Notice2024-18186
Guidance for Resolution Plan Submissions of Foreign Triennial Full Filers
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Published
August 15, 2024
Issuing agencies
Federal Reserve SystemFederal Deposit Insurance Corporation
Abstract
The Board and the FDIC (together, the agencies) are adopting this final guidance for the 2025 and subsequent resolution plan submissions by certain foreign banking organizations (FBOs). The final guidance is meant to assist these firms in developing their resolution plans, which are required to be submitted under the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended (the Dodd-Frank Act), and the jointly issued implementing regulation (the Rule). The scope of application of the final guidance is foreign triennial full filers (specified firms or firms), which are foreign Category II and III banking organizations, and the guidance supersedes the joint Guidance for Resolution Plan Submissions of Certain Foreign-Based Covered Companies. The final guidance describes the agencies' expectations, depending on the resolution strategy chosen by the firm, regarding a number of key vulnerabilities in plans for an orderly resolution under the U.S. Bankruptcy Code (i.e., group resolution plan; capital; liquidity; governance mechanisms; operational; legal entity rationalization and separability; branches; and insured depository institution (IDI) resolution, if applicable). The final guidance modifies and clarifies certain aspects of the proposed guidance based on the agencies' consideration of comments to the proposal, additional analysis, and further assessment of the business and risk profiles of the firms.
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[Federal Register Volume 89, Number 158 (Thursday, August 15, 2024)]
[Notices]
[Pages 66510-66541]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-18186]
[[Page 66509]]
Vol. 89
Thursday,
No. 158
August 15, 2024
Part II
Federal Reserve System
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Federal Deposit Insurance Corporation
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Guidance for Resolution Plan Submissions of Foreign Triennial Full
Filers; Notice
Federal Register / Vol. 89, No. 158 / Thursday, August 15, 2024 /
Notices
[[Page 66510]]
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FEDERAL RESERVE SYSTEM
[Docket No. OP-1817]
FEDERAL DEPOSIT INSURANCE CORPORATION
RIN 3064-ZA38
Guidance for Resolution Plan Submissions of Foreign Triennial
Full Filers
AGENCY: Board of Governors of the Federal Reserve System (Board) and
Federal Deposit Insurance Corporation (FDIC).
ACTION: Final guidance.
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SUMMARY: The Board and the FDIC (together, the agencies) are adopting
this final guidance for the 2025 and subsequent resolution plan
submissions by certain foreign banking organizations (FBOs). The final
guidance is meant to assist these firms in developing their resolution
plans, which are required to be submitted under the Dodd-Frank Wall
Street Reform and Consumer Protection Act, as amended (the Dodd-Frank
Act), and the jointly issued implementing regulation (the Rule). The
scope of application of the final guidance is foreign triennial full
filers (specified firms or firms), which are foreign Category II and
III banking organizations, and the guidance supersedes the joint
Guidance for Resolution Plan Submissions of Certain Foreign-Based
Covered Companies. The final guidance describes the agencies'
expectations, depending on the resolution strategy chosen by the firm,
regarding a number of key vulnerabilities in plans for an orderly
resolution under the U.S. Bankruptcy Code (i.e., group resolution plan;
capital; liquidity; governance mechanisms; operational; legal entity
rationalization and separability; branches; and insured depository
institution (IDI) resolution, if applicable). The final guidance
modifies and clarifies certain aspects of the proposed guidance based
on the agencies' consideration of comments to the proposal, additional
analysis, and further assessment of the business and risk profiles of
the firms.
DATES: The final guidance is available on August 15, 2024.
FOR FURTHER INFORMATION CONTACT:
Board: Catherine Tilford, Deputy Associate Director, (202) 452-
5240, Elizabeth MacDonald, Assistant Director, (202) 475-6316, Tudor
Rus, Manager, (202) 475-6359, Mason Laird, Senior Financial Institution
Policy Analyst II, (202) 912-7907, Caroline Elkin, Senior Financial
Institution Policy Analyst, (202) 263-4888, Division of Supervision and
Regulation; or Jay Schwarz, Deputy Associate General Counsel, (202)
452-2970; Andrew Hartlage, Special Counsel, (202) 452-6483; Brian
Kesten, Counsel, (202) 843-4079; or Sarah Podrygula, Senior Attorney,
(202) 912-4658, Legal Division, Board of Governors of the Federal
Reserve System, 20th Street and Constitution Avenue NW, Washington, DC
20551. For users of TTY-TRS, please call 711 from any telephone,
anywhere in the United States.
FDIC: Robert C. Connors, Senior Advisor, (202) 898-3834; Mark E.
Haley, Chief, (917) 320-2911, Patrick R. Bittner, Senior Policy
Specialist, (202) 898-6571, Division of Complex Financial Institution
Supervision and Resolution; Celia Van Gorder, Assistant General Counsel
(Acting), (202) 898-6749; Dena S. Kessler, Counsel, (202) 898-3833;
Gregory J. Wach, Counsel, (202) 898-6972, Legal Division.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
A. Background
B. Connection to Other Rulemakings
C. Proposed Guidance
II. Overview of Comments
III. Final Guidance
A. Scope of Application
B. Transition Period
C. Interaction With Group Resolution Plan
D. Capital
E. Liquidity
F. Governance Mechanisms
G. Operational
H. Legal Entity Rationalization and Separability
I. Insured Depository Institution Resolution
J. Derivatives and Trading Activities
K. Branches
L. Format and Structure of Plans; Assumptions
M. Additional Comments
IV. Paperwork Reduction Act
V. Text of the Final Guidance
I. Introduction
A. Background
Section 165(d) of the Dodd-Frank Act \1\ and the Rule \2\ require
certain financial institutions to report periodically to the Board and
the FDIC their plans for rapid and orderly resolution under the U.S.
Bankruptcy Code (the Bankruptcy Code) in the event of material
financial distress or failure. The Rule divides covered companies into
three groups of filers: (a) biennial filers; (b) triennial full filers;
and (c) triennial reduced filers.\3\ The terms ``covered company'' and
``triennial full filer'' have the meanings given in the Rule, as do
other, similar terms used throughout this final guidance document.
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\1\ 12 U.S.C. 5365(d).
\2\ 12 CFR parts 243 and 381.
\3\ 12 CFR 243.4 and 381.4.
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Triennial full filers under the Rule are required to file a
resolution plan every three years, alternating between full and
targeted resolution plans.\4\ The Rule requires each covered company's
full resolution plan to include, among other things, a strategic
analysis of the plan's components, a description of the range of
specific actions the covered company proposes to take in resolution,
and a description of the covered company's organizational structure,
material entities, and interconnections and interdependencies.\5\
Targeted resolution plans are required to include a subset of
information contained in a full plan.\6\ In addition, the Rule requires
that all resolution plans consist of two parts: a confidential section
that contains any confidential supervisory and proprietary information
submitted to the agencies, and a section that the agencies make
available to the public.\7\ Public sections of resolution plans can be
found on the agencies' websites.\8\
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\4\ 12 CFR 243.4(b) and 381.4(b).
\5\ 12 CFR 243.5 and 381.5.
\6\ 12 CFR 243.6(b) and 381.6(b).
\7\ 12 CFR 243.11(c) and 381.11(c).
\8\ The public sections of resolution plans submitted to the
agencies are available at <a href="http://www.federalreserve.gov/supervisionreg/resolution-plans.htm">www.federalreserve.gov/supervisionreg/resolution-plans.htm</a> and <a href="http://www.fdic.gov/regulations/reform/resplans/">www.fdic.gov/regulations/reform/resplans/</a>.
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Recent Developments
Implementation of the Rule has been an iterative process aimed at
strengthening the resolution planning capabilities of financial
institutions subject to the Rule. To assist the development of covered
companies' resolution planning capabilities and plan submissions, the
agencies have provided feedback on individual plan submissions, issued
guidance to certain groups of covered companies, and issued answers to
frequently asked questions. The agencies believe that guidance can help
focus the efforts of similarly situated covered companies to improve
their resolution capabilities and clarify the agencies' expectations
for those filers' future progress in their resolution plans. To date,
the agencies have issued guidance to: (a) U.S. global systemically
important banks (GSIBs),\9\ which constitute the biennial filer group;
and (b) certain large FBOs that
[[Page 66511]]
are triennial full filers.\10\ The agencies have not, however, thus far
issued guidance to domestic triennial full filers and the additional
FBOs that make up the remainder of the triennial full filers.
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\9\ Guidance for section 165(d) Resolution Plan Submissions by
Domestic Covered Companies applicable to the Eight Largest, Complex
U.S. Banking Organizations, 84 FR 1438 (Feb. 4, 2019) (2019 U.S.
GSIB Guidance).
\10\ Guidance for Resolution Plan Submissions of Certain
Foreign-Based Covered Companies 2020 FBO Guidance, 85 FR 83557 (Dec.
22, 2020) (2020 FBO Guidance).
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Several developments inform the final guidance:
<bullet> The agencies' consideration of comments to the proposed
guidance (as defined below);
<bullet> The agencies' review of foreign triennial full filers'
2021 resolution plans and the issuance of individual letters
communicating the agencies' feedback on those submitted plans;
<bullet> The agencies' recent experience with UBS Group AG's
acquisition of Credit Suisse Group AG (CS) and, with respect to
specified firms with large subsidiary IDIs, the resolutions of Silicon
Valley Bank (SVB), Signature Bank (SB), and First Republic Bank (First
Republic), and related stress experienced by a range of other financial
institutions; and
<bullet> The agencies' analysis of the current risk profiles of the
foreign triennial full filers.
The preamble to the 2019 revisions to the Rule indicated that the
agencies would make any future resolution guidance available for
comment,\11\ and on August 29, 2023, the agencies invited comments on
proposed guidance for the 2024 and subsequent resolution plan
submissions by foreign triennial full fillers (proposed guidance or
proposal).\12\
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\11\ Resolution Plans Required, 84 FR 59194, 59204 (Nov. 1,
2019) (2019 Federal Register Rule Publication).
\12\ <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230829b.htm">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230829b.htm</a>; <a href="https://www.fdic.gov/news/press-releases/2023/pr23067.html">https://www.fdic.gov/news/press-releases/2023/pr23067.html</a>. See also Guidance for Resolution Plan Submissions of
Foreign Triennial Full Filers, 88 FR 64641 (Sept. 19, 2023).
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The Rule requires triennial full filers to submit their resolution
plans on or before July 1 of each year in which a resolution plan is
due.\13\ At the time the agencies issued the proposed guidance, the
foreign triennial full filers were required to submit their next
resolution plans on or before July 1, 2024. In the proposal, the
agencies requested comment about whether the agencies should provide
more than six months for firms to take into consideration the
expectations in the finalized guidance. Several comments discussed the
timing of the next resolution plan submission and its relationship to
the final guidance. Most requested extensions, with several requesting
at least a year and one stating six months would be adequate. One
stated a maximum of six months from publication of the final guidance
to the first submission would be adequate, though it did not
specifically ask for an extension.
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\13\ 12 CFR 243.4(b)(3) and 381.4(b)(3).
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On January 17, 2024,\14\ the agencies announced an extension of the
resolution plan submission deadline for the triennial full filers from
July 1, 2024, to March 31, 2025. At this time, the agencies are further
extending the 2025 resolution plan submission deadline for triennial
full filers to October 1, 2025, to provide the firms with sufficient
time to develop their full resolution plans in light of the final
guidance. The agencies are also clarifying that all triennial full
filers' subsequent resolution plan submission, a targeted resolution
plan, are due on or before July 1, 2028, and that future resolution
plan submissions will be due every three years after that, alternating
between full and targeted resolution plans, pursuant to the Rule,\15\
unless the agencies exercise their authority under the Rule to alter
the submission date for future resolution plan submissions.\16\
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\14\ <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20240117a.htm">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20240117a.htm</a>; <a href="https://www.fdic.gov/news/press-releases/2024/pr24002.html">https://www.fdic.gov/news/press-releases/2024/pr24002.html</a>.
\15\ 12 CFR 243.4(b) and 381.4(b).
\16\ 12 CFR 243.4(d)(2) and 381.4(d)(2).
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Resolution Plan Strategy
Foreign-based covered companies subject to the Rule have adopted
one of two resolution strategies for their U.S. operations: (1) a
single point of entry (SPOE) strategy where only the top tier U.S.
material entity holding company enters resolution through a bankruptcy
proceeding; or (2) a multiple point of entry (MPOE) strategy where
multiple U.S. material entities enter separate resolution proceedings,
including any top tier U.S. material entity holding company enters
bankruptcy, any U.S. material entity IDI subsidiary enters resolution
pursuant to the Federal Deposit Insurance Act of 1950, as amended (the
FDI Act), and other entities enter the appropriate resolution regimes
or are wound down. The U.S. SPOE and U.S. MPOE resolution strategies
that firms have chosen present different risks and entail different
types of planning and development of capabilities; accordingly, the
proposal contained content applicable to U.S. SPOE resolution
strategies and separate content applicable to U.S. MPOE resolution
strategies.
Commenters supported inclusion of expectations for both U.S. MPOE
and U.S. SPOE resolution strategies, and supported firms' ability to
choose either strategy. However, some commenters questioned whether the
agencies were expecting or encouraging firms to adopt a U.S. SPOE
resolution strategy and recommended that the agencies disclose publicly
whether they prefer a particular resolution strategy and engage in
notice and comment rulemaking if they do. For firms that change
resolution strategies, some commenters requested that the agencies
provide a transition period and made statements about the preferred
length of such a transition period, and one asked for an explanation
for how a firm that is changing strategies can satisfy the agencies'
expectations, and others requested that the agencies not issue any
findings regarding a firm's first resolution plan that adopts a
different resolution strategy.
The agencies do not prescribe a specific resolution strategy for
any firm. This guidance, similarly, does not suggest that any firm
should change its resolution strategy, nor are the agencies identifying
a preferred strategy for a specific firm or set of firms. The selection
of a preferred strategy, including U.S. MPOE or U.S. SPOE as a
preferred resolution strategy, should reflect the characteristics of
the firm and its business operations, and support the goal of the
resolution plan to substantially mitigate serious adverse effects of
the firm's failure on financial stability in the United States. Each
firm remains free to choose the resolution strategy it believes would
most effectively facilitate a rapid and orderly resolution.
The agencies are providing separate guidance for a U.S. SPOE
resolution strategy and a U.S. MPOE resolution strategy in
acknowledgment that firms are free to adopt the resolution strategy
that best suits their operations and organizations. Further, the
agencies note there may be resolution strategies other than U.S. SPOE
and U.S. MPOE that could facilitate a rapid and orderly resolution. The
specified firms should continue to submit resolution plans using the
resolution strategies they believe would be most effective in achieving
an orderly resolution of their firms. Regardless of strategy, a
resolution plan should address the key vulnerabilities, support the
underlying assumptions required to successfully execute the chosen
resolution strategy, and demonstrate the adequacy of the capabilities
necessary to execute the selected strategy.
Moreover, because the agencies do not prescribe resolution
strategies, firms may voluntarily change their preferred strategy in
the future. However, reflecting the voluntary nature of
[[Page 66512]]
resolution strategy changes, the agencies do not anticipate providing a
transition period during which a firm would be free from potential
findings under the Rule while it effectuates a change in resolution
strategy, whether from U.S. MPOE to U.S. SPOE, or to any other
resolution strategy. A firm controls the timing of when it submits its
first plan with a different strategy; accordingly, it can take the time
it needs to put in place the resources and capabilities needed to
submit a plan that satisfies the standard in section 165(d) of the
Dodd-Frank Act and the Rule. The standard of review for a resolution
plan submission of a firm that transitions to a new strategy is
therefore the same as for any firm subject to the Rule.\17\
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\17\ See 12 CFR 243.8 and 381.8.
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B. Connection to Other Rulemakings
Long-Term Debt Proposal
The agencies, as well as the Office of the Comptroller of the
Currency (together with the agencies, the Federal banking agencies),
issued in August 2023 a proposed rule for comment that would require
certain large holding companies, U.S. intermediate holding companies of
FBOs, and certain IDIs, to issue and maintain outstanding a minimum
amount of long-term debt (LTD), among other proposed requirements.\18\
The agencies have received comments on the LTD proposal, and will
consider all comments received in context of the LTD rulemaking. The
agencies requested comments on the proposed guidance that take the LTD
proposal into consideration.
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\18\ <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230829a.htm">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230829a.htm</a>; <a href="https://www.fdic.gov/news/press-releases/2023/pr23065.html">https://www.fdic.gov/news/press-releases/2023/pr23065.html</a>. See also Long-Term Debt Requirements for Large Bank
Holding Companies, Certain Intermediate Holding Companies of Foreign
Banking Organizations, and Large Insured Depository Institutions, 88
FR 64524 (Sept. 19, 2023) (LTD proposal).
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One commenter recommended that, for purposes of their resolution
plans, firms should only assume their existing outstanding LTD and not
the projected LTD that would be in place once the firm has achieved
full compliance with the LTD proposal. Another commenter argued that
the agencies should consider the interaction between the proposed
guidance and LTD proposal, with a goal of having them work together to
improve the resolvability of applicable banking organizations and avoid
duplicative or contradictory requirements. The commenter also asserted
that calibration of an IDI's internal LTD requirement could lead
banking organizations using a U.S. MPOE resolution strategy to adopt a
U.S. SPOE resolution strategy because of the costs of compliance with
such internal LTD issuance.
The Federal banking agencies have not finalized the LTD rulemaking
as of the issuance of this final guidance. The agencies recognize that
LTD issued and maintained by a specified firm could affect the firm's
strategic analysis of the funding, liquidity, and capital needs of, and
resources available to, the covered company and its material
entities.\19\ However, the agencies believe that the finalization of a
requirement to maintain a specified amount of LTD would not affect this
guidance in any material way. Any final LTD rule will address the
manner in which its requirements will be implemented. This final
guidance is intended to convey the agencies' expectations regarding the
content of resolution plan submissions, and not to contradict, modify,
or accelerate a company's obligations under other laws or regulations.
As provided in the final guidance, firms should develop their
resolution plans in accordance with the current state of the applicable
legal and policy frameworks. The agencies also recognize, however, that
there may be phase-in periods during which rules become effective.
Should the LTD rule be finalized in advance of October 1, 2025, the
agencies will not expect firms to incorporate the requirements of the
rule into their 2025 resolution plan submissions. This should provide
firms covered by the LTD rule with reasonable time to consider any
final LTD rule in a future resolution plan submission. Further, and as
noted above, the agencies are not recommending that any specified firm
adopt any particular strategy in response to this guidance or the LTD
proposal.
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\19\ See 12 CFR 243.5(c)(1)(iii) and 381.5(c)(1)(iii).
