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Cleary Gottlieb Discusses Fed’s Proposed Resolution-Planning Rules Overhaul

On April 8, 2019, the Federal Reserve proposed a broad overhaul of the 2011 regulations governing resolution planning (the “Proposal”)[1], which would significantly reduce the frequency of submissions and simplify requirements for many resolution plans.  The Proposal would modify the existing rule to incorporate the experience gained since the first plans were filed in 2013 to target planning efforts on key resolvability issues, while codifying the focus on the eight U.S. global systemically important banks (“U.S. G‑SIBs”).  Most significantly, the U.S. G-SIBs would only file resolution plans every two years alternating between full resolution plans and more limited “targeted plans”.  All other filers, including the four foreign banking organizations with the largest, most complex U.S. operations[2] would file resolution plans only every three years, similarly alternating between full and “targeted plans”.  U.S. filers with total consolidated assets below $250 billion would not be required to file any resolution plan.

Key Takeaways

The Proposal

The Proposal represents a significant departure from the current 2011 resolution plan rules and previous iterations of resolution planning guidance.  Most significantly, the Proposal extends the resolution planning submission cycle to two years for U.S. G-SIBs and to three years for all other covered firms.  Further lightening the burden, the Proposal reduces the content required for all firms’ plans, either in every plan, as is the case with the Reduced Plans submitted by Triennial Reduced Filers, or in every other submission with the Targeted Plans required of Biennial Filers and Triennial Full Filers.

The Proposal also allows for significantly greater tailoring of the resolution planning requirements to individual filers.  Both the Agencies and firms are required to review firms’ critical operations periodically and specifically contemplates “de-identifying” critical operations.  Further, as under the current rule,[5] requirements may be waived by the regulators for individual filers of groups of filers on their own initiative or in response to requests submitted by filers.

See the Appendix for a table reflecting the composition of each filing group and their respective filing cycles, requirements and submission timelines.

Categories of Filers

The Proposal classifies potential resolution plan filers into four new categories of firms in conformity with the U.S. Tailoring Proposal.  The four categories are:

Category I

Category II

Category III

Category IV

Were a company to reduce its assets or risk indicators such that it moved below the threshold for Category IV status, the Proposal provides that it could exit covered company status.  The Proposal bases this determination on the four most recent calendar quarters for the company, if it files Form FR Y-7Q quarterly, while it bases it on two consecutive years if the company files Form FR Y-7Q annually.

The EGRRCPA requires that the Agencies limit resolution planning requirements to financial companies with $250 billion or more in total consolidated assets absent designation by the Federal Reserve.  For FBOs, this threshold is based on worldwide total consolidated assets.  This is particularly relevant to Category IV, of course, as noted below.

Filing Groups and Due Dates

The Proposal modifies the resolution planning rules to better fit the risk posed by each firm filing a resolution plan.  It accomplishes this through sorting covered companies into new categories of filers, changing the submission cycles and plan content for the different filer categories, implementing specific transition periods for the different submission cycles, reviewing critical operations and providing clarification to previous regulations and guidance.  The Proposal also requests comment on whether an alternative system of categorization would be more appropriate.

All submission dates are now July 1, updated from some filing dates in July and some in December.

Biennial Filers

Triennial Full Filers

Triennial Reduced Filers

Other Category IV Filers 

Resolution Plan Content

The Federal Reserve emphasized its goals of promoting clarity and reducing the burden of filing in proposing three types of resolution plans:  Full Plans, Targeted Plans and Reduced Plans.  Within this structure, the Federal Reserve did not materially change the baseline Full Plan requirements, but specified that Targeted Plans and Reduced Plans need only include a subset of those requirements.

In addition, the Proposal will enable covered companies to apply for a waiver to exclude certain information requirements from their plans.  The current rule’s provisions for “tailored plans” would be eliminated.

