Resolution Plans Required for Insured Depository Institutions With $100 Billion or More in Total Assets; Informational Filings Required for Insured Depository Institutions With at Least $50 Billion but Less Than $100 Billion in Total Assets

Federal RegisterJul 9, 2024

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 360

RIN 3064-AF90

Resolution Plans Required for Insured Depository Institutions With $100 Billion or More in Total Assets; Informational Filings Required for Insured Depository Institutions With at Least $50 Billion but Less Than $100 Billion in Total Assets

AGENCY:

Federal Deposit Insurance Corporation (FDIC).

ACTION:

Final rule.

SUMMARY:

The FDIC is adopting this final rule to require the submission of resolution plans by insured depository institutions (IDIs) with $100 billion or more in total assets and informational filings by IDIs with at least $50 billion but less than $100 billion in total assets. The final rule modifies the current rule requirements regarding the content and timing of full resolution submissions, as well as interim supplements to those submissions provided to the FDIC, in order to support the FDIC's resolution readiness in the event of material distress and failure of these large IDIs. The final rule also enhances how the credibility of full resolution submissions will be assessed, expands expectations regarding engagement and capabilities testing, and explains expectations regarding the FDIC's review, feedback, and enforcement of IDIs' compliance with the rule.

DATES:

The rule is effective October 1, 2024.

FOR FURTHER INFORMATION CONTACT:

Kent R. Bergey, Associate Director, Division of Complex Institution Supervision and Resolution, 917-320-2834,

kebergey@fdic.gov;

Laura Porfiris, Associate Director, Division of Complex Institution Supervision and Resolution, 212-657-9974,

lporfiris@fdic.gov;

Elizabeth Falloon, Senior Advisor, Division of Complex Institution Supervision and Resolution, 202-898-6626,

efalloon@fdic.gov;

Mark Haley, Chief, Policy Analysis, Division of Complex Institution Supervision and Resolution, 917-320-2911,

mahaley@fdic.gov;

Dora Douglass Kochman, Senior CFI Policy Specialist, Division of Complex Institution Supervision and Resolution, 202-898-3633,

ddouglasskochman@fdic.gov;

Audra Cast, Deputy Director, Division of Resolutions and Receiverships, 312-382-7577,

acast@fdic.gov;

Varanessa Marshall, Assistant Director, Division of Resolution and Receiverships, 678-916-2233,

vamarshall@fdic.gov;

Benjamin M. DeMaria, Counsel, Legal Division, 202-898-7391,

bdemaria@fdic.gov;

Vickie R. Olafson, Counsel, Legal Division, 703-489-5873,

volafson@fdic.gov;

Esther Rabin, Counsel, Legal Division, 202-898-6860,

erabin@fdic.gov;

F. Angus Tarpley, III, Counsel, Legal Division, 202-898-8521,

ftarpley@fdic.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction

A. Background

B. Overview of the Proposed Rule

II. Overview of Comments

III. Final Rule

A. Scope and Purpose

B. Definitions

C. Full Resolution Submissions Required

D. Content of the Full Resolution Submissions for CIDIs

E. Interim Supplement

F. Credibility; Review of Full Resolution Submissions; Engagement and Capabilities Testing

G. No Limiting Effect on FDIC

H. Form of Full Resolution Submissions; Confidential Treatment of Full Resolution Submissions and Interim Supplements

I. Extensions and exemptions

J. Enforcement

IV. Expected Effects

A. Review of Comments

B. Changes From the Proposed Rule to the Final Rule

C. Marginal Effect of Changes Compared to the 2012 Rule

D. Effects on Insured Deposits and the Deposit Insurance Fund

E. Additional Economic Consideration and Effects

F. Overall Effects

V. Alternatives Considered

VI. Regulatory Analysis and Procedures

A. Paperwork Reduction Act

B. Regulatory Flexibility Act

C. Plain Language

D. Riegle Community Development and Regulatory Improvement Act of 1994

E. Congressional Review Act

I. Introduction

The FDIC's regulation “Resolution plans required for insured depository institutions with $50 billion or more in total assets,” issued in 2012

(2012 rule), requires IDIs with $50 billion or more in total assets (CIDIs) to submit resolution plans periodically. This resolution plan requirement was established to facilitate the FDIC's readiness to resolve a CIDI under the Federal Deposit Insurance Act of 1950, as amended (FDI Act), in the event of its insolvency.

12 CFR 360.10. The 2012 rule was published as an interim final rule with an effective date of January 1, 2012, 76 FR 2011 (Sept. 11, 2011); the 2012 rule was effective April 1, 2012, 77 FR 3075 (Jan. 23, 2012).

This final rulemaking to amend and restate the 2012 rule builds on the FDIC's more than a decade-long experience implementing the 2012 rule, providing guidance and feedback to CIDIs, and leveraging the content of submissions for the FDIC's development of resolution strategies. Through this process, the FDIC has gained a better understanding of the challenges of resolving CIDIs and the essential information needed in resolution plans and other related submissions to facilitate the FDIC's readiness in the event of a failure of one of these CIDIs. Therefore, this final rule supersedes all prior guidance, including the Statement (as defined below).

Part of the challenge in resolving CIDIs arises from the wide range of business models and structures among these banks. While many of the CIDIs are engaged largely in traditional commercial and retail banking activities, with nearly all assets and activities conducted within the CIDI or its subsidiaries (the bank chain), others conduct significant non-banking activities. Many of the CIDIs have a broker-dealer subsidiary or affiliate that provides services to bank customers. The CIDIs also include banks primarily engaged in a particular business segment, such as credit card services, as well as U.S. IDIs that are part of large foreign banking organizations. There is no one-size-fits-all resolution approach for these institutions; rather, the FDIC must be prepared to execute a range of resolution options, recognizing the trade-offs among those options. The FDIC's development of resolution strategies—and its assessment of the options and trade-offs that inform them—benefit from the CIDI's knowledge of its own firm, an understanding of the CIDI's relevant capabilities, and an awareness of the impediments to executing an orderly resolution of the CIDI. Across the different CIDI business models and structures, there is a variety of factors that increases the challenges and complexity of resolution in the event of the failure of one of these large banks. Key factors include size, organizational complexity, and deposit profile, among others.

The importance of advance resolution planning was recently underscored in the failures of three large banks—all over $100 billion in size

—in the spring

of 2023: Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank (First Republic).

The failure of Washington Mutual Bank in 2008 remains the largest bank failure in U.S. history. At the time of its failure, its assets totaled approximately $300 billion. First Republic, SVB,

and Signature Bank, respectively, were the second, third, and fourth largest bank failures in history.

The failures of SVB and Signature Bank on March 10 and 12, 2023, respectively, were triggered by illiquidity resulting from withdrawals by uninsured depositors at unprecedented speed and volumes. As a result of the sudden failures, there was no opportunity for pre-failure marketing. For both IDIs, the FDIC established a bridge depository institution (bridge bank) to continue bank operations post-failure to allow time to market the bank. Less than two months following those failures, First Republic was placed in receivership and sold. First Republic's failure was largely a result of contagion from the prior two failures and the bank was able to manage its liquidity for several weeks prior to failure, which allowed additional time to market the bank. The FDIC facilitated a transaction that resulted in transfer of all of the assets and liabilities to a single acquirer without establishing a bridge bank, although the FDIC stood ready to exercise the authority to form a bridge bank, if needed.

The challenges associated with the rapidity of the failures were exacerbated because the FDIC lacked important resolution planning information to facilitate marketing for SVB and Signature Bank. While SVB and First Republic had filed resolution plans just a few months before their failures, the FDIC neither had completed review nor had the opportunity to provide feedback on those plans. Signature Bank had not yet filed any resolution plan at the time of its failure; its first submission would have been due in June 2023. Current and thorough resolution planning information would have facilitated the FDIC's preparations to effectively and efficiently market the failed IDIs.

The size of an IDI can significantly impact the resolution options available to the FDIC under the FDI Act. In particular, as IDIs increase in size, the likelihood of a timely sale to a single acquirer diminishes. Currently, there are 45 CIDIs, of which 33 have total assets over $100 billion. As a group, these 45 CIDIs represent approximately $12.9 trillion in total deposits.

While a closing weekend sale may be an option in some cases, its availability cannot be assumed in view of the size, complexity, and potential speed of failure of a CIDI. This is particularly true for the largest CIDIs with $100 billion or more in total assets because the pool of potential acquirers for these institutions is limited, and any possible transaction would be complex. While there is a larger pool of possible acquiring institutions for CIDIs in the $50 to $100 billion total asset range, some of these institutions engage in highly complex activities and pose similar levels of operational complexity as those over $100 billion in total assets.

FDIC Consolidated Reports of Condition and Income data as of March 31, 2024.

The CIDIs also tend to have a more significant proportion of uninsured deposits as compared to smaller banks. In the aggregate, more than 43.4 percent of deposits of IDIs with over $50 billion in total assets are uninsured.

Under the FDI Act, any transaction using FDIC assistance—including where assistance is provided in connection with the establishment of a bridge bank—must meet the least-cost test, absent a systemic risk exception. Under the least-cost test, the cost to the deposit insurance fund (DIF) resulting from any resolution needs to be less than the cost to the DIF than all other alternatives. Where the proportion of insured deposits is very low, the potential cost to the DIF of a resolution in which only insured deposits are protected is more likely to be less costly than a resolution in which all deposits are protected.

Id.

These and other characteristics of large banks add to resolution challenges and increase the importance of robust and ongoing resolution planning for the CIDIs. The content of the full resolution submissions under this final rule will support planning for strategic options, including use of a bridge bank, and is important to the FDIC's readiness to resolve these banks.

A. Background

Since issuing the 2012 rule, the FDIC has provided guidance and feedback to CIDIs to assist in development of their resolution plans.

In 2014, following the first submissions, the FDIC provided guidance and direction for the preparation of subsequent CIDI resolution plans with a focus on the discussion of failure scenario, resolution strategies, least-cost analysis, and identified obstacles. In addition, following each resolution plan submission cycle, the FDIC issued feedback letters to CIDIs with information for the subsequent plan submission.

After several plan submission cycles, in 2018, the FDIC instituted a moratorium on the 2012 rule's requirements for all CIDIs pending completion of a new rulemaking. At the time the moratorium was adopted, the FDIC also published an advance notice of proposed rulemaking (ANPR),

which requested comment on how to tailor and improve the 2012 rule, including how to reduce the burden associated with the least-cost test analysis and whether requirements should be tiered based on size or complexity factors of cohorts of CIDIs. The ANPR also requested comment on potential enhancement of engagement and capabilities testing. At that time, the FDIC extended the due date for future plan submissions pending completion of the rulemaking process.

84 FR 16620 (April 22, 2019).

Following the issuance of the ANPR, the FDIC continued to develop its thinking regarding resolution planning for large IDIs, including how to maximize the FDIC's resolution readiness. In 2020 and 2021, the FDIC undertook targeted engagement with select CIDIs on their 2018 plan submissions, a step consistent with the enhanced emphasis on engagement and capabilities testing envisioned under the ANPR.

In January 2021, the FDIC Board took action to lift the moratorium on the resolution plan requirement for CIDIs with $100 billion or more in assets and, in June 2021, the FDIC issued a policy statement (Statement)

to describe how it planned to implement certain aspects of the 2012 rule. The Statement superseded all prior guidance and feedback. For CIDIs with total assets of at least $50 billion and less than $100 billion, the moratorium on submission of resolution plans remained in effect. CIDIs with $100 billion or more in total assets submitted resolution plans in accordance with a schedule established by the FDIC from December 1, 2022 through December 1, 2023. Consistent with the Statement, each of these CIDIs received exemptions from certain content requirements under the 2012 rule and could submit streamlined resolution plans for review.

Statement on Resolution Plans for Insured Depository Institutions (June 25, 2021),

https://www.fdic.gov/resources/resolutions/resolution-authority/idi-statement-06-25-2021.pdf.

On September 19, 2023, the FDIC published for comment a Notice of Proposed Rulemaking, “Resolution Plans Required for Insured Depository Institutions with $100 Billion or More in Total Assets; Informational Filings Required for Insured Depository Institutions with At Least $50 Billion but Less Than $100 Billion in Total Assets” (NPR).

The FDIC received and

considered 12 comment letters, which are discussed below.

88 FR 64579 (Sept. 19, 2023).

FDIC staff also met with staff of two commenters.

In addition to enacting and implementing the 2012 rule, the FDIC has instituted several rulemakings that support its mission as deposit insurer to make timely insured deposit payments and to resolve a failed IDI in the manner that is least costly to the DIF. These separate rulemakings address certain difficulties the FDIC could face in the closing of a large, complex IDI, and include

Recordkeeping for Timely Deposit Insurance Determination

(part 370) and

Recordkeeping Requirements for Qualified Financial Contracts

(part 371).

Part 370 requires covered institutions, namely IDIs with two million or more deposit accounts, to put in place mechanisms to facilitate prompt deposit insurance determinations. Part 371 requires IDIs in a troubled condition to keep detailed records in a specified, standard format regarding their qualified financial contracts. This information would be used by the FDIC, were it appointed receiver, in making a determination of which qualified financial contracts entered into by the failed institution (if any) will be transferred within the brief statutory window.

Codified at 12 CFR part 370 and 12 CFR part 371, respectively.

Separate from the FDI Act and this rule's requirements, section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended (Dodd-Frank Act),

and the related joint rulemaking published by the Board of Governors of the Federal Reserve System (FRB) and the FDIC in November 2019 (DFA rule)

mandate that certain bank holding companies and nonbank financial companies (covered companies) submit resolution plans (DFA resolution plans) for the rapid and orderly resolution of the covered company under the U.S. Bankruptcy Code.

12 U.S.C. 5365(d).

84 FR 59194 (Nov. 1, 2019), codified at 12 CFR 381 (FDIC) and 243 (FRB).

There are some noteworthy differences between the DFA rule requirements and this rule. First of all, Section 165(d) of the Dodd-Frank Act and the DFA rule focus on resolution of the organization by the organization itself under the U.S. Bankruptcy Code or other ordinary resolution regime. While some DFA resolution plans utilize a strategy where the IDI is resolved under the FDI Act, they must address resolution of the organization as a whole, including the holding company and non-bank affiliates. In addition, the statutory purpose of a DFA resolution plan is to reduce the likelihood that the financial distress or failure of a covered company would have serious adverse effects on financial stability in the United States by requiring covered companies to submit plans for rapid and orderly resolution without any assumptions of reliance on public support. By contrast, this rule focuses only on the CIDI itself, and the strategic analysis and information needed to support a resolution using the FDIC's traditional resolution tools under the FDI Act.

