Board splits on proposals spurred by EGRRCPA for FBOs, living wills, future of resolution plans

Three proposed rules tailoring regulation for foreign banking organizations (FBOs), altering the “living wills” development process for larger banks, and considering further changes to the resolution planning process, were released for comment Tuesday by the federal insurer of bank deposits after a split vote by board members.

The Federal Deposit Insurance Corp. (FDIC) Board voted to release notices of proposed rulemakings on tailoring regulations for FBOs and making changes to the “living wills” (or resolution planning) for large banks. In a third action, the board approved issuing an advanced notice of proposed rulemaking (ANPR) regarding future changes to the resolution planning process.

However, the action came on a split decision, with Republican appointees to the board (including Chairman Jelena McWilliams, Comptroller of the Currency Joseph Otting, and Consumer Financial Protection Bureau (CFPB) Director Kathleen (“Kathy”) Kraninger) voting to issue the proposals. The lone Democrat on the board, Martin Gruenberg, voted against issuing all three proposals.

In separate statements issued after the votes, McWilliams and Gruenberg outlined their positions.

McWilliams described the proposal affecting FBOs as “more finely tailoring the application of regulatory capital and liquidity requirements based on a foreign banking organization’s size, risk profile, and systemic footprint,” asserting that all affected institutions would continue to be subject to robust capital requirements.

As for changes to requirements for “living wills,” McWilliams described them as new content requirements that would be tailored to reflect varying degrees of systemic risk posed by different types of firms. “The most systemically important covered companies would remain subject to the most frequent submission requirement, which is a biennial filing cycle,” she said. “All other filers would move to a triennial filing cycle. Under the staggered cycles, the (federal banking) agencies would be able to concentrate resources on addressing systemic risks and those areas more closely associated with building greater resilience and resolvability. Additionally, firms that do not meet certain size or risk criteria would no longer be subject to the rule.”

As for the ANPR, McWilliams said it gives the agency “an opportunity to revisit the resolution planning requirements for IDIs (insured depository institutions)” of $50 billion or more in assets. She said it focuses on several issues, including the appropriate scope, content, and frequency of resolution plans for various types of banks, and would allow us to tailor requirements based on each bank’s size, complexity, and level of risk.

McWilliams pointed out that the ANPR offers two alternative concepts for commenters to consider; either approach, she said, would require large, complex institutions to continue to submit periodic resolution plans, streamlined compared to the existing plans. Institutions that are relatively smaller and less complex but still subject to the rule would no longer need to submit actual plans, but would still be subject to periodic engagement and capabilities testing, she said.

“We ask a lot of questions and anticipate robust feedback,” she noted.

She also pointed out that the board’s actions were in response to last year’s regulatory relief legislation (the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA, S. 2155).

Gruenberg (a former chair and vice chair of the board) issued statements of his own, explaining his opposition to each. Overall, however, he expressed concern that the three proposals – taken together – sends the FDIC ”down a path of weakening the entire resolution plan framework developed since the financial crisis.”

He noted:

  • Tailoring rules for FBOs: He called the Tuesday proposal a “very similar framework” to a notice of proposed rulemaking (NPR) the FDIC issued in November (which he also opposed). He said last year’s proposal would “reduce significantly the liquidity requirements for U.S. banking organizations with assets between $100 billion and $700 billion. Since this would, in my view, unnecessarily weaken a central post-crisis prudential protection for the financial system and place the Deposit Insurance Fund at greater risk, I voted against that proposal.”
  • “Living wills”: He said the proposal would go beyond the requirements of EGRRCPA to weaken significantly the resolution plan framework developed in the post-crisis period. “ I believe the proposed rule is significantly underestimating the challenges and the risks associated with the failure of institutions with assets over $100 billion,” Gruenberg said. “In my view, the resolution plans at the parent and insured depository institution level are important tools to address those challenges.”
  • ANPR (resolution plans for IDIs with $50 billion or more in assets): “While it acknowledges the distinct challenges associated with a large insured depository institution resolution under the Federal Deposit Insurance Act, there is a disconnect in that the proposals are mainly focused on reducing or eliminating resolution plan requirements, rather than making them a more effective tool for managing the orderly failure of a large IDI,” he said. “Moreover, in my view, an indefinite delay of the submission of the next plans is unwarranted.”


Comments on the FBO tailoring and “livings wills” proposals are due by June 21; the comment period on the ANPR will be for 60 days (following publication in the Federal Register).

Statement by FDIC Chairman Jelena McWilliams on Notice of Proposed Rulemaking: Tailoring for Foreign Banking Organizations

Statement by FDIC Chairman Jelena McWilliams on Notice of Proposed Rulemaking: Dodd-Frank Act Resolution Planning

Statement by FDIC Chairman Jelena McWilliams on Advance Notice of Proposed Rulemaking: IDI Plans

Statement by Martin J. Gruenberg, Member, FDIC Board of Directors, Notice of Proposed Rulemaking to Align Capital and Liquidity Requirements for Foreign Banking Organizations With Those Proposed for U.S. Banking Organizations

Statement by Martin J. Gruenberg, Member, FDIC Board of Directors,  Issuance of a Notice of Advance Notice of Proposed Rulemaking: Resolution Plans Required for Insured Depository Institutions with $50 Billion or More in Total Assets

Statement by Martin J. Gruenberg Member, FDIC Board of Directors, Notice of Proposed Rulemaking: Title I Resolution Plans