Guidance for Resolution Plan Submissions of Foreign Triennial Full Filers, 64641-64658 [2023-19268]
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Federal Register / Vol. 88, No. 180 / Tuesday, September 19, 2023 / Notices
actions in a non-U.S. jurisdiction were not
taken, delayed, or forgone, as relevant.
IX. Public Section
SPOE & MPOE
The purpose of the public section is to
inform the public’s understanding of the
firm’s resolution strategy and how it works.
The public section should discuss the steps
that the firm is taking to improve
resolvability under the U.S. Bankruptcy
Code. The public section should provide
background information on each material
entity and should be enhanced by including
the firm’s rationale for designating material
entities. The public section should also
discuss, at a high level, the firm’s intra-group
financial and operational interconnectedness
(including the types of guarantees or support
obligations in place that could impact the
execution of the firm’s strategy).
The discussion of strategy in the public
section should broadly explain how the firm
has addressed any deficiencies,
shortcomings, and other key vulnerabilities
that the agencies have identified in prior plan
submissions. For each material entity, it
should be clear how the strategy provides for
continuity, transfer, or orderly wind-down of
the entity and its operations. There should
also be a description of the resulting
organization upon completion of the
resolution process.
The public section may note that the Plan
is not binding on a bankruptcy court or other
resolution authority and that the proposed
failure scenario and associated assumptions
are hypothetical and do not necessarily
reflect an event or events to which the firm
is or may become subject.
By order of the Board of Governors of the
Federal Reserve System.
Ann E. Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on August 29,
2023.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2023–19267 Filed 9–18–23; 8:45 am]
BILLING CODE 6210–01–6714–01–P
FEDERAL RESERVE SYSTEM
[Docket No. OP–1817]
FEDERAL DEPOSIT INSURANCE
CORPORATION
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RIN 3064–ZA38
Guidance for Resolution Plan
Submissions of Foreign Triennial Full
Filers
Board of Governors of the
Federal Reserve System (Board) and
Federal Deposit Insurance Corporation
(FDIC).
ACTION: Proposed guidance; request for
comments.
AGENCY:
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The Board and the FDIC
(together, the agencies) are inviting
comments on proposed guidance for the
2024 and subsequent resolution plan
submissions by certain foreign banking
organizations. The proposed guidance is
meant to assist these firms in
developing their resolution plans,
which are required to be submitted
pursuant to the Dodd-Frank Wall Street
Reform and Consumer Protection Act, as
amended (the Dodd-Frank Act), and the
jointly issued implementing regulation
(the Rule). The scope of application of
the proposed guidance would be
foreign-based triennial full filers
(specified firms or firms), which are
foreign-based Category II and III banking
organizations, and the guidance, if
finalized, would supersede the joint
Guidance for Resolution Plan
Submissions of Certain Foreign-Based
Covered Companies (85 FR 83557 (Dec.
22, 2020) (2020 FBO Guidance)). The
proposed guidance is based on the
agencies’ review of the specified firms’
2021 and prior resolution plan
submissions, as well as the agencies’
experiences dealing with stress events
in the international and domestic
banking systems, and would describe
the agencies’ expectations regarding
several aspects of the specified firms’
plans for an orderly resolution under
the U.S. Bankruptcy Code. The agencies
invite public comment on all aspects of
the proposed guidance.
DATES: Comments must be received by
November 30, 2023.
ADDRESSES: Interested parties are
encouraged to submit written comments
jointly to both agencies. Comments
should be directed to:
Board: You may submit comments,
identified by Docket No. OP–1817, by
any of the following methods:
• Agency Website: https://
www.federalreserve.gov. Follow the
instructions for submitting comments at
https://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Email: regs.comments@
federalreserve.gov. Include docket
number in the subject line of the
message.
• Fax: (202) 452–3819 or (202) 452–
3102.
• Mail: Ann E. Misback, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue NW, Washington,
DC 20551.
In general, all public comments will
be made available on the Board’s
website at www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm as
submitted, and will not be modified to
remove confidential, contact or any
SUMMARY:
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64641
identifiable information. Public
comments may also be viewed
electronically or in paper in Room M–
4365A, 2001 C St. NW, Washington, DC
20551, between 9:00 a.m. and 5:00 p.m.
during federal business weekdays.
FDIC: You may submit comments,
identified by RIN 3064–ZA38, by any of
the following methods:
• FDIC Website: https://
www.fdic.gov/resources/regulations/
federal-register-publications/. Follow
the instructions for submitting
comments on the FDIC’s website.
• Email: comments@fdic.gov. Include
‘‘RIN 3064–ZA38’’ on the subject line of
the message.
• Mail: James P. Sheesley, Assistant
Executive Secretary, Attention:
Comments—RIN 3064–ZA38, Federal
Deposit Insurance Corporation, 550 17th
Street NW, Washington, DC 20429.
• Hand Delivery/Courier: Comments
may be hand delivered to the guard
station at the rear of the 550 17th Street
NW building (located on F Street NW)
on business days between 7 a.m. and 5
p.m.
Public Inspection: Comments
received, including any personal
information provided, may be posted
without change to https://www.fdic.gov/
resources/regulations/federal-registerpublications/. Commenters should
submit only information that the
commenter wishes to make available
publicly. The FDIC may review, redact,
or refrain from posting all or any portion
of any comment that it may deem to be
inappropriate for publication, such as
irrelevant or obscene material. The FDIC
may post only a single representative
example of identical or substantially
identical comments, and in such cases
will generally identify the number of
identical or substantially identical
comments represented by the posted
example. All comments that have been
redacted, as well as those that have not
been posted, that contain comments on
the merits of this document will be
retained in the public comment file and
will be considered as required under all
applicable laws. All comments may be
accessible under the Freedom of
Information Act.
FOR FURTHER INFORMATION CONTACT:
Board: Catherine Tilford, Deputy
Associate Director, (202) 452–5240,
Elizabeth MacDonald, Assistant
Director, (202) 475–6316, Tudor Rus,
Lead Financial Institution Analyst, (202)
475–6359, Division of Supervision and
Regulation; or Jay Schwarz, Assistant
General Counsel, (202) 452–2970;
Andrew Hartlage, Special Counsel, (202)
452–6483; Sarah Podrygula, Senior
Attorney, (202) 912–4658; or Brian
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Kesten, Senior Attorney, (202) 843–
4079, Legal Division, Board of
Governors of the Federal Reserve
System, 20th Street and Constitution
Avenue NW, Washington, DC 20551.
For users of TTY–TRS, please call 711
from any telephone, anywhere in the
United States.
FDIC: Robert C. Connors, Senior
Advisor, (202) 898–3834, Division of
Complex Financial Institution
Supervision and Resolution; Celia Van
Gorder, Senior Counsel, (202) 898–6749;
Esther Rabin, Counsel, (202) 898–6860,
erabin@fdic.gov, Legal Division.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. Overview of the Proposed Guidance
III. Paperwork Reduction Act
Appendix: Text of the Proposed Guidance
I. Background
A. The Dodd-Frank Act and the Rule
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Section 165(d) of the Dodd-Frank
Act 1 and the Rule 2 require certain
financial institutions to report
periodically to the Board and the FDIC
their plans for rapid and orderly
resolution under the U.S. Bankruptcy
Code (the Bankruptcy Code) in the event
of material financial distress or failure.
The Rule divides covered companies
into three groups of filers: (a) biennial
filers; (b) triennial full filers; and (c)
triennial reduced filers.3
Triennial full filers under the Rule are
required to file a resolution plan every
three years, alternating between full and
targeted resolution plans.4 The Rule
requires each covered company’s full
resolution plan to include, among other
things, a strategic analysis of the plan’s
components, a description of the range
of specific actions the covered company
proposes to take in resolution, and a
description of the covered company’s
organizational structure, material
entities, and interconnections and
interdependencies.5 Targeted resolution
plans are required to include a subset of
information contained in a full plan.6 In
addition, the Rule requires that all
resolution plans consist of two parts: a
confidential section that contains any
confidential supervisory and proprietary
information submitted to the agencies
and a section that the agencies make
1 12
U.S.C. 5365(d).
2 12 CFR parts 243 and 381.
3 12 CFR 243.4 and 12 CFR 381.4. The terms
‘‘covered company’’ and ‘‘triennial full filer’’ have
the meanings given in the Rule, as do other, similar
terms used throughout this proposal.
4 12 CFR 243.4(b) and 12 CFR 381.4(b).
5 12 CFR 243.5 and 12 CFR 381.5.
6 12 CFR 243.6(b) and 12 CFR 381.6(b).
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available to the public.7 Public sections
of resolution plans can be found on the
agencies’ websites.8
B. Recent Developments
Implementation of the Rule has been
an iterative process aimed at
strengthening the resolution planning
capabilities of financial institutions
subject to the Rule. To assist the
development of covered companies’
resolution planning capabilities and
plan submissions, the agencies have
provided feedback on individual plan
submissions, promulgated guidance to
certain groups of covered companies,
and issued answers to frequently asked
questions. The agencies believe that
guidance can help focus the efforts of
similarly situated covered companies to
improve their resolution capabilities
and clarify the agencies’ expectations
for those filers’ future progress. The
agencies have issued guidance to (a)
U.S. global systemically important
banks (GSIBs),9 which constitute the
biennial filer group, and (b) certain large
foreign banking organizations (FBOs)
that are triennial full filers.10 The
agencies have not, however, issued
guidance to the domestic firms and
additional FBOs that make up the
remainder of the triennial full filers.
As the agencies previously
indicated,11 they believe that it is now
appropriate to issue guidance to the
specified firms. The agencies’ review of
the 2021 targeted resolution plans
submitted by foreign-based triennial full
filers not already subject to resolution
planning guidance revealed significant
inconsistencies in the amount and
nature of information they provided on
critical informational elements required
by the Rule. In addition, some
resolution plans included optimistic
assumptions regarding the availability
of financial resources at the firm at the
time of a bankruptcy filing as well as the
ability of a firm to access financial
assistance prior to and during
resolution. The agencies believe that
future resolution plans from these firms
would benefit from guidance regarding
7 12
CFR 243.11(c) and 12 CFR 381.11(c).
public sections of resolution plans
submitted to the agencies are available at
www.federalreserve.gov/supervisionreg/resolutionplans.htm and www.fdic.gov/regulations/reform/
resplans/.
9 Guidance for § 165(d) Resolution Plan
Submissions by Domestic Covered Companies
applicable to the Eight Largest, Complex U.S.
Banking Organizations, 84 FR 1438 (Feb. 4, 2019)
(2019 GSIB Guidance).
10 Guidance for Resolution Plan Submissions of
Certain Foreign-Based Covered Companies, 85 FR
83557 (Dec. 22, 2020) (2020 FBO Guidance).
11 https://www.federalreserve.gov/newsevents/
pressreleases/bcreg20220930a.htm.
8 The
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critical informational elements required
by the Rule as well as appropriate
assumptions. In addition, the agencies’
review of 2021 targeted resolution plans
submitted by foreign-based triennial full
filers subject to the 2020 FBO Guidance
revealed opportunities for
improvements to the reliability and
timeliness of the generation and
provision of financial information as
well as liquidity- and capital-related
resolution capabilities necessary to
successfully executing these firms’ U.S.
resolution strategies. Resolution plans
from the specified firms also generally
lacked detail and clarity on how the
firm’s strategy and capabilities for a
resolution under the Rule would be
complementary to its home country
global resolution strategy.
The proposed guidance also reflects
the agencies’ recent experience with
UBS Group AG’s acquisition of Credit
Suisse Group AG (CS) and, with respect
to specified firms with large subsidiary
insured depository institutions (IDIs),
the resolutions of Silicon Valley Bank
(SVB), Signature Bank (SB), and First
Republic Bank (First Republic). The
agencies’ experience with CS illustrates
the complexities that can arise in the
case of acute stress involving large
cross-border firms and the importance
of resolution planning and coordination
with home country authorities. Like CS,
many of the specified firms are foreign
GSIBs with a large presence in the
United States, and the agencies
recognize the importance of maintaining
a comprehensive understanding of the
U.S. operations of large FBOs. While
SVB, SB, and First Republic were not
required to file resolution plans under
section 165(d) of the Dodd-Frank Act
and the Rule, the effects of their failures
illustrate that the failure of a large IDI
may have serious adverse effects on
financial stability in the United States.12
The agencies’ experience with these
three banking organizations is
particularly instructive in developing
guidance to foreign-based triennial full
filers that present a U.S. multiple point
of entry (U.S. MPOE) resolution strategy
and that have large subsidiary IDIs, to
assist their progress in developing their
resolution plans that comply with the
12 For example, the FDIC—upon the
recommendation of two-thirds of each of the board
of directors of the FDIC and the Board, as well as
a determination by the Secretary of the Treasury, in
consultation with the President—resolved SVB and
SB using the systemic risk exception to the
statutory requirement to employ the least-costly
method to resolve a failed IDI. https://
www.federalreserve.gov/newsevents/pressreleases/
monetary20230312b.htm; https://www.fdic.gov/
news/press-releases/2023/pr23017.html.
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statutory and regulatory requirements
governing IDI resolution.
C. Resolution Plan Strategy
The specified firms have adopted one
of two U.S. resolution strategies: a U.S.
single point of entry (U.S. SPOE) or U.S.
MPOE strategy. Under a U.S. SPOE
approach, only the top-tier U.S. material
entity holding company enters
bankruptcy and all U.S. material entity
subsidiaries remain operating as a going
concern. The U.S. MPOE approach
entails multiple U.S. material entities
entering separate resolution
proceedings: any top-tier U.S. material
entity holding company enters
bankruptcy; any U.S. material entity IDI
subsidiary is resolved separately under
the Federal Deposit Insurance Act of
1950, as amended (the FDI Act); and
other individual U.S. material entity
subsidiaries separately enter bankruptcy
(or another applicable resolution
regime) or are wound down. The U.S.
SPOE and U.S. MPOE resolution plan
strategies require firms to consider
different risks and require different
types of planning and development of
capabilities for the execution of the
respective strategies. For their 2021
resolution plan submissions, some of
the specified firms presented a U.S.
SPOE strategy, but most of the specified
firms presented a U.S. MPOE strategy.
The agencies do not prescribe a
specific resolution strategy for any
covered company, nor do the agencies
identify a preferred strategy. The
proposed guidance is not intended to
favor one strategy or another. Specified
filers may continue to submit resolution
plans using the resolution strategies
they believe would be most effective in
achieving an orderly resolution of their
firms, but a resolution plan must
address the key vulnerabilities and
support the underlying assumptions
required to successfully execute the
chosen resolution strategy.
With respect to the specified firms,
the Rule requires the firm’s U.S.
resolution plan to address subsidiaries,
branches, and agencies, and identified
critical operations and core business
lines, as applicable, that are domiciled
in the United States or conducted in
whole or material part in the United
States.13 To date, the resolution plans of
specified filers that have presented a
U.S. SPOE strategy have presumed entry
of the top tier U.S. intermediate holding
company (IHC) into bankruptcy, while
its material entity subsidiaries remain
open and operating. Each of the
specified firms that has presented such
an approach is required by the Board’s
13 12
CFR 243.5(a)(2) and 12 CFR 381.5(a)(2).
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Regulation YY to have a U.S. IHC under
which all non-branch U.S. entities are
organized.14 The agencies note that
some of the specified firms are not
subject to the Regulation YY
requirement to establish a U.S. IHC. The
agencies are considering whether such a
specified firm not subject to a U.S. IHC
requirement could provide for the
orderly resolution of its U.S. entities
and operations utilizing a U.S. SPOE
resolution without having a top-tier
holding company which would be the
only entity to enter resolution.
Question 1: The agencies invite
comment on all aspects of the
utilization of a U.S. SPOE strategy
under section 165(d) of the Dodd-Frank
Act by a specified filer whether or not
it is subject to the Regulation YY
requirement to establish a U.S. IHC,
including the feasibility of the U.S.
SPOE strategy and the characteristics of
the firm’s U.S. entities and operations
that would facilitate successful U.S.
SPOE strategy execution.
D. Long-Term Debt Rulemaking
The agencies, as well as the Office of
the Comptroller of the Currency, are
issuing a proposed rule for comment
that would require certain large IDI
holding companies, U.S. intermediate
holding companies of FBOs, and certain
IDIs, to issue and maintain outstanding
a minimum amount of long-term debt
(LTD), among other proposed
requirements.15 This proposed rule
would improve the resolvability of these
firms, and, in particular, their IDI
subsidiaries, in case of failure, reducing
costs to the Deposit Insurance Fund
(DIF) and mitigating financial stability
and contagion risks by reducing the risk
of loss to uninsured depositors. LTD
issued by the IDI could help support
resolution strategies by, among other
things, recapitalizing a bridge
depository institution and facilitating its
exit from resolution as a newly
chartered IDI that would have new
ownership. The agencies expect that a
final long-term debt rule could interact
with how the specified firms plan for
resolution under the Rule, and the
agencies anticipate ensuring that the
final resolution plan guidance for
foreign triennial full filers is consistent
with any final long-term debt rule.
Accordingly, the agencies welcome
comments that take the proposed longterm debt rulemaking into
consideration.16
14 12
CFR 252.153.
15 This proposed rulemaking is published
elsewhere in this Federal Register (LTD proposal).
16 The public also may provide comments on the
proposed guidance that assume that no long-term
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II. Overview of the Proposed Guidance
The proposed guidance begins with
the proposed scope and then is
organized into several substantive
topical areas. Each substantive topic is
bifurcated, with separate guidance for a
U.S. SPOE resolution strategy and a U.S.
MPOE resolution strategy. As discussed,
each resolution strategy poses distinct
risks and requires its own type of
planning and capabilities development
for executing the strategy. Accordingly,
the proposed guidance would account
for the different challenges posed by
each approach.
The proposed guidance for firms that
adopt a U.S. SPOE resolution strategy is
generally based on the 2020 FBO
Guidance or the associated proposal.17
Successful execution of a U.S. SPOE
strategy relies on the ability to provide
sufficient capital and liquidity to
material entities, a governance structure
that can identify the onset of financial
stress events, and the ability to ensure
the timely execution of the strategy and
to maintain continuity of operations
throughout resolution.
Some aspects of this proposal reflect
expectations that were included in the
2020 Proposed FBO Guidance. For
example, the proposal contains capital
and liquidity pre-positioning
expectations similar to the 2020
Proposed FBO Guidance, to better
support U.S. SPOE strategies and in
light of the LTD proposal. Although IDI
subsidiaries of certain specified firms
may be required under an LTD rule to
have outstanding a minimum amount of
prepositioned LTD, firms with a U.S.
SPOE strategy should have a framework
for determining the amount and
allocation of resources among the firm’s
material entities. Similarly, for specified
firms that adopt a U.S. SPOE strategy,
the agencies are proposing governance
mechanisms and separability
expectations similar to those contained
in the 2020 Proposed FBO Guidance.
Governance mechanisms increase the
likelihood that the U.S. SPOE strategy
would be implemented at a point in the
stress continuum prior to the firm
having exhausted all financial
resources, increasing the likelihood that
the bankruptcy reorganization would be
successful. Separability provides
additional optionality to firms’ U.S.
SPOE strategies.
The proposed guidance for firms that
utilize a U.S. MPOE resolution strategy
debt rule is finalized and that specified firms
remain subject to current capital rules.
17 Guidance for Resolution Plan Submissions of
Certain Foreign-Based Covered Companies, 85 FR
15449 (March 18, 2020) (2020 Proposed FBO
Guidance).
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is based upon the 2020 FBO Guidance
but tailored for a U.S. MPOE strategy.
The agencies are, however, proposing to
clarify their expectations for specified
firms that utilize a U.S. MPOE strategy
that includes the resolution of a material
entity that is a U.S. IDI. As discussed
elsewhere in this proposal, the
resolution of a large U.S. IDI under the
FDI Act likely would pose substantial
operational and legal challenges and
complexities. Accordingly, the agencies
believe that the resolution plans of firms
whose resolution plans contemplate the
separate resolution of a material entity
that is a U.S. IDI would benefit from
developing capabilities specific to and
considering legal requirements
regarding U.S. IDI resolution.
The agencies believe that each
substantive area of the proposed
guidance would play a part in helping
to ensure that the specified firms can be
resolved in an orderly manner. The
proposed guidance would describe the
agencies’ expectations for each of these
areas. In addition, the proposed
guidance would consolidate items of
feedback provided to a number of the
specified firms in the past, thereby
providing the public with one source of
applicable guidance for the specified
firms. The proposed guidance is not,
however, intended to override the
obligation of an individual specified
firm to respond, in its next resolution
plan submission, to pending items of
individual feedback or any
shortcomings or deficiencies identified
or determined by the agencies in that
specified firm’s prior resolution plan
submission. The proposed guidance also
is not meant to limit specified firms’
consideration of additional
vulnerabilities or obstacles that might
arise based on a firm’s particular
structure, operations, or resolution
strategy, and that should be factored
into the specified firm’s resolution plan
submission.
The proposed guidance concludes
with information about the format and
structure of a plan that applies equally
to plans contemplating either a U.S.
SPOE strategy or a U.S. MPOE strategy.
A. Scope of Application
The agencies propose to apply the
guidance to all foreign-based triennial
full filers. The Board’s tailoring
framework provides clear, predictable
scoping based on publicly reported
quantitative data. As discussed above,
the agencies believe that it is
appropriate to provide resolution
planning guidance to all foreign
triennial full filers given issues
identified in these firms’ 2021 targeted
resolution plans and considering
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lessons learned from recent events,
including the agencies’ experiences in
connection with the events leading to
UBS AG’s acquisition of Credit Suisse,
following the intervention of the Swiss
authorities.
The agencies would like the specified
firms to submit resolution plans that
take into consideration the final version
of the proposed guidance as soon as
practicable. However, the agencies
understand that the specified firms may
need time to take into consideration the
guidance when developing their
resolution plans. In light of the timing
of this proposal, the agencies are
considering providing a short extension
of the next resolution plan submission
date for the specified firms, with the
expectation that these plan submissions
would be due sooner than one year after
the proposed guidance is published in
final form.
The agencies seek comment on all
aspects of the proposed scope of
application.
Question 2: Should the agencies
provide more than 6 months for the
specified firms to take into
consideration the expectations in the
proposed guidance, once finalized? If
so, what time period should the
agencies provide?
B. Group Resolution Plan
The agencies recognize that the
preferred resolution outcome for many
specified firms is a successful home
country resolution using a global SPOE
resolution strategy that does not involve
the placement of any U.S. material
entities into resolution. However, by
law, U.S. resolution planning
requirements require relevant FBOs to
contemplate their resolution under the
Bankruptcy Code.
U.S. operations of an FBO are often
highly interconnected with the broader,
global operations of the financial
institution. To clarify the interaction
between U.S. and global resolution
strategies, the proposal outlines
expectations for specified firms to
describe the impact of executing the
firm’s global, group-wide resolution
plan on the firm’s U.S. operations and
detail the extent to which resolution
planning under the Rule relies on
different assumptions, strategies, and
capabilities from the global plan. A
specified firm’s broader resolvability
framework is expected to consider the
objectives of both the group-wide
resolution strategy and the U.S.
resolution strategy pursuant to the Rule,
with complementary efforts to enhance
resolvability across plans.
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C. Capital
For specified firms with a U.S. SPOE
resolution strategy, the agencies propose
guidance substantially similar to the
2020 Proposed FBO Guidance regarding
capital. The ability to provide sufficient
capital to material entities without
disruption from creditors is important
in order to ensure that material entities
can continue to maintain operations as
the firm is resolved. The proposal
describes expectations concerning the
appropriate positioning of capital and
other loss-absorbing instruments (e.g.,
debt that a parent holding company may
choose to forgive or convert to equity)
among the material entities within the
firm (resolution capital adequacy and
positioning, or RCAP). The positioning
of capital resources within the firm
should be consistent with any
applicable rules requiring prepositioned
resources in IDIs in the form of longterm debt. The proposal also describes
expectations regarding a methodology
for periodically estimating the amount
of capital that may be needed to support
each material entity after the bankruptcy
filing (resolution capital execution need,
or RCEN).
The agencies are not proposing
further expectations concerning capital
to firms whose plans contemplate a U.S.
MPOE resolution strategy, as a U.S.
MPOE strategy assumes most material
entities do not continue as going
concerns upon entry into resolution.
Question 3: In addition to the capitalrelated resolution plan requirements
under the Rule, are there other capitalrelated expectations that would
reasonably enhance the resolvability of
a specified firm that utilizes a U.S.
MPOE strategy in its resolution plan?
Question 4: Do the capital-related
resolution expectations in the proposed
guidance align with the provisions of
the interagency long-term debt
rulemaking proposal? Are there any
aspects of the proposed guidance that
should be revised, or additional
expectations added, in light of the
interagency long-term debt rulemaking
proposal?
D. Liquidity
For firms that adopt a U.S. SPOE
resolution strategy, the agencies propose
guidance substantially similar to the
2020 Proposed FBO Guidance regarding
liquidity. A firm’s ability to reliably
estimate and meet its liquidity needs
prior to, and in, resolution is important
to the execution of a firm’s resolution
strategy because it enables the firm to
respond quickly to demands from
stakeholders and counterparties,
including regulatory authorities in other
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jurisdictions and financial market
utilities. Maintaining sufficient and
appropriately positioned liquidity also
allows the subsidiaries to continue to
operate while the firm is being resolved
in accordance with the firm’s resolution
strategy.
For firms that adopt a U.S. MPOE
resolution strategy, the agencies propose
that a firm should have the liquidity
capabilities necessary to execute its
resolution strategy, and its plan should
include analysis and projections of a
range of liquidity needs during
resolution.
Question 5: In addition to the
liquidity-related resolution plan
requirements under the Rule and the
liquidity-related expectations in the
proposed guidance, are there other
liquidity related expectations that
would reasonably enhance the
resolvability of a specified firm that
utilizes a U.S. MPOE resolution
strategy? Are there circumstances under
which it would be appropriate for a
resolution plan that utilizes a U.S.
MPOE strategy to include the movement
of liquidity among U.S. material entities
that are in resolution?
E. Governance Mechanisms
For firms using a U.S. SPOE
resolution strategy, the agencies propose
guidance that is substantially similar to
the 2020 Proposed FBO Guidance
regarding governance mechanisms. An
adequate governance structure with
triggers that identify the onset,
continuation, and increase of financial
stress is important to ensure that there
is sufficient time to communicate and
coordinate with the foreign parent
regarding the provision of financial
support and other key actions. The
governance mechanisms section
proposes expectations that firms have
playbooks that describe the board and
senior management actions of the U.S.
non-branch material entities that would
be necessary in order to execute the
firm’s U.S. resolution strategy. In
addition, the proposal describes
expectations that these firms have
triggers that are linked to specific
actions outlined in these playbooks to
ensure the timely escalation of
information to both U.S. IHC and
foreign parent governing bodies. The
proposal also describes the expectations
that firms identify and analyze potential
legal challenges to planned U.S. IHC
support mechanisms, and any defenses
and mitigants to such challenges. To the
extent the preferred global resolution
strategy for the firm is a home country
SPOE resolution, the governance
mechanisms section proposes
expectations that a firm design such
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mechanisms in a way that does not
interfere with the execution of the
global strategy.
For firms that adopt a U.S. MPOE
resolution strategy, the agencies propose
adopting governance mechanisms
expectations to ensure communication
and coordination between the governing
body of the U.S. operations and the
foreign parent for the purpose of
facilitating preparations for an orderly
resolution.
Question 6: Are the governance
mechanisms expectations regarding
communications and triggers for firms
that utilize a U.S. MPOE strategy
appropriate and clear? Are there other
governance-related expectations that
should be extended to resolution plans
utilizing a U.S. MPOE resolution
strategy?
F. Operational
The development and maintenance of
operational capabilities is important to
support and enable execution of a firm’s
resolution strategy, including providing
for the continuation of identified critical
operations and preventing or mitigating
adverse effects on U.S. financial
stability. For firms that utilize a U.S.
SPOE resolution strategy, the agencies
propose adopting portions of the
operational expectations of the 2020
FBO Guidance and SR letter 14–1,18
with modifications that reflect the
specific characteristics and complexities
of the specified firms. Like the 2020
FBO Guidance, the proposal contains
expectations on payment, clearing and
settlement activities, managing,
identifying and valuing collateral, and
shared and outsourced services. For
firms that utilize a U.S. MPOE
resolution strategy, the agencies propose
adopting expectations based on SR letter
14–1 and the 2020 FBO Guidance that
are most relevant to an MPOE resolution
strategy. For example, the proposed
expectations regarding payment,
clearing and settlement activities are
those most likely to support resolution
in the MPOE context.
Question 7: Does the proposed
guidance sufficiently address FBOs that
plan to utilize a U.S. SPOE strategy that
may not be required to comply with U.S.
qualified financial contract resolution
stay regulations? How should FBOs that
are not ‘‘regulated entities’’ under
ISDA’s Resolution Stay Protocol
demonstrate that their SPOE resolution
strategies will be feasible despite the
lack of a stay on cross defaults to the
parent company? What guidance should
the agencies provide with respect to how
the SPOE strategy of such a firm should
address the potential effects of early
termination of the firm’s qualified
financial contracts?
