[Federal Register Volume 87, Number 204 (Monday, October 24, 2022)]
[Proposed Rules]
[Pages 64170-64175]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-23003]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 87, No. 204 / Monday, October 24, 2022 / 
Proposed Rules  

[[Page 64170]]



FEDERAL RESERVE SYSTEM

12 CFR Chapter II

[Docket No. R-1786]
RIN 7100-AG44

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Chapter III

RIN 3064-AF86


Resolution-Related Resource Requirements for Large Banking 
Organizations

AGENCY: Board of Governors of the Federal Reserve System, Federal 
Deposit Insurance Corporation.

ACTION: Advance notice of proposed rulemaking; request for comment.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
and Federal Deposit Insurance Corporation (FDIC) (together, the 
agencies) are publishing for public comment this advance notice of 
proposed rulemaking (ANPR) to solicit public input regarding whether an 
extra layer of loss-absorbing capacity could improve optionality in 
resolving a large banking organization or its insured depository 
institution, and the costs and benefits of such a requirement. This 
may, among other things, address financial stability by limiting 
contagion risk through the reduction in the likelihood of uninsured 
depositors suffering loss, and keep various resolution options open for 
the FDIC to resolve a firm in a way that minimizes the long term risk 
to financial stability and preserves optionality. The agencies are 
seeking comment on all aspects of the ANPR from all interested parties 
and also request commenters to identify other issues that the Board and 
FDIC should consider.

DATES: Comments must be received on or before December 23, 2022.

ADDRESSES: Interested parties are encouraged to submit written comments 
jointly to both agencies. Commenters are encouraged to use the title 
``ANPR Resolution-Related Resource Requirements for Large Banking 
Organizations'' to facilitate the organization and distribution of 
comments between the agencies. Commenters are also encouraged to 
identify the number of the specific question for comment to which they 
are responding. Comments should be directed to:
    Board: You may submit comments, identified by Docket No. R-1786 and 
RIN 7100-AG44 by any of the following methods:
     Agency Website: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia//ProposedRegs.cfm.
     Email: [email protected]. Include docket 
and RIN numbers in the subject line of the message.
     Fax: 202-452-3819 or 202-452-3102.
     Mail: Ann E. Misback, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551.
    Public Inspection: All public comments are available from the 
Board's website at https://www.federalreserve.gov/generalinfo/foia//ProposedRegs.cfm as submitted. Accordingly, comments will not be edited 
to remove any identifying or contact information. Public comments may 
also be viewed electronically or in paper in Room M-4365A, 2001 C 
Street NW, Washington, DC 20551, between 9:00 a.m. and 5:00 p.m. during 
Federal business weekdays. For security reasons, the Board requires 
that visitors make an appointment to inspect comments. You may do so by 
calling (202) 452-3684. Upon arrival, visitors will be required to 
present valid government-issued photo identification and to submit to 
security screening in order to inspect and photocopy comments. For 
users of TTY-TRS, please call 711 from any telephone, anywhere in the 
United States.
    FDIC: You may submit comments, identified by RIN 3064-AF86, by any 
of the following methods:
     Agency Website: https://www.fdic.gov/resources/regulations/federal-register-publications/. Follow instructions for 
submitting comments on the Agency website.
     Email: [email protected]. Include RIN 3064-AF86 on the 
subject line of the message.
     Mail: James P. Sheesley, Assistant Executive Secretary, 
Attention: Comments RIN 3064-AF86, Federal Deposit Insurance 
Corporation, 550 17th Street NW, Washington, DC 20429.
     Hand Delivery/Courier: Comments may be hand delivered to 
the guard station at the rear of the 550 17th Street NW building 
(located on F Street NW) on business days between 7:00 a.m. and 5:00 
p.m.
    Public Inspection: Comments received, including any personal 
information provided, may be posted without change to https://www.fdic.gov/resources/regulations/federal-register-publications/. 
Commenters should submit only information that the commenter wishes to 
make available publicly. The FDIC may review, redact, or refrain from 
posting all or any portion of any comment that it may deem to be 
inappropriate for publication, such as irrelevant or obscene material. 
The FDIC may post only a single representative example of identical or 
substantially identical comments, and in such cases will generally 
identify the number of identical or substantially identical comments 
represented by the posted example. All comments that have been 
redacted, as well as those that have not been posted, that contain 
comments on the merits of this notice will be retained in the public 
comment file and will be considered as required under all applicable 
laws. All comments may be accessible under the Freedom of Information 
Act.

