Large bank 'resolution plans' no longer mandatory under FDIC guidelines
The Federal Deposit Insurance Corporation (FDIC) has revised its approach to large bank resolution planning, aiming to focus the process on operational information most relevant for the FDIC [1][2]. Here's a breakdown of the key changes:
The FDIC has waived a requirement of quantitative analysis related to valuation, but banks must still provide a qualitative description of how they would determine values. This adjustment is part of the FDIC's effort to streamline the resolution planning process and make it more manageable for banks [1].
Banks and the FDIC can now discuss possible resolution options. This dialogue is expected to enhance the efficiency of resolutions under the Federal Deposit Insurance Act [1].
The FDIC has revised its definition of "key personnel," now including those with significant roles in the bank's resolution, but not those who can be easily replaced. This change is intended to ensure that the resolution planning process focuses on critical personnel [1].
The FDIC may put forth additional updates in the future as it continues to evaluate other provisions of the rule and how they apply to different groups of banks. This indicates the FDIC's commitment to continually refining its resolution planning process [1].
The FDIC has scrapped its requirement for banks to include a hypothetical failure scenario in their resolution plans. Instead, large banks are now expected to describe one or more potential resolution strategies the FDIC could reasonably execute, rather than a lengthy narrative [1].
Regarding bridge bank strategies, the FDIC's 2025 guidance and recent resolution plans emphasize that the insolvent institution must be insolvent at the start of resolution and that resolution plans should include multiple acquirer strategies as feasible means for disposition of assets. The use of bridge banks remains a key tool in the FDIC’s resolution toolbox for managing failed institutions, but the updated resolution plans expect deeper granularity and feasibility assessments on sales and bridge bank strategies to ensure orderly and practical execution [2].
Each failure of a bank after using a bridge bank strategy, as seen in Silicon Valley Bank and Signature Bank, subtracts from the failed institution's franchise value and increases the cost of failure to the FDIC's Deposit Insurance Fund. However, the FDIC will no longer require banks to use bridge bank strategies [1].
Once a bank crosses the asset threshold, it's given at least 270 days to submit a full resolution plan, or living will. Resolution capabilities testing won't occur before 2026, when the FDIC will initially evaluate whether a bank offers information that supports a timely sale or disposition [1].
The FDIC has updated how lenders should classify parts of their business that could be sold in connection with a resolution. This change is aimed at providing clarity and consistency in the resolution planning process [1].
The FDIC's 2024 updates to its resolution planning rule, according to Acting Chair Travis Hill, incorporated the wrong lessons from the 2023 bank failures. Hill stated that the 2023 bank failures served as a reminder of the costly and damaging nature of bridge bank solutions [1].
The FDIC has issued answers to frequently asked questions regarding the changes to its resolution planning process. These FAQs provide further details and clarification on the updated requirements [1].
The FDIC's resolution planning requirements apply to banks with $50 billion or more in assets [1].
[1] FDIC Issues FAQs on Resolution Planning Process Changes [2] FDIC's 2025 Guidance on Resolution Planning for Large Banks and IDIs [3] FDIC's Updated Definition of 'Key Personnel' in Resolution Planning Process [4] FDIC's Shift Away from Quantitative Valuation Analysis in Resolution Planning [5] FDIC's Emphasis on Granularity and Feasibility in Bridge Bank Strategies [6] FDIC's De-emphasis on Hypothetical Failure Scenarios in Resolution Plans [7] FDIC's Focus on Maximizing the Likelihood of Optimal Resolution Options [8] FDIC's Changes to Classification of Business Units for Resolution [9] FDIC's Lessons Learned from 2023 Bank Failures and the Impact on Resolution Planning [10] FDIC's Clarification on Resolution Planning Requirements for Large Banks [11] FDIC's Continued Evaluation of Resolution Planning Rule Provisions for Different Groups of Banks [12] FDIC's Dialogue with Banks on Possible Resolution Options [13] FDIC's Revision of Resolution Planning Rule in 2024 and Its Implications [14] FDIC's Emphasis on Efficient Resolution Under the Federal Deposit Insurance Act [15] FDIC's Shift Away from Purchase Licensing Rights in the Context of Resolution Planning [16] FDIC's De-emphasizing and Broadening the 'Strategy' Discussion in Resolution Planning [17] FDIC's Acting Chair Travis Hill's Statement on the Costly and Damaging Nature of Bridge Bank Solutions [18] FDIC's Federal Deposit Insurance Corp. (FDIC) Changes Approach to Large Bank Resolution Planning
Banks must now provide a qualitative description of how they would determine values as part of the revised Financial Development Insurance Corporation (FDIC) approach to large bank resolution planning, which aims to streamline the process (business, finance).
The FDIC's updated resolution planning rule now includes a dialogue with banks to discuss possible resolution options, which is expected to enhance the efficiency of resolutions under the Federal Deposit Insurance Act (business, finance).
