On August 8, 2017, the Federal Reserve Board (FRB) and Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) extended, from December 31, 2017 to December 31, 2018, the resolution plan deadline for 21 firms, including 19 foreign banking organizations (FBOs).
On January 29, 2018, the agencies issued firm-specific feedback to these 19 FBOs based on their last resolution plans filed in 2015.1 Although the feedback letters do not identify any deficiencies or shortcomings with respect to the 2015 plans,2 they outline key supervisory expectations that must be met as the FBOs prepare to file their next plans.
FBOs with US IHCs
Eight of the 19 FBOs were required to establish US intermediate holding companies (IHCs) as of July 1, 2016.3 Accordingly, these FBOs are required to describe any changes they have made to their resolution plan resulting from the implementation of the IHC requirement.
In addition, the agencies jointly determined that the executive summary and strategic analysis of the 2018 plans for these companies “may be limited to any content that has changed” relative to the 2015 plans. The agencies require the 2018 plans to discuss material changes to (1) the firms’ resolution strategies, (2) the funding, liquidity, and capital needs of, and the resources available to, the companies and their material entities, and (3) the provisions for continuity of shared and outsources services following a bankruptcy filing by the US IHCs. The companies are also expected to discuss actions they have taken since 2015 to improve the plans’ effectiveness or remediate any material weaknesses or impediments to effective and timely execution of the plans.
The agencies specify that the 2018 plans should assume that the Dodd-Frank Act Stress Test (DFAST) severely adverse scenario for Q1 2018 is the domestic and international economic environment at the time of entry into resolution and throughout the resolution process.
Three focus areas
Below are three focus areas across the feedback letters to the eight FBOs with US IHCs:
All FBOs with US IHCs—even those for which these areas were not explicitly identified—should review their resolution plans with a focus on whether their strategies and assumptions are in line with these supervisory expectations.
Reduced plans for smaller FBOs
Notably, in an effort to further tailor expectations for smaller firms, the agencies jointly determined that 11 of the 19 FBOs may submit “reduced plans.”
Specifically, these firms are only required to describe:
The ability for these 11 FBOs to file reduced plans is contingent on two conditions: (1) maintaining total US non-branch assets below $50 billion and (2) the absence of a “material event.” If an FBO no longer satisfies either of these conditions, it must comply with all resolution planning requirements.
As further developments occur, Deloitte will issue additional updates as appropriate.
Organizations may contact Deloitte with questions about the changes and activities to support planning, preparation, and compliance.
1Board of Governors of the Federal Reserve System, “Agencies complete assessment of resolution plans of 19 foreign-based banks,” (January 30, 2018), available at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20180129a.htm.
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