[Federal Register Volume 78, Number 5 (Tuesday, January 8, 2013)]
[Notices]
[Pages 1306-1307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-00093]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket ID OCC-2013-0001]


Transition Period Under Section 716 of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act

AGENCY: Office of the Comptroller of the Currency, Department of the 
Treasury.

ACTION: Notice of guidance.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
notifying insured Federal depository institutions \1\ that are or may 
become swap dealers that the OCC is prepared to consider favorably 
requests for a transition period pursuant to section 716(f) of the 
Dodd-Frank Act, provided that such requests conform to the procedures 
and conditions established in this notice.
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    \1\ Insured Federal depository institution means an entity that 
is a Federal depository institution and an insured depository 
institution under the Federal Deposit Insurance Act. See 12 U.S.C. 
1813(c)(2) and (4). National banks, Federal savings associations and 
insured Federal Branches are insured Federal depository 
institutions.

DATES: This guidance is effective immediately. Written requests for 
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transition periods should be submitted to the OCC by January 31, 2013.

FOR FURTHER INFORMATION CONTACT: Roman Goldstein, Senior Attorney, Ted 
Dowd, Assistant Director, or Ellen Broadman, Director, Securities and 
Corporate Practices Division, (202) 649-5510, 400 7th St. SW., 
Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

A. Background

    Section 716 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) prohibits providing Federal assistance 
to swaps entities, a term that includes Federal depository institutions 
\2\ that are swap dealers.\3\ The prohibition does not apply to insured 
depository institutions that limit their swap activities to those 
activities specified in section 716(d) (conforming swap activities). 
The OCC, Board of Governors of the Federal Reserve System (Board), and 
Federal Deposit Insurance Corporation (FDIC) jointly issued guidance 
that section 716's effective date is July 16, 2013.\4\
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    \2\ 12 U.S.C. 1813(c)(4).
    \3\ Except as otherwise specified, this notice refers to both 
swaps and security-based swaps as swaps, and both swap dealers and 
security-based swap dealers as swap dealers.
    \4\ Guidance on the Effective Date of Section 716, 77 FR 27465 
(May 10, 2012).
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    Section 716(f) provides that the appropriate Federal banking agency 
shall permit a transition period, as appropriate, for insured 
depository institution swap entities to divest or cease nonconforming 
swap activities.\5\ The prohibition on Federal assistance does not 
apply during this transition period. The transition period, which 
begins on the effective date, initially may be up to 24 months, as 
determined by the insured depository institution's appropriate Federal 
banking agency \6\ in consultation with the Commodity Futures Trading 
Commission (CFTC) and the Securities and Exchange Commission (SEC). The 
appropriate Federal banking agency, after consulting with the CFTC and 
SEC, may extend the transition period for up to one additional year.
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    \5\ See Dodd-Frank Act section 716(f), 15 U.S.C. 8305(f).
    \6\ The OCC is the appropriate Federal banking agency of Federal 
depository institutions. 12 U.S.C. 1813(q)(1).
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    In establishing the length of a transition period for an insured 
depository institution, the appropriate Federal banking agency must 
take into account and make written findings regarding the potential 
impact of the divestiture or cessation of nonconforming swap activities 
on the institution's (1) mortgage lending, (2) small business lending, 
(3) job creation, and (4) capital formation versus the potential 
negative impact on insured depositors and the FDIC's Deposit Insurance 
Fund (DIF). The appropriate Federal banking agency may consider such 
other factors as it deems appropriate.

