On Wednesday, the FDIC finalized restrictions on qualified financial contracts (QFCs) of state-chartered non-Fed-member banks for which the FDIC is the primary federal regulator (FSIs). The types of QFCs that are impacted by this rule include derivative transactions, repurchase agreements, reverse repurchase agreements, and securities lending and borrowing agreements. The purpose of the rule is to facilitate an orderly resolution of a failed institution by limiting the ability of the firm’s QFC counterparties to terminate contracts immediately upon the entry of the covered entity or one of its affiliates into resolution.

The rule will require FSIs and their subsidiaries to ensure that covered QFCs to which they are a party provide that any default rights and restrictions on the transfer of the QFCs are limited to the same extent as they would be under the Dodd-Frank Act and the FDI Act. Additionally, covered FSIs would be prohibited from being a party to QFCs that would allow a QFC counterparty to exercise default rights against the covered FSI based on the entry into resolution proceeding under the FDI Act, or any other resolution proceeding of an affiliate of the covered FSI. Also amended under this rule is the definition of “qualified master netting agreement” in the FDIC’s capital and liquidity rules, and certain related terms in the FDIC’s capital rules to ensure that the regulatory capital and liquidity treatment of QFCs to which a covered FSI is a party would not be affected by the restrictions on such QFCs.

The rule is substantively identical to QFC rules finalized by the Federal Reserve and OCC that apply to institutions supervised by those agencies. The final rule, finalized September 27, 2017, will take effect January 1, 2018. For more information, click here to view the ABA Banking Journal article discussing the rule.