# Guidance for Resolution Plan Submissions of Foreign Triennial Full Filers

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2024-18186

## Record

- **Collection:** Federal Register
- **Document type:** Notice
- **Published:** August 15, 2024
- **Citation:** 89 FR 66510

## Text

FEDERAL RESERVE SYSTEM
[Docket No. OP-1817]
FEDERAL DEPOSIT INSURANCE CORPORATION
RIN 3064-ZA38
Guidance for Resolution Plan Submissions of Foreign Triennial Full Filers

AGENCY:

Board of Governors of the Federal Reserve System (Board) and Federal Deposit Insurance Corporation (FDIC).

ACTION:

Final guidance.

SUMMARY:

The Board and the FDIC (together, the agencies) are adopting this final guidance for the 2025 and subsequent resolution plan submissions by certain foreign banking organizations (FBOs). The final guidance is meant to assist these firms in developing their resolution plans, which are required to be submitted under the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended (the Dodd-Frank Act), and the jointly issued implementing regulation (the Rule). The scope of application of the final guidance is foreign triennial full filers (specified firms or firms), which are foreign Category II and III banking organizations, and the guidance supersedes the joint
Guidance for Resolution Plan Submissions of Certain Foreign-Based Covered Companies.
The final guidance describes the agencies' expectations, depending on the resolution strategy chosen by the firm, regarding a number of key vulnerabilities in plans for an orderly resolution under the U.S. Bankruptcy Code (
i.e.,
group resolution plan; capital; liquidity; governance mechanisms; operational; legal entity rationalization and separability; branches; and insured depository institution (IDI) resolution, if applicable). The final guidance modifies and clarifies certain aspects of the proposed guidance based on the agencies' consideration of comments to the proposal, additional analysis, and further assessment of the business and risk profiles of the firms.

DATES:

The final guidance is available on August 15, 2024.

FOR FURTHER INFORMATION CONTACT:

Board:
Catherine Tilford, Deputy Associate Director, (202) 452-5240, Elizabeth MacDonald, Assistant Director, (202) 475-6316, Tudor Rus, Manager, (202) 475-6359, Mason Laird, Senior Financial Institution Policy Analyst II, (202) 912-7907, Caroline Elkin, Senior Financial Institution Policy Analyst, (202) 263-4888, Division of Supervision and Regulation; or Jay Schwarz, Deputy Associate General Counsel, (202) 452-2970; Andrew Hartlage, Special Counsel, (202) 452-6483; Brian Kesten, Counsel, (202) 843-4079; or Sarah Podrygula, Senior Attorney, (202) 912-4658, Legal Division, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. For users of TTY-TRS, please call 711 from any telephone, anywhere in the United States.

FDIC:
Robert C. Connors, Senior Advisor, (202) 898-3834; Mark E. Haley, Chief, (917) 320-2911, Patrick R. Bittner, Senior Policy Specialist, (202) 898-6571, Division of Complex Financial Institution Supervision and Resolution; Celia Van Gorder, Assistant General Counsel (Acting), (202) 898-6749; Dena S. Kessler, Counsel, (202) 898-3833; Gregory J. Wach, Counsel, (202) 898-6972, Legal Division.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction

A. Background

B. Connection to Other Rulemakings

C. Proposed Guidance

II. Overview of Comments

III. Final Guidance

A. Scope of Application

B. Transition Period

C. Interaction With Group Resolution Plan

D. Capital

E. Liquidity

F. Governance Mechanisms

G. Operational

H. Legal Entity Rationalization and Separability

I. Insured Depository Institution Resolution

J. Derivatives and Trading Activities

K. Branches

L. Format and Structure of Plans; Assumptions

M. Additional Comments

IV. Paperwork Reduction Act

V. Text of the Final Guidance

I. Introduction

A. Background

Section 165(d) of the Dodd-Frank Act
1

and the Rule
2

require certain financial institutions to report periodically to the Board and the FDIC their plans for rapid and orderly resolution under the U.S. Bankruptcy Code (the Bankruptcy Code) in the event of material financial distress or failure. The Rule divides covered companies into three groups of filers: (a) biennial filers; (b) triennial full filers; and (c) triennial reduced filers.
3

The terms “covered company” and “triennial full filer” have the meanings given in the Rule, as do other, similar terms used throughout this final guidance document.

1
12 U.S.C. 5365(d).

2
12 CFR parts 243 and 381.

3
12 CFR 243.4 and 381.4.

Triennial full filers under the Rule are required to file a resolution plan every three years, alternating between full and targeted resolution plans.
4

The Rule requires each covered company's full resolution plan to include, among other things, a strategic analysis of the plan's components, a description of the range of specific actions the covered company proposes to take in resolution, and a description of the covered company's organizational structure, material entities, and interconnections and interdependencies.
5

Targeted resolution plans are required to include a subset of information contained in a full plan.
6

In addition, the Rule requires that all resolution plans consist of two parts: a confidential section that contains any confidential supervisory and proprietary information submitted to the agencies, and a section that the agencies make available to the public.
7

Public sections of resolution plans can be found on the agencies' websites.
8

4
12 CFR 243.4(b) and 381.4(b).

5
12 CFR 243.5 and 381.5.

6
12 CFR 243.6(b) and 381.6(b).

7
12 CFR 243.11(c) and 381.11(c).

8
The public sections of resolution plans submitted to the agencies are available at
www.federalreserve.gov/supervisionreg/resolution-plans.htm
and
www.fdic.gov/regulations/reform/resplans/.

Recent Developments

Implementation of the Rule has been an iterative process aimed at strengthening the resolution planning capabilities of financial institutions subject to the Rule. To assist the development of covered companies' resolution planning capabilities and plan submissions, the agencies have provided feedback on individual plan submissions, issued guidance to certain groups of covered companies, and issued answers to frequently asked questions. The agencies believe that guidance can help focus the efforts of similarly situated covered companies to improve their resolution capabilities and clarify the agencies' expectations for those filers' future progress in their resolution plans. To date, the agencies have issued guidance to: (a) U.S. global systemically important banks (GSIBs),
9

which constitute the biennial filer group; and (b) certain large FBOs that

are triennial full filers.
10

The agencies have not, however, thus far issued guidance to domestic triennial full filers and the additional FBOs that make up the remainder of the triennial full filers.

9
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) (2019 U.S. GSIB Guidance).

10
Guidance for Resolution Plan Submissions of Certain Foreign-Based Covered Companies 2020 FBO Guidance, 85 FR 83557 (Dec. 22, 2020) (2020 FBO Guidance).

Several developments inform the final guidance:

• The agencies' consideration of comments to the proposed guidance (as defined below);

• The agencies' review of foreign triennial full filers' 2021 resolution plans and the issuance of individual letters communicating the agencies' feedback on those submitted plans;

• The agencies' recent experience with UBS Group AG's acquisition of Credit Suisse Group AG (CS) and, with respect to specified firms with large subsidiary IDIs, the resolutions of Silicon Valley Bank (SVB), Signature Bank (SB), and First Republic Bank (First Republic), and related stress experienced by a range of other financial institutions; and

• The agencies' analysis of the current risk profiles of the foreign triennial full filers.

The preamble to the 2019 revisions to the Rule indicated that the agencies would make any future resolution guidance available for comment,
11

and on August 29, 2023, the agencies invited comments on proposed guidance for the 2024 and subsequent resolution plan submissions by foreign triennial full fillers (proposed guidance or proposal).
12

11
Resolution Plans Required, 84 FR 59194, 59204 (Nov. 1, 2019) (2019
Federal Register
Rule Publication).

12

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230829b.htm; https://www.fdic.gov/news/press-releases/2023/pr23067.html.

See also
Guidance for Resolution Plan Submissions of Foreign Triennial Full Filers, 88 FR 64641 (Sept. 19, 2023).

The Rule requires triennial full filers to submit their resolution plans on or before July 1 of each year in which a resolution plan is due.
13

At the time the agencies issued the proposed guidance, the foreign triennial full filers were required to submit their next resolution plans on or before July 1, 2024. In the proposal, the agencies requested comment about whether the agencies should provide more than six months for firms to take into consideration the expectations in the finalized guidance. Several comments discussed the timing of the next resolution plan submission and its relationship to the final guidance. Most requested extensions, with several requesting at least a year and one stating six months would be adequate. One stated a maximum of six months from publication of the final guidance to the first submission would be adequate, though it did not specifically ask for an extension.

13
12 CFR 243.4(b)(3) and 381.4(b)(3).

On January 17, 2024,
14

the agencies announced an extension of the resolution plan submission deadline for the triennial full filers from July 1, 2024, to March 31, 2025. At this time, the agencies are further extending the 2025 resolution plan submission deadline for triennial full filers to October 1, 2025, to provide the firms with sufficient time to develop their full resolution plans in light of the final guidance. The agencies are also clarifying that all triennial full filers' subsequent resolution plan submission, a targeted resolution plan, are due on or before July 1, 2028, and that future resolution plan submissions will be due every three years after that, alternating between full and targeted resolution plans, pursuant to the Rule,
15

unless the agencies exercise their authority under the Rule to alter the submission date for future resolution plan submissions.
16

14

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20240117a.htm; https://www.fdic.gov/news/press-releases/2024/pr24002.html.

15
12 CFR 243.4(b) and 381.4(b).

16
12 CFR 243.4(d)(2) and 381.4(d)(2).

Resolution Plan Strategy

Foreign-based covered companies subject to the Rule have adopted one of two resolution strategies for their U.S. operations: (1) a single point of entry (SPOE) strategy where only the top tier U.S. material entity holding company enters resolution through a bankruptcy proceeding; or (2) a multiple point of entry (MPOE) strategy where multiple U.S. material entities enter separate resolution proceedings, including any top tier U.S. material entity holding company enters bankruptcy, any U.S. material entity IDI subsidiary enters resolution pursuant to the Federal Deposit Insurance Act of 1950, as amended (the FDI Act), and other entities enter the appropriate resolution regimes or are wound down. The U.S. SPOE and U.S. MPOE resolution strategies that firms have chosen present different risks and entail different types of planning and development of capabilities; accordingly, the proposal contained content applicable to U.S. SPOE resolution strategies and separate content applicable to U.S. MPOE resolution strategies.

Commenters supported inclusion of expectations for both U.S. MPOE and U.S. SPOE resolution strategies, and supported firms' ability to choose either strategy. However, some commenters questioned whether the agencies were expecting or encouraging firms to adopt a U.S. SPOE resolution strategy and recommended that the agencies disclose publicly whether they prefer a particular resolution strategy and engage in notice and comment rulemaking if they do. For firms that change resolution strategies, some commenters requested that the agencies provide a transition period and made statements about the preferred length of such a transition period, and one asked for an explanation for how a firm that is changing strategies can satisfy the agencies' expectations, and others requested that the agencies not issue any findings regarding a firm's first resolution plan that adopts a different resolution strategy.

The agencies do not prescribe a specific resolution strategy for any firm. This guidance, similarly, does not suggest that any firm should change its resolution strategy, nor are the agencies identifying a preferred strategy for a specific firm or set of firms. The selection of a preferred strategy, including U.S. MPOE or U.S. SPOE as a preferred resolution strategy, should reflect the characteristics of the firm and its business operations, and support the goal of the resolution plan to substantially mitigate serious adverse effects of the firm's failure on financial stability in the United States. Each firm remains free to choose the resolution strategy it believes would most effectively facilitate a rapid and orderly resolution.

