The FDIC issued a Notice of Proposed Rulemaking (the “NPR”) that would require certain insured depository institutions (“IDIs”) to submit a contingent resolution plan outlining how the IDI could be separated from its parent structure and wound down in an orderly and timely manner. The requirement would apply to IDIs with greater than $10 billion in total assets and that are subsidiaries of a holding company with total assets of more than $100 billion. As of the fourth quarter of 2009, 40 institutions were identified as meeting the criteria and together represent 47.9% of all deposits insured by the FDIC.
The FDIC noted that IDIs that are part of complex organizations pose unique issues during the receivership process, as the relationships between the parent holding company, IDI and the IDI’s affiliates often affect resolution strategies. The information provided as part of the contingent resolution plan is intended to assist the FDIC in preserving franchise value, maximizing recovery to creditors and minimizing systemic impacts on the financial system during the resolution process through an understanding of the IDI’s business lines, operations, risks and activities, the interrelationships between the IDI and its affiliates, and the non-obvious risks embedded within the distinct business entities.
Under the NPR, a covered IDI’s contingent resolution plan must include a summary analysis of its ability to be resolved in an orderly fashion in the event of its receivership, or the insolvency of its parent company or a key affiliate, including the disclosure of any material obstacles to resolution. In addition, the contingent resolution plan must identify the covered IDI’s organizational structure, material interrelationships within the structure, key personnel, intra-group funding relationships, accounts and exposures, systematically important functions, events that have had a material effect on the IDI and its relationship with its parent or affiliates, and cross-border interrelationships and exposures. The covered IDI must also describe its capital structure and corporate financing relationships, as well as that of its parent, subsidiaries and key affiliates. The contingent resolution plan must be approved by the covered IDI’s board of directors or a designated executive committee, provide a time frame within which remediation efforts may be achieved, and be updated at least annually.The NPR provides that the IDI’s contingent resolution plan must be submitted within six months of the effective date of the rule. The penalties for not complying with the NPR, if implemented, would be a regulatory violation that would allow the FDIC to either initiate the process of deposit insurance termination or use its backup enforcement authority. The latter permits the FDIC, after notice to the IDI’s primary federal regulator, to pursue enforcement actions such as cease-and-desist orders, civil money penalties, and removal and prohibition actions. Comments on the NPR must be submitted on or before July 16, 2010.