The Board of Governors of the Federal Reserve System (the Board) on October 17 announced the approval of a final rule to implement the resolution plan requirement in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The final rule requires bank holding companies with assets of $50 billion or more and nonbank financial firms designated by the Financial Stability Oversight Council (the Council) for supervision by the Board to annually submit resolution plans to the Board and the Federal Deposit Insurance Corporation (the FDIC).
Specifically, section 165(d) of the Dodd-Frank Act requires each nonbank financial company supervised by the Board and each bank holding company with total consolidated assets of $50 billion or more (each a “covered company”) to periodically submit to the Board, the FDIC and the Council a plan for such company’s rapid and orderly resolution in the event of material financial distress or failure. That section also requires each covered company to report on the nature and extent of credit exposures of such covered company to significant bank holding companies and significant nonbank financial companies and the nature and extent of credit exposures of significant bank holding companies and significant nonbank financial companies to such covered company.
Each plan must describe the company's strategy for rapid and orderly resolution in bankruptcy during times of financial distress. A resolution plan must include a strategic analysis of the plan's components, a description of the range of specific actions the company proposes to take in resolution, and a description of the company's "organizational structure, material entities, interconnections and interdependencies, and management information systems." More specifically, the final rule requires each covered company to produce a resolution plan that includes information regarding the manner and extent to which any insured depository institution affiliated with the company is adequately protected from risks arising from the activities of nonbank subsidiaries of the company; detailed descriptions of the ownership structure, assets, liabilities, and contractual obligations of the company; identification of the cross-guarantees tied to different securities; identification of major counterparties; a process for determining to whom the collateral of the company is pledged; and other information that the Board and the FDIC jointly require by rule or order.
The final rule also requires a strategic analysis by the covered company of how it can be resolved under Title 11 of the U.S. Code (the Bankruptcy Code) in a way that would not pose systemic risk to the financial system. In doing so, the company must map its core business lines and critical operations to material legal entities and provide integrated analyses of its corporate structure; credit and other exposures; funding, capital and cash flows; the domestic and foreign jurisdictions in which it operates; and its supporting information systems for core business lines and critical operations.
Companies subject to the rule will submit their initial resolution plans on a staggered basis. The first group of companies, generally those with $250 billion or more in non-bank assets, must submit their initial plans on or before July 1, 2012; the second group, generally those with $100 billion or more, must submit their initial plans on or before July 1, 2013; and the remaining companies, generally those with less than $100 billion in total non-bank assets, must submit their initial plans on or before December 31, 2013.
The rule becomes effective on November 30. To view the rule, click here.