[Federal Register Volume 59, Number 234 (Wednesday, December 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30040]
[[Page Unknown]]
[Federal Register: December 7, 1994]
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FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 225
[Regulations H and Y; Docket No. R-0837]
Capital; Capital Adequacy Guidelines
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is amending its risk-based capital guidelines to recognize the risk-
reducing benefits of qualifying bilateral netting contracts. This final
rule implements a recent revision to the Basle Accord permitting the
recognition of such netting arrangements. The effect of the final rule
is that state member banks and bank holding companies (banking
organizations, institutions) may net positive and negative mark-to-
market values of interest and exchange rate contracts in determining
the current exposure portion of the credit equivalent amount of such
contracts to be included in risk-weighted assets.
EFFECTIVE DATE: December 31, 1994.
FOR FURTHER INFORMATION CONTACT: Roger Cole, Deputy Associate Director
(202/452-2618), Norah Barger, Manager (202/452-2402), Robert Motyka,
Supervisory Financial Analyst (202)/452-3621), Barbara Bouchard,
Supervisory Financial Analyst (202/452-3072), Division of Banking
Supervision and Regulation; or Stephanie Martin, Senior Attorney (202/
452-3198), Legal Division. For the hearing impaired only,
Telecommunications Device for the Deaf, Dorothea Thompson (202/452-
3544), 20th and C Streets, N.W., Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION:
Background
The Basle Accord1 established a risk-based capital framework
which was implemented for state member banks and bank holding companies
by the Board in 1989. Under this framework, off-balance-sheet interest
rate and exchange rate contracts (rate contracts) are incorporated into
risk weighted assets by converting each contract into a credit
equivalent amount. This amount is then assigned to the appropriate
credit risk category according to the identity of the obligor or
counterparty or, if relevant, the guarantor or the nature of the
collateral. The credit equivalent amount of an interest or exchange
rate contract can be assigned to a maximum credit risk category of 50
percent.
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\1\The Basle Accord is a risk-based framework that was proposed
by the Basle Committee on Banking Supervision (Basle Supervisors'
Committee) and endorsed by the central bank governors of the Group
of Ten (G-10) countries in July 1988. The Basle Supervisors'
Committee is comprised of representatives of the central banks and
supervisory authorities from the G-10 countries (Belgium, Canada,
France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland, the
United Kingdom, and the United States) and Luxembourg.
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The credit equivalent amount of a rate contract is determined by
adding together the current replacement cost (current exposure) and an
estimate of the possible increase in future replacement cost in view of
the volatility of the current exposure over the remaining life of the
contract (potential future exposure, also referred to as the add-
on).2
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\2\This method of determining credit equivalent amounts for rate
contracts is identified in the Basle Accord as the current exposure
method, which is used by most international banks.
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For risk-based capital purposes, a rate contract with a positive
mark-to-market value has a current exposure equal to that market value.
If the mark-to-market value of a rate contract is zero or negative,
then there is no replacement cost associated with the contract and the
current exposure is zero. The original Basle Accord and the Board's
guidelines provided that current exposure would be determined
individually for each rate contract entered into by a banking
organization; institutions generally were not permitted to offset, that
is, net, positive and negative market values of multiple rate contracts
with a single counterparty to determine one current credit exposure
relative to that counterparty.3
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\3\It was noted in the Accord that the legal enforceability of
certain netting arrangements was unclear in some jurisdictions. The
legal status of netting by novation, however, was determined to be
settled and this limited type of netting was recognized. Netting by
novation is accomplished under a written bilateral contract
providing that any obligation to deliver a given currency on a given
date is automatically amalgamated with all other obligations for the
same currency and value date. The previously existing contracts are
extinguished and a new contract for the single net amount, in
effect, legally replaces the amalgamated gross obligations.
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In April 1993 the Basle Supervisors' Committee proposed a revision
to the Basle Accord, endorsed by the G-10 Governors in July 1994, that
permits institutions to net positive and negative market values of rate
contracts subject to a qualifying, legally enforceable, bilateral
netting arrangement. Under the revision, institutions with a qualifying
netting arrangement may calculate a single net current exposure for
purposes of determining the credit equivalent amount for the included
contracts.4 If the net market value of the contracts included in
such a netting arrangement is positive, then that market value equals
the current exposure for the netting contract. If the net market value
is zero or negative, then the current exposure is zero.
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\4\The revision to the Accord notes that national supervisors
must be satisfied about the legal enforceability of a netting
arrangement under the laws of each jurisdiction relevant to the
arrangement. The Accord also states that, if any supervisor is
dissatisfied about enforceability under its own laws, the netting
arrangement does not satisfy this condition and neither counterparty
may obtain supervisory benefit.
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The Board's Proposal
On May 20, 1994, the Board and the Office of the Comptroller of the
Currency (OCC) issued a joint proposal to amend their respective risk-
based capital standards (59 FR 26456) in accordance with the Basle
Supervisors' Committee's April 1993 proposal.5 The joint proposal
provided that for capital purposes institutions regulated by the Board
and the OCC could net the positive and negative market values of
interest and exchange rate contracts subject to a qualifying, legally
enforceable, bilateral netting contract to calculate one current
exposure for that netting contract (sometimes referred to as the master
netting contract).
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\5\The Office of Thrift Supervision (OTS) issued a similar
netting proposal on June 14, 1994 and the Federal Deposit Insurance
Corporation (FDIC) issued its netting proposal on July 25, 1994.
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The proposal provided that the net current exposure would be
determined by adding together all positive and negative market values
of individual contracts subject to the netting contract. The net
current exposure would equal the sum of the market values if that sum
is a positive value, or zero if the sum of the market values is zero or
a negative value. The proposals did not alter the calculation method
for potential future exposure.\6\
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\6\Potential future exposure is estimated by multiplying the
effective notional amount of a contract by a credit conversion
factor which is based on the type of contract and the remaining
maturity of the contract. Under the Board/OCC proposal, a potential
future exposure amount would be calculated for each individual
contract subject to the netting contract. The individual potential
future exposures would then be added together to arrive at one total
add-on amount.
