Cash & Liquidity ManagementCash ManagementNetting/PoolingFed looks to expand financial institution definition

Fed looks to expand financial institution definition

Federal Reserve Board invites comment on a proposal to apply netting contract protections to a broader range of financial institutions

The Board of Governors of the Federal Reserve System is seeking comments on a proposal to amend Regulation EE.

Regulation EE currently includes an activities-based test pursuant to which an entity can qualify as a financial institution for purposes of netting provisions if it is a market intermediary and, during the previous 15-month period, it engaged in financial contracts exceeding specified numerical thresholds.

The Fed is proposing to include new categories of entities under “financial institution” status under the FDIC Improvement Act’s netting provisions.

New entities

The Board proposes to extend financial institution status for purposes of FDICIA’s netting provisions to certain new categories of entities. The Board has requested for comment on whether the following entities should qualify as financial institutions:

  • Swap dealers and security-based swap dealers
  • Major swap participants and major security-based swap participants
  • Nonbank systemically important financial institutions
  • Certain financial market utilities: Derivatives clearing organizations and clearing agencies, and designated financial market utilities
  • Foreign banks
  • Bridge institutions
  • Federal reserve banks

The proposal would also clarify how the existing activities-based test in Regulation EE applies following a consolidation of legal entities.

The problem organizations typically face is that of intercompany commerce creating large volumes of invoices and micro-transactions. This consequently leads to redundant FX fees, banking fees, and intercompany disputes. The solution for this is a multilateral netting software to automate, reconcile, and mediate intercompany commerce. Heavily reduces transaction volume, associated fees, and provides a veil of maximum transparency over company-wide cash flows.

In keeping with FDICIA’s goals of reducing systemic risk and increasing efficiency in the financial markets, the Board believes that the addition of certain categories of institutions to the definition of financial institution would benefit financial markets that continue to rely on FDICIA’s netting provisions.

Related Articles

ASGC Group takes high-volume transaction management digital

Automation ASGC Group takes high-volume transaction management digital

12h Austin Clark
How exposed are banks if corporate debt starts to crumble?

Corporate to Bank Relationships How exposed are banks if corporate debt starts to crumble?

14h Richard Crecel
How can treasury teams successfully manage foreign exchange risk in a volatile global environment?

Corporate Treasury How can treasury teams successfully manage foreign exchange risk in a volatile global environment?

4d Nash Riggins
Fed looks to expand financial institution definition

Netting/Pooling Fed looks to expand financial institution definition

5d Jay Ashar
Do you have the best TMS for your needs?

Corporate Treasury Do you have the best TMS for your needs?

5d Austin Clark
BofA Merrill Lynch to integrate CashPro with Apple Watch

Corporate to Bank Relationships BofA Merrill Lynch to integrate CashPro with Apple Watch

5d Jay Ashar
Cryptocurrencies are assets, not currencies: Mario Draghi

Blockchain Cryptocurrencies are assets, not currencies: Mario Draghi

6d Jay Ashar
The discontinuation of (L)IBOR: many questions, very few answers

Corporate Treasury The discontinuation of (L)IBOR: many questions, very few answers

7d Moritz Sterzinger

Whitepapers & Resources

Are You Ready to Implement your GRC Solution?

Are You Ready to Implement your GRC Solution?

4w
Netting: An Immersive Guide to Global Reconciliation

Netting: An Immersive Guide to Global Reconciliation

3m
Mitigating Costs and Exposure - A Multilateral Netting White Paper

Mitigating Costs and Exposure - A Multilateral Netting White Paper

3m
Cyber Fraud and Treasury - How to Stay Ahead of Emerging Threats

Cyber Fraud and Treasury - How to Stay Ahead of Emerging Threats

3m