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Proposed Rule2023-19266

Resolution Plans Required for Insured Depository Institutions With $100 Billion or More in Total Assets; Informational Filings Required for Insured Depository Institutions With at Least $50 Billion But Less Than $100 Billion in Total Assets

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Published

September 19, 2023

Issuing agencies

Federal Deposit Insurance Corporation

Abstract

The FDIC is seeking comment on a proposal to revise its current rule that requires the submission of resolution plans by insured depository institutions (IDIs) with $50 billion or more in total assets. The proposal would modify the current rule by revising the requirements regarding the content and timing of resolution submissions as well as interim supplements to those submissions provided to the FDIC by IDIs with $50 billion or more in total assets in order to support the FDIC's resolution readiness in the event of material distress and failure of these large IDIs. IDIs with $100 billion or more in total assets will submit full resolution plans, while IDIs with total assets between $50 and $100 billion will submit informational filings. The proposed rule would also enhance how the credibility of resolution submissions will be assessed, expand expectations regarding engagement and capabilities testing, and explain expectations regarding the FDIC's review and enforcement of IDIs' compliance with the rule.

Full Text

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<title>Federal Register, Volume 88 Issue 180 (Tuesday, September 19, 2023)</title>
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[Federal Register Volume 88, Number 180 (Tuesday, September 19, 2023)]
[Proposed Rules]
[Pages 64579-64625]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-19266]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 360

RIN 3064-AF90

Resolution Plans Required for Insured Depository Institutions
With $100 Billion or More in Total Assets; Informational Filings
Required for Insured Depository Institutions With at Least $50 Billion
But Less Than $100 Billion in Total Assets

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking and request for comment.

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SUMMARY: The FDIC is seeking comment on a proposal to revise its
current rule that requires the submission of resolution plans by
insured depository institutions (IDIs) with $50 billion or more in
total assets. The proposal would modify the current rule by revising
the requirements regarding the content and timing of resolution
submissions as well as interim supplements to those submissions
provided to the FDIC by IDIs with $50 billion or more in total assets
in order to support the FDIC's resolution readiness in the event of
material distress and failure of these large IDIs. IDIs with $100
billion or more in total assets will submit full resolution plans,
while IDIs with total assets between $50 and $100 billion will submit
informational filings. The proposed rule would also enhance how the
credibility of resolution submissions will be assessed, expand
expectations regarding engagement and capabilities testing, and explain
expectations regarding the FDIC's review and enforcement of IDIs'
compliance with the rule.

DATES: Comments must be received by November 30, 2023.

ADDRESSES: You may submit comments on the notice of proposed
rulemaking, identified by RIN 3064-AF90, by any of the following
methods:
<bullet> Agency Website: <a href="https://www.fdic.gov/resources/regulations/federal-register-publications/">https://www.fdic.gov/resources/regulations/federal-register-publications/</a>. Follow instructions for
submitting comments on the FDIC's website.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#73101c1e1e161d07003315171a105d141c05">[email&#160;protected]</a>. Include ``RIN 3064-AF90'' in the
subject line of the message.
<bullet> Mail: James P. Sheesley, Assistant Executive Secretary,
Attention: Comments/Legal OES (RIN 3064-AF90), Federal Deposit
Insurance Corporation, 550 17th Street NW, Washington, DC 20429.
<bullet> Hand Delivery/Courier: Comments may be hand delivered to
the guard station at the rear of the 550 17th Street NW building
(located on F Street NW) on business days between 7:00 a.m. and 5:00
p.m.
Public Inspection: All comments received, including any personal
information provided, will be posted without change to <a href="https://www.fdic.gov/resources/regulations/federal-register-publications/">https://www.fdic.gov/resources/regulations/federal-register-publications/</a>.
Commenters should submit only information that the commenter wishes to
make available publicly. The FDIC may review, redact, or refrain from
posting all or any portion of any comment that it may deem to be
inappropriate for publication, such as irrelevant or obscene material.
The FDIC may post only a single representative example of identical or
substantially identical comments, and in such cases will generally
identify the number of identical or substantially identical comments
represented by the posted example. All comments that have been
redacted, as well as those that have not been posted, that contain
comments on the merits of this document will be retained in the public
comment file and will be considered as required under all applicable
laws. All comments may be accessible under the Freedom of Information
Act.

FOR FURTHER INFORMATION CONTACT: Elizabeth Falloon, Senior Advisor,
Division of Complex Institution Supervision and Resolution, 202-898-
6626, <a href="/cdn-cgi/l/email-protection#85e0e3e4e9e9eaeaebc5e3e1ece6abe2eaf3">[email&#160;protected]</a>; Kent R. Bergey, Associate Director, Division
of Complex Institution Supervision and Resolution, 917-320-2834,
<a href="/cdn-cgi/l/email-protection#b9d2dcdbdccbdedcc0f9dfddd0da97ded6cf">[email&#160;protected]</a>; Aaron Wishart, Chief, Policy Analysis, Division of
Complex Institution Supervision and Resolution 202-898-6982,
<a href="/cdn-cgi/l/email-protection#7c1d0b150f141d0e083c1a18151f521b130a">[email&#160;protected]</a>; Audra Cast, Deputy Director, Division of Resolutions
and Receiverships 312-382-7577, <a href="/cdn-cgi/l/email-protection#7c1d1f1d0f083c1a18151f521b130a">[email&#160;protected]</a>; Shawn Khani, Deputy
Director, Division of Resolutions and Receiverships 703-254-0843,
<a href="/cdn-cgi/l/email-protection#b5c6deddd4dbdcf5d3d1dcd69bd2dac3">[email&#160;protected]</a>; Varanessa Marshall, Assistant Director, Division of
Resolution and Receiverships 678-916-2233, <a href="/cdn-cgi/l/email-protection#a1d7c0ccc0d3d2c9c0cdcde1c7c5c8c28fc6ced7">[email&#160;protected]</a>; Celia
Van Gorder, Senior Counsel, Legal Division 202-898-6749,
<a href="/cdn-cgi/l/email-protection#8fecf9eee1e8e0fdebeafdcfe9ebe6eca1e8e0f9">[email&#160;protected]</a>; F. Angus Tarpley, III, Counsel, Legal Division
202-898-8521, <a href="/cdn-cgi/l/email-protection#1a7c6e7b686a767f635a7c7e7379347d756c">[email&#160;protected]</a>.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction/Policy Objective
II. Background
III. Proposed Rule
A. Resolution Submissions
1. Scope
2. Submission Schedules
a. Submission Cycle and Additional Information Between
Submissions

[[Page 64580]]

b. Resolution Submission by New CIDIs; Changes to Submission
Dates
c. Status as a CIDI
3. Content Requirements
a. Identified Strategy
b. Failure Scenario
c. New and Modified Definitions
d. All Other Content Requirements
e. Interim Supplement
B. Credibility; Review of Resolution Submissions
1. Credibility Criteria
2. Resolution Submission Review and Credibility Determination;
Resubmission; Notice of Feedback
C. Engagement and Capabilities Testing
1. Engagement
2. Capabilities Testing
3. Conclusion Letter
D. Enforcement
E. Additional Provisions
1. Approval by the CIDI Board of Directors
2. Incorporation from Other Sources
3. Financial Information
4. Indexing of Information and Analysis to Resolution Submission
and Interim Supplement Content Requirements
5. Combined Resolution Submission and Interim Supplement by
Affiliated CIDIs
6. Form of Resolution Submissions; Confidential Treatment of
Resolution Submissions
7. Extensions and Exemptions
8. Transition
IV. Expected Effects
A. Proposed Changes to Current Rule, as Implemented
1. Effects on Group A CIDIs
a. Previously-Exempted Content Reinstated
b. No Routine FDIC-Issued Case-By-Case Exemptions
c. Codifying Guidance, New and Modified Plan Content
Requirements, and Deleting Plan Content Requirements
d. Updated Reporting Compliance Estimates
2. Effects on Group B CIDIs
3. Marginal Effect of Proposed Changes
a. Marginal Effect of Proposed Change to Biennial Filing Cycle
b. Marginal Effect of Proposed Changes in Content
B. Effects on Insured Deposits and the Deposit Insurance Fund
C. Additional Economic Considerations and Effects
D. Overall Effects
V. Alternatives Considered
VI. Regulatory Analysis and Procedures
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Plain Language
D. Riegle Community Development and Regulatory Improvement Act
of 1994

I. Introduction/Policy Objective

The FDIC's regulation ``Resolution plans required for insured
depository institutions with $50 billion or more in total assets,\1\''
issued in 2012 \2\ (current rule), requires insured depository
institutions (IDIs) with $50 billion or more in total assets (covered
IDIs or CIDIs) to submit resolution plans periodically. This resolution
plan requirement was established to facilitate the FDIC's readiness to
resolve a CIDI under the Federal Deposit Insurance Act of 1950, as
amended (FDI Act) in the event of its insolvency.
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\1\ The proposed rule would determine total assets for the
purpose of identifying CIDIs, including group A CIDIs and group B
CIDIs, as described in proposed Sec. 360.10(b), which adopts the
approach used in the current rule. The phrase ``total assets''
refers to the total assets of the IDI as described in that section.
\2\ 12 CFR 360.10. The rule was published as an interim final
rule with an effective date of January 1, 2012, 76 FR 2011 (Sept 11,
2011); the final rule was effective April 1, 2012, 77 FR 3075
(January 23, 2012).
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This proposal builds on the FDIC's more than a decade-long
experience implementing the current rule, providing guidance and
feedback to CIDIs, and leveraging the content of submissions for the
development of resolution strategies by the FDIC. Through this process,
the FDIC has gained a better understanding of the challenges of
resolving CIDIs and the importance of resolution plans and other
related submissions to facilitate the FDIC's readiness in the event of
a failure of one of these CIDIs. Part of the challenge arises from the
wide range of business models and structures among CIDIs. While some of
these CIDIs are engaged largely in traditional banking activities, with
nearly all assets and activities conducted within the CIDI or its
subsidiaries (the bank chain), others conduct significant non-banking
activities. Many of the CIDIs have a broker-dealer subsidiary or
affiliate that provides services to bank customers. The CIDIs subject
to the current rule also include banks primarily engaged in a
particular business segment, such as credit card services, as well as
U.S. IDIs that are part of large foreign banking organizations. There
is no one-size-fits-all resolution approach for these institutions;
rather, the FDIC must be prepared to execute a range of resolution
options, recognizing the trade-offs among those options. The FDIC's
development of resolution strategies--and its assessment of the options
and trade-offs that inform them--benefit from the CIDI's knowledge of
its own firm, an understanding of the CIDI's relevant capabilities, and
an awareness of the impediments to executing an orderly resolution of
the CIDI. Across the different CIDI business models and structures,
there are a variety of factors that increase the challenges and
complexity of resolution in the event of the failure of these large
banks. These factors include deposit profile as well as size and
organizational complexity.
In general, the CIDIs tend to have a more significant proportion of
uninsured deposits as compared to smaller banks. In the aggregate, more
than 42 percent of deposits of IDIs over $50 billion in total assets
are uninsured. High ratios of uninsured deposits increase resolution
challenges, as was recently demonstrated in the failures of three large
banks in the spring of 2023; Silicon Valley Bank (SVB), Signature Bank
and First Republic Bank (First Republic). All were over $100 billion in
size,\3\ and at the time shortly before their distress and failure, the
vast majority of their deposits was uninsured.\4\
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\3\ The failure of Washington Mutual Bank in 2008 remains the
largest bank failure in U.S. history. At the time of its failure,
its assets totaled approximately $300 billion. First Republic, SVB,
and Signature Bank, respectively, were the second, third, and fourth
largest bank failures in history.
\4\ As of December 31, 2022, SVB reported 88% of its deposits
were uninsured; its total assets were approximately $209 billion.
Signature Bank reported 90% uninsured deposits and total assets of
approximately $110 billion. First Republic reported 68% uninsured
deposits and total assets of approximately $213 billion.
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The failures of SVB and Signature Bank on March 10 and 12, 2023,
respectively were primarily caused by illiquidity precipitated by
contagion effects, especially those resulting from withdrawals by
uninsured depositors at unprecedented speed and volumes. The
withdrawals were prompted in part by news of stress amplified through
social media and other channels. As a result, the FDIC's resolution
preparation runway and ability to market pre-failure were severely
compressed. For both IDIs, the FDIC established a bridge depository
institution (BDI) to continue bank operations during a brief marketing
period. Less than two months following those failures, First Republic
was placed in receivership and sold; although First Republic had a
similar profile of largely uninsured deposits, it was able to manage
its liquidity for several weeks prior to failure. With additional time
to market First Republic pre-failure, the FDIC was able to transfer all
of the assets and liabilities to a single acquirer without the
necessity of establishing a BDI, although the FDIC stood ready to
exercise the authority to form a BDI if needed.
In addition, the FDIC lacked important resolution planning
information to facilitate marketing the IDIs. While SVB and First
Republic had filed their first resolution plans just a few months
before their failures, the

[[Page 64581]]

FDIC had neither completed review nor had the opportunity to provide
feedback on those plans. In general, the FDIC has found that
development of fulsome resolution plans is an iterative process,
building on feedback. Signature Bank had not yet filed any resolution
plan, as its first submission was due in June 2023. Thorough and timely
resolution planning information would have supported the FDIC's ability
to prepare to more effectively and efficiently market the failed IDIs,
including providing options for franchise components and asset
portfolios that could have been offered in useful combinations and
alternatives.
In addition to increasing the risk of a precipitous liquidity
failure, a high level of uninsured deposits also increases resolution
complexity in other ways. Under the FDI Act, any transaction using FDIC
assistance--including where assistance is provided in connection with
the establishment of a BDI--must meet the least-cost test, absent a
systemic risk exception. Under the least-cost test, the cost to the
deposit insurance fund (DIF) as a result of any sale needs to be less
than the cost to the DIF from simply liquidating the bank's assets and
paying off insured deposits. Where the proportion of insured deposits
is very low, potential costs to the DIF of paying out insured
depositors and liquidating is low relative to any other option in
resolution. In the case of SVB and Signature Bank, a systemic risk
exception to the least-cost test was necessary to protect uninsured
depositors to maintain franchise value and mitigate adverse effects on
economic conditions or financial stability, including the risk of
contagion to other IDIs.
Size of an IDI also can significantly impact the resolution options
available to the FDIC under the FDI Act, as well as provide a marker
for other resolution challenges, such as organizational complexity and
higher levels of uninsured deposits. In particular, as IDIs increase in
size, the likelihood of a timely sale to a single acquirer diminishes.
Currently, there are 45 IDIs with at least $50 billion in total assets
and 31 over $100 billion. As a group, these CIDIs represent
approximately $13.8 trillion in total deposits. While a closing weekend
sale may be an option in some cases, its availability cannot be assumed
in view of the size, complexity, and potential speed of failure of a
CIDI. This is particularly true for the largest CIDIs with $100 billion
or more in total assets because the pool of potential acquirers for
these institutions is extremely limited, and the complexity of any
possible transaction is increased. While there is a larger pool of
possible acquiring institutions for CIDIs in the $50 to $100 billion
total asset range, some of these institutions engage in highly complex
activities and pose similar levels of operational complexity as those
over $100 billion in total assets. As such, these activities must be
identified and considered when contemplating resolution strategies.
Thus, this proposal addresses two distinct groups of CIDIs based on
size, with differing corresponding obligations for each group under the
proposed rule.
The first group comprises those IDIs with $100 billion or more in
total assets (group A CIDIs). The proposed rule would require group A
CIDIs to submit full resolution plans containing an identified strategy
appropriate to the CIDI for its orderly and efficient resolution, as
well as providing all other content elements described in the proposed
rule. The second group comprises those IDIs with at least $50 billion
but less than $100 billion in total assets (group B CIDIs). The
proposed rule would require resolution submissions from group B CIDIs
in the form of an informational filing. The informational filing would
not require development of an identified strategy for resolution nor
the demonstration of capabilities necessary to produce valuations
needed in assessing the least-cost test. All CIDIs would be required to
participate in engagement and capabilities testing regarding matters
related to their resolution submissions.
Based upon these considerations, and the FDIC's experience in
planning for and executing bank resolutions since the adoption of the
current rule, the FDIC is proposing changes intended to make the
resolution submissions more useful and appropriately focused on the
resolution challenges presented by both group A CIDIs and group B
CIDIs.
Specifically, this proposal would:
<bullet> Clarify and enhance resolution submission requirements
applicable to IDIs with $50 billion or more in total assets, including
resolution plans submitted by group A CIDIs and informational filings
submitted by group B CIDIs;
<bullet> Require each group A CIDI to provide an identified
strategy for resolution that ensures timely access to insured deposits,
maximizes value from the sale or disposition of assets, minimizes any
losses realized by creditors of the group A CIDI in resolution, and
addresses potential risks of adverse effects on U.S. economic
conditions or financial stability;
<bullet> Clarify requirements with respect to the assumptions for
the failure scenario used by group A CIDIs in the resolution plan
submission and reserve the ability of the FDIC to provide additional
parameters for the failure scenario for all group A CIDIs or specific
individual group A CIDIs in future plan submission cycles;
<bullet> Strengthen resolution submission content elements and
associated requirements regarding capabilities to support optionality
available to the FDIC and ensure that the FDIC's development of
resolution strategies reflects considerations related to the
characteristics of the individual CIDI and potential challenges that
could be faced in resolution;
<bullet> Refine the requirements for group A CIDIs with respect to
least-cost analysis and focus on ensuring that the FDIC has the
building blocks and capabilities it needs to undertake the least-cost
test in resolution in the event of failure of a group A CIDI;
<bullet> Adjust the frequency of resolution submissions to
accommodate a two-year cycle that includes engagement and capabilities
testing as well as periodic interim supplements containing specified
resolution submission content items;
<bullet> Establish an enhanced credibility standard for resolution
submissions and clarify the process for review and feedback to identify
and address weaknesses in resolution submissions and enforce the rule;
<bullet> Establish a requirement for informational filings to be
submitted by group B CIDIs that is focused on information most
important and appropriate for resolution of those CIDIs, and establish
a credibility standard appropriate to the informational filings; and
<bullet> Codify certain aspects of guidance and feedback previously
issued to IDIs subject to the current rule.
In finalizing this proposal, the FDIC proposes to supersede all
prior guidance and feedback related to the current rule.
The proposed rule retains the approach of the current rule in
requiring each group A CIDI to develop a strategy for resolution that
is appropriate for its size, complexity, and risk profile. However, the
FDIC is mindful that the scenario for failure of a large, complex IDI
cannot be predicted and could occur across a wide range of
circumstances, both idiosyncratic to the institution and with respect
to the greater economy. The FDIC will need to determine the strategy
most appropriate to the scenario at the time, which may or may not be
the strategy described in the group A CIDI's resolution plan.
While approximately 95 percent of the resolutions conducted by the
FDIC since 2007 involved the sale of the IDI's

