SECTION
716—Prohibition against Federal Government Bailouts of Swaps Entities
(a) Prohibition on Federal
assistance. Notwithstanding any other provision of law (including
regulations), no Federal assistance may be provided to any swaps entity
with respect to any swap, security-based swap, or other activity of
the swaps entity.
(b) Definitions. In this section:
(1) Federal assistance. The term “Federal assistance” means the use of any advances from
any Federal Reserve credit facility or discount window that is not
part of a program or facility with broad-based eligibility under section
13(3)(A) of the Federal Reserve Act, Federal Deposit Insurance Corporation
insurance or guarantees for the purpose of—
(A) making any loan
to, or purchasing any stock, equity interest, or debt obligation of,
any swaps entity;
(B) purchasing the assets of any swaps entity;
(C) guaranteeing any loan or debt issuance
of any swaps entity; or
(D) entering into any assistance arrangement
(including tax breaks), loss sharing, or profit sharing with any swaps
entity.
(2) Swaps entity.
(A) In general. The term “swaps entity” means
any swap dealer, security-based swap dealer, major swap participant,
major security-based swap participant, that is registered under—
(i) the Commodity Exchange Act (7 U.S.C. 1 et seq.); or
(ii) the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.).
(B) Exclusion. The term “swaps entity” does not include any major
swap participant or major security-based swap participant that is
an insured depository institution.
(c) Affiliates of insured depository
institutions. The prohibition on Federal assistance contained
in subsection (a) does not apply to and shall not prevent an insured
depository institution from having or establishing an affiliate which
is a swaps entity, as long as such insured depository institution
is part of a bank holding company, or savings and loan holding company,
that is supervised by the Federal Reserve and such swaps entity affiliate
complies with sections 23A and 23B of the Federal Reserve Act and
such other requirements as the Commodity Futures Trading Commission
or the Securities Exchange Commission, as appropriate, and the Board
of Governors of the Federal Reserve System, may determine to be necessary
and appropriate.
(d) Only bona fide hedging and traditional bank activities permitted. The prohibition in subsection (a) shall apply to any insured depository
institution unless the insured depository institution limits its swap
or security-based swap activities to:
(1) Hedging and other similar risk mitigating
activities directly related to the insured depository institution’s
activities.
(2) Acting
as a swaps entity for swaps or security-based swaps involving rates
or reference assets that are permissible for investment by a national
bank under the paragraph designated as “Seventh.” of section 5136
of the Revised Statutes of the United States (12 U.S.C. 24), other
than as described in paragraph (3).
(3) Limitation
on credit default swaps. Acting as a swaps entity for credit
default swaps, including swaps or security-based swaps referencing
the credit risk of asset-backed securities as defined in section 3(a)(77)
of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) (as
amended by this Act) shall not be considered a bank permissible activity
for purposes of subsection (d)(2) unless such swaps or security-based
swaps are cleared by a derivatives clearing organization (as such
term is defined in section 1a of the Commodity Exchange Act (7 U.S.C.
1a)) or a clearing agency (as such term is defined in section 3 of
the Securities Exchange Act (15 U.S.C. 78c)) that is registered, or
exempt from registration, as a derivatives clearing organization under
the Commodity Exchange Act or as a clearing agency under the Securities
Exchange Act, respectively.
(e) Existing swaps and security-based swaps. The prohibition in subsection (a) shall only apply to swaps or security-based
swaps entered into by an insured depository institution after the
end of the transition period described in subsection (f).
(f) Transition period. To the extent an insured depository institution qualifies as a “swaps
entity” and would be subject to the Federal assistance prohibition
in subsection (a), the appropriate Federal banking agency, after consulting
with and considering the views of the Commodity Futures Trading Commission
or the Securities Exchange Commission, as appropriate, shall permit
the insured depository institution up to 24 months to divest the swaps
entity or cease the activities that require registration as a swaps
entity. In establishing the appropriate transition period to effect
such divestiture or cessation of activities, which may include making
the swaps entity an affiliate of the insured depository institution,
the appropriate Federal banking agency shall take into account and
make written findings regarding the potential impact of such divestiture
or cessation of activities on the insured depository institution’s
(1) mortgage lending, (2) small business lending, (3) job creation,
and (4) capital formation versus the potential negative impact on
insured depositors and the Deposit Insurance Fund of the Federal Deposit
Insurance Corporation. The appropriate Federal banking agency may
consider such other factors as may be appropriate. The appropriate
Federal banking agency may place such conditions on the insured depository
institution’s divestiture or ceasing of activities of the swaps entity
as it deems necessary and appropriate. The transition period under
this subsection may be extended by the appropriate Federal banking
agency, after consultation with the Commodity Futures Trading Commission
and the Securities and Exchange Commission, for a period of up to
1 additional year.
