The 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) requires each large bank holding company and non-U.S. bank with U.S. banking operations (total consolidated assets of $50 billion or more) to file an annual resolution plan (informally referred to as a “living will”) with the Federal Reserve Board (FRB) and the Federal Deposit Insurance Corporation (FDIC) that discusses how such company could be “resolved,” in a rapid and orderly manner, in the event of a material financial distress or failure of the company. Recently, the two agencies issued press releases criticizing the latest plans of the largest filers while providing guidance for the smaller filers that oftentimes can submit more limited plans.
The FRB and the FDIC have instituted a staggered schedule for filing of the plans. The largest companies, generally those with $100 billion or more in U.S. nonbank assets, are required to submit their plans on or before July 1 each year. All other firms are required to submit their plans on or before December 31 each year.
Large Filer Deficiencies Exposed
In an August 5, 2014, press release, the agencies generally described their criticism of the living wills submitted by the largest U.S. and non-U.S. companies in 2013. While each company will receive its own letter describing the specific shortcomings that must be addressed by the time of the company’s next submission in July 2015, the agencies noted that there were several common shortcomings in these plans, such as unrealistic or unsupported assumptions, and a failure to make or identify the types of changes in the companies’ structures that would enhance the prospect of an orderly resolution. Next year’s plans should demonstrate that the companies are making “significant progress” in addressing the shortcomings and improving their resolvability under the U.S. Bankruptcy Code, such as by simplifying organizational structure. Access the agencies’ press release.
Guidance Provided for Smaller Filers
At the other end of the filing spectrum are the 117 U.S. and non-U.S. companies with the December 31 filing date. Oftentimes these companies may file so-called “tailored plans” that focus on the nonbank operations of the company and the connections and dependencies between the company’s banking and nonbanking operations. In an August 15, 2014, press release, the agencies stated that after review of the initial plans filed by these companies in December 2013, they were providing more specific guidance on preparing the plans to be filed in December 2014. Thirty one of the one hundred seventeen will have to file the full plan, while the others will be able to take advantage of the tailored plan or focus on material changes to the plan and any actions taken to strengthen the resolution plan. The agencies also issued a new template that can be used to prepare a tailored plan. Access the agencies’ press release and the new tailored plan template.