FDIC, Fed Finalize Large Bank Resolution Plan
The Federal Deposit Insurance Corporation (FDIC) and Federal Reserve recently approved final guidance for how certain large banks should prepare themselves for orderly liquidations. The final guidance is substantially like the proposed guidance from August 2023, with some revisions in response to comments received.
Resolution plans, or “living wills,” are plans to wind down operations in the event of bank failures. The guidance typically applies to domestic and foreign banks with total assets of more than $250 billion, but not to the largest and most complex banks, which already have guidance in place.
“The revised final guidance includes several improvements from the proposal. For example, it explicitly states that the agencies are not prescribing a preferred resolution strategy for any firm, instead preserving the role of each firm’s management to adopt whatever strategy they deem appropriate based on the unique characteristics of the firm,” said Federal Reserve Governor Michelle Bowman.
The guidance is grouped around major areas of possible vulnerability, such as capital, liquidity, and operational capabilities that may be required during resolution. It also acknowledges that the preferred resolution outcome for foreign banks is frequently a successful home country-led resolution and advises foreign banks on how to include the global resolution plan into their U.S. strategy.
While the FDIC and Fed approved the final guidance, Bowman and FDIC vice chairman Travis Hill expressed some reservations. “I think we should revisit over time whether the incremental benefit of requiring a holding company-level resolution plan for a large bank that holds predominantly all of its assets in a bank subsidiary is worth the burden and expense to the firm in preparing the plan, and the allocation of resources by agency staff to review the plan,” said Bowman.
“I think we may want to revisit this guidance in the future, depending on whether and how the proposed long-term debt rule is finalized,” added Hill.
The agencies also announced that they are extending the resolution plan submission deadline for the banks to which the guidance applies. Banks will be required to submit their resolution plans by October 1, 2025, instead of March 31, 2025.