February 16, 2018

The FDIC Chairman Martin J. Gruenberg spoke about the progress toward resolving systemically important financial institutions or SIFIs, at The Wharton School, University of Pennsylvania. He highlighted the importance of remaining focused on addressing the critical issue of the resolution of SIFIs. He noted that a central objective of his efforts has been on developing the capability for the orderly failure of a SIFI, without taxpayer support, and with accountability for the shareholders, creditors, and management of the failed firm.

Since the financial crisis, orderly resolution of firms has been a top priority for the FDIC, as per Mr. Gruenberg. The framework for resolution of SIFIs, under the Dodd-Frank Act, introduced a new dimension to the regulation of financial institutions in the United States. The Act provided the Title I living will resolution plan process as a tool to require systemic institutions to make real-time changes in their structure and operations to facilitate orderly failure under bankruptcy. In addition, the Title II Orderly Liquidation Authority gave the FDIC new authority to manage the orderly failure of any financial institution whose failure in bankruptcy could pose a risk to the financial system. He also described the evolution of the living will process and the joint work done by FED and FDIC (US Agencies).

He then outlined the progress made through the living will resolution plan process in bringing about tangible changes to the structure and operations of the eight U.S. global systemically important banks (G-SIBs) to enhance the resolvability of these firms. With regard to the most recent resolution plans that the firms filed in July 2017, he noted that G-SIBs in the United States have made substantial progress in the following areas:

  • Established clean holding companies with pre-funded loss absorbing capacity
  • Rationalized their legal entity structures to align those structures and support their preferred resolution strategy
  • Established frameworks for estimating and positioning the capital and liquidity required to execute their preferred resolution strategy
  • Implemented internal escalation triggers, playbooks, and other governance mechanisms to facilitate the timely execution of recovery and resolution actions by the board of directors and senior management
  • Adhered to the ISDA 2015 Universal Resolution Stay Protocol, which provides for temporary stays on certain default and early termination rights for ISDA and other standard derivatives contracts
  • Developed strategies and playbooks to maintain access to payment, clearing, and settlement services
  • Took steps to ensure that inter-company services shared by multiple affiliates will continue to be available in resolution
  • Modified service contracts with key vendors to ensure the continuation of services as long as the firm continues to meet its obligations under the terms of the contract
  • Developed options for sale of discrete businesses and assets under different market conditions to increase the flexibility of a firm's execution of its preferred resolution strategy

The FDIC Chairman concluded that the living wills process has been enormously helpful to firms and regulators by facilitating significant structural and operational improvements to improve resolvability of firms. However, the resolvability of firms will change as markets change and as firms’ activities, structures, and risk profiles change. Thus, US Agencies expect firms to remain vigilant in considering the resolution consequences of their management decisions.

 

Related Link: Speech

Keywords: Americas, US, Banking, SIFI, Dodd Frank Act, Living Will, Resolution Plan, Systemic Risk, FDIC

Related Articles
News

HKMA Revises Implementation Schedule for Initial Margin Rules

HKMA intends to adopt a revised implementation schedule for the margin requirements for non-centrally cleared derivatives.

August 16, 2019 WebPage Regulatory News
News

FASB Proposes to Extend CECL Standard Deadline for Certain Entities

FASB proposed an Accounting Standards Update that would grant private companies, not-for-profit organizations, and certain small public companies additional time to implement FASB standards on current expected credit losses (CECL), leases, and hedging.

August 15, 2019 WebPage Regulatory News
News

IASB Adds Phase Two of IBOR Reform to Its Work Plan

IASB (or the Board) has added the second phase of its project focused on potential financial reporting implications linked to the interest rate benchmark reform—interbank offer rate (IBOR) reform—to its work plan.

August 15, 2019 WebPage Regulatory News
News

FED Updates Draft Instructions for Proposed FR Y-14 Reporting Forms

FED updated draft instructions for the monthly, quarterly, and annual capital assessments and stress testing reports, also known as forms FR Y-14M, FR Y-14Q, FR Y-14A, respectively.

August 15, 2019 WebPage Regulatory News
News

APRA Applies Additional Capital Requirement for an Australian Insurer

APRA decided to apply an additional $250 million capital requirement to Allianz Australia Limited to reflect the issues identified in the risk governance self-assessment by the insurer.

August 14, 2019 WebPage Regulatory News
News

APRA Consults on Final Phase Margin Rules for Uncleared Derivatives

APRA is consulting on amendments to the prudential standard CPS 226 on margin and risk mitigation requirements for non-centrally cleared derivatives.

August 14, 2019 WebPage Regulatory News
News

BCBS FAQs on Implementation of Operational Risk Capital Requirements

BCBS published the first set of frequently asked questions (FAQs) to facilitate consistent global implementation of the standardized approach for operational risk capital.

August 14, 2019 WebPage Regulatory News
News

MAS Publishes Rules on Single Counterparty Credit Limits for Banks

MAS published Notice 656 on rules to measure and limit exposures to a single counterparty group for banks incorporated in Singapore.

August 14, 2019 WebPage Regulatory News
News

BoE Publishes Actual and Indicative MREL for Banks in UK

BoE published actual and indicative minimum requirements for own funds and eligible liabilities (MRELs) for UK banks and buildings societies that have bail-in or partial transfer resolution strategies.

August 14, 2019 WebPage Regulatory News
News

OSFI Sets Out Plans for Implementation of Insurance Contracts Standard

OSFI published a letter that provides an update on the milestones completed and the activities underway with respect to the implementation of the insurance contracts standard International Financial Reporting Standard (IFRS) 17.

August 13, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3638