The so-called “Push-Out Rule” relating to swap activity conducted by banks has been significantly narrowed in scope by a provision in the Consolidated and Further Continuing Appropriations Act, 2015 (Spending Bill), which was signed into law by President Obama on Tuesday. Under the Push-Out Rule (Section 716 of the Dodd-Frank Wall Street Reform and Consumer Protection Act), which provides that a bank swap dealer is not entitled to any federal assistance (including federal deposit insurance) in connection with its swap activities, every bank swap dealer faced the prospect of being forced to transfer (or push out) all or part of its swap portfolio to affiliated non-bank entities in order to avoid violation of the rule when it comes into full effect next July. The Push-Out Rule had a number of important exceptions that were available to insured depository institutions, but not to uninsured US branches and agencies of non-US banks until the Federal Reserve issued a rule saying that non-US banks were entitled to the same exceptions; however, the exceptions generally complicated matters rather than providing complete relief to affected banks.

The Spending Bill amends Section 716 so that a bank can continue to be a counterparty to all types of swaps except for certain “structured finance swaps.” A “structured finance swap” is defined as a swap or security-based swap that is based on an asset-backed security (or group or index primarily comprised of asset-backed securities). Revised Section 716, however, even permits a bank to enter into structured finance swaps as principal if (i) the swap is undertaken for hedging or risk management purposes or (ii) the relevant underlying asset-backed securities meet yet-to-be-created criteria established by the banking regulators. The amendments to the Push-Out Rule also codify the Federal Reserve’s position that US and non-US banks should be treated equally for purposes of the Push-Out Rule. 

The text of the amendment can be found on pages 249–250 of the Spending Bill.