Insured depository institutions with $50 billion to less than $100 billion in average total assets are subject to new resolution reporting standards, with enhanced reporting for those with average total assets of $100 billion or more.

On June 20, 2024, the Federal Deposit Insurance Corporation (FDIC) issued a final rule (the Rule) updating the FDIC’s resolution plan regulations¹ for covered insured depository institutions (CIDIs).² The revisions are intended to support the FDIC’s ability to undertake an efficient and effective resolution under the Federal Deposit Insurance Act in case of large financial institution insolvency, failure, or FDIC receivership.

The Rule amends the prior CIDI resolution plan rule (2012) and builds on previous guidance, public comments received on a September 2023 proposal, and experience gained in past resolution plan reviews and with recent bank resolutions (such as those that occurred during the spring 2023 banking crisis).

Filing Requirements

• Group A CIDIs: CIDIs with $100 billion or more in average total assets (Group A CIDIs)³ will be required to submit periodically comprehensive resolution plans that meet enhanced standards under the Rule.
  • Notably, such plans must contain hypothetical failure scenarios, an identified strategy appropriate to the CIDI for its orderly and efficient resolution (from the point of potential failure to liquidation or return of the ownership interests to the private sector), and related valuation information for franchise components and the CIDI as a whole.⁴ The Rule does not permit a closing weekend sale as the identified strategy (although the Rule recognizes that such a sale may in fact take place); rather, it would establish as the default identified strategy the establishment and stabilization of a bridge depository institution, an orderly wind down of certain business lines and asset sales, and an appropriate exit strategy.
• Group B CIDIs: CIDIs with $50 billion or more in average total assets (but less than $100 billion)⁵ (Group B CIDIs)⁶ are now required to submit periodically informational filings (with a more limited scope than comprehensive resolution plans) to assist in their potential resolution.
  • Although informational filings would include some of the same content required for resolution plans submitted by Group A CIDIs,⁷[vii] such informational filings would not require an identified resolution strategy, hypothetical failure scenarios, or related valuation information.
  • Informational filings would also require a description of any material changes (or confirmation of none) since the submission of a prior informational filing or interim supplement, where relevant, as well as a discussion of any changes to a previously submitted informational filing resulting from a change in law or regulation, guidance, feedback from the FDIC, or material change. 

Periodic Testing and Feedback

The Rule establishes an “enhanced credibility standard” by which the FDIC will review, assess, and provide feedback on Group A CIDI’s comprehensive resolution plans and a Group B CIDI’s informational filings. The credibility standard consists of two prongs:

1. A resolution plan submitted by Group A CIDIs could be found not credible if the identified strategy did not provide timely access to insured deposits, maximize value from the sale or disposition of assets, minimize any losses realized by creditors of the CIDI in resolution, and address potential risks of adverse effects on US economic conditions or financial stability.
2. A resolution plan submitted by both Group A and Group B CIDIs could be found not credible if the information and analysis in the full resolution submission are not supported with observable and verifiable capabilities and data and reasonable projections, or the CIDI fails to comply in all material respects with the requirements of the rule.

The Rule states that the FDIC will promptly review submissions and “endeavor to give feedback identifying material weaknesses or significant findings within one year of the full resolution submission date.”

The Rule also specifies requirements for CIDI engagement with the FDIC, and periodic capabilities testing whereby the FDIC will validate a CIDI’s key capabilities and resolution processes including:

• the capability to produce timely and useful information and data underlying the resolution submission, such as via a virtual due diligence data room necessary for interested parties to submit bids;
• the capacity to maintain critical banking services, personnel, and infrastructure; and
• the ability to market the CIDI’s franchise or its components in times of distress and resolution.

Filing Schedule

Under the Rule, comprehensive resolution submissions for most Group A CIDIs is every three years beginning in 2025, with limited interim year supplements for a specified subset of submission content items.

Group A CIDIs affiliated with US global systemically important banking organizations (GSIBs) must file a comprehensive resolution plan every two years, beginning in 2025, with limited interim year supplements for a specified subset of submission content items. However, biennial filers are not required to submit a supplement in interim years if the CIDI’s parent company files a Section 165(d) resolution plan under the Dodd-Frank Act.

Group B CIDIs are required to submit an informational filing every three years beginning in 2025, with interim year supplements for a specified subset of submission content items.

Under the Rule, the FDIC will provide all CIDIs with a written notice specifying when their initial comprehensive resolution submission, informational filing, or interim supplement is due.