[[Page 64582]]

franchise and assets to an open institution, the option of a
transaction with a single acquirer where nearly all of the liabilities
of the failed IDI are assumed that can close at the time of failure
cannot be assumed to always be available to the FDIC. In particular,
for the group A CIDIs under the proposed rule, the likelihood of a
closing weekend sale is diminished because of the potential for a rapid
liquidity failure, the limited pool of possible acquirers, and the
complexity of such a transaction. Thus, while a transaction with a
single acquirer over closing weekend poses the least execution risk for
the FDIC, and is often the least disruptive and most efficient, it may
not be available. In that case, the FDIC would likely consider an
approach that relies on the establishment of a limited-duration BDI,
pursuant to a charter granted by the Office of the Comptroller of the
Currency (OCC), that can continue the operations of the group A CIDI
while it is being restructured, sold, or otherwise returned to private
ownership in whole or in parts, or wound down in an orderly fashion.
Accordingly, the group A CIDI's identified strategy would need to
provide for the establishment and stabilization of a BDI and an exit in
which the IDI is sold to one or more acquirers. This approach provides
considerable useful optionality to the FDIC in preparing for a
resolution across a wide range of possible failure scenarios. As noted
above, the FDIC did not have sufficient time to widely market SVB and
Signature Bank prior to their failure. In order to provide time for
bidders to conduct appropriate due diligence, the FDIC established BDIs
for both banks, and provided flexible bidding options with respect to
businesses and assets acquired. The rapid failure and lack of advanced
resolution planning information created challenges in establishing
optionality with respect to the components offered in the bidding
framework. This resulted in a broad range of bidding structures that
added challenge and complexity to evaluating bids and combinations of
bids.
Although the FDIC believes that the proposed requirement to develop
a scenario using a BDI will enable the FDIC to adopt a strategic
approach with useful optionality to support resolution in most cases,
the FDIC is aware that for some group A CIDIs, the structure and
profile of the institution may suggest that another resolution strategy
is better suited to the goals described in the proposed rule. In such a
case, the group A CIDI may use a different identified strategy that
best meets the goals established in the proposed rule, such as a payout
and liquidation of the bank, or a BDI to a different exit option. The
proposed rule would not, however, permit the CIDI's identified strategy
to be simply a sale of substantially all assets and liabilities over
closing weekend. As noted, the FDIC cannot rely upon the availability
of that strategy for group A CIDIs. In addition, its use as an
identified strategy would provide less benefit to the FDIC in terms of
information upon which to build optionality, as compared to a BDI
strategy or liquidation. Regardless of the identified strategy used,
the proposed rule would seek information and analysis that would inform
the decisions that would be made by the FDIC at the time of an actual
failure, and development of the strategic approaches appropriate to the
actual scenario. The FDIC's goals in resolution are unchanged from
those expressed in the current rule, and the proposed rule would seek
to embed them more explicitly in an enhanced credibility standard and
reflect them more fully in the requirements for resolution submission
content. In order to meet the goals of an orderly resolution that is
least-costly to the DIF, protects depositors, and maximizes return, the
FDIC must have an understanding of the obstacles to an individual IDI's
resolution--and potential mitigants to those obstacles--including the
impact of separation of the IDI from its parent company and affiliates
and the impact on the business of the IDI and the continuity of its
critical services. Because the use of a BDI may be a likely approach in
many scenarios, an important focus of the proposed rule is the
information, analysis, and capabilities necessary to establish and
stabilize a BDI, including valuation information and capabilities that
would support the FDIC's least-cost test analysis in evaluating a BDI
strategy against other options.
The proposed rule requires a more limited informational filing from
group B CIDIs, and does not require group B CIDIs to develop a
resolution strategy or submit certain other content elements. The FDIC
believes that the approach taken for group B CIDI requirements
appropriately recognizes the additional complexity and greater
resolution challenges applicable to the group A CIDIs. The threshold of
$100 billion in total assets--which is also used in the Dodd-Frank Wall
Street Reform and Consumer Protection Act, as amended (Dodd-Frank Act)
\5\ and other rulemakings as a basis for assessing a banking
organization's financial stability and safety and soundness risks \6\--
is an appropriate threshold to apply to distinguish resolution
submission requirements for group A and group B CIDIs.
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\5\ See 12 U.S.C. 5365(a)(2)(C). The threshold for enhanced
prudential standards under that provision was established through
passage of the Economic Growth, Regulatory Relief, and Consumer
Protection Act in 2018.
\6\ See, e.g., 84 FR 59230 (Nov. 1, 2019) (codified at 12 CFR
parts 3, 50, 217, 249, 324, & 329).
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Finally, the proposed rule would establish an expectation of
complete resolution submissions by the CIDIs biennially. This biennial
submission cycle is intended to balance the need for up-to-date
information the time that it takes for CIDIs to prepare a complete
submission, and to allow for thorough plan review, engagement and
capabilities testing to supplement that review. In order to facilitate
the FDIC's planning and readiness, CIDIs would be required to provide
current information in non-submission years through an interim
supplement that would include limited specified information that would
be provided in years where a complete submission is not required.

II. Background

The current rule was proposed in 2010 and became effective in 2012;
\7\ it has not been amended to date. It requires IDIs with $50 billion
or more in total assets to periodically submit resolution plans that
should enable the FDIC to resolve the CIDI in the event of its
insolvency under the FDI Act. Since issuing the current rule, the FDIC
and many CIDIs have been through multiple resolution plan submission
cycles. As a result of this experience, the FDIC has identified those
aspects of the resolution planning process that are most valuable and
those that could be clarified or enhanced to ensure that the CIDIs'
submissions and participation better support the rule's objectives.
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\7\ 77 FR 3075 (Jan. 23, 2012) (Final Rule); 76 FR 58379 (Sep.
21, 2011) (Interim Final Rule); 75 FR 27464 (May 17, 2010) (Proposed
Rule). In 2014, the FDIC issued guidance for CIDIs' resolution
plans. Guidance for Covered Insured Depository Institution
Resolution Plan Submissions (2014), <a href="https://www.fdic.gov/news/news/press/2014/pr14109a.pdf">https://www.fdic.gov/news/news/press/2014/pr14109a.pdf</a>.
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In 2014, the FDIC provided further clarification, guidance, and
direction for the preparation of subsequent CIDI resolution plans with
a focus on the failure scenario, resolution strategies, least-cost
analysis, and identified obstacles to be discussed in the

[[Page 64583]]

resolution plan.\8\ In addition, following each resolution plan
submission cycle, the FDIC issued feedback letters to CIDIs with
information for the subsequent plan submission.
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\8\ See FDIC Issues Guidance for the Resolution Plans of Large
Banks (Dec. 17, 2014), <a href="https://archive.fdic.gov/view/fdic/4821">https://archive.fdic.gov/view/fdic/4821</a>.
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After several plan submission cycles, in 2018 the FDIC announced a
moratorium (moratorium) on the rule's requirements for all institutions
pending completion of a new rulemaking.\9\ At the time the moratorium
was adopted, the FDIC also published an advance notice of proposed
rulemaking (ANPR),\10\ which requested comment on how to tailor and
improve the current rule, including how to reduce the burden associated
with the least-cost test analysis and whether requirements should be
tiered based on size or complexity factors of cohorts of CIDIs. The
ANPR also requested comment on potential enhancement of engagement and
capabilities testing. At that time, the FDIC extended the due date for
future plan submissions pending completion of the rulemaking process.
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\9\ See Press Release, Fed. Deposit Ins. Corp., FDIC Seeks
Comment on New Approaches to Insured Depository Institution
Resolution Planning (Apr. 16, 2019), available at <a href="https://www.fdic.gov/news/press-releases/2019/pr19034.html">https://www.fdic.gov/news/press-releases/2019/pr19034.html</a>.
\10\ See FDIC Seeks Comment on New Approaches to Insured
Depository Institution Resolution Planning (April 16, 2019), <a href="https://www.fdic.gov/news/press-releases/2019/pr19034.html">https://www.fdic.gov/news/press-releases/2019/pr19034.html</a>.
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Following the issuance of the ANPR, the FDIC continued to further
develop its thinking regarding resolution planning for large IDIs and
how to maximize the FDIC's resolution readiness. In 2020-2021, the FDIC
undertook targeted engagement with select CIDIs on their 2018 plan
submissions, a step consistent with the enhanced emphasis on engagement
and capabilities testing envisioned under the ANPR.
In January 2021, the FDIC Board took action to lift the moratorium
on the resolution plan requirement for CIDIs with $100 billion or more
in assets \11\ and, in June 2021, the FDIC issued a policy statement
(Statement) to describe how it planned to implement going forward
certain aspects of the current rule with respect to those CIDIs. All
prior guidance and feedback was superseded by this Statement.\12\ For
CIDIs with total assets of at least $50 billion and less than $100
billion, the moratorium on submission of resolution plans remained in
effect. CIDIs with $100 billion or more in total assets are submitting
resolution plans in accordance with a schedule established by the FDIC
from December 1, 2022, through December 1, 2023. Consistent with the
Statement, each of these CIDIs received exemptions from certain content
requirements under the current rule and may submit streamlined
resolution plans for review in this cycle. The proposed rule would
build upon the Statement, eliminating on a permanent basis some of the
content elements where exemptions were provided to all or some CIDIs
for the current submission cycle and adjusting and providing additional
context and clarity to others, as well as incorporating limited
proposed new content requirements. It also would propose a modified
approach to the CIDIs with at least $50 billion and less than $100
billion in total assets that provides clarity and certainty with
respect to the requirements applicable to those CIDIs and limits the
submission requirements for those CIDIs to an informational filing that
is appropriate to the relative complexity of the resolution of those
CIDIs.
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\11\ See FDIC Announces Lifting IDI Plan Moratorium (Jan. 19,
2021), <a href="https://www.fdic.gov/resauthority/idi-statement-01-19-2021.pdf">https://www.fdic.gov/resauthority/idi-statement-01-19-2021.pdf</a>.
\12\ Superseded guidance and feedback included the guidance
issued in 2014 and the feedback letters provided to IDIs following
review of IDIs' 2015 and 2016 resolution plan submissions.
---------------------------------------------------------------------------

In addition to enacting and implementing the current rule, the FDIC
has instituted several rulemakings that support its mission as deposit
insurer to make timely insured deposit payments and, as resolution
authority, to resolve a failed IDI in the manner that is least costly
to the DIF. These separate rulemakings address certain difficulties the
FDIC could face in the closing of a large, complex IDI, and include
Recordkeeping for Timely Deposit Insurance Determination (part 370) and
Recordkeeping Requirements for Qualified Financial Contracts (part
371).\13\ Part 370 requires covered institutions, namely IDIs with two
million or more deposit accounts, to put in place mechanisms to
facilitate prompt deposit insurance determinations. Part 371 requires
IDIs in a troubled condition to keep detailed records in a specified,
standard format regarding their qualified financial contracts. This
information would be used by the FDIC, were it appointed receiver, in
making a determination of which qualified financial contracts entered
into by the failed institution (if any) will be transferred within the
brief statutory window.\14\
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\13\ Codified at 12 CFR part 370 and 12 CFR part 371,
respectively.
\14\ The period between the day on which the FDIC is appointed
receiver and 5:00 p.m. Eastern time on the following business day;
see 12 U.S.C. 1821(e)(8)(G)(ii)(II).
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Separate from the FDI Act and the current rule's requirements,
section 165(d) of the Dodd-Frank Act mandates that certain bank holding
companies and nonbank financial companies (covered companies) submit
resolution plans (DFA resolution plans) for the rapid and orderly
resolution of the covered company under the U.S. Bankruptcy Code.\15\
The goal of DFA resolution plans, which is different from that of
resolution plans under the current rule, is to reduce the likelihood
that the financial distress or failure of a covered company would have
serious adverse effects on financial stability in the United States by
requiring covered companies to report periodically their plans for
rapid and orderly resolution under the U.S. Bankruptcy Code in the
event of material financial distress or failure and without public
support.
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\15\ 12 U.S.C. 5365(d). The DFA resolution plan of a foreign-
based covered company must provide for the rapid and orderly
resolution of its U.S. operations and entities.
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In November 2019, the Board of Governors of the Federal Reserve
System (FRB) and the FDIC published a joint final rule (section 165(d)
rule) \16\ to reflect improvements identified since the FDIC and the
FRB finalized their initial joint resolution plan rule in November 2011
\17\ and to address amendments to the Dodd-Frank Act made by the
Economic Growth, Regulatory Relief, and Consumer Protection Act.\18\
Key changes to the initial section 165(d) rule include an extension of
the DFA resolution plan filing cycle from annual to once every two or
three years and the establishment of risk-based categories for
determining the frequency and scope of resolution plan submissions.
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\16\ 84 FR 59194 (Nov. 1, 2019) (codified at 12 CFR parts 243 &
381).
\17\ 76 FR 67323 (Nov. 1, 2011).
\18\ Economic Growth, Regulatory Relief, and Consumer Protection
Act, Public Law 115-174, 132 Stat. 1296 (2018).
---------------------------------------------------------------------------

While the current rule and the section 165(d) rule both require
planning for the resolution of large, complex financial institutions,
to minimize the cost and disruption of failures, there are some
noteworthy differences between the section 165(d) rule requirements and
the current rule. Most fundamentally, the section 165(d) rule
requirements are focused on financial stability and mitigating systemic
risk. The current rule's requirements, by contrast, are focused on the
FDIC's ability to resolve a particular IDI. This focus includes two
critical priorities: (1) that insured depositors have access to their
cash in an orderly fashion and as quickly as possible; and (2) that the
FDIC must

[[Page 64584]]

protect taxpayers and minimize potential losses to the DIF, which
taxpayers stand behind.
Another difference between the section 165(d) rule requirements and
the current rule is that the section 165(d) rule focuses on the entire
banking organization, including the holding company and nonbank
affiliates and envisions a resolution under the U.S. Bankruptcy
Code.\19\ By contrast, the current rule (and likewise the proposed
rule) focuses only on the IDI subsidiary and envisions a resolution
using the FDIC's traditional resolution tools under the FDI Act. In
some cases, the preferred strategy in a firm's DFA resolution plan
includes the separate resolution of material entities within the group
under applicable insolvency regimes other than bankruptcy, including
resolution of a subsidiary IDI under the FDI Act, and the FDIC would
need to be prepared to execute that portion of a multiple point of
entry strategy where necessary. Thus, while there are important
differences between the two rules, they are complementary, with the IDI
plans specifically focused on the execution of a resolution by the FDIC
under the FDI Act and DFA resolution plans addressing the resolution
considerations of the group as whole.
---------------------------------------------------------------------------

\19\ In the case of a foreign-banking organization, the section
165(d) rule's focus on U.S. entities and operations may include U.S.
nonbank operations and intermediate holding companies.
---------------------------------------------------------------------------

In keeping with the complementary purposes of the current rule and
the section 165(d) rule, in developing this proposal, the FDIC has been
mindful of the guidance that the FDIC and the FRB anticipate developing
to help certain firms further develop their DFA resolution plans. That
guidance is expected to be specifically addressed to Category II and
Category III banking organizations,\20\ a group that includes some
firms with a subsidiary IDI that would be a CIDI under the proposed
rule. The FDIC will continue to coordinate the elements of this
proposal with the forthcoming guidance. In addition, where the
information or content expectations of the section 165(d) rule and the
proposed rule overlap, the proposed rule would specifically allow the
incorporation of information from an affiliate's DFA resolution plan
into a CIDI's resolution plan.
---------------------------------------------------------------------------

\20\ Category II and III banking organizations generally
comprise banking organizations, other than the Category I U.S.
global systemically important bank holding companies, that have over
$250 billion in qualifying assets or over $100 billion in qualifying
assets and meet certain other risk-based indicators. Qualifying
assets are, for a domestic banking organization, average total
consolidated assets, or, for a foreign-based organization, average
combined U.S. assets. See 12 CFR 252.5.
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Recent events underscore the importance of robust resolution
planning in advance of failure, particularly for these large and
complex CIDIs. The speed of bank runs has been accelerated by advances
in banking technology that allow deposits to move electronically, with
no need to stand in line or wait for physical checks or bills. Advances
in communications technology allow a message to reach hundreds of
millions of screens instantaneously. In the case of SVB, the speed of
the run was the fastest and largest withdrawal of deposits in a single
day in the nation's history. From a resolution planning perspective,
this new reality underscores the need for effective resolution planning
long before a bank's failure is on the horizon.