Presently, all U.S. global systemically important banking organizations

(U.S. GSIBs), which are the largest and most systemic and interconnected banking organizations in the United States, have developed DFA resolution plans that use a single-point-of-entry (SPOE) strategy. Under an SPOE strategy, the top tier holding company is placed into bankruptcy and generally all material operating subsidiaries, including any IDIs in the group, remain open and operating. In an SPOE resolution, the FDIC would not be called upon to resolve the IDI under the FDI Act. The SPOE approach may minimize disruption and preserve franchise value, as well as reduce systemic risk, particularly in a firm with a complex structure that includes multiple material operating entities outside of the bank chain. In contrast, most other banking organizations subject to the DFA resolution plan submission requirements currently utilize a strategy in which the top tier holding company is placed into bankruptcy and the IDI is resolved under the FDI Act.

As defined by rules promulgated by the FRB, see 12 CFR 217.402 (Identification as a global systemically important BHC).

Firms that have submitted DFA resolution plans adopting an SPOE strategy must have or develop the capabilities and may need to make improvements to their organizational structures to support implementation of that strategy. However, the FDIC still must be prepared to use its resolution authorities if necessary to achieve an orderly resolution of the firm, including its authority to resolve a CIDI under the FDI Act, or, if necessary, the extraordinary backup orderly resolution authorities provided in Title II of the Dodd-Frank Act.

A resolution using Title II orderly liquidation authorities, which supports a group-wide SPOE approach, is a backup authority to be used, if necessary, to resolve a financial company whose resolution under the Bankruptcy Code would have serious adverse effects on U.S. financial stability. That extraordinary authority may not be called upon to resolve the firm, however, if the resolution of the IDI under the FDI Act would avoid the serious adverse effects of the firm's failure. By the same token, a resolution under the FDI Act is particularly likely for large regional banks with less significant non-bank activities, predominately domestic operations, and few or no systemically important identified critical operations.

The requirements of the DFA rule and this rule support their respective differing purposes; at the same time, both rules serve the broader objective of facilitating orderly resolutions. Consistent with the proposal, this final rule specifically allows the incorporation of information from an affiliate's DFA resolution plan into a CIDI's full resolution submission or interim supplement. In providing feedback or making determinations with respect to any submission under this final rule, the FDIC will consider feedback and determinations provided with respect to DFA resolution plans with similar content, to promote consistency across the two planning requirements, and, where appropriate, taking into account the differences in the requirements of the two rules and the approaches to resolution strategy and regime.

B. Overview of the Proposed Rule

The proposal provided for two distinct groups of CIDIs based on size, with differing obligations for each group. The first group comprised those IDIs with $100 billion or more in total assets (group A CIDIs). The proposed rule would have required group A CIDIs to submit full resolution plans containing an identified strategy appropriate to the CIDI for its orderly and efficient resolution, as well as providing all other content elements described in the proposed rule.

The second group comprised those IDIs with at least $50 billion but less than $100 billion in total assets (group B CIDIs). The proposed rule would have required full resolution submissions from group B CIDIs with more limited requirements, in the form of an informational filing.

The proposal was intended to:

• Clarify and enhance requirements applicable to IDIs with $50 billion or more in total assets, including resolution plans submitted by group A CIDIs and informational filings submitted by group B CIDIs;

• Require each group A CIDI to provide an identified strategy for resolution that ensures timely access to

insured deposits, maximizes value from the sale or disposition of assets, minimizes any losses realized by creditors of the group A CIDI in resolution, and addresses potential risks of adverse effects on U.S. economic conditions or financial stability;

• Clarify requirements with respect to the assumptions for the failure scenario used by group A CIDIs in resolution plans and reserve the ability of the FDIC to provide additional parameters for the failure scenario for all group A CIDIs or specific individual group A CIDIs in future plan submission cycles;

• Strengthen full resolution submission content elements and associated requirements regarding capabilities to support optionality available to the FDIC and ensure that the FDIC's development of resolution strategies reflects considerations related to the characteristics of the individual CIDI and potential challenges that could be faced in resolution;

• Refine the requirements for group A CIDIs with respect to least-cost analysis and focus on ensuring that the FDIC has the building blocks and capabilities it needs to undertake the least-cost test in resolution in the event of failure of a group A CIDI;

• Establish an enhanced credibility standard for full resolution submissions and clarify the process for review and feedback to identify and address weaknesses in full resolution submissions and enforce the rule;

• Establish a requirement for informational filings to be submitted by group B CIDIs that is focused on information most important and appropriate for resolution of those CIDIs;

• Adjust the frequency of full resolution submissions to a two-year cycle for all CIDIs to accommodate engagement and capabilities testing as part of the resolution planning process, and establish periodic interim supplements containing specified resolution submission content items; and

• Codify certain aspects of guidance and feedback previously issued to IDIs subject to the 2012 rule.

II. Overview of Comments

The FDIC received 12 comment letters to the proposal from banking organizations, industry and trade groups representing the banking and financial services industry, a law firm, and consumer groups.

The comments received generally were responsive to questions posed by the FDIC in the NPR. The majority of commenters suggested changes to reduce the costs of submission preparation for filers, including by adjusting the proposed submission cycle, narrowing the proposed scope and content requirements, and enhancing alignment with relevant resolution planning requirements of the DFA rule. Several commenters raised concerns about the enhanced credibility standard, and asked for greater clarity on engagement and capability testing. Three commenters offered broad support for the proposed rule as written. The comments received are summarized below.

Scope of Rule

Most commenters agreed with the overall scope of the rule. Two commenters suggested creating a new group of filers that would include only firms with $100 billion to $250 billion in total assets, and reducing requirements for that new group, as compared to the CIDIs with at least $250 billion in total assets. As for group B CIDIs, several commenters noted the content requirements of the informational filings varied in a limited manner from a full resolution plan and asserted that the FDIC should more significantly reduce the burden for group B CIDIs with further tailoring or elimination of requirements for group B CIDIs. Two other commenters recommended that group B CIDIs should be subject to the same requirements as group A CIDIs.

Several commenters addressed the relationship between IDI resolution plans and DFA resolution plans. Two commenters supported changes to better harmonize these resolution planning efforts. One commenter suggested CIDIs with parent banking organizations that are biennial filers or triennial full filers of DFA resolution plans should be exempted from IDI resolution plan requirements. That commenter also argued for streamlining requirements if IDI resolution plans continue to be required for CIDIs in addition to the DFA resolution plans required of their parent banking organizations. Regarding consistency across these two programs, two commenters emphasized the need to use consistent definitions with regard to IDI resolution plans and DFA resolution plans, and cited the definition of “material change” as an example where there could be better alignment. Another commenter highlighted that the scope of the virtual data room capabilities requirement should be aligned with the equivalent requirement for DFA resolution plans. Additionally, two commenters emphasized the importance of consistency between credibility determinations on DFA resolution plans by the FDIC and FRB, and on IDI resolution plans by the FDIC, as well as any other feedback on common elements of these two submissions.

Submission Cycle and Transition Period

Two commenters broadly supported the cycle as proposed, while four argued to reduce the frequency of full resolution submissions. Commenters arguing for a longer submission cycle generally supported a three-year cycle, which they noted would take into account the cycle for certain DFA resolution plans, allow for adequate review and feedback by FDIC staff, and provide time for CIDIs to incorporate that feedback. However, one commenter noted that a two-year cycle with no interim supplements could be appropriate for CIDIs whose parent companies are biennial filers of DFA resolution plans. In terms of the dates of submissions, one commenter suggested July, while two others proposed December.

With respect to the first full resolution submissions or interim supplements following the effective date of the final rule, five commenters suggested a period of 12 months or longer, rather than the proposed 270-day period. In particular, with respect to group B CIDIs, commenters suggested a transition period of 18 months, since none of these CIDIs has submitted a resolution plan under the 2012 rule since implementation of the moratorium.

Regarding the interim supplements, three commenters recommended narrowing the scope of information required. Commenters recommended reducing or eliminating requirements for narrative or description, and to limit the required content to information that has materially changed. Another commenter suggested that narrative commentary in the interim supplement should be limited to a summary of material changes in the information provided in the prior full resolution submission. One commenter suggested that interim supplements, like full resolution submissions, should use data as of the end of the prior year, rather than the prior quarter.

Several commenters emphasized the importance of the FDIC providing meaningful feedback to CIDIs and adequate time for that feedback to be incorporated into subsequent submissions, with one commenter recommending feedback be provided at least 12 months before the next submission is due and two others noting the need for the FDIC to build internal capacity and capabilities to support this.

Rule Requirements

Commenters generally supported the FDIC's focus on increasing optionality available to it in preparing for resolution. Four agreed that a bridge bank may be helpful in this respect, to provide more time to sell all or parts of the institution, reduce reliance on strategies involving a single buyer, and expand the universe of potential acquirers. Two commenters supported the identified strategy requirement as proposed, with one noting it would be among the most critical pieces of information in a resolution plan and plans without this element would not likely be credible or effective. Three other commenters favored elimination or modification of the scenario and identified strategy requirement. One of these commenters suggested that some CIDIs with more than $100 billion but less than $250 billion in total assets may have less complex structures that make an FDIC-arranged sale feasible. They noted that, by requiring just one identified strategy, the proposal restricts CIDIs from presenting a full range of options for resolution. Another commenter argued that, based on the lessons learned from recent failures, the FDIC should be more focused on maximizing the likelihood of a resolution weekend sale, including by emphasizing real-time capability for IDIs to produce necessary information for potential buyers. A third commenter expressed concern that the proposed requirement for the identified strategy to have “meaningful optionality” is too vague.

Two commenters addressed aspects of assumptions in the proposed failure scenario, with one arguing against the assumption that the CIDI's parent holding company enters bankruptcy, and the other supporting the assumption of continued Federal Home Loan Bank lending to a bridge bank.

Regarding the proposed approach to valuation to facilitate the FDIC's assessment of least-costly resolution method, three commenters emphasized the importance of valuation to resolution planning and another expressed support for replacing the least-cost test requirement of the 2012 rule with the proposed valuation requirement. Three commenters suggested modifications to the approach; specifically, these commenters favored elimination of the requirement for quantitative valuation analysis. These commenters argued that such analysis would be overly burdensome, more expensive for CIDIs that do not maintain in-house expertise, and of little value to the FDIC in an actual resolution scenario.

Engagement and Capabilities Testing

Commenters were generally supportive of engagement and capabilities testing. One commenter suggested increasing the expected frequency of engagement, while another advocated for committing more resources toward engagement and capabilities testing while decreasing the emphasis on full resolution submission documentation. Four commenters suggested that the FDIC should provide advance notice of the timing for engagement and capabilities testing, and the process for the testing and feedback. Two of these commenters indicated the FDIC should provide CIDIs with a comprehensive list of capabilities it expects a CIDI to maintain, and suggested this should be done through a notice and comment period to enable input from the industry. One of these commenters also noted that CIDIs—especially, group B CIDIs—will need time to build, improve, and test capabilities prior to undergoing capabilities testing with the FDIC, and suggested capabilities testing should not occur during a CIDI's initial submission cycle under this Rule.

Credibility Standard

Two commenters expressed support for the proposed enhancement of the credibility standard. Three other commenters recommended eliminating the credibility determination, granting CIDIs latitude on the standard's application, or foregoing any enforcement action based on a credibility determination. They argued that the standard, particularly the first prong, is subjective and susceptible to being applied inconsistently over time. Another commenter observed that any credibility standard is necessarily subjective.

Several commenters emphasized the importance of a collaborative approach to resolution planning, with one emphasizing the role communications can play to support this, including related to the timing and scope of capabilities testing. In addition, several commenters expressed concerns about any enforcement actions related to engagement and capabilities testing, with one commenter stressing that full resolution submissions should only be deemed non-credible due to fundamental resolvability issues and not because of issues with CIDIs' resolution capabilities that fall short.

Expected Effects

One commenter indicated that the proposal would substantially add to the time and resources required to prepare IDI resolution plans. Another two commenters argued that the analysis of the compliance burden understates the true cost of the burden. A fourth commenter suggested that the estimated time required to develop an IDI full resolution submission is not unreasonable and the cost of compliance would pale in comparison to the costs of potential bank failures and banking crises.

III. Final Rule

The FDIC considered all comments received and has adopted certain changes to the proposed rule as discussed below. In addition, the FDIC made certain technical, non-substantive changes throughout, including corrections to paragraph numbering and grammar, improving word choice for readability, and eliminating redundancy.

A. Scope and Purpose

The scope and purpose of the final rule are substantively unchanged from the proposal. This rule is intended to ensure that each group A CIDI develops a credible strategy to facilitate the FDIC's resolution of the institution across a range of possible scenarios and, with respect to each group A CIDI and each group B CIDI, that the FDIC has access to all of the material information and analysis it needs to efficiently resolve the CIDI in the event of its failure.

Consistent with the 2012 rule and the proposal, the final rule applies to all IDIs with at least $50 billion in total assets based upon the average total assets reported over the previous four quarters. Like the proposal, the final rule will differentiate the requirements pertaining to group A CIDIs and group B CIDIs. Each group A CIDI is required to periodically submit a resolution plan to the FDIC, including an identified strategy for its resolution under the specified failure scenario. Each group B CIDI is required to periodically submit an informational filing to the FDIC that would consist of certain informational content, but would not be required to include an identified strategy or to develop capabilities necessary to produce valuations needed to support least-cost test analysis.

Comments received by the FDIC included letters from two commenters who recommended that group B CIDIs should file resolution plans with no distinction between group A CIDIs and

group B CIDIs. Two other comment letters suggested that group A CIDIs should consist only of CIDIs with at least $250 billion in total assets and that there should be further tiering of requirements for CIDIs between $100-250 billion in total assets and those between $50-$100 billion in total assets. One commenter recommended that group B CIDIs not be required to make any full resolution submissions.

The FDIC has retained the distinction between group A CIDIs and group B CIDIs, and the requirement that group B CIDIs provide informational filings. The FDIC believes that the approach taken for group B CIDIs appropriately recognizes the additional complexity and greater resolution challenges applicable to the group A CIDIs. The threshold of $100 billion in total assets, which is also used in the Dodd-Frank Act

and other rulemakings as a basis for assessing a banking organization's financial stability and safety and soundness risks,

is an appropriate threshold to distinguish full resolution submission requirements for group A CIDIs and group B CIDIs, and is retained in the final rule.