The agencies are providing separate guidance for a U.S. SPOE resolution strategy and a U.S. MPOE resolution strategy in acknowledgment that firms are free to adopt the resolution strategy that best suits their operations and organizations. Further, the agencies note there may be resolution strategies other than U.S. SPOE and U.S. MPOE that could facilitate a rapid and orderly resolution. The specified firms should continue to submit resolution plans using the resolution strategies they believe would be most effective in achieving an orderly resolution of their firms. Regardless of strategy, a resolution plan should address the key vulnerabilities, support the underlying assumptions required to successfully execute the chosen resolution strategy, and demonstrate the adequacy of the capabilities necessary to execute the selected strategy.

Moreover, because the agencies do not prescribe resolution strategies, firms may voluntarily change their preferred strategy in the future. However, reflecting the voluntary nature of

resolution strategy changes, the agencies do not anticipate providing a transition period during which a firm would be free from potential findings under the Rule while it effectuates a change in resolution strategy, whether from U.S. MPOE to U.S. SPOE, or to any other resolution strategy. A firm controls the timing of when it submits its first plan with a different strategy; accordingly, it can take the time it needs to put in place the resources and capabilities needed to submit a plan that satisfies the standard in section 165(d) of the Dodd-Frank Act and the Rule. The standard of review for a resolution plan submission of a firm that transitions to a new strategy is therefore the same as for any firm subject to the Rule.
17

17

See
12 CFR 243.8 and 381.8.

B. Connection to Other Rulemakings

Long-Term Debt Proposal

The agencies, as well as the Office of the Comptroller of the Currency (together with the agencies, the Federal banking agencies), issued in August 2023 a proposed rule for comment that would require certain large holding companies, U.S. intermediate holding companies of FBOs, and certain IDIs, to issue and maintain outstanding a minimum amount of long-term debt (LTD), among other proposed requirements.
18

The agencies have received comments on the LTD proposal, and will consider all comments received in context of the LTD rulemaking. The agencies requested comments on the proposed guidance that take the LTD proposal into consideration.

18

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230829a.htm; https://www.fdic.gov/news/press-releases/2023/pr23065.html.

See also
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) (LTD proposal).

One commenter recommended that, for purposes of their resolution plans, firms should only assume their existing outstanding LTD and not the projected LTD that would be in place once the firm has achieved full compliance with the LTD proposal. Another commenter argued that the agencies should consider the interaction between the proposed guidance and LTD proposal, with a goal of having them work together to improve the resolvability of applicable banking organizations and avoid duplicative or contradictory requirements. The commenter also asserted that calibration of an IDI's internal LTD requirement could lead banking organizations using a U.S. MPOE resolution strategy to adopt a U.S. SPOE resolution strategy because of the costs of compliance with such internal LTD issuance.

The Federal banking agencies have not finalized the LTD rulemaking as of the issuance of this final guidance. The agencies recognize that LTD issued and maintained by a specified firm could affect the firm's strategic analysis of the funding, liquidity, and capital needs of, and resources available to, the covered company and its material entities.
19

However, the agencies believe that the finalization of a requirement to maintain a specified amount of LTD would not affect this guidance in any material way. Any final LTD rule will address the manner in which its requirements will be implemented. This final guidance is intended to convey the agencies' expectations regarding the content of resolution plan submissions, and not to contradict, modify, or accelerate a company's obligations under other laws or regulations. As provided in the final guidance, firms should develop their resolution plans in accordance with the current state of the applicable legal and policy frameworks. The agencies also recognize, however, that there may be phase-in periods during which rules become effective. Should the LTD rule be finalized in advance of October 1, 2025, the agencies will not expect firms to incorporate the requirements of the rule into their 2025 resolution plan submissions. This should provide firms covered by the LTD rule with reasonable time to consider any final LTD rule in a future resolution plan submission. Further, and as noted above, the agencies are not recommending that any specified firm adopt any particular strategy in response to this guidance or the LTD proposal.

19

See
12 CFR 243.5(c)(1)(iii) and 381.5(c)(1)(iii).

Basel III End Game Proposal and the GSIB Capital Surcharge Proposal

The Federal banking agencies also issued in July 2023 a proposed rule for comment to substantially revise the capital requirements applicable to large banking organizations and to banking organizations with significant trading activity.
20

The Board also issued a proposed rule for comment to amend the Board's rule that identifies and establishes risk-based capital surcharges for GSIBs.
21

The latter proposal would also amend the Systemic Risk Report (FR Y-15), which is the source of inputs to the implementation of the GSIB framework under the capital rule.

20

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230727a.htm; https://www.fdic.gov/news/press-releases/2023/pr23055.html.

See also
Regulatory Capital Rule: Large Banking Organizations and Banking Organizations With Significant Trading Activity, 88 FR 64028 (Sept. 18, 2023) (Capital proposal).

21

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230727a.htm. See also
Regulatory Capital Rule: Risk-Based Capital Surcharges for Global Systemically Important Bank Holding Companies; Systemic Risk Report (FR Y-15), 88 FR 60385 (Sept. 1, 2023) (GSIB Capital Surcharge proposal).

One commenter asserted that the issuance of multiple rulemaking and guidance proposals limited the commenter's ability to evaluate and comment on the proposed guidance. The commenter also recommended that the Federal banking agencies conduct an analysis of the costs and benefits of these proposals together. In addition, the commenter recommended providing the public more time to consider the interactions of the various proposals. Another commenter contended that the agencies should provide additional flexibility to firms that become triennial full filers as a result of the GSIB Capital Surcharge proposal and its associated changes to the Systemic Risk Report (FR Y-15). The commenter argued that such triennial full filers should have an extended transition period of two years before taking into account the final guidance.

The Federal banking agencies have not finalized the LTD rulemaking, Capital rulemaking, or GSIB Capital Surcharge rulemaking as of the issuance of this final guidance, and comments on those proposed rules are currently under consideration. The final guidance does not rely on or presume the finalization of these rulemakings and instead states, as proposed, that a resolution plan should be based on the current state of the applicable legal and policy frameworks.
22

The agencies note that the Federal banking agencies extended the comment period on the LTD rulemaking,
23

the Capital rulemaking,
24

and the GSIB Capital Surcharge rulemaking
25

to allow interested parties more time to analyze relevant issues and prepare their comments. In addition, staff of the agencies met with members of the

public—including those who asked for additional time to review the various proposals—at the request of those persons after the close of the comment period. Moreover, the Board collected data from the banks affected by the Capital rulemaking to further clarify the estimated effects of the proposal.
26

The FBO guidance proposal also included an analysis of potential burden of the proposal pursuant to the Paperwork Reduction Act.
27

As discussed below, the agencies did not receive any comment on that section of the proposal.
28

22

See infra
section V.X of this document.

23
Long-Term Debt Requirements for Large Bank Holding Companies, Certain Intermediate Holding Companies of Foreign Banking Organizations, and Large Insured Depository Institutions; Extension of Comment Period, 88 FR 83364 (Nov. 19, 2023).

24
Regulatory Capital Rule: Large Banking Organizations and Banking Organizations with Significant Trading Activity; Extension of Comment Period, 88 FR 73770 (Oct. 27, 2023).

25
Risk-Based Capital Surcharges for Global Systemically Important Bank Holding Companies; Systemic Risk Report (FR Y-15); Extension of Comment Period, 88 FR 73772 (Oct. 27, 2023).

26

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20231020b.htm.

27

See
proposed guidance at 88 FR 64648-49.

28

See infra
section IV of this document.

The agencies also note that the Rule establishes a transition period for new covered companies that become triennial full filers.
29

As discussed elsewhere in this document, a specified firm is only expected to take into account the guidance for the resolution plan submission that is due at least 12 months after the date the firm becomes a specified firm.
30

29

See
12 CFR 243.4(b)(5) and 381.4(b)(5).

30

See infra
section III.B of this document.

FDIC IDI Resolution Plan Proposal

The agencies received two comments on the connection between the proposal and the IDI Rule.
31

The FDIC published proposed revisions to the IDI Rule on September 19, 2023,
32

and published final revisions on July 9, 2024.
33

One commenter recommended coordinating aspects of the proposed guidance and the Proposed IDI Rule, including having consistent terms and concepts, and permitting cross-referencing to section 165(d) resolution plans under the Proposed IDI Rule. Another commenter suggested aligning the Rule and the IDI Rule to reduce the combined compliance burden.

31
12 CFR 360.10 (IDI Rule).

32
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, 88 FR 64579 (Sept. 19, 2023) (Proposed IDI Rule).

33
Resolutions 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, 89 FR 56620 (July 9, 2024).

The Rule requires a covered company to submit a resolution plan that would allow for the rapid and orderly resolution of the firm under the Bankruptcy Code in the event of material financial distress or failure. The final guidance clarifies the agencies' expectations regarding certain topics and provides direction as to how a covered company may demonstrate its compliance with its statutory obligation under section 165(d) of the Dodd-Frank Act to develop a resolution plan allowing for its rapid and orderly resolution. The IDI Rule serves a different purpose: the IDI Rule assists the FDIC in preparing to manage the resolution of a covered insured depository institution. While these two rules may be complementary, they are not the same. Additionally, whether to align the Proposed IDI Rule with the Rule or permit cross-referencing to section 165(d) resolution plans under the IDI Rule is outside the scope of this guidance.

C. Proposed Guidance

On August 29, 2023, the agencies invited public comment on proposed guidance for how foreign triennial full filers' resolution plans could address key challenges in resolution, which was proposed to apply beginning with the subject firms' 2024 resolution plan submissions.
34

The proposal identified the banking organizations to which the guidance would apply and articulated several areas of guidance: group resolution plan; capital; liquidity; governance mechanisms; operational; legal entity rationalization and separability; branches; and IDI resolution, if applicable. The proposed guidance described the agencies' proposed expectations for each of these areas. Most substantive topics were bifurcated, with separate guidance for a U.S. SPOE resolution strategy and a U.S. MPOE resolution strategy. The proposed guidance concluded with information about the format and structure of a plan that applied equally to plans contemplating either a U.S. SPOE resolution strategy or a U.S. MPOE resolution strategy.

34

Supra
note 12.

The proposed guidance for firms that adopt a U.S. SPOE resolution strategy was generally based on the 2020 FBO Guidance or the associated proposal.
35

The proposed guidance for firms that adopt a U.S. MPOE resolution strategy was based upon the 2020 FBO Guidance but modified to be pertinent to U.S. MPOE resolution strategies. The agencies also proposed to clarify their expectations for specified firms that adopt a U.S. MPOE resolution strategy that includes the resolution of a material entity that is a U.S. IDI.

35
Guidance for Resolution Plan Submissions of Certain Foreign-Based Covered Companies, 85 FR 15449 (March 18, 2020) (2020 Proposed FBO Guidance).

The agencies invited comments on all aspects of the proposed guidance. The agencies also specifically requested comments on a number of issues, including the utilization of a U.S. SPOE resolution strategy by FBOs, the interaction of resolution guidance with a final long-term debt rule, the interaction between U.S. and global resolution strategies, the amount of time between the publication of the final guidance and the firms' next resolution plans, the appropriateness of guidance on IDI resolution, and whether to issue derivatives and trading expectations.

II. Overview of Comments

The agencies received and reviewed eight comment letters on the proposed guidance. Commenters included various financial services trade associations and two public interest groups. In addition, the agencies met with representatives of a banking organization that would be a specified firm and trade associations that represents banking organizations at their request to discuss issues relating to the proposed guidance.
36

This section provides an overview of the general themes raised by commenters. The comments received on the proposed guidance are further discussed below in the sections describing the final guidance (and, in some cases, previously in section I), including any changes that the agencies have made to the proposed guidance in response to comments.

