Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

GAO has issued a report which noted the FDIC and Federal Reserve have developed separate but similar review processes for determining whether a resolution plan, often referred to as a “living will,” is “not credible” or would not facilitate a company’s orderly resolution under the Bankruptcy Code. Both regulators have processes for staffing review teams, determining whether a plan includes all required information, assessing whether a plan’s strategy mitigates obstacles to the company’s orderly resolution, and documenting and vetting team findings and conclusions. Although the regulators’ review processes are separate, the regulators coordinate with each other by meeting jointly with companies, working together to discuss and share review findings, and jointly issuing guidance and feedback to companies.

GAO noted that the FDIC and Federal Reserve have not disclosed their frameworks for determining whether a plan is not credible. They also developed but have not disclosed their criteria for reducing plan requirements for many smaller companies. According to GAO, without greater disclosure, companies lack information they could use to assess and enhance their plans. The regulators view such information as confidential, but a federal directive on open government recognizes that transparency promotes accountability by providing more information on government activities. A lack of information on how the regulators assess plans and allow some companies to file reduced plans could undermine public and market confidence in resolution plans.

House Financial Services Committee Chairman Jeb Hensarling noted “The secrecy and lack of accountability can lead to abuse by Washington regulators and is a tool for them to potentially exercise de facto management authority over major financial institutions. Once again we’re seeing the uncertainty created by Dodd-Frank and its regulatory burden that impedes economic growth and makes it more difficult for working Americans to achieve financial independence.”


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