New Requirements for Financial Contracts Limit Exercise of Default Rights to Support GSIB Resolution

US banking regulators have introduced rules imposing new requirements on the terms of certain swaps, repos and other qualified financial contracts (QFCs) entered into by US global systemically important banking organizations (GSIBs) and the US operations of non-US GSIBs.

In an effort to support the ability of failing GSIBs to be recapitalized on a going-concern basis or otherwise resolved, these rules require contractual provisions limiting the ability of counterparties to exercise default rights arising in the context of a GSIB resolution and ensure that actions taken under US resolution regimes are enforceable on a cross border basis.

Complying with these requirements will require amendments to a significant portion of existing QFC documentation, imposing compliance burdens on both GSIBs and their counterparties.  QFCs can be conformed individually or through protocols, such as the ISDA 2015 Universal Resolution Stay Protocol.