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Basel III End Game Proposal and the GSIB Capital Surcharge Proposal
The Federal banking agencies also issued in July 2023 a proposed
rule for comment to substantially revise the capital requirements
applicable to large banking organizations and to banking organizations
with significant trading activity.\20\ The Board also issued a proposed
rule for comment to amend the Board's rule that identifies and
establishes risk-based capital surcharges for GSIBs.\21\ The latter
proposal would also amend the Systemic Risk Report (FR Y-15), which is
the source of inputs to the implementation of the GSIB framework under
the capital rule.
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\20\ <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230727a.htm">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230727a.htm</a>; <a href="https://www.fdic.gov/news/press-releases/2023/pr23055.html">https://www.fdic.gov/news/press-releases/2023/pr23055.html</a>. See also Regulatory Capital Rule: Large Banking
Organizations and Banking Organizations With Significant Trading
Activity, 88 FR 64028 (Sept. 18, 2023) (Capital proposal).
\21\ <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230727a.htm">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230727a.htm</a>. See also Regulatory Capital Rule: Risk-Based
Capital Surcharges for Global Systemically Important Bank Holding
Companies; Systemic Risk Report (FR Y-15), 88 FR 60385 (Sept. 1,
2023) (GSIB Capital Surcharge proposal).
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One commenter asserted that the issuance of multiple rulemaking and
guidance proposals limited the commenter's ability to evaluate and
comment on the proposed guidance. The commenter also recommended that
the Federal banking agencies conduct an analysis of the costs and
benefits of these proposals together. In addition, the commenter
recommended providing the public more time to consider the interactions
of the various proposals. Another commenter contended that the agencies
should provide additional flexibility to firms that become triennial
full filers as a result of the GSIB Capital Surcharge proposal and its
associated changes to the Systemic Risk Report (FR Y-15). The commenter
argued that such triennial full filers should have an extended
transition period of two years before taking into account the final
guidance.
The Federal banking agencies have not finalized the LTD rulemaking,
Capital rulemaking, or GSIB Capital Surcharge rulemaking as of the
issuance of this final guidance, and comments on those proposed rules
are currently under consideration. The final guidance does not rely on
or presume the finalization of these rulemakings and instead states, as
proposed, that a resolution plan should be based on the current state
of the applicable legal and policy frameworks.\22\ The agencies note
that the Federal banking agencies extended the comment period on the
LTD rulemaking,\23\ the Capital rulemaking,\24\ and the GSIB Capital
Surcharge rulemaking \25\ to allow interested parties more time to
analyze relevant issues and prepare their comments. In addition, staff
of the agencies met with members of the
[[Page 66513]]
public--including those who asked for additional time to review the
various proposals--at the request of those persons after the close of
the comment period. Moreover, the Board collected data from the banks
affected by the Capital rulemaking to further clarify the estimated
effects of the proposal.\26\ The FBO guidance proposal also included an
analysis of potential burden of the proposal pursuant to the Paperwork
Reduction Act.\27\ As discussed below, the agencies did not receive any
comment on that section of the proposal.\28\
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\22\ See infra section V.X of this document.
\23\ Long-Term Debt Requirements for Large Bank Holding
Companies, Certain Intermediate Holding Companies of Foreign Banking
Organizations, and Large Insured Depository Institutions; Extension
of Comment Period, 88 FR 83364 (Nov. 19, 2023).
\24\ Regulatory Capital Rule: Large Banking Organizations and
Banking Organizations with Significant Trading Activity; Extension
of Comment Period, 88 FR 73770 (Oct. 27, 2023).
\25\ Risk-Based Capital Surcharges for Global Systemically
Important Bank Holding Companies; Systemic Risk Report (FR Y-15);
Extension of Comment Period, 88 FR 73772 (Oct. 27, 2023).
\26\ <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20231020b.htm">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20231020b.htm</a>.
\27\ See proposed guidance at 88 FR 64648-49.
\28\ See infra section IV of this document.
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The agencies also note that the Rule establishes a transition
period for new covered companies that become triennial full filers.\29\
As discussed elsewhere in this document, a specified firm is only
expected to take into account the guidance for the resolution plan
submission that is due at least 12 months after the date the firm
becomes a specified firm.\30\
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\29\ See 12 CFR 243.4(b)(5) and 381.4(b)(5).
\30\ See infra section III.B of this document.
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FDIC IDI Resolution Plan Proposal
The agencies received two comments on the connection between the
proposal and the IDI Rule.\31\ The FDIC published proposed revisions to
the IDI Rule on September 19, 2023,\32\ and published final revisions
on July 9, 2024.\33\ One commenter recommended coordinating aspects of
the proposed guidance and the Proposed IDI Rule, including having
consistent terms and concepts, and permitting cross-referencing to
section 165(d) resolution plans under the Proposed IDI Rule. Another
commenter suggested aligning the Rule and the IDI Rule to reduce the
combined compliance burden.
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\31\ 12 CFR 360.10 (IDI Rule).
\32\ 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, 88 FR 64579 (Sept. 19, 2023) (Proposed IDI Rule).
\33\ Resolutions 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, 89 FR 56620 (July 9, 2024).
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The Rule requires a covered company to submit a resolution plan
that would allow for the rapid and orderly resolution of the firm under
the Bankruptcy Code in the event of material financial distress or
failure. The final guidance clarifies the agencies' expectations
regarding certain topics and provides direction as to how a covered
company may demonstrate its compliance with its statutory obligation
under section 165(d) of the Dodd-Frank Act to develop a resolution plan
allowing for its rapid and orderly resolution. The IDI Rule serves a
different purpose: the IDI Rule assists the FDIC in preparing to manage
the resolution of a covered insured depository institution. While these
two rules may be complementary, they are not the same. Additionally,
whether to align the Proposed IDI Rule with the Rule or permit cross-
referencing to section 165(d) resolution plans under the IDI Rule is
outside the scope of this guidance.
C. Proposed Guidance
On August 29, 2023, the agencies invited public comment on proposed
guidance for how foreign triennial full filers' resolution plans could
address key challenges in resolution, which was proposed to apply
beginning with the subject firms' 2024 resolution plan submissions.\34\
The proposal identified the banking organizations to which the guidance
would apply and articulated several areas of guidance: group resolution
plan; capital; liquidity; governance mechanisms; operational; legal
entity rationalization and separability; branches; and IDI resolution,
if applicable. The proposed guidance described the agencies' proposed
expectations for each of these areas. Most substantive topics were
bifurcated, with separate guidance for a U.S. SPOE resolution strategy
and a U.S. MPOE resolution strategy. The proposed guidance concluded
with information about the format and structure of a plan that applied
equally to plans contemplating either a U.S. SPOE resolution strategy
or a U.S. MPOE resolution strategy.
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\34\ Supra note 12.
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The proposed guidance for firms that adopt a U.S. SPOE resolution
strategy was generally based on the 2020 FBO Guidance or the associated
proposal.\35\ The proposed guidance for firms that adopt a U.S. MPOE
resolution strategy was based upon the 2020 FBO Guidance but modified
to be pertinent to U.S. MPOE resolution strategies. The agencies also
proposed to clarify their expectations for specified firms that adopt a
U.S. MPOE resolution strategy that includes the resolution of a
material entity that is a U.S. IDI.
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\35\ Guidance for Resolution Plan Submissions of Certain
Foreign-Based Covered Companies, 85 FR 15449 (March 18, 2020) (2020
Proposed FBO Guidance).
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The agencies invited comments on all aspects of the proposed
guidance. The agencies also specifically requested comments on a number
of issues, including the utilization of a U.S. SPOE resolution strategy
by FBOs, the interaction of resolution guidance with a final long-term
debt rule, the interaction between U.S. and global resolution
strategies, the amount of time between the publication of the final
guidance and the firms' next resolution plans, the appropriateness of
guidance on IDI resolution, and whether to issue derivatives and
trading expectations.
II. Overview of Comments
The agencies received and reviewed eight comment letters on the
proposed guidance. Commenters included various financial services trade
associations and two public interest groups. In addition, the agencies
met with representatives of a banking organization that would be a
specified firm and trade associations that represents banking
organizations at their request to discuss issues relating to the
proposed guidance.\36\ This section provides an overview of the general
themes raised by commenters. The comments received on the proposed
guidance are further discussed below in the sections describing the
final guidance (and, in some cases, previously in section I), including
any changes that the agencies have made to the proposed guidance in
response to comments.
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\36\ Summaries of those meetings and copies of the comments can
be found on each agency's website. <a href="https://www.federalreserve.gov/apps/foia/ViewComments.aspx?doc_id=OP-1817&doc_ver=1">https://www.federalreserve.gov/apps/foia/ViewComments.aspx?doc_id=OP-1817&doc_ver=1</a>; <a href="https://www.fdic.gov/resources/regulations/federal-register-publications/2023/2023-guidance-resolution-plan-submissions-foreign-triennial-3064-za38.html">https://www.fdic.gov/resources/regulations/federal-register-publications/2023/2023-guidance-resolution-plan-submissions-foreign-triennial-3064-za38.html</a>.
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Differentiating Expectations Based on Size, Complexity, and Risk
Most commenters contended that the proposed guidance did not
sufficiently differentiate expectations among firms subject to
resolution planning guidance. Several commenters argued that the
specified firms have reduced their activities in the United States,
resulting in a reduced risk and financial stability profile, and that
expectations be adjusted accordingly. Some commenters also recommended
that foreign triennial full filers without intermediate holding
companies (IHCs) should not be covered by the guidance or should be the
subject of guidance tailored to their risk profiles. In contrast, one
commenter contended that the proposed guidance favors the U.S. MPOE
resolution strategy by including fewer expectations for firms that
adopt that strategy and recommended that the guidance for such firms be
more aligned with
[[Page 66514]]
guidance for resolution plan filers using a U.S. SPOE resolution
strategy.
In addition, some commenters argued that section 165 of the Dodd-
Frank Act requires the agencies to tailor application of prudential
standards issued pursuant to that section, such as resolution planning
guidance; contended that the proposal was too similar to the 2019 U.S.
GSIB Guidance or 2020 Proposed FBO Guidance; and encouraged
expectations in the final guidance to be further differentiated based
on size, risk and other factors. Several commenters also objected to
expectations in the proposal that were proposed in the 2020 Proposed
FBO Guidance but not finalized in the 2020 FBO Guidance--including
guidance on group resolution plans, resolution capital adequacy and
positioning requirements (RCAP), resolution liquidity adequacy and
positioning (RLAP), governance mechanisms, and separability--and
contended that the agencies did not adequately explain their rationale
for adopting expectations different from those in the 2020 FBO
Guidance.
Resolution Strategy and Transition Period
Several commenters supported the proposal's inclusion of
expectations for both U.S. MPOE and U.S. SPOE resolution strategies and
the agencies' statement that firms have the ability to choose their
preferred strategy. However, as noted above, some commenters questioned
whether the agencies were expecting or encouraging firms to adopt a
U.S. SPOE resolution strategy. For firms that change resolution
strategies, some commenters requested that the agencies provide a
transition period during which the agencies would not make credibility
findings in connection with a plan review, and one commenter requested
that the agencies explain how a firm that is changing strategies can
satisfy the agencies' expectations.
Interaction Between U.S. and Group Resolution Planning
Some commenters disagreed with the proposed guidance relating to
the interaction of the U.S. and the global resolution plans. Commenters
claimed that global resolution plans are sometimes written by home
authorities and FBOs may not always have full visibility into the
details of those plans' assumptions, strategies, and necessary
capabilities. These commenters also asserted that, in some countries,
home country regulators may consider aspects of the group plan to be
confidential supervisory information and, accordingly, the global
resolution plan is not shared with the firm beyond very general terms.
In addition, one commenter contended that the proposal did not specify
with sufficient detail what information from a group resolution plan
should be included in the U.S. resolution plan. Commenters urged the
agencies to coordinate with home country authorities and to use Crisis
Management Groups (CMGs), which are designed for collaboration between
international regulators, to obtain this type of information.
Capital and Liquidity
The agencies received a number of comments on the capital and
liquidity sections of the proposed guidance. With regard to the capital
section of the proposed guidance, most commenters argued that the
proposal included expectations that are duplicative of existing capital
requirements and suggested removing the guidance on RCAP from the final
guidance; one commenter, however, supported including RCAP expectations
in final guidance. One commenter suggested that RCAP expectations would
increase the complexity of the resolution planning process and another
commenter expressed concern that RCAP expectations could result in
excessive capital placement in the U.S., which could prevent firms from
effectively positioning capital in times of stress.
With regard to the liquidity section of the proposed guidance,
commenters suggested there is redundancy between the proposal and
certain regulatory requirements and also recommended removing the
guidance on RLAP from the final guidance; one commenter, however,
supported including RLAP expectations in final guidance. One commenter
expressed concern that RLAP expectations could make it more difficult
for the specified firm's parent to deploy liquidity resources most
effectively in stress. In addition, one commenter requested that the
final guidance strengthen expectations for liquidity in resolution by
including a procedure or protocol for liquidity related decisions,
irrespective of resolution strategy.
IDI Resolution Analysis
The agencies received a number of comments on the proposed guidance
related to the resolution of a subsidiary material entity U.S. IDI.
Multiple commenters requested clarity on how the firm's plan should
address the expectations regarding the FDIC's statutory least-cost
requirement and questioned whether there is sufficient information
available for firms to effectively evaluate whether a proposed
resolution plan would satisfy the least-cost analysis expectations.
These commenters also questioned whether the least-cost analysis would
be of value to FDIC in an actual resolution and argued that the
guidance should be aligned with the requirements of the IDI Rule. One
stated sufficient time should be given for firms to conduct new
analyses and seek additional guidance from the agencies and that
aspects of this section of the proposal should not be finalized.
One commenter asked the agencies to consider the compliance burden
of the guidance, while another commenter argued that firms should not
be expected to demonstrate that their preferred strategy would be
consistent with the FDIC's statutory least-cost requirement. Another
commenter suggested that the agencies should require firms to develop
resolution strategies involving bridge depository institutions (BDIs)
and recommended that the guidance address the value of assets
transferred to such a BDI, how the resolution plan would address the
IDI's franchise value, and how the preferred resolution strategy would
result in a least-costly resolution.
Derivatives and Trading
Some commenters supported not including derivatives and trading
expectations, stating it was appropriate to exclude such guidance
because the specified firms have limited derivatives and trading
portfolios, particularly relative to the U.S. G-SIB banking
organizations covered by such guidance. However, some other commenters
supported including such expectations in the final guidance, contending
that derivatives activity for foreign triennial full filers may
increase in the future and proposed applying such guidance to firms
with net derivatives exceeding a given threshold.
Connection to Other Rules
The agencies received a number of comments about the interaction of
the proposed guidance with several other rulemaking initiatives by the
Federal banking agencies. For example, some commenters recommended
coordinating the FDIC's Proposed IDI Rule revisions with the resolution
plan rule and final guidance for the specified firms. Several
commenters also suggested that the agencies consider the interaction
between the proposed guidance and the LTD proposal to ensure the two
proposals work together to improve the resolvability of applicable
banking organizations and avoid duplicative or
[[Page 66515]]
contradictory requirements. Some commenters expressed concern that
including certain expectations in the final guidance, such as those
relating to capital, would be premature before finalizing the Capital
proposal and LTD proposal, which impact firms' capital planning.
Further, some commenters recommended that the Federal banking agencies
analyze the costs and benefits of these proposals together.
Timing of Next Resolution Plan
Several comments discussed the timing of the next resolution plan
submission and its relationship to this final guidance. Some commenters
recommended providing at least one year between issuing final guidance
and the deadline for foreign triennial full filers' next resolution
plan submissions. However, other commenters suggested that six months
from publication of the final guidance to the first resolution plan
submission would be adequate for firms to take into account the
guidance.
III. Final Guidance
After considering the comments, conducting additional analysis, and
further assessing the business and risk profiles of foreign triennial
full filers, the agencies are issuing final guidance that includes
certain modifications and clarifications from the proposal. In
particular, the capital, group resolution plan, operational,
assumptions, and IDI resolution sections of the final guidance reflect
changes from the proposed guidance. In addition, as was noted in the
proposal,\37\ the final guidance consolidates all prior resolution
planning guidance for the firms in one document and clarifies that any
prior guidance not included in the final guidance has been superseded.
Further, as was noted in the proposal,\38\ the final guidance is not
intended to override the obligation of an individual firm to respond in
its next resolution plan submission to pending items of individual
feedback or any shortcomings or deficiencies jointly identified or
determined by the agencies in that firm's prior resolution plan
submissions. The guidance is drafted to reflect the current conditions
in the industry and institutions as they exist today.
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\37\ See proposed guidance at 88 FR 64644.
\38\ See id.
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As discussed below,\39\ several commenters asserted that the
proposal did not adequately differentiate among covered companies based
on their size, complexity, and risk to financial stability. The
guidance, however, takes into account the size and complexity of firms,
their resolution strategy, and whether they are based in the United
States or in a foreign jurisdiction. In addition, the final guidance is
not meant to limit firms' consideration of additional vulnerabilities
or obstacles that might arise based on a firm's particular structure,
operations, or resolution strategy.
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\39\ See infra section III.M of this document.
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The agencies also note that commenters described certain
expectations that are set forth in the guidance as ``requirements.'' As
the agencies indicated in the proposed guidance and are now
reaffirming, the final guidance does not have the force and effect of
law. Rather, the final guidance outlines the agencies' supervisory
expectations regarding each subject area covered by the final
guidance.\40\ The final guidance includes language reflecting this
position.\41\
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\40\ See 12 CFR 262.7 and appendix A to 12 CFR part 262; 12 CFR
part 302.
\41\ See infra section V.I of this document.
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Finally, the agencies made several minor, non-substantive changes
from the proposal, including to align the wording of guidance directed
at firms that adopt an SPOE resolution strategy and firms that adopt an
MPOE resolution strategy.
A. Scope of Application
The agencies proposed applying the guidance to all foreign-based
triennial full filers and invited comment on all aspects of the
proposed scope of the guidance. Multiple commenters argued that foreign
triennial full filers without IHCs should not be covered by the
guidance or should be the subject of guidance tailored to their risk
profiles. In making this suggestion, one commenter stated that, unlike
domestic firms, the resolution of U.S. operations of FBOs is
anticipated to occur as part of the home country resolution and the IHC
threshold represents a materiality threshold for understanding the
importance of the U.S. operations and for resolution planning. The
commenter also stated that separate guidance could be proposed for
foreign triennial full filers without an IHC. Several commenters
further argued that the specified firms are already subject to enhanced
requirements in both the U.S. and their home jurisdictions, and that
the firms are smaller, better capitalized, and present a much-reduced
risk to U.S. financial stability relative to category I firms. One
commenter also contended that imposing additional resolution planning
expectations would undermine these firms' ability to support U.S.
capital markets while another commenter argued that the guidance should
place greater reliance on cooperation among international regulators.
