FDIC Lowers Threshold for Resolution Plan Filings
Commentary by Thomas Delaney
The FDIC approved a final rule that would impact resolution plan filing requirements for insured depository institutions. The FDIC lowered the threshold that would apply to the filing of resolution plan information to institutions with $50 billion in assets. The prior threshold was $100 billion.
According to the final rule, institutions in the asset range of $50 billion to $100 billion will be able to satisfy their filing obligation through the submission of an "informational filing," while institutions with $100 billion or more in assets would be required to develop formal resolution plans that incorporate an identified strategy that would describe the resolution from the point of failure through the sale or disposition of the institution's franchise. The FDIC said that resolution plans from this category of insured depository institutions must address the establishment and stabilization of a bridge depository institution ("BDI") and an exit strategy from the BDI, such as a multiple acquirer exit; an "orderly wind down of certain business lines and asset sales;" a "restructuring and subsequent initial public offering or other capital markets transaction;" "or another exit strategy appropriate to the size, structure, and complexity of the [institution]."
With the exception of insured depository institution affiliates of GSIBs, which will remain on a biennial filing cycle, the final rule specifies a three-year filing cycle both for resolution plan and informational filing submissions.
The rule goes into effect October 1, 2024.
Commentary
This action by the FDIC to expand the scope and specificity of resolution plan filing requirements reflects continuing reverberations in the financial services regulatory realm caused by the failures of Silicon Valley Bank, Signature Bank and First Republic Bank in the Spring of 2023. Prior to each failure, none of these regional banks were regarded as systemically significant, but when they failed, the FDIC (and the Federal Reserve) quickly learned that their failures played an outsized role in influencing public confidence in the stability of the US financial system. To strengthen public confidence in the government’s ability to protect depositors, the FDIC took the unusual step of insuring all depositors of SVB, Signature Bank and First Republic Bank, including those with balances in excess of the $250,000 statutory level.
In Congressional hearings in the aftermath of these failures, federal regulatory officials essentially acknowledged that they were caught flatfooted in terms of understanding these regional institutions susceptibility to increases in interest rates, and, additionally, on the impact that their failures could have on certain sectoral economies. At the time, officials vowed to tighten regulatory oversight of regional institutions. This FDIC rule represents a step in that direction by imposing resolution planning requirements on all insured depository institutions with assets of $100 billion or more.