Statement of Federal Deposit Insurance Corporation
by James R. Wigand, Director,
Office Of Complex Financial Institutions
And
Richard J. Osterman, Jr., Acting General Counsel
On
Who Is Too Big To Fail?
Examining the Application
Of
Title I of the Dodd-Frank Act
before the
Subcommittee on Oversight and Investigations
Committee on Financial Services
U.S. House of Representatives
2128 Rayburn House Office Building
April 16, 2013
Chairman McHenry, Ranking Member Green, and members of the Subcommittee, thank
you for the opportunity to testify on behalf of the Federal Deposit Insurance Corporation
(FDIC) on Sections 165 and 121 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act). Our testimony will focus on the FDIC's role and
progress in implementing Section 165, including the resolution plan requirements and
the requirements for stress testing by certain financial institutions.
Section 165 of the Dodd-Frank Act
Resolution Plans
Under the Dodd-Frank Act, bankruptcy is the preferred resolution framework in the
event of a systemic financial company's failure. To make this prospect achievable, Title I
of the Dodd-Frank Act requires that all large, systemic financial companies prepare
resolution plans, or "living wills", to demonstrate how the company would be resolved in
a rapid and orderly manner under the Bankruptcy Code in the event of the company's
material financial distress or failure. This requirement enables both the firm and the
firm's regulators to understand and address the parts of the business that could create
systemic consequences in a bankruptcy.
The FDIC intends to make the living will process under Title I of the Dodd-Frank Act
both timely and meaningful. The living will process is a necessary and significant tool in
ensuring that large financial institutions can be resolved through the bankruptcy system.
The FDIC and the Federal Reserve Board issued a joint rule to implement Section
165(d) requirements for resolution plans – (the 165(d) Rule) – in November 2011. The
165(d) Rule requires systemically important financial institutions (SIFIs) -- bank holding
companies with total consolidated assets of $50 billion or more, and nonbank financial
companies that the Financial Stability Oversight Council (FSOC) determines could pose
by James R. Wigand, Director,
Office Of Complex Financial Institutions
And
Richard J. Osterman, Jr., Acting General Counsel
On
Who Is Too Big To Fail?
Examining the Application
Of
Title I of the Dodd-Frank Act
before the
Subcommittee on Oversight and Investigations
Committee on Financial Services
U.S. House of Representatives
2128 Rayburn House Office Building
April 16, 2013
Chairman McHenry, Ranking Member Green, and members of the Subcommittee, thank
you for the opportunity to testify on behalf of the Federal Deposit Insurance Corporation
(FDIC) on Sections 165 and 121 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act). Our testimony will focus on the FDIC's role and
progress in implementing Section 165, including the resolution plan requirements and
the requirements for stress testing by certain financial institutions.
Section 165 of the Dodd-Frank Act
Resolution Plans
Under the Dodd-Frank Act, bankruptcy is the preferred resolution framework in the
event of a systemic financial company's failure. To make this prospect achievable, Title I
of the Dodd-Frank Act requires that all large, systemic financial companies prepare
resolution plans, or "living wills", to demonstrate how the company would be resolved in
a rapid and orderly manner under the Bankruptcy Code in the event of the company's
material financial distress or failure. This requirement enables both the firm and the
firm's regulators to understand and address the parts of the business that could create
systemic consequences in a bankruptcy.
The FDIC intends to make the living will process under Title I of the Dodd-Frank Act
both timely and meaningful. The living will process is a necessary and significant tool in
ensuring that large financial institutions can be resolved through the bankruptcy system.
The FDIC and the Federal Reserve Board issued a joint rule to implement Section
165(d) requirements for resolution plans – (the 165(d) Rule) – in November 2011. The
165(d) Rule requires systemically important financial institutions (SIFIs) -- bank holding
companies with total consolidated assets of $50 billion or more, and nonbank financial
companies that the Financial Stability Oversight Council (FSOC) determines could pose
a threat to the financial stability of the United States -- to develop, maintain, and
periodically submit resolution plans to regulators.
In addition to the resolution plan requirements under the Dodd-Frank Act, the FDIC
issued a separate rule which requires all insured depository institutions (IDIs) with
greater than $50 billion in assets to submit resolution plans to the FDIC for their orderly
resolution under the Federal Deposit Insurance Act. The 165(d) Rule and the IDI
resolution plan rule are designed to work in tandem by covering the full range of
business lines, legal entities and capital-structure combinations within a large financial
firm.
