Clients have asked us to assess the prospects for finalization of the Dodd-Frank resolution regime quickly and credibly enough to deter efforts to recapture the big-bank “subsidy,” to promote statutory revisions next year to Dodd-Frank, and/or to stir regulators to sanction big banks under pending living wills. We conclude in this report that continued uncertainties over systemic resolution, especially in the U.S., heighten the prospects that the largest U.S. banks could be subject not just to FRB systemic regulation, but also to still more costly rules and TBTF “taxes” implemented because the Dodd-Frank orderly-liquidation standards are not deemed credible. Karen Petrou earlier this year filed her own comment letter to the FDIC on these issues; this report differs from that by focusing not on policy objectives, but rather on current actions and likely outcomes. Complicating the big-bank challenge, cross-border resolution protocols remain uncertain despite considerable progress in the EU. Non-bank resolution protocols have been proposed by the FSB, but have not yet been meaningfully addressed by the FDIC or other resolution authorities, and this report thus also addresses this question and how FSOC and other regulators may turn to it in coming months for asset managers, insurers, and other non-banks.
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