36
Summaries of those meetings and copies of the comments can be found on each agency's website.
https://www.federalreserve.gov/apps/foia/ViewComments.aspx?doc_id=OP-1817&doc_ver=1; https://www.fdic.gov/resources/regulations/federal-register-publications/2023/2023-guidance-resolution-plan-submissions-foreign-triennial-3064-za38.html.

Differentiating Expectations Based on Size, Complexity, and Risk

Most commenters contended that the proposed guidance did not sufficiently differentiate expectations among firms subject to resolution planning guidance. Several commenters argued that the specified firms have reduced their activities in the United States, resulting in a reduced risk and financial stability profile, and that expectations be adjusted accordingly. Some commenters also recommended that foreign triennial full filers without intermediate holding companies (IHCs) should not be covered by the guidance or should be the subject of guidance tailored to their risk profiles. In contrast, one commenter contended that the proposed guidance favors the U.S. MPOE resolution strategy by including fewer expectations for firms that adopt that strategy and recommended that the guidance for such firms be more aligned with

guidance for resolution plan filers using a U.S. SPOE resolution strategy.

In addition, some commenters argued that section 165 of the Dodd-Frank Act requires the agencies to tailor application of prudential standards issued pursuant to that section, such as resolution planning guidance; contended that the proposal was too similar to the 2019 U.S. GSIB Guidance or 2020 Proposed FBO Guidance; and encouraged expectations in the final guidance to be further differentiated based on size, risk and other factors. Several commenters also objected to expectations in the proposal that were proposed in the 2020 Proposed FBO Guidance but not finalized in the 2020 FBO Guidance—including guidance on group resolution plans, resolution capital adequacy and positioning requirements (RCAP), resolution liquidity adequacy and positioning (RLAP), governance mechanisms, and separability—and contended that the agencies did not adequately explain their rationale for adopting expectations different from those in the 2020 FBO Guidance.

Resolution Strategy and Transition Period

Several commenters supported the proposal's inclusion of expectations for both U.S. MPOE and U.S. SPOE resolution strategies and the agencies' statement that firms have the ability to choose their preferred strategy. However, as noted above, some commenters questioned whether the agencies were expecting or encouraging firms to adopt a U.S. SPOE resolution strategy. For firms that change resolution strategies, some commenters requested that the agencies provide a transition period during which the agencies would not make credibility findings in connection with a plan review, and one commenter requested that the agencies explain how a firm that is changing strategies can satisfy the agencies' expectations.

Interaction Between U.S. and Group Resolution Planning

Some commenters disagreed with the proposed guidance relating to the interaction of the U.S. and the global resolution plans. Commenters claimed that global resolution plans are sometimes written by home authorities and FBOs may not always have full visibility into the details of those plans' assumptions, strategies, and necessary capabilities. These commenters also asserted that, in some countries, home country regulators may consider aspects of the group plan to be confidential supervisory information and, accordingly, the global resolution plan is not shared with the firm beyond very general terms. In addition, one commenter contended that the proposal did not specify with sufficient detail what information from a group resolution plan should be included in the U.S. resolution plan. Commenters urged the agencies to coordinate with home country authorities and to use Crisis Management Groups (CMGs), which are designed for collaboration between international regulators, to obtain this type of information.

Capital and Liquidity

The agencies received a number of comments on the capital and liquidity sections of the proposed guidance. With regard to the capital section of the proposed guidance, most commenters argued that the proposal included expectations that are duplicative of existing capital requirements and suggested removing the guidance on RCAP from the final guidance; one commenter, however, supported including RCAP expectations in final guidance. One commenter suggested that RCAP expectations would increase the complexity of the resolution planning process and another commenter expressed concern that RCAP expectations could result in excessive capital placement in the U.S., which could prevent firms from effectively positioning capital in times of stress.

With regard to the liquidity section of the proposed guidance, commenters suggested there is redundancy between the proposal and certain regulatory requirements and also recommended removing the guidance on RLAP from the final guidance; one commenter, however, supported including RLAP expectations in final guidance. One commenter expressed concern that RLAP expectations could make it more difficult for the specified firm's parent to deploy liquidity resources most effectively in stress. In addition, one commenter requested that the final guidance strengthen expectations for liquidity in resolution by including a procedure or protocol for liquidity related decisions, irrespective of resolution strategy.

IDI Resolution Analysis

The agencies received a number of comments on the proposed guidance related to the resolution of a subsidiary material entity U.S. IDI. Multiple commenters requested clarity on how the firm's plan should address the expectations regarding the FDIC's statutory least-cost requirement and questioned whether there is sufficient information available for firms to effectively evaluate whether a proposed resolution plan would satisfy the least-cost analysis expectations. These commenters also questioned whether the least-cost analysis would be of value to FDIC in an actual resolution and argued that the guidance should be aligned with the requirements of the IDI Rule. One stated sufficient time should be given for firms to conduct new analyses and seek additional guidance from the agencies and that aspects of this section of the proposal should not be finalized.

One commenter asked the agencies to consider the compliance burden of the guidance, while another commenter argued that firms should not be expected to demonstrate that their preferred strategy would be consistent with the FDIC's statutory least-cost requirement. Another commenter suggested that the agencies should require firms to develop resolution strategies involving bridge depository institutions (BDIs) and recommended that the guidance address the value of assets transferred to such a BDI, how the resolution plan would address the IDI's franchise value, and how the preferred resolution strategy would result in a least-costly resolution.

Derivatives and Trading

Some commenters supported not including derivatives and trading expectations, stating it was appropriate to exclude such guidance because the specified firms have limited derivatives and trading portfolios, particularly relative to the U.S. G-SIB banking organizations covered by such guidance. However, some other commenters supported including such expectations in the final guidance, contending that derivatives activity for foreign triennial full filers may increase in the future and proposed applying such guidance to firms with net derivatives exceeding a given threshold.

Connection to Other Rules

The agencies received a number of comments about the interaction of the proposed guidance with several other rulemaking initiatives by the Federal banking agencies. For example, some commenters recommended coordinating the FDIC's Proposed IDI Rule revisions with the resolution plan rule and final guidance for the specified firms. Several commenters also suggested that the agencies consider the interaction between the proposed guidance and the LTD proposal to ensure the two proposals work together to improve the resolvability of applicable banking organizations and avoid duplicative or

contradictory requirements. Some commenters expressed concern that including certain expectations in the final guidance, such as those relating to capital, would be premature before finalizing the Capital proposal and LTD proposal, which impact firms' capital planning. Further, some commenters recommended that the Federal banking agencies analyze the costs and benefits of these proposals together.

Timing of Next Resolution Plan

Several comments discussed the timing of the next resolution plan submission and its relationship to this final guidance. Some commenters recommended providing at least one year between issuing final guidance and the deadline for foreign triennial full filers' next resolution plan submissions. However, other commenters suggested that six months from publication of the final guidance to the first resolution plan submission would be adequate for firms to take into account the guidance.

III. Final Guidance

After considering the comments, conducting additional analysis, and further assessing the business and risk profiles of foreign triennial full filers, the agencies are issuing final guidance that includes certain modifications and clarifications from the proposal. In particular, the capital, group resolution plan, operational, assumptions, and IDI resolution sections of the final guidance reflect changes from the proposed guidance. In addition, as was noted in the proposal,
37

the final guidance consolidates all prior resolution planning guidance for the firms in one document and clarifies that any prior guidance not included in the final guidance has been superseded. Further, as was noted in the proposal,
38

the final guidance is not intended to override the obligation of an individual firm to respond in its next resolution plan submission to pending items of individual feedback or any shortcomings or deficiencies jointly identified or determined by the agencies in that firm's prior resolution plan submissions. The guidance is drafted to reflect the current conditions in the industry and institutions as they exist today.

37

See
proposed guidance at 88 FR 64644.

38

See
i
d.

As discussed below,
39

several commenters asserted that the proposal did not adequately differentiate among covered companies based on their size, complexity, and risk to financial stability. The guidance, however, takes into account the size and complexity of firms, their resolution strategy, and whether they are based in the United States or in a foreign jurisdiction. In addition, the final guidance is not meant to limit firms' consideration of additional vulnerabilities or obstacles that might arise based on a firm's particular structure, operations, or resolution strategy.

39

See infra
section III.M of this document.

The agencies also note that commenters described certain expectations that are set forth in the guidance as “requirements.” As the agencies indicated in the proposed guidance and are now reaffirming, the final guidance does not have the force and effect of law. Rather, the final guidance outlines the agencies' supervisory expectations regarding each subject area covered by the final guidance.
40

The final guidance includes language reflecting this position.
41

40

See
12 CFR 262.7 and appendix A to 12 CFR part 262; 12 CFR part 302.

41

See infra
section V.I of this document.

Finally, the agencies made several minor, non-substantive changes from the proposal, including to align the wording of guidance directed at firms that adopt an SPOE resolution strategy and firms that adopt an MPOE resolution strategy.

A. Scope of Application

The agencies proposed applying the guidance to all foreign-based triennial full filers and invited comment on all aspects of the proposed scope of the guidance. Multiple commenters argued that foreign triennial full filers without IHCs should not be covered by the guidance or should be the subject of guidance tailored to their risk profiles. In making this suggestion, one commenter stated that, unlike domestic firms, the resolution of U.S. operations of FBOs is anticipated to occur as part of the home country resolution and the IHC threshold represents a materiality threshold for understanding the importance of the U.S. operations and for resolution planning. The commenter also stated that separate guidance could be proposed for foreign triennial full filers without an IHC. Several commenters further argued that the specified firms are already subject to enhanced requirements in both the U.S. and their home jurisdictions, and that the firms are smaller, better capitalized, and present a much-reduced risk to U.S. financial stability relative to category I firms. One commenter also contended that imposing additional resolution planning expectations would undermine these firms' ability to support U.S. capital markets while another commenter argued that the guidance should place greater reliance on cooperation among international regulators.

After review and consideration of these comments, the agencies are finalizing this section of the guidance as proposed. The agencies are issuing expectations to these firms to help them further strengthen their resolution plans based on the agencies' recent experience with UBS Group AG's acquisition of CS and, with respect to specified firms with large subsidiary IDIs, the resolutions of SVB, SB, and First Republic. Like CS, many of the specified firms are foreign GSIBs with a large presence in the United States. The guidance covers large FBOs both with and without a U.S. IHC and covers the entirety of their U.S. operations. The final guidance will strengthen these firms' resolution plans for their U.S. operations, while allowing flexibility based on the characteristics of individual firms and their respective resolution strategies. The agencies note that some aspects of the guidance may not be relevant to banking organizations without a U.S. IHC and do not expect firms to include in their resolution plans information about topics that do not relate to the structure of their operations. More generally, the level of detail in firms' resolution plans about specific topics and vulnerabilities should reflect the importance of those activities to the firm and whether they relate to or support any identified critical operations or core business lines or are material to the execution of the resolution strategy.

In many cases, the preferred resolution outcome for U.S. operations would be successful execution of the home country's global resolution strategy and the agencies have developed guidance to clarify the interactions between firms' U.S. and global resolution strategies. The home country resolution planning requirements do not make the guidance unnecessary for these firms. The Rule requires FBOs to submit plans providing for the rapid and orderly resolution of their U.S. subsidiaries and operations
42

under the Bankruptcy Code in the event of their failure. The agencies are issuing guidance to assist FBO firms in enhancing the resolution plans required under U.S. law.

42

See
12 CFR 243.5(a)(2)(i) and 381.5(a)(2)(i).