After review and consideration of these comments, the agencies are
finalizing this section of the guidance as proposed. The agencies are
issuing expectations to these firms to help them further strengthen
their resolution plans based on the agencies' recent experience with
UBS Group AG's acquisition of CS and, with respect to specified firms
with large subsidiary IDIs, the resolutions of SVB, SB, and First
Republic. Like CS, many of the specified firms are foreign GSIBs with a
large presence in the United States. The guidance covers large FBOs
both with and without a U.S. IHC and covers the entirety of their U.S.
operations. The final guidance will strengthen these firms' resolution
plans for their U.S. operations, while allowing flexibility based on
the characteristics of individual firms and their respective resolution
strategies. The agencies note that some aspects of the guidance may not
be relevant to banking organizations without a U.S. IHC and do not
expect firms to include in their resolution plans information about
topics that do not relate to the structure of their operations. More
generally, the level of detail in firms' resolution plans about
specific topics and vulnerabilities should reflect the importance of
those activities to the firm and whether they relate to or support any
identified critical operations or core business lines or are material
to the execution of the resolution strategy.
In many cases, the preferred resolution outcome for U.S. operations
would be successful execution of the home country's global resolution
strategy and the agencies have developed guidance to clarify the
interactions between firms' U.S. and global resolution strategies. The
home country resolution planning requirements do not make the guidance
unnecessary for these firms. The Rule requires FBOs to submit plans
providing for the rapid and orderly resolution of their U.S.
subsidiaries and operations \42\ under the Bankruptcy Code in the event
of their failure. The agencies are issuing guidance to assist FBO firms
in enhancing the resolution plans required under U.S. law.
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\42\ See 12 CFR 243.5(a)(2)(i) and 381.5(a)(2)(i).
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B. Transition Period
The proposed guidance did not describe how the guidance would be
applied to FBOs that become covered by its scope, but it did request
comment on all aspects of the proposed scope of
[[Page 66516]]
application. To provide certainty to FBOs, the final guidance states
that when an FBO becomes a specified firm, the final guidance will
apply to the firm's next resolution plan submission with a submission
date that is at least 12 months after the time the firm becomes a
specified firm.\43\ If a specified firm ceases to be a foreign
triennial full filer, it will no longer be considered a specified firm,
and the guidance will no longer be applicable to that firm as of the
date the firm ceases to be a foreign triennial full filer.
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\43\ The plan type for that next submission remains as specified
by the Rule, i.e., a full or targeted resolution plan. See 12 CFR
243.4 and 381.4.
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C. Interaction With Group Resolution Plan
The agencies recognize that the preferred resolution outcome for
many specified firms is a successful home country resolution using a
global SPOE resolution strategy that does not involve the placement of
any U.S. material entities into resolution. However, by law, section
165(d) resolution planning provisions require relevant FBOs to
contemplate their resolution in the United States. U.S. operations of
an FBO are often highly interconnected with the broader, global
operations of the financial institution. To clarify the interaction
between U.S. and global resolution strategies, the proposal outlined
expectations that specified firms should describe the impact of
executing the firm's global, group-wide resolution plan on the firm's
U.S. operations and detail the extent to which resolution planning
under the Rule relies on different assumptions, strategies, and
capabilities from the global plan. The group resolution plan section of
the proposed guidance differed from a similarly named section of the
2020 Proposed FBO Guidance by focusing on how U.S. resolution planning
is integrated into a FBO's global resolution planning efforts, in
addition to describing the impact on U.S. operations of executing the
global plan. In 2020, the agencies declined to finalize that aspect of
the 2020 Proposed FBO Guidance, stating that the item was addressed by
the Rule and that the agencies would collaborate with home country
regulators to better understand the impact on U.S. operations of
executing a firm's group resolution plan.\44\ However, recent events
have underscored the need to better understand group resolution plans,
and particularly the impact of executing the home plan on U.S.
operations. These events, combined with prior resolution plan
submissions from the specified firms that did not provide consistent
and sufficient details regarding the integration of U.S. resolution
planning with the firm's group resolution planning process, prompted
the agencies to issue additional guidance. Moreover, the final guidance
differs from the 2020 Proposed FBO Guidance in several ways by further
clarifying the Rule expectation and focusing on the reliance between
U.S. and group resolution plans based on information available to the
firm, as described below.
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\44\ See 2020 FBO Guidance at 85 FR 83567.
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The agencies received several comments regarding this section of
the proposal. Commenters claimed that global plans are sometimes
written by home authorities and FBOs may not always have full
visibility into the details of those plans' assumptions, strategies,
and capabilities. Commenters also asserted that, in some countries, the
global resolution plan is not shared with the firm beyond very general
terms and that home country regulators may consider aspects of the
group plan to be confidential supervisory information. In addition, one
commenter contended that the proposal did not specify with sufficient
detail what information from a group resolution plan should be included
in the U.S. resolution plan. Commenters urged the agencies to
coordinate with home country authorities and to use CMGs, which are
designed for collaboration between international regulators, to obtain
this type of information.
After consultation with certain home authorities and in response to
these comments, the agencies are finalizing this section of the
guidance with revisions. First, the agencies recognize that not all
firms have access to the group-wide resolution plan for that financial
institution. Accordingly, the final guidance clarifies that firms are
not expected to provide information that they do not possess and does
not include an expectation that firms specifically identify the extent
to which resolution planning under the Rule relies on different
assumptions, strategies, and capabilities from the global plan.
Furthermore, the agencies note that while CMGs have been and continue
to be a useful forum for collaboration between home and host
authorities regarding resolution related topics, centralizing
information about group resolution plans in resolution plans submitted
under the Rule could help the agencies prepare for a range of outcomes
and supplement ongoing coordination with home country authorities.
Accordingly, the final guidance provides that a plan should
describe the extent of reliance on U.S. operations for executing the
global resolution strategy and any reliance on the home or parent
operations for executing the U.S. resolution strategy. A description of
capabilities relied on to execute the U.S. resolution strategy that
differ from capabilities to execute the global resolution strategy
should also be included in a plan. The agencies also have retained
language from the proposal that a specified firm's broader
resolvability framework is expected to consider the objectives of both
the group-wide resolution strategy and the U.S. resolution strategy
pursuant to the Rule, with complementary efforts to enhance
resolvability across plans. The agencies do not believe that inclusion
of this type of information about group resolution plans in U.S.
resolution planning poses confidentiality issues, and the agencies will
collaborate with home authorities to address any outstanding issues
regarding the confidentiality of group resolution plans. The agencies
encourage specified firms to bring specific confidentiality concerns to
the attention of the agencies and their respective home authorities.
D. Capital
For specified firms using a U.S. SPOE resolution strategy, the
agencies proposed capital expectations substantially similar to those
in the 2020 Proposed FBO Guidance. The ability to provide sufficient
capital to material entities without disruption from creditors is
essential to a U.S. SPOE resolution strategy's objective to ensure that
material entities can continue to maintain operations as the firm is
resolved. The proposal described expectations concerning the
appropriate positioning of capital and other loss-absorbing instruments
(e.g., debt that a parent holding company may choose to forgive or
convert to equity) among the material entities within the firm (RCAP).
The proposal also described expectations regarding a methodology for
periodically estimating the amount of capital that may be needed to
support each material entity after the bankruptcy filing (resolution
capital execution need, or RCEN).
The agencies received numerous comments on the capital section of
the proposed guidance. One commenter supported including RCAP
expectations in the final guidance. Several commenters, though,
asserted that RCAP would be duplicative of existing capital
requirements, such as total loss absorbing capacity (TLAC) provisions,
and recommended that the agencies
[[Page 66517]]
remove RCAP from the final guidance. These commenters also contended
that the agencies did not sufficiently explain why the agencies
proposed guidance on capital, including RCAP, when the agencies
previously considered adopting RCAP expectations in the 2020 Proposed
FBO Guidance but omitted these expectations from the 2020 FBO Guidance.
A commenter argued that existing capital requirements are sufficient
for the size and complexity of the firms subject to this guidance
without RCAP expectations, which, the commenter asserted, add more
complexity to the resolution planning process. Another commenter
expressed concern that RCAP expectations could result in excessive
capital placement in the U.S., and that this could prevent firms from
effectively positioning capital in times of stress.
One commenter contended that as the majority of IHCs subject to
guidance are required to hold local resources for the recapitalization
of their U.S. operations under U.S. TLAC requirements, the agencies
should not issue additional requirements related to local bail-in-able
resources. A commenter argued that the risk characteristics of U.S.
IHCs do not justify requiring pre-positioning of capital for U.S. IHC
subsidiaries and urged that, at a minimum, the agencies should not
implement both IDI-level LTD requirements and RCAP expectations for
firms that select a U.S. SPOE resolution strategy.
One commenter also asserted that including expectations in this
guidance regarding the positioning of capital is premature given that
finalization of the Capital proposal and the LTD proposal may impact
firms' capital planning. A commenter specifically pointed to language
in the LTD proposal in which the agencies cite RCAP as one of the
reasons why IDI-level LTD requirements are not necessary for the IDI
subsidiaries of U.S. GSIBs.
After reviewing these comments, the agencies are finalizing this
section of the guidance largely as proposed, with one clarification
concerning RCEN. Whereas the proposed guidance provided that to the
extent a firm's U.S. resolution strategy relies on the recapitalization
of U.S. non-branch material entities, such recapitalization should be
to a level that allows for an orderly resolution of the U.S. non-branch
material entities, the final guidance specifies that the
recapitalization should allow U.S. non-branch material entities to
operate or be wound down in an orderly manner. This change is intended
to provide more detail to firms to help them develop their plans.
Although the agencies previously pointed to TLAC requirements
applicable to U.S. IHCs as part of the rationale for not including RCAP
expectations in the 2020 FBO Guidance,\45\ the agencies believe RCAP
expectations are important for FBOs adopting a U.S. SPOE resolution
strategy in order to ensure the appropriate positioning of capital and
other loss-absorbing instruments among the U.S. IHCs and all of their
material entity subsidiaries and to effectively execute a U.S. SPOE
resolution strategy. Specifically, TLAC requirements apply to the IHC,
while RCAP expectations under the guidance are applicable not just at
the IHC level, but between the U.S. IHC and its material entity
subsidiaries. Further, resources required to be held at the IHC
consistent with TLAC requirements may differ from the firm's expected
resource needs to execute a U.S. SPOE resolution strategy at specific
material entities. Plans submitted by the specified firms would benefit
from the firm's own assessment of its resource positioning and the
resolution needs among its material entities, not just the IHC or the
IDI.
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\45\ See 2020 FBO Guidance at 85 FR 83563.
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Further, the stress experienced by and the failure of several large
banking organizations in March 2023 highlighted the fast-moving nature
of stress events, as several banking organizations entered resolution
proceedings rapidly. These events also highlighted the potential for
the failure of a large regional banking organization to affect
financial stability. Successful execution of a U.S. SPOE resolution
strategy--including the need to ensure that individual material
entities have adequate capital to maintain operations as the firm is
resolved--is unlikely to be successful under a short time frame without
advance planning. Appropriate positioning of capital and other loss-
absorbing instruments among the firm's material entities is an
important element of this advanced planning to reduce uncertainty and
enable timely recapitalization consistent with a U.S. SPOE resolution
strategy. Accordingly, the agencies are finalizing guidance that
includes RCAP expectations, despite not including those expectations in
the final 2020 FBO guidance, to support the successful execution of the
U.S. SPOE resolution strategy.
Finalizing RCAP expectations is not premature in light of
outstanding proposals such as the LTD rulemaking and other pending
rules because the RCAP expectations can be achieved with or without the
LTD contemplated in the LTD proposal. The Federal banking agencies have
not finalized the LTD rulemaking proposal as of the issuance of this
final guidance, and comments on that proposed rule are currently under
consideration. Specifically, the final guidance does not rely on or
presume the finalization of pending rules and instead states,
consistent with the proposal, that a resolution plan should be based on
the current state of the applicable legal and policy frameworks.\46\
The guidance is intended to assist firms in developing their resolution
plans, which are required to be submitted pursuant to the Dodd-Frank
Act and the Rule. While other capital and resolution-related rules may
establish minimum standards applicable to firms submitting resolution
plans, this guidance is designed to facilitate a firm's own analysis of
the firm's expected needs in resolution across that firm's material
entities.
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\46\ See infra section V.X of this document.
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Regarding the comment that RCAP expectations would result in
excessive capital placement in the United States, RCAP is not a
regulatory requirement, but rather a potential element of an effective
SPOE resolution strategy. The specified firms are not required to adopt
a U.S. SPOE resolution strategy. To the extent a specified firm selects
a U.S. SPOE resolution strategy, any reduction in flexibility would be
balanced by benefits prepositioning provides in reducing uncertainty
and enabling timely recapitalization of material entities. Furthermore,
the agencies' reference to RCAP in the LTD preamble as one reason for
not proposing IDI-level LTD requirements for U.S. GSIBs does not
provide a rationale for excluding RCAP expectations from this guidance.
First, in addition to RCAP expectations, the U.S. GSIBs are different
in profile from these firms, and are subject to the most stringent
capital, liquidity, and other prudential standards of all banking
organizations that operate in the United States. Second, as noted
above, the goals of this guidance would be complemented by additional
LTD issued by specified firms, and the guidance is practicable in the
absence of an LTD requirement.
For firms that adopt a U.S. MPOE resolution strategy, the agencies
did not propose further expectations concerning capital and asked a
question about whether capital-related expectations should be applied.
In response, one commenter agreed with the proposal that additional
expectations are not warranted for firms using a U.S. MPOE resolution
strategy, arguing that such expectations would serve no purpose.
[[Page 66518]]
However, another commenter contended that it is not prudent to assume
that material entities within a holding company structure can be
discontinued in an orderly manner and that, at a minimum, capital plans
are needed for each material entity to preserve its value during the
transition period between a firm's failure and when it can be sold or
closed in an orderly way. The commenter asked the agencies to
reconsider expectations for firms that adopt a U.S. MPOE resolution
strategy and align them with expectations for firms that adopt a U.S.
SPOE resolution strategy.
The agencies have determined that additional capital expectations
for firms selecting a U.S. MPOE resolution strategy are not necessary
at this time. Under a U.S. MPOE resolution strategy, most material
entities do not continue as going concerns upon the firm's entry into
resolution proceedings and are likely to have already depleted existing
capital requirements. Accordingly, the agencies are finalizing this
section of the guidance as proposed.
E. Liquidity
For firms that adopt a U.S. SPOE resolution strategy, the agencies
proposed liquidity expectations substantially similar to those in the
2020 Proposed FBO Guidance. A firm's ability to reliably estimate and
meet its liquidity needs prior to, and in, resolution is important to
the execution of a firm's resolution strategy because it enables the
firm to respond quickly to demands from stakeholders and
counterparties, including regulatory authorities in other jurisdictions
and financial market utilities. Maintaining sufficient and
appropriately positioned liquidity also allows subsidiaries to continue
to operate while the firm is being resolved in accordance with the
firm's resolution strategy. For firms that adopt a U.S. MPOE resolution
strategy, the agencies proposed that a firm should have the liquidity
capabilities necessary to execute its resolution strategy, and its plan
should include analysis and projections of a range of liquidity needs
during resolution.
The agencies received numerous comments on the liquidity section of
the proposed guidance. One commenter supported including RLAP
expectations in the final guidance for firms that adopt a U.S. SPOE
resolution strategy.
Several commenters, however, requested that the agencies remove
RLAP expectations from the final guidance, claiming that the
expectation is redundant to certain liquidity requirements, such as the
Liquidity Coverage Ratio (LCR) and Internal Liquidity Stress Testing
(ILST). Several commenters also argued FBOs have reduced their
activities in the United States, resulting in a reduced risk and
financial stability profile, and that liquidity requirements set forth
in existing regulatory requirements, and not RLAP, should set the
binding constraint on the firms. In addition, one commenter expressed
concern that RLAP expectations could make it more difficult for the
global firm to deploy liquidity resources most effectively in stress.
Several commenters also asserted that the agencies did not sufficiently
explain the rationale for including RLAP expectations that the agencies
had previously considered but omitted from the 2020 FBO Guidance.
Another commenter requested that for firms that adopt a U.S. MPOE
resolution strategy, the guidance strengthen expectations for liquidity
in resolution by including a procedure or protocol for liquidity
related decisions, irrespective of resolution strategy. The commenter
argued that the guidance should identify the importance of overcoming
barriers to moving liquidity across material legal entities and clarify
which types of transfers of liquidity are permissible for material
entities in resolution.
After reviewing these comments, the agencies are finalizing this
section of the guidance as proposed.\47\ While the agencies previously
did not adopt RLAP expectations in the 2020 FBO Guidance, the agencies'
recent experiences highlighted the fast-moving nature of bank failure
and resolution and underscored the need to maintain sufficient and
appropriately positioned liquidity across the IHC and its subsidiaries
to be prepared for a successful U.S. SPOE resolution strategy. The
agencies also believe that RLAP expectations are appropriate in light
of recent events demonstrating that liquidity pressures on these firms
can change dramatically over a short period of time. Having sufficient
and appropriately positioned liquidity at the time of failure increases
the probability that operating subsidiaries will have enough liquidity
to be able to continue to operate while the firm is being resolved, and
the RLAP expectations help achieve this goal.
---------------------------------------------------------------------------
\47\ The agencies are clarifying one aspect of RLAP guidance
that could be construed to impose a requirement on the specified
firms.
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RLAP expectations are not addressed by ILST and other regulatory
requirements. Maintaining sufficient and appropriately positioned
liquidity is critical to executing a U.S. SPOE resolution strategy,
regardless of the size and complexity of the banking organization. The
LCR and ILST requirements that commenters referenced serve a different
purpose--to promote resilience of firms' funding profiles--and are not
focused on resolution planning.
RLAP expectations also would not hinder a specified firm's global
parent from deploying liquidity resources most effectively in stress.
Unlike ILST and other regulatory requirements, RLAP is not a regulatory
requirement, but rather an example of a decision-making framework for
liquidity needs and positioning in support of an effective SPOE
resolution strategy that could be consistent with effective resolution
planning. As discussed elsewhere, the guidance is not a legally binding
enforceable requirement and is therefore not a binding constraint, and
the specified firms are not required to adopt a U.S. SPOE resolution
strategy or develop RLAP capabilities. To the extent a specified firm
adopts a U.S. SPOE resolution strategy and uses RLAP, any reduction in
flexibility would be balanced against the benefits prepositioning
provides in enabling subsidiaries to continue to operate while the firm
is being resolved.
Finally, the agencies are not establishing expectations for
procedures or protocols for liquidity related decisions and clarifying
the types of transfers of liquidity that are permissible for material
entities in resolution for firms that adopt a U.S. MPOE strategy. The
Rule already includes requirements for firms to include detailed
descriptions of funding and liquidity needs and resources of material
entities, and to identify interconnections and interdependencies
related to liquidity arrangements.\48\ Beyond the assumptions specified
in the final guidance related to liquidity, additional details of how
each firm provisions liquidity in the lead up to and during resolution
are not needed at this time. Furthermore, firms should follow
procedures and protocols that are aligned with their larger liquidity
management frameworks to facilitate their preferred resolution
strategies.
