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Agencies seek feedback on ‘living wills’ for non-GSIB banks

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Banking
Friday, September 8, 2023

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.

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