MFA Publishes White Paper Addressing Stays of Early Termination Rights

KEYWORDS: Early Termination

Authors:

Managed Funds Association

Organizations:
  • Managed Funds Association

Summary:

MFA has published a white paper titled “Too Big to Default: Policy and Legal Perspectives on Current Bank Regulator Initiatives to Restrict End-Users’ Default Rights Against Big Banks.”  The white paper presents MFA’s views on the stays of early termination rights that public policymakers and regulators are considering.

In the white paper, MFA identifies the following key concerns with the regulators’ initiative:

  1. The Financial Stability Board (FSB) and G-20 bank regulators are advancing the their initiative without a mandate from public policymakers;
  2. The G-20 bank regulators’ new resolution strategies have potential flaws and unintended consequences;
  3. The contractual approach to imposing the FSB initiative (as manifested in the ISDA Resolution Stay Protocol) is inherently flawed; and
  4. The initiative of the Federal Reserve Board (Fed) and the Federal Deposit Insurance Corporation (FDIC) to suspend customer rights during U.S. bankruptcy proceedings is not a G-20 objective and is inconsistent with congressional intent.

In response to these concerns, in the white paper, MFA recommends that:

  1. IOSCO prepare a report for G-20 legislators on the potential impact of the FSB initiative on end-users and financial markets more broadly and analyze the implications of pursuing a contract-based approach to imposing the FSB initiative;
  2. The U.S. President’s Working Group for Financial Markets should reconvene to consider the findings of IOSCO’s report and, to the extent it concludes that certain of the report’s recommendations merit implementation in the United States, make recommendations to Congress for their implementation; and
  3. The G-20 bank regulators as well as the Fed and FDIC should defer further action on their respective initiatives pending the outcome of the above efforts.

Click here to read the full white paper.