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External Meetings: Conference Call with Community and Regional Banks

10/4/2011 10:30 AM
XI. End-user Exception

CFTC Staff:
Eileen Donovan

Erik Remmler
Chris Slusher – The PrivateBank and Trust Company

Mark Cvrkel – Susquehanna Bank

Jessie Kelley – Commerce Bank

David Shutley – Atlantic Capital Bank

Vassil Zanev – Trustmark

Denise Hall – Webster Bank

Chris Roth – UMB Bank

Phil Sheridan – Wintrust

Sean Farrell – Wintrust

Jamie McConnel – Chatham

Mike Ashby – Chatham

Craig Pflumm – Chatham

Sam Peterson – Chatham
The PrivateBank and Trust Company

Susquehanna Bank

Commerce Bank

Atlantic Capital Bank


Webster Bank

UMB Bank


Chatham Financial
  • The commenters called to discuss the small financial institution exception to the financial entity definition in the end-user rule.  The commenters generally use swaps to meet banking client needs to hedge interest rate risk on loans and occasionally FX and commodity risks.  Occasionally, the commenters use swaps to hedge balance sheet risks.  They do not hold themselves out as dealers.~~~Most swaps with customers are hedged by the banks by entering into matching back-to-back swaps with swap dealers.  Most are fully collateralized, often with illiquid assets of the customer.  CDS is not offered by the commenters.~~~The callers want the swaps they execute as hedges with dealers to be subject to the end-user exception even though the customer facing swaps are not hedges for the banks (but are for the customers).~~~Regarding the small financial institution test, the commenters asserted that Congress did not limit the CFTC to a $10 billion asset test.  Instead, they advocated for $30 billion or less.  Chatham noted that existing swaps for such banks would equal 0.09% of the derivatives market in notional size and estimates that between 150 and 400 banks of that size execute swaps in the United States.  It was suggested that the CFTC should raise the asset level and add other additional tests such as a maximum exposure test and/or limits on the types of swaps the banks could execute (e.g. no CDS).~~~Chatham stated that FCMs may charge small customers between $5,000 and $10,000 per month.  Also, because the banks would not be collecting collateral from customers, but would have to post to clearing houses, the cost of collateral would raise costs for the customers.  Finally, they noted that clearing would require regular monitoring and collateral posting.  These issues could make providing swaps to customers no longer worthwhile for community banks.