OCC Clarifies Expectations Regarding Quantitative Limits on Physical Commodity Transactions

The Office of the Comptroller of the Currency ("OCC") issued a bulletin clarifying the extent to which national banks and federal branches may make or accept delivery of physical commodities to hedge commodity derivatives transactions. The bulletin also provides calculation guidance for determining whether physical hedging activities comprise a normal portion of risk management activities.

Specifically, the bulletin (i) supplements BC-277, which outlines the OCC's supervisory expectations for the prudent risk management of financial derivatives, (ii) clarifies when a bank's physical commodity hedging transactions constitute a nominal percentage of its risk management activities, and (iii) delineates the OCC's expectation that before engaging in physical commodity hedging activities, a bank will submit a detailed plan for such activities to, and receive written supervisory non-objection from, the OCC.

See: OCC Press Release.