[Federal Register Volume 73, Number 246 (Monday, December 22, 2008)]
[Rules and Regulations]
[Pages 78162-78173]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-30221]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 371

RIN 3064-AD30


Recordkeeping Requirements for Qualified Financial Contracts

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The FDIC is adopting a final rule establishing recordkeeping 
requirements for qualified financial contracts (QFCs) held by insured 
depository institutions in a troubled condition as defined in this 
rule. The appendix to the rule requires an institution in a troubled 
condition, upon written notification by the FDIC, to produce 
immediately at the close of processing of the institution's business 
day, for a period provided in the notification, the electronic files 
for certain position level and counterparty level data; electronic or 
written lists of QFC counterparty and portfolio location identifiers, 
certain affiliates of the institution and the institution's 
counterparties to QFC transactions, contact information and 
organizational charts for key personnel involved in QFC activities, and 
contact information for vendors for such activities; and copies of key 
agreements and related documents for each QFC.

DATES: This final rule is effective January 21, 2009.

FOR FURTHER INFORMATION CONTACT: R. Penfield Starke, Counsel, 
Litigation and Resolutions Branch, Legal Division, (703) 562-2422 or 
[email protected]; Michael B. Phillips, Counsel, Supervision and 
Legislation Branch, Legal Division, (202) 898-3581 or 
[email protected]; Craig C. Rice, Senior Capital Markets Specialist, 
Division of Resolutions and Receiverships, (202) 898-3501 or 
[email protected]; Marc Steckel, Section Chief, Capital Markets Branch, 
Division of Supervision and Consumer Protection, (202) 898-3618 or 
[email protected]; Steve Burton, Section Chief, Division of Insurance 
and Research, (202) 898-3539 or [email protected], Federal Deposit 
Insurance Corporation, 550 17th Street, NW., Washington, DC.

SUPPLEMENTARY INFORMATION: 

I. Background

    QFCs are certain financial contracts that have been defined in the 
Federal Deposit Insurance Act (FDI Act) and receive special treatment 
by the FDIC in the event of the failure of an insured depository 
institution (institution). The special treatment of QFCs after the 
FDIC's appointment as receiver or conservator for a failed institution 
initially was codified in the FDI Act as part of the Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) \1\ 
and places certain restrictions on the FDIC as receiver \2\ for a 
failed institution that held QFCs.
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    \1\ Public Law No. 101-73, 103 Stat. 514 (August 9, 1989).
    \2\ Most of the restrictions applicable to the treatment of QFCs 
by an FDIC receiver also apply to the FDIC in its conservatorship 
capacity. See U.S.C. 1821(e)(8), (9), (10), and (11). While the 
treatment of QFCs by an FDIC conservator is not identical to the 
treatment of QFCs in a receivership, see 12 U.S.C. 1821(e)(8)(E) and 
(10)(B)(i) and (ii), for purposes of this preamble we intend 
reference to the FDIC in its receivership capacity to include its 
role as conservator under this statutory authority.
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    The FDI Act identifies QFCs using the statutory definition of five 
specific financial contracts. This statutory list of QFCs consists of 
securities contracts, commodity contracts, forward contracts, 
repurchase agreements, and swap agreements.\3\ The FDIC also may define 
other similar agreements as QFCs by rule or order.\4\ In addition, a 
master agreement that governs any contracts in these five categories is 
treated as a QFC,\5\ as are security agreements that ensure the 
performance of a contract from the five enumerated categories.\6\
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    \3\ 12 U.S.C. 1821(e)(8)(D)(ii)-(vi).
    \4\ 12 U.S.C. 1821(e)(8)(D)(i). The FDIC has provided clarifying 
definitions for repurchase agreements and swap agreements in 12 CFR 
360.5.
    \5\ 12 U.S.C. 1821(e)(8)(D)(ii)(XI), (iii)(IX), (iv)(IV), 
(v)(V), and (vi)(V).
    \6\ 12 U.S.C. 1821(e)(8)(D)(ii)(XII), (iii)(X), (iv)(V), 
(v)(VI), and (vi)(VI).
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    Under the FDI Act and other U.S. insolvency statutes, a party to 
QFCs with the insolvent entity can exercise its contractual right to 
terminate QFCs and offset or net out any amounts due between the 
parties and apply any pledged collateral for payment.\7\ Under the 
Bankruptcy Code, this right is immediate upon initiation of bankruptcy 
proceedings, while under the FDI Act, counterparties cannot exercise 
this contractual right until after 5 p.m. (Eastern Time) on the 
business day following the appointment of the FDIC as receiver.\8\ By 
contrast, parties to most other contracts with insured institutions 
cannot terminate the contracts based upon the appointment of the FDIC 
as receiver.\9\ The special rights granted by the FDI Act to QFC 
counterparties are designed to protect the stability of the financial 
system and to reduce the potential for cascading interrelated defaults.
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    \7\ 12 U.S.C. 1821(e)(8); 11 U.S.C. 555 (securities contracts), 
556 (commodities and forward contracts), 559 (repurchase 
agreements), 560 (swap agreements), and 561 (master netting 
agreements).
    \8\ See 12 U.S.C. 1821(e)(10)(B).
    \9\ 12 U.S.C. 1821(e)(13).
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    If QFC counterparties were unable to terminate and liquidate their 
positions in a timely manner after the failure of the institution, they 
would be exposed to market risks and uncertainty regarding the ultimate 
resolution of QFCs. Absent the ability to terminate a QFC in a timely 
manner when the counterparty becomes insolvent (which may include 
exercising rights to offset positions, net payments, and use collateral 
to cover amounts due), the potential for fluctuation in the value of 
the QFCs from changes in interest rates and other market factors may 
create market uncertainty that could lead to broader market 
disruptions. Consequently, while the Bankruptcy

[[Page 78163]]

Code and the FDI Act generally do not contain provisions covering 
creditor or counterparty liquidity concerns arising from insolvency 
proceedings, those statutes do contain safeguards for counterparties 
that have entered into certain financial contracts under the Bankruptcy 
Code and the FDI Act.\10\ Both of these statutes treat these types of 
financial contracts differently from other contracts that an entity may 
have entered into prior to bankruptcy or failure.\11\
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    \10\ 11 U.S.C. 555, 556, 559, 560, and 561; 12 U.S.C. 
1821(e)(8).
    \11\ Without such protections for financial contracts and QFCs 
under the Bankruptcy Code and the FDI Act, respectively, a contract 
generally will be subject to an automatic stay upon the filing of a 
bankruptcy petition or the appointment of the FDIC as receiver. See 
11 U.S.C. 361; 12 U.S.C. 1821(e)(13).
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    Congress, however, recognized the tension between the need of the 
FDIC as receiver to efficiently resolve a failed institution and the 
desire to maintain stability in the financial markets. Thus, the 
treatment of QFCs for failed institutions under the FDI Act provides 
the FDIC with limited flexibility in crafting a resolution with respect 
to the institution's QFC portfolio. These provisions allow the FDIC to 
reduce losses to the deposit insurance fund and retain the value of the 
failed institution's portfolio, while minimizing the potential for 
market disruptions that could occur with the liquidation of a large QFC 
portfolio.
    After its appointment as receiver, the FDIC has three options in 
managing the institution's QFC portfolio: (1) Transfer the QFCs to 
another financial institution, (2) repudiate the QFCs, or (3) retain 
the QFCs in the receivership. Within certain constraints, the FDIC can 
apply different options to QFCs with different counterparties.
    First, the receiver may transfer a QFC to any other financial 
institution not currently in default, including but not limited to 
foreign banks, uninsured banks, and bridge banks or conservatorships 
operated by the FDIC. If the receiver transfers a QFC to another 
financial institution, the counterparty cannot exercise its contractual 
right to terminate the QFC based solely on the transfer, the 
insolvency, or the appointment of the receiver.
    Second, the FDIC as receiver may repudiate a QFC, within a 
reasonable period of time, if the receiver determines that the contract 
is burdensome.\12\ If the receiver repudiates the QFC, it must pay 
actual direct compensatory damages, which may include the normal and 
reasonable costs of cover or other reasonable measure of damages used 
in the industry for such claims, calculated as of the date of 
repudiation.\13\ If the receiver determines to transfer or repudiate a 
QFC, all other QFCs entered into between the failed institution and 
that counterparty, as well as those QFCs entered into with any of that 
counterparty's affiliates, must be transferred to the same financial 
institution or repudiated at the same time.
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    \12\ 12 U.S.C. 1821(e)(1).
    \13\ 12 U.S.C. 1821(e)(3)(C).
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    Third, the FDIC as receiver may retain a QFC in the receivership. 
This option would allow the counterparty to terminate the contract. If 
a QFC is terminated by the counterparty or repudiated by the receiver, 
the counterparty may exercise any contractual right to net any payment 
the counterparty owes to the receiver on a QFC against any payment owed 
by the receiver to the counterparty on a different QFC.
    The FDIC as receiver has very little time to choose among these 
three options. Under the FDI Act, the FDIC as receiver has until 5 p.m. 
(Eastern Time) on the business day following the date of its 
appointment as receiver to make its decision to transfer any QFCs. 
During this period, counterparties are prohibited from terminating or 
otherwise exercising any contractual rights triggered by the 
appointment of the receiver under the QFC agreements. In effect, the 
same time limitation applies to repudiation because, after the 
expiration of this brief stay, counterparties are free to exercise any 
contractual right to terminate the QFCs and avoid the FDIC's power to 
repudiate. If the FDIC as receiver decides to transfer any QFCs, it 
must take steps reasonably calculated to provide notice of the transfer 
of the QFCs of the failed institution to the relevant counterparties, 
who are prohibited from exercising such rights thereafter.\14\
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    \14\ See 12 U.S.C. 1821(e)(10)(B). This limited time frame in 
which QFC counterparties are stayed from acting is in contrast to 
parties to other contracts with a failed institution which may be 
required to continue to perform by a receiver, and the receiver may 
stay a party from terminating such other contracts subject to 
monetary damages or default for up to 90 days.
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    To make a well-informed decision on these three options, the FDIC 
needs access to information such as the types of QFCs, the 
counterparties and their affiliates, the notional amount and net 
position on the contracts, the purpose of the contracts, the maturity 
dates, and the collateral pledged for the contracts. Given the FDI 
Act's short time frame for such decision by the FDIC in the case of a 
QFC portfolio of any significant size or complexity, it may be 
difficult to obtain and process the large amount of information 
necessary for an informed decision by the FDIC as receiver unless that 
information is readily available to the FDIC in a format that permits 
the FDIC to quickly and efficiently carry out an appropriate financial 
and legal analysis. The absence of adequate information for decision-
making by the FDIC as receiver increases the likelihood that, in a 
failed bank situation, QFCs will be left in the receivership or 
repudiated, instead of transferred to open institutions or a bridge 
bank.
    In light of the large volume of information concerning QFCs that a 
receiver must process in the limited time frame set forth in the FDI 
Act, the FDIC is establishing QFC recordkeeping requirements for 
institutions in a troubled condition, as described below.

