WASHINGTON — Federal Deposit Insurance Corp. acting chairman Martin Gruenberg said although the agency issued rules for company-generated resolution plans, it is not waiting for those plans to arrive before strategizing on how it would resolve the nation's financial giants.
Gruenberg, the agency's acting chairman, touted the "living wills" process at a Bretton Woods Committee conference Friday, but said the FDIC is already far along on its own planning. He also acknowledged that the agency's new resolution authority granted by the Dodd-Frank Act presents challenges the FDIC has not faced before when resolving banks, and said a huge factor in the success of the new resolution system is cooperation between international bodies.
The rules issued last week, which the Federal Reserve Board is expected to approve soon, require plans and regular submissions from systemically important firms to help guide regulators through a hypothetical wind-down of a large company's operations.
But Gruenberg said the agency's own planning is equally if not more important. He described the three objectives of the agency's new Office of Complex Financial Institutions: monitoring risk that large firms pose, conducting actual resolution planning and addressing cross-border resolution issues.
"It's really important to understand that there are two sets of plans being developed," Gruenberg said while participating on a panel at the committee's International Council Meeting. "Since the enactment of the legislation a year ago, the FDIC has been undertaking its own internal resolution planning for our largest financial companies."
He said the living wills will "serve to support and inform the ongoing resolution planning efforts that the FDIC has been undertaking for the past year."
Gruenberg, who is the administration's nominee to become FDIC chairman, said the agency has experience with large institutions, citing the 2008 resolution of Washington Mutual Bank — the largest institution to ever fail and the sixth largest depository institution at the time. But the internationally-active firms, which the agency could potentially have to seize one day, present issues "that really go beyond anything we've had to deal with in the past," he said.
"Even an institution the size of Washington Mutual does not really compare in terms of size, complexity and international operations with the … largest institutions in the United States," Gruenberg said.
He suggested the ultimate success of the new resolution arm will be how well international agencies work with each other in a future resolution scenario.
"At the end of the day, I do think it's going to be the bilateral cooperation between the supervisory and resolution agencies of the countries with respective operations of these large companies that's really where the rubber will meet the road on this resolution planning effort," he said.
