On May 3, the Board of Governors of the Federal Reserve System (Board) reviewed a draft rule proposal that would require any US bank holding company identified as a global systemically important banking organization (GSIB), its subsidiaries and the US operations of any foreign GSIB (Covered Entities) to comply with new restrictions regarding non-cleared qualified financial contracts (QFCs). The Board currently estimates that the proposed rule would apply to 29 banking organizations, including eight US holding companies and approximately 21 foreign banking organizations.

Under the draft rule proposal, Covered Entities would be required to ensure that the QFCs that they enter into contain contractual provisions that recognize the automatic stay of termination provisions and transfer provisions applied in resolutions under the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Orderly Liquidation Authority and the Federal Deposit Insurance Act. The proposal also would generally require that the QFCs of Covered Entities prohibit a counterparty to a QFC from exercising default rights based on the entry into resolution of an affiliate of the Covered Entity. The Office of the Comptroller of the Currency is expected to issue a proposed rule subjecting national banks and federal savings associations that are GSIB subsidiaries to substantively identical requirements. Once the draft proposal is finalized and published in the Federal Register, the comment period is expected to be open until August 5.

The draft rule proposal is available here.