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Under the proposal, institutions would be able to net for risk-
based capital purposes only with a written bilateral netting contract
that creates a single legal obligation covering all included individual
rate contracts and does not contain a walkaway clause.\7\ The proposal
required an institution to obtain a written and reasoned legal
opinion(s) stating that under the master netting contract the
institution would have a claim to receive, or an obligation to pay,
only the net amount of the sum of the positive and negative market
values of included individual contracts if a counterparty failed to
perform due to default, insolvency, bankruptcy, liquidation, or similar
circumstances.
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\7\A walkaway clause is a provision in a netting contract that
permits a non-defaulting counterparty to make lower payments than it
would make otherwise under the contract, or no payment at all, to a
defaulter or to the estate of a defaulter, even if the defaulter or
the estate of the defaulter is a net creditor under the contract.
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The proposal indicated that the legal opinion must normally cover:
(i) The law of the jurisdiction in which the counterparty is chartered,
or the equivalent location in the case of noncorporate entities, and if
a branch of the counterparty is involved, the law of the jurisdiction
in which the branch is located; (ii) the law that governs the
individual contracts covered by the netting contract; and (iii) the law
that governs the netting contract.
The proposal provided that an institution must maintain in its
files documentation adequate to support the bilateral netting contract.
Documentation would typically include a copy of the bilateral netting
contract, legal opinions and any related translations. In addition, the
proposal required an institution to establish and maintain procedures
to ensure that the legal characteristics of netting contracts would be
kept under review.
Under the proposal, the Federal Reserve could disqualify any or all
contracts from netting treatment for risk-based capital purposes if the
requirements of the proposal were not satisfied. In the event of
disqualification, the affected contracts would be treated as though
they were not subject to the master netting contract. The proposal
indicated that outstanding netting by novation arrangements would not
be grandfathered, that is, such arrangements would have to meet all of
the proposed requirements for qualifying bilateral netting contracts.
The proposal requested general comments as well as specific
comments on the nature of collateral arrangements and the extent to
which collateral might be recognized in conjunction with bilateral
netting contracts.
Comments Received
The Board received nineteen public comments on the proposed
amendment. Eleven comments were from banking organizations and five
were from industry trade associations and organizations. In addition,
there were three comments from law firms. All commenters supported the
expanded recognition of bilateral netting contracts for risk-based
capital purposes. Several commenters encouraged recognition of such
contracts as quickly as possible. Many of the commenters concurred with
one of the principal underlying tenets of the proposal, that is, that
legally enforceable bilateral netting contracts can provide an
efficient and desirable means for institutions to reduce or control
credit exposure. A few commenters noted that, in their view, the
recognition of bilateral netting contracts would create an incentive
for market participants to use such arrangements and would encourage
lawmakers to clarify the legal status of netting arrangements in their
jurisdictions. One commenter noted that the expanded recognition of
bilateral netting contracts would help keep U.S. banking organizations
competitive in global derivatives markets.
While generally expressing their endorsement for the expanded
recognition of bilateral netting contracts, nearly all commenters
offered suggestions or requested clarification regarding details of the
proposals. In particular, the commenters raised issues concerning
specifics of the required legal opinions, the treatment of collateral,
and the grandfathering of walkaway clauses and novation agreements.
Legal Opinions
Almost all commenters addressed the proposed requirement that
institutions obtain legal opinions concluding that their bilateral
netting contracts would be enforceable in all relevant jurisdictions.
Commenters did not object to the general requirement that they secure
legal opinions, rather they raised a number of questions about the form
and substance of an acceptable opinion.
Form. Several commenters requested clarification as to the specific
form of the legal opinion. Commenters wanted to know if a memorandum of
law would satisfy the requirement or if a legal opinion would be
required. They questioned whether a memorandum or opinion could be
addressed to, or obtained by, an industry group, and whether a generic
opinion or memorandum relating to a standardized netting contract would
satisfy the legal opinion requirement.
Several commenters suggested that an opinion secured on behalf of
the banking industry by an organization should be sufficient so long as
the individual institution's counsel concurs with the opinion and
concludes that the opinion applies directly to the institution's
specific netting contract and to the individual contracts subject to
it. A few commenters requested confirmation that legal opinions would
not have to follow a predetermined format.
Scope. Several commenters identified two possible interpretations
of the proposed language with regard to the scope of the legal
opinions. They asked for clarification as to whether the opinions would
be required to discuss only whether all relevant jurisdictions would
recognize the contractual choice of law, or whether they must also
discuss the enforceability of netting in bankruptcy or other instances
of default. One commenter suggested deleting the requirement for a
choice of law analysis.
A number of commenters objected to the proposed requirement that
the legal opinion for a multibranch netting contract (that is, a
netting contract between multinational banks that includes contracts
with branches of the parties located in various jurisdictions) address
the enforceability of netting under the law of the jurisdiction where
each branch is located. These commenters stated that it should be
sufficient for the legal opinion to conclude that netting would be
enforced in the jurisdiction of the counterparty's home office if the
master netting contract provides that all transactions are considered
obligations of the home office and the branch jurisdictions recognize
that provision.
Severability. Several commenters expressed concern about the
proposed treatment for netting contracts that include contracts with
branches in jurisdictions where the enforceability of netting is
unclear. In such circumstances, commenters asserted, unenforceability
or uncertainty in one jurisdiction should not invalidate the entire
netting contract for risk-based capital netting treatment. These
commenters contended that contracts with branches of a counterparty in
jurisdictions that recognize netting arrangements should be netted and
contracts with branches in jurisdictions where the enforceability of
netting is not supported by legal opinions should, for risk-based
capital purposes, be severed, or removed from the master netting
contract and treated as though they were not subject to that contract.
These commenters noted that this treatment should only be available to
the extent it is supported by legal opinion.
Conclusions. The proposal required a legal opinion to conclude that
``relevant court and administrative authorities would find'' the
netting to be effective. Many commenters that discussed this aspect of
the proposal expressed concern that this standard was too high. They
suggested, instead, that the opinions be required to conclude that
netting ``should'' be effective.
A few commenters requested clarification regarding the proposed
requirement that the netting contract must create a single legal
obligation.
Collateral
Twelve commenters addressed the proposal's specific request for
comment on the nature of collateral and the extent to which collateral
might be recognized in conjunction with bilateral netting contracts.
All of these commenters believed collateral should be recognized as a
means of reducing credit exposure. A few commenters noted that
collateral arrangements are increasingly being used with derivative
transactions.
