Board of Governors of the Federal Reserve System

Today's actions will align margin requirements across most G-20 jurisdictions as well as with the Commodity Futures Trading Commission and will facilitate the implementation of prudent risk management strategies at certain banks and swap entities.

Today's package contains a number of measures, including providing more time for smaller counterparties to come into compliance with the requirements, facilitating technical changes to swap contracts as markets transition away from LIBOR, clarifying how the rule treats Brexit, and clarifying the documentation requirements under the rule.

Most notably, the agencies are eliminating the requirement that entities within the same banking organization be subject to initial margin requirements when entering into non-cleared swaps. Inter-affiliate swaps are typically used by banking organizations to transfer risk to a centralized risk-management function, which generally improves the safety and soundness of a banking organization. The elimination of the initial margin requirement will facilitate this important centralized risk-management function.

While the agencies are eliminating the initial margin requirement, inter-affiliate transactions will still be subject to multiple supervisory and regulatory frameworks, including:

• Variation margin requirements that are unchanged;
• Regulatory capital requirements, which generally increase if the bank does not collect initial margin; and
• Resolution planning requirements.

Furthermore, in a change from the proposal, the rule includes a requirement to ensure that depository institutions' inter-affiliate swap exposures are not sizeable in relation to their loss absorbing resources.

In the preamble to the rule, the Board states that under section 23A of the Federal Reserve Act, bank-affiliate derivatives generally can be valued at the bank's current exposure to the affiliate. In addition, the Board states that in many cases, it is reasonable to conclude under 23B that a bank-affiliate swap with no initial margin requirement is at least as favorable to the bank as a comparable bank-nonaffiliate swap with two-way initial margin requirements and identifies factors that will be relevant in determining whether that obtains in specific cases. These statements will provide helpful clarity to banking organizations.

I am pleased to support today's actions.