On March 6, 2013, bipartisan legislation was introduced in the House of Representatives and in the Senate that would weaken the swaps pushout rule, as proposed under Section 716 of the Dodd-Frank Act. The pushout rule prohibits institutions that accept deposits and receive support from the federal government (federally insured depository institutions, or IDIs) from being financially entangled with entities that deal in swaps (see Practice Note, The Dodd-Frank Act's Pushout Rule). The proposed legislation would allow banks to retain certain swaps trading businesses, including certain commodity swaps, equity swaps and certain swaps related to asset-backed securities (ABS).

Once the pushout rule becomes effective, as currently proposed, banks would be required to move certain non-risk-mitigating swap activities, including market-making activities with end-user counterparties, to separately capitalized nonbank affiliates. Phase-in of the rule is scheduled to begin July 16, 2013. However, US IDIs classified as swaps entities may request a two-year extension from the OCC. In special circumstances and upon application by the IDI, the applicable banking regulator in consultation with the CFTC and the SEC may extend this by another year. As a result, some IDIs may have up to three years from the effective date of the pushout rule to push out their prohibited swap activities. For detailed information on the pushout compliance extension, including what is required when requesting an extension, see Legal Update, OCC Offers Swaps Pushout Rule Extensions.

Opponents of the new proposed legislation argue that the pushout rule protects taxpayers from having to bail out failed financial institutions and protects markets from excessive risk-taking by systemically significant financial institutions. Proponents of the new proposed legislation that would weaken the rule argue that the pushout rule, as it stands, would simply push risky swaps trading out into less regulated entities without reducing systemic risk. Proponents of weakening the rule also say the pushout rule would reduce the available inventory of market-making swaps that end users require for business-related risk management.

The fact that there is bipartisan support for this legislation is viewed as a victory for the banking industry, as there is now a realistic chance that the proposal will be softened before becoming a final rule. Certain commentators and studies have suggested that, regardless, the pushout rule may not ultimately have the tectonic impact on bank swap activities as was once feared (see Practice Note, The Dodd-Frank Act's Pushout Rule). However, certain banks could be more impacted than others, depending on how their operations are structured, and some financial institutions could be required to restructure or relocate some major swaps-related activities.

The legislation was introduced by:

For more information on Dodd-Frank regulations specifically related to bank swaps, see Practice Notes:

Note that the Swaps Pushout Rule has been amended by federal legislation signed into law by President Obama in December 2014 and will now affect only a limited range of transactions (see Legal Update, Dodd-Frank Swaps Pushout Rule Substantially Repealed).