The board of the Federal Deposit Insurance Corporation (FDIC) proposed rules this week to strengthen resolution planning for insured depository institutions (IDIs).
First, the FDIC’s proposed IDI Planning Rule would require IDIs with total assets of at least $100 billion to submit comprehensive resolution plans every two years with more limited supplements filed in the off years. These resolution plans would enhance current IDI resolution planning requirements by incorporating useful elements of existing guidance and lessons learned from past plan reviews and from past large bank resolutions, including those earlier this year.
Also, IDIs with total assets of at least $50 billion but less than $100 billion would submit more limited informational filings to provide the FDIC with critical information to assist in their potential resolution. These institutions would not be required to develop a resolution strategy as part of their submissions.
“For some time, the FDIC has been considering ways to improve the effectiveness of these resolution plans and to set clear expectations for the banks with respect to the content of these plans. We have determined that a rulemaking is the best approach to meet those goals in a way that is both transparent and effective,” FDIC Chair Martin Gruenberg said. “The proposal before the FDIC Board today is a revision of the current rule that draws upon over a decade of plan review and feedback, and the FDIC’s experience in the resolution of large banks – including the three recent large bank failures.”
If finalized, the first submissions would be expected in early 2025. Comments on the proposal are due by Nov. 30.
Also, the FDIC’s Board joined with other federal regulators to propose new long-term debt requirements for large banks and their holding companies as well as new resolution planning guidance for living wills for large bank holding companies.
The proposed long-term debt rule would require IDIs with total assets of $100 billion or more to issue and maintain a minimum amount of long-term debt (LTD) that can be used to absorb losses in the event of their failure. They would also be required to provide the FDIC with a broader range of options for their resolution.
In addition, the proposal would reduce the risk of loss to depositors and the Deposit Insurance Fund in the event of a large regional bank failure. Many large banks already maintain significant amounts of long-term debt, though most banks would need to issue additional new long-term debt to meet the proposed requirement.
The proposed long term debt requirement would take full effect three years after the date on which a covered IDI first becomes subject to the proposed rule. The full amount of long-term debt that covered IDIs would be required to hold, however, would be phased in over the three-year implementation period to reduce the potential for market disruption. Comments on this proposal are also due by Nov. 30.
Finally, the resolution planning guidance rule is designed to help certain large banks to further develop and enhance their resolution plans required under Dodd-Frank. The proposed guidance looks to provide direction for how large banks may address resolution impediments, including capital and liquidity measurement and forecasting capabilities; payment, clearing and settlement activities; and continuity of services.
Specific aspects of this proposed guidance include demonstrating that a resolution strategy which utilizes a bridge depository institution is the least costly to the Deposit Insurance Fund. It also includes analyzing liquidity needs in resolution. Comments on the proposal are due by Nov. 30.
All three of these proposals were developed to enhance the stability and resilience of the U.S. banking system, to reduce the costs and impacts of large bank resolution, and to support the rapid and orderly resolution of their holding companies.