B. Transition Period

The proposed guidance did not describe how the guidance would be applied to FBOs that become covered by its scope, but it did request comment on all aspects of the proposed scope of

application. To provide certainty to FBOs, the final guidance states that when an FBO becomes a specified firm, the final guidance will apply to the firm's next resolution plan submission with a submission date that is at least 12 months after the time the firm becomes a specified firm.
43

If a specified firm ceases to be a foreign triennial full filer, it will no longer be considered a specified firm, and the guidance will no longer be applicable to that firm as of the date the firm ceases to be a foreign triennial full filer.

43
The plan type for that next submission remains as specified by the Rule,
i.e.,
a full or targeted resolution plan.
See
12 CFR 243.4 and 381.4.

C. Interaction With Group Resolution Plan

The agencies recognize that the preferred resolution outcome for many specified firms is a successful home country resolution using a global SPOE resolution strategy that does not involve the placement of any U.S. material entities into resolution. However, by law, section 165(d) resolution planning provisions require relevant FBOs to contemplate their resolution in the United States. U.S. operations of an FBO are often highly interconnected with the broader, global operations of the financial institution. To clarify the interaction between U.S. and global resolution strategies, the proposal outlined expectations that specified firms should describe the impact of executing the firm's global, group-wide resolution plan on the firm's U.S. operations and detail the extent to which resolution planning under the Rule relies on different assumptions, strategies, and capabilities from the global plan. The group resolution plan section of the proposed guidance differed from a similarly named section of the 2020 Proposed FBO Guidance by focusing on how U.S. resolution planning is integrated into a FBO's global resolution planning efforts, in addition to describing the impact on U.S. operations of executing the global plan. In 2020, the agencies declined to finalize that aspect of the 2020 Proposed FBO Guidance, stating that the item was addressed by the Rule and that the agencies would collaborate with home country regulators to better understand the impact on U.S. operations of executing a firm's group resolution plan.
44

However, recent events have underscored the need to better understand group resolution plans, and particularly the impact of executing the home plan on U.S. operations. These events, combined with prior resolution plan submissions from the specified firms that did not provide consistent and sufficient details regarding the integration of U.S. resolution planning with the firm's group resolution planning process, prompted the agencies to issue additional guidance. Moreover, the final guidance differs from the 2020 Proposed FBO Guidance in several ways by further clarifying the Rule expectation and focusing on the reliance between U.S. and group resolution plans based on information available to the firm, as described below.

44

See
2020 FBO Guidance at 85 FR 83567.

The agencies received several comments regarding this section of the proposal. Commenters claimed that global plans are sometimes written by home authorities and FBOs may not always have full visibility into the details of those plans' assumptions, strategies, and capabilities. Commenters also asserted that, in some countries, the global resolution plan is not shared with the firm beyond very general terms and that home country regulators may consider aspects of the group plan to be confidential supervisory information. In addition, one commenter contended that the proposal did not specify with sufficient detail what information from a group resolution plan should be included in the U.S. resolution plan. Commenters urged the agencies to coordinate with home country authorities and to use CMGs, which are designed for collaboration between international regulators, to obtain this type of information.

After consultation with certain home authorities and in response to these comments, the agencies are finalizing this section of the guidance with revisions. First, the agencies recognize that not all firms have access to the group-wide resolution plan for that financial institution. Accordingly, the final guidance clarifies that firms are not expected to provide information that they do not possess and does not include an expectation that firms specifically identify the extent to which resolution planning under the Rule relies on different assumptions, strategies, and capabilities from the global plan. Furthermore, the agencies note that while CMGs have been and continue to be a useful forum for collaboration between home and host authorities regarding resolution related topics, centralizing information about group resolution plans in resolution plans submitted under the Rule could help the agencies prepare for a range of outcomes and supplement ongoing coordination with home country authorities.

Accordingly, the final guidance provides that a plan should describe the extent of reliance on U.S. operations for executing the global resolution strategy and any reliance on the home or parent operations for executing the U.S. resolution strategy. A description of capabilities relied on to execute the U.S. resolution strategy that differ from capabilities to execute the global resolution strategy should also be included in a plan. The agencies also have retained language from the proposal that a specified firm's broader resolvability framework is expected to consider the objectives of both the group-wide resolution strategy and the U.S. resolution strategy pursuant to the Rule, with complementary efforts to enhance resolvability across plans. The agencies do not believe that inclusion of this type of information about group resolution plans in U.S. resolution planning poses confidentiality issues, and the agencies will collaborate with home authorities to address any outstanding issues regarding the confidentiality of group resolution plans. The agencies encourage specified firms to bring specific confidentiality concerns to the attention of the agencies and their respective home authorities.

D. Capital

For specified firms using a U.S. SPOE resolution strategy, the agencies proposed capital expectations substantially similar to those in the 2020 Proposed FBO Guidance. The ability to provide sufficient capital to material entities without disruption from creditors is essential to a U.S. SPOE resolution strategy's objective to ensure that material entities can continue to maintain operations as the firm is resolved. The proposal described expectations concerning the appropriate positioning of capital and other loss-absorbing instruments (
e.g.,
debt that a parent holding company may choose to forgive or convert to equity) among the material entities within the firm (RCAP). The proposal also described expectations regarding a methodology for periodically estimating the amount of capital that may be needed to support each material entity after the bankruptcy filing (resolution capital execution need, or RCEN).

The agencies received numerous comments on the capital section of the proposed guidance. One commenter supported including RCAP expectations in the final guidance. Several commenters, though, asserted that RCAP would be duplicative of existing capital requirements, such as total loss absorbing capacity (TLAC) provisions, and recommended that the agencies

remove RCAP from the final guidance. These commenters also contended that the agencies did not sufficiently explain why the agencies proposed guidance on capital, including RCAP, when the agencies previously considered adopting RCAP expectations in the 2020 Proposed FBO Guidance but omitted these expectations from the 2020 FBO Guidance. A commenter argued that existing capital requirements are sufficient for the size and complexity of the firms subject to this guidance without RCAP expectations, which, the commenter asserted, add more complexity to the resolution planning process. Another commenter expressed concern that RCAP expectations could result in excessive capital placement in the U.S., and that this could prevent firms from effectively positioning capital in times of stress.

One commenter contended that as the majority of IHCs subject to guidance are required to hold local resources for the recapitalization of their U.S. operations under U.S. TLAC requirements, the agencies should not issue additional requirements related to local bail-in-able resources. A commenter argued that the risk characteristics of U.S. IHCs do not justify requiring pre-positioning of capital for U.S. IHC subsidiaries and urged that, at a minimum, the agencies should not implement both IDI-level LTD requirements and RCAP expectations for firms that select a U.S. SPOE resolution strategy.

One commenter also asserted that including expectations in this guidance regarding the positioning of capital is premature given that finalization of the Capital proposal and the LTD proposal may impact firms' capital planning. A commenter specifically pointed to language in the LTD proposal in which the agencies cite RCAP as one of the reasons why IDI-level LTD requirements are not necessary for the IDI subsidiaries of U.S. GSIBs.

After reviewing these comments, the agencies are finalizing this section of the guidance largely as proposed, with one clarification concerning RCEN. Whereas the proposed guidance provided that to the extent a firm's U.S. resolution strategy relies on the recapitalization of U.S. non-branch material entities, such recapitalization should be to a level that allows for an orderly resolution of the U.S. non-branch material entities, the final guidance specifies that the recapitalization should allow U.S. non-branch material entities to operate or be wound down in an orderly manner. This change is intended to provide more detail to firms to help them develop their plans.

Although the agencies previously pointed to TLAC requirements applicable to U.S. IHCs as part of the rationale for not including RCAP expectations in the 2020 FBO Guidance,
45

the agencies believe RCAP expectations are important for FBOs adopting a U.S. SPOE resolution strategy in order to ensure the appropriate positioning of capital and other loss-absorbing instruments among the U.S. IHCs and all of their material entity subsidiaries and to effectively execute a U.S. SPOE resolution strategy. Specifically, TLAC requirements apply to the IHC, while RCAP expectations under the guidance are applicable not just at the IHC level, but between the U.S. IHC and its material entity subsidiaries. Further, resources required to be held at the IHC consistent with TLAC requirements may differ from the firm's expected resource needs to execute a U.S. SPOE resolution strategy at specific material entities. Plans submitted by the specified firms would benefit from the firm's own assessment of its resource positioning and the resolution needs among its material entities, not just the IHC or the IDI.

45

See
2020 FBO Guidance at 85 FR 83563.

Further, the stress experienced by and the failure of several large banking organizations in March 2023 highlighted the fast-moving nature of stress events, as several banking organizations entered resolution proceedings rapidly. These events also highlighted the potential for the failure of a large regional banking organization to affect financial stability. Successful execution of a U.S. SPOE resolution strategy—including the need to ensure that individual material entities have adequate capital to maintain operations as the firm is resolved—is unlikely to be successful under a short time frame without advance planning. Appropriate positioning of capital and other loss-absorbing instruments among the firm's material entities is an important element of this advanced planning to reduce uncertainty and enable timely recapitalization consistent with a U.S. SPOE resolution strategy. Accordingly, the agencies are finalizing guidance that includes RCAP expectations, despite not including those expectations in the final 2020 FBO guidance, to support the successful execution of the U.S. SPOE resolution strategy.

Finalizing RCAP expectations is not premature in light of outstanding proposals such as the LTD rulemaking and other pending rules because the RCAP expectations can be achieved with or without the LTD contemplated in the LTD proposal. The Federal banking agencies have not finalized the LTD rulemaking proposal as of the issuance of this final guidance, and comments on that proposed rule are currently under consideration. Specifically, the final guidance does not rely on or presume the finalization of pending rules and instead states, consistent with the proposal, that a resolution plan should be based on the current state of the applicable legal and policy frameworks.
46

The guidance is intended to assist firms in developing their resolution plans, which are required to be submitted pursuant to the Dodd-Frank Act and the Rule. While other capital and resolution-related rules may establish minimum standards applicable to firms submitting resolution plans, this guidance is designed to facilitate a firm's own analysis of the firm's expected needs in resolution across that firm's material entities.

46

See infra
section V.X of this document.

Regarding the comment that RCAP expectations would result in excessive capital placement in the United States, RCAP is not a regulatory requirement, but rather a potential element of an effective SPOE resolution strategy. The specified firms are not required to adopt a U.S. SPOE resolution strategy. To the extent a specified firm selects a U.S. SPOE resolution strategy, any reduction in flexibility would be balanced by benefits prepositioning provides in reducing uncertainty and enabling timely recapitalization of material entities. Furthermore, the agencies' reference to RCAP in the LTD preamble as one reason for not proposing IDI-level LTD requirements for U.S. GSIBs does not provide a rationale for excluding RCAP expectations from this guidance. First, in addition to RCAP expectations, the U.S. GSIBs are different in profile from these firms, and are subject to the most stringent capital, liquidity, and other prudential standards of all banking organizations that operate in the United States. Second, as noted above, the goals of this guidance would be complemented by additional LTD issued by specified firms, and the guidance is practicable in the absence of an LTD requirement.

For firms that adopt a U.S. MPOE resolution strategy, the agencies did not propose further expectations concerning capital and asked a question about whether capital-related expectations should be applied. In response, one commenter agreed with the proposal that additional expectations are not warranted for firms using a U.S. MPOE resolution strategy, arguing that such expectations would serve no purpose.

However, another commenter contended that it is not prudent to assume that material entities within a holding company structure can be discontinued in an orderly manner and that, at a minimum, capital plans are needed for each material entity to preserve its value during the transition period between a firm's failure and when it can be sold or closed in an orderly way. The commenter asked the agencies to reconsider expectations for firms that adopt a U.S. MPOE resolution strategy and align them with expectations for firms that adopt a U.S. SPOE resolution strategy.

