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From Banking and Finance Law Daily, July 28, 2015

Fed and FDIC provide guidance and feedback on upcoming resolution plans

By John M. Pachkowski, J.D.

The Federal Reserve Board and Federal Deposit Insurance Corporation have announced that they are providing feedback and guidance to banks and nonbank firms that are required to file their resolution plans by Dec. 31, 2015.

Under the Dodd-Frank Act, bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies designated by the Financial Stability Oversight Council as systemically important periodically are required to submit resolution plans, commonly referred to as “living wills,” to the FDIC and the Fed. Each plan must describe the company’s strategy for rapid and orderly resolution under the U.S. Bankruptcy Code or other applicable insolvency regime in the event of material financial distress or failure of the company.

Regulations implementing the requirements of section 165(d) of the Dodd-Frank Act were issued by the FDIC and Fed in November 2011 and are codified at 12 C.F.R. Part 243 and Part 381. A separate FDIC regulation covering insured depository institutions and referred to as the “IDI Rule” is codified at 12 C.F.R. §360.10.

The agencies’ resolution plan regulations provide that the filing of resolution plans is to be done on a staggered schedule. The largest firms, generally those with $100 billion or more in U.S. nonbank assets, as well as FSOC-designated nonbank firms are required to submit their plans on or before July 1 each year. All other firms are required to submit their plans on or before December 31 each year.

December filers. In one release, the agencies noted that 119 firms were provided guidance on their resolution plans that must be filed at the end of 2015. The guidance was provided to 115 U.S. bank holding companies and foreign-based firms that filed their second resolution plans in December 2014. The four remaining firms receiving guidance were four foreign-based firms that filed their first resolution plans in December 2014.

It should be noted that the agencies provided guidance to many of the same firms in August 2014 based on a review of the firms’ resolution plans filed in December 2013 (see Banking and Finance Law Daily, Aug. 15, 2014).

The current guidance that the Fed and FDIC provided was based on reviews of the December 2014 resolution plans. In addition, the agencies are providing these 119 firms with clarification and direction for their December 2015 resolution plans based on the relative size and scope of each firm’s U.S. operations.

Specifically, 29 of the more complex firms are required to file either full or tailored resolution plans that take into account guidance identified by the agencies. The remaining 90 firms, with limited U.S. operations, may file plans that focus on material changes to their 2014 resolution plans, actions taken to strengthen the effectiveness of those plans, and, where applicable, actions to ensure any subsidiary insured depository institution is adequately protected from the risk arising from the activities of nonbank affiliates of the firm.

For those firms that intend to file a tailored resolution plan, the Fed and FDIC also released an updated tailored resolution plan template that facilitates the preparation of tailored resolution plans. According to the agencies, the tailored resolution plan focuses on the nonbanking operations of each firm and on the interconnections and interdependencies between the nonbanking and banking operations.

SIFI resolution plans. The Fed and FDIC also announced that they provided feedback to three nonbank financial companies regarding their initial resolution plans and guidance to the firms for their upcoming filings. These three companies—American International Group, Inc., Prudential Financial, Inc., and General Electric Capital Corporation (GECC)—were designated as systemically important financial institutions by the FSOC and filed initial resolution plans in July 2014. The three firms would have filed their second resolution plans by July 1, 2015, but the agencies adjusted the filing date to Dec. 31, 2015, and subsequently made the December 31 filing deadline permanent (see Banking and Finance Law Daily, Feb. 19, 2015 and March 27, 2015).

The agencies tailored their feedback to account for each company’s unique business, structure, and operations. In addition to the specific guidance given to each company, the letters include some common areas that the firms should address. Those areas include the need for more detailed information on, and analysis of, obstacles to resolvability, including global cooperation, interconnectedness, and adequate funding and liquidity. Furthermore, the Fed and FDIC instructed the firms to describe in their resolution plans the progress they are making, and the steps remaining, to be more resolvable. Finally, the agencies directed the firms to strengthen the public portions of the firms’ upcoming resolution plans. The feedback to GECC acknowledges the firm’s divestiture plan which was announced in April 2015.

Companies: American International Group, Inc.; General Electric Capital Corporation; Prudential Financial, Inc.

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