On June 20, the Office of the Comptroller of the Currency (OCC) adopted an interim final rule amending its lending limit rule to apply to certain credit exposures arising from derivative transactions and securities financing transactions. Effective July 21, 2012, section 610 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). revises the statutory definition of "loans and extensions of credit" for purposes of the lending limit applicable to banks and savings banks to include certain credit exposures arising from a derivative transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction. Section 610 also amends existing law by adding a definition of “derivative transaction” to include any transaction that is a contract, agreement, swap, warrant, note, or option that is based, in whole or in part, on the value of, any interest in, or any quantitative measure or the occurrence of any event relating to, one or more commodities, securities, currencies, interest or other rates, indices, or other assets. A "securities financing transaction" is defined as a repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction. To complement these changes, the rule amends the definition of “borrower” to include a party to whom the bank has credit exposure arising from a derivative transaction or a securities financing transaction.
The interim final rule implements the statutory change which applies to both national banks and savings associations. (State banks are subject to separate restrictions under section 611 of the Dodd-Frank Act.) The OCC provided a short-term exception under its lending limits authority to allow time for national banks and savings associations to adjust for compliance with the new standard. National banks and savings associations have through January 1, 2013, to comply with the rule’s requirements as to derivative transactions and securities financing transactions.
The interim final rule, which amends 12 CFR Part 32, also consolidates the lending limit rules applicable to national banks and savings associations and removes the separate regulation governing lending limits for savings associations. The interim final rule applies to both federal and state savings associations, pursuant to section 312 of the Dodd-Frank Act, which gives the OCC rulemaking authority for both federal and state savings associations. The interim final rule is effective July 21, 2012.
"To reduce the burden of these new credit exposure calculations, particularly for smaller and mid-size banks and savings associations, the rule permits use in certain circumstances of look-up tables for measuring the exposures for each transaction type. This method permits institutions to adopt compliance alternatives that fit their size and risk management requirements, consistent with safety and soundness and the goals of the statute," according to the OCC. The OCC also stated that "[t]he revised lending limit rule continues to provide that loans and extensions of credit, including those that arise from derivative and securities financing transactions, must be consistent with safe and sound banking practices."
Comments on the interim final rule, which includes a series of questions posed by the OCC, are due by August 6.
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