OCC’s Recovery Planning Proposal

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Mike Alix, Adam Gilbert, and Armen Meyer.

On December 17th, the Office of Comptroller of the Currency (OCC) proposed recovery planning standards for banks with assets of $50 billion or more. [1] The proposal was released exactly one year after the FDIC released guidance for covered insured depository institutions (CIDI) that significantly raised the resolution planning bar for many of these same banks. [2]

Most institutions will find that they will be able to leverage their existing risk management, business continuity planning, capital and liquidity planning, stress testing, and resolution plans in order to build their recovery plan. Many of the proposed standards’ requirements can be met by modifying existing bodies of work.

The proposed standards signal regulators’ desire for broad industry application of recovery and resolution planning. Despite industry chatter suggesting that the group of institutions subject to detailed recovery and resolution planning might be narrowed to focus only on larger firms (e.g., over $500 billion), the proposed standards taken together with last year’s FDIC guidance demonstrate the opposite. To further underscore the point, the proposed standards state that the OCC may opt to apply the standards to institutions with less than $50 billion in assets that are deemed “highly complex or otherwise present a heightened risk.”

The proposal aligns with the Fed’s recovery guidance for the US’s eight largest banking entities. The Fed’s recovery guidance to the US’s eight global systemically important banks (i.e., SR 14-8) [3] added details to earlier Fed guidance (i.e., SR 12-17) which required all US bank holding companies (BHCs), and foreign banking organizations (FBOs) operating in the US, with over $50 billion in US assets to prepare a recovery plan. The OCC’s proposed standards effectively extend the details of SR 14-8 to all insured banks with over $50 billion in assets, emphasizing the following:

  • A broad range of scenarios.
  • Quantitative and qualitative triggers.
  • A robust menu of recovery options and their impact assessments.
  • MIS and trigger monitoring protocol. [4]
  • Escalation and communication plans.
  • Governance, including clear roles and responsibilities for senior management and the board.

Even the largest BHCs that already embrace SR 14-8 will still likely need to modify their plans to address recovery at their bank levels. However, modification will particularly be needed for FBOs whose US operations have only been subject to SR 12-17 and have often been relying upon their parents’ global recovery plans.

Many banks are likely to experience situations that would trigger their recovery plan. The proposal is intended for stress levels ranging from very low severity to very high, but not catastrophic (i.e., no imminent bank failure). This range is in contrast to resolution plans which address catastrophic scenarios that are generally considered low probability.

A menu of recovery options that details how each option would be executed is required. The proposed standards call for each recovery plan to detail the decision making process, the execution steps, critical parties, regulatory approvals, and potential impediments. However, compared to SR 14-8, the proposal requires less detailed financial analysis and less emphasis on an impact assessment on third parties.

The proposed standards do not specify an effective date or a common submission deadline. The OCC has requested comments on the proposed standards by February 16, 2016, suggesting the standards are unlikely to become effective until the second half of 2016. Furthermore, the proposal does not include a common submission deadline; instead, the OCC will review recovery planning efforts as part of its regular supervisory activities.

The proposal includes helpful examples of the OCC’s expectations. For instance, the proposed standards indicate that recovery plan triggers could include quantitative measures such as capital/liquidity levels, profitability ratios, or asset quality indicators. Plans could also include qualitative triggers such as ratings downgrades, access to credit, adverse legal rulings, or the departure of senior leadership. With respect to scenarios, helpful examples include fraud, portfolio shocks, cyber attacks, or accounting/tax issues. Finally, examples of recovery options include conserving/replenishing capital or liquidity, the sale or transfer of significant assets/businesses, reducing the bank’s risk profile, restructuring liabilities, activating emergency protocols, or succession planning.

Integrating recovery planning with other planning and contingency efforts will be important. The proposed standards highlight the benefits of including strategic, operational, contingency, capital (including stress testing), liquidity, and resolution planning into recovery planning. Banks should leverage work already done, including analyses developed for identifying core businesses, critical operations, and material entities as part of resolution planning.

The OCC plans to flexibly enforce the proposed standards. Because the standards were not issued as a regulation, the OCC’s proposal explicitly indicates it will exercise discretion to enforce the standards as appropriate for each bank depending on their individual risk profiles and complexities.

Recovery planning standards for state-chartered banks are likely on the horizon. Given the proposed standards only apply to federal institutions, [5] it would not surprise us if the FDIC followed suit with similar recovery planning requirements for its banks that are already subject to resolution planning.

There is work to do. Regulatory requirements have evolved quickly in the years following the financial crisis and the passage of Dodd Frank. As a result, banking entities have largely been addressing new requirements individually instead of as part of a more comprehensive suite of management tools. This proposal may serve as a catalyst to integrate the disparate regulatory initiatives into a more cohesive and consistent approach, with unified governance, processes, and infrastructure. At a minimum, the proposed standards should prompt banks to take the following steps:

  • Take stock of integration opportunities across regulatory initiatives—start by inventorying all related work in the stress testing and recovery planning contexts.
  • Consider (or reconsider) establishing a full time office of recovery and resolution planning that is fully integrated into business as usual processes and governance, if not already done.
  • Ensure senior management is involved, especially as it relates to obligations clearly laid out in the proposal such as annually reviewing recovery plans and reviewing the breach of any trigger.
  • Engage with regulators to understand their expectations—given the intentional flexibility provided to the OCC in the proposed standards, banks should seek to understand the regulators’ view of their complexity and risk profile.


[1] These banks include insured national banks, federal savings associations, and federally licensed branches of foreign banks.
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[2] See PwC’s First take, Ten key points from the FDIC’s resolution plan guidance (December 19, 2014).
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[3] See PwC’s Regulatory brief, Recovery planning: Until the last gasp (October 2014).
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[4] While both SR 14-8 and the proposed standards stress the need for timely availability of data to make decisions, the proposed standards go a step further by calling for inventorying the reports that management or the board will use to monitor the bank’s status.
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[5] See note 1.
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