On August 5, 2014, the Board of Governors of the Federal Reserve System (“Federal Reserve Board”) and the Federal Deposit Insurance Corporation (“FDIC”) provided feedback on the second round of resolution plans submitted by 11 large, global banking organizations. The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) requires that banking organizations with total consolidated assets of $50 billion or more and non-bank financial companies designated by the Financial Stability Oversight Council for supervision by the Federal Reserve Board periodically submit resolution plans to the Federal Reserve Board and the FDIC. These plans, known as “living wills,” must describe the company’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company.
In their review, the Federal Reserve Board and the FDIC identified several common shortcomings of the resolution plans submitted by the first-wave filers. The common features include: (i) assumptions that the Federal Reserve Board and the FDIC regard as unrealistic or inadequately supported, such as assumptions about the likely behavior of customers, counterparties, investors, central clearing facilities, and regulators; and (ii) the failure to make, and/or to identify, the kinds of changes in firm structure and practices that would be necessary to enhance the prospects for orderly resolution. The first-wave filers that submitted annual plans on or before July 1, 2014 must now demonstrate progress in addressing the shortcomings identified in the letters.
The full text of the joint Federal Reserve Board and FDIC statement is available at: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20140805-statement.htm.