Proposed changes to guidance for resolution plans (or “living wills”) submitted by large foreign banks – including plans due July 1, 2021 – were announced Friday by the Federal Reserve Board and the Federal Deposit Insurance Corp. (FDIC) with a public comment deadline of May 5.
As of the date of the proposal, the firms that meet the proposed criteria are the U.S. operations of Barclays, Credit Suisse, and Deutsche Bank, the agencies said.
The above are three of the four organizations that had been subject to the Fed’s 2018 FBO guidance. The Fed said that the fourth – UBS AG – will now be supervised as part of the central bank’s large and foreign banking portfolio. “The Board made this change after a comprehensive determination of the risks from the firm,” it said. “As an example, the firm has decreased from roughly $375 billion to less than $200 billion in total assets over the past decade, and separate measures of complexity have also declined.”
The guidance proposed Friday would focus on FBOs that are triennial full filers and whose intermediate holding companies (U.S. IHCs) have a score of 250 or more under the second methodology (“method 2”) of the global systemically important bank (GSIB) surcharge framework. The updates focus on the agencies’ expectations around a firm’s derivatives and trading activities and payment, clearing, and settlement activities.
The agencies note that for foreign banking organizations (FBOs), resolution plans are focused on their U.S. subsidiaries and operations. The proposed guidance describes the agencies’ expectations regarding a number of key vulnerabilities in plans for a rapid and orderly resolution under the U.S. Bankruptcy Code (i.e., capital; liquidity; governance mechanisms; operational; legal entity rationalization and separability; and derivatives and trading activities).
Largely similar to the guidance from March 2017, the proposed guidance includes certain updates based on the agencies’ review of certain FBOs’ most recent resolution plans and changes to the resolution planning rules. The agencies said the proposed guidance also seeks comment on objective, quantitative criteria to determine its applicability.