Full Plans.  The Proposal would retain the current plan requirements for Full Plans, with the addition of including material changes within the Executive Summary.

Targeted Plans.  In alternating cycles, covered companies in Categories I, II and III would be required to complete resolution plans with limited contents.

Reduced Resolution Plans.  Applicable only to Category IV filers, covered FBOs would be required to file Reduced Plans every three years.

Tailored Resolution Plans.  Eliminated under this proposal, as the Agencies believe that the proposed waiver process and the establishing Targeted Plans will remove any need for tailored plans going forward.

Waiver Requests.  The Proposal expands on the current ability of the Agencies to provide waivers of plan requirements.  On their own initiative, the Agencies may jointly waive any of the plan content requirements for Full Plans, Targeted Plans of Reduced Plans.

In addition, any filer submitting a Full Plan would be eligible to submit one written request at least 15 months prior to the submission filing deadline describing the informational content requirements sought to be waived.  The waiver would be granted if the Agencies do not respond before nine months prior to the submission filing deadline.

Critical Operations Review

The Federal Reserve acknowledged that the critical operations identified by firms and by the Agencies have remained largely unchanged.  In order to provide flexibility to firms as they may change over time, the Federal Reserve is proposing a system for the Agencies and for firms to identify, de-identify and challenge the Agencies’ identifications of critical operations.

Clarifications to Previous Regulations and Guidance

The Proposal also includes nine specific clarifications to previous guidance and regulation.  Clarifications include the following:

  1. Timing of New Filings, Firms that Change Filing Categories, and Notices of Extraordinary Events.
  1. Resolution Strategy for Foreign-based Covered Companies. The Proposal would clarify that FBOs should not assume that the covered company takes resolution actions outside of the United States that would eliminate the need for any U.S. subsidiaries to enter into resolution proceedings consistent with guidance.
  2. Covered Company in Multi-tier Foreign Banking Organization Holding Companies. The proposal includes a formal process by which the Agencies would identify a subsidiary in a multi-tiered FBO holding company structure to serve as the covered company that would be required to file the resolution plan.  The Federal Reserve determined that there is no benefit to the Agencies in obtaining information on top tier holding companies that are governments, sovereign entities or family trusts.
  3. Incorporation by Reference. The Proposal would require more specific citations to relevant page ranges or subsection.  The Proposal would require the referenced information to remain accurate in all respects that are material to the covered company’s resolution plan.
  4. Clarification of the Mapping Expectations for Foreign Banking Organizations. The Proposal would clarify that FBOs would be expected to map the following:
  1. Standard of Review.
  1. Assessment of New Covered Companies. The Proposal would clarify that a foreign banking organization’s status as a covered company would be assessed quarterly for foreign banking organizations that file the Federal Reserve’s Form FR Y-7Q (“FR Y-7Q”) on a quarterly basis and annually for foreign banking organizations that file FR Y-7Q on an annual basis only.  In each case, the assessment would be based on total consolidated assets as averaged over the preceding four calendar quarters as reported on the FR Y-7Q.

In addition, the Proposal would also address the process for assessing a firm whose assets have grown due to a merger, acquisition, combination, or similar transaction for covered company status.  Under these circumstances, the Agencies would have the discretion to alternatively consider, to the extent and in the manner the Agencies jointly consider appropriate, the relevant assets reflected on the one or more of the four most recent reports of the pre-combination entities (the Federal Reserve’s Form FR Y-9C in the case of a U.S. firm and the FR Y‑7Q in the case of a foreign banking organization).

  1. Deletion of “deficiencies” relating to management information systems. The Proposal deletes the term “deficiencies” from this informational content requirement in order to avoid confusion with the proposal’s new definition of “deficiencies” described above.  The Proposal would still require resolution plans to include information about a covered company’s management information systems, including a description and analysis of the system’s “gaps or weaknesses” in the system’s capabilities.
  2. Removal of the Incompleteness Concept and Related Review. The “incompleteness” concept has rarely been used since 2012, so the Federal Reserve propose to remove the concept.

