OCC’s Final Lending Limits Rule: Key Implications for Derivatives and Securities Financing

Last June, the Office of the Comptroller of the Currency issued an interim final rule to incorporate credit exposures arising from derivative transactions and from repurchase/reverse repurchase agreements and securities lending/borrowing transactions into the National Bank Act’s lending limits. The interim rule evidenced considerable flexibility in approach, provided banks with a choice of methodologies to calculate credit exposure and demonstrated the OCC’s continued support for internal models for calculating credit exposures at a time when model skepticism has become increasingly evident in the regulatory community.

On June 20, 2013, the OCC amended and finalized the interim rule, reaffirming its commitment to flexibility in rulemakings. The OCC’s final rule leaves the Interim Rule’s overall approach to derivatives and securities financing transactions largely intact, but the OCC made several important decisions in the final rule that reflect careful consideration of the comments received on the interim rule. The attached memorandum describes the most noteworthy of the OCC’s decisions and their implications for the banking industry.