[[Page 1307]]

B. Transition Period

    For the following reasons, the OCC has concluded that transition 
periods should be provided to insured Federal depository institutions 
to provide sufficient opportunity for institutions to conform their 
swaps activities in an orderly manner. First, section 716 assumes a 
regulatory framework that is not yet complete. Further development of 
the Title VII regulatory framework is necessary for insured Federal 
depository institutions to make well-informed determinations concerning 
business restructurings that may be necessary for section 716 
conformance.\7\ Second, the provision of transition periods while the 
Title VII regulatory framework continues to develop will provide 
regulatory certainty for insured Federal depository institutions in the 
near term and will mitigate potential disruptions to client 
services.\8\ Third, transition periods will mitigate operational and 
credit risks for insured Federal depository institutions.\9\
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    \7\ Furthermore, mandatory clearing rules are not in place for 
many standardized credit default swaps (CDS) and the market has not 
moved to cleared CDS for a variety of products. Section 716(d)(3) 
provides that an insured depository institution may act as a swaps 
entity for CDS if they are cleared.
    \8\ The Commodity Futures Trading Commission recently exempted 
certain swap dealers from certain requirements imposed by title VII 
of the Dodd-Frank Act in order to ensure an orderly transition to 
the new regulatory regime and to provide greater legal certainty to 
market participants. Final Exemptive Order Regarding Compliance with 
Certain Swap Regulation, at 58 (Dec. 21, 2012), available at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/federalregister122112.pdf.
    \9\ Transition periods will provide appropriate time for 
institutions to negotiate and document new master swap agreements 
individually with each of their clients, customers, and 
counterparties as necessary for section 716 conformance. 
Additionally, a transition period will provide more time for the 
transfer of non-conforming swaps activities to affiliates, including 
in some cases the establishment of new affiliates entailing 
requisite regulatory approvals from the SEC, CFTC, and state 
authorities, and in all cases the transfer of back-office functions 
and the making of necessary arrangements for the custody of customer 
margin collateral.
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    Section 716 anticipates that transition periods will be provided to 
avoid unwanted adverse consequences from premature implementation of 
section 716. For the reasons discussed above, the OCC believes that 
implementation of section 716 without transition periods would cause 
unwanted adverse consequences and that transition periods therefore are 
appropriate. Accordingly, an insured Federal depository institution 
that is or will be a swaps entity and that seeks a transition period 
for its nonconforming swaps activities should formally request a 
transition period from the OCC.\10\ The OCC is prepared to consider 
such requests favorably, provided that the requests conform to the 
guidance provided below.
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    \10\ An insured depository institution whose swap activities are 
presently limited to conforming swap activities is not eligible for 
a transition period because it would not be subject to the 
prohibition on Federal assistance. See Dodd-Frank Act section 
716(f), 15 U.S.C. 8305(f).
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    Each request must be written and specify the transition period 
appropriate to the institution, up to a two-year transition period 
commencing from July 16, 2013. The request must also discuss:
    1. The institution's plan for conforming its swap activities;
    2. How the requested transition period would mitigate adverse 
effects on mortgage lending, small business lending, job creation, and 
capital formation;
    3. The extent to which the requested transition period could have a 
negative impact on the institution's insured depositors and the DIF;
    4. Operational risks and other safety and soundness concerns that a 
transition period would mitigate.
    5. Other facts that the institution believes the OCC should 
consider.

An insured Federal depository institution that is unsure if or when it 
will be or become a swaps entity may request a transition period. The 
request must contain the elements described above and additionally 
explain why the institution believes it might be or become a swaps 
entity under the CFTC's definition of swap dealer or the SEC's 
definition of security-based swap dealer.\11\ The OCC may require a 
requesting insured Federal depository institution to provide additional 
information before establishing a transition period. The OCC may impose 
such conditions on a transition period as it deems necessary and 
appropriate.\12\
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    \11\ See Further Definition of Swap Dealer, 77 FR 30595 (May 23, 
2012).
    \12\ See Dodd-Frank Act section 716(f), 15 U.S.C. 8305(f).(

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    Authority: 15 U.S.C. 8305.

    Dated: December 31, 2012.
Thomas J. Curry,
Comptroller of the Currency.
[FR Doc. 2013-00093 Filed 1-7-13; 8:45 am]
BILLING CODE P