(g) Excluded entities. For purposes of this section, the term “swaps
entity” shall not include any insured depository institution under
the Federal Deposit Insurance Act or a covered financial company under
title II which is in a conservatorship, receivership, or a bridge
bank operated by the Federal Deposit Insurance Corporation.
(h) Effective date. The
prohibition in subsection (a) shall be effective 2 years following
the date on which this Act is effective.
(i) Liquidation required.
(1) In general.
(A) FDIC insured
institutions. All swaps entities that are FDIC insured institutions
that are put into receivership or declared insolvent as a result of
swap or security-based swap activity of the swaps entities shall be
subject to the termination or transfer of that swap or security-based
swap activity in accordance with applicable law prescribing the treatment
of those contracts. No taxpayer funds shall be used to prevent the
receivership of any swap entity resulting from swap or security-based
swap activity of the swaps entity.
(B) Institutions
that pose a systemic risk and are subject to heightened prudential
supervision as regulated under section 113. All swaps entities
that are institutions that pose a systemic risk and are subject to
heightened prudential supervision as regulated under section 113,
that are put into receivership or declared insolvent as a result of
swap or security-based swap activity of the swaps entities shall be
subject to the termination or transfer of that swap or security-based
swap activity in accordance with applicable law prescribing the treatment
of those contracts. No taxpayer funds shall be used to prevent the
receivership of any swap entity resulting from swap or security-based
swap activity of the swaps entity.
(C) Non-FDIC
insured, non-systemically significant institutions not subject to
heightened prudential supervision as regulated under section 113. No taxpayer resources shall be used for the orderly liquidation
of any swaps entities that are non-FDIC insured, non-systemically
significant institutions not subject to heightened prudential supervision
as regulated under section 113.
(2) Recovery
of funds. All funds expended on the termination or transfer of
the swap or security-based swap activity of the swaps entity shall
be recovered in accordance with applicable law from the disposition
of assets of such swap entity or through assessments, including on
the financial sector as provided under applicable law.
(3) No losses to taxpayers. Taxpayers shall bear no
losses from the exercise of any authority under this title.
(j) Prohibition on unregulated
combination of swaps entities and banking. At no time following
adoption of the rules in subsection (k) may a bank or bank holding
company be permitted to be or become a swap entity unless it conducts
its swap or security-based swap activity in compliance with such minimum
standards set by its prudential regulator as are reasonably calculated
to permit the swaps entity to conduct its swap or security-based swap
activities in a safe and sound manner and mitigate systemic risk.
(k) Rules. In prescribing
rules, the prudential regulator for a swaps entity shall consider
the following factors:
(1) The expertise and managerial strength
of the swaps entity, including systems for effective oversight.
(2) The financial strength
of the swaps entity.
(3) Systems for identifying, measuring and controlling risks arising
from the swaps entity’s operations.
(4) Systems for identifying, measuring
and controlling the swaps entity’s participation in existing markets.
(5) Systems for controlling
the swaps entity’s participation or entry into in
* new markets and products.
(
l)
Authority of the Financial Stability
Oversight Council. The Financial Stability Oversight Council
may determine that,
† when other provisions
established by this Act are insufficient to effectively mitigate systemic
risk and protect taxpayers, that swaps entities may no longer access
Federal assistance with respect to any swap, security-based swap,
or other activity of the swaps entity. Any such determination by the
Financial Stability Oversight Council of a prohibition of federal
assistance shall be made on an institution-by-institution basis, and
shall require the vote of not fewer than two-thirds of the members
of the Financial Stability Oversight Council, which must include the
vote by the Chairman of the Council, the Chairman of the Board of
Governors of the Federal Reserve System, and the Chairperson of the
Federal Deposit Insurance Corporation. Notice and hearing requirements
for such determinations shall be consistent with the standards provided
in title I.
(m) Ban on proprietary trading in derivatives. An insured depository institution shall comply with the prohibition
on proprietary trading in derivatives as required by section 619 of
the Dodd-Frank Wall Street Reform and Consumer Protection Act.
[15 USC 8305.
As added by act of July 21, 2010 (124 Stat. 1648).]
