Companies Get Leeway on Use of Swaps by Subsidiaries

By Stephen Barlas
October 1, 2020

Nonfinancial companies that use derivatives to hedge risks with regards to such things as fuel, metal, and grain prices are beneficiaries of a new interim final rule from the Federal Deposit Insurance Corporation (FDIC).


The rule, which modifies a preexisting 2015 rule on swaps published by five federal banking agencies, gives new flexibility to “inter-affiliate” derivative swaps between subsidiaries funneled through a central corporate treasury. Those subsidiaries generally will no longer be required to hold a specific amount of initial margin for uncleared swaps with each other.


Inter-affiliate swaps typically are used for internal risk management purposes. They were a big issue for nonfinancial companies represented by The Coalition for Derivatives End Users—which included Financial Executives International and the National Association of Corporate Treasurers, among others—back when the various swap provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act were being considered by Congress and then finalized by federal banking agencies.


The FDIC change is expected to provide the biggest boost to financial institutions using derivatives and in doing so probably will help main street companies seeking financing. Rob Nichols, president and CEO of the American Bankers Association, said, “In total, the FDIC’s actions today will enhance credit availability and economic growth without compromising the important financial stability and resiliency gains we have made.”


Stephen Barlas has covered Washington, D.C., for trade and professional magazines since 1981 and since 1984 for Strategic Finance and its predecessor Management Accounting. You can reach him at sbarlas@verizon.net.
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