[Federal Register Volume 84, Number 23 (Monday, February 4, 2019)]
[Notices]
[Pages 1438-1464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-00800]


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FEDERAL RESERVE SYSTEM

FEDERAL DEPOSIT INSURANCE CORPORATION

[FRB Docket No. OP-1644]


Final Guidance for the 2019

AGENCY: Board of Governors of the Federal Reserve System (Board) and 
Federal Deposit Insurance Corporation (FDIC).

ACTION: Final guidance.

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SUMMARY: The Board and the FDIC (together, the ``Agencies'') are 
adopting this final guidance for the 2019 and subsequent resolution 
plan submissions by the eight largest, complex U.S. banking 
organizations (``Covered Companies'' or ``firms''). The final guidance 
is meant to assist these firms in developing their resolution plans, 
which are required to be submitted pursuant to the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (``Dodd-Frank Act''). The 
final guidance, which is largely based on prior guidance issued to 
these Covered Companies, describes the Agencies' expectations regarding 
a number of key vulnerabilities in plans for an orderly resolution 
under the U.S. Bankruptcy Code (i.e., capital; liquidity; governance 
mechanisms; operational; legal entity rationalization and separability; 
and derivatives and trading activities). The final guidance also 
updates certain aspects of prior guidance based on the Agencies' review 
of these firms' most recent resolution plan submissions.

FOR FURTHER INFORMATION CONTACT: 
    Board: Michael Hsu, Associate Director, (202) 452-4330, Division of 
Supervision and Regulation, Jay Schwarz, Special Counsel, (202) 452-
2970, or Steve Bowne, Counsel, (202) 452-3900, Legal Division. Users of 
Telecommunications Device for the Deaf (TDD) may call (202) 263-4869.

[[Page 1439]]

    FDIC: Mike J. Morgan, Corporate Expert, [email protected], CFI 
Oversight Branch, Division of Risk Management Supervision; Alexandra 
Steinberg Barrage, Associate Director, Resolution Strategy and Policy, 
Office of Complex Financial Institutions, [email protected]; David N. 
Wall, Assistant General Counsel, [email protected]; Pauline E. Calande, 
Senior Counsel, [email protected]; or Celia Van Gorder, Supervisory 
Counsel, [email protected], Legal Division, Federal Deposit Insurance 
Corporation, 550 17th Street NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Introduction
    a. Background
    b. Proposed Guidance
II. Overview of Comments
III. Final Guidance
    a. Consolidation of Prior Guidance
    b. Single Point of Entry Resolution Strategy
    c. Engagement With Non-U.S. Regulators
    d. Capital and Liquidity
    e. Operational: Payment, Clearing, and Settlement Activities
    f. Legal Entity Rationalalization and Separability
    g. Derivatives and Trading Activities
    h. Cross References to Supervisory Letters
    i. Additional Comments
IV. Paperwork Reduction Act

I. Introduction

a. Background

    Section 165(d) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (12 U.S.C. 5365(d)) and the jointly issued implementing 
regulation, 12 CFR part 243 and 12 CFR part 381 (``the Rule''), 
requires certain financial companies to report periodically to the 
Board and the FDIC their plans for rapid and orderly resolution under 
the U.S. Bankruptcy Code \1\ in the event of material financial 
distress or failure.
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    \1\ 11 U.S.C. 101 et seq.
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    Among other requirements, the Rule requires each financial 
company's resolution plan to include a strategic analysis of the plan's 
components, a description of the range of specific actions the company 
proposes to take in resolution, and a description of the company's 
organizational structure, material entities, and interconnections and 
interdependencies. The Rule also requires that resolution plans include 
a confidential section that contains confidential supervisory and 
proprietary information submitted to the Agencies, and a section that 
the Agencies make available to the public. Public sections of 
resolution plans can be found on the Agencies' websites.\2\
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    \2\ See the public sections of resolution plans submitted to the 
Agencies at www.federalreserve.gov/bankinforeg/resolutionplans.htm 
and www.fdic.gov/regulations/reform/resplans/.
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Objectives of the Resolution Planning Process
    The goal of the Dodd-Frank Act resolution planning process is to 
help ensure that a firm's failure would not have serious adverse 
effects on financial stability in the United States. Specifically, the 
resolution planning process requires firms to demonstrate that they 
have adequately assessed the challenges that their structure and 
business activities pose to resolution and that they have taken action 
to address those issues. Management should also consider resolvability 
as part of day-to-day decision making, particularly in connection with 
decisions related to structure, business activities, capital and 
liquidity allocation, and governance. In addition, firms are expected 
to maintain a meaningful set of options for selling operations and 
business lines to generate resources and to allow for restructuring 
under stress, including through the sale or wind down of discrete 
businesses that could further minimize the direct impact of distress or 
failure on the broader financial system. While these measures cannot 
guarantee that a firm's resolution would be simple or smoothly 
executed, these preparations can help ensure that the firm could be 
resolved under bankruptcy without government support or imperiling the 
broader financial system.
    The guidance describes an iterative process aimed at strengthening 
the resolution planning capabilities of each financial institution. 
With respect to the eight largest, complex U.S. banking organizations 
(``Covered Companies'' or ``firms''),\3\ the Agencies have previously 
provided guidance and other feedback.\4\ In general, the feedback was 
intended to assist firms in their development of future resolution plan 
submissions and to provide additional clarity with respect to the 
expectations against which the Agencies will evaluate the resolution 
plan submissions. The Agencies reviewed the firms' 2017 resolution 
plans and issued a letter to each firm indicating that it had taken 
important steps to enhance its resolvability and facilitate its orderly 
resolution in bankruptcy.\5\ As a result of those reviews and following 
the Agencies' joint decisions in December 2017, the Agencies identified 
four areas where more work may need to be done to improve the 
resolvability of the firms.\6\ As described below, the Agencies have 
updated aspects of the prior guidance based on their review of the 
firms' 2017 resolution plans,\7\ including two areas of the guidance 
regarding payment, clearing, and settlement services, and derivatives 
and trading activities.
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    \3\ Bank of America Corporation, The Bank of New York Mellon 
Corporation, Citigroup Inc., The Goldman Sachs Group, Inc., JPMorgan 
Chase & Co., Morgan Stanley, State Street Corporation, and Wells 
Fargo & Company.
    \4\ This includes Guidance for 2013 Sec.  165(d) Annual 
Resolution Plan Submissions by Domestic Covered Companies that 
Submitted Initial Resolution Plans in 2012; firm-specific feedback 
letters issued in August 2014 and April 2016; the February 2015 
staff communication; and Guidance for 2017 Sec.  165(d) Annual 
Resolution Plan Submissions by Domestic Covered Companies that 
Submitted Resolution Plans in July 2015, including the frequently 
asked questions that were published in response to the Guidance for 
the 2017 resolution plan submissions (taken together, ``prior 
guidance'').
    \5\ See Letters dated December 19, 2017, from the Board and FDIC 
to Bank of America Corporation, The Bank of New York Mellon 
Corporation, Citigroup Inc., The Goldman Sachs Group, Inc., JPMorgan 
Chase & Co., Morgan Stanley, State Street Corporation, and Wells 
Fargo & Company, available at https://www.federalreserve.gov/supervisionreg/resolution-plans.htm.
    \6\ Id.
    \7\ Currently, each firm's resolution strategy is designed to 
have the parent company recapitalize and provide liquidity resources 
to its material entity subsidiaries prior to entering bankruptcy 
proceedings. This single point of entry (``SPOE'') strategy calls 
for material entities to be provided with sufficient capital and 
liquidity resources to allow them to avoid multiple competing 
insolvencies and maintain continuity of operations throughout 
resolution.
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    While the capital and liquidity sections of the final guidance 
remain largely unchanged from the proposed guidance and the 2016 
Guidance, the Agencies intend to provide additional information on 
resolution liquidity and internal loss absorbing capacity in the 
future. Accordingly, while certain concerns raised by commenters in 
connection with the proposed guidance have not resulted in changes to 
the capital and liquidity sections of the final guidance, the Agencies 
will consider these comments as they determine what future actions 
should be taken in these areas. The Agencies expect that any future 
actions in these areas, whether guidance or rules, would be adopted 
through notice and comment procedures, which would provide an 
additional opportunity for public input. The Agencies further expect to 
collaborate in taking such actions in a manner consistent with the 
Board's TLAC rule.\8\ Until any such future actions are taken, the 
final guidance sets

[[Page 1440]]

forth the Agencies' supervisory expectations regarding development of 
the firms' resolution strategies. As noted below and in the final 
guidance, the final guidance is not a regulation but represents the 
Agencies' supervisory expectations for how the firms' resolution plans 
should address key vulnerabilities in resolution.
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    \8\ See 82 FR 8266.
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b. Proposed Guidance

    In July 2018, the Agencies invited public comment on proposed 
resolution plan guidance for the eight largest, most complex U.S. 
banking organizations, to apply beginning with the firms' July 1, 2019 
resolution plan submissions.\9\ The proposed guidance described the 
Agencies' expectations in six substantive areas: Capital, liquidity, 
governance mechanisms, operational, legal entity rationalization and 
separability, and derivatives and trading activities. The proposed 
guidance was largely consistent with the guidance provided by the 
Agencies in April 2016 to assist in the development of their 2017 
resolution plans, Guidance for 2017 Sec.  165(d) Annual Resolution Plan 
Submissions by Domestic Covered Companies that Submitted Resolution 
Plans in July 2015 (``2016 Guidance'').\10\ Accordingly, the firms have 
already incorporated significant aspects of the proposed guidance into 
their resolution planning. The proposal updated the derivatives and 
trading activities, and payment, clearing, and settlement (``PCS'') 
activities areas of the 2016 Guidance based on the Agencies' review of 
the Covered Companies' 2017 resolution plans. It also made minor 
clarifications to certain areas of the 2016 Guidance. In general, the 
proposed revisions to the guidance were intended to streamline the 
firms' submissions and to provide additional clarity. The proposed 
guidance was not meant to limit a firm's consideration of additional 
vulnerabilities or obstacles that might arise based on the firm's 
particular structure, operations, or resolution strategy and that 
should be factored into the firm's submission.
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    \9\ 83 FR 32856.
    \10\ Available at: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20160413a1.pdf and at https://www.fdic.gov/news/news/press/2016/pr16031b.pdf.
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    The Agencies invited comments on all aspects of the proposed 
guidance. The Agencies also specifically requested comments on a number 
of issues, including whether the topics in the proposed guidance 
represent the key vulnerabilities of the Covered Companies in 
resolution, whether the proposed guidance was sufficiently clear, and 
whether the Agencies should consolidate all applicable guidance that 
covers expectations for resolution planning.

II. Overview of Comments

    The Agencies received and reviewed six \11\ comments on the 
proposed guidance. Commenters included various financial services trade 
associations, a financial market utility (``FMU''), a foreign banking 
organization (``FBO''), and several individuals. A number of commenters 
strongly supported efforts by the Agencies to consolidate existing 
resolution plan guidance. One commenter stated that consolidating prior 
guidance in one document would help streamline the resolution planning 
process while increasing clarity and transparency.
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    \11\ The Board received two additional comments that were not 
directed to the FDIC.
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    Various commenters urged the Agencies to acknowledge that an 
effective SPOE resolution strategy is a credible means of resolving a 
global systemically important bank (``GSIB'') in an orderly manner. 
These commenters also requested that elements of the guidance unrelated 
to an SPOE strategy be eliminated so firms can focus on issues tailored 
to address an SPOE resolution. Further, these commenters stated that 
acknowledging SPOE as a credible resolution strategy should lead to a 
reconsideration of the FDIC's resolution plan requirements for certain 
insured depository institutions (``IDIs'').\12\ These commenters 
recommended that IDI plans be eliminated for firms adopting SPOE as a 
resolution strategy since SPOE focuses on the resolution of the parent 
holding company and not material subsidiaries. Commenters also 
suggested that the resolution planning process be further streamlined 
by adopting a two-year cycle for submission of resolution plans under 
Section 165(d) of the Dodd-Frank Act and for submission of IDI plans if 
IDI plan requirements were not eliminated for SPOE filers. Commenters 
also suggested that the Agencies engage more proactively with non-U.S. 
regulators to improve efficiency of resolution planning and enhance 
information sharing, including with respect to reducing ex ante ring-
fencing.
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    \12\ See FDIC, Resolution Plans Required for Insured Depository 
Institutions with $50 Billion or More in Total Assets, 77 FR 3075 
(Jan. 23, 2012), codified at 12 CFR 360.10.
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    The Agencies received specific responses to questions raised in the 
proposed guidance related to key vulnerabilities, PCS services, and 
derivatives and trading activities. Two commenters agreed that the 
proposed guidance generally addresses the vulnerabilities of Covered 
Companies in resolution (although one of the commenters suggested that 
the guidance should be refined to more explicitly encourage an analysis 
of certain concentration risks).
    PCS. One commenter recommended that the PCS analysis should be 
limited to matters relevant to the successful execution of a filer's 
particular resolution strategy and offered general topical themes and 
specific recommendations for clarifying the PCS guidance and 
streamlining the resolution planning process. Another commenter 
suggested that the final guidance should highlight more clearly the 
importance of firms' continued engagement with key external 
stakeholders, including FMUs and agent banks. Two commenters provided 
specific recommendations with respect to: The scope of PCS services 
that would be analyzed in resolution plans; the extent to which the PCS 
guidance should be consistent with the Financial Stability Board's 
(``FSB's'') Guidance on Continuity of Access to Financial Market 
Infrastructures (FMIs) for a Firm in Resolution, published in July 
2017; distinctions between different types of providers of PCS 
services; the content that would be presented in FMU, agent bank, and 
PCS service provider playbooks; the extent to which contingency 
analysis would be discussed in resolution plans; and expectations 
concerning communication of potential impacts of contingency or 
alternative arrangements on key clients.
    Derivatives. One commenter supported the elimination in the 
proposed guidance of the expectation for a dealer firm to provide 
separate active and passive wind-down analyses. However, the commenter 
requested that the Agencies further eliminate other aspects of the 
guidance that may retain elements of a passive wind-down analysis. The 
commenter also recommended that the Agencies should allow firms to 
tailor capabilities and analysis to those supporting a firm's SPOE 
resolution strategy and incorporate reasonable alternative assumptions 
consistent with a firm's resolution strategy. In addition, this 
commenter stated that the Agencies should limit the development of 
derivatives capabilities and related analyses to material entities, 
eliminate modeling of operational costs at the level of specific 
derivatives activities, and clarify that ``linked'' non-derivatives 
trading positions should be defined by dealer firms in light of their 
overall business model and resolution strategies.

[[Page 1441]]

    Capital and Liquidity. Commenters offered recommendations on 
resolution capital and liquidity that primarily covered four areas: (i) 
Secured support agreements; (ii) tailoring liquidity flow assumptions; 
(iii) avoiding false positive resolution triggers; and (iv) other 
requests.
    Qualified Financial Contract (``QFC'') Stay Rules. One commenter 
criticized the proposed guidance requesting that additional resolution 
plan information be provided for firms who do not adhere to the 
International Swaps and Derivatives Association 2015 Universal 
Resolution Stay Protocol (or similar provisions of the U.S. 
protocol),\13\ including explaining the firm's alternative method of 
complying with the QFC stay rules. The same commenter also recommended 
that the Agencies clarify the final guidance regarding the impact of 
bankruptcy claims status of guarantees of QFCs if a firm were to pursue 
the elevation alternative described in the guidance.
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    \13\ U.S. protocol has the same meaning as it does at 12 CFR 
252.85(a). See also 12 CFR 382.5(a) (including a substantively 
identical definition).
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    Foreign Banking Organizations. Two commenters provided 
recommendations with respect to enhancing the resolution planning 
process applicable to FBOs under Section 165(d) of the Dodd-Frank Act. 
The final guidance does not apply to FBOs, and the appropriate 
expectations for resolution plans of FBOs would be better considered in 
the context of guidance applicable to those firms. Accordingly, these 
comments are not addressed in this Supplementary Information section.
    The comments received on the proposed guidance are further 
discussed below.

III. Final Guidance

    After carefully considering the comments and conducting further 
analysis, the Agencies are issuing final guidance that includes certain 
modifications and clarifications to the proposed guidance. In 
particular, the PCS and the derivatives and trading activities sections 
of the final guidance contain several changes based on commenters' 
suggestions, while retaining the same key principles embodied in the 
proposed guidance. These principles include: (i) Streamlining the 
firms' submissions; (ii) facilitating continuity of PCS services in 
resolution; and (iii) helping ensure that a firm's derivatives and 
trading activities can be stabilized and de-risked during resolution 
without causing significant market disruption that could cause risks to 
the financial stability of the United States. In addition, the final 
guidance consolidates all prior resolution planning guidance for the 
firms in one document and clarifies that any prior guidance not 
included in the final guidance has been superseded. These changes are 
discussed in more detail below.
    The final guidance is intended to assist firms in mitigating risks 
to the financial stability of the United States that could arise from 
their material financial distress or failure, consistent with Section 
165 of the Dodd-Frank Act.

a. Consolidation of Prior Guidance

    Commenters favored consolidating and making public the relevant 
aspects of all existing guidance into a single document. One commenter 
provided a list of examples of how prior guidance could be consolidated 
and recommended principles for the Agencies to follow. Accordingly, the 
final guidance includes a new section regarding the format, 
assumptions, and structure of resolution plans, which includes the 
aspects of previous guidance that remain applicable to resolution 
planning. In addition, because commenters found the Agencies' 
previously issued Frequently Asked Questions (``FAQs'') to the guidance 
to be helpful, those FAQs that remain relevant have been appended to 
the final guidance. To the extent not incorporated in or appended to 
the final guidance, prior guidance \14\ is superseded.
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    \14\ See footnote 5.
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    Consistent with recommendations made by the commenters, the 
Agencies have updated the final guidance to maintain certain key 
concepts contained in prior firm-specific feedback letters. For 
example, the final guidance deletes the cross-reference to SR 14-1 \15\ 
as the Agencies believe the relevant elements and associated 
capabilities contained in SR 14-1 have been consolidated into the final 
guidance. In addition, the final guidance clarifies the content of a 
firm's external communications strategy contained in the firm's 
governance playbooks and the scope of actionable implementation plans 
to ensure continuity of shared services. The final guidance also 
provides that firms discuss compliance with the QFC stay rules (as 
defined below) and the potential impact of such compliance on a firm's 
resolution strategy. Additionally, as recommended by a commenter, 
certain FAQs that are no longer meaningful or relevant have not been 
consolidated and are excluded, such as FAQ LIQ 7.
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    \15\ SR Letter 14-1, ``Heightened Supervisory Expectations for 
Recovery and Resolution Preparedness for Certain Large Bank Holding 
Companies--Supplemental Guidance on Consolidated Supervision 
Framework for Large Financial Institutions'' (Jan. 24, 2014).
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    A number of comments were directed at streamlining the resolution 
plan submission process. These comments included suggestions to 
formalize a two-year submission cycle and to allow firms to provide 
updates to quantitative analyses, while relying on references to 
previously submitted material where capabilities remain unchanged. 
Implementation of the changes proposed by these comments would require 
changes to the Rule. Accordingly, these comments would be better 
considered in connection with a future rulemaking proposal. The 
Agencies note, however, that the Rule provides that firms may 
incorporate by reference certain informational elements from previously 
submitted resolution plans to the extent such information remains 
accurate.
    One commenter noted that, to the extent filers have adequately 
addressed deficiencies and shortcomings identified in prior firm-
specific feedback, the Agencies should explicitly provide in the final 
guidance that the expectations set forth in that feedback do not 
continue to alter the expectations in the final guidance. This 
commenter noted that the final guidance should govern where it contains 
expectations similar to, or that directly supersede, expectations in 
prior feedback letters or similar communications. As stated above, 
prior guidance not incorporated in or appended to the final guidance is 
superseded. The Agencies note that in the future, firm-specific 
weaknesses and applicable remediation will continue to be addressed in 
firm-specific feedback communications in a manner that is consistent 
with applicable guidance.
    The Agencies note that commenters described certain expectations 
that are set forth in the guidance as ``requirements.'' The Agencies 
are clarifying that the final guidance does not have the force and 
effect of law. Rather, the final guidance outlines the Agencies' 
supervisory expectations and priorities for the firms' resolution plans 
and articulates the Agencies' general views regarding appropriate 
practices for each subject area covered by the final guidance.\16\
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    \16\ See generally, Interagency Statement Clarifying the Role of 
Supervisory Guidance (Sept. 11, 2018) at https://www.federalreserve.gov/supervisionreg/srletters/sr1805a1.pdf.
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b. Single Point of Entry (SPOE) Resolution Strategy