The agencies have determined that additional capital expectations for firms selecting a U.S. MPOE resolution strategy are not necessary at this time. Under a U.S. MPOE resolution strategy, most material entities do not continue as going concerns upon the firm's entry into resolution proceedings and are likely to have already depleted existing capital requirements. Accordingly, the agencies are finalizing this section of the guidance as proposed.

E. Liquidity

For firms that adopt a U.S. SPOE resolution strategy, the agencies proposed liquidity expectations substantially similar to those in the 2020 Proposed FBO Guidance. A firm's ability to reliably estimate and meet its liquidity needs prior to, and in, resolution is important to the execution of a firm's resolution strategy because it enables the firm to respond quickly to demands from stakeholders and counterparties, including regulatory authorities in other jurisdictions and financial market utilities. Maintaining sufficient and appropriately positioned liquidity also allows subsidiaries to continue to operate while the firm is being resolved in accordance with the firm's resolution strategy. For firms that adopt a U.S. MPOE resolution strategy, the agencies proposed that a firm should have the liquidity capabilities necessary to execute its resolution strategy, and its plan should include analysis and projections of a range of liquidity needs during resolution.

The agencies received numerous comments on the liquidity section of the proposed guidance. One commenter supported including RLAP expectations in the final guidance for firms that adopt a U.S. SPOE resolution strategy.

Several commenters, however, requested that the agencies remove RLAP expectations from the final guidance, claiming that the expectation is redundant to certain liquidity requirements, such as the Liquidity Coverage Ratio (LCR) and Internal Liquidity Stress Testing (ILST). Several commenters also argued FBOs have reduced their activities in the United States, resulting in a reduced risk and financial stability profile, and that liquidity requirements set forth in existing regulatory requirements, and not RLAP, should set the binding constraint on the firms. In addition, one commenter expressed concern that RLAP expectations could make it more difficult for the global firm to deploy liquidity resources most effectively in stress. Several commenters also asserted that the agencies did not sufficiently explain the rationale for including RLAP expectations that the agencies had previously considered but omitted from the 2020 FBO Guidance.

Another commenter requested that for firms that adopt a U.S. MPOE resolution strategy, the guidance strengthen expectations for liquidity in resolution by including a procedure or protocol for liquidity related decisions, irrespective of resolution strategy. The commenter argued that the guidance should identify the importance of overcoming barriers to moving liquidity across material legal entities and clarify which types of transfers of liquidity are permissible for material entities in resolution.

After reviewing these comments, the agencies are finalizing this section of the guidance as proposed.
47

While the agencies previously did not adopt RLAP expectations in the 2020 FBO Guidance, the agencies' recent experiences highlighted the fast-moving nature of bank failure and resolution and underscored the need to maintain sufficient and appropriately positioned liquidity across the IHC and its subsidiaries to be prepared for a successful U.S. SPOE resolution strategy. The agencies also believe that RLAP expectations are appropriate in light of recent events demonstrating that liquidity pressures on these firms can change dramatically over a short period of time. Having sufficient and appropriately positioned liquidity at the time of failure increases the probability that operating subsidiaries will have enough liquidity to be able to continue to operate while the firm is being resolved, and the RLAP expectations help achieve this goal.

47
The agencies are clarifying one aspect of RLAP guidance that could be construed to impose a requirement on the specified firms.

RLAP expectations are not addressed by ILST and other regulatory requirements. Maintaining sufficient and appropriately positioned liquidity is critical to executing a U.S. SPOE resolution strategy, regardless of the size and complexity of the banking organization. The LCR and ILST requirements that commenters referenced serve a different purpose—to promote resilience of firms' funding profiles—and are not focused on resolution planning.

RLAP expectations also would not hinder a specified firm's global parent from deploying liquidity resources most effectively in stress. Unlike ILST and other regulatory requirements, RLAP is not a regulatory requirement, but rather an example of a decision-making framework for liquidity needs and positioning in support of an effective SPOE resolution strategy that could be consistent with effective resolution planning. As discussed elsewhere, the guidance is not a legally binding enforceable requirement and is therefore not a binding constraint, and the specified firms are not required to adopt a U.S. SPOE resolution strategy or develop RLAP capabilities. To the extent a specified firm adopts a U.S. SPOE resolution strategy and uses RLAP, any reduction in flexibility would be balanced against the benefits prepositioning provides in enabling subsidiaries to continue to operate while the firm is being resolved.

Finally, the agencies are not establishing expectations for procedures or protocols for liquidity related decisions and clarifying the types of transfers of liquidity that are permissible for material entities in resolution for firms that adopt a U.S. MPOE strategy. The Rule already includes requirements for firms to include detailed descriptions of funding and liquidity needs and resources of material entities, and to identify interconnections and interdependencies related to liquidity arrangements.
48

Beyond the assumptions specified in the final guidance related to liquidity, additional details of how each firm provisions liquidity in the lead up to and during resolution are not needed at this time. Furthermore, firms should follow procedures and protocols that are aligned with their larger liquidity management frameworks to facilitate their preferred resolution strategies.

48
12 CFR 243.5(c)(1)(iii) and (g) and 381.5(c)(1)(iii) and (g).

F. Governance Mechanisms

The agencies proposed separate governance mechanisms expectations based on a firm's preferred resolution strategy. Specified firms that use an SPOE resolution strategy would have been expected to develop an adequate governance structure with triggers that identify the onset, continuation, and increase of financial stress to ensure that

there is sufficient time to prepare for resolution-related actions. For specified firms that adopt a U.S. MPOE resolution strategy, the agencies proposed providing governance mechanisms expectations to ensure communication and coordination between the governing body of the U.S. operations and the foreign parent.

The agencies requested comment on whether to apply additional governance mechanisms expectations to firms contemplating a U.S. MPOE resolution strategy. One commenter called for the agencies to apply similar expectations regardless of a firm's preferred resolution strategy, arguing that many aspects of resolution planning are the same or similar for U.S. MPOE and U.S. SPOE resolution strategies. The commenter also encouraged the agencies to adopt expectations that firms articulate their internal legal strategy, processes for making key decisions, and roles and responsibilities leading up to and after bankruptcy. Another commenter argued in favor of not providing any governance mechanisms guidance to firms adopting a U.S. MPOE resolution strategy.

Other commenters called on the agencies to limit the expectations for firms adopting a U.S. SPOE resolution strategy. These commenters contended that expectations should not apply to a specified firm that does not rely on foreign support or transfer of prepositioned resources during runway or resolution, and that the expectations as proposed were too prescriptive or burdensome. One commenter requested that the agencies clarify why expectations (for foreign parent support, triggers, and support within the United States) in the 2020 Proposed FBO Guidance but were not finalized were included in the proposed guidance for FBOs that adopt a U.S. SPOE resolution strategy.

The agencies are finalizing this section of the guidance as proposed.
49

For firms that adopt a U.S. MPOE resolution strategy, the governance mechanisms guidance already includes expectations regarding the role of U.S. board and senior management under the U.S. resolution strategy as well as expectations regarding triggers and other internal-decision-making processes relating to the decision to implement the strategy. Adopting expectations for the processes for making key decisions, internal legal strategy, and roles and responsibilities would be duplicative. In addition, under a U.S. MPOE resolution strategy, certain material entities' entry into resolution is typically determined by or dependent on the actions of supervisory and resolution authorities. As a result, additional expectations similar to those included for a U.S. SPOE resolution strategy (additional triggers, playbooks, foreign parent support, and support within the United States) would not meaningfully improve the resolvability of specified firms adopting a U.S. MPOE resolution strategy.

49
As noted above, the agencies made several minor, non-substantive changes from the proposal, including to align the wording of guidance directed at firms that adopt a U.S. SPOE resolution strategy and firms that adopt a U.S. MPOE resolution strategy. The agencies also provided one minor clarifying example of an external stakeholder that could be relevant for purposes of a governance playbook.

Governance mechanisms expectations for firms adopting a U.S. SPOE resolution strategy are reasonable in light of the events of March 2023. The stress experienced by and the failure of several large banking organizations in March 2023 highlighted the potentially fast-moving nature of bank resolution, as several banking organizations entered resolution proceedings rapidly. These events also highlighted the potential for the failure of a large regional banking organization to affect financial stability. Successful execution of a U.S. SPOE resolution strategy—including the timely escalation of information to both U.S. IHC and foreign parent governing bodies in order to mitigate vulnerabilities and take corresponding actions, and the transmission of resources to and within an FBO's U.S. material entity subsidiaries—is unlikely to be successful within a short time frame without advance planning, appropriate governance structures and processes, and assessment of possible impediments, legal or otherwise. Accordingly, in contrast to the 2020 FBO Guidance, this final guidance contains governance mechanisms expectations related to foreign parent support, triggers, and support within the United States for specified firms adopting a U.S. SPOE resolution strategy. Because the Rule requires firms to contemplate resolution under the Bankruptcy Code, resolution-specific triggers facilitating communication and coordination are appropriate to promote resolvability even if a firm monitors and controls capital and liquidity and operations in business-as-usual (BAU) and if the preferred strategy of an FBO is a successful home country resolution. The agencies note that firms' BAU processes and procedures may be relevant to, and could inform, such resolution capabilities.

In addition, while a firm may understand the current legal risks associated with its preferred resolution strategy under the Bankruptcy Code, commercial and bankruptcy law and precedent evolve, and it is important that a firm's plan reflect an up-to-date assessment of possible legal challenges and potential mitigants. The expectation that a resolution plan includes such an analysis of potential challenges does not constrain firms' ability to determine the particular form and structure of the framework developed to support its particular resolution strategy and needs. The agencies also note that the guidance only relates to an analysis of planned support; there are no expectations that a plan should provide for such support.

Regarding the provision of foreign support or transfer of prepositioned resources during runway or resolution, it should be noted that neither the final guidance nor the Rule endorses a specific mechanism for the provision of such support. Instead, a firm that adopts a U.S. SPOE resolution strategy should explain in its resolution plan how it will meet its U.S. resource needs, such as through prepositioning, parent support, and other options.

G. Operational

For firms that adopt a U.S. SPOE resolution strategy, the agencies proposed adopting portions of the operational expectations of the 2020 FBO Guidance, 2020 Proposed FBO Guidance, and SR letter 14-1,
50

with modifications based on the specific characteristics and complexities of the specified firms. The proposal contained expectations on payments, clearing, and settlement activities (PCS); managing, identifying, and valuing collateral; management information systems; shared and outsourced services; and qualified financial contracts (QFC). For firms that adopt a U.S. MPOE resolution strategy, the agencies proposed expectations based on SR letter 14-1 and the 2020 FBO Guidance that are most relevant to a U.S. MPOE resolution strategy. As noted in the proposal, development and maintenance of operational capabilities is important to support and enable execution of a firm's preferred resolution strategy, including providing for the continuation of identified critical operations and preventing or mitigating adverse effects on U.S. financial stability. The failure of several large banking organizations in March 2023 highlighted the importance of firm capabilities to generate timely and accurate data on a material entity basis. For example, having the ability to

produce a list of key management and support employees at the legal entity level is critical both to continue operations pursuant to a U.S. SPOE resolution strategy and to facilitate the work of resolution authorities in a U.S. MPOE resolution strategy. As a result, in a change from the 2020 FBO Guidance, the agencies proposed and are now finalizing management information systems guidance for both U.S. SPOE and U.S. MPOE resolution strategies. The agencies also proposed, in a change from the 2020 FBO Guidance, and are now finalizing guidance on QFCs for the U.S. SPOE resolution strategy, as not all firms subject to the final guidance are subject to the QFC stay rules of the Board, Office of the Comptroller of the Currency, and the FDIC.
51

50
SR letter 14-1, “Principles and Practices for Recovery and Resolution Preparedness” (Jan. 24, 2014), available at:
https://www.federalreserve.gov/supervisionreg/srletters/sr1401.htm.

