The Federal Deposit Insurance Corporation and the Federal Reserve Board on Friday invited public comment on proposed changes to the guidance for resolution plans submitted by large foreign banks, including plans that are due by July 1, 2021. The updates focus on the agencies’ expectations around a firm’s derivatives and trading activities and payment, clearing, and settlement activities.
Resolution plans, commonly known as living wills, must describe the company’s strategy for rapid and orderly resolution in bankruptcy in the event of material financial distress or failure of the company. The resolution planning process helps ensure that a firm’s failure would not have serious adverse effects on the financial stability of the United States. For foreign banking organizations, resolution plans are focused on their U.S. subsidiaries and operations.
The proposed guidance is largely similar to the guidance from March 2017, and includes certain updates based on the agencies’ review of the firms’ most recent resolution plans and changes to the resolution planning rules. The proposed guidance also seeks comment on objective, quantitative criteria to determine its applicability. As of the date of the proposal, the firms that meet the proposed criteria are the U.S. operations of Barclays, Credit Suisse, and Deutsche Bank. Comments on this proposal will be accepted for 60 days.
Also on Friday, the Board announced that due to the substantial and sustained decrease in risk from the U.S. operations of UBS AG, it will now be supervised as part of its Large and Foreign Banking Organization supervision portfolio. The Board made this change after a comprehensive determination of the risks from the firm. As an example, the firm has decreased from roughly $375 billion to less than $200 billion in total assets over the past decade, and separate measures of complexity have also declined.
As a result of this change, the firm will be supervised alongside other banks of similar risk. This change will have no effect on the regulatory capital or liquidity requirements for the firm or the Board’s ability to supervise the activities of the firm.