualifying master netting 
agreement'' does not recognize that default rights may be stayed where 
a master netting agreement is subject to limited stays under foreign 
special resolution regimes or where counterparties agree through 
contract that a special resolution regime would apply. When the 
agencies adopted the current definition of ``qualifying master netting 
agreement,'' no other country had adopted a special resolution regime 
relevant to the definition, and no banking organizations had 
communicated to the agencies an intent to enter into contractual 
amendments to clarify that bilateral over-the-counter (OTC) derivatives 
transactions are subject to certain provisions of certain U.S. and 
foreign special resolution regimes.
---------------------------------------------------------------------------

    \3\ See 12 U.S.C. 5390(c)(8)-(16).
    \4\ See 12 U.S.C. 1821(e)(8)-(13). The definition would also 
recognize that default rights may be stayed under any similar 
insolvency law applicable to government sponsored enterprises 
(GSEs). Generally under the agencies' regulatory capital rules, GSE 
means an entity established or chartered by the U.S. government to 
serve public purposes specified by the U.S. Congress but whose debt 
obligations are not explicitly guaranteed by the full faith and 
credit of the U.S. government. See regulatory capital rules section 
2.
---------------------------------------------------------------------------

    In recent months, the European Union (EU) finalized the Bank 
Recovery and Resolution Directive (BRRD), which prescribes aspects of a 
special resolution regime that EU member nations should implement. In 
addition, several U.S. banking organizations have opted to adhere to 
the International Swaps and Derivatives Association's (ISDA) Resolution 
Stay Protocol (ISDA Protocol),\5\ which provides for amendments to the 
terms of ISDA Master Agreements \6\ between counterparties that adhere 
to the ISDA Protocol to stay certain default rights and other remedies 
provided under the agreements. The expected implementation of the BRRD 
by EU member nations and the effective date of certain provisions of 
the ISDA Protocol may be as early as January 1, 2015. This expected 
implementation would mirror steps taken in the United States to 
implement a special resolution regime under Title II of the Dodd-Frank 
Act.
---------------------------------------------------------------------------

    \5\ See ISDA Protocol at http://assets.isda.org/media/f253b540-25/958e4aed.pdf/.
    \6\ The ISDA Master Agreement is a form of agreement that 
governs OTC derivatives transactions and is used by a significant 
portion of the parties to bilateral OTC derivatives transactions, 
including large, internationally active banking organizations. 
Furthermore, the ISDA Master Agreement generally creates a single 
legal obligation that provides for the netting of all individual 
transactions covered by the agreement.
---------------------------------------------------------------------------

    A master netting agreement under which default rights may be stayed 
under the BRRD or that incorporates the amendments of the ISDA Protocol 
would no longer qualify as a qualifying master netting agreement under 
the regulatory capital, liquidity, and lending limits rules. This would 
result in considerably higher capital and liquidity requirements that 
could discourage both the implementation of the BRRD and the ISDA 
Protocol and the realization of the benefits of these efforts in 
improving financial stability. In addition, affected national banks and 
Federal savings associations would be required to measure their lending 
limits on a gross basis, which would increase the measure of exposure 
in a manner not contemplated or intended under the current lending 
limits rules. This result flows from the use of ``qualifying master

[[Page 78289]]

netting agreement'' as a cross-reference in the lending limits rules.
    Accordingly, effective January 1, 2015, the interim final rule 
would permit an otherwise qualifying master netting agreement to 
qualify if (i) default rights under the agreement may be stayed under a 
qualifying foreign special resolution regime or (ii) the agreement 
incorporates a qualifying special resolution regime by contract. 
Through these revisions, the interim final rule maintains the existing 
treatment for these contracts for purposes of the regulatory capital, 
liquidity, and for national banks and Federal savings associations, 
lending limits rules, while recognizing the recent changes contemplated 
by the BRRD and the ISDA Protocol.
    The interim final rule also revises certain other definitions of 
the regulatory capital rules to make various conforming changes 
designed to ensure that a banking organization may continue to 
recognize the risk mitigating effects of financial collateral \7\ 
received in a secured lending transaction, repo-style transaction, or 
eligible margin loan for purposes of the regulatory capital, liquidity, 
and lending limits rules, while recognizing the recent changes 
contemplated by the BRRD and banking organizations that have adhered to 
the ISDA Protocol. Specifically, the interim final rule would revise 
the definition of ``collateral agreement,'' ``eligible margin loan,'' 
\8\ and ``repo-style transaction'' \9\ to provide that a counterparty's 
default rights may be stayed under a foreign special resolution regime 
or, if applicable, under a special resolution regime incorporated by 
contract.\10\ The agencies request comment on all aspects of these 
definitions.
---------------------------------------------------------------------------

    \7\ Generally, under the agencies' regulatory capital rules, 
financial collateral means collateral in the form of: (i) Cash on 
deposit with the banking organization (including cash held for the 
banking organization by a third-party custodian or trustee); (ii) 
gold bullion; (iii) long-term debt securities that are not 
resecuritization exposures and that are investment grade; (iv) 
short-term debt instruments that are not resecuritization exposures 
and that are investment grade; (v) equity securities that are 
publicly traded; (vi) convertible bonds that are publicly traded; or 
(vii) money market fund shares and other mutual fund shares if a 
price for the shares is publicly quoted daily. In addition, the 
regulatory capital rules also require that the banking organization 
have a perfected, first-priority security interest or, outside of 
the United States, the legal equivalent thereof (with the exception 
of cash on deposit and notwithstanding the prior security interest 
of any custodial agent). See regulatory capital rule, section 2.
    \8\ Generally under the agencies' regulatory capital rules, 
eligible margin loan means an extension of credit where: (i) The 
extension of credit is collateralized exclusively by liquid and 
readily marketable debt or equity securities, or gold; (ii) the 
collateral is marked-to-fair value daily, and the transaction is 
subject to daily margin maintenance requirements; and (iii) the 
extension of credit is conducted under an agreement that provides 
the banking organization with default rights, provided that any 
exercise of rights under the agreement will not be stayed or avoided 
under applicable law in the relevant jurisdictions, other than in 
receivership, conservatorship, resolution under the FDI Act, Title 
II of the Dodd-Frank Act, or under any similar insolvency law 
applicable to GSEs. See regulatory capital rule, section 2. In 
addition, in order to recognize an exposure as an eligible margin 
loan a banking organization must comply with the requirements of 
section 3(b) of the regulatory capital rules with respect to that 
exposure.
    \9\ Generally, under the agencies' regulatory capital rules, 
repo-style transaction means a repurchase or reverse repurchase 
transaction, or a securities borrowing or securities lending 
transaction, including a transaction in which the banking 
organization acts as agent for a customer and indemnifies the 
customer against loss, provided that: (1) The transaction is based 
solely on liquid and readily marketable securities, cash, or gold; 
(2) the transaction is marked-to-fair value daily and subject to 
daily margin maintenance requirements; (3) the transaction provides 
certain default rights. See regulatory capital rule, section 2. In 
addition, in order to recognize an exposure as a repo-style 
transaction for purposes of this subpart, a banking organization 
must comply with the requirements of section 3(e) of the regulatory 
capital rules.
    \10\ See 12 CFR part 32.
---------------------------------------------------------------------------

