Special Reporting, Analysis and Contingent Resolution Plans at Certain Large Insured Depository Institutions, 27464-27471 [2010-11646]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 75, Number 94 (Monday, May 17, 2010)]
[Proposed Rules]
[Pages 27464-27471]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-11646]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 360

RIN 3064-AD59


Special Reporting, Analysis and Contingent Resolution Plans at 
Certain Large Insured Depository Institutions

AGENCY: Federal Deposit Insurance Corporation (``FDIC'').

ACTION: Notice of proposed rulemaking.

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SUMMARY: The FDIC is seeking comment on a proposed rule that would 
require certain identified insured depository institutions (``IDIs'') 
that are subsidiaries of large and complex financial parent companies 
to submit to the FDIC analysis, information, and contingent resolution 
plans that address and demonstrate the IDI's ability to be separated 
from its parent structure, and to be wound down or resolved in an 
orderly fashion. The IDI's plan would include a gap analysis that would 
identify impediments to the orderly stand-alone resolution of the IDI, 
and identify reasonable steps that are or will be taken to eliminate or 
mitigate such impediments. The contingent resolution plan, gap 
analysis, and mitigation efforts are intended to enable the FDIC to 
develop a reasonable strategy, plan or options for the orderly 
resolution of the institution. The proposal would apply only to IDIs 
with greater than $10 billion in total assets that are owned or 
controlled by parent companies with more than $100 billion in total 
assets.

DATES: Comments must be submitted on or before July 16, 2010.

ADDRESSES: You may submit comments by any of the following methods:
     Agency Web Site: https://www.fdic.gov/regulations/laws/federal. Follow instructions for submitting comments on the Agency Web 
Site.
     E-mail: Comments@FDIC.gov. Include ``Special Reporting, 
Analysis and Contingent Resolution Plans at Certain Large Insured 
Depository Institutions'' in the subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
     Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m. (EST).
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
    Public Inspection: All comments received will be posted without 
change to https://www.fdic.gov/regulations/laws/federal including any 
personal information provided. Comments may be inspected and 
photocopied in the FDIC Public Information Center, 3501 North Fairfax 
Drive, Room E-1002, Arlington, VA 22226, between 9 a.m. and 5 p.m. 
(EST) on business days. Paper copies of public comments may be ordered 
from the Public Information Center by telephone at (877) 275-3342 or 
(703) 562-2200.

FOR FURTHER INFORMATION CONTACT: Keith Ligon, Chief, Exam Support 
Section, Division of Supervision and Consumer Protection, (202) 898-
3686, or James Marino, Project Manager, Division of Resolutions and 
Receiverships, (202) 898-7151, or Shane Kiernan, Senior Attorney, Legal 
Division, (703) 562-2632, or Mark Flanigan, Counsel, Legal Division, 
(202) 898-7426, or John Dorsey, Counsel, Legal Division, (202) 898-
3807, or Richard A. Bogue, Counsel, Legal Division, (202) 898-3726, or 
Carl J. Gold, Counsel, Legal Division, (202) 898-8702.

SUPPLEMENTARY INFORMATION:

I. Special Reporting, Analysis and Contingent Resolution Plans at 
Certain Large Insured Depository Institutions

(A) Authority for Proposed Regulation

    The FDIC is charged by Congress with the critical responsibility of 
insuring the deposits of banks and thrifts in the United States, and 
with serving as receiver of all such institutions if they should fail. 
As of December 31, 2009, the FDIC insured approximately $4.75 trillion 
in deposits in more than 8,000 depository institutions. In implementing 
the deposit insurance program, and in efficiently and effectively 
resolving failed depository institutions, the FDIC strengthens the 
stability of the banking system and helps maintain public confidence in 
the banking industry in the United States. In its efforts to achieve 
this objective and to implement its insurance and resolution functions, 
the FDIC requires a comprehensive understanding of the organization, 
operation and business practices of banks and thrifts in the United 
States, with particular attention to the nation's largest and most 
complex insured depository institutions that account for nearly half of 
the FDIC's insurance risk.
    To carry out these core responsibilities, the proposed regulation 
requires a limited number of the largest insured depository 
institutions to provide the FDIC with essential information concerning 
their structure, operations, business practices and financial 
responsibilities and exposures. The proposed regulation requires these 
institutions to develop and submit detailed plans demonstrating how 
such depository institutions could be separated from their affiliate 
structure and wound down in an orderly and timely manner in the event 
of receivership. The proposed regulation would also make a critically 
important contribution to the FDIC's implementation of its statutory 
receivership responsibilities by providing the FDIC as receiver with 
the information it needs to make orderly and cost effective resolutions 
much more feasible.
    The Federal Deposit Insurance Act gives the FDIC broad authority to 
carry out its statutory responsibilities, and to obtain the information 
required by the proposed regulation. The authority to issue the 
proposed regulation is provided by Section 9(a) Tenth of the FDI Act, 
12 U.S.C. section 1819(a) Tenth, authorizing the FDIC to prescribe, by 
its Board of Directors, such rules and regulations as it may deem 
necessary to carry out the provisions of the FDI Act or of any other 
law that the FDIC is responsible for administering or enforcing. The 
FDIC also has authority to adopt regulations governing the operations 
of its receiverships pursuant to Section 11(d)(1) of the FDI Act. 12 
U.S.C. section 1821(d)(1). Collection of the information required by 
the regulation is also supported by the FDIC's broad authority to 
conduct examinations of depository institutions to determine the 
condition of the IDI, including special examinations, 12 U.S.C. section 
1820(b)(3).