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\48\ 12 CFR 243.5(c)(1)(iii) and (g) and 381.5(c)(1)(iii) and
(g).
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F. Governance Mechanisms
The agencies proposed separate governance mechanisms expectations
based on a firm's preferred resolution strategy. Specified firms that
use an SPOE resolution strategy would have been expected to develop an
adequate governance structure with triggers that identify the onset,
continuation, and increase of financial stress to ensure that
[[Page 66519]]
there is sufficient time to prepare for resolution-related actions. For
specified firms that adopt a U.S. MPOE resolution strategy, the
agencies proposed providing governance mechanisms expectations to
ensure communication and coordination between the governing body of the
U.S. operations and the foreign parent.
The agencies requested comment on whether to apply additional
governance mechanisms expectations to firms contemplating a U.S. MPOE
resolution strategy. One commenter called for the agencies to apply
similar expectations regardless of a firm's preferred resolution
strategy, arguing that many aspects of resolution planning are the same
or similar for U.S. MPOE and U.S. SPOE resolution strategies. The
commenter also encouraged the agencies to adopt expectations that firms
articulate their internal legal strategy, processes for making key
decisions, and roles and responsibilities leading up to and after
bankruptcy. Another commenter argued in favor of not providing any
governance mechanisms guidance to firms adopting a U.S. MPOE resolution
strategy.
Other commenters called on the agencies to limit the expectations
for firms adopting a U.S. SPOE resolution strategy. These commenters
contended that expectations should not apply to a specified firm that
does not rely on foreign support or transfer of prepositioned resources
during runway or resolution, and that the expectations as proposed were
too prescriptive or burdensome. One commenter requested that the
agencies clarify why expectations (for foreign parent support,
triggers, and support within the United States) in the 2020 Proposed
FBO Guidance but were not finalized were included in the proposed
guidance for FBOs that adopt a U.S. SPOE resolution strategy.
The agencies are finalizing this section of the guidance as
proposed.\49\ For firms that adopt a U.S. MPOE resolution strategy, the
governance mechanisms guidance already includes expectations regarding
the role of U.S. board and senior management under the U.S. resolution
strategy as well as expectations regarding triggers and other internal-
decision-making processes relating to the decision to implement the
strategy. Adopting expectations for the processes for making key
decisions, internal legal strategy, and roles and responsibilities
would be duplicative. In addition, under a U.S. MPOE resolution
strategy, certain material entities' entry into resolution is typically
determined by or dependent on the actions of supervisory and resolution
authorities. As a result, additional expectations similar to those
included for a U.S. SPOE resolution strategy (additional triggers,
playbooks, foreign parent support, and support within the United
States) would not meaningfully improve the resolvability of specified
firms adopting a U.S. MPOE resolution strategy.
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\49\ As noted above, the agencies made several minor, non-
substantive changes from the proposal, including to align the
wording of guidance directed at firms that adopt a U.S. SPOE
resolution strategy and firms that adopt a U.S. MPOE resolution
strategy. The agencies also provided one minor clarifying example of
an external stakeholder that could be relevant for purposes of a
governance playbook.
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Governance mechanisms expectations for firms adopting a U.S. SPOE
resolution strategy are reasonable in light of the events of March
2023. The stress experienced by and the failure of several large
banking organizations in March 2023 highlighted the potentially fast-
moving nature of bank resolution, as several banking organizations
entered resolution proceedings rapidly. These events also highlighted
the potential for the failure of a large regional banking organization
to affect financial stability. Successful execution of a U.S. SPOE
resolution strategy--including the timely escalation of information to
both U.S. IHC and foreign parent governing bodies in order to mitigate
vulnerabilities and take corresponding actions, and the transmission of
resources to and within an FBO's U.S. material entity subsidiaries--is
unlikely to be successful within a short time frame without advance
planning, appropriate governance structures and processes, and
assessment of possible impediments, legal or otherwise. Accordingly, in
contrast to the 2020 FBO Guidance, this final guidance contains
governance mechanisms expectations related to foreign parent support,
triggers, and support within the United States for specified firms
adopting a U.S. SPOE resolution strategy. Because the Rule requires
firms to contemplate resolution under the Bankruptcy Code, resolution-
specific triggers facilitating communication and coordination are
appropriate to promote resolvability even if a firm monitors and
controls capital and liquidity and operations in business-as-usual
(BAU) and if the preferred strategy of an FBO is a successful home
country resolution. The agencies note that firms' BAU processes and
procedures may be relevant to, and could inform, such resolution
capabilities.
In addition, while a firm may understand the current legal risks
associated with its preferred resolution strategy under the Bankruptcy
Code, commercial and bankruptcy law and precedent evolve, and it is
important that a firm's plan reflect an up-to-date assessment of
possible legal challenges and potential mitigants. The expectation that
a resolution plan includes such an analysis of potential challenges
does not constrain firms' ability to determine the particular form and
structure of the framework developed to support its particular
resolution strategy and needs. The agencies also note that the guidance
only relates to an analysis of planned support; there are no
expectations that a plan should provide for such support.
Regarding the provision of foreign support or transfer of
prepositioned resources during runway or resolution, it should be noted
that neither the final guidance nor the Rule endorses a specific
mechanism for the provision of such support. Instead, a firm that
adopts a U.S. SPOE resolution strategy should explain in its resolution
plan how it will meet its U.S. resource needs, such as through
prepositioning, parent support, and other options.
G. Operational
For firms that adopt a U.S. SPOE resolution strategy, the agencies
proposed adopting portions of the operational expectations of the 2020
FBO Guidance, 2020 Proposed FBO Guidance, and SR letter 14-1,\50\ with
modifications based on the specific characteristics and complexities of
the specified firms. The proposal contained expectations on payments,
clearing, and settlement activities (PCS); managing, identifying, and
valuing collateral; management information systems; shared and
outsourced services; and qualified financial contracts (QFC). For firms
that adopt a U.S. MPOE resolution strategy, the agencies proposed
expectations based on SR letter 14-1 and the 2020 FBO Guidance that are
most relevant to a U.S. MPOE resolution strategy. As noted in the
proposal, development and maintenance of operational capabilities is
important to support and enable execution of a firm's preferred
resolution strategy, including providing for the continuation of
identified critical operations and preventing or mitigating adverse
effects on U.S. financial stability. The failure of several large
banking organizations in March 2023 highlighted the importance of firm
capabilities to generate timely and accurate data on a material entity
basis. For example, having the ability to
[[Page 66520]]
produce a list of key management and support employees at the legal
entity level is critical both to continue operations pursuant to a U.S.
SPOE resolution strategy and to facilitate the work of resolution
authorities in a U.S. MPOE resolution strategy. As a result, in a
change from the 2020 FBO Guidance, the agencies proposed and are now
finalizing management information systems guidance for both U.S. SPOE
and U.S. MPOE resolution strategies. The agencies also proposed, in a
change from the 2020 FBO Guidance, and are now finalizing guidance on
QFCs for the U.S. SPOE resolution strategy, as not all firms subject to
the final guidance are subject to the QFC stay rules of the Board,
Office of the Comptroller of the Currency, and the FDIC.\51\
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\50\ SR letter 14-1, ``Principles and Practices for Recovery and
Resolution Preparedness'' (Jan. 24, 2014), available at: <a href="https://www.federalreserve.gov/supervisionreg/srletters/sr1401.htm">https://www.federalreserve.gov/supervisionreg/srletters/sr1401.htm</a>.
\51\ See 12 CFR part 47 (Office of the Comptroller of the
Currency); 12 CFR part 252, subpart I (Board); and 12 CFR part 382
(FDIC).
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The Agencies received three comments on the proposed guidance. One
commenter suggested that the proposed guidance related to management
information systems, qualified financial contracts, and shared and
outsourced services should help strengthen the specified firms'
operational readiness. Another commenter argued that the proposed
guidance's expectation that MPOE firms remediate vendor arrangements to
support continuity of shared and outsourced services is overbroad. The
commenter asserted that this expectation is inappropriate for MPOE
firms that mostly receive external services through its IDI because
termination of such vendor contracts due to ipso facto clauses would be
stayed by the FDI Act,\52\ and as many firms include resolution-
resilient terms in vendor contracts when those contracts undergo
periodic review and renewal. The commenter recommended that the
Agencies specify that this expectation would apply only to contracts
not covered by the FDI Act stay. Another commenter contended that firms
with limited PCS activities, such as firms without identified critical
operations related to those activities, should not have to develop the
same capabilities as firms with more complex PCS activities.
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\52\ See 12 U.S.C. 1821(e)(13)(A).
---------------------------------------------------------------------------
After review and consideration of these comments, the agencies are
finalizing this area of the guidance with one clarification applicable
only to firms that adopt a U.S. SPOE strategy, and one modification
applicable to firms with either U.S. resolution strategy. The proposed
guidance for firms that adopt a U.S. SPOE strategy stated that a firm
should maintain a fully actionable implementation plan to ensure the
continuity of shared services that support identified critical
operations or core business lines. Implied in the concept of supporting
identified critical operations or core business lines is the notion
that a firm would need to be able to execute its resolution strategy.
Accordingly, the final guidance for firms that adopt a U.S. SPOE
strategy explicitly states that a firm's implementation plan to ensure
continuity of shared services should include those services that are
material to the execution of the firm's resolution strategy.
The agencies recognize that firms anticipate relying on external
parties for the execution of some aspects of the resolution strategy,
and the proposal included and the final guidance maintains the
expectation that a firm identify and support the continuity of
outsourced services that support critical operations or are material to
the execution of the U.S. resolution strategy. Such outsourced services
that firms may rely on could be employing outside bankruptcy counsel
and consultants to help prepare documents needed to file for
bankruptcy, and to represent the firm during the course of the
bankruptcy proceedings. The agencies expect that covered companies
engage in advance planning to help facilitate their ability to complete
all filings, motions, supporting declarations and other documents to
prepare for and file an orderly resolution in bankruptcy. In
recognition of this expectation, the final guidance clarifies that--
regardless of strategy--those professionals' services could be material
to the execution of a firm's U.S. resolution strategy and, if so,
should be accounted for in the firm's resolution plan. Accordingly, the
agencies expect that firms should prepare during business-as-usual to
ensure they can complete and file all documents needed to initiate
their preferred resolution strategy.
The other aspects of this section of the guidance are being
finalized as proposed. The comment addressing contract remediation
correctly observes that the FDI Act permits the FDIC as receiver of a
failed IDI to enforce contracts with that IDI notwithstanding any
provisions in the contract permitting termination due to insolvency or
appointment of the receiver. However, it is advantageous for contracts
that support identified critical operations or that are material to the
execution of the resolution strategy to not purport to permit
termination. Counterparties may not be aware of the receiver's
authority under the FDI Act to enforce such agreements, potentially
requiring the receiver to seek authority from a court to compel the
counterparty's performance, which could lead to interruption of
identified critical operations and capabilities needed to execute the
resolution strategy. Further, counterparties located overseas may not
recognize the authority afforded the receiver to compel the performance
of contracts. The agencies recognize that contract remediation is an
ongoing process and encourage firms to make such changes proactively.
Regarding PCS activities, as discussed elsewhere,\53\ the Agencies
note that the level of detail provided in a firm's plan should be both
consistent and commensurate with the firm's risk and activities.
---------------------------------------------------------------------------
\53\ See infra section III.M of this document.
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H. Legal Entity Rationalization and Separability
For foreign banking organizations that adopt a U.S. SPOE resolution
strategy, the agencies proposed substantively adopting legal entity
rationalization (LER) expectations from the 2020 FBO Guidance and
separability expectations from the 2020 FBO Proposed Guidance. The LER
expectations stated that firms should maintain a structure that
facilitates orderly resolution of their operations, including by
developing and describing criteria that consider the best alignment of
legal entities and business lines and facilitate resolvability of U.S.
operations. The separability expectations provided that firms should
identify discrete U.S. operations that could be sold or transferred in
resolution under a range of potential failure scenarios. The agencies
declined to finalize the separability expectations in the 2020 Proposed
FBO Guidance, stating that the agencies had found that the separability
options within the United States were few, their inclusion in
resolution plans had yielded limited new insights, and the agencies
expected that such information would be obtainable through
international collaboration with home country regulators.
For FBOs that adopt a U.S. MPOE resolution strategy, the agencies
proposed adopting LER expectations that were reduced relative to the
2020 FBO Guidance and separability expectations that were similarly
reduced relative to the 2020 FBO Proposed Guidance. The LER
expectations clarified that these firms should have legal entity
structures that support their U.S. resolution strategy and describe
these structures in their
[[Page 66521]]
plans, as well as discuss their rationale for the legal entity
structure in cases where a material entity IDI relies on other
affiliates during resolution. The separability expectations requested
that firms include options for the sale, transfer, or disposal of
significant assets, portfolios, legal entities, or business lines in
resolution.
The agencies received two comments on the separability guidance for
foreign banking organizations. One commenter contended that
separability analysis is inappropriate for businesses and legal
entities that would be wound down in resolution, as it may not be
feasible to sell or otherwise transfer such businesses, and that
separability analysis would not enhance resolvability. The commenter
further noted that many elements of the separability analysis may not
be appropriate for firms that are not active in the investment banking
space or lack large mergers and acquisitions teams. Another commenter
called on the agencies not to reimpose separability expectations that
had been proposed in 2020 but removed from the final 2020 FBO Guidance,
instead suggesting that the agencies obtain separability insights
through collaboration with home country regulators.
After review and consideration of the comments, the agencies are
finalizing this guidance as proposed. The application of LER and
separability expectations to FBOs, whether they adopt an SPOE or MPOE
strategy, remains appropriate because these firms have significant non-
bank or cross-national activities, as well as interconnections among
U.S. IHC subsidiaries, U.S. branches, and the foreign parent. The 2023
bank failures highlighted the benefit of understanding the separability
options of U.S. operations of FBOs, particularly for the purpose of
informing discussions with foreign regulatory authorities regarding the
potential restructuring of an FBO's U.S. operations in resolution.
While the agencies continue to discuss firm separability and other
topics with home country regulators, identification of separability
options for U.S. operations and inclusion of supporting analysis in
resolution plans provides important information to complement and
enhance ongoing international coordination.
Finally, the agencies moved expectations on LER governance
processes from the separability section to the LER section of the
guidance text.
I. Insured Depository Institution Resolution
Background
In the proposal, the agencies provided clarifying expectations as
to how a firm adopting a U.S. MPOE resolution strategy with a material
entity IDI should explain how the IDI can be resolved under the FDI Act
in a manner that is consistent with the overall objectives of the
resolution plan. In particular, the proposed expectations for IDI
resolution were designed to support the resolution plans' effectiveness
in substantially mitigating the risk that the failure of the specified
firm would have serious adverse effects on financial stability in the
United States, while also adhering to the legal requirements of the FDI
Act without relying on the assumption that the systemic risk exception
will be invoked in connection with the resolution of the firm. For
example, the agencies proposed clarifying that if a firm adopting a
U.S. MPOE resolution strategy selects an IDI resolution strategy other
than a payout liquidation, the firm's plan should provide information
supporting the feasibility of the firm's selected strategy, although
such a feasibility analysis need not consist of a full FDI Act least-
cost requirement analysis. The agencies proposed that a firm could
instead provide a more limited analysis. The proposal noted that the
same expectations would not be applicable to firms adopting an SPOE
resolution strategy because the U.S. IDI subsidiaries of such firms
would not be expected to enter resolution.
The agencies received a number of comments on the proposed guidance
related to the resolution of a subsidiary material entity U.S. IDI.
Some commenters requested additional clarity on how the firm's plan
should address the expectation that the plan include an analysis of how
the resolution strategy could potentially meet the FDIC's statutory
least-cost requirement. One commenter suggested that the agencies
should require firms to develop resolution strategies involving BDIs.
This commenter recommended that the guidance address how firms could
describe and quantify the value of the firm's assets transferred to
such a BDI, and that the agencies should provide guidance so that firms
would address how the resolution plan would incorporate the value of
the IDI's assets and liabilities, including its franchise value, and
how the preferred resolution strategy would result in a least-costly
resolution. The commenter also recommended that firms and regulators
reach agreement on certain assumptions regarding valuations.
Another commenter argued that firms adopting a U.S. MPOE strategy
should not be expected to demonstrate that their preferred strategy
would be consistent with the FDIC's statutory least-cost requirement.
This commenter stated that efforts to conduct a hypothetical least-cost
requirement analysis, or a proxy for that analysis, would be of no or
minimal value to the FDIC in an actual resolution event. The commenter
claimed that it would not be possible to conduct a least-cost test
requirement analysis in a resolution plan submission in the absence of
actual bids from actual buyers. Instead, the commenter recommended that
the guidance provide expectations for how firms selecting a U.S. MPOE
strategy could demonstrate their valuation capabilities. The commenter
also suggested that because a least-cost requirement analysis is not a
component of the Proposed IDI Rule, it also should not be a component
of the guidance. This commenter requested sufficient time to address
any finalized guidance that provides expectations for including least-
cost requirement analysis.
Several commenters suggested that the Proposed IDI Rule is a better
forum to address how the IDI subsidiary of a specified firm selecting a
U.S. MPOE strategy can be resolved under the FDI Act in a manner that
is consistent with the FDI Act. Several commenters also suggested that
the agencies' expectations for resolution plan submissions under the
Rule should align with the requirements of the FDIC's IDI Rule plan
submissions.
One commenter questioned whether firms have sufficient information
about how the FDIC would conduct a least-cost test analysis in order
for a firm to conduct an analysis of whether its preferred strategy
could meet the FDIC's statutory least-cost requirement. This commenter
stated that meeting the expectations in the proposal would involve
significantly more detail and comparative analysis than the IDI Rule,
and that, in order to prevent inconsistency and undue burden, the
guidance should instead follow the IDI Rule so that firms can reference
their IDI Rule submissions when preparing and submitting resolution
plans under the guidance to reduce duplication and increase
consistency.
When an IDI fails and the FDIC is appointed receiver, the FDIC
generally must use the resolution option for the failed IDI that is
least costly to the DIF of all possible methods (the least-cost
[[Page 66522]]
requirement).\54\ A resolution plan that contemplates the separate
resolution of a U.S. IDI that is a material entity and the appointment
of the FDIC as receiver for that IDI should explain how the resolution
could be achieved in a manner that adheres to applicable law, including
the FDI Act, and that would achieve the overall objectives of the
resolution plan. Prior resolution plans that have addressed the
resolution of the IDIs in MPOE strategies have sometimes included
resolution mechanics that are not consistent with the FDI Act,
including inappropriate assumptions that uninsured deposits could
automatically be transferred to a BDI.
