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Fed & FDIC Provide Resolution Plan Direction

Financial institutions received additional guidance from the Federal Reserve Board [1] and the Federal Deposit Insurance Corporation (FDIC [2]) on Friday regarding resolution plans which the institutions will be filing in December for the second time.

The U.S. Bankruptcy Code calls for each financial institution to provide an effective strategy for rapid and orderly resolution should the institution experience any type of financial calamity.

The institutions were required to file their original resolution plans in December 2013. At that time, 117 U.S. bank holding companies as well as foreign-based firms, all with less than $100 billion in total nonbank assets, were required to submit resolution plans to the Federal Reserve Board and the FDIC.

The two governmental entities reviewed the initial resolution plans and offered the direction to the financial institutions for their second resolution plans, according to the size and scope of each institution's operation in the U.S.

For 31 institutions with complex U.S. operations, the agencies directed them to submit resolution plans that take into account obstacles to resolvability, as identified by the agencies. The obstacles were identified as global issues, funding, and liquidity.

For 25 institutions with less complex operations in the U.S., the agencies are allowing them to submit tailored resolution plans using the agencies' template. This tailored resolution plan template for 2014 was released by the Federal Reserve Board and the FDIC on Friday and is focused on how nonbanking and banking operations of the institution are connected.

For 61 institutions with limited operations in the U.S., the agencies are allowing the focus of the resolution plan to be on material changes to the plans submitted in December. These firms were also directed to concentrate on strengthening their initial plans' effectiveness.