FOR FURTHER INFORMATION CONTACT: 
    Board: Molly Mahar, Senior Associate Director, (202) 973-7360; 
Catherine Tilford, Deputy Associate Director, (202) 452-5240; Lesley 
Chao, Lead Financial Institution Policy Analyst, Policy Development, 
(202) 974-7063, Division of Supervision and Regulation; Charles Gray, 
Deputy General Counsel, (202) 510-3484, Reena Sahni, Associate General 
Counsel, (202) 452-2026, Jay Schwarz, Assistant General Counsel, (202) 
452-2970, Andrew Hartlage, Senior Counsel, (202) 452-6483, Legal 
Division, Board of Governors of the Federal Reserve System, 20th Street 
and Constitution Avenue NW, Washington, DC 20551. For users of TTY-TRS, 
please

[[Page 64171]]

call 711 from any telephone, anywhere in the United States.
    FDIC: Andrew J. Felton, Deputy Director, (202) 898-3691; Ryan P. 
Tetrick, Deputy Director, (202) 898-7028; Jenny G. Traille, Associate 
Director, (202) 898-3608; Julia E. Paris, Senior Cross-Border 
Specialist, (202) 898-3821; Division of Complex Institution Supervision 
and Resolution; R. Penfield Starke, Assistant General Counsel, (202) 
898-8501, [email protected]; David N. Wall, Assistant General Counsel, 
(202) 898-6575, Legal Division, Federal Deposit Insurance Corporation, 
550 17th Street NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

