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In letters to federal regulators, several institutions said they remain worried about a requirement that they submit a "living will" outlining how best to dismantle them in a crisis.
June 23
WASHINGTON — Industry representatives are hoping living-will requirements expected next week do not paint all systemically important institutions with the same brush.
The Federal Deposit Insurance Corp. is scheduled Tuesday to finalize a rule under the Dodd-Frank Act instructing giant firms — including bank holding companies and large nonbanks — how to craft wind-down plans. The FDIC will also consider a rule — proposed before Dodd-Frank was passed — on the resolution plans for depository institutions with more than $50 billion in assets.
It is unclear how different the two rules will be from earlier proposals, but observers said their inclusion as two distinct items on the FDIC's agenda offers some hope regulators are not planning a one-size-fits-all approach to living wills.
"You could have a relatively plain-vanilla, less complex operation but be $50 billion and you're under these requirements," said Lawrence Kaplan, an attorney at Paul, Hastings, Janofsky & Walker LLP. "They could allow some discretion to have less detail in your plan if you are not involved in activities that could be deemed as complex.
"The devil will be in the details in terms of what is in the rule. The issue may not necessarily be about size. It could be, 'If you are involved in these types of operations, do this.'"
Dodd-Frank gave the FDIC powers to resolve behemoths if officials think the resolution of a failed firm through the bankruptcy code could harm the economy. The new law also required systemically important nonbanks and bank holding companies with more than $50 billion in assets to submit living wills to help the FDIC should it ever have to dismantle a firm.
"You have to draw the line somewhere. Congress said $50 billion. Still, there likely is a consensus that that number is too low," Kaplan said.
The March proposal to implement that section of the law, which the FDIC issued along with the Federal Reserve Board, laid out a potential schedule for submitting annual plans and updates; minimum requirements for each resolution plan; and how regulators would respond to plans deemed unworthy.
Bankers' comment letters expressed several concerns about the proposal, including that it could group all firms covered by the section of Dodd-Frank in one bucket. Second-tier bank holding companies worried their business models were not complex enough to subject them to the same living-will requirements as the largest financial firms.
"The rules implementing the resolution plan requirements … should expressly incorporate a more limited regime for domestic BHCs that are predominantly composed of one or more subsidiary" depository institutions, wrote 10 large regional bank holding companies, including PNC Financial Services Group Inc. and Capital One Financial Corp., in joint letter.
Meanwhile, in May 2010 — as the Dodd-Frank law was still being debated in Congress — the agency under its then-existing authority proposed similar resolution-planning requirements for large FDIC-insured banks. That proposal would cover depository institutions with more than $10 billion of assets owned by holding companies with more than $100 billion of assets. At the time, many in the industry felt the agency should hold off on living-will rules for subsidiary banks until they could be harmonized with Dodd-Frank.
In a sign the agency may try to streamline the two rules, the agenda released this week for Tuesday's FDIC board meeting signaled the asset threshold in the earlier rule had been changed to $50 billion, similar to the Dodd-Frank provisions.
John Douglas, a partner at Davis Polk & Wardwell and a former FDIC general counsel, said the regional-sized banks have a legitimate concern about being grouped with the complex, internationally-active firms.
"I'm hoping for a thoughtful rule that distinguishes the needs of the midsize banks from the requirements imposed on the larger banks," Douglas said. "For most of these banks, the bank is the bank holding company. There's just not much else in the bank holding company other than the bank, and it's hard to think about the resolution of a bank holding company that doesn't have much in it. … It's really just the bank."