51

See
12 CFR part 47 (Office of the Comptroller of the Currency); 12 CFR part 252, subpart I (Board); and 12 CFR part 382 (FDIC).

The Agencies received three comments on the proposed guidance. One commenter suggested that the proposed guidance related to management information systems, qualified financial contracts, and shared and outsourced services should help strengthen the specified firms' operational readiness. Another commenter argued that the proposed guidance's expectation that MPOE firms remediate vendor arrangements to support continuity of shared and outsourced services is overbroad. The commenter asserted that this expectation is inappropriate for MPOE firms that mostly receive external services through its IDI because termination of such vendor contracts due to
ipso facto
clauses would be stayed by the FDI Act,
52

and as many firms include resolution-resilient terms in vendor contracts when those contracts undergo periodic review and renewal. The commenter recommended that the Agencies specify that this expectation would apply only to contracts not covered by the FDI Act stay. Another commenter contended that firms with limited PCS activities, such as firms without identified critical operations related to those activities, should not have to develop the same capabilities as firms with more complex PCS activities.

52

See
12 U.S.C. 1821(e)(13)(A).

After review and consideration of these comments, the agencies are finalizing this area of the guidance with one clarification applicable only to firms that adopt a U.S. SPOE strategy, and one modification applicable to firms with either U.S. resolution strategy. The proposed guidance for firms that adopt a U.S. SPOE strategy stated that a firm should maintain a fully actionable implementation plan to ensure the continuity of shared services that support identified critical operations or core business lines. Implied in the concept of supporting identified critical operations or core business lines is the notion that a firm would need to be able to execute its resolution strategy. Accordingly, the final guidance for firms that adopt a U.S. SPOE strategy explicitly states that a firm's implementation plan to ensure continuity of shared services should include those services that are material to the execution of the firm's resolution strategy.

The agencies recognize that firms anticipate relying on external parties for the execution of some aspects of the resolution strategy, and the proposal included and the final guidance maintains the expectation that a firm identify and support the continuity of outsourced services that support critical operations or are material to the execution of the U.S. resolution strategy. Such outsourced services that firms may rely on could be employing outside bankruptcy counsel and consultants to help prepare documents needed to file for bankruptcy, and to represent the firm during the course of the bankruptcy proceedings. The agencies expect that covered companies engage in advance planning to help facilitate their ability to complete all filings, motions, supporting declarations and other documents to prepare for and file an orderly resolution in bankruptcy. In recognition of this expectation, the final guidance clarifies that—regardless of strategy—those professionals' services could be material to the execution of a firm's U.S. resolution strategy and, if so, should be accounted for in the firm's resolution plan. Accordingly, the agencies expect that firms should prepare during business-as-usual to ensure they can complete and file all documents needed to initiate their preferred resolution strategy.

The other aspects of this section of the guidance are being finalized as proposed. The comment addressing contract remediation correctly observes that the FDI Act permits the FDIC as receiver of a failed IDI to enforce contracts with that IDI notwithstanding any provisions in the contract permitting termination due to insolvency or appointment of the receiver. However, it is advantageous for contracts that support identified critical operations or that are material to the execution of the resolution strategy to not purport to permit termination. Counterparties may not be aware of the receiver's authority under the FDI Act to enforce such agreements, potentially requiring the receiver to seek authority from a court to compel the counterparty's performance, which could lead to interruption of identified critical operations and capabilities needed to execute the resolution strategy. Further, counterparties located overseas may not recognize the authority afforded the receiver to compel the performance of contracts. The agencies recognize that contract remediation is an ongoing process and encourage firms to make such changes proactively.

Regarding PCS activities, as discussed elsewhere,
53

the Agencies note that the level of detail provided in a firm's plan should be both consistent and commensurate with the firm's risk and activities.

53

See infra
section III.M of this document.

H. Legal Entity Rationalization and Separability

For foreign banking organizations that adopt a U.S. SPOE resolution strategy, the agencies proposed substantively adopting legal entity rationalization (LER) expectations from the 2020 FBO Guidance and separability expectations from the 2020 FBO Proposed Guidance. The LER expectations stated that firms should maintain a structure that facilitates orderly resolution of their operations, including by developing and describing criteria that consider the best alignment of legal entities and business lines and facilitate resolvability of U.S. operations. The separability expectations provided that firms should identify discrete U.S. operations that could be sold or transferred in resolution under a range of potential failure scenarios. The agencies declined to finalize the separability expectations in the 2020 Proposed FBO Guidance, stating that the agencies had found that the separability options within the United States were few, their inclusion in resolution plans had yielded limited new insights, and the agencies expected that such information would be obtainable through international collaboration with home country regulators.

For FBOs that adopt a U.S. MPOE resolution strategy, the agencies proposed adopting LER expectations that were reduced relative to the 2020 FBO Guidance and separability expectations that were similarly reduced relative to the 2020 FBO Proposed Guidance. The LER expectations clarified that these firms should have legal entity structures that support their U.S. resolution strategy and describe these structures in their

plans, as well as discuss their rationale for the legal entity structure in cases where a material entity IDI relies on other affiliates during resolution. The separability expectations requested that firms include options for the sale, transfer, or disposal of significant assets, portfolios, legal entities, or business lines in resolution.

The agencies received two comments on the separability guidance for foreign banking organizations. One commenter contended that separability analysis is inappropriate for businesses and legal entities that would be wound down in resolution, as it may not be feasible to sell or otherwise transfer such businesses, and that separability analysis would not enhance resolvability. The commenter further noted that many elements of the separability analysis may not be appropriate for firms that are not active in the investment banking space or lack large mergers and acquisitions teams. Another commenter called on the agencies not to reimpose separability expectations that had been proposed in 2020 but removed from the final 2020 FBO Guidance, instead suggesting that the agencies obtain separability insights through collaboration with home country regulators.

After review and consideration of the comments, the agencies are finalizing this guidance as proposed. The application of LER and separability expectations to FBOs, whether they adopt an SPOE or MPOE strategy, remains appropriate because these firms have significant non-bank or cross-national activities, as well as interconnections among U.S. IHC subsidiaries, U.S. branches, and the foreign parent. The 2023 bank failures highlighted the benefit of understanding the separability options of U.S. operations of FBOs, particularly for the purpose of informing discussions with foreign regulatory authorities regarding the potential restructuring of an FBO's U.S. operations in resolution. While the agencies continue to discuss firm separability and other topics with home country regulators, identification of separability options for U.S. operations and inclusion of supporting analysis in resolution plans provides important information to complement and enhance ongoing international coordination.

Finally, the agencies moved expectations on LER governance processes from the separability section to the LER section of the guidance text.

I. Insured Depository Institution Resolution

Background

In the proposal, the agencies provided clarifying expectations as to how a firm adopting a U.S. MPOE resolution strategy with a material entity IDI should explain how the IDI can be resolved under the FDI Act in a manner that is consistent with the overall objectives of the resolution plan. In particular, the proposed expectations for IDI resolution were designed to support the resolution plans' effectiveness in substantially mitigating the risk that the failure of the specified firm would have serious adverse effects on financial stability in the United States, while also adhering to the legal requirements of the FDI Act without relying on the assumption that the systemic risk exception will be invoked in connection with the resolution of the firm. For example, the agencies proposed clarifying that if a firm adopting a U.S. MPOE resolution strategy selects an IDI resolution strategy other than a payout liquidation, the firm's plan should provide information supporting the feasibility of the firm's selected strategy, although such a feasibility analysis need not consist of a full FDI Act least-cost requirement analysis. The agencies proposed that a firm could instead provide a more limited analysis. The proposal noted that the same expectations would not be applicable to firms adopting an SPOE resolution strategy because the U.S. IDI subsidiaries of such firms would not be expected to enter resolution.

The agencies received a number of comments on the proposed guidance related to the resolution of a subsidiary material entity U.S. IDI. Some commenters requested additional clarity on how the firm's plan should address the expectation that the plan include an analysis of how the resolution strategy could potentially meet the FDIC's statutory least-cost requirement. One commenter suggested that the agencies should require firms to develop resolution strategies involving BDIs. This commenter recommended that the guidance address how firms could describe and quantify the value of the firm's assets transferred to such a BDI, and that the agencies should provide guidance so that firms would address how the resolution plan would incorporate the value of the IDI's assets and liabilities, including its franchise value, and how the preferred resolution strategy would result in a least-costly resolution. The commenter also recommended that firms and regulators reach agreement on certain assumptions regarding valuations.

Another commenter argued that firms adopting a U.S. MPOE strategy should not be expected to demonstrate that their preferred strategy would be consistent with the FDIC's statutory least-cost requirement. This commenter stated that efforts to conduct a hypothetical least-cost requirement analysis, or a proxy for that analysis, would be of no or minimal value to the FDIC in an actual resolution event. The commenter claimed that it would not be possible to conduct a least-cost test requirement analysis in a resolution plan submission in the absence of actual bids from actual buyers. Instead, the commenter recommended that the guidance provide expectations for how firms selecting a U.S. MPOE strategy could demonstrate their valuation capabilities. The commenter also suggested that because a least-cost requirement analysis is not a component of the Proposed IDI Rule, it also should not be a component of the guidance. This commenter requested sufficient time to address any finalized guidance that provides expectations for including least-cost requirement analysis.

Several commenters suggested that the Proposed IDI Rule is a better forum to address how the IDI subsidiary of a specified firm selecting a U.S. MPOE strategy can be resolved under the FDI Act in a manner that is consistent with the FDI Act. Several commenters also suggested that the agencies' expectations for resolution plan submissions under the Rule should align with the requirements of the FDIC's IDI Rule plan submissions.

One commenter questioned whether firms have sufficient information about how the FDIC would conduct a least-cost test analysis in order for a firm to conduct an analysis of whether its preferred strategy could meet the FDIC's statutory least-cost requirement. This commenter stated that meeting the expectations in the proposal would involve significantly more detail and comparative analysis than the IDI Rule, and that, in order to prevent inconsistency and undue burden, the guidance should instead follow the IDI Rule so that firms can reference their IDI Rule submissions when preparing and submitting resolution plans under the guidance to reduce duplication and increase consistency.

When an IDI fails and the FDIC is appointed receiver, the FDIC generally must use the resolution option for the failed IDI that is least costly to the DIF of all possible methods (the least-cost

requirement).
54

A resolution plan that contemplates the separate resolution of a U.S. IDI that is a material entity and the appointment of the FDIC as receiver for that IDI should explain how the resolution could be achieved in a manner that adheres to applicable law, including the FDI Act, and that would achieve the overall objectives of the resolution plan. Prior resolution plans that have addressed the resolution of the IDIs in MPOE strategies have sometimes included resolution mechanics that are not consistent with the FDI Act, including inappropriate assumptions that uninsured deposits could automatically be transferred to a BDI.

54

See
12 U.S.C. 1823(c)(4)(A). A deposit payout and liquidation of the failed IDI's assets (payout liquidation) is the general baseline the FDIC uses in a least-cost requirement determination.
See
12 U.S.C. 1823(c)(4)(D). An exception to this requirement exists when a determination is made by the Secretary of the Treasury, in consultation with the President and after a written recommendation from two-thirds of the FDIC's Board of Directors and two-thirds of the Board, that complying with the least-cost requirement would have serious adverse effects on economic conditions or financial stability and implementing another resolution option would avoid or mitigate such adverse effects.
See
12 U.S.C. 1823(c)(4)(G). A specified firm should not assume the use of this systemic risk exception to the least-cost requirement in its resolution plan.

