The Federal Deposit Insurance Corp. (FDIC) and Federal
Reserve (Fed) are seeking public input on proposed guidance to further develop
resolution plans, also known as “living wills,” for certain financial
institutions with more than $250 billion in total assets.
The proposed guidance seeks to address key areas of
potential vulnerability for bank holding companies and foreign banking
organizations, classified as Category II and III banking organizations under
Title I of the Dodd-Frank Act. These areas include capital, liquidity and
operational capabilities potentially necessary in the event of a resolution.
The guidance would do so in a manner distinct from the
largest, most complex financial institutions, commonly referred to
as global systemically important banks (GSIBs). It would not materially alter
existing requirements for GSIBs.
There are two specific proposals within the guidance,
developed jointly by the FDIC and the Fed.
Long-term debt proposal
Under the proposed rule, banks with more than $100 billion
in assets would be required to issue and maintain minimum amounts of long-term
debt. The intent of this rule is to improve the resolvability of such firms, as
well as their insured depository institution (IDI) subsidiaries, in case of
failure. Doing so, per the guidance, would reduce costs to the Deposit
Insurance Fund (DIF), and mitigate financial stability and contagion risks by
reducing the risk of loss to uninsured depositors.
Fed Board Gov. Michelle Bowman said in a statement that
among the aspects of the guidance she is eager to see feedback regarding is
whether the proposals meet “the statutory bar for tailoring the stringency of
enhanced prudential standards, and applying such standards to banks with $100
billion to $250 billion in assets.”
Bowman’s full statement can be found on the Fed’s website.
Resolution plan guidance
The second proposal described in the guidance is intended to
provide greater clarity about the agencies' expectations pertaining to
resolution planning for domestic and foreign Category II and III financial
institutions.
The guidance describes two types of resolution strategies adopted
by multiple institutions: single point-of-entry (SPOE) and multiple point-of-entry
(MPOE). The guidance notes that both resolution strategies generally
incorporate aspects of the 2019 GSIB Guidance, with modifications to reflect
the specific characteristics and potential risks pertaining to specified firms.
“Under the SPOE strategy, all material entity subsidiaries
are recapitalized and provided with liquidity, if needed, so that only the top
tier bank holding company (BHC) enters resolution,” The MPOE approach entails multiple U.S.
material entities entering separate resolution proceedings: any top-tier U.S.
material entity holding company enters bankruptcy; any U.S. material entity IDI
subsidiary is resolved separately under the Federal Deposit Insurance Act of
1950, as amended (the FDI Act); and other individual U.S. material entity
subsidiaries separately enter bankruptcy (or another appropriate resolution
regime) or are wound down.”
The proposed guidance is published in the Federal
Register, with comments due by Nov. 30.
Comments may be submitted electronically via email ([email protected]) and the FDIC
website or mailed to James P. Sheesley, Assistant Executive Secretary,
Attention: Comments-RIN 3064- ZA37, Federal Deposit Insurance Corporation, 550
17th Street NW, Washington, DC 20429.