[[Page 27465]]

    Finally, a failure of an IDI to provide the information required by 
this regulation would constitute a regulatory violation that would 
allow the FDIC to initiate the process of deposit insurance termination 
(12 U.S.C. section 1818(a)(2)), or to use backup enforcement authority 
of the FDIC under 12 U.S.C. section 1818(t). This backup enforcement 
authority allows the FDIC, after notice to the primary Federal 
regulator, to pursue FDI Act section 8 enforcement actions, including 
cease-and-desist orders, civil money penalties, and removal and 
prohibition actions.

(B) Background

    Over the past decades, the size and complexity of insured 
depository institutions (``IDIs'') have evolved dramatically. More 
recently, and as a result of the financial crisis, the industry has 
seen further consolidation and continued expansion in the scope of 
insured depository institutions' activities, operations, and risks. As 
a result of continued consolidation of the U.S. banking industry, the 
FDIC's insurance risk is now concentrated in the largest and most 
complex insured depository institutions. Today, almost half of the 
FDIC's deposit insurance exposure is accounted for by fewer than 40 
large institutions that exist within even larger conglomerate and 
multinational structures.
    These large and complex IDIs present profound challenges to the 
FDIC both as insurer and when it must act in its receivership capacity. 
The complexity of these IDIs, the extensive financial 
interrelationships within the conglomerates, and the likely presence of 
competing statutory regimes that may apply to the IDI, its parent 
corporation and key affiliates, result in opaque structures that 
prevent the FDIC from gaining access to information that is essential 
to the FDIC's assessment of its risks as insurer and to its ability to 
resolve the IDI in a cost-effective and timely fashion as receiver, in 
the event of failure. Also, given the extensive interconnectedness of 
the IDI with its parent and affiliates, the FDIC can be significantly 
hindered in its mission to effect an orderly and timely resolution, 
minimize cost to the insurance fund, and to maximize recoveries to 
depositors and other claimants. This mission is separate and distinct 
from the mission of the primary Federal supervisor. Complementing the 
supervisory oversight of the primary Federal regulator, the FDIC's role 
as insurer and resolver requires a distinct focus on loss severities, 
default risks, complexities in structure and operations, and other 
factors that impact risk to the fund and the ability of the FDIC to 
effect an orderly resolution.
    The proposed rule is intended to ensure that the FDIC has access to 
all the information it needs to assess its insurance risk in connection 
with large IDIs existing within such structures, and to efficiently 
resolve such IDIs in the event of failure. The rule requires identified 
IDIs to compile information, conduct analyses and develop plans that 
will enable the FDIC to understand and anticipate the operational, 
managerial, financial and other aspects of the IDI that would 
complicate efforts by the FDIC, as receiver, to extract the IDI from 
the larger enterprise, determine and maximize franchise value, and 
conduct a least-cost transaction.
    Organizational and operational complexity of the largest IDIs 
results in opaque structures. The very largest IDIs reside within bank, 
thrift and financial holding company structures that include an 
extensive network of affiliated companies offering both banking and 
non-banking products and services. Management and operation of these 
complex entities is typically organized along business lines rather 
than by legal entity. Key decisions affecting the IDI, and key services 
or functions relating to the IDI, are often made outside the IDI, by 
parent holding companies or affiliates of the IDI. Complex financial 
and other interrelationships within such groups (for example, 
guaranties, derivatives trades, contractual commitments, service 
agreements, information technology agreements, staffing allocations, 
human resource and related administrative support ties) create further 
interdependencies that can significantly impact resolution strategy and 
the conduct of an orderly and timely resolution. IDIs often rely upon 
affiliates for the provision of critical operations and services 
without which the IDI cannot continue to smoothly function, which in a 
resolution context threatens its franchise value and the FDIC's ability 
to conduct an effective resolution.
    Further complications result from the presence of distinct 
statutory insolvency regimes specific to the various legal entities 
within the conglomerate, which often have different, and sometimes 
competing, goals. Insured banks and thrifts are subject to the FDI Act 
and are resolved by the FDIC. The insolvency of bank, thrift and 
financial holding companies and most of their non-insured financial 
subsidiaries are subject to the Bankruptcy Code.\1\ These competing 
regimes result in disputes over assets, intra-affiliate claims and 
litigation, and can increase the cost of the resolution and impair its 
efficiency.
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    \1\ The recent financial crisis, for example, saw the collapse 
of several major financial services holding companies whose primary 
business activities were not housed in an insured depository 
institution. These institutions included Bear Stearns, Lehman 
Brothers and American International Group (AIG). Each of these 
financial holding companies was subject to the jurisdiction of the 
bankruptcy courts. Broker-dealer subsidiaries of parent holding 
companies that are members of the Securities Investor Protection 
Corporation (SIPC) are subject to a combination of the Securities 
Investor Protection Act (SIPA) and the Bankruptcy Code. Further, the 
rehabilitation, restructuring or liquidation of insurance company 
subsidiaries is governed by unique State insurance insolvency codes, 
which differ from State to State, and often also may lead to State 
judicial proceedings.
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    The FDIC has determined that there is a compelling need for better 
information and planning to separately resolve the insured depository 
institution as a distinct entity. For example, in certain 
receiverships, staff and human resources have been provided by the 
parent organization, impeding the receiver's ability to effect a smooth 
and orderly transition of services to the community. Critical 
information technology support services are frequently conducted 
outside the insured entity, forcing the receiver to seek continuity of 
such key services. The FDIC has witnessed the inability of large and 
complex insured depository institutions to identify the location and 
legal owner of assets, to separate liquidity needs and funding sources 
of the insured entity, and even to identify a separate line management 
team to conduct operations during a resolution. The FDIC, moreover, has 
been routinely engaged in disputes over assets, lien claims, and 
related litigation with parents and affiliates, draining receivership 
resources, extending the duration of the receivership and delaying the 
prompt resolution of claims.
    The proposed rule is consistent with and will assist in the 
implementation of ``Resolution Plan'' legislation pending in both 
houses of Congress. Pending reform legislation now in both houses of 
Congress requires wind-down and resolution plans to be submitted by 
identified large bank holding companies or non-bank financial 
companies, pursuant to regulations to be adopted jointly by the FDIC 
and the Board of Governors of the Federal Reserve System (``FRB''). 
This important Congressional initiative is fully consistent with the 
conclusion by the FDIC, based on its experience in the current 
financial crisis as receiver

