On December 16, 2014, President Barack Obama signed into law a bill that lessens the impact of Section 716 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, more commonly known as the “Swaps Push-Out Rule.” The Swaps Push-Out Rule, which is slated to take effect on July 16, 2015, broadly prohibits the extension of federal assistance, such as an advance from a Federal Reserve credit facility or discount window, to any “swaps entity,” which is defined to include any registered swap dealer, security-based swap dealer, major swap participant (MSP) or major security-based swap participant (MSBSP), but excludes an insured depository institution that is an MSP or MSBSP. For a more complete summary of the Swaps Push-Out Rule, please see our prior client alert at p. 22.

As adopted, the Swaps Push-Out Rule included a key exclusion permitting insured depository institutions to engage in swap and security-based swap activities that constitute bona fide hedging or traditional banking activities. The amendments to the Swaps Push-Out Rule will expand this key exclusion in the following three ways:

First, the exclusion now will apply to any “covered depository institution” — a term that includes insured depository institutions as well as uninsured U.S. branches or agencies of foreign banks.

Second, the exclusion now will permit covered depository institutions to act as a swaps entity for any swaps or security-based swaps that are not “structured finance swaps.”1

Third, the exclusion will now permit covered depository institutions to act as a swaps entity for structured finance swaps if (i) such transactions are undertaken for hedging or risk management purposes, or (ii) each asset-backed security underlying the structured finance swaps is of a credit quality and of a type or category with respect to which the prudential regulators have jointly adopted rules authorizing swap or security-based swap activity by covered depository institutions.2 The amendments to the Swaps Push-Out Rule do not address the effective date or extend its transition period. Therefore, covered depository institutions should anticipate the amended Swaps Push-Out Rule will take effect on July 16, 2015.

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1 The original exclusion was limited in this regard to insured depository institutions’ activities in swaps and security-based swaps on rates and certain permitted reference assets.

2 The original exclusion was limited in this regard to insured depository institutions’ activities in credit default swaps referencing the credit risk of asset-backed securities that are cleared by a registered derivatives clearing organization or clearing agency.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.

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