Living Wills

Harvey Miller Discusses Too-Big-To-Fail Issue on The Deal Pipeline

in Bankruptcy & Liquidation, Federal Reserve Board, Living Wills, Systemic Risk Management

Weil’s Harvey Miller was interviewed by The Deal’s Sarah Hashim-Waris on the possibility of a “double-dip” recession for the US economy. Harvey also touched on the necessity of sound regulation in connection with managing too-big-to-fail financial institutions.

Harvey Miller: Economy ‘treacherous,’ double dip possible from The Deal on Vimeo.

FSB Approves Systemic Risk Regulation Policy Proposals

in Bankruptcy & Liquidation, Investment Banks, Living Wills, Systemic Risk Management, U.S. Treasury Department

By: Alex Radetsky

On October 3, 2011, the Financial Stability Board (“FSB”) , an organization comprised of governmental and other financial authorities from around the world, including the SEC, Federal Reserve and Deptartment of Treasury for the U.S., approved a package of policy proposals meant to address systemic risk and “too big to fail” issues which will be submitted to the G20 Summit in November.  The policy proposals include:

  • Standards for effective resolution regimes for financial institutions
  • Requirements that globally important systemically important financial institutions (“G-SIFIs”) develop and submit recovery and resolution plans
  • The development of cooperation agreements and cross-border crisis management groups by home and host regulators of G-SIFIs
  • Additional loss absorbency requirements for G-SIFIs
  • Improved data systems for risk management and assessments of the adequacy of supervisory resources, among other measures to enhance the intensity and effectiveness of the supervision of financial institutions
  • Enhanced international standards for the robustness of core financial market infrastructures

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Harvey Miller Interviewed on Difficulties of Financial Industry Restructurings

in Bankruptcy & Liquidation, Federal Deposit Insurance Corporation, Living Wills, Systemic Risk Management

Appearing on Bloomberg Television’s “InsideTrack” with Erik Schatzker, Weil’s Harvey Miller discusses issues relating to a potential Countrywide Financial bankruptcy. Countrywide Financial was purchased by Bank of America for approximately $4 billion in early 2008.

Among the many considerations discussed during the segment, Harvey addresses the uncertainty of whether Countrywide would be considered a “systemically important financial institution” under the Dodd-Frank Act.

Resolution Plan Redux: Rule Requiring Insured Depository Institutions to Submit Resolution Plans Under the FDIA Closely Parallels Rule Requiring Bank Holding Companies to Submit Resolution Plans under the Dodd-Frank Act

in Bankruptcy & Liquidation, Commercial Banks, Federal Deposit Insurance Corporation, Living Wills, Systemic Risk Management

by Derrick Cephas, Walt Zalenski, Sylvia Mayer, Conray Tseng, and Tim Welch

On September 13, 2011, the Federal Deposit Insurance Corporation (FDIC) issued two rules requiring large financial institutions to submit resolution plans in contemplation of their failure. These two rules, which impose concurrent deadlines on covered institutions, share many similarities, as well as certain significant distinctions. Moreover, many institutions will be subject to both rules. This article addresses the distinct parameters, but similar purposes and prescriptions, of the two rules and common, outstanding issues with respect to their implementation.

The Rules at Issue

DFA Res-Plan Rule

The first rule, which was issued in final form pending approval by the Board of Governors of the Federal Reserve System (FRB) and will be codified at 12 CFR 381, addresses resolution planning as required under Section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). This rule requires bank holding companies (BHCs) with $50 billion or more in consolidated assets and other specified categories of covered companies to submit an annual resolution plan (DFA Res-Plan), often referred to as a “living will,” to the FDIC and FRB. The DFA Res-Plan must include a strategic analysis outlining utilization of the Bankruptcy Code or other applicable insolvency regimes to facilitate the rapid and orderly resolution of the institution in a manner that avoids systemic risk to the U.S. financial markets in the event of material financial distress or failure of the BHCs or one or more of its systemically important subsidiaries. We previously reported on the DFA Res-Plan rule here.

IDI Res-Plan Rule

The second rule, which was issued in interim final form pending an additional comment period, covers resolution planning by insured depository institutions (IDIs) with $50 billion or more in assets. This rule (codified at 12 CFR 360) requires covered IDIs to submit an annual resolution plan (IDI Res-Plan) to the FDIC. IDIs are not eligible to file bankruptcy. Instead, resolution of an IDI involves the FDIC being appointed receiver of the IDI pursuant to the Federal Deposit Insurance Act (FDIA). As a result, an IDI Res-Plan must include a strategic analysis outlining how the FDIC should proceed with the rapid and orderly resolution of the IDI pursuant to FDIA in the event of the IDI’s material financial distress or failure.

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FDIC Approves Final Rule Regarding Submission of Resolution Plans

in Bankruptcy & Liquidation, Federal Deposit Insurance Corporation, Federal Reserve Board, Financial Stability Oversight Council, Living Wills, Prudential Regulation, Systemic Risk Management

By Sylvia Mayer, Kelly DiBlasi, Alex Radetsky, and Kathlene Burke

In April 2011, the Federal Deposit Insurance Corporation (the “FDIC”) published a notice of proposed rulemaking (“Proposed Rule”) to implement the requirements of section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was followed by a three-month period for interested parties to submit their comments to the Proposed Rule.  Following consideration of these comments and modification of the Proposed Rule, on September 13, 2011, the FDIC approved a final rule (the “Final Rule”) implementing section 165(d) of the Dodd-Frank Act.

As summarized in the chart below, the Final Rule departs from the Proposed Rule in several significant ways reflecting careful consideration of the comments submitted:

  PROPOSED RULE FINAL RULE
Timing:
  • Resolution Plans to be submitted within 180 days following effective date of the Final Rule
  • Resolution Plans to be submitted on a staggered timeline with the largest and most complex Covered Companies submitting their plans in July 2012
Scope:
  • One size fits all approach imposing the same requirements on all Covered Companies
  • Tailored or streamlined planning option for less complex Covered Companies
Confidentiality:
  • Confidentiality was not addressed
  •  Covered Companies must designate which portions of the submission are confidential and must include in the public portion an executive summary that includes a high-level description of their resolution strategy
Other Insolvency Proceedings:
  • Resolution Plan to address resolution under the Bankruptcy Code
  • Resolution Plan to address resolution under the Bankruptcy Code for entities eligible to file bankruptcy
  • For material entities (i.e., entity has $50 billion or more in total assets or the entity conducts a critical operation) ineligible to file bankruptcy, Resolution Plan should address resolution under applicable insolvency regime, including strategy and actions that should be taken in the proceeding
Interim Changes:
  • Covered Companies must provide an interim update to the regulators within 45 days of a material change
  • Covered Companies must provide a notice to the regulators within 45 days of a material change
Data Production:
  • Each Covered Company must provide its unconsolidated balance sheet and a consolidating schedule for all entities that are subject to consolidation
  •  Each Covered Company must provide its unconsolidated balance sheet and a consolidating schedule for all material entities that are subject to consolidation
  • The data production requirements have now been keyed to other reporting requirements in the Federal Deposit Insurance Act in order to limit conflicting and distinct information disclosures to the FDIC under various statutory and regulatory requirements
Credit Exposure Reports:
  • Rule to be implemented concurrent with Final Rule on Living Wills
  • Final rule determination deferred to be implemented concurrent with other FRB rulemaking

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