    Some commenters suggested that the Agencies acknowledge the SPOE

[[Page 1442]]

strategy as a credible means of resolving a GSIB in an orderly manner. 
Commenters cited SPOE as a basis for eliminating various aspects of the 
Guidance they contend are relevant to non-SPOE resolution strategies.
    The Agencies do not prescribe specific resolution strategies for 
any firm, nor do the Agencies identify a preferred strategy. Firms may 
submit resolution plans using the resolution strategies they believe 
would be most effective in achieving an orderly resolution of their 
firms, but must address the key vulnerabilities and support the 
underlying assumptions required to successfully execute their chosen 
resolution strategy. The final guidance is not intended to favor one 
strategy or another. It is flexible enough to allow firms to address 
the resolution obstacles that are relevant to their chosen strategy.
    The Agencies have acknowledged the significant progress U.S. GSIBs 
have made in addressing key vulnerabilities and mitigants associated 
with SPOE. While significant progress has been made, like any 
resolution strategy for large bank holding companies, SPOE is untested 
and there remain inherent challenges and uncertainties associated with 
the resolution of a systemically important financial institution under 
any specific resolution strategy. In light of this uncertainty, the 
final guidance provides that the firms should develop and maintain 
capabilities to address situations where their selected strategy 
presents vulnerabilities.
    Some commenters offered recommendations about IDI Plan requirements 
for filers that have adopted SPOE in their 165(d) Plans.\17\ IDI Plans 
are outside of the scope of the guidance and have a unique objective 
from Title I ensuring least-cost resolution to the Deposit Insurance 
Fund in an IDI receivership. The FDIC plans to address proposed IDI 
Plan requirements through an advanced notice of public rulemaking in 
2019.
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    \17\ One commenter stated that the FDIC should finalize its 
public notice using SPOE as the strategy for resolution of GSIBs 
under Title II of the Dodd-Frank Act. Because Title II of the Dodd-
Frank Act is outside the scope of this guidance, the FDIC does not 
address such comment at this time.
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c. Engagement With Non-U.S. Regulators

    Certain commenters recommended the Agencies engage more proactively 
with non-U.S. regulators to improve the efficiency of resolution 
planning requirements. Additionally, certain commenters recommended the 
Agencies enhance information-sharing across jurisdictions in a manner 
that would expand and clarify the type of information that firms may 
share with cooperating regulatory authorities.
    The Agencies acknowledge that engagement with non-U.S. regulators 
is critical. The Agencies already engage proactively with non-U.S. 
regulators related to resolution planning, and have established 
frameworks and information-sharing arrangements for effective cross-
border resolution cooperation with counterparts in key foreign 
jurisdictions. This includes leading, as home authority Co-Chairs, the 
work of firm-specific cross-border Crisis Management Groups (``CMGs'') 
for U.S. GSIBs as well as entering into firm-specific cooperation 
agreements with CMG members. In furtherance of its resolution authority 
responsibilities, the FDIC also has concluded bilateral Resolution 
Memoranda of Understanding with foreign authorities that address 
cooperation and information sharing for cross-border resolution 
planning and crisis management preparedness.
    In addition, the Agencies work on a bilateral and multilateral 
basis on cross-border resolution planning matters with authorities from 
other jurisdictions that regulate GSIBs, including by participating in 
joint working groups and interagency financial regulatory dialogues 
(such as the Joint U.S.-European Union Financial Regulatory Forum and 
the U.S.-UK Financial Regulatory Working Group) and by contributing to 
the development and ongoing implementation of standards for cross-
border resolution by the FSB's Resolution Steering Group and its 
committees, including implementing the Key Attributes of Effective 
Resolution Regimes for Financial Institutions.\18\ The Agencies will 
continue to coordinate with non-U.S. regulators regarding resolution 
matters.
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    \18\ ``Key Attributes of Effective Resolution Regimes for 
Financial Institutions'' (October 15, 2014), http://www.fsb.org/wp-content/uploads/r_141015.pdf.
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d. Capital and Liquidity

    Like the proposed guidance, the capital and liquidity sections 
(Sections II and Section III) of the final guidance remain materially 
unchanged from the 2016 Guidance, including the expectations to model 
resolution capital and liquidity needs for each material entity and to 
hold and pre-position sufficient resources to meet those needs. The 
only change to the capital section is to eliminate a superfluous 
reference to creditor challenge mitigation. The proposed guidance 
carried forward an unintentional reference to creditor challenge in the 
Resolution Capital Adequacy and Positioning (``RCAP'') discussion, 
which if left unedited suggests that pre-positioning of intercompany 
debt that is indirectly issued to a parent through one or more 
intermediate entities needs to be structured in a manner that 
``mitigates uncertainty related to potential creditor challenge.'' The 
need to address creditor challenges is addressed in the Pre-Bankruptcy 
Parent Support section of the guidance. The relevant point regarding 
the firm's structuring of the internal debt is that it should ``ensure 
that the entity can be recapitalized.''
    Although the Agencies received a number of written comments on 
resolution capital and liquidity, the commenters noted that the 
Agencies intend to issue information addressing issues relating to 
intra-group liquidity and internal loss absorbing capacity in 
resolution. These commenters therefore did not presume that the intra-
group liquidity and internal loss-absorbing capacity recommendations 
would be addressed in this guidance. The Agencies have reviewed and 
considered the commenters' recommendations, and have responded to 
specific recommendations below, but have not adopted any modifications 
in the final guidance in response to those recommendations. The 
Agencies will continue to consider these comments as they assess the 
additional information they intend to provide in these areas.
    Commenters offered recommendations on resolution capital and 
liquidity that primarily covered four areas: (i) Secured support 
agreements; (ii) tailoring liquidity flow assumptions; (iii) avoiding 
false positive resolution triggers; and (iv) other requests. 
Ultimately, the result of these recommendations would be to allow firms 
to, among other things, reduce the amount of resolution liquidity and 
capital resources (e.g., Resolution Liquidity Adequacy and Positioning 
(``RLAP'') and RCAP) that would otherwise be positioned at a material 
entity.
    Secured Support Agreements. Commenters recommended that as a result 
of the development (and adoption) of support agreements by filers, the 
Agencies should reconsider the pre-positioning expectations and legal 
entity friction assumptions (e.g., ring fencing of surplus liquidity) 
articulated in the Agencies' prior guidance. Commenters noted the 
design objectives and intended benefits of secured support agreements 
for addressing the Agencies' expectation that firms balance the 
flexibility provided by holding contributable

[[Page 1443]]

resources at support providers with the certainty provided by pre-
positioning resources at material subsidiaries. The legally binding 
features and enforceability of the secured support agreements, 
commenters asserted, maximize the firm's ability to direct capital and 
liquidity where and when it is needed, while maintaining a degree of 
certainty that contributable resources will be available to the 
material entities when needed. Similarly, commenters suggested that the 
Agencies should engage with non-U.S. regulators to establish support 
agreements as a key tool for meeting the capital and liquidity needs of 
material subsidiaries of a U.S. GSIB in a resolution scenario. 
Commenters believe that secured support agreements are complementary to 
the objectives of internal total loss-absorbing capacity (``TLAC'') and 
other gone-concern standards designed to provide host authorities 
comfort that non-locally positioned resources--or surplus resources 
moved out of a local material entity--will be available to the local 
material entity if and when needed in resolution.
    The Agencies continue to consider the merits and limitations of 
secured support agreements. A successful SPOE resolution requires a 
balancing of the tradeoffs between the certainty provided by locally 
pre-positioned resources and the flexibility provided by a pool of 
globally available resources. A key objective of pre-positioning of 
resolution resources (e.g., pre-positioned internal TLAC) is to delay 
the need for host authorities to take self-protective actions that 
disrupt the group SPOE resolution. However, over-calibration of pre-
positioned internal TLAC can prove self-defeating, if excess resources 
are trapped in local jurisdictions when they are needed elsewhere 
within the group. The Agencies acknowledge that balancing these trade-
offs successfully will require shared understandings between home and 
host authorities, and firms, about the expected allocation during a 
group resolution of resources held at the parent or other support 
entity.
    However, secured support agreements remain an imperfect substitute 
for the certainty (and transparency) provided by pre-prepositioned 
resources. First, the Agencies note that secured support agreements are 
untested. While secured support agreements may offer a measure of 
assurance that available contributable resources within the firm will 
be allocated in a pre-determined manner, on their own, the agreements 
do not provide the same certainty as pre-positioned resources. More 
pre-positioned resources increase host comfort and cross-border 
cooperation during a group resolution because the host is in control of 
a known and quantifiable amount of emergency capital and liquidity, and 
not dependent on the potential delivery of contributable resources. 
Second, the availability and sufficiency of contributable resources for 
group resolution purposes may be unclear.
    The Agencies' resolution resource estimation and positioning 
expectations, including many of the assumptions that restrict the flow 
of liquidity among affiliates for resolution planning purposes, support 
the broader goal of increasing host authority confidence through 
straightforward assumptions about the movement of liquidity within 
groups and transparency of resolution resource needs and resource 
locations. For example, enhancing clarity with respect to the size, 
location, and composition of pre-positioned resources, can provide 
authorities with the necessary comfort that resources are not being 
double-counted, and that they can be reasonably relied on to be 
available locally, when needed. The Agencies acknowledge that 
engagement with non-U.S. regulators is critical because the 
effectiveness of secured support agreements could be reduced if they do 
not provide key host regulators a sufficient level of comfort during 
stress. To that end, the Agencies will continue to coordinate with the 
non-U.S. regulators regarding resolution matters, including 
developments in the resolution capabilities of U.S. GSIBs and in 
existing secured support agreements.
    Tailoring Liquidity Flow Assumptions. Commenters recommended that 
firms be permitted to make more idiosyncratic assumptions about flows 
of liquidity in their resolution planning liquidity estimates and 
methodologies for RLAP.\19\ More specifically, commenters argued for 
the relaxation of various enumerated assumptions, which they assert 
reflect unrealistic assumptions about the generation of liquidity and 
the flows of liquidity between affiliates. Commenters further asserted 
that these restrictive assumptions are rendered less realistic and less 
necessary in light of the secured support agreements' framework for 
ensuring the timely allocation of resolution resources. The Agencies 
continue to evaluate the liquidity guidance for opportunities to 
enhance the efficiency of the resolution planning process.
---------------------------------------------------------------------------

    \19\ For Resolution Liquidity Execution Need (``RLEN''), the 
Agencies' guidance does not prescribe specific modeling assumptions 
for intra-affiliate flows.
---------------------------------------------------------------------------

    Avoiding False Positive Resolution Triggers. One commenter 
requested that the Agencies clarify whether firms are permitted to 
tailor their resolution planning capital and liquidity estimates and 
methodologies based on specific factual circumstances concerning their 
material entities, as well as modify these assumptions during an actual 
stress scenario. According to the commenter, expressly providing firms 
with the ability to tailor and modify these estimates and methodologies 
would serve as a safeguard against premature bankruptcy filings.
    The guidance provides firms with the flexibility to tailor their 
RLEN and Resolution Capital Execution Need (``RCEN'') methodologies. 
For the purposes of the resolution plan submissions, firms should 
assume conditions consistent with the DFAST Severely Adverse 
scenario.\20\ In an actual stress environment, however, methodologies 
for estimating RLEN and RCEN should have the flexibility to incorporate 
actual stress conditions that may deviate from the DFAST Severely 
Adverse scenario. Firms' capabilities to calibrate and alter 
assumptions in their RLEN and RCEN methodologies to reflect actual 
stress conditions is a meaningful safeguard against false positive 
resolution triggers.
---------------------------------------------------------------------------

    \20\ See final guidance, Section VIII, Guidance Assumption 4.
---------------------------------------------------------------------------

    Other Requests. Commenters also sought modification of certain 
definitional issues. More specifically, commenters suggested that 
forthcoming guidance reconsider two additional aspects of the 
resolution planning capital and liquidity standards: (i) Whether firms 
can turn off restrictive market access assumptions post-
recapitalization and (ii) whether investment grade status can 
substitute for the level of recapitalization necessary to achieve 
market confidence in stabilization for material entities not subject to 
``well-capitalized'' standards or bank regulatory capital regimes. The 
two requests relate to definitional issues addressed in existing FAQs 
and would primarily impact a firm's assumptions regarding resolution 
capital and liquidity resource need estimates. Therefore, the Agencies 
will continue to consider these recommendations when they provide 
additional information in these areas in the future.

e. Operational: Payment, Clearing, and Settlement Activities

    The Agencies received a number of comment letters regarding the 
proposed

[[Page 1444]]

PCS guidance. Commenters generally recommended certain modifications 
and clarifications to the proposed guidance in order to streamline the 
resolution plan submissions and to provide further clarity. The 
Agencies have modified the final guidance to address certain matters 
raised by the commenters consistent with the Agencies' overall 
objective of facilitating continuity of PCS services in resolution.
i. PCS Terminology
    The Agencies received several comments regarding the scope of the 
proposed guidance and requesting clarity and/or modification of certain 
terms and PCS-related concepts, such as ``PCS services providers,'' 
``key clients,'' ``critical PCS services,'' and the scope of direct and 
indirect PCS activities. These clarifications in the final guidance 
also address several related comments, which are discussed in further 
detail below.
    Providers of PCS Services: Under the final guidance, a firm is a 
provider of PCS services if it provides PCS services to clients as an 
agent bank or it provides clients with access to an FMU or agent bank 
through the firm's membership in or relationship with that service 
provider. A firm also is a provider if it provides clients with PCS 
services through the firm's own operations (e.g., payment services or 
custody services). One commenter recommended that a firm's contingency 
plans should cover its relationships with the Society for Worldwide 
Interbank Financial Telecommunication (``SWIFT''), real-time gross 
settlement (``RTGS'') systems, and nostro-agents in the identification 
of key PCS providers. The Agencies note that the guidance is not 
prescriptive regarding the inclusion of specific providers and that a 
firm retains the discretion to identify SWIFT, RTGS, and/or certain 
nostro-agents as key PCS providers.
    The Agencies note that, to the extent a firm addresses all items 
noted in the final PCS guidance section on Content Related to Users 
and/or Providers of PCS Services in other areas of the firm's 
submission (e.g., the discussion of material entities and/or critical 
operations in its resolution plan), the firm may include a specific 
cross-reference to that PCS content accordingly, and a separate 
playbook need not be provided.
    Key Client Identification: Some commenters requested that the 
guidance either adopt a more limited scope for the concept of key 
clients or clarify that a provider of PCS services may identify and 
describe its key clients by category or in a manner consistent with the 
services it provides. Commenters argued that consideration of a wider 
scope of key clients could be burdensome to administer and result in a 
list of key clients that may fluctuate over time. In response to these 
comments, the final guidance clarifies that firms should identify 
clients as key from the firm's perspective, rather than from the 
client's perspective. The final guidance further clarifies that a firm 
is expected to use both quantitative and qualitative criteria to 
identify key clients. Qualitative criteria may include categories of 
clients associated with PCS activities and business lines,\21\ while 
quantitative criteria may include transaction volume/value, market 
value of exposures, market value of assets under custody, usage of PCS 
services, and availability/usage of intraday credit or liquidity. 
Commenters were also concerned that the list of key clients could 
fluctuate over time. The Agencies recognize that information provided 
in a firm's resolution plan, including a list of key clients, may 
change with each submission. Some commenters requested that the scope 
of key clients should be limited to GSIBs, arguing that such limitation 
would be more consistent with the limited scope of the FSB's July 2017 
Guidance on Continuity of Access To Financial Market Infrastructures 
(FMI) for a Firm in Resolution, including the corresponding Annex, 
which provides a list of information requirements relevant to 
facilitating continuity of access (together, the ``FSB FMI Guidance''). 
The Agencies have not limited the scope of key clients to GSIBs, since 
key clients may include entities other than GSIBs, and continuity of 
access to services provided to all key clients supports a key objective 
of the guidance.
---------------------------------------------------------------------------

    \21\ Commenters also suggested that a firm should consider the 
degree of interconnectedness among its clients and evaluate 
concentration risk from its perspective as a provider of PCS 
services (including where a firm is the sole provider or one of only 
a few providers for a particular service). The Agencies note that a 
firm may consider interconnectedness or concentration risk presented 
by a particular client as qualitative criteria when identifying key 
clients.
---------------------------------------------------------------------------

    PCS Services: Commenters argued that a concept of critical PCS 
services that depended on the criticality of PCS services to a 
particular client would be impractical and difficult to administer. 
Commenters also argued that a concept of critical PCS services that 
hinged on the criticality of such services to a particular client would 
be an overly-broad standard. The final guidance replaces references to 
``critical PCS services'' with ``PCS services,'' focuses on key 
clients, and clarifies that a firm should identify clients, FMUs, and 
agent banks as key from its perspective rather than its clients' 
perspective. Further, the final guidance modifies the definition of 
client by deleting the reference to ``reliance upon continued access'' 
such that a client is defined as ``an individual or entity, including 
affiliates of the firm, to whom the firm provides PCS services.'' As 
noted above, firms are expected to identify clients as key from the 
firm's perspective using both quantitative and qualitative criteria and 
have flexibility to tailor their identification methodologies and 
criteria. These clarifications are not expected to result in 
consideration of any additional PCS services provided by the firm.
    Direct and Indirect Relationships: With respect to the scope of PCS 
providers, certain commenters sought to narrow the concept to those 
instances in which a firm that has a direct relationship with an FMU or 
agent bank provides indirect access to an FMU or agent bank through its 
membership or contractual relationship. The Agencies have not limited 
this concept, as continuity of PCS activities in resolution remains 
essential both with respect to the provision of PCS services to a 
firm's affiliates and where the firm is a provider of PCS services 
through its own operations.
    In addition, one commenter stated that firms should be expected to 
understand which of an FMU's tools are most likely to be utilized in 
resolution, and to differentiate mitigating actions from adverse 
actions. The Agencies note that the guidance provides firms with 
discretion to identify such tools and contingency arrangements in their 
resolution plan submissions, including whether the arrangements are 
likely to be used by a PCS provider in resolution.
    One commenter also focused on the need, to the extent possible, for 
firms to update contracts with agent banks to incorporate appropriate 
terms and conditions to prevent automatic termination and facilitate 
continued provision of critical outsourced services during resolution. 
The Agencies note that this comment is addressed under the Shared and 
Outsourced Services section of the final guidance. Notwithstanding the 
foregoing, the Agencies understand that in certain cases, PCS providers 
may not be permitted to provide continued access by an entity that has 
not met either its financial or contractual obligations. In addition, 
one commenter noted that firms should consider including continuity of 
access to key FMUs and key agent banks in their legal entity 
rationalization (``LER'') criteria. In order