III. Proposed Rule

A. Resolution Submissions

1. Scope
Like the current rule, the proposed rule would apply to all IDIs
with $50 billion or more in total assets. Under the proposed rule,
however, the requirements pertaining to group A CIDIs (i.e., IDIs with
$100 billion or more in total assets) would differ from those
pertaining to group B CIDIs (i.e., IDIs with at least $50 billion but
less than $100 billion in total assets).
Each group A CIDI would be required to periodically submit a
resolution plan to the FDIC, including an identified resolution
strategy for its resolution under an identified failure scenario. The
development of this strategy, together with a description and analysis
of institution-specific information and capabilities relevant to
resolution, will facilitate the FDIC's ability to resolve a group A
CIDI across a range of scenarios in a manner that ensures timely access
to insured deposits, maximizes value from the sale or disposition of
assets, minimizes any losses realized by creditors of the CIDI in
resolution, and addresses potential risk of adverse effects on U.S.
economic conditions or financial stability, while minimizing the cost
of the resolution to the DIF. The resolution plan would be assessed
based on the credibility of the resolution strategy as well as with
respect to other information, analysis and capabilities included and
described in the resolution plan. Each group A CIDI would also be
required to participate in engagement and capabilities testing as
described below in section III.C.
Each group B CIDI would be required to periodically submit an
informational filing to the FDIC that would consist of the
informational content required under the proposed rule, but would not
include the requirement for the development of an identified strategy
as described in section III.A.3.a below, or the requirement to develop
capabilities necessary to produce valuations needed in assessing the
least-cost test and provide the related content described in section
III.A.3.d below. The informational filing would assist the FDIC in
developing its own resolution strategy for the firm. Each group B CIDI
would be required to participate in engagement and capabilities testing
as described below in section III.C.
The FDIC invites comment on all aspects of the scope of the
proposed rule and the tiering of requirements for group A and group B
CIDIs. In particular, the FDIC asks the following questions on specific
aspects of the proposal:
(1) Do commenters believe that total assets is the right metric to
use to determine the scope of IDIs subject to the rule? If not, please
suggest any better metrics to use to determine the scope of IDIs
subject to the proposed rule's requirements.
(2) Do commenters believe that $50 billion is the right amount of
total assets to use to distinguish CIDIs from IDIs not subject to the
proposed rule? If not, please suggest a better threshold to use to
establish the scope of IDIs subject to the proposed rule, and explain
why the suggested threshold is a better option.
(3) Do commenters believe that there are CIDIs with less than $50
billion in total assets that should be subject to the proposed rule due
to their complexity or other factors? If so, please explain the factors
that suggest an IDI should be a CIDI regardless of its total assets and
explain why those factors show that an IDI should be treated as a CIDI.
(4) Do commenters believe that total assets is the right metric to
use to distinguish between group A CIDIs and group B CIDIs? If not,
please suggest any better metrics to use to distinguish between groups
of CIDIs and explain why the suggested metrics are preferable.
(5) Do commenters believe that $100 billion is the right level of
total assets to use to distinguish between group A CIDIs and group B
CIDIs? If not please suggest an alternative amount of total assets to
use to distinguish between groups of CIDIs and explain why the
suggested amount is preferable.
(6) Do commenters believe that there are CIDIs with between $50-
$100 billion in total assets that would warrant group A CIDI status due
to their complexity or other factors? If so, please explain the factors
that suggest these CIDIs should

[[Page 64585]]

be group A CIDIs regardless of their average total assets and explain
why those factors show the CIDI warrants group A CIDI treatment.
2. Submission Schedules
a. Submission Cycle and Additional Information Between Submissions
Since the current rule's enactment in 2012, the FDIC has observed
that the annual plan submission requirement has been challenging for
both the CIDIs and the FDIC. An annual submission cycle does not allow
the FDIC sufficient time to thoroughly review CIDIs' submissions and
develop meaningful feedback, nor does it provide sufficient time for
CIDIs to incorporate that feedback into their subsequent submissions.
Moreover, an annual cycle limits the opportunity for meaningful
engagement between the FDIC and a CIDI between submissions. As
discussed in section III.C below, the FDIC expects engagement and
capabilities testing to be significant components of the resolution
planning process under the proposed rule. At the same time, the FDIC is
aware of the importance of up-to-date submissions, particularly as
CIDIs continue to change, in some cases rapidly. In the case of rapid
liquidity failures, which are more likely for large banks as reflected
in the failures of spring 2023, timely information on hand is needed to
support a short period to prepare for resolution, including
establishment of a BDI and marketing the IDI franchise and the
franchise components.
To balance these considerations, going forward, the FDIC proposes
to establish a submission schedule that provides adequate time for
review of a submission and the development of feedback; engagement and
capabilities testing; and the CIDI's development of content for the
next resolution submission that is responsive to feedback, as well as
requiring limited interim supplements to provide timely updates of the
most critical information.
Accordingly, under proposed Sec. 360.10(c)(1), each CIDI would
provide a complete resolution submission to the FDIC every two years,
with the submission of a limited interim supplement every other year.
The interim supplement is intended to provide critical up-to-date
information that will update certain limited elements of submission
content. In considering what information should be included in the
supplement, the FDIC intends to limit the information to the most
essential data elements that are can be efficiently updated year over
year to maximize the utility of the information to the FDIC, while
limiting the burden to CIDIs of the interim supplement requirement.
The FDIC retains the discretion to alter the submission dates upon
written notice to the CIDI. Consistent with past practice, the FDIC
expects to provide notice of a different schedule in a timely fashion
to accommodate appropriate time for preparation of the submission.
Under the proposed submission schedule, the FDIC would create two
submission cohorts of group A CIDIs, comprising roughly the same number
of CIDIs, with each cohort to file a complete resolution plan on a date
that will be specified by the FDIC every other year, beginning at least
270 days from the effective date of the final rule. This approach would
allow for improved workflow and efficiency, would permit the FDIC to
create filing cohorts of group A CIDIs with like characteristics to
support horizontal analysis across the submission cohort, and would
further support engagement and capabilities testing. Section III.E.8
below discusses in more detail the proposed approach to transition to
filing under the amended rule's requirements after it is finalized.
All group B CIDIs would be in the same cohort, with an initial
filing date at least 270 days from the effective date of the final
rule.
The proposed rule would retain in modified form the existing
section of the current rule concerning the provision of information in
the event of material changes to CIDIs between resolution submissions.
Proposed Sec. 360.10(c)(4)(i) would retain the requirement of the
current rule that a CIDI must provide the FDIC with a notice and
explanation no later than 45 days after certain events. The proposed
rule also would retain the current rule's exemption from this
requirement if the date on which the CIDI would be required to submit
the notice would be within 90 days before the date on which the CIDI is
required to provide a regular submission. The proposed rule would,
however, modify the set of events triggering the notice requirement.
Proposed Sec. 360.10(c)(4)(i) would replace the current trigger--a
``material event''--with ``material change.'' Under the current rule, a
``material event'' is ``any event, occurrence, change in conditions or
circumstances or other change that results in, or could reasonably be
foreseen to have, a material effect on the resolution plan of the
CIDI.'' \21\ Under the proposed rule, a ``material change'' would be a
change in a CIDI's identified material entities, critical services, or
franchise components or in its capabilities described in the most
recent submission. ``Material change'' also would include a change to
the CIDI's organizational structure, core business lines, size, or
complexity, for example by merger, acquisition, or divestiture of
assets, or similar transaction that may have significant impact on the
CIDI's identified strategy. The purpose of the proposed change is
twofold: first, to better reflect the modified informational
requirements of the proposed rule; and second, to reflect the FDIC's
experience under the current rule concerning the types of events for
which contemporaneous notice is most useful to the FDIC.
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\21\ 12 CFR 360.10(c)(1)(v)(A).
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The FDIC requests comments on all aspects of the proposed
definition of material change and the proposed requirement that the
CIDI provide notice of any material change. In particular, the FDIC
asks the following questions on specific aspects of the proposal:
(7) Is the proposed ``material change'' definition clear? Should
other or different events trigger this notice requirement? Is 45 days
an appropriate time frame for the notice requirement? The term
``material change'' is used in a similar context in the section 165(d)
rule (12 CFR 381.2). Should the definition be revised to more closely
align to the definition in the section 165(d) rule?
(8) Is the definition of material change over- or under-inclusive?
Does it include all material events that would significantly impact the
resolution submission and provide the FDIC with the notice it needs to
assure consideration of whether new or updated resolution submission
content would be important, necessary, or useful as a result of the
change?
b. Resolution Submission by New CIDIs; Changes to Submission Dates
Under proposed Sec. 360.10(c)(2), an IDI that becomes a CIDI after
the effective date of the final rule would be required to provide its
initial submission upon the date specified in writing by the FDIC,
which would be no earlier than 270 days after the insured depository
institution became a CIDI. The current rule provides that an IDI that
becomes a CIDI after April 1, 2012, must submit its initial resolution
plan no later than the following July 1, provided such date occurs no
earlier than 270 days after the date it became a CIDI.\22\
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\22\ 12 CFR 360.10(c)(1)(ii).
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The FDIC invites comments as to all aspects of the proposed
submission schedule and the timing of submission

[[Page 64586]]

of resolution plans by group A CIDIs and informational filings by group
B CIDIs, including the two-year cycle, the interim supplements, the
FDIC's discretion to change the timing of submissions, and the
treatment of material changes at a CIDI. In particular, the FDIC asks
the following questions on specific aspects of the proposal:
(9) Is the proposed two-year submission cycle appropriate? What
would be the benefits or trade-offs of a longer or shorter period
between submissions?
(10) Does a two-year cycle provide adequate time for all aspects of
the resolution submission cycle (review, engagement, capabilities
testing, provision of feedback, and development of responsive content
in the next submission)?
(11) The FDIC is interested in comments on the dates of
submissions, which would be commenced approximately a year after the
effective date of the final rule. In the past, submissions have been
required on December 1, December 31, or July 1. The FDIC may also
consider other dates. In considering timing of submissions, are there
dates that are more suitable or should be avoided? If so, what makes
those dates more suitable or problematic?
(12) Under the current rule, the FDIC retained discretion to obtain
material updates to a submission at its discretion upon notice to the
CIDI, including but not limited to upon the occurrence of a material
change. The proposed rule would eliminate that specific authority,
relying upon the biennial complete submissions and interim supplements
and would retain the FDIC's ability to change filing dates upon notice
to the CIDIs. The FDIC seeks comment on whether the FDIC should retain
the flexibility to change one or more filing dates upon its discretion,
or upon the occurrence of a material change, or require additional
interim updates, and if so, on what terms or conditions.
(13) Is a minimum of 270 days enough time for an IDI that becomes a
CIDI to prepare a complete resolution submission? The FDIC notes that,
under the proposed rule, the FDIC would have the authority to change
the date by which a CIDI must submit its resolution submission
subsequent to its initial submission, and that the FDIC would endeavor
to provide written notice of the revised submission date at least one
calendar year before the resolution submission is due.
c. Status as a CIDI
The proposed rule would clarify aspects of the current rule
concerning when an IDI becomes, or ceases to be, a CIDI. The proposed
rule also would address a CIDI moving between group A and group B.
First, the proposed rule would retain the approach taken in the
current rule, that an IDI is deemed to be a CIDI based upon whether it
has crossed the threshold of $50 billion based on the average of the
total assets as shown on its four most recent reports of Condition and
Income. For clarity, the proposed rule would expressly address the
event of an increase in size due to merger or acquisition of assets,
which is not explicitly addressed in the current rule. Proposed Sec.
360.10(b) would provide that in the case of an IDI whose total assets
have increased as the result of a merger, acquisition, combination, or
similar transaction, the status of the IDI as a CIDI or a group A CIDI
will be based upon the date of the consummation of the merger,
acquisition, combination or other transaction. While the four quarter
average protects against the possibility that firms move quickly in and
out of the rule's scope, growth by merger and acquisition tends not to
be transitory, and the combined IDI should become subject to the rule
promptly, based upon its combined balance sheet.
In addition, the proposed rule would add clarity about when an IDI
ceases to be a CIDI. The current rule defines a CIDI as an IDI with $50
billion or more in total assets, but does not specifically address how
and when an IDI ceases being a CIDI.\23\ Under proposed Sec.
360.10(b), an IDI would cease to be a CIDI when it has less than $50
billion in total assets, as determined based upon the average of the
institution's four most recent Reports of Condition and Income. The
proposed rule provides a similar provision addressing when a group B
CIDI would become--or cease to become--a group A CIDI. Addressing
explicitly the circumstances under which an IDI ceases to be a CIDI
would add useful clarity for IDIs and the public and would facilitate
the FDIC's administration of the rule.
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\23\ 12 CFR 360.10(b)(4).
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The FDIC requests comments on all aspects of the proposed approach
to determining whether an IDI is a CIDI and whether it is a group A or
a group B CIDI. In particular, the FDIC asks the following questions on
specific aspects of the proposal:
(14) Are the proposed changes to the rule concerning the process
for determining when an IDI becomes, and ceases to be a CIDI, clear and
appropriate? Should the FDIC consider Report of Condition and Income
data for a period other than four consecutive quarters in ascertaining
whether an IDI is a CIDI and whether a CIDI is a group A CIDI or a
group B CIDI? This approach, which is also used in determining
applicable requirements under the section 165(d) rule, lessens the
likelihood that IDIs bounce back and forth across the $50 billion or
$100 billion threshold, but also delays the imposition of the
requirements of the rule for IDIs that experience rapid growth, as was
the case of SVB and Signature Bank. Should the FDIC consider other
approaches to determining whether an IDI is subject to the requirements
of the rule, or whether a CIDI is a group A CIDI, and if so, what other
approaches should the FDIC consider, in weighing the balance between
obtaining information promptly in the event of rapid growth, versus the
risk that an IDI becomes subject to the requirements of the rule
temporarily, if it hovers near the asset thresholds?
(15) Is the approach in the proposed rule to a change due to
merger, acquisition, or similar transaction, based on the date of
consummation of the transaction, appropriate for determining whether an
IDI is a CIDI, or a group A or B CIDI, appropriate and clear? If not,
please suggest an alternative with justification.
3. Content Requirements
a. Identified Strategy
Like the current rule, the proposed rule would require a CIDI to
develop a strategy for resolution that is appropriate for its size,
complexity, and risk profile. As noted, however, this requirement would
apply only to group A CIDIs and not to group B CIDIs. Since the current
rule was issued in 2012, the FDIC and CIDIs have been through multiple
resolution plan submission cycles, allowing the FDIC to further its
resolution readiness and strategic planning for the resolution of
CIDIs. In reviewing and evaluating options for resolution of CIDIs, the
FDIC has considered a variety of resolution strategies across the range
of CIDIs. This has informed the approach in the proposed rule and the
parameters provided as to the expectations for the development of an
identified strategy.
The current rule requires the resolution plan to provide a
``strategy for the sale or disposition of the deposit franchise,
including branches, core business lines and major assets of the CIDI in
a manner that ensures that depositors receive access to their

[[Page 64587]]

insured deposits within one business day of the institution's failure
(two business days if the failure occurs on a day other than Friday),
maximizes the net present value return from the sale or disposition of
such assets and minimizes the amount of any loss realized in the
resolution of cases.'' \24\ The current rule also requires the
resolution plan to provide a ``strategy to unwind or separate the CIDI
and its subsidiaries from the organizational structure of its parent
company in a cost-effective and timely fashion.'' \25\
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\24\ 12 CFR 360.10(c)(2)(vi).
\25\ 12 CFR 360.10(c)(2)(v).
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In guidance and the preamble to the current rule, the FDIC has
provided insight regarding strategies to be considered by CIDIs as they
prepare their resolution plans, including a cash payment of insured
deposits, a purchase and assumption agreement with an insured
depository institution to assume only insured or all deposits, a
purchase and assumption agreement with multiple insured depository
institutions in which branches are broken up and sold separately, and a
transfer of insured deposits to a BDI. Over time, the FDIC provided
additional guidance and feedback with respect to the development of a
strategy that includes transfer of assets and liabilities to, and the
various options for exit from, a BDI, including through a multiple
acquirer exit, initial public offering, or other capital markets
transaction.
The proposed rule would require each group A CIDI to provide an
identified strategy, which would describe the resolution from the point
of failure through the sale or disposition of the group A CIDI's
franchise, (including all of its significant business lines and
segments and all of its major assets) in a manner that meets the
credibility standard set forth in the proposed rule.\26\ Because of the
size and complexity of CIDIs, the development of an identified strategy
that takes into account each IDI's organization, structure, business
lines, and other characteristics provides significant insight into the
obstacles that the FDIC might face in resolving the IDI, and what
mitigating actions it can take to address those obstacles.
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\26\ Prong (i) of the credibility criteria provides that a
resolution submission by a group A CIDI is not credible if it would
not provide timely access to insured deposits, maximize value from
the sale or disposition of assets, minimize any losses realized by
creditors of the group A CIDI in resolution, and address potential
risks of adverse effects on U.S. economic conditions or financial
stability. Prong (ii) of the credibility criteria provides that a
resolution submission is not credible if the information and
analysis in the resolution submission is not supported with
observable and verifiable capabilities and data and reasonable
projections or the CIDI fails to comply in any material respect with
the informational content requirements of the proposal.
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The strategic option that the FDIC considers most likely to be
implemented for the group A CIDIs across the widest range of scenarios
is the establishment of a BDI that can continue the operations of the
CIDI. Generally, a BDI approach will allow the continuity of business
operations and thereby preserve franchise value, and will allow time
for restructuring and marketing to facilitate the sale or disposition
of the business lines and related assets, while providing insured
depositors with prompt access to their accounts. Accordingly, the
proposed rule would establish the BDI approach as the default
identified strategy. A BDI strategy must provide for the establishment
and stabilization of a BDI and an exit strategy from the bridge, such
as a multiple acquirer exit involving the regional breakup of the group
A CIDI or sale of business segments, an orderly wind down of certain
business lines and asset sales, an exit via restructuring and
subsequent initial public offering or other capital markets
transaction, or another exit strategy appropriate to the size,
structure and complexity of the CIDI.
In addressing the establishment of the BDI, the proposed rule would
not require that a resolution plan demonstrate that the identified
strategy be the least-costly to the DIF of all available strategies; in
particular, it would not be required to demonstrate that it would be
less costly to the DIF than liquidation. Similarly, it would not be
required to demonstrate satisfaction of the chartering condition set
forth in section 11(n)(2)(A) of the FDI Act such as by demonstrating
that the amount which is reasonably necessary to operate the BDI will
not exceed the amount which is reasonably necessary to save the cost of
liquidating the IDI.\27\ Rather, each group A CIDI would be required to
support its estimation that the identified strategy maximizes value and
minimizes losses to the creditors of the group A CIDI. Valuation
analysis discussed in section III.A.3.d below will support the FDIC's
ability to evaluate the strategy's impact on value and its potential
costs to the DIF across a range of options.
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\27\ See section 11(n)(2)(A)(i) of the FDI Act. There are three
alternative conditions specified in the FDI Act, any one of which
must be met.
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In addressing the stabilization of the BDI, the identified strategy
may assume continuation of Federal Home Loan Bank advances and the
availability of short-term liquidity advances from the DIF to meet
temporary liquidity needs, provided that the identified strategy
provides for timely repayment of those funds. The identified strategy
should not assume use of the DIF to avoid losses to creditors of the
BDI; all DIF advances must be made through a loan with an assured means
of timely repayment.
Recognizing that the BDI approach may not be optimal for all group
A CIDIs, the proposed rule would permit a different identified strategy
if that different strategy would best address prong (i) of the
credibility criteria (discussed in section III.B.1 below), could
reasonably be executed by the FDIC across a range of likely failure
scenarios, and would be more appropriate for the size, complexity and
risk profile of the specific group A CIDI. An alternative identified
strategy under the proposed rule could include transferring some but
not all business lines and assets to a BDI and liquidating others in a
receivership. For some group A CIDIs, a cash payment of insured
deposits \28\ and liquidation of all business lines and assets in
receivership may be the most appropriate identified strategy.
---------------------------------------------------------------------------

\28\ This task could be accomplished through a Deposit Insurance
National Bank (DINB) established by the FDIC pursuant to 12 U.S.C.
1821(m).
---------------------------------------------------------------------------

Regardless of the identified strategy, under the proposed rule, any
identified strategy would be required to include meaningful optionality
for execution across a range of scenarios and provide the information
and analysis that would inform the decisions that would be made by the
FDIC at the time of an actual failure that could support optionality
for the FDIC in undertaking a resolution of the CIDI following its
material stress and failure. Meaningful optionality reflects an
expectation that an identified strategy be flexible so that it can be
adapted to a change in the failure scenario or an unexpected obstacle
to its execution. The nature and extent of meaningful optionality will
vary based upon the size and complexity of the CIDI. For instance, a
relatively smaller and less complex CIDI with a focus on traditional
banking may identify only a breakup between two business lines, or the
spinoff or sale of a separable business unit. For the largest or most
complex CIDIs, meaningful optionality might include alternatives such
as a breakup by business lines and a regional breakup, or by sale of
one or more identified franchise components as options for a sale of
the IDI franchise.
Unlike the current rule, the proposed rule would expressly provide
that the identified strategy may not be based

