Planning for the Death of a Systemically Important Financial Institution Under Title I § 165(d) of the Dodd-Frank Act: The Practical Implications of Resolution Plans or Living Wills in Planning a Bank's Funeral
Joseph Karl Grant
Capital University School of Law
March 5, 2012
Virginia Law & Business Review, Vol. 6, No. 3, p. 467, Winter 2012
Title I, § 165(d) of the Dodd-Frank Act requires that banks with $50 billion or more in assets must complete a complex and systematic process of resolution planning. The Resolution Plans that large financial institutions must prepare are known colloquially as “Living Wills.” Recently, pursuant to their joint authority under § 165(d) of the Dodd-Frank Act, the Federal Reserve Board (FRB) and the Federal Deposit Insurance Corporation (FDIC) issued joint final rules that will impact large banks and non-bank financial institutions in three phases: (1) large institutions with $250 billion or more in assets will have to prepare and file their Resolution Plans by July 1, 2012; (2) institutions with $100 - $250 billion or more in assets will have to file their Resolution Plans by July 1, 2013; and (3) institutions with $50 - $100 billion will have to file their Resolution Plans by December 31, 2013. Financial institutions subject to the FRB and FDIC rules have to undertake an extensive process of disclosure of their strategic plan for resolution under the Bankruptcy Code in the event of financial failure, a description of their corporate governance structure for resolution planning, review and summarization of their organizational structure, detailing of their management information systems, review of their material interconnections and interdependencies, and disclosure of supervisory and regulatory information.
As a landmark section of the Dodd-Frank Act, the most sweeping piece of financial legislation and regulation since the Great Depression, the FRB and FDIC resolution planning rules will have an enormous regulatory impact on financial institutions for years to come. This article explores § 165(d) of the Dodd-Frank Act and the FRB and FDIC joint rules providing for preparation of Resolution Plans in six (6) parts.
Part I discusses the institutions subject to the new resolution planning rules. Part II discusses the timeline and phase-in of the final rules and the timing of filing resolution plans. Part III discusses ongoing disclosure and the duty to report material events and changes at a covered bank. Part IV details the content of § 165(d) of the Dodd-Frank Act and the specifics of the joint final rules promulgated by the FRB and the FDIC to enforce § 165(d) of the Dodd-Frank Act. More specifically, Part IV exhaustively details the content and nature of the mandated disclosures for bank Resolution Plans or Living Wills. Part V discusses miscellaneous matters, including the impact of the final joint FRB and FDIC rules on non-regulatory actors like bankruptcy courts, trustees, and receivers; negation of private rights of action; the public versus private form and content of a Resolution Plan; and confidential treatment of certain information and disclosures. Finally, Part VI examines the fallout and impact of the final joint FRB and FDIC rules by raising key analytical questions and examining a host of practical issues and considerations surrounding implementation of the Living Will rules. Specifically, Part VI explores what events will trigger enactment of a Resolution Plan, thresholds for materiality in terms of the ongoing reporting of changed events and conditions, creation and maintenance of robust internal control and reporting mechanisms, consistency of disclosure when incorporating information by reference across varied document or material sources, preservation of confidentiality, regulatory burden and cost/fee-shifting to banking consumers, cross-border regulatory coordination, and subsidiarization or ring-fencing.
Number of Pages in PDF File: 41
Keywords: Federal Reserve Board, FRB, Federal Deposit Insurance Corporation, FDIC, Resolution Plan, Living Will, Dodd-Frank Wall Street Reform and Consumer Protection Act, Dodd-Frank Act, Great Recession, Financial Crisis, Systemically Important Financial Institution, SIFI's, SIFI, Bank, Ring Fencing
JEL Classification: A10, B20, B25, D60, D63, D80, D81, E44, E61, F00, F23, F30, F36, G10, G21, G18, G33, G38, K10, K20Accepted Paper Series
Date posted: March 5, 2012 ; Last revised: March 6, 2012
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