Final guidance out for 8 biggest banks’ ‘living wills’

Final guidance for 2019 and later resolution plans (“living wills”) that the eight largest, complex U.S. banking institutions are required to submit each July 1 is slated for publication in the Federal Register Monday.

The Federal Reserve Board and Federal Deposit Insurance Corp. (FDIC) said the guidance is largely based on prior guidance issued to the firms but is updated based on regulators’ review of the institutions’ most recent resolution plan submissions. The eight firms identified in the notice are Bank of America Corporation, The Bank of New York Mellon Corporation, Citigroup Inc., The Goldman Sachs Group, Inc., JPMorgan Chase & Co., Morgan Stanley, State Street Corporation, and Wells Fargo & Company.

This guidance, they note, describes the agencies’ expectations regarding key vulnerabilities – capital, liquidity, governance mechanisms operational, legal entity rationalization and separability, and derivatives and trading activities – to be addressed in plans for an orderly resolution under the U.S. bankruptcy code.

The resolution plans are required under section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The agencies’ implementing rule requires that each financial company’s resolution plan include a strategic analysis of the plan’s components; a description of the range of specifications the company proposes to take in resolution; and a description of the company’s organizational structure, material entities, and interconnections and interdependencies. Plans must also include a confidential section that contains confidential supervisory and proprietary information submitted to the agencies; and a section that the agencies make available to the public. Public sections of the plans are published online.

The Fed and FDIC, in their notice, said the capital and liquidity sections of the final guidance remain largely unchanged from the proposed guidance and the 2016 guidance. However, the agencies “intend to provide additional information on resolution liquidity and internal loss absorbing capacity in the future,” they said.

The agencies added that while some concerns raised by commenters – which included six to both the Fed and FDIC, and an additional two to the Fed – regarding the capital and liquidity sections are not reflected in the final guidance, they will be considered for the future.

“The Agencies expect that any future actions in these areas, whether guidance or rules, would be adopted through notice and comment procedures, which would provide an additional opportunity for public input,” they wrote.

They also said they expect to collaborate in taking such actions “ in a manner consistent with the [Fed] Board’s TLAC rule” – that is, the Fed’s total loss-absorbing capacity rule. “Until any such future actions are taken, the final guidance sets forth the Agencies’ supervisory expectations regarding development of the firms’ resolution strategies,” they said.

Final guidance for 8 largest U.S. banking firms’ resolution plan submissions