FDIC Approves Rules Requiring Living Wills and Contingency Plans


The Federal Deposit Insurance Corporation (FDIC) on September 13 approved a final rule (the Rule) to be issued jointly by the FDIC and the Federal Reserve Board (the Board) to implement Section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This provision requires bank holding companies with assets of $50 billion or more and companies designated as systemic by the Financial Stability Oversight Council to report periodically to the FDIC and the Federal Reserve the company's plan for its rapid and orderly resolution in the event of material financial distress or failure. The Rule approved by the FDIC implements these requirements and "will be considered by the Federal Reserve in the coming days." Approval is expected.

The rule requires the company to describe its plan of how it could be resolved in a bankruptcy proceeding. The goal is to achieve a rapid and orderly resolution of an organization in such a way as not to cause a systemic risk to the financial system. The final rule also sets specific standards for the resolution plans (the Plans), including "requiring a strategic analysis of the plan's components, a description of the range of specific actions to be taken in the resolution, and analyses of the company's organization, material entities, interconnections and interdependencies, and management information systems among other elements." Additionally, the rule would require covered entities to identify core business lines, critical services and their providers, and "provide a strategy for the sale of core business lines." Further, the Plans "should provide a strategy to unwind or separate the covered depository institution (CIDI) and its subsidiaries from the organizational structure of its parent company in a cost-effective and timely fashion ... [and] should also describe remediation or mitigating steps that can be taken to eliminate or mitigate obstacles to such separation." Moreover, the Plans "should provide a strategy for the sale or disposition of the deposit franchise, including branches, core business lines and major assets of the CIDI in a manner that ensures that depositors receive access to their insured deposits within one business day of the institution’s failure [and in cases of a closure other than on a Friday, two days]…, maximizes the net present value return from the sale or disposition of such assets and minimizes the amount of any loss realized in the resolution of cases. The Plans should also describe how the strategies for the separation of the CIDI and its subsidiaries from its parent company’s organization and sale or disposition of deposit franchise, core business lines and major assets can be demonstrated to be the least costly to the Deposit Insurance Fund."

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