Recordkeeping Requirements for Qualified Financial Contracts Final Rule

Financial Institution Letter

FIL-146-2008

December 18, 2008

RECORDKEEPING REQUIREMENTS FOR QUALIFIED FINANCIAL

CONTRACTS

Final Rule

Summary: The FDIC has issued the attached final rule (Final Rule) to improve the FDIC’s ability to monitor and

evaluate risks in certain insured depository institutions with qualified financial contracts (QFCs), as well as assure

preparedness if such institutions fail. The Final Rule and Appendix require an institution in a troubled condition to

produce position level and counterparty level data and other information that is relevant to the resolution and

disposition of QFCs.

This rule is effective 30 days after publication in the Federal Register. Institutions are expected to comply with the

requirements set forth in this rule within 60 days after being notified that they are in a troubled condition.

For institutions subject to the rule with immaterial amounts of QFCs, defined as fewer than 20 open QFC positions, the

data required in the Appendix to the Final Rule may be recorded and maintained in a written format so long as the

data are capable of being updated on a daily basis.

Distribution:

All insured depository institutions

Suggested Routing:

Chief Executive Officer

Chief Financial Officer

Board of Directors

Related Topics:

Administrative practice and procedure

Bank deposit insurance

Reporting and recordkeeping requirements

Securities

Attachment:

Recordkeeping Requirements for Qualified Financial

Contracts; Final Rule

Contacts:

R. Penfield Starke, Counsel, Legal Division, (703) 562-2422

or RStarke@FDIC.gov; Michael B. Phillips, Counsel, Legal

Division, (202) 898-3581 or MPhillips@FDIC.gov; Craig C

cs:

Administrative practice and procedure

Bank deposit insurance

Reporting and recordkeeping requirements

Securities

Attachment:

Recordkeeping Requirements for Qualified Financial

Contracts; Final Rule

Contacts:

R. Penfield Starke, Counsel, Legal Division, (703) 562-2422

or RStarke@FDIC.gov; Michael B. Phillips, Counsel, Legal

Division, (202) 898-3581 or MPhillips@FDIC.gov; Craig C.

Rice, Senior Capital Markets Specialist, Division of

Resolutions and Receiverships, (202) 898-3501 or

Crrice@FDIC.gov; Marc Steckel, Section Chief, Capital

Markets Branch, Division of Supervision and Consumer

Protection, (202) 898-3618 or MSteckel@FDIC.gov; Steve

Burton, Section Chief, Division of Insurance and Research,

(202) 898-3539 or Sburton@FDIC.gov

Note:

FDIC financial institution letters (FILs) may be accessed from

the FDIC's Web site at

www.fdic.gov/news/news/financial/2008/index.html. To

receive FILs electronically, please visit

http://www.fdic.gov/about/subscriptions/fil.html.

Paper copies of FDIC financial institution letters may be

obtained through the FDIC's Public Information Center, 1-877-

275-3342 or 703-562-2200).

Highlights:

•

“QFCs” 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.

•

Appendix A sets forth the specific QFC recordkeeping

requirements. These QFC recordkeeping requirements

are organized under three categories as provided in

Appendix A: (1) position level data, (2) counterparty level

data, 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.

•

Position level data and counterparty data must be

maintained in electronic files

ix A: (1) position level data, (2) counterparty level

data, 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.

•

Position level data and counterparty data must be

maintained in electronic files. Institutions would be

required to demonstrate the ability to produce this

information immediately at the close of processing of the

institution’s business day.

Federal Deposit Insurance Corporation

550 17th Street NW, Washington, D.C. 20429-9990

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Financial Institution Letter

FIL-146-2008

December 18, 2008

RECORDKEEPING REQUIREMENTS FOR QUALIFIED FINANCIAL

CONTRACTS

Final Rule

The Federal Deposit Insurance Corporation (FDIC) has issued the attached Final Rule to

establish recordkeeping requirements for qualified financial contracts (QFCs) held by insured

depository institutions (IDIs) in a troubled condition, as defined in the rule. “QFCs” are

defined as 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.

The Notice of Proposed Rulemaking (NPR) was published in the Federal Register of July 28,

2008 (73 Fed. Reg. 43636), and the FDIC received four comment letters on the NPR, which

were from financial services industry associations. This Final Rule responds to various

concerns presented in those comment letters

ny other contract determined by the FDIC to be a QFC as defined

in that section.

The Notice of Proposed Rulemaking (NPR) was published in the Federal Register of July 28,

2008 (73 Fed. Reg. 43636), and the FDIC received four comment letters on the NPR, which

were from financial services industry associations. This Final Rule responds to various

concerns presented in those comment letters.

This Final Rule implements rulemaking authority provided to the FDIC by Congress in 2005

to establish QFC recordkeeping requirements, in consultation with the other federal banking

agencies, for QFCs held by institutions determined by the FDIC to be in a “troubled

condition.” These statutory amendments were enacted by Congress to support the FDIC’s

meeting its statutory obligations regarding the treatment of QFCs in the event of its

appointment as receiver of a failed insured depository institution.

The Final Rule and appendix require an institution in a troubled condition, upon written

notification by the institution’s appropriate federal banking agency or the FDIC, to produce

immediately at the close of processing of the institution’s business day for a period provided

in that notification:

1) electronic files for certain position level and counterparty level data;

2) electronic or written lists of (i) QFC counterparty and portfolio identifiers, (ii)

certain affiliates of the institution and the institution’s counterparties to QFC

transactions, (iii) contact information and organizational charts for key

personnel involved in QFC activities, and (iv) contact information for vendors

for such activities; and

3) copies of key agreements and related documents for each QFC

r written lists of (i) QFC counterparty and portfolio identifiers, (ii)

certain affiliates of the institution and the institution’s counterparties to QFC

transactions, (iii) contact information and organizational charts for key

personnel involved in QFC activities, and (iv) contact information for vendors

for such activities; and

3) copies of key agreements and related documents for each QFC.

For institutions in a troubled condition with less than 20 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.

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For purposes of the Final Rule, “troubled condition” means any IDI that:

1) has a composite supervisory rating, as determined by its appropriate federal

banking agency in its most recent examination, of 3 (if the IDI has total

consolidated assets of $10 billion 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 that requires action to improve the

financial condition of the IDI, or is subject to a proceeding initiated by the

appropriate federal banking agency that contemplates the issuance of an order

requiring action to improve the financial condition of the IDI, unless

otherwise informed in writing by the appropriate federal banking agency;

4) is informed in writing by the IDI’s appropriate federal banking agency that it

is in troubled condition for purposes of the rule 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)

s

otherwise informed in writing by the appropriate federal banking agency;

4) is informed in writing by the IDI’s appropriate federal banking agency that it

is in troubled condition for purposes of the rule 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.

Appendix A sets forth the specific QFC recordkeeping requirements, which are organized

under three categories: (1) position level data; (2) counterparty level data; 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.

For purposes of the implementation of this Final Rule, the FDIC has provided an initial 60

day compliance deadline. 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.

Mitchell L. Glassman

Sandra L. Thompson

Director

Director

Division of Resolutions and Receiverships

Division of Supervision and

Consumer Protection

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