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Keynote Remarks by FDIC Chairman Jelena
McWilliams at the 30th Special Seminar on
International Finance; Tokyo, Japan
November 13, 2019
Introduction
Good afternoon. Thank you for inviting me to join you here today.
For more than 85 years, the FDIC has served as the resolution authority in the United
States. The agency has resolved more than 2,700 banks since it was established,
including 489 resolutions during the recent financial crisis. And I am proud to report that
no depositor has ever lost a penny of insured deposits.
In spite of our successful track record, resolution is never easy. Each bank failure – and
each financial crisis – presents new challenges that force us to reassess our processes
and improve our preparedness. Over the years, we have adapted our approach to
resolution in light of new financial products and services, new congressional mandates,
and other shifts and trends in the banking system.
Goal of Resolution Planning
In the midst of all these changes, the fundamental goal of resolution remains the same:
to enable failure in the least disruptive manner. Markets work best when risk-takers are
held accountable for both their gains and losses. When institutions benefit from the
upside of their gains, but taxpayers bear the burden of their losses, the result is market
failure and moral hazard. In such circumstances, institutions – and their shareholders
and counterparties – benefit not from their business decisions but from political
decisions. Resolution should work to break this cycle and to ensure that market
discipline is real and imposed.
Large institutions must be able to fail like small institutions, without taxpayer bailouts
and without undermining the market's ability to function.
Resolution Planning for the Largest, Most Complex Banking Institutions
After the global financial crisis, the greatest untested resolution challenge – one that we
all face – involves managing the failure of one of the largest, most complex banking
institutions. The FDIC has invested substantial time and effort to prepare and
strengthen our capabilities for this type of event.
In the United States, the largest U.S. bank holding companies and certain foreign
banking organizations submit resolution plans outlining how they can fail, in an orderly
way, under the U.S. Bankruptcy Code. Through this process, institutions have
Keynote Remarks by FDIC Chairman Jelena
McWilliams at the 30th Special Seminar on
International Finance; Tokyo, Japan
November 13, 2019
Introduction
Good afternoon. Thank you for inviting me to join you here today.
For more than 85 years, the FDIC has served as the resolution authority in the United
States. The agency has resolved more than 2,700 banks since it was established,
including 489 resolutions during the recent financial crisis. And I am proud to report that
no depositor has ever lost a penny of insured deposits.
In spite of our successful track record, resolution is never easy. Each bank failure – and
each financial crisis – presents new challenges that force us to reassess our processes
and improve our preparedness. Over the years, we have adapted our approach to
resolution in light of new financial products and services, new congressional mandates,
and other shifts and trends in the banking system.
Goal of Resolution Planning
In the midst of all these changes, the fundamental goal of resolution remains the same:
to enable failure in the least disruptive manner. Markets work best when risk-takers are
held accountable for both their gains and losses. When institutions benefit from the
upside of their gains, but taxpayers bear the burden of their losses, the result is market
failure and moral hazard. In such circumstances, institutions – and their shareholders
and counterparties – benefit not from their business decisions but from political
decisions. Resolution should work to break this cycle and to ensure that market
discipline is real and imposed.
Large institutions must be able to fail like small institutions, without taxpayer bailouts
and without undermining the market's ability to function.
Resolution Planning for the Largest, Most Complex Banking Institutions
After the global financial crisis, the greatest untested resolution challenge – one that we
all face – involves managing the failure of one of the largest, most complex banking
institutions. The FDIC has invested substantial time and effort to prepare and
strengthen our capabilities for this type of event.
In the United States, the largest U.S. bank holding companies and certain foreign
banking organizations submit resolution plans outlining how they can fail, in an orderly
way, under the U.S. Bankruptcy Code. Through this process, institutions have
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implemented significant structural and operational improvements to enhance their
resolvability. These changes include simplifying their legal structures, working through
internal governance processes, and addressing other core obstacles.
After several cycles of reviewing these comprehensive plans and providing feedback,
the FDIC and the Federal Reserve Board recently updated our approach to ensure that
resolution planning continues in a targeted and efficient manner.