[[Page 1445]]

to enhance resolvability, firms have included continuity of critical 
operations in their LER criteria and certain firms also considered 
mitigation of continuity risk regarding FMU access in applying their 
LER criteria. The final guidance provides all firms with the 
flexibility, as appropriate, to consider continuity of access to key 
FMUs and key agent banks.
ii. Playbooks for Continued Access to PCS Services
    The provision of PCS services by firms, FMUs, and agent banks is an 
essential component of the U.S. financial system, and maintaining the 
continuity of PCS services is important for the orderly resolution of 
firms. Prior guidance from the Agencies indicated that a firm's 
resolution plan submission should describe arrangements to facilitate 
continued access to PCS services through the firm's resolution. Firms 
have developed capabilities to identify and consider the risks 
associated with continuity of access to PCS services in resolution, 
including playbooks for key FMUs and key agent banks that describe 
potential adverse actions and possible contingency arrangements.
    Some commenters suggested that filers could update certain 
discussions in the PCS playbooks for material changes only and not 
resubmit the complete discussion as part of the resolution plan 
submission. The Agencies acknowledge that the Rule generally allows for 
incorporation by reference of previously submitted information that 
remains accurate. However, certain PCS-related content may be more 
likely to change between submissions (such as provider rulebooks, key 
clients, volume and value of activity, exposure quantifications, and 
key PCS providers) and therefore would be expected to be provided in 
each submission. To the extent that certain updated information may be 
addressed in other sections of the firm's submission, the firm may 
include a specific cross-reference to that content in the appropriate 
playbook.
    In addition, the Agencies have clarified the expectations for 
playbook content for both users and providers of PCS services. Firms 
are expected to provide a playbook for each key FMU and key agent bank 
that addresses financial and operational considerations that would 
assist the firm in maintaining continued access to PCS services for 
itself and its clients during stress and in resolution.
    Form and Content: Some commenters suggested that playbooks for 
agent bank relationships might be different than those produced for 
FMUs, and as a result, analysis in playbooks for agent banks generally 
would be different from the analysis for FMUs in terms of content, 
organization, and level of detail. Another commenter suggested that 
firms should consider discussing whether contingency arrangements and/
or analyses in playbooks would change depending on which entity enters 
into resolution. The final guidance sets out the expectations for PCS 
playbooks for FMUs and agent banks, and allows flexibility for a firm 
to tailor the contents of its PCS playbooks to the specific 
relationships of the firms with its key FMUs and key agent banks. 
Together with financial resources, a firm should consider operational 
resources (including critical services, MIS reporting, communications, 
and internal and external contacts) that would be needed to respond to 
adverse actions and execute any contingency arrangements.
    Some commenters suggested that separate playbooks should not be 
expected for a firm's role as provider of PCS services. If the firm is 
both a user and provider of PCS services, content related to user and 
provider of PCS services may be provided in the same playbook, with 
appropriate and specific cross-references to other sections. Where a 
firm is a provider of PCS services through the firm's own operations, 
the firm is expected to produce a playbook for the material entities 
that provide those services, addressing each of the items described in 
the section on Content related to Provider of PCS Services.
    Mapping: The final guidance specifies that each playbook should 
identify and map the PCS services provided by each material entity and 
critical operation to its key clients, and describe the scale and 
manner in which each provides PCS services and any related credit or 
liquidity offered in connection with such services.
    Commenters focused on the issue of identification and mapping key 
clients to the firm's PCS activities. Comments concerning 
identification of key clients were discussed in connection with the 
definition of ``key client.'' The Agencies expect a firm to map each of 
its key clients to the firm's key FMUs and key agent banks. The 
Agencies note that a firm is expected to track PCS activities, map them 
to the relevant material entities and core business lines, and track 
customers and counterparties for PCS activities, including values and 
volumes of various transaction types, and used and unused capacity for 
all lines of credit. Firms are expected to report on the individual key 
clients to whom the firm provides PCS services. Some commenters argued 
that this mapping of key clients would require the development of new 
information and monitoring systems. However, based on the Agencies' 
engagement with firms, the Agencies have observed that firms already 
have the capability to identify and report these relationships on an 
individual basis.
    Funding and Liquidity Analysis: Commenters recommended that PCS 
playbooks be consistent with the expectations in other parts of the 
final guidance, and that any PCS-related liquidity expectations should 
be factors incorporated into a filer's overall resolution liquidity 
models. Another commenter noted that firms should clarify further the 
extent to which they would rely on committed credit lines as liquidity 
resources in resolution. The final guidance clarifies that firms are 
expected to include a discussion of liquidity sources and uses of funds 
in business as usual (``BAU''), in stress, and in the resolution 
period. The final guidance is not prescriptive, and each firm is 
expected to determine the relevant PCS-related liquidity analysis that 
is specific to its PCS activities. There is no expectation for such 
liquidity analysis to include stress-testing or multiple scenario 
analysis. To the extent that specific FMU and agent bank information is 
provided, firms may include the information in the relevant FMU and 
agent bank playbooks or provide appropriate, specific cross-references 
to other sections of the resolution plan in the playbook.
    Key Client Contingency Arrangements: Some commenters argued that if 
a filer's resolution strategy is designed to maintain client access to 
key FMUs and key agent banks, then contingency analysis regarding 
client loss of access to PCS services is not relevant to the successful 
execution of a firm's particular resolution strategy and should not be 
expected to be included in a firm's resolution plan submission. The 
Agencies consider the need to address contingencies (e.g., the 
potential for loss of access to PCS services, FMUs, or agent banks) as 
supplemental to those in the firm's preferred resolution strategy, and 
maintain that the preparation of a loss of access contingency analysis 
is appropriate as the successful execution of a firm's preferred 
resolution strategy is not guaranteed. To minimize disruption to the 
provision of PCS services to clients, a filer should describe the 
potential range of contingency arrangements that the firm may take, 
including the viability of transferring client activity and related 
assets, as well as any

[[Page 1446]]

alternative arrangements that would allow the firm's key clients 
continued access to critical PCS services, in the event the firm could 
no longer provide such access.
    Commenters also noted that filers should have flexibility to 
provide analysis that recognizes the different types and scope of PCS 
services offered by each PCS provider. The Agencies note that the 
guidance distinguishes between FMUs and agent banks and is not 
prescriptive, providing firms with discretion under the existing 
guidance to tailor analysis consistent with varied types of PCS 
services and PCS providers.
    Commenters also indicated that a filer is not in the best position 
to understand the financial and operational impacts to its key clients, 
and suggested that any contingency arrangements for clients should be 
at a higher level and not be provided on a per-client basis. The 
Agencies are clarifying that the discussion of potential financial and 
operational impacts to key clients is from the perspective of the 
filer, and not from the clients' perspectives. The Agencies note that 
the final guidance is not prescriptive and that firms have the 
discretion to tailor the discussion to client impacts specific to the 
PCS services provided.\22\
---------------------------------------------------------------------------

    \22\ Examples of financial and operational impacts to key 
clients may include considerations such as intraday or uncommitted 
credit lines that a firm provides to key clients, settlement 
volumes/value, or market value of the activity that is processed for 
its key clients. To the extent certain key client relationships or 
PCS services to key clients are unique, firms are expected to 
address potential contingency arrangements for those instances on an 
individual client basis.
---------------------------------------------------------------------------

    Loss of Access: Several commenters requested additional clarity 
around loss of access to an FMU or agent bank, and the potential 
financial and operational impacts to a filer's material entities and 
key clients. The final guidance maintains that a firm is not expected 
to incorporate a scenario in which it loses FMU or agent bank access 
into its preferred resolution strategy or into its RLEN/RCEN analysis. 
In support of maintaining the continuity of PCS services, each playbook 
should provide analysis of the financial and operational impacts to the 
filer's material entities and key clients due to adverse actions that 
may be taken by an FMU or agent bank, and contingency actions that may 
be taken by the filer. Each playbook also should include considerations 
of any substitutes and/or any possible alternative arrangements, if 
available, that would allow the firm and its key clients to maintain 
continued access to PCS services in resolution.\23\
---------------------------------------------------------------------------

    \23\ Impact analysis in the final guidance is consistent with 
the FSB FMI Guidance regarding impact analysis of discontinuity of 
access that complements mitigation measures for dealing with a 
termination or suspension of access to FMI services. See FSB FMI 
Guidance, Section 2.5 (p. 17), and Annex, Items #17 and 18 (p. 27).
---------------------------------------------------------------------------

    Client Communication: One commenter suggested that firms engage 
with users and clients and communicate the range of risk management 
actions and requirements that may be imposed on a user when a firm is 
in resolution, setting out a common set of expectations and processes 
across users to the extent possible. The Agencies recognize the 
importance of firms' engagement and communication with clients and the 
final guidance allows firms to determine the method, form, and timing 
of such engagement and communication with clients. Firms are best 
positioned to make decisions regarding common expectations and 
processes across users because the facts and circumstances of client 
relationships vary, which in turn informs the specific content in the 
playbooks.
    The final guidance specifies that a firm should communicate to its 
key clients the potential impacts of implementation of any identified 
contingency arrangements or alternatives, and that playbooks should 
describe the firm's methodology for determining whether additional 
communication should be provided to some or all key clients (e.g., due 
to the client's BAU usage of that access and/or related intraday credit 
or liquidity), and the expected timing and form of such communication. 
A firm is expected to consider the benefits of client communications in 
multiple forms (e.g., verbal, written, and electronic), and at multiple 
times (e.g., in BAU, stress events, and some point in advance of taking 
contingency actions) in order to provide adequate notice to key clients 
of the action and the potential impact on the client of that action. 
Firms should consider the benefits of tailoring client communications 
to different segments of clients in form, timing, or both, and 
providing sample client contracts or agreements containing provisions 
related to the firm's provision of intraday credit or liquidity in its 
resolution plan submission.\24\
---------------------------------------------------------------------------

    \24\ In their most recent resolution plan submissions, all of 
the firms addressed the issue of client communications and provided 
descriptions of planned or existing client communications, with some 
firms submitting specific samples of such communication.
---------------------------------------------------------------------------

iii. Other PCS Comments (FSB FMI Guidance, International Coordination, 
and Agency Communication)
    Consistency with FSB FMI Guidance: Commenters recommended greater 
consistency with the FSB FMI Guidance. The final guidance remains 
consistent with the FSB FMI Guidance, focusing on the identification of 
providers, mapping of contractual relationships, continuity analysis 
(e.g., adverse actions and contingency arrangements), communications, 
and discontinuity of access. Another commenter suggested that the 
Agencies should consider coordinating with firms' foreign resolution 
authorities with respect to content and the submission process for 
resolution-related reporting templates. The Agencies recognize that 
international coordination in resolution-related matters is important, 
and will continue to work with domestic and international counterparts 
through various forums, including CMGs. The final guidance is also 
consistent with FSB FMI Guidance in this respect, as it broadly 
addresses all information aspects contained in the FSB FMI Guidance, 
including those informational requirements specified in the FSB Annex. 
In addition, the final guidance provides a firm with the flexibility to 
provide playbooks that are tailored to the circumstances relevant to 
that firm and therefore does not adopt standardized resolution-related 
reporting templates.
    Agency Communication: One commenter suggested that the Agencies 
engage ex ante with key market stakeholders, including PCS providers 
both in BAU and leading up to and during a firm's resolution. The 
Agencies proactively engage with firms and PCS providers through 
various forums including CMGs. As this comment is not applicable to the 
content contained in a firm's plan submissions, the Agencies did not 
make any modification to final guidance in response to this comment.

f. Legal Entity Rationalization and Separability

    One commenter argued that the cost-benefit analysis does not 
justify requiring filers to maintain active virtual data rooms for each 
object of sale identified in their separability analysis. In order to 
reduce the burden on the firms, the Agencies have modified the Guidance 
to provide that firms should have the capability to populate a data 
room with information pertinent to a potential divestiture in a timely 
manner, rather than maintain an active data room. The Agencies expect 
to test this capability by asking firms to produce

[[Page 1447]]

selected sale-related materials within a certain timeframe as part of 
future resolution plan reviews.

g. Derivatives and Trading Activities

    The Agencies received a number of comments on Section VII 
(Derivatives and Trading Activities) of the proposed guidance. 
Commenters supported the proposed elimination of the active and passive 
wind-down scenario analyses and rating agency playbooks, but 
recommended certain modifications and clarifications to the proposed 
guidance in order to streamline the resolution plan submissions and 
provide further clarity.
    After reviewing the comments on the proposed guidance, the Agencies 
have adopted final guidance that includes several adjustments and 
clarifications to address matters raised by the commenters. For 
example, commenters argued that having a dealer firm provide 
information on compression strategies that it would not expect to use 
in resolution would have limited regulatory purpose and distract 
resources away from developing other capabilities and analyses. The 
final guidance clarifies that this expectation only applies when a 
dealer firm expects to rely upon compression strategies for executing 
its preferred strategy. Commenters suggested a dealer firm should not 
have to model the operational costs necessary to execute its 
derivatives strategy by separating out and specifying costs at the 
level of specific derivatives activities, as a firm would have included 
those costs in the material entity cost analyses provided as part of 
its resolution plan. The final guidance clarifies that a dealer firm 
may choose not to model its operational costs for executing its 
derivatives strategy at the level of specific derivatives activities; 
however, a firm's cost analyses should provide operational cost 
estimates at a more granular level than the material entity level 
(e.g., business line level within a material entity, subject to wind-
down).
    The Agencies also have made a number of changes to clarify the 
scope, intent, and terminology of the final guidance. For example, 
commenters recommended the Agencies confirm that the term ``material 
derivatives entities'' means a dealer firm's material entities that 
engage in derivatives activities. The final guidance confirms the 
definition of the term. Commenters suggested that a dealer firm should 
be expected only to incorporate capital and liquidity needs associated 
with derivatives activities into its RCEN and RLEN estimates with 
respect to its material entities. The final guidance includes this 
clarification. Commenters urged the Agencies to clarify that dealer 
firms may define linked non-derivatives trading positions based on 
their overall business and resolution strategy. The final guidance 
includes this clarification.
    Some commenters recommended the Agencies adjust certain 
expectations that are not specified in the proposed guidance. The 
Agencies have determined not to modify the guidance in these instances. 
For example, commenters suggested the Agencies eliminate certain 
remnants of the passive wind-down analysis (e.g., potential residual 
portfolio analysis under a scenario involving the sale of a line of 
business). The Agencies do not expect a dealer firm to include a 
separate wind-down or run-off analysis in its plan. Instead, a dealer 
firm is expected to assess the risk profile of any derivatives 
portfolios that would be included in the sale of a line of business and 
analyze the potential counterparty and market impacts of non-
performance on these contracts upon the stability of U.S. financial 
markets. Commenters advocated for allowing a dealer firm to assume that 
inter-affiliate transactions may be unwound at lower costs than 
transactions with external counterparties. The Agencies confirm that 
the guidance would permit a dealer firm to make such an assumption as 
long as the firm provides adequate support for that assumption. 
Commenters recommended dealer firms should not be expected to replicate 
detailed information in their resolution plans to the extent that a 
firm is required to make the information available to regulators 
pursuant to other regulatory requirements or that information is 
provided elsewhere in the firm's resolution plan. The Agencies clarify 
that, consistent with the Rule, a dealer firm may cross-reference or 
incorporate by reference information that the firm has provided in its 
current plan submission in another section or has previously provided 
in a specific section of a past resolution plan submission. However, 
consistent with the Rule, the Agencies expect a dealer firm to submit 
all relevant information as part of a formal plan submission.
    Commenters suggested tailoring certain capability expectations and 
resolution-specific assumptions in the guidance. The Agencies developed 
those expectations and resolution-specific assumptions in order to 
facilitate a dealer firm's planning and preparedness for an orderly 
resolution. A dealer firm's capabilities should demonstrate flexibility 
to account for alternative outcomes and permit sensitivity analysis, as 
it is difficult to predict precisely how a firm's untested resolution 
strategy may operate in an actual resolution scenario. As a result, the 
Agencies have not revised the guidance to include certain modifications 
recommended by commenters. For instance, commenters suggested the 
Agencies eliminate the expectation to provide timely transparency into 
management of risk transfers between material entities and non-material 
entities. The Agencies maintain expectations related to risk transfers 
between affiliates, as material exposures could exist outside material 
entities. In addition, commenters argued that a dealer firm that adopts 
an SPOE strategy should not be expected to demonstrate its capabilities 
with respect to the management of risk transfers between material 
entities that survive under its preferred resolution strategy. The 
Agencies maintain the expectations related to risk transfers between 
material entities, including surviving entities, because those 
capabilities would help facilitate a dealer firm's planning and 
preparedness for alternative outcomes that may arise in the context of 
an actual resolution.
    Commenters advocated for allowing a dealer firm to present 
reasonable alternative assumptions on counterparty behavior in relation 
to early exits and break clauses if the assumed actions would benefit 
both parties. To establish a baseline, the Agencies expect a dealer 
firm to assume that counterparties will exercise any contractual 
termination rights, if exercising that right would economically benefit 
the counterparty. A dealer firm may perform additional sensitivity 
analysis around the baseline assumption by assessing the impact from 
alternative assumptions regarding counterparty actions that could 
deviate from the baseline assumption. Commenters argued that a dealer 
firm should be permitted to assume it could enter into or unwind 
bilateral inter-affiliate transactions in resolution, even if they are 
not strictly ``risk-reducing'' to both parties, as long as the firm 
provides a reasonable justification. The final guidance maintains this 
constraint related to market risk exposure, but clarifies that a firm 
may assume it could enter into or unwind inter-affiliate trades in 
resolution as long as those trades do not materially increase credit 
exposure to any participating entity. The Agencies believe that this 
provides firms with sufficient flexibility with respect to inter-
affiliate trades in resolution. Commenters suggested a dealer firm 
should not be constrained to a 12-24 month timeline for its 
stabilization and resolution periods. The

[[Page 1448]]

Agencies continue to believe that the timeline to be reasonable for 
unwinding a dealer firm's derivatives portfolios, based on the firms' 
preferred wind-down strategy in their past submissions; therefore, that 
expectation remains unchanged.
    The Agencies received comments related to the scope of derivatives 
portfolios defined in the guidance. After considering multiple relevant 
factors, the Agencies have not modified the guidance in these 
instances. For example, commenters recommended that the final guidance 
apply the capabilities specified in the Portfolio Segmentation and 
Forecasting section only to material entities of a dealer firm. While a 
dealer firm's capabilities may be commensurate with the size, scope, 
and complexity of its derivatives portfolio, the Agencies maintain that 
a dealer firm should have the capability to identify and report basic 
metrics on all of its derivatives positions, if only to confirm the 
portion of the firm's exposures exist outside its material entities. 
The final guidance further clarifies that a dealer firm's firm-wide 
derivatives portfolio should represent the vast majority (for example, 
95 percent) of a dealer firm's derivatives transactions measured by the 
notional and gross market value of the firm's total derivatives 
transactions. Commenters also suggested that the potential residual 
portfolio analysis should consider only the derivatives transactions of 
a dealer firm's material entities. The Agencies expect a dealer firm to 
include the derivatives portfolios of both material and non-material 
entities in its potential residual portfolio analysis, as the 
composition of the firm's potential residual portfolio may be impacted 
by exposures in non-material entities.

h. Cross References to Supervisory Letters

    Some commenters advocated eliminating the cross-references 
contained in the Board's SR letter 14-1 (which covers both recovery and 
resolution preparedness) and SR letter 14-8 (which is limited to 
recovery),\25\ directly incorporating the relevant expectations in the 
guidance, and rescinding the SR letters. Commenters maintained that 
recovery planning guidance should remain separate from resolution 
planning guidance.
---------------------------------------------------------------------------

    \25\ SR Letter 14-8, ``Consolidated Recovery Planning for 
Certain Large Domestic Bank Holding Companies'' (Sept. 25, 2014).
---------------------------------------------------------------------------

    The Agencies have omitted the cross-references, which is consistent 
with the aim of consolidating expectations for resolution plan 
submissions. In the case of SR 14-8, the relevant resolution plan 
expectations have been incorporated into the Separability section of 
the guidance. In the case of SR 14-1, the resolution-related 
expectations and associated capabilities contained in SR 14-1 are also 
addressed by the final guidance. The Board will continue to rely on SR 
letters 14-1 and 14-8 for assessing firms' recovery planning.

i. Additional Comments

i. QFC Stay Rules
    One commenter expressed that by requiring the production of 
additional plan content related to a firm's method of complying with 
the QFC stay rules only from those firms that do not adhere to the 
International Swaps and Derivatives Association 2015 Universal 
Resolution Stay Protocol (``ISDA Protocol''), the guidance may have the 
effect of discouraging such firms from complying with the QFC stay 
rules through any means other than ISDA Protocol adherence.
    The QFC stay rules seek to improve the resolvability of U.S. GSIBs 
by mitigating the risk of potentially destabilizing closeouts of QFCs 
that could occur upon the entry of a GSIB or one or more of its 
affiliates into resolution. In connection with promulgating the QFC 
stay rules, the Agencies have recognized that the ability to comply 
with the QFC stay rules by adhering to the ISDA Protocol may be a 
desirable alternative to implementing the rules' restrictions on a 
counterparty-by-counterparty basis. Through their consideration of the 
ISDA Protocol in connection with promulgating the QFC stay rules, the 
Agencies have already assessed whether adherence to the ISDA Protocol 
addresses the risks that can arise from QFC closeouts. For firms that 
choose to adhere to the ISDA Protocol through other means, any 
additional plan content they provide can assist the Agencies in 
understanding how a firm's chosen alternative compliance method 
addresses these risks.
    Notably, prior to the effective date of the QFC stay rules, all 
eight U.S. GSIBs elected to adhere to the ISDA Protocol and incur any 
fees associated with adhering to the ISDA Protocol. Therefore, as long 
as the U.S. GSIBs continue to adhere, the Agencies will not expect 
these firms to submit additional plan content related to compliance 
with the QFC stay rules through a method other than adherence to the 
ISDA Protocol.
ii. Bankruptcy Claims
    The Agencies recognize that a firm's compliance with the ISDA 
Protocol may have an effect on various creditor constituencies, and 
that actions taken by these constituencies may have an effect on the 
prospect of the firm conducting an orderly resolution under the U.S. 
Bankruptcy Code. One commenter suggested that the Agencies provide 
additional guidance on the material impact on their resolution plans 
and communications plans with respect to all unsecured claimants, as 
well as depositors of an insured depository institution, that could 
arise from a firm choosing to satisfy the ISDA Protocol's stay 
conditions for credit enhancements (i.e., a parent company acting as a 
guarantor of its subsidiary's QFCs) by pursuing the elevation 
alternative wherein the firm files a motion with the bankruptcy court 
asking that QFC counterparties' claims receive administrative priority 
status. The guidance expressly recommends that firms both address legal 
issues associated with the implementation of the ISDA Protocol,\26\ and 
also develop external communications strategies.\27\
---------------------------------------------------------------------------