See

12 U.S.C. 5365(a)(2)(C). The threshold for enhanced prudential standards under that provision was established through passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act in 2018.

See, e.g.,

84 FR 59230 (Nov. 1, 2019) (codified at 12 CFR parts 3, 50, 217, 249, 324, 329).

While all group A CIDIs have the same requirements for submission of full resolution plans, in response to comments discussed further below, the group A CIDIs are further divided into two filing categories: triennial and biennial filers. While most group A CIDIs will file on a triennial cycle under the final rule, those CIDIs that are part of the largest and most systemic and interconnected U.S. banking organizations—those affiliated with U.S. GSIBs—will file biennially.

The FDIC considered comments proposing specific changes to the content of informational filings for group B CIDIs, which are addressed below.

B. Definitions

The proposal included definitions of terms used in the proposed rule, which are included without change in the final rule, except as noted below.

Several comments were received with respect to certain defined terms. Two commenters emphasized the importance of consistency in the definitions of equivalent terms between the proposed rule and the DFA rule, and “core business line” and “material change” were cited as specific examples. Additionally, two comment letters argued that the proposed definition of “material change” was overly inclusive and used in a manner that might result in triggering the notice requirements contained in the proposal upon relatively minor events, noting a narrower approach to events triggering such a notice in the DFA rule.

Accordingly, the definitions for “core business lines” and “material change” are revised in the final rule to be more consistent with similar concepts in the DFA rule. The definition of “core business lines” is revised to conform more closely to the DFA rule. The definition covers the CIDI's business lines whose failure would result in a material loss of the CIDI's revenue, profit, or franchise value.

The definition of “material change” is revised to combine concepts from the definition in the proposed rule and from the definition in the DFA rule. As discussed in the preamble to the proposed rule, in administering the 2012 rule, the FDIC has observed that not all CIDIs have interpreted the material change concept similarly. Accordingly, the intent of revising the defined term is to use an approach similar to the DFA rule, while improving clarity as to how to apply the concept in the context of this rule. Given differences in the purpose and scope of the two rules, the final rule focuses on changes that are important for CIDIs. Thus, the definition of material change in the final rule focuses on events that relate to the requirements of the rule, such as changes to overall deposit structure, identification or de-identification of a franchise component, and acquisition or disposition of a material asset portfolio, among other things. The usage of the term “material change” was modified as well, to be more consistent with the approach taken under the DFA rule. As discussed below, the final rule uses the phrase “extraordinary event,” borrowed from the DFA rule, in the context of the notice requirement instead of the term “material change.”

One commenter noted that the proposed definition of “material entity” is over-inclusive, which might be inconsistent with the goal of focusing on the material aspects of the organization, and noted that this approach diverges from the approach taken in the DFA rule. The FDIC agrees with the comment that including all entities that are material to franchise components may result in relatively insignificant entities being captured within the definition. Accordingly, the reference to franchise components is omitted from the definition in the final rule. However, including all IDIs as material entities, regardless of size, is important for FDIC's resolution planning, as it is likely that all may enter resolution under the FDI Act, due to statutory cross-guarantees. No change is being made to the inclusion of all IDIs as material entities.

In the definition of “franchise component,” the term “asset pool” was replaced by the term “material asset portfolio” to utilize a defined term from the rule. A similar change was made to the definition of “multiple acquirer exit” in using the defined term “material asset portfolios” instead of “asset portfolios.”

Throughout the final rule, the term “resolution submission” was replaced by the term “full resolution submission” and the term “BDI” was replaced by the term “bridge depository institution” for clarity.

The definitions of “group A CIDI” and “group B CIDI” were revised to be more consistent with the approach used in the DFA rule for determining filing groups.

The definition of United States was revised to be consistent with the definition under the FDI Act.

New defined terms were added for clarity, including “PCS service provider,” “DIF,” “biennial filer,” and “triennial filer.”

C. Full Resolution Submissions Required

Biennial Filers and Triennial Filers

Under the proposal, each CIDI would have been required to provide a full resolution submission to the FDIC every two years. The FDIC would have retained the discretion to alter the submission dates upon written notice to the CIDI. An interim supplement would have been required in any year in which the CIDI is not required to file a full resolution submission.

Four commenters recommended a three-year submission cycle consistent with the Statement. Commenters supporting the three-year cycle emphasized the importance of receiving timely feedback and having sufficient time to incorporate improvements in the full resolution submissions with each cycle. These commenters also cited an increased cost in more frequent filings. Commenters flagged the importance of the coordination of filing resolution submissions, submission review, and engagement and capabilities testing, as well as filing interim supplements over the course of the cycle. Two commenters supported the proposed biennial submission. One commenter recommended that if the FDIC were to

move to a triennial submission cycle for most CIDIs, the biennial cycle should be retained for the CIDI affiliates of U.S. GSIBs, which are biennial filers under the DFA rule. The commenter suggested that this approach would be more efficient for the U.S. GSIBs and for the FDIC, as interim supplements would not be necessary because either a DFA resolution plan or a resolution plan under this rule would be submitted in alternating years.

The final rule adopts the recommended three-year submission cycle for most CIDIs. The FDIC agrees with commenters that timely and fulsome feedback for each CIDI is an important priority, and ensuring time for engagement and capabilities testing between full resolution submissions is of significant value. In addition, the FDIC expects that key components of the full resolution submission will remain relatively constant over a three-year cycle, including the identified strategy for group A CIDIs. Important information that is more likely to change over that period will be updated annually through the interim supplement. In addition, the FDIC will receive notices of extraordinary events that will provide information of significant changes at the CIDI, such as through merger and acquisition or divestiture, and the FDIC would be in a position to request additional information if needed.

With respect to the CIDI affiliates of U.S. GSIBs, the FDIC agrees with the commenter that a full resolution submission cycle that is complimentary with the DFA resolution plan cycle will improve efficiency, and will ensure timeliness of content needed for contingency planning for an FDI Act resolution. The biennial filing is appropriate for these CIDIs, which are part of the largest and most systemic and interconnected U.S. banking organizations. Accordingly, the final rule establishes a two-year cycle for CIDIs that are affiliates of U.S. GSIBs. Consistent with the proposal, the FDIC retains the discretion to change filing dates for any CIDI.

The FDIC received several comments with respect to the preferred submission date. One commenter suggested July 1, while two commenters recommended December dates. One of these commenters suggested that CIDIs with parent banking organizations that are triennial filers of DFA resolution plans should submit full resolution submissions under this rule in December of the same year in which the DFA resolution plan is filed. The final rule does not specify a calendar date for submissions, to retain flexibility over the life of the rule. While July 1, January 1, and December 1 dates have been used in the past, the most suitable dates may be different for different cohorts of CIDIs and may change over time. The FDIC considers the annual cadence for information required by this rule to be provided by most CIDIs, including those with parent banking organizations that are triennial filers of DFA resolution plans—whether via full resolution submissions or interim supplements—to be appropriate from a resolution planning workflow perspective for both the FDIC and CIDIs. The FDIC also expects to establish a regular cadence of review, testing, and engagement across two cohorts of group B CIDIs, and may establish different calendar dates for submissions by those group B CIDI cohorts.

With respect to the first full resolution submissions or interim supplements following the effective date of the final rule, five commenters suggested a period of 12 months or longer, rather than the proposed 270-day period. In particular, with respect to group B CIDIs, commenters suggested a transition period of 18 months, since none of these CIDIs have submitted a resolution plan under the 2012 rule since implementation of the moratorium.

The FDIC will notify CIDIs of the date when their first full resolution submissions or interim supplements are due under the final rule. Consistent with the proposal, for group A CIDIs, that date will be at least 270 days from the effective date of the rule. The FDIC believes that 270 days following the effective date is sufficient time for group A CIDIs to prepare a resolution plan or interim supplement that conforms to the final rule. This timing reflects the urgency of resolution planning for these largest CIDIs, and supports the establishment of a regular cadence of full resolution submissions and interim supplements across three cohorts of group A CIDIs for purposes of full resolution submission review, horizontal capabilities testing, and firm-specific engagement. The text of the final rule will be publicly available following action by the FDIC Board of Directors, and will be published in the

Federal Register

well before the effective date, giving CIDIs notice of the final rule's requirements.

For group B CIDIs, the initial submission due dates will be at least one year from the effective date of the final rule. This is appropriate because the group B CIDIs are generally new to the resolution planning process—or have not filed for an extended period due to the moratorium—and because the resolution challenges associated with the group B CIDIs are somewhat reduced.

Full Resolution Submissions by New CIDIs

Consistent with the proposal, the final rule indicates that an IDI that becomes a CIDI after the effective date of the final rule is required to provide its initial full resolution submission on or before the date specified in writing by the FDIC, which will be no earlier than 270 days after the IDI became a CIDI. As these firms are aware of such transition well in advance, 270 days after the change of status is an appropriate length of time to submit a new full resolution submission. As IDIs grow, whether through merger or business strategy or otherwise, it is important that the FDIC receive prompt and timely information for resolution planning. The 270-day period balances the urgency of resolution readiness against the time needed for a new CIDI to complete a thorough and responsive full resolution submission.

The final rule adds language to address submissions subsequent to a CIDI transitioning between groups. A CIDI that transitions from group B to group A or from group A to group B, will file a full resolution submission or interim supplement, as applicable, pursuant to the requirements relevant to its new filing group on or before the date that its next full resolution submission or interim supplement is due, unless it receives written notice of a different date from the FDIC.

The final rule contains language changes from the proposal for clarity and consistency by providing for full resolution submissions on or before the submission date, rather than on the submission date, for the biennial filers, the triennial filers, and the new filers. This is consistent with similar language in the DFA rule.

Notice of Extraordinary Event

The proposal would have required that a CIDI provide the FDIC with a notice and explanation of a material change no later than 45 days after certain events included in the proposed definition of “material change.” The proposal also would have allowed for an exemption from this requirement if the date on which the CIDI would be required to submit the notice would be within 90 days before the date on which the CIDI is required to provide a full resolution submission.

Commenters suggested that the definition of material change was too broad and would give rise to notices that were not likely to significantly

impact the full resolution submission. Commenters suggested consideration of the approach taken in the DFA rule, which requires notice of a more limited set of “extraordinary events.” The FDIC considered those comments and adopted the concept of an “extraordinary event” as the basis for the 45-day notice, rather than a “material change.” The term “material change” remains in the final rule, but is no longer part of the notice requirement. This is similar to the approach taken for DFA resolution plans, with appropriate adjustments for the differences in the two rules. The FDIC expects that this approach will provide a focus on the events that are significant enough to warrant a notice, such as a merger, acquisition or disposition of assets, or fundamental change to the CIDI's organizational structure, core business lines, size, or complexity. The final rule retains the requirement of the notice within 45 days of the event, and the exemption from the requirement if the event occurs within 90 days of the date by which the next full resolution submission is due. The impact of the extraordinary event on resolution would be discussed in the discussion of material changes in the next submission, whether a full resolution submission or the interim supplement, and the FDIC would be in a position to request additional information if needed. A CIDI is not exempt from the requirement if the event occurs within 90 days of the date by which the next interim supplement is due because of the more limited content required in an interim supplement.

Approval by the CIDI Board of Directors

The final rule adopts without change the requirement that a CIDI's board of directors approve the full resolution submission, and that this approval be noted in the board's minutes. For an insured branch, the final rule allows a submission to be approved by a delegee acting under the express authority of the board, and requires such delegation of authority to be noted in the board's minutes. No comments were received on this proposed provision. This requirement does not apply to an interim supplement.

Incorporation From Other Sources

The proposal would have allowed the CIDI to incorporate certain information or analysis without seeking the authorization required under 12 CFR part 309 for disclosure of FDIC confidential information. The proposed rule included certain proposed requirements about the format and process for incorporation of information from other sources and would have required certification that the information or analysis remains accurate in all respects that are material to the CIDI's full resolution submission. The FDIC received no comments on this proposed provision and there were no substantive changes. However, the final rule has been modified from the proposal for consistency and clarity to state that a CIDI may incorporate information from other sources into its interim supplement and the “confidential section” of the full resolution submission and to allow information from a regulatory filing of a CIDI affiliate without seeking a separate waiver.

D. Content of the Full Resolution Submissions for CIDIs

The proposal would have required each group A CIDI to submit a resolution plan that includes all content specified in § 360.10(d) of the proposed rule. The proposal would have required each group B CIDI to provide an informational filing, which would not include all of the content of a resolution plan. As proposed, the informational filing would not include the executive summary, identified strategy and failure scenario, or valuation to support least-cost test analysis content elements that are applicable to group A CIDI resolution plans.

The FDIC received comments related to the content elements that would apply to an informational filing. Two commenters suggested that the requirement to describe franchise components be reduced or removed for group B CIDIs, because, the commenters argued, the proposed franchise component content element included information similar to resolution planning that should not be required in an informational filing. While the FDIC continues to believe that the identification of franchise components is critical for resolution preparation, particularly in situations where a whole bank sale may be difficult to achieve, the FDIC also agrees that some proposed aspects of the franchise components content element may inadvertently require discussion of resolution strategy by group B CIDIs. Accordingly, in response to these comments, the final rule exempts group B CIDIs from reporting the portions of the franchise component content element relating to marketing process and capabilities, key assumptions underpinning each divestiture, and obstacles to execution. All other proposed subparts of the franchise component content element are required for group B CIDIs in the final rule.

Commenters also recommended the reduction, removal, or amendment of several other content elements for informational filings. Some commenters generally suggested changes to content elements that they viewed as requiring information that they did not believe to be as relevant or applicable for group B CIDIs as for group A CIDIs or to be available from other sources aside from the group B CIDIs, while one commenter was generally supportive of the proposed content element requirements. After reviewing these comments, the proposed content element requirements, the availability of the information for the proposed content elements, and the FDIC's resolution practices and experience, the FDIC has determined that all other informational filing content elements should be maintained as proposed. The content elements will provide critical information at a level of detail necessary for resolution planning and execution that, in the FDIC's estimation and experience, is not available in sufficient detail from other sources to meet the FDIC's needs in the resolution context.

