US Agencies (FDIC and FED) proposed changes to the guidance for 2021 and subsequent resolution plan submissions by large foreign banks, including plans that are due by July 01, 2021. The proposed updates are based on the review of the most recent resolution plans of of certain foreign banking organizations and changes to the resolution planning rules. Moreover, the updates focus on the expectations around a firm's derivatives and trading activities and payment, clearing, and settlement activities. Comment period for this proposal ends on May 05, 2020. Additionally, FED announced that UBS AG will now be supervised as part of its Large and Foreign Banking Organization supervision portfolio.
The proposed guidance, which is largely based on prior guidance, describes expectations regarding a number of key vulnerabilities in plans for a rapid and orderly resolution under the U.S. Bankruptcy Code. The key aspects covered in the guidance are capital, liquidity, governance mechanisms, operational, branches, group resolution plan, legal entity rationalization and separability, and derivatives and trading activities. The scope of application of the proposed guidance would be foreign banking organizations that are triennial full filers and whose intermediate holding companies have a score of 250 or more under the second methodology (method 2) of the global systemically important bank (G-SIB) surcharge framework. The proposed guidance is meant to assist these organizations in developing their resolution plans, which are required to be submitted pursuant to Section 165(d) of the Dodd-Frank Act. The proposed guidance is tailored for the specified organizations, rather than to the U.S. G-SIBs, to account for differences between the U.S. G-SIBs and the U.S. footprints and operations of foreign banking organization.
The proposed revisions to the guidance are intended to streamline submissions of firms and to provide additional clarity. The proposed guidance would consolidate all guidance applicable to the specified organizations into a single document, which would provide the public with one source of applicable guidance to which to refer. The proposed 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 and that should be factored into the firm’s submission. Resolution plans, commonly known as living wills, must describe the strategy of a firm for rapid and orderly resolution in bankruptcy in the event of material financial distress or failure of the company. The resolution planning process helps ensure that a firm's failure would not have serious adverse effects on the financial stability of the United States. For foreign banking organizations, resolution plans are focused on their U.S. subsidiaries and operations.
The proposed guidance also seeks comment on objective, quantitative criteria to determine its applicability. As of the date of the proposal, the firms that meet the proposed criteria are the U.S. operations of Barclays, Credit Suisse, and Deutsche Bank. Due to the substantial and sustained decrease in risk from the U.S. operations of UBS AG, the firm will now be supervised as part of its Large and Foreign Banking Organization supervision portfolio. FED made this change after a comprehensive determination of risks from the firm. The firm has decreased from roughly USD 375 billion to less than USD 200 billion in total assets over the past decade and separate measures of complexity have also declined. Consequently, the firm will be supervised alongside other banks of similar risk. This change will have no effect on the regulatory capital or liquidity requirements for the firm or the ability of FED to supervise the activities of the firm.
Comment Due Date: May 05, 2020
Keywords: Americas, US, Banking, Resolution Plans, Guidance, Dodd Frank Act, G-SIB, Foreign Banks, Resolution Framework, FED, FDIC, US Agencies