On July 9, 2018, the Board of Governors of the Federal Reserve System (“FRB”) and the Federal Deposit Insurance Corporation (“FDIC”) (collectively, the “Agencies”) released the public sections of the resolution plans for the four foreign banking organizations’ (“FBOs”) overseen by the Large Institution Supervision Coordinating Committee (“LISCC”).1 The four FBOs were required to submit their plans by July 1, 2018, which included both private and public sections.
The 2018 public sections are comparatively longer than those submitted in the firms’ last full submissions in 2015—a total of 214 pages in 2018 compared to 162 pages in 2015—and contain significant new details about the FBOs’ completed and forthcoming enhancements to resolution planning capabilities. This expansion was largely expected as this submission marked the FBOs’ first reaction to regulatory guidance published in April 2017 2 and FAQs in September 2017 3 (collectively “2017 FBO Guidance”) that was specifically directed at these four banks.
The 2017 FBO Guidance is generally consistent with the guidance previously issued to the eight US global systemically important banks (“US G-SIBS”) for 2017.4 Most notably in the 2017 FBO Guidance, the Agencies incorporated Supervision and Regulation (SR) Letter 14-1 (Principles and Practices for Recovery and Resolution Preparedness),5 which previously was technically applicable to US-GSIBs only. The guidance contained in SR 14-1 outlines specific and more substantive expectations for resolution capabilities.6 While overall the 2017 FBO guidance follows that for the US G-SIBs, it contains certain modifications and tailoring to address issues unique to FBOs such as the relationship and alignment between the US and group resolution plans, the role of branch entities, and guidance for permissible parent support.
Key takeaways from public sections
The public sections are varied in the level of detail and content that each firm provides, including the level of response to the 2017 FBO Guidance. One firm in particular offered a much higher level summary compared to the others, in terms of both length and detail provided. For the remaining three FBOs, the firms were consistent in including the following themes:
Themes by Capability
Unless otherwise specified, themes were identified by capability for three of the four FBOs as one public section was unspecific in their documentation of resolution planning capabilities and drivers for such improvements.
Resolution Strategy and Potential Obstacles
Below are some key takeaways across the firms’ resolution strategies and potential obstacles.
Group and US Resolution Strategies
Below are some key takeaways across the firms’ financial capabilities.
Operational – FRB/FDIC incorporated directly the operational capabilities that were originally issued to the US BHC LISCC firms in SR14-1 in the FBO guidance issued in March 2017; this guidance was very prescriptive in nature.
Below are some key takeaways across the firms’ operational capabilities.
Payment, clearing & settlement (“PCS”) activities
Shared and outsourced services (“SOS”)
Below are some key takeaways across the firms’ structural capabilities.
Legal entity rationalization (“LER”)
Although the Agencies may not provide feedback on the 2018 plans for some time, firms should not wait for regulatory input before assessing their completed and planned actions to identify areas for improvement. Furthermore, the Agencies recently proposed guidance for the 2019 US G-SIB resolution plans, including the heightened focus on DER and PCS, which may give further perspective of regulatory guidance that may become applicable to FBOs. 7
However, despite the need to follow and adopt any applicable guidance for the G-SIBs, the FBOs are unlikely to receive any of the expected relief regarding RRP filings that similar domestic financial institution’s may receive due to modifications to certain regulatory attachment points based on asset holdings that would necessitate filing a resolution plan. Based on the bipartisan banking act, the “Economic Growth, Regulatory Relief, and Consumer Protection Act,8” which was signed into law on May 2018, some regulatory relief was provided for certain financial institutions, it does not however provide resolution planning relief for FBOs with more than $100 billion in global total consolidated assets.
Finally, institutions should continue to communicate with the FRB and FDIC to determine that the strategies implemented are in line with regulatory expectations as they prepare to submit their next resolution plans.
As further developments occur, Deloitte will issue additional updates as appropriate.
Note after post
Organizations may contact Deloitte with questions about the changes and activities to support planning, preparation, and compliance.
1 Board of Governors for the Federal Reserve System and Federal Deposit Insurance Corporation, “Agencies post public sections of July 2018 plans” (July 9, 2018), available at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20180709a.htm
2 Board of Governors for the Federal Reserve System and Federal Deposit Insurance Corporation, “Guidance for 2018 §165(d) Annual Resolution Plan Submissions By Foreign-based Covered Companies that Submitted Resolution Plans in July 2015” (March 24, 2017),available at https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20170324a21.pdf
3Board of Governors for the Federal Reserve System and Federal Deposit Insurance Corporation, “Resolution Plan FAQs: Foreign Bank Organizations” (September 21, 2017), available at https://www.federalreserve.gov/publications/files/resolution-plan-faqs-fbo.pdf
4 Board of Governors for the Federal Reserve System and Federal Deposit Insurance Corporation, “Guidance for 2017 §165(d) Annual Resolution Plan Submissions By Domestic Covered Companies that Submitted Resolution Plans in July 2015” (April 13, 2016), available at https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20160413a1.pdf
5 Board of Governors for the Federal Reserve System, “SR 14-1: Heightened Supervisory Expectations for Recovery and Resolution Preparedness for Certain Large Bank Holding Companies – Supplemental Guidance on Consolidated Supervision Framework for Large Financial Institutions (SR letter 12-17/CA letter 12-14)” (January 24, 2014), available at https://www.federalreserve.gov/supervisionreg/srletters/SR1401.htm
6 Deloitte Center for Regulatory Strategy, “FRB, FDIC issue resolution planning guidance, one-year extension to four FBOs; Issue evaluation of 16 US BHC resolution plans” (March 31, 2017), available at https://regpulseblog.com/2017/03/31/frb-fdic-issue-resolution-planning-guidance-one-year-extension-to-four-fbos-issue-evaluation-of-16-us-bhc-resolution-plans/
7 Board of Governors for the Federal Reserve System and Federal Deposit Insurance Corporation, “Agencies seek comment on proposed 2019 resolution plan guidance” (June 29, 2018), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20180629a.htm
8 S.2155 – Economic Growth, Regulatory Relief, and Consumer Protection Act
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