Living-Will Requirements
In conjunction with proposing a new long-term debt (LTD) requirement for categories II, III, and IV banks, the Fed and FDIC are pursuing other ways to enhance resolvability. Among these is new guidance for large domestic and foreign banking organizations that requires U.S. banking organizations and foreign banking organization (FBO) intermediate holding companies (IHCs) along with all their insured depositories when any is over $100 billion to file resolution plans. These are also redesigned to make the plans much closer in substance to those mandated for GSIBs. However, in a leading indicator of what the FRB is also likely to demand of GSIBs, smaller companies would be required to ensure severability – that is, the ability to cut off a weak limb to save the rest of the banking organization or ensure ready resolution without undue cost to the FDIC or systemic risk. However, easing one aspect of current planning, banking organizations are expressly allowed to count on use of discount-window or other Fed lending facilities to avert failure if – and this is a significant new if – the plan rests atop sound collateral valuation and data-management systems.