II. Background

A. U.S. Resolution Regime

    It is common market practice for bilateral derivatives and certain 
other types of financial contracts entered into by large banking 
organizations to permit a non-defaulting counterparty to exercise early 
termination rights and other contractual remedies upon a counterparty 
(or a related entity) experiencing an event of default. These 
contractual provisions are generally recognized as a credit risk 
mitigant because the provisions allow a non-defaulting party the 
uninterrupted right to close-out, net, and liquidate any collateral 
securing its claim under the contract upon a counterparty's default.
    However, as the failure of Lehman Brothers demonstrated, the 
uninterrupted exercise of such rights by counterparties of a globally-
active financial company with a significant derivatives portfolio could 
impede the orderly resolution of the financial company and pose risks 
to financial stability. The United States has enacted laws that impose 
a limited stay on the exercise of early termination rights and other 
remedies with regard to qualified financial contracts (such as OTC 
derivatives, securities financing transactions, and margin loans) with 
insured depository institutions in resolution under the FDI Act and, in 
2010, with financial companies in resolution under Title II of the 
Dodd-Frank Act.

B. Foreign Special Resolution Procedures and the ISDA Protocol

    In recognition of the issues faced in the financial crisis 
concerning resolution of globally-active financial companies, the EU 
issued the BRRD on April 15, 2014, which requires EU member states to 
implement a resolution mechanism by December 31, 2014, in order to 
increase the likelihood for successful national or cross-border 
resolutions of a financial company organized in the EU.\11\ The BRRD 
contains special resolution powers, including a limited stay on certain 
financial contracts that is similar to the stays provided under Title 
II of the Dodd-Frank Act and the FDI Act. Therefore, the operations of 
U.S. banking organizations located in jurisdictions that have 
implemented the BRRD could become subject to an orderly resolution 
under the BRRD, including the application of a limited statutory stay 
of a counterparty's right to exercise early termination rights and 
other remedies with respect to certain financial contracts. The BRRD is 
generally designed to be consistent with the Key Attributes of 
Effective Resolution Regimes for Financial Institutions (Key 
Attributes),\12\ which were initially adopted by the Financial 
Stability Board (FSB) \13\ of the G-20 \14\

[[Page 78290]]

member nations in October 2011, and are designed to provide a standard 
for the responsibilities and powers that national resolution regimes 
should have to resolve a failing systemically important financial 
institution.
---------------------------------------------------------------------------

    \11\ On January 1, 2015, most of the provisions of the BRRD are 
expected to take effect in a number of the EU member states.
    \12\ The Key Attributes are available at 
www.financialstabilityboard.org/publications/r_111104cc.pdf. See 
specifically Key Attributes 4.1-4.4 regarding set-off, netting, 
collateralization and segregation of client assets and Appendix I 
Annex 5 regarding temporary stays on early termination rights. In 
October 2014, the FSB adopted a 2014 version of the Key Attributes 
that incorporates new annexes to provide additional guidance with 
respect to specific Key Attributes. No changes were made to the text 
of the twelve Key Attributes of October 2011.
    \13\ The FSB is an international body that monitors and makes 
recommendations about the global financial system. The FSB 
coordinates the regulatory, supervisory, and other financial sector 
policies of national financial authorities and international 
standard-setting bodies.
    \14\ The G-20 membership comprises a mix of the world's largest 
advanced and emerging economies. The G-20 members are Argentina, 
Australia, Brazil, Canada, China, France, Germany, India, Indonesia, 
Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South 
Africa, Turkey, the United Kingdom, the United States, and the 
European Union. Following the most recent financial crisis, leaders 
of the G-20 member nations recognized that the orderly cross-border 
resolution of a globally-active financial company requires all 
countries to have effective national resolution regimes to resolve 
failing financial companies in an orderly manner and that national 
resolution regimes should be consistent with one another. Subjecting 
the same financial company to conflicting legal rules, procedures, 
and mechanisms across jurisdictions can create uncertainty, 
instability, possible systemic contagion, and higher costs of 
resolution.
---------------------------------------------------------------------------

    In addition to the issuance of the BRRD, on November 4, 2014, ISDA 
published the ISDA Protocol, which enables counterparties to amend the 
terms of their ISDA Master Agreements to stay certain early termination 
rights and other remedies provided under the agreement. As of November 
12, 2014, 18 global financial institutions, including several of the 
largest U.S. banking organizations,\15\ have opted to adhere to the 
ISDA Protocol and thereby would modify ISDA Master Agreements among 
those adhering parties. Like other qualified financial contracts, OTC 
derivatives transactions executed under standard ISDA Master Agreements 
allow a party to terminate the agreement immediately upon an event of 
default of its counterparty, including if its counterparty (or a 
related entity) \16\ enters insolvency or similar proceedings.
---------------------------------------------------------------------------

    \15\ As of November 12, 2014, the U.S. banking organizations 
that have agreed to adhere to the ISDA Protocol are Bank of America 
Corporation, Citigroup Inc., The Goldman Sachs Group, Inc., JPMorgan 
Chase & Co., and Morgan Stanley, and certain subsidiaries thereof. 
See current list of adhering parties to the ISDA Protocol at http://www2.isda.org/functional-areas/protocol-management/protocol-adherence/20.
    \16\ Under the ISDA Resolution Stay Protocol, a related entity 
is defined to include (i) each parent or (ii) an affiliate that is 
(a) a creditor support provider or (b) a specified entity.
---------------------------------------------------------------------------

    The contractual amendments effectuated pursuant to the ISDA 
Protocol would apply the provisions of Title II of the Dodd-Frank Act 
and the FDI Act concerning limited stays of termination rights and 
other remedies in qualified financial contracts to ISDA Master 
Agreements between adhering counterparties, including adhering 
counterparties that are not otherwise subject to U.S. law. The 
amendments also would apply substantially similar provisions of certain 
non-U.S. laws, such as the BRRD, to ISDA Master Agreements between 
adhering counterparties that are not otherwise subject to such 
laws.\17\ The contractual amendments effectuated pursuant to the ISDA 
Protocol would permit a party that has agreed to adhere to the ISDA 
Protocol to exercise early termination rights and other remedies only 
to the extent that it would be entitled to do so under the special 
resolution regime applicable to its adhering counterparties (or related 
entities, as applicable).\18\
---------------------------------------------------------------------------

    \17\ The provisions of the ISDA Protocol relating to the special 
resolution regimes in these jurisdictions will become effective on 
January 1, 2015, for ISDA Master Agreements between the 18 adhering 
financial companies (as of November 21, 2014). The ISDA Protocol 
also covers special resolution regimes in other FSB member 
jurisdictions so long as the regimes meet conditions specified in 
the ISDA Protocol relating to creditor safeguards, which are 
consistent with the Key Attributes.
    \18\ Parties adhering to the ISDA Protocol would initially be 
contractually subject to the statutory special resolution regimes of 
France, Germany, Japan, Switzerland, the United Kingdom and the 
United States.
---------------------------------------------------------------------------