 II. The Proposed Rule

    In 2005, the Bankruptcy Abuse Prevention and Consumer Protection 
Act \15\ was enacted, with section 908 of the Act authorizing the FDIC, 
in consultation with the other Federal banking agencies, to set 
recordkeeping requirements for QFCs held in institutions determined to 
be in a ``troubled condition.'' \16\ Consistent with this statutory 
authority, the FDIC issued a Notice of Proposed Rulemaking for 
recordkeeping requirements for QFCs (NPR), which was published in the 
Federal Register on July 28, 2008. See 73 FR 43635. The NPR invited 
comments from the public on all aspects of the proposal and in response 
to certain specific questions. In issuing the NPR, the FDIC stated that 
the QFC recordkeeping requirements in the proposed rule included 
position and counterparty data fields that likely were maintained by 
institutions as part of their risk management of capital markets 
activities. Given the financial exposures presented by QFCs and related 
counterparty risks and supervisory considerations, and after 
consultation with the other Federal banking agencies, the FDIC 
determined that the recordkeeping requirements in the proposed rule 
were consistent with safe and sound banking practices by insured 
depository institutions holding QFCs.
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    \15\ Public Law No. 109-8, 119 Stat. 23 (April 20, 2005); H.R. 
Rep. No. 106-834, section 9, at 35 (2000).
    \16\ 12 U.S.C. 1821(e)(8)(H).

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[[Page 78164]]

III. Summary of Comments

    The American Bankers Association (ABA), The Clearing House 
Association (The Clearing House), the Independent Community Bankers of 
America (ICBA), and the International Swaps and Derivatives Association 
(ISDA) submitted comments on the NPR. These comments focused on issues 
regarding the (1) the institutions covered by the rule, (2) the 
requirement that QFC ``position level'' data be reported under the data 
fields in Table A1 of Appendix A, (3) the requirement that QFC 
counterparty level data be reported under the data fields in Table A2 
of Appendix A, (4) the requirement of a standardized reporting format 
for the reporting of both position level and counterparty-specific 
data, (5) the proposed time frame for compliance, and (6) the 
differences between the QFC reporting requirements for purposes of the 
Basel II Advanced Approaches final rule and the QFC reporting 
requirements under Tables A1 and A2 of the proposed rule.
    A. Institutions Covered under the Rule. Certain comment letters on 
the proposed rule suggested that the FDIC exclude from the definition 
of ``troubled condition'' institutions with a composite supervisory 
rating of 3 under the Uniform Financial Institution Rating System, 
because complying with the requirements of the rule could signal to 
employees, other institutions, and eventually the public that the 
institution is in financial distress. It was suggested by one commenter 
that ``3'' rated institutions not be required to comply with the rule 
unless the institution either holds more than $10 billion in assets or 
its primary federal regulator agrees that the institution should be 
required to comply. Another comment letter suggested that the rule 
apply only to institutions that have been found to have poor QFC risk 
management practices in place for their portfolios, or unsustainable 
QFC concentrations. Another comment letter suggested that because the 
use of QFCs by smaller community banks is limited, the rule should not 
apply to institutions with less than $5 billion in assets, or with 
fewer than ten open QFC positions on the balance sheet at any one time.
    Under section 370.1(c) of the proposed rule, consistent with the 
Congressional directive, the FDIC provided that only institutions that 
were in a ``troubled condition'' would be covered by the rule. The FDIC 
based its definition of that term in the proposed rule on its current 
definition of ``troubled condition'' in 12 CFR 303.101(c), which was 
promulgated to implement 12 U.S.C. 1831i, regarding the Federal banking 
agencies' approval of the appointment of directors and senior executive 
officers of institutions. The proposed rule added one new criterion to 
that definition and expanded another criterion in the current 
definition to reflect the FDIC's data needs in its role as receiver 
under the FDI Act. The new criterion was that, notwithstanding the 
composite rating of the institution by that agency in its most recent 
report of examination, the institution is determined by the appropriate 
Federal banking agency, or the FDIC in consultation with the 
appropriate Federal banking agency, to be experiencing a significant 
deterioration of capital or significant funding difficulties or 
liquidity stress. Another criterion was expanded to include 
institutions with a 3 composite rating and total consolidated assets 
over $10 billion.
    The FDIC has determined that it is appropriate to include 
institutions with a 3 composite rating and total consolidated assets 
over $10 billion, because these institutions are likely to pose risks 
to the deposit insurance fund arising from QFC activities. The FDIC has 
similar concerns regarding risks to the deposit insurance fund arising 
from any insured depository institution with QFCs that is experiencing 
a significant deterioration of capital or significant funding 
difficulties or liquidity stress, irrespective of the institution's 
supervisory rating. Based on its experience in its receivership 
capacity, the FDIC believes it is prudent to give institutions facing 
deteriorating conditions sufficient time to comply with this rule. 
Accordingly, the FDIC believes it is imperative that institutions with 
a supervisory rating of 3 and total assets of $10 billion or greater 
and/or experiencing a significant deterioration of capital or 
significant funding difficulties or liquidity stress develop and 
maintain the QFC position level and counterparty-specific data fields 
shown in Tables A1 and A2 of the Appendix to this rule.
    The FDIC does not believe that the ``signaling'' problem expressed 
in certain comment letters justifies exempting certain institutions in 
a troubled condition from maintaining QFC information consistent with 
safe and sound practices as required by this rule. The FDIC's request 
for information would be non-public, as are many other supervisory 
directives. Also, the recordkeeping requirements in this final rule do 
not impose any restrictions on the business operations of institutions 
covered by this rule.
    B. QFC Position Level-Specific Data Fields (Table A1 of Appendix 
A). The ISDA and The Clearing House comment letters indicated that 
institutions usually do not maintain and aggregate the position-level 
information requested in Table A1 of Appendix A of the proposed rule, 
but instead aggregate information by counterparty. As noted in these 
comment letters, the FDIC's receivership authority under section 
11(e)(9) of the FDI Act, 12 U.S.C. Sec.  1821(e)(9), requires that the 
FDIC treat all QFC contracts with a single counterparty and its 
affiliates similarly when deciding whether to transfer, repudiate or 
retain the QFC portfolio of a failed institution. Accordingly, in their 
view, transaction-level QFC position information should be unnecessary 
for the FDIC's decision-making process. These comment letters also 
indicated that the ``purpose of the position'' field be eliminated from 
Table A1 because institutions typically do not record this information 
for specific QFC positions and the purpose of a QFC position can change 
in dynamic markets. The Clearing House also indicated that providing a 
full transaction-level understanding of the broad range of QFCs would 
entail different recordkeeping requirements for specific QFCs, thereby 
resulting in increased implementation complexity and associated costs.
    The FDIC has determined that the position-level QFC data fields in 
Table A1 of the Appendix to this final rule provide information 
necessary to enable the FDIC to meet its obligations under the least 
cost test for closed bank resolutions under section 13(c)(4) of the FDI 
Act, 12 U.S.C. Sec.  1823(c)(4). The information required in Table A1 
(e.g., the current market value of the QFC position, the type and 
purpose of the position, and the notional or principal amount of the 
position) are important to the evaluation of the costs associated with 
the FDIC as receiver's decision to (1) transfer the QFCs to another 
financial institution, (2) repudiate the QFCs, or (3) retain the QFCs 
in the receivership.
    As an example of the importance of position-level QFC data to the 
FDIC's least-cost resolution decisions in its receivership capacity, if 
one of the counterparty's QFC positions is a forward sale contract (a 
contract that allows the institution to sell assets at a set price in 
the future), and the institution has amassed a $50 million ``pipeline'' 
of assets for future delivery under the contract, the FDIC as receiver 
may realize significant financial benefits by transferring the forward 
contract together with the mortgage loan pipeline