The 165(d) Rule establishes a schedule for staggered annual filings. The first group of
filers -- bank holding companies and foreign banking organizations with $250 billion or
more in non-bank assets ("first wave" filers) -- submitted their initial resolution plans on
July 1, 2012. Financial companies with less than $250 billion, but more than $100 billion
in non-bank assets ("second wave" filers), will file their initial plans by July 1, 2013, and
all other bank holding companies – those with assets over $50 billion – ("third wave"
filers) are scheduled to file by December 31, 2013. While the general expectation is that
firms will file annually, regulators may require that a plan be updated on a more frequent
schedule, and a firm must provide notice to regulators of any event that may have a
material effect on its resolution plan.
Eleven firms comprised the first wave of filers. The nine firms that submitted plans on
July 1, 2012, were Bank of America Corporation, Citigroup, JPMorgan Chase, Goldman
Sachs, Morgan Stanley, Deutsche Bank, UBS, Credit Suisse, and Barclays. The two
other first wave filers, Bank of New York Mellon Corporation and State Street
Corporation, submitted plans on October 1, 2012. The second wave filers include Wells
Fargo, BNP Paribas, HSBC, and RBS. The third wave filers include approximately 115
firms, the large majority being foreign financial companies conducting business in the
U.S.
The 165(d) Rule sets out the information to be included in a firm's resolution plan. The
key objectives laid out in the Rule for the initial resolution plans submitted by first wave
filers are identifying each firm's critical operations and core business lines, mapping
those operations and core business lines to each firm's material legal entities, and
identifying the key obstacles to a rapid and orderly resolution in bankruptcy. With regard
to key obstacles, these might include such areas as a firm's internal organizational
structure, interconnections of the firm to other systemic financial companies,
management information system limitations, default and termination provisions of
certain types of financial contracts, cross-jurisdictional operations, and funding
mechanisms.
The 165(d) Rule provides that smaller, less complex financial institutions subject to the
filing requirements may be eligible to file a less detailed, tailored resolution plan, for
which the information requirements generally are limited to the firm's nonbanking
periodically submit resolution plans to regulators.
In addition to the resolution plan requirements under the Dodd-Frank Act, the FDIC
issued a separate rule which requires all insured depository institutions (IDIs) with
greater than $50 billion in assets to submit resolution plans to the FDIC for their orderly
resolution under the Federal Deposit Insurance Act. The 165(d) Rule and the IDI
resolution plan rule are designed to work in tandem by covering the full range of
business lines, legal entities and capital-structure combinations within a large financial
firm.
The 165(d) Rule establishes a schedule for staggered annual filings. The first group of
filers -- bank holding companies and foreign banking organizations with $250 billion or
more in non-bank assets ("first wave" filers) -- submitted their initial resolution plans on
July 1, 2012. Financial companies with less than $250 billion, but more than $100 billion
in non-bank assets ("second wave" filers), will file their initial plans by July 1, 2013, and
all other bank holding companies – those with assets over $50 billion – ("third wave"
filers) are scheduled to file by December 31, 2013. While the general expectation is that
firms will file annually, regulators may require that a plan be updated on a more frequent
schedule, and a firm must provide notice to regulators of any event that may have a
material effect on its resolution plan.
Eleven firms comprised the first wave of filers. The nine firms that submitted plans on
July 1, 2012, were Bank of America Corporation, Citigroup, JPMorgan Chase, Goldman
Sachs, Morgan Stanley, Deutsche Bank, UBS, Credit Suisse, and Barclays. The two
other first wave filers, Bank of New York Mellon Corporation and State Street
Corporation, submitted plans on October 1, 2012. The second wave filers include Wells
Fargo, BNP Paribas, HSBC, and RBS. The third wave filers include approximately 115
firms, the large majority being foreign financial companies conducting business in the
U.S.
The 165(d) Rule sets out the information to be included in a firm's resolution plan. The
key objectives laid out in the Rule for the initial resolution plans submitted by first wave
filers are identifying each firm's critical operations and core business lines, mapping
those operations and core business lines to each firm's material legal entities, and
identifying the key obstacles to a rapid and orderly resolution in bankruptcy. With regard
to key obstacles, these might include such areas as a firm's internal organizational
structure, interconnections of the firm to other systemic financial companies,
management information system limitations, default and termination provisions of
certain types of financial contracts, cross-jurisdictional operations, and funding
mechanisms.
The 165(d) Rule provides that smaller, less complex financial institutions subject to the
filing requirements may be eligible to file a less detailed, tailored resolution plan, for
which the information requirements generally are limited to the firm's nonbanking