Reg relief on living wills is a 'negative' for megabanks, Fitch says

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A proposal by federal regulators that would allow megabanks to file resolution plans less often would be a negative credit event for those institutions, Fitch Ratings said Monday.

The note by Fitch suggested there is value in having global systemically important banks submit plans each year.

“As regulatory requirements continue to ease on the margin for the largest banks, risks inherent to their complexity can be further exacerbated by the loss of comparative data from annual resolution planning and stress testing data,” Fitch analysts said.

The Federal Reserve and Federal Deposit Insurance Corp. issued a proposal last month to extend the living will deadlines for GSIBs from one year to every other year depending on the intuition’s size and risk categories.

In general, the largest banks in the first category would submit resolution plans every two years starting July 1, alternating between full and “targeted” plans, which focus mainly on capital and liquidity. The second and third category banks would file living wills every three years, also alternating between full and targeted plans.

The regulators can still require a resolution plan from any bank going through bankruptcy or financial distress at any time. However, Fitch said another area of concern in the proposal is the ability for banks that previously submitted plans to get a waiver from having to file certain information.

“This could further impede historical and peer analysis of banks, especially with GSIBs only filing full resolution plans every four years, with other systemically important banks filing full plans every six years,” Fitch said in the note.

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