WASHINGTON — The Federal Deposit Insurance Corp. board Thursday voted along party lines to ramp up disclosures larger banks must submit as part of their living wills and unanimously approved a new procedure aimed at speeding up approvals of merger applications.
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"The final rule retains the proposed requirement that the strategy developed in the resolution plans of the largest banks not be dependent on a sale executed over the weekend following the institution's failure," FDIC Chair Martin Gruenberg said at the meeting. "It generally requires the bank to explain how it could be placed into a bridge depository institution, how operations could continue when separated from its parent and parent affiliates and the actions that would be needed to stabilize a bridge depository institution."
The final rule establishes two tiers of insured depository institutions based on asset size, each with their own requirements to ensure they are resolution plan ready.
Banks with at least $100 billion in total assets are required to submit full resolution plans which include comprehensive end-to-end strategies for resolving the bank under various scenarios and detailed valuation analyses of the entire franchise and its components. FDIC also will require these largest firms to demonstrate their ability to quickly establish virtual due diligence data rooms — that contain the necessary information that would allow interested parties to submit bids for the entire institution or its constituent parts.
Larger banks must also submit information aimed at upholding continuity of operations, including identifying key personnel and contractual obligations essential for maintaining critical bank functions during the sale. These banks are also subject to a two-prong credibility standard, where both the banks' strategy and the supporting information must be credible and verifiable. Submissions occur on a three-year cycle, with interim annual supplemental filings to address any notable changes.
Smaller banks with between $50-100 billion of assets are required to submit limited informational filings rather than full resolution plans. These filings focus on providing critical data and analysis necessary for the FDIC to develop resolution strategies but do not require the detailed scenario-based resolution strategies the largest firms must submit. The agency notes banks below $100 billion are still expected to demonstrate capabilities to support the FDIC's marketing and resolution efforts, such as establishing virtual data rooms, but with reduced content requirements. These institutions follow a similar three-year submission cycle with interim updates.
The revamped resolution plan requirements were approved by a 3-2 vote, with the Republicans FDIC Vice Chair Travis Hill and Jonathan McKernan opposing the measure.
The FDIC also unanimously approved a new procedure to speed up board consideration of backlogged merger applications.
Under the procedure, any outstanding applications which have been pending for more than 270 days will be automatically added to the agenda of the next FDIC board meeting. The FDIC staff will therefore regularly brief the board on merger and deposit insurance applications. As long as the application remained outstanding, it would continue to be put on the agenda for board meetings on a quarterly basis.
Vice Chair Hill said he proposed this measure because of what he says are the increasing delays in processing merger and deposit insurance applications, which have worsened over the past few years.
"A long application review process is costly for a variety of reasons," noted Hill. "In the case of mergers, it has uncertainties for employees and customers, makes post merger integration more challenging, and it can be dangerous if one of the merging entities is in a vulnerable condition."
The bipartisan board unanimously agreed on this measure, albeit for different reasons. While Hill — more friendly toward bank mergers — wanted to speed up merger application consideration, Consumer Financial Protection Bureau Director Rohit Chopra noted he would like to see public consideration of applications to make the process more public and transparent. He also noted that — as has been demonstrated by lawmakers comments —
"Rather than putting the application through for the board or leadership to issue a denial, we go through an endless iteration to determine how we can all twist ourselves into a pretzel to get to yes for sometimes facially deficient applications," Chopra noted. "I really think this is good [and] a way that we can get applications processed and have those denials be public."