G. Legal Entity Rationalization &
Separability
For specified firms that utilize a U.S.
SPOE resolution strategy, the agencies
propose substantively adopting the 2020
FBO Guidance regarding legal entity
rationalization and guidance that is
substantially similar to the 2020 FBO
Proposed Guidance regarding
separability. It is important that firms
maintain a structure that facilitates
orderly resolution. To achieve this, the
proposal states that a firm should
develop and describe in their plans
criteria supporting the U.S. resolution
strategy and integrate them into day-today decision making processes. The
criteria would be expected to consider
the best alignment of legal entities and
business lines and facilitate
resolvability of U.S. operations as a
firm’s activities, technology, business
models, or geographic footprint change
over time. In addition, the proposed
guidance provides that the firm should
identify discrete U.S. operations that
could be sold or transferred in
resolution to provide meaningful
optionality for the resolution strategy
under a range of potential failure
scenarios and include this information
in their plans.
For firms that utilize a U.S. MPOE
resolution strategy, the proposed
guidance would clarify that the firms
should have legal entity structures that
support their U.S. resolution strategy
and describe those structures in their
plans. The proposal also provides that
to the extent a material entity IDI relies
upon other affiliates during resolution,
the firm should discuss its rationale for
the legal entity structure and associated
resolution risks and potential mitigants.
In addition, the agencies propose that
the firms include options for the sale,
transfer, or disposal of significant assets,
portfolios, legal entities, or business
lines in resolution.
Question 8: Are there other
separability related expectations that
would reasonably enhance resolution
plans that utilize a U.S. MPOE
resolution strategy?
18 SR letter 14–1, ‘‘Principles and Practices for
Recovery and Resolution Preparedness’’ (Jan. 24,
2014), available at https://www.federalreserve.gov/
supervisionreg/srletters/sr1401.htm.
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H. Insured Depository Institution (IDI)
Resolution 19
Background. When an IDI fails and
the FDIC is appointed receiver, the FDIC
generally must utilize the resolution
option for the failed IDI that is least
costly to the DIF of all possible methods
(the least-cost requirement).20 An
exception to this requirement is
provided where a determination is made
by the Secretary of the Treasury, in
consultation with the President and
after a written recommendation from
two-thirds of the FDIC’s Board of
Directors and two-thirds of the Board,
that complying with the least-cost
requirement would have serious adverse
effects on economic conditions or
financial stability and implementing
another resolution option would avoid
or mitigate such adverse effects.21 A
specified firm should not assume the
use of this systemic risk exception to the
least-cost requirement in its resolution
plan.
Purchase and Assumption
Transaction. The FDIC typically seeks
to resolve a failed IDI by identifying,
before the IDI’s failure, one or more
potential acquirers so that as many of
the IDI’s assets and deposit liabilities as
possible can be sold to and assumed by
the acquirer(s) instead of remaining in
the receivership created on the failure
date.22 This transaction form, termed a
‘‘purchase and assumption’’ or ‘‘P&A’’
transaction, has historically been the
resolution approach that is least costly
to the DIF, easiest for the FDIC to
execute, and least disruptive to the
depositors of the failed IDI—particularly
in the case of transactions involving the
assumption of all the failed IDI’s
deposits by the assuming institution (an
‘‘all-deposit transaction’’)—and
typically can be completed over the
weekend following the IDI’s closure by
its primary regulator but before business
19 The FDIC has a separate rule requiring
resolution plans from certain IDIs, 12 CFR 360.10,
‘‘Resolution Plans Required for Insured Depository
Institutions With $50 Billion or More in Total
Assets’’ (the IDI Rule). The Rule and the IDI Rule
each have different goals and the expected content
of the respective resolution plans accordingly also
is different. The Rule requires a covered company
to submit a resolution plan that would allow rapid
and orderly resolution of the covered company
under the Bankruptcy Code in the event of material
financial distress or failure. The purpose of the IDI
Rule is to ensure that the FDIC has access to all of
the material information it needs to efficiently
resolve an IDI in the event of its failure.
20 See 12 U.S.C. 1823(c)(4). A deposit payout and
liquidation of the failed IDI’s assets (payout
liquidation) is the general baseline the FDIC uses in
a least-cost requirement determination. See 12
U.S.C. 1823(c)(4)(D).
21 See 12 U.S.C. 1823(c)(4)(G).
22 See generally https://www.fdic.gov/resources/
resolutions/bank-failures/ for background about the
resolution of IDIs by the FDIC.
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ordinarily would commence the
following Monday (closing weekend).
The limited size and operational
complexity present in most small-bank
failures has allowed the FDIC to execute
a P&A transaction with a single acquirer
on numerous occasions. Resolving an
IDI via a P&A transaction over the
closing weekend, however, may not be
available to the FDIC, particularly in
failures involving large IDIs. P&A
transactions require lead time to
identify potential buyers and allow due
diligence on, and an auction of, the
failing IDI’s assets and banking
business, also termed its ‘‘franchise.’’
Additionally, larger banks can pose
significant, and potentially systemic,
challenges in resolutions. These
challenges include: a more limited pool
of potential acquirers as a failed IDI
increases in size, which makes a
transaction in which nearly all assets
and liabilities are transferred to one or
more acquirers increasingly less likely;
operational complexities which require
advance planning on the part of the IDI
and the FDIC and the development of
certain capabilities; potential market
concentration and antitrust
considerations; and potentially the need
to maintain the continuity of activities
conducted in whole or in part in the IDI
that are critical to U.S. financial
stability.
For example, the largest failed IDI in
U.S. history, Washington Mutual Bank,
had approximately $307 billion in
assets. The DIF did not incur a loss
associated with this failure in part
because it benefitted from the FDIC’s
sale of the institution to an acquirer
which had first engaged in exhaustive
due diligence of the institution during a
self-marketing effort conducted by the
IDI prior to its failure. A more recent
example, that of First Republic Bank,
which was also acquired in an alldeposit transaction, illustrates that such
a transaction can be difficult to
effectuate. The FDIC invited 21 banks
and 21 nonbanks to participate in the
bidding process and received bids from
only 4 bidders.23 The least costly bid
necessitated a loss-sharing agreement,
and the transaction is expected to result
in a significant loss to the DIF. In
addition, the FDIC received only one
23 See Remarks by Chairman Martin J. Gruenberg
on ‘‘Oversight of Prudential Regulators’’ before the
Committee on Financial Services, United States
House of Representatives available at https://
www.fdic.gov/news/speeches/2023/
spmay1523.html; see also Remarks by Chairman
Martin J. Gruenberg on ‘‘Recent Bank Failures and
the Federal Regulatory Response’’ before the
Committee on Banking, Housing, and Urban Affairs,
United States Senate available at https://
www.fdic.gov/news/speeches/2023/
spmar2723.html.
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viable bid for Silicon Valley Bank
during the weekend following its
failure, but this bid did not satisfy the
least-cost test. The FDIC received no
viable all-deposit bids for Signature
Bank at the time it failed.24
If no P&A transaction that meets the
least-cost requirement can be
accomplished at the time an IDI fails,
the FDIC must pursue an alternative
resolution strategy. The primary
alternative resolution strategies for a
failed IDI are: (1) a payout liquidation;
or (2) utilization of a BDI. The FDIC
conducts payout liquidations by paying
insured deposits in cash or transferring
the insured deposits to an existing
institution or a new institution
organized by the FDIC to assume the
insured deposits (generally, a Deposit
Insurance National Bank or DINB). In
payout liquidations, the FDIC as
receiver retains substantially all of the
failed IDI’s assets for later sale, and the
franchise value of the failed IDI is lost.
Bridge Depository Institution. If the
FDIC determines that temporarily
continuing the operations of the failed
IDI is less costly than a payout
liquidation, it may organize a BDI to
purchase certain assets and assume
certain liabilities of the failed IDI.25
Generally, a BDI would continue the
failed bank’s operations according to
business plans and budgets approved by
the FDIC and carried out by FDICselected leadership of the BDI. In
addition to providing depositors access
to deposits and banking services, the
BDI would conduct any necessary
restructuring required to rationalize the
failed IDI’s operations and maximize
value to be achieved in an eventual sale.
Subject to the least-cost requirement,
the initial structure of the BDI may be
based upon an all-deposit transaction, a
transaction in which the BDI assumes
only the insured deposits, or a
transaction in which the BDI assumes
all insured deposits and a portion of the
uninsured deposits. Once a BDI is
established, the FDIC seeks to stabilize
the institution while simultaneously
planning for the eventual termination of
24 To protect depositors and preserve the value of
the assets and operations of each of SVB and SB
following failure—which can improve recoveries
for creditors and the DIF—the FDIC ultimately
transferred all the deposits and substantially all of
the assets of each failed bank to a full-service bridge
depository institution (BDI) operated by the FDIC
while the FDIC marketed the institutions to
potential bidders.
25 Before a BDI may be chartered, the chartering
conditions set forth in 12 U.S.C. 1821(n)(2) must
also be satisfied. For purposes of this guidance, if
the Plan provides appropriate analysis concerning
the feasibility of the BDI strategy, there is no
expectation that the resolution plan also
demonstrate separately that the conditions for
chartering the BDI have been satisfied.
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the BDI. In exiting and terminating a
BDI, the FDIC may merge or consolidate
the BDI with another depository
institution, issue and sell a majority of
the capital stock in the BDI, or effect the
assumption of the deposits or
acquisition of the assets of the BDI.26
However, many of the same factors that
challenge the feasibility of a traditional
P&A transaction also complicate
planning for the termination of a BDI
through a sale of the whole entity or its
constituent parts.
The proposed guidance would clarify
the expectations for a firm adopting a
U.S. MPOE resolution strategy with a
material entity IDI to demonstrate how
the IDI can be resolved in a manner that
is consistent with the overall objective
of the Plan to substantially mitigate the
risk that the failure of the specified firm
would have serious adverse effects on
financial stability in the United States,
while also adhering to the requirements
of the FDI Act regarding failed bank
resolutions without relying on the
assumption that a systemic risk
exception will be available. These
expectations would not be applicable to
firms adopting a U.S. SPOE resolution
strategy because U.S. IDI subsidiaries of
such firms would not be expected to
enter resolution.
Question 9: Should the guidance
indicate that if a specified filer proposes
a strategy using a BDI to resolve its
subsidiary material entity IDI, the plan
should include a detailed description of
the balance sheet components that
would transfer to the BDI and of the
process the specified filer believes is
most appropriate to value the
transferred components, inclusive of pro
forma balance sheet and income
statements?
Question 10: Should the guidance
indicate that if a specified filer proposes
a strategy using a BDI to resolve its
subsidiary material entity IDI, the plan
should describe and quantify:
• The amounts to be realized through
liquidating the failed IDI’s assets and
any expected premiums associated with
selling the institution’s deposits;
• Any franchise value bid premiums
expected to be realized through
maintaining certain ongoing business
operations in a BDI; and
• A comparison of the loss to the DIF
realized from a payout liquidation and
from utilizing a BDI so as to support the
conclusion that a BDI would result in
the least costly resolution?
26 12
U.S.C. 1821(n)(10).
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I. Derivatives and Trading Activities
The agencies request comment on
whether to provide guidance on
derivatives and trading activities for
specified firms that utilize a U.S. SPOE
resolution strategy. Although most of
the specified firms have limited
derivatives and trading operations
compared to the U.S. GSIBs, it remains
important that their derivatives and
trading activities can be stabilized and
de-risked during resolution without
causing significant disruption to U.S.
markets, particularly for firms with large
U.S. broker-dealers. The agencies also
are considering the resolution
challenges that may be posed by
transactions that originate from and may
be managed in the U.S. but are booked
outside of the U.S. If the agencies were
to provide guidance on derivatives and
trading activities, the agencies likely
would adopt aspects of the 2020
Proposed FBO Guidance. The agencies
do not anticipate providing derivatives
and trading activities guidance to
specified firms that utilize a U.S. MPOE
resolution strategy.
Question 11: Should the agencies
provide resolution plan guidance on
derivatives and trading activities for
specified firms that utilize a U.S. SPOE
resolution strategy? If so, what should
be the content of that guidance, what
methodology should the agencies use to
determine the scope of specified firms to
be subject to that guidance, and would
it be appropriate to adopt all or some of
the expectations contained in the 2020
Proposed FBO Guidance? What other
derivatives and trading activities-related
expectations would reasonably enhance
resolution plans that utilize a U.S. SPOE
resolution strategy?
Question 12: Should the agencies
provide resolution plan guidance on
derivatives and trading activities for
specified firms that utilize a U.S. MPOE
resolution strategy? If so, what should
be the content of that guidance and
what methodology should the agencies
use to determine the scope of specified
firms to be subject to that guidance?
Question 13: Should any resolution
plan guidance the agencies provide to
the specified firms on derivatives and
trading activities take a different
approach to transactions that originate
in the U.S. but are booked outside of the
U.S. and transactions that originate and
are booked in the U.S.?
J. Branches
U.S. branches of FBOs can play a
critical role in a firm’s U.S. operations
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and may present unique issues in a
resolution of a specified firm’s U.S.
entities and operations. The agencies
propose guidance that is similar to the
2020 FBO Guidance regarding branches.
Under the proposal, specified firms
would be expected to show how
branches would continue to facilitate
the firm’s FMU access for identified
critical operations and to meet funding
needs. The proposal also outlines
expectations that the specified firms
analyze the effects on the firm’s FMU
access and identified critical operations
of the cessation of operations of any
U.S. branch that is a material entity.
K. Format and Structure of Plans;
Assumptions
This section states the agencies’
preferred presentation regarding the
format, assumptions, and structure of
resolution plans. Plans should contain
an executive summary, a narrative of the
firm’s resolution strategy, relevant
technical appendices, and a public
section as detailed in the Rule. The
proposed format, structure, and
assumptions are generally similar to
those in the 2020 FBO Guidance, except
that the proposed guidance reflects the
expectation that a firm should support
any assumptions that it will have access
to the Discount Window and/or other
borrowings during the period
immediately prior to entering
bankruptcy and clarifies expectations
around such assumptions and that firms
should not assume the use of the
systemic risk exception to the least-cost
test in the event of a failure of an IDI
requiring resolution under the FDI Act.
In addition, for firms that adopt a U.S.
MPOE resolution strategy, the proposal
includes the expectation that a plan
should demonstrate and describe how
the failure event(s) results in material
financial distress of its U.S. operations,
including consideration of the
likelihood of the diminution the firm’s
liquidity and capital levels prior to
bankruptcy.
Question 14: Certain firms’ plans rely
on lending facilities, including the
Discount Window or other governmentsponsored facilities in the period
immediately preceding a bankruptcy
filing. Should the guidance include
additional clarifications related to
assumptions regarding these lending
facilities? Should the guidance contain
clarifications relating to other
assumptions discussed in the guidance
or additional appropriate assumptions?
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Question 15: The agencies included in
the 2019 GSIB Guidance and 2020 FBO
Guidance answers that had been
previously published to frequently asked
questions (FAQs) the agencies received
from the guidance recipients about the
topics in resolution plan guidance (e.g.,
capital, liquidity, etc.); however, there
was no FAQ process for the specified
firms given the limited number of
common questions received. Should the
agencies include in resolution guidance
for the specified firms answers to FAQs
similar to those contained in the 2019
GSIB Guidance and 2020 FBO
Guidance? If so, which answers to FAQs
should the final guidance contain, and
what changes, if any, should the
agencies make to the answers to FAQs
in the 2019 GSIB Guidance and 2020
FBO Guidance?
(E) Estimates of capital or start-up
costs and costs of operation,
maintenance, and purchase of services
to provide information.
Comments on aspects of this
document that may affect reporting,
recordkeeping, or disclosure
requirements and burden estimates
should be sent to the addresses listed in
the ADDRESSES section of the
Supplementary Information. A copy of
the comments may also be submitted to
the OMB desk officer for the Agencies:
By mail to U.S. Office of Management
and Budget, 725 17th Street NW,
#10235, Washington, DC 20503, or by
facsimile to (202) 395–5806, Attention,
Federal Banking Agency Desk Officer.
III. Paperwork Reduction Act
Certain provisions of the proposed
guidance contain ‘‘collections of
information’’ within the meaning of the
Paperwork Reduction Act of 1995 (PRA)
(44 U.S.C. 3501–3521). In accordance
with the requirements of the PRA, the
agencies may not conduct or sponsor,
and a respondent is not required to
respond to, an information collection
unless it displays a currently valid
Office of Management and Budget
(OMB) control number. The agencies
reviewed the proposed guidance and
determined that it would revise the
reporting revisions that have been
previously approved by OMB under the
Board’s OMB control number 7100–
0346 (Reporting Requirements
Associated with Regulation QQ; FR QQ)
and the FDIC’s control number 3064–
0210 (Reporting Requirements Associate
with Resolution Planning). The Board
has reviewed the proposed guidance
under the authority delegated to the
Board by OMB.
Comments are invited on the
following:
(A) Whether the collections of
information are necessary for the proper
performance of the agencies’ functions,
including whether the information has
practical utility;
(B) The accuracy of the agencies’
estimates of the burden of the
information collections, including the
validity of the methodology and
assumptions used;
(C) Ways to enhance the quality,
utility, and clarity of the information to
be collected;
(D) Ways to minimize the burden of
the information collections on
respondents, including through the use
of automated collection techniques or
other forms of information technology;
and
Board
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Proposed Revisions, With Extension, of
the Following Information Collections
Collection title: Reporting
Requirements Associated with
Regulation QQ.
Collection identifier: FR QQ.
OMB control number: 7100–0346.
Frequency: Triennial, Biennial, and
on occasion.
Respondents: Bank holding
companies (including any foreign bank
or company that is, or is treated as, a
bank holding company under section
8(a) of the International Banking Act of
1978 and meets the relevant total
consolidated assets threshold) with total
consolidated assets of $250 billion or
more, bank holding companies with
$100 billion or more in total
consolidated assets with certain
characteristics, and nonbank financial
firms designated by the Financial
Stability Oversight Council for
supervision by the Board.
FDIC
Collection title: Reporting
Requirements Associated with
Resolution Planning.
OMB control number: 3064–0210.
Current Actions: The proposed
guidance would apply to all triennial
full filers, but expectations would differ
based on whether a firm adopts an
SPOE or an MPOE resolution strategy
and whether it is foreign or domestic.
The proposed guidance is intended to
clarify the agencies’ expectations
concerning the resolution plans
required pursuant to the Rule. The
document does not have the force and
effect of law. Rather, it describes the
agencies’ expectations and priorities
regarding these the resolution plans of
triennial full filers and the agencies’
general views regarding specific areas
where additional detail should be
provided and where certain capabilities
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or optionality should be developed and
maintained to demonstrate that each
firm has considered fully, and is able to
mitigate, obstacles to the successful
implementation of its preferred
resolution strategy.
The proposed guidance for triennial
full filers using an SPOE strategy is
based on the 2019 GSIB guidance (for
domestic firms) and the 2020 FBO
guidance (for foreign firms). It would
clarify the agencies’ expectations
around capital, liquidity, governance
mechanisms, and operations. The
proposed guidance also would clarify
expectations concerning management
information systems capabilities and the
identification of discrete separability
options appropriate to the resolution
strategy. Additionally, if finalized, the
FBOs that adopt an SPOE resolution
strategy should address how their U.S.
resolution plan aligns with their group
resolution plan.
The proposed guidance for triennial
full filers using an MPOE resolution
strategy addresses similar topics but
reflects the risks of and capabilities
needed for an MPOE resolution. The
proposed guidance explains the
agencies’ expectations around liquidity
and operational capabilities, and legal
entity rationalization. The proposed
guidance also provides clarified
expectations related to the separate
resolution of a U.S. IDI and to
identification of discrete separability
options. FBOs that adopt an MPOE
resolution strategy would have
expectations related to governance
mechanisms; the role of branches; and
the group resolution plan.
The proposed guidance does not
specify expectations around derivatives
and trading activities.
Historically, the Board and the FDIC
have split the respondents for purposes
of PRA clearances. As such, the agencies
will split the change in burden as well.
As a result of this split and the proposed
revisions, there is a proposed net
increase in the overall estimated burden
hours of 13,386 hours for the Board and
17,610 hours for the FDIC. Therefore,
the total Board estimated burden for its
entire information collection would be
216,853 hours and the total FDIC
estimate burden for its entire
information collection would be
211,300 hours.
The following table presents only the
change in the estimated burden hours,
as amended if the guidance were
finalized, broken out by agency. The
table does not include a discussion of
the remaining estimated burden hours,
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which remain unchanged.27 As shown
in the table, the Triennial Full filing
types would be estimated more
granularly according to SPOE and
MPOE resolution strategies.
TABLE 1—BURDEN HOUR ESTIMATES UNDER CURRENT REGULATIONS AND UNDER THE PROPOSED GUIDANCE
Estimated
number of
respondents
FR QQ
Estimated
average
hours per
response
Estimated
annual
frequency
Estimated
annual
burden hours
Board Burdens
Current
Triennial Full:
Complex Foreign ...............................................................................
Foreign and Domestic .......................................................................
1
7
1
1
9,777
4,667
9,777
32,669
Current Total ..............................................................................
Proposed
Triennial Full:
FBO SPOE * ......................................................................................
FBO MPOE .......................................................................................
Domestic MPOE ................................................................................
........................
........................
........................
42,446
2
3
3
1
1
........................
11,848
5,939
5,513
23,696
17,817
16,539
Proposed Total ...........................................................................
........................
........................
........................
58,052
0
7
1
1
9,777
4,667
0
32,669
Current Total ..............................................................................
Proposed
Triennial Full:
FBO SPOE * ......................................................................................
FBO MPOE .......................................................................................
Domestic MPOE ................................................................................
........................
........................
........................
32,669
2
3
2
1
1
1
11,848
5,939
5,513
23,696
17,817
11,026
Proposed Total ...........................................................................
........................
........................
........................
52,539
FDIC Burdens
Current
Triennial Full:
Complex Foreign ...............................................................................
Foreign and Domestic .......................................................................
* There are currently no domestic triennial full filers utilizing a SPOE strategy. Estimated hours per response for a domestic SPOE triennial full
filer would be 11,235 hours.
I. Introduction
Section 165(d) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act
(12 U.S.C. 5365(d)) requires certain financial
companies to report periodically to the Board
of Governors of the Federal Reserve System
(the Board) and the Federal Deposit
Insurance Corporation (the FDIC) (together,
the agencies) their plans for rapid and
orderly resolution in the event of material
financial distress or failure. On November 1,
2011, the agencies promulgated a joint rule
implementing the provisions of Section
165(d).1 Subsequently, in November 2019,
the agencies finalized amendments to the
joint rule addressing amendments to the
Dodd-Frank Act made by the Economic
Growth, Regulatory Relief, and Consumer
Protection Act and improving certain aspects
of the joint rule based on the agencies’
experience implementing the joint rule since
its adoption.2 Financial companies meeting
criteria set out in the Rule must file a
resolution plan (Plan) according to the
schedule specified in the Rule.
This document is intended to provide
guidance to certain foreign financial
companies required to submit Plans
regarding development of their respective
U.S. strategies to assist their further
development of a Plan for their 2024 and
subsequent Plan submissions. Specifically,
the guidance applies to any foreign-based
covered company that is subject to Category
II or III standards according to their
combined U.S. operations in accordance with
the Board’s tailoring rule (specified firms).3
This guidance supersedes the joint Guidance
for Resolution Plan Submissions of Certain
Foreign-Based Covered Companies.4
The Plan for a specified firm would
address a scenario where its U.S. operations
experience material financial distress and the
foreign parent is unable or unwilling to
provide sufficient financial support for the
continuation of U.S. operations, and at least
the top tier U.S. IHC files for bankruptcy
under Title 11, United States Code. Under
such a scenario, the Plan should provide for
the orderly resolution of the specified firm’s
U.S. material entities and operations.
In general, this document is organized
around a number of key challenges in
resolution (interaction with group resolution
plan; capital; liquidity; governance
mechanisms; operational; branches; legal
27 In addition to the proposed revisions to the
estimations for Triennial Full filings, the agencies
have revised the estimation for Biennial Full filings
from 40,115 hours per response to 39,550 hours per
response to align the burden estimation
methodology with what was used for Triennial Full
filings under the proposed guidance. Specifically,
the agencies removed a component for a biennial
full filer’s analysis of its critical operations as part
of its submission of targeted and full resolution
plans, because this critical operations analysis is
integrated in the preparation of such plans.
1 Resolution Plans Required, 76 FR 67323
(November 1, 2011).
2 Resolution Plans Required, 84 FR 59194
(November 1, 2019). The amendments became
effective December 31, 2019. ‘‘Rule’’ means the joint
rule as amended in 2019. Terms not defined herein
have the meanings set forth in the Rule.
3 Prudential Standards for Large Bank Holding
Companies, Savings and Loan Holding Companies,
and Foreign Banking Organizations, 84 FR 59032
(Nov. 1, 2019).
4 85 FR 83557 (Dec. 22, 2020) (2020 FBO
Guidance).
Appendix: Text of the Proposed
Guidance
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Guidance for Resolution Plan
Submissions of Foreign Triennial Full
Filers
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entity rationalization and separability; and
insured depository institution resolution, if
applicable) that apply across resolution
plans, depending on their strategy.
Additional challenges or obstacles may arise
based on a firm’s particular structure,
operations, or resolution strategy. Each firm
is expected to satisfactorily address these
vulnerabilities in its Plan. In addition, each
topic of this guidance is separated into
expectations for a specified firm that utilizes
a U.S. single point of entry (U.S. SPOE)
resolution strategy for its Plan and
expectations for a specified firm that utilizes
a U.S. multiple point of entry (U.S. MPOE)
resolution strategy for its Plan.5 Under the
Rule, the agencies will review a Plan to
determine if it satisfactorily addresses key
potential challenges, including those
specified below. If the agencies jointly decide
that an aspect of a Plan presents a weakness
that individually or in conjunction with
other aspects could undermine the feasibility
of the Plan, the agencies may determine
jointly that the Plan is not credible or would
not facilitate an orderly resolution under the
U.S. Bankruptcy Code.
II. Interaction With Group Resolution Plan
U.S. SPOE & U.S. MPOE
Recognizing that the preferred resolution
outcome for the specified firms is often a
successful SPOE home country resolution, a
specified firm’s Plan should describe the
impact of executing the global resolution
plan on U.S. operations. This description
should include a discussion of the expected
resolution strategy for the firm’s U.S. entities
and operations under the global resolution
plan. In addition, a specified firm’s
resolvability work in the United States
should consider both the objectives of the
firm’s group-wide resolution strategy and the
Rule. Efforts to enhance the resolvability of
U.S. operations and entities should be as
complementary as practicable to the groupwide resolution strategy, while complying
with the Rule. To the extent that the Plan
relies on different assumptions, strategies,
and capabilities, such as those used to project
liquidity needs in resolution, from those
necessary to execute the global strategy, the
Plan should include a description of such
differences.
III. Capital
U.S. SPOE
The firm should have the capital
capabilities necessary to execute its U.S.
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5 The
agencies recognize that the preferred
resolution outcome for many specified firms is a
successful home country resolution using a global
SPOE resolution strategy where U.S. material
entities are provided with sufficient capital and
liquidity resources to allow them to stay out of
resolution proceedings and maintain continuity of
operations throughout the parent’s resolution.
However, because support from the foreign parent
in stress cannot be ensured, the Rule provides that
the U.S. resolution plan for specified firms should
specifically address a scenario where the U.S.
operations experience material financial distress,
and the Plan should not assume that the specified
firm takes resolution actions outside the United
States that would eliminate the need for any U.S.
subsidiaries to enter resolution proceedings.
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resolution strategy, including the modeling
and estimation process described below.
Resolution Capital Adequacy and Positioning
(RCAP). In order to help ensure that a firm’s
U.S. non-branch material entities 6 could be
resolved in an orderly manner, the firm’s
U.S. IHC should have an adequate amount of
loss-absorbing capacity to execute its U.S.
resolution strategy. Thus, a firm’s U.S. IHC
should have outstanding a minimum amount
of loss-absorbing capacity, including longterm debt, to help ensure that the firm has
adequate capacity to meet that need at the
U.S. IHC on a consolidated basis (IHC LAC).7
Proceeds from a firm’s U.S. IHC LAC
should be appropriately positioned between
the U.S. IHC and the subsidiaries of the U.S.
IHC that are material entities (U.S. IHC
subsidiaries), consistent with any applicable
rules requiring prepositioned resources at
U.S. IDIs in the form of long-term debt. After
adhering to any requirements related to
prepositioning long-term debt at IDIs, the
positioning of a firm’s remaining IHC LAC
should balance the certainty associated with
pre-positioning internal LAC directly at U.S.
