Fed Releases Final Swaps Push-Out Rule for Foreign Banks

The Federal Reserve completed a rule that gave foreign banks a chance to delay a Dodd-Frank Act requirement that they wall off derivatives trades from their U.S. branches.

The final rule will be effective Jan. 31 and wasn’t changed from an interim version put out in June, the central bank said today in a statement issued in Washington. The rule treats uninsured U.S. branches of foreign banks the same as branches that have government backing, including deposit insurance.

Foreign banks such as Frankfurt-based Deutsche Bank (DB) AG, London-based Standard Chartered Plc (STAN) and Societe Generale SA (GLE), the second-largest French bank, already asked for and received two-year delays earlier this year to comply with the rule by July 2015. U.S. banks such as JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. and Bank of America Corp. had also obtained two-year transition periods to move derivative trading from deposit-taking units.

Dodd-Frank, enacted in 2010, expanded swaps oversight as U.S. lawmakers sought to make markets less vulnerable after the 2008 credit crisis. The so-called push-out rule requires that equity, some commodity and non-cleared credit derivatives be walled off from bank units with access to deposit insurance and the Fed’s discount window.

The regulators had said in letters to the banks that they must determine whether to halt the swaps activity or move it to properly capitalized affiliates.

On Oct. 30, the U.S. House of Representatives passed bipartisan legislation that would undo the Dodd-Frank measure, while a Senate version has failed to advance. The rule was included in Dodd-Frank at the request of former Senator Blanche Lincoln, an Arizona Democrat.

To contact the reporters on this story: Jeff Kearns in Washington at jkearns3@bloomberg.net; Jesse Hamilton in Washington at jhamilton33@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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