During 2013, foreign banks with US$50 billion or more in global assets, and a branch or agency in the United States, will be required to submit resolution plans (often called “living wills”) to U.S. federal banking regulators. Resolution plans of foreign banks with less than US$100 billion in U.S. non-bank assets are due by year-end 2013, but a notice must be filed by April 1, 2013, if the institution wishes to use a simplified “tailored” resolution plan. Resolution plans of foreign banks with between US$100 billion and US$250 billion in U.S. non-bank assets must be submitted by July 2013. Foreign banks with US$250 billion or more in U.S. non-bank assets were required to submit resolution plans in 2012.1

  The Board of Governors of the Federal Reserve System (FRB) and the Federal Deposit Insurance Corporation (FDIC) in November 2011, adopted regulations requiring certain U.S. and foreign banks, and nonbank financial companies supervised by the FRB pursuant to a systemic risk determination by the Financial Stability Oversight Council, to submit and periodically update resolution plans, describing how they can be resolved in an orderly manner under the U.S. Bankruptcy Code in the event of material financial distress or failure. The regulations, which implement Section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), require each “covered company” to submit a resolution plan. The term “covered company” is defined to include foreign banks and companies that are, or are treated as, bank holding companies under Section 8(a) of the International Banking Act of 1978, and that have US$50 billion or more in global consolidated assets. This advisory describes the resolution plan requirements for foreign-based covered companies and the process for seeking a limited exception to the requirements. For further information on the preparation of resolution plans, please see our prior Arnold & Porter advisory on the topic.

I. Timeframe for Submission

The required timeframe for submission of the initial resolution plan depends on the size of the company’s U.S.-based nonbank2 operations as of November 30, 2011, which was the effective date of the regulation. While the largest covered companies were required to submit a resolution plan last summer, the vast majority of foreign-based covered companies must submit their resolution plans later this year. The two remaining deadlines for the submission of resolution plans by foreign-based covered companies are as follows:

  • „„July 1, 2013 for foreign-based covered companies with US$100 billion or more (but less than US$250 billion) in total U.S. nonbank assets; and
  • December 31, 2013 for foreign-based covered companies with less than US$100 billion of U.S. nonbank assets.

For foreign-based covered companies with less than US$100 billion of U.S. nonbank assets, April 1, 2013, is the deadline for submission of an application requesting permission to submit a less comprehensive, “tailored,” resolution plan.

II. Informational Content of a Resolution Plan

Foreign-based covered companies and foreign banking organizations3 are generally required to submit a resolution plan that contains the following information with respect to its subsidiaries, branches, agencies, critical operations, and core business lines that are domiciled in the United States or conducted in whole or material part in the United States:

  • Executive summary
  • Strategic analysis
  • Corporate governance relating to resolution planning
  • Organizational structure and related information
  • Management information systems
  • Interconnections and interdependencies „„
  • Supervisory and regulatory information
  • Contact information  

In addition, they must provide a detailed explanation of how such resolution planning is integrated into the company’s overall resolution or other contingency planning process.  

III. Tailored Resolution Plans

The regulation permits smaller, less complex foreign-based covered companies that operate in the United States predominately through one or more insured depository institutions, branches, or agencies to elect to file a tailored resolution plan that focuses only on resolution of the company’s U.S. nonbank operations and material business operations that are subject to resolution under the U.S. Bankruptcy Code, and the interconnections of such operations with those of its U.S. insured depository institution(s), branches, and agencies.  

A foreign-based covered company may elect to file a tailored resolution plan, and is considered an “eligible covered company” for those purposes if, as of the end of the prior calendar year:

  1. it had less than US$100 billion in total U.S. nonbank assets, and
  2. the assets of its U.S. insured depository institution operations, branches, and agencies comprised 85% or more of its U.S. total consolidated assets.

An eligible covered company that intends to submit a tailored resolution plan must provide the FRB and FDIC with notice of its intent and eligibility no later than 270 days prior to the date on which it is required to submit its resolution plan. Thus, as noted above, the deadline for such notice by foreign-based covered companies with less than US$100 billion of U.S. nonbank assets is April 1, 2013.

The FRB and FDIC have wide discretion to approve an application for a tailored resolution plan or require a covered company to submit a resolution plan that meets some or all of the requirements of a full resolution plan. Thus, it is advisable for an eligible covered company to start consulting with the FRB and FDIC as soon as possible regarding the content of its application and in order to maximize its chances of being permitted to submit a tailored resolution plan.

IV. Preparing a Resolution Plan

Covered companies are required to submit resolution plans and annually update them. The process of creating and obtaining FRB approval for a plan will require extensive staff time and involvement by the board of directors and senior management. The FRB and FDIC have indicated that resolution planning is an iterative process. Each covered company must develop its own plan, designed to address its own business and organizational structure. Covered companies with US$250 billion or more in total nonbank assets were required to submit resolution plans last summer. Although the FRB and FDIC have not yet approved those plans, the public portions of those plans may nevertheless provide some guidance to smaller covered companies in the preparation of their resolution plans.  

Covered companies are well advised to decide as soon as possible whether they intend to file an application for permission to submit a tailored resolution plan. It may benefit covered companies to start working with the FRB and FDIC to determine the appropriate level of detail for such an application to submit a tailored resolution plan. It may also benefit them to start, if they have not already done so, creating teams and defining tasks in connection with the creation of the plan.