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On May 3, FHFA published a final rule requiring Fannie Mae and Freddie Mac (GSEs) to develop “credible resolution plans” (also known as “living wills”) to facilitate their rapid and orderly resolution in the event FHFA is appointed receiver per the Housing and Economic Recovery Act of 2008. Similar to the living wills that other large financial institutions are required to develop under resolution planning rules issued by the Federal Reserve Board and the FDIC, the resolution plans will create a roadmap for preserving business continuity should the GSEs fail again. FHFA Director Mark Calabria stressed that the rule “helps create a stronger, more resilient housing finance system by protecting taxpayers and the mortgage market from harm.”
As previously covered by InfoBytes, last December FHFA published a notice of proposed rulemaking seeking to, among other things, implement liquidity and funding requirements for the GSEs. According to FHFA’s fact sheet, public input was incorporated into the final rule’s key components, which include the following requirements:
- The resolution planning process will start with the identification of core business lines.
- Initial resolution plans must be submitted “two years after the effective date of the final rule” with “subsequent resolution plans to be submitted every two years thereafter.”
- Resolution plans must include the following required and prohibited assumptions: (i) an assumption of severely adverse economic conditions; (ii) a prohibition on assuming that the U.S. government will provide or continue to provide “extraordinary support”; and (iii) the reflection of statutory provisions stating “that obligations and securities of the [GSE] issued pursuant to its charter are not guaranteed by the [U.S.] and do not constitute a debt or obligation of the [U.S.].”
- Resolution plans must identify “potential material weaknesses or impediments to rapid and orderly resolution as conceived in its plan,” along with any actions or steps to address the identified weaknesses or impediments.
- Resolution plans must ensure confidentiality of certain information but also make portions available to the public.
- Resolution plans will be reviewed by FHFA to identity whether additional information is needed, as well as any deficiencies or “shortcomings” (defined as supervisory concerns that do not rise to the level of “deficiencies”). Feedback will be provided along with an opportunity for resubmission.
Additionally, FHFA added a 12-month notification requirement to the final rule should the agency decide to alter the resolution plan submission date. FHFA also reserved the authority to further refine submission requirements. The final rule is effective 60 days after publication in the Federal Register.
On December 9, the FDIC and Federal Reserve Board announced several resolution plan actions, including providing finalized guidance for the resolution plans of four large foreign banking organizations (FBOs). Pursuant to the Dodd-Frank Act, FBOs must submit resolution plans—also known as “living wills”—which detail the strategic plans for their U.S. operations and subsidiaries for rapid and orderly resolution in bankruptcy in the event that the banks fail or fall under material financial distress. The final guidance modifies the proposed updates issued last March (covered by InfoBytes here) in several ways. Among other changes, the agencies “tailored their expectations around resolution capital and liquidity, derivatives and trading activity, as well as payment, clearing, and settlement activities,” and modified the scope of the guidance “to generally cover foreign banks in category II of the agencies' large bank regulatory framework.” As a result, three FBOs would be subject to the guidance for their plan submissions for 2021, and an additional FBO would be subject to the guidance for its full plan due in 2024 if it remains within the scope. The agencies also released information for 15 large foreign and domestic banks in categories II and III of the large bank regulatory framework that identifies required targeted information to be included in their next resolutions plans, due December 17, 2021. The agencies also confirmed that certain previously identified weaknesses in four FBOs have been remediated.
On July 1, the Federal Reserve Board and FDIC released a letter to address 2021 resolution plan submission requirements for the eight largest and most complex domestic banking organizations. The letter identifies targeted information required to be included in the 2021 resolution plans (due July 1, 2021), including certain core elements such as capital, liquidity, and recapitalization strategies, in addition to information on how each banking organization has integrated changes and lessons learned as a result of the Covid-19 pandemic. The agencies intend to use the banking organization’s response to the stress caused by the pandemic to inform their assessment of the banking organization’s resolution-related capabilities and infrastructure. According to the announcement, these will be the “first ‘targeted’ resolution plan[s]” following the agencies’ adoption of a final rule last year, which, among other things, amended the resolution planning requirements for large domestic and foreign firms with more than $100 billion in total consolidated assets (covered by InfoBytes here).
On May 6, the FDIC and Federal Reserve extended the following two upcoming resolution plan filing deadlines for certain banks in light of recent challenges arising from Covid-19:
- September 29, 2020 (90 day extension). This extension applies to the four institutions required to submit plans to address previously identified shortcomings.
- September 29, 2021 (90 day extension). This extension applies to the targeted resolution plans to be submitted by large foreign and domestic Category II and Category III banks under the agencies’ large bank regulatory framework.
Resolution plans for the eight global systemically important banks are still due July 1, 2021, however the agencies noted that they “will monitor conditions and may adjust this deadline if warranted.”