IHC subsidiaries with the flexibility provided
by holding recapitalization resources at the
U.S. IHC (contributable resources) to meet
unanticipated losses at the U.S. IHC
subsidiaries. That balance should take
account of both pre-positioning at U.S. IHC
subsidiaries and holding resources at the U.S.
IHC, and the obstacles associated with each.
With respect to material entities that are not
subject to pre-positioning requirements, the
firm should not rely exclusively on either full
pre-positioning or U.S. IHC contributable
resources to execute its U.S. resolution
strategy, unless it has only one U.S. IHC
subsidiary that is an operating subsidiary.
The Plan should describe the positioning of
internal LAC among the U.S. IHC and the
U.S. IHC subsidiaries, along with analysis
supporting such positioning.
Finally, to the extent that pre-positioned
internal LAC at a U.S. IHC subsidiary is in
the form of intercompany debt and there are
one or more entities between the lender and
the borrower, the firm should structure the
instruments so as to ensure that the U.S. IHC
subsidiary can be recapitalized.
Resolution Capital Execution Need
(RCEN). To the extent necessitated by the
firm’s U.S. resolution strategy, U.S. nonbranch material entities need to be
recapitalized to a level that allows for an
orderly resolution. The firm should have a
methodology for periodically estimating the
6 The terms ‘‘material entities,’’ ‘‘identified
critical operations,’’ and ‘‘core business lines’’ have
the same meaning as in the Rule. The term ‘‘U.S.
material entity’’ means any subsidiary, branch, or
agency that is a material entity and is domiciled in
the United States. The term ‘‘U.S. non-branch
material entity’’ means a material entity organized
or incorporated in the U.S. including, in all cases,
the U.S. IHC. The term ‘‘U.S. IHC subsidiaries’’
means all U.S. non-branch material entities other
than the U.S. IHC.
7 Total Loss-Absorbing Capacity, Long-Term Debt,
and Clean Holding Company Requirements for
Systemically Important U.S. Bank Holding
Companies and Intermediate Holding Companies of
Systemically Important Foreign Banking
Organizations, 82 FR 8266 (January 24, 2017); LTD
proposal.
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amount of capital that may be needed to
support each U.S. IHC subsidiary after the
U.S. IHC bankruptcy filing (RCEN). The
firm’s positioning of IHC LAC should be able
to support the RCEN estimates.
The firm’s RCEN methodology should use
conservative forecasts for losses and riskweighted assets and incorporate estimates of
potential additional capital needs through
the resolution period,8 consistent with the
firm’s resolution strategy for its U.S.
operations. The RCEN methodology should
be calibrated such that recapitalized U.S. IHC
subsidiaries will have sufficient capital to
maintain market confidence as required
under the U.S resolution strategy. Capital
levels should meet or exceed all applicable
regulatory capital requirements for ‘‘wellcapitalized’’ status and meet estimated
additional capital needs throughout
resolution. U.S. IHC subsidiaries that are not
subject to capital requirements may be
considered sufficiently recapitalized when
they have achieved capital levels typically
required to obtain an investment-grade credit
rating or, if the entity is not rated, an
equivalent level of financial soundness.
Finally, the methodology should be
independently reviewed, consistent with the
firm’s corporate governance processes and
controls for the use of models and
methodologies.
U.S. MPOE
The agencies do not propose issuing
guidance on this topic to firms whose Plans
contemplate a U.S. MPOE resolution strategy.
IV. Liquidity
U.S. SPOE
The firm should have the liquidity
capabilities necessary to execute its U.S
resolution strategy, including those described
below. For resolution purposes, these
capabilities should include having an
appropriate model and process for estimating
and maintaining sufficient liquidity at—or
readily available from the U.S. IHC to—U.S.
IHC subsidiaries, and a methodology for
estimating the liquidity needed to
successfully execute the U.S. resolution
strategy, as described below.
Capabilities. A firm is expected to have a
comprehensive understanding of funding
sources, uses, and risks at material entities
and identified critical operations, including
how funding sources may be affected under
stress. For example, a firm should have and
describe its capabilities to:
(A) Evaluate the funding requirements
necessary to perform identified critical
operations, including shared and outsourced
services and access to financial market
utilities (FMUs); 9
(B) Monitor liquidity reserves and relevant
custodial arrangements by jurisdiction and
material entity; 10
(C) Routinely test funding and liquidity
outflows and inflows for U.S. non-branch
material entities at the legal entity level
8 The resolution period begins immediately after
the U.S. IHC bankruptcy filing and extends through
the completion of the U.S. resolution strategy.
9 12 CFR 252.156(g)(3).
10 12 CFR 252.156(g)(2).
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under a range of adverse stress scenarios,
taking into account the effect on intra-day,
overnight, and term funding flows between
affiliates and across jurisdictions;
(D) Assess existing and potential
restrictions on the transfer of liquidity
between U.S. non-branch material entities; 11
and
(E) Develop contingency strategies to
maintain funding for U.S. non-branch
material entities and identified critical
operations in the event of a disruption in the
specified firm’s current funding model.12
Resolution Liquidity Adequacy and
Positioning (RLAP). With respect to RLAP,
the firm should be able to measure the standalone liquidity position of each U.S. nonbranch material entity—i.e., the high-quality
liquid assets (HQLA) at the U.S. non-branch
material entity less net outflows to third
parties and affiliates—and ensure that
liquidity is readily available to meet any
deficits. The RLAP model should cover a
period of at least 30 days and reflect the
idiosyncratic liquidity profile of the U.S. IHC
and risk of each U.S. IHC subsidiary. The
model should balance the reduction in
frictions associated with holding liquidity
directly at the U.S. IHC subsidiary with the
flexibility provided by holding HQLA at the
U.S. IHC or at a U.S. IHC subsidiary available
to meet unanticipated outflows at other U.S.
IHC subsidiaries.13 The firm should not rely
exclusively on either full pre-positioning or
U.S. IHC contributable resources to execute
its U.S. resolution strategy, unless it has only
one U.S. IHC subsidiary that is an operating
subsidiary.
The model 14 should ensure that on a
consolidated basis the U.S. IHC holds
sufficient HQLA to cover net liquidity
outflows of the U.S. non-branch material
entities. The model should also measure the
stand-alone net liquidity positions of each
U.S. non-branch material entity. The standalone net liquidity position of each U.S. nonbranch material entity (HQLA less net
outflows) should be measured using the
firm’s internal liquidity stress test
assumptions and should treat inter-affiliate
exposures in the same manner as third-party
exposures. For example, an overnight
unsecured exposure to a non-U.S. affiliate
should be assumed to mature. Finally, the
firm should not assume that a net liquidity
surplus at any U.S. IHC subsidiary that is a
depository institution could be moved to
meet net liquidity deficits at an affiliate, or
to augment U.S. IHC resources, consistent
with Regulation W.
Additionally, the RLAP methodology
should take into account for each of the U.S.
IHC, U.S. IHC subsidiaries, and any branch
that is a material entity (A) the daily
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11 Id.
12 12
CFR 252.156(e).
the extent HQLA is held at the U.S. IHC or
at a U.S. IHC subsidiary, the model must consider
whether such funds are freely available. To be
freely available, the HQLA must be free of legal,
regulatory, contractual, and other restrictions on the
ability of the material entity to liquidate, sell, or
transfer the asset.
14 ‘‘Model’’ refers to the set of calculations
required by Regulation YY that estimate the U.S.
IHC’s liquidity position.
13 To
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contractual mismatches between their
respective inflows and outflows; (B) their
respective daily flows from movement of
cash and collateral for all inter-affiliate
transactions; and (C) their respective daily
stressed liquidity flows and trapped liquidity
as a result of actions taken by clients,
counterparties, key FMUs, and foreign
supervisors, among others.
In calculating its RLAP estimate, the U.S.
IHC should calculate its liquidity position
with respect to its foreign parent, branches
and agencies, and other affiliates (together,
affiliates) separately from its liquidity
position with respect to third parties, and
should not offset inflows from affiliated
parties against outflows to external parties. In
addition, a U.S. IHC should use cash-flow
sources from its affiliates to offset cash-flow
needs of its affiliates only to the extent that
the term of the cash-flow source from its
affiliates is the same as, or shorter than, the
term of the cash-flow need of its affiliates.15
Resolution Liquidity Execution Need
(RLEN). The firm should have a methodology
for estimating the liquidity needed after the
U.S. IHC’s bankruptcy filing to stabilize any
surviving U.S. IHC subsidiaries and to allow
those entities to operate post-filing, in
accordance with the U.S. strategy.
The firm’s RLEN methodology should:
A. Estimate the minimum operating
liquidity (MOL) needed at each U.S. IHC
subsidiary that is a material entity to ensure
those entities could continue to operate, to
the extent relied upon in the U.S. resolution
strategy, after implementation of the U.S.
resolution strategy and/or to support a winddown strategy;
B. Provide daily cash flow forecasts by U.S.
IHC subsidiary to support estimation of peak
funding needs to stabilize each entity under
resolution;
C. Provide a comprehensive breakout of all
inter-affiliate transactions and arrangements
that could impact the MOL or peak funding
needs estimates for the U.S. IHC subsidiaries;
and
D. Estimate the minimum amount of
liquidity required at each U.S. IHC subsidiary
to meet the MOL and peak needs noted
above, which would inform the provision of
financial resources from the foreign parent to
the U.S. IHC, or if the foreign parent is
unable or unwilling to provide such financial
support, any preparatory resolution-related
actions.
The MOL estimates should capture U.S.
IHC subsidiaries’ intraday liquidity
requirements, operating expenses, working
capital needs, and inter-affiliate funding
frictions to ensure that U.S. IHC subsidiaries
could operate without disruption during the
resolution.
The peak funding needs estimates should
be projected for each U.S. IHC subsidiary and
cover the length of time the firm expects it
would take to stabilize that U.S. IHC
subsidiary. Inter-affiliate funding frictions
should be taken into account in the
estimation process.
15 The U.S. IHC should calculate its cash-flow
sources from its affiliates consistent with the net
internal stressed cash-flow need calculation in
§ 252.157(c)(2)(iv) of Regulation YY.
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The firm’s forecasts of MOL and peak
funding needs should ensure that U.S. IHC
subsidiaries could operate through resolution
consistent with regulatory requirements,
market expectations, and the firm’s postfailure strategy. These forecasts should
inform the RLEN estimate, i.e., the minimum
amount of HQLA required to facilitate the
execution of the firm’s strategy for the U.S.
IHC subsidiaries.
For nonsurviving U.S. IHC subsidiaries, the
firm should provide analysis and an
explanation of how the material entity’s
resolution could be accomplished within a
reasonable period of time and in a manner
that substantially mitigates the risk of serious
adverse effects on U.S. financial stability. For
example, if a U.S. IHC subsidiary that is a
broker-dealer is assumed to fail and enter
resolution under the Securities Investor
Protection Act, the firm should provide an
analysis of the potential impacts on funding
and asset markets and on prime brokerage
clients, bearing in mind the objective of an
orderly resolution.
U.S. MPOE
The firm should have the liquidity
capabilities necessary to execute its U.S.
resolution strategy. A Plan with a U.S. MPOE
strategy should include analysis and
projections of a range of liquidity needs
during resolution, including intraday; reflect
likely failure and resolution scenarios; and
consider the guidance on assumptions
provided in Section X, Format and Structure
of Plans; Assumptions.
V. Governance Mechanisms
U.S. SPOE
A firm should identify the governance
mechanisms that would ensure that
communication and coordination occur
between the boards of the U.S. IHC or a U.S.
subsidiary and the foreign parent to facilitate
the provision of financial support, or if not
forthcoming, any preparatory resolutionrelated actions to facilitate an orderly
resolution. Playbooks, Foreign Parent
Support, and Triggers. Governance playbooks
should detail the board and senior
management actions of U.S. non-branch
material entities that would be needed under
the firm’s U.S. resolution strategy. The
governance playbooks should also include a
discussion of: (A) the firm’s proposed U.S.
communications strategy, both internal and
external; 16 (B) the fiduciary responsibilities
of the applicable board(s) of directors or
other similar governing bodies and how
planned actions would be consistent with
such responsibilities applicable at the time
actions are expected to be taken; (C) potential
conflicts of interest, including interlocking
boards of directors; (D) any employee
retention policy; and (E) any other
limitations on the authority of the U.S. IHC
and the U.S. IHC subsidiary boards and
senior management to implement the U.S.
resolution strategy. All responsible parties
and timeframes for action should be
identified. Governance playbooks should be
16 External communications include those with
U.S. and foreign authorities and other external
stakeholders.
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updated periodically for each entity whose
governing body would need to act under the
firm’s U.S. resolution strategy.
In order to meet liquidity needs at the U.S.
non-branch material entities, the firm may
either fully pre-position liquidity in the U.S.
non-branch material entities or develop a
mechanism for planned foreign parent
support, of any amount not pre-positioned,
for the successful execution of the U.S.
strategy. Mechanisms to support readily
available liquidity may include a term
liquidity facility between the U.S. IHC and
the foreign parent that can be drawn as
needed and as informed by the firm’s RLEN
estimates and liquidity positioning. To the
extent the preferred global resolution strategy
for the firm is a home country SPOE
resolution, the mechanism should be
designed so as to not interfere with the
execution of that strategy. The Plan should
include analysis of how the U.S. IHC/foreign
parent facility is funded or buffered for by
the foreign parent. The sufficiency of the
liquidity should be informed by the firm’s
RLAP and RLEN estimates for the U.S. nonbranch material entities. Additionally, the
Plan should include analysis of the potential
challenges to the planned foreign parent
support mechanism and associated mitigants.
Where applicable, the analysis should
discuss applicable non-U.S. law and crossborder legal challenges (e.g., challenges
related to enforcing contracts governed by
foreign law). The analysis should identify the
mitigant(s) to such challenges that the firm
considers most effective.
The firm should be prepared to increase
communication and coordination at the
appropriate time in order to mitigate
financial, operational, legal, and regulatory
vulnerabilities. To facilitate this
communication and coordination, the firm
should establish clearly identified triggers
linked to specific actions for:
(A) The escalation of information to U.S.
senior management, U.S. risk committee and
U.S. governing bodies to potentially take the
corresponding actions as the U.S. operations
experience material financial distress,
leading eventually to the decision to
implement the U.S. resolution strategy.
i. Triggers should identify when and under
what conditions the U.S. material entities
would transition from business-as-usual
conditions to a stress period.
ii. Triggers should also take into
consideration changes in the foreign parent’s
condition from business-as-usual conditions
through resolution.
(B) The escalation of information to and
discussions with the appropriate governing
bodies to confirm whether the governing
bodies are able and willing to provide
financial resources to support U.S.
operations.
i. Triggers should be based on the firm’s
methodology for forecasting the liquidity and
capital needed to facilitate the U.S. strategy.
For example, triggers may be established that
reflect U.S. non-branch material entities’
financial resources approaching RCEN/RLEN
estimates, with corresponding actions to
confirm the foreign parent’s financial
capability and willingness to provide
sufficient support.
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Corresponding escalation procedures,
actions, and timeframes should be
constructed so that breach of the triggers will
allow prerequisite actions to be completed.
For example, breach of the triggers needs to
occur early enough to provide for
communication, coordination, and
confirmation of the provision of resources
from the foreign parent.
Support Within the United States. If the
Plan provides for the provision of capital and
liquidity by a U.S. material entity (e.g., the
U.S. IHC) to its U.S. affiliates prior to the U.S.
IHC’s bankruptcy filing (Support), the Plan
should also include a detailed legal analysis
of the potential state law and bankruptcy law
challenges and mitigants to providing the
Support. Specifically, the analysis should
identify potential legal obstacles and explain
how the firm would seek to ensure that
Support would be provided as planned. Legal
obstacles include claims of fraudulent
transfer, preference, breach of fiduciary duty,
and any other applicable legal theory
identified by the firm. The analysis also
should include related claims that may
prevent or delay an effective recapitalization,
such as equitable claims to enjoin the transfer
(e.g., imposition of a constructive trust by the
court). The analysis should apply the actions
contemplated in the Plan regarding each
element of the claim, the anticipated timing
for commencement and resolution of the
claims, and the extent to which adjudication
of such claim could affect execution of the
firm’s U.S. resolution strategy. The analysis
should include mitigants to the potential
challenges to the planned Support. The Plan
should identify the mitigant(s) to such
challenges that the firm considers most
effective.
Furthermore, the Plan should describe key
motions to be filed at the initiation of any
bankruptcy proceeding related to (as
appropriate) asset sales and other nonroutine matters.
U.S. MPOE
A firm should identify the governance
mechanisms that would ensure that
communication and coordination occur
between the governing body of the U.S.
operations (for example, the boards of the
U.S. IHC or a U.S. subsidiary) and the foreign
parent to facilitate any preparatory
resolution-related actions to facilitate an
orderly resolution. The Plan should also
detail the board and senior management
actions of U.S. material entities that would be
needed under the firm’s U.S. resolution
strategy.
The firm should be prepared to increase
communication and coordination at the
appropriate time in order to mitigate
financial, operational, legal, and regulatory
vulnerabilities. To facilitate this
communication and coordination, the firm
should establish clearly identified triggers
linked to specific actions for the escalation of
information to U.S. senior management, U.S.
risk committee and U.S. governing bodies to
potentially take the corresponding actions as
the U.S. operations experience material
financial distress, leading eventually to the
decision to implement the U.S. resolution
strategy. The triggers should:
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A. Identify when and under what
conditions the U.S. material entities would
transition from business-as-usual conditions
to a stress period.
B. Take into consideration changes in the
foreign parent’s condition from business-asusual conditions through resolution.
VI. Operational
U.S. SPOE
Payment, Clearing, and Settlement Activities
Framework. Maintaining continuity of
payment, clearing, and settlement (PCS)
services is critical for the orderly resolution
of firms that are either users or providers,17
or both, of PCS services. A firm should
demonstrate capabilities for continued access
to PCS services essential to an orderly
resolution under its U.S. resolution strategy
through a framework to support such access
by:
• Identifying clients,18 FMUs, and agent
banks as key from the firm’s perspective for
the firm’s U.S. material entities, identified
critical operations, and core business lines,
using both quantitative (volume and value) 19
and qualitative criteria;
• Mapping U.S. material entities,
identified critical operations, core business
lines, and key clients of the firm’s U.S.
operations to both key FMUs and key agent
banks; and
• Developing a playbook for each key FMU
and key agent bank essential to an orderly
resolution under its U.S. resolution strategy
that reflects the firm’s role(s) as a user and/
or provider of PCS services.
The framework should address direct
relationships (e.g., a firm’s direct
membership in an FMU, a firm’s provision of
clients with PCS services through its own
operations in the United States, or a firm’s
contractual relationship with an agent bank)
and indirect relationships (e.g., a firm’s
provision of clients with access to the
relevant FMU or agent bank through the firm’
membership in or relationship with that
FMU or agent bank, or a firm’s U.S. affiliate
and branch provision of U.S. material entities
and key clients of the firm’s U.S. operations
17 A firm is a user of PCS services if it accesses
PCS services through an agent bank or it uses the
services of a financial market utility (FMU) through
its membership in that FMU or through an agent
bank. A firm is a provider of PCS services if it
provides PCS services to clients as an agent bank
or it provides clients with access to an FMU or
agent bank through the firm’s membership in or
relationship with that service provider. A firm is
also a provider if it provides clients with PCS
services through the firm’s own operations (e.g.,
payment services or custody services).
18 For purposes of this section, a client is an
individual or entity, including affiliates of the firm,
to whom the firm provides PCS services and any
related credit or liquidity offered in connection
with those services.
19 In identifying entities as key, examples of
quantitative criteria may include: for a client,
transaction volume/value, market value of
exposures, assets under custody, usage of PCS
services, and any extension of related intraday
credit or liquidity; for an FMU, the aggregate
volumes and values of all transactions processed
through such FMU; and for an agent bank, assets
under custody, the value of cash and securities
settled, and extensions of intraday credit.
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with access to an FMU or agent bank). The
framework also should address the potential
impact of any disruption to, curtailment of,
or termination of such direct and indirect
relationships on the firm’s U.S. material
entities, identified critical operations, and
core business lines, as well as any
corresponding impact on key clients of the
firm’s U.S. operations.
Playbooks for Continued Access to PCS
Services. The firm is expected to provide a
playbook for each key FMU and key agent
bank that addresses considerations that
would assist the firm and key clients of the
firm’s U.S. operations in maintaining
continued access to PCS services in the
period leading up to and including the firm’s
resolution under its U.S. resolution strategy.
Each playbook should provide analysis of
the financial and operational impact to the
firm’s U.S. material entities and key clients
of the firm’s U.S. operations due to adverse
actions that may be taken by a key FMU or
a key agent bank and contingency actions
that may be taken by the firm. Each playbook
also should discuss any possible alternative
arrangements that would allow continued
access to PCS services for the firm’s U.S.
material entities, identified critical
operations and core business lines, and key
clients of the firm’s U.S. operations, while
the firm is in resolution under its U.S.
resolution strategy. The firm is not expected
to incorporate a scenario in which it loses
key FMU or key agent bank access into its
U.S. resolution strategy or its RLEN and
RCEN estimates. The firm should continue to
engage with key FMUs, key agent banks, and
key clients of the firm’s U.S. operations, and
playbooks should reflect any feedback
received during such ongoing outreach.
Content Related to Users of PCS Services.
Individual key FMU and key agent bank
playbooks should include:
• Descriptions of the firm’s relationship as
a user, including through indirect access,
with the key FMU or key agent bank and the
identification and mapping of PCS services to
the firm’s U.S. material entities, identified
critical operations, and core business lines
that use those PCS services;
• Discussion of the potential range of
adverse actions that may be taken by that key
FMU or key agent bank when the firm is in
resolution under its U.S. resolution
strategy,20 the operational and financial
impact of such actions on the firm’s U.S.
material entities, identified critical
operations, and core business lines, and
contingency arrangements that may be
initiated by the firm in response to potential
adverse actions by the key FMU or key agent
bank; and
• Discussion of PCS-related liquidity
sources and uses in business-as-usual (BAU),
in stress, and in the resolution period,
presented by currency type (with U.S. dollar
equivalent) and by U.S. material entity.
Æ PCS Liquidity Sources: These may
include the amounts of intraday extensions
of credit, liquidity buffer, inflows from FMU
20 Examples of potential adverse actions may
include increased collateral and margin
requirements and enhanced reporting and
monitoring.
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participants, and prefunded amounts of key
clients of the firm’s U.S. operations in BAU,
in stress, and in the resolution period. The
playbook also should describe intraday credit
arrangements (e.g., facilities of the key FMU,
key agent bank, or a central bank) and any
similar custodial arrangements that allow
ready access to a firm’s funds for PCS-related
key FMU and key agent bank obligations
(including margin requirements) in all
currencies relevant to the firm’s
participation, including placements of firm
liquidity at central banks, key FMUs, and key
agent banks.
Æ PCS Liquidity Uses: These may include
margin and prefunding by the firm and key
clients of the firm’s U.S. operations, and
intraday extensions of credit, including
incremental amounts required during
resolution.
Æ Intraday Liquidity Inflows and Outflows:
The playbook should describe the firm’s
ability to control intraday liquidity inflows
and outflows and to identify and prioritize
time-specific payments. The playbook also
should describe any account features that
might restrict the firm’s ready access to its
liquidity sources.
Content Related to Providers of PCS
Services.21 Individual key FMU and key
agent bank playbooks should include:
• Identification and mapping of PCS
services to the firm’s U.S. material entities,
identified critical operations, and core
business lines that provide those PCS
services, and a description of the scale and
the way in which each provides PCS
services;
• Identification and mapping of PCS
services to key clients of the firm’s U.S.
operations to whom the firm’s U.S. material
entities, identified critical operations, and
core business lines provide such PCS
services and any related credit or liquidity
offered in connection with such services;
• Discussion of the potential range of firm
contingency arrangements available to
minimize disruption to the provision of PCS
services to key clients of the firm’s U.S.
operations, including the viability of
transferring activity and any related assets of
key clients of the firm’s U.S. operations, as
well as any alternative arrangements that
would allow the key clients of the firm’s U.S.
operations continued access to PCS services
if the firm could no longer provide such
access (e.g., due to the firm’s loss of key FMU
or key agent bank access), and the financial
and operational impacts of such
arrangements from the firm’s perspective;
• Descriptions of the range of contingency
actions that the firm may take concerning its
provision of intraday credit to key clients of
the firm’s U.S. operations, including analysis
quantifying the potential liquidity the firm
could generate by taking such actions in
21 Where a firm is a provider of PCS services
through the firm’s own operations in the United
States, the firm is expected to produce a playbook
for the U.S. material entities that provide those
services, addressing each of the items described
under ‘‘Content Related to Providers of PCS
Services,’’ which include contingency arrangements
to permit the firm’s key clients of the firm’s U.S.
operations to maintain continued access to PCS
services.
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stress and in the resolution period, such as
(i) requiring key clients of the firm’s U.S.
operations to designate or appropriately preposition liquidity, including through
prefunding of settlement activity, for PCSrelated key FMU and key agent bank
obligations at specific material entities of the
firm (e.g., direct members of key FMUs) or
any similar custodial arrangements that allow
ready access to funds for such obligations in
all relevant currencies of key clients of the
firm’s U.S. operations; (ii) delaying or
restricting PCS activity of key clients of the
firm’s U.S. operations; and (iii) restricting,
imposing conditions upon (e.g., requiring
collateral), or eliminating the provision of
intraday credit or liquidity to key clients of
the firm’s U.S. operations; and
• Descriptions of how the firm will
communicate to key clients of the firm’s U.S.
operations the potential impacts of
implementation of any identified
contingency arrangements or alternatives,
including a description of the firm’s
methodology for determining whether any
additional communication should be
provided to some or all key clients of the
firm’s U.S. operations (e.g., due to BAU usage
of that access and/or related intraday credit
or liquidity of the key client of the firm’s U.S.
operations), and the expected timing and
form of such communication.
Capabilities. The firm is expected to have
and describe capabilities to understand, for
each U.S. material entity, the obligations and
exposures associated with PCS activities,
including contractual obligations and
commitments. The firm should be able to:
• Track the following items by (i) U.S.
material entity and, (ii) with respect to
customers, counterparties, and agents and
service providers, by location and
jurisdiction:
Æ PCS activities, with each activity
mapped to the relevant material entities,
identified critical operations, and core
business lines; 22
Æ Customers and counterparties for PCS
activities, including values and volumes of
various transaction types, as well as used and
unused capacity for all lines of credit; 23
Æ Exposures to and volumes transacted
with FMUs, nostro agents, and custodians;
and 24
Æ Services provided and service level
agreements, as applicable, for other current
agents and service providers (internal and
external); 25
• Assess the potential effects of adverse
actions by FMUs, nostro agents, custodians,
and other agents and service providers,
including suspension or termination of
membership or services, on the firm’s U.S.
operations and customers and counterparties
of those U.S. operations; 26
• Develop contingency arrangements in
the event of such adverse actions; 27 and
• Quantify the liquidity needs and
operational capacity required to meet all PCS
22 12
CFR 243.5(e)(12) and 12 CFR 381.5(e)(12).
23 Id.
24 12
CFR 252.156(g).
CFR 243.5(f)(l)(i) and 12 CFR 381.5(f)(1)(i).
26 12 CFR 252.156(e).
27 Id.
25 12
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obligations, including any change in demand
for and sources of liquidity needed to meet
such obligations.
Managing, Identifying, and Valuing
Collateral. The firm is expected to have and
describe its capabilities to manage, identify,
and value the collateral that the U.S. nonbranch material entities receive from and
post to external parties and affiliates.
Specifically, the firm should:
• Be able to query and provide aggregate
statistics for all qualified financial contracts
concerning cross-default clauses, downgrade
triggers, and other key collateral-related
contract terms—not just those terms that may
be impacted in an adverse economic
environment—across contract types, business
lines, legal entities, and jurisdictions;
• Be able to track both collateral sources
(i.e., counterparties that have pledged
collateral) and uses (i.e., counterparties to
whom collateral has been pledged) at the
CUSIP level on at least a t+1 basis;
• Have robust risk measurements for crossentity and cross-contract netting, including
consideration of where collateral is held and
pledged;
• Be able to identify CUSIP and asset class
level information on collateral pledged to
specific central counterparties by legal entity
on at least a t+1 basis;
• Be able to track and report on interbranch collateral pledged and received on at
least a t+1 basis and have clear policies
explaining the rationale for such inter-branch
pledges, including any regulatory
considerations; and
• Have a comprehensive collateral
management policy that outlines how the
firm as a whole approaches collateral and
serves as a single source for governance.28
In addition, as of the conclusion of any
business day, the firm should be able to:
• Identify the legal entity and geographic
jurisdiction where counterparty collateral is
held;
• Document all netting and rehypothecation arrangements with affiliates
and external parties, by legal entity; and
• Track and manage collateral
requirements associated with counterparty
credit risk exposures between affiliates,
including foreign branches.