    \26\ 83 F.R. 32867 (July 16, 2018).
    \27\ 83 F.R. 32864 (July 16, 2018).
---------------------------------------------------------------------------

    This commenter also stated that, specifically in relation to the 
elevation alternative and QFC counterparties' claims in bankruptcy, the 
proposed guidance failed to address two vulnerabilities associated with 
those claims receiving administrative priority under Section 507 of 
Bankruptcy Code. First, the commenter asserted that a firm that elects 
in its resolution plan to pursue the elevation alternative may be 
exposed to civil liability to bondholders both immediately as a 
consequence of incorporating such a strategy into its plan, and in the 
future if the strategy is actually implemented through a bankruptcy 
court granting the firm's motion. The commenter asserted that a firm 
pursuing the elevation alternative may be required to make disclosures 
under Section 10(b) if the Securities Act of 1933 \28\ prior to 
resolution to indicate to bondholders that its resolution strategy 
contemplates a bankruptcy court providing QFC counterparties' claims 
higher payment priority than the unsecured claims of bondholders. A 
firm's disclosure obligations, if any, under the Securities Act or 
other regulations during BAU that relate to adherence to the ISDA 
Protocol are beyond the scope of the guidance.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 77a et seq.
---------------------------------------------------------------------------

    Second, with regard to liability to bondholders, the commenter also 
asserted that implementation of the

[[Page 1449]]

elevation alternative may result in a creditor of the firm violating 
its indenture obligations regarding fiduciary duties and conflicts of 
interest where the creditor is a GSIB that is both a QFC counterparty 
of the firm, and an indenture trustee for bonds issued by the firm. For 
a GSIB that is a creditor of a firm in bankruptcy, its obligations to 
uphold its fiduciary duties or avoid conflicts of interest may affect 
the actions it takes during the course of the bankruptcy of a firm. The 
guidance focuses on firms addressing potential risks to their 
resolvability, which does not include discrete legal liabilities of the 
type discussed by the commenter that a third party may encounter upon a 
firm's entry into resolution. The Agencies expect firms to consider and 
address the dynamics of relationships with creditors to the extent any 
creditor's potential course of action could present legal obstacles in 
the bankruptcy court's consideration of a motion to seeking to 
implement the elevation alternative.
    The commenter also suggested that further clarification is needed 
in the final guidance with respect to the impact of the elevation 
alternative on firms' relationships with secured borrowers. 
Specifically, the commenter contended that a firm's proposal in its 
resolution plan to comply with the ISDA Protocol by adopting the 
elevation alternative may compel any firms that provide secured loans 
or residential mortgages to direct borrowers during business as usual 
to seek administrative priority for such prepetition obligations in the 
event the borrowers file for bankruptcy. Similarly, the commenter noted 
that the possibility of a firm implementing the elevation alternative 
could motivate secured creditors in the ordinary course of business 
with GSIBs to seek contractual provisions that would designate their 
claims as administrative expenses in any future bankruptcy case. 
However, the extent to which a firm's adherence to the ISDA Protocol 
might impact its relationships with external stakeholders during BAU, 
including its adoption of the elevation alternative for emergency 
motions, is beyond the scope of the guidance.
    The commenter also asked that the Agencies clarify whether there is 
legal support for a creditor obtaining priority status for its claim. 
The guidance provides that firms' resolution plans should address legal 
issues associated with the implementation of the stay pursuant to the 
ISDA Protocol, including if a firm pursues the elevation strategy.
    The commenter also asked the Agencies to address whether the 
recovery in bankruptcy for depositors holding funds in accounts that 
exceed the amount of deposit insurance provided by the FDIC would be 
negatively impacted by a firm pursuing the elevation alternative. The 
extent of depositors' recoveries is an issue that may arise in the 
resolution of an insured depository institution under the Federal 
Deposit Insurance Act and, therefore, is beyond the scope of the 
guidance.

IV. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (``PRA'') (44 U.S.C. 3501 through 3521), the Agencies may not 
conduct or sponsor, and a respondent is not required to respond to, an 
information collection unless it displays a currently valid Office of 
Management and Budget control number. The proposed guidance stated that 
the Agencies believed that the proposed changes to the 2016 Guidance 
would not result in an increase in information collection burden to the 
Covered Companies, and the Agencies invited public comment on this 
assessment. The Agencies received no comments regarding this assessment 
or the PRA more generally.

GUIDANCE FOR Sec.  165(D) RESOLUTION PLAN SUBMISSIONS BY DOMESTIC 
COVERED COMPANIES.

I. Introduction
II. Capital
    a. Resolution Capital Adequacy and Positioning (RCAP)
    b. Resolution Capital Execution Need (RCEN)
III. Liquidity
    a. Resolution Liquidity Adequacy and Positioning (RLAP)
    b. Resolution Liquidity Execution Need (RLEN)
IV. Governance Mechanisms
    a. Playbooks and Triggers
    b. Pre-Bankruptcy Parent Support
V. Operational
    a. Payment, Clearing, and Settlement Activities
    b. Managing, Identifying, and Valuing Collateral
    c. Management Information Systems
    d. Shared and Outsourced Services
    e. Legal Obstacles Associated with Emergency Motions
VI. Legal Entity Rationalization and Separability
    a. Legal Entity Rationalization Criteria (LER Criteria)
    b. Separability
VII. Derivatives and Trading Activities
    a. Booking Practices
    b. Inter-Affiliate Risk Monitoring and Controls
    c. Portfolio Segmentation and Forecasting
    d. Prime Brokerage Customer Account Transfers
    e. Derivatives Stabilization and De-risking Strategy
VIII. Format and Structure of Plans
IX. Public Section

I. INTRODUCTION

    Resolution Plan Requirement: Section 165(d) of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (12 U.S.C. 5365(d)) requires 
certain financial companies (Covered Companies) to report periodically 
to the Board of Governors of the Federal Reserve System (the Federal 
Reserve or Board) and the Federal Deposit Insurance Corporation (the 
FDIC) (together the Agencies) the Companies' \1\ Plans for Rapid and 
Orderly Resolution in the event of Material Financial Distress or 
failure. On November 1, 2011, the Agencies promulgated a joint rule 
(the Rule) implementing the provisions of Section 165(d), 12 CFR parts 
243 and 381.\2\ Certain Covered Companies meeting criteria set out in 
the Rule must file a resolution plan (Plan) annually or at a different 
time period specified by the Agencies.
---------------------------------------------------------------------------

    \1\ Capitalized terms not defined herein have the meaning set 
forth in the Rule.
    \2\ 76 Fed. Reg. 67323 (November 1, 2011).
---------------------------------------------------------------------------

    Overview of Guidance Document: This document is intended to assist 
the eight current U.S. Global Systemically Important Banks (GSIBs or 
firms) \3\ in further developing their preferred resolution strategies. 
The document does not have the force and effect of law. Rather, it 
describes the Agencies' supervisory expectations regarding these firms' 
resolution plans and the Agencies' general views regarding specific 
areas where additional detail should be provided and where certain 
capabilities or optionality should be developed and maintained to 
demonstrate that each firm has considered fully, and is able to 
mitigate, obstacles to the successful implementation of the preferred 
strategy.\4\
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    \3\ Bank of America Corporation, The Bank of New York Mellon 
Corporation, Citigroup Inc., The Goldman Sachs Group, Inc., JPMorgan 
Chase & Co., Morgan Stanley, State Street Corporation, and Wells 
Fargo & Company.
    \4\ This guidance consolidates the Guidance for 2013 Sec.  
165(d) Annual Resolution Plan Submissions by Domestic Covered 
Companies that Submitted Initial Resolution Plans in 2012; firm-
specific feedback letters issued in August 2014 and April 2016; the 
February 2015 staff communication; and Guidance for 2017 Sec.  
165(d) Annual Resolution Plan Submissions by Domestic Covered 
Companies that Submitted Resolution Plans in July 2015, including 
the frequently asked questions that were published in response to 
the Guidance for the 2017 Plan Submissions (taken together, prior 
guidance). To the extent not incorporated in or appended to this 
guidance, prior guidance is superseded.
---------------------------------------------------------------------------

    This document is organized around a number of key vulnerabilities 
in resolution (i.e., capital; liquidity; governance mechanisms; 
operational;

[[Page 1450]]

legal entity rationalization and separability; and derivatives and 
trading activities) that apply across resolution plans. Additional 
vulnerabilities or obstacles may arise based on a firm's particular 
structure, operations, or resolution strategy. Each firm is expected to 
satisfactorily address these vulnerabilities in its Plan--e.g., by 
developing sensitivity analysis for certain underlying assumptions, 
enhancing capabilities, providing detailed analysis, or increasing 
optionality development, as indicated below.
    The Agencies will review the Plan to determine if it satisfactorily 
addresses key potential vulnerabilities, including those detailed 
below. If the Agencies jointly decide that these matters are not 
satisfactorily addressed in the Plan, the Agencies may determine 
jointly that the Plan is not credible or would not facilitate an 
orderly resolution under the U.S. Bankruptcy Code.

II. CAPITAL

    Resolution Capital Adequacy and Positioning (RCAP): To help ensure 
that a firm's material entities \5\ could operate while the parent 
company is in bankruptcy, the firm should have an adequate amount of 
loss-absorbing capacity to recapitalize those material entities. Thus, 
a firm should have outstanding a minimum amount of total loss-absorbing 
capital, as well as a minimum amount of long-term debt, to help ensure 
that the firm has adequate capacity to meet that need at a consolidated 
level (external TLAC).\6\
---------------------------------------------------------------------------

    \5\ The terms ``material entities,'' ``critical operations,'' 
and ``core business lines'' have the same meaning as in the 
Agencies' Rule.
    \6\ 82 Fed. Reg. 8266 (January 24, 2017).
---------------------------------------------------------------------------

    A firm's external TLAC should be complemented by appropriate 
positioning of additional loss-absorbing capacity within the firm 
(internal TLAC). The positioning of a firm's internal TLAC should 
balance the certainty associated with pre-positioning internal TLAC 
directly at material entities with the flexibility provided by holding 
recapitalization resources at the parent (contributable resources) to 
meet unanticipated losses at material entities. That balance should 
take account of both pre-positioning at material entities and holding 
resources at the parent, and the obstacles associated with each. 
Accordingly, the firm should not rely exclusively on either full pre-
positioning or parent contributable resources to recapitalize any 
material entity. The plan should describe the positioning of internal 
TLAC within the firm, along with analysis supporting such positioning.
    Finally, to the extent that pre-positioned internal TLAC at a 
material entity is in the form of intercompany debt and there are one 
or more entities between that material entity and the parent, the firm 
should structure the instruments so as to ensure that the material 
entity can be recapitalized.
    Resolution Capital Execution Need (RCEN): To support the execution 
of the firm's resolution strategy, material entities need to be 
recapitalized to a level that allows them to operate or be wound down 
in an orderly manner following the parent company's bankruptcy filing. 
The firm should have a methodology for periodically estimating the 
amount of capital that may be needed to support each material entity 
after the bankruptcy filing (RCEN). The firm's positioning of internal 
TLAC should be able to support the RCEN estimates. In addition, the 
RCEN estimates should be incorporated into the firm's governance 
framework to ensure that the parent company files for bankruptcy at a 
time that enables execution of the preferred strategy.
    The firm's RCEN methodology should use conservative forecasts for 
losses and risk-weighted assets and incorporate estimates of potential 
additional capital needs through the resolution period,\7\ consistent 
with the firm's resolution strategy. However, the methodology is not 
required to produce aggregate losses that are greater than the amount 
of external TLAC that would be required for the firm under the Board's 
rule.\8\ The RCEN methodology should be calibrated such that 
recapitalized material entities have sufficient capital to maintain 
market confidence as required under the preferred resolution strategy. 
Capital levels should meet or exceed all applicable regulatory capital 
requirements for ``well-capitalized'' status and meet estimated 
additional capital needs throughout resolution. Material entities that 
are not subject to capital requirements may be considered sufficiently 
recapitalized when they have achieved capital levels typically required 
to obtain an investment-grade credit rating or, if the entity is not 
rated, an equivalent level of financial soundness. Finally, the 
methodology should be independently reviewed, consistent with the 
firm's corporate governance processes and controls for the use of 
models and methodologies.
---------------------------------------------------------------------------

    \7\ The resolution period begins immediately after the parent 
company bankruptcy filing and extends through the completion of the 
preferred resolution strategy.
    \8\ See 12 CFR 252.60-.65; 82 Fed. Reg. 8266 (January 24, 2017).
---------------------------------------------------------------------------

III. LIQUIDITY

    The firm should have the liquidity capabilities necessary to 
execute its preferred resolution strategy. For resolution purposes, 
these capabilities should include having an appropriate model and 
process for estimating and maintaining sufficient liquidity at or 
readily available to material entities and a methodology for estimating 
the liquidity needed to successfully execute the resolution strategy, 
as described below.
    Resolution Liquidity Adequacy and Positioning (RLAP): With respect 
to RLAP, the firm should be able to measure the stand-alone liquidity 
position of each material entity (including material entities that are 
non-U.S. branches)--i.e., the high-quality liquid assets (HQLA) at the 
material entity less net outflows to third parties and affiliates--and 
ensure that liquidity is readily available to meet any deficits. The 
RLAP model should cover a period of at least 30 days and reflect the 
idiosyncratic liquidity profile and risk of the firm. The model should 
balance the reduction in frictions associated with holding liquidity 
directly at material entities with the flexibility provided by holding 
HQLA at the parent available to meet unanticipated outflows at material 
entities. Thus, the firm should not rely exclusively on either full 
pre-positioning or the parent. The model \9\ should ensure that the 
parent holding company holds sufficient HQLA (inclusive of its deposits 
at the U.S. branch of the lead bank subsidiary) to cover the sum of all 
stand-alone material entity net liquidity deficits. The stand-alone net 
liquidity position of each material entity (HQLA less net outflows) 
should be measured using the firm's internal liquidity stress test 
assumptions and should treat inter-affiliate exposures in the same 
manner as third-party exposures. For example, an overnight unsecured 
exposure to an affiliate should be assumed to mature. Finally, the firm 
should not assume that a net liquidity surplus at one material entity 
could be moved to meet net liquidity deficits at other material 
entities or to augment parent resources.
---------------------------------------------------------------------------

    \9\ ``Model'' refers to the set of calculations estimating the 
net liquidity surplus/deficit at each legal entity and for the firm 
in aggregate based on assumptions regarding available liquidity, 
e.g., HQLA, and third-party and interaffiliate net outflows.
---------------------------------------------------------------------------

    Additionally, the RLAP methodology should take into account (A) the 
daily contractual mismatches between inflows and outflows; (B) the 
daily

[[Page 1451]]

flows from movement of cash and collateral for all inter-affiliate 
transactions; and (C) the daily stressed liquidity flows and trapped 
liquidity as a result of actions taken by clients, counterparties, key 
FMUs, and foreign supervisors, among others.
    Resolution Liquidity Execution Need (RLEN): The firm should have a 
methodology for estimating the liquidity needed after the parent's 
bankruptcy filing to stabilize the surviving material entities and to 
allow those entities to operate post-filing. The RLEN estimate should 
be incorporated into the firm's governance framework to ensure that the 
firm files for bankruptcy in a timely way, i.e., prior to the firm's 
HQLA falling below the RLEN estimate.
    The firm's RLEN methodology should:
    (A) Estimate the minimum operating liquidity (MOL) needed at each 
material entity to ensure those entities could continue to operate 
post-parent's bankruptcy filing and/or to support a wind-down strategy;
    (B) Provide daily cash flow forecasts by material entity to support 
estimation of peak funding needs to stabilize each entity under 
resolution;
    (C) Provide a comprehensive breakout of all inter-affiliate 
transactions and arrangements that could impact the MOL or peak funding 
needs estimates; and
    (D) Estimate the minimum amount of liquidity required at each 
material entity to meet the MOL and peak needs noted above, which would 
inform the firm's board(s) of directors of when they need to take 
resolution-related actions.
    The MOL estimates should capture material entities' intraday 
liquidity requirements, operating expenses, working capital needs, and 
inter-affiliate funding frictions to ensure that material entities 
could operate without disruption during the resolution.
    The peak funding needs estimates should be projected for each 
material entity and cover the length of time the firm expects it would 
take to stabilize that material entity. Inter-affiliate funding 
frictions should be taken into account in the estimation process.
    The firm's forecasts of MOL and peak funding needs should ensure 
that material entities could operate post-filing consistent with 
regulatory requirements, market expectations, and the firm's post-
failure strategy. These forecasts should inform the RLEN estimate, 
i.e., the minimum amount of HQLA required to facilitate the execution 
of the firm's strategy. The RLEN estimate should be tied to the firm's 
governance mechanisms and be incorporated into the playbooks as 
discussed below to assist the board of directors in taking timely 
resolution-related actions.

IV. GOVERNANCE MECHANISMS

    Playbooks and Triggers: A firm should identify the governance 
mechanisms that would ensure execution of required board actions at the 
appropriate time (as anticipated under the firm's preferred strategy) 
and include pre-action triggers and existing agreements for such 
actions. Governance playbooks should detail the board and senior 
management actions necessary to facilitate the firm's preferred 
strategy and to mitigate vulnerabilities, and should incorporate the 
triggers identified below. The governance playbooks should also include 
a discussion of (A) the firm's proposed communications strategy, both 
internal and external; \10\ (B) the boards of directors' fiduciary 
responsibilities and how planned actions would be consistent with such 
responsibilities applicable at the time actions are expected to be 
taken; (C) potential conflicts of interest, including interlocking 
boards of directors; and (D) any employee retention policy. All 
responsible parties and timeframes for action should be identified. 
Governance playbooks should be updated periodically for all entities 
whose boards of directors would need to act in advance of the 
commencement of resolution proceedings under the firm's preferred 
strategy.
---------------------------------------------------------------------------

    \10\ External communications include those with U.S. and foreign 
authorities and other external stakeholders.
---------------------------------------------------------------------------

    The firm should demonstrate that key actions will be taken at the 
appropriate time in order to mitigate financial, operational, legal, 
and regulatory vulnerabilities. To ensure that these actions will 
occur, the firm should establish clearly identified triggers linked to 
specific actions for:
    (A) The escalation of information to senior management and the 
board(s) to potentially take the corresponding actions at each stage of 
distress post-recovery leading eventually to the decision to file for 
bankruptcy;
    (B) Successful recapitalization of subsidiaries prior to the 
parent's filing for bankruptcy and funding of such entities during the 
parent company's bankruptcy to the extent the preferred strategy relies 
on such actions or support; and
    (C) The timely execution of a bankruptcy filing and related pre-
filing actions.\11\
---------------------------------------------------------------------------

    \11\ Key pre-filing actions include the preparation of any 
emergency motion required to be decided on the first day of the 
firm's bankruptcy. See ``OPERATIONAL--Legal Obstacles Associated 
with Emergency Motions,'' below.
---------------------------------------------------------------------------

    These triggers should be based, at a minimum, on capital, 
liquidity, and market metrics, and should incorporate the firm's 
methodologies for forecasting the liquidity and capital needed to 
operate as required by the preferred strategy following a parent 
company's bankruptcy filing. Additionally, the triggers and related 
actions should be specific.
    Triggers linked to firm actions as contemplated by the firm's 
preferred strategy should identify when and under what conditions the 
firm, including the parent company and its material entities, would 
transition from business-as-usual conditions to a stress period and 
from a stress period to the runway and recapitalization/resolution 
periods. Corresponding escalation procedures, actions, and timeframes 
should be constructed so that breach of the triggers will allow 
prerequisite actions to be completed. For example, breach of the 
triggers needs to occur early enough to ensure that resources are 
available and can be downstreamed, if anticipated by the firm's 
strategy, and with adequate time for the preparation of the bankruptcy 
petition and first-day motions, necessary stakeholder communications, 
and requisite board actions. Triggers identifying the onset of the 
runway and recapitalization/resolution periods, and the associated 
escalation procedures and actions, should be discussed directly in the 
governance playbooks.
    Pre-Bankruptcy Parent Support: The resolution plan should include a 
detailed legal analysis of the potential state law and bankruptcy law 
challenges and mitigants to planned provision of capital and liquidity 
to the subsidiaries prior to the parent's bankruptcy filing (Support). 
Specifically, the analysis should identify potential legal obstacles 
and explain how the firm would seek to ensure that Support would be 
provided as planned. Legal obstacles include claims of fraudulent 
transfer, preference, breach of fiduciary duty, and any other 
applicable legal theory identified by the firm. The analysis also 
should include related claims that may prevent or delay an effective 
recapitalization, such as equitable claims to enjoin the transfer 
(e.g., imposition of a constructive trust by the court). The analysis 
should apply the actions contemplated in the plan regarding each 
element of the claim, the anticipated timing for commencement and 
resolution of the claims, and the extent to which adjudication of such

[[Page 1452]]

claim could affect execution of the firm's preferred resolution 
strategy.
    As noted, the analysis should include mitigants to the potential 
challenges to the planned Support. The plan should include the 
mitigant(s) to such challenges that the firm considers most effective. 
In identifying appropriate mitigants, the firm should consider the 
effectiveness of a contractually binding mechanism (CBM), pre-
positioning of financial resources in material entities, and the 
creation of an intermediate holding company. Moreover, if the plan 
includes a CBM, the firm should consider whether it is appropriate that 
the CBM should have the following: (A) clearly defined triggers; (B) 
triggers that are synchronized to the firm's liquidity and capital 
methodologies; (C) perfected security interests in specified collateral 
sufficient to fully secure all Support obligations on a continuous 
basis (including mechanisms for adjusting the amount of collateral as 
the value of obligations under the agreement or collateral assets 
fluctuates); and (D) liquidated damages provisions or other features 
designed to make the CBM more enforceable. The firm also should 
consider related actions or agreements that may enhance the 
effectiveness of a CBM. A copy of any agreement and documents 
referenced therein (e.g., evidence of security interest perfection) 
should be included in the resolution plan.
    The governance playbooks included in the resolution plan should 
incorporate any developments from the firm's analysis of potential 
legal challenges regarding the Support, including any Support 
approach(es) the firm has implemented. If the firm analyzed and 
addressed an issue noted in this section in a prior plan submission, 
the plan may reproduce that analysis and arguments and should build 
upon it to at least the extent described above. In preparing the 
analysis of these issues, firms may consult with law firms and other 
experts on these matters. The Agencies do not object to appropriate 
collaboration between firms, including through trade organizations and 
with the academic community, to develop analysis of common legal 
challenges and available mitigants.

