House Financial Services Committee Chair Hensarling Questions FRB and FDIC about Early Derivatives Termination Rights

House Financial Services Committee Chair Jeb Hensarling (R-TX) wrote a letter to Federal Reserve Board ("FRB") Chair Janet Yellen and FDIC Chair Martin Gruenberg regarding the regulators' approach toward changing derivatives termination rights.

Chair Hensarling explained that, at a September 9, 2014 hearing, Chair Gruenberg and Governor Daniel Tarullo of the FRB testified that the FRB and FDIC are working with international counterparts to make changes to the ISDA Master Agreement, which is designed to limit the early termination rights of derivatives counterparties. According to Chair Hensarling, the officials indicated their "intention to require that regulated banks use the new ISDA protocols in swap agreements."

Chair Hensarling stated that he expects "regulatory action of this magnitude" to occur by way of a deliberative and transparent process that includes publishing a notice in the Unified Agenda of Federal Regulatory and Deregulatory Actions and releasing the proposal for notice and comment, as required by the Administrative Procedures Act.

Additionally, he expressed concern about "the threat to the rule of law" posed by the approach taken by the FRB and FDIC, stating that it will "evade both Congressional deliberation and agency notice and comment."

Chair Hensarling requested that the FRB and FDIC each provide a written response to his questions regarding their approach by October 7, 2014.

See: Chair Hensarling's Letter.