[[Page 27466]]

charged with responsibility for resolving failed banks (especially 
large and complex IDIs), that comprehensive wind-down plans for large 
and complex IDIs are essential for their orderly and least-cost 
resolution. It is for that reason that the FDIC is proposing that the 
process of developing plans for such IDIs should begin promptly. This 
initiation of that process by FDIC under the authority of the FDI Act 
will in no way conflict with the mandate of the FDIC and the FRB under 
the pending legislation to establish rules and administer a system of 
resolution planning for large bank holding companies and non-bank 
financial companies. Indeed, the joint planning process to be conducted 
by the FDIC and the FRB involving companies that include large or 
complex IDIs will be able to integrate earlier resolution planning that 
will take place under the FDIC proposed contingent resolution program, 
and such planning should be able to continue as a part of any proposal 
adopted by Congress. The FDIC, in implementing this proposal, will make 
every effort to coordinate its work with the separate joint planning 
process of the FDIC and the Federal Reserve to avoid duplication of 
effort.
    The proposed rule similarly supports and complements related 
international initiatives. At the 2009 Pittsburgh Summit, and in 
response to the recent financial crisis, the G20 Leaders called on the 
Financial Stability Board (FSB) to propose by the end of October 2010, 
possible measures to address the ``too big to fail'' and moral hazard 
concerns associated with systemically important financial institutions. 
Specifically, the G20 Leaders called for the development of 
``internationally-consistent firm-specific contingency and resolution 
plans'' by the end of 2010. The FSB is pursuing further work to develop 
the international standards for contingency and resolution plans and to 
evaluate how to improve the capacity of national authorities to 
implement orderly resolutions of large and interconnected financial 
firms.
    The FSB's program has built on work undertaken by the Basel 
Committee on Banking Supervision's Cross-border Bank Resolution Group, 
co-chaired by the FDIC, since 2007. In its final Report and 
Recommendations of the Cross-border Bank Resolution Group, issued on 
March 18, 2010, the Basel Committee emphasized the importance of pre-
planning and the development of practical and credible plans to promote 
resiliency in periods of severe financial distress and to facilitate a 
rapid resolution should that be necessary. In its review of the 
financial crisis, the Report found that one of the main lessons was 
that the complexity and interconnectedness of large financial 
conglomerates of corporate structure made crisis management and 
resolutions more difficult and unpredictable.
    Similarly, the FSB's Principles for Cross-Border Cooperation on 
Crisis Management commit national authorities to ensure that firms 
develop adequate contingency plans and highlight that information needs 
are paramount, including information regarding group structure, and 
legal, financial and operational intra-group dependencies; the 
interlinkages between the firm and financial system (e.g., in markets 
and infrastructures) in each jurisdiction in which it operates; and 
potential impediments to a coordinated solution stemming from the legal 
frameworks and bank resolution procedures of the countries in which the 
firm operates. The FSB Crisis Management Working Group has recommended 
that supervisors ensure that firms are capable of supplying in a timely 
fashion the information that may be required by the authorities in 
managing a financial crisis. The FSB recommendations strongly encourage 
firms to maintain contingency plans and procedures for use in a wind-
down situation (e.g., factsheets that could easily be used by 
insolvency practitioners), and to regularly review them to ensure that 
they remain accurate and adequate. This proposed rule enhances and 
complements these international efforts.
    Conclusion. The FDIC believes that assessing its insurance risk and 
planning for resolution of covered IDIs require access to timely, 
complete and accurate information regarding the nature and structure of 
the IDI within the organization as well as its ability to extract and 
separate itself from its parent structure in contemplation of failure. 
These information and contingency planning requirements are the 
foundation for any meaningful analysis of IDI franchise value, least-
cost resolution strategies, strategies to mitigate systemic risks and 
overall planning for an orderly resolution in the possible event of 
failure. The recent financial crisis has demonstrated that the risk of 
insolvency to an IDI can arise quickly, and that preparedness and 
planning must be conducted on a continuing basis, before problems 
become evident, and not merely in response to after-the-fact 
supervisory indicators.
The Notice of Proposed Rulemaking
    The Notice of Proposed Rulemaking (``NPR'') sets forth information 
reporting requirements intended provide the FDIC with key information 
concerning the operations, management, financial, affiliate 
relationships and other aspects of IDIs operating within a complex 
conglomerate to permit the FDIC to more effectively carry out its 
duties as insurer and receiver. The NPR requires IDIs within the scope 
of the rule to prepare, and submit to the FDIC, a contingent resolution 
plan describing the means by which the IDI could be effectively 
separated from the rest of the conglomerate enterprise in the event of 
failure of the IDI or the bankruptcy of the parent company or any key 
affiliate of the IDI. It is intended that such a plan also will assist 
the FDIC, in the event of the failure of the IDI, in carrying out its 
responsibilities to resolve the failed institution in timely and cost-
effective fashion. The rule proposes that the contingent resolution 
plan be submitted within 6 months of the effective date of the rule. 
The FDIC will review the plan in consultation with appropriate primary 
Federal regulator(s) and the institution to ensure the plan is 
effective, workable and satisfactory. The plan should be updated 
annually, and material information elements should be updated more 
frequently as reasonable and necessary, given the risk profile and 
structure of the institution relative to its affiliates and to 
demonstrate the capacity to provide specific information when needed 
(e.g., deposit flows, intra-group funding flows, short-term funding, 
derivatives transactions, or material changes to capital structure or 
sources). While much more information will be required to prepare for 
and implement an actual resolution, the information required under the 
proposed regulation focuses on key structures, exposures, and 
interlinkages necessary to evaluate and further develop the contingent 
resolution plan.
    The NPR is intended to reach large, complex insured depository 
institutions. Accordingly under the NPR, a ``covered insured depository 
institution'' (``covered IDI'') is defined as insured depository 
institutions with greater than $10 billion in total assets that are 
owned or controlled by parent companies with more than $100 billion in 
total assets. As of the fourth quarter of 2009, there were 40 such 
institutions, representing total assets of $8.3 trillion. These 40 
institutions hold approximately 47.9% of all deposits insured by the 
FDIC.