Separate and distinct from the Rule, the FDIC has a regulation, the IDI Rule, requiring certain IDIs (covered IDIs or CIDIs) to submit to the FDIC resolution plans providing information about how the CIDI can be resolved under the FDI Act. Contemporaneous with publication of the proposed guidance, the FDIC published in the
Federal Register
the Proposed IDI Rule, a proposed rulemaking to amend and restate the IDI Rule, which has since been finalized and was published in the
Federal Register
on July 9, 2024.

The IDI Rule and the Rule each have different goals, and, accordingly, the expected content of the respective resolution plans is different. The purpose of the IDI Rule is to ensure that the FDIC has access to the information it needs to resolve a CIDI efficiently in the event of its failure, including an understanding of the CIDI's ability to produce the information the FDIC would need to conduct a least-cost determination under a wide range of circumstances.

The Rule serves a different purpose. The Rule requires a covered company to submit a resolution plan that would allow rapid and orderly resolution of the subsidiaries and operations of a foreign covered company that are domiciled in the United States under the Bankruptcy Code in the event of material financial distress or failure. The regional bank failures in March 2023 demonstrated that banking organizations of size and complexity similar to that of the specified firms—or even smaller and less complex banking organizations—can be disruptive to U.S. financial stability. In the case of Silicon Valley Bank and Signature Bank, uninsured depositors would have faced the potential for significant losses had the least costly approach to resolution, a payout liquidation, been adopted. The potential for contagion from the deposit runs at the firms that failed, as well as related potential for risks to the economy and financial stability, led the Secretary of the Treasury, in consultation with the President and after a written recommendation from the FDIC's Board of Directors and the Board, to invoke the systemic risk exception to enable the FDIC to resolve these institutions in a way that would avoid or mitigate serious adverse effects on economic conditions or financial stability. Though a specified firm would be conducting its analysis without input in the form of actual bids from potential buyers, the agencies expect firms to use available information to estimate the value of its franchise for purposes of conducting the limited least-cost analysis articulated in the guidance.

If a firm's resolution plan under the Rule that includes a U.S. MPOE strategy calls for resolving an IDI using a strategy other than payout liquidation, the plan should explain how the requirements of the FDI Act could be met without depending upon extraordinary government support. Even though this analysis is not binding in an actual resolution scenario, an analysis showing that the firm's preferred resolution strategy could satisfy requirements of the FDI Act could help the firm demonstrate that the resolution plan's preferred strategy could be executed in a manner consistent with applicable law. If a resolution plan does not provide such an explanation, it may be appropriate to conclude that the strategy would not satisfy the FDI Act's relevant provisions, such as the least-cost requirement, which could represent a weakness in the plan. As a general matter, the agencies followed this practice in reviewing previous full resolution plan submissions.

Guidance.
In response to commenters, the agencies are providing additional detail to help address commenters' questions related to the FDI Act's least-cost requirement and how it relates to the expectations in this final guidance. The final guidance does not express a change in the agencies' expectations. Instead, the final guidance provides more detail on approaches a firm can use to explain how the resolution of its IDI subsidiary can be achieved in a manner that substantially mitigates the risk that the firm's failure would have serious adverse effects on U.S. financial stability while also complying with the statutory and regulatory requirements governing IDI resolution. The final guidance lists a number of different common strategies for resolving an IDI and describes the kind of information that a firm could provide to explain how a resolution using one of the example strategies could be consistent with the least-cost requirement. The final guidance also provides information about calculating the value of an IDI's assets and its franchise value. Finally, the final guidance explicitly notes that the agencies are not expecting a firm to provide a complete least-cost analysis.

Strategies for Resolving an IDI

Purchase and Assumption Transaction.
The FDIC typically seeks to resolve a failed IDI by identifying, before the IDI's failure, one or more potential acquirers so that as many of the IDI's assets and deposit liabilities as possible can be sold to and assumed by the acquirer(s) instead of remaining in the receivership created on the failure date.
55

This transaction form, termed a purchase and assumption or P&A transaction, has often been the resolution approach that is least costly to the DIF, and is usually considered the easiest for the FDIC to execute and the least disruptive to the depositors of the failed IDI—particularly in the case of transactions involving the assumption of all the failed IDI's deposits by the assuming institution (an all-deposit transaction).

55
See generally
https://www.fdic.gov/resources/resolutions/bank-failures/
for background about the resolution of IDIs by the FDIC.

The limited size and operational complexity present in most small-bank failures have been significant factors in allowing the FDIC to execute P&A transactions with a single acquirer on numerous occasions. Resolving an IDI via a P&A transaction over the closing weekend, however, has not always been available to the FDIC, particularly in failures involving large IDIs. P&A transactions require lead time to identify potential buyers and allow due diligence on, and an auction of, the failing IDI's assets and banking business, also termed its franchise. The acquiring banks must also have sufficient excess capital to absorb the failed IDI's assets and deposit franchise, sufficient expertise to manage business integration, and the ability to comply

with several legal requirements. Larger failed banks can pose significant, and potentially systemic, challenges in resolutions that make a P&A transaction less viable. These challenges include: a more limited pool of potential acquirers as a failed IDI increases in size; operational complexities that require lengthy advance planning on the part of the IDI and the FDIC; the development of certain expertise; potential market concentration and antitrust considerations; and potentially the need to maintain the continuity of activities conducted in whole or in part in the IDI that are critical to U.S. financial stability.

Alternative Resolution Strategies.
If no P&A transaction that meets the least-cost requirement can be accomplished at the time an IDI fails, the FDIC must pursue an alternative resolution strategy. The primary alternative resolution strategies for a failed IDI are (1) a payout liquidation, or (2) utilization of a BDI.

Payout Liquidation.
The FDIC conducts payout liquidations by paying insured deposits in cash or transferring the insured deposits to an existing institution or a new institution organized by the FDIC to assume the insured deposits (generally, a Deposit Insurance National Bank or DINB). In payout liquidations, the FDIC as receiver retains substantially all of the failed IDI's assets for later sale, and the franchise value of the failed IDI is lost. A payout liquidation is often the most costly and disruptive resolution strategy because of this destruction of franchise value and the FDIC's direct payment of insured deposits.

Bridge Depository Institution.
If the FDIC determines that temporarily continuing the operations of the failed IDI is less costly than a payout liquidation, the FDIC may organize a BDI to purchase certain assets and assume certain liabilities of the failed IDI.
56

Generally, a BDI would continue the failed bank's operations according to business plans and budgets approved by the FDIC and carried out by FDIC-selected BDI leadership. In addition to providing depositors continued access to deposits and banking services, the BDI would conduct any necessary restructuring required to rationalize the failed IDI's operations and maximize value to be achieved in an eventual sale. Subject to the least-cost requirement, the initial structure of the BDI may be based upon an all-deposit transaction, a transaction in which the BDI assumes only the insured deposits, or a transaction in which the BDI assumes all insured deposits and a portion of the uninsured deposits. Once a BDI is established, the FDIC seeks to stabilize the institution while simultaneously planning for the eventual exit and termination of the BDI. In exiting and terminating a BDI, the FDIC may merge or consolidate the BDI with another depository institution, issue and sell a majority of the capital stock in the BDI, or effect the assumption of the deposits or acquisition of the assets of the BDI.
57

While utilizing a BDI can avoid the negative effects of a payout liquidation, such as destruction of franchise value, many of the same factors that challenge the feasibility of a traditional P&A transaction also complicate planning for the termination of a BDI through a sale of the whole entity or its constituent parts.

56
Before a BDI may be chartered, the chartering conditions set forth in 12 U.S.C. 1821(n)(2) must also be satisfied. For purposes of this guidance, if the Plan provides appropriate analysis concerning the feasibility of the BDI strategy, there is no expectation that the resolution plan also demonstrates separately that the conditions for chartering the BDI have been satisfied.

57
12 U.S.C. 1821(n)(10).

Though one commenter suggested that the guidance should require firms to develop resolution strategies involving BDIs, the agencies do not maintain an expectation that firms will develop resolution strategies involving BDIs. The expectations provided in this guidance are also intended to be helpful to firms that have chosen to involve a BDI in their resolution strategy.

Least-Cost Analysis for Resolution Plans.
The final guidance does not include an expectation that firms provide in their resolution plans a complete least-cost analysis. Such an analysis would, for example, include a comparison of the preferred strategy for resolving an IDI that is a material entity against every other possible resolution method. While a firm may choose to provide a complete least-cost analysis, this guidance discusses expectations regarding a limited least-cost analysis that would explain how the firm's preferred U.S. strategy is not more costly than a payout liquidation and, if applicable, an insured-only BDI.

One commenter suggested that the agencies should provide guidance for how firms should address the valuation of an IDI's assets and liabilities, including its franchise value. In this final guidance, the agencies are providing additional explanation for how firms can develop and support the valuation of the IDI's assets and liabilities in an IDI resolution. This guidance includes a description of how firms can assess the franchise value of a firm's business.

Example.
The following example should be read in conjunction with section VIII of the guidance text,
Insured Depository Institution Resolution.
This example is only intended to provide firms with an illustration of the types of considerations and calculations that could be included in a firm's analysis explaining how its preferred strategy would be less costly than a payout liquidation and, if applicable, an insured-only BDI. This example is not intended to serve as a template for firms or to provide guidelines for reasonable valuations of a firm's assets or liabilities. The valuations described in this example are intended to be illustrative and are not guidance about the likely values of a firm's assets and liabilities in an individual resolution plan or in resolution.

Bank A has $500 billion in total assets, consisting of $250 billion loans; $75 billion cash and equivalents; $125 billion in investment securities; and other assets totaling $50 billion. The bank's initial funding structure consists of $400 billion in deposits; $25 billion in various unsecured payables and debt; $25 billion in secured funding; and $50 billion in capital instruments. For this example, the bank assumes it would encounter idiosyncratic events at a time when severely adverse economic conditions are present and this combination of events would cause the bank to be closed by the chartering authority and the FDIC appointed as receiver. The illustrative tables below reflect values as of the appointment of the FDIC as receiver.

The initial events combine to cause immediate losses of $25 billion recognized as direct operating charges and $15 billion through write-downs/provision expense for the loan portfolio, and $60 billion of deposit runoff occurs.

• For purposes of conducting the analysis, the firm's management assumes that additional value diminution is present in the loan portfolio. Accordingly, after thoroughly analyzing the quality of its loan portfolio and determining the potential for additional credit losses, as well as considering the market value of the loan portfolio based upon the type of loans it holds in comparison with comparable sales transactions, and after further considering sensitivity testing, management supports an estimate near $175 billion for the loan portfolio.

• In developing its Resolution Plan, the firm's management further supports that $40 billion of additional deposit runoff would occur in addition to the initial $60 billion. At the time of failure, Bank A's remaining $300 billion of deposits are 60 percent insured and 40

percent uninsured. The ratio of insured deposits to uninsured deposits is used to calculate the pro rata recovery of depositors and the losses imposed on the DIF as a result.
58

58

See infra
note 60.

• The deposit runoff is assumed to be met by using $50 billion of cash and selling $50 billion of investment securities. The remaining $75 billion investment portfolio is entirely invested in short-term U.S. Treasury securities with an estimated value of $70 billion.

• The other assets are implicated in the initial idiosyncratic loss. These other assets include fixed assets, foreclosed property, intellectual property, and miscellaneous items with a market value of $25 billion.