---------------------------------------------------------------------------
\54\ See 12 U.S.C. 1823(c)(4)(A). A deposit payout and
liquidation of the failed IDI's assets (payout liquidation) is the
general baseline the FDIC uses in a least-cost requirement
determination. See 12 U.S.C. 1823(c)(4)(D). An exception to this
requirement exists when a determination is made by the Secretary of
the Treasury, in consultation with the President and after a written
recommendation from two-thirds of the FDIC's Board of Directors and
two-thirds of the Board, that complying with the least-cost
requirement would have serious adverse effects on economic
conditions or financial stability and implementing another
resolution option would avoid or mitigate such adverse effects. See
12 U.S.C. 1823(c)(4)(G). A specified firm should not assume the use
of this systemic risk exception to the least-cost requirement in its
resolution plan.
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Separate and distinct from the Rule, the FDIC has a regulation, the
IDI Rule, requiring certain IDIs (covered IDIs or CIDIs) to submit to
the FDIC resolution plans providing information about how the CIDI can
be resolved under the FDI Act. Contemporaneous with publication of the
proposed guidance, the FDIC published in the Federal Register the
Proposed IDI Rule, a proposed rulemaking to amend and restate the IDI
Rule, which has since been finalized and was published in the Federal
Register on July 9, 2024.
The IDI Rule and the Rule each have different goals, and,
accordingly, the expected content of the respective resolution plans is
different. The purpose of the IDI Rule is to ensure that the FDIC has
access to the information it needs to resolve a CIDI efficiently in the
event of its failure, including an understanding of the CIDI's ability
to produce the information the FDIC would need to conduct a least-cost
determination under a wide range of circumstances.
The Rule serves a different purpose. The Rule requires a covered
company to submit a resolution plan that would allow rapid and orderly
resolution of the subsidiaries and operations of a foreign covered
company that are domiciled in the United States under the Bankruptcy
Code in the event of material financial distress or failure. The
regional bank failures in March 2023 demonstrated that banking
organizations of size and complexity similar to that of the specified
firms--or even smaller and less complex banking organizations--can be
disruptive to U.S. financial stability. In the case of Silicon Valley
Bank and Signature Bank, uninsured depositors would have faced the
potential for significant losses had the least costly approach to
resolution, a payout liquidation, been adopted. The potential for
contagion from the deposit runs at the firms that failed, as well as
related potential for risks to the economy and financial stability, led
the Secretary of the Treasury, in consultation with the President and
after a written recommendation from the FDIC's Board of Directors and
the Board, to invoke the systemic risk exception to enable the FDIC to
resolve these institutions in a way that would avoid or mitigate
serious adverse effects on economic conditions or financial stability.
Though a specified firm would be conducting its analysis without input
in the form of actual bids from potential buyers, the agencies expect
firms to use available information to estimate the value of its
franchise for purposes of conducting the limited least-cost analysis
articulated in the guidance.
If a firm's resolution plan under the Rule that includes a U.S.
MPOE strategy calls for resolving an IDI using a strategy other than
payout liquidation, the plan should explain how the requirements of the
FDI Act could be met without depending upon extraordinary government
support. Even though this analysis is not binding in an actual
resolution scenario, an analysis showing that the firm's preferred
resolution strategy could satisfy requirements of the FDI Act could
help the firm demonstrate that the resolution plan's preferred strategy
could be executed in a manner consistent with applicable law. If a
resolution plan does not provide such an explanation, it may be
appropriate to conclude that the strategy would not satisfy the FDI
Act's relevant provisions, such as the least-cost requirement, which
could represent a weakness in the plan. As a general matter, the
agencies followed this practice in reviewing previous full resolution
plan submissions.
Guidance. In response to commenters, the agencies are providing
additional detail to help address commenters' questions related to the
FDI Act's least-cost requirement and how it relates to the expectations
in this final guidance. The final guidance does not express a change in
the agencies' expectations. Instead, the final guidance provides more
detail on approaches a firm can use to explain how the resolution of
its IDI subsidiary can be achieved in a manner that substantially
mitigates the risk that the firm's failure would have serious adverse
effects on U.S. financial stability while also complying with the
statutory and regulatory requirements governing IDI resolution. The
final guidance lists a number of different common strategies for
resolving an IDI and describes the kind of information that a firm
could provide to explain how a resolution using one of the example
strategies could be consistent with the least-cost requirement. The
final guidance also provides information about calculating the value of
an IDI's assets and its franchise value. Finally, the final guidance
explicitly notes that the agencies are not expecting a firm to provide
a complete least-cost analysis.
Strategies for Resolving an IDI
Purchase and Assumption Transaction. The FDIC typically seeks to
resolve a failed IDI by identifying, before the IDI's failure, one or
more potential acquirers so that as many of the IDI's assets and
deposit liabilities as possible can be sold to and assumed by the
acquirer(s) instead of remaining in the receivership created on the
failure date.\55\ This transaction form, termed a purchase and
assumption or P&A transaction, has often been the resolution approach
that is least costly to the DIF, and is usually considered the easiest
for the FDIC to execute and the least disruptive to the depositors of
the failed IDI--particularly in the case of transactions involving the
assumption of all the failed IDI's deposits by the assuming institution
(an all-deposit transaction).
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\55\ See generally <a href="https://www.fdic.gov/resources/resolutions/bank-failures/">https://www.fdic.gov/resources/resolutions/bank-failures/</a> for background about the resolution of IDIs by the
FDIC.
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The limited size and operational complexity present in most small-
bank failures have been significant factors in allowing the FDIC to
execute P&A transactions with a single acquirer on numerous occasions.
Resolving an IDI via a P&A transaction over the closing weekend,
however, has not always been available to the FDIC, particularly in
failures involving large IDIs. P&A transactions require lead time to
identify potential buyers and allow due diligence on, and an auction
of, the failing IDI's assets and banking business, also termed its
franchise. The acquiring banks must also have sufficient excess capital
to absorb the failed IDI's assets and deposit franchise, sufficient
expertise to manage business integration, and the ability to comply
[[Page 66523]]
with several legal requirements. Larger failed banks can pose
significant, and potentially systemic, challenges in resolutions that
make a P&A transaction less viable. These challenges include: a more
limited pool of potential acquirers as a failed IDI increases in size;
operational complexities that require lengthy advance planning on the
part of the IDI and the FDIC; the development of certain expertise;
potential market concentration and antitrust considerations; and
potentially the need to maintain the continuity of activities conducted
in whole or in part in the IDI that are critical to U.S. financial
stability.
Alternative Resolution Strategies. If no P&A transaction that meets
the least-cost requirement can be accomplished at the time an IDI
fails, the FDIC must pursue an alternative resolution strategy. The
primary alternative resolution strategies for a failed IDI are (1) a
payout liquidation, or (2) utilization of a BDI.
Payout Liquidation. The FDIC conducts payout liquidations by paying
insured deposits in cash or transferring the insured deposits to an
existing institution or a new institution organized by the FDIC to
assume the insured deposits (generally, a Deposit Insurance National
Bank or DINB). In payout liquidations, the FDIC as receiver retains
substantially all of the failed IDI's assets for later sale, and the
franchise value of the failed IDI is lost. A payout liquidation is
often the most costly and disruptive resolution strategy because of
this destruction of franchise value and the FDIC's direct payment of
insured deposits.
Bridge Depository Institution. If the FDIC determines that
temporarily continuing the operations of the failed IDI is less costly
than a payout liquidation, the FDIC may organize a BDI to purchase
certain assets and assume certain liabilities of the failed IDI.\56\
Generally, a BDI would continue the failed bank's operations according
to business plans and budgets approved by the FDIC and carried out by
FDIC-selected BDI leadership. In addition to providing depositors
continued access to deposits and banking services, the BDI would
conduct any necessary restructuring required to rationalize the failed
IDI's operations and maximize value to be achieved in an eventual sale.
Subject to the least-cost requirement, the initial structure of the BDI
may be based upon an all-deposit transaction, a transaction in which
the BDI assumes only the insured deposits, or a transaction in which
the BDI assumes all insured deposits and a portion of the uninsured
deposits. Once a BDI is established, the FDIC seeks to stabilize the
institution while simultaneously planning for the eventual exit and
termination of the BDI. In exiting and terminating a BDI, the FDIC may
merge or consolidate the BDI with another depository institution, issue
and sell a majority of the capital stock in the BDI, or effect the
assumption of the deposits or acquisition of the assets of the BDI.\57\
While utilizing a BDI can avoid the negative effects of a payout
liquidation, such as destruction of franchise value, many of the same
factors that challenge the feasibility of a traditional P&A transaction
also complicate planning for the termination of a BDI through a sale of
the whole entity or its constituent parts.
---------------------------------------------------------------------------
\56\ Before a BDI may be chartered, the chartering conditions
set forth in 12 U.S.C. 1821(n)(2) must also be satisfied. For
purposes of this guidance, if the Plan provides appropriate analysis
concerning the feasibility of the BDI strategy, there is no
expectation that the resolution plan also demonstrates separately
that the conditions for chartering the BDI have been satisfied.
\57\ 12 U.S.C. 1821(n)(10).
---------------------------------------------------------------------------
Though one commenter suggested that the guidance should require
firms to develop resolution strategies involving BDIs, the agencies do
not maintain an expectation that firms will develop resolution
strategies involving BDIs. The expectations provided in this guidance
are also intended to be helpful to firms that have chosen to involve a
BDI in their resolution strategy.
Least-Cost Analysis for Resolution Plans. The final guidance does
not include an expectation that firms provide in their resolution plans
a complete least-cost analysis. Such an analysis would, for example,
include a comparison of the preferred strategy for resolving an IDI
that is a material entity against every other possible resolution
method. While a firm may choose to provide a complete least-cost
analysis, this guidance discusses expectations regarding a limited
least-cost analysis that would explain how the firm's preferred U.S.
strategy is not more costly than a payout liquidation and, if
applicable, an insured-only BDI.
One commenter suggested that the agencies should provide guidance
for how firms should address the valuation of an IDI's assets and
liabilities, including its franchise value. In this final guidance, the
agencies are providing additional explanation for how firms can develop
and support the valuation of the IDI's assets and liabilities in an IDI
resolution. This guidance includes a description of how firms can
assess the franchise value of a firm's business.
Example. The following example should be read in conjunction with
section VIII of the guidance text, Insured Depository Institution
Resolution. This example is only intended to provide firms with an
illustration of the types of considerations and calculations that could
be included in a firm's analysis explaining how its preferred strategy
would be less costly than a payout liquidation and, if applicable, an
insured-only BDI. This example is not intended to serve as a template
for firms or to provide guidelines for reasonable valuations of a
firm's assets or liabilities. The valuations described in this example
are intended to be illustrative and are not guidance about the likely
values of a firm's assets and liabilities in an individual resolution
plan or in resolution.
Bank A has $500 billion in total assets, consisting of $250 billion
loans; $75 billion cash and equivalents; $125 billion in investment
securities; and other assets totaling $50 billion. The bank's initial
funding structure consists of $400 billion in deposits; $25 billion in
various unsecured payables and debt; $25 billion in secured funding;
and $50 billion in capital instruments. For this example, the bank
assumes it would encounter idiosyncratic events at a time when severely
adverse economic conditions are present and this combination of events
would cause the bank to be closed by the chartering authority and the
FDIC appointed as receiver. The illustrative tables below reflect
values as of the appointment of the FDIC as receiver.
The initial events combine to cause immediate losses of $25 billion
recognized as direct operating charges and $15 billion through write-
downs/provision expense for the loan portfolio, and $60 billion of
deposit runoff occurs.
<bullet> For purposes of conducting the analysis, the firm's
management assumes that additional value diminution is present in the
loan portfolio. Accordingly, after thoroughly analyzing the quality of
its loan portfolio and determining the potential for additional credit
losses, as well as considering the market value of the loan portfolio
based upon the type of loans it holds in comparison with comparable
sales transactions, and after further considering sensitivity testing,
management supports an estimate near $175 billion for the loan
portfolio.
<bullet> In developing its Resolution Plan, the firm's management
further supports that $40 billion of additional deposit runoff would
occur in addition to the initial $60 billion. At the time of failure,
Bank A's remaining $300 billion of deposits are 60 percent insured and
40
[[Page 66524]]
percent uninsured. The ratio of insured deposits to uninsured deposits
is used to calculate the pro rata recovery of depositors and the losses
imposed on the DIF as a result.\58\
---------------------------------------------------------------------------
\58\ See infra note 60.
---------------------------------------------------------------------------
<bullet> The deposit runoff is assumed to be met by using $50
billion of cash and selling $50 billion of investment securities. The
remaining $75 billion investment portfolio is entirely invested in
short-term U.S. Treasury securities with an estimated value of $70
billion.
<bullet> The other assets are implicated in the initial
idiosyncratic loss. These other assets include fixed assets, foreclosed
property, intellectual property, and miscellaneous items with a market
value of $25 billion.
<bullet> As shown in table 1, the Plan provides an analysis of the
payout liquidation strategy. This strategy includes an expected loss to
the DIF of $18 billion.
---------------------------------------------------------------------------
\59\ Calculation: (1) $295 billion asset value less secured
claim of $25 billion = $270 billion available to depositors and
junior claims; (2) $270 billion available spread pro-rata across
$300 billion depositor class; 60 percent insured deposits and 40
percent uninsured deposits; (3) $270 billion x .6 = $162 billion
paid to insured depositors; $270 billion x .4 = $108 billion paid to
uninsured depositors.
Table 1--Illustration of Bank A Payout Liquidation--Cost Estimate
[dollars in billions]
----------------------------------------------------------------------------------------------------------------
Liquidation market value Payout liquidation liability claim and amount recovered
----------------------------------------------------------------------------------------------------------------
Category Value Category Claim Recovery/(loss)
----------------------------------------------------------------------------------------------------------------
Loans............................. $175 Secured Claims....... $25 $25/($0)
Securities........................ 70 Deposits Insured..... 180 $162/($18)
----------------------------------------------------------------------------------------------------------------
Cash.............................. 25 FDIC incurs the loss for the insured deposits so that all
Other............................. 25 insured deposits are fully repaid.
-----------------------------------------------------------------------------
Total......................... 295 Deposits Uninsured... 120 $108/($12)
Unsecured Claims/Debt 25 $0/($25)
Equity Holders....... .............. No recovery
----------------------------------------------------------------------------------------------------------------
Loss to Deposit Insurance Fund (to make whole insured depositors) = $18 billion \59\
Losses to uninsured depositors = $12 billion.
<bullet> However, the Plan also asserts and supports that the
payout liquidation approach fails to reflect the franchise value of the
combined deposit and loan relationships stemming from considerations
such as the low administrative costs associated with servicing large
deposits, the elimination of significant customer acquisition costs,
the stable fee income stream associated with the accounts due to
barriers to entry for certain products, and the importance and value of
integrating the loan and deposit products.
<bullet> The Plan calculates, and provides the analysis supporting
the calculation, that the economic benefit of packaging these benefits
together in an all-deposit BDI is $20 billion, which is reflected as a
bid premium to liquidation pricing in table 2.
<bullet> The result is that the all-deposit BDI is less costly to
the DIF than liquidation because of the inclusion of the bid premium.
Table 2--Illustration of Bank A Preferred Strategy--Cost Estimate
[dollars in billions]
----------------------------------------------------------------------------------------------------------------
All deposit bridge market value All deposit bridge bank liability claim and amount recovered
----------------------------------------------------------------------------------------------------------------
Category Value Category Claim Recovery/(loss)
----------------------------------------------------------------------------------------------------------------
Loans............................. $175 Secured Claims....... $25 $25/($0)
Securities........................ 70 Deposits Insured..... 180 $174/($6)
----------------------------------------------------------------------------------------------------------------
Cash.............................. 25 FDIC incurs the loss for the insured deposits so that all
Other............................. 25 insured deposits are fully repaid.
-------------------------------------------------------------
Sub Total......................... 295 Deposits Uninsured... 120 $116/($4)*
Bid Premium....................... 20 Unsecured Claims/Debt 25 $0/($25)
-----------------------------------------------------------------------------
Total......................... 315 Equity Holders....... .............. No recovery
----------------------------------------------------------------------------------------------------------------
Loss to Deposit Insurance Fund (to make whole insured and uninsured depositors) = $10 billion, which is less
than the payout liquidation loss.\60\
* Losses to uninsured depositors total $4 billion and are absorbed by the DIF.
J. Derivatives and Trading Activities
---------------------------------------------------------------------------
\60\ Calculation: (1) $315 billion asset value less secured
claim of $25 billion = $290 billion available to depositors and
junior claims; (2) $290 billion available spread pro-rata across
$300 billion depositor class; 60 percent insured deposits and 40
percent uninsured deposits; (3) $290 billion x .6 = $174 billion
paid to insured depositors; $290 billion x .4 = $116 billion paid to
uninsured depositors.
---------------------------------------------------------------------------
The agencies requested comment on whether to provide derivatives
and trading activities guidance for specified firms that adopt a U.S.
SPOE or MPOE resolution strategy. Some commenters argued that no
derivatives and trading guidance is needed for foreign triennial full
filers because they have limited derivatives and trading portfolios,
particularly relative to the U.S. GSIB banking organizations covered by
such guidance. These commenters also noted that not all of the biennial
filers, which are Category I firms, are subject to this type of
guidance. These commenters also argued that if the agencies adopt
[[Page 66525]]
guidance on this topic, the agencies should be careful to avoid
extraterritorial application of the guidance and should use the
derivatives and trading expectations in the 2020 FBO Guidance for
certain FBOs as a model, rather than the expectations in the 2020
Proposed FBO Guidance.
Other commenters supported providing such guidance to foreign
triennial full filers, despite observing that these firms engage in
less activity than the biennial filers. One commenter cautioned that
derivatives activities for foreign triennial full filers may increase
in the future and proposed the inclusion of an orderly-wind-down
analysis for firms with net derivatives exceeding a given threshold.
Another commenter recommended that the guidance include expectations
for: roles and responsibilities in derivatives unwind, plan reporting
regarding derivatives exposures, plan risk assessments in cross-border
activity, barriers to swift unwind of derivatives activities booked
outside the United States, and capabilities to generate detailed
derivative reports. This commenter also argued that firms should
specify plans to wind-down between affiliates and external
counterparties, as well as describe potential sale of some trading
positions.
After reviewing the comments and considering the scope of
derivatives and trading activities of foreign triennial full
filers,\61\ the agencies determined that the banking organizations that
would be specified firms have limited derivatives and trading
operations compared to the subset of Category I firms that are the
subject of derivatives and trading guidance. The agencies also note
that the Rule includes certain requirements regarding derivatives and
trading activities with which all covered companies--including foreign
triennial full filers--must comply, as well as the overall requirement
to provide a strategic analysis describing the covered company's plan
for orderly resolution.\62\ The agencies believe that for this set of
covered companies (including the two firms that are in scope of the
2020 FBO guidance), given their current activities, the topic of
derivatives and trading activities is sufficiently addressed by the
Rule. The agencies are therefore finalizing the guidance without
including expectations on derivatives and trading activity for the
specified firms.
---------------------------------------------------------------------------
\61\ See FR Y-15 Systemic Risk Report, 2nd quarter 2023 data.