Under the final rule, a full resolution submission, whether a resolution plan for a group A CIDI, or an informational filing for a group B CIDI, must include a discussion of any material changes from the prior full resolution submission or interim supplement or an affirmation that no material change has occurred, and a discussion of changes to the CIDI's previous full resolution submission resulting from any change in law or regulation, guidance, or feedback from the FDIC. This requirement was proposed as part of the executive summary of the resolution plans submitted by the group A CIDIs, and while the group B CIDIs do not need to include an executive summary as part of their informational filings, the final rule requires that the information filing include a similar discussion of changes since the prior submission. As discussed above, the definition of material change has been modified in the final rule in response to comments, providing additional context to this requirement.

The FDIC considered all comments related to the specific requirements of the content elements described in § 360.10(d) of the proposed rule and discusses these content elements below.

Identified Strategy

The proposal would have required each group A CIDI to provide an identified strategy, which describes the resolution from the point of failure through the sale or disposition of the group A CIDI's franchise (including all

of its core business lines and all other business segments, branches, and assets that constitute the CIDI and its businesses as a whole) in a manner that meets the credibility standard. The proposal would have established the bridge bank approach as the default identified strategy, and indicated that a bridge bank strategy must provide for the establishment and stabilization of a bridge bank and an exit strategy from the bridge bank.

Recognizing that the bridge bank approach may not be optimal for all group A CIDIs, the proposal would have permitted a different identified strategy if that different strategy best addressed the first prong of the credibility criteria, could reasonably be executed by the FDIC across a range of likely failure scenarios, and would be more appropriate for the size, complexity, and risk profile of the specific group A CIDI. However, the proposed rule would not have permitted the identified strategy to be based upon the sale of substantially all assets and liabilities over closing weekend. The proposal would have required that any identified strategy include meaningful optionality for execution across a range of failure scenarios.

Two commenters recommended eliminating the requirement of a failure scenario-based identified strategy in any resolution plan. In addition, one comment letter suggested that this requirement should be based on factors other than size, such as whether more than 90 percent of the total consolidated assets are within the CIDI, the extent of cross-border activity, or the IDI's role as a financial utility or agent bank. Two commenters supported the proposed scope of the requirement; one commenter suggested that it should apply to group B CIDIs as well.

Two commenters supported the identified strategy requirement as proposed, with one noting it would be among the most critical pieces of information in a resolution plan and plans without this element would not likely be credible or effective. Three other commenters favored elimination or modification of the failure scenario and identified strategy requirement. Several commenters supported the proposed rule's emphasis on a bridge bank approach as the default identified strategy. Two commenters recommended including a whole bank sale as a permitted identified strategy for group A CIDIs, suggesting that it is a possible option even for large banks, and its use may minimize losses to the DIF and other creditors.

The FDIC considered the comments and concludes that there are certainly factors other than size that impact challenges in resolution and availability and likelihood of a closing weekend sale as a strategic option, however, the FDIC considers that size alone may present significant challenges and make a closing weekend sale less likely. While the FDIC will consider any feasible bid for the sale of the IDI franchise over closing weekend or as promptly as possible post-failure, it cannot rely on that option, and must have available other strategic options. As explained in the preamble to the proposal, the proposed requirements related to the identified strategy and failure scenario are intended to provide the FDIC with a strategic option that is adaptable under a wide range of potential scenarios, as the actual scenario is likely to be materially different from any hypothetical scenario construct. Further, the development of an identified strategy that takes into account a group A CIDI's organization, structure, business lines, and other characteristics provides significant insight into the obstacles that the FDIC might face in resolving the CIDI and possible mitigating actions that may be available to address those obstacles. Accordingly, the final rule retains the requirement that group A CIDIs develop an identified strategy based on a failure scenario.

In addition, the final rule adopts the approach taken in the proposal with respect to the strategic options to be considered in each group A CIDI's identified strategy. The strategic option that the FDIC considers most useful for the group A CIDIs across the widest range of failure scenarios is the establishment of a bridge bank that can continue the operations of the CIDI. Generally, a bridge bank approach will support the preservation of franchise value and will also allow time for restructuring and marketing to facilitate the sale or disposition of the business lines and related assets, while providing insured depositors with prompt access to their accounts.

Accordingly, the final rule establishes the bridge bank approach as the default identified strategy. A bridge bank strategy must provide for the establishment and stabilization of a bridge bank and an exit strategy from the bridge bank, such as a multiple acquirer exit involving the regional breakup of the group A CIDI or sale of business segments, an orderly wind down of certain business lines and asset sales, an exit via restructuring and subsequent initial public offering or other capital markets transaction, or another exit strategy appropriate to the size, structure, and complexity of the CIDI. If a multiple acquirer exit is included as part of the identified strategy, it may be appropriate for the resolution plan to address the time required for that exit option and any restructuring or other actions needed to address obstacles to separability of divestiture options. If the identified strategy assumes the sale of franchise components or a multiple acquirer exit, the resolution plan should take into account all issues surrounding the CIDI's ability to sell in market conditions present in the applicable economic condition at the time of sale.

Consistent with the proposed rule, in addressing the establishment of the bridge bank, the final rule does not require that a resolution plan demonstrate that the identified strategy is the least-costly to the DIF of all available strategies; in particular, the resolution plan is not required to demonstrate that the identified strategy would be less costly to the DIF than liquidation. Similarly, the resolution plan is not required to include analysis discussing whether the conditions for chartering the bridge bank would be satisfied. Rather, each group A CIDI is required to support its estimation that the identified strategy in the resolution plan maximizes value and minimizes losses to the creditors of the group A CIDI. While commenters noted that this necessarily would be subjective and depend on a variety of factors, the CIDI's assessment of this item will be helpful to the FDIC in making its own assessment in the event of a failure. The valuation analysis discussed below supports the FDIC's ability to evaluate the strategy's impact on value and its potential costs to the DIF across a range of options.

Recognizing that the bridge bank approach may not be optimal for all group A CIDIs, consistent with the proposal, the final rule permits a different identified strategy if it best addresses the first prong of the credibility standard (discussed in

credibility criteria

below), could reasonably be executed by the FDIC across a range of likely failure scenarios, and would be more appropriate for the size, complexity, and risk profile of the specific group A CIDI. Also consistent with the proposal, an alternative identified strategy under the final rule could include transferring some but not all business lines and assets to a bridge bank and liquidating others in a receivership. For some group A CIDIs, a payment of insured deposits

and

liquidation of all business lines and assets in receivership may be the most appropriate identified strategy.

This task could be accomplished through a Deposit Insurance National Bank established by the FDIC pursuant to 12 U.S.C. 1821(m).

Consistent with the proposed rule, the final rule requires any identified strategy to include meaningful optionality for execution across a range of scenarios and provide the information and analysis to inform decisions and support optionality for the FDIC in undertaking a resolution of the CIDI following its material financial distress and failure. One commenter stated that meaningful optionality is a vague and difficult standard. As explained in the preamble to the proposal, meaningful optionality reflects an expectation that an identified strategy be flexible so that it can be adapted to a change in the failure scenario or an unexpected obstacle to its execution. The nature and extent of meaningful optionality will vary based upon the size and complexity of the CIDI. For instance, a relatively smaller and less complex CIDI with a focus on traditional banking may identify only a breakup between two business lines or the spinoff or sale of a separable business unit. For the largest or most complex CIDIs, meaningful optionality might include alternatives such as a breakup by business lines and a regional breakup, or by sale of one or more identified franchise components as options for a sale of the IDI franchise. The final rule retains the expectation of meaningful optionality as proposed.

Failure Scenario

The proposal would have required the identified strategy to be based on a failure scenario that demonstrates that the CIDI is experiencing material financial distress. The proposed rule would have required the failure scenario to assume and demonstrate that the CIDI experienced a deterioration of its asset base, and that its high quality assets have been depleted or pledged due to increased liquidity requirements from counterparties and deposit outflows. The proposal noted that, while the immediate cause of failure may be based on liquidity shortfalls, the failure scenario also must consider the likelihood of the depletion of capital and losses in the assets of the CIDI, which may include embedded losses that may not have been recognized by the CIDI for financial reporting purposes. The FDIC has learned that a submission is most valuable when it is based on the assumption that the CIDI has experienced material financial distress such that its failure is a result of the depletion of capital and/or liquidity. While the resolution strategy may be based on an idiosyncratic event or action, including a series of compounding events, the firm should justify all assumptions, consistent with the conditions of the economic scenario and the nature of the CIDI. These proposed provisions remain substantively unchanged in the final rule.

Under the proposal, the failure scenario would have been required to assume that the U.S. parent holding company is in bankruptcy and is consistent with the approach taken in DFA resolution plans. One commenter objected to the assumption that the parent is in bankruptcy, stating that this assumption is not appropriate for all firm structures and may overlook potential sources of value in resolution and limit the information available to the FDIC. While the FDIC appreciates that the CIDI's parent and parent affiliates may not be in bankruptcy in all cases, experience shows that a bank failure frequently occurs with bankruptcy of the parent and parent affiliates. For that reason, an understanding of the impact of such a failure scenario on the resolution of the CIDI is important for the FDIC to prepare for that possibility and the FDIC believes that this baseline assumption is useful and appropriate. The full resolution submissions will contain information to support an evaluation of outcomes in the event that a coordinated, group-wide approach is feasible. For instance, consistent with the proposal, the final rule requires information on financial and operational interconnections between the IDI and the parent and parent affiliates that will be helpful to the FDIC in considering options should this baseline assumption prove not to be the case in an actual resolution scenario. For these reasons, the FDIC has made no change with respect to this assumption in the final rule.

The FDIC made a clarifying change to the failure scenario by deleting the references to discount window borrowing before or in resolution. While assumptions regarding discount window borrowing are included in the scenarios described in prior DFA resolution plan guidance, these considerations are less important to the FDI Act resolution scenario because of the availability of the DIF for temporary liquidity in resolution. The preamble to the proposed rule noted that the identified strategy may assume continuation of Federal Home Loan Bank (FHLB) advances as well as the availability of short-term liquidity advances from the DIF to meet temporary liquidity needs in resolution, if the identified strategy provides for timely repayment of those funds, an assumption that was supported by one commenter. As the scenario specifically permits the use of DIF liquidity in resolution, provided that the identified strategy may not assume use of the DIF to avoid losses to creditors of the bridge bank, and may assume the availability of FHLB or other sources of liquidity on applicable terms, it is less significant whether the bridge bank borrows from the discount window. To the extent that the CIDI assumes that DIF funding is used during the resolution by a bridge bank, it must demonstrate the capacity for such borrowing on a fully secured basis and must demonstrate a source of timely repayment.

In addition, the final rule retains the proposal without change to allow flexibility for the FDIC to devise specific failure scenario assumptions with respect to macroeconomic conditions or the precipitating cause of failure. One commenter stated that the FDIC should provide any changes to failure scenario assumptions at least 12 months before a full resolution submission is due. The FDIC will endeavor to provide a group A CIDI notice of additional or alternative parameters for the failure scenario at least one year before the applicable full resolution submission is due. Other comments suggesting that changes to the scenario must be public and apply equally to all group A CIDIs were not adopted. The FDIC has learned in past plan reviews and resolution experience that the path to failure is different for different firms and may depend on the particular business structure of an individual CIDI or cohort of CIDIs. Accordingly, the FDIC believes that it is appropriate to retain options for flexibility and confidentiality in the development of scenarios.

Executive Summary

The proposed rule would have required a group A CIDI to include an executive summary describing the key elements of its identified strategy. It also would have required a discussion of changes to the group A CIDI's previously submitted resolution plan resulting from any change in law or regulation, guidance or feedback from the FDIC, or any material change. Finally, the proposed rule would have required a discussion of any actions the group A CIDI had taken since submitting its most recent resolution plan to improve the resolution plan's information and analysis, or to improve its capabilities to develop and timely deliver that information and analysis. This provision of the final rule is adopted as proposed. As discussed above, the definition of material change

has been refined from the definition in the proposal.

Organizational Structure: Legal Entities; Core Business Lines; and Branches

The proposal would have required a full resolution submission to describe the CIDI's domestic and foreign branch organization and to provide addresses and asset size. The proposed rule would have also required the CIDI to identify and describe the core business lines of the CIDI, the parent company, and parent company affiliates. The proposed rule would have introduced the requirement to identify all regulated subsidiaries, as this information will assist the FDIC in identifying entities with capital, liquidity, and other requirements, and in assessing these entities' regulatory requirements when it is resolving a CIDI using a bridge bank. The proposed rule would have modified the mapping requirements to require that core business lines be mapped to material entities, franchise components, and regulated subsidiaries, to improve the utility of mapping and support the analysis of franchise components. One commenter objected to the level of informational detail required for regulated subsidiaries, and recommended that the final rule limit the requirements to material entities, as defined, or limit the information required with respect to regulated entities to a list of these subsidiaries and their respective jurisdictions, regulators, and asset sizes. The definition of “regulated subsidiaries” includes registered brokers and dealers, registered investment advisors, registered investment companies, insurance companies, futures commission merchants and other entities regulated by the Commodity Futures Trading Commission, and other, similar regulated entities. These entities, even if relatively small in asset size or income, present complexity in resolution, and it is important to the FDIC to understand their role in the banking organization and the capital and liquidity impacts of these entities if they are maintained by a bridge bank. Accordingly, the final rule adopts this requirement as proposed.

The proposed rule would have required the full resolution submission to describe whether any core business line draws additional value from, or relies on, the operations of the parent company or a parent company affiliate, and identify whether any such operations are cross-border, to support and inform the FDIC's analysis of the impact of breakup of the CIDI from its parent company and parent company affiliates. This requirement is retained in the final rule.

Methodology for Material Entity Designation

The proposed rule would have required each CIDI to describe its methodology for identifying material entities, to afford each CIDI the flexibility to develop a methodology that is appropriate to the nature, size, complexity, and scope of its operations. The final rule adopts this proposed requirement without change.

Separation From Parent; Potential Barriers or Material Obstacles to Orderly Resolution

The proposed requirements with respect to actions needed to separate a CIDI from the organizational structure of its parent company and parent company affiliates, as well as how to separate the CIDI's subsidiaries from this structure, are adopted without substantive change. The final rule, consistent with the proposal, requires that a full resolution submission address the CIDI's ability to operate separately from the parent company's organization, and that the CIDI assume that its parent company and the parent company affiliates have filed for bankruptcy or are in resolution under another insolvency regime. It also requires addressing the impact on the bridge bank's value if the CIDI were separated from the parent company's organization. These requirements are intended to focus on whether the CIDI, and therefore a bridge bank, can be a viable stand-alone entity from the point of view of economic value and viability of business lines.

