October 22, 2015
Comptroller of the Currency Approves Final Swaps Margin Rule
WASHINGTON — Comptroller of the Currency Thomas J. Curry today signed the final rule implementing margin requirements for non-cleared swap transactions in accord with the Dodd-Frank Wall Street Reform and Consumer Protection Act. He also voted for the rule in his capacity as a director of the Federal Deposit Insurance Corporation, and discussed the rule at the FDIC board meeting. His statement follows.
This rule is the product of more than five years of work, and I think staff has done an exemplary job of crafting a final product that incorporates important safety and soundness protections for dealers of non-cleared swaps. I signed the rule this morning on behalf of the Office of the Comptroller of the Currency, and I'm pleased to say I will vote for it here as a member of the FDIC's board of directors.
The Dodd-Frank Act called for moving the more standardized types of swaps to the cleared market, but recognized the important market role of dealers that provide customized swaps directly to their counterparties. This rule provides important protections for those dealers by imposing margin requirements for non-cleared swaps, but does so in a way that accommodates the concerns of non-financial end users and small banks that use swaps to hedge commercial risks.
Since the financial crisis, it has become a more common market practice for swap dealers and their financial counterparties to exchange variation margin, recognizing their net current exposure to each other. The rule ensures this practice will continue, even after memories of the financial crisis have grown dim and market participants might be tempted to wonder why variation margin is necessary. It also ensures that swap dealers continue their current practice of exchanging variation margin in the form of cash
The rule's initial margin requirements are tailored to focus on financial counterparties that participate in the non-cleared swap markets on a more significant basis. Exchanging and segregating initial margin represents a new level of financial commitment for the industry going forward, and it is not a small one. But it brings with it heightened protection for key market participants in periods of market distress, which is beneficial for maintaining market confidence in the first place and restoring it when the market wavers.
However, while it's important to ensure that financial firms exchange adequate collateral for swaps transactions, commercial end users and others whose swaps Congress exempted from mandatory swap clearing are in a different category. Under this rule, these end users, including most depository institutions with less than $10 billion in assets, will not be required to provide margin collateral when they use non-cleared swaps to hedge their commercial risks. That won't affect the stability of the system, but it will provide these end users with meaningful relief.
In short, this rule reduces risk, increases transparency, promotes market integrity within the financial system, and addresses a number of weaknesses in the regulation and structure of the swaps markets that became evident during the financial crisis. This rule will go a long way toward guarding against future crises, and I am pleased to support it.