International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Friday, August 7, 2015

Financial Regulators Provide Feedback to Nonbank Firms on Resolution Plans

The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) on  800px-FdicLogoTuesday provided guidance to 119 firms that in December will be filing updated resolution plans. Based on a review of their plans submitted late last year, the agencies are tailoring the requirements for the submissions. Some firms will receive individual feedback on areas for improvement.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies designated by the Financial Stability Oversight Council as systemically important periodically submit resolution plans to the FDIC and the Federal Reserve. Each plan must describe the company's strategy for rapid and orderly resolution under the U.S. Bankruptcy Code or other applicable insolvency regime in the event of material financial distress or failure of the company.

One hundred and fifteen U.S. bank holding companies with less than $100 billion in total nonbank assets and foreign-based firms with less than $100 billion in U.S. nonbank assets were required to file their second resolution plans with the agencies in December 2014, and four foreign-based firms were required to file their initial resolution plan. Following review of the resolution plans, the agencies are providing each firm with guidance, clarification, and direction for their upcoming resolution plans based on the relative size and scope of each firm's U.S. operations. Plan requirements are tiered with less complex firms filing more streamlined plans:

  • Twenty-nine of the more complex firms are required to file either full or tailored resolution plans that take into account guidance identified by the agencies.
  • Ninety firms with limited U.S. operations may file plans that focus on material changes to their 2014 resolution plans, actions taken to strengthen the effectiveness of those plans, and, where applicable, actions to ensure any subsidiary insured depository institution is adequately protected from the risk arising from the activities of nonbank affiliates of the firm.

The new plans are due to the agencies on or before December 31, 2015.

The agencies released an updated tailored resolution plan template. A tailored resolution plan focuses on the nonbanking operations of the firm and on the interconnections and interdependencies between the nonbanking and banking operations.  The optional template is intended to facilitate the preparation of tailored resolution plans.

The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) on Tuesday 


provided feedback to three nonbank financial companies regarding their initial resolution plans and guidance to the firms for their upcoming filings.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies designated by the Financial Stability Oversight Council as systemically important periodically submit resolution plans to the FDIC and the Federal Reserve. Each plan must describe the company's strategy for rapid and orderly resolution under the U.S. Bankruptcy Code or other applicable insolvency regime in the event of material financial distress or failure of the company.

Three nonbank financial firms that filed initial resolution plans in July 2014 are:

  • American International Group, Inc.,
  • Prudential Financial, Inc., and
  • General Electric Capital Corporation (GECC).

The agencies tailored their feedback to account for each company's unique business, structure, and operations. In addition to the specific guidance given to each company, the letters include some common areas that the firms should address. Those areas include the need for more detailed information on, and analysis of, obstacles to resolvability, including global cooperation, interconnectedness, and adequate funding and liquidity. Further, the agencies instructed the firms to describe in their resolution plans the progress they are making, and the steps remaining, to be more resolvable. Finally, the agencies directed the firms to strengthen the public portions of the firms' upcoming resolution plans. The feedback to GECC acknowledges the firm's divestiture plan.

The three nonbank financial companies will submit the second version of their annual resolution plans on or before December 31, 2015. The agencies will require that the firms demonstrate that they are making significant progress to address the obstacles to resolution noted in the feedback to each company, and are taking actions to improve their resolvability.

https://lawprofessors.typepad.com/intfinlaw/2015/08/financial-regulators-provide-feedback-to-nonbank-firms-on-resolution-plans.html

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