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that it hedges. These financial benefits may, on the whole, exceed the 
savings that the receivership might realize if all of that 
counterparty's QFCs remained with the receivership and the loan 
pipeline were sold without the hedge. In another example, information 
identifying the ``booking location'' of individual QFCs would enable 
the FDIC to classify QFCs by foreign branch location and thereby allow 
the FDIC to evaluate the potential effect of ``ring-fencing,'' whereby 
foreign governments use foreign assets held by a failed U.S. 
institution to satisfy claims of depositors and creditors in that same 
jurisdiction. Identifying the type and purpose of QFCs on both an 
individual transaction level and on an aggregate basis will permit the 
FDIC to assess the impact that QFC determinations may have on a 
counterparty's other banking relationships with a failed institution. 
For example, knowledge of how particular QFCs fit into a counterparty's 
business with the institution might lead the FDIC to transfer the QFCs 
to a bridge bank in order to maintain the value of a customer 
relationship that otherwise would be destroyed if QFC determinations 
were made without regard to a QFC's purpose. As a specific 
illustration, a QFC might include an interest rate swap between an 
institution and a borrower, which is designed to tailor the interest 
payment due on the loan. Position-level QFC data would permit the FDIC 
to make an informed judgment concerning the least-cost disposition of 
the customer relationship. Also, position-level data would enable the 
FDIC to consider clearinghouse arrangements used for settling trades, 
which may influence the disposition of other QFCs settled through the 
same clearinghouse.
    Information provided in Table A1 also may be needed by the FDIC as 
receiver to determine how to react to the termination of contracts by a 
counterparty in the event that such contracts are not transferred. A 
counterparty is under no obligation to terminate all of its contracts 
with the FDIC as receiver. Accordingly, in this situation, counterparty 
level data will be of little value, and the FDIC as receiver must 
obtain position-level data in order to satisfy the termination 
provisions of the contract.
    As discussed below, the FDIC has addressed concerns related to the 
position-specific data fields in Table A1 through a more flexible 
approach for institutions' formats for reporting the QFC position-
specific data fields in Table A1. In support of this approach, The 
Clearing House comment letter provided that:

    Except as noted above, each piece of data set forth in the 
Proposal is generally maintained by each institution in some form. 
However, there is no reason that an institution would need to 
assemble all of the information required by the Proposal into a 
single, centralized database, whether upon demand or on an on-going 
basis.\17\

    \17\ Letter to the FDIC from The Clearing House, dated October 
30, 2008, p. 10. Similar comments were provided in the letter to the 
FDIC from ISDA dated October 31, 2008, p. 2; and the letter to the 
FDIC from the American Bankers Association dated September 26, 2008, 
p. 2.
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The introduction to Table A1 in the Appendix has been revised to state 
that no later than three business days after the institution's receipt 
of the written notification from the FDIC under section 371.1(c) of 
this Part, the institution must provide the FDIC with (i) a directory 
of the electronic files that will be used by the institution to 
maintain the position level data found in Table A1 and (ii) a point of 
contact at the institution should the FDIC have follow-up questions 
concerning this information.
    In response to certain comment letters regarding whether the FDIC 
needs the data field in Table A1 that covers the ``purpose of the 
position'' for QFCs (e.g., whether the QFC position is being used for 
hedging or trading purposes), the FDIC has determined that this data 
field is necessary for it to quickly ascertain the potential impact of 
its receivership options regarding certain QFC positions.\18\
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    \18\ The information required for the ``purpose of position'' 
field is similar to information required under Financial Accounting 
Standards Board (FASB) Statements No. 133 and 161. Under these 
Statements, disclosures must be made as to whether derivatives are 
held for speculative purposes or risk mitigation, the types of risk 
mitigation strategies implemented, and how the use of derivatives 
affects the institutions financial position and performance. 
Accordingly, institutions should be able to identify the purpose of 
entering into QFC contracts to meet these accounting requirements.
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    C. QFC Counterparty-Specific Data Fields (Table A2 of Appendix A). 
The Clearing House and ISDA comment letters acknowledged the 
significance of the counterparty-specific data fields in Table A2 of 
Appendix A of the proposed rule. On this point, The Clearing House 
comment letter stated:

    A focus on counterparty-level data is also consistent with the 
way in which institutions manage exposure and risk in their QFC 
portfolios. Financial institutions generally manage trading 
relationships on a counterparty-by-counterparty basis rather than on 
a trade-by-trade basis. To assess the risks and benefits that a 
trading relationship presents to an institution, the institution 
must be able to evaluate, on an on-going basis, aggregate 
information for that particular counterparty. In other words, while 
credit and market risk and other aspects of a trading relationship 
with a single counterparty are, of course, monitored through various 
systems, the primary factor a depository institution must assess in 
evaluating the immediate loss that it would suffer if a counterparty 
were to default is the institution's aggregate position vis-
[agrave]-vis that counterparty. Existing information systems are 
already built with this objective in mind.\19\

    \19\ Letter to the FDIC from The Clearing House, dated October 
30, 2008.
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The ISDA comment letter provided similar justification for the data 
fields required in Table A2 of Appendix A of the proposed rule.
    D. Reporting Format for Data Fields Required in the Rule. The ABA 
commented that since banking organizations currently maintain QFC 
position-specific data in various formats and across various databases, 
the requirements in Table A1 and A2 of the Appendix of the proposed 
rule would require costly system upgrades and potential contract 
renegotiations with service providers. The ABA recommended instead that 
covered institutions be allowed to provide the FDIC the information in 
its existing format and include a ``roadmap'' of where the required 
information can be found.
    The proposed rule did not mandate a specific format for the 
reporting by institutions in a troubled condition of the position level 
specific data fields in Table A1; instead, the FDIC provided a 
functional criterion that the data fields must be accessible for FDIC's 
monitoring purposes. In conjunction with the appropriate Federal 
banking agency, the FDIC will discuss with such institutions whether 
the existing electronic data files maintained by the respective 
institutions are in a suitable format to produce information required 
under the data fields in Table A1. Similarly, for purposes of the 
counterparty-level data fields in Table A2, the final rule requires 
that such data fields must be maintained in an electronic file in a 
format acceptable to the FDIC.
    The FDIC also notes that its data maintenance requirements for QFCs 
are consistent with recommendations that have been developed by 
industry participants to measure and safeguard risks to financial 
institutions arising from the OTC derivatives market. The recent report 
from the Counterparty Risk Management Policy Group III (CRMPG III) 
recommends various measures to safeguard risks to financial 
institutions arising from counterparty credit risk.\20\ Significantly, 
the CRMPG III report stated:
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    \20\ CRMPG III, Containing Systemic Risk: The Road to Reform 
(August 6, 2008).


[[Page 78166]]


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    The Policy Group recommends that large integrated financial 
intermediaries ensure that their credit systems are adequate to 
compile detailed exposures to each of their institutional 
counterparties on an end-of-day basis by the opening of business the 
subsequent morning. In addition, the Policy Group recommends that 
large integrated financial intermediaries ensure their credit 
systems are capable of compiling, on an ad hoc basis and within a 
matter of hours, detailed and accurate estimates of market and 
credit risk exposure data across all counterparties and the risk 
parameters set out below. Within a slightly longer time frame this 
information should be expandable to include: (1) The directionality 
of the portfolio and of individual trades; (2) the incorporation of 
additional risk types, including contingent exposures and second and 
third order exposures (for example, SIVs, ABS, etc.); and (3) such 
other information as would be required to optimally manage risk 
exposures to a troubled counterparty.\21\
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    \21\ Id. at 81.

