Financial Services Spotlight

Review of Regulatory Responses to the Resolution Plans from the Big Foreign Banks

Posted by Roy Andersen on Jan 30, 2018 12:00:00 PM

Yesterday, the Fed and FDIC released their letters to the bigger foreign banks, i.e. the banks just below the UBS-level. The Fed’s letters were in response to the resolution plans filed in December of 2015. In these letters, the Fed and FDIC expressed what they expected in the next round of resolution plans from these banks due at the end of this year. The Fed conceded that even though these banks are huge, their U.S. activities are of "limited complexity." Only HSBC was given a laundry list of new items that the regulators expected to see in the 2018 Plan

In most cases (11 of the 19 banks), the Fed reduced the information that was required in the next filing and has authorized Reduced Plans so long as the banks in question meet certain criterion.  These conditions will apply for the next three filings. These big banks will be able to file basically the same information as the smaller foreign banks filed last year. In summary, this information will be: (1) material changes to the Plans; (2) actions to improve the Plans and (3) for U.S bank subsidiaries a strategy to protect those banks from risks related to nonbanking activities. For all of these items, a response of “no responsive information” is acceptable so long as there is an explanation. The notice requirement for a tailored Plan is also removed for these banks.

Directors or delegees still have to approve these filings.

Public sections are still required and must still cover the 11 items in the Fed’s rules. The Plans for these banks must assume that the banks are suffering financial distress under the "severely adverse economic conditions" scenario developed by the Fed.

These banks have to keep non-branch assets below $50 billion and not experience any material events affecting their business (i.e., an event that would materially affect a Plan).  If either occurs, then a Plan must be filed. 

Nine of the bigger foreign banks will still have to file Plans although the Fed is easing of the requirements and asking for a modest amount of specific information from some of these banks.

The executive summary and analysis may be limited to changes in the 2015 Plan occasioned by the Fed’s letter. The 2018 Plan may incorporate by reference the 2015 Plan, but discuss any material changes to strategy; liquidity or capital requirements; continued shared services following a bankruptcy of an IHC. The 2018 Plan should discuss improvements in the Plan since 2015 and how any bank affiliates will be protected from risks of nonbanking activities.  

In certain cases unique to the banks involved, the Fed is requiring that the 2018 Plan discuss particular issues. Regarding outsourced or shared services, some banks were required to provide additional support for any assumptions on the availability of continued services during a resolution—HSBC was given particular companies to discuss. Paribas was asked to discuss how outstanding securities repos would be treated. HSBC has to discuss capital needed to support its US material entities during the resolution; its liquidity sources available and how this funding will be affected under stress; and how its payments, clearing and settlement will be able to continue to operate especially as regards financial market utilities. For certain subsidiaries mentioned in the 2015 Plans that were not identified as "material entities" the Fed has asked for specific explanations why that is still not the case in 2018. For example, TD was asked to evaluate TD Ameritrade. 

For the stress scenario, the Plan has to assume the "severely adverse scenario” of economic conditions at the time the bank goes into resolution. Banks also have to discuss the adverse and baseline conditions to the extent relevant. 

For banks with IHCs, the regulators require changes to the Plan resulting from these requirements. 

These changes indicate that the regulators continue to ratchet back the information required in these plans even for the large active foreign banks operating in the U.S.

Topics: FDIC, Regulatory Filings, foreign banks, Resolution Plans

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The Financial Services Spotlight examines the regulatory and technology developments impacting banks, asset managers and other financial services providers—where challenges meet opportunities.

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Meet the Authors


Roy C. Andersen, of counsel in Sullivan & Worcester's New York office, is a member of the Corporate Department. Mr. Andersen focuses on bank regulatory and compliance matters, including international banks and their branches and agencies in New York.

Joel Telpner, partner in the firm's New York office, is a seasoned advisor, strategist and problem solver. Mr. Telpner brings more than 30 years of legal experience in a career that includes time as an AmLaw 100 partner, the former U.S. general counsel of a global financial institution, and a venture capitalist. He is recognized for his ability to deftly manage complex financial transactions, especially those involving sophisticated structured finance and derivatives matters and has an extensive and unique combination of transactional and regulatory experience.

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