Several commenters stated that for netting contracts that call for
the use of collateral, the amount of required collateral is determined
from the net mark-to-market value of the master netting contract. A few
commenters added that mark-to-market collateral often is used in
conjunction with a collateral ``add-on'' based on such things as the
notional amount of the underlying contracts, the maturities of the
contracts, the credit quality of the counterparty, and volatility
levels.
A number of commenters offered their opinions as to how collateral
should be recognized for risk-based capital purposes. Some suggested
that the existing method of recognizing collateral for purposes of
assigning credit equivalent amounts to risk categories is applicable to
derivative transactions as well. Other commenters expressed the view
that collateral should be recognized when assigning risk weights to the
extent it is legally available to cover the total credit exposure for
the bilateral netting contract in the event of default and that this
availability should be addressed in the legal opinions.
Several other commenters suggested separating the net current
exposure and potential future exposure of bilateral netting contracts
for determining collateral coverage and appropriate risk weights. One
commenter favored recognizing collateral for capital purposes by
allowing an institution to offset net current exposure by the amount of
the collateral to further reduce the credit equivalent amount.
Two commenters requested clarification that contracts subject to
qualifying netting contracts could be eligible for a zero percent risk
weight if the transaction is properly collateralized in accordance with
the Board's collateralized transactions rule.8
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\8\In December 1992 the Board issued an amendment to its risk-
based capital guidelines permitting certain collateralized
transactions to qualify for a zero percent risk weight (57 FR 62180,
December 30, 1992). In order to qualify for a zero percent risk
weight, an institution must maintain a positive margin of qualifying
collateral at all times. Thus, the collateral arrangement should
provide for immediate liquidation of the claim in the event that a
positive margin of collateral is not maintained. The OCC has issued
a similar proposal (58 FR 43822, August 18, 1993).
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Walkaway Clauses
Several commenters addressed the proposed prohibition against
walkaway clauses in contracts qualifying for netting for risk-based
capital purposes. While most of these commenters agreed that,
ultimately, walkaway clauses should be eliminated from master netting
contracts, they favored a phase-out period, during which outstanding
bilateral netting contracts containing walkaway clauses could qualify
for capital netting treatment. Several commenters contended that if a
defaulter is a net debtor under the contract, the existence of a
walkaway clause would not affect the amount owed to the non-defaulting
creditor.
Novation
A few commenters expressed concern that the proposal did not
grandfather outstanding novation agreements. These commenters suggested
a phase-in period during which novation agreements would not be
required to be supported by legal opinions.
Other Issues
One commenter requested greater detail on the nature and extent of
examination review procedures. Two commenters stated that in some
situations obtaining translations might be burdensome. Another
commenter suggested assurance that the Federal Reserve would not
disqualify netting contracts in an unreasonable manner.
Approximately one-half of the commenters expressed concern that the
proposal specifically was limited to interest rate and exchange rate
contracts. All of these opposed limiting the range of products that
could be included under qualifying netting contracts. In this regard,
one commenter noted that where there is sufficient legal support
confirming the enforceability of cross-product netting, such netting
should be recognized for capital purposes.
A number of commenters used the proposal as an opportunity to
discuss the manner in which the add-on for potential future exposure is
calculated. They suggested netting contracts should be recognized not
only as a way to reduce the current exposure to a counterparty, but
also the effects of such netting contracts should be taken into account
to reduce the amount of capital organizations must hold against the
potential future exposure to the counterparty.
Final Rule
After considering the public comments received and further
deliberating the issues involved, the Board is adopting a final rule
recognizing, for capital purposes, qualifying bilateral netting
contracts. This final rule is substantially the same as proposed.
Legal Opinions
Form. The final rule requires that institutions obtain a written
and reasoned legal opinion(s) concluding that the netting contract is
enforceable in all relevant jurisdictions. This requirement is aimed at
ensuring there is a substantial legal basis supporting the legal
enforceability of a netting contract before reducing a banking
organization's capital requirement based on that netting contract. A
legal opinion, as generally recognized by the legal community in the
United States, can provide such a legal basis. A memorandum of law may
be an acceptable alternative as long as it addresses all of the
relevant issues in a credible manner.
As discussed in the proposal, the legal opinions may be prepared by
either an outside law firm or an institution's in-house counsel. The
salient requirements for an acceptable legal opinion are that it: (i)
Addresses all relevant jurisdictions; and (ii) concludes with a high
degree of certainty that in the event of a legal challenge the banking
organization's claim or obligation would be determined by the relevant
court or administrative authority to be the net sum of the positive and
negative mark-to-market values of all individual contracts subject to
the bilateral netting contract. The subject matter and complexity of
required legal opinions will vary.
To some extent, institutions may use general, standardized opinions
to help support the legal enforceability of their bilateral netting
contracts. For example, a banking organization may have obtained a
memorandum of law addressing the enforceability of netting provisions
in a particular foreign jurisdiction. This opinion may be used as the
basis for recognizing netting generally in that jurisdiction. However,
with regard to an individual master netting contract, the general
opinion would need to be supplemented by an opinion that addresses
issues such as the enforceability of the underlying contracts, choice
of law, and severability.
For example, the Board does not believe that a generic opinion
prepared for a trade association with respect to the effectiveness of
netting under the standard form agreement issued by the trade
association, by itself, is adequate to support a netting contract.
Banking organizations using such general opinions would need to
supplement them with a review of the terms of the specific netting
contract that the institution is executing.
Scope. With regard to the scope of the legal opinions, that is,
what areas of analysis must be covered, the Board is of the opinion
that legal opinions must address the validity and enforceability of the
entire netting contract. The opinion must conclude that under the
applicable state or other jurisdictional law the netting contract is a
legal, valid, and binding contract, enforceable in accordance with its
terms, even in the event of insolvency, bankruptcy, or similar
proceedings. Opinions provided on the law of jurisdictions outside of
the U.S. should include a discussion and conclusion that netting
provisions do not violate the public policy or the law of that
jurisdiction.
The Board has further determined that one of the most critical
aspects of a qualifying netting contract is the contract's
enforceability in any jurisdiction whose law would likely be applied in
an enforcement action, as well as the jurisdiction where the
counterparty's assets reside. In this regard, and in light of the
policy in some countries to liquidate branches of foreign banking
organizations independent of the head office, the Board is retaining
its proposed requirement that legal opinions address the netting
contract's enforceability under: (i) The law of the jurisdiction in
which the counterparty is chartered, or the equivalent location in the
case of noncorporate entities, and if a branch of the counterparty is
involved, the law of the jurisdiction in which the branch is located;
(ii) the law that governs the individual contracts subject to the
bilateral netting contract; and (iii) the law that governs the netting
contract.