Alternative Scoping and Tailoring Criteria

As noted above, the currently proposed methodology to separate firms into different categories is based on the asset size and risk-based indicators used for purposes of tailoring prudential requirements.  However, in making the Proposal, the Federal Reserve suggested it is open to using a different methodology to determine into which category a firm falls.

Scoring Methodology.  In the U.S. Tailoring Proposal, the Federal Reserve offered an alternative approach to assess the systemic risk of banking organizations using one all-inclusive score.  The Agencies could use these scores to determine whether to require resolution plan submissions to firms with $100 billion or more but less than $250 billion in total consolidated assets, and which requirements to impose on such firms.

Potential for Scoping.  The Proposal gives Method 1 and/or Method 2 score ranges for the different categories of firms.  In finalizing this rule, the Federal Reserve noted that the Agencies would pick a single score within the listed ranges: they would select an individual score threshold for each of Method 1 and Method 2 such that if a firm’s score for either Method exceeded either score threshold, the firm would fall into that Category.

Potential for Tailoring.  The Agencies could use the scoring methodology to tailor resolution plan requirements as well, not just categorize the covered companies.

Future Steps

On April 8, 2019, the Federal Reserve passed the Proposals in a 4-1 vote, with Governor Lael Brainard voting against.  The comment period for the Proposal ends June 21, notwithstanding when it is published in the Federal Register.  While the FDIC has not yet approved the Proposal, the FDIC Board of Directors is scheduled to meet on April 16, 2019 to vote on the Proposal.

In responding to the Proposal, we expect commenters to focus on the following issues and questions posed by the Federal Reserve: the selection and thresholds for the risk-based indicators, the transition period for implementation, the content of Targeted Plans and Reduced Plans and the critical operation review process.

Filing Groups and Requirements
Biennial Filers
Covered Companies
Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street, Wells Fargo

·     Any other future filers subject to the Category I standards

·     Any future designated non-bank financial companies (designated as Biennial Filers)

Filing Cycle ·     Every two years

·     Alternating between Full Plan and Targeted Plan

Submission Timeline ·     Next plan due July 1, 2019 (Full Plan)

·     Subsequent plan due July 1, 2021 (Targeted Plan)


Triennial Full Filers
Covered Companies  
Barclays, Capital One, Credit Suisse, Deutsche Bank, HSBC, Mizuho, MUFG, Northern Trust, PNC Financial, Royal Bank of Canada, Toronto Dominion, UBS, US Bancorp

·     Any other future filers subject to Category II or Category III standards

o   Category II: (1) U.S. firms with (a) ≥ $700 billion total consolidated assets or (b) ≥ $100 billion total consolidated assets with ≥ $75 billion in cross-jurisdictional activity; or (2) FBOs with (a) ≥ $700 billion combined U.S. assets; or (b) ≥ $100 billion combined U.S. assets with ≥ $75 billion in cross-jurisdictional activity

o   Category III: (1) U.S. firms with (a) ≥ $250 billion and < $700 billion total consolidated assets or (b) ≥ $100 billion total consolidated assets with ≥ $75 billion in nonbank assets, wSTWF, or off-balance sheet exposure; or (2) FBOs with (a) ≥ $250 billion and < $700 billion combined U.S. assets; or (b) ≥ $100 billion combined U.S. assets with ≥ $75 billion in nonbank assets, wSTWF, or off-balance sheet exposure

·     Any future designated non-bank financial companies (designated as Triennial Full Filers)

Filing Cycle ·     Every three years

·     Alternating between Full Plan and Targeted Plan

Submission Timeline ·     Next plan due July 1, 2021 (Full Plan)

·     Subsequent plan due July 1, 2024 (Targeted Plan)