Background

    Over the past decade, the Board of Governors of the Federal Reserve 
System (Board) and Federal Deposit Insurance Corporation (FDIC) 
(together, the agencies) have promulgated rules and guidance, both 
jointly and individually, to support the orderly resolution of large 
banking organizations.\1\ These rules and related guidance are tiered 
based on the complexity and risks of different banking organizations: 
the most stringent rules apply only to global systemically important 
bank holding companies (GSIBs) and include requirements to submit a 
resolution plan every two years, follow a ``clean-holding company'' 
requirement that prohibits top-tier holding companies from entering 
certain financial arrangements (such as short-term borrowings or 
derivatives contracts) that might impede orderly resolution, adopt 
resolution-related stay provisions in qualified financial contracts 
(for example, establishing a set period of time during which a party to 
a qualified financial contract is restricted from terminating, 
liquidating, or netting such contract in the event of resolution), and 
maintain minimum outstanding amounts of total loss-absorbing capacity 
(TLAC) and long-term debt. The Board has issued supervisory guidance 
\2\ on recovery planning that applies to GSIBs, and the FDIC has issued 
a rule to require certain covered insured depository institutions 
(CIDIs), including IDI subsidiaries of GSIBs, to periodically submit 
resolution plans to ensure that the FDIC can effectively carry out its 
responsibilities for the resolution of a CIDI in the event that it is 
appointed receiver under the Federal Deposit Insurance Act (FDI 
Act).\3\
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    \1\ E.g., Regulation QQ, 12 CFR part 243 (joint resolution 
planning rule); Regulation YY, 12 CFR part 252 (Board's enhanced 
prudential standards, including TLAC).
    \2\ 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 (SR Letter 12-17/CA 
Letter 12-14) (January 24, 2014), https://www.federalreserve.gov/supervisionreg/srletters/sr1401.htm.
    \3\ 12 CFR 360.10.
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    For large banking organizations that are not U.S. GSIBs,\4\ 
resolution planning requirements under Title I of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act apply at a reduced frequency. 
Category II and Category III \5\ large banking organizations file 
resolution plans on a triennial cycle,\6\ alternating between 
submission of full and targeted resolution plans. Further, large 
banking organizations that are not GSIBs generally are not subject to 
TLAC or long-term debt requirements, clean holding company 
requirements, rules related to qualified financial contract stay 
provisions in resolution, or Board guidance on recovery planning.\7\
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    \4\ The term large banking organization refers to a domestic 
bank holding company, or domestic savings and loan holding company, 
that has $100 billion or more in total consolidated assets but is 
not a GSIB under the Board's capital rule, 12 CFR part 217, or a 
savings and loan holding company that would be identified as a GSIB 
under the Board's capital rule if it were a bank holding company. 
The total population of large banking organizations corresponds to 
Category II through IV firms under the Board's tiering framework for 
enhanced prudential standards. In this ANPR, the agencies are 
focused on domestic large banking organizations in Categories II and 
III, which generally exceed a threshold of $250 billion in total 
consolidated assets.
    \5\ Category II banking organizations have $700 billion or more 
in average total consolidated assets or $75 billion or more in 
cross-jurisdictional activity. Category III banking organizations 
have between $250 billion and $700 billion in average total 
consolidated assets or $75 billion or more in off-balance sheet 
exposures, nonbank assets, or short-term wholesale funding.
    \6\ In November 2019, the resolution plan rule was amended to 
modify plan submission requirements for firms that do not pose the 
same systemic risk as the largest institutions. The revised final 
rule established three types of resolution plans: the full plan, 
targeted plan, and reduced plan. Currently, U.S. GSIBs and Category 
II and III firms alternate between filing full and targeted plans. 
U.S. GSIBs alternate on a 2-year cycle while Category II and III 
firms alternate on a 3-year cycle. Category II and III firms last 
submitted targeted plans on December 17, 2021; under the rule they 
will next be required to submit full resolution plans on or before 
July 1, 2024. On September 30, 2022, the agencies issued a press 
release announcing their intention to issue forthcoming resolution 
planning guidance for Category II and III firms which have not 
already received guidance.
    \7\ U.S. intermediate holding companies of global systemically 
important foreign banking organizations, however, are subject to 
internal TLAC and long-term debt requirements. See 12 CFR part 252, 
subpart P.
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    Since resolution-related rules and guidance were adopted, the U.S. 
banking system has continued to evolve. For example, in recent years, 
merger activity and organic growth have increased the size of large 
banking organizations that are not GSIBs, particularly those in 
Category III. As of December 2019, the domestic Category III firms had 
an average of approximately $413 billion in total consolidated assets, 
while as of December 2021, the same group of large banking 
organizations had grown to an average size of approximately $554 
billion in total consolidated assets.\8\ While most of these firms' 
overall business remains concentrated in traditional banking 
activities, and their proportion of total banking sector assets has 
remained relatively constant, their larger size heightens the potential 
impact of a possible costly resolution.
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    \8\ See FR Y-9C Schedule HC--Consolidated Balance Sheet, for 
Category II and III bank holding companies.
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    For the vast majority of bank resolutions, the FDIC pursues a 
strategy of selling the failed IDI to another depository institution, 
as this has been the course of action which was least-costly to the 
Deposit Insurance Fund (DIF) and minimized disruption to local 
communities and to the financial system. During the global financial 
crisis, there were limited and undesirable options available to the 
FDIC for resolving the largest failed IDIs including disruptive and 
costly liquidation strategies or the sale of large banks to even larger 
financial institutions. The challenges associated with the acquisition 
of a large, failed IDI continue to be significant, both operationally 
and financially; as a result, the universe of potential acquirers is 
limited. The availability of sufficient loss-absorbing resources at the 
depository institution would preserve franchise value and support the 
stabilization of the firm to allow for a range of options for the 
restructuring and disposition of the reduced firm in whole or in parts.
    In addition, some large banking organizations have increased their 
reliance on large uninsured deposits to fund their operations over the 
past decade. These deposits may be less stable relative to insured 
deposits under conditions of firm-specific stress and resolution. 
Uninsured deposits comprise a significant portion of Category II and 
III banking organizations' funding base, standing at roughly 40% of 
total deposits as of the first quarter of 2022 as a group.\9\ While 
GSIBs also have high levels of uninsured deposits, the regulatory 
resolution framework that has been built