[[Page 64588]]

upon the sale of substantially all assets and liabilities over closing
weekend. While the FDIC recognizes that such a resolution outcome may
be the most favorable approach when it is available, the FDIC will not
accept this as the identified strategy for the group A CIDIs. For group
A CIDIs, the pool of possible acquirers is very limited and any such
transaction may involve long timelines and complex restructuring. In
addition, the FDIC has learned that a resolution plan that assumes a
single-acquirer all-deposit sale does not comprehensively address the
complexities that would arise if that approach were not available,
including the establishment and stabilization of a BDI, continuity of
critical services, and the identification of franchise components.
Therefore, utilizing an identified strategy that is a full purchase and
assumption over resolution weekend is less useful to the FDIC for its
resolution readiness than the identified strategy that would be
required under the proposed rule.
The FDIC invites comment on all aspects of the requirement to
include an identified strategy in the resolution plan. In particular,
the FDIC asks the following questions on specific aspects of the
proposal:
(16) The proposed rule establishes formation and stabilization of a
BDI as the default identified strategy. Do commenters agree with this
choice as the default strategy or do they believe there should be a
different default strategy? If a different approach is preferable, what
strategy should be used and why?
(17) Is there a resolution planning benefit in providing a wider
range of strategies and/or exit options as possible default identified
strategies from which a CIDI may choose?
(18) Are the criteria for a group A CIDI choosing a different
identified strategy other than the default clear and appropriate?
b. Failure Scenario
The proposed rule would streamline and clarify the framework for
development of the failure scenario under which group A CIDIs develop
an identified strategy. This scenario, known as the ``failure
scenario,'' would be also used in connection with valuation analysis.
Under the current rule, resolution plans are required to ``take into
account that failure of the CIDI may occur under the baseline, adverse
and severely adverse economic conditions developed by the FRB pursuant
to 12 U.S.C. 5365(i)(1)(B).'' \29\ The proposed rule would require
analysis considering severely adverse economic conditions only and not
baseline or adverse conditions. This change generally would incorporate
the approach that the FDIC has permitted in recent resolution plan
submissions. While an IDI can fail under any economic conditions, a
severely adverse scenario is a reasonable assumption, and the FDIC has
found that analysis under three different scenarios does not provide
significant additional resolution information of value.
---------------------------------------------------------------------------

\29\ 12 CFR 360.10(c)(2).
---------------------------------------------------------------------------

The proposed rule also would incorporate more specific requirements
concerning the circumstances assumed to lead to the CIDI's failure. In
the FDIC's more than ten years of experience of reviewing resolution
plans under the Dodd-Frank Act and the current rule, the FDIC has
learned that the submission is most valuable when it is based on the
assumption that the CIDI has experienced material financial distress
such that its failure is a result of the depletion of capital and/or
liquidity. While the resolution strategy may be based on an
idiosyncratic event or action, including a series of compounding
events, the firm should justify all assumptions, consistent with the
conditions of the economic scenario. Where the identified strategy
assumes the sale of franchise components or a multiple acquirer exit,
the resolution plan should take into account all issues surrounding its
ability to sell in market conditions present in the applicable economic
condition at the time of sale. To ensure that the resolution plan
addresses the challenges that may occur in a wider range of scenarios,
the proposed rule would require the identified strategy to be based on
a failure scenario that demonstrates that the CIDI is experiencing
material financial distress.
More specifically, the failure scenario would be required to assume
and demonstrate that the CIDI experienced a deterioration of its asset
base and that its high quality assets have been depleted or pledged due
to increased liquidity requirements from counterparties and deposit
outflows. While the immediate cause of failure may be based on
liquidity shortfalls, the failure scenario also should consider the
likelihood of the depletion of capital and losses in the assets of the
CIDI, which may include embedded losses that have been realized but may
not have been recognized by the CIDI for financial reporting purposes.
The failure scenario must assume that the U.S. parent holding company
is in bankruptcy, as this is often the case in a bank failure, and is
consistent with the approach taken in DFA resolution plans. This
proposed failure scenario requirement draws upon the requirement that a
DFA resolution plan must assume that the firm has experienced material
financial distress.\30\ The FDIC expects that this consistent approach
to the failure scenario would facilitate incorporation of information
from the affiliate's DFA resolution plan to the CIDI resolution plan,
as would be permitted under the proposed rule.
---------------------------------------------------------------------------

\30\ See, e.g., 12 CFR 381.5(b)(i).
---------------------------------------------------------------------------

While the FDIC anticipates that the proposed approach to the
scenario for CIDI resolution planning would facilitate development of
an identified strategy and other plan information that is most useful
to the FDIC across a range of scenarios, the FDIC is aware that likely
failure scenarios are different for CIDIs with different business
models, balance sheets, and risks. In addition, in future plan reviews,
the FDIC might find value in focusing on particular kinds of failure
scenarios, such as a rapid failure due to a run on uninsured deposits
or deposits associated with a particular line of business; or cyber or
other operational risks; or other risks that focus on particular
business lines. For that reason, the proposed rule includes flexibility
for the FDIC to devise specific failure scenario assumptions, with
respect to macroeconomic conditions or the precipitating cause of
failure, for individual CIDIs, for cohorts of CIDIs, or for all group A
CIDIs in future resolution plan submissions. Any specific failure
scenarios would be communicated in writing, at least twelve months
before the next resolution plan is due.
The FDIC invites comments on all aspects of the proposed failure
scenario requirements. In particular, the FDIC asks the following
questions on specific aspects of the proposal:
(19) Are there additional factors which would make the failure
scenario more useful for the FDIC in resolution planning? How do those
factors improve the quality of resolution plans?
(20) Are there aspects of the proposed failure scenario requirement
that are unclear? For example, would further explication of what would
constitute Federal assistance in recapitalization provide helpful
clarity?
(21) Under the proposed rule, the FDIC may provide additional or
alternative parameters for the failure scenario. Will this flexibility
improve the usefulness of resolution plans in resolution planning? Is
the process and timing for identifying changes to scenario assumptions
clear and appropriate?

[[Page 64589]]

c. New and Modified Definitions
The proposed rule would introduce a number of new defined terms and
modify others, while other terms will be unchanged from the current
rule. The proposed new and revised defined terms are as follows:
Affiliate. The proposed definition would be substantively unchanged
from the current rule. The proposed rule would make a non-substantive
wording change.
Appropriate Federal banking agency. This term is used in the
current rule but is not defined. The proposed rule would add a
definition from the FDI Act.
BDI. The proposed rule would create this defined term using the FDI
Act's definition of bridge depository institution.
Capabilities testing. The proposed rule would add this new defined
term, which is discussed in section III.C.2 below.
CIDI or covered insured depository institution. This definition
would be modified to reflect that the proposed rule would create two
categories of CIDIs: group A CIDIs and group B CIDIs.
Control. This term is used in the current rule but is not defined.
The proposed rule would define it using the term in the FDI Act.
Core business lines. In addition to a technical revision to the
definition, core business lines would be revised to mean the CIDI's
business lines that are significant to the CIDI's revenue, profit, or
franchise. Under the current rule's definition, core business lines are
those that, upon failure, would result in a material loss of revenue,
profit, or franchise value. This change is intended to reflect the
designation of core business lines used by CIDIs in their business and
regulatory reporting.
Critical services. The proposed rule would not materially change
the current rule's definition of critical services. The examples of
critical services would be eliminated from the definition because
proposed Sec. 360.10(d)(8), which incorporates, clarifies, and builds
upon past guidance, would provide more robust descriptions of the
content required, including clarifying that critical services can
include both shared and outsourced services. The proposed rule would
also add that critical services includes the CIDI's services and
operations that support the execution of the identified strategy.
Critical services support. The proposed rule would add this new
defined term, which is discussed in section III.A.3.d below.
DFA resolution plan. The new defined term would mean a CIDI's
parent company's resolution plan submission pursuant to 12 U.S.C.
5365(d).
Engagement. The proposed rule would add this new defined term,
which is discussed in section III.C.1 below.
Failure scenario. The proposed rule would add this defined term,
which is discussed in section III.A.3.b above.
FDI Act. The current rule defines this term in 12 CFR 360.10(a).
The proposed rule would retain that definition in proposed Sec.
360.10(a) and would add a cross-reference to that definition.
Franchise component. The proposed rule would add this new defined
term, which is discussed in section III.A.3.d below.
Group A CIDI: The proposed rule would add this defined term to mean
CIDIs with $100 billion or more in total assets that would be required
to submit resolution plans under the proposed rule.
Group B CIDI: The proposed rule would add this defined term to mean
CIDIs with between $50 billion and $100 billion in total assets that
would be required to submit informational filings under the proposed
rule.
Identified strategy. The proposed rule would require each group A
CIDI to choose for its resolution plan a strategy for its resolution in
the event of its failure. Accordingly, the proposed rule would create a
defined term to refer to such a strategy.
IDI franchise. The proposed rule would introduce this new defined
term to mean all core business lines and all other business segments,
branches, and major assets that constitute the IDI and its business as
a whole. The current rule uses the term ``deposit franchise'' to mean a
similar idea, but the current rule does not define this term.
Informational filing. The proposed rule would introduce the
concepts of group B CIDIs and the distinct submissions that would be
required of them. The proposed rule would create this term to mean the
resolution submission that a group B CIDI would submit under the
proposed rule.
Insured depository institution. The proposed definition would be
substantively unchanged from the current rule. The proposed rule would
make a non-substantive wording change.
Key depositors. The proposed rule would add this new defined term,
which is discussed in section III.A.3.d below.
Key personnel. The proposed rule would add this new defined term,
which is discussed in section III.A.3.d below. The definition of key
personnel, which incorporates prior guidance \31\ would clarify that
key personnel includes personnel with an essential role or having a
function, responsibility, or knowledge that is important to the
resolution of the CIDI. Thus, while management are likely to be key
personnel, the definition is not limited to responsible managers, but
includes staff with specialized knowledge and responsibilities that are
essential to continuity of operations. The definition makes clear that
key personnel can be employed by any entity, or through contractors.
---------------------------------------------------------------------------

\31\ Statement, p. 7-8.
---------------------------------------------------------------------------

Least-cost test. The proposed rule would add this new defined term
to mean the process for meeting the requirements regarding least-cost
resolution under the FDI Act at 12 U.S.C. 1823(c).
Material asset portfolio. The proposed rule would add this defined
term, which means a pool or portfolio of assets, including loans,
securities or other assets, that is significant in terms of income or
value to a core business line, and that could be sold in resolution.
Material change. The proposed rule would change the current rule's
term ``material event'' to ``material change.'' In lieu of the current
rule's focus on the occurrence of an event or a change in condition
that could have an effect on the CIDI's resolution plan, the proposed
rule's definition of material change would focus on changes to the
CIDI, including the identification of material entities, or changes to
the CIDI's capabilities described in the resolution submission. In
administering the current rule, the FDIC has observed that not all
CIDIs have interpreted the material change concept similarly.
Accordingly, the intent of revising the defined term is to provide
greater clarity and achieve improved consistency.
Material entity. The proposed rule would retain the current rule
concept that a material entity is a company that is significant to the
activities of critical services or core business lines, and would add
that it also means a company that is significant to a franchise
component. This proposed change reflects the introduction of the
franchise component concept into the proposed rule. The proposed
definition specifies that all IDIs in the firm, regardless of size or
other characteristics are material entities, reflecting that all
affiliated IDIs would be significant to the resolution of the CIDI
under the FDI Act.
Multiple acquirer exit. This proposed new defined term is related
to the identified strategy described above. The multiple acquirer exit
is an option for

[[Page 64590]]

exit from the BDI as part of a group A CIDI's default resolution
strategy by divesting the operations and assets of the group A CIDI to
multiple acquirers. This definition would clarify that this exit
strategy is focused on the sale of going concern elements of the group
A CIDI's businesses, e.g., through a regional breakup of the CIDI's
deposit franchise or a sale of business segments to multiple acquirers.
It is not intended to describe a liquidation of the group A CIDI's
assets, although asset sales that are incidental to these divestitures
may be included in a multiple acquirer exit. The business segments or
regional or other components identified for divestiture in the multiple
acquirer exit should be appropriate to the business of the CIDI and its
regional footprint and other characteristics.
Parent company affiliate. The proposed definition would be
substantively unchanged from the current rule. The proposed rule would
make a non-substantive wording change.
Qualified financial contract. This defined term would have the same
meaning as set forth in the FDI Act to define qualified financial
contract.
Regulated subsidiary. The proposed rule would add this defined term
that encompasses a variety of domestic and foreign entities that are
subsidiaries of the CIDI, including those that are subject to
supervision or regulation by, or registration with, various domestic
and foreign governmental entities. This definition is based upon the
definition of ``functionally regulated subsidiary'' contained in 12
U.S.C. 1844(c)(5)(B), but has been expanded to include comparable
subsidiaries formed and regulated under foreign law, as well as
corporations organized under section 25A of the Federal Reserve Act (12
U.S.C. 611 et seq.) or corporations having an agreement or undertaking
with the Federal Reserve Board under section 25 of the Federal Reserve
Act (12 U.S.C. 601 et seq.), commonly known as Edge Act corporations.
Resolution plan. The proposed rule would change this definition so
that it only includes a resolution submission submitted by a group A
CIDI instead of all submissions by CIDIs. This change would reflect the
proposed rule's differing proposed requirements of group A CIDIs and
group B CIDIs, as opposed to the uniform requirements of the current
rule for all CIDIs.
Resolution submission. The proposed rule would require each group A
CIDI to submit a resolution plan and each group B CIDI to submit an
informational filing, with each type of submission having its own
informational requirements. However, certain aspects of the proposed
rule would apply to both types of submission; accordingly, the proposed
rule would create this defined term to capture both types of
submission.
Subsidiary. The proposed definition would be substantively
unchanged from the current rule. The proposed rule would make a non-
substantive wording change.
Total assets. The proposed rule would make non-substantive changes
to improve wording, to reflect the current name of the Report of
Condition and Income, and to clarify that the instructions to the
Report of Condition and Income relate to the determination of total
assets and not identification of CIDIs, which is addressed in the
proposed rule.
United States. The proposed definition would be substantively
unchanged from the current rule. The proposed rule would make a non-
substantive wording change.
Virtual data room. The proposed rule would require a resolution
submission to provide specified information concerning a virtual data
room. Accordingly, the proposed rule would create a defined term to
describe the concept and its parameters.
The FDIC invites comment on all aspects of the definitions in the
proposed rule. In particular, the FDIC asks the following questions on
specific aspects of the proposal:
(22) Are all definitions clear and useful?
(23) Should additional changes be made?
d. All Other Content Requirements
In an effort to collect information that would better help the FDIC
prepare to resolve a CIDI and to ensure that all CIDIs have key
resolvability capabilities, the proposed rule would make a number of
changes to the information a CIDI must submit to the FDIC in its
resolution submission. Many of these proposed changes would incorporate
and codify guidance the FDIC previously provided to CIDIs. The proposed
changes would delete certain submission requirements, and modify
others, in ways that may increase or lessen the type and amount of
information required with respect to those content elements. The rule,
as proposed, would supersede all prior guidance.
Except where otherwise noted, the following discusses the content
requirements for both group A CIDIs' resolution plans and group B
CIDIs' informational filings.
Executive summary, located at proposed Sec. 360.10(d)(3),
applicable only to group A CIDIs. Like the current rule, whose
executive summary requirement is located at subpart 12 CFR
360.10(c)(2)(i), the proposed rule would require a group A CIDI to
include an executive summary describing the key elements of its
resolution plan. However, this revised subpart would reflect concepts
that would be introduced by the proposed rule or incorporated from
prior guidance, including asking for a description of the group A
CIDI's identified strategy, an overview of the CIDI's franchise
components, and a description of material changes. The proposed rule
would also require a discussion of changes to the group A CIDI's
previously submitted resolution plan resulting from any change in law
or regulation, guidance or feedback from the FDIC, or any material
change. Finally, the proposed rule would require a discussion of any
actions the group A CIDI had taken since submitting its most recent
resolution plan to improve the resolution plan's information and
analysis, or to improve its capabilities to develop and timely deliver
that information and analysis. The FDIC believes these changes would
better reflect the key elements of a group A CIDI's resolution plan.
Organizational structure: legal entities; core business lines; and
branches, located at proposed Sec. 360.10(d)(4). The proposed rule
would retain and modify the corresponding subpart in the current rule,
12 CFR 360.10(c)(2)(ii). The proposed rule would retain the current
rule's requirement to describe the CIDI's domestic and foreign branch
organization and would add the requirement to provide addresses and
asset size. An organizational chart showing all relevant entities and
their place in the CIDI's organizational structure may be helpful. The
proposed rule would also retain the current rule's requirement to
identify and describe the core business lines of the CIDI, the parent
company, and parent company affiliates.
The proposed rule would introduce the requirement to identify all
regulated subsidiaries, a new defined term discussed above in section
III.A.3.c. The FDIC is seeking this information because it would assist
the FDIC in identifying entities with capital, liquidity, and other
requirements, and in assessing these entities' capital and liquidity
needs when it is resolving a CIDI using a BDI. The proposed rule would
modify the requirement in the current rule that core business lines be