Severability. The Board recognizes that for some multibranch
netting contracts an organization may not be able to obtain a legal
opinion(s) concluding that netting would be enforceable in every
jurisdiction where branches covered under the master netting contract
are located. The Board concurs with commenters that in such situations
it may be inefficient to require institutions to renegotiate netting
contracts to ensure they cover only those jurisdictions where netting
is clearly enforceable. The Board has determined that, in certain
circumstances for capital purposes, banking institutions may use master
bilateral netting contracts that include contracts with branches across
all jurisdictions. Banking institutions should calculate their net
current exposure for the contracts in those jurisdictions where netting
clearly is enforceable as supported by legal opinion(s). The remaining
contracts subject to the netting contract should be severed from the
netting contract and treated as though they were not subject to the
netting contract for capital and credit purposes. This approach of
essentially dividing contracts subject to the netting contact into two
categories--those that clearly may be netted and those that may not--is
acceptable provided that the banking organization's legal opinions
conclude that the contracts that do not qualify for netting treatment
are legally severable from the master netting contract and that such
severance will not undermine the enforceability of the netting contract
for the remaining qualifying contracts.
Conclusions. The Board has retained the proposed language that
legal opinions must represent that netting would be enforceable in all
relevant jurisdictions. In response to commenters' assertions that the
standard for this type of legal opinion is too high, the Board notes
that use of the word ``would'' in the capital rules does not
necessarily mean that the legal opinions must also use the word
``would'' or that enforceability must be determined to be an absolute
certainty. The intent, rather, is for banking organizations to secure a
legal opinion concluding that there is a high degree of certainty that
the netting contract will survive a legal challenge in any applicable
jurisdiction. The degree of certainty should be apparent from the
reasoning set out in the opinion.
The Board notes that the requirement for legal opinions to conclude
that netting contracts must create a single legal obligation applies
only to those individual contracts that are covered by, and included
under, the netting contract for capital purposes. As discussed above, a
netting contract may include individual contracts that do not qualify
for netting treatment, provided that these individual contracts are
legally severable from the contracts to be netted for capital purposes.
Institutions generally must include all contracts covered by a
qualifying netting contract in calculating the current exposure of that
netting contract. In the event a netting contract covers transactions
that are normally excluded from the risk-based ratio calculation--for
example, exchange rate contracts with an original maturity of fourteen
calendar days or less or instruments traded on exchanges that require
daily payment of variation margin--an institution may choose to either
include or exclude all mark-to-market values of such contracts when
determining net current exposure, but this choice must be followed
consistently.
Collateral
The final rule permits, subject to certain conditions, institutions
to take into account qualifying collateral when assigning the credit
equivalent amount of a netting contract to the appropriate risk weight
category in accordance with the procedures and requirements currently
set forth in the Board's risk-based capital guidelines. The Board has
added language to the final rule clarifying that collateral must be
legally available to cover the credit exposure of the netting contract
in the event of default. For example, the collateral may not be pledged
solely against one individual contract subject to the master netting
contract. The legal availability of the collateral must be addressed in
the legal opinions.
Walkaway Clauses
The Board has considered the suggestion made by some commenters of
a phase-out period for outstanding contracts with walkaway clauses. The
Board continues to believe that walkaway clauses do not reduce credit
risk. Accordingly, the final rule retains the provision that bilateral
netting contracts with walkaway clauses are not eligible for netting
treatment for risk-based capital purposes and does not provide for a
phase-out period.
Novation
The proposal required all netting contracts, including netting by
novation agreements, to be supported by written legal opinions. The
Board does not agree with commenters that a grandfathering period for
outstanding novation agreements is needed. Rather, the Board continues
to believe that all netting contracts must be held to the same
standards in order to promote certainty as to the legal enforceability
of the contracts and to decrease the risks faced by counterparties in
the event of default. Under the final rule, a netting by novation
agreement must meet the requirements for a qualifying bilateral netting
contract.
Other Issues
The Board has considered all of the other issues raised by
commenters. With regard to documentation, the Board reiterates that, as
with all provisions of risk-based capital, a banking organization must
maintain in its files appropriate documentation to support any
particular capital treatment including netting of rate contracts.
Appropriate documentation typically would include a copy of the
bilateral netting contract, supporting legal opinions, and any related
translations. The documentation should be available to examiners for
their review.
The Board recognizes commenters' concerns that the proposed rule
was limited specifically to interest and exchange rate contracts. The
Board notes that both the Basle Accord and the Board's risk-based
capital guidelines currently do not address derivatives contracts other
than rate contracts. This final rule does not attempt to go beyond the
scope of the existing risk-based capital framework and applies only to
netting contracts encompassing interest rate and foreign exchange rate
contracts. The Board, however, notes that the Basle Supervisors'
Committee issued a proposal for public comment in July 1994 to amend
the Basle Accord that explicitly would set forth the risk-based capital
treatment for other types of derivative transactions, such as
commodity, precious metal, and equity contracts. In this regard, the
Board issued a similar proposal, based on the Basle Supervisors'
Committee proposal, to amend its risk-based capital guidelines (59 FR
43508, August 24, 1994).
Until the Basle Accord has been revised and the Board's risk-based
capital rules have been amended to encompass commodity, precious metal,
and equity derivative contracts, the Board, rather than automatically
disqualifying from capital netting treatment an entire netting contract
that includes non-rate-related transactions, will permit institutions
to apply the following treatment. In determining the current exposure
of otherwise qualifying netting contracts that include non-rate-related
contracts, institutions will be permitted to net the positive and
negative mark-to-market values of the included interest and exchange
rate contracts, while severing the non-rate-related contracts and
treating them for risk-based capital purposes as individual contracts
that are not subject to the master netting contract. (This treatment is
similar to the treatment applied to a netting contract that includes
contracts in jurisdictions where the enforceability of netting is not
supported by legal opinion. With non-rate-related contracts, however,
legal opinions on severability are not required.)
