Tag: Recovery & resolution plans


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.

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Recovery Planning for Large National Banks

This post is based on a Sullivan & Cromwell LLP publication by C. Andrew GerlachRebecca J. Simmons, Mark J. Welshimer and Connie Y. Lam. Mr. Gerlach, Ms. Simmons, and Mr. Welshimer are partners in the Financial Services Group; and Ms. Lam is a firm associate.

On December 16, 2015, the Office of the Comptroller of the Currency (the “OCC”) solicited public comment, through a Notice of Proposed Rulemaking (the “NPR”), [1] on proposed guidelines to establish standards for recovery planning by certain large insured national banks, insured Federal savings associations and insured Federal branches of foreign banks (the “Guidelines”).
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CFTC’s Proposed Rules on Cybersecurity

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Sean Joyce, Joseph Nocera, Jeff Lavine, Didier Lavion, and Armen Meyer.

Last week, the Commodity Futures Trading Commission (CFTC) proposed cybersecurity regulations for electronic trading platforms, clearing organizations, and data repositories. Most importantly, the proposal calls for five types of systems testing, the most impactful of which is the requirement that organizations test key controls (e.g., access to sensitive data or procedures that control changes to critical systems).

Guidance from other regulators thus far has come in the form of examination guidelines or self-assessment tools rather than regulations. [1] The CFTC’s proposal would be the first cybersecurity regulation, and some other regulators are likely to follow suit. [2]

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Shadow Resolutions as a “No-No” in a Sound Banking Union

Luca Enriques is Allen & Overy Professor of Corporate Law at Oxford University. The following post is based on a paper co-authored by Professor Enriques and Gerard Hertig.

Credit crisis related bank bailouts and resolutions have been actively debated over the past few years. By contrast, little attention has been paid to resolution procedures being generally circumvented when banks are getting insolvent in normal times.

In fact, supervisory leniency and political considerations often result in public officials incentivizing viable banks to acquire failing banks. In our book chapter Shadow resolutions as a no-no in a sound Banking Union, published in Financial Regulation: A Transatlantic Perspective 150-166 (Ester Faia et al. eds.), Cambridge University Press, 2015, we consider this a very unfortunate approach. It weakens supervision, distorts competition and, most importantly, gives resolution a bad name.

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UK Regulatory Proposals and Resolvability

Barnabas Reynolds is head of the global Financial Institutions Advisory & Financial Regulatory Group at Shearman & Sterling LLP. This post is based on a Shearman & Sterling client publication by Mr. Reynolds, Thomas DoneganReena Agrawal SahniJoel MossAzad AliTimothy J. Byrne, and Sylvia Favretto.

The Bank of England, the UK authority with powers to “resolve” failing banks, is consulting on how it might exercise its power of direction to remove impediments to resolvability. The Bank may require measures to be taken by a UK bank, building society or large investment firm to address a perceived obstacle to credible resolution. Concurrently, the Prudential Regulation Authority is proposing to impose a rule that would require a stay on termination or close-out of derivatives and certain other financial contracts to be contractually agreed by UK banks, building societies and investment firms with their non-EEA counterparties. This post discusses the proposed approaches by the UK regulators to ensuring that impediments to resolvability are removed, as well as certain cross-border implications.

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England and Germany Limit Bank Resolution Obligations

Solomon J. Noh and Fredric Sosnick are partners in the Financial Restructuring & Insolvency Group at Shearman & Sterling LLP. This post is based on a Shearman & Sterling client publication.

In two recent decisions, European national courts have taken a narrow view of their obligations under the Bank Recovery and Resolution Directive (BRRD)—the new European framework for dealing with distressed banks. The message from both the English and the German courts was that resolution authorities must adhere strictly to the terms of the BRRD; otherwise, measures that they take in relation to distressed banks may not be given effect in other Member States.

