Government Regulators Make Recommendations to ISDA (with Lofchie Comment)
The Federal Deposit Insurance Corporation ("FDIC"), the Bank of England, the German Federal Financial Supervisory Authority ("BaFin") and the Swiss Financial Market Supervisory Authority ("FINMA"), known collectively as the "resolution authorities", jointly authored a letter to encourage the International Swaps and Derivatives Association, Inc. ("ISDA") to adopt language in derivatives contracts that would delay the early termination of those instruments in the event of a resolution of a global systemically important financial institution ("G-SIFI"). According to the letter, the resolution authorities express support changes ISDA's standard documentation to provide for short-term suspension of early termination rights and other remedies in the event of a G-SIFI resolution. The adoption of such changes would allow derivatives contracts to remain in effect throughout the resolution process following the implementation of a number of potential resolution strategies.
Lofchie Comment: It is a notion of doubtful merit that regulators are advocating that market participants adopt amendments to their contracts that are likely to be unfavorable to both parties, so as to give the regulators more discretionary power. Further, all ISDA can do is provide a mechanism for amending contracts. It can not require parties to accept these changes, and it would seem unlikely that parties are likely to amend their agreements in ways that are mutually detrimental.