On November 28, 2018, Federal Deposit Insurance Corporation (“FDIC”) Chairman Jelena McWilliams delivered keynote remarks regarding resolution planning requirements at the 2018 Annual Conference of The Clearing House and Bank Policy Institute. Chairman McWilliams repeatedly emphasized that the failure of a financial institution should be dealt with through bankruptcy. She stated that she strongly supports legislation that would establish a more tailored, transparent process for large financial firms under the Bankruptcy Code. According to McWilliams, “[t]he FDIC stands ready to work with Congress and hopes to see such a measure signed into law.” Additionally, the FDIC is considering refinements to the Orderly Liquidation Authority (the process created in the Dodd-Frank Act as an alternative to bankruptcy for large financial institutions), including recommendations from the Treasury Department published earlier this year.
Notably, Chairman McWilliams described two rulemaking that are expected in the coming months regarding resolution plans required by:
- Section 165(d) of the Dodd-Frank Act for bank holding companies (“BHCs”) with $50 billion or more in total consolidated assets (“165(d) resolution plans”); and
- The FDIC rule for insured depository institutions (“IDIs”) with $50 billion or more in total consolidated assets (“IDI resolution plans”).
Regarding the 165(d) resolution plans, Chairman McWilliams noted that the process “has imposed meaningful cost and burden on the firms and, frankly, the agencies.” Referring to Section 401 of the Economic Growth, Regulatory Relief and Consumer Protection Act that raised the statutory threshold for the resolution planning requirement from $50 billion to $250 billion, she said the FDIC and the Board of Governors of the Federal Reserve System (“Federal Reserve”) have been revisiting BHC resolution planning requirements and expect to publish proposed changes to the rule in the coming months. This is consistent with the Federal Reserve’s notices of proposed rulemaking to tailor its enhanced prudential standards issued in October. Chairman McWilliams also stated that the agencies intend to finalize the June 2018 proposed resolution planning guidance for domestic global systemically important banking organizations in the near-term.
Chairman McWilliams acknowledged that the IDI resolution plans present similar costs and burdens and should be revisited: “While we need to do advanced planning, after several years of renewing these comprehensive plans, we recognize that we can do so in a more targeted and efficient manner.” She stated that the FDIC is planning to propose significant changes to its IDI resolution plan rule in an advanced notice of proposed rulemaking in the coming months that would, among other things, revisit the $50 billion threshold in the rule and ensure that the requirements are appropriately tailored to reflect differences in size, complexity, risk, and other relevant factors. Chairman McWilliams said that she is sympathetic to the view that an IDI resolution is not necessary for firms pursuing a single-point-of-entry (“SPOE”) resolution strategy, but expressed concern that SPOE is untested and that there are notable challenges to a successful SPOE resolution. Finally, she made clear that covered institutions will not be required to submit an IDI resolution plan until after the rulemaking process has been completed.