The Board notes that the regulatory language with regard to the
calculation of potential future exposure remains essentially the same
as that proposed. The Board has clarified an underlying premise of the
current exposure method for calculating credit exposure as set forth in
the Basle Accord, that is, the add-on for potential future exposure
must be calculated based on the effective, rather than the apparent,
notional principal amount and the notional amount an institution uses
will be subject to examiner review.9
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\9\The notional amount is, generally, a stated reference amount
of money used to calculate payment streams between the
counterparties. In the event that the effect of the notional amount
is leveraged or enhanced by the structure of the transaction,
institutions must use the actual, or effective, notional amount when
determining potential future exposure.
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Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act, the
Board hereby certifies that this final rule will not have a significant
impact on a substantial number of small business entities. Accordingly,
a regulatory flexibility analysis is not required.
Paperwork Reduction Act and Regulatory Burden
The Board has determined that this final rule will not increase the
regulatory paperwork burden of banking organizations pursuant to the
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).
Section 302 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (Pub. L. 103-325, 108 Stat. 2160) provides that
the federal banking agencies must consider the administrative burdens
and benefits of any new regulation that imposes additional requirements
on insured depository institutions. Section 302 also requires such a
rule to take effect on the first day of the calendar quarter following
final publication of the rule, unless the agency, for good cause,
determines an earlier effective date is appropriate.
The new capital rule imposes certain requirements on depository
institutions that wish to net the current exposures of their rate
contracts for purposes of calculating their risk-based capital
requirements. For these institutions, any burden of complying with the
requirements of netting under a legally enforceable netting contract
and obtaining the necessary legal opinions should be outweighed by the
benefits associated with a lower capital requirement. The new rule will
not affect institutions that do not wish to net for capital purposes.
For these reasons, the Board has determined that an effective date of
December 31, 1994 is appropriate, in order to allow banking
organizations to take advantage of netting in their year-end
statements, if they so desire. For these same reasons, in accordance
with 5 U.S.C. 553(d)(3) the Board finds there is good cause not to
follow the 30-day notice requirements of 5 U.S.C. 553(d) and to make
the rule effective on December 31, 1994.
List of Subjects
12 CFR Part 208
Accounting, Agriculture, Banks, banking, Branches, Capital
adequacy, Confidential business information, Crime, Currency, Federal
Reserve System, Mortgages, Reporting and recordkeeping requirements,
Securities, State member banks.
12 CFR Part 225
Administrative practice and procedure, Banks, banking, Capital
adequacy, Federal Reserve System, Holding companies, Reporting and
recordkeeping requirements, Securities.
Authority and Issuance
For the reasons set out in the preamble, parts 208 and 225 of
chapter II of title 12 of the Code of Federal Regulations are amended
as set forth below.
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL
RESERVE SYSTEM (REGULATION H)
1. The authority citation for part 208 is revised to read as
follows:
Authority: 12 U.S.C. 36, 248(a) and 248(c), 321-338a, 371d, 461,
481-486, 601, 611, 1814, 1823(j), 1828(o), 1831o, 1831p-1, 3105,
3310, 3331-3351 and 3906-3909; 15 U.S.C. 78b, 78l(b), 78l(g),
78l(i), 78o-4(c)(5), 78q, 78q-1 and 78w; 31 U.S.C. 5318.
2. Appendix A to part 208 is amended by revising:
a. Section III.E.2.;
b. Section III.E.3;
c. Section III.E.5.;
d. The last heading and two subsequent paragraphs of Attachment IV;
and
e. Attachment V.
The revisions read as follows:
Appendix A to Part 208--Capital Adequacy Guidelines for State Member
Banks: Risk-Based Measure
* * * * *
III. * * *
E. * * *
12. Calculation of credit equivalent amounts. a. The credit
equivalent amount of an off-balance-sheet rate contract that is not
subject to a qualifying bilateral netting contract in accordance
with section III.E.5. of this appendix A is equal to the sum of (i)
the current exposure (sometimes referred to as the replacement cost)
of the contract; and (ii) an estimate of the potential future credit
exposure over the remaining life of the contract.
b. The current exposure is determined by the mark-to-market
value of the contract. If the mark-to-market value is positive, then
the current exposure is that mark-to-market value. If the mark-to-
market value is zero or negative, then the current exposure is zero.
Mark-to-market values are measured in dollars, regardless of the
currency or currencies specified in the contract, and should reflect
changes in the relevant rates, as well as counterparty credit
quality.
c. The potential future credit exposure of a contract, including
a contract with a negative mark-to-market value, is estimated by
multiplying the notional principal amount of the contract by a
credit conversion factor. Banks should, subject to examiner review,
use the effective rather than the apparent or stated notional amount
in this calculation. The conversion factors are:
------------------------------------------------------------------------
Interest Exchange
rate rate
Remaining maturity contracts contracts
(percent) (percent)
------------------------------------------------------------------------
One year or less.................................. 0 1.0
Over one year..................................... 0.5 5.0
------------------------------------------------------------------------
d. Examples of the calculation of credit equivalent amounts for
these instruments are contained in Attachment V of this appendix A.
e. Because exchange rate contracts involve an exchange of
principal upon maturity, and exchange rates are generally more
volatile than interest rates, higher conversion factors have been
established for foreign exchange rate contracts than for interest
rate contracts.
f. No potential future credit exposure is calculated for single
currency interest rate swaps in which payments are made based upon
two floating rate indices, so-called floating/floating or basis
swaps; the credit exposure on these contracts is evaluated solely on
the basis of their mark-to-market values.
3. Risk weights. Once the credit equivalent amount for an
interest rate or exchange rate contract has been determined, that
amount is assigned to the risk weight category appropriate to the
counterparty, or, if relevant, to the guarantor or the nature of any
collateral.49 However, the maximum weight that will be applied
to the credit equivalent amount of such instruments is 50 percent.
---------------------------------------------------------------------------
\4\9For interest and exchange rate contracts, sufficiency of
collateral or guarantees is determined by the market value of the
collateral or the amount of the guarantee in relation to the credit
equivalent amount. Collateral and guarantees are subject to the same
provisions noted under section III.B. of this appendix A. Collateral
held against a netting contract is not recognized for capital
purposes unless it is legally available to support the single legal
obligation created by the netting contract.
