As expected, the FDIC Board today voted 3-1 to approve a controversial proposal to eliminate inter-affiliate initial margin requirements for uncleared swaps. This is a significant change to the 2015 interagency margin rules (see FSM Report DERIVATIVES28) sought by large banks which have been required to segregate billions of idled capital against these inter-affiliate transactions. The NPR would also allow certain changes to legacy swap contracts, including eliminating LIBOR references, without triggering additional requirements. As discussed in detail in this report, Chair McWilliams said that the inter-affiliate initial margin requirements undercut affiliate resilience and increase bank cash borrowings.
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