At least on a quarterly basis, the firm
should be able to:
• Review the material terms and
provisions of International Swaps and
Derivatives Association Master Agreements
and the Credit Support Annexes, such as
termination events, for triggers that may be
breached as a result of changes in market
conditions;
• Identify legal and operational differences
and potential challenges in managing
collateral within specific jurisdictions,
agreement types, counterparty types,
collateral forms, or other distinguishing
characteristics; and
• Forecast changes in collateral
requirements and cash and non-cash
collateral flows under a variety of stress
scenarios.
28 The
policy may reference subsidiary or related
policies already in place, as implementation may
differ based on business line or other factors.
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Management Information Systems. The
firm should have the management
information systems (MIS) capabilities to
readily produce data on a U.S. legal entity
basis (including any U.S. branch) and have
controls to ensure data integrity and
reliability. The firm also should perform a
detailed analysis of the specific types of
financial and risk data that would be
required to execute the U.S. resolution
strategy and how frequently the firm would
need to produce the information, with the
appropriate level of granularity. The firm
should have the capabilities to produce the
following types of information in a timely
manner and describe these capabilities in the
Plan:
• Financial statements for each material
entity (at least monthly);
• External and inter-affiliate credit
exposures, both on- and off-balance sheet, by
type of exposure, counterparty, maturity, and
gross payable and receivable;
• Gross and net risk positions with
internal and external counterparties;
• Guarantees, cross holdings, financial
commitments and other transactions between
material entities;
• Data to facilitate third-party valuation of
assets and businesses, including risk metrics;
• Key third-party contracts, including the
provider, provider’s location, service(s)
provided, legal entities that are a party to or
a beneficiary of the contract, and key
contractual rights (for example, termination
and change in control clauses);
• Legal agreement information, including
parties to the agreement and key terms and
interdependencies (for example, change in
control, collateralization, governing law,
termination events, guarantees, and crossdefault provisions);
• Service level agreements between
affiliates, including the service(s) provided,
the legal entity providing the service, legal
entities receiving the service, and any
termination/transferability provisions;
• Licenses and memberships to all
exchanges and value transfer networks,
including FMUs;
• Key management and support personnel,
including dual-hatted employees, and any
associated retention agreements;
• Agreements and other legal documents
related to property, including facilities,
technology systems, software, and
intellectual property rights. The information
should include ownership, physical location,
where the property is managed and names of
legal entities and lines of business that the
property supports; and
• Updated legal records for domestic and
foreign entities, including entity type and
purpose (for example, holding company,
bank, broker dealer, and service entity),
jurisdiction(s), ownership, and regulator(s).
Shared and Outsourced Services. The firm
should maintain a fully actionable
implementation plan to ensure the continuity
of shared services that support identified
critical operations 29 or core business lines
29 ‘‘Shared services that support identified critical
operations’’ or ‘‘critical shared services’’ are those
that support identified critical operations
conducted in whole or in material part in the
United States.
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and robust arrangements to support the
continuity of shared and outsourced services,
including, without limitation, appropriate
plans to retain key personnel relevant to the
execution of the firm’s strategy. For example,
specified firms should evaluate internal and
external dependencies and develop
documented strategies and contingency
arrangements for the continuity or
replacement of the shared and outsourced
services that are necessary to maintain
identified critical operations or core business
lines. Examples may include personnel,
facilities, systems, data warehouses, and
intellectual property. Specified firms also
should maintain current cost estimates for
implementing such strategies and
contingency arrangements.
If a material entity provides shared services
that support identified critical operations or
core business lines, and the continuity of
these shared services relies on the assumed
cooperation, forbearance, or other nonintervention of regulator(s) in any
jurisdiction, the Plan should discuss the
extent to which the resolution or insolvency
of any other group entities operating in that
same jurisdiction may adversely affect the
assumed cooperation, forbearance, or other
regulatory non-intervention. If a material
entity providing shared services that support
identified critical operations or core business
lines is located outside of the United States,
the Plan should discuss how the firm will
ensure the operational continuity of such
shared services through resolution.
The firm should (A) maintain an
identification of all shared services that
support identified critical operations or core
business lines; (B) maintain a mapping of
how/where these services support its core
business lines and identified critical
operations; (C) incorporate such mapping
into legal entity rationalization criteria and
implementation efforts; and (D) mitigate
identified continuity risks through
establishment of service-level agreements
(SLAs) for all shared services that support
identified critical operations or core business
lines.
SLAs should fully describe the services
provided, reflect pricing considerations on an
arm’s-length basis where appropriate, and
incorporate appropriate terms and conditions
to (A) prevent automatic termination upon
certain resolution-related events and (B)
achieve continued provision of such services
during resolution.30 The firm should also
store SLAs in a central repository or
repositories located in or immediately
accessible from the U.S. at all times,
including in resolution (and subject to
enforceable access arrangements) in a
searchable format. In addition, the firm
should ensure the financial resilience of
internal shared service providers by
maintaining working capital for six months
(or through the period of stabilization as
required in the firm’s U.S. resolution
strategy) in such entities sufficient to cover
contract costs, consistent with the U.S.
30 The firm should consider whether these SLAs
should be governed by the laws of a U.S. state and
expressly subject to the jurisdiction of a court in the
U.S.
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resolution strategy. The firm should
demonstrate that such working capital is held
in a manner that ensures its availability for
its intended purpose.
The firm should identify all critical service
providers and outsourced services that
support identified critical operations or core
business lines and identify any that could not
be promptly substituted. The firm should (A)
evaluate the agreements governing these
services to determine whether there are any
that could be terminated upon
commencement of any resolution despite
continued performance, and (B) update
contracts to incorporate appropriate terms
and conditions to prevent automatic
termination upon commencement of any
resolution proceeding and facilitate
continued provision of such services. Relying
on entities projected to survive during
resolution to avoid contract termination is
insufficient to ensure continuity. In the Plan,
the firm should document the amendment of
any such agreements governing these
services.
Qualified Financial Contracts. The Plan
should reflect the current state of how the
early termination of qualified financial
contracts could impact the resolution of the
firm’s operations, including potential
termination of any contracts that are not
subject to contractual or regulatory stays of
cross-default rights. Specifically, the Plan is
expected to reflect the firm’s progress
regarding contractual stays in qualified
financial contracts as of the date the firm
submits its Plan or as of a specified earlier
date. A firm that has adhered to the
International Swaps and Derivatives
Association’s (ISDA) 2018 U.S. Resolution
Stay Protocol or its antecedent, ISDA’s 2015
Universal Resolution Stay Protocol (together,
the Protocols) should discuss the extent of
the firm’s adherence to the Protocols in its
Plan (and may also discuss the impact on
U.S. operations of the firm’s adherence to
ISDA’s 2016 Jurisdictional Modular Protocol
on its non-U.S. operations). A Plan should
also explain the firm’s processes for entering
bilateral contracts with third-party entities
that do not adhere to the Protocols and
provide examples of the contractual language
that is used under those circumstances.
U.S. MPOE
Payment, Clearing, and Settlement (PCS)
Capabilities. Firms are expected to have and
describe capabilities to understand, for each
U.S. material entity, its obligations and
exposures associated with PCS activities,
including contractual obligations and
commitments. For example, firms should be
able to:
• As users of PCS services:
Æ Track the following items by: (i) U.S.
material entity; and (ii) with respect to
customers, counterparties, and agents and
service providers, location and jurisdiction:
D PCS activities, with each activity
mapped to the relevant material entities,
identified critical operations, and core
business lines;
D Customers and counterparties for PCS
activities, including values and volumes of
various transaction types, as well as used and
unused capacity for all lines of credit;
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D Exposures to and volumes transacted
with FMUs, nostro agents, and custodians;
and
D Services provided and service level
agreements, as applicable, for other current
agents and service providers (internal and
external).
Æ Assess the potential effects of adverse
actions by FMUs, nostro agents, custodians,
and other agents and service providers,
including suspension or termination of
membership or services, on the firm’s U.S.
operations and customers and counterparties
of those U.S. operations;
Æ Develop contingency arrangements in
the event of such adverse actions; and
Æ Quantify the liquidity needs and
operational capacity required to meet all PCS
obligations, including intraday requirements.
• As providers of PCS services:
Æ Identify their PCS clients of their U.S
operations and the services they provide to
these clients, including volumes and values
of transactions;
Æ Quantify and explain time-sensitive
payments; and
Æ Quantify and explain intraday credit
provided.
Managing, Identifying and Valuing
Collateral. The firm should have appropriate
capabilities related to managing, identifying,
and valuing the collateral that the U.S. nonbranch material entities receive from and
posts to external parties and its affiliates,
including tracking collateral received,
pledged, and available at the CUSIP level and
measuring exposures.
Management Information Systems. The
firm should have the management
information systems (MIS) capabilities to
readily produce data on a U.S. legal entity
basis (including any U.S. branch) and have
controls to ensure data integrity and
reliability. The firm also should perform a
detailed analysis of the specific types of
financial and risk data that would be
required to execute the U.S. resolution
strategy. The firm should have the
capabilities to produce the following types of
information, as appropriate for its U.S.
resolution strategy, in a timely manner and
describe these capabilities in the Plan:
• Financial statements for each material
entity (at least monthly);
• External and inter-affiliate credit
exposures, both on- and off-balance sheet, by
type of exposure, counterparty, maturity, and
gross payable and receivable;
• Gross and net risk positions with
internal and external counterparties;
• Guarantees, cross holdings, financial
commitments and other transactions between
material entities;
• Data to facilitate third-party valuation of
assets and businesses, including risk metrics;
• Key third-party contracts, including the
provider, provider’s location, service(s)
provided, legal entities that are a party to or
a beneficiary of the contract, and key
contractual rights (for example, termination
and change in control clauses);
• Legal agreement information, including
parties to the agreement and key terms and
interdependencies (for example, change in
control, collateralization, governing law,
termination events, guarantees, and crossdefault provisions);
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• Service level agreements between
affiliates, including the service(s) provided,
the legal entity providing the service, legal
entities receiving the service, and any
termination/transferability provisions;
• Licenses and memberships to all
exchanges and value transfer networks,
including FMUs;
• Key management and support personnel,
including dual-hatted employees, and any
associated retention agreements;
• Agreements and other legal documents
related to property, including facilities,
technology systems, software, and
intellectual property rights. The information
should include ownership, physical location,
where the property is managed and names of
legal entities and lines of business that the
property supports; and
• Updated legal records for domestic and
foreign entities, including entity type and
purpose (for example, holding company,
bank, broker dealer, and service entity),
jurisdiction(s), ownership, and regulator(s).
Shared and Outsourced Services. The firm
should maintain robust arrangements to
support the continuity of shared and
outsourced services that support any
identified critical operations or are material
to the execution of the U.S. resolution
strategy, including appropriate plans to
retain key personnel relevant to the
execution of the firm’s strategy. For example,
specified firms should evaluate internal and
external dependencies and develop
documented strategies and contingency
arrangements for the continuity or
replacement of the shared and outsourced
services that are necessary to maintain
identified critical operations or are material
to the execution of the U.S. resolution
strategy. Examples may include personnel,
facilities, systems, data warehouses, and
intellectual property. Specified firms also
should maintain current cost estimates for
implementing such strategies and
contingency arrangements. If a material
entity provides shared services that support
identified critical operations,31 or are
material to the execution of the U.S.
resolution strategy, and the continuity of
these shared services relies on the assumed
cooperation, forbearance, or other nonintervention of regulator(s) in any
jurisdiction, the Plan should discuss the
extent to which the resolution or insolvency
of any other group entities operating in that
same jurisdiction may adversely affect the
assumed cooperation, forbearance, or other
regulatory non-intervention. If a material
entity providing shared services that support
identified critical operations, or are material
to the execution of the U.S. resolution
strategy, is located outside of the United
States, the Plan should discuss how the firm
will ensure the operational continuity of
such shared services through resolution.
The firm should (A) maintain an
identification of all shared services that
support identified critical operations or are
material to the execution of the U.S.
resolution strategy, and (B) mitigate
identified continuity risks through
31 This should be interpreted to include data
access and intellectual property rights.
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establishment of SLAs for all shared services
supporting identified critical operations or
are material to the execution of the U.S.
resolution strategy. SLAs should fully
describe the services provided and
incorporate appropriate terms and conditions
to: (A) prevent automatic termination upon
certain resolution-related events; and (B)
achieve continued provision of such services
during resolution.32
The firm should identify all critical service
providers and outsourced services that
support identified critical operations or are
material to the execution of the U.S.
resolution strategy. Any of these services that
cannot be promptly substituted should be
identified in a firm’s Plan. The firm should:
(A) evaluate the agreements governing these
services to determine whether there are any
that could be terminated upon
commencement of any resolution despite
continued performance; and (B) update
contracts to incorporate appropriate terms
and conditions to prevent automatic
termination upon commencement of any
resolution proceeding and facilitate
continued provision of such services. Relying
on entities projected to survive during
resolution to avoid contract termination is
insufficient to ensure continuity. In the Plan,
the firm should document the amendment of
any such agreements governing these
services.
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VII. Branches
U.S. SPOE & U.S. MPOE
Continuity of Operations. If the Plan
assumes that federal or state regulators, as
applicable, do not take possession of any U.S.
branch that is a material entity, the Plan
should support that assumption.
For any U.S. branch that is a material
entity, the Plan should describe and
demonstrate how the branch would continue
to facilitate FMU access for identified critical
operations and meet funding needs. For such
a U.S. branch, the Plan should describe how
it would meet supervisory requirements
imposed by state regulators or the
appropriate Federal banking agency, as
appropriate, including maintaining a net due
to position and complying with heightened
asset maintenance requirements.33 In
addition, the Plan should describe how such
a U.S. branch’s third-party creditors would
be protected such that the state regulator or
appropriate Federal banking agency would
allow the branch to continue operations.
Impact of the Cessation of Operations. The
Plan should provide an analysis of the
impact of the cessation of operations of any
U.S. branch that is a material entity on the
firm’s FMU access and identified critical
operations, even if such scenario is not
contemplated as part of the U.S. resolution
strategy. The analysis should include a
description of how identified critical
operations could be transferred to a U.S. IHC
32 The firm should consider whether these SLAs
should be governed by the laws of a U.S. state and
expressly subject to the jurisdiction of a court in the
United States.
33 Firms should take into consideration historical
practice, by applicable regulators, regarding asset
maintenance requirements imposed during stress.
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subsidiary or sold in resolution, the obstacles
presented by the cessation of shared services
that support identified critical operations
provided by any U.S. branch that is a
material entity, and mitigants that could
address such obstacles in a timely manner.
VIII. Legal Entity Rationalization &
Separability
Legal Entity Rationalization
U.S. SPOE
Legal Entity Rationalization Criteria (LER
Criteria). A firm should develop and
implement legal entity rationalization criteria
that support the firm’s U.S. resolution
strategy and minimize risk to U.S. financial
stability in the event of resolution. LER
Criteria should consider the best alignment of
legal entities and business lines to improve
the resolvability of U.S. operations under
different market conditions. LER Criteria
should govern the corporate structure and
arrangements between the U.S. subsidiaries
and U.S. branches in a way that facilitates
resolvability of the firm’s U.S. operations as
the firm’s U.S. activities, technology,
business models, or geographic footprint
change over time.
Specifically, application of the criteria
should:
(A) Ensure that the allocation of activities
across the firm’s U.S. branches and U.S. nonbranch material entities support the firm’s
U.S. resolution strategy and minimize risk to
U.S. financial stability in the event of
resolution;
(B) Facilitate the recapitalization and
liquidity support of U.S. IHC subsidiaries, as
required by the firm’s U.S. resolution
strategy. Such criteria should include clean
lines of ownership and clean funding
pathways between the foreign parent, the
U.S. IHC, and U.S. IHC subsidiaries;
(C) Facilitate the sale, transfer, or winddown of certain discrete operations within a
timeframe that would meaningfully increase
the likelihood of an orderly resolution in the
United States, including provisions for the
continuity of associated services and
mitigation of financial, operational, and legal
challenges to separation and disposition;
(D) Adequately protect U.S. subsidiary
insured depository institutions from risks
arising from the activities of any nonbank
U.S. subsidiaries (other than those that are
subsidiaries of an insured depository
institution); and
(E) Minimize complexity that could
impede an orderly resolution in the United
States and minimize redundant and dormant
entities.
These criteria should be built into the
firm’s ongoing process for creating,
maintaining, and optimizing the firm’s U.S.
structure and operations on a continuous
basis.
U.S. MPOE
Legal Entity Structure. A firm should
maintain a legal entity structure that supports
the firm’s U.S. resolution strategy and
minimizes risk to U.S. financial stability in
the event of the resolution of the firm’s U.S.
operations. The firm should consider factors
such as business activities; banking group
structures and booking models and practices;
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and potential sales, transfers, or wind-downs
during resolution. The Plan should describe
how the firm’s U.S. legal entity structure
aligns core business lines and any identified
critical operations with the firm’s material
entities to support the firm’s U.S. resolution
strategy. To the extent a material entity IDI
relies upon an affiliate that is not the IDI’s
subsidiary during resolution of its U.S.
entities, including for the provision of shared
services, the firm should discuss its rationale
for the legal entity structure and associated
resolution risks and potential mitigants.
The firm’s corporate structure and
arrangements among U.S. legal entities
should be considered and maintained in a
way that facilitates the firm’s resolvability as
its activities, technology, business models, or
geographic footprint change over time.
Separability
U.S. SPOE
Separability. The firm should identify
discrete U.S. operations that could be sold or
transferred in resolution, with the objective
of providing optionality in resolution under
different market conditions.
A firm’s separability options should be
actionable, and impediments to their
projected mitigation strategies should be
identified in advance. Firms should consider
potential consequences for U.S. financial
stability of executing each option, taking into
consideration impacts on counterparties,
creditors, clients, depositors, and markets for
specific assets. The level of detail and
analysis should vary based on a firm’s risk
profile and scope of operations. Additionally,
information systems should be robust enough
to produce the required data and information
needed to execute separability options.
Further, the firm should have, and be able
to demonstrate, the capability to populate in
a timely manner a data room with
information pertinent to a potential
divestiture of the identified separability
options (including, but not limited to, carveout financial statements, valuation analysis,
and a legal risk assessment). Within the Plan,
the firm should demonstrate how the firm’s
LER Criteria and implementation efforts
support meeting the separability-related
guidance above. The Plan should also
provide the separability analysis noted
above. Finally, the Plan should include a
description of the firm’s legal entity
rationalization governance process.
U.S. MPOE
A Plan should include options for the sale,
transfer, or disposal of U.S. significant assets,
portfolios, legal entities, or business lines in
resolution that may be executed in a
reasonable period of time. For each option,
supporting analysis should include: an
execution plan that includes an estimated
time frame for implementation, a description
of any impediments to execution of the
option, and mitigation strategies to address
those impediments; a description of the
assumptions underpinning the option; a
financial impact assessment that describes
the impact of executing the option; and an
identified critical operation impact
assessment that describes how execution of
the option may affect the provision of any
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identified critical operation. Information
systems should be robust enough to produce
the required data and information needed to
execute the options.
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IX. Insured Depository Institution (IDI)
Resolution
MPOE
If the Plan includes a strategy that
contemplates the separate resolution of a U.S.
IDI that is a material entity, the Plan should
demonstrate how this could be achieved in
a manner that is consistent with the overall
objective of the Plan to substantially mitigate
the risk that the failure of the specified firm
would have serious adverse effects on
financial stability in the United States while
also complying with the statutory and
regulatory requirements governing IDI
resolution. More specifically,
• If the strategy is other than payout
liquidation (e.g., a bridge depository
institution (BDI)), the Plan should provide
information supporting the feasibility of this
strategy. Under the FDI Act, the FDIC
generally would complete a least-cost
analysis when resolving a failed bank at the
time of entry into resolution. A Plan may use
an approach such as one of the following in
lieu of performing a complete least-cost
analysis to demonstrate the feasibility of the
proposed strategy.34
Æ A Plan may demonstrate that a strategy
involving an all-deposit BDI would be
permissible under the least-cost test of the
FDI Act by presenting an analysis which
shows that the strategy results in no loss to
the Deposit Insurance Fund (DIF) by
demonstrating that the incremental estimated
cost to the DIF by having the BDI assume all
uninsured deposits is offset by the
preservation of franchise value connected to
the uninsured deposits after accounting for
the amount of any loss-absorbing debt
instruments and other liabilities subordinate
to the depositor class that would be left
behind in the receivership.
Æ A Plan may demonstrate the feasibility
of a strategy involving a BDI that assumes all
insured deposits and a portion of uninsured
deposits by providing an advance dividend
to uninsured depositors for a portion of their
deposit claim, as well as the basis for that
dividend, and pursuant to which a loss to the
DIF occurs, by presenting an analysis
comparing the cost of the proposed strategy
to the cost of payout liquidation and
demonstrating:
D The incremental estimated cost to the
DIF created by the BDI’s assumption of the
portion of uninsured deposits assumed is
offset by the franchise value preserved by
maintaining the assumed uninsured deposits,
after accounting for the amount of any longterm debt and other liabilities subordinate to
the depositor class that would be left behind
in the receivership; 35
D The loss to the DIF under the proposed
strategy (including the amounts paid by the
DIF for more favorable treatment, relative to
a payout liquidation, of a portion of
uninsured deposits) is less than or equal to
34 See 12 U.S.C. 1823(c)(4)(A)(ii) and 12 U.S.C.
1821(n)(2)(A).
35 See 12 U.S.C. 1821(d)(11).
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the loss to the DIF that would be incurred
through a payout liquidation of the IDI; and
Æ The deposit payout process for any
uninsured deposits that remain in the
receivership may be executed in a manner
that substantially mitigates the risk of serious
adverse effects on U.S. financial stability.
• If the Plan’s strategy envisions a payout
liquidation for the IDI, with or without use
of a Deposit Insurance National Bank or a
paying agent, the Plan should demonstrate
how the deposit payout and asset liquidation
process would be executed in a manner that
substantially mitigates the risk of serious
adverse effects on U.S. financial stability.
• In all cases, the Plan should show that
implementation of the resolution, including
the impact on depositors whose accounts are
not transferred in whole or in part to the BDI,
would not create the risk of serious adverse
effects on U.S. financial stability.
Regardless of the IDI resolution strategy
chosen, the Plan should assume asset
valuations consistent with the severely
adverse stress economic scenario and the
IDI’s condition as a failed institution, as
referenced in ‘‘Guidance regarding
Assumptions,’’ Items 4 and 7 below. The
Plan, in light of such conditions, should
explain the process for determining asset or
business franchise values, including
providing detailed supporting descriptions
such as references to historical pricing,
benchmarks, or recognized models; evidence
supporting client attrition rates; and other
relevant information.
With respect to exit from IDI resolution
proceedings, a Plan could support the
feasibility of an asset liquidation or BDI exit
strategy by, for example, describing an
actionable process, based on historical
precedent or otherwise supportable
projections, that winds down certain
businesses, includes the sale of assets and
deposits to multiple acquirers, or culminates
in a capital markets transaction, such as an
initial public offering or a private placement
of securities.
X. Format and Structure of Plans;
Assumptions
U.S. SPOE & U.S. MPOE
Format of Plan
Executive Summary. The Plan should
contain an executive summary consistent
with the Rule, which must include, among
other things, a concise description of the key
elements of the firm’s strategy for an orderly
resolution. In addition, the executive
summary should include a discussion of the
firm’s assessment of any impediments to the
firm’s U.S. resolution strategy and its
execution, as well as the steps it has taken
to address any identified impediments.
Narrative. The Plan should include a
strategic analysis consistent with the Rule.
This analysis should take the form of a
concise narrative that enhances the
readability and understanding of the firm’s
discussion of its strategy for an orderly
resolution in bankruptcy or other applicable
insolvency regimes (Narrative).
Appendices. The Plan should contain a
sufficient level of detail and analysis to
substantiate and support the strategy
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64657
described in the Narrative. Such detail and
analysis should be included in appendices
that are distinct from and clearly referenced
in the related parts of the Narrative
(Appendices).
Public Section. The Plan must be divided
into a public section and a confidential
section consistent with the requirements of
the Rule.
Other Informational Requirements. The
Plan must comply with all other
informational requirements of the Rule. The
firm may incorporate by reference previously
submitted information as provided in the
Rule.
Guidance Regarding Assumptions.
1. The Plan should be based on the current
state of the applicable legal and policy
frameworks. Pending legislation or regulatory
actions may be discussed as additional
considerations.
2. The firm must submit a Plan that does
not rely on the provision of extraordinary
support by the United States or any other
government to the firm or its subsidiaries to
prevent the failure of the firm.36 The firm
should not submit a Plan that assumes the
use of the systemic risk exception to the
least-cost test in the event of a failure of an
IDI requiring resolution under the FDI Act.
3. The firm should not assume that it will
be able to sell identified critical operations or
core business lines, or that unsecured
funding will be available immediately prior
to filing for bankruptcy.
4. The U.S. resolution strategy may be
based on an idiosyncratic event or action,
including a series of compounding events.
The firm should justify use of that
assumption, consistent with the conditions of
the economic scenario.
5. Within the context of the applicable
idiosyncratic scenario, markets are
functioning and competitors are in a position
to take on business. If a firm’s Plan assumes
the sale of assets, the firm should take into
account all issues surrounding its ability to
sell in market conditions present in the
applicable economic condition at the time of
sale (i.e., the firm should take into
consideration the size and scale of its
operations as well as issues of separation and
transfer).
6. For a firm that adopts a U.S. MPOE
strategy, the Plan should demonstrate and
describe how the failure event(s) results in
material financial distress of the U.S.
operations.37 In particular, the Plan should
consider the likelihood that there would be
a diminution of the firm’s liquidity buffer in
the stress period prior to filing for
bankruptcy from high unexpected outflows
of deposits and increased liquidity
requirements from counterparties. Though
the immediate failure event may be liquidityrelated and associated with a lack of market
confidence in the financial condition of the
covered company or its material legal entity
subsidiaries prior to the final recognition of
losses, the demonstration and description of
36 12 CFR 243.4(a)(4)(ii) and 12 CFR
381.4(a)(4)(ii).
37 See Section 11(c)(5) of the FDI Act, codified at
11 U.S.C. 1821(c)(5), which details grounds for
appointing the FDIC as conservator or receiver of
an IDI.
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material financial distress may also include
depletion of capital. Therefore, the Plan
should also consider the likelihood of the
depletion of capital.
7. The firm should not assume any waivers
of section 23A or 23B of the Federal Reserve
Act in connection with the actions proposed
to be taken prior to or in resolution.
8. The Plan should support any
assumptions that the firm will have access to
the Discount Window and/or other
borrowings during the period immediately
prior to entering bankruptcy. To the extent
the firm assumes use of the Discount
Window and/or other borrowings, the Plan
should support that assumption with a
discussion of the operational testing
conducted to facilitate access in a stress
environment, placement of collateral and the
amount of funding accessible to the firm. The
firm may assume that its depository
institutions will have access to the Discount
Window only for a few days after the point
of failure to facilitate orderly resolution.
However, the firm should not assume its
subsidiary depository institutions will have
access to the Discount Window while
critically undercapitalized, in FDIC
receivership, or operating as a bridge bank,
nor should it assume any lending from a
Federal Reserve credit facility to a non-bank
affiliate.
Financial Statements and Projections. The
Plan should include the actual balance sheet
for each material entity and the consolidating
balance sheet adjustments between material
entities as well as pro forma balance sheets
for each material entity at the point of failure
and at key junctures in the execution of the
U.S. resolution strategy. It should also
include statements of projected sources and
uses of funds for the interim periods. The pro
forma financial statements and
accompanying notes in the Plan must clearly
evidence the failure trigger event; the Plan’s
assumptions; and any transactions that are
critical to the execution of the Plan’s
preferred strategy, such as recapitalizations,
the creation of new legal entities, transfers of
assets, and asset sales and unwinds.
Material Entities. Material entities should
encompass those entities, including foreign
offices and branches, which are significant to
the maintenance of an identified critical
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operation or core business line. If the abrupt
disruption or cessation of a core business line
might have systemic consequences to U.S.
financial stability, the entities essential to the
continuation of such core business line
should be considered for material entity
designation. Material entities should include
the following types of entities:
1. Any U.S.-based or non-U.S. affiliates,
including any branches, that are significant
to the activities of an identified critical
operation conducted in whole or material
part in the United States.
2. Subsidiaries or foreign offices whose
provision or support of global treasury
operations, funding, or liquidity activities
(inclusive of intercompany transactions) is
significant to the activities of an identified
critical operation.
3. Subsidiaries or foreign offices that
provide material operational support in
resolution (key personnel, information
technology, data centers, real estate or other
shared services) to the activities of an
identified critical operation.
4. Subsidiaries or foreign offices that are
engaged in derivatives booking activity that
is significant to the activities of an identified
critical operation, including those that
conduct either the internal hedge side or the
client-facing side of a transaction.
5. Subsidiaries or foreign offices engaged in
asset custody or asset management that are
significant to the activities of an identified
critical operation.
6. Subsidiaries or foreign offices holding
licenses or memberships in clearinghouses,
exchanges, or other FMUs that are significant
to the activities of an identified critical
operation.
