Washington regulators solidified their expectations for how certain large banks should
The Federal Reserve and Federal Deposit Insurance Corp. on Monday finalized their
Regulators also extended the deadline for affected firms — known as triennial filers — to submit their next resolution plan from March 31, 2025 to October 1, 2025, giving them more time to incorporate the updated expectation.
Originally, Category II and III banks faced a deadline to file their plans on July 1 of this year, but that deadline was pushed back in January. Along with filing every three years, banks in this category alternate between "full" and "targeted" submissions.
Within the finalized guidance, the Fed and FDIC provided more context about how banks can demonstrate that their plans will result in the least possible cost to the Deposit Insurance Fund — satisfying what is known as the least-cost requirement of the Federal Deposit Act. The new guidance does not change the expectations around meeting this requirement, but provides common examples for doing so. It also notes that a full least-cost analysis will not be required as part of a resolution plan.
Regulators also addressed concerns that their proposed expectations were indicating a preference for a single-point-of-entry strategy, which is most often employed by global systemically important banks, or GSIBs. The updated version notes that "the selection of a resolution strategy is up to each firm."
The new guidance also addresses the resolution of foreign banks, noting that firms in this category have parent companies that are subject to similar regimes in their home countries. Because of this, the guidance notes that these banks would not be expected to provide information to which they do not have access nor would they have to disclose how regulatory expectations differ between jurisdictions. Instead, they will be expected to describe how their domestic resolution plans would impact U.S. operations.
Another key change is the removal of the guidance on derivatives and trading. The agencies noted that the filers impacted by the proposal have limited activities in these spaces, particularly compared to the GSIBs.
Fed. Gov. Michelle Bowman, who voted against issuing the proposed guidance last year, cited the removal of the derivatives guidance as one of the key elements for securing her support for the finalization, which was approved by a unanimous vote of the Federal Reserve Board.
Bowman nevertheless noted several "reservations" and areas she hopes will be reviewed and revised by the agencies over time. In particular, she noted her concern about how the new expectations would coincide with a proposal for the same categories of banks to hold long-term debt that would allow them to be "bailed in" during periods of failure. Regulators proposed that initiative at the same time as the new resolution plan guidance last year.
"Despite the link between these efforts, the agencies are finalizing resolution planning guidance without a clear path forward on the proposed long-term debt requirement," she said. "I am concerned that this bifurcated approach will be confusing to firms, and potentially waste resources as firms start working to prepare a 2025 resolution plan submission that need not address any new long-term debt requirements — even if such requirements are adopted before the plan is submitted."
The finalized guidance notes that because a long-term debt requirement has not been implemented, it would not be appropriate to require it in the upcoming submissions. It adds that staff expects any points of conflict between the resolution plan guidance and a future long-term debt requirement would be addressed by the debt requirement's final rule.