[[Page 64591]]

mapped to material entities, by eliminating the mapping to assets and
liabilities and instead require mapping to franchise components and to
regulated subsidiaries. This would improve the utility of mapping and
support the analysis of franchise components and, for group A CIDIs,
multiple acquirer exit considerations.
The proposed rule would also revise the current rule by requiring
that the resolution submission describe whether any core business line
draws additional value from, or relies on, the operations of the parent
company or a parent company affiliate, and identify whether any such
operations are cross-border. This information would support and inform
the FDIC's analysis of the impact of breakup of the CIDI from its
parent company and parent company affiliates.
As noted below, elements of the current rule's organizational
structure; legal entities; core business lines and branches subpart
would be incorporated into other provisions of the proposed rule,
including the discussion of the deposit base and key personnel, in
order to improve the organizational structure of the rule as proposed.
The FDIC invites comments on all aspects of the proposed
organizational structure; legal entities; core business lines and
branches requirements. In particular, the FDIC asks the following
question on specific aspects of the proposal:
(24) The proposed rule would require a CIDI to identify each of its
subsidiaries that is a ``regulated subsidiary'', a new proposed defined
term. Is the defined term clear and understandable? Does it include all
of the types of entities that are subject to capital, liquidity or
other material requirements or are there others that should be
included?
(25) The FDIC considered other approaches for collecting this type
of information concerning regulated entities, including limiting this
requirement to a CIDI's subsidiaries that are material entities, or
requiring that all regulated subsidiaries be deemed material entities.
Does the proposed rule's approach seek an appropriate amount and type
of information? If not, how can this aspect of the proposed rule be
improved for utility in resolution planning?
Methodology for material entity designation, located at proposed
Sec. 360.10(d)(5). This would be a new component to the proposed rule.
The proposed rule would require each CIDI to describe its methodology
for identifying material entities. The proposed rule would not be
prescriptive regarding such methodology, but rather would afford each
CIDI the flexibility to develop a methodology that is appropriate to
the nature, size, complexity, and scope of its operations. This would
assist the FDIC in understanding the application of the material entity
concept throughout the resolution submission, which is significant to
the scope of other informational requirements. As noted in section
III.A.3.c above, the proposed rule's definition of material entity
would largely be the same as the definition in the current rule.
Separation from parent; potential barriers or material obstacles to
orderly resolution, located at proposed Sec. 360.10(d)(6). The
proposed rule would retain the current rule's requirement to describe
the actions needed to separate a CIDI from the organizational structure
of its parent company and parent company affiliates, as well as how to
separate the CIDI's subsidiaries from this structure, as described in
current subparts 12 CFR 360.10(c)(2)(iv), (v).\32\ The proposed rule
would also retain the current rule's requirement to identify potential
barriers or other material obstacles to an orderly resolution,\33\ and
would add the requirement to identify how such barriers or obstacles
could pose risks to a group A CIDI's identified strategy. The proposed
rule would also require that a resolution submission address the CIDI's
ability to operate separately from the parent company's organization,
and that the CIDI assume that its parent company organization and the
parent company affiliates have filed for bankruptcy or are in
resolution under another insolvency regime. It would also require
addressing the impact on the BDI's value if the CIDI were separated
from the parent company's organization.
---------------------------------------------------------------------------

\32\ 12 CFR 360.10(c)(2)(iv), (v).
\33\ 12 CFR 360.10(c)(2)(iv).
---------------------------------------------------------------------------

While some CIDIs' operational structures are relatively simple,
with the majority of assets and operations within the CIDI, others are
significantly more complex. Even where the structure is relatively
simple, there may be significant services, licenses, contracts, or
operations--even those whose asset value is relatively small, that the
CIDI uses that would impact the ability to establish and operate a BDI
while the parent company and parent company affiliate are in bankruptcy
or other resolution. These complexities include not only the challenge
of continuity of critical services, but also the economic viability of
the BDI as a going concern upon separation from the parent company, and
the impact on BDI's franchise value. In the proposed revisions to the
rule, this section has been revised to focus on whether the IDI, and
therefore the BDI, can be a viable stand-alone entity from the point of
view of economic value and viability of business lines. The issues
related to continuity of critical services provided by or through the
parent company and parent company affiliates would be discussed and
addressed in the critical services discussion below.
The FDIC invites comments on all aspects of the proposed separation
from parent; potential barriers or material obstacles to orderly
resolution requirements. In particular, the FDIC asks the following
questions on specific aspects of the proposal:
(26) Would it be helpful to resolution analysis to require certain
assumptions with respect to the possible risk of multiple competing
insolvencies when the parent company and parent company affiliates are
being resolved in bankruptcy or other insolvency regime?
(27) Would it be useful in developing resolution analysis to have
challenging fact patterns for a wide range of contingencies, for
example, if the resolution submission were required to address the
possible outcome of adverse interests between the insolvency regimes
and no support or services being provided by the parent company and
parent company affiliates?
(28) Are there other assumptions or contingencies that should be
explored?
Overall deposit activities, located at proposed Sec. 360.10(d)(7).
While the current rule's organizational structure subpart asks for some
information about a CIDI's deposit base and systems, the proposed rule
would expand and build upon the information related to deposit
activities required by the current rule.\34\ Understanding the deposit
structure of the CIDI is important to understanding entry into a BDI
and stabilization of its operations, and is useful in supporting
valuation analysis as well. To improve the organizational structure of
the current rule, the proposed rule would create a separate subpart for
this information.
---------------------------------------------------------------------------

\34\ ``Discuss the CIDI's overall deposit activities including,
among other things, unique aspects of the deposit base or underlying
systems that may create operational complexity for the FDIC, result
in extraordinary resolution expenses in the event of failure and a
description of the branch organization, both domestic and foreign.''
12 CFR 360.10(c)(2)(ii).
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The proposed rule would require a discussion of foreign deposits,
and identification of deposits dually payable in the U.S., which is
relevant to the determination of priority of payments in
resolution.\35\ The proposed rule would also require information about
insured

[[Page 64592]]

and uninsured deposits, and commercial deposits by business line.
---------------------------------------------------------------------------

\35\ 12 CFR 330.3(e).
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The proposed rule would also require information about deposit
sweep arrangements with affiliates and unaffiliated parties, which
would inform the FDIC about interconnections and assist in assessing
depositor behavior; a CIDI would also have to identify the contracts
governing those arrangements. The proposed rule would also require
information about reporting capabilities for omnibus, sweep and pass-
through accounts. Understanding those capabilities and the accuracy and
timeliness of deposit reporting by accountholder is important for these
deposits where the information for deposit insurance determinations is
not maintained on the CIDI's systems.
In addition to requiring information about the deposit structure,
the proposed rule would require information regarding key depositors,
which would be defined in the proposed rule as depositors that hold or
control the largest deposits (whether in one account or in multiple
accounts) that collectively are material to one or more core business
lines. Identification of key depositors is important to evaluation of
strategic options in resolution, and to understanding the relationships
between key depositors and other services provided by the CIDI or its
parent company or parent company affiliates. Each key depositor must be
identified by name, line of business and geographic location, where
that information is known.
Finally, the proposed rule would require information about the
relationship of deposit segments to core business lines and franchise
components. In a multiple acquirer sale, the deposits related to a
particular franchise component must be readily identified to facilitate
the separation and sale of the franchise component along with the
associated liabilities.
The FDIC invites comments on all aspects of the proposed overall
deposit activities requirements. In particular, the FDIC asks the
following questions on specific aspects of the proposal:
(29) Is the information proposed to be required concerning the
overall deposit structure available to CIDIs and would it be useful to
understanding the impact of different resolution strategies?
(30) The FDIC considered different approaches to defining ``key
depositors,'' including by defining it as the top 100 depositors by
size, or as those depositors that collectively represent the largest
deposits making up 25 percent of the CIDI's deposits. Because the
appropriate range of metrics varies from CIDI to CIDI based on its size
and business model, the proposed rule would provide flexibility to the
CIDIs in describing key depositors. Is this definition sufficiently
clear and useful? Is there a way to define a CIDI's key depositors that
would provide more useful information to support the FDIC's
understanding of the profile of significant depositors and the impact
of different resolution strategies on those depositors? What metrics or
descriptions would be most useful to identify these significant
depositors?
Critical services, located at proposed Sec. 360.10(d)(8). Because
the ability to continue critical services in resolution is essential to
the ability to establish and stabilize a BDI, the continuity of
critical services is an area of focus for the FDIC in assessing options
for resolving a CIDI. Accordingly, the proposed rule would make express
the implicit expectation of the current rule that a CIDI must be able
to demonstrate capabilities necessary to ensure continuity of critical
services while it is in resolution.
The proposed rule would expand on the information required by the
current rule at 12 CFR 360.10(c)(2)(iii), and would incorporate and
clarify guidance the FDIC previously provided on this topic. As
explained in section III.A.3.c, the definition of ``critical services''
would remain largely the same as in the current rule, but the proposed
rule would require a resolution submission to explain the criteria by
which critical services are identified in order to provide to the FDIC
additional context and understanding to the CIDI's approach to this
content element.
The proposed rule would also introduce the defined term ``critical
services support,'' which are the resources necessary to support the
provision of critical services, including systems, technology
infrastructure, data, key personnel, intellectual property, and
facilities. CIDIs' past resolution plans did not consistently address
these elements, which are mentioned in various places throughout the
current rule. Bringing together this information in a defined term and
expressly stating the relationship to critical services is expected to
provide additional clarity and promote consistency in the approach to
these elements. For this reason, the proposed rule would consolidate
informational elements relevant to critical services that are separated
in various parts of the current rule, and incorporate and codify prior
guidance,\36\ such as breakup from parent and cross-border
considerations, to the extent that they relate to critical services.
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\36\ Statement, p. 6.
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The proposed rule would also require that a CIDI identify critical
services provided by the parent company or a parent company affiliate
as well as the physical locations and jurisdictions of critical service
providers and critical services support that are located outside of the
United States. The proposed rule would also require that a CIDI map
critical services to material entities that provide those services
directly or indirectly through third parties, and to the material
entities, core business lines, and franchise components supported by
those critical services. Further, the proposed rule would make express
the requirement for information about the critical services and
critical services support that may be at risk of interruption if the
CIDI fails, as well as the CIDI's approach for continuing critical
services in the event of its failure, and information about the
contracts governing the provision of such services.
The proposed rule would also require a CIDI to provide information
about its process for collecting and monitoring the contracts governing
critical services and critical services support. Providing information
about the systems that store these contracts and how this information
is stored (e.g., centrally, by business line or material entity, by
business function, etc.) would provide the FDIC valuable information
when seeking to understand a CIDI's operations and business
relationships.
The FDIC invites comments on all aspects of the proposed critical
services content element requirements. In particular, the FDIC asks the
following questions on specific aspects of the proposal:
(31) Are the proposed requirements with respect to mapping critical
services clear? Are they appropriate to the FDIC's goal of
understanding the risks and mitigants to continuity of critical
services in a BDI strategy, and in the course of disposition of
franchise components? Is the concept of ``critical services support''
clear and useful? If not, how could it be improved?
(32) Would it be helpful to provide more explicit expectations with
respect to mitigants to the risk of discontinuity of critical services,
such as resolution-friendly contractual provisions, arms-length terms
for services provision, or the establishment of critical services and
critical services support within the bank chain?
Key personnel, located at proposed Sec. 360.10(d)(9). As mentioned
above, rather than retaining the current rule's approach of requiring
information about

[[Page 64593]]

key personnel in the discussion of organizational structure; legal
entities; core business lines and branches,\37\ the proposed rule would
create a new, separate subpart for this information. The proposed rule
would also create ``key personnel'' as a defined term: personnel tasked
with an essential role in support of a core business line, franchise
component, or critical service, or having a function, responsibility,
or knowledge that may be important for the FDIC's resolution of the
CIDI. The proposed rule would note that key personnel can be employed
by the CIDI, a CIDI subsidiary, the parent company, a parent company
affiliate, or a third party entity.
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\37\ ``Identify key personnel tasked with managing core business
lines and deposit activities and the CIDI's branch organization.''
12 CFR 360.10(c)(2)(ii).
---------------------------------------------------------------------------

The FDIC invites comments on all aspects of the proposed key
personnel definition and use requirements. In particular, the FDIC asks
the following questions on a specific aspect of the proposal:
(33) Is the definition of ``key personnel'' appropriate and clear?
Does it clearly include the personnel most important to continuing
operations in a BDI, in a way that is usefully limited and focused?
The information that would be provided in response to this subpart,
which would incorporate guidance previously provided by the FDIC,\38\
is important because, among other things, it is relevant to helping
enable continuity of a BDI's operations. The proposed rule would
require a CIDI to describe its methodology for identifying key
personnel to provide to the FDIC additional context and understanding
of the CIDI's approach to this content element. The proposed rule would
also require information including identification of employee benefit
programs provided to key personnel, as well as identifying any
applicable collective bargaining agreements or similar arrangements.
This information would assist the FDIC in planning for the retention of
key employees by the BIDI, or assist with necessary receivership
functions.
---------------------------------------------------------------------------

\38\ Statement, p. 7-8.
---------------------------------------------------------------------------

Further, the proposed rule would require a CIDI to provide a
recommended approach for retaining key personnel during its resolution.
A framework for, for example, specifying retention bonuses and other
incentives to help retain key personnel could help the FDIC facilitate
a program that could help minimize disruptions when a CIDI is in
resolution.
Franchise components, located at proposed Sec. 360.10(d)(10),
would build upon the current rule \39\ and would incorporate and codify
certain elements of past guidance, with some modifications. Under the
proposed rule, the term ``franchise component'' would be defined as a
business segment, regional branch network, major asset or asset pool,
or other key component of the IDI franchise that currently can be
separated and marketed in a timely manner. By specifying that the CIDI
should identify franchise components that ``currently'' can be
separated, the proposed rule would emphasize that identified franchise
components should be those that can be separated based upon the
organizational structure and capabilities of the firm, and the
regulatory requirements in effect, at the time of the resolution
submission.
---------------------------------------------------------------------------

\39\ 12 CFR 360.10(c)(2)(vi).
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This proposed subpart would provide information that the FDIC
believes will be critical in developing strategic options and
meaningful optionality for resolution of a group A CIDI. The FDIC has
previously described franchise components as the ``building blocks'' of
resolution options.\40\ Under the proposed rule, the identification of
actionable, marketable franchise components is a required element of
all resolution submissions. A franchise component must be identifiable
and separable such that it can be marketed and sold in its current
state in a timely manner. While this requirement applies to all CIDIs,
the number of franchise components and the level of complexity of the
approach to the sale and marketing of the franchise components would
vary based on the size and complexity of the CIDI. The number of
franchise components necessary to have an actionable plan and
meaningful optionality in the resolution of a $50 billion group B CIDI
would likely be considerably less than the expectation for a $500
billion group A CIDI.
---------------------------------------------------------------------------

\40\ Statement, p. 5.
---------------------------------------------------------------------------

For some CIDIs, particularly the largest and most complex CIDIs,
the pool of possible acquirers is limited and the challenges associated
with a sale of the IDI franchise to a single acquirer are the greatest.
The multiple acquirer exit is more likely to be the most appropriate
approach for such a CIDI. The multiple acquirer exit, a newly defined
term in the proposed rule, would be a strategy for disposition of going
concern elements of the group A CIDI where a single acquirer
transaction is not available, thereby avoiding a potentially disruptive
and value-destroying liquidation of the failed CIDI. The time required
for a multiple acquirer exit or another exit option that requires
significant restructuring may require restructuring and divestiture
options that present greater obstacles than those presented in
addressing separability of the franchise components. For group A CIDIs,
restructuring and divestiture options should include those necessary to
the identified strategy, as well as currently separable and marketable
franchise components that provide additional optionality. For example,
if the identified strategy includes a multiple acquirer exit from the
BDI, the restructuring and divestiture options should include the parts
of the CIDI to be divested as part of a regional breakup of the CIDI's
IDI franchise or sale of business segments, in addition to identifying
currently separable and marketable franchise components that would
provide additional optionality.
The proposed rule would require a description of the extent to
which franchise components are currently separable, which would be
supported by a description of all significant impediments and obstacles
to execution of a divestiture of a franchise component, including
legal, regulatory, or cross-border challenges, as well as operational
challenges. It would also require that a CIDI be able to demonstrate
capabilities necessary to ensure that franchise components are
separable and marketable in resolution. While the proposed rule would
not set an express standard for separability of a franchise component,
identification of franchise components that are readily and quickly
separable promptly after failure and stabilization of the BDI will
provide useful optionality and may facilitate a brief bridge period.
While the goal is to provide optionality to the FDIC in marketing
the failed CIDI, the number and nature of separable, marketable
franchise components will vary based upon the size and complexity of
the CIDI. The proposed rule would also require that resolution
submissions provide information relating to, among other things, key
assumptions underpinning each franchise component divestiture.
The proposed rule would set forth basic informational elements
required for each franchise component, including identification of
responsible senior management and metrics depicting each franchise
component's size and significance. The metrics the FDIC would expect a
CIDI to provide may include total revenue, net income, percentage
market share and, if applicable and available, total assets and
liabilities.