7. For each material entity (including a
branch), the Plan should enumerate, on a
jurisdiction-by-jurisdiction basis, the specific
mandatory and discretionary actions or
forbearances that regulatory and resolution
authorities would take during resolution,
including any regulatory filings and
notifications that would be required as part
of the preferred strategy, and explain how the
Plan addresses the actions and forbearances.
Describe the consequences for the covered
company’s U.S. resolution strategy if specific
actions in a non-U.S. jurisdiction were not
taken, delayed, or forgone, as relevant.
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XI. Public Section
U.S. SPOE & U.S. MPOE
The purpose of the public section is to
inform the public’s understanding of the
firm’s U.S. resolution strategy and how it
works.
The public section should discuss the steps
that the firm is taking to improve
resolvability under the U.S. Bankruptcy
Code. The public section should provide
background information on each material
entity and should be enhanced by including
the firm’s rationale for designating material
entities. The public section should also
discuss, at a high level, the firm’s intra-group
financial and operational interconnectedness
(including the types of guarantees or support
obligations in place that could impact the
execution of the firm’s strategy).
The discussion of strategy in the public
section should broadly explain how the firm
has addressed any deficiencies,
shortcomings, and other key vulnerabilities
that the agencies have identified in prior plan
submissions. For each material entity, it
should be clear how the strategy provides for
continuity, transfer, or orderly wind-down of
the entity and its operations. There should
also be a description of the resulting
organization upon completion of the
resolution process.
The public section may note that the Plan
is not binding on a bankruptcy court or other
resolution authority and that the proposed
failure scenario and associated assumptions
are hypothetical and do not necessarily
reflect an event or events to which the firm
is or may become subject.
By order of the Board of Governors of the
Federal Reserve System.
Ann E. Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on August 29,
2023.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2023–19268 Filed 9–18–23; 8:45 am]
BILLING CODE 6210–01–6714–01–P
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]]>Agencies
[Federal Register Volume 88, Number 180 (Tuesday, September 19, 2023)]
[Notices]
[Pages 64641-64658]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-19268]
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FEDERAL RESERVE SYSTEM
[Docket No. OP-1817]
FEDERAL DEPOSIT INSURANCE CORPORATION
RIN 3064-ZA38
Guidance for Resolution Plan Submissions of Foreign Triennial
Full Filers
AGENCY: Board of Governors of the Federal Reserve System (Board) and
Federal Deposit Insurance Corporation (FDIC).
ACTION: Proposed guidance; request for comments.
-----------------------------------------------------------------------
SUMMARY: The Board and the FDIC (together, the agencies) are inviting
comments on proposed guidance for the 2024 and subsequent resolution
plan submissions by certain foreign banking organizations. The proposed
guidance is meant to assist these firms in developing their resolution
plans, which are required to be submitted pursuant to the Dodd-Frank
Wall Street Reform and Consumer Protection Act, as amended (the Dodd-
Frank Act), and the jointly issued implementing regulation (the Rule).
The scope of application of the proposed guidance would be foreign-
based triennial full filers (specified firms or firms), which are
foreign-based Category II and III banking organizations, and the
guidance, if finalized, would supersede the joint Guidance for
Resolution Plan Submissions of Certain Foreign-Based Covered Companies
(85 FR 83557 (Dec. 22, 2020) (2020 FBO Guidance)). The proposed
guidance is based on the agencies' review of the specified firms' 2021
and prior resolution plan submissions, as well as the agencies'
experiences dealing with stress events in the international and
domestic banking systems, and would describe the agencies' expectations
regarding several aspects of the specified firms' plans for an orderly
resolution under the U.S. Bankruptcy Code. The agencies invite public
comment on all aspects of the proposed guidance.
DATES: Comments must be received by November 30, 2023.
ADDRESSES: Interested parties are encouraged to submit written comments
jointly to both agencies. Comments should be directed to:
Board: You may submit comments, identified by Docket No. OP-1817,
by any of the following methods:
Agency Website: https://www.federalreserve.gov. Follow the
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Email: [email protected]. Include docket
number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Ann E. Misback, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
In general, all public comments will be made available on the
Board's website at www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, and will not be modified to remove
confidential, contact or any identifiable information. Public comments
may also be viewed electronically or in paper in Room M-4365A, 2001 C
St. NW, Washington, DC 20551, between 9:00 a.m. and 5:00 p.m. during
federal business weekdays.
FDIC: You may submit comments, identified by RIN 3064-ZA38, by any
of the following methods:
FDIC Website: https://www.fdic.gov/resources/regulations/federal-register-publications/. Follow the instructions for submitting
comments on the FDIC's website.
Email: [email protected]. Include ``RIN 3064-ZA38'' on the
subject line of the message.
Mail: James P. Sheesley, Assistant Executive Secretary,
Attention: Comments--RIN 3064-ZA38, Federal Deposit Insurance
Corporation, 550 17th Street NW, Washington, DC 20429.
Hand Delivery/Courier: Comments may be hand delivered to
the guard station at the rear of the 550 17th Street NW building
(located on F Street NW) on business days between 7 a.m. and 5 p.m.
Public Inspection: Comments received, including any personal
information provided, may be posted without change to https://www.fdic.gov/resources/regulations/federal-register-publications/.
Commenters should submit only information that the commenter wishes to
make available publicly. The FDIC may review, redact, or refrain from
posting all or any portion of any comment that it may deem to be
inappropriate for publication, such as irrelevant or obscene material.
The FDIC may post only a single representative example of identical or
substantially identical comments, and in such cases will generally
identify the number of identical or substantially identical comments
represented by the posted example. All comments that have been
redacted, as well as those that have not been posted, that contain
comments on the merits of this document will be retained in the public
comment file and will be considered as required under all applicable
laws. All comments may be accessible under the Freedom of Information
Act.
FOR FURTHER INFORMATION CONTACT:
Board: Catherine Tilford, Deputy Associate Director, (202) 452-
5240, Elizabeth MacDonald, Assistant Director, (202) 475-6316, Tudor
Rus, Lead Financial Institution Analyst, (202) 475-6359, Division of
Supervision and Regulation; or Jay Schwarz, Assistant General Counsel,
(202) 452-2970; Andrew Hartlage, Special Counsel, (202) 452-6483; Sarah
Podrygula, Senior Attorney, (202) 912-4658; or Brian
[[Page 64642]]
Kesten, Senior Attorney, (202) 843-4079, Legal Division, Board of
Governors of the Federal Reserve System, 20th Street and Constitution
Avenue NW, Washington, DC 20551. For users of TTY-TRS, please call 711
from any telephone, anywhere in the United States.
FDIC: Robert C. Connors, Senior Advisor, (202) 898-3834, Division
of Complex Financial Institution Supervision and Resolution; Celia Van
Gorder, Senior Counsel, (202) 898-6749; Esther Rabin, Counsel, (202)
898-6860, [email protected], Legal Division.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. Overview of the Proposed Guidance
III. Paperwork Reduction Act
Appendix: Text of the Proposed Guidance
I. Background
A. The Dodd-Frank Act and the Rule
Section 165(d) of the Dodd-Frank Act \1\ and the Rule \2\ require
certain financial institutions to report periodically to the Board and
the FDIC their plans for rapid and orderly resolution under the U.S.
Bankruptcy Code (the Bankruptcy Code) in the event of material
financial distress or failure. The Rule divides covered companies into
three groups of filers: (a) biennial filers; (b) triennial full filers;
and (c) triennial reduced filers.\3\
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\1\ 12 U.S.C. 5365(d).
\2\ 12 CFR parts 243 and 381.
\3\ 12 CFR 243.4 and 12 CFR 381.4. The terms ``covered company''
and ``triennial full filer'' have the meanings given in the Rule, as
do other, similar terms used throughout this proposal.
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Triennial full filers under the Rule are required to file a
resolution plan every three years, alternating between full and
targeted resolution plans.\4\ The Rule requires each covered company's
full resolution plan to include, among other things, a strategic
analysis of the plan's components, a description of the range of
specific actions the covered company proposes to take in resolution,
and a description of the covered company's organizational structure,
material entities, and interconnections and interdependencies.\5\
Targeted resolution plans are required to include a subset of
information contained in a full plan.\6\ In addition, the Rule requires
that all resolution plans consist of two parts: a confidential section
that contains any confidential supervisory and proprietary information
submitted to the agencies and a section that the agencies make
available to the public.\7\ Public sections of resolution plans can be
found on the agencies' websites.\8\
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\4\ 12 CFR 243.4(b) and 12 CFR 381.4(b).
\5\ 12 CFR 243.5 and 12 CFR 381.5.
\6\ 12 CFR 243.6(b) and 12 CFR 381.6(b).
\7\ 12 CFR 243.11(c) and 12 CFR 381.11(c).
\8\ The public sections of resolution plans submitted to the
agencies are available at www.federalreserve.gov/supervisionreg/resolution-plans.htm and www.fdic.gov/regulations/reform/resplans/.
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B. Recent Developments
Implementation of the Rule has been an iterative process aimed at
strengthening the resolution planning capabilities of financial
institutions subject to the Rule. To assist the development of covered
companies' resolution planning capabilities and plan submissions, the
agencies have provided feedback on individual plan submissions,
promulgated guidance to certain groups of covered companies, and issued
answers to frequently asked questions. The agencies believe that
guidance can help focus the efforts of similarly situated covered
companies to improve their resolution capabilities and clarify the
agencies' expectations for those filers' future progress. The agencies
have issued guidance to (a) U.S. global systemically important banks
(GSIBs),\9\ which constitute the biennial filer group, and (b) certain
large foreign banking organizations (FBOs) that are triennial full
filers.\10\ The agencies have not, however, issued guidance to the
domestic firms and additional FBOs that make up the remainder of the
triennial full filers.
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\9\ Guidance for Sec. 165(d) Resolution Plan Submissions by
Domestic Covered Companies applicable to the Eight Largest, Complex
U.S. Banking Organizations, 84 FR 1438 (Feb. 4, 2019) (2019 GSIB
Guidance).
\10\ Guidance for Resolution Plan Submissions of Certain
Foreign-Based Covered Companies, 85 FR 83557 (Dec. 22, 2020) (2020
FBO Guidance).
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As the agencies previously indicated,\11\ they believe that it is
now appropriate to issue guidance to the specified firms. The agencies'
review of the 2021 targeted resolution plans submitted by foreign-based
triennial full filers not already subject to resolution planning
guidance revealed significant inconsistencies in the amount and nature
of information they provided on critical informational elements
required by the Rule. In addition, some resolution plans included
optimistic assumptions regarding the availability of financial
resources at the firm at the time of a bankruptcy filing as well as the
ability of a firm to access financial assistance prior to and during
resolution. The agencies believe that future resolution plans from
these firms would benefit from guidance regarding critical
informational elements required by the Rule as well as appropriate
assumptions. In addition, the agencies' review of 2021 targeted
resolution plans submitted by foreign-based triennial full filers
subject to the 2020 FBO Guidance revealed opportunities for
improvements to the reliability and timeliness of the generation and
provision of financial information as well as liquidity- and capital-
related resolution capabilities necessary to successfully executing
these firms' U.S. resolution strategies. Resolution plans from the
specified firms also generally lacked detail and clarity on how the
firm's strategy and capabilities for a resolution under the Rule would
be complementary to its home country global resolution strategy.
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\11\ https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220930a.htm.
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The proposed guidance also reflects the agencies' recent experience
with UBS Group AG's acquisition of Credit Suisse Group AG (CS) and,
with respect to specified firms with large subsidiary insured
depository institutions (IDIs), the resolutions of Silicon Valley Bank
(SVB), Signature Bank (SB), and First Republic Bank (First Republic).
The agencies' experience with CS illustrates the complexities that can
arise in the case of acute stress involving large cross-border firms
and the importance of resolution planning and coordination with home
country authorities. Like CS, many of the specified firms are foreign
GSIBs with a large presence in the United States, and the agencies
recognize the importance of maintaining a comprehensive understanding
of the U.S. operations of large FBOs. While SVB, SB, and First Republic
were not required to file resolution plans under section 165(d) of the
Dodd-Frank Act and the Rule, the effects of their failures illustrate
that the failure of a large IDI may have serious adverse effects on
financial stability in the United States.\12\ The agencies' experience
with these three banking organizations is particularly instructive in
developing guidance to foreign-based triennial full filers that present
a U.S. multiple point of entry (U.S. MPOE) resolution strategy and that
have large subsidiary IDIs, to assist their progress in developing
their resolution plans that comply with the
[[Page 64643]]
statutory and regulatory requirements governing IDI resolution.
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\12\ For example, the FDIC--upon the recommendation of two-
thirds of each of the board of directors of the FDIC and the Board,
as well as a determination by the Secretary of the Treasury, in
consultation with the President--resolved SVB and SB using the
systemic risk exception to the statutory requirement to employ the
least-costly method to resolve a failed IDI. https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.htm; https://www.fdic.gov/news/press-releases/2023/pr23017.html.
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C. Resolution Plan Strategy
The specified firms have adopted one of two U.S. resolution
strategies: a U.S. single point of entry (U.S. SPOE) or U.S. MPOE
strategy. Under a U.S. SPOE approach, only the top-tier U.S. material
entity holding company enters bankruptcy and all U.S. material entity
subsidiaries remain operating as a going concern. The U.S. MPOE
approach entails multiple U.S. material entities entering separate
resolution proceedings: any top-tier U.S. material entity holding
company enters bankruptcy; any U.S. material entity IDI subsidiary is
resolved separately under the Federal Deposit Insurance Act of 1950, as
amended (the FDI Act); and other individual U.S. material entity
subsidiaries separately enter bankruptcy (or another applicable
resolution regime) or are wound down. The U.S. SPOE and U.S. MPOE
resolution plan strategies require firms to consider different risks
and require different types of planning and development of capabilities
for the execution of the respective strategies. For their 2021
resolution plan submissions, some of the specified firms presented a
U.S. SPOE strategy, but most of the specified firms presented a U.S.
MPOE strategy.
The agencies do not prescribe a specific resolution strategy for
any covered company, nor do the agencies identify a preferred strategy.
The proposed guidance is not intended to favor one strategy or another.
Specified filers may continue to submit resolution plans using the
resolution strategies they believe would be most effective in achieving
an orderly resolution of their firms, but a resolution plan must
address the key vulnerabilities and support the underlying assumptions
required to successfully execute the chosen resolution strategy.
With respect to the specified firms, the Rule requires the firm's
U.S. resolution plan to address subsidiaries, branches, and agencies,
and identified critical operations and core business lines, as
applicable, that are domiciled in the United States or conducted in
whole or material part in the United States.\13\ To date, the
resolution plans of specified filers that have presented a U.S. SPOE
strategy have presumed entry of the top tier U.S. intermediate holding
company (IHC) into bankruptcy, while its material entity subsidiaries
remain open and operating. Each of the specified firms that has
presented such an approach is required by the Board's Regulation YY to
have a U.S. IHC under which all non-branch U.S. entities are
organized.\14\ The agencies note that some of the specified firms are
not subject to the Regulation YY requirement to establish a U.S. IHC.
The agencies are considering whether such a specified firm not subject
to a U.S. IHC requirement could provide for the orderly resolution of
its U.S. entities and operations utilizing a U.S. SPOE resolution
without having a top-tier holding company which would be the only
entity to enter resolution.
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\13\ 12 CFR 243.5(a)(2) and 12 CFR 381.5(a)(2).
\14\ 12 CFR 252.153.
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Question 1: The agencies invite comment on all aspects of the
utilization of a U.S. SPOE strategy under section 165(d) of the Dodd-
Frank Act by a specified filer whether or not it is subject to the
Regulation YY requirement to establish a U.S. IHC, including the
feasibility of the U.S. SPOE strategy and the characteristics of the
firm's U.S. entities and operations that would facilitate successful
U.S. SPOE strategy execution.
D. Long-Term Debt Rulemaking
The agencies, as well as the Office of the Comptroller of the
Currency, are issuing a proposed rule for comment that would require
certain large IDI holding companies, U.S. intermediate holding
companies of FBOs, and certain IDIs, to issue and maintain outstanding
a minimum amount of long-term debt (LTD), among other proposed
requirements.\15\ This proposed rule would improve the resolvability of
these firms, and, in particular, their IDI subsidiaries, in case of
failure, reducing costs to the Deposit Insurance Fund (DIF) and
mitigating financial stability and contagion risks by reducing the risk
of loss to uninsured depositors. LTD issued by the IDI could help
support resolution strategies by, among other things, recapitalizing a
bridge depository institution and facilitating its exit from resolution
as a newly chartered IDI that would have new ownership. The agencies
expect that a final long-term debt rule could interact with how the
specified firms plan for resolution under the Rule, and the agencies
anticipate ensuring that the final resolution plan guidance for foreign
triennial full filers is consistent with any final long-term debt rule.
Accordingly, the agencies welcome comments that take the proposed long-
term debt rulemaking into consideration.\16\
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\15\ This proposed rulemaking is published elsewhere in this
Federal Register (LTD proposal).
\16\ The public also may provide comments on the proposed
guidance that assume that no long-term debt rule is finalized and
that specified firms remain subject to current capital rules.
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II. Overview of the Proposed Guidance
The proposed guidance begins with the proposed scope and then is
organized into several substantive topical areas. Each substantive
topic is bifurcated, with separate guidance for a U.S. SPOE resolution
strategy and a U.S. MPOE resolution strategy. As discussed, each
resolution strategy poses distinct risks and requires its own type of
planning and capabilities development for executing the strategy.
Accordingly, the proposed guidance would account for the different
challenges posed by each approach.
The proposed guidance for firms that adopt a U.S. SPOE resolution
strategy is generally based on the 2020 FBO Guidance or the associated
proposal.\17\ Successful execution of a U.S. SPOE strategy relies on
the ability to provide sufficient capital and liquidity to material
entities, a governance structure that can identify the onset of
financial stress events, and the ability to ensure the timely execution
of the strategy and to maintain continuity of operations throughout
resolution.
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\17\ Guidance for Resolution Plan Submissions of Certain
Foreign-Based Covered Companies, 85 FR 15449 (March 18, 2020) (2020
Proposed FBO Guidance).
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Some aspects of this proposal reflect expectations that were
included in the 2020 Proposed FBO Guidance. For example, the proposal
contains capital and liquidity pre-positioning expectations similar to
the 2020 Proposed FBO Guidance, to better support U.S. SPOE strategies
and in light of the LTD proposal. Although IDI subsidiaries of certain
specified firms may be required under an LTD rule to have outstanding a
minimum amount of prepositioned LTD, firms with a U.S. SPOE strategy
should have a framework for determining the amount and allocation of
resources among the firm's material entities. Similarly, for specified
firms that adopt a U.S. SPOE strategy, the agencies are proposing
governance mechanisms and separability expectations similar to those
contained in the 2020 Proposed FBO Guidance. Governance mechanisms
increase the likelihood that the U.S. SPOE strategy would be
implemented at a point in the stress continuum prior to the firm having
exhausted all financial resources, increasing the likelihood that the
bankruptcy reorganization would be successful. Separability provides
additional optionality to firms' U.S. SPOE strategies.
The proposed guidance for firms that utilize a U.S. MPOE resolution
strategy
[[Page 64644]]
is based upon the 2020 FBO Guidance but tailored for a U.S. MPOE
strategy. The agencies are, however, proposing to clarify their
expectations for specified firms that utilize a U.S. MPOE strategy that
includes the resolution of a material entity that is a U.S. IDI. As
discussed elsewhere in this proposal, the resolution of a large U.S.
IDI under the FDI Act likely would pose substantial operational and
legal challenges and complexities. Accordingly, the agencies believe
that the resolution plans of firms whose resolution plans contemplate
the separate resolution of a material entity that is a U.S. IDI would
benefit from developing capabilities specific to and considering legal
requirements regarding U.S. IDI resolution.
The agencies believe that each substantive area of the proposed
guidance would play a part in helping to ensure that the specified
firms can be resolved in an orderly manner. The proposed guidance would
describe the agencies' expectations for each of these areas. In
addition, the proposed guidance would consolidate items of feedback
provided to a number of the specified firms in the past, thereby
providing the public with one source of applicable guidance for the
specified firms. The proposed guidance is not, however, intended to
override the obligation of an individual specified firm to respond, in
its next resolution plan submission, to pending items of individual
feedback or any shortcomings or deficiencies identified or determined
by the agencies in that specified firm's prior resolution plan
submission. The proposed guidance also is not meant to limit specified
firms' consideration of additional vulnerabilities or obstacles that
might arise based on a firm's particular structure, operations, or
resolution strategy, and that should be factored into the specified
firm's resolution plan submission.
The proposed guidance concludes with information about the format
and structure of a plan that applies equally to plans contemplating
either a U.S. SPOE strategy or a U.S. MPOE strategy.
A. Scope of Application
The agencies propose to apply the guidance to all foreign-based
triennial full filers. The Board's tailoring framework provides clear,
predictable scoping based on publicly reported quantitative data. As
discussed above, the agencies believe that it is appropriate to provide
resolution planning guidance to all foreign triennial full filers given
issues identified in these firms' 2021 targeted resolution plans and
considering lessons learned from recent events, including the agencies'
experiences in connection with the events leading to UBS AG's
acquisition of Credit Suisse, following the intervention of the Swiss
authorities.
The agencies would like the specified firms to submit resolution
plans that take into consideration the final version of the proposed
guidance as soon as practicable. However, the agencies understand that
the specified firms may need time to take into consideration the
guidance when developing their resolution plans. In light of the timing
of this proposal, the agencies are considering providing a short
extension of the next resolution plan submission date for the specified
firms, with the expectation that these plan submissions would be due
sooner than one year after the proposed guidance is published in final
form.
The agencies seek comment on all aspects of the proposed scope of
application.
Question 2: Should the agencies provide more than 6 months for the
specified firms to take into consideration the expectations in the
proposed guidance, once finalized? If so, what time period should the
agencies provide?
B. Group Resolution Plan
The agencies recognize that the preferred resolution outcome for
many specified firms is a successful home country resolution using a
global SPOE resolution strategy that does not involve the placement of
any U.S. material entities into resolution. However, by law, U.S.
resolution planning requirements require relevant FBOs to contemplate
their resolution under the Bankruptcy Code.
U.S. operations of an FBO are often highly interconnected with the
broader, global operations of the financial institution. To clarify the
interaction between U.S. and global resolution strategies, the proposal
outlines expectations for specified firms to describe the impact of
executing the firm's global, group-wide resolution plan on the firm's
U.S. operations and detail the extent to which resolution planning
under the Rule relies on different assumptions, strategies, and
capabilities from the global plan. A specified firm's broader
resolvability framework is expected to consider the objectives of both
the group-wide resolution strategy and the U.S. resolution strategy
pursuant to the Rule, with complementary efforts to enhance
resolvability across plans.
C. Capital
For specified firms with a U.S. SPOE resolution strategy, the
agencies propose guidance substantially similar to the 2020 Proposed
FBO Guidance regarding capital. The ability to provide sufficient
capital to material entities without disruption from creditors is
important in order to ensure that material entities can continue to
maintain operations as the firm is resolved. The proposal describes
expectations concerning the appropriate positioning of capital and
other loss-absorbing instruments (e.g., debt that a parent holding
company may choose to forgive or convert to equity) among the material
entities within the firm (resolution capital adequacy and positioning,
or RCAP). The positioning of capital resources within the firm should
be consistent with any applicable rules requiring prepositioned
resources in IDIs in the form of long-term debt. The proposal also
describes expectations regarding a methodology for periodically
estimating the amount of capital that may be needed to support each
material entity after the bankruptcy filing (resolution capital
execution need, or RCEN).
The agencies are not proposing further expectations concerning
capital to firms whose plans contemplate a U.S. MPOE resolution
strategy, as a U.S. MPOE strategy assumes most material entities do not
continue as going concerns upon entry into resolution.
Question 3: In addition to the capital-related resolution plan
requirements under the Rule, are there other capital-related
expectations that would reasonably enhance the resolvability of a
specified firm that utilizes a U.S. MPOE strategy in its resolution
plan?
Question 4: Do the capital-related resolution expectations in the
proposed guidance align with the provisions of the interagency long-
term debt rulemaking proposal? Are there any aspects of the proposed
guidance that should be revised, or additional expectations added, in
light of the interagency long-term debt rulemaking proposal?
D. Liquidity
For firms that adopt a U.S. SPOE resolution strategy, the agencies
propose guidance substantially similar to the 2020 Proposed FBO
Guidance regarding liquidity. A firm's ability to reliably estimate and
meet its liquidity needs prior to, and in, resolution is important to
the execution of a firm's resolution strategy because it enables the
firm to respond quickly to demands from stakeholders and
counterparties, including regulatory authorities in other
[[Page 64645]]
jurisdictions and financial market utilities. Maintaining sufficient
and appropriately positioned liquidity also allows the subsidiaries to
continue to operate while the firm is being resolved in accordance with
the firm's resolution strategy.
For firms that adopt a U.S. MPOE resolution strategy, the agencies
propose that a firm should have the liquidity capabilities necessary to
execute its resolution strategy, and its plan should include analysis
and projections of a range of liquidity needs during resolution.
Question 5: In addition to the liquidity-related resolution plan
requirements under the Rule and the liquidity-related expectations in
the proposed guidance, are there other liquidity related expectations
that would reasonably enhance the resolvability of a specified firm
that utilizes a U.S. MPOE resolution strategy? Are there circumstances
under which it would be appropriate for a resolution plan that utilizes
a U.S. MPOE strategy to include the movement of liquidity among U.S.
material entities that are in resolution?
E. Governance Mechanisms
For firms using a U.S. SPOE resolution strategy, the agencies
propose guidance that is substantially similar to the 2020 Proposed FBO
Guidance regarding governance mechanisms. An adequate governance
structure with triggers that identify the onset, continuation, and
increase of financial stress is important to ensure that there is
sufficient time to communicate and coordinate with the foreign parent
regarding the provision of financial support and other key actions. The
governance mechanisms section proposes expectations that firms have
playbooks that describe the board and senior management actions of the
U.S. non-branch material entities that would be necessary in order to
execute the firm's U.S. resolution strategy. In addition, the proposal
describes expectations that these firms have triggers that are linked
to specific actions outlined in these playbooks to ensure the timely
escalation of information to both U.S. IHC and foreign parent governing
bodies. The proposal also describes the expectations that firms
identify and analyze potential legal challenges to planned U.S. IHC
support mechanisms, and any defenses and mitigants to such challenges.
To the extent the preferred global resolution strategy for the firm is
a home country SPOE resolution, the governance mechanisms section
proposes expectations that a firm design such mechanisms in a way that
does not interfere with the execution of the global strategy.
For firms that adopt a U.S. MPOE resolution strategy, the agencies
propose adopting governance mechanisms expectations to ensure
communication and coordination between the governing body of the U.S.
operations and the foreign parent for the purpose of facilitating
preparations for an orderly resolution.
Question 6: Are the governance mechanisms expectations regarding
communications and triggers for firms that utilize a U.S. MPOE strategy
appropriate and clear? Are there other governance-related expectations
that should be extended to resolution plans utilizing a U.S. MPOE
resolution strategy?
F. Operational
The development and maintenance of operational capabilities is
important to support and enable execution of a firm's resolution
strategy, including providing for the continuation of identified
critical operations and preventing or mitigating adverse effects on
U.S. financial stability. For firms that utilize a U.S. SPOE resolution
strategy, the agencies propose adopting portions of the operational
expectations of the 2020 FBO Guidance and SR letter 14-1,\18\ with
modifications that reflect the specific characteristics and
complexities of the specified firms. Like the 2020 FBO Guidance, the
proposal contains expectations on payment, clearing and settlement
activities, managing, identifying and valuing collateral, and shared
and outsourced services. For firms that utilize a U.S. MPOE resolution
strategy, the agencies propose adopting expectations based on SR letter
14-1 and the 2020 FBO Guidance that are most relevant to an MPOE
resolution strategy. For example, the proposed expectations regarding
payment, clearing and settlement activities are those most likely to
support resolution in the MPOE context.
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\18\ SR letter 14-1, ``Principles and Practices for Recovery and
Resolution Preparedness'' (Jan. 24, 2014), available at https://www.federalreserve.gov/supervisionreg/srletters/sr1401.htm.
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Question 7: Does the proposed guidance sufficiently address FBOs
that plan to utilize a U.S. SPOE strategy that may not be required to
comply with U.S. qualified financial contract resolution stay
regulations? How should FBOs that are not ``regulated entities'' under
ISDA's Resolution Stay Protocol demonstrate that their SPOE resolution
strategies will be feasible despite the lack of a stay on cross
defaults to the parent company? What guidance should the agencies
provide with respect to how the SPOE strategy of such a firm should
address the potential effects of early termination of the firm's
qualified financial contracts?
