On February 19, MFA submitted a comment letter to the Board of Governors of the Federal Reserve System (Board) on its proposed rule on “Total Loss-Absorbing Capacity, Long-Term Debt, and Clean Holding Company Requirements for Systemically Important U.S. Bank Holding Companies and Intermediate Holding Companies of Systemically Important Foreign Banking Organizations; Regulatory Capital Deduction for Investments in Certain Unsecured Debt of Systemically Important U.S. Bank Holding Companies”.
In our letter, MFA expressed concerns with the so-called “clean holding company requirements”, which would prohibit certain holding companies from guaranteeing obligations of their subsidiaries or affiliates where those guarantees are subject to cross-default rights or would otherwise constitute qualified financial contracts with third parties. In response to the proposed prohibitions, MFA reiterated our strong objections to the U.S. banking regulators’ contemplated initiatives to restrict end-users’ cross-default rights as well as the broader Financial Stability Board initiative on cross-border recognition of resolution actions. MFA attached its white paper setting forth our views on these initiatives, and urged the Board to defer proceeding with the proposed prohibitions as the impact of these initiatives on end-users needs to be properly studied and assessed. In addition, understanding that, notwithstanding MFA’s objections, the Board may determine to proceed with the proposed prohibitions:
- MFA urged the Board to apply the prohibitions only prospectively, and not also retroactively; and
- MFA supported the Board’s determination to exclude rights to terminate at any time that are embedded in on demand contracts from the proposed definition of “default right”.
