National Banks Respond to Transition Period by Section 716(f) of the Dodd-Frank Act
Commentary by Scott Cammarn
The Office of the Comptroller of the Currency ("OCC") issued identical letters to seven national banks approving their requests for a 24-month transition period under Section 716 of the Dodd-Frank Act (commonly known as the "Lincoln Amendment"). The letters, which track the statutory language of Section 716, allow the banks additional time under the transition period to cease or divest their swaps activities after the effective date of the Lincoln Amendment on July 16, 2013.
Letters: Bank of America; Citibank; Wells Fargo; HSBC; JPMC; Morgan Stanley; U.S. Bank. Related News Items: FRB Provides Lincoln (Push Out) Relief to U.S. Branches of Non-U.S. Banks (Regulation KK) (with Cammarn Comment) (June 5, 2013); SIFMA Welcomes OCC's Two-Year Relief on Swap Push-Out Effective Date (June 12, 2013).
Commentary
The OCC's seven identical approvals uniformly grant the full 24-month transition period to all seven banks. The OCC's observation of why the full 24-month period is warranted is particularly noteworthy: "[A] significantly shorter or no transition period could result in disorderly termination or divestiture of swaps activities and considerable disruption to swaps markets and financial markets that could weaken lending markets and result in a similar negative impact on job creation and capital formation."
This observation raises the question of whether implementation of the Lincoln Amendment makes any prudential sense at all, especially given the numerous other provisions in Dodd-Frank designed to manage swaps-related risk, including all of Title VII, the Volcker Rule, and lending limit and Section 23A reforms.