    The FDIC views the recordkeeping requirements contained in part 371 
as consistent with the Policy Group's recommendation.
    For purposes of minimizing the recordkeeping burdens for community 
banks under this final rule, we have provided in the Appendix of the 
final rule that for institutions in a troubled condition with less than 
twenty open QFC positions upon receipt of the written notification from 
the FDIC under part 371 and the Appendix, the data required in Tables 
A1 and A2 may be recorded and maintained in a written format so long as 
the data are capable of being updated on a daily basis.
    E. Time Period for Compliance. Three of the four comment letters 
stated that the proposed 30-day time period to comply after being 
notified of being in a troubled condition would be too short, 
especially if institutions had to change their systems or renegotiate 
contracts with third party service providers. One suggestion was to 
allow a ``roadmap'' compliance system, as discussed above, in which an 
institution would provide the FDIC a roadmap as to how the information 
could be collected when needed rather than actually assembling and 
providing the information on a regular basis. A second suggestion was 
to permit an institution to formally request an extension of time for 
compliance. In addition, the ABA comment letter recommended that the 
QFC data be updated only weekly because many of the large broker 
dealers operate global, around-the-clock operations and would have 
difficulty updating their files daily.
    In response to these comments, in order to meet the statutory 
deadlines for decisions on QFCs upon the appointment of the FDIC as 
receiver for an institution in a troubled condition under section 
11(e)(10) of the FDI Act, FDIC staff has determined that an initial 60 
day compliance deadline. However, the FDIC will permit institutions to 
request additional extensions of this deadline, which the FDIC may 
grant after review on a case-by-case basis. Institutions should submit 
a request for an extension to the FDIC at least 15 days prior to the 
deadline for its compliance with the requirements of this rule, and the 
institution's request should contain the reasons why the extension is 
needed.
    F. Conflict with Basel II implementation. The ABA comment letter 
suggested that implementing the QFC recordkeeping rule and the Basel II 
Advanced Approaches final rule at the same time would be overly 
burdensome and ineffective; therefore, either the QFC rules should 
``piggyback'' the Basel II rules or institutions should be able to use 
the same information systems for both.
    The FDIC and the other Federal banking agencies have developed 
reporting schedules for purposes of implementing the Basel II Advanced 
Approaches final rule. The FDIC has determined that the relevant 
schedules that have been developed for Basel II implementation do not 
contain counterparty-level data that Table A2 would require nor the 
specific data fields presented in Table A1 of Appendix A.\22\ Instead, 
these schedules report information aggregated across multiple 
transactions and counterparties. Accordingly, the interagency Basel II 
schedules for derivative contract exposures are neither duplicative nor 
appropriate for the FDIC's data needs in its receivership capacity 
under the FDI Act. In addition, several of the QFC categories under the 
FDI Act are not covered explicitly under the Basel II reporting 
schedules. It also is likely that fewer than twenty banks in the United 
States will implement the Basel II Advanced Approaches final rule for 
purposes of their risk-based capital requirements. Accordingly, the 
FDIC has determined not to change the proposed rule in this respect.
---------------------------------------------------------------------------

    \22\ See Federal Financial Institutions Examination Council, 
Risk-Based Reporting for Institutions Subject to the Advanced 
Capital Adequacy Framework--FFIEC 101, Schedule H (Wholesale 
Exposure--Eligible Margin Loans, Repo-Style Transactions and OTC 
Derivatives, with Cross-Product Netting); Schedule I--Wholesale 
Exposure--Eligible Margin Loans and Repo-Style Transactions, No 
Cross-Product Netting); and Schedule J (Wholesale Exposure--OTC 
Derivatives, No Cross-Product Netting).
---------------------------------------------------------------------------

IV. The Final Rule

    The final rule differs from the proposal by providing in section 
371.1(c) that the institutions subject to this rule must comply within 
60 days after they receive written notification from their appropriate 
Federal banking agency or the FDIC. The FDIC may, at its discretion, 
grant one or more extensions of time for compliance with this rule. No 
single extension may be for a period of more than 30 days. Such 
institutions may request an extension of time by submitting a written 
request to the FDIC at least 15 days prior to the deadline for its 
compliance with the requirements of this part. In addition, the final 
rule provides that not later than three business days after the 
institution's receipt of the written notification from the FDIC under 
section 371.1(c) of this part, the institution must provide the FDIC 
with (i) a directory of the electronic files that will be used by the 
institution to maintain the position level data found in Table A1 and 
(ii) a point of contact at the institution should the FDIC have follow-
up questions concerning this information. Section 371.5 has been added 
to clarify that violating the terms or requirements of part 371 and 
Appendix A constitutes a violation of a regulation and may subject the 
institution to enforcement actions under section 8 of the FDI Act (12 
U.S.C. 1818).
    Furthermore, a ``de minimus'' provision has been included to 
provide that for institutions in a troubled condition with less than 
twenty open QFC positions upon receipt of the written notification from 
the FDIC or the institution's appropriate Federal banking agency under 
Part 371 and this Appendix, the data required in Tables A1 and A2 is 
not required to be recorded and maintained in electronic form as would 
otherwise be required by this part, so long as all required information 
is capable of being updated on a daily basis. If at any point in time 
after receiving such notification an institution has twenty or more 
open QFC positions, it must within 60 days after that first occurs, 
comply with all provisions of part 371.
    Other changes to the proposed rule are: (1) The change of the 
designated part of the FDIC's codified regulations for this rule from 
part 370 for the proposed to part 371 for the final rule; (2) as 
recommended in ISDA's comment letter, the penultimate data field in 
Table A2 will read: ``Counterparty's collateral excess or deficiency 
with respect to all of the institution's positions with each 
counterparty, as determined under each applicable

[[Page 78167]]

agreement including thresholds and haircuts where applicable;'' and (3) 
also as recommended in ISDA's comment letter, the second bullet item 
under section B.1 will read: ``A list of the affiliates of the 
counterparties that are also counterparties to QFC transactions with 
the institution or its affiliates, and the specific master netting 
agreements, if any, under which they are counterparties.''
    Section 371.1 provides that this part applies to insured depository 
institutions that are in a troubled condition, as defined in section 
371.2(f), and that such institutions shall comply with this part (1) 
within 60 days after written notification by the institution's 
appropriate Federal banking agency or the FDIC that it is in a troubled 
condition, or (2) within a period requested by the institution and 
approved by the FDIC for an extension of this compliance deadline at 
least 15 days prior to the deadline.
    Section 371.2 provides definitions for purposes of this part. In 
particular, ``troubled condition'' means any insured depository 
institution that (1) has a composite rating, as determined by its 
appropriate Federal banking agency in its most recent report of 
examination, of 3 (only for insured depository institutions with total 
consolidated assets of ten billion dollars or greater), 4, or 5 under 
the Uniform Financial Institution Rating System, or in the case of an 
insured branch of a foreign bank, an equivalent rating; (2) is subject 
to a proceeding initiated by the FDIC for termination or suspension of 
deposit insurance; (3) is subject to a cease-and-desist order or 
written agreement issued by the appropriate Federal banking agency, as 
defined in 12 U.S.C. 1813(q), that requires action to improve the 
financial condition of the insured depository institution or is subject 
to a proceeding initiated by the appropriate Federal banking agency 
which contemplates the issuance of an order that requires action to 
improve the financial condition of the insured depository institution, 
unless otherwise informed in writing by the appropriate Federal banking 
agency; (4) is informed in writing by the insured depository 
institution's appropriate Federal banking agency that it is in troubled 
condition for purposes of 12 U.S.C. 1831i on the basis of the 
institution's most recent report of condition or report of examination, 
or other information available to the institution's appropriate Federal 
banking agency; or (5) is determined by the appropriate Federal banking 
agency or the FDIC in consultation with the appropriate Federal banking 
agency to be experiencing a significant deterioration of capital or 
significant funding difficulties or liquidity stress, notwithstanding 
the composite rating of the institution by its appropriate Federal 
banking agency in its most recent report of examination.
    As required by the statutory authority for the FDIC's promulgation 
of this final rule for QFC recordkeeping by insured depository 
institutions in a ``troubled condition,'' we have determined that the 
definition of ``troubled condition'' in this final rule is consistent 
with the current definition of ``troubled condition'' in 12 CFR 
303.101(c), and supplements the criteria in that definition with 
certain additional criteria that reflect the FDIC's concern that 
institutions in a troubled condition need to produce necessary QFC data 
for purposes of the FDIC meeting its statutory obligations under 
section 11(e) of the FDI Act, in the event of the failure of any such 
institution. The third and fourth criteria of the term ``troubled 
condition'' as defined in final rule are similar to criteria for the 
definition of that term in other FDIC rules and the rules of the other 
Federal banking agencies (which generally implement 12 U.S.C. 1831i, 
regarding the Federal banking agencies' approval of appointment of 
directors and senior executive officers of institutions).\23\ However, 
the first, second, and fifth criteria for the definition of ``troubled 
condition'' in the proposed rule differ from the other agencies' rules 
that implement 12 U.S.C. 1831i.
---------------------------------------------------------------------------

