OCC Issues Proposal for Large Bank "Recovery Plan"

WASHINGTON — The Office of the Comptroller of the Currency released details Thursday of a proposal that would require large banks to submit a "recovery plan" for how they would survive a crisis.

The plan would mandate banks with at least $50 billion in assets to show how they would remain viable operationally and financially under different severe stress scenarios. The OCC could take supervisory actions depending on the results of banks' plan.

"The financial crisis highlighted the fact that many financial institutions had insufficient plans for identifying and responding rapidly to significant stress events. As a result, many institutions were forced to take significant actions quickly and without the benefit of a well-developed plan," said Amy Friend, the senior deputy comptroller and chief counsel at the agency, in a bulletin issued by the OCC. "In addition, recent large-scale operational events, such as destructive cyberattacks, demonstrate the need for institutions to plan how to address significant stress events before they happen. The OCC believes that, to fill this gap, covered banks should have recovery plans that identify options for responding to stress events."

The proposal would require large banks to identify potential triggers — such as a drop in Tier 1 capital or liquidity — that would make it vulnerable to certain stress scenarios. The bank would have to show what would happen if one or more recovery options were not implemented in a timely manner as well as identify "a wide range of credible options" for how it would recover in each trigger and stress scenario.

The plan is different from so-called "living wills" required by the Federal Reserve Board and Federal Deposit Insurance Corp. in that they would require banks to develop a way to save themselves rather than help regulators dismantle them.

"These scenarios should range from those that cause significant financial and operational hardship to those that bring the covered bank close to default, but no further; scenarios should not go so far as to push the covered bank into resolution," the proposal said. "The plan should identify the credible options a covered bank could take to restore financial and operational strength and viability in a timely manner, while maintaining market confidence. Neither the plan nor the options may assume or rely on any extraordinary government support."

The proposal would also require the bank's management and board of directors to be heavily engaged in the recovery plan. Management must review the recovery plan at least annually as well as when responding to a "material event." In such a case, management would then have to revise its recovery plan. Any evaluation by management should include looking at the organizational structure and the effectiveness of facilitating a recovery, the OCC said.

The board must also review the recovery plan at least once a year and any time management makes a change.

"Effective planning is critical to the resiliency of banks' core business lines and critical operations, particularly among our largest and most complex institutions," said Comptroller of the Currency Thomas Curry, in a statement issued to American Banker. "I believe recovery planning must be an integral part of institutions' corporate governance structures and processes and be effectively supported by banks' boards of directors and management."

The comment period for the proposal ends February 16.

"The OCC recognizes that many covered banks already engage in significant planning to respond to events such as cyberattacks, business interruptions, and leadership vacancies," the bulletin said. "The OCC does not intend for the recovery planning required by these guidelines to duplicate these efforts, and it encourages covered banks to leverage their existing planning."