C. Description of Relevant Provisions of the Regulatory Capital and the 
Liquidity Coverage Ratio Rules

    As noted above, the agencies' regulatory capital rules permit a 
banking organization to measure exposure from certain types of 
financial contracts on a net basis, provided that the contracts are 
subject to a qualifying master netting agreement or other agreement 
that contains specific provisions. Specifically, under the regulatory 
capital rules, a banking organization with multiple OTC derivatives 
that are subject to a qualifying master netting agreement would be able 
to calculate a net exposure amount by netting the sum of all positive 
and negative fair values of the individual OTC derivative contracts 
subject to the qualifying master netting agreement and calculating a 
risk-weighted asset amount based on the net exposure amount. For 
purposes of the supplementary leverage ratio (as applied only to 
advanced approaches banking organizations), a banking organization that 
has one or more OTC derivatives with the same counterparty that are 
subject to a qualifying master netting agreement would be permitted to 
not include in total leverage exposure cash variation margin received 
from such counterparty that has offset the mark-to-fair value of the 
derivative asset or cash collateral that is posted to such counterparty 
that has reduced the banking organization's on-balance sheet 
assets.\19\
---------------------------------------------------------------------------

    \19\ Under the agencies' regulatory capital rules, the general 
framework consists of two approaches: (1) The standardized approach, 
which, beginning on January 1, 2015, will apply to all banking 
organizations regardless of total asset size, and (2) the advanced 
approaches, which currently apply to large internationally active 
banking organizations (defined as those banking organizations with 
$250 billion or more in total consolidated assets or $10 billion or 
more in total on-balance-sheet foreign exposure, depository 
institution subsidiaries of those banking organizations that use the 
advanced approaches rule, and banking organizations that elect to 
use the advanced approaches). As a general matter, the standardized 
approach sets forth standardized risk weights for different asset 
types for regulatory capital calculations, whereas, for certain 
assets, the advanced approaches make use of risk assessments 
provided by banking organizations' internal systems as inputs for 
regulatory capital calculations. Consistent with section 171 of the 
Dodd-Frank Act (codified at 12 U.S.C. 5371), a banking organization 
that is required to calculate its risk-based capital requirements 
under the advanced approaches (i.e., an advanced approaches banking 
organization) also must determine its risk-based capital 
requirements under the generally applicable risk-based capital 
rules, which will be the standardized approach beginning on January 
1, 2015). The lower--or more binding--ratio for each risk-based 
capital requirement is the ratio that the advanced approaches 
banking organization must use to determine its compliance with 
minimum regulatory capital requirements. See generally 12 CFR part 3 
(OCC) and 12 CFR part 217 (Board).
---------------------------------------------------------------------------

    In addition, the agencies' rules permit a banking organization to 
recognize the risk-mitigating effect of financial collateral for other 
types of collateralized exposures. Specifically, for risk-based capital 
purposes, a banking organization with a securities financing 
transaction that meets the definition of a repo-style transaction with 
financial collateral, a margin loan that meets the definition of an 
eligible margin loan with financial collateral, or an OTC derivative 
contract collateralized with financial collateral may determine a net 
exposure amount to its counterparty according to section 37 or section 
132 of the regulatory capital rules. A banking organization with 
multiple repo-style transactions or eligible margin loans with a 
counterparty that are subject to a qualifying master netting agreement 
may net the exposure amounts of the individual transactions under that 
agreement. In addition, for purposes of the supplementary leverage 
ratio, an advanced approaches banking organization with multiple repo-
style transactions with the same counterparty that are subject to a 
qualifying master netting agreement would be permitted to net for 
purposes of calculating the counterparty credit risk component of its 
total leverage exposure. In general, recognition of netting results in 
a lower measure of risk-weighted assets and total leverage exposure 
than if a banking organization were to calculate its OTC derivatives, 
repo-style transactions, and eligible margin loans on a gross basis. 
This result is consistent with the view that entering into transactions 
under a netting agreement that satisfies certain criteria reduces a 
banking organization's risk exposure.

[[Page 78291]]

    The agencies also use the concept of a qualifying master netting 
agreement in the liquidity coverage ratio (LCR) rule.\20\ The LCR rule 
requires a banking organization to maintain an amount of high-quality 
liquid assets (the numerator) to match at least 100 percent of its 
total net cash outflows over a prospective 30 calendar-day period (the 
denominator). For derivative transactions subject to a qualifying 
master netting agreement, a banking organization would be able to 
calculate the net derivative outflow or inflow amount by netting the 
contractual payments and collateral that it would give to, or receive 
from, the counterparty over a prospective 30-day period.\21\ If the 
derivative transactions are not subject to a qualifying master netting 
agreement, then the derivative cash outflows for that counterparty 
would be included in the net derivative cash outflow amount and the 
derivative cash inflows for that counterparty would be included in the 
net derivative cash inflow amount, without any netting and subject to 
the LCR rule's cap on total inflows. Recognition of netting may result 
in lower net cash outflows, and thus a lower LCR denominator and 
liquidity requirement, than if a banking organization were to calculate 
its inflows and outflows on its derivatives transactions on a gross 
basis.
---------------------------------------------------------------------------

    \20\ The agencies' LCR rules will be codified at 12 CFR part 50 
(OCC) and 12 CFR part 249 (Board).
    \21\ See 12 CFR _ .32(c) and _ .33(b) of the agencies' LCR rule. 
The LCR final rule provides that foreign currency transactions that 
meet certain criteria can be netted regardless of whether those 
transactions are covered by a qualified master netting agreement. 79 
FR 61440, 61532-33 (October 10, 2014).
---------------------------------------------------------------------------

III. The Interim Final Rule

    The interim final rule amends the definitions of ``collateral 
agreement,'' ``eligible margin loan,'' ``qualifying master netting 
agreement,'' and ``repo-style transaction'' in the agencies' regulatory 
capital rules and ``qualifying master netting agreement'' in the 
agencies' LCR rules to ensure that the regulatory capital, liquidity, 
and lending limits treatment of OTC derivatives, repo-style 
transactions, eligible margin loans, and other collateralized 
transactions would be unaffected by the adoption of various foreign 
special resolution regimes and the ISDA Protocol. In particular, the 
interim final rule amends these definitions to provide that a relevant 
netting agreement or collateral agreement may provide for a limited 
stay or avoidance of rights where the agreement is subject by its terms 
to, or incorporates, certain resolution regimes applicable to financial 
companies, including Title II of the Dodd-Frank Act, the FDI Act, or 
any similar foreign resolution regime that provides for limited stays 
substantially similar to the stay for qualified financial contracts 
provided in Title II of the Dodd-Frank Act or the FDI Act.
    In determining whether the laws of foreign jurisdictions are 
``similar'' to the FDI Act and Title II of the Dodd-Frank Act and 
provide for limited stays substantially similar to those provided for 
in the FDI Act and Title II of the Dodd-Frank Act, the agencies intend 
to consider all aspects of the stays under the U.S. laws.\22\ Relevant 
factors include, for instance, the length of stay and the related 
creditor safeguards or protections provided under a foreign special 
resolution regime.\23\ The agencies expect that the implementation of 
special resolution regimes of France, Germany, Japan, Switzerland, and 
the United Kingdom would be substantially similar to those of the 
United States and provide for limited stays substantially similar to 
those provided for in the FDI Act and Title II of the Dodd-Frank 
Act.\24\
---------------------------------------------------------------------------