Effective Date

The Rule becomes effective on October 1, 2024. Group A CIDIs are subject to an initial filing date of at least 270 days from the effective date, while Group B CIDIs are subject to an initial filing date of at least one year from the effective date.

The FDIC Board Weighs In

The FDIC’s Board of Directors voted 3-2 to finalize the Rule.

• FDIC Chairman Martin J. Gruenberg supported the Rule, noting that “[in] light of the failure of three large regional banks last year, the case for strengthening resolution plan requirements is compelling.”
• FDIC Vice Chairman Travis Hill opposed the Rule (along with FDIC Director Jonathan McKernan), objecting that comprehensive resolution plan requirements are too prescriptive and onerous, and do not justify the cost burden imposed on CIDIs.
• Acting Comptroller of the Currency Michael J. Hsu supported finalization of the Rule for improving “not only the likelihood of orderly resolution, but also the chances of recovery when banks are in stress.” He noted that requiring the largest banks to include an identified strategy in their resolution plans would “provide timely access to insured deposits, maximize value from the sale or disposition of assets, minimize any losses realized by creditors in resolution, and address potential risk of adverse effects on US economic conditions or financial stability” in cases of large bank failure and receivership.
• CFPB Director Rohit Chopra supported the Rule, stating that it presents resolution options to the FDIC beyond “costly megamergers” in case of a failed CIDI. The resolution plans required by the Rule will also “help to reduce costs to the Deposit Insurance Fund, mitigate the risk of contagion, and reduce the creep of concentration in our banking sector.”

Conclusion

The Rule is yet another measure that banking regulators have advanced in the wake of the spring 2023 banking crisis that exposed the systemic risks of contagion from CIDI failures (for more information, see this Latham Report). Banking industry groups have echoed the objections of the FDIC Board members that opposed the Rule, asserting that it is overly broad and will result in increased costs for banks (and ultimately consumers), while having an indeterminate effect on bank resiliency. Consumer advocacy groups, on the other hand, have argued that the Rule does not go nearly far enough to protect the financial system from contagion. Proponents of the Rule, however, are confident that it would give the FDIC more options to act in case of a bank emergency, without necessarily resorting to weekend fire sales of bank assets and business lines.

To that end, the Rule imposes new planning and reporting requirements on Group B CIDIs, while enhancing the planning and reporting requirements on Group A CIDIs. Given the upcoming effective date, and with initial submissions due not long after, CIDIs in either the Group A or Group B categories should determine critical planning and execution steps to achieve compliance with the Rule.

1. 12 CFR § 360.10 ↩︎
2. An “insured depository institution” under the Rule has the same meaning as in 12 U.S.C. 1813(c)(2) and would include any national and state bank, the deposits of which are FDIC-insured, as well as an FDIC-insured branch of a foreign bank. ↩︎
3. 33 banks are currently Group A CIDIs. ↩︎
4. Group A CIDIs must also include and/or address in their resolution plans the following: an executive summary; organizational structure; methodology for identification of material entities; ability to operate separately from the parent company’s organization and any potential barriers or material obstacles to orderly resolution; overall deposit activities; continuity of critical services; identification of key personnel; material asset portfolios; off-balance sheet exposures; qualified financial contracts; unconsolidated balance sheet and financial statements for all material entities and regulated subsidiaries; providers of payment, clearing and settlement services; capital structure and funding sources; parent and parent company affiliate funding, transactions, accounts, exposures and concentrations; economic effects of resolution; non-deposit claims; cross-border elements; management information systems, software licenses and intellectual property; digital services and electronic platforms; communications playbook; corporate governance; assessment of the full resolution submission; and any other material factor. ↩︎
5. Based on the average of the CIDI’s four most recent Consolidated Reports of Condition and Income. ↩︎
6. 12 banks are currently Group B CIDIs. ↩︎
7. Group B CIDIs must also include and/or address in their informational filings the following: organizational structure; methodology for identification of material entities; ability to operate separately from the parent company’s organization and any potential barriers or material obstacles to orderly resolution; overall deposit activities; continuity of critical services; identification of key personnel; certain requirements relating to franchise components; material asset portfolios; off-balance sheet exposures; qualified financial contracts; unconsolidated balance sheet and financial statements for all material entities and regulated subsidiaries; providers of payment, clearing and settlement services; capital structure and funding sources; parent and parent company affiliate funding, transactions, accounts, exposures and concentrations; economic effects of resolution; non-deposit claims; cross-border elements; management information systems, software licenses and intellectual property; digital services and electronic platforms; communications playbook; corporate governance; assessment of the full resolution submission; and any other material factor. ↩︎