    \23\ See 12 CFR 303.101(c) (FDIC), 12 CFR. 5.51(c)(6) (OCC), 12 
CFR 225.71(d) (FRB); and 12 CFR 563.555 (OTS).
---------------------------------------------------------------------------

    Consistent with the FDIC's and the other Federal banking agencies' 
definition of ``troubled condition'' for purposes of 12 U.S.C. 1831i, 
the first criterion of the definition of ``troubled condition'' in this 
proposed rule includes institutions with a composite rating, as 
determined by its appropriate Federal banking agency in its most recent 
examination, of 4 or 5 under the Uniform Financial Institution Rating 
System, or in the case of an insured branch of a foreign bank, an 
equivalent rating. However, for purposes of this first criterion for 
``troubled condition'' in this proposed rule, the FDIC has included any 
insured depository institution with total consolidated assets of ten 
billion dollars or greater and a composite rating, as determined by its 
appropriate Federal banking agency in its most recent examination, of 3 
under the Uniform Financial Institution Rating System. The inclusion of 
institutions of such asset size with a composite rating of 3 reflects 
the risks to the deposit insurance fund arising from large institutions 
with QFC portfolios for which the appropriate Federal banking agency 
has assigned a composite rating of 3.
    The second criterion of the definition of ``troubled condition'' in 
this proposed rule reflects the FDIC's responsibility to terminate the 
deposit insurance of institutions that pose unreasonable risk to the 
deposit insurance fund. Similarly, the fifth criterion of this 
definition is based on circumstances that create a significant risk 
that an institution may require the appointment of the FDIC as 
receiver.
    Section 371.3 provides that the records required to be maintained 
by an insured depository institution for QFCs under this part (except 
for records that must be maintained through electronic files under 
Appendix A of this part) may be maintained in any form, including in an 
electronic file, provided that the records are updated at least daily. 
Records not maintained in written form must be capable of being 
reproduced or printed in written form. Records must be made available 
upon written request by the institution's appropriate Federal banking 
agency or the FDIC immediately at the close of processing of the 
institution's business day, for a period provided in that written 
request. The report will contain information as of the close of 
business on the report day. Insured depository institutions that are in 
a troubled condition as defined in section 371.2(f) shall continue to 
maintain records required to comply with this part for a period of one 
year after the date that the appropriate Federal banking agency 
notifies the institution that it is no longer in a troubled condition 
as defined in section 371.2(f). If an insured depository institution 
that has been determined by the appropriate Federal banking agency to 
be in a troubled condition ceases to exist as an insured depository 
institution as a result of a merger or a similar transaction into an 
insured depository institution that is not in a troubled condition 
immediately following the acquisition, the obligation to comply with 
this part will terminate when the institution in a troubled condition 
ceases to exist as an insured depository institution.
    Section 371.4 provides that for each QFC for which an insured 
depository institution is a party or is subject to a master netting 
agreement involving the QFC, that institution must maintain records as 
listed under Appendix A of this part.
    Section 371.5 was added to the final rule to clarify that violating 
the terms or

[[Page 78168]]

requirements of part 371 and Appendix A constitutes a violation of a 
regulation and subjects the participating entity to enforcement actions 
under section 8 of the FDI Act (12 U.S.C. 1818).

V. Appendix A of the Final Rule: QFC Recordkeeping Requirements

    Appendix A to part 371 sets forth the specific QFC recordkeeping 
requirements proposed in this NPR. These QFC recordkeeping requirements 
are organized into three categories as provided in Appendix A: (1) 
Position level data (Table A1), (2) counterparty level data (Table A2), 
and (3) certain contracts and lists of counterparty affiliates and 
identifiers, affiliates of the institution that are counterparties to 
QFC transactions, organizational charts involving the institution and 
its affiliates, and supporting vendors (Section B). An institution in a 
troubled condition is required to maintain the position level data and 
counterparty data listed under Tables A1 and A2 in electronic files in 
a format acceptable to the FDIC, and such institutions are required to 
demonstrate the ability to produce this information immediately at the 
close of processing of the institution's business day, for a period 
provided in a written notification by the FDIC. The files required 
under Section B are less quantitative and may be maintained in 
electronic format, in written format, or in a combination of those two 
formats. Nonetheless, the nature of this information requires that it 
be updated and available upon request on a daily basis. For 
institutions in a troubled condition with less than twenty open QFC 
positions upon receipt of the written notification from the FDIC or the 
institution's appropriate Federal banking agency under part 371 and 
this Appendix, the data required in Tables A1 and A2 is not required to 
be recorded in electronic form as otherwise would be required by this 
part, so long as all required information is maintained and is capable 
of being updated on a daily basis.
    The final rule and Appendix A are intended to facilitate the 
ability of the receiver to gather relevant information on QFCs in order 
to make business decisions within the short time frame between when a 
failure occurs and when the FDIC as receiver must act under 12 U.S.C. 
1821(e)(9) and (10). Also, the data fields and related information 
required in Appendix A are important for the due diligence by 
institutions of their QFC agreements in conjunction with their risk 
management policies and procedures.
    For purposes of the final rule and Appendix A, ``position'' is 
defined in the final rule to mean the rights and obligations of a 
person or entity as party to an individual transaction. For example, 
``position'' would include the rights and obligations of an institution 
under a ``Transaction'' (as such term is defined in the 2002 Master 
Agreement of ISDA), such as an interest rate swap.
    Table A1. No later than three business days after the institution's 
receipt of the written notification from the FDIC under section 
371.1(c) of this part, the institution must provide the FDIC with (i) a 
directory of the electronic files that will be used by the institution 
to maintain the position level data found in Table A1 and (ii) a point 
of contact at the institution should the FDIC have follow-up questions 
concerning this information. Table A1 requires data that must be 
maintained regarding open QFC positions entered into by that 
institution.\24\ For such data, the institution must produce at the 
close of processing of the institution's business day a report that 
aggregates the current market value and the amount of QFCs by each of 
the delineated fields. The institution must produce the report within 
60 days of a written notification by the FDIC for the period specified 
in the notification. In addition, the FDIC also may require a certain 
combination of recordkeeping fields from Table A1 where significant for 
purposes of its evaluation of risks associated with the institution's 
positions.
---------------------------------------------------------------------------

    \24\ These positions include QFCs entered into by affiliates of 
the insured institution that are covered by the master agreements to 
which the institution is a party.
---------------------------------------------------------------------------

    The following data fields are required in Table A1:
    1. Unique position identifier. This information includes CUSIP 
identifiers or unique trade confirmation numbers, if available. This 
information is needed in order to readily track and distinguish 
positions.
    2. Portfolio location identifier. This information is used to 
provide the location in which the position is booked by the institution 
(e.g., the New York or London branch of the institution).
    3. Type of position. This information describes the products used, 
sold or traded by an institution. It includes position types such as 
interest rate swaps, credit default swaps, equity swaps, and foreign 
exchange forwards, and securities or loan repurchase agreements.
    4. Purpose of the position. This information identifies the role of 
the QFC in the institution's business strategy. For example, it would 
identify whether the purpose of a position is for trading, or for 
hedging other exposures such as mortgage loan servicing or certificates 
of deposit.
    5. Termination date. This date indicates when the institution's 
rights and obligations regarding the position are expected to end.
    6. Next call, put, or cancellation date. This information indicates 
the next date when a call, put, or cancellation may occur with respect 
to the position.
    7. Next payment date. This information includes payment dates for 
potential upcoming obligations.
    8. Current market value of the position. This information covers 
position values as of the date of the file. It is used to determine if 
the institution is in- or out-of-the-money with the counterparty.
    9. Unique counterparty identifier. This information is used to 
aggregate positions by counterparty.
    10. National or principal amount of the position. This information 
is needed to assist in the FDIC's evaluation of the position. It 
includes the notional amount where applicable.
    11. Documentation status of the position. This information 
documents whether the position was affirmed, confirmed, or neither 
affirmed nor confirmed. It is needed to determine the reliability of 
booked positions and their legal status.
    Table A2. Table A2 requires data that must be maintained at the 
counterparty \25\ level for all QFCs entered into by an institution. 
For such data, the institution must demonstrate the ability to produce 
immediately at the close of processing of the institution's business 
day, for a period provided in a written notification by the FDIC, a 
report that (i) itemizes, by each counterparty and its affiliates with 
QFCs with the institution, the data required in each field delineated 
in Table A2; and (ii) aggregates by field, for each counterparty and 
its affiliates, the data required in each field. The following data 
fields are required in Table A2:
---------------------------------------------------------------------------