V. OPERATIONAL

Payment, Clearing, and Settlement Activities

    Framework. Maintaining continuity of payment, clearing, and 
settlement (PCS) services is critical for the orderly resolution of 
firms that are either users or providers,\12\ or both, of PCS services. 
A firm should demonstrate capabilities for continued access to PCS 
services essential to an orderly resolution through a framework to 
support such access by:
---------------------------------------------------------------------------

    \12\ A firm is a user of PCS services if it accesses PCS 
services through an agent bank or it uses the services of a 
financial market utility (FMU) through its membership in that FMU or 
through an agent bank. A firm is a provider of PCS services if it 
provides PCS services to clients as an agent bank or it provides 
clients with access to an FMU or agent bank through the firm's 
membership in or relationship with that service provider. A firm is 
also a provider if it provides clients with PCS services through the 
firm's own operations (e.g., payment services or custody services).
---------------------------------------------------------------------------

     Identifying clients,\13\ FMUs, and agent banks as key from 
the firm's perspective, using both quantitative (volume and value) \14\ 
and qualitative criteria;
---------------------------------------------------------------------------

    \13\ For purposes of this section V, a client is an individual 
or entity, including affiliates of the firm, to whom the firm 
provides PCS services and any related credit or liquidity offered in 
connection with those services.
    \14\ In identifying entities as key, examples of quantitative 
criteria may include: for a client, transaction volume/value, market 
value of exposures, assets under custody, usage of PCS services, and 
any extension of related intraday credit or liquidity; for an FMU, 
the aggregate volumes and values of all transactions processed 
through such FMU; and for an agent bank, assets under custody, the 
value of cash and securities settled, and extensions of intraday 
credit.
---------------------------------------------------------------------------

     Mapping material entities, critical operations, core 
business lines, and key clients to both key FMUs and key agent banks; 
and
     Developing a playbook for each key FMU and key agent bank 
reflecting the firm's role(s) as a user and/or provider of PCS 
services.
    The framework should address both direct relationships (e.g., a 
firm's direct membership in an FMU, a firm's provision of clients with 
PCS services through its own operations, or a firm's contractual 
relationship with an agent bank) and indirect relationships (e.g., a 
firm's provision of clients with access to the relevant FMU or agent 
bank through the firm's membership in or relationship with that FMU or 
agent bank).
    Playbooks for Continued Access to PCS Services. The firm is 
expected to provide a playbook for each key FMU and key agent bank that 
addresses considerations that would assist the firm and its key clients 
in maintaining continued access to PCS services in the period leading 
up to and including the firm's resolution. Each playbook should provide 
analysis of the financial and operational impact to the firm's material 
entities and key clients due to adverse actions that may be taken by a 
key FMU or a key agent bank and contingency actions that may be taken 
by the firm. Each playbook also should discuss any possible alternative 
arrangements that would allow the firm and its key clients continued 
access to PCS services in resolution. The firm is not expected to 
incorporate a scenario in which it loses key FMU or key agent bank 
access into its preferred resolution strategy or its RLEN/RCEN 
estimates. The firm should continue to engage with key FMUs, key agent 
banks, and key clients, and playbooks should reflect any feedback 
received during such ongoing outreach.
    Content Related to Users of PCS Services. Individual key FMU and 
key agent bank playbooks should include:
     Description of the firm's relationship as a user with the 
key FMU or key agent bank and the identification and mapping of PCS 
services to material entities, critical operations, and core business 
lines that use those PCS services;
     Discussion of the potential range of adverse actions that 
may be taken by that key FMU or key agent bank when the firm is in 
resolution,\15\ the operational and financial impact of such actions on 
each material entity, and contingency arrangements that may be 
initiated by the firm in response to potential adverse actions by the 
key FMU or key agent bank; and
---------------------------------------------------------------------------

    \15\ Examples of potential adverse actions may include increased 
collateral and margin requirements and enhanced reporting and 
monitoring.
---------------------------------------------------------------------------

     Discussion of PCS-related liquidity sources and uses in 
business-as-usual (BAU), in stress, and in the resolution period, 
presented by currency type (with U.S. dollar equivalent) and by 
material entity.
    [cir] PCS Liquidity Sources: These may include the amounts of 
intraday extensions of credit, liquidity buffer, inflows from FMU 
participants, and key client prefunded amounts in BAU, in stress, and 
in the resolution period. The playbook also should describe intraday 
credit arrangements (e.g., facilities of the key FMU, key agent bank, 
or a central bank) and any similar custodial arrangements that allow 
ready access to a firm's funds for PCS-related key FMU and key agent 
bank obligations (including margin requirements) in various currencies, 
including placements of firm liquidity at central banks, key FMUs, and 
key agent banks.
    [cir] PCS Liquidity Uses: These may include firm and key client 
margin and prefunding and intraday extensions of credit, including 
incremental amounts required during resolution.
    [cir] Intraday Liquidity Inflows and Outflows: The playbook should 
describe the firm's ability to control intraday liquidity inflows and 
outflows and to

[[Page 1453]]

identify and prioritize time-specific payments. The playbook also 
should describe any account features that might restrict the firm's 
ready access to its liquidity sources.
    Content Related to Providers of PCS Services.\16\ Individual key 
FMU and key agent bank playbooks should include:
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    \16\ Where a firm is a provider of PCS services through the 
firm's own operations, the firm is expected to produce a playbook 
for the material entities that provide those services, addressing 
each of the items described under ``Content Related to Providers of 
PCS Services,'' which include contingency arrangements to permit the 
firm's key clients to maintain continued access to PCS services.
---------------------------------------------------------------------------

     Identification and mapping of PCS services to the material 
entities, critical operations, and core business lines that provide 
those PCS services, and a description of the scale and the way in which 
each provides PCS services;
     Identification and mapping of PCS services to key clients 
to whom the firm provides such PCS services and any related credit or 
liquidity offered in connection with such services;
     Discussion of the potential range of firm contingency 
arrangements available to minimize disruption to the provision of PCS 
services to its key clients, including the viability of transferring 
key client activity and any related assets, as well as any alternative 
arrangements that would allow the firm's key clients continued access 
to PCS services if the firm could no longer provide such access (e.g., 
due to the firm's loss of key FMU or key agent bank access), and the 
financial and operational impacts of such arrangements from the firm's 
perspective;
     Description of the range of contingency actions that the 
firm may take concerning its provision of intraday credit to key 
clients, including analysis quantifying the potential liquidity the 
firm could generate by taking such actions in stress and in the 
resolution period, such as (i) requiring key clients to designate or 
appropriately pre-position liquidity, including through prefunding of 
settlement activity, for PCS-related key FMU and key agent bank 
obligations at specific material entities of the firm (e.g., direct 
members of key FMUs) or any similar custodial arrangements that allow 
ready access to key clients' funds for such obligations in various 
currencies; (ii) delaying or restricting key client PCS activity; and 
(iii) restricting, imposing conditions upon (e.g., requiring 
collateral), or eliminating the provision of intraday credit or 
liquidity to key clients; and
     Description of how the firm will communicate to its key 
clients the potential impacts of implementation of any identified 
contingency arrangements or alternatives, including a description of 
the firm's methodology for determining whether any additional 
communication should be provided to some or all key clients (e.g., due 
to the key client's BAU usage of that access and/or related intraday 
credit or liquidity), and the expected timing and form of such 
communication.
    Managing, Identifying, and Valuing Collateral: The firm should have 
capabilities related to managing, identifying, and valuing the 
collateral that it receives from and posts to external parties and its 
affiliates. Specifically, the firm should:
     Be able to query and provide aggregate statistics for all 
qualified financial contracts concerning cross-default clauses, 
downgrade triggers, and other key collateral-related contract terms--
not just those terms that may be impacted in an adverse economic 
environment--across contract types, business lines, legal entities, and 
jurisdictions;
     Be able to track both firm collateral sources (i.e., 
counterparties that have pledged collateral) and uses (i.e., 
counterparties to whom collateral has been pledged) at the CUSIP level 
on at least a t+1 basis;
     Have robust risk measurements for cross-entity and cross-
contract netting, including consideration of where collateral is held 
and pledged;
     Be able to identify CUSIP and asset class level 
information on collateral pledged to specific central counterparties by 
legal entity on at least a t+1 basis;
     Be able to track and report on inter-branch collateral 
pledged and received on at least a t+1 basis and have clear policies 
explaining the rationale for such inter-branch pledges, including any 
regulatory considerations; and
     Have a comprehensive collateral management policy that 
outlines how the firm as a whole approaches collateral and serves as a 
single source for governance.\17\
---------------------------------------------------------------------------

    \17\ The policy may reference subsidiary or related policies 
already in place, as implementation may differ based on business 
line or other factors.
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    Management Information Systems: The firm should have the management 
information systems (MIS) capabilities to readily produce data on a 
legal entity basis and have controls to ensure data integrity and 
reliability. The firm also should perform a detailed analysis of the 
specific types of financial and risk data that would be required to 
execute the preferred resolution strategy and how frequently the firm 
would need to produce the information, with the appropriate level of 
granularity.
    Shared and Outsourced Services: The firm should maintain a fully 
actionable implementation plan to ensure the continuity of shared 
services that support critical operations and robust arrangements to 
support the continuity of shared and outsourced services, including 
without limitation appropriate plans to retain key personnel relevant 
to the execution of the firm's strategy. The firm should (A) maintain 
an identification of all shared services that support critical 
operations (critical services); \18\ (B) maintain a mapping of how/
where these services support its core business lines and critical 
operations; (C) incorporate such mapping into legal entity 
rationalization criteria and implementation efforts; and (D) mitigate 
identified continuity risks through establishment of service-level 
agreements (SLAs) for all critical shared services. These SLAs should 
fully describe the services provided, reflect pricing considerations on 
an arm's-length basis where appropriate, and incorporate appropriate 
terms and conditions to (A) prevent automatic termination upon certain 
resolution-related events and (B) achieve continued provision of such 
services during resolution. The firm should also store SLAs in a 
central repository or repositories in a searchable format, develop and 
document contingency strategies and arrangements for replacement of 
critical shared services, and complete re-alignment or restructuring of 
activities within its corporate structure. In addition, the firm should 
ensure the financial resilience of internal shared service providers by 
maintaining working capital for six months (or through the period of 
stabilization as required in the firm's preferred strategy) in such 
entities sufficient to cover contract costs, consistent with the 
preferred resolution strategy.
---------------------------------------------------------------------------

    \18\ This should be interpreted to include data access and 
intellectual property rights.
---------------------------------------------------------------------------

    The firm should identify all critical outsourced services that 
support critical operations and could not be promptly substituted. The 
firm should (A) evaluate the agreements governing these services to 
determine whether there are any that could be terminated despite 
continued performance upon the parent's bankruptcy filing, and (B) 
update contracts to incorporate appropriate terms and conditions to 
prevent automatic termination and facilitate continued provision of 
such services during resolution. Relying on entities projected to 
survive during

[[Page 1454]]

resolution to avoid contract termination is insufficient to ensure 
continuity. In the plan, the firm should document the amendment of any 
such agreements governing these services.
    Legal Obstacles Associated with Emergency Motions: The Plan should 
address legal issues associated with the implementation of the stay on 
cross-default rights described in Section 2 of the International Swaps 
and Derivatives Association 2015 Universal Resolution Stay Protocol 
(Protocol), similar provisions of any U.S. protocol,\19\ or other 
contractual provisions that comply with the Agencies' rules regarding 
stays from the exercise of cross-default rights in qualified financial 
contracts, to the extent relevant.\20\ Generally, the Protocol provides 
two primary methods of satisfying the stay conditions for covered 
agreements for which the affiliate in Chapter 11 proceedings has 
provided a credit enhancement (A) transferring all such credit 
enhancements to a Bankruptcy Bridge Company (as defined in the 
Protocol) (bridge transfer); or (B) having such affiliate remain 
obligated with respect to such credit enhancements in the Chapter 11 
proceeding (elevation).\21\ A firm must file a motion for emergency 
relief (emergency motion) seeking approval of an order to effect either 
of these alternatives on the first day of its bankruptcy case.
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    \19\ U.S. protocol has the same meaning as it does at 12 CFR 
252.85(a). See also 12 CFR 382.5(a) (including a substantively 
identical definition).
    \20\ See 12 CFR part 47, 252.81-.88, and part 382 (together, the 
QFC stay rules). Plans submitted prior to the final initial 
applicability date of the QFC stay rules should reflect how the 
early termination of qualified financial contracts could impact the 
firm's resolution in light of the current state of its qualified 
financial contracts' compliance with the requirements of the QFC 
stay rules. The firm may also separately discuss the firm's 
resolution assuming that the final initial applicability date has 
been reached and all covered qualified financial contracts have been 
conformed to comply with the QFC stay rules. If the firm complies 
with the QFC stay rules other than through adherence to the 
Protocol, the plan also should explain how the alternative 
compliance method differs from Protocol, how those differences 
affect the analysis and other expectations of this ``Legal Obstacles 
Associated with Emergency Motions'' section, and how the firm plans 
to satisfy any different conditions or requirements of the 
alternative compliance method.
    \21\ Under its terms, the Protocol also provides for the 
transfer of credit enhancements to transferees other than a 
Bankruptcy Bridge Company.
---------------------------------------------------------------------------

    First-day Issues--For each alternative the firm selects, the 
resolution plan should present the firm's analysis of issues that are 
likely to be raised at the hearing on the emergency motion and its best 
arguments in support of the emergency motion. A firm should include 
supporting legal precedent and describe the evidentiary support that 
the firm would anticipate presenting to the bankruptcy court--e.g., 
declarations or other expert testimony evidencing the solvency of 
transferred subsidiaries and that recapitalized entities have 
sufficient liquidity to perform their ongoing obligations.
    For either alternative, the firm should address all potential 
significant legal obstacles identified by the firm. For example, the 
firm should address due process arguments likely to be made by 
creditors asserting that they have not had sufficient opportunity to 
respond to the emergency motion given the likelihood that a creditors' 
committee will not yet have been appointed. The firm also should 
consider, and discuss in its plan, whether it would enhance the 
successful implementation of its preferred strategy to conduct outreach 
to interested parties, such as potential creditors of the holding 
company and the bankruptcy bar, regarding the strategy.
    If the firm chooses the bridge transfer alternative, its analysis 
and arguments should address at a minimum the following potential 
issues: (A) the legal basis for transferring the parent holding 
company's equity interests in certain subsidiaries (transferred 
subsidiaries) to a Bankruptcy Bridge Company, including the basis upon 
which the Bankruptcy Bridge Company would remain obligated for credit 
enhancements; (B) the ability of the bankruptcy court to retain 
jurisdiction, issue injunctions, or take other actions to prevent third 
parties from interfering with, or making collateral attacks on (i) a 
Bankruptcy Bridge Company, (ii) its transferred subsidiaries, or (iii) 
a trust or other legal entity designed to hold all ownership interests 
in a Bankruptcy Bridge Company (new ownership entity); and (C) the role 
of the bankruptcy court in granting the emergency motion due to public 
policy concerns--e.g., to preserve financial stability. The firm should 
also provide a draft agreement (e.g., trust agreement) detailing the 
preferred post-transfer governance relationships between the bankruptcy 
estate, the new ownership entity, and the Bankruptcy Bridge Company, 
including the proposed role and powers of the bankruptcy court and 
creditors' committee. Alternative approaches to these proposed post-
transfer governance relationships should also be described, 
particularly given the strong interest that parties will have in the 
ongoing operations of the Bankruptcy Bridge Company and the likely 
absence of an appointed creditors' committee at the time of the 
hearing.
    If the firm chooses the elevation alternative, the analysis and 
arguments should address at a minimum the following potential issues: 
(A) the legal basis upon which the parent company would seek to remain 
obligated for credit enhancements; (B) the ability of the bankruptcy 
court to retain jurisdiction, issue injunctions, or take other actions 
to prevent third parties from interfering with, or making collateral 
attacks on, the parent in bankruptcy or its subsidiaries; and (C) the 
role of the bankruptcy court in granting the emergency motion due to 
public policy concerns--e.g., to preserve financial stability.
    Regulatory Implications--The plan should include a detailed 
explanation of the steps the firm would take to ensure that key 
domestic and foreign authorities would support, or not object to, the 
emergency motion (including specifying the expected approvals or 
forbearances and the requisite format--i.e., formal, affirmative 
statements of support or, alternatively, ``non-objections''). The 
potential impact on the firm's preferred resolution strategy if a 
specific approval or forbearance cannot be timely obtained should also 
be detailed.
    Contingencies if Preferred Structure Fails--The plan should 
consider contingency arrangements in the event the bankruptcy court 
does not grant the emergency motion--e.g., whether alternative relief 
could satisfy the Transfer Conditions and/or U.S. Parent debtor-in-
possession (DIP) Conditions of the Protocol; \22\ the extent to which 
action upon certain aspects of the emergency motion may be deferred by 
the bankruptcy court without interfering with the resolution; and 
whether, if the credit-enhancement-related protections are not 
satisfied, there are alternative strategies to prevent the closeout of 
qualified financial contracts with credit enhancements (or reduce such 
counterparties' incentives to closeout) and the feasibility of the 
alternative(s).
---------------------------------------------------------------------------

    \22\ See Protocol sections 2(b)(ii) and (iii) and related 
definitions.
---------------------------------------------------------------------------

    Format--If the firm analyzed and addressed an issue noted in this 
section in a prior plan submission, the plan may incorporate this 
analysis and arguments and should build upon it to at least the extent 
required above. A bankruptcy playbook, which includes a sample 
emergency motion and draft documents setting forth the post-transfer 
governance terms substantially in the form they would be presented to 
the bankruptcy court, is an appropriate vehicle for detailing the 
issues outlined in this section. In preparing analysis of

[[Page 1455]]

these issues, the firm may consult with law firms and other experts on 
these matters. The Agencies do not object to appropriate collaboration 
among firms, including through trade organizations and with the 
academic community and bankruptcy bar, to develop analysis of common 
legal challenges and available mitigants.

