As noted today in Weil’s Bankruptcy Blog, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation published notice yesterday in the Federal Register that they are adopting the final rule to implement the Dodd-Frank Act’s requirement concerning resolution plans, which are commonly referred to as “living wills”.
Commercial Banks
New ‘Living Will’ Requirements for Banks and Resolution Powers for Regulators
Institute of International Bankers
November 30, 2011, Harold Proshansky Auditorium, CUNY Graduate Center, New York, NY | Register Now
Weil’s Derrick Cephas will appear at the IIB conference Implementation of the Dodd-Frank Act – Key Issues for International Banks. Mr. Cephas’ panel is titled “New ‘Living Will’ Requirements for Banks and Resolution Powers for Regulators” and will commence at 1:45 p.m.
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.
Alert: International Financial Regulation
Early this morning, the UK’s Independent Commission on Banking (“ICB”), chaired by Sir John Vickers, issued its final report on the reform of British banking. The ICB largely reiterated the measures first outlined in its interim report in April and summarized in a previous Alert. Whilst banks may not be initially rushing to relocate overseas, there is no doubt implementation of the ICB’s conclusions will be expensive (estimated at around £6 billion annually). The ICB believes that incremental benefits will exceed costs by “a very large margin,” a view perhaps not widely held as London’s FTSE 100 reportedly fell by over 2.3% in early trading following the report’s release, with bank shares the biggest fallers. The ICB’s challenge was twofold. As well as creating a more stable and competitive basis for UK banking, it was also tasked with ensuring an “effective and efficient” banking service to safeguard retail deposits. The report notes the global events and goals to which the UK is subject and recognizes that part of the challenge is reconciling the UK’s position as an international financial centre with stable banking in the UK. It remains to be seen whether the report will lead to enhancement or divestment of the UK’s reputation as a pre-eminent financial centre.
Financial Stability
The report proposes a combination of measures requiring structural reform and greater capital/other loss-absorbing capacity. The ICB intends risks associated with banking should not …
by Peter King
As regulators seek to avoid a repeat of the 2008 financial crisis, attention is focused on a small group of financial institutions whose operations are so international and so significant that their collapse could adversely affect all financial markets. The Basel Committee on Banking Supervision has been at the forefront of attempts to agree global standards in this area. Following on from its papers on the so-called Basel III framework, it has now published a paper on how regulators should determine what are global systemically important banks or G-SIBs.