[[Page 64172]]

up around them--including TLAC and long-term debt requirements--help to 
mitigate related risks.
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    \9\ See Call Report Schedule RC-O--Other Data for Deposit 
Insurance and FICO Assessments, for Category II and III banking 
organizations.
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    Finally, some large banking organizations have heightened cross-
jurisdictional activity or significant non-bank operations that could 
present challenges to orderly resolution due to the complexities of 
coordinating among resolution authorities. While size alone can limit 
options and increase the potential negative impacts in the resolution 
of an IDI, other complexities can create risks from and impediments to 
resolution, including significant international operations requiring 
cross-border cooperation, and material operations, assets, liabilities 
and services outside the bank chain. These complicating features of 
bank resolution can raise challenges to the feasibility of creating and 
stabilizing a viable bridge depository institution or other resolution 
strategies for a failing insured depository institution due to multiple 
competing insolvencies, discontinuity of operations, and the 
destruction of value, and result in a disorderly and costly resolution.
    As the profile of large banking organizations continues to evolve, 
with larger balance sheets and increased volume of uninsured deposits, 
and potentially more complex organizations, the agencies are 
considering whether additional measures are warranted to address 
financial stability impacts that might be associated with the failure 
of such firms. This includes whether an extra layer of loss-absorbing 
capacity could increase the FDIC's optionality in resolving the insured 
depository institution, and the potential costs of such a requirement. 
Additional loss-absorbing resources could limit contagion risk by 
reducing the likelihood of uninsured depositors suffering loss. These 
additional resources could also be useful in keeping various resolution 
options open for the FDIC to resolve a subsidiary depository 
institution in a way that minimizes the long term risk to financial 
stability; availability of such resources could help preserve 
optionality for resolving large IDIs across a range of scenarios in a 
manner that is least costly to the DIF without resorting to the sale of 
the firm being resolved to another large banking organization or GSIB. 
However, a long-term debt requirement could impact the cost and 
availability of credit.

