SPST 0185 - Resolution Plans Required for IDIs Over $100 Billion - NPR (OMB Submission) - 11-17-2023

SPST 0185 - Resolution Plans Required for IDIs Over $100 Billion - NPR (OMB Submission) - 11-17-2023.pdf

Resolution Plans Required for Insured Depository Institutions With $50 Billion or More in Total Assets

OMB: 3064-0185

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SUPPORTING STATEMENT
RESOLUTION PLANS AND PERIODIC ENGAGEMENT AND
CAPABILITIES TESTING REQUIRED
(OMB CONTROL NO. 3064-0185)
INTRODUCTION
This submission is being made in connection with a notice of proposed rulemaking (NPR)
published in the Federal Register by the Federal Deposit Insurance Corporation (FDIC). The
current information collection titled, “Resolution Plans and Periodic Engagement and
Capabilities Testing Required Market Risk Capital Requirements” (OMB No. 3064-0185), which
is in accordance with 12 C.F.R. Part 360.10 (the Rule), expires on February 28, 2025.
A. JUSTIFICATION
1. Circumstances and Need
The FDIC’s roles as insurer and receiver require a distinct focus on potential loss
severities, default risks, complexities in structure and operations, and other factors
that impact risk to the Deposit Insurance Fund and the ability of the FDIC to conduct
an orderly resolution. The Federal Deposit Insurance Act (FDI Act) gives the FDIC
broad authority to carry out its statutory responsibilities, and to obtain the information
required by the Rule. The authority to issue the Rule is provided by Section 9(a)
Tenth of the FDI Act, 12 U.S.C. 1819(a) Tenth, which authorizes the FDIC to
prescribe, by its Board of Directors, such rules and regulations as it may deem
necessary to carry out the provisions of the FDI Act or of any other law that the FDIC
is responsible for administering or enforcing.
Since the 2008-2009 financial crisis, financial authorities throughout the world have
recognized and agreed that advance planning for the resolution of large, complex
financial institutions is critical to minimizing the disruption that a failure of such an
institution may have as well as the costs of its resolution.
The NPR would revise the current rule that requires the submission of resolution
plans by insured depository institutions (IDIs) with $50 billion or more in total assets.
In particular, the NPR would modify the current rule by revising the requirements
regarding the content and timing of resolution submissions as well as interim
supplements to those submissions provided to the FDIC by IDIs with $50 billion or
more in total assets in order to support the FDIC’s resolution readiness in the event of
material distress and failure of these large IDIs. IDIs with $100 billion or more in
total assets would submit full resolution plans, while IDIs with total assets between
$50 and $100 billion would submit informational filings. The NPR would also
enhance how the credibility of resolution submissions will be assessed, expand
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expectations regarding engagement and capabilities testing, and explain expectations
regarding the FDIC’s review and enforcement of IDIs’ compliance with the rule.
2. Use of Information Collected
The Rule requires IDIs with $50 billion or more in total assets (covered IDIs or
CIDIs) to submit resolution plans periodically. This resolution plan requirement was
established to facilitate the FDIC’s readiness to resolve a CIDI under the FDI Act in
the event of its insolvency.
The NPR builds on the FDIC’s more than a decade-long experience implementing the
Rule, providing guidance and feedback to CIDIs, and leveraging the content of
submissions for the development of resolution strategies by the FDIC. Through this
process, the FDIC has gained a better understanding of the challenges of resolving
CIDIs and the importance of resolution plans and other related submissions to facilitate
the FDIC’s readiness in the event of a failure of one of these CIDIs. Part of the
challenge arises from the wide range of business models and structures among CIDIs.
While some of these CIDIs are engaged largely in traditional banking activities, with
nearly all assets and activities conducted within the CIDI or its subsidiaries (the bank
chain), others conduct significant non-banking activities. Many of the CIDIs have a
broker-dealer subsidiary or affiliate that provides services to bank customers. The
CIDIs subject to the Rule also include banks primarily engaged in a particular business
segment, such as credit card services, as well as U.S. IDIs that are part of large foreign
banking organizations. There is no one-size-fits-all resolution approach for these