    \22\ See 12 U.S.C. 1821(e)(8)-(13) and 5390(c)(8)-(16). As noted 
above, the ISDA Protocol covers only resolution regimes that are 
considered to be consistent with the principles of the Key 
Attributes. Therefore, it is also expected that any limited 
statutory stay under foreign law determined for purposes of this 
interim final rule to be similar to the FDI Act and Title II of the 
Dodd-Frank Act would also be consistent with the relevant principles 
of the Key Attributes.
    \23\ Under Title II of the Dodd-Frank Act, counterparties are 
stayed until 5:00 p.m. on the business day following the date of 
appointment of a receiver from exercising termination, liquidation, 
or netting rights under the qualified financial contract. 12 U.S.C. 
5390(c)(10)(B)(i)(I). If the qualified financial contracts are 
transferred to a solvent third party before the stay expires, the 
counterparty is permanently enjoined from exercising such rights 
based upon the appointment of the receiver, but is not stayed from 
exercising such rights based upon other events of default. See 12 
U.S.C. 5390(c)(10)(B)(i)(II).
    \24\ Annexes to the ISDA Protocol specify conditions that the 
special resolution regimes of the five countries must meet in order 
for section 1(a) of the ISDA Protocol to apply to the ISDA Master 
Agreements of adhering parties.
---------------------------------------------------------------------------

    Without the interim final rule, several banking organizations would 
no longer be permitted to recognize financial contracts as subject to a 
qualifying master netting agreement or satisfying the criteria 
necessary for the current regulatory capital, liquidity, and lending 
limits treatment, and would be required to measure exposure from these 
contracts on a gross, rather than net, basis. This result would 
undermine the salutary effects of the BRRD and similar resolution 
regimes and the ISDA Protocol on financial stability. The interim final 
rule is necessary to maintain the existing treatment for these 
contracts for purposes of the regulatory capital, liquidity, and 
lending limits rules. The agencies do not believe that the 
disqualification of master netting agreements that would otherwise 
result in the absence of the interim final rule accurately reflects the 
risk posed by these OTC derivative transactions. Implementation of 
consistent, national resolution regimes on a global basis furthers the 
orderly resolution of internationally active financial companies, and 
enhances financial stability. Moreover, the development of the ISDA 
Protocol furthers the principles of Title II of the Dodd-Frank Act and 
the FDI Act (in instances where a counterparty is a U.S. entity or its 
subsidiary) by applying limited stays of termination rights to 
counterparties who are not otherwise subject to U.S. law.
    In addition, the agencies intend to incorporate the definition of 
``qualifying master netting agreement'' set forth in this interim final 
rule into rules that establish minimum margin requirements for 
registered swap dealers, major swap participants, security-based swap 
dealers, and major security-based swap participants (covered swap 
entities) subject to agency supervision. On September 24, 2014, the 
OCC, Board, Federal Deposit Insurance Corporation, the Farm Credit 
Administration, and the Federal Housing Finance Agency published a 
notice of proposed rulemaking that would establish minimum margin 
requirements for covered swap entities subject to agency supervision 
(2014 swap margin NPR).\25\ The proposed rule would permit a covered 
swap entity to calculate variation margin requirements on an aggregate, 
net basis under an eligible master netting agreement (EMNA) with a 
counterparty. The comment period for the 2014 swap margin NPR closed on 
November 24, 2014. The OCC, Board, Federal Deposit Insurance 
Corporation, Farm Credit Administration and Federal Housing Finance 
Agency are reviewing the comments received and drafting a final rule. 
Ultimately, the Federal banking agencies intend to align the 
definitions of EMNA and qualifying master netting agreement in their 
respective regulations pertaining to swap margin requirements, 
regulatory capital requirements, liquidity requirements, and lending 
limits.
---------------------------------------------------------------------------

    \25\ 79 FR 57348 (September 24, 2014).
---------------------------------------------------------------------------

IV. Request for Comments

    The agencies are interested in receiving comments on all aspects of 
the interim final rule. In particular, do the amendments to the 
definitions of

[[Page 78292]]

``qualifying master netting agreement,'' ``collateral agreement,'' 
``repo-style transaction,'' and ``eligible margin loan'' ensure that 
the regulatory capital, liquidity, and lending limits treatment of OTC 
derivatives, repo-style transactions, eligible margin loans and other 
collateralized transactions is unaffected by the ISDA Protocol and the 
BRRD? Is there any reason why the agencies should not revise the above 
mentioned definitions?
    The ISDA Protocol also provides for limited stays of termination 
rights for cross-defaults resulting from affiliate insolvency 
proceedings under a limited number of U.S. general insolvency regimes, 
including the U.S. Bankruptcy Code.\26\ The interim final rule does not 
address this portion of the ISDA Protocol because this portion of the 
ISDA Protocol does not take effect on January 1, 2015. Instead, it 
takes effect upon the effective date of implementing regulations in the 
United States. The agencies request comment on whether the definitions 
of ``qualifying master netting agreement,'' ``collateral agreement,'' 
``repo-style transaction,'' and ``eligible margin loan'' should also be 
amended to recognize the stay of default rights in this context.
---------------------------------------------------------------------------

    \26\ Under the ISDA Protocol, upon commencement of such 
proceedings, adhering counterparties would be subject to a limited 
stay of their termination rights and other remedies. The limited 
stay does not apply if a direct counterparty is subject to general 
insolvency proceedings. The stay also does not apply to payment or 
delivery defaults or to defaults that are not directly or indirectly 
related to the affiliate insolvency proceedings.
---------------------------------------------------------------------------

V. Effective Date; Solicitation of Comments

    This interim final rule is effective January 1, 2015. Pursuant to 
the Administrative Procedure Act (APA), at 5 U.S.C. 553(b)(B), notice 
and comment are not required prior to the issuance of a final rule if 
an agency, for good cause, finds that ``notice and public procedure 
thereon are impracticable, unnecessary, or contrary to the public 
interest.'' \27\ Similarly, a final rule may be published with an 
immediate effective date if an agency finds good cause and publishes 
such with the final rule.\28\
---------------------------------------------------------------------------

    \27\ 5 U.S.C. 553(b)(B).
    \28\ 5 U.S.C. 553(d)(3).
---------------------------------------------------------------------------