Publicly available at the National Information Center, <a href="https://www.ffiec.gov/NPW">https://www.ffiec.gov/NPW</a>. See also Quarterly Report on Bank Trading and
Derivatives Activities--Third Quarter 2023. Publicly available at
<a href="https://www.occ.gov/publications-and-resources/publications/quarterly-report-on-bank-trading-and-derivatives-activities/index-quarterly-report-on-bank-trading-and-derivatives-activities.html">https://www.occ.gov/publications-and-resources/publications/quarterly-report-on-bank-trading-and-derivatives-activities/index-quarterly-report-on-bank-trading-and-derivatives-activities.html</a>.
See 12 CFR 243.2 and 381.2; 12 CFR 243.5(c) and (e)(6)-(7), and
381.5(c) and (e)(6)-(7).
\62\ Id.
---------------------------------------------------------------------------
The agencies also recognize that derivatives activity or risk for
foreign triennial full filers may change in the future. The agencies
may consider the need for firm-specific derivatives and trading
expectations in the future for specified firms that substantially
increase their derivatives and trading activities or change in a way
such that having a strategy to wind-down their derivatives portfolios
is critical to their resolvability.
K. Branches
The agencies received no comments regarding the branches section of
the proposed guidance. The agencies are finalizing the section as
proposed.
L. Format and Structure of Plans; Assumptions
This section of the proposal described the agencies' preferred
presentation regarding the format, assumptions, and structure of
resolution plans. Under the proposal, plans would have been expected to
contain an executive summary, a narrative of the firm's resolution
strategy, relevant technical appendices, and a public section as
detailed in the Rule. The proposed format, structure, and assumptions
were generally similar to those in the 2020 FBO Guidance, except that
the proposed guidance reflected the expectations that (a) a firm should
support any assumptions that it will have access to the Discount Window
and/or other borrowings during the period immediately prior to entering
bankruptcy and clarified expectations around such assumptions, and (b)
a firm should not assume the use of the systemic risk exception to the
least-cost test in the event of a failure of an IDI requiring
resolution under the FDI Act. In addition, for firms that adopt a U.S.
MPOE resolution strategy, the proposal included the expectation that a
plan should demonstrate and describe how the failure event(s) results
in material financial distress of the firm's U.S. operations, including
consideration of the likelihood of the diminution the firm's liquidity
and capital levels prior to bankruptcy.
The final guidance also includes an expectation contained in the
2019 U.S. GSIB Guidance and 2020 FBO Guidance regarding the parameters
of economic forecasting in resolution plan submission. Those guidance
documents stated that a resolution plan should assume the Dodd-Frank
Act Stress Test (DFAST) severely adverse scenario for the first quarter
of the calendar year in which a resolution is submitted is the domestic
and international economic environment at the time of the firm's
failure and throughout the resolution process.\63\ While this
assumption is similar to a provision in the Rule,\64\ the agencies
believe it is important to provide guidance to firms about the timing
of the required assumption in the Rule. The Board provides DFAST
scenario information to the specified firms through the Board's public
website. As such, the information is available to specified firms who
themselves or their IHC subsidiaries are not subject to stress testing
requirements.\65\
---------------------------------------------------------------------------
\63\ 2019 U.S. GSIB Guidance at 84 FR 1459; 2020 FBO Guidance at
85 FR 83578.
\64\ 12 CFR 243.4(h)(1) and 381.4(h)(1).
\65\ <a href="https://www.federalreserve.gov/publications/dodd-frank-act-stress-test-publications.htm">https://www.federalreserve.gov/publications/dodd-frank-act-stress-test-publications.htm</a>.
---------------------------------------------------------------------------
The agencies received one comment in response to a question posed
regarding assumptions related to lending facilities, including the
Discount Window. The commenter supported the proposed assumptions
guidance regarding these facilities and recommended that the agencies
consider providing additional guidance on the assumptions related to
the amount, timing, and limitations of liquidity that might become
available from these sources. However, the additional guidance
requested by the commenter is unnecessary, and the agencies are
finalizing this section of the guidance as proposed with one
clarification. Specifically, the proposed guidance regarding the
relevant assumption already includes references to timing and
limitations of liquidity commensurate with the activities of firms
subject to the guidance.
As a clarification, the agencies have added a reference to Federal
Home Loan Banks (FHLBs) as a type of borrowing for which firms should
provide support in their resolution plans if they assume access during
the period immediately prior to entering bankruptcy. The agencies'
experiences in 2023 showed that many IDIs depend heavily on FHLB
funding in times of stress and, accordingly, the agencies expect firms
to be prepared to support any assumptions around such reliance for
resolution planning purposes.
The agencies also received a comment recommending that more of
firms' resolution plans be disclosed publicly to promote market
discipline and specifically asking that the public portion of
resolution plans describe
[[Page 66526]]
potential acquirers of operations in the event of resolution. The Rule
establishes at a high-level the required content of the public section
of a resolution plan,\66\ and this final guidance clarifies the
agencies' expectations with respect to that section. The agencies are
mindful that the public disclosure of resolution plans, which may
contain private commercial information, has both benefits and
drawbacks, and the agencies believe that, at the moment, the Rule--
revisions to which are outside the scope of this guidance--and the
final guidance appropriately balance transparency with confidentiality.
---------------------------------------------------------------------------
\66\ 12 CFR 243.11(c) and 381.11(c).
---------------------------------------------------------------------------
In addition, the agencies received two comments requesting
clarification of the definition of ``material entity'' as applied to
certain non-U.S. entities, such as foreign offices, in order to improve
the alignment of U.S. resolution planning with home country strategies.
In particular, the commenter contended that an aspect of the proposed
guidance, which concerned assumptions regarding material entities, was
inconsistent with the Rule. This was not the agencies' intent, and the
final guidance modifies the assumption's description of ``material
entity'' for consistency with the Rule by adopting the language for
that provision in the final 2020 FBO Guidance.
The agencies are otherwise finalizing this section of the guidance
as proposed.\67\ The agencies did not receive any comments in response
to the proposal's request for comments about answers to frequently
asked questions, and the agencies have not included those prior answers
to frequently asked questions because these prior answers were in
response to questions posed by only a portion of the firms to which
this guidance is applicable and regarding guidance with certain
different expectations.
---------------------------------------------------------------------------
\67\ The agencies also are clarifying one expectation in the
Financial Statements and Projections subsection of the Format and
Structure of Plans; Assumptions section of the guidance that could
be construed to impose a requirement on the specified firms.
---------------------------------------------------------------------------
M. Additional Comments
Differentiating Resolution Plan Guidance
The agencies received several general comments about whether the
expectations in the proposal were suitably modified from expectations
included in past resolution plan guidance and whether the proposal
appropriately distinguished between different types of triennial full
filers. Several commenters contended that the proposed guidance did not
sufficiently differentiate expectations among firms subject to
resolution planning guidance. Some of these commenters specifically
claimed because the specified firms have limited operations compared to
the U.S. GSIBs and have reduced the size and complexity of their U.S.
operations, they should not be subject to similar resolution planning
guidance as the U.S. GSIBs. One commenter argued that section 165 of
the Dodd-Frank Act requires the agencies to differentiate the content
of the resolution planning guidance; the proposal was too similar to
the 2019 U.S. GSIB Guidance; and expectations for the specified firms
should be further differentiated based on size, risk, and other
factors. Another commenter argued that the proposed guidance favors the
U.S. MPOE resolution strategy by including fewer expectations for firms
that adopt that strategy and recommended that the guidance should be
more aligned with guidance for resolution plan filers using a U.S. SPOE
resolution strategy.
While the differentiation requirement in section 165 of the Dodd-
Frank Act does not apply to this non-binding resolution plan guidance,
the guidance differentiates among covered companies, taking into
consideration their size, complexity, and other risk-related factors;
their resolution strategy, whether SPOE or MPOE; and whether they are
domestic or foreign-based.
The thresholds and risk-based indicators that form the basis of the
risk-based category framework used by the Rule are designed to take
into account an individual firm's particular activities and
organizational footprint that may present significant challenges to an
orderly resolution.\68\ The Rule, using those categories, defines
triennial full filers as one cohort because the failure of a Category
II or III banking organization could pose a threat to U.S. financial
stability. Banking organizations in these two categories often have
similar characteristics, such as organizational structures, and similar
resolution strategies that benefit from similar resolution guidance.
Accordingly, the agencies believe the guidance is equally appropriate
for all foreign Category II and III banking organizations. In addition,
as discussed above, the regional bank failures in March 2023
demonstrated that the failure of banking organizations with $100
billion to $250 billion in total consolidated assets can be disruptive
to U.S. financial stability. For these reasons, providing the guidance
to foreign triennial full filers in that asset range is appropriate to
prevent or mitigate risks to the financial stability of the United
States.
---------------------------------------------------------------------------
\68\ See 2019 Federal Register Publication at 84 FR 59197-201.
---------------------------------------------------------------------------
Guidance for specified firms that adopt a U.S. SPOE resolution
strategy is differentiated relative to guidance for Category I banking
organizations (i.e., the 2019 U.S. GSIB Guidance), notably with the
absence of derivatives and trading expectations, which are applicable
to most of the U.S. GSIBs, and other operational guidance as well as
reduced separability expectations. Other aspects of the U.S. SPOE
guidance are appropriately similar to the 2019 U.S. GSIB Guidance
because the successful execution of a U.S. SPOE resolution strategy
benefits from the capabilities discussed in the guidance. The guidance
for firms that adopt a U.S. MPOE resolution strategy includes
substantially simpler expectations, relative to U.S. SPOE guidance and
the 2019 U.S. GSIB Guidance, in the areas of capital, liquidity,
governance mechanisms, operational, legal entity rationalization and
separability, derivatives and trading expectations, and PCS. Having
simpler expectations relative to U.S. SPOE guidance does not
necessarily mean a firm adopting a U.S. MPOE strategy will encounter
fewer challenges developing its resolution plans; regardless of the
strategy chosen, the firm is responsible for providing adequate
information and analysis to demonstrate its plan will facilitate an
orderly resolution. Each firm remains free to choose the resolution
strategy it believes would most effectively facilitate an orderly
resolution, and the agencies are not suggesting that any firm change
its resolution strategy, nor do the agencies identify a preferred
strategy for a specific firm or set of firms.\69\
---------------------------------------------------------------------------
\69\ See Section I.A Resolution Plan Strategy for further
discussion about why the agencies are differentiating expectations
depending on whether a firm adopts a U.S. SPOE or U.S. MPOE
resolution strategy.
---------------------------------------------------------------------------
Finally, resolution plan guidance for Category II and III banking
organizations is adapted to whether a covered company is based in the
United States or in a foreign jurisdiction, with dedicated guidance
documents for each type of firm. The Rule differentiates between
banking organizations based on home jurisdiction,\70\ and whether a
banking organization is based in the United States can significantly
impact its resolution strategy, resolution capabilities, and resolution
planning. Accordingly, expectations for domestic and foreign-based
triennial full filers are differentiated in the areas of capital,
liquidity, governance mechanisms,
[[Page 66527]]
shared services, separability, branches, and group-wide resolution
plans.
---------------------------------------------------------------------------
\70\ See 12 CFR 243.5(a) and 381.5(a).
---------------------------------------------------------------------------
Relation to the 2020 Proposed FBO Guidance and 2020 FBO Guidance
Two commenters asserted that the agencies did not adequately
explain why the proposal contained certain expectations the agencies
had included in the 2020 Proposed FBO Guidance but declined to adopt in
the 2020 FBO Guidance. One of these commenters also contended that the
agencies did not adhere to certain administrative law requirements to
identify and justify the proposed changes in expectations, particularly
given that the agencies recently adopted the 2020 FBO Guidance. The
proposal adequately identified and explained the proposed changes in
resolution planning expectations,\71\ and the guidance is permissible
under section 165(d) of the Dodd-Frank Act and the Rule. However, to
promote transparency in the guidance-making process, the agencies have
further clarified areas in which and explained why the final guidance
differs from the 2020 FBO Guidance and adopts certain expectations
proposed in the 2020 Proposed FBO Guidance.\72\
---------------------------------------------------------------------------
\71\ See proposed guidance at 88 FR 64641, 64644-45, 47.
\72\ See sections III.C-L of this document.
---------------------------------------------------------------------------
The agencies also considered whether the 2020 FBO Guidance
engendered reliance interests among the banking organizations that were
the subject of that guidance. The agencies received no comments
explicitly identifying such reliance interests; the 2020 FBO Guidance,
like the current guidance, did not have the force and effect of law;
and the 2020 FBO Guidance was applicable for only one resolution plan
submission cycle, and only three banking organizations were within the
scope of application of the 2020 FBO Guidance for the 2021 targeted
plan submission (and one such banking organization no longer exists).
Accordingly, the agencies believe that resolvability improvements that
may arise from issuing this guidance outweigh any reliance interests
generated by the 2020 FBO Guidance.
General Comments About the Proposal
The agencies received several general comments about resolution
planning guidance. The agencies have considered these commenters' input
but have made no modifications to the final guidance.
One commenter expressed support for the proposed guidance, in part
because it reaffirms that bankruptcy is the preferred resolution
strategy and would improve the quality of resolution plan submissions
through enhanced information and assumptions, better enabling the
resolution of a specified firm in an orderly manner. Another commenter
praised the agencies' proposal for providing needed clarity and
transparency on expectations for specified firms' resolution plans, and
for making several improvements that will improve specified firms'
resolution plans.
Another commenter recommended that the agencies adopt the content
of the guidance in the form of a legally binding and enforceable rule,
in part due to the size and scope of specified firms, the importance of
resolution planning, and the financial stability implications involved.
This commenter also suggested that the large bank failures in 2023
demonstrated the need for improvement in banking organizations'
resolution planning and the agencies' process for assessing these
plans.
Resolution planning is important to U.S. financial stability;
however, the agencies have not made changes to the guidance in response
to these comments. The Rule, which is legally enforceable, identifies
the specific topics that must be addressed in resolution plans. In
contrast, resolution plan guidance outlines the agencies' supervisory
expectations and priorities and articulates the agencies' general views
regarding appropriate resolution planning practices for the specified
firms. The final guidance provides examples of resolution plan content
and capabilities that the agencies generally consider consistent with
effective resolution planning. This approach is consistent with
resolution planning guidance provided to other covered companies in the
past, including guidance for Category I banking organizations and
certain foreign Category II banking organizations.
A commenter argued that the agencies should allow for an iterative
process for foreign triennial full filers to develop their strategies
and capabilities, similar to the gradual maturation of Category I
banking organizations' resolution plans. This commenter also argued the
agencies should provide more than one year for firms to incorporate the
final guidance into their next resolution plan submissions and that the
guidance should not be the basis for a deficiency.
By statute and under the Rule, each resolution plan filer must
submit a plan for orderly resolution under the Bankruptcy Code, and the
agencies must assess the credibility of each plan. Each firm remains
free to choose the resolution strategy it believes would most
effectively facilitate an orderly resolution and the agencies are not
suggesting that any firm change its resolution strategy, nor do the
agencies identify a preferred strategy for a specific firm or set of
firms. The standard of review for a resolution plan submission of a
firm that transitions to a new strategy is the same as for any firm
subject to the Rule. The agencies stated in the preamble to the 2019
revisions to the Rule that they would endeavor to finalize guidance a
year in advance of the next applicable resolution plan submission date,
and the agencies are extending the next resolution plan submission
deadline for these firms to provide at least one year advanced notice
of general guidance.\73\ The agencies also reaffirm that the guidance
does not have the force and effect of law, and the agencies do not take
enforcement actions or issue findings based on resolution planning
guidance.
---------------------------------------------------------------------------
\73\ See 2019 Federal Register Publication at 84 FR 59204.
---------------------------------------------------------------------------
A commenter argued that the various capital and resolution related
proposals would, when considered holistically, disproportionately
affect international banks and discourage international bank
participation in U.S. banking and financial services markets to the
detriment of U.S. financial stability. This commenter further cautioned
that additional expectations for the U.S. operations of international
banks could have unintended consequences and may lead to similar
demands by other host-country supervisors, which could lead to
fragmentation and less orderly resolution.
This guidance does not create additional requirements, but rather
describes one approach to resolution plan content that could address
the agencies' expectations. Furthermore, the agencies recognize that
the specified firms' U.S. operations differ not only in the businesses
they engage in, but also in their scope, size, and complexity. As such,
the agencies expect that firms will adapt the guidance expectations in
a manner commensurate with the risk profile of their U.S. operations.
Doing so in a proportionate manner does not disadvantage the specified
firms relative to domestic or foreign peers and the guidance does not
serve as a deterrent to participating in the U.S. financial market.
Additionally, the agencies believe the guidance would help
facilitate orderly resolution of U.S. operations of the specified firms
in the event an orderly home-country led group-wide resolution is not
feasible. The agencies note that to date, the existence of guidance for
[[Page 66528]]
certain FBOs has not led to increased fragmentation, but rather has
enhanced the dialogue among authorities about expectations for those
FBOs' capabilities and resolution preparedness. The agencies will
continue to engage with home-country authorities on resolution planning
for foreign triennial full filers.
Comments About Resolution Planning Generally
Finally, a commenter asked the agencies to provide more information
on the inconsistencies and problematic assumptions found in the 2021
plan submissions, as well as why the UBS Group AG's acquisition of CS
and the U.S. domestic bank resolutions in 2023 prompted reversals of
policy.
The agencies believe the preamble to the proposed guidance
addresses the findings from the 2021 resolution plan submissions and
learnings from the 2023 bank resolutions. The agencies would refer the
commenter to other areas of this preamble for explanation of new areas
of guidance, including the 2020 FBO Proposed Guidance. No specific
changes have been made to the final guidance in response to this
comment.
Comments Outside the Scope of Proposal
The agencies received several comments outside the scope of the
proposed guidance. One commenter urged the agencies to shorten the
length between resolution plan submissions under the Rule, from three
to two years, and evaluate key aspects of plans annually. This
commenter also recommended the agencies create an independent committee
to advise the agencies on resolution planning matters as well as
require large banking organizations to hold more capital generally.
Another commenter argued that any LTD requirements should reflect a
banking organization's preferred resolution strategy and not push a
banking organization to adopt a particular strategy. That commenter
also encouraged the FDIC to provide banking organizations at least one
year to comply with any final IDI Rule and to align aspects of the IDI
Rule with resolution planning under section 165(d) of the Dodd-Frank
Act. The agencies have not made any changes to the guidance to address
these comments.
IV. Paperwork Reduction Act
Certain provisions of the final guidance contain ``collections of
information'' within the meaning of the Paperwork Reduction Act (PRA)
of 1995 (44 U.S.C. 3501-3521). In accordance with the requirements of
the PRA, the agencies may not conduct or sponsor, and the respondent is
not required to respond to, an information collection unless it
displays a currently valid Office of Management and Budget (OMB)
control number. The agencies have requested and OMB has assigned to the
agencies the respective control numbers shown. The information
collections contained in the final guidance have been submitted to OMB
for review and approval by the FDIC under section 3507(d) of the PRA
(44 U.S.C. 3507(d)) and section 1320.11 of OMB's implementing
regulations (5 CFR part 1320). The Board reviewed the final guidance
under the authority delegated to the Board by OMB and has approved
these collections of information.
