Notice of Proposed Rulemaking on Resolution Plans for Insured Depository Institutions

The FDIC Board is also considering today a Notice of Proposed Rulemaking to revise the resolution plan regulation for insured depository institutions (IDIs) under the Federal Deposit Insurance Act.1

The FDIC first adopted a resolution plan rule for insured depository institutions in 2011.  The rule requires covered banks to “develop and submit detailed plans demonstrating how [they] could be resolved in an orderly and timely manner in the event of receivership.”2 Over the years, the FDIC has given banks feedback and guidance with respect to their plans and has considered different approaches to the planning requirements.

For some time the FDIC has been considering ways to improve the effectiveness of these resolution plans and to set clear expectations for the banks with respect to the content of these plans.  We have determined that a rulemaking is the best approach to meet those goals in a way that is both transparent and effective.

The proposal before the FDIC Board today is a revision of the current rule that draws upon over a decade of plan review and feedback, and the FDIC’s experience in the resolution of large banks – including the three recent large bank failures.

For banks with at least $100 billion in assets, the proposal would incorporate most of the current rule’s requirements for an IDI resolution plan, but with important modifications and enhancements.  While each of the three bank failures this spring ultimately concluded in a sale to a single acquirer, it is also clear that such a sale may not always be possible, or may require accepting significant costs to facilitate a rapid sale.  Therefore, the proposed rule will seek to expand the options available to the FDIC, by requiring that covered IDIs with more than $100 billion in total assets provide a strategy that is not dependent on an over-the-weekend sale. It would require the bank to explain how it could be placed into a bridge depository institution, how operations could continue while separating itself from its parent and affiliates, and the actions that would be needed to stabilize a bridge depository institution, among other options.

The development of strategies for how each particular bank could be resolved is an essential tool to enable a quick and effective response if the bank were to fail.  The bank itself has the best understanding of the value and operations of its franchise.  Its resolution plan, including its proposed resolution strategy, options to address a range of scenarios, and the information and analysis required to support the plan, will materially improve the ability of the FDIC to execute resolutions of large banks in a manner that preserves stability in the banking system and reduces costs to the Deposit Insurance Fund and other stakeholders.

Institutions with assets under $100 billion can also present resolution challenges. While the NPR does not propose requiring full resolution plans for these banks, it would require a submission of information and analysis from banks between $50 billion and $100 billion to ensure that the FDIC has options to resolve such banks in a range of scenarios.

Both the resolution plans and informational filings would include information that would have been particularly helpful in dealing with the three bank failures this spring.  For example, these include the IDI’s:

• capability to promptly establish a virtual due diligence data room, and populate it with enough information for interested parties to bid on the bank or certain of its assets or operations;
• maintenance of information necessary for operational continuity of the bank, including a more thorough description of key personnel and retention plans, critical third party and shared services, and payments and trading activities; and
• ability to describe communications systems and strategies for reaching internal and external key stakeholders in the event of a resolution.

The rule would also require banks to identify franchise components, such as asset portfolios or lines of business that could be readily separated and sold, in order to provide additional options for exiting from resolution by disposing of parts of the bank to reduce its size and expand the universe of possible acquirers.

Finally, the proposal would make several useful modifications to the current rule.  It would provide for submissions every two years, with a limited interim supplement in the off-years, to keep up-to-date dynamic information that would be critical if the institution were to fail.  The proposal also would provide a clear credibility standard for the FDIC’s review of resolution submissions.  We expect this clarity will help the banks understand the FDIC’s expectations and will facilitate an effective review process and meaningful feedback.  The proposal also appropriately emphasizes the value of engagement with these banks on resolution matters and testing to validate key capabilities.

In conclusion, a stronger resolution planning requirement for large regional banks, combined with a long-term debt requirement as already proposed by the FDIC Board today, would provide a much stronger foundation for the orderly resolution of these institutions.  I support the proposed rule and look forward to reviewing the comments we receive.

I would also like to thank the FDIC staff for their thoughtful and dedicated work on this important rulemaking.

• 1

  12 CFR 360.10.

• 2

  FDIC Final Rule: Resolution Plans Required for Insured Depository Institutions with $50 Billion or More in Total Assets, 77 FR 3075 (Jan. 23, 2012), available at 2012-01-23_final-rule.pdf (fdic.gov). See also Interim FDIC Final Rule: Resolution Plans Required for Insured Depository Institutions with $50 Billion or More in Total Assets, 76 FR 58379, 58380 (Sept. 21, 2011), available at 11finalsep21.pdf (fdic.gov).