FDIC flags bankruptcy plan weaknesses in top banks holding $104 trillion in Swaps.

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The Commodity Futures Trading Commission (CFTC) recently approved a final rule amending the capital and financial reporting requirements for Swap Dealers (SDs) and Major Swap Participants (MSPs) . These amendments aim to make it easier for SDs and MSPs to comply with the CFTC’s financial reporting obligations and demonstrate compliance with minimum capital requirements.

Here are the key points:

  • Effective Date: The final rule becomes effective 30 days after its publication in the Federal Register.
  • Compliance Date: To allow sufficient time for reporting and notification amendments, the compliance date is set for September 30, 2024. This applies to all financial reports with an “as of” reporting date of September 30, 2024, or later.
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Regarding the banks with large swap positions, it’s interesting to note that while banks hold substantial swap positions (with an average notional value of $434 billion), after accounting for offsetting positions, their net interest rate risk from swaps is minimal. For instance, a 100-basis-point increase in rates reduces the value of swaps by only 0.1% of bank equity . However, the variation in swap positions across banks indicates that they use swaps for risk transfer within the banking sector.

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