GSIB vs. Large Banking Organization Resolution

    GSIB and other large banking organization resolution strategies 
tend to follow one of two generally recognized approaches to 
resolution.\10\ As described in the public sections of their resolution 
plans, the U.S. GSIBs have all adopted a single-point-of-entry (SPOE) 
resolution strategy, in which only the top-tier holding company would 
enter a resolution proceeding (bankruptcy) and in which losses would be 
passed up from subsidiaries to the parent company shareholders and 
long-term debt holders to recapitalize the subsidiaries. To facilitate 
this resolution strategy, the total loss-absorbing capacity (TLAC) rule 
requires a GSIB to maintain a minimum level of eligible long-term debt 
at the holding company level. Proceeds from issuance of long-term debt 
may be down-streamed to subsidiaries, such as in the form of internal 
debt, or maintained at the holding company to allocate as resource 
needs arise at particular subsidiaries. Prior to resolution, the top-
tier holding company would down-stream all remaining available 
resources. Upon exhaustion of the remaining holding company resources 
it would enter resolution while the subsidiaries continue operating.
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    \10\ See 82 FR 8266, 8270 n.29 (January 24, 2017).
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    By allowing subsidiaries to continue operating after the resolution 
of the top-tier holding company, the SPOE resolution process limits the 
risk of multiple competing resolution processes across multiple 
resolution authorities and jurisdictions that could greatly complicate 
the resolution of a failing firm and impede the continuity of critical 
operations. An SPOE resolution also avoids losses to subsidiaries' 
third-party creditors and may reduce the need for asset fire sales that 
could pose broader risks to financial stability. The TLAC, long-term 
debt, and clean holding company requirements that the Board has applied 
to the U.S. GSIBs were generally designed to support an SPOE resolution 
strategy. These GSIB requirements enable loss-absorbing resources 
issued at the holding company level to be down-streamed to subsidiaries 
in a pre-positioned fashion, as well as to be made available on a 
flexible incremental basis where called for under stress.
    Unlike the GSIBs, most large banking organizations do not have 
material broker dealers or international operations, and their assets 
and liabilities most often are overwhelmingly concentrated in the 
depository institution entity. Some have significant international 
footprints or significant activities, assets, and services outside the 
bank chain, but have less complex operations and fewer systemically 
important critical operations. As described in the public sections of 
the resolution plans filed by Category II and III large banking 
organizations, a multiple-point-of-entry (MPOE) resolution strategy is 
generally contemplated by these firms, in which the parent holding 
company would enter bankruptcy and the insured depository institution 
subsidiary would undergo FDIC-led resolution under the Federal Deposit 
Insurance Act (FDI Act). In conducting the insured depository 
institution-level resolution, the FDIC can, among other things, provide 
liquidity when necessary and take advantage of the statutory stays on 
derivatives and other qualified financial contracts, as well as its own 
historical experience in administering insured depository institution-
level resolutions.
    Drawing on that experience, the FDIC has several options for 
carrying out the resolution of an insured depository institution, 
including selling assets and transferring deposits to healthy 
acquirers, transferring assets and deposits to a bridge bank (which, 
among other things, could either sell off assets over time or conduct a 
sale or an IPO once the restructured business has stabilized), or 
executing an insured deposit payout. In deciding which option to 
pursue, the FDIC must show how it would meet the least-cost test set 
forth in the FDI Act in furtherance of its key objective of protecting 
insured depositors. While the FDI Act does contain a systemic risk 
exception to the least-cost test, the FDIC had never invoked the 
exception prior to the global financial crisis. While an MPOE 
resolution strategy may be appropriate for a large banking 
organization, without sufficient loss absorbing resources at the 
insured depository institution, the options available to the FDIC for 
resolving the subsidiary insured depository institution under the FDI 
Act may be limited. The size and funding profile of large banking 
organizations merits consideration of whether a larger set of options, 
supported by additional resources at the insured depository institution 
is needed to contain the impact of their failure on the larger 
financial system immediately and over time, and the potential costs of 
such an approach. Particularly for the largest and most complex large 
banking organizations, the availability of ex ante loss-absorbing 
capacity could be helpful in a range of resolution scenarios, including 
a bail-in recapitalization or a bridge bank, that would afford the FDIC 
the ability to stabilize operations, preserve franchise value, and 
provide more time to consider the impact on

[[Page 64173]]

future financial stability of marketing a failed institution in whole 
or in parts.

Public Input

    The agencies periodically review their existing regulations to 
ensure they appropriately address risks to safe and sound banking and 
financial stability and are issuing this ANPR to explore whether and 
how resolution-related standards applicable to large banking 
organizations could be strengthened to enable a more efficient 
resolution of a large banking organization, while mitigating effects to 
the financial system. The agencies are considering tiered requirements 
that distinguish between the set of standards in this area that are 
applied to GSIBs and the framework to be applied to other large banking 
organizations, given differences between their resolution strategies as 
well as large banking organizations' smaller size, less complex 
operations, and generally more limited operations outside of their U.S. 
insured depository institution. The agencies are interested in public 
comment on how appropriately-adapted elements of the GSIB resolution-
related standards--including a long-term debt requirement potentially 
at the insured depository institution and/or the holding company level, 
a clean holding company requirement, or recovery planning guidance--
could be applied to large banking organizations to enhance financial 
stability by providing for a wider range of resolution options and 
address related risks to safe and sound banking, the potential costs of 
such changes, and how these policies might be structured to achieve 
those goals most effectively and efficiently.

