[Federal Register Volume 61, Number 184 (Friday, September 20, 1996)]
[Notices]
[Pages 49460-49461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24084]
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FEDERAL DEPOSIT INSURANCE CORPORATION
Interest Rate Futures Contracts, Forward Contracts, and Standby
Contracts; Rescission of Policy Statement
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Rescission of Policy Statement.
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SUMMARY: As part of the FDIC's systematic review of its regulations and
written policies under section 303(a) of the Riegle Community
Development and Regulatory Improvement Act of 1994 (CDRI), the FDIC is
rescinding its Statement of Policy Concerning Interest Rate Futures
Contracts, Forward Contracts and Standby Contracts (Policy Statement).
The Policy Statement provides guidance to state nonmember banks
entering into certain interest rate derivative transactions. The FDIC
is rescinding the Policy Statement because it is outmoded and
duplicative of subsequently-issued, more comprehensive FDIC guidance
encompassing this subject.
DATES: This Policy Statement is rescinded September 20, 1996.
FOR FURTHER INFORMATION CONTACT: William A. Stark, Assistant Director,
(202/898-6972), Kenton Fox, Senior Capital Markets Specialist, (202/
898-7119), Division of Supervision; Jamey Basham, Counsel, (202/898-
7265), Legal Division, FDIC, 550 17th Street, N.W., Washington, D.C.
20429.
SUPPLEMENTARY INFORMATION: The FDIC is conducting a systematic review
of its regulations and written policies. Section 303(a) of the CDRI (12
U.S.C. 4803(a)) requires each federal banking agency to streamline and
modify its regulations and written policies in order to improve
efficiency, reduce unnecessary costs, and eliminate unwarranted
constraints on credit availability. Section 303(a) also requires each
federal banking agency to remove inconsistencies and outmoded and
duplicative requirements from its regulations and written policies.
As part of this review, the FDIC has determined that the Policy
Statement is outmoded and duplicative, and that the FDIC's written
policies can be streamlined by its elimination.
The FDIC originally adopted the Policy Statement on November 13,
1979. 44 FR 66673 (November 20, 1979).1 The Policy Statement
provides guidance to state nonmember banks that wish to enter into
positions in futures contracts, forward contracts and put options
2 on U.S. government or agency securities, or purchase or sell
futures on domestic bank certificates of deposit. The Policy Statement
outlines safety and soundness considerations including the
establishment of position risk limits and investment policy objectives
appropriate to the institution's business strategy, measuring and
monitoring the interest rate risk presented by the positions, and
maintaining proper internal control. The Policy Statement also provides
guidance for the regulatory reporting treatment of the positions and
associated gains and losses.
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\1\ The Policy Statement was revised in light of public comments
on March 12, 1980, 45 FR 18116 (March 20, 1980), and extended to
futures on domestic bank certificates of deposit on October 13,
1981, 46 FR 51301 (October 19, 1981).
\2\ The Policy Statement refers to put options as ``standby
contracts.''
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In the time since the Policy Statement was issued, the complexity
and size of the financial derivatives market, of which the particular
contracts addressed in the Policy Statement are a significant subset as
far as state nonmember banks are concerned, has expanded markedly.
Throughout this expansion, the FDIC has recognized that the appropriate
use of derivatives can confer substantial benefits to banks, but that
the complexity of the contracts and market requires institutions to
have acceptable capital levels, suitable expertise, and sufficient
management controls. On May 18, 1994, the FDIC issued Financial
Institution Letter 34-
[[Page 49461]]
94, Examination Guidance on Financial Derivatives (FIL-34-94). FIL-34-
94 provides comprehensive guidance on the risks attached to bank
derivative activities and the risk management practices state nonmember
banks should observe in response.
In addition, on June 26, 1996, the FDIC, together with the Office
of the Comptroller of the Currency and the Board of Governors of the
Federal Reserve System, issued the Joint Agency Policy Statement:
Interest Rate Risk, 61 FR 33166 (June 26, 1996) (Joint Policy
Statement). The Joint Policy Statement addresses the impact interest
rate fluctuations can have on an institution's earnings, assets,
liabilities, and off-balance-sheet instruments (including contracts
such as those addressed in the Policy Statement), and gives
comprehensive guidance on an appropriate interest rate risk management
system.
Moreover, subsequent to the adoption of the Policy Statement, the
regulatory reporting guidance in the Policy Statement was incorporated
into the instructions for the Consolidated Report of Condition and
Income (Call Report). The reporting guidance in these Call Report
instructions will remain in effect.
The FDIC's issuance of these more comprehensive guidance materials,
which subsume the activities addressed in the Policy Statement, render
its continued existence unnecessary.
Section 303(a) of the CDRI also requires the federal banking
agencies to work jointly towards uniformity of guidelines implementing
common supervisory policies. Shortly after the FDIC issued the Policy
Statement, the Board of Governors of the Federal Reserve System (FRB)
and the Office of the Comptroller of the Currency (OCC) issued similar
documents. Policy Statement Concerning Forward Placement or Delayed
Delivery Contracts and Interest Rate Futures Contracts, 44 FR 66673
(Nov. 20, 1979); OCC Banking Circular 79 (2nd Rev.) (March 19, 1980).
On October 27, 1993, the OCC, at the time it issued Banking Circular
277 providing more comprehensive guidance on all forms of financial
derivatives, rescinded BC-79. Although the FRB until recently
maintained its version of the Policy Statement on its books, Federal
Reserve Regulatory Service 3-1535, the FRB acted on August 16, 1996 to
rescind it.
For the above reasons, the Policy Statement is rescinded.
By order of the Board of Directors.
Dated at Washington, D.C. this 10th day of September 1996.
Federal Deposit Insurance Corporation
Jerry L. Langley,
Executive Secretary.
[FR Doc. 96-24084 Filed 9-19-96; 8:45 am]
BILLING CODE 6174-01-P
