FRB and FDIC release public sections of resolution plans for G-SIBs Bookmark has been added
FRB and FDIC release public sections of resolution plans for G-SIBs
Key takeaways from the July 2019 G-SIB resolution plan public sections
On July 23, 2019, the FRB and FDIC released the public sections of the resolution plans for eight domestic Global Systemically Important Banks, which are required by the Dodd-Frank Act. The public sections, which contain summarized elements of the resolution plans, reflect a more maturing process and G-SIBs taking a common approach towards resolution planning.
August 13, 2019 | Financial services
On July 23, 2019, the Board of Governors of the Federal Reserve System (FRB) and the Federal Deposit Insurance Corporation (FDIC) (collectively, the "Agencies") released the public sections of the resolution plans1 for the eight domestic Global Systemically Important Banks (G-SIBS). The eight G-SIBs were required to submit their plans by July 1, 2019, which included both private and public sections.
Background and context
On December 20, 2018, the Agencies released the finalized resolution plan guidance2 (final guidance) applying to the eight United States G-SIBs in relation to how they should develop their next iterations of the resolution plans due July 2019. The final guidance (which remained mostly unchanged from the June 2018 proposed 2019 G-SIB resolution plan guidance) provided additional information for the firms regarding their resolution planning capabilities across six areas: capital, liquidity, governance mechanisms, operational, legal entity rationalization and separability, and derivatives and trading activities.
Key takeaways from public sections
The public sections varied modestly in the level of detail and content that each firm provided, including the level of response to the final guidance. Below are several key takeaways from the public sections:
- All G-SIB public sections, with the exception of one firm, reflected a consistent resolution planning approach that is becoming more embedded into their respective business-as-usual models.
- All G-SIBs continued to discuss improved capabilities and actions taken since the last submission in July 2017. However, the level and amounts of enhancements appear to be less compared to what the G-SIBs have previously reported.
- With one firm transitioning from multiple points of entry to the single point of entry (SPOE) resolution strategy since the 2017 submission, all G-SIBs indicated the use of SPOE as their preferred resolution strategy, reflecting how the resolution plan submissions are migrating to a more common approach.
- Five out of eight G-SIBs mentioned the development of a derivatives booking model and framework to facilitate resolvability, while only one firm mentioned the establishment of a derivatives booking model in the 2017 submission.
- Four out of eight G-SIBs mentioned how they have addressed shortcomings identified in the July 2017 resolution plan submissions through compliance with the 2019 final guidance.
- Firms continued to demonstrate evidence of simplification of operations and minimization of intercompany funding frictions with most reflecting a reduction in legal entities and only one firm adding two more material entities.
- With less regulatory-based actions and fewer resolution-related initiatives, five of the public sections were modestly shorter; however, most of the structure and content of the public sections were similar, or unchanged, from the 2017 plans.
- While much of the strategy implementation focus has been to address regulatory requirements, it would be expected to see efforts shifting to reduce the costs of maintaining these plans.
- Don’t wait for feedback: Filers should continue the march down the path to continuous improvement, prioritizing initiatives noted in their respective resolution plans for which future commitments have been made. As follow up questions and feedback are raised in regards to the submitted plans in the coming weeks and months, the ability to demonstrate progress since submission could be an important evaluation factor.
- Seek out better ideas: Filers should benchmark their resolution plan strategy, approach, and capability path against those presented in the released public sections and explore whether others have identified more efficient, simpler or better approaches that could be tailored to the organization.
- Considerations for other filers: The foreign bank organizations (FBOs) and other domestic filers (please refer to the FRB’s proposed amendments to resolution plan requirements) should analyze the information from the public sections submitted by the G-SIBs and refine their resolution strategy and plan, especially the requirements and enhancements related to derivatives and trading including booking models. Moreover, filers must understand that, with the exception of FBOs with global consolidated assets of $250 billion or less, the public section requirements will remain unchanged under the proposed amendments.
- Maturing process: The public sections submitted by the G-SIBs reflect a more maturing resolution planning process. Especially with all eight G-SIBs having adopted SPOE as their preferred resolution strategy; resolution plan submissions are showing more common features and firms must turn their attention towards identifying and addressing efficiency gaps.
As further developments occur, Deloitte will issue additional updates as appropriate.
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David M. Wright
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