On December 17, the Office of the Comptroller of the Currency (OCC) requested comment on a proposed rule to establish enforceable guidelines for recovery planning by insured national banks, insured federal savings associations and insured federal branches of foreign banks with average total consolidated assets of $50 billion or more (collectively, covered banks). The guidelines are issued pursuant to a federal statute that authorizes the OCC to prescribe operational and managerial standards for national banks and federal savings associations. The OCC guidelines would be enforceable under the terms of that statute.
The comment period for the proposed rule ends February 16, 2016. A summary follows of the proposed guidelines follows.
A covered bank should develop and maintain a recovery plan that is appropriate for its individual risk profile, size, activities and complexity, including the complexity of its organizational and legal entity structure. The proposed guidelines state that a recovery plan should do the following:
- Establish triggers, which are quantitative or qualitative indicators of the risk or existence of severe stress that should always be escalated to management or the board of directors, as appropriate, for purposes of initiating a response. To identify triggers that appropriately reflect the particular vulnerabilities of a covered bank, the bank should design severe stress scenarios that would threaten its critical operations or cause the covered bank to fail if one or more recovery options were not implemented in a timely manner.
- Identify a wide range of credible options that a covered bank could undertake to restore financial and operational strength and viability. A recovery plan should include an assessment and description of the effect of each credible option on the covered bank.
- Address escalation procedures, management reports and communication procedures.
Management and Board of Directors
- Management of the covered bank should review the recovery plan at least annually and in response to a material event. Management should revise the plan as necessary to reflect material changes in the covered bank’s risk profile, complexity, size and activities, as well as changes in external threats. This review should evaluate the covered bank’s organizational structure and its effectiveness in facilitating a recovery.
- The covered bank’s board of directors (or an appropriate committee of the board) should review and approve the recovery plan at least annually and more often as needed to address any changes made by management.
Enforceability of the Guidelines
The proposed guidelines would be enforceable pursuant to section 39 of the Federal Deposit Insurance Act (FDIA), 12 USC 1831p-1. If a covered bank fails to meet a standard prescribed by the guidelines, the OCC may require the covered bank to submit a plan specifying the steps it will take to comply with the standard. The OCC may issue an order enforceable under section 8 of the FDIA, 12 USC 1818(b), if a covered bank, after being notified that it is in violation of a standard, fails to submit an acceptable compliance plan or fails materially to comply with an OCC-approved plan. The OCC is proposing to issue the guidelines as a new appendix E to part 30 of OCC regulations.
The bulletin is available here.