---------------------------------------------------------------------------
* * * * *
5. Netting. a. For purposes of this appendix A, netting refers
to the offsetting of positive and negative mark-to-market values in
the determination of a current exposure to be used in the
calculation of a credit equivalent amount. Any legally enforceable
form of bilateral netting (that is, netting with a single
counterparty) of rate contracts is recognized for purposes of
calculating the credit equivalent amount provided that:
i. The netting is accomplished under a written netting contract
that creates a single legal obligation, covering all included
individual contracts, with the effect that the bank would have a
claim to receive, or obligation to pay, only the net amount of the
sum of the positive and negative mark-to-market values on included
individual contracts in the event that a counterparty, or a
counterparty to whom the contract has been validly assigned, fails
to perform due to any of the following events: Default, insolvency,
liquidation, or similar circumstances.
ii. The bank obtains a written and reasoned legal opinion(s)
representing that in the event of a legal challenge--including one
resulting from default, insolvency, liquidation, or similar
circumstances--the relevant court and administrative authorities
would find the bank's exposure to be such a net amount under:
1. The law of the jurisdiction in which the counterparty is
chartered or the equivalent location in the case of noncorporate
entities, and if a branch of the counterparty is involved, then also
under the law of the jurisdiction in which the branch is located;
2. The law that governs the individual contracts covered by the
netting contract; and
3. The law that governs the netting contract.
iii. The bank establishes and maintains procedures to ensure
that the legal characteristics of netting contracts are kept under
review in the light of possible changes in relevant law.
iv. The bank maintains in its files documentation adequate to
support the netting of rate contracts, including a copy of the
bilateral netting contract and necessary legal opinions.
b. A contract containing a walkaway clause is not eligible for
netting for purposes of calculating the credit equivalent
amount.50
---------------------------------------------------------------------------
\5\0A walkaway clause is a provision in a netting contract that
permits a non-defaulting counterparty to make lower payments than it
would make otherwise under the contract, or no payment at all, to a
defaulter or to the estate of a defaulter, even if the defaulter or
the estate of the defaulter is a net creditor under the contract.
---------------------------------------------------------------------------
c. By netting individual contracts for the purpose of
calculating its credit equivalent amount, a bank represents that it
has met the requirements of this appendix A and all the appropriate
documents are in the bank's files and available for inspection by
the Federal Reserve. The Federal Reserve may determine that a bank's
files are inadequate or that a netting contract, or any of its
underlying individual contracts, may not be legally enforceable
under any one of the bodies of law described in paragraph 5.a.ii.1.
through 5.a.ii.3. of section III of this appendix A. If such a
determination is made, the netting contract may be disqualified from
recognition for risk-based capital purposes or underlying individual
contracts may be treated as though they are not subject to the
netting contract.
d. The credit equivalent amount of rate contracts that are
subject to a qualifying bilateral netting contract is calculated by
adding (i) the current exposure of the netting contract, and (ii)
the sum of the estimates of the potential future credit exposures on
all individual contracts subject to the netting contract, estimated
in accordance with section III.E.2. of this appendix A.51
---------------------------------------------------------------------------
\5\1For purposes of calculating potential future credit exposure
to a netting counterparty for foreign exchange contracts and other
similar contracts in which notional principal is equivalent to cash
flows, total notional principal is defined as the net receipts
falling due on each value date in each currency. The reason for this
is that offsetting contracts in the same currency maturing on the
same date will have lower potential future exposure as well as lower
current exposure.
---------------------------------------------------------------------------
e. The current exposure of the netting contract is determined by
summing all positive and negative mark-to-market values of the
individual contracts included in the netting contract. If the net
sum of the mark-to-market values is positive, then the current
exposure of the netting contract is equal to that sum. If the net
sum of the mark-to-market values is zero or negative, then the
current exposure of the netting contract is zero. The Federal
Reserve may determine that a netting contract qualifies for risk-
based capital netting treatment even though certain individual
contracts may not qualify. In such instances, the nonqualifying
contracts should be treated as individual contracts that are not
subject to the netting contract.
f. In the event a netting contract covers contracts that are
normally excluded from the risk-based ratio calculation--for
example, exchange rate contracts with an original maturity of
fourteen calendar days or less, or instruments traded on exchanges
that require daily payment of variation margin--an institution may
elect to consistently either include or exclude all mark-to-market
values of such contracts when determining net current exposure.
g. An example of the calculation of the credit equivalent amount
for rate contracts subject to a qualifying netting contract is
contained in Attachment V of this appendix A.
* * * * *
Attachment IV--Credit Conversion Factors for Off-Balance-Sheet Items
for State Member Banks
* * * * *
Credit Conversion for Interest Rate and Exchange Rate Contracts
1. The credit equivalent amount of a rate contract is the sum of
the current credit exposure of the contract and an estimate of
potential future increases in credit exposure. The current exposure
is the positive mark-to-market value of the contract (or zero if the
mark-to-market value is zero or negative). For rate contracts that
are subject to a qualifying bilateral netting contract the current
exposure is, generally, the net sum of the positive and negative
mark-to-market values of the contracts included in the netting
contract (or zero if the net sum of the mark-to-market values is
zero or negative). The potential future exposure is calculated by
multiplying the effective notional amount of a contract by one of
the following credit conversion factors, as appropriate:
------------------------------------------------------------------------
Interest Exchange
rate rate
Remaining maturity contracts contracts
(percent) (percent)
------------------------------------------------------------------------
One year or less.................................. 0 1.0
Over one year..................................... 0.5 5.0
------------------------------------------------------------------------
2. No potential future exposure is calculated for single
currency interest rate swaps in which payments are made based upon
two floating indices, that is, so called floating/floating or basis
swaps. The credit exposure on these contracts is evaluated solely on
the basis of their mark-to-market value. Exchange rate contracts
with an original maturity of fourteen days or less are excluded.
Instruments traded on exchanges that require daily payment of
variation margin are also excluded.
