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Congressional Error Disqualifies Foreign Banks from Extended Swaps Restrictions

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Foreign banks operating within the U.S. will be penalized despite a change made by regulators to provide more time to comply with pending swap restrictions.

The 2010 Dodd-Frank reform law enforces banks to move swaps activities into affiliates without U.S. government support.

"Due to an apparent congressional error, branches of foreign banks that lack deposit insurance are disqualified from the extended phase-in, and must soon move hedging activities that their U.S. counterparts can keep. That has prompted calls either for an accommodation from the Federal Reserve Board, which oversees foreign banks' U.S. activities, or a legislative fix," writes American Banker's Joe Adler.

"The question is: How does the Federal Reserve make a suitable accommodation to them to put them on more equal footing with U.S. banks?" said Randall Guynn, a partner at Davis Polk & Wardwell.

"The fact that the statute did not extend the exemption to the uninsured branches of foreign banks is an unintended glitch in the drafting," said Guynn.

For the full piece see "Glitch in Swaps Regs May Penalize Foreign Banks" (may require subscription).

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