The agencies did not receive any comments related to the PRA.
The agencies have a continuing interest in the public's opinions of
information collections. At any time, commenters may submit comments
regarding the burden estimate, or any other aspect of this collection
of information, including suggestions for reducing the burden, to the
addresses listed in the ADDRESSES caption in the proposed guidance
notice. All comments will become a matter of public record. Written
comments and recommendations for these information collections also
should be sent within 30 days of publication of this document to
<a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a>. Find this particular information
collection by selecting ``Currently under 30-day Review--Open for
Public Comments'' or by using the search function.
Collection title: Board: Reporting Requirements Associated with
Regulation QQ.
FDIC: Reporting Requirements Associated with Resolution Planning.
OMB control number: Board 7100-0346; FDIC 3064-0210.
Frequency: Triennial, Biennial, and on occasion.
Respondents: Bank holding companies (including any foreign bank or
company that is, or is treated as, a bank holding company under section
8(a) of the International Banking Act of 1978 and meets the relevant
total consolidated assets threshold) with total consolidated assets of
$250 billion or more, a bank holding companies with $100 billion or
more in total consolidated assets with certain characteristics, and
nonbank financial firms designated by the Financial Stability Oversight
Council for supervision by the Board.
Current actions: The final guidance modifies certain provisions of
the proposed guidance. For domestic firms, the final guidance
eliminates expectations related to separability, reducing the average
burden hours per response by 3,000 for domestic firms using an SPOE
strategy and 975 for domestic firms using an MPOE strategy. The final
guidance also clarifies expectations around operational shared services
for firms using an SPOE resolution strategy and around the IDI
Resolution Plan/Least-Cost Test for all firms. Regarding operational
shared services, the guidance clarifies that a firm's implementation
plan to ensure continuity of shared services should include those that
are material to the execution of the resolution strategy, such as
reliance on outside bankruptcy counsel and consultants. Regarding the
FDI Act's least-cost requirement and how it relates to expectations
around IDI resolution, the agencies provided additional detail on how
firms can develop and support the valuation of an IDI's assets and
liabilities in an IDI resolution. The agencies do not anticipate these
clarifications impacting the burden estimates.
Historically, the Board and the FDIC have split the respondents for
purposes of PRA clearances. As such, the agencies will split the change
in burden as well. As a result of this split and the final revisions,
there is a proposed net increase in the overall estimated burden hours
of 14,922 hours for the Board and 14,304 hours for the FDIC. Therefore,
the total Board estimated burden for its entire information collection
would be 216,129 hours and the total FDIC estimated burden would be
210,844 hours.
The following table presents only the change in the estimated
burden hours, as amended by the final guidance, broken out by agency.
The table does not include a discussion of the remaining estimated
burden hours which remain unchanged.\74\ As shown in the table, the
triennial full filers' resolution plan submissions would be estimated
more granularly according to SPOE and MPOE resolution strategies.
---------------------------------------------------------------------------
\74\ In addition to the revisions to the estimations for
triennial full filers, the agencies have revised the estimation for
biennial filers from 40,115 hours per response to 39,550 hours per
response to align with burden estimation methodology with what was
used for triennial full filers under the final guidance.
Specifically, the agencies removed a component for a biennial
filer's analysis of its critical operations as part of its
submission of targeted and full resolution plans, because this
critical operations analysis is integrated in the preparation of
such plans.
[[Page 66529]]
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Estimated Estimated Estimated
FR QQ number of annual average hours Estimated annual
respondents frequency per response burden hours
----------------------------------------------------------------------------------------------------------------
Board Burdens
----------------------------------------------------------------------------------------------------------------
Current
Triennial Full:
Complex Foreign..................... 1 1 9,777 9,777
Foreign and Domestic................ 7 1 4,667 32,669
-------------------------------------------------------------------
Current Total................... .............. .............. ................ 42,446
Final
Triennial Full:
FBO SPOE *.......................... 2 1 11,848 23,696
FBO MPOE............................ 3 1 5,939 17,817
Domestic MPOE....................... 3 1 5,285 15,855
-------------------------------------------------------------------
Final Total..................... .............. .............. ................ 57,368
----------------------------------------------------------------------------------------------------------------
FDIC Burdens
----------------------------------------------------------------------------------------------------------------
Current
Triennial Full:
Complex Foreign..................... 1 1 9,777 9,777
Foreign and Domestic................ 6 1 4,667 28,002
-------------------------------------------------------------------
Current Total................... .............. .............. ................ 37,779
Final
Triennial Full:
FBO SPOE............................ 2 1 11,848 23,696
FBO MPOE............................ 3 1 5,939 17,817
Domestic MPOE....................... 2 1 5,285 10,570
-------------------------------------------------------------------
Final Total..................... .............. .............. ................ 52,083
----------------------------------------------------------------------------------------------------------------
* There are currently no domestic triennial full filers utilizing an SPOE strategy. Estimated hours per response
for a domestic SPOE triennial full filer would be 10,535 hours.
V. Text of the Final Guidance
Guidance for Resolution Plan Submissions of Foreign Triennial Full
Filers
I. Introduction
Section 165(d) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (12 U.S.C. 5365(d)) requires certain financial companies
to report periodically to the Board of Governors of the Federal Reserve
System (the Board) and the Federal Deposit Insurance Corporation (the
FDIC) (together, the agencies) their plans for rapid and orderly
resolution in the event of material financial distress or failure. On
November 1, 2011, the agencies promulgated a joint rule implementing
the provisions of section 165(d).\1\ Subsequently, in November 2019,
the agencies finalized amendments to the joint rule addressing
amendments to the Dodd-Frank Act made by the Economic Growth,
Regulatory Relief, and Consumer Protection Act and improving certain
aspects of the joint rule based on the agencies' experience
implementing the joint rule since its adoption.\2\ Financial companies
meeting criteria set out in the Rule must file a resolution plan (Plan)
according to the schedule specified in the Rule.
---------------------------------------------------------------------------
\1\ Resolution Plans Required, 76 FR 67323 (Nov. 1, 2011).
\2\ Resolution Plans Required, 84 FR 59194 (Nov. 1, 2019). The
amendments became effective December 31, 2019. The ``Rule'' means
the joint rule as amended in 2019. Terms not defined herein have the
meanings set forth in the Rule.
---------------------------------------------------------------------------
This document is intended to provide guidance to certain foreign
financial companies required to submit Plans regarding development of
their respective U.S. strategies to assist their further development of
a Plan for their 2025 and subsequent Plan submissions. Specifically,
the guidance applies to any foreign-based covered company that is
triennial full filer under the Rule \3\ because it is subject to
Category II or III standards according to its combined U.S. operations
in accordance with the Board's tailoring rule (specified firms or
firms).\4\ This guidance supersedes the joint Guidance for Resolution
Plan Submissions of Certain Foreign-Based Covered Companies.\5\
---------------------------------------------------------------------------
\3\ See 12 CFR 243.4(b)(1) and 381.4(b)(1).
\4\ Prudential Standards for Large Bank Holding Companies,
Savings and Loan Holding Companies, and Foreign Banking
Organizations, 84 FR 59032 (Nov. 1, 2019).
\5\ 85 FR 83557 (Dec. 22, 2020).
---------------------------------------------------------------------------
The Plan for a specified firm would address a scenario where its
U.S. operations experience material financial distress and the foreign
parent is unable or unwilling to provide sufficient financial support
for the continuation of U.S. operations, and at least the top tier U.S.
IHC files for bankruptcy under title 11, United States Code. Under such
a scenario, the Plan should provide for the orderly resolution of the
specified firm's U.S. material entities and operations.
The document does not have the force and effect of law.\6\ Rather,
it describes the agencies' expectations and priorities regarding the
specified firms' Plans and the agencies' general views regarding
specific areas where additional detail should be provided and where
certain capabilities or optionality should be developed and maintained
to demonstrate that each firm has considered fully, and is able to
mitigate, obstacles to the successful implementation of their U.S.
resolution strategy.
---------------------------------------------------------------------------
\6\ See 12 CFR 262.7 and appendix A to 12 CFR part 262; 12 CFR
part 302.
---------------------------------------------------------------------------
When an FBO first becomes a specified firm,\7\ this document will
[[Page 66530]]
apply to the firm's next resolution plan submission that is due at
least 12 months after the date the firm becomes a specified firm. If a
specified firm ceases to be subject to Category II or III standards, it
will no longer be a specified firm, and this document would no longer
apply to that firm.
---------------------------------------------------------------------------
\7\ See 12 CFR 252.5(c)-(d).
---------------------------------------------------------------------------
In general, this document is organized around a number of key
challenges in resolution (interaction with group resolution plan;
capital; liquidity; governance mechanisms; operational; branches; legal
entity rationalization and separability; and insured depository
institution resolution (IDI), if applicable) that apply across
resolution plans, depending on their strategy. Additional challenges or
obstacles may arise based on a firm's particular structure, operations,
or resolution strategy. Each firm is expected to satisfactorily address
these vulnerabilities in its Plan. In addition, each topic of this
guidance is separated into expectations for a specified firm that
adopts a U.S. single point of entry (U.S. SPOE) resolution strategy for
its Plan and expectations for a specified firm that adopts a U.S.
multiple point of entry (U.S. MPOE) resolution strategy for its
Plan.\8\
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\8\ The agencies recognize that the preferred resolution outcome
for many specified firms is a successful home country resolution
using a global SPOE resolution strategy where U.S. material entities
are provided with sufficient capital and liquidity resources to
allow them to stay out of resolution proceedings and maintain
continuity of operations throughout the parent's resolution.
However, because support from the foreign parent in stress cannot be
ensured, the Rule provides that the U.S. resolution plan for
specified firms must specifically address a scenario where the U.S.
operations experience material financial distress, and the Plan
cannot assume that the specified firm takes resolution actions
outside the United States that would eliminate the need for any U.S.
subsidiaries to enter resolution proceedings. See 12 CFR 243.4(h)
and 381.4(h).
---------------------------------------------------------------------------
Under the Rule, the agencies will review a Plan to determine if it
satisfactorily addresses key potential challenges, including those
specified below. If the agencies jointly decide that an aspect of a
Plan presents a weakness that individually or in conjunction with other
aspects could undermine the feasibility of the Plan, the agencies may
determine jointly that the Plan is not credible or would not facilitate
an orderly resolution under the U.S. Bankruptcy Code. The agencies may
not take enforcement actions or issue findings based on this guidance.
II. Interaction With Group Resolution Plan
U.S. SPOE and U.S. MPOE
The agencies recognize that the preferred resolution outcome for
the specified firms is often a successful SPOE home country resolution.
Based on information available to the firm, a specified firm's Plan
should describe: (i) the impact of executing the global resolution plan
on U.S. operations, (ii) the extent of the specified firm's reliance on
U.S. operations for execution of the global resolution plan, (iii) the
extent of the specified firm's reliance on home country entities and
operations for execution of the Plan, and (iv) any capabilities relied
on to execute the U.S. resolution strategy that are different from
those necessary to execute the global strategy. In addition, a
specified firm's resolvability work in the United States should
consider both the objectives of the firm's group-wide resolution
strategy and the Rule. Efforts to enhance the resolvability of U.S.
operations and entities should be as complementary as practicable to
the group-wide resolution strategy, while complying with the Rule.
III. Capital
U.S. SPOE
The firm should have the capital capabilities necessary to execute
its U.S. resolution strategy, including the modeling and estimation
process described below.
Resolution Capital Adequacy and Positioning (RCAP). In order to
help ensure that a firm's U.S. non-branch material entities \9\ could
be resolved in an orderly manner, the firm's U.S. IHC should have an
adequate amount of loss-absorbing capacity to execute its U.S.
resolution strategy. Thus, a firm's U.S. IHC should have outstanding a
minimum amount of loss-absorbing capacity, including long-term debt, to
help ensure that the firm has adequate capacity to meet that need at
the U.S. IHC on a consolidated basis (IHC LAC).\10\
---------------------------------------------------------------------------
\9\ The terms ``material entities,'' ``identified critical
operations,'' and ``core business lines'' have the same meaning as
in the Rule. The term ``U.S. material entity'' means any subsidiary,
branch, or agency that is a material entity and is domiciled in the
United States. The term ``U.S. non-branch material entity'' means a
material entity organized or incorporated in the U.S. including, in
all cases, the U.S. IHC. The term ``U.S. IHC subsidiaries'' means
all U.S. non-branch material entities other than the U.S. IHC.
\10\ Total Loss-Absorbing Capacity, Long-Term Debt, and Clean
Holding Company Requirements for Systemically Important U.S. Bank
Holding Companies and Intermediate Holding Companies of Systemically
Important Foreign Banking Organizations, 82 FR 8266 (Jan. 24, 2017);
Long-Term Debt Requirements for Large Bank Holding Companies,
Certain Intermediate Holding Companies of Foreign Banking
Organizations, and Large Insured Depository Institutions, 88 FR
64524 (Sept. 19, 2023).
---------------------------------------------------------------------------
Proceeds from a firm's IHC LAC should be appropriately positioned
between the U.S. IHC and the subsidiaries of the U.S. IHC that are
material entities (U.S. IHC subsidiaries), consistent with any
applicable rules requiring prepositioned resources at U.S. IDIs in the
form of long-term debt. After adhering to any requirements related to
prepositioning long-term debt at IDIs, the positioning of a firm's
remaining IHC LAC should balance the certainty associated with pre-
positioning loss absorbing capacity directly at U.S. IHC subsidiaries
(internal LAC) with the flexibility provided by holding
recapitalization resources at the U.S. IHC (contributable resources) to
meet unanticipated losses at the U.S. IHC subsidiaries. That balance
should take account of both pre-positioning at U.S. IHC subsidiaries
and holding resources at the U.S. IHC, and the obstacles associated
with each. With respect to material entities that are not subject to
pre-positioning requirements, the firm should not rely exclusively on
either full pre-positioning or U.S. IHC contributable resources to
execute its U.S. resolution strategy, unless it has only one U.S. IHC
subsidiary that is an operating subsidiary. The Plan should describe
the positioning of internal LAC among the U.S. IHC and the U.S. IHC
subsidiaries, along with analysis supporting such positioning.
Finally, to the extent that pre-positioned internal LAC at a U.S.
IHC subsidiary is in the form of intercompany debt and there are one or
more entities between the lender and the borrower, the firm should
structure the instruments so as to ensure that the U.S. IHC subsidiary
can be recapitalized.
Resolution Capital Execution Need (RCEN). To the extent
necessitated by the firm's U.S. resolution strategy, U.S. non-branch
material entities need to be recapitalized to a level that allows them
to operate or be wound down in an orderly manner following the U.S. IHC
bankruptcy filing. The firm should have a methodology for periodically
estimating the amount of capital that may be needed to support each
U.S. IHC subsidiary after the U.S. IHC bankruptcy filing (RCEN). The
firm's positioning of IHC LAC should be able to support the RCEN
estimates.
The firm's RCEN methodology should use conservative forecasts for
losses and risk-weighted assets and incorporate estimates of potential
additional capital needs through the resolution period,\11\ consistent
with the firm's resolution strategy for its U.S. operations. The
[[Page 66531]]
RCEN methodology should be calibrated such that recapitalized U.S. IHC
subsidiaries will have sufficient capital to maintain market confidence
as required under the U.S resolution strategy. Capital levels should
meet or exceed all applicable regulatory capital requirements for
``well-capitalized'' status and meet estimated additional capital needs
throughout resolution. U.S. IHC subsidiaries that are not subject to
capital requirements may be considered sufficiently recapitalized when
they have achieved capital levels typically required to obtain an
investment-grade credit rating or, if the entity is not rated, an
equivalent level of financial soundness. Finally, the methodology
should be independently reviewed, consistent with the firm's corporate
governance processes and controls for the use of models and
methodologies.
---------------------------------------------------------------------------
\11\ The resolution period begins immediately after the U.S. IHC
bankruptcy filing and extends through the completion of the U.S.
resolution strategy.
---------------------------------------------------------------------------
U.S. MPOE
N/A.
IV. Liquidity
U.S. SPOE
The firm should have the liquidity capabilities necessary to
execute its U.S resolution strategy, including those described below.
For resolution purposes, these capabilities should include having an
appropriate model and process for estimating and maintaining sufficient
liquidity at--or readily available from the U.S. IHC to--U.S. IHC
subsidiaries, and a methodology for estimating the liquidity needed to
successfully execute the U.S. resolution strategy, as described below.
Capabilities. A firm is expected to have a comprehensive
understanding of funding sources, uses, and risks at material entities
and identified critical operations, including how funding sources may
be affected under stress. For example, a firm should have and describe
its capabilities to:
(A) Evaluate the funding requirements necessary to perform
identified critical operations, including shared and outsourced
services and access to financial market utilities (FMUs); \12\
---------------------------------------------------------------------------
\12\ 12 CFR 252.156(g)(3).
---------------------------------------------------------------------------
(B) Monitor liquidity reserves and relevant custodial arrangements
by jurisdiction and material entity; \13\
---------------------------------------------------------------------------
\13\ 12 CFR 252.156(g)(2).
---------------------------------------------------------------------------
(C) Routinely test funding and liquidity outflows and inflows for
U.S. non-branch material entities at the legal entity level under a
range of adverse stress scenarios, taking into account the effect on
intra-day, overnight, and term funding flows between affiliates and
across jurisdictions;
(D) Assess existing and potential restrictions on the transfer of
liquidity between U.S. non-branch material entities; \14\ and
---------------------------------------------------------------------------
\14\ Id.
---------------------------------------------------------------------------
(E) Develop contingency strategies to maintain funding for U.S.
non-branch material entities and identified critical operations in the
event of a disruption in the specified firm's current funding
model.\15\
---------------------------------------------------------------------------
\15\ 12 CFR 252.156(e).
---------------------------------------------------------------------------
Resolution Liquidity Adequacy and Positioning (RLAP). With respect
to RLAP, the firm should be able to measure the stand-alone liquidity
position of each U.S. non-branch material entity--i.e., the high-
quality liquid assets (HQLA) at the U.S. non-branch material entity
less net outflows to third parties and affiliates--and ensure that
liquidity is readily available to meet any deficits. The RLAP model
should cover a period of at least 30 days and reflect the idiosyncratic
liquidity profile of the U.S. IHC and risk of each U.S. IHC subsidiary.
The model should balance the reduction in frictions associated with
holding liquidity directly at the U.S. IHC subsidiary with the
flexibility provided by holding HQLA at the U.S. IHC or at a U.S. IHC
subsidiary available to meet unanticipated outflows at other U.S. IHC
subsidiaries.\16\ The firm should not rely exclusively on either full
pre-positioning or U.S. IHC contributable resources to execute its U.S.
resolution strategy, unless it has only one U.S. IHC subsidiary that is
an operating subsidiary.
