The public will have an additional month to weigh in on how banks that are large but not deemed too-big-to-fail should prepare themselves if they should, in fact, fail.
The Federal Reserve Board of Governors and the Federal Deposit Insurance Corp. have extended the deadline to comment on an
Interested parties now have until Jan. 23 to submit comments to either the Fed or FDIC.
In October, the agencies
Resolution plans, also known as living wills, are a mechanism to ensure banks can fail in an orderly fashion, without an impact on broader financial stability or requiring a government bailout.
Since the passage of the Dodd-Frank Act of 2010, regulators have applied more scrutiny to resolution plans from G-SIBs because their potential failures were viewed as more significant risks.
Yet as Category II and III banks — commonly referred to as large regional or domestic systemically important banks — have grown bigger and more complex in recent years, regulators have expressed concerns about how they might unwind in the face of failure or bankruptcy. As the Fed and FDIC note in their request for comment, the average Category III bank grew from $413 billion of consolidated assets to $554 billion between December 2019 and December 2021.
Currently, Category II and III banks must submit living wills every three years, alternating between full and targeted plans. G-SIBs, meanwhile, must update their resolution plans every other year and adhere to a variety of additional requirements, like having total loss-absorbing capacity, or TLAC, and avoiding certain exposures in their holding companies — a provision known as a clean holding company rule.
The ANPR included a dozen questions about potential impacts of imposing similar requirements on large regional banks. It also floats the idea of requiring additional risk disclosures and requiring banks to capitalize themselves with longer-dated, unsecured debt.
Another consideration is a separability requirement, which would force failing banks to sell off parts of their business independently, so that the entire firm would not need to be acquired outright by either another large regional bank or a G-SIB. This provision reflects the concern among regulators about growing concentration in the banking sector.
The Fed and FDIC announced the ANPR in concert with their approval of a merger of two large regional banks: U.S. Bank and Union-MUFG. At the time of the merger, U.S. Bank, the surviving party, had $601 billion of assets, and would have likely been upgraded from Category III to Category II.
In a joint statement released Thursday afternoon, the agencies said they were extending the comment period by request. They did not specify where that request came from, but they noted that more time was warranted for the public to respond to the various questions presented in the ANPR.
