In joint guidance, federal banking regulators
clarified that the swap push out provisions of the Dodd-Frank Act take effect
on July 16, 2013. The provisions, codified in Section 716 of Dodd-Frank, deny federal assistance
to any entity defined under that section to be a swaps entity with respect to
any swap, security-based swap, or other activity of the swaps entity. Effectively,
Section 716 requires banks to divest the types of derivatives activities considered
to carry the greatest risk, while allowing banks to retain the majority of
their routine low-risk derivatives activities on behalf of customers. (OCC,
FDIC, Federal Reserve Board, May 10, 2012, 77 F.R. 27456)
Section 716(h)
provides that the prohibition becomes effective two years after the date on
which this Act is effective. The banking regulators take the position that the
word ``Act’’ in Section 716(h) refers to Title VII, which is called the Wall Street
Transparency and Accountability Act, and not to the broader Dodd-Frank Act. Section
701 in Title VII provides that Title VII may be cited as the Wall Street Transparency
and Accountability Act. Thus, reasoned the banking agencies, while enacted
within the Dodd-Frank Act, Title VII is itself ‘‘an Act,’’ and references
within Title VII to ‘‘this Act’’ should be interpreted as references to the
Wall Street Transparency and Accountability Act, and not to the broader Dodd-Frank
Act.
The guidance notes
that this interpretation is supported by the fact that Section 716(m) refers
specifically to the Dodd- Frank Act by name, a reference that would not be
necessary if the reference to ‘‘this Act’’ in section 716(h) of the Wall Street
Transparency and Accountability Act were intended to refer to the Dodd-Frank
Act.
The Wall Street Transparency
and Accountability Act (Title VII) became effective on July 16, 2011, which is
later than the effective date of the Dodd-Frank Act generally. The Wall Street
Transparency and Accountability Act has two subtitles. Both subtitles contain provisions
that establish an effective date that is 360 days after the enactment of the
subtitle. The date of enactment was July 21, 2010, said the guidance, making July
16, 2011 the effective date of the subtitles comprising the Wall Street Transparency
and Accountability Act. Because Section 716 specifically adopts an effective
date that is two years following the effective date of the Wall Street
Transparency and Accountability Act, noted the agencies, it follows that Section
716 will become effective on July 16, 2013.
The agencies also
said that they intend to invite comment on a separate proposal that would
establish the appropriate transition period for insured depository institutions
pursuant to section 716(f).