Consistent with the proposed rule, the final rule requires identification of potential barriers or other material obstacles to an orderly resolution, the identification of how such barriers or obstacles could pose risks to a group A CIDI's identified strategy, and the identification of inter-connections and inter-dependencies that may hinder the timely and effective resolution of the CIDI. For clarification, the final rule qualifies the potential barriers or other material obstacles to an orderly resolution as those that may occur upon the CIDI's separation from the parent company's organization. Like the proposal, the final rule also provides for the CIDI to identify any remediation steps or mitigating responses necessary to eliminate or minimize these barriers or obstacles.

Overall Deposit Activities

Consistent with the proposal, the final rule requires a full resolution submission to include important information about deposit activities. One comment letter suggested that instead of requiring this information, the rule should focus on ensuring that the CIDI has the capabilities to provide the necessary information timely. The FDIC agrees that the capabilities to provide this information on a current basis would be important in resolution. The CIDIs' provision of the information required would be one way to demonstrate these capabilities. This information would give the FDIC a baseline view of the deposit activities of each CIDI and assist the FDIC in contingency planning activities for a potential failure of the CIDI, recognizing that updates would be needed in an actual resolution event.

The final rule adopts the proposed requirements with respect to deposit activities, which include information about insured and uninsured deposits. While the proposal would have required information on commercial deposits by business line and unique aspects of the deposit base or underlying systems, the final rule provides clarification of that particular aspect of the requirement. The final rule specifies that the requirement is to identify “particular deposit concentrations,” in addition to other aspects of the deposit base or underlying systems that may increase complexity in resolution. The final rule retains the proposed requirement to describe how types or groups of deposits are related to a core business line, business segment, or franchise component and how they are identified in the CIDI's systems or records. As discussed in the preamble to the proposed rule, the deposits related to a particular franchise component must be readily identified to facilitate the separation and sale of the franchise component along with the associated liabilities. Similarly, in a multiple acquirer exit, which may involve regional breakup of the CIDI or a breakup of its business lines, it will be important to understand how to identify the deposits that would relate to the various divestiture options in such a breakup.

Consistent with the proposal, the final rule requires a discussion of foreign deposits and identification of deposits dually payable in the U.S. The final rule also adopts the proposed requirements with respect to information about deposit sweep arrangements with affiliates and unaffiliated parties and the contracts governing those arrangements. The final rule clarifies the proposal by stating that the FDIC needs information about the CIDI's reporting capabilities to generate accurate and timely contact information for omnibus, deposit sweep,

and pass-through accounts. The FDIC intends this clarification to be a non-substantive change.

The final rule adopts the proposed requirements with respect to identification of key depositors, which are defined as depositors that hold or control the largest deposits (whether in one account or in multiple accounts) that collectively are material to one or more business segments. Each key depositor must be identified by name, business segment, and amount of deposit, and the CIDI must identify other services it provides to that depositor. One commenter stated that the required information regarding deposit activities should be narrowed, but the commenter did not propose an alternative approach. The FDIC asked for feedback on the approach to identification of key depositors but did not receive feedback. Rather than providing for a prescriptive approach, the final rule simply requires a description of the approach used by the CIDI in identifying its key depositors. While in some cases providing information on the top 10 or 20 percent of deposits may be the best approach, in others it may be the top 50 or 400 depositors, or it may be that the nature of the relationship is a crucial identifying feature. Key depositors should include those depositors that the CIDI monitors most closely and may want to engage with in a stress event.

Critical Services

The final rule adopts the proposed requirements with respect to critical services without substantive change. This includes the requirement that the CIDI be able to demonstrate capabilities necessary to ensure continuity of critical services in resolution. Under the final rule, full resolution submissions are required to identify critical services and critical services support and include an explanation of the criteria by which critical services are identified in order to clarify for the FDIC the CIDI's approach to this content element. The final rule requires the identification of critical services and critical services support provided by the parent company or a parent company affiliate, as well as the physical locations and jurisdictions of critical service providers and critical services support that are located outside of the United States. The full resolution submission must map critical services support to legal entities that provide those services directly or indirectly through third parties. In addition, a full resolution submission must map critical services to the material entities, core business lines, and franchise components supported by those critical services. It also must include information about the critical services and critical services support that may be at risk of interruption if the CIDI fails and the process the CIDI used to make that determination. The full resolution submission must also discuss potential obstacles to maintaining critical services that could occur in the event of the CIDI's failure and steps that could be taken to remediate or otherwise mitigate the risk of interruption, describe the CIDI's approach for continuing critical services in the event of the CIDI's failure, and provide information about the contracts governing the provision of these services. Consistent with the proposal, the final rule requires a CIDI to provide information about its process for collecting and monitoring the contracts governing critical services and critical services support. As noted in the preamble to the proposed rule, providing information about the systems that store these contracts and how this information is stored (

e.g.,

centrally, by business line or material entity, by business function, etc.) would provide the FDIC with valuable information when seeking to understand a CIDI's operations and business relationships.

Key Personnel

The final rule adopts without change the proposed requirements with respect to key personnel, including that a CIDI must identify key personnel and describe its methodology for identifying key personnel, and must furnish information regarding the identification of employee benefit programs provided to key personnel and any applicable collective bargaining agreements or similar arrangements. Key personnel are defined broadly in the rule, and should include personnel tasked with an essential role in support of a core business line, franchise component, or critical service, or having a function, responsibility, or knowledge that may be significant to the FDIC's resolution of the CIDI. Key personnel should include personnel that hold or maintain necessary licenses or permits for domestic or foreign operations at the CIDI or have been designated as key personnel to domestic or foreign authorities. Consistent with the proposal, the final rule requires a CIDI to provide a recommended approach for retaining key personnel during its resolution that, for example, may specify retention bonuses and other retention incentives. This approach should consider and address employees most at risk for leaving the CIDI promptly upon a failure event.

Franchise Components

The proposal included certain requirements with respect to the identification of franchise components and related capabilities. Under the proposal, a franchise component was defined as a business segment, regional branch network, major asset or asset pool, or other key component of the IDI franchise that could be separated and sold or divested.

In response to comments, the final rule makes certain adjustments to the requirements with respect to franchise components. The proposed rule included the requirement that a CIDI must be able to demonstrate the capabilities to ensure that franchise components are separable and marketable in resolution. The final rule eliminates the word separable from this definition. Instead of referring to separability as a required capability of a CIDI, the emphasis of the final rule is on the identification of franchise components that are, in their current circumstances, separable. The final rule retains the requirement that a CIDI must be able to demonstrate the capabilities necessary to market the franchise components.

In addition, the final rule makes an express reference to the IDI franchise in this sentence to make clear that this capability also must support the marketing of the IDI franchise as a whole or in conjunction with the marketing of its franchise components. Although the final rule does not permit a closing weekend sale as the identified strategy for the reasons discussed above, a sale of the IDI franchise, whether over closing weekend or following a bridge bank period, is an important option in resolution. It is therefore essential that CIDIs maintain the capabilities necessary to support marketing of their IDI franchises as well as their franchise components.

The proposal included the requirement that the full resolution submission identify franchise components that are currently separable and marketable in a timely manner. The proposed rule received one comment with respect to this requirement. The commenter stated that there should not be a specified timing requirement for the sale of franchise components and that the imposition of a time period, especially a short one, such as 60 or 90 days, would not be appropriate or realistic. In particular, the commenter stated that it would not work for multiple acquirer exit strategies, which require months to execute.

The final rule retains the proposed definition of the term “franchise

component” as discussed above and retains text of the proposed rule with respect to identification of franchise components that are currently separable and are marketable in a timely manner. The intent is to identify franchise components that can be marketed and sold in their current state,

i.e.,

without significant obstacles or the need for restructuring. This will enhance optionality for the FDIC, creating the potential for marketing of the IDI franchise as a whole as quickly as possible following the failure of the CIDI. Thus, the phrase “timely manner” is retained. Although the FDIC did not propose and is not now including a specific time requirement, “timely” marketing capabilities should be measured in days or weeks, not months.

The FDIC notes that the adopted approach to separability and marketability of franchise components is distinguishable from the proposed approach taken with respect to the identification of divestiture options to support a multiple acquirer exit from a bridge bank. The multiple acquirer exit is a possible element of an identified strategy, a requirement that applies only to group A CIDIs. Such an exit option may require restructuring and divestiture options that present greater obstacles and that may require a longer period than for a sale of the franchise components. For example, an identified franchise component might be a broker-dealer or mortgage servicing subsidiary within the bank chain, or a material asset portfolio, that is readily separable from the IDI and can be marketed as an option at the time of failure. On the other hand, divestiture options may be the result of a regional breakup of the CIDI or a breakup of business lines that require significant restructuring in order to market the regional or business line segments separately.

The proposed rule would have required franchise components identified in a full resolution submission to be sufficient to implement the identified strategy (for group A CIDIs) and to provide meaningful optionality across a range of scenarios if the preferred approach is not available. The requirement to provide meaningful optionality across a range of scenarios is deleted from this paragraph as superfluous. That expectation is subsumed in the first prong of the credibility standard applicable to group A CIDIs, which is discussed above.

Consistent with the proposed rule, the final rule sets forth basic informational elements required for each franchise component, including identification of responsible senior management and provision of metrics depicting each franchise component's size and significance. Useful metrics may include total revenue, net income, percentage market share, and, if applicable and available, total assets and liabilities. The full resolution submission must also include a description of the key assumptions for each franchise component divestiture and all significant impediments and obstacles to execution of a franchise component divestiture, including legal, regulatory, cross-border, or operational challenges.

The final rule retains these paragraphs as proposed. The final rule makes no change to the proposed requirement that a full resolution submission must include a description of the CIDI's capabilities and processes to initiate marketing of the franchise component and provide a description of necessary actions and a timeline for the divestiture supported by a description of the key underlying assumptions. The final rule also adopts the requirement in the proposal that the CIDI describe the process it would use to identify prospective bidders for its franchise components. The FDIC makes every effort to market failed banks—and their assets and business segments—as widely as possible. A requirement that CIDIs provide analysis on identification of prospective bidders of franchise components supports that effort. In addition to describing the process for identification of prospective bidders, identifying those prospective bidders, either specifically or by industry or category, would also be helpful.

The final rule incorporates the proposed requirements with respect to a virtual data room (VDR), which, among other things, must include information sufficient to permit a bidder to provide an initial bid on the IDI franchise or the CIDI's franchise components. One commenter stated that the VDR requirements should be aligned with the DFA rule expectations regarding due diligence rooms. The comment also stated that the FDIC should not require ongoing maintenance of a VDR and not establish a timeframe for setting up the VDR because time requirements may vary across CIDIs. It also stated that the FDIC should note that the list of VDR elements is merely indicative.

The VDR requirements in the final rule are consistent with the expectations in the U.S. GSIB guidance

issued in connection with the DFA rule that would apply to any divestiture option identified in a DFA resolution plan, which could include any subsidiary or component of the firm's global organization. Reflecting the different focus of this rule, it provides more detail than the U.S. GSIB guidance about the informational elements that would be appropriate for a VDR to be utilized in the sale of the IDI franchise and the CIDI's franchise components. The final rule, like the proposal, does not require the ongoing maintenance of a VDR; rather it is focused on the capabilities to establish a VDR in a timely manner.

Guidance for section 165(d) Resolution Plan Submissions by Domestic Covered Companies applicable to the Eight Largest, Complex U.S. Banking Organizations, 84 FR 1438 (Feb. 4, 2019).

The final rule is unchanged from the proposal with respect to the length of time during which a VDR must be able to be populated, in that it does not provide a prescriptive time. However, the capabilities should support a very short time frame to stand up a VDR and not rely upon a stabilized bridge bank to extend the time available to do so. The final rule requires a description of the length of time and any challenges or obstacles to providing complete and accurate information necessary to support a competitive bid, with an expectation that this time frame will be brief and measured in days.

The list of content elements to be included in the VDR is indicative and not comprehensive; the specific information and data that would be appropriate and sufficiently detailed to support prompt and competitive bids will vary among CIDIs. For instance, deposit data and information elements might include a complete, current deposit trial balance reconciled to the general ledger, a description of the largest depositor relationships, information regarding sweeps and brokered deposits, and other data useful to inform a bid. Loan and lending operations information might include a loan tape or loan trial balance reconciled to the general ledger, loan portfolio file samplings, underwriting policies, information regarding real estate owned, and key lending relationships. Where the CIDI has non-traditional business lines, the information provided should be appropriate to the sale of those elements as franchise components or as part of the IDI franchise. The data and information as a whole should support a sale of the IDI franchise as a whole, while providing optionality for the sale of separable franchise components. The final rule was modified from the proposal to make clear that certain of the listed data elements may not apply in some cases, such as for the sale of a franchise component that is a material asset portfolio.

Finally, to effect a timely sale of a failed IDI, the FDIC must have access to and control of data in a VDR. Historically, the FDIC has established a VDR controlled by the FDIC and migrated the information into that VDR. As in the proposal, the final rule requires the full resolution submission to include information with respect to access protocols and requirements for the FDIC to use the VDR to carry out the sale of the IDI franchise or the CIDI's franchise components. It also must include a description as to how the CIDI could support that process, either through providing sufficient access and controls to the CIDI's virtual data room to the FDIC as receiver for the failed IDI, or by establishing a process to timely and securely migrate all data to an FDIC-controlled VDR, in a suitable format and file structure.

Because many of the CIDIs have a broker-dealer subsidiary or parent company affiliate, the final rule also includes, without change, the proposed provision specifically addressing VDR content related to a broker-dealer. It is not the intent of that provision, however, to exclude or limit information related to other non-banking activities such as insurance or asset management.

Material Asset Portfolios

The proposed rule would have required CIDIs to include information about “asset portfolios,” including how the assets within the portfolio are valued and recorded in the CIDI's records. As proposed, a CIDI would have been required to identify and discuss impediments to the sale of each material asset portfolio and to provide a timeline for each material asset portfolio's disposition. A commenter noted that the concept of “material asset portfolios” appears to be included in the definition franchise components and therefore, a separate requirement regarding material asset portfolios is redundant and unnecessary. The final rule retains the proposed requirement and exclusively utilizes the defined term “material asset portfolios.” With respect to the definition of franchise components, the final rule utilizes the term “material asset portfolio” instead of “asset pool” for clarity and consistency. While a material asset portfolio may be identified as a franchise component, this paragraph requires identification of material asset portfolios whether or not they meet the definition of a franchise component and are identified as such in the full resolution submission. However, where there is overlap with material asset portfolios that are franchise components, the information can be provided once and cross-referenced, if appropriate.