    The ISDA Protocol was published by ISDA on November 4, 2014, and as 
of November 12, 2014, 18 large banking organizations, including five 
large U.S. banking organizations, have voluntarily adhered to the ISDA 
Protocol, which will become effective on January 1, 2015. Upon the 
effective date of the ISDA Protocol, the ISDA Master Agreements entered 
into between the adhering banking organizations would be disqualified 
from recognition as transactions subject to a qualifying master netting 
agreement.
    The BRRD was adopted on April 15, 2014.\29\ Implementation of the 
BRRD by a number of EU member states is expected to occur by January 1, 
2015. Becoming subject to the limited stays contemplated by the BRRD 
also disqualifies agreements that would otherwise qualify as a 
qualifying master netting agreement or a collateral agreement, and 
disqualifies securities financing transactions or margin loans from the 
regulatory capital treatment of a repo-style transaction or eligible 
margin loan, respectively. Adoption of this interim final rule, in 
conjunction with the implementation of the BRRD and the ISDA Protocol 
by relevant foreign jurisdictions is consistent with steps to 
facilitate the orderly resolution of systemically important financial 
institutions.
---------------------------------------------------------------------------

    \29\ The United Kingdom published a consultative paper in July 
2014 regarding the implementation of the BRRD.
---------------------------------------------------------------------------

    Changes to the definitions of qualifying master netting agreement, 
repo-style transaction, eligible margin loan and collateral agreement 
are needed to ensure that contractually subjecting netting and 
collateral agreements, agreements executing a repo-style transaction 
and agreements executing an eligible margin loan to domestic and 
foreign special resolution regimes does not disrupt current treatment 
under the agencies' regulatory capital, liquidity, and lending limits 
rules. Notice and comment through the issuance of a notice of proposed 
rulemaking for purposes of these amendments would extend beyond January 
1, 2015, resulting in adverse financial consequences to some U.S. 
banking organizations.
    The agencies find that, under these circumstances, prior notice and 
comment through the issuance of a notice of proposed rulemaking are 
impracticable and that the public interest is best served by making the 
rule effective on January 1, 2015. Otherwise, banking organizations 
could be subject to considerably higher capital and liquidity 
requirements because the regulatory capital and liquidity rules would 
not recognize netting under the relevant agreements or the current 
treatment of such contracts. Moreover, under the OCC's legal lending 
limits for national banks and Federal savings association, which rely 
on the definition of qualifying master netting agreement, the legal 
lending limits of those institutions may be significantly reduced. 
These outcomes could weaken liquidity in OTC derivatives markets, 
increase the cost of credit, and reduce the availability of credit.
    National implementation of the BRRD and adherence to the ISDA 
Protocol should facilitate the orderly resolution of internationally 
active banking organizations. Absent capital and liquidity treatment 
and legal lending limits (where applicable) afforded to counterparties 
entering into a qualifying master netting agreement, banking 
organizations would be dis-incentivized to enter into such agreements.
    For these reasons, with respect to the amendments to the 
definitions of qualifying master netting agreement, collateral 
agreement, repo-style transaction, and eligible margin loan, the 
agencies find good cause to dispense with the delayed effective date 
otherwise required by 5 U.S.C. 553(b)(B) and 553(d)(3) and under 
section 302 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (RCDRIA), 12 U.S.C. 4802.\30\
---------------------------------------------------------------------------

    \30\ The RCDRIA requires that, subject to certain exceptions, 
regulations imposing additional reporting, disclosure, or other 
requirements on insured depository institutions take effect on the 
first day of the calendar quarter after publication of the final 
rule. This effective date requirement does not apply if the agency 
finds for good cause that the regulation should become effective 
before such time.
---------------------------------------------------------------------------

VI. Regulatory Analysis

A. Regulatory Flexibility Act Analysis

    OCC: The Regulatory Flexibility Act (RFA) does not apply to a 
rulemaking where a general notice of proposed rulemaking is not 
required. 5 U.S.C. 603 and 604. As noted previously, the OCC has 
determined that it is unnecessary to publish a general notice of 
proposed rulemaking for this joint rule. Accordingly, the RFA's 
requirements relating to an initial and final regulatory flexibility 
analysis do not apply.
    Board: The requirements of the RFA are not applicable to this 
interim final rule.\31\ Nonetheless, the Board observes that the 
interim final rule would not have a significant economic impact on a 
substantial number of small entities. The Board requests comment on its 
conclusion that the new interim final rule should not have a 
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \31\ The requirements of the RFA are not applicable to rules 
adopted under the Administrative Procedure Act's ``good cause'' 
exception, see 5 U.S.C. 601(2) (defining ``rule'' and notice 
requirements under the Administrative Procedure Act).
---------------------------------------------------------------------------

    To support the above finding that the interim final rule would not 
have a significant economic impact on a substantial number of small 
entities, the

[[Page 78293]]

Board is publishing a final regulatory flexibility analysis for the 
interim final rule. The RFA generally requires an agency to assess the 
impact a rule is expected to have on small entities.\32\ The RFA 
requires an agency either to provide a regulatory flexibility analysis 
or to certify that the interim final rule will not have a significant 
economic impact on a substantial number of small entities. Based on 
this analysis and for the reasons stated below, the Board believes that 
this interim final rule will not have a significant economic impact on 
a substantial number of small entities.
---------------------------------------------------------------------------

    \32\ Under standards the U.S. Small Business Administration has 
established, an entity is considered ``small'' if it has $175 
million or less in assets for banks and other depository 
institutions. U.S. Small Business Administration, Table of Small 
Business Size Standards Matched to North American Industry 
Classification System Codes, available at http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.
---------------------------------------------------------------------------

    Under regulations issued by the U.S. Small Business Administration, 
a small entity includes a depository institution, bank holding company, 
or savings and loan holding company with total assets of $550 million 
or less (a small banking organization).\33\ As of June 30, 2014, there 
were approximately 657 small state member banks, 3,719 small bank 
holding companies, and 254 small savings and loan holding companies.
---------------------------------------------------------------------------

    \33\ See 13 CFR 121.201. Effective July 14, 2014, the Small 
Business Administration revised the size standards for banking 
organizations to $550 million in assets from $500 million in assets. 
79 FR 33647 (June 12, 2014).
---------------------------------------------------------------------------

    The interim final rule is expected only to apply to banking 
organizations that adhere to the ISDA Protocol or engage in a 
substantial amount of cross-border derivatives transactions. Small 
entities generally will not fall into this category. To date, the Board 
is aware of less than two dozen banking organizations, all with total 
consolidated assets greater than $250 billion, that are likely to 
adhere to the ISDA Protocol or engage in a substantial amount of cross-
border derivatives transactions. The Board is aware of no other Federal 
rules that duplicate, overlap, or conflict with this interim final 
rule. The Board believes that this interim final rule will not have a 
significant economic impact on small banking organizations supervised 
by the Board and therefore believes that there are no significant 
alternatives to the interim final rule that would reduce the economic 
impact on small banking organizations supervised by the Board.

B. Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the agencies to 
use plain language in all proposed and final rules published after 
January 1, 2000. The agencies invite comment on how to make this 
interim final rule easier to understand. For example:
     Have the agencies organized the material to suit your 
needs? If not, how could the rule be more clearly stated?
     Are the requirements in the rule clearly stated? If not, 
how could the rule be more clearly stated?
     Does the rule contain technical language or jargon that is 
not clear? If so, what language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the rule easier to understand? If 
so, what changes would make the rule easier to understand?
     Would more, but shorter, sections be better? If so, which 
sections should be changed?
     What else could the agencies do to make the rule easier to 
understand?

C. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501-3521) (``PRA''), the agencies may not conduct 
or sponsor, and a respondent is not required to respond to, an 
information collection unless it displays a currently valid Office of 
Management and Budget (``OMB'') control number. The agencies reviewed 
the interim final rule and determined that it would not produce any new 
collection of information pursuant to the PRA.

List of Subjects

12 CFR Part 3

    Administrative practice and procedure; Capital; National banks, 
Reporting and recordkeeping requirements; Risk.

12 CFR Part 50

    Administrative practice and procedure; Banks, banking; Liquidity; 
Reporting and recordkeeping requirements; Savings associations.

12 CFR Part 217

    Administrative practice and procedure; Banks, banking; Capital; 
Federal Reserve System; Holding companies; Reporting and recordkeeping 
requirements; Securities.

12 CFR Part 249

    Administrative practice and procedure; Banks, banking; Federal 
Reserve System; Holding companies; Liquidity; Reporting and 
recordkeeping requirements.

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

    For the reasons set forth in the supplementary information, the 
Office of the Comptroller of the Currency amends part 3 of chapter I of 
title 12, Code of Federal Regulations as follows:

PART 3--CAPITAL ADEQUACY STANDARDS

0
1. The authority citation for part 3 continues to read as follows:

    Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).


Part 3  [Amended]

0
1a. Part 3 is amended by redesignating footnotes 5 through 29 as 
footnotes 9 through 33, respectively.
0
2. Section 3.2 is amended by:
0
a. Revising the definitions of ``collateral agreement'' and 
``qualifying master netting agreement'';
0
b. Revising paragraph (1)(iii) of the definition of ``eligible margin 
loan'';
0
c. Republishing the introductory text of the definition of ``repo-style 
transaction''; and
0
d. Revising paragraph (3)(ii)(A) of the definition of ``repo-style 
transaction''.
    The revisions are set forth below:


Sec.  3.2  Definitions.

* * * * *
    Collateral agreement means a legal contract that specifies the time 
when, and circumstances under which, a counterparty is required to 
pledge collateral to a national bank or Federal savings association for 
a single financial contract or for all financial contracts in a netting 
set and confers upon the national bank or Federal savings association a 
perfected, first-priority security interest (notwithstanding the prior 
security interest of any custodial agent), or the legal equivalent 
thereof, in the collateral posted by the counterparty under the 
agreement. This security interest must provide the national bank or 
Federal savings association with a right to close-out the financial 
positions and liquidate the collateral upon an event of default of, or 
failure to perform by, the counterparty under the collateral agreement. 
A contract would not satisfy this requirement if the national bank's or 
Federal savings association's exercise of rights under the agreement 
may be

[[Page 78294]]

stayed or avoided under applicable law in the relevant jurisdictions, 
other than:
    (1) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under 
any similar insolvency law applicable to GSEs, or laws of foreign 
jurisdictions that are substantially similar \4\ to the U.S. laws 
referenced in this paragraph (1) in order to facilitate the orderly 
resolution of the defaulting counterparty; or
---------------------------------------------------------------------------

    \4\ The OCC expects to evaluate jointly with the Board and FDIC 
whether foreign special resolution regimes meet the requirements of 
this paragraph.
---------------------------------------------------------------------------

    (2) Where the agreement is subject by its terms to any of the laws 
referenced in paragraph (1) of this definition.
* * * * *
    Eligible margin loan means:
    (1) * * *
    (iii) The extension of credit is conducted under an agreement that 
provides the national bank or Federal savings association the right to 
accelerate and terminate the extension of credit and to liquidate or 
set-off collateral promptly upon an event of default, including upon an 
event of receivership, insolvency, liquidation, conservatorship, or 
similar proceeding, of the counterparty, provided that, in any such 
case, any exercise of rights under the agreement will not be stayed or 
avoided under applicable law in the relevant jurisdictions, other than 
in receivership, conservatorship, or resolution under the Federal 
Deposit Insurance Act, Title II of the Dodd-Frank Act, or under any 
similar insolvency law applicable to GSEs,\5\ or laws of foreign 
jurisdictions that are substantially similar \6\ to the U.S. laws 
referenced in this paragraph in order to facilitate the orderly 
resolution of the defaulting counterparty; or
---------------------------------------------------------------------------

    \5\ This requirement is met where all transactions under the 
agreement are (i) executed under U.S. law and (ii) constitute 
``securities contracts'' under section 555 of the Bankruptcy Code 
(11 U.S.C. 555), qualified financial contracts under section 
11(e)(8) of the Federal Deposit Insurance Act, or netting contracts 
between or among financial institutions under sections 401-407 of 
the Federal Deposit Insurance Corporation Improvement Act or the 
Federal Reserve Board's Regulation EE (12 CFR part 231).
    \6\ The OCC expects to evaluate jointly with the Board and FDIC 
whether foreign special resolution regimes meet the requirements of 
this paragraph.
---------------------------------------------------------------------------

* * * * *
    Qualifying master netting agreement means a written, legally 
enforceable agreement provided that:
    (1) The agreement creates a single legal obligation for all 
individual transactions covered by the agreement upon an event of 
default following any stay permitted by paragraph (2) of this 
definition, including upon an event of receivership, conservatorship, 
insolvency, liquidation, or similar proceeding, of the counterparty;
    (2) The agreement provides the national bank or Federal savings 
association the right to accelerate, terminate, and close-out on a net 
basis all transactions under the agreement and to liquidate or set-off 
collateral promptly upon an event of default, including upon an event 
of receivership, conservatorship, insolvency, liquidation, or similar 
proceeding, of the counterparty, provided that, in any such case, any 
exercise of rights under the agreement will not be stayed or avoided 
under applicable law in the relevant jurisdictions, other than:
    (i) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under 
any similar insolvency law applicable to GSEs, or laws of foreign 
jurisdictions that are substantially similar \7\ to the U.S. laws 
referenced in this paragraph (2)(i) in order to facilitate the orderly 
resolution of the defaulting counterparty; or
---------------------------------------------------------------------------

    \7\ The OCC expects to evaluate jointly with the Board and FDIC 
whether foreign special resolution regimes meet the requirements of 
this paragraph.
---------------------------------------------------------------------------

