News & Press: Newswire

Fed Rule would Address Contractual Chaos in Bank Bankruptcies

Tuesday, May 03, 2016   (0 Comments)
Posted by: Sharon Edmondson
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The Federal Reserve this afternoon will propose a long-awaited regulation that would indirectly force asset managers, insurance companies and other firms that enter into certain financial contracts with the biggest banks to wait before closing out the agreements when the bank they trade with files for bankruptcy.

Global systematically important banks, based in the US, as well as the US operations of foreign important banks would be required to impose a stay of one business day or 48 hours before their trading partners could exit contracts in the event that the bank files for bankruptcy.  The regulation is a follow-up to a voluntary agreement organized by the International Swaps and Derivatives Association, where the world’s largest banks agreed to recognize the stay on “early termination” rights in their agreements with each other.

A copy of the Federal Reserve Rule memo can be found here.


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