G. Legal Entity Rationalization & Separability
For specified firms that utilize a U.S. SPOE resolution strategy,
the agencies propose substantively adopting the 2020 FBO Guidance
regarding legal entity rationalization and guidance that is
substantially similar to the 2020 FBO Proposed Guidance regarding
separability. It is important that firms maintain a structure that
facilitates orderly resolution. To achieve this, the proposal states
that a firm should develop and describe in their plans criteria
supporting the U.S. resolution strategy and integrate them into day-to-
day decision making processes. The criteria would be expected to
consider the best alignment of legal entities and business lines and
facilitate resolvability of U.S. operations as a firm's activities,
technology, business models, or geographic footprint change over time.
In addition, the proposed guidance provides that the firm should
identify discrete U.S. operations that could be sold or transferred in
resolution to provide meaningful optionality for the resolution
strategy under a range of potential failure scenarios and include this
information in their plans.
For firms that utilize a U.S. MPOE resolution strategy, the
proposed guidance would clarify that the firms should have legal entity
structures that support their U.S. resolution strategy and describe
those structures in their plans. The proposal also provides that to the
extent a material entity IDI relies upon other affiliates during
resolution, the firm should discuss its rationale for the legal entity
structure and associated resolution risks and potential mitigants. In
addition, the agencies propose that the firms include options for the
sale, transfer, or disposal of significant assets, portfolios, legal
entities, or business lines in resolution.
Question 8: Are there other separability related expectations that
would reasonably enhance resolution plans that utilize a U.S. MPOE
resolution strategy?
[[Page 64646]]
H. Insured Depository Institution (IDI) Resolution 19
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\19\ The FDIC has a separate rule requiring resolution plans
from certain IDIs, 12 CFR 360.10, ``Resolution Plans Required for
Insured Depository Institutions With $50 Billion or More in Total
Assets'' (the IDI Rule). The Rule and the IDI Rule each have
different goals and the expected content of the respective
resolution plans accordingly also is different. The Rule requires a
covered company to submit a resolution plan that would allow rapid
and orderly resolution of the covered company under the Bankruptcy
Code in the event of material financial distress or failure. The
purpose of the IDI Rule is to ensure that the FDIC has access to all
of the material information it needs to efficiently resolve an IDI
in the event of its failure.
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Background. When an IDI fails and the FDIC is appointed receiver,
the FDIC generally must utilize the resolution option for the failed
IDI that is least costly to the DIF of all possible methods (the least-
cost requirement).\20\ An exception to this requirement is provided
where a determination is made by the Secretary of the Treasury, in
consultation with the President and after a written recommendation from
two-thirds of the FDIC's Board of Directors and two-thirds of the
Board, that complying with the least-cost requirement would have
serious adverse effects on economic conditions or financial stability
and implementing another resolution option would avoid or mitigate such
adverse effects.\21\ A specified firm should not assume the use of this
systemic risk exception to the least-cost requirement in its resolution
plan.
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\20\ See 12 U.S.C. 1823(c)(4). A deposit payout and liquidation
of the failed IDI's assets (payout liquidation) is the general
baseline the FDIC uses in a least-cost requirement determination.
See 12 U.S.C. 1823(c)(4)(D).
\21\ See 12 U.S.C. 1823(c)(4)(G).
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Purchase and Assumption Transaction. The FDIC typically seeks to
resolve a failed IDI by identifying, before the IDI's failure, one or
more potential acquirers so that as many of the IDI's assets and
deposit liabilities as possible can be sold to and assumed by the
acquirer(s) instead of remaining in the receivership created on the
failure date.\22\ This transaction form, termed a ``purchase and
assumption'' or ``P&A'' transaction, has historically been the
resolution approach that is least costly to the DIF, easiest for the
FDIC to execute, and least disruptive to the depositors of the failed
IDI--particularly in the case of transactions involving the assumption
of all the failed IDI's deposits by the assuming institution (an ``all-
deposit transaction'')--and typically can be completed over the weekend
following the IDI's closure by its primary regulator but before
business ordinarily would commence the following Monday (closing
weekend). The limited size and operational complexity present in most
small-bank failures has allowed the FDIC to execute a P&A transaction
with a single acquirer on numerous occasions. Resolving an IDI via a
P&A transaction over the closing weekend, however, may not be available
to the FDIC, particularly in failures involving large IDIs. P&A
transactions require lead time to identify potential buyers and allow
due diligence on, and an auction of, the failing IDI's assets and
banking business, also termed its ``franchise.'' Additionally, larger
banks can pose significant, and potentially systemic, challenges in
resolutions. These challenges include: a more limited pool of potential
acquirers as a failed IDI increases in size, which makes a transaction
in which nearly all assets and liabilities are transferred to one or
more acquirers increasingly less likely; operational complexities which
require advance planning on the part of the IDI and the FDIC and the
development of certain capabilities; potential market concentration and
antitrust considerations; and potentially the need to maintain the
continuity of activities conducted in whole or in part in the IDI that
are critical to U.S. financial stability.
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\22\ See generally https://www.fdic.gov/resources/resolutions/bank-failures/ for background about the resolution of IDIs by the
FDIC.
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For example, the largest failed IDI in U.S. history, Washington
Mutual Bank, had approximately $307 billion in assets. The DIF did not
incur a loss associated with this failure in part because it benefitted
from the FDIC's sale of the institution to an acquirer which had first
engaged in exhaustive due diligence of the institution during a self-
marketing effort conducted by the IDI prior to its failure. A more
recent example, that of First Republic Bank, which was also acquired in
an all-deposit transaction, illustrates that such a transaction can be
difficult to effectuate. The FDIC invited 21 banks and 21 nonbanks to
participate in the bidding process and received bids from only 4
bidders.\23\ The least costly bid necessitated a loss-sharing
agreement, and the transaction is expected to result in a significant
loss to the DIF. In addition, the FDIC received only one viable bid for
Silicon Valley Bank during the weekend following its failure, but this
bid did not satisfy the least-cost test. The FDIC received no viable
all-deposit bids for Signature Bank at the time it failed.\24\
---------------------------------------------------------------------------
\23\ See Remarks by Chairman Martin J. Gruenberg on ``Oversight
of Prudential Regulators'' before the Committee on Financial
Services, United States House of Representatives available at
https://www.fdic.gov/news/speeches/2023/spmay1523.html; see also
Remarks by Chairman Martin J. Gruenberg on ``Recent Bank Failures
and the Federal Regulatory Response'' before the Committee on
Banking, Housing, and Urban Affairs, United States Senate available
at https://www.fdic.gov/news/speeches/2023/spmar2723.html.
\24\ To protect depositors and preserve the value of the assets
and operations of each of SVB and SB following failure--which can
improve recoveries for creditors and the DIF--the FDIC ultimately
transferred all the deposits and substantially all of the assets of
each failed bank to a full-service bridge depository institution
(BDI) operated by the FDIC while the FDIC marketed the institutions
to potential bidders.
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If no P&A transaction that meets the least-cost requirement can be
accomplished at the time an IDI fails, the FDIC must pursue an
alternative resolution strategy. The primary alternative resolution
strategies for a failed IDI are: (1) a payout liquidation; or (2)
utilization of a BDI. The FDIC conducts payout liquidations by paying
insured deposits in cash or transferring the insured deposits to an
existing institution or a new institution organized by the FDIC to
assume the insured deposits (generally, a Deposit Insurance National
Bank or DINB). In payout liquidations, the FDIC as receiver retains
substantially all of the failed IDI's assets for later sale, and the
franchise value of the failed IDI is lost.
Bridge Depository Institution. If the FDIC determines that
temporarily continuing the operations of the failed IDI is less costly
than a payout liquidation, it may organize a BDI to purchase certain
assets and assume certain liabilities of the failed IDI.\25\ Generally,
a BDI would continue the failed bank's operations according to business
plans and budgets approved by the FDIC and carried out by FDIC-selected
leadership of the BDI. In addition to providing depositors access to
deposits and banking services, the BDI would conduct any necessary
restructuring required to rationalize the failed IDI's operations and
maximize value to be achieved in an eventual sale. Subject to the
least-cost requirement, the initial structure of the BDI may be based
upon an all-deposit transaction, a transaction in which the BDI assumes
only the insured deposits, or a transaction in which the BDI assumes
all insured deposits and a portion of the uninsured deposits. Once a
BDI is established, the FDIC seeks to stabilize the institution while
simultaneously planning for the eventual termination of
[[Page 64647]]
the BDI. In exiting and terminating a BDI, the FDIC may merge or
consolidate the BDI with another depository institution, issue and sell
a majority of the capital stock in the BDI, or effect the assumption of
the deposits or acquisition of the assets of the BDI.\26\ However, many
of the same factors that challenge the feasibility of a traditional P&A
transaction also complicate planning for the termination of a BDI
through a sale of the whole entity or its constituent parts.
---------------------------------------------------------------------------
\25\ Before a BDI may be chartered, the chartering conditions
set forth in 12 U.S.C. 1821(n)(2) must also be satisfied. For
purposes of this guidance, if the Plan provides appropriate analysis
concerning the feasibility of the BDI strategy, there is no
expectation that the resolution plan also demonstrate separately
that the conditions for chartering the BDI have been satisfied.
\26\ 12 U.S.C. 1821(n)(10).
---------------------------------------------------------------------------
The proposed guidance would clarify the expectations for a firm
adopting a U.S. MPOE resolution strategy with a material entity IDI to
demonstrate how the IDI can be resolved in a manner that is consistent
with the overall objective of the Plan to substantially mitigate the
risk that the failure of the specified firm would have serious adverse
effects on financial stability in the United States, while also
adhering to the requirements of the FDI Act regarding failed bank
resolutions without relying on the assumption that a systemic risk
exception will be available. These expectations would not be applicable
to firms adopting a U.S. SPOE resolution strategy because U.S. IDI
subsidiaries of such firms would not be expected to enter resolution.
Question 9: Should the guidance indicate that if a specified filer
proposes a strategy using a BDI to resolve its subsidiary material
entity IDI, the plan should include a detailed description of the
balance sheet components that would transfer to the BDI and of the
process the specified filer believes is most appropriate to value the
transferred components, inclusive of pro forma balance sheet and income
statements?
Question 10: Should the guidance indicate that if a specified filer
proposes a strategy using a BDI to resolve its subsidiary material
entity IDI, the plan should describe and quantify:
The amounts to be realized through liquidating the failed
IDI's assets and any expected premiums associated with selling the
institution's deposits;
Any franchise value bid premiums expected to be realized
through maintaining certain ongoing business operations in a BDI; and
A comparison of the loss to the DIF realized from a payout
liquidation and from utilizing a BDI so as to support the conclusion
that a BDI would result in the least costly resolution?
I. Derivatives and Trading Activities
The agencies request comment on whether to provide guidance on
derivatives and trading activities for specified firms that utilize a
U.S. SPOE resolution strategy. Although most of the specified firms
have limited derivatives and trading operations compared to the U.S.
GSIBs, it remains important that their derivatives and trading
activities can be stabilized and de-risked during resolution without
causing significant disruption to U.S. markets, particularly for firms
with large U.S. broker-dealers. The agencies also are considering the
resolution challenges that may be posed by transactions that originate
from and may be managed in the U.S. but are booked outside of the U.S.
If the agencies were to provide guidance on derivatives and trading
activities, the agencies likely would adopt aspects of the 2020
Proposed FBO Guidance. The agencies do not anticipate providing
derivatives and trading activities guidance to specified firms that
utilize a U.S. MPOE resolution strategy.
Question 11: Should the agencies provide resolution plan guidance
on derivatives and trading activities for specified firms that utilize
a U.S. SPOE resolution strategy? If so, what should be the content of
that guidance, what methodology should the agencies use to determine
the scope of specified firms to be subject to that guidance, and would
it be appropriate to adopt all or some of the expectations contained in
the 2020 Proposed FBO Guidance? What other derivatives and trading
activities-related expectations would reasonably enhance resolution
plans that utilize a U.S. SPOE resolution strategy?
Question 12: Should the agencies provide resolution plan guidance
on derivatives and trading activities for specified firms that utilize
a U.S. MPOE resolution strategy? If so, what should be the content of
that guidance and what methodology should the agencies use to determine
the scope of specified firms to be subject to that guidance?
Question 13: Should any resolution plan guidance the agencies
provide to the specified firms on derivatives and trading activities
take a different approach to transactions that originate in the U.S.
but are booked outside of the U.S. and transactions that originate and
are booked in the U.S.?
J. Branches
U.S. branches of FBOs can play a critical role in a firm's U.S.
operations and may present unique issues in a resolution of a specified
firm's U.S. entities and operations. The agencies propose guidance that
is similar to the 2020 FBO Guidance regarding branches. Under the
proposal, specified firms would be expected to show how branches would
continue to facilitate the firm's FMU access for identified critical
operations and to meet funding needs. The proposal also outlines
expectations that the specified firms analyze the effects on the firm's
FMU access and identified critical operations of the cessation of
operations of any U.S. branch that is a material entity.
K. Format and Structure of Plans; Assumptions
This section states the agencies' preferred presentation regarding
the format, assumptions, and structure of resolution plans. Plans
should contain an executive summary, a narrative of the firm's
resolution strategy, relevant technical appendices, and a public
section as detailed in the Rule. The proposed format, structure, and
assumptions are generally similar to those in the 2020 FBO Guidance,
except that the proposed guidance reflects the expectation that a firm
should support any assumptions that it will have access to the Discount
Window and/or other borrowings during the period immediately prior to
entering bankruptcy and clarifies expectations around such assumptions
and that firms should not assume the use of the systemic risk exception
to the least-cost test in the event of a failure of an IDI requiring
resolution under the FDI Act. In addition, for firms that adopt a U.S.
MPOE resolution strategy, the proposal includes the expectation that a
plan should demonstrate and describe how the failure event(s) results
in material financial distress of its U.S. operations, including
consideration of the likelihood of the diminution the firm's liquidity
and capital levels prior to bankruptcy.
Question 14: Certain firms' plans rely on lending facilities,
including the Discount Window or other government-sponsored facilities
in the period immediately preceding a bankruptcy filing. Should the
guidance include additional clarifications related to assumptions
regarding these lending facilities? Should the guidance contain
clarifications relating to other assumptions discussed in the guidance
or additional appropriate assumptions?
[[Page 64648]]
Question 15: The agencies included in the 2019 GSIB Guidance and
2020 FBO Guidance answers that had been previously published to
frequently asked questions (FAQs) the agencies received from the
guidance recipients about the topics in resolution plan guidance (e.g.,
capital, liquidity, etc.); however, there was no FAQ process for the
specified firms given the limited number of common questions received.
Should the agencies include in resolution guidance for the specified
firms answers to FAQs similar to those contained in the 2019 GSIB
Guidance and 2020 FBO Guidance? If so, which answers to FAQs should the
final guidance contain, and what changes, if any, should the agencies
make to the answers to FAQs in the 2019 GSIB Guidance and 2020 FBO
Guidance?
III. Paperwork Reduction Act
Certain provisions of the proposed guidance contain ``collections
of information'' within the meaning of the Paperwork Reduction Act of
1995 (PRA) (44 U.S.C. 3501-3521). In accordance with the requirements
of the PRA, the agencies may not conduct or sponsor, and a respondent
is not required to respond to, an information collection unless it
displays a currently valid Office of Management and Budget (OMB)
control number. The agencies reviewed the proposed guidance and
determined that it would revise the reporting revisions that have been
previously approved by OMB under the Board's OMB control number 7100-
0346 (Reporting Requirements Associated with Regulation QQ; FR QQ) and
the FDIC's control number 3064-0210 (Reporting Requirements Associate
with Resolution Planning). The Board has reviewed the proposed guidance
under the authority delegated to the Board by OMB.
Comments are invited on the following:
(A) Whether the collections of information are necessary for the
proper performance of the agencies' functions, including whether the
information has practical utility;
(B) The accuracy of the agencies' estimates of the burden of the
information collections, including the validity of the methodology and
assumptions used;
(C) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(D) Ways to minimize the burden of the information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(E) Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
Comments on aspects of this document that may affect reporting,
recordkeeping, or disclosure requirements and burden estimates should
be sent to the addresses listed in the ADDRESSES section of the
Supplementary Information. A copy of the comments may also be submitted
to the OMB desk officer for the Agencies: By mail to U.S. Office of
Management and Budget, 725 17th Street NW, #10235, Washington, DC
20503, or by facsimile to (202) 395-5806, Attention, Federal Banking
Agency Desk Officer.
Proposed Revisions, With Extension, of the Following Information
Collections
Board
Collection title: Reporting Requirements Associated with Regulation
QQ.
Collection identifier: FR QQ.
OMB control number: 7100-0346.
Frequency: Triennial, Biennial, and on occasion.
Respondents: Bank holding companies (including any foreign bank or
company that is, or is treated as, a bank holding company under section
8(a) of the International Banking Act of 1978 and meets the relevant
total consolidated assets threshold) with total consolidated assets of
$250 billion or more, bank holding companies with $100 billion or more
in total consolidated assets with certain characteristics, and nonbank
financial firms designated by the Financial Stability Oversight Council
for supervision by the Board.
FDIC
Collection title: Reporting Requirements Associated with Resolution
Planning.
OMB control number: 3064-0210.
Current Actions: The proposed guidance would apply to all triennial
full filers, but expectations would differ based on whether a firm
adopts an SPOE or an MPOE resolution strategy and whether it is foreign
or domestic. The proposed guidance is intended to clarify the agencies'
expectations concerning the resolution plans required pursuant to the
Rule. The document does not have the force and effect of law. Rather,
it describes the agencies' expectations and priorities regarding these
the resolution plans of triennial full filers and the agencies' general
views regarding specific areas where additional detail should be
provided and where certain capabilities or optionality should be
developed and maintained to demonstrate that each firm has considered
fully, and is able to mitigate, obstacles to the successful
implementation of its preferred resolution strategy.
The proposed guidance for triennial full filers using an SPOE
strategy is based on the 2019 GSIB guidance (for domestic firms) and
the 2020 FBO guidance (for foreign firms). It would clarify the
agencies' expectations around capital, liquidity, governance
mechanisms, and operations. The proposed guidance also would clarify
expectations concerning management information systems capabilities and
the identification of discrete separability options appropriate to the
resolution strategy. Additionally, if finalized, the FBOs that adopt an
SPOE resolution strategy should address how their U.S. resolution plan
aligns with their group resolution plan.
The proposed guidance for triennial full filers using an MPOE
resolution strategy addresses similar topics but reflects the risks of
and capabilities needed for an MPOE resolution. The proposed guidance
explains the agencies' expectations around liquidity and operational
capabilities, and legal entity rationalization. The proposed guidance
also provides clarified expectations related to the separate resolution
of a U.S. IDI and to identification of discrete separability options.
FBOs that adopt an MPOE resolution strategy would have expectations
related to governance mechanisms; the role of branches; and the group
resolution plan.
The proposed guidance does not specify expectations around
derivatives and trading activities.
Historically, the Board and the FDIC have split the respondents for
purposes of PRA clearances. As such, the agencies will split the change
in burden as well. As a result of this split and the proposed
revisions, there is a proposed net increase in the overall estimated
burden hours of 13,386 hours for the Board and 17,610 hours for the
FDIC. Therefore, the total Board estimated burden for its entire
information collection would be 216,853 hours and the total FDIC
estimate burden for its entire information collection would be 211,300
hours.
The following table presents only the change in the estimated
burden hours, as amended if the guidance were finalized, broken out by
agency. The table does not include a discussion of the remaining
estimated burden hours,
[[Page 64649]]
which remain unchanged.\27\ As shown in the table, the Triennial Full
filing types would be estimated more granularly according to SPOE and
MPOE resolution strategies.
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\27\ In addition to the proposed revisions to the estimations
for Triennial Full filings, the agencies have revised the estimation
for Biennial Full filings from 40,115 hours per response to 39,550
hours per response to align the burden estimation methodology with
what was used for Triennial Full filings under the proposed
guidance. Specifically, the agencies removed a component for a
biennial full filer's analysis of its critical operations as part of
its submission of targeted and full resolution plans, because this
critical operations analysis is integrated in the preparation of
such plans.
Table 1--Burden Hour Estimates Under Current Regulations and Under the Proposed Guidance
----------------------------------------------------------------------------------------------------------------
Estimated Estimated Estimated Estimated
FR QQ number of annual average hours annual burden
respondents frequency per response hours
----------------------------------------------------------------------------------------------------------------
Board Burdens
----------------------------------------------------------------------------------------------------------------
Current
Triennial Full:
Complex Foreign......................... 1 1 9,777 9,777
Foreign and Domestic.................... 7 1 4,667 32,669
---------------------------------------------------------------
Current Total....................... .............. .............. .............. 42,446
Proposed
Triennial Full:
FBO SPOE *.............................. 2 1 11,848 23,696
FBO MPOE................................ 3 1 5,939 17,817
Domestic MPOE........................... 3 .............. 5,513 16,539
---------------------------------------------------------------
Proposed Total...................... .............. .............. .............. 58,052
----------------------------------------------------------------------------------------------------------------
FDIC Burdens
----------------------------------------------------------------------------------------------------------------
Current
Triennial Full:
Complex Foreign......................... 0 1 9,777 0
Foreign and Domestic.................... 7 1 4,667 32,669
---------------------------------------------------------------
Current Total....................... .............. .............. .............. 32,669
Proposed
Triennial Full:
FBO SPOE *.............................. 2 1 11,848 23,696
FBO MPOE................................ 3 1 5,939 17,817
Domestic MPOE........................... 2 1 5,513 11,026
---------------------------------------------------------------
Proposed Total...................... .............. .............. .............. 52,539
----------------------------------------------------------------------------------------------------------------
* There are currently no domestic triennial full filers utilizing a SPOE strategy. Estimated hours per response
for a domestic SPOE triennial full filer would be 11,235 hours.
Appendix: Text of the Proposed Guidance
Guidance for Resolution Plan Submissions of Foreign Triennial Full
Filers
I. Introduction
Section 165(d) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (12 U.S.C. 5365(d)) requires certain financial
companies to report periodically to the Board of Governors of the
Federal Reserve System (the Board) and the Federal Deposit Insurance
Corporation (the FDIC) (together, the agencies) their plans for
rapid and orderly resolution in the event of material financial
distress or failure. On November 1, 2011, the agencies promulgated a
joint rule implementing the provisions of Section 165(d).\1\
Subsequently, in November 2019, the agencies finalized amendments to
the joint rule addressing amendments to the Dodd-Frank Act made by
the Economic Growth, Regulatory Relief, and Consumer Protection Act
and improving certain aspects of the joint rule based on the
agencies' experience implementing the joint rule since its
adoption.\2\ Financial companies meeting criteria set out in the
Rule must file a resolution plan (Plan) according to the schedule
specified in the Rule.
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\1\ Resolution Plans Required, 76 FR 67323 (November 1, 2011).
\2\ Resolution Plans Required, 84 FR 59194 (November 1, 2019).
The amendments became effective December 31, 2019. ``Rule'' means
the joint rule as amended in 2019. Terms not defined herein have the
meanings set forth in the Rule.
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This document is intended to provide guidance to certain foreign
financial companies required to submit Plans regarding development
of their respective U.S. strategies to assist their further
development of a Plan for their 2024 and subsequent Plan
submissions. Specifically, the guidance applies to any foreign-based
covered company that is subject to Category II or III standards
according to their combined U.S. operations in accordance with the
Board's tailoring rule (specified firms).\3\ This guidance
supersedes the joint Guidance for Resolution Plan Submissions of
Certain Foreign-Based Covered Companies.\4\
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\3\ Prudential Standards for Large Bank Holding Companies,
Savings and Loan Holding Companies, and Foreign Banking
Organizations, 84 FR 59032 (Nov. 1, 2019).
\4\ 85 FR 83557 (Dec. 22, 2020) (2020 FBO Guidance).
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The Plan for a specified firm would address a scenario where its
U.S. operations experience material financial distress and the
foreign parent is unable or unwilling to provide sufficient
financial support for the continuation of U.S. operations, and at
least the top tier U.S. IHC files for bankruptcy under Title 11,
United States Code. Under such a scenario, the Plan should provide
for the orderly resolution of the specified firm's U.S. material
entities and operations.
In general, this document is organized around a number of key
challenges in resolution (interaction with group resolution plan;
capital; liquidity; governance mechanisms; operational; branches;
legal
[[Page 64650]]
entity rationalization and separability; and insured depository
institution resolution, if applicable) that apply across resolution
plans, depending on their strategy. Additional challenges or
obstacles may arise based on a firm's particular structure,
operations, or resolution strategy. Each firm is expected to
satisfactorily address these vulnerabilities in its Plan. In
addition, each topic of this guidance is separated into expectations
for a specified firm that utilizes a U.S. single point of entry
(U.S. SPOE) resolution strategy for its Plan and expectations for a
specified firm that utilizes a U.S. multiple point of entry (U.S.
MPOE) resolution strategy for its Plan.\5\ Under the Rule, the
agencies will review a Plan to determine if it satisfactorily
addresses key potential challenges, including those specified below.
If the agencies jointly decide that an aspect of a Plan presents a
weakness that individually or in conjunction with other aspects
could undermine the feasibility of the Plan, the agencies may
determine jointly that the Plan is not credible or would not
facilitate an orderly resolution under the U.S. Bankruptcy Code.
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\5\ The agencies recognize that the preferred resolution outcome
for many specified firms is a successful home country resolution
using a global SPOE resolution strategy where U.S. material entities
are provided with sufficient capital and liquidity resources to
allow them to stay out of resolution proceedings and maintain
continuity of operations throughout the parent's resolution.
However, because support from the foreign parent in stress cannot be
ensured, the Rule provides that the U.S. resolution plan for
specified firms should specifically address a scenario where the
U.S. operations experience material financial distress, and the Plan
should not assume that the specified firm takes resolution actions
outside the United States that would eliminate the need for any U.S.
subsidiaries to enter resolution proceedings.
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II. Interaction With Group Resolution Plan
U.S. SPOE & U.S. MPOE
Recognizing that the preferred resolution outcome for the
specified firms is often a successful SPOE home country resolution,
a specified firm's Plan should describe the impact of executing the
global resolution plan on U.S. operations. This description should
include a discussion of the expected resolution strategy for the
firm's U.S. entities and operations under the global resolution
plan. In addition, a specified firm's resolvability work in the
United States should consider both the objectives of the firm's
group-wide resolution strategy and the Rule. Efforts to enhance the
resolvability of U.S. operations and entities should be as
complementary as practicable to the group-wide resolution strategy,
while complying with the Rule. To the extent that the Plan relies on
different assumptions, strategies, and capabilities, such as those
used to project liquidity needs in resolution, from those necessary
to execute the global strategy, the Plan should include a
description of such differences.
III. Capital
U.S. SPOE
The firm should have the capital capabilities necessary to
execute its U.S. resolution strategy, including the modeling and
estimation process described below. Resolution Capital Adequacy and
Positioning (RCAP). In order to help ensure that a firm's U.S. non-
branch material entities \6\ could be resolved in an orderly manner,
the firm's U.S. IHC should have an adequate amount of loss-absorbing
capacity to execute its U.S. resolution strategy. Thus, a firm's
U.S. IHC should have outstanding a minimum amount of loss-absorbing
capacity, including long-term debt, to help ensure that the firm has
adequate capacity to meet that need at the U.S. IHC on a
consolidated basis (IHC LAC).\7\
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\6\ The terms ``material entities,'' ``identified critical
operations,'' and ``core business lines'' have the same meaning as
in the Rule. The term ``U.S. material entity'' means any subsidiary,
branch, or agency that is a material entity and is domiciled in the
United States. The term ``U.S. non-branch material entity'' means a
material entity organized or incorporated in the U.S. including, in
all cases, the U.S. IHC. The term ``U.S. IHC subsidiaries'' means
all U.S. non-branch material entities other than the U.S. IHC.
\7\ Total Loss-Absorbing Capacity, Long-Term Debt, and Clean
Holding Company Requirements for Systemically Important U.S. Bank
Holding Companies and Intermediate Holding Companies of Systemically
Important Foreign Banking Organizations, 82 FR 8266 (January 24,
2017); LTD proposal.
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Proceeds from a firm's U.S. IHC LAC should be appropriately
positioned between the U.S. IHC and the subsidiaries of the U.S. IHC
that are material entities (U.S. IHC subsidiaries), consistent with
any applicable rules requiring prepositioned resources at U.S. IDIs
in the form of long-term debt. After adhering to any requirements
related to prepositioning long-term debt at IDIs, the positioning of
a firm's remaining IHC LAC should balance the certainty associated
with pre-positioning internal LAC directly at U.S. IHC subsidiaries
with the flexibility provided by holding recapitalization resources
at the U.S. IHC (contributable resources) to meet unanticipated
losses at the U.S. IHC subsidiaries. That balance should take
account of both pre-positioning at U.S. IHC subsidiaries and holding
resources at the U.S. IHC, and the obstacles associated with each.
With respect to material entities that are not subject to pre-
positioning requirements, the firm should not rely exclusively on
either full pre-positioning or U.S. IHC contributable resources to
execute its U.S. resolution strategy, unless it has only one U.S.