[[Page 27467]]

Nature and Scope of Contingent Resolution Plan To Be Provided to the 
FDIC
    The FDIC is proposing that each covered IDI develop and provide to 
the FDIC a credible contingent resolution plan which sets forth 
detailed information needed to allow the FDIC to understand the scope 
and extent of the IDI's business lines, operations, risks and 
activities, and especially to determine the nature and extent of 
interrelationships between the IDI and its affiliates; to identify and 
quantify non-obvious risks embedded within distinct business entities 
or units; to identify concentrations of risk and correlations among 
risks; and to develop an enterprise-wide and entity-specific vision of 
the covered IDI.
    Some of the required information is likely already to have been 
developed and/or reported elsewhere, and to the greatest extent 
possible, the FDIC expects to use such existing information and reports 
to minimize the regulatory burden on the covered IDIs. The FDIC 
recognizes that the information and analysis provided will be 
proprietary and highly confidential, and is not intended for 
disclosure.
    In addition to providing information, the contingent resolution 
plan should provide an analysis of the covered IDI's ability to be 
resolved in an orderly fashion in the event of its receivership, or the 
insolvency of the parent or key affiliates. The analysis should reveal 
the covered IDI's planning and gap analysis of its ability to separate 
the covered IDI from the conglomerate structure in the most cost-
effective and timely fashion. The analysis and plan should reveal all 
material obstacles to an orderly resolution of the covered IDI and 
interconnections and interdependencies that would hinder the timely and 
effective resolution of the insured entity, and set forth specific, 
credible remediation steps or mitigating responses that would be 
required to eliminate or minimize such obstacles.
    In developing an analysis and plan, a covered IDI should consider 
the institution's size relative to its parent company structure; its 
interdependence with the national and international marketplaces; as 
well as how easily its financial company products or services can be 
substituted.
Standards for Content of Contingent Resolution Plan
    The following set forth the minimum standards for the contingent 
resolution plan to be provided by covered IDIs:
     Provide sufficient information, covering material risks, 
business lines, operations, activities and exposures of the covered IDI 
and its subsidiaries necessary to permit development of an effective 
contingent resolution plan.
     Set forth the institution's analysis that identifies 
material impediments to an orderly resolution of the covered IDI in the 
event of its insolvency, the insolvency of its parent or critical 
affiliates, and describing the steps that are or will be taken to 
eliminate or mitigate such impediments.
     Provide sufficient information to the FDIC to allow the 
FDIC to isolate the IDI and to allow for effective resolution strategy 
development and contingency planning for a period of severe financial 
distress, describing means of preserving franchise value, maximizing 
recovery to creditors, and minimizing systemic impacts on the financial 
system.
     Provide a gap analysis tailored to the size, complexity 
and risk profile of the institution, provide remediation steps that are 
feasible and capable of execution within a reasonable time frame and 
set forth a time period within which remediation actions are to be 
concluded.
     The contingent resolution plan must be approved by the 
institution's Board of Directors or designated executive committee.
     The contingent resolution plan must be updated on a 
regular, at least annual, basis, and demonstrate an ability to provide 
current and updated information on material elements as described in 
the regulation.
Minimum Components of the Required Contingent Resolution Plan
    The proposed rule prescribes the elements of a contingent 
resolution plan intended to provide a complete review of the covered 
IDI and its relationships with its parent and affiliates, and key 
counterparties, to enhance preparedness for resolution. At a minimum 
the contingent resolution plan should include the following elements:
    Summary of Analysis and Contingent Resolution Plan. Summarize 
material impediments to an orderly resolution of the covered IDI 
separate from its parent company and affiliates and a description of 
specific, credible remedial or mitigating steps that are or would be 
taken to eliminate or minimize such impediments. For example, reliance 
upon affiliates to provide critical services can establish an 
impediment to transferring its assets, liabilities and operations to an 
acquiring institution or bridge bank. This gap may be remediated by the 
development of continuity provisions in relevant contracts or by 
establishing pre-arranged substitution for such services.
    Describe key assumptions underlying the analysis. Define short and 
long-term goals to remediate or mitigate identified impediments to 
separation and resolution.
    Organizational Structure. Includes the IDI's, parent company's, and 
affiliates' legal and functional structures and identity of key 
personnel tasked with managing major components within the organization 
materially affecting the covered IDI.
    Business Activities, Relationships and Counterparty Exposures. 
Identify and describe the business activities of the covered IDI and 
its subsidiaries, including an explanation of material 
interrelationships among the entities in the organizational structure, 
e.g. major counterparties (especially for financial contracts) and 
affiliates that provide key services and support. Critical services 
that are provided by affiliates, such as servicing, information 
technology support and operations, human resources or personnel should 
be identified. This description should also provide an assessment of 
each key entity's ability to function on a stand-alone basis.
    Capital Structure. Detail the covered IDI's capital structure, as 
well as that of its parent, each subsidiary and key affiliates. Provide 
complete financial information in the form of audited financial 
statements presented along with line-item descriptions of the assets, 
liabilities, and equity comprising the balance sheets of the parent 
company as a consolidated entity as well as of each subsidiary or 
affiliated entity. Describe corporate financing arrangements for the 
institution, its subsidiaries, parent and key affiliates. Identify 
funding, liquidity, and refinancing risks associated with the various 
capital pools being utilized.
    Intra-Group Funding, Transactions, Accounts, Exposures and 
Concentrations. Relative to the IDI, describe intra-group funding 
relationships, accounts, and exposures, including terms, purpose, and 
duration. These would include, for example, a description of intra-
group financial exposures, claims or liens, lending or borrowing lines 
and relationships, guaranties, asset accounts, deposits or derivatives 
transactions. Clearly identify the nature and extent to which the IDI's 
parent or affiliates are to serve as a source of funding to the IDI, 
the terms of any contractual arrangements, the location of related 
assets, funds or deposits and the mechanisms by which funds can be 
down-streamed from the parent to the IDI.
    Systemically Important Functions. Describe systemically important

