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Federal Register / Vol. 86, No. 37 / Friday, February 26, 2021 / Rules and Regulations
based QCCPs qualify as financial institutions for purposes of FDICIAs netting provisions, the Board is amending Regulation EE to extend the financial institution definition to QCCPs. The Board believes that defining QCCPs to be financial institutions would benefit financial markets that rely on FDICIAs netting provisions by ensuring that foreign-based QCCPs can participate in other financial market utilities that require participants to be financial institutions and that including QCCPs would meet the statutory objectives of reducing systemic risk and increasing efficiency in those financial markets. Additionally, the Board believes that it is appropriate to extend the financial institution definition to QCCPs because Regulation Q 1
establishes criteria for identifying QCCPs and 2 provides that an entity must meet heightened risk-management standards to qualify as a QCCP.

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2. Foreign Central Banks A private-sector financial institution and an international organization suggested that the Board include foreign central banks in the definition of financial institution. These commenters stated that foreign central banks are systemically important and that extending the financial institution definition to cover foreign central banks would reduce systemic risk and increase efficiency in the financial markets, consistent with the purpose of the proposal.
The Board understands that foreign central banks, like Federal Reserve Banks, may participate in financial markets through various types of transactions that are used to implement monetary policy. The Board believes that including foreign central banks categorically in the definition of financial institution may benefit financial markets that rely on FDICIA
and would meet the statutory objectives of reducing systemic risk and increasing efficiency in those financial markets.
Furthermore, given that the Board is amending Regulation EE to define Federal Reserve Banks as financial institutions, the Board believes that a parallel addition of foreign central banks would be appropriate.
Accordingly, the Board is amending Regulation EE to define foreign central banks as financial institutions.
3. The BIS
Multiple commenters suggested that the Board include the BIS in the definition of financial institution. The BISs shareholders are central banks and monetary authorities that are members
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of the BIS.16 The BIS engages in financial contracts e.g., foreign exchange derivatives to help central banks and other official monetary institutions manage their foreign exchange reserves.17 Because the BIS
engages in market-facing financial contracts and has characteristics similar to those of the Federal Reserve Banks and foreign central banks, the Board believes that the BIS should receive financial institution status, which is also being extended to the Federal Reserve Banks and foreign central banks. The Board believes that extending financial institution status to the BIS would meet the statutory objectives of reducing systemic risk and increasing efficiency in the financial markets. Accordingly, the Board is amending Regulation EE to define the BIS as a financial institution.
4. Other Categories of Entities Two private-sector financial institutions and one international organization requested that the Board add the following categories of entities to the definition of financial institution:
i Supranational institutions, such as multilateral development banks; ii foreign systemically important financial market infrastructures that are subject to the Principles for Financial Market Infrastructures 18 as implemented in their respective jurisdictions, and their operators; iii sovereign wealth funds;
and iv electronic money institutions and payment institutions. The commenters did not provide detailed explanations for why the Board should extend financial institution status to these categories of entities.
As discussed above, the domestic and global landscape for financial regulation has changed dramatically since the Board promulgated Regulation EE. In particular, several types of entities are now subject to expanded federal supervision and regulation. In subjecting these types of entities to higher levels of regulation and supervision due to their activities, transaction volumes, and risks presented to the financial markets, Congress indicated the importance of the smooth functioning of these entities to the financial markets.
The Board is not extending the financial institution definition to include the four categories of entities suggested by commenters. It is not clear the extent to which these types of entities, as categories, are active in financial contract netting such that the 16 See
https www.bis.org/about/index.htm.
https www.bis.org/banking/finserv.htm.
18 See https www.bis.org/cpmi/publ/d101.htm.
17 See
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smooth functioning of their netting contracts is important for reducing systemic risk within the U.S. banking system or financial markets.
Additionally, it is not clear the extent to which some of these entities function as market intermediaries. The Board notes that some foreign systemically important financial market infrastructures may be captured by other newly-added categories in the definition of financial institution, including DCOs, clearing agencies, and QCCPs.
As the Board noted in the proposed rule, it has the authority to issue caseby-case determinations for individual entities seeking financial institution status. Further, while the Board is not categorically defining all of the entities described above as financial institutions, individual entities in these categories might independently qualify as financial institutions under Regulation EEs activities-based test.
B. Activities-Based Test The quantitative component of the activities-based test requires that a person have either 1 one or more financial contracts of a total gross dollar value of at least $1 billion in notional principal amount outstanding on any day during the previous 15-month period with counterparties that are not its affiliates or 2 total gross mark-tomarket positions of at least $100 million aggregated across counterparties in one or more financial contracts on any day during the previous 15-month period with counterparties that are not its affiliates.19
The Board proposed to clarify how the quantitative component of the activities-based test would apply following a consolidation of legal entities. Specifically, the Board proposed that, upon the consolidation of two or more entities, the surviving entity may aggregate the total gross dollar value of notional principal amounts outstanding or the total gross mark-to-market positions of both 19 12 CFR 231.3a. The Bankruptcy Code includes a test for identifying financial participants that is substantively identical to the quantitative test in Regulation EE. 11 U.S.C.
10122A. Under the Bankruptcy Code, financial participants that enter into certain types of financial contracts and master netting agreements for those financial contracts are exempt from provisions of the Bankruptcy Code that might otherwise delay or prevent netting related to those contracts. See, e.g., 11 U.S.C. 362b6, 7, 17, and 27 specifying that the Bankruptcy Codes automatic stay does not prevent a financial participant from exercising a contractual right to, inter alia, offset or net out any termination value, payment amount, or other transfer obligation arising under or in connection with certain types of financial contracts and master netting agreements for those financial contracts.

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