Effective July 16, 2013, the Federal Reserve Banks are amending Operating Circular 10, Lending (OC 10), to include a new Appendix 6, “Prohibition Against Federal Assistance to Any Swaps Entity” (Appendix 6). Appendix 6 is intended to ensure that the Federal Reserve Banks comply with the requirements of Section 716 of the Dodd-Frank Act (section 716) when making advances under OC-10. Subject to certain exceptions, section 716 and the Board’s Regulation KK prohibit a Reserve Bank from extending discount window credit to “swaps entities.” A swaps entity includes a person that is registered as a swap dealer, security-based swap dealer, major swap participant, or major security-based swap participant under the Commodity Exchange Act or Securities Exchange Act of 1934, other than an insured depository institution that is registered as a major swap participant or major security-based swap participant. The provisions of section 716 become effective on July 16, 2013.1 On June 5, 2013, the Board issued an interim final rule to clarify that uninsured U.S. branches and agencies of foreign banks are treated as insured depository institutions for purposes of section 716.2
Under Appendix 6, each time on or after July 16, 2013 that a borrower requests an advance under OC-10, it must be, and is deemed to represent, that it is not a swaps entity (as defined above), or it is a swaps entity that is eligible to receive the advance pursuant to one or more subsections of section 716.
Appendix 6 provides that, solely for purposes of the representations therein, a branch or agency of a foreign bank will be treated as the “borrower,” rather than the foreign bank itself. This treatment is consistent with the Board’s interim final rule, which treats the branch or agency (and not the foreign bank itself) as the recipient of Federal Reserve advances.
Appendix 6 acts as an amendment to all existing OC-10 agreements and takes effect automatically. Any pledge of collateral, request for an advance or incurrence of any other obligation under OC 10 constitutes agreement to the new terms of OC 10. Appendix 6 will also form a part of all OC-10 agreements entered into by borrowers in the future.
See the link below on the Federal Reserve Financial Services website for the official version of revised OC 10. To request a paper copy of any operating circular, contact your Customer Contact Center.
1See Guidance on the Effective Date of Section 716 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 77 FR 27465 (May 10, 2012).
2See 78 FR 34545 (June 10, 2012). The interim final rule also set out the process for state member banks and uninsured state branches and agencies of foreign banks to apply to the Board for the compliance transition period provided for in section 716.