    (ii) Where the agreement is subject by its terms to, or 
incorporates, any of the laws referenced in paragraph (2)(i) of this 
definition;
    (3) The agreement does not contain a walkaway clause (that is, a 
provision that permits a non-defaulting counterparty to make a lower 
payment than it otherwise would make under the agreement, or no payment 
at all, to a defaulter or the estate of a defaulter, even if the 
defaulter or the estate of the defaulter is a net creditor under the 
agreement); and
    (4) In order to recognize an agreement as a qualifying master 
netting agreement for purposes of this subpart, a national bank or 
Federal savings association must comply with the requirements of Sec.  
3.3(d) with respect to that agreement.
* * * * *
    Repo-style transaction means a repurchase or reverse repurchase 
transaction, or a securities borrowing or securities lending 
transaction, including a transaction in which the national bank or 
Federal savings association acts as agent for a customer and 
indemnifies the customer against loss, provided that:
* * * * *
    (3) * * *
    (ii) * * *
    (A) The transaction is executed under an agreement that provides 
the national bank or Federal savings association the right to 
accelerate, terminate, and close-out the transaction on a net basis and 
to liquidate or set-off collateral promptly upon an event of default, 
including upon an event of receivership, insolvency, liquidation, or 
similar proceeding, of the counterparty, provided that, in any such 
case, any exercise of rights under the agreement will not be stayed or 
avoided under applicable law in the relevant jurisdictions, other than 
in receivership, conservatorship, or resolution under the Federal 
Deposit Insurance Act, Title II of the Dodd-Frank Act, or under any 
similar insolvency law applicable to GSEs, or laws of foreign 
jurisdictions that are substantially similar \8\ to the U.S. laws 
referenced in this paragraph (3)(ii)(a) in order to facilitate the 
orderly resolution of the defaulting counterparty; or
---------------------------------------------------------------------------

    \8\ The OCC expects to evaluate jointly with the Board and FDIC 
whether foreign special resolution regimes meet the requirements of 
this paragraph.
---------------------------------------------------------------------------

* * * * *

PART 50--LIQUIDITY RISK MEASUREMENT STANDARDS

0
3. The authority citation for part 50 continues to read as follows:

    Authority:  12 U.S.C. 1 et seq., 93a, 481, 1818, and 1462 et 
seq.

0
4. Section 50.3 is amended by:
0
a. Revising the definition of ``qualifying master netting agreement''; 
and
0
b. In paragraph (2) of the definition of ``regulated financial 
company'', redesignating footnote 1 as footnote 2.
    The revision is set forth below.


Sec.  50.3  Definitions.

* * * * *
    Qualifying master netting agreement means a written, legally 
enforceable agreement provided that:
    (1) The agreement creates a single legal obligation for all 
individual transactions covered by the agreement upon an event of 
default following any stay permitted by paragraph (2) of this 
definition, including upon an event of receivership, conservatorship, 
insolvency, liquidation, or similar proceeding, of the counterparty;
    (2) The agreement provides the national bank or Federal savings 
association the right to accelerate, terminate, and close-out on a net 
basis all transactions under the agreement and to liquidate or set-off 
collateral promptly upon an event of default, including upon an event 
of receivership, conservatorship, insolvency, liquidation, or similar 
proceeding, of the counterparty, provided that, in any such case, any 
exercise of rights under the agreement will not be stayed or avoided

[[Page 78295]]

under applicable law in the relevant jurisdictions, other than:
    (i) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under 
any similar insolvency law applicable to GSEs, or laws of foreign 
jurisdictions that are substantially similar \1\ to the U.S. laws 
referenced in this paragraph (2)(i) in order to facilitate the orderly 
resolution of the defaulting counterparty; or
---------------------------------------------------------------------------

    \1\ The OCC expects to evaluate jointly with the Board and FDIC 
whether foreign special resolution regimes meet the requirements of 
this paragraph.
---------------------------------------------------------------------------

    (ii) Where the agreement is subject by its terms to, or 
incorporates, any of the laws referenced in paragraph (2)(i) of this 
definition;
    (3) The agreement does not contain a walkaway clause (that is, a 
provision that permits a non-defaulting counterparty to make a lower 
payment than it otherwise would make under the agreement, or no payment 
at all, to a defaulter or the estate of a defaulter, even if the 
defaulter or the estate of the defaulter is a net creditor under the 
agreement); and
    (4) In order to recognize an agreement as a qualifying master 
netting agreement for purposes of this subpart, a national bank or 
Federal savings association must comply with the requirements of Sec.  
50.4(a) with respect to that agreement.
* * * * *

Board of Governors of the Federal Reserve System

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the supplementary information, the 
Board amends 12 CFR Chapter II parts 217 and 249 to read as follows:

PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND 
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)

0
5. The authority citation for part 217 continues to read as follows:

    Authority:  12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 
1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904, 
3906-3909, 4808, 5365, 5368, 5371.


Part 217  [Amended]

0
5a. Part 217 is amended by redesignating footnotes 5 through 29 as 
footnotes 9 through 33, respectively.
0
6. Section 217.2 is amended by:
0
a. Revising the definitions of ``collateral agreement'' and 
``qualifying master netting agreement'';
0
b. Revising paragraph (1)(iii) of the definition of ``eligible margin 
loan'';
0
c. Republishing the introductory text of the definition of ``repo-style 
transaction''; and
0
d. Revising paragraph (3)(ii)(A) of the definition of ``repo-style 
transaction''.
    The revisions are set forth below:


Sec.  217.2  Definitions.

* * * * *
    Collateral agreement means a legal contract that specifies the time 
when, and circumstances under which, a counterparty is required to 
pledge collateral to a Board-regulated institution for a single 
financial contract or for all financial contracts in a netting set and 
confers upon the Board-regulated institution a perfected, first-
priority security interest (notwithstanding the prior security interest 
of any custodial agent), or the legal equivalent thereof, in the 
collateral posted by the counterparty under the agreement. This 
security interest must provide the Board-regulated institution with a 
right to close-out the financial positions and liquidate the collateral 
upon an event of default of, or failure to perform by, the counterparty 
under the collateral agreement. A contract would not satisfy this 
requirement if the Board-regulated institution's exercise of rights 
under the agreement may be stayed or avoided under applicable law in 
the relevant jurisdictions, other than:
    (1) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under 
any similar insolvency law applicable to GSEs, or laws of foreign 
jurisdictions that are substantially similar \4\ to the U.S. laws 
referenced in this paragraph (1) in order to facilitate the orderly 
resolution of the defaulting counterparty; or
---------------------------------------------------------------------------

    \4\ The Board expects to evaluate jointly with the OCC and 
Federal Deposit Insurance Corporation whether foreign special 
resolution regimes meet the requirements of this paragraph.
---------------------------------------------------------------------------

    (2) Where the agreement is subject by its terms to any of the laws 
referenced in paragraph (1) of this definition.
* * * * *
    Eligible margin loan means:
    (1) * * *
    (iii) The extension of credit is conducted under an agreement that 
provides the Board-regulated institution the right to accelerate and 
terminate the extension of credit and to liquidate or set-off 
collateral promptly upon an event of default, including upon an event 
of receivership, insolvency, liquidation, conservatorship, or similar 
proceeding, of the counterparty, provided that, in any such case, any 
exercise of rights under the agreement will not be stayed or avoided 
under applicable law in the relevant jurisdictions, other than in 
receivership, conservatorship, or resolution under the Federal Deposit 
Insurance Act, Title II of the Dodd-Frank Act, or under any similar 
insolvency law applicable to GSEs,\5\ or laws of foreign jurisdictions 
that are substantially similar \6\ to the U.S. laws referenced in this 
paragraph in order to facilitate the orderly resolution of the 
defaulting counterparty; or
---------------------------------------------------------------------------

