By Nicole D. Prysby, J.D.
The agencies published final guidance for resolution plans for certain large foreign banks, reflecting modifications from the proposed version as well as additional agency analysis.
The Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System announced that they adopted final guidance for the 2021 and subsequent resolution plan submissions by certain foreign banking organizations (FBOs). The final guidance is meant to assist these firms in developing their resolution plans, which are required to be submitted pursuant to Section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The final guidance modifies certain aspects of the proposed guidance based on the agencies’ consideration of comments to the proposal, additional analysis, and further assessment of the business and risk profiles of the U.S. operations of large and complex FBOs.
Resolution plans, commonly known as living wills, must describe the company’s strategy for rapid and orderly resolution in bankruptcy in the event of material financial distress or failure of the company. The agencies’ most significant action was finalizing guidance for the resolution plans of certain large FBOs. In March 2020, the agencies invited comments on proposed guidance for the 2021 and subsequent resolution plan submissions. The proposal was largely consistent with the 2018 FBO guidance and the 2019 domestic guidance.
Final guidance. In connection with the final guidance by the FDIC and Fed, the agencies tailored their expectations around resolution capital and liquidity, derivatives and trading activity, as well as payment, clearing, and settlement activities. The scope of the guidance was also modified to cover foreign banks in category II of the agencies’ large bank regulatory framework. The agencies also eliminated expectations that relate to information that may be obtained through other existing and effective mechanisms, such as home/host coordination and supervisory information sharing. In addition, the final guidance consolidates all prior resolution planning guidance for the firms in one document and clarifies that any prior guidance not included in the final guidance has been superseded.
The guidance is organized around a number of key vulnerabilities in resolution (e.g., capital; liquidity; governance mechanisms; operational; legal entity rationalization; and derivatives and trading activities) that apply across resolution plans. Additional vulnerabilities or obstacles may arise based on a firm’s particular structure, operations, or resolution strategy. Each firm is expected to satisfactorily address these vulnerabilities in its Plan. The federal agencies will review the Plan to determine whether it satisfactorily addresses key potential vulnerabilities. If the FDIC and Fed jointly decide that these matters are not satisfactorily addressed in the Plan, the agencies may determine jointly that the Plan is not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code.
The agencies have extended the 2021 resolution plan submission deadline for the firms that are currently "Specified FBOs" and were previously subject to the 2018 FBO guidance to Dec. 17, 2021, to provide the firms with sufficient time to develop their targeted resolution plans in light of the final guidance. Specified FBOs that were not subject to the 2018 FBO guidance for their most recent resolution plan submission will not be expected to have taken the final guidance into consideration in developing a targeted plan submission due in 2021. Instead, those firms should consider the final guidance in connection with developing their next full resolution plan submission due in 2024.
Bank listing. The agencies also confirmed that weaknesses previously identified in the resolution plans for several large foreign banks—Barclays, Credit Suisse, Deutsche Bank, and UBS—have been remediated. Finally, they published the list of the 15 domestic and foreign banks that must submit their next resolution action plans by Dec. 17, 2021.
Companies: Barclays; Bank of Montreal; BNP Paribas; Capital One Financial Corporation; Credit Suisse; Deutsche Bank; HSBC Holdings plc; Mizuho Financial Group, Inc.; Mitsubishi UFJ Financial Group, Inc.; Northern Trust Corporation; The PNC Financial Services Group, Inc.; Sumitomo Mitsui Financial Group, Inc.; The Toronto-Dominion Bank; UBS; U.S. Bancor
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