---------------------------------------------------------------------------
\16\ To the extent HQLA is held at the U.S. IHC or at a U.S. IHC
subsidiary, the model should consider whether such funds are freely
available. To be freely available, the HQLA must be free of legal,
regulatory, contractual, and other restrictions on the ability of
the material entity to liquidate, sell, or transfer the asset.
---------------------------------------------------------------------------
The model \17\ should ensure that on a consolidated basis the U.S.
IHC holds sufficient HQLA to cover net liquidity outflows of the U.S.
non-branch material entities. The model should also measure the stand-
alone net liquidity positions of each U.S. non-branch material entity.
The stand-alone net liquidity position of each U.S. non-branch material
entity (HQLA less net outflows) should be measured using the firm's
internal liquidity stress test assumptions and should treat inter-
affiliate exposures in the same manner as third-party exposures. For
example, an overnight unsecured exposure to a non-U.S. affiliate should
be assumed to mature. Finally, the firm should not assume that a net
liquidity surplus at any U.S. IHC subsidiary that is a depository
institution could be moved to meet net liquidity deficits at an
affiliate, or to augment U.S. IHC resources, consistent with Regulation
W.
---------------------------------------------------------------------------
\17\ ``Model'' refers to the set of calculations required by
Regulation YY that estimate the U.S. IHC's liquidity position.
---------------------------------------------------------------------------
Additionally, the RLAP methodology should take into account for
each of the U.S. IHC, U.S. IHC subsidiaries, and any branch that is a
material entity:
(A) The daily contractual mismatches between their respective
inflows and outflows;
(B) Their respective daily flows from movement of cash and
collateral for all inter-affiliate transactions; and
(C) Their respective daily stressed liquidity flows and trapped
liquidity as a result of actions taken by clients, counterparties, key
FMUs, and foreign supervisors, among others.
In calculating its RLAP estimate, the U.S. IHC should calculate its
liquidity position with respect to its foreign parent, branches and
agencies, and other affiliates (together, affiliates) separately from
its liquidity position with respect to third parties, and should not
offset inflows from affiliated parties against outflows to external
parties. In addition, a U.S. IHC should use cash-flow sources from its
affiliates to offset cash-flow needs of its affiliates only to the
extent that the term of the cash-flow source from its affiliates is the
same as, or shorter than, the term of the cash-flow need of its
affiliates.\18\
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\18\ The U.S. IHC should calculate its cash-flow sources from
its affiliates consistent with the net internal stressed cash-flow
need calculation in Sec. 252.157(c)(2)(iv) of Regulation YY.
---------------------------------------------------------------------------
Resolution Liquidity Execution Need (RLEN). The firm should have a
methodology for estimating the liquidity needed after the U.S. IHC's
bankruptcy filing to stabilize any surviving U.S. IHC subsidiaries and
to allow those entities to operate post-filing, in accordance with the
U.S. strategy.
The firm's RLEN methodology should:
(A) Estimate the minimum operating liquidity (MOL) needed at each
U.S. IHC subsidiary that is a material entity to ensure those entities
could continue to operate, to the extent relied upon in the U.S.
resolution strategy, after implementation of the U.S. resolution
strategy and/or to support a wind-down strategy;
(B) Provide daily cash flow forecasts by U.S. IHC subsidiary to
support estimation of peak funding needs to stabilize each entity under
resolution;
(C) Provide a comprehensive breakout of all inter-affiliate
transactions and arrangements that could impact the MOL or peak funding
needs estimates for the U.S. IHC subsidiaries; and
[[Page 66532]]
(D) Estimate the minimum amount of liquidity required at each U.S.
IHC subsidiary to meet the MOL and peak needs noted above, which would
inform the provision of financial resources from the foreign parent to
the U.S. IHC, or if the foreign parent is unable or unwilling to
provide such financial support, any preparatory resolution-related
actions.
The MOL estimates should capture U.S. IHC subsidiaries' intraday
liquidity requirements, operating expenses, working capital needs, and
inter-affiliate funding frictions to ensure that U.S. IHC subsidiaries
could operate without disruption during the resolution.
The peak funding needs estimates should be projected for each U.S.
IHC subsidiary and cover the length of time the firm expects it would
take to stabilize that U.S. IHC subsidiary. Inter-affiliate funding
frictions should be taken into account in the estimation process.
The firm's forecasts of MOL and peak funding needs should ensure
that U.S. IHC subsidiaries could operate through resolution consistent
with regulatory requirements, market expectations, and the firm's post-
failure strategy. These forecasts should inform the RLEN estimate,
i.e., the minimum amount of HQLA required to facilitate the execution
of the firm's strategy for the U.S. IHC subsidiaries.
For nonsurviving U.S. IHC subsidiaries, the firm should provide
analysis and an explanation of how the material entity's resolution
could be accomplished within a reasonable period of time and in a
manner that substantially mitigates the risk of serious adverse effects
on U.S. financial stability. For example, if a U.S. IHC subsidiary that
is a broker-dealer is assumed to fail and enter resolution under the
Securities Investor Protection Act, the firm should provide an analysis
of the potential impacts on funding and asset markets and on prime
brokerage clients, bearing in mind the objective of an orderly
resolution.
U.S. MPOE
The firm should have the liquidity capabilities necessary to
execute its U.S. resolution strategy. A Plan with a U.S. MPOE
resolution strategy should include analysis and projections of a range
of liquidity needs during resolution, including intraday; reflect
likely failure and resolution scenarios; and consider the guidance on
assumptions provided in Section X, Format and Structure of Plans;
Assumptions.
V. Governance Mechanisms
U.S. SPOE
A firm should identify the governance mechanisms that would ensure
that communication and coordination occur between the governing body of
the U.S. operations (for example, the boards of the U.S. IHC or a U.S.
subsidiary) and the foreign parent to facilitate the provision of
financial support, or if not forthcoming, any preparatory resolution-
related actions to facilitate an orderly resolution.
Playbooks, Foreign Parent Support, and Triggers. Governance
playbooks should detail the board and senior management actions of U.S.
non-branch material entities that would be needed under the firm's U.S.
resolution strategy. The governance playbooks should also include a
discussion of:
(A) The firm's proposed U.S. communications strategy, both internal
and external; \19\
---------------------------------------------------------------------------
\19\ External communications include those with U.S. and foreign
authorities and other external stakeholders, such as any large
depositors.
---------------------------------------------------------------------------
(B) The fiduciary responsibilities of the applicable board(s) of
directors or other similar governing bodies and how planned actions
would be consistent with such responsibilities applicable at the time
actions are expected to be taken;
(C) Potential conflicts of interest, including interlocking boards
of directors;
(D) Any employee retention policy; and
(E) Any other limitations on the authority of the U.S. IHC and the
U.S. IHC subsidiary boards and senior management to implement the U.S.
resolution strategy. All responsible parties and timeframes for action
should be identified. Governance playbooks should be updated
periodically for each entity whose governing body would need to act
under the firm's U.S. resolution strategy.
In order to meet liquidity needs at the U.S. non-branch material
entities, the firm may either fully pre-position liquidity in the U.S.
non-branch material entities or develop a mechanism for planned foreign
parent support, of any amount not pre-positioned, for the successful
execution of the U.S. strategy. Mechanisms to support readily available
liquidity may include a term liquidity facility between the U.S. IHC
and the foreign parent that can be drawn as needed and as informed by
the firm's RLEN estimates and liquidity positioning. To the extent the
preferred global resolution strategy for the firm is a home country
SPOE resolution, the mechanism should be designed so as to not
interfere with the execution of that strategy. The Plan should include
analysis of how the U.S. IHC/foreign parent facility is funded or
buffered for by the foreign parent. The sufficiency of the liquidity
should be informed by the firm's RLAP and RLEN estimates for the U.S.
non-branch material entities. Additionally, the Plan should include
analysis of the potential challenges to the planned foreign parent
support mechanism and associated mitigants. Where applicable, the
analysis should discuss applicable non-U.S. law and cross-border legal
challenges (e.g., challenges related to enforcing contracts governed by
foreign law). The analysis should identify the mitigant(s) to such
challenges that the firm considers most effective.
The firm should be prepared to increase communication and
coordination at the appropriate time in order to mitigate financial,
operational, legal, and regulatory vulnerabilities. To facilitate this
communication and coordination, the firm should establish clearly
identified triggers linked to specific actions for:
(A) The escalation of information to U.S. senior management, U.S.
risk committee and U.S. governing bodies to potentially take the
corresponding actions as the U.S. operations experience material
financial distress, leading eventually to the decision to implement the
U.S. resolution strategy. The triggers should:
i. Identify when and under what conditions the U.S. material
entities would transition from business-as-usual (BAU) conditions to a
stress period; and
ii. Take into consideration changes in the foreign parent's
condition from BAU conditions through resolution.
(B) The escalation of information to and discussions with the
appropriate governing bodies to confirm whether the governing bodies
are able and willing to provide financial resources to support U.S.
operations.
i. Triggers should be based on the firm's methodology for
forecasting the liquidity and capital needed to facilitate the U.S.
strategy. For example, triggers may be established that reflect U.S.
non-branch material entities' financial resources approaching RCEN/RLEN
estimates, with corresponding actions to confirm the foreign parent's
financial capability and willingness to provide sufficient support.
Corresponding escalation procedures, actions, and timeframes should
be constructed so that breach of the triggers will allow prerequisite
actions to be completed. For example, breach of the triggers needs to
occur early enough to
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provide for communication, coordination, and confirmation of the
provision of resources from the foreign parent.
Support Within the United States. If the Plan provides for the
provision of capital and liquidity by a U.S. material entity (e.g., the
U.S. IHC) to its U.S. affiliates prior to the U.S. IHC's bankruptcy
filing (Support), the Plan should also include a detailed legal
analysis of the potential state law and bankruptcy law challenges and
mitigants to providing the Support. Specifically, the analysis should
identify potential legal obstacles and explain how the firm would seek
to ensure that Support would be provided as planned. Legal obstacles
include claims of fraudulent transfer, preference, breach of fiduciary
duty, and any other applicable legal theory identified by the firm. The
analysis also should include related claims that may prevent or delay
an effective recapitalization, such as equitable claims to enjoin the
transfer (e.g., imposition of a constructive trust by the court). The
analysis should apply the actions contemplated in the Plan regarding
each element of the claim, the anticipated timing for commencement and
resolution of the claims, and the extent to which adjudication of such
claim could affect execution of the firm's U.S. resolution strategy.
The analysis should include mitigants to the potential challenges to
the planned Support. The Plan should identify the mitigant(s) to such
challenges that the firm considers most effective.
Furthermore, the Plan should describe key motions to be filed at
the initiation of any bankruptcy proceeding related to (as appropriate)
asset sales and other non-routine matters.
U.S. MPOE
A firm should identify the governance mechanisms that would ensure
that communication and coordination occur between the governing body of
the U.S. operations (for example, the boards of the U.S. IHC or a U.S.
subsidiary) and the foreign parent to facilitate any preparatory
resolution-related actions to facilitate an orderly resolution. The
Plan should also detail the board and senior management actions of U.S.
material entities that would be needed under the firm's U.S. resolution
strategy.
The firm should be prepared to increase communication and
coordination at the appropriate time in order to mitigate financial,
operational, legal, and regulatory vulnerabilities. To facilitate this
communication and coordination, the firm should establish clearly
identified triggers linked to specific actions for the escalation of
information to U.S. senior management, U.S. risk committee and U.S.
governing bodies to potentially take the corresponding actions as the
U.S. operations experience material financial distress, leading
eventually to the decision to implement the U.S. resolution strategy.
The triggers should:
(A) Identify when and under what conditions the U.S. material
entities would transition from BAU conditions to a stress period.
(B) Take into consideration changes in the foreign parent's
condition from BAU conditions through resolution.
VI. Operational
U.S. SPOE
Payment, Clearing, and Settlement Activities Framework. Maintaining
continuity of payment, clearing, and settlement (PCS) services is
critical for the orderly resolution of firms that are either users or
providers,\20\ or both, of PCS services. A firm should demonstrate
capabilities for continued access to PCS services essential to an
orderly resolution under its U.S. resolution strategy through a
framework to support such access by:
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\20\ A firm is a user of PCS services if it accesses PCS
services through an agent bank or it uses the services of a
financial market utility (FMU) through its membership in that FMU or
through an agent bank. A firm is a provider of PCS services if it
provides PCS services to clients as an agent bank or it provides
clients with access to an FMU or agent bank through the firm's
membership in or relationship with that service provider. A firm is
also a provider if it provides clients with PCS services through the
firm's own operations (e.g., payment services or custody services).
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<bullet> Identifying clients,\21\ FMUs, and agent banks as key from
the firm's perspective for the firm's U.S. material entities,
identified critical operations, and core business lines, using both
quantitative (volume and value) \22\ and qualitative criteria;
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\21\ For purposes of this section, a client is an individual or
entity, including affiliates of the firm, to whom the firm provides
PCS services and any related credit or liquidity offered in
connection with those services.
\22\ In identifying entities as key, examples of quantitative
criteria may include: for a client, transaction volume/value, market
value of exposures, assets under custody, usage of PCS services, and
any extension of related intraday credit or liquidity; for an FMU,
the aggregate volumes and values of all transactions processed
through such FMU; and for an agent bank, assets under custody, the
value of cash and securities settled, and extensions of intraday
credit.
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<bullet> Mapping U.S. material entities, identified critical
operations, core business lines, and key clients of the firm's U.S.
operations to both key FMUs and key agent banks; and
<bullet> Developing a playbook for each key FMU and key agent bank
essential to an orderly resolution under its U.S. resolution strategy
that reflects the firm's role(s) as a user and/or provider of PCS
services.
The framework should address direct relationships (e.g., a firm's
direct membership in an FMU, a firm's provision of clients with PCS
services through its own operations in the United States, or a firm's
contractual relationship with an agent bank) and indirect relationships
(e.g., a firm's provision of clients with access to the relevant FMU or
agent bank through the firm's membership in or relationship with that
FMU or agent bank, or a firm's U.S. affiliate and branch provision of
U.S. material entities and key clients of the firm's U.S. operations
with access to an FMU or agent bank). The framework also should address
the potential impact of any disruption to, curtailment of, or
termination of such direct and indirect relationships on the firm's
U.S. material entities, identified critical operations, and core
business lines, as well as any corresponding impact on key clients of
the firm's U.S. operations.
Playbooks for Continued Access to PCS Services. The firm is
expected to provide a playbook for each key FMU and key agent bank that
addresses considerations that would assist the firm and key clients of
the firm's U.S. operations in maintaining continued access to PCS
services in the period leading up to and including the firm's
resolution under its U.S. resolution strategy.
Each playbook should provide analysis of the financial and
operational impact to the firm's U.S. material entities and key clients
of the firm's U.S. operations due to adverse actions that may be taken
by a key FMU or a key agent bank and contingency actions that may be
taken by the firm. Each playbook also should discuss any possible
alternative arrangements that would allow continued access to PCS
services for the firm's U.S. material entities, identified critical
operations and core business lines, and key clients of the firm's U.S.
operations, while the firm is in resolution under its U.S. resolution
strategy. The firm is not expected to incorporate a scenario in which
it loses key FMU or key agent bank access into its U.S. resolution
strategy or its RLEN and RCEN estimates. The firm should continue to
engage with key FMUs, key agent banks, and key clients of the firm's
U.S. operations, and playbooks should reflect any feedback received
during such ongoing outreach.
Content Related to Users of PCS Services. Individual key FMU and
key agent bank playbooks should include:
[[Page 66534]]
<bullet> Description of the firm's relationship as a user,
including through indirect access, with the key FMU or key agent bank
and the identification and mapping of PCS services to the firm's U.S.
material entities, identified critical operations, and core business
lines that use those PCS services;
<bullet> Discussion of the potential range of adverse actions that
may be taken by that key FMU or key agent bank when the firm is in
resolution under its U.S. resolution strategy,\23\ the operational and
financial impact of such actions on the firm's U.S. material entities,
identified critical operations, and core business lines, and
contingency arrangements that may be initiated by the firm in response
to potential adverse actions by the key FMU or key agent bank; and
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\23\ Examples of potential adverse actions may include increased
collateral and margin requirements and enhanced reporting and
monitoring.
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<bullet> Discussion of PCS-related liquidity sources and uses in
BAU, in stress, and in the resolution period, presented by currency
type (with U.S. dollar equivalent) and by U.S. material entity.
[cir] PCS Liquidity Sources: These may include the amounts of
intraday extensions of credit, liquidity buffer, inflows from FMU
participants, and prefunded amounts of key clients of the firm's U.S.
operations in BAU, in stress, and in the resolution period. The
playbook also should describe intraday credit arrangements (e.g.,
facilities of the key FMU, key agent bank, or a central bank) and any
similar custodial arrangements that allow ready access to a firm's
funds for PCS-related key FMU and key agent bank obligations (including
margin requirements) in all currencies relevant to the firm's
participation, including placements of firm liquidity at central banks,
key FMUs, and key agent banks.
[cir] PCS Liquidity Uses: These may include margin and prefunding
by the firm and key clients of the firm's U.S. operations, and intraday
extensions of credit, including incremental amounts required during
resolution.
[cir] Intraday Liquidity Inflows and Outflows: The playbook should
describe the firm's ability to control intraday liquidity inflows and
outflows and to identify and prioritize time-specific payments. The
playbook also should describe any account features that might restrict
the firm's ready access to its liquidity sources.
Content Related to Providers of PCS Services.\24\ Individual key
FMU and key agent bank playbooks should include:
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\24\ Where a firm is a provider of PCS services through the
firm's own operations in the United States, the firm is expected to
produce a playbook for the U.S. material entities that provide those
services, addressing each of the items described under ``Content
Related to Providers of PCS Services,'' which include contingency
arrangements to permit the firm's key clients of the firm's U.S.
operations to maintain continued access to PCS services.
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<bullet> Identification and mapping of PCS services to the firm's
U.S. material entities, identified critical operations, and core
business lines that provide those PCS services, and a description of
the scale and the way in which each provides PCS services;
<bullet> Identification and mapping of PCS services to key clients
of the firm's U.S. operations to whom the firm's U.S. material
entities, identified critical operations, and core business lines
provide such PCS services and any related credit or liquidity offered
in connection with such services;
<bullet> Discussion of the potential range of firm contingency
arrangements available to minimize disruption to the provision of PCS
services to key clients of the firm's U.S. operations, including the
viability of transferring activity and any related assets of key
clients of the firm's U.S. operations, as well as any alternative
arrangements that would allow the key clients of the firm's U.S.
operations continued access to PCS services if the firm could no longer
provide such access (e.g., due to the firm's loss
[…truncated; see source link]Indexed from Federal Register on August 15, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.