On December 15, 2016, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) issued final rules requiring global systemically important banks (“G-SIBs”) in the United States, including bank holding companies of U.S. G-SIBs (“covered BHCs”) as well as top-tier U.S. intermediate holding companies of foreign G-SIBs (“covered IHCs”), to maintain a minimum amount of total loss absorbing capacity (“TLAC”) and longterm debt (“LTD”) instruments (the “Final TLAC Rule”). While we previously briefly summarized the key differences between the Final TLAC Rule and the Federal Reserve’s originally proposed TLAC rule for G-SIBs in the United States (the “TLAC Proposal”), the differences between the requirements established under the Final TLAC Rule for covered BHCs and covered IHCs deserve further examination.

SPOE and MPOE Resolution Approaches -

Since the single point of entry (“SPOE”) resolution approach was described by the Federal Deposit Insurance Corporation (the “FDIC”) and the Bank of England in a joint White Paper in December 2012, “the concept has migrated and become the principal bankruptcy plan under . . . [the Dodd-Frank Wall Street Reform and Consumer Protection Act] (the “Dodd-Frank Act”) for all but two of eight [U.S.] G-SIBs.” Nevertheless, there are reasons for some to prefer a multiple point of entry (“MPOE”) resolution approach. For international G-SIBs, an SPOE approach most likely establishes the home country as responsible for the resolution of the top-tier entity, while its subsidiaries in other countries are preserved intact. Under an MPOE approach, particularly where the jurisdiction requires the establishment of an IHC for non-branch assets (as is required in the United States), resolution can take place at the IHC level. The SPOE approach places most of the resolution burden on the home country supervisors, while the MPOE approach may disperse the burden among the home and host country supervisors. The TLAC Proposal, which would have required a covered IHC to issue internal LTD to its foreign parent, seemingly contemplated that foreign G-SIBs, and their foreign supervisors, might be forced into an SPOE resolution approach. The Final TLAC Rule has been modified to more readily support a covered IHC’s decision to adopt either an SPOE or MPOE resolution approach and, thus, provides greater flexibility to foreign G-SIBs and their home country supervisors.