The Federal Reserve Board and the Federal Deposit Insurance Corp. (FDIC) are jointly seeking public comment on a proposal to modify their resolution plan – or “living will” – requirements for U.S. and foreign banking organizations having more than $100 billion in total consolidated assets in a manner they describe as being consistent with the 2018 regulatory relief law.
The FDIC Board gave its approval Tuesday, with Board Member Martin Gruenberg dissenting. The agencies’ joint notice for the Federal Register gives a public comment deadline of June 21.
In a release Tuesday, the two agencies said the resolution plan proposal would keep existing expectations in place for the largest firms but reduce requirements for smaller firms that pose less risk.
The proposal, which builds on a separate framework proposed by the banking agencies, establishes a graduated set of resolution planning requirements that depend on the level of risk a firm poses for the financial system. The agencies said the proposal is consistent with the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S. 2155).
“For the most systemically important firms, the proposal would adopt the current practice of requiring resolution plans to be submitted on a two-year cycle,” the regulators stated. “The proposal would tailor the rule’s requirements for firms that do not pose the same systemic risk as the largest institutions, requiring these plans to be submitted on a three-year cycle. Both groups of firms would alternate between submitting full plans and targeted plans. Foreign banks with the smallest or least complex U.S. operations would be required to submit reduced content plans, commensurate with their reduced operations.”
According to Tuesday’s announcement, a “targeted” resolution plan would include core elements like capital and liquidity, material changes to the firm, as well as areas of interest identified by the agencies. Generally, reduced content plans would include only material changes since the prior plan submission. All plans would continue to include a publicly available section, the agencies said.
For the smallest and least complex domestic firms that engage in traditional banking activities and present the least risk, they said, the proposal would eliminate resolution planning requirements; if one of those firms engages in risky activity above a certain threshold, it would be required to submit a resolution plan.
In related action, the Federal Reserve Board on April 8 released two proposals – with Gov. Lael Brainard dissenting – to revise the framework for applying the enhanced prudential standards applicable to foreign banking organizations under section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended by EGRRCPA. This proposal would, among other things, establish categories that would be used to tailor the stringency of enhanced prudential standards based on the risk profile of a foreign banking organization’s operations in the United States; and amend certain enhanced prudential standards, including standards relating to liquidity, risk management, stress testing, and single-counterparty credit limits.
Additionally, the board on April 8 issued a proposal that would determine the application of regulatory capital requirements to certain U.S. intermediate holding companies of foreign banking organizations and their depository institution subsidiaries; and the application of standardized liquidity requirements with respect to certain U.S. operations of large foreign banking organizations and certain of their depository institution subsidiaries.
Both proposals, developed jointly with the FDIC and Office of the Comptroller of the Currency (OCC), were released by the Fed April 8 with a June 21 comment deadline.