Valuation To Facilitate FDIC's Assessment of Least-Costly Resolution Method

As explained in the preamble to the proposal, the requirement that each group A CIDI must provide valuation analysis and develop the related capabilities would support the FDIC's analysis in conducting valuations in any actual failure scenario, even where there are no bid prices available to establish value. The proposed rule would have required group A CIDIs to demonstrate the capabilities necessary to produce valuations that support the FDIC's analysis to determine whether a resolution strategy would be the least costly to the DIF in the event of failure. To demonstrate valuation capabilities, the proposed rule would have required a group A CIDI to describe its valuation process in its resolution plan and include a valuation analysis that includes a range of quantitative estimates of value as an appendix to its resolution plan.

The proposed valuation analysis required that a group A CIDI provide a narrative description of how it values its franchise components and the CIDI as a whole. It also required qualitative and quantitative valuation analysis assuming both an all-deposits bridge bank and the transfer of insured deposits only to the bridge bank. In all cases, the proposed rule required that the resolution plan describe the CIDI's approach to gathering information needed to support its analysis and its ability to produce updated and timely valuation information.

The FDIC received several comments to the proposal with respect to the proposed requirements for valuation analysis. Several commenters emphasized the importance of valuation to resolution planning. Three commenters supported the replacement of least-cost analysis with a valuation capabilities requirement, but disagreed with the proposed approach to quantitative analysis. One commenter argued that assumptions regarding depositor and potential acquirer behavior would be “inherently subjective and likely to add little-to-no value to the FDIC.” This commenter also stated that the quantitative analysis is not well adapted to CIDIs that lack experience with mergers and acquisitions or large mergers and acquisitions teams, and would require retention of third parties.

The FDIC considered commenters' concerns regarding the requirement for quantitative analyses. The final rule partially retains the requirement for quantitative analysis, with some modifications. There is significant value in a group A CIDI demonstrating that it has the capability to value its deposit franchise, as well as the individual franchise components. The proposed valuation content requirements are not underpinned by an expectation that the resulting ranges of value will accurately anticipate sale proceeds actually received from a disposition at some undetermined future point. Instead, the utility of CIDIs' valuation analysis is in understanding the methodologies CIDIs determine to be appropriate for estimating the value of their franchise components and the CIDI as a whole, and the degree to which CIDIs would be able to furnish the information and analysis necessary for the FDIC to conduct its statutorily-required analyses in an actual resolution scenario.

The evaluation of valuation analyses under the second prong of the credibility standard reflects a recognition of the inherent necessity for application of judgment in the analyses (

e.g.,

selection of appropriate valuation approaches, assignment of weights to the various approaches). As required by the standard, the CIDI's judgment should be supported by observable and verifiable capabilities and data, as well as reasonable projections. Thus, the FDIC will not evaluate the analysis on the basis of a specific threshold or metric or the specific choices made regarding valuation approaches and methodology, but rather on the comprehensiveness of the analysis, the supportability of the data and capabilities required to conduct the analysis, the reasonableness of the CIDI's assumptions and selected approaches, and the group A CIDI's ability to refresh the analyses in a timely manner. The FDIC does not require or expect valuation analysis to be completed by a third-party expert; rather the analysis should be based upon the group A CIDI's understanding of the nature of its business and its relationships with its depositors.

In response to comments, the final rule eliminates the requirement that valuation estimates reflect the “net present value of proceeds estimated to be received” in a sale of the IDI franchise as a whole or under a sum-of-the-parts analysis. This change recognizes that, while the required valuation analysis will result in a range of reasonable values, the actual proceeds realized in a given transaction will depend on, among other things, the facts and circumstances surrounding the

actual failure and the time for marketing and executing the transaction.

In addition, in response to comments, the final rule modifies the proposed requirements to reflect a shift toward qualitative analysis only for § 360.10(d)(12)(ii)(B), eliminating the quantitative analysis relating to the impact on value in the event that losses are imposed on uninsured depositors in connection with the resolution strategy adopted.

The presence of unsecured debt on the balance sheet of the failed IDI serves to protect deposits in resolution, and increase the likelihood that an all-deposits bridge bank will meet the requirements of the least-cost test. However, even with the benefits of long-term debt positioned at the CIDI at the time of its failure, it cannot be assured that an all-deposits bridge bank will meet the requirements of the least-cost test in every case. Thus, the final rule, like the proposal, also requires analysis of the impact on value where only insured deposits are passed to the bridge bank. This analysis will assist the FDIC in understanding the impact on value in an insured-only bridge bank, which will assist in weighing whether that outcome is less costly than other available resolution options. While the proposal required quantitative as well as qualitative analysis in this area, in response to comments, the final rule requires a group A CIDI to provide only qualitative analysis of the impact on franchise value that may result from not transferring uninsured deposits to the bridge depository institution. The quantitative analysis provided with respect to an all-deposits bridge bank, together with robust qualitative analysis with respect to an insured-only bridge bank, will support the FDIC's least-cost determination under both scenarios. This qualitative analysis must include a description of options to mitigate that impact, such as an advance dividend payment to depositors, reflecting different levels of loss. As clarified in the final rule, such a qualitative analysis should reflect reasonable assumptions of customer behavior based upon the group A CIDI's overall depositor profile and the provision of overall lending and other services to such depositors. For example, insight into the holistic client relationships, including the lending, fee-based, and deposit-based businesses would provide insight into the value impact.

Off-Balance Sheet Exposures

The final rule incorporates the proposed requirement that a full resolution submission include a description of any material off-balance-sheet exposures, including unfunded commitments, guarantees, and contractual obligations, and that it map those exposures to franchise components, core business lines, and material asset portfolios.

Qualified Financial Contracts

The final rule includes the proposed requirements for information on qualified financial contracts (QFCs), which are intended to support and enhance information that may be provided under the FDIC's QFC recordkeeping rule, and would be useful in the event that the CIDI were not subject to the requirements of the QFC recordkeeping rule at the time of its failure.

The focus of the information required is on the relationship of QFCs to the CIDI's core business lines and franchise components, and how these transactions are integrated with the CIDI's business activities and with other services provided to customers. Consistent with the proposal, the final rule also requires CIDIs to provide information about their booking models for risk, and how the CIDI uses QFCs to manage hedging or liquidity needs. This information will help the FDIC to make decisions with respect to transferring QFCs to a bridge bank, and to better understand the impact of any decision not to transfer certain QFCs. The final rule also includes certain revisions to the language of this paragraph, which are intended as clarifying changes.

See generally

12 CFR part 371.

Unconsolidated Balance Sheet; Material Entity and Regulated Subsidiary Financial Statements

The final rule adopts the proposed requirement that a CIDI must provide an unconsolidated balance sheet and consolidating schedules for all material entities and regulated subsidiaries that are subject to consolidation with the CIDI. The final rule also adopts the provision permitting CIDIs to aggregate on the consolidating schedule amounts attributed to entities that are not material entities or regulated subsidiaries. The final rule includes clarifying changes intended to more clearly state that all of the requirements apply to regulated subsidiaries as well as material entities. Consistent with the proposal, the final rule requires audited financial statements where they are available.

Payment, Clearing, and Settlement Services

The final rule adopts, with clarifying changes, the proposed requirement that a full resolution submission provide information regarding each payment, clearing, and settlement (PCS) provider with which it has a direct relationship. The text was revised to make clear that payment, clearing, and settlement systems include services provided by financial market utilities and agent banks, and makes “PCS service provider” a new defined term. Consistent with the proposal, information is required for PCS service providers that are critical services or critical services support. Also consistent with the proposal, the final rule requires CIDIs to map PCS service providers to legal entities, core business lines, and franchise components, and to describe the services provided by these systems, including the value and volume of activities on a per-provider basis.

The final rule also adopts the proposed requirement for a full resolution submission to describe PCS services provided by a CIDI and that are material in terms of revenue to or value of any franchise component or core business line of the CIDI.

Capital Structure; Funding Sources

The final rule adopts, with clarifying changes, the proposed requirements with respect to capital structure and funding sources. Two comments were supportive of the proposed approach. The final rule requires that a full resolution submission describe the current processes used to identify the funding, liquidity, and capital needs of and resources available to each CIDI subsidiary or foreign branch that is a material entity, and to describe the CIDI's capabilities to project and report its near-term funding and liquidity needs. It requires that the full resolution submission identify the composition of liabilities of the CIDI, as a clarification of the proposed requirement to describe them, and specifies the requisite information to be provided with respect to those liabilities. The final rule also requires a CIDI to identify material funding relationships and material inter-affiliate exposures between the CIDI and its subsidiaries or foreign branches that are material entities, instead of the proposed requirement to describe them. These changes are intended to clarify that the full resolution submission is expected to include quantitative information for these areas, and are complementary to the expectation that the interim supplement will not include any additional narrative apart from the description of material changes as described in § 360.10(e)(2)(i) and (ii).

Parent and Parent Company Affiliate Funding, Transactions, Accounts, Exposures, and Concentrations

The final rule adopts, with clarifying changes, the proposed requirements with respect to parent and parent company affiliate funding, transactions, accounts, exposures, and concentrations. The final rule requires that a CIDI's full resolution submission must identify material affiliate funding relationships and material inter-affiliate exposures that the CIDI or its subsidiaries have with the parent company or any parent company affiliate, instead of the proposed requirement to describe them. Similar to above, this clarifying language is intended to make clear that the full resolution submission is expected to include quantitative information and is complementary to the expectation that the interim supplement will not include any additional narrative apart from the description of material changes as described in § 360.10(e)(2)(i) and (ii). The full resolution submission must identify the nature and extent to which the parent company or any parent company affiliate serves as a source of funding to the CIDI and CIDI subsidiaries. The final rule requires that the submission include the terms of any contractual arrangements, including any capital maintenance agreements, the location of related assets, funds or deposits, and the mechanisms for such inter-affiliate transfers, revised to include funds transferred from parent company affiliates.

Economic Effects of Resolution

The proposed rule would have required CIDIs to identify their activities that are material to a particular geographic area or region of the United States, a particular business sector or product line, or other financial institutions. It also would have required the full resolution submission to describe the potential disruptive impact of the termination of such activities on the geographic area, region, business sector, industry, or product line, or to the U.S. financial industry.

The FDIC received several comments to the proposed approach with respect to the requirement that the full resolution submission describe disruptive impacts in resolution. Commenters objected to the proposed approach, arguing that it would require “speculative” assessment of impacts on third parties, that the information may be better available to supervisors with a wider vantage point on impacts, and that the proposal is too broad and vague and should be more clearly defined. The FDIC agrees that the assessment of the potential disruptive impacts on third parties may be difficult and possibly speculative, and would have limited value. Accordingly, the final rule eliminates that requirement and substitutes a narrower requirement: that the full resolution submission discuss whether the identified services or functions are readily substitutable by other providers and other mitigants to the potential impact of the termination of those activities in the event of failure of the CIDI.

The CIDIs are the nation's largest banks, and the FDIC will seek to resolve a CIDI in a way that minimizes the disruptive impact of the resolution to the extent possible. It is therefore important that the FDIC is aware of the activities of the CIDI that are most likely to have significant disruptive effects if terminated in resolution, such as where a CIDI provides a unique function or is a dominant provider of a particular service. While the CIDI may not be able to fully measure or assess those impacts, a CIDI will be able to identify areas where it has a large market share of a particular business segment or geographic region, or where it provides significant services to other financial institutions, such as agent or correspondent banking services. A description of the impact of cessation of these services or functions, and information regarding whether there are other providers with the capacity to readily substitute for the activities of the CIDI or other mitigants to the impact of termination of these services are important to understanding the potential impacts and mitigating actions that may be useful in the FDIC's resolution planning.

Non-Deposit Claims

The final rule adopts without change the proposed requirement that a CIDI's full resolution submission identify and describe its capabilities to identify the non-depositor unsecured creditors of the CIDI and its subsidiaries that are material entities. Consistent with the proposal, the final rule also requires a description of how the CIDI would identify all non-depositor unsecured liabilities, including contingent liabilities like guarantees and letters of credit, as well as the location of the CIDI's related records and its recordkeeping practices. While related to the requirements in § 360.10(d)(17) addressing capital structure and funding sources, the requirements in this paragraph are intended to provide information specifically helpful to the claims process, and would be in addition to the description of liabilities provided in § 360.10(d)(17).

Cross-Border Elements

The final rule adopts with certain changes the proposed requirements with respect to cross-border elements in a full resolution submission. The FDIC received one comment on this proposed element, which supported the inclusion of the element as proposed. Consistent with the proposal, the final rule requires a full resolution submission to describe components of cross-border activities of the parent company or parent company affiliates that contribute to value, revenues, or operations of the CIDI. Where the CIDI has a significant interest (

e.g.,

a controlling interest or a significant economic interest) in a foreign joint venture that contributes to revenue or operations of the CIDI, that information should be included. Entities with no meaningful function or contribution to the CIDI's operations, such as single purpose real estate holding companies, may be excluded.

Consistent with the proposal, the final rule also requires that a full resolution submission identify regulatory or other impediments to divestiture, transfer, or continuation of foreign branches, subsidiaries, or offices while the CIDI is in resolution, including retention or termination of personnel and adding in the final rule, transfer or continuation of licenses or authorizations. Further, the final rule adds an express requirement that the full resolution submission must identify all authorities with regulatory or supervisory authority over cross-border operations. This information will assist the FDIC in coordinating with the requisite authorities in resolution.

Management Information Systems; Software Licenses; Intellectual Property

The final rule adopts without substantive change the proposed requirement that each CIDI's full resolution submission identify and describe each key management information system and application, and identify any core business line that uses it, and the key personnel needed to support and operate it. In the final rule, the term key personnel is used here instead of “personnel by title and legal entity employer.” Each full resolution submission also is required to identify each system's and application's use and function, which core business lines use it, and its physical location, if any, as well as any related third-party contracts or service-level agreements, any related software or systems licenses, and any other related intellectual property. Consistent with the proposal, the final rule also requires a full resolution

submission to specifically identify key systems or applications that the CIDI or its subsidiary does not own or license directly from the provider and to discuss how to maintain access to the system or application when the CIDI is in resolution. Like the proposal, the final rule requires a description of the capabilities of the CIDI's processes and systems to collect, maintain, and produce the information and other data underlying the full resolution submission; identification of all relevant systems and applications; and a description of how the information is managed and maintained. For example, the full resolution submission must describe whether the information is centralized, or organized by region or business line; whether it is automated or manual; and whether the applicable system or application is integrated with other of the CIDI's systems or applications. The final rule also provides for the CIDI to describe any deficiencies, gaps, or weaknesses in these capabilities and the actions the CIDI intends to take to address promptly any such deficiencies, gaps, or weaknesses, and the time frame for implementing these actions.

