Alert July 23, 2013

FRB Amends Discount Window Operating Circular to Comply with Dodd-Frank Act Swaps Pushout Rule

The FRB revised its Operating Circular No. 10 (“OC-10”) to add a new appendix 6 entitled “Prohibition Against Federal Assistance to Any Swaps Dealer” (“Appendix 6”).  OC-10 concerns the FRB’s discount window and sets forth the terms under which an entity may, in accordance with the Federal Reserve Act, obtain advances from, incur obligations to, or pledge collateral to a Federal Reserve Bank.  Appendix 6 amends OC-10 to bring the FRB discount window operations and procedures  into compliance with Section 716 of the Dodd-Frank Act (the “Swaps Pushout Rule”), which prohibits any “federal assistance” from being provided to any “swaps entity.”  A “swaps entity” is: (1) a swap dealer registered under the Commodity Exchange Act; (2) a security-based swap dealer registered under the Securities Exchange Act; (3) a major swap participant registered under the Commodity Exchange Act that is not an FDIC-insured depository institution; or (4) a major security-based swap participant registered under the Securities Exchange Act that is not an FDIC-insured depository institution.  The Swaps Pushout  Rule requires (subject to certain exemptions, transition periods, grandfathering and other relief provisions) that an FDIC-insured depository institution that is registered as a swap dealer “push out” its swap activities to a non-FDIC-insured, non-bank affiliate if the institution wishes to borrow from the FRB’s discount window.

Appendix 6 became effective on July 16, 2013.