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In the discussions following the presidential administration change about deregulation and paring back of post-SVB reforms, we had seen relatively little about resolution planning.  That changed on Tuesday, when Acting FDIC Chairman Travis Hill previewed during a speech at the American Bankers Association Washington Summit that the FDIC intends to issue updated FAQs in the coming days related to upcoming covered insured depository institution (CIDI) resolution plan submissions.  We are tracking these developments and how they impact the final CIDI resolution planning rule issued by the FDIC last year.

Based on Acting Chairman Hill’s comments, the FAQs are expected to revert a significant change in the final rule, as compared to the prior rule and 2021 policy statement – the requirement for Group A CIDIs with $100 billion or more in total assets to identify a resolution strategy, which cannot be based on a resolution weekend sale, using a hypothetical failure scenario in which the CIDI is experiencing material financial distress.  While CIDI resolution plan submissions will continue to be required, Acting Chairman Hill indicated the FDIC intends to waive certain content elements, including by “deemphasiz[ing] and broaden[ing] the ‘strategy’ discussion and waiv[ing] the expectation that banks identify and build their plans around a hypothetical failure scenario.” 

We expect the most significant change for Group A CIDIs with upcoming full plan submissions may be pivoting the identified strategy away from the final rule’s default strategy of a bridge bank.  This change may have less immediate impact for Group A CIDIs submitting an interim supplement, which does not have to address the identified strategy and failure scenario.  Acting Chairman Hill noted that a key lesson of the 2023 bank failures is the cost to utilizing a bride bank, comparing the deposit runs leading up to SVB and Signature Bank’s failures to those following the establishment of a bridge bank.  He indicated the focus of the plans should be on providing the FDIC the information it needs to quickly market the institution, to increase the likelihood of a resolution weekend sale.  Acknowledging that a quick sale may not be feasible, the plans should also provide information to further the secondary priority of operating the institution for a short period of time while working to sell at least the deposit franchise.   

Given this focus on quickly finding an acquirer, we expect that the FDIC will continue to emphasize the franchise components aspect of the final rule, including capabilities around promptly establishing a virtual data room and giving access to the FDIC.  Acting Chairman Hill also indicated that the FDIC will use the capabilities testing required by the final rule to further its goal of accomplishing a resolution weekend sale.  Specifically, he indicated the FDIC would engage with large institutions outside of their CIDI resolution plans to understand what information and data these institutions would need to quickly acquire a failed institution.  The FDIC will then test institutions’ ability to produce this information and data.

Treasury Secretary Scott Bessent also briefly addressed resolution planning in his remarks before the American Bankers Association yesterday.  He indicated the Treasury Department would broadly examine aspects of prudential regulation through its role in the Financial Stability Oversight Council and President’s Working Group on Financial Markets, as well as its engagement with the banking regulators. The areas of focus will include enhancements to the bank resolution process to incorporate lessons learned from the 2023 failure such as efforts to reduce the FDIC’s losses in selling failed banks.