VI. LEGAL ENTITY RATIONALIZATION AND SEPARABILITY

    Legal Entity Rationalization Criteria (LER Criteria): A firm should 
develop and implement legal entity rationalization criteria that 
support the firm's preferred resolution strategy and minimize risk to 
U.S. financial stability in the event of the firm's failure. LER 
Criteria should consider the best alignment of legal entities and 
business lines to improve the firm's resolvability under different 
market conditions. LER Criteria should govern the firm's corporate 
structure and arrangements between legal entities in a way that 
facilitates the firm's resolvability as its activities, technology, 
business models, or geographic footprint change over time.
    Specifically, application of the criteria should:
    (A) Facilitate the recapitalization and liquidity support of 
material entities, as required by the firm's resolution strategy. Such 
criteria should include clean lines of ownership, minimal use of 
multiple intermediate holding companies, and clean funding pathways 
between the parent and material operating entities;
    (B) Facilitate the sale, transfer, or wind-down of certain discrete 
operations within a timeframe that would meaningfully increase the 
likelihood of an orderly resolution of the firm, including provisions 
for the continuity of associated services and mitigation of financial, 
operational, and legal challenges to separation and disposition;
    (C) Adequately protect the subsidiary insured depository 
institutions from risks arising from the activities of any nonbank 
subsidiaries of the firm (other than those that are subsidiaries of an 
insured depository institution); and
    (D) Minimize complexity that could impede an orderly resolution and 
minimize redundant and dormant entities.
    These criteria should be built into the firm's ongoing process for 
creating, maintaining, and optimizing its structure and operations on a 
continuous basis.
    Separability: The firm should identify discrete operations that 
could be sold or transferred in resolution, which individually or in 
the aggregate would provide meaningful optionality in resolution under 
different market conditions.
    A firm's separability options should be actionable, and impediments 
to their execution and projected mitigation strategies should be 
identified in advance. Relevant impediments could include, for example, 
legal and regulatory preconditions, interconnectivity among the firm's 
operations, tax consequences, market conditions, and other 
considerations. To be actionable, divestiture options should be 
executable within a reasonable period of time.
    In developing their options, firms should also consider potential 
consequences for U.S. financial stability of executing each option, 
taking into consideration impacts on counterparties, creditors, 
clients, depositors, and markets for specific assets.
    Firms should have a comprehensive understanding of the entire 
organization and certain baseline capabilities. That understanding 
should include the operational and financial linkages among a firm's 
business lines, material entities, and critical operations. 
Additionally, information systems should be robust enough to produce 
the required data and information needed to execute separability 
options.
    The level of detail and analysis should vary based on the firm's 
risk profile and scope of operations. A separability analysis should 
address the following elements:
     Divestiture Options: the options in the plan should be 
actionable and comprehensive, and should include:
    [cir] Options contemplating the sale, transfer, or disposal of 
significant assets, portfolios, legal entities or business lines.
    [cir] Options that may permanently change the firm's structure or 
business strategy.
     Execution Plan: for each divestiture option listed, the 
separability analysis should describe the steps necessary to execute 
the option. Among other considerations, the description should include:
    [cir] The identity and position of the senior management officials 
of the company who are primarily responsible for overseeing execution 
of the separability option.
    [cir] An estimated time frame for implementation.
    [cir] A description of any impediments to execution of the option 
and mitigation strategies to address those impediments.
    [cir] A description of the assumptions underpinning the option.
    [cir] A plan describing the methods and forms of communication with 
internal, external, and regulatory stakeholders.
     Impact Assessment: the separability analysis should 
holistically consider and describe the expected impact of individual 
divestiture options. This should include the following for each 
divestiture option:
    [cir] A financial impact assessment that describes the impact of 
executing the option on the firm's capital, liquidity, and balance 
sheet.
    [cir] A business impact assessment that describes the effect of 
executing the option on business lines and material entities, including 
reputational impact.
    [cir] A critical operation impact assessment that describes how 
execution of the option may affect the provision of any critical 
operation.
    [cir] An operational impact assessment and contingency plan that 
explains how operations can be maintained if the option is implemented; 
such an analysis should address internal operations (for example, 
shared services, IT requirements, and human resources) and access to 
market infrastructure (for example, clearing and settlement facilities 
and payment systems).
    Further, the firm should have, and be able to demonstrate, the 
capability to populate in a timely manner a data room with information 
pertinent to a potential divestiture of the business (including, but 
not limited to, carve-out financial statements, valuation analysis, and 
a legal risk assessment).
    Within the plan, the firm should demonstrate how the firm's LER 
Criteria and implementation efforts meet the guidance above. The plan 
should also provide the separability analysis noted above. Finally, the 
plan should include a description of the firm's legal entity 
rationalization governance process.

VII. DERIVATIVES AND TRADING ACTIVITIES

Applicability.

    This section of the proposed guidance applies to Bank of America 
Corporation, Citigroup Inc., Goldman Sachs Group, Inc., JP Morgan Chase 
& Co., Morgan Stanley, and Wells Fargo & Company (each, a dealer firm).

Booking Practices.

    A dealer firm should have booking practices commensurate with the 
size, scope, and complexity of a firm's derivatives portfolios,\23\ 
including

[[Page 1456]]

systems capabilities to track and monitor market, credit, and liquidity 
risk transfers between entities. The following booking practices-
related capabilities should be addressed in a dealer firm's resolution 
plan:
---------------------------------------------------------------------------

    \23\ A firm's derivatives portfolios include its derivatives 
positions and linked non-derivatives trading positions. The firm may 
define linked non-derivatives trading positions based on its overall 
business and resolution strategy.
---------------------------------------------------------------------------

    Derivatives booking framework. A dealer firm should have a 
comprehensive booking model framework that articulates the principles, 
rationales, and approach to implementing its booking practices. The 
framework and its underlying components should be documented and 
adequately supported by internal controls (e.g., procedures, systems, 
and processes). Taken together, the derivatives booking framework and 
its components should provide transparency with respect to (i) what is 
being booked (e.g., product/counterparty), (ii) where it is being 
booked (e.g., legal entity/geography), (iii) by whom it is booked 
(e.g., business/trading desk); (iv) why it is booked that way (e.g., 
drivers/rationales); and (v) what controls are in place to monitor and 
manage those practices (e.g., governance/information systems).\24\ The 
dealer firm's resolution plan should include detailed descriptions of 
the framework and each of its material components. In particular, a 
dealer firm's resolution plan should include descriptions of the 
documented booking models covering its firm-wide derivatives 
portfolio.\25\ The descriptions should provide clarity with respect to 
the underlying trade flows (e.g., the mapping of trade flows based on 
multiple trade characteristics as decision points that determine on 
which entity a trade is booked, if risk is transferred, and at which 
entity that risk is subsequently managed). For example, a firm may 
choose to incorporate decision trees that depict the multiple trade 
flows within each documented booking model.\26\ Furthermore, a dealer 
firm's resolution plan should describe its end-to-end trade booking and 
reporting processes, including a description of the current scope of 
automation (e.g., automated trade flows and detective monitoring) for 
the systems controls applied to its documented booking models. The plan 
should also discuss why the firm believes its current (or planned) 
scope of automation is sufficient for managing its derivatives 
activities and executing its preferred resolution strategy.\27\
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    \24\ The description of controls should include any components 
of the firm-wide market, credit, and liquidity risk management 
framework that are material to the management of its derivatives 
practices.
    \25\ ``Firm-wide derivatives portfolio'' should represent the 
vast majority (for example, 95%) of a dealer firm's derivatives 
transactions measured by firm-wide derivatives notional and by firm-
wide gross market value of derivatives. Presumably, each asset 
class/product would have a booking model that is a function of the 
firm's regulatory and risk management requirements, client's 
preference, and regulatory requirements specifically for the 
underlying asset class, and other transaction related 
considerations.
    \26\ Some firms use trader mandates or similar controls to 
constrain the potential trading strategies that can be pursued by a 
business and to monitor the permissibility of booking activity. 
However, the mapping of trader mandates alone, especially those 
mandates that grant broad permissibility, may not provide sufficient 
distinction between booking model trade flows.
    \27\ Effective preventative (up-front) and detective (post-
booking) controls embedded in a dealer firm's derivatives booking 
processes can help avoid and/or timely remediate trades that do not 
align with a documented booking model or related risk limits. Firms 
typically use a combination of manual and automated control 
functions. Although automation may not be best suited for all 
control functions, as compared to manual methods it can improve 
consistency and traceability with respect to derivatives booking 
practices. Nonetheless, non-automated methods can also be effective 
when supported by other internal controls (e.g., robust detective 
monitoring and escalation protocols).
---------------------------------------------------------------------------

    Derivatives entity analysis and reporting. A dealer firm should 
have the ability to identify, assess, and report on each of its 
entities (material and non-material) with derivatives portfolios (a 
derivatives entity). First, the firm's resolution plan should describe 
its method (that may include both qualitative and quantitative 
criteria) for evaluating the significance of each derivatives entity 
both with respect to the firm's current activities and to its preferred 
resolution strategy.\28\ Second, a dealer firm's resolution plan should 
demonstrate (including through illustrative samples) its ability to 
readily generate current derivatives entity profiles that (i) cover all 
derivatives entities, (ii) are reportable in a consistent manner, and 
(iii) include information regarding current legal ownership structure, 
business activities/volume, and risk profile (including applicable risk 
limits).
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    \28\ The firm should leverage any existing methods and criteria 
it uses for other entity assessments (e.g., legal entity 
rationalization and/or the pre-positioning of internal loss-
absorbing resources). The firm's method for determining the 
significance of derivatives entities is allowed to diverge from the 
parameters for material entity designation under the Resolution Plan 
Rule (i.e., entities significant to the activities of a critical 
operation or core business line) but should be adequately supported 
and any differences should be explained.
---------------------------------------------------------------------------

Inter-Affiliate Risk Monitoring and Controls.

    A dealer firm should be able to assess how the management of inter-
affiliate risks can be affected in resolution, including the potential 
disruption in the risk transfers of trades between affiliate entities. 
Therefore, a dealer firm should have capabilities to provide timely 
transparency into the management of risk transfers between affiliates 
by maintaining an inter-affiliate market risk framework, consisting of 
at least the following two components \29\:
---------------------------------------------------------------------------

    \29\ The inter-affiliate market risk framework is a supplement 
to the firm's systems capabilities to track and monitor market, 
credit, and liquidity risk transfers between entities.
---------------------------------------------------------------------------

    1. A method for measuring, monitoring, and reporting the market 
risk exposures for a given material derivatives entity \30\ resulting 
from the termination of a specific counterparty or a set of 
counterparties (e.g., all trades with a specific affiliate or with all 
affiliates in a specific jurisdiction) \31\ and
---------------------------------------------------------------------------

    \30\ A ``material derivatives entity'' is a material entity with 
a derivatives portfolio.
    \31\ Firms may use industry market risk measures such as 
statistical risk measures (e.g., VaR or SVaR) or other risk measures 
(e.g., worst case scenario or stress test).
---------------------------------------------------------------------------

    2. A method for identifying, estimating associated costs of, and 
evaluating the effectiveness of, a re-hedge strategy in resolution put 
on by the same material derivatives entity.\32\
---------------------------------------------------------------------------

    \32\ A dealer firm's method may include an approach to 
identifying the risk factors and risk sensitivities, hedging 
instruments, and risk limits a derivatives entity would employ in 
its re-hedge strategy, and the quantification of any estimated basis 
risk that would result from hedging with only exchange-traded and 
centrally-cleared instruments in a severely adverse stress 
environment.
---------------------------------------------------------------------------

    In determining the re-hedge strategy, the firm should consider 
whether the instruments used (and the risk factors and risk sensitives 
controlled for) are sufficiently tied to the material derivatives 
entity's trading and risk-management practices to demonstrate its 
ability to execute the strategy in resolution using existing resources 
(e.g., existing traders and systems).
    A dealer firm's resolution plan should describe and demonstrate its 
inter-affiliate market risk framework (discussed above). In addition, 
the firm's plan should provide detailed descriptions of its compression 
strategies used for executing its preferred strategy and how those 
strategies would differ from those used currently to manage its inter-
affiliate derivatives activities. To the extent a dealer firm relies on 
compression strategies for executing its preferred strategy, the plan 
should include detailed descriptions of its compression capabilities, 
the associated risks, and obstacles in resolution.

Portfolio Segmentation and Forecasting.

    A dealer firm should have the capabilities to produce analysis that

[[Page 1457]]

reflects derivatives portfolio segmentation and differentiation of 
assumptions taking into account trade-level characteristics. More 
specifically, a dealer firm should have the systems capabilities that 
would allow it to produce a spectrum of derivatives portfolio 
segmentation analysis using multiple segmentation dimensions, including 
(1) legal entity (and material entities that are branches), (2) trading 
desk and/or product, (3) cleared vs. clearable vs. non-clearable 
trades, (4) counterparty type, (5) currency, (6) maturity, (7) level of 
collateralization, and (8) netting set.\33\ A dealer firm should also 
have the capabilities to segment and analyze the full contractual 
maturity (run-off) profile of its external and inter-affiliate 
derivatives portfolios. The dealer firm's resolution plan should 
describe and demonstrate the firm's ability to segment and analyze its 
firm-wide derivatives portfolio using the relevant segmentation 
dimensions and to report the results of such segmentation and analysis. 
In addition, the dealer firm's resolution plan should address the 
following segmentation and forecasting related capabilities:
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    \33\ The enumerated segmentation dimensions are not intended as 
an exhaustive list of relevant dimensions. With respect to any 
product/asset class, a firm may have reasons for not capturing data 
on (or not using) one or more of the enumerated segmentation 
dimensions, but those reasons should be explained.
---------------------------------------------------------------------------

    ``Ease of exit'' position analysis. A dealer firm should have, and 
its resolution plan should describe and demonstrate, a method and 
supporting systems capabilities for categorizing and ranking the ease 
of exit for its derivatives positions based on a set of well-defined 
and consistently applied segmentation criteria. These capabilities 
should cover the firm-wide derivatives portfolio and the resulting 
categories should represent a range in degree of difficulty (e.g., from 
easiest to most difficult to exit). The segmentation criteria should, 
at a minimum, reflect characteristics \34\ that the firm believes could 
affect the level of financial incentive and operational effort required 
to facilitate the exit of derivatives portfolios (e.g., to motivate a 
potential step-in party to agree to the novation or an existing 
counterparty to bilaterally agree to a termination). Dealer firms 
should consider this methodology when separately identifying and 
analyzing the population of derivatives positions that it will include 
in the potential residual portfolio under the firm's preferred 
resolution strategy (discussed below).
---------------------------------------------------------------------------

    \34\ Examples of characteristics that may affect the level of 
financial incentive and operational effort could include: product, 
size, clearability, currency, maturity, level of collateralization, 
and other risk characteristics.
---------------------------------------------------------------------------

    Application of exit cost methodology. Each dealer firm should have 
a methodology for forecasting the cost and liquidity needed to exit 
positions (e.g., terminate/tear-up, sell, novate, and compress), and 
the operational resources related to those exits, under the specific 
scenario adopted in the firm's preferred resolution strategy. To help 
preserve sufficient optionality with respect to managing and de-risking 
its derivatives portfolios in a resolution, a dealer firm should have 
the systems capabilities to apply its exit cost methodology to its 
firm-wide derivatives portfolio, at the segmentation levels the firm 
would likely apply to exit the particular positions (e.g., valuation 
segment level). The dealer firm's plan should provide detailed 
descriptions of the forecasting methodology (inclusive of any challenge 
and validation processes) and data systems and reporting capabilities. 
The firm should also describe and demonstrate the application of the 
exit cost method and systems capabilities to the firm-wide derivatives 
portfolio.
    Analysis of operational capacity. In resolution, a dealer firm 
should have the capabilities to forecast the incremental operational 
needs and expenses related to executing specific aspects of its 
preferred resolution strategy (e.g., executing timely derivatives 
portfolio novations). Therefore, a dealer firm should have, and its 
resolution plan should describe and demonstrate, the capabilities to 
assess the operational resources and forecast the costs (e.g., monthly 
expense rate) related to its current derivatives activities at an 
appropriately granular level and the incremental impact from executing 
its preferred resolution strategy.\35\ In addition, a dealer firm 
should have the ability to manage the logistical and operational 
challenges related to novating (selling) derivatives portfolios during 
a resolution, including the design and adjustment of novation packages. 
A dealer firm's resolution plan should describe its methodology and 
demonstrate its supporting systems capabilities for timely segmenting, 
packaging, and novating derivatives positions. In developing its 
methodology, a dealer firm should consider the systems capabilities 
that may be needed to reliably generate preliminary novation packages 
tailored to the risk appetites of potential step-in counterparties 
(buyers), as well as the novation portfolio profile information that 
may be most relevant to such counterparties.
---------------------------------------------------------------------------

    \35\ A dealer firm should have separate categories for fixed and 
variable expenses. For example, more granular operational expenses 
could roll-up into categories for (i) fixed-compensation, (ii) fixed 
non-compensation, and (iii) variable cost.
---------------------------------------------------------------------------

    Sensitivity analysis. A dealer firm should have a method to apply 
sensitivity analyses to the key drivers of the derivatives-related 
costs and liquidity flows under its preferred resolution strategy. A 
dealer firm's resolution plan should describe its method for (i) 
evaluating the materiality of assumptions and (ii) identifying those 
assumptions (or combinations of assumptions) that constitute the key 
drivers for its forecasts of operational and financial resource needs 
under the preferred resolution strategy. In addition, using its 
preferred resolution strategy as a baseline, the dealer firm's 
resolution plan should describe and demonstrate its approach to testing 
the sensitivities of the identified key drivers and the potential 
impact on its forecasts of resource needs.\36\
---------------------------------------------------------------------------

    \36\ For example, key drivers of derivatives-related costs and 
liquidity flows might include the timing of derivatives unwind, cost 
of capital-related assumptions (target ROE, discount rate, WAL, 
capital constraints, tax rate), operational cost reduction rate, and 
operational capacity for novations. Other examples of key drivers 
likely also include CCP margin flow assumptions and risk-weighted 
assets forecast assumptions.
---------------------------------------------------------------------------

Prime Brokerage Customer Account Transfers.

    A dealer firm should have the operational capacity to facilitate 
the orderly transfer of prime brokerage accounts to peer prime brokers 
in periods of material financial distress and in resolution. The firm's 
plan should include an assessment of how it would transfer such 
accounts. This assessment should be informed by clients' relationships 
with other prime brokers, the use of automated and manual transaction 
processes, clients' overall long and short positions facilitated by the 
firm, and the liquidity of clients' portfolios. The assessment should 
also analyze the risks of and mitigants to the loss of customer-to-
customer internalization (e.g., the inability to fund customer longs 
with customer shorts), operational challenges, and insufficient 
staffing to effectuate the scale and speed of prime brokerage account 
transfers envisioned under the firm's preferred resolution strategy.
    In addition, a dealer firm should describe and demonstrate its 
ability to segment and analyze the quality and composition of prime 
brokerage customer account balances based on a set of well-defined and 
consistently applied segmentation criteria (e.g., size,

[[Page 1458]]

single-prime, platform, use of leverage, non-rehypothecatable 
securities, and liquidity of underlying assets). The capabilities 
should cover the firm's prime brokerage customer account balances, and 
the resulting segments should represent a range in potential transfer 
speed (e.g., from fastest to longest to transfer, from most liquid to 
least liquid). The selected segmentation criteria should reflect 
characteristics \37\ that the firm believes could affect the speed at 
which the client account balance would be transferred to an alternate 
prime broker.
---------------------------------------------------------------------------

    \37\ For example, relevant characteristics might include: 
product, size, clearability, currency, maturity, level of 
collateralization, and other risk characteristics.
---------------------------------------------------------------------------

Derivatives Stabilization and De-risking Strategy.