Goldman Sachs International v Novo Banco SA

In August 2014, the Bank of Portugal announced the resolution of Banco Espírito Santo (BES), what at the time was Portugal’s second largest bank. That announcement followed the July disclosure of massive losses at BES, which compounded a picture of serious irregularities within the bank that had been developing for several months. As part of the resolution, BES’s healthy assets and most of its liabilities were transferred to a new bridge bank, Novo Banco (the so-called “good bank”), which received €4.9 billion of rescue funds—while troubled assets and “Excluded Liabilities,” categories specifically identified in the BRRD, remained at BES (the “bad bank”). Amongst those liabilities initially deemed to have transferred to Novo Banco in August was a USD $835 million loan made to BES via a Goldman Sachs-formed vehicle, Oak Finance.

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Fed/FDIC Comments on Wave 3 Resolution Plans

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 July 28th, the FDIC and the Federal Reserve Board (together, “the regulators”) announced that they have provided private feedback on the resolution plans of 119 Wave 3 banking institutions [1] and the three systemically important non-bank financial institutions. [2] Unlike the regulators’ highly critical August 2014 public commentary on the 2013 resolution plans filed by Wave 1 banking institutions, [3] this week’s comments are largely silent on the regulators’ view of the plans’ adequacy:

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Resolution: Deposit Insurance—Burden Shifts to Bank

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 April 21st, the FDIC proposed new requirements for its largest supervised banks (37 institutions) to improve the record keeping of their deposit accounts. Issued via an Advanced Notice of Proposed Rulemaking (“ANPR”), the proposal shifts the obligation of calculating FDIC deposit insurance payouts from the FDIC to the banks.

The agency has for some time been concerned about its ability to accurately calculate deposit insurance payouts during a short window following the failure of a large bank. These concerns are in part fueled by the current trend of deposit concentration at the largest banks, and the banks’ (and perhaps the FDIC’s) inadequate technological capability to timely process significant volumes of data.

We expect meeting these proposed requirements to be challenging for banks, especially with respect to obtaining necessary account information that is not currently collected. In addition, banks will need to significantly invest in their data systems to be able to maintain and process this (and other) information in a standardized format, and to calculate insurance payouts at the end of each business day.

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Resolution Preparedness: Do You Know Where Your QFCs Are?

The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication by Mr. Ryan, Frank Serravalli, Dan Weiss, John Simonson, and Daniel Sullivan. The complete publication, including appendix, is available here.

In January, the US Secretary of Treasury issued a notice of proposed rulemaking (“NPR”) that would establish new recordkeeping requirements for Qualified Financial Contracts (“QFCs”). [1] US systemically important financial institutions (“SIFIs”) and certain of their affiliates [2] will be required under the NPR to maintain specific information electronically on end-of-day QFC positions, and to be able to provide this information to regulators within 24 hours if requested. This is a significant expansion in both scope and detail from current QFC recordkeeping requirements, which now apply only to certain insured depository institutions (“IDIs”) designated by the FDIC. [3]

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Enhancing Prudential Standards in Financial Regulations

The following post comes to us from Franklin Allen, Professor of Economics at the University of Pennsylvania and Imperial College London; Itay Goldstein, Professor of Finance at the University of Pennsylvania;
 and Julapa Jagtiani and William Lang, both of the Federal Reserve Bank of Philadelphia.

The recent financial crisis has generated fundamental reforms in the financial regulatory system in the U.S. and internationally. In our paper, Enhancing Prudential Standards in Financial Regulations, which was recently made publicly available on SSRN, we discuss academic research and expert opinions on this vital subject of financial stability and regulatory reforms.

Despite the extensive regulation and supervision of U.S. banking organizations, the U.S. and the world financial systems were shaken by the largest financial crisis since the Great Depression, largely precipitated by events within the U.S. financial system. The new “macroprudential” approach to financial regulations focuses on both the risks arising in financial markets broadly and those risks arising from financial distress at individual financial institutions.

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