institutions; rather, the FDIC must be prepared to execute a range of resolution options,
recognizing the trade-offs among those options. The FDIC’s development of resolution
strategies—and its assessment of the options and trade-offs that inform them—benefit
from the CIDI’s knowledge of its own firm, an understanding of the CIDI’s relevant
capabilities, and an awareness of the impediments to executing an orderly resolution of
the CIDI. Across the different CIDI business models and structures, there are a variety
of factors that increase the challenges and complexity of resolution in the event of the
failure of these large banks. These factors include deposit profile as well as size and
organizational complexity.
The NPR addresses two distinct groups of CIDIs based on size, with differing
corresponding obligations for each group under the NPR. The first group comprises
those IDIs with $100 billion or more in total assets (group A CIDIs). The NPR would
require group A CIDIs to submit full resolution plans containing an identified strategy
appropriate to the CIDI for its orderly and efficient resolution, as well as providing all
other content elements described in the NPR.
The second group comprises those IDIs with at least $50 billion but less than $100
billion in total assets (group B CIDIs). The NPR would require resolution submissions
from group B CIDIs in the form of an informational filing. The informational filing
would not require development of an identified strategy for resolution nor the
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demonstration of capabilities necessary to produce valuations needed in assessing the
least-cost test. All CIDIs would be required to participate in engagement and
capabilities testing regarding matters related to their resolution submissions.
Based upon these considerations, and the FDIC’s experience in planning for and
executing bank resolutions since the adoption of the Rule, the FDIC is proposing
changes intended to make the resolution submissions more useful and appropriately
focused on the resolution challenges presented by both group A CIDIs and group B
CIDIs.
3. Use of Technology to Reduce Burden
Respondents may use any information technology that permits review by FDIC staff.
4. Efforts to Identify Duplication
The collection required is unique and is structured to avoid duplication of other
collections.
5. Minimizing Burden on Small Entities
Not applicable.
6. Consequences to Less Frequent Collections
The failure of a large, complex CIDI is likely to present operational challenges in
resolution, particularly if operations must be initiated in a bridge depository
institution. Through the FDIC’s experience in failed bank resolutions, particular in
the 2008-2009 financial crisis, and now with the recent failures of three large banks in
the spring of 2023; Silicon Valley Bank (SVB), Signature Bank and First Republic
Bank underscore the importance of robust resolution planning in advance of failure,
particularly for these large and complex CIDIs. The speed of bank runs has been
accelerated by advances in banking technology that allow deposits to move
electronically, with no need to stand in line or wait for physical checks or bills.
Advances in communications technology allow a message to reach hundreds of
millions of screens instantaneously. In the case of SVB, the speed of the run was the
fastest and largest withdrawal of deposits in a single day in the nation’s history. From
a resolution planning perspective, this new reality underscores the need for effective
resolution planning long before a bank’s failure is on the horizon.
7. Special Circumstances
None.
8. Consultation with Persons Outside the FDIC
The FDIC published the NPR in the Federal Register (88 FR 64579, September 19,
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2023). The comment period on the NPR in connection with the PRA closes on
November 30, 2023.
9. Payment or Gifts to Respondents
None.
10. Confidentiality
Information will be kept confidential to the extent allowed by law. Any information
deemed to be of a confidential nature would be exempt from public disclosure in
accordance with the provisions of the Freedom of Information Act (5 U.S.C. 552).
11. Information of a Sensitive Nature
There are no questions of a sensitive nature.
12. Estimates of Hour Burden and Annualized Cost
Estimated Annual Burden (OMB No. 3064-0185)
Information Collection
(Obligation to Respond)

Type of Burden
(Frequency of
Response)

Number of
Respondents

Number of
Responses per
Respondent

Time per
Response
(HH:MM)

Annual
Burden
(Hours)

1. Resolution Plan update by
previous filer (group A),
NPR (Mandatory)