[Federal Register Volume 61, Number 184 (Friday, September 20, 1996)]
[Notices]
[Pages 49460-49461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24084]


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FEDERAL DEPOSIT INSURANCE CORPORATION


Interest Rate Futures Contracts, Forward Contracts, and Standby 
Contracts; Rescission of Policy Statement

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Rescission of Policy Statement.

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SUMMARY: As part of the FDIC's systematic review of its regulations and 
written policies under section 303(a) of the Riegle Community 
Development and Regulatory Improvement Act of 1994 (CDRI), the FDIC is 
rescinding its Statement of Policy Concerning Interest Rate Futures 
Contracts, Forward Contracts and Standby Contracts (Policy Statement). 
The Policy Statement provides guidance to state nonmember banks 
entering into certain interest rate derivative transactions. The FDIC 
is rescinding the Policy Statement because it is outmoded and 
duplicative of subsequently-issued, more comprehensive FDIC guidance 
encompassing this subject.

DATES: This Policy Statement is rescinded September 20, 1996.

FOR FURTHER INFORMATION CONTACT: William A. Stark, Assistant Director, 
(202/898-6972), Kenton Fox, Senior Capital Markets Specialist, (202/
898-7119), Division of Supervision; Jamey Basham, Counsel, (202/898-
7265), Legal Division, FDIC, 550 17th Street, N.W., Washington, D.C. 
20429.

SUPPLEMENTARY INFORMATION: The FDIC is conducting a systematic review 
of its regulations and written policies. Section 303(a) of the CDRI (12 
U.S.C. 4803(a)) requires each federal banking agency to streamline and 
modify its regulations and written policies in order to improve 
efficiency, reduce unnecessary costs, and eliminate unwarranted 
constraints on credit availability. Section 303(a) also requires each 
federal banking agency to remove inconsistencies and outmoded and 
duplicative requirements from its regulations and written policies.
    As part of this review, the FDIC has determined that the Policy 
Statement is outmoded and duplicative, and that the FDIC's written 
policies can be streamlined by its elimination.
    The FDIC originally adopted the Policy Statement on November 13, 
1979. 44 FR 66673 (November 20, 1979).1 The Policy Statement 
provides guidance to state nonmember banks that wish to enter into 
positions in futures contracts, forward contracts and put options 
2 on U.S. government or agency securities, or purchase or sell 
futures on domestic bank certificates of deposit. The Policy Statement 
outlines safety and soundness considerations including the 
establishment of position risk limits and investment policy objectives 
appropriate to the institution's business strategy, measuring and 
monitoring the interest rate risk presented by the positions, and 
maintaining proper internal control. The Policy Statement also provides 
guidance for the regulatory reporting treatment of the positions and 
associated gains and losses.
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    \1\ The Policy Statement was revised in light of public comments 
on March 12, 1980, 45 FR 18116 (March 20, 1980), and extended to 
futures on domestic bank certificates of deposit on October 13, 
1981, 46 FR 51301 (October 19, 1981).
    \2\ The Policy Statement refers to put options as ``standby 
contracts.''
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    In the time since the Policy Statement was issued, the complexity 
and size of the financial derivatives market, of which the particular 
contracts addressed in the Policy Statement are a significant subset as 
far as state nonmember banks are concerned, has expanded markedly. 
Throughout this expansion, the FDIC has recognized that the appropriate 
use of derivatives can confer substantial benefits to banks, but that 
the complexity of the contracts and market requires institutions to 
have acceptable capital levels, suitable expertise, and sufficient 
management controls. On May 18, 1994, the FDIC issued Financial 
Institution Letter 34-

[[Page 49461]]

94, Examination Guidance on Financial Derivatives (FIL-34-94). FIL-34-
94 provides comprehensive guidance on the risks attached to bank 
derivative activities and the risk management practices state nonmember 
banks should observe in response.
    In addition, on June 26, 1996, the FDIC, together with the Office 
of the Comptroller of the Currency and the Board of Governors of the 
Federal Reserve System, issued the Joint Agency Policy Statement: 
Interest Rate Risk, 61 FR 33166 (June 26, 1996) (Joint Policy 
Statement). The Joint Policy Statement addresses the impact interest 
rate fluctuations can have on an institution's earnings, assets, 
liabilities, and off-balance-sheet instruments (including contracts 
such as those addressed in the Policy Statement), and gives 
comprehensive guidance on an appropriate interest rate risk management 
system.
    Moreover, subsequent to the adoption of the Policy Statement, the 
regulatory reporting guidance in the Policy Statement was incorporated 
into the instructions for the Consolidated Report of Condition and 
Income (Call Report). The reporting guidance in these Call Report 
instructions will remain in effect.
    The FDIC's issuance of these more comprehensive guidance materials, 
which subsume the activities addressed in the Policy Statement, render 
its continued existence unnecessary.
    Section 303(a) of the CDRI also requires the federal banking 
agencies to work jointly towards uniformity of guidelines implementing 
common supervisory policies. Shortly after the FDIC issued the Policy 
Statement, the Board of Governors of the Federal Reserve System (FRB) 
and the Office of the Comptroller of the Currency (OCC) issued similar 
documents. Policy Statement Concerning Forward Placement or Delayed 
Delivery Contracts and Interest Rate Futures Contracts, 44 FR 66673 
(Nov. 20, 1979); OCC Banking Circular 79 (2nd Rev.) (March 19, 1980). 
On October 27, 1993, the OCC, at the time it issued Banking Circular 
277 providing more comprehensive guidance on all forms of financial 
derivatives, rescinded BC-79. Although the FRB until recently 
maintained its version of the Policy Statement on its books, Federal 
Reserve Regulatory Service 3-1535, the FRB acted on August 16, 1996 to 
rescind it.
    For the above reasons, the Policy Statement is rescinded.

    By order of the Board of Directors.

    Dated at Washington, D.C. this 10th day of September 1996.

Federal Deposit Insurance Corporation
Jerry L. Langley,
Executive Secretary.
[FR Doc. 96-24084 Filed 9-19-96; 8:45 am]
BILLING CODE 6174-01-P