FDIC Approves Final Guidance to Enhance Resolution Planning at Large Banks

Washington Regulators Solidify Expectations for Large Bank Preparation

On Monday, August 12th, 2024, the Federal Deposit Insurance Corporation (FDIC) approved final guidance to enhance resolution planning at large banks. The move solidifies regulators' expectations for how these institutions should prepare for potential financial crises.

FDIC Board Votes to Adopt Final Rule

The FDIC board voted 3-2 to adopt the final rule, which creates new resolution plan requirements for large banks. The rule requires banks to submit detailed plans outlining how they would be resolved in an orderly manner in the event of a failure.

The rule also requires banks to hold more loss-absorbing capacity, such as equity and long-term debt, to ensure they have sufficient resources to absorb losses and continue operating in a crisis.

Joint Guidance from FDIC and Federal Reserve

The FDIC's final guidance is the result of a joint effort with the Federal Reserve Board. The two agencies issued a proposed rule in June 2024 and invited public comment. The final guidance incorporates feedback received during the comment period.

The guidance is designed to help large banks develop more resilient resolution plans and to ensure that they can be resolved in an orderly manner if they fail.

Conclusion

The FDIC's approval of the final guidance is a significant step in enhancing the safety and soundness of the financial system. The new rule will require large banks to hold more loss-absorbing capacity and to develop more detailed resolution plans. These measures will help to ensure that banks can withstand financial crises and that they can be resolved in an orderly manner if they fail.

The FDIC's actions reflect the growing importance of resolution planning in the financial regulatory landscape. Regulators are increasingly focused on ensuring that large banks have the capacity to resolve themselves in a way that minimizes the impact on the financial system and the economy.