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.

Rules and Regulations Federal Register

78287 

Vol. 79, No. 249 

Tuesday, December 30, 2014 

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. 


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78288 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Rules and Regulations 

1See 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. 

2See section 2 of the regulatory capital rules. 

3See 12 U.S.C. 5390(c)(8)–(16). 

4See 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. 

5See ISDA Protocol at http://assets.isda.org/

media/f253b540-25/958e4aed.pdf/. 

6The 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. 

• 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 closeout 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. 

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. 

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. 

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 


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Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Rules and Regulations 78289 

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. 

10See 12 CFR part 32. 

11On January 1, 2015, most of the provisions of 

the BRRD are expected to take effect in a number 

of the EU member states. 

12The 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. 

13The 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. 

14The 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, 

Continued 

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, repostyle 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. 

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 nondefaulting 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 DoddFrank 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


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78290 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Rules and Regulations 

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 globallyactive 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. 

15As 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/protocolmanagement/protocol-adherence/20. 

16Under 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. 

17The 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. 

18Parties 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. 

19Under 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). 

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. 

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. 

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

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

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. 


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20The agencies’ LCR rules will be codified at 12 

CFR part 50 (OCC) and 12 CFR part 249 (Board). 

21See 12 CFR l .32(c) and l .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). 

22See 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. 

23Under 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). 

24Annexes 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. 25 79 FR 57348 (September 24, 2014). 

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. 

III. The Interim Final Rule 

The interim final rule amends the 

definitions of ‘‘collateral agreement,’’ 

‘‘eligible margin loan,’’ ‘‘qualifying 

master netting agreement,’’ and ‘‘repostyle 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

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. 

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 


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78292 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Rules and Regulations 

26Under 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. 

27 5 U.S.C. 553(b)(B). 

28 5 U.S.C. 553(d)(3). 

29The United Kingdom published a consultative 

paper in July 2014 regarding the implementation of 

the BRRD. 

30The 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. 

31The 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). 

‘‘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. 

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

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. 

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

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. 

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 


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Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Rules and Regulations 78293 

32Under 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. 

33See 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). 

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. 

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. 

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 crossborder 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-LeachBliley 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 

■ 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] 

■ 1a. Part 3 is amended by redesignating 

footnotes 5 through 29 as footnotes 9 

through 33, respectively. 

■ 2. Section 3.2 is amended by: 

■ a. Revising the definitions of 

‘‘collateral agreement’’ and ‘‘qualifying 

master netting agreement’’; 

■ b. Revising paragraph (1)(iii) of the 

definition of ‘‘eligible margin loan’’; 

■ c. Republishing the introductory text 

of the definition of ‘‘repo-style 

transaction’’; and 

■ d. Revising paragraph (3)(ii)(A) of the 

definition of ‘‘repo-style transaction’’. 

The revisions are set forth below: 

§ 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 


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4The OCC expects to evaluate jointly with the 

Board and FDIC whether foreign special resolution 

regimes meet the requirements of this paragraph. 

5This 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). 

6The OCC expects to evaluate jointly with the 

Board and FDIC whether foreign special resolution 

regimes meet the requirements of this paragraph. 

7The OCC expects to evaluate jointly with the 

Board and FDIC whether foreign special resolution 

regimes meet the requirements of this paragraph. 

8The OCC expects to evaluate jointly with the 

Board and FDIC whether foreign special resolution 

regimes meet the requirements of this paragraph. 

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 DoddFrank 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 

(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 DoddFrank 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 

* * * * * 

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 DoddFrank 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 

(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 

§ 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 closeout 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 

* * * * * 

PART 50—LIQUIDITY RISK 

MEASUREMENT STANDARDS 

■ 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. 

■ 4. Section 50.3 is amended by: 

■ a. Revising the definition of 

‘‘qualifying master netting agreement’’; 

and 

■ b. In paragraph (2) of the definition of 

‘‘regulated financial company’’, 

redesignating footnote 1 as footnote 2. 