IHC subsidiary that is an operating subsidiary. The Plan should
describe the positioning of internal LAC among the U.S. IHC and the
U.S. IHC subsidiaries, along with analysis supporting such
positioning.
Finally, to the extent that pre-positioned internal LAC at a
U.S. IHC subsidiary is in the form of intercompany debt and there
are one or more entities between the lender and the borrower, the
firm should structure the instruments so as to ensure that the U.S.
IHC subsidiary can be recapitalized.
Resolution Capital Execution Need (RCEN). To the extent
necessitated by the firm's U.S. resolution strategy, U.S. non-branch
material entities need to be recapitalized to a level that allows
for an orderly resolution. The firm should have a methodology for
periodically estimating the amount of capital that may be needed to
support each U.S. IHC subsidiary after the U.S. IHC bankruptcy
filing (RCEN). The firm's positioning of IHC LAC should be able to
support the RCEN estimates.
The firm's RCEN methodology should use conservative forecasts
for losses and risk-weighted assets and incorporate estimates of
potential additional capital needs through the resolution period,\8\
consistent with the firm's resolution strategy for its U.S.
operations. The RCEN methodology should be calibrated such that
recapitalized U.S. IHC subsidiaries will have sufficient capital to
maintain market confidence as required under the U.S resolution
strategy. Capital levels should meet or exceed all applicable
regulatory capital requirements for ``well-capitalized'' status and
meet estimated additional capital needs throughout resolution. U.S.
IHC subsidiaries that are not subject to capital requirements may be
considered sufficiently recapitalized when they have achieved
capital levels typically required to obtain an investment-grade
credit rating or, if the entity is not rated, an equivalent level of
financial soundness. Finally, the methodology should be
independently reviewed, consistent with the firm's corporate
governance processes and controls for the use of models and
methodologies.
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\8\ The resolution period begins immediately after the U.S. IHC
bankruptcy filing and extends through the completion of the U.S.
resolution strategy.
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U.S. MPOE
The agencies do not propose issuing guidance on this topic to
firms whose Plans contemplate a U.S. MPOE resolution strategy.
IV. Liquidity
U.S. SPOE
The firm should have the liquidity capabilities necessary to
execute its U.S resolution strategy, including those described
below. For resolution purposes, these capabilities should include
having an appropriate model and process for estimating and
maintaining sufficient liquidity at--or readily available from the
U.S. IHC to--U.S. IHC subsidiaries, and a methodology for estimating
the liquidity needed to successfully execute the U.S. resolution
strategy, as described below.
Capabilities. A firm is expected to have a comprehensive
understanding of funding sources, uses, and risks at material
entities and identified critical operations, including how funding
sources may be affected under stress. For example, a firm should
have and describe its capabilities to:
(A) Evaluate the funding requirements necessary to perform
identified critical operations, including shared and outsourced
services and access to financial market utilities (FMUs); \9\
---------------------------------------------------------------------------
\9\ 12 CFR 252.156(g)(3).
---------------------------------------------------------------------------
(B) Monitor liquidity reserves and relevant custodial
arrangements by jurisdiction and material entity; \10\
---------------------------------------------------------------------------
\10\ 12 CFR 252.156(g)(2).
---------------------------------------------------------------------------
(C) Routinely test funding and liquidity outflows and inflows
for U.S. non-branch material entities at the legal entity level
[[Page 64651]]
under a range of adverse stress scenarios, taking into account the
effect on intra-day, overnight, and term funding flows between
affiliates and across jurisdictions;
(D) Assess existing and potential restrictions on the transfer
of liquidity between U.S. non-branch material entities; \11\ and
---------------------------------------------------------------------------
\11\ Id.
---------------------------------------------------------------------------
(E) Develop contingency strategies to maintain funding for U.S.
non-branch material entities and identified critical operations in
the event of a disruption in the specified firm's current funding
model.\12\
---------------------------------------------------------------------------
\12\ 12 CFR 252.156(e).
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Resolution Liquidity Adequacy and Positioning (RLAP). With
respect to RLAP, the firm should be able to measure the stand-alone
liquidity position of each U.S. non-branch material entity--i.e.,
the high-quality liquid assets (HQLA) at the U.S. non-branch
material entity less net outflows to third parties and affiliates--
and ensure that liquidity is readily available to meet any deficits.
The RLAP model should cover a period of at least 30 days and reflect
the idiosyncratic liquidity profile of the U.S. IHC and risk of each
U.S. IHC subsidiary. The model should balance the reduction in
frictions associated with holding liquidity directly at the U.S. IHC
subsidiary with the flexibility provided by holding HQLA at the U.S.
IHC or at a U.S. IHC subsidiary available to meet unanticipated
outflows at other U.S. IHC subsidiaries.\13\ The firm should not
rely exclusively on either full pre-positioning or U.S. IHC
contributable resources to execute its U.S. resolution strategy,
unless it has only one U.S. IHC subsidiary that is an operating
subsidiary.
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\13\ To the extent HQLA is held at the U.S. IHC or at a U.S. IHC
subsidiary, the model must consider whether such funds are freely
available. To be freely available, the HQLA must be free of legal,
regulatory, contractual, and other restrictions on the ability of
the material entity to liquidate, sell, or transfer the asset.
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The model \14\ should ensure that on a consolidated basis the
U.S. IHC holds sufficient HQLA to cover net liquidity outflows of
the U.S. non-branch material entities. The model should also measure
the stand-alone net liquidity positions of each U.S. non-branch
material entity. The stand-alone net liquidity position of each U.S.
non-branch material entity (HQLA less net outflows) should be
measured using the firm's internal liquidity stress test assumptions
and should treat inter-affiliate exposures in the same manner as
third-party exposures. For example, an overnight unsecured exposure
to a non-U.S. affiliate should be assumed to mature. Finally, the
firm should not assume that a net liquidity surplus at any U.S. IHC
subsidiary that is a depository institution could be moved to meet
net liquidity deficits at an affiliate, or to augment U.S. IHC
resources, consistent with Regulation W.
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\14\ ``Model'' refers to the set of calculations required by
Regulation YY that estimate the U.S. IHC's liquidity position.
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Additionally, the RLAP methodology should take into account for
each of the U.S. IHC, U.S. IHC subsidiaries, and any branch that is
a material entity (A) the daily contractual mismatches between their
respective inflows and outflows; (B) their respective daily flows
from movement of cash and collateral for all inter-affiliate
transactions; and (C) their respective daily stressed liquidity
flows and trapped liquidity as a result of actions taken by clients,
counterparties, key FMUs, and foreign supervisors, among others.
In calculating its RLAP estimate, the U.S. IHC should calculate
its liquidity position with respect to its foreign parent, branches
and agencies, and other affiliates (together, affiliates) separately
from its liquidity position with respect to third parties, and
should not offset inflows from affiliated parties against outflows
to external parties. In addition, a U.S. IHC should use cash-flow
sources from its affiliates to offset cash-flow needs of its
affiliates only to the extent that the term of the cash-flow source
from its affiliates is the same as, or shorter than, the term of the
cash-flow need of its affiliates.\15\
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\15\ The U.S. IHC should calculate its cash-flow sources from
its affiliates consistent with the net internal stressed cash-flow
need calculation in Sec. 252.157(c)(2)(iv) of Regulation YY.
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Resolution Liquidity Execution Need (RLEN). The firm should have
a methodology for estimating the liquidity needed after the U.S.
IHC's bankruptcy filing to stabilize any surviving U.S. IHC
subsidiaries and to allow those entities to operate post-filing, in
accordance with the U.S. strategy.
The firm's RLEN methodology should:
A. Estimate the minimum operating liquidity (MOL) needed at each
U.S. IHC subsidiary that is a material entity to ensure those
entities could continue to operate, to the extent relied upon in the
U.S. resolution strategy, after implementation of the U.S.
resolution strategy and/or to support a wind-down strategy;
B. Provide daily cash flow forecasts by U.S. IHC subsidiary to
support estimation of peak funding needs to stabilize each entity
under resolution;
C. Provide a comprehensive breakout of all inter-affiliate
transactions and arrangements that could impact the MOL or peak
funding needs estimates for the U.S. IHC subsidiaries; and
D. Estimate the minimum amount of liquidity required at each
U.S. IHC subsidiary to meet the MOL and peak needs noted above,
which would inform the provision of financial resources from the
foreign parent to the U.S. IHC, or if the foreign parent is unable
or unwilling to provide such financial support, any preparatory
resolution-related actions.
The MOL estimates should capture U.S. IHC subsidiaries' intraday
liquidity requirements, operating expenses, working capital needs,
and inter-affiliate funding frictions to ensure that U.S. IHC
subsidiaries could operate without disruption during the resolution.
The peak funding needs estimates should be projected for each
U.S. IHC subsidiary and cover the length of time the firm expects it
would take to stabilize that U.S. IHC subsidiary. Inter-affiliate
funding frictions should be taken into account in the estimation
process.
The firm's forecasts of MOL and peak funding needs should ensure
that U.S. IHC subsidiaries could operate through resolution
consistent with regulatory requirements, market expectations, and
the firm's post-failure strategy. These forecasts should inform the
RLEN estimate, i.e., the minimum amount of HQLA required to
facilitate the execution of the firm's strategy for the U.S. IHC
subsidiaries.
For nonsurviving U.S. IHC subsidiaries, the firm should provide
analysis and an explanation of how the material entity's resolution
could be accomplished within a reasonable period of time and in a
manner that substantially mitigates the risk of serious adverse
effects on U.S. financial stability. For example, if a U.S. IHC
subsidiary that is a broker-dealer is assumed to fail and enter
resolution under the Securities Investor Protection Act, the firm
should provide an analysis of the potential impacts on funding and
asset markets and on prime brokerage clients, bearing in mind the
objective of an orderly resolution.
U.S. MPOE
The firm should have the liquidity capabilities necessary to
execute its U.S. resolution strategy. A Plan with a U.S. MPOE
strategy should include analysis and projections of a range of
liquidity needs during resolution, including intraday; reflect
likely failure and resolution scenarios; and consider the guidance
on assumptions provided in Section X, Format and Structure of Plans;
Assumptions.
V. Governance Mechanisms
U.S. SPOE
A firm should identify the governance mechanisms that would
ensure that communication and coordination occur between the boards
of the U.S. IHC or a U.S. subsidiary and the foreign parent to
facilitate the provision of financial support, or if not
forthcoming, any preparatory resolution-related actions to
facilitate an orderly resolution. Playbooks, Foreign Parent Support,
and Triggers. Governance playbooks should detail the board and
senior management actions of U.S. non-branch material entities that
would be needed under the firm's U.S. resolution strategy. The
governance playbooks should also include a discussion of: (A) the
firm's proposed U.S. communications strategy, both internal and
external; \16\ (B) the fiduciary responsibilities of the applicable
board(s) of directors or other similar governing bodies and how
planned actions would be consistent with such responsibilities
applicable at the time actions are expected to be taken; (C)
potential conflicts of interest, including interlocking boards of
directors; (D) any employee retention policy; and (E) any other
limitations on the authority of the U.S. IHC and the U.S. IHC
subsidiary boards and senior management to implement the U.S.
resolution strategy. All responsible parties and timeframes for
action should be identified. Governance playbooks should be
[[Page 64652]]
updated periodically for each entity whose governing body would need
to act under the firm's U.S. resolution strategy.
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\16\ External communications include those with U.S. and foreign
authorities and other external stakeholders.
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In order to meet liquidity needs at the U.S. non-branch material
entities, the firm may either fully pre-position liquidity in the
U.S. non-branch material entities or develop a mechanism for planned
foreign parent support, of any amount not pre-positioned, for the
successful execution of the U.S. strategy. Mechanisms to support
readily available liquidity may include a term liquidity facility
between the U.S. IHC and the foreign parent that can be drawn as
needed and as informed by the firm's RLEN estimates and liquidity
positioning. To the extent the preferred global resolution strategy
for the firm is a home country SPOE resolution, the mechanism should
be designed so as to not interfere with the execution of that
strategy. The Plan should include analysis of how the U.S. IHC/
foreign parent facility is funded or buffered for by the foreign
parent. The sufficiency of the liquidity should be informed by the
firm's RLAP and RLEN estimates for the U.S. non-branch material
entities. Additionally, the Plan should include analysis of the
potential challenges to the planned foreign parent support mechanism
and associated mitigants. Where applicable, the analysis should
discuss applicable non-U.S. law and cross-border legal challenges
(e.g., challenges related to enforcing contracts governed by foreign
law). The analysis should identify the mitigant(s) to such
challenges that the firm considers most effective.
The firm should be prepared to increase communication and
coordination at the appropriate time in order to mitigate financial,
operational, legal, and regulatory vulnerabilities. To facilitate
this communication and coordination, the firm should establish
clearly identified triggers linked to specific actions for:
(A) The escalation of information to U.S. senior management,
U.S. risk committee and U.S. governing bodies to potentially take
the corresponding actions as the U.S. operations experience material
financial distress, leading eventually to the decision to implement
the U.S. resolution strategy.
i. Triggers should identify when and under what conditions the
U.S. material entities would transition from business-as-usual
conditions to a stress period.
ii. Triggers should also take into consideration changes in the
foreign parent's condition from business-as-usual conditions through
resolution.
(B) The escalation of information to and discussions with the
appropriate governing bodies to confirm whether the governing bodies
are able and willing to provide financial resources to support U.S.
operations.
i. Triggers should be based on the firm's methodology for
forecasting the liquidity and capital needed to facilitate the U.S.
strategy. For example, triggers may be established that reflect U.S.
non-branch material entities' financial resources approaching RCEN/
RLEN estimates, with corresponding actions to confirm the foreign
parent's financial capability and willingness to provide sufficient
support.
Corresponding escalation procedures, actions, and timeframes
should be constructed so that breach of the triggers will allow
prerequisite actions to be completed. For example, breach of the
triggers needs to occur early enough to provide for communication,
coordination, and confirmation of the provision of resources from
the foreign parent.
Support Within the United States. If the Plan provides for the
provision of capital and liquidity by a U.S. material entity (e.g.,
the U.S. IHC) to its U.S. affiliates prior to the U.S. IHC's
bankruptcy filing (Support), the Plan should also include a detailed
legal analysis of the potential state law and bankruptcy law
challenges and mitigants to providing the Support. Specifically, the
analysis should identify potential legal obstacles and explain how
the firm would seek to ensure that Support would be provided as
planned. Legal obstacles include claims of fraudulent transfer,
preference, breach of fiduciary duty, and any other applicable legal
theory identified by the firm. The analysis also should include
related claims that may prevent or delay an effective
recapitalization, such as equitable claims to enjoin the transfer
(e.g., imposition of a constructive trust by the court). The
analysis should apply the actions contemplated in the Plan regarding
each element of the claim, the anticipated timing for commencement
and resolution of the claims, and the extent to which adjudication
of such claim could affect execution of the firm's U.S. resolution
strategy. The analysis should include mitigants to the potential
challenges to the planned Support. The Plan should identify the
mitigant(s) to such challenges that the firm considers most
effective.
Furthermore, the Plan should describe key motions to be filed at
the initiation of any bankruptcy proceeding related to (as
appropriate) asset sales and other non-routine matters.
U.S. MPOE
A firm should identify the governance mechanisms that would
ensure that communication and coordination occur between the
governing body of the U.S. operations (for example, the boards of
the U.S. IHC or a U.S. subsidiary) and the foreign parent to
facilitate any preparatory resolution-related actions to facilitate
an orderly resolution. The Plan should also detail the board and
senior management actions of U.S. material entities that would be
needed under the firm's U.S. resolution strategy.
The firm should be prepared to increase communication and
coordination at the appropriate time in order to mitigate financial,
operational, legal, and regulatory vulnerabilities. To facilitate
this communication and coordination, the firm should establish
clearly identified triggers linked to specific actions for the
escalation of information to U.S. senior management, U.S. risk
committee and U.S. governing bodies to potentially take the
corresponding actions as the U.S. operations experience material
financial distress, leading eventually to the decision to implement
the U.S. resolution strategy. The triggers should:
A. Identify when and under what conditions the U.S. material
entities would transition from business-as-usual conditions to a
stress period.
B. Take into consideration changes in the foreign parent's
condition from business-as-usual conditions through resolution.
VI. Operational
U.S. SPOE
Payment, Clearing, and Settlement Activities
Framework. Maintaining continuity of payment, clearing, and
settlement (PCS) services is critical for the orderly resolution of
firms that are either users or providers,\17\ or both, of PCS
services. A firm should demonstrate capabilities for continued
access to PCS services essential to an orderly resolution under its
U.S. resolution strategy through a framework to support such access
by:
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\17\ A firm is a user of PCS services if it accesses PCS
services through an agent bank or it uses the services of a
financial market utility (FMU) through its membership in that FMU or
through an agent bank. A firm is a provider of PCS services if it
provides PCS services to clients as an agent bank or it provides
clients with access to an FMU or agent bank through the firm's
membership in or relationship with that service provider. A firm is
also a provider if it provides clients with PCS services through the
firm's own operations (e.g., payment services or custody services).
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Identifying clients,\18\ FMUs, and agent banks as key
from the firm's perspective for the firm's U.S. material entities,
identified critical operations, and core business lines, using both
quantitative (volume and value) \19\ and qualitative criteria;
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\18\ For purposes of this section, a client is an individual or
entity, including affiliates of the firm, to whom the firm provides
PCS services and any related credit or liquidity offered in
connection with those services.
\19\ In identifying entities as key, examples of quantitative
criteria may include: for a client, transaction volume/value, market
value of exposures, assets under custody, usage of PCS services, and
any extension of related intraday credit or liquidity; for an FMU,
the aggregate volumes and values of all transactions processed
through such FMU; and for an agent bank, assets under custody, the
value of cash and securities settled, and extensions of intraday
credit.
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Mapping U.S. material entities, identified critical
operations, core business lines, and key clients of the firm's U.S.
operations to both key FMUs and key agent banks; and
Developing a playbook for each key FMU and key agent
bank essential to an orderly resolution under its U.S. resolution
strategy that reflects the firm's role(s) as a user and/or provider
of PCS services.
The framework should address direct relationships (e.g., a
firm's direct membership in an FMU, a firm's provision of clients
with PCS services through its own operations in the United States,
or a firm's contractual relationship with an agent bank) and
indirect relationships (e.g., a firm's provision of clients with
access to the relevant FMU or agent bank through the firm'
membership in or relationship with that FMU or agent bank, or a
firm's U.S. affiliate and branch provision of U.S. material entities
and key clients of the firm's U.S. operations
[[Page 64653]]
with access to an FMU or agent bank). The framework also should
address the potential impact of any disruption to, curtailment of,
or termination of such direct and indirect relationships on the
firm's U.S. material entities, identified critical operations, and
core business lines, as well as any corresponding impact on key
clients of the firm's U.S. operations.
Playbooks for Continued Access to PCS Services. The firm is
expected to provide a playbook for each key FMU and key agent bank
that addresses considerations that would assist the firm and key
clients of the firm's U.S. operations in maintaining continued
access to PCS services in the period leading up to and including the
firm's resolution under its U.S. resolution strategy.
Each playbook should provide analysis of the financial and
operational impact to the firm's U.S. material entities and key
clients of the firm's U.S. operations due to adverse actions that
may be taken by a key FMU or a key agent bank and contingency
actions that may be taken by the firm. Each playbook also should
discuss any possible alternative arrangements that would allow
continued access to PCS services for the firm's U.S. material
entities, identified critical operations and core business lines,
and key clients of the firm's U.S. operations, while the firm is in
resolution under its U.S. resolution strategy. The firm is not
expected to incorporate a scenario in which it loses key FMU or key
agent bank access into its U.S. resolution strategy or its RLEN and
RCEN estimates. The firm should continue to engage with key FMUs,
key agent banks, and key clients of the firm's U.S. operations, and
playbooks should reflect any feedback received during such ongoing
outreach.
Content Related to Users of PCS Services. Individual key FMU and
key agent bank playbooks should include:
Descriptions of the firm's relationship as a user,
including through indirect access, with the key FMU or key agent
bank and the identification and mapping of PCS services to the
firm's U.S. material entities, identified critical operations, and
core business lines that use those PCS services;
Discussion of the potential range of adverse actions
that may be taken by that key FMU or key agent bank when the firm is
in resolution under its U.S. resolution strategy,\20\ the
operational and financial impact of such actions on the firm's U.S.
material entities, identified critical operations, and core business
lines, and contingency arrangements that may be initiated by the
firm in response to potential adverse actions by the key FMU or key
agent bank; and
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\20\ Examples of potential adverse actions may include increased
collateral and margin requirements and enhanced reporting and
monitoring.
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Discussion of PCS-related liquidity sources and uses in
business-as-usual (BAU), in stress, and in the resolution period,
presented by currency type (with U.S. dollar equivalent) and by U.S.
material entity.
[cir] PCS Liquidity Sources: These may include the amounts of
intraday extensions of credit, liquidity buffer, inflows from FMU
participants, and prefunded amounts of key clients of the firm's
U.S. operations in BAU, in stress, and in the resolution period. The
playbook also should describe intraday credit arrangements (e.g.,
facilities of the key FMU, key agent bank, or a central bank) and
any similar custodial arrangements that allow ready access to a
firm's funds for PCS-related key FMU and key agent bank obligations
(including margin requirements) in all currencies relevant to the
firm's participation, including placements of firm liquidity at
central banks, key FMUs, and key agent banks.
[cir] PCS Liquidity Uses: These may include margin and
prefunding by the firm and key clients of the firm's U.S.
operations, and intraday extensions of credit, including incremental
amounts required during resolution.
[cir] Intraday Liquidity Inflows and Outflows: The playbook
should describe the firm's ability to control intraday liquidity
inflows and outflows and to identify and prioritize time-specific
payments. The playbook also should describe any account features
that might restrict the firm's ready access to its liquidity
sources.
Content Related to Providers of PCS Services.\21\ Individual key
FMU and key agent bank playbooks should include:
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\21\ Where a firm is a provider of PCS services through the
firm's own operations in the United States, the firm is expected to
produce a playbook for the U.S. material entities that provide those
services, addressing each of the items described under ``Content
Related to Providers of PCS Services,'' which include contingency
arrangements to permit the firm's key clients of the firm's U.S.
operations to maintain continued access to PCS services.
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Identification and mapping of PCS services to the
firm's U.S. material entities, identified critical operations, and
core business lines that provide those PCS services, and a
description of the scale and the way in which each provides PCS
services;
Identification and mapping of PCS services to key
clients of the firm's U.S. operations to whom the firm's U.S.
material entities, identified critical operations, and core business
lines provide such PCS services and any related credit or liquidity
offered in connection with such services;
Discussion of the potential range of firm contingency
arrangements available to minimize disruption to the provision of
PCS services to key clients of the firm's U.S. operations, including
the viability of transferring activity and any related assets of key
clients of the firm's U.S. operations, as well as any alternative
arrangements that would allow the key clients of the firm's U.S.
operations continued access to PCS services if the firm could no
longer provide such access (e.g., due to the firm's loss of key FMU
or key agent bank access), and the financial and operational impacts
of such arrangements from the firm's perspective;
Descriptions of the range of contingency actions that
the firm may take concerning its provision of intraday credit to key
clients of the firm's U.S. operations, including analysis
quantifying the potential liquidity the firm could generate by
taking such actions in stress and in the resolution period, such as
(i) requiring key clients of the firm's U.S. operations to designate
or appropriately pre-position liquidity, including through
prefunding of settlement activity, for PCS-related key FMU and key
agent bank obligations at specific material entities of the firm
(e.g., direct members of key FMUs) or any similar custodial
arrangements that allow ready access to funds for such obligations
in all relevant currencies of key clients of the firm's U.S.
operations; (ii) delaying or restricting PCS activity of key clients
of the firm's U.S. operations; and (iii) restricting, imposing
conditions upon (e.g., requiring collateral), or eliminating the
provision of intraday credit or liquidity to key clients of the
firm's U.S. operations; and
Descriptions of how the firm will communicate to key
clients of the firm's U.S. operations the potential impacts of
implementation of any identified contingency arrangements or
alternatives, including a description of the firm's methodology for
determining whether any additional communication should be provided
to some or all key clients of the firm's U.S. operations (e.g., due
to BAU usage of that access and/or related intraday credit or
liquidity of the key client of the firm's U.S. operations), and the
expected timing and form of such communication.
Capabilities. The firm is expected to have and describe
capabilities to understand, for each U.S. material entity, the
obligations and exposures associated with PCS activities, including
contractual obligations and commitments. The firm should be able to:
Track the following items by (i) U.S. material entity
and, (ii) with respect to customers, counterparties, and agents and
service providers, by location and jurisdiction:
[cir] PCS activities, with each activity mapped to the relevant
material entities, identified critical operations, and core business
lines; \22\
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\22\ 12 CFR 243.5(e)(12) and 12 CFR 381.5(e)(12).
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[cir] Customers and counterparties for PCS activities, including
values and volumes of various transaction types, as well as used and
unused capacity for all lines of credit; \23\
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\23\ Id.
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[cir] Exposures to and volumes transacted with FMUs, nostro
agents, and custodians; and \24\
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\24\ 12 CFR 252.156(g).
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[cir] Services provided and service level agreements, as
applicable, for other current agents and service providers (internal
and external); \25\
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\25\ 12 CFR 243.5(f)(l)(i) and 12 CFR 381.5(f)(1)(i).
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Assess the potential effects of adverse actions by
FMUs, nostro agents, custodians, and other agents and service
providers, including suspension or termination of membership or
services, on the firm's U.S. operations and customers and
counterparties of those U.S. operations; \26\
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\26\ 12 CFR 252.156(e).
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Develop contingency arrangements in the event of such
adverse actions; \27\ and
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\27\ Id.
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Quantify the liquidity needs and operational capacity
required to meet all PCS
[[Page 64654]]
obligations, including any change in demand for and sources of
liquidity needed to meet such obligations.
Managing, Identifying, and Valuing Collateral. The firm is
expected to have and describe its capabilities to manage, identify,
and value the collateral that the U.S. non-branch material entities
receive from and post to external parties and affiliates.
Specifically, the firm should:
Be able to query and provide aggregate statistics for
all qualified financial contracts concerning cross-default clauses,
downgrade triggers, and other key collateral-related contract
terms--not just those terms that may be impacted in an adverse
economic environment--across contract types, business lines, legal
entities, and jurisdictions;
Be able to track both collateral sources (i.e.,
counterparties that have pledged collateral) and uses (i.e.,
counterparties to whom collateral has been pledged) at the CUSIP
level on at least a t+1 basis;
Have robust risk measurements for cross-entity and
cross-contract netting, including consideration of where collateral
is held and pledged;
Be able to identify CUSIP and asset class level
information on collateral pledged to specific central counterparties
by legal entity on at least a t+1 basis;
Be able to track and report on inter-branch collateral
pledged and received on at least a t+1 basis and have clear policies
explaining the rationale for such inter-branch pledges, including
any regulatory considerations; and
Have a comprehensive collateral management policy that
outlines how the firm as a whole approaches collateral and serves as
a single source for governance.\28\
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\28\ The policy may reference subsidiary or related policies
already in place, as implementation may differ based on business
line or other factors.
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In addition, as of the conclusion of any business day, the firm
should be able to:
Identify the legal entity and geographic jurisdiction
where counterparty collateral is held;
Document all netting and re-hypothecation arrangements
with affiliates and external parties, by legal entity; and
Track and manage collateral requirements associated
with counterparty credit risk exposures between affiliates,
including foreign branches.
At least on a quarterly basis, the firm should be able to:
Review the material terms and provisions of
International Swaps and Derivatives Association Master Agreements
and the Credit Support Annexes, such as termination events, for
triggers that may be breached as a result of changes in market
conditions;
Identify legal and operational differences and
potential challenges in managing collateral within specific
jurisdictions, agreement types, counterparty types, collateral
forms, or other distinguishing characteristics; and
Forecast changes in collateral requirements and cash
and non-cash collateral flows under a variety of stress scenarios.
Management Information Systems. The firm should have the
management information systems (MIS) capabilities to readily produce
data on a U.S. legal entity basis (including any U.S. branch) and
have controls to ensure data integrity and reliability. The firm
also should perform a detailed analysis of the specific types of
financial and risk data that would be required to execute the U.S.
resolution strategy and how frequently the firm would need to
produce the information, with the appropriate level of granularity.
