Fed, FDIC cite living will ‘shortcomings’ at Barclays, Credit Suisse, Deutsche Bank, UBS; guidance set for 8 largest U.S. banks

Noting “shortcomings” in the banking firms’ living wills, or resolution plans, federal regulators said Thursday they will not impose additional prudential requirements just yet on Barclays, Credit Suisse, Deutsche Bank, and UBS.

The shortcomings in the firms’ resolution plans include weaknesses in how each firm communicates and coordinates between its U.S. operations and its foreign parent in stress, the Federal Reserve Board and Federal Deposit Insurance Corp. (FDIC) said in a joint announcement. Credit Suisse also had a shortcoming related to estimating the liquidity needs of its U.S. intermediate holding company in a resolution, they said.

The agencies said “shortcomings” are “less severe weaknesses that require additional work in their next plan.” These are the issues with the above-four banking organizations. By contrast, “deficiencies” are “weaknesses severe enough to result in additional prudential requirements if not corrected.”

The agencies said they sent feedback letters to each banking firm detailing the shortcomings and the actions that can be taken to address them. The firms must address the shortcomings in their next resolution plans, which are due July 1, 2020, “and are expected to implement certain resolution projects in the interim.”

Resolution plans, required by the Dodd-Frank Act, must describe the company’s strategy for rapid and orderly resolution under bankruptcy in the event of the firm’s material financial distress or failure. “For foreign banking organizations, resolution plans are focused on their U.S. operations; however, the agencies acknowledge that the preferred outcome for these four foreign-based banks is a successful home country resolution using a single point of entry resolution strategy,” they said.

Also Thursday, the agencies said they have finalized resolution plan guidance applying to the eight largest and most complex domestic banking organizations (the U.S. G-SIBs, or “global systemically important banking organizations”).

The final guidance is largely similar to the proposal issued in June and provides additional information for the firms regarding their resolution planning capabilities in areas such as capital, liquidity, and payment, clearing, and settlement activities, the Fed and FDIC said. “While the capital and liquidity sections of the final guidance remain largely unchanged from the proposed guidance and the guidance from 2016, the agencies intend to provide additional information on resolution liquidity and internal loss absorbing capacity in the future,” they said.

Federal Reserve and FDIC announce resolution plan determinations for four foreign-based banks and finalize guidance for eight domestic banks

Letter to Barclays (PDF)

Letter to Credit Suisse (PDF)

Letter to Deutsche Bank (PDF)

Letter to UBS (PDF)

RR: Revised ‘living will’ guidance for 8 biggest U.S. banks out for comment (June 29, 2018)