Agencies propose guidance to enhance resolution planning at large banks

The Board of Governors of the Federal Reserve System (FED) and Federal Deposit Insurance Corporation (FDIC) have jointly published a press release to inform that they are launching consultations on a new Guidance for Resolution Plan Submissions of Domestic Triennial Full Filers and Guidance for Resolution Plan Submissions of Foreign Triennial Full Filers which are expected to provide comprehensive guidance to large (foreign) financial institutions operating in the U.S. (category II and III institutions) as regards the development of their resolution plans. The newly proposed guidances follow detailed reviews of the 2021 resolution plans submitted by affected firms and institutions – which are mandated under Title 1 of the Dodd-Frank Act – and the observation that there are „significant inconsistencies in the amount and nature of information provided on critical informational elements […] as well as on assumptions about their failure scenarios“.
Specifically, the guidances would apply to bank holding companies and foreign banking organizations with total assets exceeding $250 billion which are not classified as global systemically important banking organizations (GSIBs). For latter institutions, separate guidance already exists. However, the guidance for domestic resolution plan filers would in large be based on this guidance for GSIBs with targeted amendments to reflect the size, business models, and risks of category II and III institutions.
Both guidances would include essential information on the regulators‘ expectations relating to the following key issues:
– governance mechanisms in relation to „decisions associated with entering bankruptcy“;
– ensuring sufficient capital and liquidity to facilitate an orderly resolution and corresponding planning;
– operational capabilities during resolution;
– considerations regarding derivative trading activities and other activities in this area;
– resolution planning of insured depository institutions with a multiple point of entry strategy (MPOE) (please see the „comment box“ below; and
– contents and structure of resolution plans and resolution plans for groups.
It may be worth noting that the guidance for foreign institution also includes guidance as to the interaction of a firm’s global resolution strategy versus the strategy for its operations in the U.S.
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Both guidances are expected to apply to resolutions plans filed in 2024.