Consistent with statutory changes signed into law last year, the agencies adopted a final
rule in mid-October that streamlines, clarifies, and improves the resolution plan
processes and timelines. The final rule retains the underlying standards for reviewing
resolution plans. It also ensures the largest firms provide rigorous resolution plans on a
timely basis, gives the firms and the agencies sufficient time to prepare and review
plans, and reduces the burden institutions face in developing plans.
The rule also introduces the concept of targeted plans, which require firms to focus on
the most material topics identified by the agencies, including capital and liquidity, and
any material changes to the firm since the last plan submission.
Going forward, certain institutions will be required to submit plans every two years,
alternating between full plans and targeted plans. Other institutions will be required to
submit alternating plans every three years. And between plan submissions, the
agencies have the authority to require interim updates.
Resolution Readiness for Larger Firms
The FDIC has substantial experience resolving small banks. We have resolved
thousands of them over the years. We have less experience resolving larger institutions,
which can present a unique set of resolution challenges. These challenges arise, for
example, from their funding structure, relative size, complexity of operations, and
relationships with affiliates, counterparties, and the larger economy.
Unlike their smaller peers, the size and funding structure of such banks can affect the
timing of a resolution and limit the availability of resolution options. Specifically, they
may be less likely to be resolved through an acquisition by a larger institution and more
likely to be resolved through the use of a bridge bank. In such a case, the FDIC is
tasked with continuing the failed bank's operations to avoid disruptions to depositors
and to maximize value to the receivership in the ultimate disposition of the bridge bank.
Such was the case when IndyMac Bank, F.S.B., a California thrift, failed in June 2008.
IndyMac failed with assets of about $31 billion, roughly 30,000 depositors, and a large
number of trust accounts. There were many accounts for which the insurance status
could not be immediately determined, and our staff had to ask customers for more
information. This created delays and uncertainty, which added to customer anxiety, and
which contributed to lines of anxious depositors that formed at each of the bank's
branches.
implemented significant structural and operational improvements to enhance their
resolvability. These changes include simplifying their legal structures, working through
internal governance processes, and addressing other core obstacles.
After several cycles of reviewing these comprehensive plans and providing feedback,
the FDIC and the Federal Reserve Board recently updated our approach to ensure that
resolution planning continues in a targeted and efficient manner.
Consistent with statutory changes signed into law last year, the agencies adopted a final
rule in mid-October that streamlines, clarifies, and improves the resolution plan
processes and timelines. The final rule retains the underlying standards for reviewing
resolution plans. It also ensures the largest firms provide rigorous resolution plans on a
timely basis, gives the firms and the agencies sufficient time to prepare and review
plans, and reduces the burden institutions face in developing plans.
The rule also introduces the concept of targeted plans, which require firms to focus on
the most material topics identified by the agencies, including capital and liquidity, and
any material changes to the firm since the last plan submission.
Going forward, certain institutions will be required to submit plans every two years,
alternating between full plans and targeted plans. Other institutions will be required to
submit alternating plans every three years. And between plan submissions, the
agencies have the authority to require interim updates.
Resolution Readiness for Larger Firms
The FDIC has substantial experience resolving small banks. We have resolved
thousands of them over the years. We have less experience resolving larger institutions,
which can present a unique set of resolution challenges. These challenges arise, for
example, from their funding structure, relative size, complexity of operations, and
relationships with affiliates, counterparties, and the larger economy.
Unlike their smaller peers, the size and funding structure of such banks can affect the
timing of a resolution and limit the availability of resolution options. Specifically, they
may be less likely to be resolved through an acquisition by a larger institution and more
likely to be resolved through the use of a bridge bank. In such a case, the FDIC is
tasked with continuing the failed bank's operations to avoid disruptions to depositors
and to maximize value to the receivership in the ultimate disposition of the bridge bank.
Such was the case when IndyMac Bank, F.S.B., a California thrift, failed in June 2008.
IndyMac failed with assets of about $31 billion, roughly 30,000 depositors, and a large
number of trust accounts. There were many accounts for which the insurance status
could not be immediately determined, and our staff had to ask customers for more
information. This created delays and uncertainty, which added to customer anxiety, and
which contributed to lines of anxious depositors that formed at each of the bank's
branches.