Federal Reserve Board Proposes to Expand Netting Protections of FDICIA to Additional Institutions

On May 2, 2019, the Board of Governors of the Federal Reserve System proposed amendments to Regulation EE to expand the definition of “financial institution” for purposes of the bilateral netting provisions of Federal Deposit Insurance Corporation Improvement Act of 1991.

The Proposal would provide that the following types of entities constitute “financial institutions” for purposes of FDICIA:

• registered swap dealers, security-based swap dealers, major swap participants and major security-based swap participants;
• designated nonbank systemically important financial institutions;
• U.S.-registered central counterparties;
• designated financial market utilities;
• bridge institutions;
• Federal Reserve Banks; and
• foreign banks.

The Proposal would also clarify how the quantitative prong of the existing Regulation EE test applies following a consolidation.

With limited exceptions, the Proposal would not materially augment market participants’ ability to exercise netting rights, since many of the institutions above would likely already be “financial institutions” under FDICIA or otherwise subject to insolvency regimes that respect netting rights. The Proposal appears aimed, instead, at eliminating uncertainty under existing law.