[[Page 27468]]

functions that the covered IDI, its subsidiaries and affiliates 
provide, including the nature and extent of the institution's 
involvement in payment systems, custodial or clearing operations, large 
sweep programs and capital markets operations in which it plays a 
dominant role. Identify critical vulnerabilities, estimated exposure 
and potential losses, and why certain attributes of the businesses 
detailed in previous sections could pose a systemic risk to the broader 
economy.
    Material Events. Describe events, e.g., acquisitions, sales, 
litigation, operational and fiscal challenges, that have had a material 
effect on the IDI and its relationship with its parent or affiliates.
    Cross-Border Elements. Discuss the nature and extent of the IDI's 
cross-border interrelationships and exposures; describe individual 
components of the group structure that are based or located outside the 
United States, including foreign branches, subsidiaries and offices. 
Provide detail on the location and amount of foreign deposits and 
assets. This information is necessary to facilitate the FDIC's 
determination of the legal and policy framework under which such assets 
might be resolved in the event of insolvency, including the framework 
for providing liquidity, the terms and restrictions of government 
support, and the operational and technical challenges of international 
payment systems.\2\
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    \2\ The challenges related to cross-border resolutions, the 
nature and extent of planning, and relevant information needs are 
detailed in the Report and Recommendations of the Cross-border Bank 
Resolution Group, Basel Committee on Banking Supervision (March 
2010); see especially Recommendation 6: ``Planning in advance for 
orderly resolution''.
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    Any other material factor that may impede the orderly resolution of 
the covered IDI separately from its parent and affiliates.
    Time frame for remediation. The plan should identify a time frame 
within which identified remediation efforts shall be achieved.
    Approval. The covered IDI's board of directors or designated 
executive committee must approve the analysis and plan and attest that 
the plan is accurate and the information is current.
    No contingency resolution plan provided pursuant to this rule shall 
be binding on the FDIC as receiver for a covered IDI.

II. Request for Comments

    The FDIC realizes that the proposed requirements for covered IDIs 
could not be implemented without some regulatory and financial burden 
on the industry. The FDIC is seeking to minimize the burden while 
carrying out its mandates as insurer and as receiver. The FDIC seeks 
comments on all aspects of the proposed rule. The FDIC seeks comment on 
the potential industry costs and feasibility of implementing the 
requirements of the proposed rule. The FDIC also is interested in 
comments on whether there are other ways to accomplish its goals, or 
other information that will further the objectives of this rulemaking.

III. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (44 U.S.C. 3501 et 
seq.) (``PRA''), the FDIC may not conduct or sponsor, and a person is 
not required to respond to, a collection of information unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number. The estimated burden for the reporting and disclosure 
requirements, as set forth in the Notice of Proposed Rulemaking, is as 
follows:
    Title: Special Reporting, Analysis and Contingent Resolution Plans 
at Certain Large Insured Depository Institutions.
    OMB Number: 3064--New Collection.
    Affected Public: Insured depository institutions with greater than 
$10 billion in total assets that are owned or controlled by a parent 
company with more than $100 billion in total assets (``covered IDIs'').
    A. Estimated Number of Respondents for Initial Analysis, 
Information and Contingent Resolution Plan: 40.
    Frequency of Response: Once.
    Estimated Time per Response: 500 hours per respondent.
    Estimated Total Initial Burden: 20,000 hours.
    B. Estimated Number of Respondents for Annual Update on Analysis, 
Information and Contingent Resolution Plan: 40.
    Frequency of Response: Annual.
    Estimated Time per Response: 250 hours per respondent.
    Estimated Total Burden: 10,000 hours.
    C. Estimated Number of Respondents for Update on Certain Material 
Information Elements of Resolution Plan: 40.
    Frequency of Response: Zero to two times annually.
    Estimated Time per Response: 0 to 250 hours per respondent.
    Estimated Total Burden: 0 to 20,000 hours.
    Background/General Description of Collection: Section 360.10 
contains collections of information pursuant to the PRA. In particular, 
the following requirements of this proposed rule constitute collections 
of information as defined by the PRA: All covered IDIs are required to 
submit to the FDIC a contingent resolution plan that contains certain 
required information and meets certain described standards within six 
months of the effective date of the proposed rule; updates to the 
analysis and plan are required to be submitted annually, with certain 
material information elements required to be updated more frequently as 
reasonable and necessary. The collections of information contained in 
this proposed rule are being submitted to OMB for review.
    Comments: In addition to the questions raised elsewhere in this 
Preamble, comment is solicited on: (1) Whether the proposed collection 
of information is necessary for the proper performance of the functions 
of the agency, including whether the information will have practical 
utility; (2) the accuracy of the agency's estimate of the burden of the 
proposed collection of information, including the validity of the 
methodology and assumptions used; (3) ways to enhance the quality, 
utility, and clarity of the information to be collected; (4) ways to 
minimize the burden of the information collection on respondents, 
including through the use of automated collection techniques or other 
forms of information technology, e.g., permitting electronic submission 
of responses; and (5) estimates of capital or start-up costs and costs 
of operation, maintenance, and purchases of services to provide 
information.
    Addresses: Interested parties are invited to submit written 
comments to the FDIC concerning the PRA implications of this proposal. 
Such comments should refer to ``Special Reporting, Analysis and 
Contingent Resolution Plans at Certain Large Insured Depository 
Institutions.'' Comments may be submitted by any of the following 
methods:
     Agency Web Site: https://www.FDIC.gov/regulations/laws/
federal. Follow instructions for submitting comments on the Agency Web 
Site.
     E-mail: comments@FDIC.gov. Include ``Special Reporting, 
Analysis and Contingent Resolution Plans at Certain Large Insured 
Depository Institutions'' in the subject line of the message.
     Mail: Gary A. Kuiper (202.898.3877), Counsel, Attention: 
Comments, FDIC, 550 17th St., NW., Room F-1072, Washington, DC 20429.
     Hand Delivery/Courier: Comments may be hand-delivered to 
the guard station at the rear of the 550 17th Street Building (located 
on F Street), on business days between 7 a.m. and 5 p.m. (EST).

[[Page 27469]]

     A copy of the comments may also be submitted to the OMB 
desk officer for the FDIC, Office of Information and Regulatory 
Affairs, Office of Management and Budget, New Executive Office 
Building, Room 3208, Washington, DC 20503.
    Public Inspection: All comments received will be posted without 
change to https://www.fdic.gov/regulations/laws/federal including any 
personal information provided.

IV. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') requires an agency 
publishing a notice of proposed rulemaking to prepare and make 
available for public comment an initial regulatory flexibility analysis 
that describes the impact of the final rule on small entities. 5 U.S.C. 
603(a). Pursuant to regulations issued by the Small Business 
Administration (13 CFR 121.201), a ``small entity'' includes a bank 
holding company, commercial bank, or savings association with assets of 
$165 million or less (collectively, small banking organizations). The 
RFA provides that an agency is not required to prepare and publish a 
regulatory flexibility analysis if the agency certifies that the 
proposed rule would not have a significant economic impact on a 
substantial number of small entities. 5 U.S.C. 605(b).
    Pursuant to section 605(b) of the RFA (5 U.S.C. 605(b)), the FDIC 
certifies that this proposed rule would not have a significant economic 
impact on a substantial number of small entities. The proposed rule 
would require the largest insured depository institutions to submit and 
periodically update a contingent resolution plan. The proposed rule 
would apply only to covered IDIs--defined in the proposed rule as 
insured depository institutions with greater than $10 billion in total 
assets that are owned or controlled by parent companies with more than 
$100 billion in total assets. There are no small banking organizations 
that would come within the definition of covered IDIs.

List of Subjects in 12 CFR Part 360:

    Banks, Banking, Bank deposit insurance, Holding companies, National 
banks, Participations, Reporting and recordkeeping requirements, 
Savings associations, Securitizations.

    For the reasons stated above, the Board of Directors of the Federal 
Deposit Insurance Corporation proposes to amend Part 360 of title 12 of 
the Code of Federal Regulations as follows:

PART 360--RESOLUTION AND RECEIVERSHIP RULES

    1. The authority citation for part 360 is revised to read as 
follows:

    Authority: 12 U.S.C. 1817(b), 1818(a)(2), 1818(t), 1819(a) 
Seventh, Ninth and Tenth, 1820(b)(3), (4), 1821(d)(1), 
1821(d)(10)(c), 1821(d)(11), 1821(e)(1), 1821(e)(8)(D)(i), 
1823(c)(4), 1823(e)(2); Sec. 401(h), Pub. L 101-73, 103 Stat. 357.

    2. Add new Sec.  360.10 to read as follows:


Sec.  360.10.  Special reporting, analysis and contingent resolution 
plans at certain large insured depository institutions.

