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Will Banks’ Latest Round of Dodd-Frank Resolution Plans Pass Muster?

Author: Robert A. Marsico|November 22, 2013

Will Banks’ Latest Round of Dodd-Frank Resolution Plans Pass Muster?

The requirement that large banks submit written plans for rapid and orderly resolution in bankruptcy in the event of financial failure is a key feature of the federal government’s plan to keep the 2008 financial crisis from repeating. However, many banks still need to fine-tune their resolution plans, according to federal regulators.

Under the Dodd-Frank Act, certain large U.S. financial institutions must submit resolution plans to the Federal Reserve Board of Governors (Board) and the Federal Deposit Insurance Corporation (FDIC), which detail the banks’ strategies for liquidation or reorganization under the U.S. bankruptcy code in the event of material financial distress or failure. The plans, which are required in response to the “too big too fail” problem of the 2008 financial meltdown, call for banks to manage a similar crisis without extraordinary government assistance.

Financial institutions with $250 billion or more in U.S. nonbank assets were required to submit their initial plans last summer. Those firms include Bank of America Corporation, Bank of New York Mellon Corporation, Barclays PLC, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group, Inc., JPMorgan Chase & Co., Morgan Stanley, State Street Corporation, and UBS AG.

However, the regulators ultimately determined that most of the submitted resolution plans fell short. In subsequent Federal Reserve guidance, the FDIC and the Board called for more detailed information and analysis regarding how the firms would address obstacles to resolvability under the Bankruptcy Code, including multiple competing insolvencies, global issues, financial market utility interconnections, and funding and liquidity. The regulators also required the banks to provide additional support for the strategies and assumptions contained in their resolution plans.

In essence, the agencies want to ensure that the resolution plans offer a credible strategy rather than simply fulfill a regulatory requirement. If the Board and the FDIC are still not satisfied, they have the power to force restructuring, although such a drastic measure is unlikely. The next group of banks —those with less than $100 billion total U.S., non-bank assets — must submit their final plans by the end of the year.

If you have any questions about the new resolution plan requirements or would like to discuss the legal issues involved, please contact me, Robert Marisco, or the Scarinci Hollenbeck attorney with whom you work.

Will Banks’ Latest Round of Dodd-Frank Resolution Plans Pass Muster?

Author: Robert A. Marsico

The requirement that large banks submit written plans for rapid and orderly resolution in bankruptcy in the event of financial failure is a key feature of the federal government’s plan to keep the 2008 financial crisis from repeating. However, many banks still need to fine-tune their resolution plans, according to federal regulators.

Under the Dodd-Frank Act, certain large U.S. financial institutions must submit resolution plans to the Federal Reserve Board of Governors (Board) and the Federal Deposit Insurance Corporation (FDIC), which detail the banks’ strategies for liquidation or reorganization under the U.S. bankruptcy code in the event of material financial distress or failure. The plans, which are required in response to the “too big too fail” problem of the 2008 financial meltdown, call for banks to manage a similar crisis without extraordinary government assistance.

Financial institutions with $250 billion or more in U.S. nonbank assets were required to submit their initial plans last summer. Those firms include Bank of America Corporation, Bank of New York Mellon Corporation, Barclays PLC, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group, Inc., JPMorgan Chase & Co., Morgan Stanley, State Street Corporation, and UBS AG.

However, the regulators ultimately determined that most of the submitted resolution plans fell short. In subsequent Federal Reserve guidance, the FDIC and the Board called for more detailed information and analysis regarding how the firms would address obstacles to resolvability under the Bankruptcy Code, including multiple competing insolvencies, global issues, financial market utility interconnections, and funding and liquidity. The regulators also required the banks to provide additional support for the strategies and assumptions contained in their resolution plans.

In essence, the agencies want to ensure that the resolution plans offer a credible strategy rather than simply fulfill a regulatory requirement. If the Board and the FDIC are still not satisfied, they have the power to force restructuring, although such a drastic measure is unlikely. The next group of banks —those with less than $100 billion total U.S., non-bank assets — must submit their final plans by the end of the year.

If you have any questions about the new resolution plan requirements or would like to discuss the legal issues involved, please contact me, Robert Marisco, or the Scarinci Hollenbeck attorney with whom you work.

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