FDIC leader outlines list of proposals for reforming resolution process

Declaring she disagrees with those who believe bank resolution and regulatory requirements should be untouched “until the next crisis hits,” the board chairman of the federal insurer of bank deposits outlined a number of proposed changes for the process of resolving troubled financial institutions Wednesday.

In remarks to the 2018 Annual Conference of The Clearing House (TCH) and Bank Policy Institute (BPI,)Federal Deposit Insurance Corp. (FDIC) Chairman Jelena McWilliams said regulators have to continuously monitor and understand the impact of their actions on financial institutions, consumers, and the broader economy.

“Dodd-Frank passed eight and a half years ago, and a number of the post-crisis regulatory changes have been in effect for several years. It is important that we closely examine how these new requirements are working,” McWilliams said, referring the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, enacted in the wake of the 2008 financial crisis.

In her remarks – which she said were intended to discuss her agency’s approach to large institution resolution planning, how it is working to strengthen and streamline that process, and the path forward — McWilliams outlined several proposals. Among those:

Bankruptcy legislation: McWilliams said the current U.S. Bankruptcy Code “was not written with large, complex financial institutions in mind.” However, she said FDIC “stands ready to work with Congress” on legislation that would establish a more tailored, transparent process for large financial firms. “I strongly support such efforts,” she said.

Orderly Liquidation Authority (OLA): She said the FDIC is considering whether refinements should be made to improve OLA, “including ways to bring more certainty and more transparency to the process.” She noted that the Treasury Department has made several suggestions regarding OLA “that we are looking at closely.”

165(d) Resolution Plans: McWilliams said the FDIC plans to propose a rule “in the coming months” to amend resolution plan requirements for regional banks, which would recognize “the considerably lesser threat posed to U.S. financial stability” by those banks (and, she said, to address the “meaningful cost and burden” of the reporting on both banking firms “and, frankly, the agencies”).

Additionally, she indicated, proposed guidance on resolution plans published in June for domestic global significantly important banks (GSIBs) will be finalized “in the near term.”

IDI rule: The FDIC plans to propose significant changes to its rule on resolution plans for insured depository institutions (IDIs), and that – during the rule proposal process — the nextround of submissions under the IDI rule will not begin until that rulemaking process has been completed. “In other words, no institution will need to file an IDI plan until we have finalized the revised requirements,” McWilliams said.

She said the FDIC plans to issue an Advanced Notice of Proposed Rulemaking (ANPR) in the coming months on changes, which she said will cover three other broad areas:

  • $50 billion threshold, and which institutions should be subject to the revised rule.
  • Scope: how to ensure that requirements are appropriately tailored to reflect differences in size, complexity, risk, and other relevant factors.
  • Necessity of IDI plan for “single-point-of-entry (SPOE)” firms:“I recognize that some have argued that an IDI plan is unnecessary for firms that have adopted an SPOE strategy, because there should not be a resolution of the IDI under such circumstances. Though I am sympathetic to the argument, as I mentioned earlier, SPOE is untested, and the challenges to successful execution of an SPOE strategy are notable. Still, we will carefully consider all comments as we work on revising the rule.

Keynote Remarks by Jelena McWilliams, Chairman, Federal Deposit Insurance Corporation, to 2018 Annual Conference of The Clearing House (TCH) and Bank Policy Institute (BPI)