[[Page 64594]]

The proposed rule also would require a description of the CIDI's
capabilities and processes to initiate marketing of the franchise
component, and to provide a description of necessary actions and a
timeline for the divestiture, which would be supported by a description
of the key underlying assumptions. The proposed rule would require the
CIDI to identify the process it would use to identify prospective
bidders for such franchise components. The FDIC makes every effort to
market failed banks--and their assets and business segments--as widely
as possible. A requirement that CIDIs provide analysis on
identification of prospective bidders of franchise components would
support that effort. In addition to describing the process for
identification of prospective bidders, identification of prospective
bidders would also be helpful.
The proposed rule would incorporate and clarify the informational
requirements with respect to capabilities to establish a virtual data
room promptly in the run-up to or upon failure of the bank, which must
include the data elements sufficient to permit a bidder to provide an
initial bid on the IDI franchise or the CIDI's franchise components.
While the proposed rule is not prescriptive in length of time within
which a data room must be able to be populated, the capabilities should
support a very short time frame and not rely upon a stabilized BDI to
extend the time necessary. The proposed rule would require a
description of the length of time and any challenges or obstacles to
providing complete and accurate information necessary to support a
competitive bid, with an expectation that this time frame will be brief
and measured in days.
The proposed list of content elements is indicative and not
comprehensive; the specific information and data that would be
appropriate and sufficiently detailed to support prompt and competitive
bids would vary among CIDIs. For instance, deposit data and information
elements might include a complete, current deposit trial balance
reconciled to the general ledger, a description of the largest
depositor relationships, information regarding sweeps and brokered
deposits and other data useful to inform a bid. Loan and lending
operations information might include a loan tape or loan trial balance
reconciled to the general ledger, loan portfolio file samplings,
underwriting policies, information regarding real estate owned, and key
lending relationships. Where the CIDI has non-traditional business
lines, the information provided should be appropriate to the sale of
those elements as franchise components or as part of the IDI franchise.
The data and information as a whole should support a sale of the IDI
franchise as a whole, while providing optionality for the sale of
separable franchise components.
Finally, to effectuate a timely sale of a failed IDI, the FDIC must
have access and control of data in a virtual data room. Historically,
the FDIC has established a virtual data room controlled by the FDIC and
migrated the information into that virtual data room. The proposal
seeks information as to how the CIDI could support that process, either
through providing sufficient access and controls to the CIDI's virtual
data room to the FDIC as receiver for the failed IDI, or by
establishing a process to timely and securely migrate all data to an
FDIC-controlled virtual data room.
Because many of the CIDIs have a broker-dealer subsidiary or parent
company affiliate, the proposed rule would also contain a provision
specifically addressing content related to a broker-dealer. That is not
intended to exclude or limit information related to other non-banking
activities such as insurance or asset management.
The FDIC invites comments on all aspects of the proposed franchise
components requirements. In particular, the FDIC asks the following
questions on specific aspects of the proposal:
(34) Are the proposed definitions and required informational
content clear and appropriate to the identification of franchise
components? Is the information and analysis proposed to be required
useful to support the FDIC's understanding of the challenges to
separation of franchise components, useful mitigants to those
challenges, and the timeline for execution of a multiple acquirer exit?
(35) Is the proposed language clear with respect to the expectation
for franchise components that can be timely divested, both for the
purpose of identifying franchise components that are ``currently'' and
``quickly'' separable and for separation of franchise components where
more restructuring or other actions would be necessary to implement an
identified strategy, such as in a multiple acquirer exit? Would
establishing prescribed time requirements, such as 60 or 90 days for
divestiture of most franchise components, be appropriate or useful? If
so, what time range would be appropriate for the most currently
actionable franchise components, and what time range would be
appropriate for execution of a more complex exit strategy, such as a
multiple acquirer exit?
(36) Are the proposed definitions and required informational
content clear and appropriate with respect to the multiple acquirer
exit strategy? Is there additional or different information that would
be useful to the FDIC in undertaking such a strategy, or to support
strategic alternatives that may involve such a separation and
disposition of franchise components to multiple acquirers in an
existing BDI?
The FDIC is interested in all aspects of the proposed rule
regarding the establishment of a virtual data room, including the
timing, content, processes for integration with the FDIC's marketing
efforts and capabilities described. In particular:
(37) Are the information and data elements required for the
establishment of a virtual data room clear and appropriate for the
timely sale of the IDI franchise or CIDI's franchise components? Are
there additional useful elements that a bidder would need to timely
submit a competitive bid for the IDI franchise or the CIDI's franchise
components?
(38) Would a more prescriptive and detailed list of items to set a
minimum standard of informational elements necessary for a virtual data
room be useful to filers in preparing their resolution submissions, or
helpful to assure readiness to facilitate timely sale of the IDI
franchise or the CIDI's franchise components in the event of its
material distress and failure?
(39) Would it be helpful or appropriate to establish a specific or
prescriptive time frame for establishment and population of a virtual
data room, and, if so, what would be the appropriate length of time to
complete that process?
Asset portfolios, located at proposed Sec. 360.10(d)(11). The
proposed rule would require CIDIs to include information about material
asset portfolios, a new defined term discussed above in section
III.A.3.c, including how the assets within the portfolio are valued and
recorded in the CIDI's records. The proposed rule would also require a
CIDI to identify and discuss impediments to the sale of each material
asset portfolio and to provide a timeline for each portfolio's
disposition. This information will support resolution planning and
development for options in marketing the CIDI, including identification
of assets portfolios that can be sold separately from the franchise
components with going concern value. Recent experience has demonstrated
the importance of clear and timely identification of foreign assets,
which is specifically requested in the proposed rule.

[[Page 64595]]

Valuation to facilitate FDIC's assessment of least-costly
resolution method, located at proposed Sec. 360.10(d)(12), applicable
only to group A CIDIs. The current rule requires CIDIs to describe how
their chosen resolution strategies ``can be demonstrated to be the
least costly to the Deposit Insurance Fund.'' \41\ Additionally, the
current rule provides that the CIDI must provide a detailed description
of its asset valuation process, and ``the impact of any sales,
divestitures, restructurings, recapitalizations, or other similar
actions'' on the CIDI and its core business lines.\42\
---------------------------------------------------------------------------

\41\ 12 CFR 360.10(c)(2)(vii).
\42\ 12 CFR 360.10(c)(2)(viii).
---------------------------------------------------------------------------

For all resolution plans submitted in 2022 or to be submitted in
2023, the FDIC has exempted the CIDIs from addressing how the
strategies described in the resolution plan could be demonstrated to be
the least costly to the DIF of all possible methods for resolving the
CIDI. The FDIC granted these exemptions after having concluded that the
current rule's requirement resulted in submissions that provided
limited utility to the FDIC relative to the burden of producing the
relevant information and analysis. However, the FDIC is required under
the FDI Act to determine in all cases whether the proposed resolution
strategy is least costly to the DIF as compared to other available
strategic options, including liquidation. While the FDIC has experience
in this analysis, the determination of costs for a BDI strategy, absent
a bid price to establish value, is an element that varies by an IDI's
businesses and by the failure scenario. Thus, rather than requiring
CIDIs to demonstrate, on an ex ante basis, that the least-cost test can
be met under a hypothetical scenario for an identified strategy, the
FDIC proposes to require each group A CIDI to provide analysis that can
serve as building blocks for conducting valuations that will result in
a usable valuation roadmap that the FDIC may apply in an actual failure
scenario.
Under the proposed rule, group A CIDIs would be required to
demonstrate the capabilities necessary to produce valuations that the
FDIC can use to conduct the statutorily required least-cost analysis on
its own at the time of an actual failure. To demonstrate valuation
capabilities, a group A CIDI would be required to describe its
valuation process in its resolution plan and include a valuation
analysis that includes a range of quantitative estimates of value as an
appendix to its resolution plan. While both of these components would
be required under the proposed rule, the FDIC would not make a
credibility determination as to the identified strategy based on the
valuation information provided in response to this requirement. There
would be no requirement to compare that valuation estimate to
liquidation or other possible resolution strategies.
The proposed valuation analysis included in the resolution plan
would require that a group A CIDI provide a narrative description of
how it values its franchise components, and the IDI as a whole,
including its approach to gathering information needed to support its
analysis and its ability to produce updated and timely valuation
information. An appendix to the resolution plan would also be required
to include a valuation analysis, including a range of quantitative
estimates of value, based upon its assumed failure scenario and
identified strategy. Where a multiple acquirer exit is chosen as the
preferred BDI exit, the analysis would be required to provide valuation
estimates based on the net present value of proceeds that may be
received under an enterprise valuation based on the disposition of the
group A IDI franchise and a sum-of-the-parts analysis that values each
IDI franchise component separately. In preparing estimates of value,
the group A CIDI would need to consider appropriate valuation
approaches and assess whether the valuation should reflect the results
of one valuation method or a combination of methods, and provide
support for the methods chosen and why other valuation methods were
deemed inappropriate. In determining whether one or more valuation
approach is appropriate, the CIDI should consider the nature of the
business lines of the CIDI as a whole as well as of the particular
franchise components that are part of the identified strategy. The
valuation approaches should be appropriate to the complexity and size
of the CIDI, and the identified strategy. As appropriate, the group A
CIDI would be required to discuss the relevance and weight given to the
different valuation approaches and methods used.
Under the proposed rule, the valuation analysis also would need to
include a qualitative and quantitative analysis of the destruction of
franchise value that may result from not transferring any uninsured
deposits to a BDI, including a narrative describing any options to
mitigate franchise value destruction at different levels of loss to
uninsured depositors. To the extent necessary to provide a meaningful
quantitative analysis, the group A CIDI would be instructed to make
such adjustments to the failure scenario used in the identified
strategy to demonstrate the impact on value where losses invade the
depositor class in the loss waterfall. The group A CIDI would need to
provide a discussion of the assumptions that underlie the analysis,
including a brief narrative explanation of factors such as assumptions
with respect to depositor behavior. Useful analysis may also consider
potential depositor loss levels of 5 percent, 10 percent, and 15
percent. One option that would be permissible under the proposed rule
as a possible mitigant to reduce the impact of losses to uninsured
depositors is the payment of an advance dividend to uninsured
depositors, in an amount reasonably expected to be fully repaid to the
FDIC from the disposition of assets during the resolution process.
Section 13(c)(4) of the FDI Act requires any resolution action to
be the least-costly to the DIF of all possible resolution options
(including payout and liquidation) and directs the FDIC to conduct the
least-cost analysis.\43\ The proposed rule would ensure that the burden
of performing the least-cost analysis remains with the FDIC.
Nevertheless, understanding how a group A CIDI values its assets and
business lines provides valuable insight the FDIC can use to conduct an
accurate least-cost analysis. A requirement for a group A CIDI to
describe its valuation process and provide an actual valuation analysis
using the assumed scenario would provide the FDIC with a better
understanding of the assumptions and methodologies that can be applied
in an actual resolution.
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\43\ 12 U.S.C. 1823(c)(4).
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The FDIC invites comments on all aspects of the proposed valuation
requirements. In particular, the FDIC asks the following questions on
specific aspects of the proposal:
(40) Do commenters believe that the information proposed to be
required will be useful to the FDIC in determining cost to the DIF of a
bridge strategy for comparison to other available options in the event
of a failure? If not, please describe in detail what the commenter
believes would be the more useful information and analysis to support
the determination of value in the BDI under a range of scenarios.
(41) Do the insured depository institutions that would be group A
CIDIs currently have processes to develop the information and analysis
that would be required under this provision of the proposal? If not,
what additional information or analysis or capabilities would such
insured depository

[[Page 64596]]

institutions be required to obtain or develop in order to satisfy the
proposed requirements concerning valuation to facilitate the FDIC's
assessment of least-costly resolution method?
Off-balance-sheet exposures, located at proposed Sec.
360.10(d)(13). The proposed rule would retain the current rule's
requirement, located at 12 CFR 360.10(c)(2)(x), that a CIDI describe
any of its material off-balance sheet exposures, including unfunded
commitments, guarantees, and contractual obligations; it would specify
that a CIDI describe the amount and nature of unfunded commitments. In
addition to a non-substantive wording change, the proposed rule would
add to the current rule's mapping requirement that CIDIs map material
off-balance-sheet exposures to franchise components as well as core
business lines and material asset portfolios. This information would
support the FDIC's understanding of the franchise components identified
in the resolution submission.
Qualified financial contracts, located at proposed Sec.
360.10(d)(14). Since the adoption of the current rule, the FDIC has
continued to develop its capabilities and understandings with respect
to derivatives contracts and, more generally, qualified financial
contracts, including through information received following the 2017
revisions to the QFC recordkeeping rule, 12 CFR part 371.\44\ In lieu
of the current rule's Trading, derivatives and hedges subpart,\45\ the
proposed rule would seek information about qualified financial
contracts (QFCs), which would support and enhance the information
provided under the FDIC's QFC recordkeeping rule,\46\ which was adopted
after the current rule went into effect. The FDIC is seeking to change
the name of this subpart and to require information about QFCs to
better align with the FDI Act, which has provisions specific to the
treatment of QFCs, and in recognition that the definition of QFCs is
somewhat broader than the more limited ``derivatives transactions''
term that is used in the current rule.
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\44\ See 82 FR 35599 (July 31, 2017).
\45\ 12 CFR 360.10(c)(2)(xii).
\46\ See generally 12 CFR part 371.
---------------------------------------------------------------------------

In particular, the focus of this element of the proposed rule would
be on the relationship of QFCs to the CIDI's core business lines and
franchise components, and how these transactions are integrated with
other services provided to customers. The proposed rule would require
CIDIs to provide information about their booking models for risk, and
how QFCs are used to manage hedging or liquidity needs. This
information would help the FDIC to make decisions with respect to
transferring QFCs to a BDI, and to better understand the impact of any
decision not to transfer certain QFCs. The FDIC has, in the past,
exempted this content element for certain CIDIs, with the view that for
certain firms, understanding the CIDI's use of QFCs is not a
significant element in resolution planning. However, the importance of
QFC activities to a line of business is not determined solely on the
basis of notional values and varies with the business of the firm.
Accordingly, the proposed rule would require this information for all
CIDI resolution submissions, with the expectation that where the
activity is limited the burden of providing the information will
consequently be limited as well.
Unconsolidated balance sheet; entity financial statements, located
at proposed Sec. 360.10(d)(15). The proposed rule would retain the
current rule's requirement to provide an unconsolidated balance sheet
and consolidating schedules for all material entities that are subject
to consolidation with the group A CIDI,\47\ and would add that amounts
attributed to entities that are not material entities can be aggregated
on the consolidating schedule.
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\47\ 12 CFR 360.10(c)(2)(xiii).
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The proposed rule would maintain the requirement that a CIDI
provide financial statements for each material entity, and add this
requirement with regard to regulated subsidiaries. The proposed rule
would also maintain that audited financial statements should be
provided where they are available. The FDIC has found that this
information is helpful in developing options for sale of franchise
components and understanding the financial structure of the
organization, and that this information is complementary to the
unconsolidated balance sheet and consolidating schedules.
Payment, clearing, and settlement systems, located at proposed
Sec. 360.10(d)(16). The continuity of payment, clearing, and
settlement systems is important to stabilizing and continuing
operations of a failed CIDI in a BDI, and identification and mapping of
these systems would assist the FDIC in identifying whether the entity
accessing these systems is part of the CIDI or one of its subsidiaries
and thus would be under the control of the BDI, and where there may be
a potential for interruption of access or services and a resolution of
the CIDI.
Accordingly, the proposed rule would build on the current rule's
requirement, located at 12 CFR 360.10(c)(2)(xiv), that a CIDI identify
each payment, clearing, and settlement system of which the CIDI is a
member or that it indirectly accesses by limiting such identification
to each system (including financial market utilities) that is a
critical service or a critical service support. The proposed rule would
also require CIDIs to map payment, clearing, and settlement system
memberships and access (including through correspondent and agent banks
or intermediaries) to legal entities, core business lines, and
franchise components. CIDIs would also be required to describe the
services provided by these systems, including the value and volume of
activities on a per-provider basis.
The proposed rule would also require CIDIs to describe payment,
clearing, and settlement services they provide as an intermediary,
agent, or correspondent bank that are material in terms of revenue to
or value of any franchise component or core business line. The
information that the proposed rule would require would help the FDIC be
aware of these important relationships in resolution and to better
understand any impact of interruption of those systems or services.
Capital structure; funding sources, located at proposed Sec.
360.10(d)(17). Even though information regarding the capital resources
available to a CIDI prior to failure is available through supervisory
procedures, such resources are likely to be different once the CIDI is
placed into receivership. It is generally the case that as a result of
receivership appointment, capital is significantly depleted. This is
likely the case whether the failure is the result of capital or
liquidity issues in light of the temporal constraints of historical
cost accounting. Therefore, the proposed rule would require
identification of resources that would be available in resolution,
including unsecured, non-deposit liabilities of the CIDI at the time of
failure. These liabilities are subordinate to deposits and are unlikely
to be transferred to a BDI. By causing these liabilities to remain in
the receivership as claims against the estate, the BDI's capital
resources would be significantly enhanced, which would assist in
stabilizing the BDI and increasing optionality for BDI exit. The FDIC
believes that such transactions would be more effective in preserving
the franchise value of the failed CIDI. As a result, a CIDI with a
material amount of the unsecured, non-deposit liabilities would be more
likely to be able to devise a credible strategy involving an

[[Page 64597]]

all-deposit transaction, potentially both to establish a viable BDI and
ultimately in a sale to a third-party acquirer.
Accordingly, the proposed rule would require all CIDIs to provide
more detail than is required by the current rule under 12 CFR
360.10(c)(2)(xv). Information regarding the composition of the
liabilities of the CIDI and its material entities, including whether
the liabilities are publicly issued, and information about maturity and
call rights and, where applicable, indenture trustees would be
required.
The proposed rule would also build upon the current rule and prior
guidance regarding required information about funding. Specifically,
the proposed rule would require that a resolution submission describe
the current processes used to identify the liquidity and capital needs
and resources available to each CIDI subsidiary that is a material
entity,\48\ and to describe the CIDI's capabilities to project and
report its near-term funding and liquidity needs. It would also require
a CIDI to describe material funding relationships and inter-affiliate
exposures between the CIDI and its subsidiaries that are material
entities. This information would support the FDIC's understanding of
the impact of liquidity on divestiture of franchise components, and
would inform considerations related to stabilizing the BDI and
continuity of operations.
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\48\ The Statement provided that ``the FDIC expects a resolution
plan to describe the CIDI's current processes for determining the
drivers of liquidity needs.'' Statement, p. 8.
---------------------------------------------------------------------------

The FDIC invites comments on all aspects of the proposed capital
structure; funding sources requirements. In particular, the FDIC asks
the following question on a specific aspect of the proposal:
(42) The proposed rule would require information about liquidity
and capital needs and resources available to each CIDI subsidiary that
is a material entity. Should the final rule require this type of
information about all entities--regardless of whether they are material
entities--that have a regulatory capital and/or liquidity requirement?
Parent and parent company affiliate funding, transactions,
accounts, exposures, and concentrations, located at proposed Sec.
360.10(d)(18). The proposed rule generally would retain the content
requirement of the current rule, whose corresponding subpart is located
at 12 CFR 360.10(c)(2)(xvi). The proposed rule would make minor
technical changes designed to improve and clarify wording and
formatting of this subpart and its title, as well as delete the
reference to ``asset accounts,'' which has not proved to be useful
information in prior resolution plan submissions.
Effects on U.S. economic conditions, located at proposed Sec.
360.10(d)(19). The proposed rule would revise the Systemically
Important Functions \49\ informational element required in the current
rule. Though the Statement indicated that all CIDIs with $100 billion
or more in assets would be exempted from discussing this information in
future resolution plan submissions, the FDIC has concluded that such a
requirement may provide information that would contribute to the FDIC's
resolution planning efforts. Under the proposed rule, CIDIs would be
required to identify their activities or business lines that are
material (a) to a particular geographic area or regions of the United
States, (b) to a particular business sector or product line, or (c) to
other financial institutions. The FDIC always seeks to minimize
disruptions to customers when it resolves a failed IDI. Better
understanding how the interruption of certain services could negatively
affect certain geographic regions, industries or other financial
institutions should help the FDIC better prepare to avoid disruptions
that could have a severe impact on those regions, industries, and
institutions. For example, a CIDI may note that it provides a number of
transaction account functions like payroll accounts to a large number
of customers, serves as a significant lender to a particular industry,
or provides PCS services to a number of financial institutions. The
more information the FDIC has in advance about these important
functions, the better the FDIC can prepare to resolve the CIDI in a way
that minimizes disruption. Although the systemic risk exception to the
least-cost test was approved in connection with the recent resolutions
of SVB and Signature Bank, the FDIC continues to expect to resolve
banks under the FDIC without the expectation of that extraordinary
action. First Republic was resolved without invoking the exception to
the least-cost test requirement. Although particular facts and
circumstances, such as macro-economic conditions, risk of contagion,
and other factors may support a systemic risk exception for a
particular institution or in particular circumstances, those
circumstances are not the subject of this requirement. Rather, this
content element seeks to understand information specific to the
services that the CIDI provides, and whether those services are
significant to a particular geographic area, business sector or product
line, or other financial institutions.
---------------------------------------------------------------------------

