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From Banking and Finance Law Daily, September 26, 2014

Recovery planning guidance provided for largest bank holding companies

By Andrew A. Turner, J.D.

The Federal Reserve Board has detailed supervisory expectations for recovery planning by the eight largest U.S. bank holding companies. A firm’s recovery planning process should identify a range of options outlining actions that the firm could take to remedy financial weakness and maintain market confidence without extraordinary governmental support, according to the Fed (SR 14-8).

The range of options should, at a minimum, include the possible sale, transfer, or disposal of significant assets, portfolios, legal entities, or business lines. Impediments to their execution and projected mitigation strategies should be identified in advance, with consideration given to a variety of market and economic conditions. The Fed guidance supplements the previously announced framework for supervision of the consolidated operations of large financial institutions (SR 12-17/CA 12-14).

Responsibility of management and board of directors. Senior management is responsible for integration of recovery planning into a firm’s corporate governance and operating processes. This is intended to result in a timely response, including recognition of financial weaknesses, discussion of the firm’s long-term viability, notification of regulators, escalation to the board of directors, and implementation of actions to address financial distress.

The board of directors is responsible for oversight of the firm’s ability to effectively identify and implement recovery options and oversee management’s remediation of weaknesses. A firm should review and update its recovery plan at least annually.

Internal governance. The recovery plan should describe the governance framework for recovery planning, including a description of how the plan is developed, approved, and updated. The plan should describe triggers that indicate when a firm enters recovery. Linkage of the firm’s recovery planning processes with existing efforts for contingency, strategic, and resolution planning should also be included.

Execution and impact assessment. The recovery plan should include the steps necessary to execute each option listed. The expected impact of individual recovery options should also be described.

Companies: Bank of America Corporation; Bank of New York Mellon Corporation; Citigroup, Inc.; Goldman Sachs Group, Inc.; JPMorgan Chase & Co.; Morgan Stanley; State Street Corporation; Wells Fargo & Company

MainStory: TopStory BankHolding FederalReserveSystem FinancialStability

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