Federal Banking Regulators Clarify Effective Date for
the Swaps “Push-Out” Rule Under Dodd-FrankApril 2, 2012
On March 30, 2012, the Federal Reserve, the Office of the Comptroller of the Currency, and theFederal Deposit Insurance Corporation jointly issued guidance clarifying that the effective dateof Section 716 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010(“Dodd-Frank”)—known more commonly as the swaps “push-out” rule—is July 16, 2013.
The guidance is in response to inquiries seeking clarification about the effective date.
Confusion surrounded a reference in Section 716 to the effective date being two years following
the date on which “the Act” is effective. The banking regulators concluded that the reference to“the Act” was to Title VII of Dodd-Frank (known as the Wall Street Transparency andAccountability Act of 2010, which became effective on July 16, 2011), rather than Dodd-Frankitself (which became effective on July 21, 2010).
The swaps “push-out” rule prohibits federal assistance to any “swaps entity” with respect toany swap, security-based swap, or other activity of the swaps entity, which includes registered“swap dealers” and “major swap participants”—terms that have yet to be defined by theCommodity Futures Trading Commission and the Securities and Exchange Commission.
Prohibited federal assistance would include, among other things, FDIC deposit insurance orguarantees, advances from Federal Reserve credit facilities or the Federal Reserve’s discountwindow (unless part of a program with broad-based eligibility), loss sharing arrangements, andtax breaks. Subject to important exceptions (such as those relating to bona fide risk-mitigating
hedging activities by banks), the prohibition effectively requires a U.S. depository institution, as
well as a U.S. branch or office of a foreign banking organization, to “push-out” its swap dealing
activities to a separate affiliate within the bank holding company or savings and loan holding
company organization that does not receive federal assistance. The entity engaging in suchactivities would be subject to compliance with the affiliate transaction requirements of Sections
23A and 23B of the Federal Reserve Act, among other things.
As noted earlier, the prohibition on federal assistance to a swaps entity will be effective on July16, 2013. Section 716(f) of Dodd-Frank will generally provide an insured depository institutionthat qualifies as a swaps entity up to two years to divest the part of its business that engages indisqualified derivative activities (including by transfer to an affiliate, as discussed above) orcease these activities altogether. The transition period may be extended by the appropriate
federal banking regulator, after consultation with the CFTC and the SEC, for up to an additionalyear. In the guidance released on March 30, the federal banking regulators stated they intend toinvite comment on a separate proposal that would establish the appropriate transition period
for insured depository institutions.
***Memorandum – April 2, 2012

For more information regarding the swaps push-out rule, please contact any of the members of
our Derivatives and Financial Institutions groups.
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Page 2Memorandum – April 2, 2012

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