Navigating “Year Two”: Regulatory landscape and challenges for foreign banks and their IHCs

After the July 1, 2016 compliance deadline for foreign banking organizations (FBOs) to establish US intermediate holding companies (IHCs) and implement the enhanced prudential standards,1 we noted that, although the effective date marked a key milestone on the journey toward effective compliance, the “long road to operationalizing run-the-bank (RtB) functions has just begun.”2 Heading into Year Two, FBOs with their US IHCs and broader combined US operations (CUSO) contend with the reality that there is a significant road yet to be traveled in a regulatory environment focused on local/jurisdictional implementation that challenges the global model.

Four key focus areas underpinning the supervisory strategy

Although FBOs have made notable progress leading up to and after last year’s “go-live” date under Regulation YY, they continue to face substantial challenges across aspects of the Federal Reserve Board’s (FRB) four key supervisory focus areas:

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FRB, FDIC issue resolution planning guidance, one-year extension to four FBOs; Issue evaluation of 16 US BHC resolution plans

On March 24, 2017, the Federal Reserve Board (FRB) and Federal Deposit Insurance Corporation (FDIC)1 (collectively, the “agencies”) issued guidance to four foreign banking organizations (FBOs) for their next resolution planning submissions (the “2018 Guidance”) and announced credibility determinations for 16 resolution plans submitted by US bank holding companies (BHCs) in 2015.2

Notably, the agencies extended—from July 1, 2017 to July 1, 2018—the date by which the FBOs must submit their next resolution plans, but did not release credibility determinations for the FBOs’ 2015 resolution plans.

The agencies did not identify deficiencies in any of the plans submitted by the 16 US BHCs, but did identify shortcomings in one of the plans.

For a more detailed analysis of the credibility determinations for the resolution plans submitted by the 16 US BHCs, please click here.

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The role of internal audit in recovery and resolution planning

Introduction

US regulators continue to flex their muscles and push resolution planning as a key regulatory driver to reduce systemic risk and the likelihood of an institution being “too big to fail.” On April 13, 2016, the Federal Reserve Board (FRB) and the Federal Deposit Insurance Corporation (FDIC) (collectively, the “Agencies”) jointly determined, for the first time, that certain resolution plans submitted by domestic systemically important banks (D-SIBs) were “not credible or would not facilitate an orderly resolution”1 under the US Bankruptcy Code. Further, the Agencies issued prescriptive guidance increasing expectations for the eight US D-SIBs’ resolution plan submissions due July 1, 2017 (2017 Guidance).2

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FRB, FDIC release public sections of 2016 Resolution Plans of eight US G-SIBs

On October 4, 2016, the Federal Reserve Board (FRB) and Federal Deposit Insurance Corporation (FDIC) (collectively, “the Agencies”) released the public sections of the “targeted submissions” that fulfill the 2016 resolution planning requirement for each of the eight US global systemically important banks (G-SIBs).1 Although these public sections are, on balance, slightly shorter than the 2015 public sections submitted in connection with the last full submissions, they contain significant new details about completed and forthcoming enhancements to resolution planning capabilities to address regulatory concerns.

In April 2016, the Agencies determined that the 2015 plans submitted by five of the eight US G-SIBs were “not credible or would not facilitate an order resolution under the Bankruptcy Code.” These institutions were required to remediate the identified deficiencies by October 1, 2016.2 In addition, the Agencies identified shortcomings in the plans submitted by the remaining three US G-SIBs, which were required to submit plans to address these issues by October 1, 2016.3 The next full plan submissions for all eight US G-SIBs are due by July 1, 2017.

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FRB, FDIC issue feedback on 2015 resolution plans of eight US G-SIBs


Posted by Marlo Karp, Deloitte Advisory Partner on April 15, 2016.

On April 13, 2016, the Federal Reserve Board (FRB) and Federal Deposit Insurance Corporation (FDIC) announced credibility determinations and released firm-specific feedback on the 2015 resolution plans submitted by eight US global systemically important banks (G-SIBs) under Section 165(d) of Dodd-Frank.

In conjunction with this announcement, the FRB and FDIC released guidance for the next full plan submissions for these eight US G-SIBs, which are due by July 1, 2017.

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