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From Banking and Finance Law Daily, November 29, 2018

FDIC to reconsider resolution plan requirements for insured depository institutions

By Andrew A. Turner, J.D.

In light of the costs and burdens of requiring resolution plans for insured depository institutions (IDIs), Federal Deposit Insurance Corporation Chairman Jelena McWilliams expressed support for a more targeted and efficient approach. She told attendees at the 2018 Annual Conference of The Clearing House and Bank Policy Institute that the FDIC is planning to propose significant changes to its IDI rule.

In anticipation of an Advanced Notice of Proposed Rulemaking, McWilliams provided insight into what the agency plans to propose:

  • revisiting the $50 billion threshold, the FDIC will ask which institutions should be subject to the revised rule;
  • exploring how to ensure that requirements are appropriately tailored to reflect differences in size, complexity, risk, and other relevant factors;
  • considering whether an IDI plan is unnecessary for firms that have developed a single-point-of-entry (SPOE) strategy; and
  • deferring filing requirements, with the next round of submissions under the IDI rule beginning after the rulemaking process has been completed.

SPOE strategy. McWilliams commented that U.S. global systemically important banking organizations (GSIBs) have developed a SPOE resolution strategy that, if successful, would enable the functioning of critical operations at the key subsidiaries while the parent enters what is akin to a prepackaged bankruptcy proceeding. While progress has been made, the FDIC Chair cautioned that SPOE in bankruptcy remains untested. Noting a need for further clarity in key areas, she said "firms should continue work developing, testing, and operationalizing their systems and capabilities to make sure their resolution strategies will work if and when they are needed."

Bank holding companies, regional banks. As the FDIC and the Federal Reserve Board have been reviewing the resolution planning regulations for bank holding companies, with the progress made for the GSIBs, McWilliams noted that regulators are exploring how to make these plans more targeted. With regional banks posing a lesser threat to U.S. financial stability, she forecasted a proposal to amend the rule in the coming months.

Bankruptcy, OLA, cross-border consideration. With the greatest untested resolution challenge coming from the largest, most complex institutions, McWilliams emphasized that the FDIC’s first priority is taking the steps necessary to facilitate orderly resolution of these firms in bankruptcy. She urged Congress to pass bankruptcy legislation that would establish a more tailored, transparent process for large financial firms.

McWilliams also favors refinements to improve the Orderly Liquidation Authority to bring more certainty and transparency to the process. In addition, the FDIC head reminded attendees that federal regulators need to be cognizant of cross-border implications, both as a home authority for U.S. institutions and as a host authority as well.

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