External Meetings: Meeting with KfW

KfW is 100% owned by federal and state governments in Germany.  KfW also said its obligations are fully guaranteed by the German federal government pursuant to statute.  Because of this guarantee, KfW does not post collateral (in the normal sense) with respect to its swaps.  KfW is concerned that for this reason, it’s current uncollateralized exposure under the major swap participant (“MSP”) tests would be high and it could be designated as an MSP.  KfW said, however, that it does not raise systemic risk because of the guarantee and it therefore should not be designated as an MSP.  KfW said designation as an MSP would raise the cost of fulfilling its public mandate.  On the point that a person should be designated as an MSP if it has very large swap positions, even if the person itself does not pose systemic risk, KfW said that they believe that even in a financial crisis its book of interest rate and foreign exchange swaps would not be difficult to liquidate (if necessary) or that its holding large swap positions would otherwise fuel the adverse effects of a crisis.  Also, KfW said the requirements applicable to MSPs are generally not attuned to resolving any issues that might arise from large swap positions, so such positions should not be a basis for MSP status.