Back to General Resources

Federal Deposit Insurance Corporation Open Meeting on Tailoring and Resolution Planning

Federal Deposit Insurance Corporation

Open Meeting

Tuesday, October 15, 2019

 Key Topics & Takeaways

  • Tailoring Rules: In a 3-1 vote, the FDIC Board finalized rules to tailor regulations and sort firms into four categories based on risk indicators including total asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, non-bank assets and off-balance sheet exposure.
  • Resolution Planning Rules: In a 3-1 vote, the FDIC Board approved a final rule to revise resolution planning requirements, establishing a two-year filing cycle for U.S. GSIBs and three-year cycles for other institutions with over $250 billion in assets.

FDIC Board

Memorandum and resolution re: Final Rule on Tailoring Capital and Liquidity Rules for Domestic and Foreign Banking Organizations

Staff Presentation

Federal Deposit Insurance Corporation (FDIC) staff presented on the final rule being considered to tailor capital and liquidity rules for domestic and foreign banking organizations. They explained that the rule would introduce four risk-based categories to determine the applicability of requirements, and that the categories would consider total asset size, cross-jurisdictional activity, non-bank assets and off-balance sheet exposure and weighted short-term wholesale funding. Staff said the changes would enhance the risk sensitivity and efficiency of capital and liquidity regulations while continuing to support the banking system’s resilience. The four categories are as follows:

  • Category I: U.S. global systemically important bank holding companies (GSIBs), which would remain subject to the most stringent standards;
  • Category II: firms with $700 billion or more in assets or cross-jurisdictional activity of $75 billion or more;
  • Category III: firms with $250 billion or more in assets or $100-250 billion in assets that meet one or more risk-based thresholds; and
  • Category IV: firms with $100-250 billion in assets that do not meet a risk-based threshold.

Staff stressed that the final rule maintains the highest capital standards for U.S. GSIBs, subjecting them to the most stringent capital requirements. A visual guide to the requirements for each category of banking organizations was published by the Federal Reserve last week.

Jelena McWilliams, Chair, FDIC

In her statement, McWilliams said the final rule would implement S.2155, the Economic Growth, Regulatory Relief and Consumer Protection Act by tailoring the application of capital and liquidity requirements based on a banking organization’s size, risk profile and systemic footprint. She noted that U.S. GSIBs would continue to be subject to the most rigorous capital and liquidity standards without change, stating that maintaining strong requirements at these banks is “an essential policy objective.”

McWilliams said the cumulative impact on capital among affected banking organizations would be “immaterial” but that eliminating the advanced approaches framework for banks in categories III and IV would provide meaningful compliance burden relief. She said she was pleased to support the final rule, that it represents meaningful and appropriate tailoring and that it provides an appropriate balance that ensures the largest banks have sufficient liquid assets to withstand stress while taking into account potential broader market impacts.

Martin Gruenberg, Director, FDIC

In his statement, Gruenberg argued that the final rule would significantly reduce liquidity requirements for banking organizations with assets between $100-$700 billion, and that this would unnecessarily weaken a central post-crisis prudential protection for the financial system and expose the Deposit Insurance Fund to greater risk. He further noted that the final rule would reduce the liquidity coverage ratio (LCR) requirements to 85 percent of the full LCR for banking organizations with assets between $250-$700 billion and remove the LCR requirement entirely for those with assets below $250 billion. He noted that neither of these changes were required by S.2155.

Other Board Members

Joseph Otting, Comptroller of the Currency, and Kathleen Laura Kraninger, Director, Consumer Financial Protection Bureau (CFPB), both said they supported the final rule.

Final Vote

The FDIC Board approved the final rule in a 3-1 vote, with Gruenberg opposing.

Memorandum and resolution re: Amendments to 12 C.F.R. 381 – Final Rule

Staff Presentation

Staff presented on the final rule to revise resolution planning requirements, explaining that it reflects efforts by FDIC and Federal Reserve staff to improve and streamline the original rule and bring in into alignment with S. 2155. They said the final rule would apply resolution planning requirements based on the relative risks that different firms could pose to the financial system, and establishing three risk-based filing categories, with category I banks from the tailoring rule (see above) filling biennially, category II and III banks filing triennially, and foreign banking organizations with more than $250 billion in global consolidated assets required to file a reduced plan every three years.

Staff noted some of the key changes from the original notice of proposed rulemaking, including: the process for firm-initiated requests for waivers from having to file full plans; a requirement that the Agencies provide notice of any deficiency or shortcoming in a resolution plan within 12 months of submission; a requirement that any future guidance be made available for public comment; the identification of “critical operations”; and others.

A visual guide to the requirements for each category was published by the Federal Reserve last week.

Jelena McWilliams, Chair, Federal Deposit Insurance Corporation (FDIC)

In her statement, McWilliams stated that resolution plans are a valuable tool for ensuring that the largest institutions are able to fail without taxpayer bailouts and without destabilizing the broader market. She said the final rule being considered would streamline, clarify and improve resolution plan processes by taking into account the relative risks to financial stability that different firms’ failures could pose.

Martin Gruenberg, Director, FDIC

In his statement, Gruenberg said the final rule would weaken resolution planning requirements under Title I of the Dodd-Frank Act and that the rule goes beyond what was mandated by S. 2155. He argued the extended filing timelines and requiring a full plan only once every six years for banks with $250-$700 billion in assets would attenuate the review process for the plans and put their meaningfulness in doubt. Gruenberg said the final rule reflects “a serious failure” to recognize the significant resolution challenges and potential for systemic disruption posed by the failure of these firms. He said this rule reflects a serious failure to recognize the significant resolution changes posed by the failure of these firms.

Final Vote

The FDIC Board approved the final rule in a 3-1 vote, with Gruenberg opposing.

Summary Agenda

The Board also approved three items with no substantive discussion:

  • Memorandum and resolution re: Final Rule: Company-Run Stress Testing Requirements for FDIC-supervised State Nonmember Banks and State Savings Associations.
  • Memorandum and resolution re: Notice of Proposed Rulemaking: Removing Transferred OTS Regulation, Part 390, Subpart S – State Savings Associations – Operations.
  • Reports of the Office of Inspector General.

For more information on this meeting, please click here.