The MFA, the Asset Management Group of SIFMA ("SIFMA AMG"), SIFMA, the American Bankers Association ("ABA") and other trade associations submitted comment letters to the FDIC concerning a proposed rulemaking that would restrict certain contractual provisions in qualified financial contracts entered into by FDIC-supervised institutions that are subsidiaries of certain U.S. and non-U.S. systemically important banking organizations. The proposal would require systemically important banking organizations to amend contracts for common financial transactions in order to prevent the immediate cancellation of the contracts if the organizations entered bankruptcy or a resolution process.
The MFA recognized that the FDIC proposal is part of a series of actions that address the "too-big-too-fail" problem by improving the resolvability of systemically important U.S. banking and foreign banking organizations. The MFA voiced concerns that the proposed rules could create a "run on the bank" problem, since limiting default rights would give end users an incentive to get out of their financial contracts at the first sign of a bank's instability.
SIFMA AMG opposes the proposal's restriction of cross-default rights on the ordinary bankruptcy filing of an affiliate of a covered FDIC-supervised institution. SIFMA AMG urged the FDIC to make a number of changes to the proposed rule in order to "give full consideration to counterparties' interests." Further, SIMFA AMG argued that the objective of securing the cross-border recognition of U.S. special resolution regimes "should be achieved through Congressional action," not FDIC rulemaking.
The Clearing House Association, SIFMA, the ABA, the Financial Services Forum, the Financial Services Roundtable and the Institute of International Bankers (collectively, the "Associations") expressed strong support for the FDIC proposal and for corresponding proposed rules issued by the Board of Governors of the Federal Reserve System ("FRB") and the Office of the Comptroller of the Currency ("OCC"). The Associations stated that the rules are "clear, well-considered efforts to reduce systemic risk with minimal burden while increasing the safety and soundness of [global systemically important banking organizations]." The Associations offered additional recommendations for modifying the proposed rule emphasizing that compliance with the FDIC proposal must be harmonized with that of the FRB and OCC.
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