External Meetings: Meeting with Berkshire Hathaway re: Major Swap Participant

Berkshire Hathaway is a holding company with many different operating subsidiaries; some of which have fairly large swap positions.  For example, its recent annual report shows certain credit-related swaps with a mark-to-market value of over $1 billion.  ~Berkshire Hathaway’s primary comment, responding to a question on page 80202 of the Proposing Release on the definition of swap dealer and major swap participant, is that if one of its operating subsidiaries were deemed to be a major swap participant or major security-based swap participant because of the positions it holds, the other operating subsidiaries should not be automatically deemed to be major participants.  Berkshire Hathaway made the point that the various operating subsidiaries have different businesses and use swaps in different ways, therefore a default by one subsidiary on its swaps would not be expected to be likely to cause other subsidiaries to default.  Also, the Berkshire Hathaway holding company does not typically provide a guarantee of the subsidiaries’ swap positions to their counterparties.~Berkshire Hathaway also commented on the question regarding legacy portfolios on page 80202 of the Proposing Release.  A large part of the credit-related swaps reflected in the annual report are credit default swaps (CDS) written by a Berkshire Hathaway subsidiary on certain state and municipal debt and debt securities.  This portfolio of CDS is currently in run-off.  Berkshire Hathaway commented that since the CDS positions of this subsidiary do not relate to current operations and the subsidiary is reducing rather than adding to the size of the positions, the run-off positions should be excluded in determining whether the subsidiary is a major participant.  Also, since the legacy portfolio of CDS is quite different from the swap positions of the other operating subsidiaries, it would be inappropriate for all the operating subsidiaries to be deemed to be major participants because of the legacy portfolio (if the entity holding the legacy portfolio were deemed to be a major participant).  Berkshire Hathaway also commented that if an entity holding a legacy portfolio were deemed to be a major swap participant, some of the reporting requirements should not apply to the legacy portfolio – for example, the requirement to determine a daily mark-to-market value of the positions may be difficult to apply because the positions are not active.~Berkshire Hathaway also commented that the major swap participant definition should take account of the financial resources of the entity holding the positions.  An entity with more resources may hold larger positions without posing the systemic risk concerns that are the basis for the major swap participant provisions.  ~Berkshire Hathaway also commented that margin requirements should not apply to swap positions that were put into place prior to enactment of the Dodd-Frank Act.