    \5\ This requirement is met where all transactions under the 
agreement are (i) executed under U.S. law and (ii) constitute 
``securities contracts'' under section 555 of the Bankruptcy Code 
(11 U.S.C. 555), qualified financial contracts under section 
11(e)(8) of the Federal Deposit Insurance Act, or netting contracts 
between or among financial institutions under sections 401-407 of 
the Federal Deposit Insurance Corporation Improvement Act or the 
Federal Reserve Board's Regulation EE (12 CFR part 231).
    \6\ The Board expects to evaluate jointly with the OCC and 
Federal Deposit Insurance Corporation whether foreign special 
resolution regimes meet the requirements of this paragraph.
---------------------------------------------------------------------------

* * * * *
    Qualifying master netting agreement means a written, legally 
enforceable agreement provided that:
    (1) The agreement creates a single legal obligation for all 
individual transactions covered by the agreement upon an event of 
default following any stay permitted by paragraph (2) of this 
definition, including upon an event of receivership, conservatorship, 
insolvency, liquidation, or similar proceeding, of the counterparty;
    (2) The agreement provides the Board-regulated institution the 
right to accelerate, terminate, and close-out on a net basis all 
transactions under the agreement and to liquidate or set-off collateral 
promptly upon an event of default, including upon an event of 
receivership, conservatorship, insolvency, liquidation, or similar 
proceeding, of the counterparty, provided that, in any such case, any 
exercise of rights under the agreement will not be stayed or avoided 
under applicable law in the relevant jurisdictions, other than:
    (i) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under 
any similar insolvency law applicable to GSEs, or laws of foreign 
jurisdictions that are substantially similar \7\ to the U.S. laws 
referenced in this paragraph (2)(i) in

[[Page 78296]]

order to facilitate the orderly resolution of the defaulting 
counterparty; or
---------------------------------------------------------------------------

    \7\ The Board expects to evaluate jointly with the OCC and 
Federal Deposit Insurance Corporation whether foreign special 
resolution regimes meet the requirements of this paragraph.
---------------------------------------------------------------------------

    (ii) Where the agreement is subject by its terms to, or 
incorporates, any of the laws referenced in paragraph (2)(i) of this 
definition;
    (3) The agreement does not contain a walkaway clause (that is, a 
provision that permits a non-defaulting counterparty to make a lower 
payment than it otherwise would make under the agreement, or no payment 
at all, to a defaulter or the estate of a defaulter, even if the 
defaulter or the estate of the defaulter is a net creditor under the 
agreement); and
    (4) In order to recognize an agreement as a qualifying master 
netting agreement for purposes of this subpart, a Board-regulated 
institution must comply with the requirements of Sec.  217.3(d) with 
respect to that agreement.
* * * * *
    Repo-style transaction means a repurchase or reverse repurchase 
transaction, or a securities borrowing or securities lending 
transaction, including a transaction in which the Board-regulated 
institution acts as agent for a customer and indemnifies the customer 
against loss, provided that:
    (3) * * *
    (ii) * * *
    (A) The transaction is executed under an agreement that provides 
the Board-regulated institution the right to accelerate, terminate, and 
close-out the transaction on a net basis and to liquidate or set-off 
collateral promptly upon an event of default, including upon an event 
of receivership, insolvency, liquidation, or similar proceeding, of the 
counterparty, provided that, in any such case, any exercise of rights 
under the agreement will not be stayed or avoided under applicable law 
in the relevant jurisdictions, other than in receivership, 
conservatorship, or resolution under the Federal Deposit Insurance Act, 
Title II of the Dodd-Frank Act, or under any similar insolvency law 
applicable to GSEs, or laws of foreign jurisdictions that are 
substantially similar \8\ to the U.S. laws referenced in this paragraph 
(3)(ii)(a) in order to facilitate the orderly resolution of the 
defaulting counterparty; or
---------------------------------------------------------------------------

    \8\ The Board expects to evaluate jointly with the OCC and 
Federal Deposit Insurance Corporation whether foreign special 
resolution regimes meet the requirements of this paragraph.
---------------------------------------------------------------------------

* * * * *

PART 249--LIQUIDITY RISK MEASUREMENT STANDARDS (REGULATION WW)

0
7. The authority citation for part 249 continues to read as follows:

    Authority:  12 U.S.C. 248(a), 321-338a, 481-486, 1467a(g)(1), 
1818, 1828, 1831p-1, 1831o-1, 1844(b), 5365, 5366, 5368.


0
8. Section 249.3 is amended by:
0
a. Revising the definition of ``qualifying master netting agreement''; 
and
0
b. In paragraph (2) of the definition of ``regulated financial 
company'', redesignating footnote 1 as footnote 2.


Sec.  249.3  Definitions.

* * * * *
    Qualifying master netting agreement means a written, legally 
enforceable agreement provided that:
    (1) The agreement creates a single legal obligation for all 
individual transactions covered by the agreement upon an event of 
default following any stay permitted by paragraph (2) of this 
definition, including upon an event of receivership, conservatorship, 
insolvency, liquidation, or similar proceeding, of the counterparty;
    (2) The agreement provides the Board-regulated institution the 
right to accelerate, terminate, and close-out on a net basis all 
transactions under the agreement and to liquidate or set-off collateral 
promptly upon an event of default, including upon an event of 
receivership, conservatorship, insolvency, liquidation, or similar 
proceeding, of the counterparty, provided that, in any such case, any 
exercise of rights under the agreement will not be stayed or avoided 
under applicable law in the relevant jurisdictions, other than:
    (i) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under 
any similar insolvency law applicable to GSEs, or laws of foreign 
jurisdictions that are substantially similar \1\ to the U.S. laws 
referenced in this paragraph (2)(i) in order to facilitate the orderly 
resolution of the defaulting counterparty; or
---------------------------------------------------------------------------

    \1\ The Board expects to evaluate jointly with the OCC and 
Federal Deposit Insurance Corporation whether foreign special 
resolution regimes meet the requirements of this paragraph.
---------------------------------------------------------------------------

    (ii) Where the agreement is subject by its terms to, or 
incorporates, any of the laws referenced in paragraph (2)(i) of this 
definition;
    (3) The agreement does not contain a walkaway clause (that is, a 
provision that permits a non-defaulting counterparty to make a lower 
payment than it otherwise would make under the agreement, or no payment 
at all, to a defaulter or the estate of a defaulter, even if the 
defaulter or the estate of the defaulter is a net creditor under the 
agreement); and
    (4) In order to recognize an agreement as a qualifying master 
netting agreement for purposes of this subpart, a Board-regulated 
institution must comply with the requirements of Sec.  249.4(a) with 
respect to that agreement.
* * * * *

    Dated: December 16, 2014.
Thomas J. Curry,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, December 16, 2014.
Margaret McCloskey Shanks,
Deputy Secretary of the Board.
[FR Doc. 2014-30218 Filed 12-29-14; 8:45 am]
BILLING CODE P