Triennial Reduced Filers
Covered Companies  
Agricultural Bank of China, Australia and New Zealand Banking Group, Banco Bradesco, Banco De Sabadell, Banco Do Brasil, Banco Santander, Bank of China, Bank of Communications, Bank of Montreal, Bank of Nova Scotia, Bayerische Landesbank, BBVA Compass, BNP Paribas, BPCE Group, Caisse Federale de Credit Mutuel, Canadian Imperial Bank of Commerce, China Construction Bank Corporation, China Merchants Bank, CITIC Group Corporation, Commerzbank, Commonwealth Bank of Australia, Cooperative Rabobank, Credit Agricole Corporate and Investment Bank, DNB Bank, DZ Bank, Erste Group Bank AG, Hana Financial Group, Industrial and Commercial Bank of China, Industrial Bank of Korea, Intesa Sanpaolo, Itau Unibanco, KB Financial Group, KBC Bank, Landesbank Baden-Weurttemberg, Lloyds Banking Group, National Agricultural Cooperative Federation, National Australia Bank, Nordea Group, Norinchukin Bank, Oversea-Chinese Banking Corporation, Shinhan Bank, Skandinaviska Enskilda Banken, Societe Generale, Standard Chartered Bank, State Bank of India, Sumitomo Mitsui Financial Group, Sumitomo Mitsui Trust Holdings, Svenska Handelsbanken, Swedbank, UniCredit Bank, United Overseas Bank, Westpac Banking Corporation, Woori Bank

·     Any other future filers subject to Category IV standards that are FBOs with ≥ $250 billion in global consolidated assets and are not subject to Category II or Category III standards

Filing Cycle ·     Every three years

·     Reduced Plans

Submission Timeline ·     Next plan due July 1, 2022 (Reduced Plan)

·     Subsequent plan due July 1, 2025 (Reduced Plan)


[1] Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, Proposal to Modify Resolution Plan Requirements for Domestic and Foreign Banks (Apr. 8, 2019).  As a joint rule, the Proposal also must be adopted by the FDIC.  Together the Federal Reserve and the FDIC will be referred to as the “Agencies”.

[2] The U.S. G-SIBs are Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and Wells Fargo.  These four foreign banking organizations (“FBOs”), Barclays, Credit Suisse, Deutsche Bank and UBS, previously were designated as July filers.

[3] Board of Governors of the Federal Reserve System, Federal Reserve Board invites public comment on framework that would more closely match regulations for large banking organizations with their risk profiles (Oct. 31, 2018).

[4] Barclays, Capital One, Credit Suisse, Deutsche Bank, HSBC, Mizuho, MUFG, Northern Trust, PNC Financial, Royal Bank of Canada, Toronto-Dominion, UBS, and US Bancorp.

[5] The current authority is found in 12 C.F.R. § 381.4(k).

[6] The combined U.S. assets means the sum of the consolidated assets of each top-tier U.S. subsidiary of the foreign banking organization (excluding any section 2(h)(2) company as defined in section 2(h)(2) of the Bank Holding Company Act (12 U.S.C. 1841(h)(2)), if applicable) and the total assets of each U.S. branch and U.S. agency of the foreign banking organization, as reported by the foreign banking organization on the FR Y-7Q.

[7] The 13 Category II and Category III filers are Barclays, Capital One, Credit Suisse, Deutsche Bank, HSBC, Mizuho, MUFG, Northern Trust, PNC Financial, Royal Bank of Canada, Toronto Dominion, UBS and US Bancorp.

[8] These constitute 53 FBO filers listed in an Appendix to the Proposal.

This post comes to us from Cleary, Gottlieb, Steen & Hamilton LLP. It is based on the firm’s memorandum, “Agencies Propose Revised RRP Rules: Less Frequent & More Focused Plans Seek to Balance Costs Against Benefits,” dated April 11, 2019, and available here. Josh Nimmo, Brian Kesten and Luca Amorello contributed to the memorandum.

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