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Tuesday, October 14, 2014

Global Banks to Stay Swaps Contracts with Failing Firms

To give regulators additional time to resolve a failing large bank, 18 global systemically important banks agreed to delay their options to end cross-border derivatives transactions with a troubled counterparty. The 48-hour delay will provide extra time for an orderly winding down without causing a destabilizing flow of liquidations.

The agreement, inked under the auspices of the International Swaps and Derivatives Association, “will impose a stay on cross-default and early termination rights within standard ISDA derivatives contracts between G-18 firms in the event one of them is subject to resolution action in its jurisdictions,” the association said. It will take effect on Jan. 1.

The Federal Reserve, FDIC and Basel, Switzerland-based Financial Stability Board praised the agreement. Regulators are expected to develop a new cross-border framework for dealing with derivatives transactions next year.

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