Banking & Supervision

A final rule, published July 1, 2020 in the Federal Register, amends the Swap Margin Rule to (i) facilitate transition away from LIBOR and (ii) allow firms additional flexibility to allocate collateral internally. The final rule allows swap entities to amend legacy swaps to replace the reference to LIBOR, or other reference rates expected to end, without triggering margin exchange requirements. Swap entities may conduct risk-reducing portfolio compression or make certain other non-substantive amendments to their legacy swap portfolios without altering their legacy status.  Additionally, under the final rule, entities that are part of the same banking organization generally will no longer be required to hold a specific amount of initial margin for inter-affiliate swaps, except if a depository institution's total exposure to all affiliates exceeds 15 percent of its Tier 1 capital.  This final rule is effective as of August 31, 2020.

An interim final rule, published June 1, 2020 in the Federal Register, temporarily revises the supplementary leverage ratio calculation for depository institutions to allow them greater flexibility to act as financial intermediaries during this period of financial disruption. The interim final rule permits depository institutions to choose to exclude U.S. Treasury securities and deposits at Federal Reserve Banks from their calculation of the supplementary leverage ratio. This option is available to depository institution subsidiaries of U.S. global systemically important bank holding companies and depository institutions subject to the Category II or Category III capital standards.  If a depository institution makes this election, it will be required to request approval from its primary federal banking regulator before making capital distributions, such as paying dividends to its parent company, as long as the exclusion is in effect.  This interim final rule is effective from June 1, 2020 through March 31, 2021.  The deadline for public comment is July 16, 2020.