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5000 - Statements of Policy
{{8-31-98 p.5113}}
FDIC STATEMENT OF POLICY ON QUALIFIED FINANCIAL CONTRACTS
This statement of policy of the Board of the Directors of the
Federal Deposit Insurance Corporation ("FDIC") addresses two
issues regarding the treatment by the FDIC of qualified financial
contracts ("QFCs"), as such term is defined in section
11(e)(8)(D)(i) of the Federal Deposit Insurance Act ("FDI Act"),
12 U.S.C. 1821 et seq.
as amended by the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA"). In making this statement of
policy, the Board of Directors recognizes the uniqueness of QFCs in the
financial markets. Such contracts and transactions allow for
appropriate liquidity and hedging operations in financial institutions.
Generally transactions are conducted in a highly regulated industry
providing further safeguards. In providing this policy statement it is
the intent of the Board to provide guidance to the financial markets
with regard to the treatment of these contracts in the event the FDIC
is appointed receiver or conservator of a financial institution. With
the exception of federal fund ("fed funds") transactions which
likewise occupy a unique position in the depository institution
industry, the Board does not intend to provide in this policy statement
any indication or guidance of the treatment by a receiver or
conservator of any other type of contract other than those specifically
so defined as qualified financial contracts in the FDI Act or as may be
subsequently defined by the Board pursuant to the FDI Act. For purposes
of the requirements set out in sections 11(d)(9), 11(n)(4)(I) and 13(e)
it is intended that this policy statement apply not only to QFCs but to
fed funds transactions as well. It is specifically understood and
intended by the Board that this policy statement may be relied upon by
counterparties to these types of transactions. It is the Board's
intention that this policy statement be effective unless revoked or
otherwise withdrawn upon 45 days notice provided in the Federal
Register and such notice or withdrawal shall operate prospectively
only. Nothing in this policy statement is intended to apply to
transactions between a bank or thrift and a counterparty which is an
affiliate of the bank or thrift. This policy statement is intended to
provide a "safe harbor" for bona fide transactions conducted by
depository institutions and nonaffiliated counterparties.
I. Written Agreement Requirements
Any QFC (including any ancillary agreements, such as a master
agreement or security arrangements) that complies with the following
criteria will be deemed to satisfy the requirements set forth in
sections 11(d)(9),
11(n)(4)(I) and
13(e) of the FDI Act:
1. The QFC is evidenced by a writing (including a confirmation)
that either is sent by the depository institution to the counterparty
or by the counterparty to the depository institution. In either case,
the writing must be sent reasonably contemporaneously with the parties'
agreement to enter into the specific QFC transaction. The writing need
not be signed unless otherwise required by applicable non-insolvency
law;
2. The depository institution, by corporate action, was authorized
under applicable non-insolvency law to enter into the QFC. A depository
institution will be deemed to have taken such corporate action if the
counterparty has relied in good faith either on a resolution (or
extract thereof) provided by the institution's corporate secretary or
assistant secretary or on a written representation (whether in a master
agreement or otherwise) from an officer of the level of vice president
or higher, as to the depository institution's authority; and
3. The writing (or a copy thereof) evidencing the QFC and the
evidence of authority must be maintained by the depository institution
in its official books and records. However, the counterparty may, by
appropriate evidence (including the production of copies maintained by
the counterparty) establish the existence of the writing and the
evidence of authority.
The Board of Directors intends that the FDIC apply the above
criteria and the FDI Act requirements in a manner generally consistent
with reasonable business trading practices in the QFC markets, in view
of Congress's recognition in FIRREA of the important role QFCs play in
providing liquidity and portfolio and risk management to depository
institutions. Without limiting the criteria set forth above, it is
anticipated that the FDIC will look to the totality of the
circumstances surrounding such transactions including the
counterparty's good faith attempt to comply with all reasonable trading
practices and requirements, any non-insolvency law requirements and the
requirements stated herein. Further, the Board does not consider the
amendments made by FIRREA to the FDI Act requirements to be applicable
to QFCs entered into prior to August 9, 1989, although compliance with
the
{{8-31-98 p.5114}}foregoing criteria with respect to
such pre-FIRREA QFCs would be considered compliance with any pre-FIRREA
requirements.
II. Section 11(e)(10) of the FDI Act
The FDIC as receiver for a depository institution will act in
accordance with the following procedures in applying sections
11(e)(8)(A) and 11(e)(10) of the FDI Act. These procedures are
consistent with certain provisions of section 212 of FIRREA that had
been contained in the bills passed by the House and Senate but were
inadvertently omitted in the final statute. Moreover, the final statute
as written contains inconsistencies which may not be harmonized except
by the inclusion of these inadvertently omitted provisions:
1. In applying section 11(e)(10) of the FDI Act, the receiver shall
use its best efforts to notify a party to a QFC whether it has effected
a transfer of asset or liabilities in accordance with section
11(e)(9)(A) of the FDI Act prior to 12 noon local time on
the business day following appointment of the receiver.
2. The provisions of section 11(e)(8)(A) of the FDI Act shall not
apply if a party to a QFC is notified by the receiver of the failed
depository institution by the close of business (New York
time) on the business day following its appointment that the receiver
has transferred to a single insured depository institution (other than
one in default): (a) all QFCs between the failed depository institution
and such party and its affiliates; (b) all claims of the party and its
affiliates under such QFCs against the failed depository institution
(other than claims subordinated by any such QFC to the claims of
general unsecured creditors); (c) all claims of the failed depository
institution against the party and its affiliates under such QFCs; and
(d) all property securing claims under such QFCs.
3. Neither a bridge bank nor an institution organized by the FDIC
and immediately placed into conservatorship or placed into
conservatorship at the time of a purchase and assumption transaction
with the receiver of a failed institution for which FDIC has been
appointed receiver shall be considered a depository institution in
default for purposes of paragraph 2.
4. For purposes of section 11(e)(10) of the FDI Act, the receiver
shall be deemed to have notified a party if it has taken steps
reasonably calculated to provide notice to such party. In providing
guidance in both of these areas relating to qualified financial
contracts and with regard to sections 11(d)(9), 11(n)(4)(I) and (13)(e)
requirements which apply to fed funds transactions, it is the intention
of the Board of Directors to provide appropriate guidance to the
financial markets. It is intended by the Board of Directors that this
policy statement ultimately becomes the basis for regulations which
should be adopted in due course. However, given the importance of these
unique types of transactions and contracts it is the desire of the
Board of Directors to provide this guidance in the most expeditious
form possible. Further, the Board notes that on this day the Resolution
Trust Corporation adopted these same policies with regard to the same
transactions.
By order of the Board of Directors this 12th day of December 1989.
[The page following this is 5145.]
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