    A dealer firm's plan should provide a detailed analysis of the 
strategy to stabilize and de-risk its derivatives portfolios 
(derivatives strategy) that has been incorporated into its preferred 
resolution strategy.\38\ In developing its derivatives strategy, a 
dealer firm should apply the following assumption constraints:
---------------------------------------------------------------------------

    \38\ Subject to the relevant constraints, a firm's derivatives 
strategy may take the form of a going-concern strategy, an 
accelerated de-risking strategy (e.g., active wind-down) or an 
alternative, third strategy so long as the firm's resolution plan 
adequately supports the execution of the chosen strategy. For 
example, a firm may choose a going-concern scenario (e.g., 
derivatives entities reestablish investment grade status and do not 
enter a wind-down) as its derivatives strategy. Likewise, a firm may 
choose to adopt a combination of going-concern and accelerated de-
risking scenarios as its derivatives strategy. For example, the 
derivatives strategy could be a stabilization scenario for the lead 
bank entity and an accelerated de-risking scenario for the broker-
dealer entities.
---------------------------------------------------------------------------

     OTC derivatives market access: At or before the start of 
the resolution period, each derivatives entity should be assumed to 
lack an investment-grade credit rating (e.g., unrated or downgraded 
below investment grade). The derivatives entity should also be assumed 
to have failed to establish or reestablish investment-grade status for 
the duration of the resolution period, unless the plan provides well-
supported analysis to the contrary. As a result of the lack of 
investment grade status, it should be further assumed that the 
derivatives entity has no access to the bilateral OTC derivatives 
markets and must use exchange-traded and/or centrally-cleared 
instruments where any new hedging needs arise during the resolution 
period. Nevertheless, a dealer firm may assume the ability to engage in 
certain risk-reducing derivatives trades with bilateral OTC derivatives 
counterparties during the resolution period to facilitate novations 
with third parties and to close out inter-affiliate trades.\39\
---------------------------------------------------------------------------

    \39\ A firm may engage in bilateral OTC derivatives trades with, 
for example, (i) external counterparties, to effect the novation of 
the firm's side of a derivatives contract to a new counterparty, 
bilateral OTC trades with the acquiring counterparty; and, (ii) 
inter-affiliate counterparties, where the trades with inter-
affiliate counterparties do not materially increase (a) the credit 
exposure of any participating counterparty and (b) the market risk 
of any such counterparty on a standalone basis, after taking into 
account hedging with exchange-traded and centrally-cleared 
instruments. The firm should provide analysis to support the risk 
nature of the trade on the basis of information that would be known 
to the firm at the time of the transaction.
---------------------------------------------------------------------------

     Early exits (break clauses). A dealer firm should assume 
that counterparties (external or affiliates) will exercise any 
contractual termination right, consistent with any rights stayed by the 
ISDA 2015 Universal Resolution Stay protocol or other applicable 
protocols or amendments,\40\ (i) that is available to the counterparty 
at or following the start of the resolution period; and (ii) if 
exercising such right would economically benefit the counterparty 
(counterparty-initiated termination).
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    \40\ For each of the derivatives entities that have adhered to 
the Protocol, the dealer firm may assume that the protocol is in 
effect for all counterparties of that derivatives entity (except for 
any affiliated counterparty of the derivatives entity that has not 
yet adhered to the Protocol).
---------------------------------------------------------------------------

     Time horizon: The duration of the resolution period should 
be between 12 and 24 months. The resolution period begins immediately 
after the parent company bankruptcy filing and extends through the 
completion of the preferred resolution strategy.
    A dealer firm's analysis of its derivatives strategy should take 
into account (i) the starting profile of its derivatives portfolios 
(e.g., nature, concentration, maturity, clearability, and liquidity of 
positions); (ii) the profile and function of the derivatives entities 
during the resolution period; (iii) the means, challenges, and capacity 
for managing and de-risking its derivatives portfolios (e.g., method 
for timely segmenting, packaging, and selling the derivatives 
positions; challenges with novating less liquid positions; re-hedging 
strategy); (iv) the financial and operational resources required to 
effect the derivatives strategy; and (v) any potential residual 
portfolio (further discussed below). In addition, the firm's resolution 
plan should address the following areas in the analysis of its 
derivatives strategy:
    Forecasts of resource needs. The forecasts of capital and liquidity 
resource needs of material entities required to adequately support the 
firm's derivatives strategy should be incorporated into the firm's RCEN 
and RLEN estimates for its overall preferred resolution strategy. These 
include, for example, the costs and/or liquidity flows resulting from 
(i) the close-out of OTC derivatives, (ii) the hedging of derivatives 
portfolios, (iii) the quantified losses that could be incurred due to 
basis and other risks that would result from hedging with only 
exchange-traded and centrally cleared instruments in a severely adverse 
stress environment, and (iv) the operational costs.\41\
---------------------------------------------------------------------------

    \41\ A dealer firm may choose not to isolate and separately 
model the operational costs solely related to executing its 
derivatives strategy. However, the firm should provide transparency 
around operational cost estimation at a more granular level than 
material entity (e.g., business line level within a material entity, 
subject to wind-down).
---------------------------------------------------------------------------

    Potential residual derivatives portfolio. A dealer firm's 
resolution plan should include a method for estimating the composition 
of any potential residual derivatives portfolio transactions remaining 
at the end of the resolution period under its preferred resolution 
strategy. The method may be a combination of approaches (e.g., 
probabilistic and deterministic) but should demonstrate the dealer 
firm's capabilities related to portfolio segmentation (discussed 
above). The dealer firm's plan should also provide detailed 
descriptions of the trade characteristics used to identify the 
potential residual portfolio and of the resulting trades (or categories 
of trades).\42\ A dealer firm should assess the risk profile of the 
potential residual portfolio (including its anticipated size, 
composition, complexity, counterparties) and the potential counterparty 
and market impacts of non-performance on the stability of U.S. 
financial markets (e.g., on funding markets and the underlying asset 
markets and on clients and counterparties).
---------------------------------------------------------------------------

    \42\ If under the firm's preferred resolution strategy, any 
derivatives portfolios are transferred during the resolution period 
by way of a line of business sale (or similar transaction), then 
those portfolios should nonetheless be included within the firm's 
potential residual portfolio analysis.
---------------------------------------------------------------------------

    Non-surviving entity analysis. To the extent the preferred 
resolution strategy assumes a material derivatives entity enters its 
own resolution proceeding after the entry of the parent company into a 
bankruptcy proceeding (a non-surviving material derivatives entity), 
the dealer firm should provide a detailed analysis of how the non-
surviving material derivatives entity's resolution can be accomplished 
within a reasonable period of time and in a manner that substantially 
mitigates the risk of serious adverse effects on U.S. financial 
stability and to the orderly

[[Page 1459]]

execution of the firm's preferred resolution strategy. In particular, 
the firm should provide an analysis of the potential impacts on funding 
markets and the underlying asset markets, on clients and counterparties 
(including affiliates), and on the preferred resolution strategy. If 
the non-surviving material derivatives entity is located in, or 
provides more than de minimis services to clients or counterparties 
located in, a non-U.S. jurisdiction, then the analysis should also 
specifically consider potential local market impacts.

VIII. FORMAT AND STRUCTURE OF PLANS

Format of Plan

    Executive Summary. The Plan should contain an executive summary 
consistent with the Rule, which must include, among other things, a 
concise description of the key elements of the firm's strategy for an 
orderly resolution. In addition, the executive summary should include a 
discussion of the firm's assessment of any impediments to the firm's 
resolution strategy and its execution, as well as the steps it has 
taken to address any identified impediments.
    Narrative. The Plan should include a strategic analysis consistent 
with the Rule. This analysis should take the form of a concise 
narrative that enhances the readability and understanding of the firm's 
discussion of its strategy for rapid and orderly resolution in 
bankruptcy or other applicable insolvency regimes (Narrative). The 
Narrative also should include a high level discussion of how the firm 
is addressing key vulnerabilities jointly identified by the Agencies. 
This is not an exhaustive list and does not preclude identification of 
further vulnerabilities or impediments.
    Appendices. The Plan should contain a sufficient level of detail 
and analysis to substantiate and support the strategy described in the 
Narrative. Such detail and analysis should be included in appendices 
that are distinct from and clearly referenced in the related parts of 
the Narrative (Appendices).
    Public Section. The Plan must be divided into a public section and 
a confidential section consistent with the requirements of the Rule.
    Other Informational Requirements. The Plan must comply with all 
other informational requirements of the Rule. The firm may incorporate 
by reference previously submitted information as provided in the Rule.

Guidance Regarding Assumptions

    1. The Plan should be based on the current state of the applicable 
legal and policy frameworks. Pending legislation or regulatory actions 
may be discussed as additional considerations.
    2. The firm must submit a plan that does not rely on the provision 
of extraordinary support by the United States or any other government 
to the firm or its subsidiaries to prevent the failure of the firm.\43\
---------------------------------------------------------------------------

    \43\ 12 CFR 243.4(a)(4)(ii) and 381.4(a)(4)(ii)
---------------------------------------------------------------------------

    3. The firm should not assume that it will be able to sell critical 
operations or core business lines, or that unsecured funding will be 
available immediately prior to filing for bankruptcy.
    4. The Plan should assume the Dodd-Frank Act Stress Test (DFAST) 
severely adverse scenario for the first quarter of the calendar year in 
which the Plan is submitted is the domestic and international economic 
environment at the time of the firm's failure and throughout the 
resolution process. The Plan should also discuss any changes to the 
resolution strategy under the adverse and baseline scenarios to the 
extent that these scenarios reflect obstacles to a rapid and orderly 
resolution that are not captured under the severely adverse scenario.
    5. The resolution strategy may be based on an idiosyncratic event 
or action. The firm should justify use of that assumption, consistent 
with the conditions of the economic scenario.
    6. Within the context of the applicable idiosyncratic scenario, 
markets are functioning and competitors are in a position to take on 
business. If a firm's Plan assumes the sale of assets, the firm should 
take into account all issues surrounding its ability to sell in market 
conditions present in the applicable economic condition at the time of 
sale (i.e., the Firm should take into consideration the size and scale 
of its operations as well as issues of separation and transfer.)
    7. The firm should not assume any waivers of section 23A or 23B of 
the Federal Reserve Act in connection with the actions proposed to be 
taken prior to or in resolution.
    8. The firm may assume that its depository institutions will have 
access to the Discount Window only for a few days after the point of 
failure to facilitate orderly resolution. However, the firm should not 
assume its subsidiary depository institutions will have access to the 
Discount Window while critically undercapitalized, in FDIC 
receivership, or operating as a bridge bank, nor should it assume any 
lending from a Federal Reserve credit facility to a non-bank affiliate.

Financial Statements and Projections

    The Plan should include the actual balance sheet for each material 
entity and the consolidating balance sheet adjustments between material 
entities as well as pro forma balance sheets for each material entity 
at the point of failure and at key junctures in the execution of the 
resolution strategy. It should also include projected statements of 
sources and uses of funds for the interim periods. The pro forma 
financial statements and accompanying notes in the Plan must clearly 
evidence the failure trigger event; the Plan's assumptions; and any 
transactions that are critical to the execution of the Plan's preferred 
strategy, such as recapitalizations, the creation of new legal 
entities, transfers of assets, and asset sales and unwinds.

Material Entities

    Material entities should encompass those entities, including 
foreign offices and branches, which are significant to the maintenance 
of a critical operation or core business line. If the abrupt disruption 
or cessation of a core business line might have systemic consequences 
to U.S. financial stability, the entities essential to the continuation 
of such core business line should be considered for material entity 
designation. Material entities should include the following types of 
entities:
    a. Any U.S.-based or non U.S. affiliates, including any branches, 
that are significant to the activities of a critical operation 
conducted in whole or material part in the United States.
    b. Subsidiaries or foreign offices whose provision or support of 
global treasury operations, funding, or liquidity activities (inclusive 
of intercompany transactions) is significant to the activities of a 
critical operation.
    c. Subsidiaries or foreign offices that provide material 
operational support in resolution (key personnel, information 
technology, data centers, real estate or other shared services) to the 
activities of a critical operation.
    d. Subsidiaries or foreign offices that are engaged in derivatives 
booking activity that is significant to the activities of a critical 
operation, including those that conduct either the internal hedge side 
or the client-facing side of a transaction.
    e. Subsidiaries or foreign offices engaged in asset custody or 
asset management that are significant to the activities of a critical 
operation.
    f. Subsidiaries or foreign offices holding licenses or memberships 
in clearinghouses, exchanges, or other

[[Page 1460]]

FMUs that are significant to the activities of a critical operation.
    For each material entity (including a branch), the Plan should 
enumerate, on a jurisdiction-by-jurisdiction basis, the specific 
mandatory and discretionary actions or forbearances that regulatory and 
resolution authorities would take during resolution, including any 
regulatory filings and notifications that would be required as part of 
the preferred strategy, and explain how the Plan addresses the actions 
and forbearances. Describe the consequences for the covered company's 
resolution strategy if specific actions in a non-U.S. jurisdiction were 
not taken, delayed, or forgone, as relevant.

IX. PUBLIC SECTION

    The purpose of the public section is to inform the public's 
understanding of the firm's resolution strategy and how it works.
    The public section should discuss the steps that the firm is taking 
to improve resolvability under the U.S. Bankruptcy Code. The public 
section should provide background information on each material entity 
and should be enhanced by including the firm's rationale for 
designating material entities. The public section should also discuss, 
at a high level, the firm's intra-group financial and operational 
interconnectedness (including the types of guarantees or support 
obligations in place that could impact the execution of the firm's 
strategy). There should also be a high-level discussion of the 
liquidity resources and loss-absorbing capacity of the firm.
    The discussion of strategy in the public section should broadly 
explain how the firm has addressed any deficiencies, shortcomings, and 
other key vulnerabilities that the Agencies have identified in prior 
Plan submissions. For each material entity, it should be clear how the 
strategy provides for continuity, transfer, or orderly wind-down of the 
entity and its operations. There should also be a description of the 
resulting organization upon completion of the resolution process.
    The public section may note that the resolution plan is not binding 
on a bankruptcy court or other resolution authority and that the 
proposed failure scenario and associated assumptions are hypothetical 
and do not necessarily reflect an event or events to which the firm is 
or may become subject.

APPENDIX: Frequently Asked Questions

    In April 2016, the Federal Reserve Board and the Federal Deposit 
Insurance Corporation issued guidance for use in developing the 2017 
resolution plan submissions by eight large domestic bank holding 
companies (BHCs).\44\
---------------------------------------------------------------------------

    \44\ Bank of America Corporation, Bank of New York Mellon, 
Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State 
Street Corporation, and Wells Fargo & Company.
---------------------------------------------------------------------------

    In response to frequently asked questions regarding the guidance 
from the BHCs, Board and FDIC staff jointly developed answers and 
provided those answers to the firms in 2016 so that firms could take 
them into account in developing their next resolution plan 
submissions.\45\
---------------------------------------------------------------------------

    \45\ The FAQs represent the views of staff of the Board of 
Governors of the Federal Reserve System and the Federal Deposit 
Insurance Corporation and do not bind the Board or the FDIC.
---------------------------------------------------------------------------

    The questions in this Appendix:
     Comprise common questions asked by different BHCs. Not 
every question is applicable to every BHC; not every aspect of the 
guidance applies to each BHC's preferred strategy/structure; and
     Reflect updated references to correspond to the Agencies' 
final resolution planning guidance for the BHCs (the Final Guidance).
    As indicated below, those questions and answers that are deemed to 
be no longer meaningful or relevant have not been consolidated in this 
Appendix to the Final Guidance and are superseded.

Capital

    CAP 1. Capital Pre-Positioning and Balance
    Q. How should a firm determine the appropriate balance between 
resources pre-positioned at the material entities and held at the 
parent?
    A. The Final Guidance addresses this issue in the Capital section. 
The Agencies are not prescribing a specific percentage allocation of 
resources pre-positioned at the material entities versus resources held 
at the parent. In considering the balance between certainty and 
flexibility, the Agencies note that the risk profile of each material 
entity should inform the ``unanticipated losses'' at the entity, which 
should be taken into account in determining the appropriate balance. 
For instance, the balance would likely be different for a large, 
complex, foreign trading subsidiary versus a small, domestic bank 
subsidiary.
    CAP 2. Not consolidated.
    CAP 3. Definition of ``Well-Capitalized'' Status
    Q. How should firms apply the term ``well-capitalized'' to material 
entities outside the U.S. or to material entities not subject to Basel 
III requirements?
    A. Material entities must comply with the local capital 
requirements and expectations of their primary regulator. Material 
entities should be recapitalized to meet jurisdictional requirements 
and to maintain market confidence as required under the preferred 
resolution strategy.
    CAP 4. RCEN Relationship to DFAST Severely Adverse Scenario
    Q. How should the firm's RCEN and RLEN estimates relate to the 
DFAST Severely Adverse scenario (as per the 2014 feedback letters)? Can 
those estimates be recalibrated in actual stress conditions?
    A. For resolution plan submission purposes, the estimation of RLEN 
and RCEN should assume macroeconomic conditions consistent with the 
DFAST Severely Adverse scenario.
    However, the RLEN and RCEN methodologies should have the 
flexibility to incorporate macroeconomic conditions that may deviate 
from the DFAST Severely Adverse scenario in order to facilitate 
execution of the preferred resolution strategy.
    CAP 5. Not consolidated.

Liquidity

    LIQ 1. Inter-Company ``Frictions'' and Inter-Affiliate Deposits
    Q. Can the Agencies clarify what kinds of frictions might occur 
between affiliates beyond regulatory ring-fencing?
    A. Frictions are any impediments to the free flow of funds, 
collateral and other transactions between material entities. Examples 
include regulatory, legal, financial (i.e., tax consequences), market, 
or operational constraints or requirements. Explicit frictions are 
described in the Final Guidance and include the requirement that firms 
should not assume that a net liquidity sur- plus at one material entity 
subsidiary (including material entities that are non-U.S. branches) can 
be moved to meet net liquidity deficits at other material entities or 
to augment parent resources.
    Q2. How should firms treat deposits at affiliate banks, including 
parent deposits? Should firms assume they are, or are not, fungible in 
resolution?
    A. As stated in the Final Guidance, the model estimating the net 
liquidity surplus/deficit for the firm may assume the parent holding 
company's deposits at the U.S. branch of the lead bank subsidiary are 
available as HQLA. Further, the stand-alone net liquidity position of 
each material entity (HQLA less net outflows) should treat inter-
affiliate exposures in the same manner as third-party exposures. For 
example, an overnight unsecured exposure, including deposits, made with 
an

[[Page 1461]]

affiliate should be assumed to mature. As noted in the Liquidity 
section of the Final Guidance, firms should not assume that a net 
liquidity surplus at one material entity could be moved to meet net 
liquidity deficits at other material entities or to augment parent 
resources.
    LIQ 2. Distinction between Liquidity Forecasting Periods
    Q. How long is the stabilization period?
    A. The stabilization period begins immediately after the parent 
company bankruptcy filing and extends until each material entity 
reestablishes market confidence. The stabilization period may not be 
less than 30 days. The reestablishment of market confidence may be 
reflected by the maintaining, reestablishing, or establishing of 
investment grade ratings or the equivalent financial condition for each 
entity. The stabilization period may vary by material entity, given 
differences in regulatory, counterparty, and other stakeholder 
interests in each entity.
    Q2. How should we distinguish between the runway, resolution, and 
stabilization periods on the one hand, and RLAP and RLEN on the other, 
in terms of their length, sequencing, and liquidity thresholds?
    A. In the Final Guidance, the Agencies did not specify a direct 
mathematical relationship between the runway period, the RLAP model, 
and RLEN model. As noted in prior guidance, firms may assume a runway 
period of up to 30 days prior to entering bankruptcy provided the 
period is sufficient for management to contemplate the necessary 
actions preceding the filing of bankruptcy. The RLAP model should 
provide for the adequate sizing and positioning of HQLA at material 
entities for anticipated net liquidity outflows for a period of at 
least
    30 days. The RLEN model estimates the liquidity needed after the 
parent's bankruptcy filing to stabilize the surviving material entities 
and to allow those entities to operate post-filing. As noted in the 
Final Guidance, the RLEN model should be integrated into the firm's 
governance framework to ensure that the firm files for bankruptcy prior 
to HQLA falling below the RLEN estimate. See ``LIQ 4. RLEN and Minimum 
Operating Liquidity (MOL),'' Question 1, for further detail on the 
required components of the RLEN model.
    Q3. What is the resolution period?
    A. The resolution period begins immediately after the parent 
company bankruptcy filing and extends through the completion of the 
preferred strategy. After the stabilization period (see ``LIQ 2. 
Distinction between Liquidity Forecasting Periods,'' Question 1, 
regarding ``stabilization period''), financial statements and 
projections may be provided at quarterly intervals through the 
remainder of the resolution period.
    LIQ 3. Inter-Affiliate Transaction Assumptions
    Q. Does inter-affiliate funding refer to all kinds of intercompany 
transactions, including both unsecured and secured?
    A. Yes.
    LIQ 4. RLEN and Minimum Operating Liquidity (MOL)
    Q. How should firms distinguish between the minimum operating 
liquidity (MOL) and peak funding needs during the RLEN period?
    A. The RLEN should ensure that the firm has sufficient liquidity in 
the form of HQLA to facilitate the execution of the firm's resolution 
strategy; therefore, RLEN should include both MOL and peak funding 
needs. The peak funding needs represent the peak cumulative net out- 
flows during the stabilization period. The components of peak funding 
needs, including the monetization of assets and other management 
actions, should be transparent in the RLEN projections. The peak 
funding needs should be supported by projections of daily sources and 
uses of cash for each material entity, incorporating inter-affiliate 
and third-party exposures. In mathematical terms, RLEN = MOL + peak 
funding needs during the stabilization period. For the firms subject to 
the Derivatives and Trading Activities section of the Final Guidance 
(dealer firms), RLEN should also incorporate liquidity execution needs 
of the preferred derivatives strategy (see ``DER 1. Preferred 
Resolution Strategy and Wind-Down Scenarios'' in the Derivatives and 
Trading Activities section).
    Q2. Should the MOL per entity make explicit the allocation for 
intraday liquidity requirements, inter-affiliate and other funding 
frictions, operating expenses, and working capital needs?
    A. Yes, the components of the MOL estimates for each material 
entity should be transparent and supported.
    Q3. Can MOLs decrease as MLEs wind down?
    A. MOL estimates can decline as long as they are sufficiently 
supported by the firm's method- ology and assumptions.
    LIQ 5. Liquidity Pre-Positioning and Balance
    Q. How should a firm determine the appropriate balance between 
liquidity resources pre-positioned at the material entities and held at 
the parent? Do the Agencies have a specific ratio allocation in mind?
    A. The Final Guidance addresses this issue in the Liquidity 
section. The Agencies are not prescribing a specific percentage 
allocation of resources pre-positioned at the material entities versus 
resources held at the parent. In considering the balance between 
certainty and flexibility, the risk profile of each material entity 
should inform the ``unanticipated outflows'' at the entity, which 
should be taken into account in determining the appropriate balance. 
For instance, the balance would likely be different for a large, 
complex, foreign trading subsidiary versus a small, domestic bank 
subsidiary.
    LIQ 6. RLAP Guidance Application
    Q. The RLAP guidance elements can be applied in different ways that 
yield disparate outcomes for the same situation. For instance, a parent 
overnight loan to a material entity could be assumed to unwind (treated 
as a third-party exposure), or it could be assumed to be trapped (to 
not augment parent resources). In such situations, what should a firm 
do to ensure it is applying the guidance appropriately?
    A. Firms should interpret and apply the Final Guidance in the 
context of the Resolution Plan Assessment Framework and Determinations 
paper (April 2016), which states on page 10: ``[Firms] must be able to 
track and measure their liquidity sources and uses at all material 
entities under normal and stressed conditions. They must also conduct 
liquidity stress tests that appropriately capture the effect of 
stresses and impediments to the movement of funds'' (emphasis added).
    For instance, the Final Guidance states:
     ``The [RLAP] model should ensure that the parent holding 
company holds sufficient HQLA (inclusive of its deposits at the U.S. 
branch of the lead bank subsidiary) to cover the sum of all stand-alone 
material entity net liquidity deficits.''
     An RLAP model that utilizes the U.S. LCR definition of 
HQLA for each material entity and expands that for the parent to 
include parent deposits at the U.S. branch of the lead bank subsidiary 
would be consistent with the Final Guidance. For an RLAP model that 
utilizes an internal stress testing definition of HQLA that is more 
expansive than the U.S. LCR definition, the Agencies expect the firm to 
support whether that assumption is consistent with a liquidity stress 
test that appropriately captures the effect of

