August 29, 2023

FDIC: Proposed Rule Issued to Strengthen Resolution Planning for Large Banks

Action part of broader work among regulators to improve resolution of large regional banks

The Federal Deposit Insurance Corporation (FDIC) Board of Directors today approved a notice of proposed rulemaking to strengthen resolution planning for insured depository institutions (IDIs) with at least $100 billion in total assets. 

In addition, the FDIC’s Board joined with other federal regulators to propose new long-term debt requirements for large banks and their holding companies and new resolution planning guidance for living wills for large bank holding companies. These three proposals were developed to enhance the stability and resilience of the U.S. banking system, to reduce the costs and impacts of large bank resolution, and to support the rapid and orderly resolution of their holding companies.  

IDI Resolution Planning Proposed Rule

The FDIC’s proposed IDI Planning Rule would strengthen the existing IDI resolution planning requirements under 12 CFR § 360.10. The proposal would require a resolution submission from covered IDIs every two years with more limited supplements filed in the off years. 

IDIs with total assets of at least $100 billion would be required to submit comprehensive resolution plans to provide additional optionality to support the FDIC’s efficient and effective resolution of a large IDI under the Federal Deposit Insurance Act.  These resolution plans would enhance current IDI resolution planning requirements by incorporating useful elements of existing guidance and important lessons learned from past plan reviews and from past large bank resolutions, including those earlier this year.  

Under this proposal, IDIs with total assets of at least $50 billion but less than $100 billion would submit more limited informational filings to provide the FDIC with critical information to assist in their potential resolution. These institutions would not be required to develop a resolution strategy as part of their submissions. 

If the proposed rule is finalized, the first submissions would be expected in early 2025. Comments on the proposal are due by November 30, 2023.

The FDIC Board also joined other federal bank regulators to approve the following additional actions today:

Long-term Debt Proposed Rule

The FDIC, the Board of Governors of the Federal Reserve System (Federal Reserve), and the Office of the Comptroller of the Currency jointly issued a notice of proposed rulemaking to require IDIs with total assets of $100 billion or more to issue and maintain a minimum amount of long-term debt (LTD) that can be used to absorb losses in the event of their failure, and to provide the FDIC a broader range of options for their resolution.  

In addition to increasing the options for the resolution of large banks, the proposal would reduce the risk of loss to depositors and the Deposit Insurance Fund in the event of a large regional bank failure.  Many large banks already maintain significant amounts of long-term debt, though most banks would need to issue additional new long-term debt to meet the proposed requirement. 

The proposed LTD requirement would take full effect three years after the date on which a covered IDI first becomes subject to the proposed rule. The full amount of LTD that covered IDIs would be required to hold, however, would be phased in over the three-year implementation period to reduce the potential for market disruption. Comments on the proposal are due by November 30, 2023. 

Title 1 Resolution Planning Guidance

The Federal Deposit Insurance Corporation and the Federal Reserve Board have proposed new guidance to help certain large banks to further develop and enhance their resolution plans required under Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The proposed guidance provides direction for how large banks may address a set of resolution impediments, including capital and liquidity measurement and forecasting capabilities; payment, clearing and settlement activities; and continuity of services. Specific aspects of this proposed guidance include: demonstrating that a resolution strategy which utilizes a bridge depository institution is the least costly to the Deposit Insurance Fund and analyzing liquidity needs in resolution. Also, foreign banking organizations would receive guidance to enhance their resolution plans. Comments on the proposal are due by November 30, 2023. 

FDIC: PR-66-2023

This post was originally published here.