WASHINGTON — Living wills aren't just for the most well-known banks anymore.

Several relatively obscure foreign institutions with a small footprint in the United States are being asked to map out their hypothetical failure. Banks like Caixa Geral de Depositos, a state-owned Portuguese bank with a roughly $300 million-asset branch in New York, and Monte dei Paschi di Siena, an Italian institution with a $650 million-asset branch in the U.S., are required to file living wills by yearend.

Under the Dodd-Frank Act, all firms with global assets of $50 billion or more with a branch in the U.S. must submit living wills, even if their presence here is small and their potential failure would likely go unnoticed.

"Some of these banks are so unimportant in the U.S. that if one of them were to fail it might take three or four days before their U.S. counterparties notice," said Margaret Tahyar, a partner at Davis Polk & Wardwell.

As a result, many observers are hoping the Federal Reserve Board and Federal Deposit Insurance Corp. will simplify requirements for these banks, arguing they shouldn't have to follow the same process as large banks, which costs significant time and resources.

"The problem for some of these institutions is that it's surprising to them that they have to file any plan in the U.S. given their small footprint here," said Michael Krimminger, the FDIC's former general counsel and now a partner at Cleary Gottlieb Steen & Hamilton LLP.

The 2010 law requires banking giants to chart their bankruptcy through a detailed cataloging of business lines and a narrative of how the firm would be unwound. While the provision is meant to compel firms to be "resolvable," the plans could also help the FDIC clean up failed firms that the government deems are too systemic to be resolved through bankruptcy.

In their 2011 rule implementing the provision, the FDIC and Fed sought to ease the load on smaller firms subject to the requirement by establishing three tiered filing deadlines, as well as by saying they will accept "tailored" resolution plans from simpler companies covered under the rule.

"The resolution plan of a foreign-based company that has limited assets or operations in the United States would be significantly limited in its scope and complexity," the rule said.

But Tahyar said the agencies could go further in limiting the requirements for firms with relatively obscure activities in the U.S.

"A 'tailored' living will still has them having to go through all kinds of hoops," she said. "It still has to be in the thousands of pages. They should be able to have the option of submitting a miniature version of just 10 to 20 pages. What they mostly have here is an uninsured branch for loans to home country companies."

The biggest and most complex firms submitted first drafts in July 2012, and the second group will be filing this July. The third group of 115 filers, whose drafts are due by yearend, is comprised mostly of foreign firms. Some well-known names include, for example, Societe Generale, Mitsubishi UFJ Financial and Toronto-Dominion. The majority, however, are leading banks in their home countries but are not as familiar abroad.

"There is a particular question for them of whether the benefit of the living wills outweighs the burden of creating them," said Gregory Lyons, a partner at Debevoise & Plimpton. "Having said that, it will likely be easier for those banks than it will be for a large U.S. bank, because the resolution strategy will not be as complex."

But Krimminger said despite signals from the regulators that they will issue a "template" to help foreign based banks in the third group file narrower plans, "the challenge for the institutions is they have to file by the end of the year, and" the agencies have "not given a lot of guidance about what that short-form plan should look like."

Some observers said the information provided by any foreign-based company can help U.S. authorities anticipate how the overseas closure of the parent company would affect a branch or subsidiary based here.

Karen Shaw Petrou, managing partner of Federal Financial Analytics, noted that U.S. branches of foreign banks utilize funding advantages through the Fed Reserve system, and their U.S. branches are increasingly providing funding help to their foreign-based parent companies, instead of vice versa.

"The home country resolution regime, if any, is almost always structurally … different than the Dodd-Frank network. A lot of the banks are small in the United States but still really important back home where their bank system may be highly concentrated," she said.

"It's a round-peg-in-square-hole problem, particularly when it's a branch, of figuring out: What is a bankruptcy regime for it? It does make sense to figure out how even a relatively smaller operation functions under acute stress to the parent bank," Petrou said.

The agencies have signaled willingness to accept plans with less detail from firms that have narrower U.S.-based activities. Representatives of both the FDIC and the Fed said the two regulators plan to offer some clarity to both smaller U.S. banks and foreign-based based institutions about their "living will" obligations.

"The Federal Reserve appreciates the potential burden associated with producing resolution plans, and is working closely with the FDIC to provide clarification of our expectations for smaller U.S. banks and foreign-based banks with limited U.S. operations that are subject to the Dodd-Frank resolution plan requirements," said Barbara Hagenbaugh, a spokeswoman for the central bank.

An FDIC spokesman said the regulators recognize that "in certain circumstances … their operations will not require a full resolution plan."

"These covered companies … will have the option to submit a tailored plan that focuses primarily on their nonbank operations," said the spokesman, David Barr.

Bankers in the third group are hopeful regulators will work with them to limit the burden. Under their rule, the Fed and FDIC said companies could file tailored plans if they have less than $100 billion in total nonbank assets, and, for foreign firms, the assets held in their U.S.-based offices are primarily associated with an insured depository institution.

"The jury is still out. The rule contemplated the ability for the regulators to approve these 'tailored' plans. … We've asked permission to be able to submit these types of plans and are waiting to have some conversations with the regulators about how these tailored plans will compare," said Carlos Morales, the chief compliance executive in North America for Banco Espirito Santo. The Portuguese institution, with over $100 billion assets worldwide, has less than $2 billion of assets housed in two New York-based branches and a separate bank subsidiary in Florida.

"We're hopeful that this process will be less burdensome than it is for some of the other filers," Morales added. "Any regulation is going to be more work. But right now I'm hoping it's going to be manageable. All of our businesses in the United States are in entities that the bank regulators already regulate and know how to resolve."

But industry representatives argued that the regulatory burden imposed on the third-group companies is stricter than lawmakers had intended in Dodd-Frank.

"While the living-will requirement as applied to foreign banks focuses on their U.S. operations, it also requires that you address questions regarding interconnections and interdependencies between your U.S. operations and the rest of your group. … There is considerable concern from our banks about what they need to do to comply with this," said Richard Coffman, general counsel of the Institute of International Bankers.

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