\49\ 12 CFR 360.10(c)(2)(xvii).
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While this information should be provided by all CIDIs, the level
of information provided would be expected to vary based on the size and
complexity of the CIDI. For the smaller group B CIDIs, this information
may be fairly limited, perhaps only a particular market or sector where
the CIDI has a significant presence. Conversely, for the largest group
A CIDIs, systemic impact is a significant focus of DFA resolution
plans. As discussed below with respect to the credibility assessment of
an identified strategy, where the DFA resolution plan of the CIDI's
parent company contains relevant analysis and information with respect
to the risk of potential adverse effects on U.S. financial stability
arising from the failure of a subsidiary group A CIDI, the inclusion of
that information by cross-reference is permitted under proposed
paragraph (c)(6).
Non-deposit claims, located at proposed Sec. 360.10(d)(20). The
proposed rule would codify and build upon past guidance \50\ regarding
non-deposit liabilities to support the FDIC's effective and efficient
management of non-deposit claims in resolution, including identifying
claims and notifying claimants. Related to the requirement in proposed
Sec. 360.10(d)(17) (Capital structure; funding sources) to describe
material components of the CIDI's and material entities' short-term and
long-term liabilities, including unsecured debt, the proposed rule
would also require a CIDI to identify and describe its capabilities to
identify the non-depositor unsecured creditors of the CIDI and its
subsidiaries that are material entities. The proposed rule would also
require a description of how the CIDI would identify all non-depositor
unsecured liabilities, including contingent liabilities like guarantees
and letters of credit, as well as the location of the CIDI's related
records and its recordkeeping practices.
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\50\ Statement, p. 8.
---------------------------------------------------------------------------

Cross-border elements, located at proposed Sec. 360.10(d)(21). The
proposed rule would maintain and build on the information required in
the current rule, but proposes organizational improvements and to
require certain information that would provide additional context about
the required content.
In general, in the proposed rule, cross-border elements are
addressed in connection with the relevant content areas in various
subparts. Specifically,

[[Page 64598]]

cross-border elements are addressed in the discussion of Organizational
structure; legal entities; core business lines and branches; foreign
deposits are referenced in connection with Overall deposit activities;
and critical services located outside the United States are referenced
in Critical services, among other references. Proposed Sec.
360.10(d)(21) would be retained to provide context to that other
information by requiring that a resolution submission describe
components of cross-border activities of the parent company or parent
company affiliates that contribute to value, revenues, or operations of
the CIDI. Where the CIDI has a significant interest (e.g., a
controlling interest or a significant economic interest) in a foreign
joint venture that contributes value to revenue or operations of the
CIDI, that should be included. Entities with no meaningful function or
contribution to the CIDI's operations, such as single purpose real
estate holding companies, should be excluded.
The proposed rule would also require that a resolution submission
identify regulatory or other impediments to divestiture, transfer, or
continuation of foreign branches, subsidiaries or offices while the
CIDI is in resolution, including regarding retention or termination of
personnel, or impediments or necessary actions to transfer the CIDI's
interest in the entity, such as approvals or restrictions on transfer
of a license or other authorization.
The FDIC invites comments on all aspects of the proposed revised
cross-border elements requirements. In particular, the FDIC asks the
following question on a specific aspect of the proposal:
(43) Does it capture the information that would be most useful to
the FDIC in its resolution planning? If there is different or
additional information that would be useful, please describe it and
explain how it would be helpful in resolution readiness.
Management information systems; software licenses; intellectual
property, located at proposed Sec. 360.10(d)(22). The proposed rule
would retain the current rule's requirement, located at 12 CFR
360.10(c)(2)(xix), to identify and describe each key management
information system and application, and would add the requirement that
a CIDI identify both any core business line that uses it, and the
personnel needed to operate it. Each group A CIDI would also be
required to identify each system's and application's use and function,
which core business lines use it, and its physical location, if any.
The proposed rule would also require a resolution submission to
specifically identify key systems or applications the CIDI or its
subsidiary does not own or license directly from the provider, and to
discuss how access to the system or application can be maintained when
the CIDI is in resolution. These changes would enhance the content
required with respect to management information systems, software
licenses, and intellectual property, with a focus on how to assure that
these systems can be maintained in a BDI or receivership if necessary.
Finally, the proposed rule would require describing the capabilities of
the CIDI's processes and systems to collect, maintain, and produce the
information and other data underlying the resolution submission. A CIDI
would be required to identify all relevant systems and applications,
and to describe how the information is managed and maintained. For
example, the resolution submission must describe if the information is
centralized or organized by region or business line, whether it is
automated or manual, and whether the applicable system or application
is integrated with other of the CIDI's systems or applications.
The proposed rule would delete the current rule's requirement to
identify and discuss any disaster recovery or other backup plans; \51\
this information is addressed through supervisory processes.
---------------------------------------------------------------------------

\51\ 12 CFR 360.10(c)(2)(xix).
---------------------------------------------------------------------------

Digital services and electronic platforms, located at Sec. 360.10
(d)(23), would be a new content element. The role of digital services
and electronic platforms and related services provided to retail and
commercial customers has increased dramatically since the current rule
was adopted. A better understanding of the value of these services,
their impact on customer relationships, and the potential challenges to
continuing those services in resolution will be helpful to the FDIC in
its resolution planning.
The FDIC invites comments on all aspects of the proposed digital
services and electronic platforms requirements. In particular, the FDIC
asks the following question on a specific aspect of the proposal:
(44) Does it capture the information that would be most useful to
the FDIC in its resolution planning? If there is different or
additional information that would be useful, please describe it and
explain how it would be helpful in resolution readiness.
Communications playbook, located at proposed Sec. 360.10(d)(24),
would codify and build upon previous guidance. As explained in the
Statement,\52\ the FDIC has found that, during a resolution, the timely
provision of accurate information can reduce adverse market reaction
and address employee and other stakeholder concerns about a CIDI's
failure and resolution that could impede an orderly resolution.
Therefore, it is important that the FDIC understand a CIDI's
communications capabilities, and that a CIDI have a communications
strategy that the FDIC could employ as part of the FDIC's
communications plan to help mitigate obstacles to the orderly
resolution of a CIDI. Accordingly, the proposed rule would require a
resolution plan to include a communications playbook describing the
CIDI's current communications capabilities and how those capabilities
could be used from the point of the CIDI's failure through its
resolution.
---------------------------------------------------------------------------

\52\ Statement, p. 5.
---------------------------------------------------------------------------

The FDIC invites comment on all aspect of the proposed
communications playbook requirements. In particular, the FDIC asks the
following questions on specific aspects of the proposal:
(45) Is the request clear and would the information be appropriate
to the FDIC's goal of establishing a comprehensive communications plan
for important stakeholders over closing weekend and throughout the
resolution?
(46) Is there additional or different content that is specific to
the communication challenges in resolution that CIDIs have or may
develop that would be helpful and important to include in resolution
submissions?
Corporate governance, located at proposed Sec. 360.10(d)(25).
Other than technical edits, this subpart of the proposed rule would
largely be identical to the corresponding subpart of the current rule,
located at 12 CFR 360.10(c)(2)(xx). However, the proposed rule would
eliminate the current rule's requirement to identify and list the
position of the senior management official of the CIDI who is primarily
responsible and accountable for the implementation of the resolution
submission. In practice, the benefits to the FDIC from this information
were minimal and did not warrant the burden on CIDIs of preparing and
providing this information.
CIDI's assessment of the resolution submission, located at proposed
Sec. 360.10(d)(26). The proposed rule would retain the current rule's
requirement, located at Sec. 360.10(c)(2)(xxi), that a CIDI provide a
description of any contingency planning or similar exercise it had
conducted since its most recently filed resolution submission that
assesses the viability of

[[Page 64599]]

or improves the resolution submission. While neither the current nor
the proposed rule would require any such assessment or contingency
planning or similar exercise, such assessments are useful practice and
the FDIC benefits from a description of the nature, extent, and results
of any such activities.
The Statement exempted all CIDIs from including information
required by this subpart, but in reflecting on resolution plan
submissions received, the FDIC has found that information regarding
exercises, such as simulations, tabletops, or other tools for self-
assessment of resolution plans, processes, and capabilities is helpful
to the FDIC. The assessment would be limited to requiring CIDIs to
describe contingency planning or exercises they have done or plan to
do; it would not require CIDIs to conduct these types of activities, so
the associated burden would be limited.
Any other material factor, located at proposed Sec. 360.10(d)(27).
The proposed rule would make a non-substantive wording change for
clarity and readability. Otherwise, this requirement is the same as the
corresponding subpart in the current rule, which is located at 12 CFR
360.10(c)(2)(xxii).
In addition to the changes already noted, the proposed rule would
delete the following subparts in the current rule:
Strategy for the Sale or Disposition of Deposit Franchise, Business
Lines and Assets, located at 12 CFR 360.10(c)(2)(vi). As noted above,
this content element is superseded by the proposed franchise components
subpart at proposed Sec. 360.10(d)(10).
Least Costly Resolution Method, located at 12 CFR
360.10(c)(2)(vii). As discussed above, the proposed rule would replace
this subpart with proposed Sec. 360.10(d)(11).
Asset Valuation and Sales, located at 12 CFR 360.10(c)(2)(viii).
The proposed rule would delete the entire subpart, codifying the
exemption provided to all CIDIs as described in the Statement. The most
useful concepts related to valuation have been included in the
discussion of valuation to support the least-cost test analysis, as
discussed above. Also as discussed above, the rule as proposed would
not require analysis under baseline and adverse scenarios. Accordingly,
this section is omitted as being duplicative in part, and in part
because the burden on CIDIs exceeds the benefit of the information to
the FDIC's resolution planning.
Major Counterparties, located at 12 CFR 360.10(c)(2)(ix). The
proposed rule would delete this subpart, codifying the exemption
provided to all CIDIs as described in the Statement. The FDIC believes
that the burden of this subpart's requirements generally outweighs
their utility for the FDIC planning for the resolution of CIDIs. In
some cases, relevant information is provided in connection with other
content areas, such as payment clearing and settlement systems; in
other cases it can be obtained through supervisory or other information
channels.
Collateral Pledged, located at 12 CFR 360.10(c)(2)(xi). The
proposed rule would delete this subpart, codifying for all CIDIs the
exemption provided to many CIDIs as described in the Statement. The
FDIC believes that the burden of this subpart's requirements generally
outweighs their utility for the FDIC planning for the resolution of
CIDIs because it can be obtained through supervisory or other
information channels.
The FDIC invites comment on all aspects of the proposed submission
requirements. In particular, the FDIC asks the following questions on
specific aspects of the proposal:
(47) Are the proposed submission requirements clear and appropriate
to the goals of the proposed rule? Do they seek information that CIDIs
can provide or, with reasonable effort, could develop the capabilities
to provide?
(48) Would additional or different requirements in any of these or
other topical areas better facilitate the FDIC's efforts to plan for
and execute an orderly resolution of a failed CIDI?
(49) Should the FDIC retain any of the requirements proposed to be
eliminated, potentially with modifications?
As noted above in section II, the current rule was adopted in 2011
through an interim final rule and finalized the following year.\53\ At
that time, all IDIs with total assets of $50 billion or more were
subject to the submission of a resolution plan under the current rule.
This scope of the rule has not changed to the present day, although no
resolution plan submission has been made by a CIDI with total assets of
at least $50 and less than $100 billion since 2018, and a moratorium on
filings by those firms remains in effect. The FDIC has considered
whether to require resolution plans from group B CIDIs, whether they
should be permanently exempted from any resolution submission
requirement, or whether a reduced filing requirement is appropriate for
these CIDIs. For the reasons discussed below, the FDIC would not
require group B CIDIs to submit a resolution plan under the proposed
rule, but would have a requirement for an informational filing by the
group B CIDIs.
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\53\ See generally Resolution Plans Required for Insured
Depository Institutions with $50 Billion or More in Total Assets, 77
FR 3075 (Jan. 23, 2012).
---------------------------------------------------------------------------

The size of an institution significantly impacts the FDIC's options
for resolution. A significant constraint on the FDIC's ability to
resolve large institutions is the limited set of institutions that
could acquire an entire large institution. In the FDIC's experience,
generally an institution of significantly greater size is the most
likely potential acquirer of a failed IDI. In light of the fact that
the group B CIDIs are smaller than the group A CIDIs, there are more
potential acquirers. The FDIC is obligated by statute to find the
least-costly resolution, which may well be a whole-bank sale
immediately at failure. However, despite group B CIDIs' smaller size,
that option may not be available. Where there is no acquirer for a
transaction that meets the least-cost requirement, the establishment of
a BDI may be necessary, either to facilitate a whole-bank sale or a
range of other exit options.
A group B CIDI is a very large institution, and resolving such an
institution will pose significant challenges. In order to be able to
complete a sale at closing, the FDIC would need much of the same
information regarding the group B CIDI and its operations as the FDIC
is seeking regarding group A CIDIs. However, the FDIC wishes to better
balance the burden on group B CIDIs and proposes exempting
informational filings from including the following informational
elements: Identified strategy (proposed Sec. 360.10(d)(1)), Failure
scenario (proposed Sec. 360.10(d)(2)), Executive summary (proposed
Sec. 360.10(d)(3)), and Valuation to facilitate FDIC's assessment of
least-costly resolution method (proposed Sec. 360.10(d)(12)). The FDIC
believes exempting these informational elements from group B CIDIs'
informational filings strikes the right balance between providing the
FDIC with information needed to facilitate resolution planning efforts
and calibrating the compliance burden. Furthermore, the engagement
provision of the proposed rule would provide the FDIC with an avenue to
establish ongoing dialogue with institutions regarding the
informational filing's content, including how the information may be
considered when vetting potential resolution strategies.
The FDIC invites comments on all aspects of the proposed
informational filing requirements for group B CIDIs. In particular, the
FDIC asks the following questions on specific aspects of the proposal:

[[Page 64600]]

(50) Do commenters believe there are any proposed information
requirements for group B CIDIs that should not be included in the
proposed requirements for informational filings? If so, please explain
which proposed information requirements should not be included for
group B CIDIs and why the information requirements should not be
included for group B CIDIs.
(51) Do commenters believe that any information requirements that
are not proposed for group B CIDIs should be included in the proposed
information requirements? If so, please explain what those information
requirements are and why the information requirements should be
included for group B CIDIs.
(52) Do commenters believe that the informational requirements
relevant to group B CIDIs constitute information that those CIDIs
regularly use as part of business-as-usual operations? If not, what
specific informational requirements would be burdensome to group B
CIDIs to produce?
(53) Do commenters believe that there are any barriers that would
prevent group B CIDIs from complying with one or more of the proposed
information requirements? If so, please explain why the barriers would
prevent group B CIDIs from complying with one or more proposed
information requirements and suggest any alternative approaches that
would facilitate compliance.
e. Interim Supplement
The FDIC is proposing a new requirement for CIDIs to submit limited
interim supplements in the years that a CIDI is not required to provide
a resolution submission. This interim supplement is intended to provide
current and accurate information regarding a limited subset of the
resolution submission content items, focusing on those informational
elements where more current information is especially useful, and where
updating and producing that information can be accomplished with
limited burden year over year. While the purpose of the interim
supplement is to update and supplement information, the FDIC is
proposing to require complete information for each content item in each
interim supplement regardless of whether the information has changed
from the CIDI's previous resolution submission for ease of access in
the event of a CIDI failure. This interim supplement requirement is
separate and distinct from the proposed requirements related to notice
of material change under proposed paragraph (c)(4) or engagement and
capabilities testing under proposed paragraph (g) and would not in any
way limit those requirements.
Under proposed paragraph (e)(1), each CIDI would be required to
submit an interim supplement to the FDIC on the one-year anniversary
(or the first business day after the one-year anniversary if the
anniversary falls on a non-business day) of the CIDI's most recent
resolution submission, as determined by the proposed resolution
submission timing requirements under proposed paragraph (c), unless the
CIDI receives written notice from the FDIC establishing a different
interim supplement submission date. No interim supplement would be
required in a year in which a CIDI makes a timely resolution
submission. The FDIC notes that the discussion of transition below in
section III.E.8 describes the expectation that CIDIs that are not in
the first cohort of CIDIs to file a resolution submission under amended
Sec. 360.10 would be required to supplement and update their most
recent resolution submission under the current regulation--until they
are required to file a resolution submission under amended Sec.
360.10.
Under proposed paragraph (e)(2), each CIDI would be required to
file interim supplements that address each of the content items
required under proposed paragraph (e)(3), as discussed below. The
information that is submitted for each content item would need to be
current as of the date of the end of the most recent fiscal quarter
prior to the submission date for the interim supplement. Any material
changes from information provided for any particular content item in
the CIDI's most recent resolution submission would need to be
identified and explained. The FDIC may also ask a CIDI to include
additional content items in the interim supplement that would be
required for the CIDI's resolution submissions under proposed paragraph
(d).
Proposed paragraph (e)(3) lists the content items that would be
required to be addressed in each interim supplement. Proposed paragraph
(e)(3) cross-references proposed paragraph (d) in order to emphasize
that the listed information to be provided is intended to be exactly
the same as the cross-referenced content required under proposed
paragraph (d). In many cases, the interim supplements need to include
only a portion of information required to be included in a resolution
submission for a particular content items. In identifying content for
the interim supplement, the FDIC focused on information that is most
essential to the FDIC's resolution planning, that can be more readily
produced, and/or that is relatively likely to change year over year.
For those reasons, the FDIC generally did not include detailed
analysis, mapping, or rationale and explanation identifying the content
elements--and the portions of those content elements--to be included in
the interim supplements. The FDIC retains the discretion to add or
eliminate elements from the interim supplement. That is to ensure that
the interim supplements remain useful and include the most important
information, and can evolve based on lessons learned. The FDIC expects
to provide timely notice of any changes to the content expectations for
the next interim supplement of at least six months.
As with the proposed resolution submission requirements, the FDIC
is proposing to include the interim supplement requirement in order to
help ensure that the FDIC has timely information for key content items
that will assist the FDIC with planning for potential CIDI resolutions
with the expectation that improved planning will lead to more efficient
and potentially less costly resolutions for failed CIDIs. In the event
of a CIDI's failure more than a year after a CIDI's resolution
submission, it would be beneficial for the FDIC to have updated
information regarding the subset of content items that are included in
the proposed interim supplement requirement. This updated information
would be beneficial to the resolution process whether it indicates a
change in the information for the content item from the previous
resolution submission or confirms that the information in the
resolution submission remains accurate.
The FDIC is also cognizant of the burden on CIDIs that may result
from providing the proposed interim supplements and, in order to
minimize that burden, is proposing to require the interim supplements
to include only a subset of the resolution submission content
requirements. This subset comprises fewer than half of the content
items that would be included for resolution submissions under the
proposed resolution submission requirements and, for many of the
interim submission content items, only a portion of the content
required for those elements. The FDIC has limited the proposed required
content items and believes the proposed interim submission requirement
strikes the right balance to provide the FDIC with valuable updated
information to assist with resolution planning and CIDI resolution
while limiting burden on the CIDIs in providing the updated
information.