The revision is set forth below. 

§ 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 


tkelley on DSK3SPTVN1PROD with RULES
Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Rules and Regulations 78295 

1The OCC expects to evaluate jointly with the 

Board and FDIC whether foreign special resolution 

regimes meet the requirements of this paragraph. 

4The Board expects to evaluate jointly with the 

OCC and Federal Deposit Insurance Corporation 

whether foreign special resolution regimes meet the 

requirements of this paragraph. 

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). 

6The Board expects to evaluate jointly with the 

OCC and Federal Deposit Insurance Corporation 

whether foreign special resolution regimes meet the 

requirements of this paragraph. 

7The Board expects to evaluate jointly with the 

OCC and Federal Deposit Insurance Corporation 

whether foreign special resolution regimes meet the 

requirements of this paragraph. 

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 DoddFrank 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 

(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 

§ 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) 

■ 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] 

■ 5a. Part 217 is amended by 

redesignating footnotes 5 through 29 as 

footnotes 9 through 33, respectively. 

■ 6. Section 217.2 is amended by: 

■ a. Revising the definitions of 

‘‘collateral agreement’’ and ‘‘qualifying 

master netting agreement’’; 

■ b. Revising paragraph (1)(iii) of the 

definition of ‘‘eligible margin loan’’; 

■ c. Republishing the introductory text 

of the definition of ‘‘repo-style 

transaction’’; and 

■ d. Revising paragraph (3)(ii)(A) of the 

definition of ‘‘repo-style transaction’’. 

The revisions are set forth below: 

§ 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 Boardregulated institution a perfected, firstpriority 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 DoddFrank 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 

(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 

* * * * * 

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 Boardregulated 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 DoddFrank 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 


tkelley on DSK3SPTVN1PROD with RULES
78296 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Rules and Regulations 

8The Board expects to evaluate jointly with the 

OCC and Federal Deposit Insurance Corporation 

whether foreign special resolution regimes meet the 

requirements of this paragraph. 

1The Board expects to evaluate jointly with the 

OCC and Federal Deposit Insurance Corporation 

whether foreign special resolution regimes meet the 

requirements of this paragraph. 

order to facilitate the orderly resolution 

of the defaulting counterparty; or 

(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 Boardregulated institution must comply with 

the requirements of § 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 Boardregulated 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 Boardregulated 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 

* * * * * 

PART 249—LIQUIDITY RISK 

MEASUREMENT STANDARDS 

(REGULATION WW) 

■ 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. 

■ 8. Section 249.3 is amended by: 

■ a. Revising the definition of 

‘‘qualifying master netting agreement’’; 

and 

■ b. In paragraph (2) of the definition of 

‘‘regulated financial company’’, 

redesignating footnote 1 as footnote 2. 

§ 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 Boardregulated 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 DoddFrank 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 

(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 Boardregulated institution must comply with 

the requirements of § 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 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Part 34 

[Docket No. OCC–2014–0027] 

RIN 1557–AD90 

BOARD OF GOVERNORS OF THE 

FEDERAL RESERVE SYSTEM 

12 CFR Part 226 

[Docket No. R–1443] 

RIN 7100–AD 90 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Part 1026 

RIN 3170–AA11 

Appraisals for Higher-Priced Mortgage 

Loans Exemption Threshold 

Adjustment—Final Rule 

AGENCY: Board of Governors of the 

Federal Reserve System (Board); Bureau 

of Consumer Financial Protection 

(Bureau); and Office of the Comptroller 

of the Currency, Treasury (OCC). 

ACTION: Final rule; official staff 

interpretations; technical amendment. 

SUMMARY: The OCC, the Board and the 

Bureau are publishing final rules 

amending the official staff 

interpretations for their regulations that 

implement section 129H of the Truth in 

Lending Act (TILA). Section 129H of 

TILA establishes special appraisal 

requirements for ‘‘higher-risk 


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