    \25\ The use of the term ``counterparty'' in Appendix A 
generally includes all entities (including all affiliates) that are 
effectively treated as a single counterparty under a master 
agreement.
---------------------------------------------------------------------------

    1. Unique counterparty identifier. This information would be used 
by the FDIC to aggregate positions by counterparty.
    2. Current market value of all positions. This data must be 
aggregated and to the extent permitted under all applicable agreements, 
netted as of the date of the file. If one or more positions cannot be 
netted against others, they would be maintained as separate entries.
    3. Current market value of all collateral posted by the 
institution. This

[[Page 78169]]

information would include the current market value of all collateral 
and the types of collateral, if any, that the institution has posted 
against all positions with each counterparty.
    4. Current market value of all collateral posted by the 
counterparty. This information includes the current market value of all 
collateral and the types of collateral, if any, that the counterparty 
has posted against all positions.
    5. Institution's collateral excess or deficiency. This information 
is provided with respect to all the positions as determined under each 
applicable agreement, such as master netting agreements and security 
agreements. If all positions are not secured by the same collateral, 
then separate entries should be maintained for each collateral excess 
and/or deficiency. This information includes thresholds and haircuts 
where applicable.
    6. Counterparty's collateral excess or deficiency. This information 
is provided with respect to all the positions as determined under each 
applicable agreement. If all positions are not secured by the same 
collateral, then separate entries should be maintained for each 
collateral excess and/or deficiency. This information would include 
thresholds and haircuts where applicable.
    7. Institution's collateral excess or deficiency for all positions. 
This information would be based on the aggregate market value of the 
positions (after netting to the extent permitted under all applicable 
agreements) and the aggregate market value of all collateral posted by 
the institution against the positions, in whole or in part.
    B. Data files and contract information required under Section B: 
Section B of Appendix A requires that other data files be maintained in 
either written or electronic format for QFCs and upon a written request 
by the FDIC, be produced immediately at the close of processing of the 
institution's business day, for the period provided in that written 
request. Each institution must maintain lists of: Counterparty 
identifiers with the associated counterparty and contact information; 
affiliates of the counterparties that are also counterparties to QFC 
transactions; affiliates of the institution that are counterparties to 
QFC transactions, specifically indicating which affiliates are direct 
or indirect subsidiaries of the institution; and portfolio location 
identifiers with the associated booking locations.
    For each QFC, the institution must maintain copies in a central 
location or data base in the United States of certain agreements, 
including active master netting agreements, and other QFC agreements 
between the institution and its counterparties that govern the QFC; 
active or ``open'' confirmations, if the position has been confirmed; 
credit support documents; and assignment documents, if applicable. The 
institution also must maintain a legal entity organizational chart; an 
organizational chart of all personnel involved in QFC-related 
activities at the institution, parent and affiliates; and a list of 
vendors supporting the QFC-related activities.

VI. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \26\ requires an agency 
publishing a final rule to prepare and make available for public 
comment a final regulatory flexibility analysis that describes the 
impact of the final rule on small entities. Under regulations issued by 
the Small Business Administration,\27\ a ``small entity'' includes a 
bank holding company, commercial bank, or savings association with 
assets of $165 million or less (collectively, small banking 
organizations). The RFA provides that an agency is not required to 
prepare and publish a regulatory flexibility analysis if the agency 
certifies that the final rule would not have a significant economic 
impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \26\ 5 U.S.C. 603(a).
    \27\ 13 CFR 121.201.
---------------------------------------------------------------------------

    Under section 605(b) of the Regulatory Flexibility Act,\28\ the 
FDIC certifies that the final rule would not have a significant 
economic impact on a substantial number of small entities. The final 
rule consists of requirements for institutions that have been 
determined to be in a troubled condition, as defined in the rule. These 
requirements include the maintenance of certain information regarding 
the institution's QFCs that it would be able to produce on short notice 
by the appropriate Federal banking agency or the FDIC. The rule would 
not have a significant economic impact on a substantial number of small 
entities for four reasons. First, QFCs are generally sophisticated 
financial instruments that are usually used by larger financial 
institutions to hedge assets, provide funding, or increase income. 
Because of the nature of the capital markets in which QFCs are used, 
smaller entities generally do not participate in such markets. Second, 
the number of small entities affected is further limited due to the 
proposed rule only being applicable to institutions that are determined 
to be in a troubled condition under the definition in the rule. Third, 
the impact on small entities that do use QFCs and are in a troubled 
condition further is limited by the fact that the information requested 
by the FDIC involves information that the institution already should 
have accessible if it is operated in a safe and sound manner. Fourth, 
the final rule minimizes recordkeeping burdens for community banks by 
allowing institutions in a troubled condition with less than twenty 
open QFC positions upon receipt of the written notification from the 
FDIC under part 371 and the Appendix, to record and maintain data 
required in Tables A1 and A2 in a written format instead of an 
electronic format so long as the data are capable of being updated on a 
daily basis.
---------------------------------------------------------------------------

    \28\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

VII. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (PRA), 44 U.S.C. 3501-3521, the FDIC may not conduct or 
sponsor, and the respondent is not required to respond to, an 
information collection unless it displays a currently valid Office of 
Management and Budget (OMB) control number. OMB has assigned the 
following control numbers to the recordkeeping and reporting 
requirements for QFCs: 3064-0163.
    In July 2008, the FDIC submitted the information collections 
contained in the proposed rule to OMB for review and approval. For 
purposes of the proposed rule, the FDIC estimated that the aggregate 
annual burden of complying with this rule to be 9,600 hours. This 
estimate assumed that 150 institutions would be subject to the 
requirements of the proposed rule and that such institutions would 
spend, on average, 24 hours annually complying with the proposed 
reporting requirements and 40 hours annually complying with the 
proposed records maintenance requirements. Factors considered in 
developing the burden estimate include the existing and historical 
average number of insured institutions with supervisory ratings of 3 
(for institutions with total consolidated assets of ten billion dollars 
or greater), 4, or 5; the volume of QFC activity in institutions that 
presently have supervisory ratings of 3 (where the asset threshold for 
an institution is met or exceeded), 4, or 5; the time necessary to 
complete other types of regulatory reports; the frequency with which 
the FDIC may require institutions to produce QFC information under this 
proposed rule; and the time necessary to update and

[[Page 78170]]

maintain QFC and related information as required in the proposed rule.
    The FDIC's PRA estimate for the final rule is derived from the 
product of the estimated number of institutions that would be subject 
to the final rule and the estimated hours per respondent necessary to 
meet the final rule's reporting and records maintenance requirements. 
The estimated number of institutions subject to the requirements of the 
final rule is 190, an increase of 40 since the publication of the 
proposed rule.
    The combined reporting and record maintenance burdens related to 
the final rule, consistent with estimates for the proposed rule, are 
estimated at 64 hours per respondent annually. This estimate consists 
of two components: A reporting component and a records systems 
maintenance component. It is estimated that reports as described in 
Table A and Section B of proposed Appendix A will require 2 hours on 
average to complete. This estimate is based on a number of 
considerations including the relatively small number of items 
requested, the time necessary to complete other regulatory reports, and 
the reported volume of QFC activity evident within the existing 
population of institutions that would be subject to the rule. The time 
necessary to produce such reports could be substantially more than 2 
hours for larger institutions with greater QFC volumes.
    The FDIC may request the information required in Tables A1 and A2, 
and section B of Appendix A of the final rule relatively frequently or 
infrequently depending on such factors as the reported volume of an 
institution's QFC exposures, the number of QFC positions held by an 
institution (if known), and the near term failure prospects of an 
institution. For example, the FDIC would be more likely to request the 
information required to be maintained under this rule and Appendix A if 
the institution has a sizeable volume of reported QFC exposures 
(measured in carrying values or notational amounts as applicable) 
relative to that institution's assets or regulatory capital than an 
institution with a nominal volume of reported QFC exposures. Similarly, 
the FDIC likely would require more frequent reporting for institutions 
with low supervisory ratings. Based on the assumption that 12 reports 
would be required within a given year for such institutions, the total 
reporting component of the estimate would be 24 hours per respondent.
    It is further estimated that institutions subject to these 
requirements will spend, on average, an estimated 10 hours per quarter, 
or 40 hours annually updating and maintaining the records and 
information required by section B of proposed Appendix A. Again, larger 
institutions with greater QFC volumes would likely spend considerably 
more time updating and maintaining records pertaining to QFC 
activities. Combining the records maintenance and reporting component 
estimates results in an estimated annual burden of 64 hours per 
respondent.
    Section 371.1(c) of this final rule adds paperwork burden in the 
form of an application for an extension of time to comply with the 
requirements of the rule for institutions electing to make such a 
request. The FDIC estimates that approximately 20 institutions will 
file such applications and that the average time for preparing each 
request will be approximately 30 minutes.
    In accordance with the requirements of the PRA, the FDIC has 
submitted a request to OMB for approval of its revised burden 
estimates. The revised burden for the collection of information is as 
follows:
    Estimated Number of Respondents: 190 (recordkeeping/reporting); 20 
(application).
    Estimated Time per Response: 64 hours annually per respondent (24 
hours--reporting; 40 hours--recordkeeping); 30 minutes (application).
    Estimated Total Annual Burden: 12,160 hours (recordkeeping/
reporting); 10 hours (application).
    Total Annual Burden: 12,170 hours.
    The FDIC has an ongoing interest in public comments on its burden 
estimates. Any such comments should be sent to the Paperwork Reduction 
Act Officer, FDIC Legal Division, 550 17th Street, NW., Washington, DC 
20503. Written comments should address the accuracy of the burden 
estimates and ways to minimize burden, including the use of automated 
collection techniques or the use of other forms of information 
technology, as well as other relevant aspects of the information 
collection request.