    (a) Purpose and scope. This section is intended to ensure that the 
FDIC has the information necessary to facilitate the orderly resolution 
by the FDIC of a large insured depository institution (defined as a 
``Covered Insured Depository Institution'' or ``CIDI''), upon its 
failure, on a stand-alone basis, when the CIDI is part of a complex 
financial organization that includes a corporate parent and, in most 
cases, affiliates that are not depository institutions insured by the 
FDIC. It also is intended to permit the FDIC to fulfill its legal 
mandates as deposit insurer by facilitating assessment of insured 
depository institutions' risk, and regarding the resolution of failed 
insured depository institutions, to provide liquidity to depositors 
promptly, enhance market discipline, ensure equitable treatment of 
depositors at different insured depository institutions, and reduce the 
FDIC's costs by preserving the franchise value of a failed insured 
depository institution.
    (b) Definitions--(1) Affiliate has the same meaning given to such 
term in Section 3(w)(6) of the Federal Deposit Insurance Act, 12 U.S.C. 
1813(w)(6).
    (2) Covered Insured Depository Institution (CIDI) means an insured 
depository institution with greater than $10 billion in total assets 
that is owned or controlled by a parent company with more than $100 
billion in total consolidated assets.
    (3) Non-Covered Insured Depository Institution means an FDIC-
insured depository institution that does not meet the definition of a 
CIDI.
    (4) Parent company means any company that controls, directly or 
indirectly, an insured depository institution.
    (5) Company has the same meaning given to such term in Sec.  
362.2(d) of the FDIC's Regulations, 12 CFR 362.2(d).
    (6) Subsidiary has the same meaning given to such term in Section 
3(w)(4) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(w)(4).
    (7) Total assets are defined in the instructions for the filing of 
Reports of Income and Condition and Thrift Financial Reports, as 
applicable to the insured depository institution for determining 
whether it qualifies as a CIDI.
    (c) Contingent Resolution Plans to be Submitted by CIDIs to FDIC--
(1) General. (i) Every CIDI, beginning on the effective date of this 
section as set forth in paragraph (d) of this section, must submit to 
the FDIC, in a form and at a place to be prescribed, a contingent 
resolution plan containing at least the information described in this 
section, and meeting the standards described in this section. The 
contingent resolution plan is to address the CIDI's ability to be 
resolved in an orderly fashion in the event of its receivership, the 
insolvency of the parent or key affiliates. The CIDI's contingent 
resolution plan should discuss its ability to unwind or separate the 
CIDI from the conglomerate structure in a cost-effective and timely 
fashion. The plan should disclose material obstacles to an orderly 
resolution of the CIDI, inter-connections and inter-dependencies that 
hinder the timely and effective resolution of the CIDI, and include the 
remediation steps or mitigating responses necessary to eliminate or 
minimize such obstacles. The FDIC will review the plan in consultation 
with the primary Federal regulator of the CIDI and the parent company 
to determine whether the plan is workable and effective. FDIC may 
reject the plan and require its resubmission if it fails to contain the 
required information or otherwise fails to meet the standards 
prescribed in this section.
    (ii) In developing the contingent resolution plan, CIDIs should 
consider the institution's size relative to its parent company 
structure, its interdependence with the national and international 
marketplaces, as well as how easily its financial company products or 
services can be substituted with the services of other organizations.
    (2) Use of existing documents; updating of analysis. The CIDI may 
incorporate or include specific references to current reports or 
publicly filed information.
    (3) Standards for Plan Content. The following set forth the minimum 
standards for the contingent resolution plan to be provided by CIDIs:
    (i) Provide detailed information, covering material risks, business 
lines, operations, activities and exposures of the CIDI and its 
subsidiaries necessary to develop an effective contingent resolution 
plan.

[[Page 27470]]

