In another split, FDIC Board approves new ‘living wills’ submission requirements

A joint final rule on resolution plans (or “living wills”) for large banks was adopted on a 3-1 vote by the Federal Deposit Insurance Corp. (FDIC) Board Tuesday, with the dissenter saying it would “significantly weaken” requirements adopted by Congress in the wake of the 2007-10 financial crisis.

Among other things, the new rule exempts smaller financial firms (those with less than $250 billion in total assets) from resolution planning.

The final rule, also issued by the Federal Reserve, modifies resolution plan requirements for large banking firms. According to the FDIC, the changes improve efficiency and effectiveness of the resolution planning process and are consistent with last year’s regulatory relief legislation, the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S. 2155).

The agency said the new rule specifies new resolution plan submission schedules, which are designed to reduce the frequency and scope of submission, but not by reducing “the high regulatory expectations for resolution planning.”

Under the new schedule:

  • Firms subject to “category I” standards (global systemically important banks, GSIBs) would remain “biennial filers,” submitting resolution plans every two years and alternating between full and targeted resolution plans.
  • Those firms facing category II and III standards would be “triennial full filers” required to submit their living wills every three years and alternate between full and targeted resolution plans.
  • Firms not in any of the three category standards are “triennial full filers” too, submitting their living wills every three years but as “reduced resolution plans.”

Financial firms with less than $250 billion in total consolidated assets that do not meet certain risk criteria would no longer be subject to the rule, the FDIC said. “These firms do not present financial stability risks to the broader U.S. economy that the statute and rule intend to address,” the agency said.

FDIC Board Chairman Jelena McWilliams said the final rule “improves the efficiency and effectiveness of the resolution planning process based on multiple rounds of plan reviews and engagement with firms over a seven-year period.”

But Board Member Martin Gruenberg, voting against final adoption, took a much more doubtful view. “I believe this final rule reflects a serious failure to recognize the very significant resolution challenges and potential for systemic disruption posed by the failure of these firms,” Gruenberg said in a statement (which he read at Tuesday’s board meeting). “These were hard lessons that should have been learned from the financial crisis, when firms of this size, and even smaller, presented major resolution challenges to the FDIC.”

Resolution Plans Required