VIII. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the final 
rule is not a ``major rule'' within the meaning of the relevant 
sections of the Small Business Regulatory Enforcement Act of 1996, 
Public Law No. 110-28 (1996). As required by law, the FDIC will file 
the appropriate reports with Congress and the General Accounting Office 
so that the final rule may be reviewed.

List of Subjects

12 CFR Part 371

    Administrative practice and procedure, Bank deposit insurance, 
Banking, Banks, Reporting and recordkeeping requirements, Savings 
associations, Securities, State non-member banks.

0
For the reasons stated in the preamble, the Federal Deposit Insurance 
Corporation amends Title 12, Chapter III, Subchapter B as set forth 
below:
0
1. Add new part 371 to read as follows:

PART 371--RECORDKEEPING REQUIREMENTS FOR QUALIFIED FINANCIAL 
CONTRACTS

Sec.
371.1 Scope, purpose and applicability.
371.2 Definitions.
371.3 Form, availability and maintenance of records.
371.4 Content of records.
371.5 Enforcement actions.
Appendix A to Part 371--File Structure for Qualified Financial 
Contract Records

    Authority: 12 U.S.C. 1819(a)(Tenth); 1820(g); 1821(e)(8)(D) and 
(H); 1831g; 1831i, and 1831s.


Sec.  371.1  Scope, purpose, and applicability.

    (a) Scope. This part applies to insured depository institutions 
that are in a troubled condition as defined in Sec.  371.2(f).
    (b) Purpose. This part establishes recordkeeping requirements with 
respect to qualified financial contracts for insured depository 
institutions that are in a troubled condition.
    (c) Applicability. An insured depository institution shall comply 
with this part within 60 days after written notification by the 
institution's appropriate Federal banking agency or the FDIC that it is 
in a troubled condition under Sec.  371.2(f). The FDIC may, at its 
discretion, grant one or more extensions of time for compliance with 
this part. No single extension shall be for a period of more than 30 
days. An insured depository institution may request an extension of 
time by submitting a written request to the FDIC at least 15 days prior 
to the deadline for its compliance with the requirements of this part. 
The written request for an extension must contain a statement of the 
reasons why the institution cannot comply by the deadline for 
compliance.


Sec.  371.2  Definitions.

    For purposes of this part:
    (a) Affiliate means any company that controls, is controlled by, or 
is under common control with another company.

[[Page 78171]]

    (b) Appropriate Federal banking agency means the agency or agencies 
designated under 12 U.S.C. 1813(q).
    (c) Insured depository institution means any bank or savings 
association, as defined in 12 U.S.C. 1813, the deposits of which are 
insured by the FDIC.
    (d) Position means the rights and obligations of a person or entity 
as a party to an individual transaction under a QFC.
    (e) Qualified financial contracts (QFCs) mean those qualified 
financial contracts that are defined in 12 U.S.C. 1821(e)(8)(D) to 
include securities contracts, commodity contracts, forward contracts, 
repurchase agreements, and swap agreements and any other contract 
determined by the FDIC to be a QFC as defined in that section.
    (f) Troubled condition means for purposes of this part, any insured 
depository institution that:
    (1) Has a composite rating, as determined by its appropriate 
Federal banking agency in its most recent report of examination, of 3 
(only for insured depository institutions with total consolidated 
assets of ten billion dollars or greater), 4, or 5 under the Uniform 
Financial Institution Rating System, or in the case of an insured 
branch of a foreign bank, an equivalent rating;
    (2) Is subject to a proceeding initiated by the FDIC for 
termination or suspension of deposit insurance;
    (3) Is subject to a cease-and-desist order or written agreement 
issued by the appropriate Federal banking agency, as defined in 12 
U.S.C. 1813(q), that requires action to improve the financial condition 
of the insured depository institution or is subject to a proceeding 
initiated by the appropriate Federal banking agency which contemplates 
the issuance of an order that requires action to improve the financial 
condition of the insured depository institution, unless otherwise 
informed in writing by the appropriate Federal banking agency;
    (4) Is informed in writing by the insured depository institution's 
appropriate Federal banking agency that it is in troubled condition for 
purposes of 12 U.S.C. 1831i on the basis of the institution's most 
recent report of condition or report of examination, or other 
information available to the institution's appropriate Federal banking 
agency; or
    (5) Is determined by the appropriate Federal banking agency or the 
FDIC in consultation with the appropriate Federal banking agency to be 
experiencing a significant deterioration of capital or significant 
funding difficulties or liquidity stress, notwithstanding the composite 
rating of the institution by its appropriate Federal banking agency in 
its most recent report of examination.


Sec.  371.3  Form, availability and maintenance of records.

    (a) Form and availability. The records required to be maintained by 
an insured depository institution for QFCs under this part--
    (1) Except for records that must be maintained through electronic 
files under Appendix A of this part, may be maintained in any form, 
including in an electronic file, provided that the records are updated 
at least daily;
    (2) If the records are not maintained in written form, will be 
capable of being reproduced or printed in written form; and
    (3) Will be made available upon written request by the FDIC 
immediately at the close of processing of the institution's business 
day, for a period provided in that written request.
    (b) Maintenance of records after the institution is no longer in a 
troubled condition. Insured depository institutions that are in a 
troubled condition as defined in Sec.  371.2(f) shall continue to 
maintain the capacity to produce records required under this part on a 
daily basis for a period of one year after the date that the 
appropriate Federal banking agency notifies the institution that it is 
no longer in a troubled condition as defined in Sec.  371.2(f).
    (c) Maintenance of records after an acquisition of an institution 
that is in a troubled condition. If an insured depository institution 
that has been determined by the appropriate Federal banking agency to 
be in a troubled condition ceases to exist as an insured depository 
institution as a result of a merger or a similar transaction into an 
insured depository institution that is not in a troubled condition 
immediately following the acquisition, the obligation to maintain 
records under this part on a daily basis will terminate when the 
institution in a troubled condition ceases to exist as a separately 
insured depository institution.


Sec.  371.4  Content of records.

    For each QFC for which an insured depository institution is a party 
or is subject to a master netting agreement involving the QFC, that 
institution must maintain records as listed under Appendix A of this 
part.


Sec.  371.5  Enforcement actions.

    Violating the terms or requirements of the recordkeeping 
requirements set forth in this part constitutes a violation of a 
regulation and subjects the participating entity to enforcement actions 
under Section 8 of the FDI Act (12 U.S.C. 1818).

Appendix A to Part 371--File Structure for Qualified Financial Contract 
(QFC) Records

QFC Recordkeeping Requirements

A. Electronic Files To Be Maintained for QFCs

    Any insured depository institution that is subject to this part 
(``institution'') must produce and maintain, in an electronic file 
in a format acceptable to the FDIC, the position level data found in 
Table A1 for all open positions in QFCs entered into by that 
institution or for which the institution is subject. To fulfill this 
requirement, not later than three business days after the 
institution's receipt of the written notification from the FDIC 
under Sec.  371.1(c) of this part, the institution must provide the 
FDIC with (i) a directory of the electronic files that will be used 
by the institution to maintain the position level data found in 
Table A1 and (ii) a point of contact at the institution should the 
FDIC have follow-up questions concerning this information. In 
addition, for such data, the institution must produce at the close 
of processing of the institution's business day a report in a format 
acceptable to the FDIC that aggregates the current market value and 
the amount of QFCs by each of the fields in Table A1. The 
institution must produce the report within 60 days of a written 
notification by the FDIC for the period specified in the 
notification. Notwithstanding the above requirements, for 
institutions in a troubled condition with less than twenty open QFC 
positions upon receipt of the written notification from the FDIC or 
the institution's appropriate Federal banking agency under part 371 
and this Appendix, the data required in Table A1 are not required to 
be recorded and maintained in electronic form as would otherwise be 
required by this part, so long as all required information is 
capable of being updated on a daily basis. If at any time after 
receiving such notification an institution has twenty or more open 
QFC positions at any point in time, it must within 60 days after 
that first occurs, comply with all provisions of part 371.

