WASHINGTON The Federal Deposit Insurance Corp. on Wednesday offered additional guidance to firms drafting resolution plans, this time focusing on strategies for cleaning up large subsidiaries.
Under the 2010 Dodd-Frank Act, the FDIC and Federal Reserve Board review annual reports from large bank parents on how they would be resolved in a bankruptcy. But the FDIC separately requires plans also known as "living wills" from depository institutions with over $50 billion in assets on how they too would be unwound through a traditional bank receivership. Currently, 36 FDIC-insured institutions must submit plans.
The new guidance based on feedback derived from early submissions instructs banks to include one strategy based on the bank being sold in chunks to multiple acquirers, which would inherit the institution's deposit franchise and core business lines. Plans must also include a strategy under a scenario where no buyers are available, and the company is liquidated with insured depositors paid directly.
"A covered institution must provide a fully developed discussion and analysis of a range of realistic resolution strategies," the agency said in a press release.
The guidelines also identify specify obstacles to orderly resolutions and call for institutions to develop remedies in their plans for dealing with such challenges. The guidance also spells out how banks should conduct cost analyses of a strategy in light of statutory requirements for the FDIC to resolve banks only in a manner resulting in the "least cost" to the Deposit Insurance Fund.
Banks "should utilize consistent assumptions across all options and should demonstrate why assumptions utilized in the analysis are reasonable and appropriate," the guidance said.