The firm should have the capabilities to produce the following types
of information in a timely manner and describe these capabilities in
the Plan:
Financial statements for each material entity (at least
monthly);
External and inter-affiliate credit exposures, both on-
and off-balance sheet, by type of exposure, counterparty, maturity,
and gross payable and receivable;
Gross and net risk positions with internal and external
counterparties;
Guarantees, cross holdings, financial commitments and
other transactions between material entities;
Data to facilitate third-party valuation of assets and
businesses, including risk metrics;
Key third-party contracts, including the provider,
provider's location, service(s) provided, legal entities that are a
party to or a beneficiary of the contract, and key contractual
rights (for example, termination and change in control clauses);
Legal agreement information, including parties to the
agreement and key terms and interdependencies (for example, change
in control, collateralization, governing law, termination events,
guarantees, and cross-default provisions);
Service level agreements between affiliates, including
the service(s) provided, the legal entity providing the service,
legal entities receiving the service, and any termination/
transferability provisions;
Licenses and memberships to all exchanges and value
transfer networks, including FMUs;
Key management and support personnel, including dual-
hatted employees, and any associated retention agreements;
Agreements and other legal documents related to
property, including facilities, technology systems, software, and
intellectual property rights. The information should include
ownership, physical location, where the property is managed and
names of legal entities and lines of business that the property
supports; and
Updated legal records for domestic and foreign
entities, including entity type and purpose (for example, holding
company, bank, broker dealer, and service entity), jurisdiction(s),
ownership, and regulator(s).
Shared and Outsourced Services. The firm should maintain a fully
actionable implementation plan to ensure the continuity of shared
services that support identified critical operations \29\ or core
business lines and robust arrangements to support the continuity of
shared and outsourced services, including, without limitation,
appropriate plans to retain key personnel relevant to the execution
of the firm's strategy. For example, specified firms should evaluate
internal and external dependencies and develop documented strategies
and contingency arrangements for the continuity or replacement of
the shared and outsourced services that are necessary to maintain
identified critical operations or core business lines. Examples may
include personnel, facilities, systems, data warehouses, and
intellectual property. Specified firms also should maintain current
cost estimates for implementing such strategies and contingency
arrangements.
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\29\ ``Shared services that support identified critical
operations'' or ``critical shared services'' are those that support
identified critical operations conducted in whole or in material
part in the United States.
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If a material entity provides shared services that support
identified critical operations or core business lines, and the
continuity of these shared services relies on the assumed
cooperation, forbearance, or other non-intervention of regulator(s)
in any jurisdiction, the Plan should discuss the extent to which the
resolution or insolvency of any other group entities operating in
that same jurisdiction may adversely affect the assumed cooperation,
forbearance, or other regulatory non-intervention. If a material
entity providing shared services that support identified critical
operations or core business lines is located outside of the United
States, the Plan should discuss how the firm will ensure the
operational continuity of such shared services through resolution.
The firm should (A) maintain an identification of all shared
services that support identified critical operations or core
business lines; (B) maintain a mapping of how/where these services
support its core business lines and identified critical operations;
(C) incorporate such mapping into legal entity rationalization
criteria and implementation efforts; and (D) mitigate identified
continuity risks through establishment of service-level agreements
(SLAs) for all shared services that support identified critical
operations or core business lines.
SLAs should fully describe the services provided, reflect
pricing considerations on an arm's-length basis where appropriate,
and incorporate appropriate terms and conditions to (A) prevent
automatic termination upon certain resolution-related events and (B)
achieve continued provision of such services during resolution.\30\
The firm should also store SLAs in a central repository or
repositories located in or immediately accessible from the U.S. at
all times, including in resolution (and subject to enforceable
access arrangements) in a searchable format. In addition, the firm
should ensure the financial resilience of internal shared service
providers by maintaining working capital for six months (or through
the period of stabilization as required in the firm's U.S.
resolution strategy) in such entities sufficient to cover contract
costs, consistent with the U.S.
[[Page 64655]]
resolution strategy. The firm should demonstrate that such working
capital is held in a manner that ensures its availability for its
intended purpose.
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\30\ The firm should consider whether these SLAs should be
governed by the laws of a U.S. state and expressly subject to the
jurisdiction of a court in the U.S.
---------------------------------------------------------------------------
The firm should identify all critical service providers and
outsourced services that support identified critical operations or
core business lines and identify any that could not be promptly
substituted. The firm should (A) evaluate the agreements governing
these services to determine whether there are any that could be
terminated upon commencement of any resolution despite continued
performance, and (B) update contracts to incorporate appropriate
terms and conditions to prevent automatic termination upon
commencement of any resolution proceeding and facilitate continued
provision of such services. Relying on entities projected to survive
during resolution to avoid contract termination is insufficient to
ensure continuity. In the Plan, the firm should document the
amendment of any such agreements governing these services.
Qualified Financial Contracts. The Plan should reflect the
current state of how the early termination of qualified financial
contracts could impact the resolution of the firm's operations,
including potential termination of any contracts that are not
subject to contractual or regulatory stays of cross-default rights.
Specifically, the Plan is expected to reflect the firm's progress
regarding contractual stays in qualified financial contracts as of
the date the firm submits its Plan or as of a specified earlier
date. A firm that has adhered to the International Swaps and
Derivatives Association's (ISDA) 2018 U.S. Resolution Stay Protocol
or its antecedent, ISDA's 2015 Universal Resolution Stay Protocol
(together, the Protocols) should discuss the extent of the firm's
adherence to the Protocols in its Plan (and may also discuss the
impact on U.S. operations of the firm's adherence to ISDA's 2016
Jurisdictional Modular Protocol on its non-U.S. operations). A Plan
should also explain the firm's processes for entering bilateral
contracts with third-party entities that do not adhere to the
Protocols and provide examples of the contractual language that is
used under those circumstances.
U.S. MPOE
Payment, Clearing, and Settlement (PCS) Capabilities. Firms are
expected to have and describe capabilities to understand, for each
U.S. material entity, its obligations and exposures associated with
PCS activities, including contractual obligations and commitments.
For example, firms should be able to:
As users of PCS services:
[cir] Track the following items by: (i) U.S. material entity;
and (ii) with respect to customers, counterparties, and agents and
service providers, location and jurisdiction:
[ssquf] PCS activities, with each activity mapped to the
relevant material entities, identified critical operations, and core
business lines;
[ssquf] Customers and counterparties for PCS activities,
including values and volumes of various transaction types, as well
as used and unused capacity for all lines of credit;
[ssquf] Exposures to and volumes transacted with FMUs, nostro
agents, and custodians; and
[ssquf] Services provided and service level agreements, as
applicable, for other current agents and service providers (internal
and external).
[cir] Assess the potential effects of adverse actions by FMUs,
nostro agents, custodians, and other agents and service providers,
including suspension or termination of membership or services, on
the firm's U.S. operations and customers and counterparties of those
U.S. operations;
[cir] Develop contingency arrangements in the event of such
adverse actions; and
[cir] Quantify the liquidity needs and operational capacity
required to meet all PCS obligations, including intraday
requirements.
As providers of PCS services:
[cir] Identify their PCS clients of their U.S operations and the
services they provide to these clients, including volumes and values
of transactions;
[cir] Quantify and explain time-sensitive payments; and
[cir] Quantify and explain intraday credit provided.
Managing, Identifying and Valuing Collateral. The firm should
have appropriate capabilities related to managing, identifying, and
valuing the collateral that the U.S. non-branch material entities
receive from and posts to external parties and its affiliates,
including tracking collateral received, pledged, and available at
the CUSIP level and measuring exposures.
Management Information Systems. The firm should have the
management information systems (MIS) capabilities to readily produce
data on a U.S. legal entity basis (including any U.S. branch) and
have controls to ensure data integrity and reliability. The firm
also should perform a detailed analysis of the specific types of
financial and risk data that would be required to execute the U.S.
resolution strategy. The firm should have the capabilities to
produce the following types of information, as appropriate for its
U.S. resolution strategy, in a timely manner and describe these
capabilities in the Plan:
Financial statements for each material entity (at least
monthly);
External and inter-affiliate credit exposures, both on-
and off-balance sheet, by type of exposure, counterparty, maturity,
and gross payable and receivable;
Gross and net risk positions with internal and external
counterparties;
Guarantees, cross holdings, financial commitments and
other transactions between material entities;
Data to facilitate third-party valuation of assets and
businesses, including risk metrics;
Key third-party contracts, including the provider,
provider's location, service(s) provided, legal entities that are a
party to or a beneficiary of the contract, and key contractual
rights (for example, termination and change in control clauses);
Legal agreement information, including parties to the
agreement and key terms and interdependencies (for example, change
in control, collateralization, governing law, termination events,
guarantees, and cross-default provisions);
Service level agreements between affiliates, including
the service(s) provided, the legal entity providing the service,
legal entities receiving the service, and any termination/
transferability provisions;
Licenses and memberships to all exchanges and value
transfer networks, including FMUs;
Key management and support personnel, including dual-
hatted employees, and any associated retention agreements;
Agreements and other legal documents related to
property, including facilities, technology systems, software, and
intellectual property rights. The information should include
ownership, physical location, where the property is managed and
names of legal entities and lines of business that the property
supports; and
Updated legal records for domestic and foreign
entities, including entity type and purpose (for example, holding
company, bank, broker dealer, and service entity), jurisdiction(s),
ownership, and regulator(s).
Shared and Outsourced Services. The firm should maintain robust
arrangements to support the continuity of shared and outsourced
services that support any identified critical operations or are
material to the execution of the U.S. resolution strategy, including
appropriate plans to retain key personnel relevant to the execution
of the firm's strategy. For example, specified firms should evaluate
internal and external dependencies and develop documented strategies
and contingency arrangements for the continuity or replacement of
the shared and outsourced services that are necessary to maintain
identified critical operations or are material to the execution of
the U.S. resolution strategy. Examples may include personnel,
facilities, systems, data warehouses, and intellectual property.
Specified firms also should maintain current cost estimates for
implementing such strategies and contingency arrangements. If a
material entity provides shared services that support identified
critical operations,\31\ or are material to the execution of the
U.S. resolution strategy, and the continuity of these shared
services relies on the assumed cooperation, forbearance, or other
non-intervention of regulator(s) in any jurisdiction, the Plan
should discuss the extent to which the resolution or insolvency of
any other group entities operating in that same jurisdiction may
adversely affect the assumed cooperation, forbearance, or other
regulatory non-intervention. If a material entity providing shared
services that support identified critical operations, or are
material to the execution of the U.S. resolution strategy, is
located outside of the United States, the Plan should discuss how
the firm will ensure the operational continuity of such shared
services through resolution.
---------------------------------------------------------------------------
\31\ This should be interpreted to include data access and
intellectual property rights.
---------------------------------------------------------------------------
The firm should (A) maintain an identification of all shared
services that support identified critical operations or are material
to the execution of the U.S. resolution strategy, and (B) mitigate
identified continuity risks through
[[Page 64656]]
establishment of SLAs for all shared services supporting identified
critical operations or are material to the execution of the U.S.
resolution strategy. SLAs should fully describe the services
provided and incorporate appropriate terms and conditions to: (A)
prevent automatic termination upon certain resolution-related
events; and (B) achieve continued provision of such services during
resolution.\32\
---------------------------------------------------------------------------
\32\ The firm should consider whether these SLAs should be
governed by the laws of a U.S. state and expressly subject to the
jurisdiction of a court in the United States.
---------------------------------------------------------------------------
The firm should identify all critical service providers and
outsourced services that support identified critical operations or
are material to the execution of the U.S. resolution strategy. Any
of these services that cannot be promptly substituted should be
identified in a firm's Plan. The firm should: (A) evaluate the
agreements governing these services to determine whether there are
any that could be terminated upon commencement of any resolution
despite continued performance; and (B) update contracts to
incorporate appropriate terms and conditions to prevent automatic
termination upon commencement of any resolution proceeding and
facilitate continued provision of such services. Relying on entities
projected to survive during resolution to avoid contract termination
is insufficient to ensure continuity. In the Plan, the firm should
document the amendment of any such agreements governing these
services.
VII. Branches
U.S. SPOE & U.S. MPOE
Continuity of Operations. If the Plan assumes that federal or
state regulators, as applicable, do not take possession of any U.S.
branch that is a material entity, the Plan should support that
assumption.
For any U.S. branch that is a material entity, the Plan should
describe and demonstrate how the branch would continue to facilitate
FMU access for identified critical operations and meet funding
needs. For such a U.S. branch, the Plan should describe how it would
meet supervisory requirements imposed by state regulators or the
appropriate Federal banking agency, as appropriate, including
maintaining a net due to position and complying with heightened
asset maintenance requirements.\33\ In addition, the Plan should
describe how such a U.S. branch's third-party creditors would be
protected such that the state regulator or appropriate Federal
banking agency would allow the branch to continue operations.
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\33\ Firms should take into consideration historical practice,
by applicable regulators, regarding asset maintenance requirements
imposed during stress.
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Impact of the Cessation of Operations. The Plan should provide
an analysis of the impact of the cessation of operations of any U.S.
branch that is a material entity on the firm's FMU access and
identified critical operations, even if such scenario is not
contemplated as part of the U.S. resolution strategy. The analysis
should include a description of how identified critical operations
could be transferred to a U.S. IHC subsidiary or sold in resolution,
the obstacles presented by the cessation of shared services that
support identified critical operations provided by any U.S. branch
that is a material entity, and mitigants that could address such
obstacles in a timely manner.
VIII. Legal Entity Rationalization & Separability
Legal Entity Rationalization
U.S. SPOE
Legal Entity Rationalization Criteria (LER Criteria). A firm
should develop and implement legal entity rationalization criteria
that support the firm's U.S. resolution strategy and minimize risk
to U.S. financial stability in the event of resolution. LER Criteria
should consider the best alignment of legal entities and business
lines to improve the resolvability of U.S. operations under
different market conditions. LER Criteria should govern the
corporate structure and arrangements between the U.S. subsidiaries
and U.S. branches in a way that facilitates resolvability of the
firm's U.S. operations as the firm's U.S. activities, technology,
business models, or geographic footprint change over time.
Specifically, application of the criteria should:
(A) Ensure that the allocation of activities across the firm's
U.S. branches and U.S. non-branch material entities support the
firm's U.S. resolution strategy and minimize risk to U.S. financial
stability in the event of resolution;
(B) Facilitate the recapitalization and liquidity support of
U.S. IHC subsidiaries, as required by the firm's U.S. resolution
strategy. Such criteria should include clean lines of ownership and
clean funding pathways between the foreign parent, the U.S. IHC, and
U.S. IHC subsidiaries;
(C) Facilitate the sale, transfer, or wind-down of certain
discrete operations within a timeframe that would meaningfully
increase the likelihood of an orderly resolution in the United
States, including provisions for the continuity of associated
services and mitigation of financial, operational, and legal
challenges to separation and disposition;
(D) Adequately protect U.S. subsidiary insured depository
institutions from risks arising from the activities of any nonbank
U.S. subsidiaries (other than those that are subsidiaries of an
insured depository institution); and
(E) Minimize complexity that could impede an orderly resolution
in the United States and minimize redundant and dormant entities.
These criteria should be built into the firm's ongoing process
for creating, maintaining, and optimizing the firm's U.S. structure
and operations on a continuous basis.
U.S. MPOE
Legal Entity Structure. A firm should maintain a legal entity
structure that supports the firm's U.S. resolution strategy and
minimizes risk to U.S. financial stability in the event of the
resolution of the firm's U.S. operations. The firm should consider
factors such as business activities; banking group structures and
booking models and practices; and potential sales, transfers, or
wind-downs during resolution. The Plan should describe how the
firm's U.S. legal entity structure aligns core business lines and
any identified critical operations with the firm's material entities
to support the firm's U.S. resolution strategy. To the extent a
material entity IDI relies upon an affiliate that is not the IDI's
subsidiary during resolution of its U.S. entities, including for the
provision of shared services, the firm should discuss its rationale
for the legal entity structure and associated resolution risks and
potential mitigants.
The firm's corporate structure and arrangements among U.S. legal
entities should be considered and maintained in a way that
facilitates the firm's resolvability as its activities, technology,
business models, or geographic footprint change over time.
Separability
U.S. SPOE
Separability. The firm should identify discrete U.S. operations
that could be sold or transferred in resolution, with the objective
of providing optionality in resolution under different market
conditions.
A firm's separability options should be actionable, and
impediments to their projected mitigation strategies should be
identified in advance. Firms should consider potential consequences
for U.S. financial stability of executing each option, taking into
consideration impacts on counterparties, creditors, clients,
depositors, and markets for specific assets. The level of detail and
analysis should vary based on a firm's risk profile and scope of
operations. Additionally, information systems should be robust
enough to produce the required data and information needed to
execute separability options.
Further, the firm should have, and be able to demonstrate, the
capability to populate in a timely manner a data room with
information pertinent to a potential divestiture of the identified
separability options (including, but not limited to, carve-out
financial statements, valuation analysis, and a legal risk
assessment). Within the Plan, the firm should demonstrate how the
firm's LER Criteria and implementation efforts support meeting the
separability-related guidance above. The Plan should also provide
the separability analysis noted above. Finally, the Plan should
include a description of the firm's legal entity rationalization
governance process.
U.S. MPOE
A Plan should include options for the sale, transfer, or
disposal of U.S. significant assets, portfolios, legal entities, or
business lines in resolution that may be executed in a reasonable
period of time. For each option, supporting analysis should include:
an execution plan that includes an estimated time frame for
implementation, a description of any impediments to execution of the
option, and mitigation strategies to address those impediments; a
description of the assumptions underpinning the option; a financial
impact assessment that describes the impact of executing the option;
and an identified critical operation impact assessment that
describes how execution of the option may affect the provision of
any
[[Page 64657]]
identified critical operation. Information systems should be robust
enough to produce the required data and information needed to
execute the options.
IX. Insured Depository Institution (IDI) Resolution
MPOE
If the Plan includes a strategy that contemplates the separate
resolution of a U.S. IDI that is a material entity, the Plan should
demonstrate how this could be achieved in a manner that is
consistent with the overall objective of the Plan to substantially
mitigate the risk that the failure of the specified firm would have
serious adverse effects on financial stability in the United States
while also complying with the statutory and regulatory requirements
governing IDI resolution. More specifically,
If the strategy is other than payout liquidation (e.g.,
a bridge depository institution (BDI)), the Plan should provide
information supporting the feasibility of this strategy. Under the
FDI Act, the FDIC generally would complete a least-cost analysis
when resolving a failed bank at the time of entry into resolution. A
Plan may use an approach such as one of the following in lieu of
performing a complete least-cost analysis to demonstrate the
feasibility of the proposed strategy.\34\
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\34\ See 12 U.S.C. 1823(c)(4)(A)(ii) and 12 U.S.C.
1821(n)(2)(A).
---------------------------------------------------------------------------
[cir] A Plan may demonstrate that a strategy involving an all-
deposit BDI would be permissible under the least-cost test of the
FDI Act by presenting an analysis which shows that the strategy
results in no loss to the Deposit Insurance Fund (DIF) by
demonstrating that the incremental estimated cost to the DIF by
having the BDI assume all uninsured deposits is offset by the
preservation of franchise value connected to the uninsured deposits
after accounting for the amount of any loss-absorbing debt
instruments and other liabilities subordinate to the depositor class
that would be left behind in the receivership.
[cir] A Plan may demonstrate the feasibility of a strategy
involving a BDI that assumes all insured deposits and a portion of
uninsured deposits by providing an advance dividend to uninsured
depositors for a portion of their deposit claim, as well as the
basis for that dividend, and pursuant to which a loss to the DIF
occurs, by presenting an analysis comparing the cost of the proposed
strategy to the cost of payout liquidation and demonstrating:
[ssquf] The incremental estimated cost to the DIF created by the
BDI's assumption of the portion of uninsured deposits assumed is
offset by the franchise value preserved by maintaining the assumed
uninsured deposits, after accounting for the amount of any long-term
debt and other liabilities subordinate to the depositor class that
would be left behind in the receivership; \35\
---------------------------------------------------------------------------
\35\ See 12 U.S.C. 1821(d)(11).
---------------------------------------------------------------------------
[ssquf] The loss to the DIF under the proposed strategy
(including the amounts paid by the DIF for more favorable treatment,
relative to a payout liquidation, of a portion of uninsured
deposits) is less than or equal to the loss to the DIF that would be
incurred through a payout liquidation of the IDI; and
[cir] The deposit payout process for any uninsured deposits that
remain in the receivership may be executed in a manner that
substantially mitigates the risk of serious adverse effects on U.S.
financial stability.
If the Plan's strategy envisions a payout liquidation
for the IDI, with or without use of a Deposit Insurance National
Bank or a paying agent, the Plan should demonstrate how the deposit
payout and asset liquidation process would be executed in a manner
that substantially mitigates the risk of serious adverse effects on
U.S. financial stability.
In all cases, the Plan should show that implementation
of the resolution, including the impact on depositors whose accounts
are not transferred in whole or in part to the BDI, would not create
the risk of serious adverse effects on U.S. financial stability.
Regardless of the IDI resolution strategy chosen, the Plan
should assume asset valuations consistent with the severely adverse
stress economic scenario and the IDI's condition as a failed
institution, as referenced in ``Guidance regarding Assumptions,''
Items 4 and 7 below. The Plan, in light of such conditions, should
explain the process for determining asset or business franchise
values, including providing detailed supporting descriptions such as
references to historical pricing, benchmarks, or recognized models;
evidence supporting client attrition rates; and other relevant
information.
With respect to exit from IDI resolution proceedings, a Plan
could support the feasibility of an asset liquidation or BDI exit
strategy by, for example, describing an actionable process, based on
historical precedent or otherwise supportable projections, that
winds down certain businesses, includes the sale of assets and
deposits to multiple acquirers, or culminates in a capital markets
transaction, such as an initial public offering or a private
placement of securities.
X. Format and Structure of Plans; Assumptions
U.S. SPOE & U.S. MPOE
Format of Plan
Executive Summary. The Plan should contain an executive summary
consistent with the Rule, which must include, among other things, a
concise description of the key elements of the firm's strategy for
an orderly resolution. In addition, the executive summary should
include a discussion of the firm's assessment of any impediments to
the firm's U.S. resolution strategy and its execution, as well as
the steps it has taken to address any identified impediments.
Narrative. The Plan should include a strategic analysis
consistent with the Rule. This analysis should take the form of a
concise narrative that enhances the readability and understanding of
the firm's discussion of its strategy for an orderly resolution in
bankruptcy or other applicable insolvency regimes (Narrative).
Appendices. The Plan should contain a sufficient level of detail
and analysis to substantiate and support the strategy described in
the Narrative. Such detail and analysis should be included in
appendices that are distinct from and clearly referenced in the
related parts of the Narrative (Appendices).
Public Section. The Plan must be divided into a public section
and a confidential section consistent with the requirements of the
Rule.
Other Informational Requirements. The Plan must comply with all
other informational requirements of the Rule. The firm may
incorporate by reference previously submitted information as
provided in the Rule.
Guidance Regarding Assumptions.
1. The Plan should be based on the current state of the
applicable legal and policy frameworks. Pending legislation or
regulatory actions may be discussed as additional considerations.
2. The firm must submit a Plan that does not rely on the
provision of extraordinary support by the United States or any other
government to the firm or its subsidiaries to prevent the failure of
the firm.\36\ The firm should not submit a Plan that assumes the use
of the systemic risk exception to the least-cost test in the event
of a failure of an IDI requiring resolution under the FDI Act.
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\36\ 12 CFR 243.4(a)(4)(ii) and 12 CFR 381.4(a)(4)(ii).
---------------------------------------------------------------------------
3. The firm should not assume that it will be able to sell
identified critical operations or core business lines, or that
unsecured funding will be available immediately prior to filing for
bankruptcy.
4. The U.S. resolution strategy may be based on an idiosyncratic
event or action, including a series of compounding events. The firm
should justify use of that assumption, consistent with the
conditions of the economic scenario.
5. Within the context of the applicable idiosyncratic scenario,
markets are functioning and competitors are in a position to take on
business. If a firm's Plan assumes the sale of assets, the firm
should take into account all issues surrounding its ability to sell
in market conditions present in the applicable economic condition at
the time of sale (i.e., the firm should take into consideration the
size and scale of its operations as well as issues of separation and
transfer).
6. For a firm that adopts a U.S. MPOE strategy, the Plan should
demonstrate and describe how the failure event(s) results in
material financial distress of the U.S. operations.\37\ In
particular, the Plan should consider the likelihood that there would
be a diminution of the firm's liquidity buffer in the stress period
prior to filing for bankruptcy from high unexpected outflows of
deposits and increased liquidity requirements from counterparties.
Though the immediate failure event may be liquidity-related and
associated with a lack of market confidence in the financial
condition of the covered company or its material legal entity
subsidiaries prior to the final recognition of losses, the
demonstration and description of
[[Page 64658]]
material financial distress may also include depletion of capital.
Therefore, the Plan should also consider the likelihood of the
depletion of capital.
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\37\ See Section 11(c)(5) of the FDI Act, codified at 11 U.S.C.
1821(c)(5), which details grounds for appointing the FDIC as
conservator or receiver of an IDI.
---------------------------------------------------------------------------
7. The firm should not assume any waivers of section 23A or 23B
of the Federal Reserve Act in connection with the actions proposed
to be taken prior to or in resolution.
8. The Plan should support any assumptions that the firm will
have access to the Discount Window and/or other borrowings during
the period immediately prior to entering bankruptcy. To the extent
the firm assumes use of the Discount Window and/or other borrowings,
the Plan should support that assumption with a discussion of the
operational testing conducted to facilitate access in a stress
environment, placement of collateral and the amount of funding
accessible to the firm. The firm may assume that its depository
institutions will have access to the Discount Window only for a few
days after the point of failure to facilitate orderly resolution.
However, the firm should not assume its subsidiary depository
institutions will have access to the Discount Window while
critically undercapitalized, in FDIC receivership, or operating as a
bridge bank, nor should it assume any lending from a Federal Reserve
credit facility to a non-bank affiliate.
Financial Statements and Projections. The Plan should include
the actual balance sheet for each material entity and the
consolidating balance sheet adjustments between material entities as
well as pro forma balance sheets for each material entity at the
point of failure and at key junctures in the execution of the U.S.
resolution strategy. It should also include statements of projected
sources and uses of funds for the interim periods. The pro forma
financial statements and accompanying notes in the Plan must clearly
evidence the failure trigger event; the Plan's assumptions; and any
transactions that are critical to the execution of the Plan's
preferred strategy, such as recapitalizations, the creation of new
legal entities, transfers of assets, and asset sales and unwinds.
Material Entities. Material entities should encompass those
entities, including foreign offices and branches, which are
significant to the maintenance of an identified critical operation
or core business line. If the abrupt disruption or cessation of a
core business line might have systemic consequences to U.S.
financial stability, the entities essential to the continuation of
such core business line should be considered for material entity
designation. Material entities should include the following types of
entities:
1. Any U.S.-based or non-U.S. affiliates, including any
branches, that are significant to the activities of an identified
critical operation conducted in whole or material part in the United
States.
2. Subsidiaries or foreign offices whose provision or support of
global treasury operations, funding, or liquidity activities
(inclusive of intercompany transactions) is significant to the
activities of an identified critical operation.
3. Subsidiaries or foreign offices that provide material
operational support in resolution (key personnel, information
technology, data centers, real estate or other shared services) to
the activities of an identified critical operation.
4. Subsidiaries or foreign offices that are engaged in
derivatives booking activity that is significant to the activities
of an identified critical operation, including those that conduct
either the internal hedge side or the client-facing side of a
transaction.
5. Subsidiaries or foreign offices engaged in asset custody or
asset management that are significant to the activities of an
identified critical operation.
6. Subsidiaries or foreign offices holding licenses or
memberships in clearinghouses, exchanges, or other FMUs that are
significant to the activities of an identified critical operation.
7. For each material entity (including a branch), the Plan
should enumerate, on a jurisdiction-by-jurisdiction basis, the
specific mandatory and discretionary actions or forbearances that
regulatory and resolution authorities would take during resolution,
including any regulatory filings and notifications that would be
required as part of the preferred strategy, and explain how the Plan
addresses the actions and forbearances. Describe the consequences
for the covered company's U.S. resolution strategy if specific
actions in a non-U.S. jurisdiction were not taken, delayed, or
forgone, as relevant.
XI. Public Section
U.S. SPOE & U.S. MPOE
The purpose of the public section is to inform the public's
understanding of the firm's U.S. resolution strategy and how it
works.
The public section should discuss the steps that the firm is
taking to improve resolvability under the U.S. Bankruptcy Code. The
public section should provide background information on each
material entity and should be enhanced by including the firm's
rationale for designating material entities. The public section
should also discuss, at a high level, the firm's intra-group
financial and operational interconnectedness (including the types of
guarantees or support obligations in place that could impact the
execution of the firm's strategy).
The discussion of strategy in the public section should broadly
explain how the firm has addressed any deficiencies, shortcomings,
and other key vulnerabilities that the agencies have identified in
prior plan submissions. For each material entity, it should be clear
how the strategy provides for continuity, transfer, or orderly wind-
down of the entity and its operations. There should also be a
description of the resulting organization upon completion of the
resolution process.
The public section may note that the Plan is not binding on a
bankruptcy court or other resolution authority and that the proposed
failure scenario and associated assumptions are hypothetical and do
not necessarily reflect an event or events to which the firm is or
may become subject.
By order of the Board of Governors of the Federal Reserve
System.
Ann E. Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on August 29, 2023.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2023-19268 Filed 9-18-23; 8:45 am]
BILLING CODE 6210-01-6714-01-P
