Recovery Planning Guidelines for Certain Large Banks: Proposed OCC Guidelines Would Require Recovery Planning for Large National Banks, Insured Federal Savings Associations and Insured Federal BranchesSullivan & Cromwell LLP - December 21, 2015
On December 16, 2015, the Office of the Comptroller of the Currency (the “OCC”) solicited public comment, through a Notice of Proposed Rulemaking (the “NPR”), on proposed guidelines to establish standards for recovery planning by certain large insured national banks, insured Federal savings associations and insured Federal branches of foreign banks (the “Guidelines”).
The Guidelines would apply to FDIC-insured national banks, insured Federal savings associations and insured Federal branches of foreign banks with average total consolidated assets of $50 billion or more, as well as those with total consolidated assets less than $50 billion that the OCC determines are highly complex or otherwise present a heightened risk warranting application of the Guidelines (together, “banks,” and each, a “bank”).
The Guidelines would require each bank to develop and maintain a recovery plan that sets forth the bank’s plan for the actions necessary to remain a going concern when the bank is experiencing considerable financial or operational stress, but has not yet deteriorated to the point where liquidation or resolution is imminent. Pursuant to the Guidelines, such recovery plans must contain: a detailed overview of the bank, including analysis of interconnections and interdependencies within the bank, among its affiliates and with critical third parties; identification of tailored “triggers”, i.e. quantitative or qualitative indicators of the risk or existence of severe stress that should be escalated to management or the board for response; a wide range of credible options for recovery; impact assessments for each recovery option; procedures for escalating decision-making to senior management or the board; discussion of management reports necessary to provide senior management or the board with the information to make timely decisions and monitor progress of responses in stress scenarios; and communication procedures for notifying internal and external parties of recovery responses. Further, the Guidelines require that management and the board of directors review recovery plans at least annually and as needed to address certain material changes or events.
Notably, the Guidelines provide that the recovery plans should be integrated into a bank’s existing risk management and corporate governance functions and coordinated with its strategic, operations, contingency, capital, liquidity and resolution planning, as well as, to the extent possible, aligned with any recovery and resolution planning efforts at the parent holding company level. In addition, the OCC specifically noted that the Guidelines are not intended to duplicate a bank’s existing risk mitigation planning efforts and encouraged banks to leverage their existing planning efforts in complying with the Guidelines. As set forth in the NPR, the Guidelines share marked similarities with the recovery planning requirements of the Board of Governors of the Federal Reserve System (the “Federal Reserve”) for certain large financial institutions, including bank holding companies, and thus application of the Federal Reserve’s requirements at the parent holding company level may provide insight into application of the proposed Guidelines.
The Guidelines would be issued and enforceable under section 39 of the Federal Deposit Insurance Act (the “FDI Act”), which authorizes the OCC to prescribe safety and soundness standards. The OCC would issue the Guidelines as an appendix to its safety and soundness standards regulations, similar to how the OCC implemented its heightened standards guidelines in September 2014. The Guidelines would appear as a new Appendix E to Part 30 of the OCC’s rules.
Comments on the NPR must be submitted to the OCC by February 16, 2016.