    (ii) Set forth the institution's analysis that identifies material 
impediments to an orderly resolution of the CIDI in the event of its 
insolvency, the insolvency of its parent or critical affiliates, and 
describing the remediation or mitigating steps that are or will be 
taken to eliminate or mitigate such impediments.
    (iii) Provide information to the FDIC to allow the isolation of the 
CIDI and allow for effective resolution strategy development and 
contingency planning for a period of severe financial distress, 
describing means of preserving franchise value, maximizing recovery to 
creditors, and minimizing systemic impacts on the financial system.
    (iv) The contingent resolution plan should be tailored to the size, 
complexity and risk profile of the institution, provide remediation 
steps that are feasible and capable of execution within a reasonable 
time frame, and set forth a time period within which remediation 
actions are to be concluded.
    (v) The analysis and plan must be approved by the institution's 
Board of Directors or designated executive committee.
    (vi) The analysis and contingent resolution plan must be updated on 
a regular, at least, annual, basis, and demonstrate an ability to 
provide current and updated information on material elements described 
in paragraph (d)(1) of this section.
    (4) Minimum Components of the Required Contingent Resolution Plan. 
At a minimum the contingent resolution plan should include the 
following elements:
    (i) Summary of Analysis and Contingent Resolution Plan. Summarize 
the material impediments to an orderly resolution of the CIDI separate 
from its parent and affiliates and a description of specific, credible 
remedial or mitigating steps that are or would be taken to eliminate or 
minimize such impediments. For example, reliance upon affiliates to 
provide critical servicers can establish an impediment to transferring 
the assets, liabilities and operations to an acquiring institution or 
bridge bank. This gap may be remediated by the development of 
continuity provisions in relevant contracts or by establishing pre-
arranged substitution for such services.
    (ii) Organizational Structure. Provide the IDI's, parent company's, 
and affiliates' legal and functional structures, and identity of key 
personnel tasked with managing major components within the organization 
materially affecting the CIDI.
    (iii) Business Activities, Relationships and Counterparty 
Exposures. Identify and describe the business activities of the CIDI 
and its subsidiaries, along with an explanation of material inter-
relationships among the entities in the organizational structure (for 
example, identification of major counterparties (especially for 
financial contracts) and affiliates) that provide key services and 
support. Critical services that are provided by affiliates, such as 
servicing, human resources, information technology support and 
operations, human resources or personnel should be identified. This 
section should also provide an assessment of each material affiliate's 
ability to function on a stand-alone basis.
    (iv) Capital Structure. Detail the CIDI's capital structure, as 
well as that of its parent, each subsidiary, and key affiliates. 
Provide complete financial information in the form of audited financial 
statements presented along with line-item descriptions of the assets, 
liabilities, and equity comprising the balance sheets of the parent 
company as a consolidated entity as well as each CIDI. Describe 
corporate financing arrangements for the institution, its subsidiaries, 
parent and key affiliates. Identify funding, liquidity, refinancing and 
concentration risks associated with the various capital pools being 
utilized. Identify the key exposures to systemic risk and the 
availability of a substitute that would mitigate the effect of a 
systemic event.
    (v) Intra-Group Funding, Transactions, Accounts, Exposures and 
Concentrations. Relative to the CIDI, describe intra-group funding 
relationships, accounts, and exposures, including terms, purpose, and 
duration. These would include, for example, a description of intra-
group financial exposures, claims or liens, lending or borrowing lines 
and relationships, guaranties, asset accounts, deposits, or derivatives 
transactions. Clearly identify the nature and extent to which the 
CIDI's parent or affiliates are to serve as a source of funding to the 
CIDI, the terms of any contractual arrangements, the location of 
related assets, funds or deposits and the mechanisms by which funds can 
be down-streamed from the parent to the CIDI.
    (vi) Systemically Important Functions. Describe systemically 
important functions that the CIDI, its subsidiaries and affiliates 
provide, including the nature and extent of the institution's 
involvement in payment systems, custodial or clearing operations, large 
sweep programs, and capital markets operations in which it plays a 
dominant role. Discuss critical vulnerabilities, estimated exposure and 
potential losses, and why certain attributes of the businesses detailed 
in previous sections could pose a systemic risk to the broader economy.
    (vii) Material Events. Describe events, e.g., acquisitions, sales, 
litigation, operational and fiscal challenges, that have had a material 
affect on the IDI and its relationship with its parent company or 
affiliates, since the last iteration of the analysis and plan.
    (viii) Cross-Border Elements. Discuss the nature and extent of the 
CIDI's cross-border interrelationships and exposures; describe 
individual components of the group structure that are based or located 
outside the United States, including foreign branches, subsidiaries and 
offices. Provide detail on the location and amount of foreign deposits 
and assets. This information is necessary to facilitate the FDIC's 
determination of the legal and policy framework under which such assets 
might be resolved in the event of insolvency, including the framework 
for providing liquidity, the terms and restrictions of government 
support, and the operational and technical challenges of international 
payment systems.
    (ix) Any other material factor that may impede the orderly 
resolution of the CIDI separately from its parent and affiliates.
    (x) Time frame. The plan should identify a time frame within which 
identified remediation efforts shall be achieved.
    (xi) Approval. The CIDI's board of directors or designated 
executive committee must approve the analysis and plan and attest that 
the plan is accurate and that the information is current.
    (5) No limiting effect on FDIC as receiver. No contingency 
resolution plan provided pursuant to this rule shall be binding on the 
FDIC as receiver for a covered IDI.
    (d) Implementation requirements. (1) The gap analysis and plan must 
be submitted within 6 months of the effective date of the rule and must 
be updated annually. FDIC may extend these deadlines in individual 
cases for good cause shown. Material information elements must be 
updated as necessary given the risk profile and structure of the 
institution relative to its affiliates (e.g., deposit flows, intra-
group funding flows, short-term funding, derivatives transactions, 
assets subject to market volatility; or material changes to capital 
structure or sources).
    (2) An insured depository institution not within the definition of 
a CIDI on the effective date of this section must comply with the 
requirements of this section no later than 6 months following

[[Page 27471]]

the end of the second calendar quarter for which it meets the criteria 
for a CIDI.
    (3) Upon the merger of two or more Non-CIDIs, if the resulting 
institution meets the criteria for a CIDI, that CIDI must comply with 
the requirements of this section no later than 6 months after the 
effective date of the merger.
    (4) Upon the merger of two or more CIDIs, the merged institution 
must comply with the requirements of this section within 6 months 
following the effective date of the merger. This provision, however, 
does not supplant any preexisting implementation date requirement, in 
place prior to the date of the merger, for the individual CIDI(s) 
involved in the merger.
    (5) Upon the merger of one or more CIDIs with one or more Non-
CIDIs, the merged institution must comply with the requirements of this 
section within 6 months following the effective date of the merger. 
This provision, however, does not supplant any preexisting 
implementation date requirement for the individual CIDI(s) involved in 
the merger.
    (6) Notwithstanding the general requirements of this paragraph (d), 
on a case-by-case basis, the FDIC may accelerate, upon notice, the 
implementation and updating time frames for all or part of the 
requirements of this section.
    (7) FDIC may, upon application of a CIDI and for good cause shown, 
modify or waive the minimum requirements set forth in this section for 
that institution. ``Good cause'' shall mean that, because of the CIDI's 
asset size, level of complexity, risk profile, scope of operations or 
other relevant characteristics, the FDIC is able to determine that the 
particular IDI does not, at the time of the application, appear to 
present material resolution challenges or other unusual risk to the 
Deposit Insurance Fund. Any such waiver or modification shall be 
effective for one year.
    (e) Confidentiality of Information Submitted Pursuant to this 
Section. Proprietary information and information which, if disclosed, 
could endanger the institution's safety and soundness, should be 
identified and segregated to the extent possible, and be accompanied by 
a request for confidential treatment. Confidential information will not 
be disclosed except as required by law.

    Dated at Washington, DC, this 11th day of May 2010.

    By order of the Board of Directors.
Robert E. Feldman,
Executive Secretary, Federal Deposit Insurance Corporation.
[FR Doc. 2010-11646 Filed 5-14-10; 8:45 am]
BILLING CODE 6714-01-P