In general, banking organizations are currently permitted to calculate their exposure with respect to derivatives transactions on a net basis under relevant regulatory capital and liquidity coverage ratio rules if such transactions are governed by a “qualifying master netting agreement.” The current definition of this term recognizes that a banking organization’s right to exercise its termination rights under these agreements may be stayed if the counterparty is in receivership, conservatorship or resolution under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act. However, this definition does not take into account foreign special resolution regimes, which did not exist when the definition was initially adopted. 

On December 16, the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System issued an interim final rule amending the definition of “qualifying master netting agreement” to permit an agreement to qualify as such even if (i) a party’s default rights under the agreement could be stayed under a qualifying foreign special resolution regime or (ii) the agreement incorporates a qualifying special resolution regime by contract.  

The interim final rule will be effective on January 1, 2015. The agencies are seeking comments until March 3, 2015. 

Click here to read the interim final rule.