Recognition of the U.S. Special Resolution Regimes: Overview, definition, and example
What is recognition of the U.S. Special Resolution Regimes?
Recognition of the U.S. Special Resolution Regimes is a clause commonly used in financial contracts involving large U.S. or foreign banks. It acknowledges that if a party becomes subject to certain U.S. resolution authorities—such as the FDIC or the U.S. Treasury—under laws like the Dodd-Frank Act or the Federal Deposit Insurance Act, the other party agrees to honor the effects of those resolution rules, even if they override normal bankruptcy or default protections.
Why is recognition of the U.S. Special Resolution Regimes important?
This clause helps major financial institutions comply with U.S. regulations that aim to manage bank failures in an orderly way. It prevents counterparties from trying to terminate or unwind contracts solely because the institution has entered into resolution under U.S. law. By agreeing in advance, both parties reduce legal uncertainty and help stabilize the financial system during distress events.
Understanding recognition of the U.S. Special Resolution Regimes through an example
A global bank enters into a derivatives agreement with a U.S. investment fund. The contract includes a clause stating that the investment fund recognizes the U.S. Special Resolution Regimes. Months later, the bank experiences financial distress and is placed into resolution by the FDIC. Because of this clause, the investment fund agrees not to immediately terminate the agreement or seize collateral—giving regulators time to manage the bank’s resolution in an orderly way.
Example of a recognition of the U.S. Special Resolution Regimes clause
Here’s how a recognition of the U.S. Special Resolution Regimes clause may look like in a contract:
"In accordance with the Final Rules issued by the Board of Governors of the Federal Reserve System, each party acknowledges and agrees that it is bound by the effects of the U.S. Special Resolution Regimes, including the orderly liquidation authority under Title II of the Dodd-Frank Act and the Federal Deposit Insurance Act, with respect to the transfer of this agreement and related claims."
Conclusion
The recognition of the U.S. Special Resolution Regimes clause supports financial stability by ensuring that contracts with major banks remain enforceable during times of stress, even if special government intervention is triggered. For financial institutions and their counterparties, this clause is both a regulatory requirement and a risk-management tool.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.