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Last Friday, June 29, 2012, the Federal Deposit Insurance
Corporation (the "FDIC") and the Federal Reserve Board
(the "Board") announced the process for their receipt and
review of the first wave of resolution plans to be provided by nine
of the largest banking organizations operating in the United
States. These plans are due today, July 2, 2012.
Ultimately, all U.S. and foreign banking organizations with
total consolidated assets of $50 billion or more will be required
to file such plans (or, as they are popularly known, living wills).
According to the regulators, 124 banking institutions in total are
subject to the living will requirements. The governing regulation
places these organizations into three groups, each with a different
deadline: (i) those with $250 billion or more in total nonbank
assets, which are subject to the July 2, 2012, deadline; (ii) those
with $100 billion or more but less than $250 billion in total
nonbank assets, which are subject to the July 1, 2013 ; and (iii)
those with $50 billion or more but less than $100 billion in
nonbank assets, which must file by December 31, 2013. The FDIC and
the Board have the authority to re-assign banking organizations to
different tiers; we understand anecdotally that one group 1
organization may have been moved to group 2. Nonbank financial
institutions designated as systemically important by the Financial
Stability Oversight Council (the "Council") will also be
required to submit resolution plans, but the Council has not yet
made any designations. For more on the required substance of a
living will and the submission process, please refer to our user
guide issued in November 2011, which may be accessed at
http://www.mofo.com/files/Uploads/Images/110905-Living-Wills.pdf.
The process identified by the FDIC and the Board largely repeats
the schedule set forth in the regulation: the two agencies will
have 60 days after submission to determine whether a filer must
provide additional information, and the agencies will then review
each plan for compliance with the requirements of the
regulation.
Living wills must include both confidential and public portions.
The agencies will make the public portions available on Tuesday,
July 3, 2012. These public portions will have to balance two
competing instructions from the regulators: that there be a
"high level" discussion of resolution strategy and that
the discussion describe how particular material entities and core
business lines may be sold off and to whom. The public portions may
be valuable in at least two respects:
Because the plans presumably are the results of discussions
between the banks and the agencies, the public portions should
reflect the agencies' views on the management of a distressed
institution and the optimal form of a resolution by the bank
itself.
The regulation designs the plans in part to provide a roadmap
for the FDIC about how it might deal with a bank that is placed in
receivership under the Orderly Liquidation Authority
("OLA"). The FDIC has recently suggested that its role
will be limited to acting as receiver for the top-tier holding
company and managing the liquidity of operating subsidiaries to
support their continued operations. This approach would differ from
a traditional liquidation. The public portions of the plans may
suggest the preferential approach in an OLA receivership.
Two items relating to the living will process still require
clarification or finalization. First, in addition to the living
wills that will be filed at the holding company level, the FDIC
requires separate living wills from insured depository institutions
with $50 billion or more in consolidated assets. Such plans appear
to be due at the same time as the holding company-level plans,
i.e., according to the same groupings used for holding companies,
but the FDIC has been silent about the submission or review process
for the bank-level plans. Since some banking organizations move
from their originally assigned tier 1, their subsidiary banks have
presumably made (or will make) the corresponding moves. Second, the
Dodd-Frank Act calls for credit exposure reports as a companion to
living wills; the federal banking agencies have not completed
rulemaking on this issue.
Because of the generality of this update, the information
provided herein may not be applicable in all situations and should
not be acted upon without specific legal advice based on particular
situations.
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