The Federal Reserve Board proposes amendments to resolution plan requirements has been saved
The Federal Reserve Board proposes amendments to resolution plan requirements
Resolution plan filing groups and requirements
The resolution planning Agencies proposed amendments to resolution plan requirements. Learn more about the proposal and what's next for domestic and foreign filers.
April 18, 2019 | Financial services
On April 8, 2019, the Federal Reserve Board (FRB) and Federal Deposit Insurance Corporation (FDIC) (jointly, 'the Agencies') released and invited for public comment a proposal1 that amends and restates resolution plan requirements of Section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and align with the Economic, Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).2 The FDIC also held a board meeting3 to discuss changes to the resolution planning framework for covered insured depository institutions (CIDI).
Scope and applicability: The EGRRCPA eliminated the resolution planning requirement for firms with less than $100 billion in total consolidated assets and, effective November 2019, raises the minimum asset threshold for automatic application of the requirement to $250 billion in total consolidated assets. Additionally, EGRRCPA provides the board with the authority to apply the resolution planning requirement to firms with between $100 billion and $250 billion in total consolidated assets.
The proposal does not apply to less complex domestic firms with total consolidated assets of less than $250 billion and risk-based indicators below the category I, II, or III thresholds (see next page for category overview). Additionally, the proposal does not impact domestic firms with total assets below $100 billion. Similarly, the proposal does not apply to FBOs with global assets less than $250 billion where the firm’s US assets are less than $100 billion and their risk-based indicators are below the category I, II, or III thresholds.
Effective date: The proposed rule would take effect on the earlier of (a) the first day of the first quarter after the final rule’s issuance or (b) November 24, 2019.
- Risk-based categorization: The proposal tailors resolution plan requirements and submission cadence for four risk-based filing groups, which are categorized based on the firm’s asset size and complexity of operations consistent with the EGRRCPA.
- Submission cycles and requirements: The proposal establishes resolution plan requirements for full, “targeted,” and reduced resolution plans, which are required to be submitted on a biennial basis for US G-SIBs and triennial for other filers.
- Interim updates: Under the proposal, the agencies would retain the ability to jointly require interim updates between filings or more frequent filings from covered companies and could require a full plan submission when a targeted plan or reduced content plan would otherwise be required.
- Material and extraordinary events: The proposal would require covered companies to provide the agencies with notice of certain extraordinary events, such as major mergers, major acquisition of assets, or fundamental changes to a covered company’s resolution strategy, that occur between plan submissions.
- Critical operations: The proposal supports the periodic review of critical operations designations and provides the ability for institutions to request a reconsideration of a critical operations designation.
Resolution plan filing groups
The proposal tailors resolution plan requirements and submission cadences for domestic and foreign bank organizations based on asset size and operational complexity. The four categories of tailored standards for firms with more than $100 billion in total assets align to Enhanced Prudential Standards (EPS) changes resulting from EGRRCPA. Category I-III firms will initially submit full plans at the next deadline date and then alternate between full and targeted thereafter.
Summary of Resolution Plan requirements
The proposal establishes resolution plan requirements for full, targeted, and reduced resolution plans to be submitted by the categorized filing groups.
- The proposal does not propose any changes to the public section of a resolution plan, which would remain consistent for full and targeted plans.
- The components specified for the confidential section of a full plan are consistent with those required under the current resolution planning rule as the agencies have found that the current components capture the information needed to evaluate a firm's resolution preparedness.
- Targeted plans under the proposal would include a subset of the information that would be included in full plans. Notably, all targeted plans would include information about capital, liquidity, and plan for executing recapitalization and resolution.
- Tailoring of informational content: When appropriate, the agencies could modify certain information elements of a full plan either on their own initiative or pursuant to a public request from a firm. The agencies would have sole discretion to jointly deny any firm request for such a modification.
- Materiality: The proposal revises the definition of the meaning of “material” for purposes of describing material changes since a filer’s previously submitted resolution plan.
- Determination definitions: The proposal formalizes the definitions for “deficiency” and “shortcoming”.
- Division of domestic and FBO filers: The proposal seeks comments on an alternative approach for dividing the US and foreign filers into groups for the purposes of determining the resolution plan content requirements and submission cadences. This alternative approach would be derived from the scoring methodology used by the FRB to calculate a US G-SIB’s capital surcharge.
- Home country resolution strategy: The staff memo acknowledges that for FBOs the preferred resolution strategy is a successful home country resolution inclusive of their US operations and not a separate US resolution.
- Waivers: Permits filers to waive certain resolution plan informational content.
What’s next for domestic and foreign filers?
The proposal has simplified and added consistency for the ongoing compliance with resolution planning rules and guidance for both domestic and foreign banking organizations, recognizing some tailoring relief; however, business as usual capabilities are assumed. The proposal tailors both the resolution plan requirements and submission cadence with a simplified grouping structure that clearly lays out expectations, allowing covered institutions to plan and adjust their governance framework to a business-as-usual (BAU) model. It will also be important for covered institutions to acknowledge that key business changes still must be captured and applied to the resolution plan requirements with appropriate adjustments made to the plan, documentation, and strategy as appropriate. With the reduction in the reporting burden, covered institutions can shift their focus towards the assessment of capabilities and strategy, as well as enhancements to facilitate execution rather than year-over-year plan documentation. The FRB and FDIC continue to hold discussions with the largest institutions so a BAU capability and business assessment process with governance framework is important to maintain all the work that has been done and make sure it remains relevant and accurate.
As further developments occur, Deloitte will issue additional updates as appropriate.
1 Federal Reserve Board (FRB), Federal Deposit Insurance Corporation (FDIC), Notice of Proposed Rulemaking on Resolution Plans Required (April 8, 2019), available at: https://www.federalreserve.gov/aboutthefed/boardmeetings/files/resolution-plans-fr-notice-20190408.pdf
2 Senate, Banking, Housing and Urban Affairs, S.2155 - Economic Growth, Regulatory Relief, and Consumer Protection Act (May 24, 2018), available at: https://www.congress.gov/bill/115th-congress/senate-bill/2155
3 FDIC, FDIC Board Matters, Sunshine Act Meeting (April 16, 2019), available at: https://www.fdic.gov/news/board/2019/2019-04-16-notice.html
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David M. Wright
Key takeaways from the final rule
Relief points and anticipated challenges