Attachment V--Calculation of Credit Equivalent Amounts for Interest Rate and Exchange Rate-Related Transactions
for State Member Banks
----------------------------------------------------------------------------------------------------------------
Potential + Current = Credit
exposure ------------------------------ exposure ------------- equivalent
Type of contract ---------------- ---------------- amount
(remaining maturity) Notional Conversion Potential Current ---------------
principal factor exposure Mark-to-market exposure
(dollars) (dollars) value (dollars)
----------------------------------------------------------------------------------------------------------------
(1) 120-day forward
foreign exchange.... 5,000,000 .01 50,000 100,000 100,000 150,000
(2) 120-day forward
foreign exchange.... 6,000,000 .01 60,000 -120,000 0 60,000
(3) 3-year single-
currency interest-
rate swap........... 10,000,000 .005 50,000 200,000 200,000 250,000
(4) 3-year single-
currency fixed/
floating interest-
rate swap........... 10,000,000 .005 50,000 -250,000 0 50,000
(5) 7-year cross-
currency floating/
floating interest-
rate swap........... 20,000,000 .05 1,000,000 -1,300,000 0 1,000,000
------------------------------------------------------------------------------------------
Total.......... .............. ............ 1,210,000 .............. 300,000 1,510,000
----------------------------------------------------------------------------------------------------------------
If contracts (1) through (5) above are subject to a qualifying
bilateral netting contract, then the following applies:
----------------------------------------------------------------------------------------------------------------
Potential
future Net current Credit
exposure (from + exposure\1\ = equivalent
above) amount
----------------------------------------------------------------------------------------------------------------
(1)...................................... 50,000
(2)...................................... 60,000
(3)...................................... 50,000
(4)...................................... 50,000
(5)...................................... 1,000,0000
----------------------------------------------------------------------
Total.............................. 1,210,000 ........... 0 ........... 1,210,000
----------------------------------------------------------------------------------------------------------------
\1\The total of the mark-to-market values from above is -1,370,000. Since this is a negative amount, the net
current exposure is zero.
* * * * *
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
1. The authority citation for part 225 is revised to read as
follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1831i, 1831p-1,
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907, and
3909.
2. Appendix A to part 225 is amended by revising:
a. Section III.E.2.;
b. Section III.E.3.;
c. Section III.E.5.;
d. The last heading and subsequent two paragraphs of Attachment IV;
and
e. Attachment V.
The revisions read as follows:
Appendix A to Part 225--Capital Adequacy Guidelines for Bank Holding
Companies: Risk-Based Measure
* * * * *
III. * * *
E. * * *
2. Calculation of credit equivalent amounts. a. The credit
equivalent amount of an off-balance sheet rate contract that is not
subject to a qualifying bilateral netting contract in accordance
with section III.E.5. of this appendix A is equal to the sum of (i)
the current exposure (sometimes referred to as the replacement cost)
of the contract; and an (ii) estimate of the potential future credit
exposure over the remaining life of the contract.
b. The current exposure is determined by the mark-to-market
value of the contract. If the mark-to-market value is positive, then
the current exposure is that mark-to-market value. If the mark-to-
market value is zero or negative, then the current exposure is zero.
Mark-to-market values are measured in dollars, regardless of the
currency or currencies specified in the contract, and should reflect
changes in the relevant rates, as well as counterparty credit
quality.
c. The potential future credit exposure of a contract, including
a contract with a negative mark-to-market value, is estimated by
multiplying the notional principal amount of the contract by a
credit conversion factors. Banking organizations should, subject to
examiner review, use the effective rather than the apparent or
stated notional amount in this calculation. The conversion factors
are:
------------------------------------------------------------------------
Interest Exchange
rate rate
Remaining maturity contracts contracts
(percent) (percent)
------------------------------------------------------------------------
One year or less.................................. 0 1.0
Over one year..................................... 0.5 5.0
------------------------------------------------------------------------
d. Examples of the calculation of credit equivalent amounts for
these instruments are contained in Attachment V of this appendix A.
e. Because exchange rate contracts involve an exchange of
principal upon maturity, and exchange rates are generally more
volatile than interest rates, higher conversion factors have been
established for exchange rate contracts than for interest rate
contracts.
f. No potential future credit exposure is calculated for single
currency interest rate swaps in which payments are made based upon
two floating rate indices, so-called floating/floating or basis
swaps; the credit exposure on these contracts is evaluated solely on
the basis of their mark-to-market values.
3. Risk weights. Once the credit equivalent amount for an
interest rate or exchange rate contract has been determined, that
amount is assigned to the risk weight category appropriate to the
counterparty or, if relevant, to the guarantor or the nature of any
collateral.53 However, the maximum weight that will be applied
to the credit equivalent amount of such instruments is 50 percent.
---------------------------------------------------------------------------
\5\3 For interest and exchange rate contracts, sufficiency of
collateral or guarantees is determined by the market value of the
collateral or the amount of the guarantee in relation to the credit
equivalent amount. Collateral and guarantees are subject to the same
provisions noted under section III.B. of this appendix A. Collateral
held against a netting contract is not recognized for capital
purposes unless it is legally available to support the single legal
obligation created by the netting contract.
---------------------------------------------------------------------------
* * * * *
5. Netting. a. For purposes of this appendix A, netting refers
to the offsetting of positive and negative mark to-market values in
the determination of a current exposure to be used in the
calculation of a credit equivalent amount. Any legally enforceable
form of bilateral netting (that is, netting with a single
counterparty) of rate contracts is recognized for purposes of
calculating the credit equivalent amount provided that:
i. The netting is accomplished under a written netting contract
that creates a single legal obligation, covering all included
individual contracts, with the effect that the organization would
have a claim to receive, or obligation to receive or pay, only the
net amount of the sum of the positive and negative mark-to-market
values on included individual contracts in the event that a
counterparty, or a counterparty to whom the contract has been
validly assigned, fails to perform due to any of the following
events: default, bankruptcy, liquidation, or similar circumstances.
ii. The banking organization obtains a written and reasoned
legal opinion(s) representing that in the event of a legal
challenge--including one resulting from default, bankruptcy,
liquidation, or similar circumstances--the relevant court and
administrative authorities would find the banking organization's
exposure to be such a net amount under:
1. The law of the jurisdiction in which the counterparty is
chartered or the equivalent location in the case of noncorporate
entities, and if a branch of the counterparty is involved, then also
under the law of the jurisdiction in which the branch is located;
2. The law that governs the individual contracts covered by the
netting contract; and
3. The law that governs the netting contract.
iii. The banking organization establishes and maintains
procedures to ensure that the legal characteristics of netting
contracts are kept under review in the light of possible changes in
relevant law.
iv. The banking organization maintains in its files
documentation adequate to support the netting of rate contracts,
including a copy of the bilateral netting contract and necessary
legal opinions.
b. A contract containing a walkaway clause is not eligible for
netting for purposes of calculating the credit equivalent
amount.54
---------------------------------------------------------------------------
\5\4A walkaway clause is a provision in a netting contract that
permits a non-defaulting counterparty to make lower payments than it
would make otherwise under the contract, or no payment at all, to a
defaulter or to the estate of a defaulter even if the defaulter or
the estate of the defaulter is a net creditor under the contract.