[[Page 1462]]

stresses and impediments to the movement of funds.
    The Final Guidance also states:
     ``[T]he firm should not assume that a net liquidity 
surplus at one material entity could be moved to meet net liquidity 
deficits at other material entities or to augment parent resources'' 
(emphasis added).
     An RLAP model that assumes zero liquidity flows from 
material entities back to the parent would be consistent with this 
statement. Note, parent HQLA (including overnight secured lending 
collateralized by Treasury securities), as well as deposits at the U.S. 
branch of the lead bank subsidiary, would also be consistent with this 
statement.
    In addition, the Final Guidance states:
     ``The stand-alone net liquidity position of each material 
entity (HQLA less net outflows) should be measured using the firm's 
internal liquidity stress test assumptions and should treat inter-
affiliate exposures in the same manner as third-party exposures.''
    A firm's RLAP model should ``treat inter-affiliate exposures in the 
same manner as third-party exposures'' only where the results would 
appropriately capture impediments to the movement of funds. For 
instance, application of third-party assumptions to inter-affiliate 
deposits that would result in treatment of inter-affiliate deposits as 
HQLA, and thus not subject to any impediments to the movement of funds, 
even though such impediments could exist, would not be consistent with 
the Final Guidance.
    More generally, for material entities where the net liquidity 
position is comprised of a significant third party net outflow offset 
by an inter-affiliate net inflow, the Agencies note the heightened 
importance of taking into account ``trapped liquidity as a result of 
actions taken by clients, counterparties, financial market utilities 
(FMUs), and foreign supervisors, among others,'' as described in the 
Liquidity section of the Final Guidance.
    LIQ 7. Not consolidated.
    LIQ 8. Inter-Affiliate Transactions with Optionality
    Q. How should firms treat an inter-affiliate transaction with an 
embedded option that may affect the contractual maturity date?
    A. For the purpose of calculating a firm's net liquidity position 
at a material entity, RLAP and RLEN models should assume that these 
transactions mature at the earliest possible exercise date; this 
adjusted maturity should be applied symmetrically to both material 
entities involved in the transaction. See also ``LIQ 6. RLAP Guidance 
Application.''
    LIQ 9. Stabilization and Regulatory Liquidity Requirements
    Q. As it relates to the RLEN model and actions necessary to re-
establish market confidence, what assumptions should firms make 
regarding compliance with regulatory liquidity requirements?
    A. Firms should consider the applicable regulatory expectations for 
each material entity to achieve the stabilization needed to execute the 
preferred strategy. Firms' assumptions in the RLEN model regarding the 
actions necessary to reestablish market confidence during the 
stabilization period may vary by material entity, for example, based on 
differences in regulatory, counterparty, other stakeholder interests, 
and based on the preferred strategy for each material entity. See also 
``LIQ 2. Distinction between Liquidity Forecasting Periods.''
    LIQ 10. HQLA and Assets Not Eligible as HQLA in RLAP and RLEN 
Models
    Q. The Final Guidance states that HQLA should be used to meet 
estimated net liquidity deficits in the RLAP model and that the RLEN 
estimate should be based on the minimum amount of HQLA required to 
facilitate the execution of the firm's preferred resolution strategy. 
How should firms incorporate any expected liquidity value of assets 
that are not eligible as HQLA (non-HQLA) into RLAP and RLEN models?
    A. A firm's RLAP model should assume that only HQLA are available 
to meet net liquidity deficits at material entities. For a firm's RLEN 
model, firms may incorporate conservative esti- mates of potential 
liquidity that may be generated through the monetization of non-HQLA. 
The estimated liquidity value of non-HQLA should be supported by 
thorough analysis of the potential market constraints and asset value 
haircuts that may be required. Assumptions for the monetization of non-
HQLA should be consistent with the preferred resolution strategy for 
each material entity. See ``LIQ 6. RLAP Guidance Application'' for 
detail on assets eligible as HQLA.
    LIQ 11. Components of Minimum Operating Liquidity
    Q. Do the agencies have particular definitions of the ``intraday 
liquidity requirements,'' ``operating expenses,'' and ``working capital 
needs'' components of minimum operating liquidity (MOL) estimates?
    A. No. A firm may use its internal definitions of the components of 
MOL estimates. The components of MOL estimates should be well-supported 
by a firm's internal methodologies and calibrated to the specifics of 
each material entity.
    LIQ 12. RLEN Model and Net Revenue Recognition
    Q. Can firms assume in the RLEN model that cash-based net revenue 
generated by material entities after the parent holding company's 
bankruptcy filing is available to offset estimated liquidity needs?
    A. Yes. Firms may incorporate cash revenue generated by material 
entities in the RLEN model. Cash revenue projections should be 
conservatively estimated and consistent with the operating environment 
and the preferred strategy for each material entity.
    LIQ 13. RLEN Model and Inter-Affiliate Frictions
    Q. Can a firm modify its assumptions regarding one or more inter-
affiliate frictions during the stabilization or post-stabilization 
period in the RLEN model?
    A. Once a material entity has achieved market confidence necessary 
for stabilization consistent with the preferred strategy, a firm may 
modify one or more inter-affiliate frictions, provided the firm 
provides sufficient analysis to support this assumption.
    LIQ 14. RLEN Relationship to DFAST Severely Adverse scenario
    (See ``CAP 4. RCEN Relationship to DFAST Severely Adverse 
Scenario'' in the Capital section.)
    LIQ 15. Application of Inter-Affiliate Frictions Guidance to 
Intermediate Holding Companies (IHC)
    Q. With respect to an IHC that has been established to facilitate 
recapitalization or liquidity support to material entities, how should 
firms apply the RLAP and RLEN guidance for inter-affiliate frictions?
    A. For IHCs that provide funds for recapitalization or liquidity 
support to material entities and do not have any operations or 
outstanding third-party exposures of their own, the Agencies recognize 
that fewer potential impediments to the movement of the funds may exist 
when compared to movements of funds between operating material 
entities. Still, for both the RLAP and RLEN model, firms are expected 
to provide an analysis of, and take into account, potential inter-
affiliate frictions that may exist between an IHC and material 
entities.
    Specific to the Final Guidance for the RLAP model and the Q&A in 
``LIQ 6. RLAP Guidance Application,'' it would be inconsistent with the 
guidance for firms to assume that an IHC could be used as an 
intermediary to facilitate transfers of net liquidity surpluses at one 
material entity to another material entity. Instead, firms may only 
assume

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a one-way flow of funds from the IHC to the material entity. For the 
RLEN model, firms should assess the potential for inter-affiliate 
frictions in transactions from the IHC to material entities as well as 
from material entities to the IHC. The prohibition on assuming that net 
liquidity surplus at one material entity could be moved to meet net 
liquidity deficits at other material entities under the Final Guidance 
does not prohibit the firm from assuming that an IHC may provide 
liquidity to material entities.
    LIQ 16. Access to Reserve Bank Daylight Credit
    Q. What assumptions can firms make regarding access to Federal 
Reserve daylight credit?
    A. Access to daylight credit is governed by the Federal Reserve 
Board's Policy on Payment System Risk (PSR Policy) and generally is 
provided only to institutions that are in sound financial condition 
based on their capital ratios and supervisory ratings and subject to 
the discretion of the Reserve Bank. For the purpose of Section 165(d) 
resolution plans only, firms may assume that subsidiary depository 
institutions that are at least adequately capitalized will have access 
to fully collateralized daylight credit even in cases where the 
supervisory ratings of the parent assumed in the exercise fall below 
fair as a result of the condition of the parent firm or an affiliate. 
However, the plan should not assume depository institutions will have 
access to intraday credit while undercapitalized, in FDIC receivership, 
or operating as a bridge bank. This guidance applies only to the 
Section 165(d) resolution plans and does not modify the PSR Policy.

Governance Mechanisms

    GOV 1. Triggers
    Q. Do firms need to have all three types of triggers (i.e., 
capital, liquidity, and market) for each phase (i.e., BAU to stress, 
stress to runway, runway to recapitalization; and recapitalization to 
bankruptcy filing/PNV)?
    A. No, a firm does not need all three types of triggers for each 
phase.
    Q2. Are firms required to have triggers for each material entity or 
are firm-wide triggers sufficient?
    A. Triggers at the level of the consolidated company may not be 
sufficient without additional triggers at the material entity level 
depending upon the firm structure and/or preferred strategy. All 
triggers may not be applicable to all material entities. For example, 
pre-funded service entities or foreign branches may not require 
particular capital or liquidity triggers if they will not need these 
resources prior to the parent company entering bankruptcy.
    Q3. Should firms include a formal regulatory trigger by which the 
Agencies can directly trigger a contractually binding mechanism?
    A. No.
    Q4. Could the Agencies clarify what is meant by ``synchronized'' 
triggers within the Final Guidance?
    A. ``Synchronized to the firm's liquidity and capital 
methodologies'' in this context means informed by the firm's RCEN and 
RLEN estimates.
    Q5. What are examples of market metrics and market metric triggers?
    A. The Agencies are not prescribing specific market metrics or 
triggers.

Operational: Shared Services

    OPS SS 1. Not consolidated.
    OPS SS 2. Working Capital
    Q. Must working capital be maintained for third party and internal 
shared service costs?
    A. Where a firm maintains shared service companies to provide 
services to affiliates, working capital should be maintained in those 
entities sufficient to permit those entities to continue to provide 
services for six months or through the period of stabilization as 
required in the firm's preferred strategy. Costs related to third-party 
vendors and inter-affiliate services should be captured through the 
working capital element of the MOL estimate (RLEN).
    Q2. When does the six month working capital requirement period 
begin?
    A. The measurement of the six month working capital expectation 
begins upon the bankruptcy filing of the parent company. The 
expectation for maintaining the working capital is effective upon the 
July 2017 submission.
    OPS SS 3. Not consolidated.
    OPS SS 4. Not consolidated.

Operational: Payments, Clearing, and Settlement

    OPS PCS 1. Not consolidated.
    OPS PCS 2. Access to Reserve Bank Daylight Credit
    (See ``LIQ 16. Access to Reserve Bank Daylight Credit'' in the 
Liquidity section)

Legal Entity Rationalization and Separability

    LER 1. Data Room
    Q. What information should be in the data room?
    A. The Final Guidance addresses the data room on page in the 
section regarding Legal Entity Rationalization and Separability. The 
data room should contain the necessary information on discrete sales 
options to facilitate buyer due diligence. Including only a table of 
contents of information that could be provided when needed would not be 
sufficient.
    Q2. Are firms expected to include in a data room described in the 
Final Guidance lists of individual employee names and compensation 
levels?
    A. The firm should include the necessary information to facilitate 
buyer due diligence. In the circumstance where employee information 
would be important to buyer due diligence the firm should demonstrate 
the capability to provide such information in a timely manner. For 
individual employee names and compensation, the data room may include a 
representative sample and may have personally identifiable information 
redacted.
    LER 2. Not consolidated.
    LER 3. Legal Entity Rationalization Criteria
    Q. Is it acceptable to take into account business-related criteria, 
in addition to the resolution requirements, so that the LER Criteria 
can be used for both resolution planning and business operations 
purposes?
    A. Yes, LER criteria may incorporate both business and resolution 
considerations. In determining the best alignment of legal entities and 
business lines to improve the firm's resolvability under different 
market conditions, business considerations should not be prioritized 
over resolution needs.
    LER 4. Creation of Additional Legal Entities
    Q. Is the addition of legal entities acceptable, so long as it is 
consistent with the LER criteria?
    A. Yes.
    LER 5. Clean Funding Pathway
    Q. Can you provide additional context around what is meant by clean 
lines of ownership and clean funding pathways in the legal entity 
rationalization criteria? Additionally, what types of funding are 
covered by the requirements?
    A. The funding pathways between the parent and material entities 
and the ownership chain should minimize uncertainty in the provision of 
funds and facilitate recapitalization. Also, the complexity of 
ownership should not impede the flow of funding to a material entity 
under the firm's preferred resolution strategy. Potential sources of 
additional complexity could include, for example, multiple intermediate 
holding companies, tenor mismatches, or complicated ownership 
structures (including those involving multiple jurisdictions or 
fractional ownerships). Ownership should be as clean and simple as 
practicable, supporting the preferred strategy and actionable sales,

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transfers, or wind-downs under varying market conditions. The clean 
funding pathways expectation applies to all funding provided to a 
subsidiary material entity regardless of type and should not be viewed 
solely to apply to internal TLAC.
    Q2. The Final Guidance regarding legal entity rationalization 
criteria discusses ``clean lines of ownership'' and ``clean funding 
pathways.'' Does this statement mean that firms' legal entity 
rationalization criteria should require funding pathways and 
recapitalization to always follow lines of ownership?
    A. No. However, the firm should identify and address or mitigate 
any legal, regulatory, financial, operational, and other factors that 
could complicate the recapitalization and/or liquidity support of 
material entities.
    LER 6. Separability Options Information
    Q. How should a firm approach inclusion of legal risk assessments 
and other buyer due diligence information into separability options?
    A. The legal assessment should consider both buyer and seller legal 
aspects that could impede the timely or successful execution of the 
divestiture option. Where impediments are identified, mitigation 
strategies should be developed.
    LER 7. Market Conditions
    Q. What is meant by the phrase ``under different market 
conditions'' in the Legal Entity Rationalization and Separability 
section of the Final Guidance?
    A. The phrase ``under different market conditions'' is meant to 
ensure that a firm has a menu of divestiture options from which at 
least some could be executed under different market stresses.
    LER 8. Not consolidated.
    LER 9. Application of Legal Entity Rationalization Criteria
    Q. Which legal entities should be covered under the LER framework?
    A. All legal entities. The scope of a firm's LER criteria should 
apply to the entire enterprise.
    Q2. To the extent a firm has a large number of similar non-material 
entities (such as single-purpose entities formed for Community 
Reinvestment Act purposes), may a firm apply its legal entity 
rationalization criteria to these entities as a group, rather than at 
the individual entity level?
    A. Yes.

Derivatives and Trading Activities

    To the extent relevant, the derivatives and trading FAQs have been 
consolidated into the updated section of the Final Guidance.

Legal

    LEG 1. Emergency Motion
    Q. The Final Guidance states that ``the plan should consider 
contingency arrangements in the event the bankruptcy court does not 
grant the emergency motion.'' What are the Agencies' expectations given 
the industry's focus on complying with the ISDA Resolution Stay 
Protocol?
    A. Firms may present a preferred strategy that makes use of the 
Protocol. Nonetheless, the Agencies expect firms also to consider the 
possibility that a bankruptcy court may not timely enter an order that 
satisfies the Transfer Conditions and/or the U.S. Parent debtor-in-
possession Conditions of the Protocol as contemplated in the firm's 
preferred strategy. See the Legal Obstacles Associated with Emergency 
Motions section of the Final Guidance.
    Q2. Could the Agencies clarify what further legal analysis would be 
expected regarding the impact of potential state law and bankruptcy law 
challenges and mitigants to the planned provision of Support?
    A. The firms should address developments from the firm's own 
analysis of potential legal challenges regarding the Support and should 
also address any additional potential legal challenges identified by 
the Agencies in the Pre-Bankruptcy Parent Support section of the Final 
Guidance. A legal analysis should include a detailed discussion of the 
relevant facts, legal challenges, and Federal or State law and 
precedent. The analysis also should evaluate in detail the legal 
challenges identified in the Final Guidance under the heading ``Pre-
Bankruptcy Parent Support,'' any other legal challenges identified by 
the firm, and the efficacy of potential mitigants to those challenges. 
Firms should identify each factual assumption underlying their legal 
analyses and discuss how the analyses and mitigants would change if the 
assumption were not to hold. Moreover, the analysis is not required to 
take the form of a legal opinion.
    Q3. Not consolidated.
    LEG 2. Contractually Binding Mechanisms
    Q. Do the Agencies have any preference as to whether capital is 
down-streamed to key subsidiaries (including an IDI subsidiary) in the 
form of capital contributions vs. forgiveness of debt?
    A. No. The Agencies do not have a preference as to the form of 
capital contribution or liquidity support.
    Q2. The letter makes reference to a contractually binding 
mechanism. Does such an agreement relate to the provision of capital or 
liquidity? What classes of assets would be deemed to provide capital 
vs. liquidity?
    A. Contractually binding mechanism is a generic term and includes 
the down-streaming of capital and/or liquidity as contemplated by the 
preferred strategy. Furthermore, it is up to the firm, as informed by 
any relevant guidance of the Agencies, to identify what assets would 
satisfy a subsidiary's need for capital and/or liquidity.
    Q3. Is there a minimum acceptable duration for a contractually 
binding mechanism? Would an ``evergreen'' arrangement, renewable on a 
periodic basis (and with notice to the Agencies), be acceptable?
    A. To the extent a firm utilizes a contractually binding mechanism, 
such mechanism, including its duration, should be appropriate for the 
firm's preferred strategy, including adequately addressing relevant 
financial, operational, and legal requirements and challenges.
    Q4. Not consolidated.
    Q5. Not consolidated.
    Q6. The firm may need to amend its contractually binding mechanism 
from time to time resulting potentially from changes in relevant law, 
new or different regulatory expectations, etc. Is a firm able to do 
this as long as there is no undue risk to the enforceability (e.g., no 
signs of financial stress sufficient to unduly threaten the agreement's 
enforceability as a result of fraudulent transfer)?
    A. Yes, however the Agencies should be informed of the proposed 
duration of the agreement, as well as any terms and conditions on 
renewal and/or amendment. Any amendments should be identified and 
discussed as part of the firm's next plan submission.

General

    None of the general FAQs were consolidated.

    By order of the Board of Governors of the Federal Reserve 
System.
Ann E. Misback,
Secretary of the Board.

    Dated at Washington, DC, on December 18, 2018.

Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
[FR Doc. 2019-00800 Filed 2-1-19; 8:45 am]
BILLING CODE P