On April 27, the FDIC and the Federal Reserve Board announced a 30-day extension to the comment period for the agencies’ proposal to update resolution plan guidance for certain large foreign banking organizations (FBOs). As previously covered by InfoBytes, FBOs are required to submit resolution plans—also known as “living wills”—which detail the strategic plans for their U.S. operations and subsidiaries for rapid and orderly resolution in bankruptcy in the event that the banks fail or fall under material financial distress. The proposed guidance, issued in March, focuses on the FBOs’ derivatives and trading activities and payment, clearing, and settlement activities, and provides additional resolution plan expectations. Comments will now be accepted through June 4. Due to the Covid-19 pandemic, the agencies also state that other upcoming deadlines associated with the resolution planning process may be adjusted.
On March 6, the FDIC and the Federal Reserve Board issued a joint notice and request for comment on their proposal for updates to resolution plan guidance for certain large foreign banking organizations (FBOs). Pursuant to the Dodd-Frank Act, FBOs must submit resolution plans—also known as “living wills”—which detail the strategic plans for their U.S. operations and subsidiaries for rapid and orderly resolution in bankruptcy in the event that the banks fail or fall under material financial distress. Updates in the proposal focus on the FBO’s derivatives and trading activities and payment, clearing, and settlement activities and are informed by responses from FBOs to the prior 2018 FBO guidance and 2019 domestic guidance. In addition, the proposal contains an appendix of frequently asked questions with answers provided by agency staff. The agencies also seek comments “on objective, quantitative criteria to determine its applicability.” Comments must be received by May 5.
On October 28, the Federal Reserve Board and the FDIC issued a joint press release to announce the adoption of a final rule amending resolution planning requirements (known as living wills) for large domestic and foreign firms with more than $100 billion in total consolidated assets, while tailoring requirements to the level of risk a firm poses to the financial system. The final rule—which is substantially similar to the April 2019 proposal (previous InfoBytes coverage here)—makes improvements to the November 2011 joint resolution plan rule, and is consistent with amendments to Dodd-Frank made by the Economic Growth, Regulatory Relief, and Consumer Protection Act. Among other things, the final rule tailors resolution planning requirements by using four “risk-based categories,” and extends the default resolution plan filing cycle. Global systemically important bank holding companies (GSIBs) will continue to be required to submit resolution plans on a two-year cycle; however, firms that do not pose the same systemic risk as GSIBs will only be required to submit their resolution plans on a three-year cycle. The agencies note in their release that both groups will alternate between submitting full and targeted resolution plans, and that “[f]oreign firms with relatively limited U.S. operations would be required to submit reduced resolution plans.” Additionally, firms with less than $250 billion in total consolidated assets that do not meet certain risk criteria will now be exempt under the final rule. The agencies also emphasize a change from the proposed rule: only smaller and less complex firms may request changes to their full resolution plans, subject to approval by both agencies prior to taking effect.
The final rule takes effect 60 days following publication in the Federal Register.
On July 26, the FDIC and the Federal Reserve Board announced several resolution plan actions, including completing their evaluations of the 2018 resolution plans for 82 foreign banks and 15 domestic banks. Additionally, the agencies extended the deadline for the next resolution plans (known as living wills) from those firms until July 1, 2021. The agencies note that the deadline extension is to help mitigate the uncertainty around the filing requirements during the pendency of the agencies’ April proposal, which considers three changes: (i) creating tiered planning requirements for living wills based on an institution’s size, complexity, and other factors; (ii) revising the frequency and required content of resolution plan submissions, including eliminating living will submission requirements for certain smaller and less complex institutions; and (iii) improving communication between the FDIC and banks on resolution planning. (Previously covered by InfoBytes here.)
The agencies’ evaluations did not identify shortcomings or deficiencies in the 2018 resolution plans of the 82 foreign banks and are requesting additional information in the next resolution plans from seven firms.
On April 16, the FDIC issued an advance notice of proposed rulemaking (ANPR) and request for comment on modifications to its resolution planning framework (known as living wills) for insured depository institutions with over $50 billion in assets. According to the FDIC, the ANPR is considering three changes to streamline the process: (i) creating tiered planning requirements for living wills based on an institution’s size, complexity, and other factors; (ii) revising the frequency and required content of resolution plan submissions, including eliminating living will submission requirements for certain smaller and less complex institutions; and (iii) improving communication between the FDIC and banks on resolution planning. According to a statement issued by FDIC Chairman Jelena McWilliams, the ANPR also proposes two alternative concepts for consideration: “Broadly, either approach would require large, complex institutions to continue to submit periodic resolution plans, streamlined compared to the existing plans. Institutions that are relatively smaller and less complex but still subject to the rule would no longer need to submit actual plans, but would still be subject to periodic engagement and capabilities testing.” Comments on the ANPR are due 60 days after publication in the Federal Register.
On July 2, the Federal Reserve Board and the FDIC announced that the deadline to file resolution plans, also known as living wills, for 14 domestic firms has been extended to December 31, 2019. This one-year extension provides more time for the agencies to provide feedback on the firms’ last round of resolution plan submissions, as well as for the firms to produce their next resolution plans as required by the Dodd-Frank Act. The agencies also issued a reminder that due to the recent passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act, banks with less than $100 billion in total consolidated assets are no longer bound by resolution plan requirements.
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