---------------------------------------------------------------------------
c. By netting individual contracts for the purpose of
calculating its credit equivalent amount, a banking organization
represents that it has met the requirements of this appendix A and
all the appropriate documents are in the organization's files and
available for inspection by the Federal Reserve. The Federal Reserve
may determine that a banking organization's files are inadequate or
that a netting contract, or any of its underlying individual
contracts, may not be legally enforceable under any one of the
bodies of law described in paragraph 5.a.ii.1. through 5.a.ii.3. of
section III of this appendix A. If such a determination is made, the
netting contract may be disqualified from recognition for risk-based
capital purposes or underlying individual contracts may be treated
as though they are not subject to the netting contract.
d. The credit equivalent amount of rate contracts that are
subject to a qualifying bilateral netting contract is calculated by
adding (i) the current exposure of the netting contract, and (ii)
the sum of the estimates of the potential future credit exposures on
all individual contracts subject to the netting contract, estimated
in accordance with section III.E.2. of this appendix A.55
---------------------------------------------------------------------------
\5\5For purposes of calculating potential future credit exposure
to a netting counterparty for foreign exchange contracts and other
similar contracts in which notional principal is equivalent to cash
flows, total notional principal is defined as the net receipts
falling due on each value date in each currency. The reason for this
is that offsetting contracts in the same currency maturing on the
same date will have lower potential future exposure as well as lower
current exposure.
---------------------------------------------------------------------------
e. The current exposure of the netting contract is determined by
summing all positive and negative mark-to-market values of the
individual contracts included in the netting contract. If the net
sum of the mark-to-market values is positive, then the current
exposure of the netting contract is equal to that sum. If the net
sum of the mark-to-market values is zero or negative, then the
current exposure of the netting contract is zero. The Federal
Reserve may determine that a netting contract qualifies for risk-
based capital netting treatment even though certain individual
contracts may not qualify. In such instances, the nonqualifying
contracts should be treated as individual contracts that are not
subject to the netting contract.
f. In the event a netting contract covers contracts that are
normally excluded from the risk-based ratio calculation--for
example, exchange rate contracts with an original maturity of
fourteen calendar days or less, or instruments traded on exchanges
that require daily payment of variation margin--an institution may
elect to consistently either include or exclude all mark-to-market
values of such contracts when determining net current exposure.
g. An example of the calculation of the credit equivalent amount
for rate contracts subject to a qualifying netting contract is
contained in Attachment V of this appendix A.
* * * * *
Attachment IV--Credit Conversion Factors for Off-Balance-Sheet Items
for Bank Holding Companies
* * * * *
Credit Conversion for Interest Rate and Exchange Rate Contracts
1. The credit equivalent amount of a rate contract is the sum of
the current credit exposure of the contract and an estimate of
potential future increases in credit exposure. The current exposure
is the positive mark-to-market value of the contract (or zero if the
mark-to-market value is zero or negative). For rate contracts that
are subject to a qualifying bilateral netting contract the current
exposure is the net sum of the positive and negative mark-to-market
values of the contracts included in the netting contract (or zero if
the net sum of the mark-to-market values is zero or negative). The
potential future exposure is calculated by multiplying the effective
notional amount of a contract by one of the following credit
conversion factors, as appropriate:
------------------------------------------------------------------------
Interest Exchange
rate rate
Remaining maturity contracts contracts
(percent) (percent)
------------------------------------------------------------------------
One year or less.................................. 0 1.0
Over one year..................................... 0.5 5.0
------------------------------------------------------------------------
2. No potential future exposure is calculated for single
currency interest rate swaps in which payments are made based upon
two floating indices, that is, so called floating/floating or basis
swaps. The credit exposure on these contracts is evaluated solely on
the basis of their mark-to-market value. Exchange rate contracts
with an original maturity of fourteen days or less are excluded.
Instruments traded on exchanges that require daily payment of
variation margin are also excluded.
Attachment V.--Calculation of Credit Equivalent Amounts for Interest Rate and Exchange Rate-Related Transactions
for Bank Holding Companies
----------------------------------------------------------------------------------------------------------------
Potential exposure + Current = Credit
---------------------------------------------- exposure ------------- equivalent
Type of contract Notional Potential ---------------- Current amount
(remaining maturity) principal Conversion exposure Mark-to-market exposure ---------------
(dollars) Factor (dollars) value (dollars)
----------------------------------------------------------------------------------------------------------------
(1) 120-day forward
foreign exchange.... 5,000,000 .01 50,000 100,000 100,000 150,000
(2) 120-day forward
foreign exchange.... 6,000,000 .01 60,000 -120,000 0 60,000
(3) 3-year single-
currency fixed/
floating interest
rate swap........... 10,000,000 .005 50,000 200,000 200,000 250,000
(4) 3-year single-
currency fixed/
floating interest-
rate swap........... 10,000,000 .005 50,000 -250,000 0 50,000
(5) 7-year cross-
currency floating/
floating interest-
rate swap........... 20,000,000 .05 1,000,000 -1,300,000 0 1,000,000
------------------------------------------------------------------------------------------
Total.......... 1,210,000 .............. 300,000 1,510,000
----------------------------------------------------------------------------------------------------------------
If contracts (1) through (5) above are subject to a qualifying
bilateral netting contract, then the following applies:
----------------------------------------------------------------------------------------------------------------
Potential
future Net current Credit
exposure (from + exposure\1\ = equivalent
above) amount
----------------------------------------------------------------------------------------------------------------
(1)...................................... 50,000
(2)...................................... 60,000
(3)...................................... 50,000
(4)...................................... 50,000
(5)...................................... 1,000,000
----------------------------------------------------------------------------------------------------------------
Total.............................. 1,210,000 ........... 0 ........... 1,210,000
----------------------------------------------------------------------------------------------------------------
\1\The total of the mark-to-market values from above is -1,370,000. Since this is a negative amount, the net
current exposure is zero.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, December 1, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-30040 Filed 12-6-94; 8:45 am]
BILLING CODE 6210-01-P
