Scrapping certain large bank resolution plans requirements set by the FDIC
The Federal Deposit Insurance Corporation (FDIC) has recently revised its approach to resolution planning for large banks, with the aim of enhancing transparency and readiness for the resolution of complex insured depository institutions (IDIs) under both bankruptcy and the Federal Deposit Insurance Act.
These updated plans, set to be submitted by July 1, 2025, focus on orderly resolution strategies, fostering greater transparency and preparedness. The revisions reflect a continued focus on improving resolution readiness to avoid systemic disruption.
Regarding bridge bank strategies, the FDIC’s updated resolution planning underscores their critical role in orderly resolution. Bridge banks serve as temporary institutions created by the FDIC to assume and maintain essential banking services during a failed bank’s resolution. The recent resolution plans are built to enable the FDIC to promptly employ bridge bank strategies to maintain stability and continuity of operations for failed large IDIs, aiming for an efficient transfer of assets and liabilities without taxpayer bailouts.
The FDIC’s changes also aim to focus the resolution planning process on operational information most relevant for the FDIC. Notably, the FDIC has revised its definition of "key personnel," now including those with significant roles in the bank’s resolution, but not those who can be easily replaced.
In addition, the FDIC has updated how lenders should classify parts of their business that could be sold in connection with a resolution. Resolution capabilities testing by the FDIC will not occur before 2026, and in 2026, the FDIC will initially evaluate whether a bank offers information that supports the regulator’s ability to market and execute a timely sale or disposition of the lender.
The main goal for large banks, according to Acting Chair Travis Hill, should be maximizing the likelihood of the optimal resolution option, which is generally a weekend sale. Hill stated that the 2023 bank failures served as a reminder of the costly and damaging nature of a bridge bank solution and that the changes are a step towards maximizing the likelihood of a lower cost and more stabilizing resolution for large regional banks.
However, Hill also mentioned that the FDIC’s 2024 updates to its resolution planning rule incorporated the wrong lessons from the 2023 bank failures. The FDIC no longer requires banks to include a hypothetical failure scenario in their resolution plans. The FDIC may provide additional updates to the rule as it continues to evaluate other provisions and how they apply to different groups of banks.
It's worth noting that the FDIC has waived a requirement for quantitative analysis related to valuation, but banks must still provide a qualitative description of how they would determine values. The FDIC has not mentioned any changes regarding the purchase of licensing rights in the context of this announcement.
These updates to the FDIC’s resolution planning rule were previewed by Hill earlier this month while speaking at an American Bankers Association summit in Washington, D.C. The FDIC's revised approach to large bank resolution planning is designed to improve the efficiency and effectiveness of resolving failed banks, while minimizing systemic risks and taxpayer exposure.
[1] Source: FDIC press release, American Banker article, and Acting Chair Travis Hill's speech at the American Bankers Association summit.
The FDIC's revised resolution planning for large banks, as detailed by Acting Chair Travis Hill, emphasizes the importance of enhancing operational transparency and readiness to minimize systemic disruption, which directly concerns the finance and business sectors. The updated planning also focuses on developing efficient resolution strategies, such as the prompt employment of bridge banks to ensure stability and continuity of operations, primarily in the financial sector.