[[Page 78172]]



                      Table A1--Position-Level Data
------------------------------------------------------------------------
             Field                   Example          Data application
------------------------------------------------------------------------
Unique position identifier and  999999999AU......  Information needed to
 CUSIP, if available.                               readily track and
                                                    distinguish
                                                    positions; unique
                                                    trade confirmation
                                                    number if available.
Portfolio location identifier   XY12Z............  Information needed to
 (to identify the headquarters                      determine the
 or branch where the position                       headquarters or
 is booked).                                        branch where the
                                                    position is booked
                                                    (see section B.1 of
                                                    this Appendix).
Type of position (including     Interest rate      Information needed to
 the general nature of the       swap, credit       determine the extent
 reference asset or interest     default swap,      to which the
 rate).                          equity swap,       institution is
                                 foreign exchange   involved in any
                                 forward,           particular QFC
                                 securities         market.
                                 repurchase
                                 agreement, loan
                                 repurchase
                                 agreement.
Purpose of the position (if     Trading, hedging   Information needed to
 the purpose consists of         mortgage           determine the role
 hedging strategies, include     servicing,         of the QFC in the
 the general category of the     hedging            institution's
 item(s) hedged).                certificates of    business strategy.
                                 deposit.
Termination date (date the      3/31/2010........  Information needed to
 position terminates or is                          determine when the
 expected to terminate,                             institution's rights
 expire, mature, or when final                      and obligations
 performance is required).                          regarding the
                                                    position are
                                                    expected to end.
Next call, put, or              9/30/08..........  Information needed to
 cancellation date.                                 determine when a
                                                    call, put, or
                                                    cancellation may
                                                    occur with respect
                                                    to a position.
Next payment date.............  9/30/08..........  Information needed to
                                                    anticipate potential
                                                    upcoming
                                                    obligations.
Current market value of the     $995,000.........  Information needed to
 position (as of the date of                        determine if the
 the file).                                         institution is in or
                                                    out-of-the money
                                                    with the
                                                    counterparty.
Unique counterparty identifier  AB999C...........  Information needed to
                                                    aggregate positions
                                                    by counterparty.
Notional or principal amount    $1,000,000.......  Information needed to
 of the position (this is the                       help evaluate the
 notional amount, where                             position.
 applicable).
Documentation status of         Affirmed,          Information needed to
 position.                       confirmed, or      determine
                                 neither affirmed   reliability of a
                                 nor confirmed.     booked position and
                                                    its legal status.
------------------------------------------------------------------------

Also, the institution must maintain, in an electronic file in a 
format acceptable to the FDIC, the counterparty-level data found in 
Table A2 for all open positions in QFCs entered into by that 
institution. In addition, the institution must, at the FDIC's 
written request, produce immediately at the close of processing of 
the institution's business day, for a period provided in that 
written request, a report in a format acceptable to the FDIC that 
(i) itemizes, by each counterparty and by each of its affiliates, 
the data required in each field in Table A2, and (ii) aggregates by 
field, for each counterparty and its affiliates, the data required 
in each field in Table A2. Notwithstanding the above requirements, 
for institutions in a troubled condition with less than twenty open 
QFC positions upon receipt of the written notification from the FDIC 
or the institution's appropriate Federal banking agency under part 
371 and this Appendix, the data required in Table A2 is not required 
to be recorded in electronic form as would otherwise be required by 
this part, so long as all required information is maintained and is 
capable of being updated on a daily basis. If at any time after 
receiving such notification an institution has twenty or more open 
QFC positions at any point in time, it must within 60 days after 
that first occurs, comply with all provisions of part 371.

                    Table A2--Counterparty-Level Data
------------------------------------------------------------------------
             Field                   Example          Data Application
------------------------------------------------------------------------
Unique counterparty identifier  AB999C...........  Information needed to
                                                    aggregate positions
                                                    by counterparty.
Current market value of all     ($1,000,000).....  Information needed to
 positions, as aggregated and,                      help evaluate the
 to the extent permitted under                      positions.
 each applicable agreement,
 netted \29\ (as of the date
 of the file).
Current market value of all     $950,000; U.S.     Information needed to
 collateral and the type of      treasuries.        determine the extent
 collateral, if any, that the                       to which the
 institution has posted                             institution has
 against all positions with                         provided collateral.
 each counterparty.
Current market value of all     $50,000; U.S.      Information needed to
 collateral and the type of      treasuries.        determine the extent
 collateral, if any, that the                       to which the
 counterparty has posted                            counterparty has
 against all positions.                             provided collateral.
Institution's collateral        ($25,000)........  Information needed to
 excess or deficiency with                          determine the extent
 respect to all of the                              to which the
 institution's positions, as                        institution has
 determined under each                              satisfied collateral
 applicable agreement                               requirements under
 including thresholds and                           each applicable
 haircuts where applicable\30\.                     agreement.
Counterparty's collateral       $50,000..........  Information needed to
 excess or deficiency with                          determine the extent
 respect to all of the                              to which the
 institution's positions with                       counterparty has
 each counterparty, as                              satisfied collateral
 determined under each                              requirements under
 applicable agreement                               each applicable
 including thresholds and                           agreement.
 haircuts where applicable.

[[Page 78173]]

 
The institution's collateral    ($50,000)........  Information needed to
 excess or deficiency with                          determine the extent
 respect to all the positions,                      to which the
 based on the aggregate market                      institution's
 value of the positions (after                      obligations
 netting to the extent                              regarding the
 permitted under each                               positions may be
 applicable agreement) and the                      unsecured.
 aggregate market value of all
 collateral posted by the
 institution against the
 positions, in whole or in
 part.
------------------------------------------------------------------------
\29\ If one or more positions cannot be netted against others, they
  should be maintained as separate entries.
\30\ If all positions are not secured by the same collateral, then
  separate entries should be maintained for each position or set of
  positions secured by the same collateral.

B. Other Files (in Written or Electronic Form) To Be Maintained for 
QFCs

    Within 60 days after the written notification by the FDIC, the 
institution must, produce the following files at the close of 
processing of the institution's business day, for a period provided 
in that written notification.
    1. Each institution must maintain the following files in written 
or electronic form:
     A list of counterparty identifiers, with the associated 
counterparties and contact information;
     A list of the affiliates of the counterparties that are 
also counterparties to QFC transactions with the institution or its 
affiliates, and the specific master netting agreements, if any, 
under which they are counterparties;
     A list of affiliates of the institution that are 
counterparties to QFC transactions where such transactions are 
subject to a master agreement that also governs QFC transactions 
entered into by the institution. Such list must specify (i) which 
affiliates are direct or indirect subsidiaries of the institution 
and (ii) the specific master agreements under which those affiliates 
are counterparties to QFC transactions; and
     A list of portfolio identifiers (see Table A1), with 
the associated booking locations.
    2. For each QFC, the institution must maintain in a readily-
accessible format all of the following documents:
     Agreements (including master agreements and annexes, 
supplements or other modifications with respect to the agreements) 
between the institution and its counterparties that govern the QFC 
transactions;
     Documents related to and affirming the position;
     Active or ``open'' confirmations, if the position has 
been confirmed;
     Credit support documents; and
     Assignment documents, if applicable, including 
documents that confirm that all required consents, approvals, or 
other conditions precedent for such assignment(s) have been obtained 
or satisfied.
    3. The institution must maintain:
     A legal-entity organizational chart, showing the 
institution, its corporate parent and all other affiliates, if any; 
and
     An organizational chart, including names and position 
titles, of all personnel significantly involved in QFC-related 
activities at the institution, its parent and its affiliates.
     Contact information for the primary contact person for 
purposes of compliance with this part by the institution.
    4. The institution must maintain a list of vendors supporting 
the QFC-related activities and their contact information.

    Dated at Washington, DC, this 16th day of December 2008.

    By order of the Board of Directors, Federal Deposit Insurance 
Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. E8-30221 Filed 12-19-08; 8:45 am]
BILLING CODE 6714-01-P