February 19, 2021

FRB Expands "Netting" Protection Eligibility for Financial Institutions

The Federal Reserve Board adopted a final rule that expands the number of financial institutions that fall under the "netting" provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 (or "FDICIA"). These provisions ensure that parties to a netting contract (i.e., an agreement to pay or receive the net, rather than gross payment) will have a claim for the netted contract amount even in the event of insolvency.

The amendments to Regulation EE ("Netting Eligibility for Financial Institutions") expand the definition of "financial institutions" to include, subject in certain cases to qualification requirements, (i) swap dealers and security-based swap dealers, (ii) foreign banks, (iii) financial market utilities, (iv) bridge institutions, (v) Federal Reserve Banks, (vi) central counterparties, as defined under FRB Rule 217.2 ("Definitions") of Regulation Q, (vii) foreign central banks and (viii) The Bank for International Settlements, among other entities.

In addition to expanding the entities that can benefit from Regulation EE, the amendments also provide somewhat greater clarity as to the manner in which the numerical calculations in the activities-based qualification may be calculated.

The final rule goes into effect 30 days following its publication in the Federal Register.