Digital Services and Electronic Platforms

The proposal included a new content element for inclusion in each CIDI's full resolution submission regarding digital services provided by a CIDI to its customers and the electronic platforms that support these systems. The FDIC received one comment, asserting that the requirement regarding digital services and electronic platforms is vague and potentially duplicative of other requirements, such as critical services, payment, clearing, and settlement, and management information systems. The final rule retains the requirement as proposed. While some of the requirements may overlap with other requirements in the rule, such as whether the services and platforms are provided by a CIDI subsidiary, a parent company affiliate, or a third-party and information on the related intellectual property rights, this paragraph is intended to capture information specific to digital services and electronic platforms. If the information is provided elsewhere, a cross-reference will suffice. The final rule uses the word “customers” instead of “depositors” in the first sentence of the paragraph, to clarify that retail and business customers may include depositors or other customers or clients of the CIDI.

As noted in the preamble to the proposal, digital services provided to customers and their electronic platforms is a new and evolving area of banking. The language in the final rule is intended to be flexible enough to adapt to the changing environment, while focusing on the significance of these services to CIDI operations or customer relationships and their relationship to franchise value and depositor behavior. The information required will be helpful to the FDIC in understanding how such services are significant to customer loyalty and franchise value where they are unique, may rely on proprietary intellectual property with low substitutability, may have an impact on stickiness of retail or commercial deposits, or are important to a customer base that relies upon a certain platform or service.

Communications Playbook

The final rule adopts the proposed requirement that a full resolution submission must include a communications playbook describing the CIDI's current communications capabilities and how those capabilities could be used from the point of the CIDI's failure through its resolution. One commenter supported this requirement as proposed, while one commenter suggested elimination of this requirement as unnecessary. The final rule retains the requirement for a communications playbook and adds an express requirement that the playbook include the identification of key personnel responsible for the CIDI's crisis communications across key stakeholder categories and communications channels and the organizational structure for relevant communications activities. It also clarifies that the stakeholders should include any foreign regulatory authorities as well as domestic regulatory authorities. In a resolution, it is important for the FDIC to be able to quickly identify the right points of contact to assure timely, clear, and coordinated communications to all stakeholders.

Corporate Governance

The final rule adopts without change the proposed requirements for the governance of the CIDI's resolution planning processes and preparation and approval of full resolution submissions.

CIDI's Assessment of the Full Resolution Submission

The final rule adopts without change the proposal that a full resolution submission must include a description of any contingency planning or similar exercise that the CIDI has conducted since its most recently filed full resolution submission that assesses the viability of the identified strategy (if required) or improves any capabilities described in the full resolution submission. As noted in the preamble to the proposal, the requirement is limited to requiring CIDIs to describe contingency planning or exercises they have done or plan to do; it does not require CIDIs to conduct these types of activities.

Any Other Material Factor

The final rule requires a CIDI to identify and discuss any other material factor that may impede its resolution. This is unchanged from the proposal.

E. Interim Supplement

Under the proposal, each CIDI would be required to file interim supplements that address all or parts of certain content elements included in the CIDI's full resolution submission. The FDIC received comments to the proposed interim supplement requirements and made changes to the final rule in response to those comments.

Several commenters argued for narrowing the content required in the interim supplement to focus on data and information that has materially changed since the most recent submission or has a material impact on the full resolution submission. One commenter suggested that any narrative in the interim supplement be limited to an explanation of material changes. Commenters expressed concern that the interim supplement, as proposed, would be burdensome for CIDIs.

One commenter suggested that the interim supplement should be based on prior year-end data, rather than data as of the end of the most recent fiscal quarter.

Two comment letters recommended that all or most group A CIDIs should move to a three-year cycle for full resolution submissions and interim supplements should be filed either 18 months after that submission, or in each year that a full resolution submission is not made. One of these comment letters recommended that CIDI affiliates of U.S. GSIBs, which are biennial filers under the DFA rule, make full resolution submissions every two years, alternating with DFA resolution plan submissions, and interim supplements would therefore be unnecessary and should not be required.

The FDIC considered these comments and has concluded that the content requirements for the interim supplement are appropriate and that the information required will aid the FDIC with planning for and carrying out resolutions. As a result, the final rule

retains the proposal's content requirements for the interim supplement. With the final rule's shift to a three-year cycle for most CIDIs, the expected utility of the interim supplement is further increased. The FDIC believes the interim submission requirement strikes the right balance between providing the FDIC with valuable updated information to assist with resolution planning while limiting burden on the CIDIs in providing the updated information. The FDIC has focused the interim supplement content requirements on information that is most essential to its resolution planning, that can be readily produced, and that is relatively likely to change year over year. Under the final rule, the FDIC retains the proposed discretion to add or eliminate elements from the interim supplement to ensure that it remains useful, includes the most important information, and can evolve based on lessons learned.

In response to comments, the final rule incorporates a requirement to describe all material changes resulting from an extraordinary event, and to describe each material changes applicable to interim supplement content since the CIDI's most recent full resolution submission or interim supplement (or to affirm that no such material change has occurred). The FDIC does not expect any additional narrative will need to be included in the interim supplement.

Also in response to comments, the final rule provides that data in the interim supplement should be as of the most recent fiscal year-end for which the CIDI has financial statements or, if financial information from more recent financial statements would more accurately reflect the CIDI's operations as of the date of the interim supplement, financial information as of that more recent date. This is reflected in § 360.10(g)(1), which has been revised to incorporate a reference to the interim supplement in additional to full resolution submissions. With this change, the proposal's § 360.10(e)(2) has been eliminated as it is no longer necessary.

Regarding the frequency of interim supplement filings, the final rule makes certain changes for clarity and consistency, and introduces an exception. The final rule retains the annual cadence of interim supplements, and requires an interim supplement on or before the anniversary of the prior full resolution submission or interim supplement, as the case may be, unless the FDIC provides written notice of a different date. Consistent with the proposal, no interim supplement is required in the calendar year in which a CIDI files a full resolution submission. In response to comments, the final rule provides that biennial filers, which are IDI affiliates of U.S. GSIBs, are not required to submit an interim supplement in the year in which they file a DFA resolution plan. This exception applies only to the biennial filers, given their higher frequency of submissions under this rule, and expected annual submission of resolution plans under this rule and by their parent companies under the DFA rule. In addition, particularly for CIDIs identified as material entities and divesture options in the DFA resolution plan, there is sufficient overlap in content to meet the needs of the interim supplement.

The final rule makes clear that all CIDIs will receive a written notice specifying the date on which their initial full resolution submission or interim supplement is due. CIDIs that are not filing a full resolution submissions as their first submission following the effective date of the final rule are required to provide interim supplements in the years prior to the date their first full resolution submission is due.

F. Credibility; Review of Full Resolution Submissions; Engagement; Capabilities Testing

Credibility Criteria

The proposal included a credibility standard consisting of two prongs for assessing the credibility of a full resolution submission. The first prong applies only to resolution plans submitted by group A CIDIs. Under this prong, a resolution plan could be found not credible if the identified strategy did not provide timely access to insured deposits, maximize value from the sale or disposition of assets, minimize any losses realized by creditors of the CIDI in resolution, and address potential risks of adverse effects on U.S. economic conditions or financial stability. The second prong applies to full resolution submissions by all CIDIs. Under the second prong, a full resolution submission could be found not credible if the information and analysis in the full resolution submission are not supported with observable and verifiable capabilities and data and reasonable projections, or the CIDI fails to comply in all material respects with the requirements of the rule. Because the interim supplement is simply an update of a subset of information required in a full resolution submission, it will not be separately assessed against the credibility standard.

The FDIC considered all comments regarding the credibility standard, and the final rule retains the credibility standard as proposed. One commenter recommended that all full resolution submissions be subject to both credibility assessment prongs as part of a general recommendation to eliminate the distinction between group A CIDIs and group B CIDIs. As discussed above, the FDIC believes that the distinction between group A CIDIs and group B CIDIs is appropriate, and therefore the prong one standard would not be applicable to the informational filings.

Another commenter suggested that the requirement that the identified strategy be effective in minimizing losses to creditors was in contradiction with the recent rulemaking proposal by the FDIC and other agencies to require certain large insured depository institutions to have outstanding a specified amount of eligible long-term debt.

The FDIC believes that the goals of the proposed rulemaking and this final rule are strongly aligned. The long-term debt rule, if adopted, will help reduce losses to creditors and will support an orderly and efficient resolution of an IDI.

See

Long-Term Debt Requirements for Large Bank Holding Companies, Certain Intermediate Holding Companies of Foreign Banking Organizations, and Large Insured Depository Institutions, 88 FR 64524 (Sept. 19, 2023).

The FDIC received three comments recommending that the credibility determination be eliminated, or that there should not be any enforcement action based on the credibility standard. These commenters argued that the standard's first prong would require speculation on conditions at the time of failure and would therefore be subjective and potentially inconsistently applied over time. The FDIC received one comment advocating for changes to the second prong of the credibility standard that would remove the qualifiers “verifiable” and “observable” for capabilities requirements.

It is an important goal of the final rule to establish clear expectations with respect to the form and substance of resolution submissions, and a clear standard against which they are assessed for compliance with the rule. The FDIC has experience in evaluating resolution plans and generally expects to conduct horizontal reviews across full resolution submissions of CIDIs that have similar characteristics to gain a broader perspective as well as to assure consistent assessment of the full resolution submissions.

As described in the preamble to the proposal, the new standard expressly incorporates concepts from the 2012 rule, including the reference to observable and verifiable capabilities and data and reasonable projections. These elements of the credibility standard, which are incorporated into the second prong, have proved useful in past plan reviews and feedback.

With respect to prong one of the standard, the FDIC considered comments suggesting that this standard may be subjective or imprecise. The FDIC appreciates the concern that the standard necessarily requires the exercise of judgment in understanding whether value is maximized or losses to creditors are minimized, for example, in a particular strategy under the specified scenario. The FDIC agrees that there is a necessary element of judgment in determining whether an identified strategy meets the goals of the rule as expressed in the first prong of the credibility standard. The application of judgment in the development of the identified strategy is appropriate given the diversity among the group A CIDIs. A well-reasoned and well-supported identified strategy prepared by a group A CIDI will provide the FDIC useful information in assessing its options when confronted with an actual failure scenario.

One comment pointed to potential challenges in the element of the first prong that requires that the resolution plan address the potential risk of adverse effects on U.S. economic conditions or financial stability. Some CIDIs have critical operations that are important to financial stability identified in their affiliates' DFA resolution plans, may be highly interconnected with other financial institutions, may have dominant market share in certain geographic regions or market segments, or their resolution could be disruptive to the U.S. economy or financial stability in other ways. The requirement that the resolution plan address the potential risk of adverse effects on U.S. economic conditions or financial stability is intended to require that the identified strategy take into account the potential for risks to U.S. economic conditions or financial stability arising from the execution of the strategy. Those risks should be described in the resolution plan, and the identified strategy should include specified actions that would mitigate those risks. It is a critical resolution planning objective that the CIDI can be resolved without the need for extraordinary support from the DIF and without reliance on the systemic risk exception to the statutory least-cost requirement under the FDI Act.

As discussed in the proposal, the FDIC has considered the particular challenges with respect to the requirement that the identified strategy address the potential for risks to U.S. economic conditions or financial stability for the CIDIs that are part of the largest and most systemic and interconnected U.S. banking organizations, specifically the group A CIDIs that are subsidiaries of U.S. GSIBs. This category of firms comprises the U.S. banking organizations that pose the greatest risk to U.S. financial stability. The FDIC is aware of progress made by the U.S. GSIBs in the development of DFA resolution plans, including their adoption of an SPOE strategy for the resolution of the firm pursuant to which any subsidiary U.S. IDI that is a material entity remains open and operating. Each of these firms has also made progress in increasing the range of scenarios in which that strategy may be actionable and effective through structural and operational changes. Moreover, certain enhanced prudential standards that support resolvability apply only to the U.S. GSIBs.

Despite this progress, the availability or success of an SPOE strategy cannot be ensured in all circumstances, and the possibility of a resolution of a CIDI that is a subsidiary of a U.S. GSIB cannot be eliminated. The FDIC believes that it is appropriate to require group A CIDIs within these banking organizations to develop comprehensive resolution plans that include an identified strategy that meets the requirements of the first prong of the credibility standard to support the FDIC's resolution readiness in the event that such a CIDI should fail. While these CIDIs may have a particular challenge in addressing the risks their identified strategy may present to the U.S. economy and financial stability, where the DFA resolution plan of the CIDI's parent company contains relevant analysis and information with respect to the risk of potential adverse effects on U.S. financial stability arising from the failure of a subsidiary group A CIDI, the inclusion of that information by cross-reference is permitted under (c)(6). In addition, where the strategy for the rapid and orderly resolution of a U.S. GSIB in its DFA resolution plan does not include the resolution of the CIDI under the FDI Act, that strategy may reasonably be identified as a mitigant to the systemic risk, if any, posed by the failure of the CIDI under the FDI Act.

Full Resolution Submission Review and Credibility Determination

The proposal described a process for full resolution submission review and credibility assessment. Like the proposal, the final rule makes no change to the proposed rule with respect to coordination with supervisors related to the review process. The FDIC will review a full resolution submission in consultation with the appropriate Federal banking agency for the CIDI and for its parent company. If after consultation with any such appropriate Federal banking agency (or agencies), the FDIC determines that a CIDI's full resolution submission is not credible, the FDIC will notify the CIDI in writing of such determination. This written notice will include a description of the material weaknesses in the full resolution submission that resulted in the determination.

With respect to the full resolution submission review and the credibility determination process, two commenters emphasized the importance of the FDIC providing timely, clear, and consistent feedback to CIDIs, with one noting that feedback should be provided at least 12 months before the next submission is due. This comment also suggested that the FDIC should institute an intermediate level of feedback between informal feedback and a formal weakness determination to precede a non-credibility finding.

