(Adds background on reasons for provision, paragraph 3)
WASHINGTON, Dec 16 (Reuters) - U.S. bank regulators on Tuesday issued a rule to allow a stay in terminating derivative contracts if a bank lands in trouble, a provision needed to help them wind down failed banks without causing market mayhem.
The rule by the Federal Reserve and the Office of the Comptroller of the Currency reflected changes to the standard contract made by the International Swaps and Derivatives Association (ISDA) and 18 major banks.
The rule is a technical change to make sure that existing requirements for bank capital and liquidity are not affected by the change in derivative contracts, the regulators said.
A temporary stay of termination rights gives regulators more time to work out a rescue plan for a large bank should it land in trouble and avoid a market meltdown similar to the one in 2008 at the height of the credit crisis.
Before the stay, buyers and sellers had the right to terminate the contract as soon as their counterparty landed in trouble. The rule will come into force on Jan. 1, 2015.
The global $690 trillion swaps market is dominated by Bank of America Corp, JP Morgan Chase & Co, Citigroup Inc and Goldman Sachs Group Inc. (Reporting by Douwe Miedema; Editing by Eric Walsh)