WASHINGTON — Bank regulators on Friday approved all 16 resolution plans, known as living wills, for a selection of midsize and regional banks but singled out Northern Trust for additional corrections ahead of its next submission.

The Federal Reserve and the Federal Deposit Insurance Corp. determined that the plans submitted in December 2015 were credible and would allow the institutions to be resolved through traditional bankruptcy.

But regulators did find shortcomings in Northern Trust’s submission and advised it on additional improvements that it will look at when the Chicago bank submits its next resolution plan on Dec. 31. The flaws were largely related to Northern Trust’s multiple-point-of-entry resolution strategy.

Federal Reserve building in Washington, D.C.
The Federal Reserve and FDIC cited Northern Trust over concerns about its multiple-point-of-entry resoution plan. Bloomberg News

“The firm's multiple point-of-entry (MPOE) based resolution strategy envisions the reorganization, liquidation, or other resolution of its material entities, core business lines, and critical operations under various resolution regimes across multiple jurisdictions,” the agencies said. “The agencies identified three areas where a weakness or gap in the 2015 Plan rose to the level of a shortcoming because it raised questions about the feasibility of NTC's resolution strategy.”

Most institutions have created resolution plans built around a single-point-of-entry resolution model, in which regulators enter through one entity and run other subsidiaries in an attempt to wind down the overall institution. As the name suggests, a multiple-point-of-entry plan envisions regulators entering through several points.

Regulators' singling out of Northern Trust for its multiple-point-of-entry resolution plan is consistent with the agencies’ apparent preference for a single-point-of-entry resolution plan.

Late last year, Wells Fargo was the only one of the biggest banks whose resolution plan was rejected, primarily because of issues related to its multiple-point-of-entry strategy. BNY Mellon also had such a strategy, but opted instead to move to a single-point strategy after its initial living-will submission was rejected last year. BNY’s resubmission was accepted, while Wells’ MPOE living will was rejected.

Regulators cited Northern Trust in particular for issues involving intraday funding liquidity. Its multiple-point resolution strategy “does not describe the intraday funding flows between material entities in resolution” and “does not fully address risks associated with cross-border funding flows,” they said. The regulators also noted that the 2015 submission lacked financial projections for four of Northern Trust’s material subsidiaries.

“The 2017 Plan should clearly demonstrate the firm's ability to measure the standalone liquidity position of each material entity, including any non-U.S. branch that is a material entity, such as the London branch, and that the funding needed to continue critical operations would be readily available to execute the preferred resolution strategy,” the letter said. “The 2017 Plan should also discuss the extent to which the continuity of critical operations is dependent on cross-border funding flows and how the firm is mitigating risk to the continuity of critical operations should such funding become trapped during the runway period.”

The regulators also said it is not convinced of Northern Trust’s assertion that uninsured deposits would be transferred to an FDIC-insured bridge bank in the event of a crisis. The regulators said the firm’s 2017 resolution plan “should treat non-dually payable foreign deposits as unsecured general creditor claims.”

Operational risks were addressed at Northern Trust as well, with regulators noting that many front and back office services are performed through affiliates or third party vendors who may or may not be obligated to continue to perform those services in the event of resolution.

The Fed and FDIC issued their determinations for 15 other banks, including American Express; Ally Financial; BB&T; Capital One Financial; Comerica; Discover Financial Services; Fifth Third Bancorp; Huntington Bancshares; KeyCorp; M&T Bank; Regions Financial; SunTrust Banks; PNC Financial Services Group; U.S. Bancorp and Zions Bancorp.

Four foreign banks — Barclays, Credit Suisse, Deutsche Bank and UBS — received guidance on their resolution planning for U.S.-based intermediate holding companies but did not publish extensive notes on shortcomings but said the “guidance is organized around a number of key vulnerabilities, such as capital, liquidity, and governance mechanisms.” The agencies did agree to extend the deadline for those banks’ formal living will submissions to July 1, 2018.

A Northern Trust spokesman said the Fed's letter is "is consistent with the ongoing enhancements Northern Trust has been making to resolution planning" since its 2015 submission. The firm "expects to address the feedback in its next resolution plan" and "maintains a strong financial position and capital ratios and is confident in the financial strength and operational resiliency of its businesses," the spokesman said.

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