The House of Congress voted yesterday to repeal the controversial “push-out rule”. Also referred to as the “Lincoln Amendment” (Blanche not Abe), Section 716is a prohibition on Federal assistance to swaps entities. The Section is broadly-drafted, “Federal assistance” includes FDIC guarantees and the use of the Fed’s discount window, while “swaps entity” comprises both dealers and major participants. The Rule specifically precludes any use of taxpayer funds to prevent a receivership arising from swap activity, and prohibits their use during a swap-triggered liquidation. Although it was never going to be popular amongst the banking fraternity, the eight page provision has been widely criticised from its inception; not least for the drafting error that created an inequitable, differential approach to exemptions, effectively privileging domestic banks over foreign.
The Republican-dominated Congress voted 292 to 122 in support of Section 716 repeal, thereby allowing FDIC-insured banks to trade plain vanilla derivatives. Despite the markedly bi-partisan support in Congress, it is most unlikely that the bill will pass the Senate stage. The Democratic-held Senate has to date proved unwilling to sanction any fundamental changes to Dodd-Frank, partly on the grounds that even a small chink in the Dodd-Frank armour may eventually lead to a wholesale financial lobby-led gutting.Contact Us