Regulators indicate more stringent review in future of large bank resolution plans

Two regulators gave clues of how they will consider future resolution plans (or “living wills”) submitted for review by large, complex banking organizations – including taking a more “granular” view and focusing on “resolvability” — in the wake of the review of 2021 plans released Wednesday.

Federal Deposit Insurance Corp. (FDIC) Board Acting Chairman Martin Gruenberg in a statement indicated his agency, along with the Federal Reserve (which along with the FDIC released the 2021 plan reviews), “expect to expand their evaluation of Title I resolution plan submissions with more granular reviews of firms’ internal testing results and to conduct their own independent capabilities assessments.”

Meanwhile, Acting Comptroller of the Currency Michael Hsu, in a separate statement, said in future reviews “I will be particularly focused on assessments of firms’ legal entity rationalization and separability capabilities.”

On Wednesday, the Fed and FDIC released reviews of 2021 living wills of the eight largest, most complex banking companies in the country. A “shortcoming,” related to data management, was identified for Citigroup – the only such issue cited among the eight companies in their resolution plans, according to the agencies.

More specifically, the agencies said the Citigroup shortcoming was related to data quality and data management concerns. The Fed noted that issue has been previously identified in its October 2020 enforcement action against the company. In his statement, Hsu noted that the Office of the Comptroller of the Currency (OCC) in 2020 issued a cease and desist order against Citibank, N.A, to require the bank to take “broad and comprehensive corrective actions to improve risk management, data governance, and internal controls.”

Hsu also noted that the next review of the large banks’ resolution plans will be the first full plan review under an elongated review cycle adopted in 2019. “A lot has changed in the intervening period,” Hsu said. However, he noted that reviews of the plans will constitute more than results in a report. He said resolvability of financial firms “is about capabilities, not just passing a paper test.”

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Acting Comptroller of the Currency Issues Statement on Large Bank Resolution Plans

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