Federal Reserve Issues Final Joint Guidance for Large Bank Resolution Plans

Regulatory Developments

New Client Alert: FDIC Proposes Overhaul to Brokered Deposit Classification Rules; Significant Impact to Banking as a Service (BaaS) Industry
On July 30, the FDIC issued a proposed rule that would make significant revisions to the FDIC’s regulations implementing the provisions of Section 29 of the Federal Deposit Insurance Act (FDI Act) related to brokered deposits. To read more on this proposed rule, click here.

Federal Reserve Issues Final Joint Guidance for Large Bank Resolution Plans
On August 2, 2024, the Federal Reserve issued joint final guidance for domestic and foreign banks – so-called “Category II” and “Category III” banking organizations under the FRB’s enhanced prudential standards rule – with more than $250 billion in total assets (but that are not the largest and most complex institutions) banks concerning the banks’ resolution plan (or “living will”) submissions. The final guidance has been issued jointly with the FDIC. The Federal Reserve and the FDIC also extended the deadline by which these banks must submit their full resolution plans, describing each bank’s strategy for orderly resolution under the U.S. Bankruptcy Code in the event of material financial distress or failure, from March 31, 2025, to October 1, 2025.

The Federal Reserve and the FDIC invited public comment on proposed guidance in August, 2023, for how these domestic and foreign banks’ resolution plans could address key challenges in resolution identified in the agencies’ review of these banks’ 2021 resolution plans and the agencies’ experiences with banking system disruptions in the spring of 2023. The final guidance “is organized around key areas of potential vulnerability, such as capital, liquidity, and operational capabilities that could be needed in resolution,” and while it provides information on expectations for single point of entry and multiple point of entry resolution strategies, it does not prescribe a specific resolution strategy for any banking organization. The final guidance also “recognizes that the preferred resolution outcome for foreign banks is often a successful home country-led resolution and guides foreign banks on how to address the global resolution plan in their U.S. plan."

Agencies Issue RFI on Complex Bank-Fintech Arrangements
On July 25, the Agencies issued an RFI on arrangements between banks and financial technology (fintech) companies to deliver bank deposit products and services to consumers. The request covers the nature of these bank-fintech arrangements, risk management practices concerning these arrangements, and the implications such arrangements have on existing supervisory guidance. Public comments are due 60 days after publication in the Federal Register. In addition to the RFI, the agencies issued a joint statement noting the risks associated with bank-fintech arrangements and highlighting examples of risk management and governance polices that banks have adopted to manage these risks.

“The agencies support responsible innovation and support banks in pursuing third-party arrangements in a manner consistent with safe and sound practices and in compliance with applicable laws and regulations, including, but not limited to, those designed to protect consumers (such as fair lending laws and prohibitions against unfair, deceptive, or abusive acts or practices) and those addressing financial crimes (such as fraud and money laundering).”
— Joint Statement on Banks’ Arrangements with Third Parties to Deliver Bank Deposit Products and Services

Agencies Request Public Comments on Regulations Pursuant to the EGRPRA
On August 1, the Agencies issued a request for comments on regulations in the categories of consumer protection; directors, officers, and employees; and money laundering. Pursuant to the EGRPRA, the Agencies are reviewing their regulations to identify outdated or otherwise unnecessary regulatory requirements. Comments are due by October 30, 2024.

FDIC Requests Information on Deposits
On July 30, the FDIC issued an RFI on deposit data that is not currently reported in the Federal Financial Institutions Examination Council’s Call Report or other regulatory reports, including for uninsured deposits. Currently, the Call Report does not report comprehensive data on the composition of insured and uninsured deposits. The RFI seeks information on characteristics that affect the stability and franchise value of different types of deposits and whether more detailed and more frequent reporting on these characteristics or types of deposits could enhance offsite risk and liquidity monitoring. Additional information provided through the RFI is aimed at promoting transparency and efficiencies in the banking resolution process. Public comments are due 60 days after publication in the Federal Register.

