On June 5, 2013, the Federal Reserve Board issued interim final rules that grant foreign banks’ uninsured US branches and agencies access to the same swaps push out rules exemptions, transition period, and grandfathering provisions applicable to insured depository institutions. The swaps push-out rule in Section 716 of the Dodd-Frank Act is designed to ensure that banks do not have access to deposit insurance or to the Federal Reserve’s discount window unless the bank ceases to engage in swaps activities altogether or “pushes out” its swap activities to non-bank affiliates. US domiciled banks, however, are eligible for several exemptions from the swaps push out rule. Activities of US banks involving swaps used to hedge or mitigate risk and swaps involving rates or national bank-eligible assets are exempt from the swaps push out rule. The swaps push out rule also authorizes the appropriate US banking regulator, in concert with the CFTC and the SEC, to grant an “insured depository institution” a transition period of up to two years (extendable to three years) to cease any non-exempt swap activities. Further, swaps entered into by an “insured depository institution” prior to the end of its transition period are also exempt from the push out rule. Absent the Fed's June 5, 2013 interim final rules, foreign banks with uninsured US branches were not eligible for any of the exemptions, the transition period, or the grandfathering of swaps transactions. With these new rules, uninsured U.S. branches and agencies of foreign banks would be treated the same as insured US-based depository institutions for the purposes of the push-out rules.

This new pronouncement clarifies a number of uncertainties about the application of the swaps push out rule to non-US banks, and alleviates the rule's potentially discriminatory effect on foreign banks. The new rule also may help to limit any disruption or other negative consequences that could have been experienced by US branches and agencies of foreign banks and the swap markets more broadly.

Though these are interim final rules, they go into effect immediately. Comments on this release will be accepted through August 4, 2013, and the Fed says that the interim final rule will be revised after that date if necessary in light of the comments received.