FDIC Issues Final Living Wills Rule for Large Banks | Practical Law

FDIC Issues Final Living Wills Rule for Large Banks | Practical Law

The FDIC issued a final rule requiring large banks to create and maintain resolution plans in the event of their failure.

FDIC Issues Final Living Wills Rule for Large Banks

Practical Law Legal Update 0-517-3043 (Approx. 3 pages)

FDIC Issues Final Living Wills Rule for Large Banks

by PLC Finance
Published on 19 Jan 2012 • USA (National/Federal)
The FDIC issued a final rule requiring large banks to create and maintain resolution plans in the event of their failure.
On January 17, 2012, the FDIC issued a final rule requiring large banks to submit to the FDIC resolution plans in the event of their failure. This "living wills" rule applies to insured depository institutions with $50 billion or more in total assets, as determined based on the average of the institution's four most recent Consolidated Reports of Condition and Income or Thrift Financial Reports, as applicable (Covered Banks). Currently 37 insured depository institutions meet this test.
The final rule requires the Covered Banks to provide the FDIC with essential information on, for example, their:
  • Organizational structure, including a mapping of the legal and functional structures and the core business lines of the bank, its parents and its affiliates, and a description of the degree of their interconnectedness.
  • Operations.
  • Business practices, including core business lines.
  • Financial responsibilities.
  • Risk exposures, including material off-balance-sheet exposures and identification of major counterparties.
These disclosures are part of the final rule's requirement that Covered Banks develop and submit detailed plans demonstrating how they could be resolved in an orderly and timely manner by the FDIC in the event of receivership. These resolution plans should:
  • Include strategies for unwinding or separating the Covered Bank and its subsidiaries from the parent company structure in a cost effective and timely manner.
  • Include strategies for the sale or disposition of the Covered Bank's deposit franchise and core business lines and assets in a manner that ensures that depositors receive access to their insured deposits within one business day of the institution's failure (two business days if the failure occurs on a day other than Friday).
  • Demonstrate that these strategies are the least costly to the Deposit Insurance Fund of all possible methods for resolving the Covered Bank.
The resolution plan strategies must take into account that failure of the Covered Bank may occur under baseline, adverse and severely adverse economic conditions as developed by the Federal Reserve Board. However, the feasibility of the initial resolution plan needs to be analyzed only under the baseline economic conditions.
The dates for filing the initial resolution plans are:
  • July 1, 2012, for Covered Banks whose parent company as of November 30, 2011 has $250 billion or more in total nonbank assets.
  • July 1, 2013, for Covered Banks whose parent company as of November 30, 2011 has total nonbank assets over $100 billion and up to $250 billion.
  • December 31, 2013, for the remaining Covered Banks.
Under the final rule Covered Banks must submit new resolution plans annually on or before the anniversary date of the date for submission of its initial plan. Insured depository institutions that become a Covered Bank after the effective date of the Rule must submit its initial resolution plan no later than the next July 1 after the date it becomes a Covered Bank, provided that date occurs no earlier than 270 days after the date on which it became a Covered Bank.
The final rule will become effective on April 1, 2012, at which point it will supersede the interim final rule previously released by the FDIC. For more information on the interim final rule, see Legal Update, FDIC Issues Living Wills Rules for Large Banks and Financial Institutions.
To learn more about the FDIC's authority to resolve and liquidate certain financial companies and insured depository institutions generally, see Practice Notes, Summary of the Dodd-Frank Act: Resolution of Failing Financial Institutions and The Role of the FDIC in a Bank Failure.