The FDIC board today voted 3-2 to adopt a final rule creating new resolution plan requirements for banks with more than $100 billion in assets, as well as new information filing requirements for banks over $50 billion. Among other things, the rule will require banks over $100 billion to submit a strategy that describes their resolution from the point of failure through the sale or disposition of the franchise. However, strategies that rely on a closing weekend sale of the institution are not permitted—filers would be required to outline a strategy using a “bridge bank.” The rule takes effect Oct. 1.
The final rule contains changes from the original proposal last year, which FDIC staff said came as a result of public feedback. For example, most banks covered by the rule must submit resolution plans or information filings to the FDIC every three years instead of two, although they must submit regular updates on those plans. Globally systemically important banks must submit resolution plans every two years. Another change is a “tiered” approach to regulatory feedback about weaknesses in submitted plans, including the creation of a “significant finding” as a step between informal observations and a “finding of material weakness” that requires corrective action. However, the final rule would require demonstration of capabilities to value and market expeditiously assets and parts of the institution’s franchise.
The information filing requirements for banks between $50 billion and $100 billion would not be as detailed as the plans submitted by those over $100 billion. In particular, banks under $100 billion would not be required to submit resolution strategies based upon a failure scenario, according to FDIC staff.
The American Bankers Association had previously raised multiple concerns about the original proposal. In a statement after yesterday’s vote, ABA president and CEO Rob Nichols said the FDIC’s final rule includes some modest improvements in response to comments from banks and the public, but it still raises serious concerns. “The rule’s overly broad and impractical mandates are piled on top of a number of other recent regulatory changes that will ultimately come at a cost to bank customers without meaningfully improving resiliency,” he said.
FDIC board split on changes
The FDIC board was divided about the necessity of the new resolution planning requirements, with the three Democratic members viewing the final rule as a much-needed adjustment following last year’s regional bank failures, and the two Republican members seeing it as overreach.
“The development of such a strategy, together with the supporting information and analysis, will materially improve the ability of the FDIC to prepare for and execute resolutions of the largest banks in a manner that preserves stability in the banking system and reduces costs to the Deposit Insurance Fund and other stakeholders,” FDIC Chairman Martin Gruenberg said. “In light of our experience in the spring of last year, the need for strengthened resolution plans for institutions in this category is compelling.”
In voting against the final rule, FDIC Vice Chairman Travis Hill questioned whether the expected benefits from making banks submit written plans justified the costs to institutions for preparing them. Board member Jonathan McKernan questioned whether the agency had the authority to implement some of the requirements. “If we have the authority to enforce this rule, we also have the authority to compel very significant changes in bank’s business models,” McKernan said. “I think Congress would have been clear if we were supposed to have that authority as it relates to resolution.”