The FDIC agrees that timely and clear feedback is an important part of the review process. The extension of the submission cycle to three years for most CIDIs will provide additional assurance of sufficient time to incorporate feedback into the next full resolution submission. The FDIC anticipates that full resolution submissions will improve through an interactive and iterative process, and the FDIC recognizes that there should be multiple communications between the FDIC and the CIDIs to improve the full resolution submissions. While the final rule, like the proposal, does not establish a fixed timing requirement for the delivery of feedback to CIDIs, the FDIC will review full resolution submissions promptly and endeavor to give feedback identifying material weaknesses or significant findings within one year of the full resolution submission date. Any additional observations or other feedback, for instance following engagement, that would impact the next full resolution submission would be given at least 270 days before that submission is due.

The FDIC received one comment recommending that any feedback on

resolution plans should be treated as confidential supervisory information, except to facilitate coordination between home and host country resolution planning, where applicable. The FDIC received another comment recommending that the FDIC should commit to publishing all future feedback letters, including any that describe weaknesses resulting in a non-credible determination, with confidential supervisory information redacted. In the past, the FDIC has not made public the feedback letters on resolution submissions under the 2012 rule, as these letters may have relied on or disclosed confidential supervisory information. The FDIC has also considered that redacted letters may be incomplete and misunderstood and has treated the letters in a confidential manner, similar to supervisory letters. Any decision with respect to disclosure of feedback letters in the future will consider the confidential nature of any information, as well as the public interest.

The FDIC considered the comment recommending an intermediate level of feedback between informal feedback and a finding of a material weakness. The FDIC also considered the approach taken in reviews and feedback for DFA resolution plans, which includes an intermediate level of feedback. The FDIC believes that there is utility in providing feedback that requires correction with an appropriate level of urgency, but that does not trigger the immediate corrective actions spelled out in paragraph (f)(3). Consequently, the final rule establishes the concepts of material weaknesses and significant findings.

A material weakness is an aspect of a CIDI's full resolution submission that the FDIC determines individually or in conjunction with other aspects fails to meet the credibility criteria described in § 360.10(f)(1). The FDIC must identify one or more material weaknesses in determining a CIDI's full resolution submission is not credible. The final rule requires that within 90 days of receiving a notice by the FDIC pursuant to § 360.10(f)(2) or such shorter or longer period as the FDIC may determine, the CIDI must resubmit a revised full resolution submission, or such other information or material as specified by the FDIC, that addresses any material weaknesses identified by the FDIC and discusses in detail the revisions made to address such material weaknesses. This is consistent with the proposal, with a clarification that in some cases, a full resolution submission may not be required and the FDIC may identify other information or material responsive to the material weakness.

Under the final rule, a significant finding is a weakness or gap that raises questions about the credibility of a CIDI's full resolution submission but does not rise to the level of a material weakness. If a significant finding is not satisfactorily explained or addressed before or in the CIDI's next full resolution submission, it may be found to be a material weakness in the CIDI's next full resolution submission. To clarify how the CIDI intends to address the significant findings by the next full resolution submission, the FDIC may require a time-bound project plan from the CIDI that outlines the actions the CIDI will be taking in the interim period to assure that the significant finding is addressed in a timely manner. In some cases, project plans may also be used as a tool to clarify how the CIDI intends to address material weaknesses. The final rule makes clear that the FDIC may identify an aspect of a CIDI's full resolution submission as a material weakness even if such aspect was not identified as a significant finding in an earlier full resolution submission. The FDIC must notify the CIDI in writing of any significant findings that are identified in the full resolution submission.

The difference between a material weakness and a significant finding is one of degree of severity. A material weakness is more likely to be a weakness in the full resolution submission that would significantly impact the FDIC's ability to undertake an efficient and effective resolution of the CIDI or would increase the risk of a disorderly and value-destructive resolution if not promptly corrected. A significant finding would more likely be feedback that goes to the completeness, sufficiency, and thoroughness of information provided or the adequacy of a capability demonstrated, that could affect the resolution of the CIDI and should be addressed, but is not of the same level of impact and urgency as a material weakness.

Other observations that are not material weaknesses or significant findings may be included in the feedback letter or may be provided in other communications throughout the full resolution submission review, capabilities testing, and engagement cycle. Those observations are also intended to provide useful feedback to the CIDIs about areas of focus for further development of their full resolution submissions.

The FDIC received two comments that suggested the FDIC should provide general guidance to CIDIs, with one noting that such guidance could cover common issues and best practices following each review cycle. Other commenters suggested additional guidance or specificity with respect to identification of expected capabilities. The final rule is intended to be comprehensive and supersedes the 2012 rule and all prior guidance. In the event the FDIC determines, based on review of full resolution submissions and engagement with the CIDIs, that additional general guidance may be helpful in addition to firm-specific feedback, the FDIC may consider providing such guidance at that time.

Another comment suggested that the FDIC provide a list of identified strategies that are presumptively credible. That approach would be inconsistent with the goal of the rule to obtain the insight and analysis of each group A CIDI as to the approach to resolution that best fits with their organization and business structure. The FDIC expects to give appropriate feedback, if needed, on a CIDI's identified strategy, consistent with the interactive and iterative process described above to improve full resolution submissions and the FDIC's resolution readiness.

Engagement and Capabilities Testing

The final rule retains the proposed approach to engagement and capabilities testing, without substantive change, but with some modifications to the organization of the content intended to reflect that engagement and capabilities testing are complementary parts of the review and evaluation process. The changes also clarify the process and identify the communications relative to both engagement and capabilities testing.

The FDIC received several comments with respect to engagement and capabilities testing. These comments generally focused on the process, the timing of notices, the scope of engagement and capabilities testing, and the approach to enforcement, including to ensure the FDIC's approach to resolution planning is sufficiently collaborative. One of these comments also noted that CIDIs—especially, group B CIDIs—will need time to build, improve, and test capabilities prior to undergoing capabilities testing with the FDIC, and suggested capabilities testing should not occur during a CIDI's initial submission cycle under the final rule.

The final rule retains the proposed requirements with respect to engagement between the FDIC and a CIDI, including that each CIDI must provide the FDIC such information and access to personnel of the CIDI that have

sufficient expertise and responsibility to address the informational and data requirements of the engagement. The final rule makes clear that the FDIC will provide timely notification of the scope of any engagement. Because the appropriate advance notice of an engagement will depend on the parameters of the engagement, the final rule does not specify a time period for such a notification. In the past, the FDIC has provided four to eight weeks' advance notice of any engagement and has taken into account scheduling considerations for the CIDIs, such as other scheduled examinations and supervisory requirements, and expects to continue that practice. The final rule also makes clear that the FDIC will communicate with the CIDI after engagement. The form and content of that communication are not specified in the rule; in general, the FDIC expects to communicate observations from the engagement. In some cases, engagement will inform the review of the full resolution submission itself and engagement findings may support or address findings from the review process and be incorporated in the findings of weaknesses or non-credibility described above.

Engagement may take place at any time to provide additional insights to the FDIC and to inform areas of interest for future full resolution submissions. It may also be the case that engagement takes place after the FDIC has provided the CIDI with written notice of its determination with respect to the credibility assessment described above.

In some cases, for instance, where an IDI recently has become a CIDI or changed from a group A CIDI to a group B CIDI, engagement may take place before the initial full resolution submission, to provide information on particular resolution matters or areas of future submission content. The FDIC expects that engagement will be useful to the CIDIs by providing a better understanding of the areas of particular interest to the FDIC with respect to its resolution responsibilities, and will help the FDIC to better understand the information in the full resolution submissions and the resolution challenges for a specific CIDI as well as mitigants to those challenges.

The final rule also adopts without change the proposed requirement that each CIDI may be required to demonstrate through capabilities testing that it can in fact perform the capabilities described in a full resolution submission, necessary for an identified strategy or required under the rule, and that these capabilities are adaptable to a range of scenarios. The FDIC expects capabilities testing to be an important part of its full resolution submission review process and will begin capabilities testing in the first review cycle. While in some cases time may be necessary to develop capabilities, early assessment is an important first step in that process.

As with engagement, the final rule makes clear that the FDIC will provide timely notification of the scope of any capabilities testing. As with engagement, the final rule does not specify a time period for such a notification; in some cases, short notice of the capabilities test may an intended feature of the exercise. However, the FDIC will give notice that is appropriate to the nature of the capabilities testing, and, as with engagement, will take into account scheduling considerations for the CIDIs as noted above. As with engagement, after completion of the capabilities test the FDIC may communicate observations, or the information from the capabilities test may contribute to a letter with findings.

Generally, the FDIC anticipates that capabilities testing will be conducted concurrently with the full resolution submission review process and will be conducted across a cohort of CIDIs.

Two commenters indicated the FDIC should provide CIDIs with a comprehensive list of capabilities it expects a CIDI to maintain and a description of minimum standards expected for each capability. While the proposed rule was not prescriptive with respect to capabilities, it contained the express requirement that a CIDI's capabilities are sufficient to support key elements, namely, capabilities necessary to ensure continuity of critical services in resolution, the marketability of franchise components, and, with respect to group A CIDIs, the production of valuations needed in assessing the least-cost test. In addition, an identified strategy in a resolution plan for a group A CIDI must be supported with observable and verifiable capabilities, among the other requirements of the second prong of the credibility standard.

The preamble to the proposal also provided additional context with respect to capability expectations for some or all CIDIs that can reasonably be inferred from the content requirements of the full resolution submission as described in the proposal. For example, a requirement to map information clearly implies expectation of a mapping capability; and requirements to identify key depositors, critical services support, or key personnel require the capabilities to support that identification. Examples of the capabilities that a CIDI could be required to demonstrate could include identification of key employees and critical services, as well as capabilities to meet requirements with respect to mapping, such as mapping critical services to material entities. The FDIC might also test capabilities that are necessary to key elements of the full resolution submission content, such as continuity of operations, or marketing of a franchise component or the IDI franchise. An example of such a capabilities test might be the establishment of a virtual data room for one or more franchise components or for the IDI franchise as a whole. The nature of this testing would be tailored to the requirements applicable to each CIDI. For example, while a group A CIDI may be asked to demonstrate its ability to execute capabilities necessary to its identified strategy, or demonstrate necessary capabilities for valuation, the focus for group B CIDIs would be more likely on informational requirements, such as the ability to produce informational items and referenced supporting documents within a specified timeframe.

The final rule retains the provisions of the proposal with respect to capabilities with one change, addressed in the discussion of franchise components above.

While the FDIC generally expects that engagement or capabilities testing with a particular CIDI would occur no more than once during the three-year or two-year submission cycle, as applicable, the FDIC also believes that it is important to preserve the flexibility to undertake engagement and capabilities testing with a CIDI as frequently as needed and whenever prudent, based on the circumstances of the particular CIDI. In some instances, no engagement or capabilities testing may be necessary during a submission cycle, while in other cases, such as after changes at the CIDI or as the result of varying economic conditions, more frequent engagement and capabilities testing may be warranted. Because informational filings by group B CIDIs do not include the development of an identified strategy and other elements of a resolution plan, the FDIC expects the engagement and capabilities testing with group B CIDIs will be a key component of its resolution planning for such firms and expects to conduct engagement and capabilities testing with most group B CIDIs in each cycle. In addition to engagement and capabilities testing, the FDIC could also have other interactions with CIDIs, such as questions during the full resolution submission review process or

conversations regarding changes to resolvability or updates to information.

Finally, the final rule eliminates the specific reference to enforcement of the engagement and capabilities testing requirements that was included in this section as proposed. The FDIC received several comments expressing concern about implications of the specific reference to enforcement with respect to engagement and capabilities testing as proposed, and suggesting that further process is needed to challenge the specific enforcement powers relating to capabilities testing. The inclusion of enforcement language in this paragraph may have given the impression that engagement and capabilities testing might lead to specific enforcement actions that are separate from enforcement of compliance with the rule overall and from the application of the credibility standard to full resolution submissions. The FDIC agrees with commenters that the resolution planning process benefits from ongoing communication between the FDIC and CIDIs, and an interactive and iterative process to improve full resolution submissions and the FDIC's resolution readiness. The engagement and capabilities testing requirements are important components of the overall requirements of the rule to meet the goal of ensuring resolution readiness based on credible full resolution submissions, information, and analysis. Consequently, the FDIC has eliminated the specific reference to enforcement when addressing engagement and capabilities testing and will instead rely on the overall enforcement provision in § 360.10(j) for all requirements of the rule.

G. No Limiting Effect on FDIC

The final rule retains the proposed provision that no full resolution submission provided pursuant to this section will be binding on the FDIC as supervisor, deposit insurer, or receiver for a CIDI, or otherwise require the FDIC to act in conformance with such full resolution submission. The final rule has been revised to make this provision applicable to interim supplements as well as full resolution submissions.

Financial Information

The final rule retains the proposed provision that requires a CIDI's full resolution submission use, to the greatest extent possible, financial information as of the most recent fiscal year-end for which the CIDI has financial statements or, if financial information from more recent financial statements would more accurately reflect the CIDI's operations as of the date of the submission, financial information as of that more recent date. As addressed in the discussion of interim supplements above, the final rule has been revised to make this provision applicable to interim supplements as well as full resolution submissions.

Indexing of Information and Analysis to Full Resolution Submission and Interim Supplement Content Requirements

The final rule adopts the proposed requirement that a CIDI's full resolution submission and interim supplement include an index of each content requirement required to be included in that full resolution submission or interim supplement to every instance of its location in the full resolution submission or interim supplement.

Combined Full Resolution Submission or Interim Supplements by Affiliated CIDIs

The final rule adopts without change the proposed provision to allow CIDIs that are affiliates to submit a single, combined full resolution submission or interim supplement, so long as all affiliated CIDIs submitting the combined submission or supplement are within the same CIDI group, whether group A or group B. The combined full resolution submission or interim supplement must satisfy the content requirements for each CIDI's separate full resolution submission or interim supplement, as applicable, and the CIDIs must ensure that the portions of a combined full resolution submission or interim supplement for each CIDI can be readily identified.

H. Form of Full Resolution Submissions; Confidential Treatment of Full Resolution Submissions and Interim Supplements

The final rule requires that each CIDI divide its full resolution submission into a public section and a confidential section and describes the required content of a public section. This section also provides the confidentiality provisions of the proposed rule. One commenter recommended that the FDIC generally increase the amount of information disclosed in the public portion of resolution submissions

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