Pre-financial crisis, interest rate derivatives were widely recognized as a valuable part of the municipal issuer’s financial toolkit. Post-crisis, they have been a thorn in the side of many issuers, resulting in expensive litigation with failed swap providers – most notably the Lehman and Ambac derivatives trading subsidiaries – and public criticism of municipal issuers said to have fallen prey to more sophisticated providers.

On May 11, the Board of Directors of the FDIC approved a Notice of Proposed Rulemaking (the “NPR”) proposing a rule which would govern the treatment by the FDIC, as conservator or receiver of a failed insured depository institution (a “Bank”), of financial assets previously transferred by such Bank in a securitization or participation transaction. The proposed rule would create a safe harbor to confirm legal isolation of these financial assets if certain conditions are satisfied.