The FDIC has adopted two rules regarding resolution plans. One rule addresses insured depository institutions, while the other addresses bank holding companies and certain systematically important entities.
Insured Depository Institutions
The FDIC has approved an Interim Final Rule that would require an insured depository institution with $50 billion or more in total assets to submit periodic contingency plans to the FDIC for resolution in the event of the financial institution’s failure. The rule requires these insured institutions to submit a resolution plan that will enable the FDIC, as receiver, to resolve the bank to ensure that depositors receive access to their insured deposits within one business day of the institution’s failure, maximize the net present value return from the sale or disposition of its assets and minimize the amount of any loss to be realized by the institution’s creditors.
The Interim Final Rule enables the FDIC to perform its resolution functions most efficiently by requiring the largest insured depository institutions to engage in extensive planning that will, in cooperation with the FDIC, enhance the FDIC’s ability to reduce losses to the Deposit Insurance Fund and resolve the institutions in a manner that limits any disruption from their insolvency. The Interim Final Rule also sets specific standards for the resolution plans, including requiring a strategic analysis of the plan’s components, a description of the strategies for achieving the least costly resolution, and analyses of the financial company’s organization, material entities, interconnections and interdependencies, and management information systems among other elements.
Currently, 37 insured depository institutions are covered by the interim final rule. Those institutions held approximately $3.6 trillion in insured deposits or nearly 60% of all insured deposits as of December 31, 2010.
Bank Holding Companies and Other Entities
The FDIC also approved a final rule to be issued jointly by the FDIC and the Federal Reserve Board to implement Section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This provision requires bank holding companies with assets of $50 billion or more and companies designated as systemic by the Financial Stability Oversight Council to report periodically to the FDIC and the Federal Reserve the company’s plan for its rapid and orderly resolution in the event of material financial distress or failure.
The Final Rule requires the company to describe its plan of how it could be resolved in a bankruptcy proceeding. The goal is to achieve a rapid and orderly resolution of an organization in such a way as not to cause a systemic risk to the financial system. The final rule also sets specific standards for the resolution plans, including requiring a strategic analysis of the plan’s components, a description of the range of specific actions to be taken in the resolution, and analyses of the company’s organization, material entities, interconnections and interdependencies, and management information systems among other elements.
Submission of resolution plans will be staggered based on the asset size of a covered company’s U.S. operations. Companies with $250 billion or more in non-bank assets must submit plans on or before July 1, 2012; companies with $100 billion or more in total non-bank assets must submit plans on or before July 1, 2013; and companies that predominately operate through one or more insured depository institutions must submit plans on or before December 31, 2013. Plans are required to be updated annually. A company that experiences a material event after a plan is submitted has 45 days to notify regulators of the event.
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