FDIC Issues Proposed Rule to Amend Regulations Governing Parent Companies of Industrial Banks and Industrial Loan Companies
On July 30, the FDIC issued a notice of proposed rulemaking to amend Part 354 of the FDIC’s regulations governing parent companies of industrial banks and industrial loan companies (collectively referred to as industrial banks). The proposed amendments would revise the definition of “Covered Company” to include conversions involving a proposed industrial bank under Section 5 of the Home Owners’ Loan Act or other transactions as determined by the FDIC, ensure that a parent company of an industrial bank would be subject to Part 354 if there is a change of control at the parent company or a merger in which the parent company is the resultant entity, and provide the FDIC the regulatory authority to apply Part 354 to other situations where an industrial bank would become a subsidiary of a company that is not subject to Federal consolidated supervision. Additionally, the proposed amendments would clarify the relationship between written commitments and the FDIC’s evaluation of the relevant statutory factors, and would set forth additional criteria that the FDIC would consider when assessing the risks presented to an industrial bank or industrial loan company by its parent company and any affiliates and evaluating the institution’s ability to function independently of the parent company and any affiliates. Public comments on the proposal are due 60 days after publication in the Federal Register.

FDIC Issues Proposed Rule to Amend Change in Bank Control Act Regulations
On July 30, the FDIC issued a notice of proposed rulemaking to remove the exemption from the notice requirement for acquisitions of voting securities of a depository institution holding company with an FDIC-supervised subsidiary institution for which the Federal Reserve reviews a notice under the CBCA and by making conforming definitional changes. The FDIC also seeks information and comments regarding its approach to change in control notices under the Change in Bank Control Act with regard to persons who may be directly or indirectly exercising control over an FDIC-supervised institution. The FDIC stated that it is committed to developing an interagency approach to change in control notices with the Federal Reserve and the OCC. Public comments on the proposal are due 60 days after publication in the Federal Register.

Agencies Issue Proposed Rule on Financial Data Transparency Act Joint Data Standards
On August 2, an interagency notice of proposed rulemaking proposal was issued to establish data standards that promote interoperability of financial regulatory data across agencies by establishing common identifiers for entities, geographic locations, dates, and certain products and currencies. Public comments on the proposal are due 60 days after publication in the Federal Register.

SEC Stays Approval of Amendment to FINRA Communications Rule That Would Have Permitted Use of Projected Performance Information with Institutional Investors and Qualified Purchasers
On July 19, the Division of Trading and Markets of the SEC approved amendments to FINRA Rul 2210, which, among other things, prohibits the use of projected performance in communications by member firms. The amendment would permit the use of projected performance and target returns in communications with institutional investors and, in connection with qualified private funds, with qualified purchasers and knowledgeable employees, provided that certain conditions are met. On July 26, the SEC issued a stay of the approval pending review, which it is permitted to do by Rule 431 of its own Rules of Practice. As a result of its review, the SEC may reverse the order adopting the rule change or send the rule proposal back to the Division of Trading and Markets or FINRA for further consideration. The rule proposal was discussed in our Client Alerts, “FINRA Kicks Off the Holiday Season With a Proposal to Permit the Use of Some Projections and Targeted Returns” (Dec. 8, 2023) and “FINRA Proposes to Add ‘Knowledgeable Employees’ to Category of Persons Who May Receive Projections and Targeted Returns Under Rule 2210” (Feb. 28, 2024). The SEC’s letter did not provide a timeline for its review of the approval order.

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New Client Alert: Paying for Buy-Side Investment Research: New Rules Ease the US-UK Divide
In our previous alert, Paying for Buy-Side Investment Research: Will the FCA’s Third Way Ease the US-UK Divide? | Insights & Resources | Goodwin (goodwinlaw.com), we discussed the consultation issued by the Financial Conduct Authority (FCA) on proposed rules on payment optionality for investment research. This had followed the UK Investment Research Review, which contained a key recommendation that the FCA to amend its rules on research unbundling to allow FCA-authorised investment managers more flexibility in how they pay for research. To read the full alert, click here.

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