FDIC Approves Final Guidance to Enhance Resolution Planning at Large Banks

Yesterday the FDIC board voted unanimously in favor of finalizing the 165(d) resolution plan guidance for Category II and III domestic and foreign banks.? Much will be written about the impact the guidance has on these institutions, and even more work will be done preparing submissions for the October 1, 2025 deadline.? I’m not going to endeavor to summarize the guidance but will offer a few notable changes from the original proposal that caught my eye.? Here are my quick takes:

1. Some new insertions - like “The agencies may not take enforcement actions or issue finding based on this guidance” - suggest the FRB and FDIC are starting to grapple with the post-Loper Bright world.? I wouldn’t read too much into it, however.? Adam Levitin has a fascinating post on this over at Credit Slips The Hydraulic Effect of Loper Bright Enterprises in Consumer Finance: More Regulation by Enforcement. Regulators are still going to regulate, and I suspect financial institutions will continue to evaluate guidance as impactful to their overall supervisory compliance programs.
2. Perhaps the most interesting part of the domestic guidance is what it excludes.? The agencies have removed the proposed guidance for separability, noting in the preamble that such guidance was “not needed at this time for the specified firms due to their current corporate structures and other separability-related expectations.”? FDIC Director and acting Comptroller Hsu asked a pointed question on this removal at the board meeting and conditioned his approval of the guidance on the clarification offered by staff at the meeting: the removal of separability guidance does not signal an intent by the agencies to reduce their expectations placed on domestic Category II and III firms versus U.S. G-SIBs as it relates to the need to continue assessing the feasibility? and impact of sales or divestitures.? While separability is not included in the final domestic guidance, it remains very much part of the final 165(d) rule.? Interestingly, the separability guidance was retained in the final foreign filer guidance.? The OCC’s proposed recovery planning guidelines also seek to impose impact assessment requirements for recovery options - many of which likely overlap with a firm’s resolution divestiture options.? The potential need for uplift in this space should not be underestimated.
3. Derivatives and trading guidance was excluded for all Category II and III firms.? While there won’t be an expectation that these filers develop the costly capabilities that the G-SIB “dealer firms” have been required to implement - many of whom have enhancements to implement based on the recent feedback letters - the question still remains as to whether any of these firms should develop those capabilities if they grow to the size that triggered “dealer firm” designation for 6 of the 8 G-SIBs - namely, (i) a combination of total derivatives notional value greater than $5 trillion; (ii) global gross market value of derivatives greater than $20 billion; (iii) sum of global trading assets and liabilities greater than $110 billion; (iv) subject to the GSIB surcharge on all companies of the CCAR quantitative assessment and (v) is a parent to a designated primary dealer. ? The FDIC’s original preamble to the CIDI proposed rule hinted at such a need when it noted “the proposed rule would not be prescriptive with respect to capabilities . . .[because each CIDI] should] consider its own business, operations, and identified strategy as the foundation for identifying the needed capabilities and how they are demonstrated. . . .”
4. A host of other minor clarifying points, some helpful (should material entities include foreign affiliates of an FBO?), others somewhat confusing (do financial forecasts have to lock in the macroeconomic conditions that exist in the first three months of a DFAST severely adverse scenario for the entire duration of the forecast horizon?), are sprinkled throughout.

Next up on the docket, the OCC’s recovery planning guidelines (the 30-day comment period ends August 2 notwithstanding a joint request for an extension by industry groups) that would significantly expand the scope of covered banks by reducing the average asset triggering threshold from $250 billion to $100 billion.