Despite ‘no deficiencies’ found in ‘living wills,’ FDIC’s Gruenberg dissents on Northern Trust

Federal Deposit Insurance Corp. (FDIC) Board Member Martin Gruenberg said he voted against issuing the letter to Northern Trust Corp. regarding its living will, citing unrealistic assumptions about the bank’s proposed transfer of uninsured and foreign deposits to an FDIC-organized bridge depository institution.

On Friday, the federal insurer of bank deposits said 14 domestic banking organizations’ 2017 resolution plans have been evaluated by federal banking regulators and been deemed to be free of deficiencies. Northern Trust, one of companies that received a letter from the FDIC finding “no deficiencies,” generated some dissension.

The evaluations by the Federal Reserve Board and Federal Deposit Insurance Corp. (FDIC) reportedly identified no deficiencies in the firms’ 2017 plans, though the agencies said they had previously identified three shortcomings in the 2015 resolution plan submitted by Northern Trust. According to Friday’s releases by both the Fed and FDIC, the agencies determined that Northern Trust’s 2017 resolution plan satisfactorily addressed these three shortcomings. Gruenberg, in a written dissent, voiced disagreement.

“In March 2017, the Federal Reserve Board and the FDIC issued a joint letter to Northern Trust outlining three shortcomings in its resolution plan submitted in December 2015. The shortcomings identified issues of resolution liquidity, shared and outsourced services, and the transfer of uninsured and foreign deposits to a bridge bank,” Gruenberg said in a statement Friday to explain the reason for his vote. He said the March 2017 letter identified the transfer of foreign deposits of Northern Trust’s London branch to an FDIC-organized bridge depository institution as critical to the successful execution of its resolution strategy. At the time, regulators said the plan did not provide enough support for the assertion that this transfer “would be consistent with least-cost and other applicable requirements of an FDIC-receivership.”

Gruenberg said the letter to Northern Trust before the FDIC Board Friday stated that the bank, based on a review of the 2017 plan, had satisfactorily addressed the shortcomings. It added, he said, that “With respect to the shortcoming regarding the bridge bank, the 2017 Plan included an analysis demonstrating how the establishment of a bridge bank and the transfer to it of all the subsidiary insured depository institution’s assets and obligations, including those to uninsured domestic depositors and to general creditors including foreign depositors, could be the least costly resolution alternative.”

Gruenberg says the bank’s 2017 plan doesn’t adequately address that shortcoming. “I believe the resolution plan is based on the unrealistic assumption that the events precipitating the failure of the subsidiary bank do not deplete capital,” he stated. “This allows the Plan to make the further unrealistic assumption that the FDIC can establish a bridge bank that can absorb the losses associated with the uninsured deposits of the bank and all general creditors, including foreign deposits, and still meet the requirement of least cost to the FDIC’s Deposit Insurance Fund under the Federal Deposit Insurance Act.”

The 14 firms evaluated were: Ally Financial Inc., American Express Company, BB&T Corporation, Capital One Financial Corporation, Discover Financial Services, Fifth Third Bancorp, Huntington Bancshares Incorporated, KeyCorp, M&T Bank Corporation, Northern Trust Corporation, Regions Financial Corporation, SunTrust Banks, Inc., The PNC Financial Services Group, Inc., and U.S. Bancorp.

Resolution plans, required by the Dodd-Frank Act and commonly known as living wills, must describe a firm’s strategy for rapid and orderly resolution under bankruptcy in the event of material financial distress or failure of the firm.

Gruenberg’s statement

Feedback letters:
Ally Financial Inc. (PDF)
American Express Company (PDF)
BB&T Corporation (PDF)
Capital One Financial Corporation (PDF)
Discover Financial Services (PDF)
Fifth Third Bancorp (PDF)
Huntington Bancshares Incorporated (PDF)
Keycorp (PDF)
M&T Bank Corporation (PDF)
Northern Trust Corporation (PDF)
The PNC Financial Services Group, Inc. (PDF)
Regions Financial Corporation (PDF)
SunTrust Banks, Inc. (PDF)
U.S. Bancorp (PDF)