Banking authority seeks to modernize framework for lender crisis management strategies
OCC Proposes Expanded Recovery Planning Guidelines for Mid-Sized Banks
The Office of the Comptroller of the Currency (OCC) has proposed expanded enforceable guidelines on recovery planning for banks with at least $100 billion in assets. Currently, these guidelines apply only to banks with $250 billion or more in assets.
The proposal, outlined in a notice of proposed rulemaking written by Acting Comptroller of the Currency Michael Hsu, is in response to the bank failures that occurred in 2023, specifically mentioning Silicon Valley Bank, Signature Bank, and First Republic. These institutions, with total consolidated assets of $209 billion, over $110 billion, and more than $229 billion respectively, experienced significant withdrawals of uninsured deposits in response to underlying weaknesses in their financial position and failed without recovery plans in place.
The OCC's proposal aims to ensure that large banks are prepared to respond to severe financial stress in a way that reduces contagion. The amendments will provide a detailed framework for banks with $100 billion to $250 billion in assets to effectively address severe stress events and mitigate the risk of failure or resolution through recovery plans.
Key details include:
- Expanding the scope of recovery planning guidelines to cover banks with $100 billion to $250 billion in assets.
- Introducing a recovery plan testing standard to ensure the plans are robust and actionable.
- Clarifying the treatment and integration of non-financial risks (e.g., operational or reputational risks) in recovery planning.
- The recovery plan serves as a framework to address financial stress efficiently and avoid bank failure or resolution.
The testing standard requires covered banks to test their overall recovery plan and each element to ensure effectiveness during periods of severe stress. The public can provide comments on the proposal through July 24.
This initiative reflects the OCC’s broader effort to enhance operational resilience and risk management for larger banks, complementing related regulatory updates such as FDIC supervisory guidelines for banks over $10 billion in assets and broader merger transaction guidelines for large banks.
In a statement, Hsu wrote that the events of 2023, coupled with the OCC's supervisory experience, made clear the importance of ensuring that banks in the size range of $100 billion to $250 billion are adequately prepared and have developed a plan to respond to the financial effects of severe stress. The OCC's proposal includes a testing standard for recovery plans, allowing for the simulation of severe financial and non-financial stress scenarios.
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- The OCC's proposition seeks to implement stricter recovery planning guidelines for mid-sized banks, of which finance is a crucial aspect, as it aims to provide a detailed framework for banks with $100 billion to $250 billion in assets to effectively cope with severe stress events and mitigate the risk of failure.
- This extension of recovery planning guidelines to mid-sized banks forms part of a broader effort by the OCC to enhance operational resilience and risk management in finance businesses, an initiative that complements related regulatory updates in the industry.
