The International Swaps and Derivatives Association, Inc., or ISDA, announced that 18 major global banks, referred to as G-18, have agreed to sign a new ISDA Resolution Stay Protocol. The Protocol was developed in coordination with the Financial Stability Board to support cross-border resolution and reduce systemic risk. ISDA believes this represents a major step in strengthening systemic stability and reducing the risk that banks are considered ‘too big to fail’.
The Protocol will impose a stay on cross-default and early termination rights within standard ISDA derivatives contracts between G-18 firms in the event one of them is subject to resolution action in its jurisdiction. According to ISDA, the stay is intended to give regulators time to facilitate an orderly resolution of a troubled bank.
The terms of the Protocol have been agreed in principle, and it is scheduled for implementation in early November. The Protocol will take effect from January 1, 2015, and will govern both new and existing trades between adhering parties.
The first wave of adhering firms consists of the following banks and certain of their subsidiaries: Bank of America Merrill Lynch, Bank of Tokyo-Mitsubishi UFJ, Barclays, BNP Paribas, Citigroup, Crédit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan Chase, Mizuho Financial Group, Morgan Stanley, Nomura, Royal Bank of Scotland, Société Générale, Sumitomo Mitsui Financial Group and UBS.
The Fed and the FDIC sent out a joint release praising the Protocol.