• As shown in table 1, the Plan provides an analysis of the payout liquidation strategy. This strategy includes an expected loss to the DIF of $18 billion.

59
Calculation: (1) $295 billion asset value less secured claim of $25 billion = $270 billion available to depositors and junior claims; (2) $270 billion available spread pro-rata across $300 billion depositor class; 60 percent insured deposits and 40 percent uninsured deposits; (3) $270 billion × .6 = $162 billion paid to insured depositors; $270 billion × .4 = $108 billion paid to uninsured depositors.

Table 1—Illustration of Bank A Payout Liquidation—Cost Estimate

[
dollars in billions
]

Liquidation market value
Category
Value
Payout liquidation liability claim and amount recovered
Category
Claim
Recovery/(loss)

Loans
$175
Secured Claims
$25
$25/($0)

Securities
70
Deposits Insured
180
$162/($18)

Cash
Other

25
25

FDIC incurs the loss for the insured deposits so that all insured deposits are fully repaid.

Total
295
Deposits Uninsured
120
$108/($12)

Unsecured Claims/Debt
25
$0/($25)

Equity Holders

No recovery

Loss to Deposit Insurance Fund (to make whole insured depositors) = $18 billion
59

Losses to uninsured depositors = $12 billion.

• However, the Plan also asserts and supports that the payout liquidation approach fails to reflect the franchise value of the combined deposit and loan relationships stemming from considerations such as the low administrative costs associated with servicing large deposits, the elimination of significant customer acquisition costs, the stable fee income stream associated with the accounts due to barriers to entry for certain products, and the importance and value of integrating the loan and deposit products.

• The Plan calculates, and provides the analysis supporting the calculation, that the economic benefit of packaging these benefits together in an all-deposit BDI is $20 billion, which is reflected as a bid premium to liquidation pricing in table 2.

• The result is that the all-deposit BDI is less costly to the DIF than liquidation because of the inclusion of the bid premium.

Table 2—Illustration of Bank A Preferred Strategy—Cost Estimate

[
dollars in billions
]

All deposit bridge market value
Category
Value
All deposit bridge bank liability claim and amount recovered
Category
Claim
Recovery/(loss)

Loans
$175
Secured Claims
$25
$25/($0)

Securities
70
Deposits Insured
180
$174/($6)

Cash
Other

25
25

FDIC incurs the loss for the insured deposits so that all insured deposits are fully repaid.

Sub Total
295
Deposits Uninsured
120
$116/($4)*

Bid Premium
20
Unsecured Claims/Debt
25
$0/($25)

Total
315
Equity Holders

No recovery

Loss to Deposit Insurance Fund (to make whole insured and uninsured depositors) = $10 billion, which is less than the payout liquidation loss.
60

* Losses to uninsured depositors total $4 billion and are absorbed by the DIF.

J. Derivatives and Trading Activities

60
Calculation: (1) $315 billion asset value less secured claim of $25 billion = $290 billion available to depositors and junior claims; (2) $290 billion available spread pro-rata across $300 billion depositor class; 60 percent insured deposits and 40 percent uninsured deposits; (3) $290 billion × .6 = $174 billion paid to insured depositors; $290 billion × .4 = $116 billion paid to uninsured depositors.

The agencies requested comment on whether to provide derivatives and trading activities guidance for specified firms that adopt a U.S. SPOE or MPOE resolution strategy. Some commenters argued that no derivatives and trading guidance is needed for foreign triennial full filers because they have limited derivatives and trading portfolios, particularly relative to the U.S. GSIB banking organizations covered by such guidance. These commenters also noted that not all of the biennial filers, which are Category I firms, are subject to this type of guidance. These commenters also argued that if the agencies adopt

guidance on this topic, the agencies should be careful to avoid extraterritorial application of the guidance and should use the derivatives and trading expectations in the 2020 FBO Guidance for certain FBOs as a model, rather than the expectations in the 2020 Proposed FBO Guidance.

Other commenters supported providing such guidance to foreign triennial full filers, despite observing that these firms engage in less activity than the biennial filers. One commenter cautioned that derivatives activities for foreign triennial full filers may increase in the future and proposed the inclusion of an orderly-wind-down analysis for firms with net derivatives exceeding a given threshold. Another commenter recommended that the guidance include expectations for: roles and responsibilities in derivatives unwind, plan reporting regarding derivatives exposures, plan risk assessments in cross-border activity, barriers to swift unwind of derivatives activities booked outside the United States, and capabilities to generate detailed derivative reports. This commenter also argued that firms should specify plans to wind-down between affiliates and external counterparties, as well as describe potential sale of some trading positions.

After reviewing the comments and considering the scope of derivatives and trading activities of foreign triennial full filers,
61

the agencies determined that the banking organizations that would be specified firms have limited derivatives and trading operations compared to the subset of Category I firms that are the subject of derivatives and trading guidance. The agencies also note that the Rule includes certain requirements regarding derivatives and trading activities with which all covered companies—including foreign triennial full filers—must comply, as well as the overall requirement to provide a strategic analysis describing the covered company's plan for orderly resolution.
62

The agencies believe that for this set of covered companies (including the two firms that are in scope of the 2020 FBO guidance), given their current activities, the topic of derivatives and trading activities is sufficiently addressed by the Rule. The agencies are therefore finalizing the guidance without including expectations on derivatives and trading activity for the specified firms.

61

See
FR Y-15 Systemic Risk Report, 2nd quarter 2023 data. Publicly available at the National Information Center,
https://www.ffiec.gov/NPW. See also
Quarterly Report on Bank Trading and Derivatives Activities—Third Quarter 2023. Publicly available at
https://www.occ.gov/publications-and-resources/publications/quarterly-report-on-bank-trading-and-derivatives-activities/index-quarterly-report-on-bank-trading-and-derivatives-activities.html.

See
12 CFR 243.2 and 381.2; 12 CFR 243.5(c) and (e)(6)-(7), and 381.5(c) and (e)(6)-(7).

62

Id.

The agencies also recognize that derivatives activity or risk for foreign triennial full filers may change in the future. The agencies may consider the need for firm-specific derivatives and trading expectations in the future for specified firms that substantially increase their derivatives and trading activities or change in a way such that having a strategy to wind-down their derivatives portfolios is critical to their resolvability.

K. Branches

The agencies received no comments regarding the branches section of the proposed guidance. The agencies are finalizing the section as proposed.

L. Format and Structure of Plans; Assumptions

This section of the proposal described the agencies' preferred presentation regarding the format, assumptions, and structure of resolution plans. Under the proposal, plans would have been expected to contain an executive summary, a narrative of the firm's resolution strategy, relevant technical appendices, and a public section as detailed in the Rule. The proposed format, structure, and assumptions were generally similar to those in the 2020 FBO Guidance, except that the proposed guidance reflected the expectations that (a) a firm should support any assumptions that it will have access to the Discount Window and/or other borrowings during the period immediately prior to entering bankruptcy and clarified expectations around such assumptions, and (b) a firm should not assume the use of the systemic risk exception to the least-cost test in the event of a failure of an IDI requiring resolution under the FDI Act. In addition, for firms that adopt a U.S. MPOE resolution strategy, the proposal included the expectation that a plan should demonstrate and describe how the failure event(s) results in material financial distress of the firm's U.S. operations, including consideration of the likelihood of the diminution the firm's liquidity and capital levels prior to bankruptcy.

The final guidance also includes an expectation contained in the 2019 U.S. GSIB Guidance and 2020 FBO Guidance regarding the parameters of economic forecasting in resolution plan submission. Those guidance documents stated that a resolution plan should assume the Dodd-Frank Act Stress Test (DFAST) severely adverse scenario for the first quarter of the calendar year in which a resolution is submitted is the domestic and international economic environment at the time of the firm's failure and throughout the resolution process.
63

While this assumption is similar to a provision in the Rule,
64

the agencies believe it is important to provide guidance to firms about the timing of the required assumption in the Rule. The Board provides DFAST scenario information to the specified firms through the Board's public website. As such, the information is available to specified firms who themselves or their IHC subsidiaries are not subject to stress testing requirements.
65

63
2019 U.S. GSIB Guidance at 84 FR 1459; 2020 FBO Guidance at 85 FR 83578.

64
12 CFR 243.4(h)(1) and 381.4(h)(1).

65

https://www.federalreserve.gov/publications/dodd-frank-act-stress-test-publications.htm.

The agencies received one comment in response to a question posed regarding assumptions related to lending facilities, including the Discount Window. The commenter supported the proposed assumptions guidance regarding these facilities and recommended that the agencies consider providing additional guidance on the assumptions related to the amount, timing, and limitations of liquidity that might become available from these sources. However, the additional guidance requested by the commenter is unnecessary, and the agencies are finalizing this section of the guidance as proposed with one clarification. Specifically, the proposed guidance regarding the relevant assumption already includes references to timing and limitations of liquidity commensurate with the activities of firms subject to the guidance.

As a clarification, the agencies have added a reference to Federal Home Loan Banks (FHLBs) as a type of borrowing for which firms should provide support in their resolution plans if they assume access during the period immediately prior to entering bankruptcy. The agencies' experiences in 2023 showed that many IDIs depend heavily on FHLB funding in times of stress and, accordingly, the agencies expect firms to be prepared to support any assumptions around such reliance for resolution planning purposes.

The agencies also received a comment recommending that more of firms' resolution plans be disclosed publicly to promote market discipline and specifically asking that the public portion of resolution plans describe

potential acquirers of operations in the event of resolution. The Rule establishes at a high-level the required content of the public section of a resolution plan,
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and this final guidance clarifies the agencies' expectations with respect to that section. The agencies are mindful that the public disclosure of resolution plans, which may contain private commercial information, has both benefits and drawbacks, and the agencies believe that, at the moment, the Rule—revisions to which are outside the scope of this guidance—and the final guidance appropriately balance transparency with confidentiality.

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12 CFR 243.11(c) and 381.11(c).

In addition, the agencies received two comments requesting clarification of the definition of “material entity” as applied to certain non-U.S. entities, such as foreign offices, in order to improve the alignment of U.S. resolution planning with home country strategies. In particular, the commenter contended that an aspect of the proposed guidance, which concerned assumptions regarding material entities, was inconsistent with the Rule. This was not the agencies' intent, and the final guidance modifies the assumption's description of “material entity” for consistency with the Rule by adopting the language for that provision in the final 2020 FBO Guidance.

The agencies are otherwise finalizing this section of the guidance as proposed.
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The agencies did not receive any comments in response to the proposal's request for comments about answers to frequently asked questions, and the agencies have not included those prior answers to frequently asked questions because these prior answers were in response to questions posed by only a portion of the firms to which this guidance is applicable and regarding guidance with certain different expectations.

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The agencies also are clarifying one expectation in the Financial Statements and Projections subsection of the Format and Structure of Plans; Assumptions section of the guidance that could be construed to impose a requirement on the specified firms.

M. Additional Comments

Differentiating Resolution Plan Guidance

The agencies received several general comments about whether the expectations in the proposal were suitably modified from expectations included in past resolution plan guidance and whether the proposal appropriately distinguished between different types of triennial full filers. Several commenters contended that the proposed guidance did not sufficiently differentiate expectations among firms subject to resolution planning guidance. Some of these commenters specifically claimed because the specified firms have limited operations compared to the U.S. GSIBs and have reduced the size and complexity of their U.S. operations, they should not be subject to similar resolution planning guidance as the U.S. GSIBs. One commenter argued that section 165 of the Dodd-Frank Act requires the agencies to dif

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2024-18186. Public record. Not legal advice.