[[Page 64601]]

(54) The FDIC invites comments on all aspects of the proposed
interim supplement requirement, including if the utility of the
information provided outweighs the burden of providing the information.
Do the interim supplements appropriately balance the need for up-to-
date information with the burden of filing submissions annually? Should
the FDIC consider a different schedule for submissions of the interim
supplements or require more or less information to be included in the
supplements? Is the information requested readily available and
repeatable year over year? Are there content elements including in the
interim supplement that are not likely to materially change year over
year? Are there important content elements identified in the NPR but
not included in the enumerated items for the interim supplement that
are likely to materially change and should be included in the interim
update? Should interim supplements be subject to the second prong of
the proposed credibility standard (which is discussed below) as
provided for in the proposal, or is there a more appropriate standard
that the FDIC should use?

B. Credibility; Review of Resolution Submissions

1. Credibility Criteria
The FDIC anticipates there would be benefit from clarifying the
standard for credibility associated with resolution plan submissions
and CIDI participation in engagement and capabilities testing. The
express definition of credibility in the current rule is primarily
focused on the quality of the information in the plan, i.e., whether it
is ``well-founded and based on information and data related to the CIDI
that are observable or otherwise verifiable and employ reasonable
projections from current and historical conditions within the broader
financial markets.'' \54\ The current rule also requires, separately,
that the resolution plan should enable the FDIC, as receiver, to
resolve the institution under the FDI Act ``in a manner that ensures
that depositors receive access to their insured deposits within one
business day of the institution's failure (two business days if the
failure occurs on a day other than Friday), maximizes the net present
value return from the sale or disposition of its assets and minimizes
the amount of any loss realized by the creditors in the resolution.''
\55\ In specifying implementation matters, the current rule specifies
that, ``each CIDI must provide the FDIC such information and access to
such personnel of the CIDI as the FDIC determines is necessary to
assess the credibility of the resolution plan and the ability of the
CIDI to implement the resolution plan.'' \56\ The proposed rule would
expressly incorporate both of these concepts in the credibility
standard and would update and clarify the goals and standards for
review from the current rule, in a manner intended to establish clearer
guidelines for the CIDIs with respect to their resolution submissions,
and to facilitate review by the FDIC.
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\54\ 12 CFR 360.10(c)(4)(i).
\55\ 12 CFR 360.10(a).
\56\ 12 CFR 360.10(d)(1).
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As proposed, the credibility standard would have two prongs. The
identified strategy would be assessed against the first prong set forth
in proposed Sec. 360.10(f)(1)(i), i.e., that a resolution plan is not
credible if it would not provide timely access to insured deposits,
maximize value from the sale or disposition of assets, minimize any
losses realized by creditors of the CIDI in resolution, and address
potential risks of adverse effects on U.S. economic conditions or
financial stability. This prong is based upon the expectation set forth
in the current rule, with clarifying changes to language and the
transparency of making the expectation an express part of the
credibility assessment. The second prong of the standard, set forth in
proposed Sec. 360.10(f)(1)(ii), aligns with the express standard under
the current rule. It applies to all of the content in a resolution
plan--including the identified strategy and all other elements in
proposed Sec. 360.10(d). To meet this proposed standard, all of the
information and analysis in the resolution submissions must be
supported with observable and verifiable capabilities and data and
reasonable projections and the CIDI must comply in all material
respects with the requirements of the rule. This second prong would go
to the accuracy of information provided, the reasonableness of
assumptions and projections on which information and analysis are
based, and the capabilities of the CIDI to provide the required
information and analysis and thereby meet the proposed rule's
requirements. Several additional aspects of the proposed credibility
standard are discussed in more detail below.
The first prong of the proposed credibility standard expressly
includes the requirement that the identified strategy must address
potential risks of adverse effects on U.S. economic conditions or
financial stability. The history of the past several decades, including
as demonstrated in the spring of 2023, makes clear that failure in the
banking system can be contagious. The effects of failure of one large
financial institution can propagate quickly and strongly to others
through the vast array of interconnections that presently exist amongst
various types of financial entities. To the extent that failure is
disorderly those effects are magnified; to the extent it can be managed
and controlled those risks are mitigated. This is especially true for a
large, complex IDI, and the failure of such an institution, unless
properly managed, is more likely to pose a serious risk to the
financial stability of the domestic banking system (and, increasingly,
the global financial system). This risk is likely to increase with
size. For such institutions, Congress has provided the FDIC the
flexibility, under certain important conditions, to depart from the
restrictions of the least-cost-test in the interests of reducing
adverse effects on financial stability. However, Congress made clear
that use of the systemic risk exception is intended to be an
extraordinary event. The FDIC seeks to avoid the use of the systemic
risk exception.
Accordingly, understanding and mitigating the impact on U.S.
economic conditions and financial stability in resolution is an
important consideration in resolution planning for large, complex IDIs.
While the credibility standard does not include a requirement that the
identified strategy demonstrate that it is the least-costly to the DIF,
the FDIC cannot assume the availability of the systemic risk exception
to the least-cost test in the event of a failure of a large, complex
IDI requiring resolution under the FDI Act. Ensuring that the CIDI can
be resolved without the need for extraordinary support from the DIF is
a resolution planning objective. At the same time, the FDIC is
cognizant that some CIDIs have critical operations identified in their
affiliates' DFA resolution plans, are highly interconnected with other
financial institutions, or have dominant market share in certain
geographic regions or market segments, or their resolution could be
disruptive to the U.S. economy or financial stability in other ways.
The proposed rule would require the resolution submission to identify
those effects. Addressing the impact of the identified strategy on U.S.
economic conditions and financial stability by identifying those
impacts and identifying mitigants to them is an important component of
the credibility assessment of an identified strategy

[[Page 64602]]

presented in a group A CIDI's resolution plan.
The requirement that the CIDI plan ``address'' the potential risk
of adverse effects on U.S. economic conditions or financial stability
is intended to require that the identified strategy take into account
the potential for risks to U.S. economic conditions or financial
stability arising from the execution of the strategy. Those risks
should be described in the resolution submission, and the identified
strategy should include specified actions that would mitigate those
risks so that reliance on a systemic risk exception would not be a
necessary element of planning.
The FDIC has considered the particular challenges with respect to
the requirement that the identified strategy address the potential for
risks to U.S. economic conditions or financial stability for the
largest and most systemic group A CIDIs, specifically the group A CIDIs
that are subsidiaries of U.S. global systemically important banking
organizations (U.S. GSIBs) as defined by rules promulgated by the
FRB.\57\ This category of firms comprise the U.S. banking organizations
that pose the greatest risk to U.S. financial stability. The FDIC is
aware of progress made by the U.S. GSIBs in the development of DFA
resolution plans, including their adoption as their preferred
resolution strategy a single point of entry strategy for the resolution
of the firm pursuant to which any subsidiary U.S. IDI that is a
material entity remains open and operating. Each of these firms has
made progress in increasing the range of scenarios in which that
strategy may be actionable and effective through structural and
operational changes. Moreover, certain enhanced prudential standards
that support resolvability apply only to the U.S. GSIBs.\58\
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\57\ See 12 CFR 217.402 (Identification as a global systemically
important BHC).
\58\ See 12 CFR part 252 subpart G (External Long-term Debt
Requirement, External Total Loss-absorbing Capacity Requirement and
Buffer, and Restrictions on Corporate Practices for U.S. Global
Systemically Important Banking Organizations).
---------------------------------------------------------------------------

Despite this progress, the availability or success of a single
point of entry strategy cannot be assured in all circumstances, and the
possibility of a resolution of a CIDI that is part of a U.S. GSIB
cannot be eliminated. Thus, the FDIC believes that it is appropriate to
require group A CIDIs within these banking organizations to develop
comprehensive resolution plans that include an identified strategy that
meets the requirements of the prong (i) standard, as described in the
proposed rule, to support the FDIC's resolution readiness in the event
that a CIDI within such a banking organization should fail. While these
CIDIs may have a particular challenge in addressing the risks their
identified strategy may present to the U.S. economy and financial
stability, where the DFA resolution plan of the CIDI's parent company
contains relevant analysis and information with respect to the risk of
potential adverse effects on U.S. financial stability arising from the
failure of a subsidiary group A CIDI, the inclusion of that information
by cross-reference is permitted under proposed (c)(6). In addition,
where the strategy for the rapid and orderly resolution \59\ of a U.S.
GSIB in its DFA resolution plan does not include the resolution of the
CIDI under the FDIA, that strategy may reasonably be identified as a
mitigant to the systemic risk, if any, posed by the failure of the CIDI
under the FDIA.
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\59\ A ``rapid and orderly resolution'' for purposes of a DFA
resolution plan is a reorganization or liquidation of the covered
company (or, in the case of a covered company that is incorporated
or organized in a jurisdiction other than the United States, the
subsidiaries and operations of such foreign company that are
domiciled in the United States) under the U.S. Bankruptcy Code that
can be accomplished within a reasonable period of time and in a
manner that substantially mitigates the risk that the failure of the
covered company would have serious adverse effects on financial
stability in the United States. 12 CFR 381.2.
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The second prong of the credibility standard requires that the
resolution submission be supported with observable and verifiable
capabilities. Capabilities may be supported by analysis and information
provided in the resolution submission, and assessed through
capabilities testing as well as through assessments conducted by the
IDIs and described in the submission. While the proposed rule would not
be prescriptive with respect to capabilities, it would contain the
express requirement that a CIDIs' capabilities are sufficient to
support key elements, namely, capabilities necessary to ensure
continuity of critical services in resolution, capabilities necessary
to ensure that franchise components are separable and marketable, and,
with respect to group A CIDIs, capabilities necessary to produce
valuations needed in assessing the least-cost test. The purpose of not
describing or prescribing specific capabilities is to have each group A
CIDI consider its own business, operations, and identified strategy as
the foundation for identifying the needed capabilities and how they are
demonstrated for the CIDI's particular businesses and its resolution
plan.
There are, however, certain capability expectations for some or all
CIDIs that can reasonably be inferred from the content requirements of
the resolution submission as described in the proposed rule, e.g., a
requirement to map information clearly implies expectation of a mapping
capability; and requirements to identify key depositors, critical
services support, or key personnel requires the capabilities to support
that identification.
Even though the language in the credibility standard regarding
access to insured deposits is proposed to be changed to ``timely access
to insured deposits,'' this does not represent a change in the FDIC's
long-standing goal of providing access to insured deposits within one
business day of the institution's failure (two business days if the
failure occurs on a day other than Friday). For some categories of
deposit accounts, however, such as trust accounts or other accounts
with many beneficial owners, additional due diligence is needed for an
insurance determination, which can require additional time. While the
recordkeeping and information technology capabilities required by 12
CFR part 370 should significantly expedite an insurance determination
for a CIDI with more than two million deposit accounts, and the FDIC
has improved its systems and processes with respect to all
institutions, there will remain some portion of accounts for which
additional due diligence is required. Accordingly, the language has
been revised to align more closely to the statutory requirement that
payment of insured deposits shall be made ``as soon as possible.'' \60\
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\60\ 12 U.S.C. 1821(f)(1).
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The FDIC invites comments on all aspects of the proposed
credibility standard. In particular, the FDIC asks the following
questions on specific aspects of the proposal:
(55) Is prong (i) of the credibility standard sufficiently clear?
In particular, is the requirement that the identified strategy address
potential risk of adverse effects on U.S. economic conditions or
financial stability clear? Will addressing potential risks to the U.S.
financial system through identifying risks in resolution as well as
actions that the FDIC could take to mitigate those risks be helpful to
the FDIC in planning for resolution in a manner that does not
necessitate reliance on the systemic risk exception to the least-cost
requirement?
(56) Is there a different standard that the FDIC should use to
assess credibility of a resolution plan or an informational filing?
(57) Is the distinction between the credibility standard for group
A and group B CIDIs sufficiently clear?

[[Page 64603]]

(58) Do commenters believe that the proposed approach with respect
to prong (i) of the credibility standard, as applied to CIDIs within
U.S. GSIB is appropriate and would support the FDIC's planning for
resolution of such a CIDI under the FDI Act in the event it becomes
necessary?
(59) Should a U.S. GSIB's single point of entry strategy as
presented in its DFA resolution plan be considered with respect to
content requirements in a related CIDI's resolution plan under the
proposed rule? If so, which ones?
(60) Are there other resolution plan content elements in the
proposed rule that should be modified when applied to CIDIs that are
part of U.S. GSIBs?
(61) Are there additional or enhanced content elements that should
be required of such CIDIs?
2. Resolution Submission Review and Credibility Determination;
Resubmission; Notice of Feedback
Similar to the current rule, proposed Sec. 360.10(f)(2) would
maintain a process for resolution submission review and credibility
assessment. The proposed rule makes no change to the current rule with
respect to coordination with supervisors in connection with this review
process: the FDIC would review a resolution submission in consultation
with the appropriate Federal banking agency for the CIDI and for its
parent company. If, after consultation with any such appropriate
Federal banking agency (or agencies), the FDIC were to determine that a
CIDI's resolution submission is not credible, the FDIC would notify the
CIDI in writing of such determination. The writing would include a
description of the weaknesses in the resolution submission that
resulted in the determination.
The current rule includes, as part of the review process, provision
for a brief 30-day review to determine whether the plan satisfies
minimum informational requirements. The FDIC then would either
acknowledge acceptance of the plan for review or return the plan if the
FDIC determines that it is incomplete or that substantial additional
information is required to facilitate the plan's review.\61\ The
current rule also includes a process for resubmission of an
informationally complete plan or the provision of additional
information requested by the FDIC.\62\ The FDIC has not found these
provisions to be useful, or to meaningfully add to the plan review
process. Accordingly, the proposed rule would eliminate these
provisions.
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\61\ 12 CFR 360.10(c)(4)(ii).
\62\ 12 CFR 360.10(c)(4)(iii), (iv).
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Proposed Sec. 360.10(f)(3) also provides, similar to the current
rule, that within 90 days of being notified by the FDIC that a
resolution submission is not credible, or such shorter or longer period
as the FDIC may determine, a CIDI must submit to the FDIC a revised
resolution submission that addresses any weaknesses identified by the
FDIC and discusses in detail the revisions made to address such
weaknesses.
In the current rule, if the resolution plan of a CIDI is found by
the FDIC to be not credible, the FDIC provides a notice to the CIDI
identifying the aspects of the resolution plan that the FDIC has
determined to be deficient and the CIDI's revised resolution plan must
address those deficiencies. In the proposal, the FDIC must provide a
notice including a description of the weaknesses in the resolution
submission that resulted in the determination that the resolution
submission is not credible, and the revised resolution submission by
the CIDI must address those weaknesses. Here, the term weakness is used
in the proposal rather than deficiency to distinguish the proposal from
the language utilized in the section 165(d) rule regarding the FDIC's
findings in a submission and to clarify that the review process and
criteria between the proposed rule and the section 165(d) rule are
different and separate from each other.
Even though it is not directly addressed in the current rule, the
FDIC has historically provided written feedback to CIDIs concerning
their resolution plans. The proposed Sec. 360.10 (f)(5) explicitly
provides that, following its review of a resolution submission--either
a resolution plan or an informational filing--the FDIC may provide
feedback on a resolution submission, and the FDIC expects that it
generally will provide initial feedback within a year of a resolution
submission. Under the proposed rule, this initial feedback notice could
identify areas of engagement and, in the case of group A CIDIs,
capabilities testing between the FDIC and the CIDI. The FDIC may
include a written notice with respect to the credibility of the
resolution plan submission within this initial feedback, or can defer
that determination until after any engagement and, if applicable,
capabilities testing.
In certain cases, it may be apparent based solely on a review of
the resolution plan that the identified strategy is not credible as
required by proposed paragraph (f)(1)(i) of the proposed rule. A
resolution submission may, for example, fail to include required
information, which may result in a finding following the FDIC's review
that the resolution submission is not credible based on proposed
paragraph (f)(1)(ii).
In other cases, a credibility finding may not be possible until the
conclusion of engagement and capabilities testing with a CIDI. For
example, a review of a resolution submission may indicate that the CIDI
has certain required capabilities. It may only become apparent
following the conclusion of engagement and capabilities testing
exercises that the CIDI was unable to demonstrate those capabilities.
Such a case could lead to the FDIC making a determination that the
resolution submission is not credible based upon information provided
by the engagement and capabilities exercises. As noted above in section
III.B.2 in the discussion of resolution submission review and
credibility determination, the FDIC may make a credibility finding at
any time throughout the review and engagement and capabilities testing
process and may include such findings together with an initial feedback
letter following resolution submission review, together with a
conclusion letter following engagement or capabilities testing, or as
an independent communication to the CIDI.
The FDIC invites comments on all aspects of the proposed resolution
submission review and credibility determination; resubmission; notice
of feedback requirements. In particular, the FDIC asks the following
question on specific aspects of the proposal:
(62) Is the proposed review and feedback process clear?
(63) The FDIC proposes a flexible approach to timing of credibility
determinations, which can be made following plan review and/or
following engagement and capabilities testing. Are multiple
opportunities for feedback helpful?
(64) Is the timing for the various steps over the resolution
submission cycle clear, and is the timing appropriate?

C. Engagement and Capabilities Testing

The FDIC proposes to modify the current rule to provide more
clarity concerning the FDIC's expectations for engagement between CIDIs
and the FDIC. The FDIC has found that direct engagement with the
knowledgeable staff at a CIDI has significant value in promoting FDIC
understanding of the content of a resolution submission and the
application of the information to both the identified strategy and
other strategic options that will be useful to

[[Page 64604]]

the FDIC in implementing a resolution strategy. In addition, engagement
with a CIDI will allow the CIDI and the FDIC to focus on the areas most
important to the business and organization of the particular CIDI and
the particular challenges the FDIC may face in the potential resolution
of that CIDI. Engagement is important with respect to informational
filings as well, as it would provide an opportunity to identify gaps in
the FDIC's understanding of the particular institution and its
potential challenges in resolution. The FDIC could use this opportunity
to explore how identified gaps could be mitigated through additional
data and analysis or future resolution submissions.
Capabilities testing also has proven useful to validate the
information and capabilities described in a CIDI's resolution plan and
to understand how those capabilities may apply across a range of
scenarios and strategic options that the FDIC may be called upon to
implement. The proposed rule contains express language that in both
engagement and capabilities testing,

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