FRB and FDIC Propose Guidance to Enhance Resolution Planning at Large Banks

The Federal Reserve Board ("FRB") and the FDIC proposed guidance (see here and here) for certain domestic and foreign institutions to clarify expectations on the development of orderly resolution plans under the U.S. Bankruptcy Code.

The banking regulators said that the proposed guidance would "generally apply to bank holding companies and foreign banking organizations with more than $250 billion in total assets but that are not the largest and most complex companies, which are already subject to guidance on resolution planning." They said that the guidance addresses "the specific characteristics of, and risks posed by, this group of companies."

The regulators also provided guidance on both a single point of entry ("SPOE") resolution strategy and a multiple point of entry ("MPOE") resolution strategy. The banking agencies stated that "successful execution of an SPOE strategy relies on the ability to provide sufficient capital and liquidity to material entities, a governance structure that can identify the onset of financial stress events, and the ability to ensure the timely execution of the strategy and to maintain continuity of operations throughout resolution."

As to MPOEs, the banking agencies said that large insured depository institutions ("IDIs") are "likely to pose substantial operational and legal challenges and complexities." The regulators stated that IDIs would "benefit from developing capabilities specific to and considering legal requirements regarding U.S. IDI resolution."

The banking agencies made clear in both proposals that the guidance would not override banking organizations' obligations to respond in their next resolution plan submission to individual feedback or identified deficiencies. Nor would the proposals limit a banking organization's consideration of additional vulnerabilities unique to its structure or operations.

Comments on the proposal must be submitted by November 30, 2023.

Statements

FDIC Chair Martin J. Gruenberg said that the proposed guidance "draws upon over a decade of plan review and feedback" in addition to the FDIC's experience in the resolution of the three recent large bank failures.

Dissenting, FRB Governor Michelle W. Bowman expressed doubt as to whether banking organizations will be provided with enough information under the proposed guidance to know if they satisfied the requirement regarding the inclusion of a least-cost resolution analysis in their respective plans. She also questioned how the implementation of the long-term debt and Basel III proposals will impact banking organizations' resolution strategies.