Long-Term Debt

    The agencies are exploring whether requiring additional ex ante 
financial resources, such as qualifying forms of long-term debt, 
including at the insured depository institution, would improve the 
prospects for successful resolution of large banking organizations, the 
potential costs and the appropriate scope of any such requirement. The 
Board's current long-term debt requirements were designed to ensure 
that U.S. GSIBs maintain greater loss-absorbing capacity on a ``gone-
concern'' basis in resolution and have resources available to 
recapitalize subsidiaries and maintain continuous operations even as 
the parent enters bankruptcy (as is the case in an SPOE resolution). 
Although some portion of going-concern regulatory capital might in 
certain circumstances remain available to absorb losses after a firm 
has entered resolution, a long-term debt requirement would address the 
fact that the firm's regulatory capital, and especially its equity 
capital, is highly likely to have been significantly or completely 
depleted in the lead-up to a resolution or bankruptcy.
    While the current long-term debt requirement applicable to U.S. 
GSIBs was designed with the SPOE resolution strategies followed by the 
U.S. GSIBs in mind, it is possible that for other large banking 
organizations an appropriately adapted form of long-term debt 
requirement is needed to preserve options for an FDIC-led resolution of 
an insured depository institution as part of an MPOE resolution 
process. For example, if the proceeds of long-term debt issued by a 
parent holding company are down-streamed to its principal insured 
depository institution subsidiary in exchange for internal long-term 
debt of the insured depository institution, such internal debt could be 
available to absorb losses in connection with an FDIC resolution of the 
insured depository institution. Alternatively, or in conjunction with, 
such internal debt funded by parent-level issuance, external long-term 
debt issued by the insured depository institution could likewise 
function as a credible form of loss absorbency in an FDIC-led 
resolution and might therefore appropriately count toward an overall 
long-term debt requirement. In concept, issuance of long-term debt at 
the parent holding company level might play an additional role of 
supporting an SPOE strategy focused on holding company-level 
resolution, potentially creating an additional resolution option.
    The availability of this loss-absorbing resource at the insured 
depository institution would protect deposits and thereby increase the 
likelihood that a transfer to a bridge insured depository institution 
to preserve franchise value would be less costly to the DIF than a 
payout of insured deposits. Use of a bridge insured depository 
institution would enhance the FDIC's ability to pursue options that 
could involve breaking the insured depository institution up for sale 
to multiple acquirers, and/or spinning off some remaining streamlined 
operations as a restructured entity with ongoing viability, depending 
on which strategy is most desirable. Generally speaking, the greater 
the extent of feasible options available to the FDIC as it undertakes 
resolution of an insured depository institution, the greater will be 
the chance that resolution can be conducted in an orderly manner 
without the need of extraordinary support and increased risk to the DIF 
based upon a systemic risk exception to the least-cost test.
    Thus, to limit the impact of a firm's failure on the DIF and 
decrease potential risks to financial stability, certain large banking 
organizations could be required to maintain long-term debt at the 
insured depository institution that meets certain specified 
characteristics \11\ in order to (i) absorb losses at a large banking 
organization as it undergoes resolution; (ii) support the viability of 
restructuring options such as the sale of various subsidiaries, branch 
networks, or business lines; or (iii) support a public spin-off of the 
restructured entity upon its emergence from resolution.
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    \11\ Such characteristics would necessarily include an 
appropriate form of subordination. As described in the adopting 
release for the TLAC rule, debt issued by a parent holding company 
is considered structurally subordinated to debt of the parent's 
insured depository institution subsidiary. Debt issued by an insured 
depository institution subsidiary, either externally or internally, 
would generally need to benefit from contractual or statutory 
subordination features in order to reliably serve as loss-absorbing 
capacity in resolution.
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    For these reasons, the agencies are considering the advantages and 
disadvantages of requiring large banking organizations that meet some 
specified categorization threshold to maintain long-term debt capable 
of absorbing losses in resolution.
    Question 1: The agencies invite comment on whether and how a 
requirement to maintain a minimum amount of long-term debt could 
enhance a large banking organization's resolvability. How might long-
term debt be beneficial for improving optionality when conducting the 
resolution of a U.S. large banking organization or its insured 
depository institution? What would be the optimal structure of the 
long-term debt and what other requirements would be necessary to ensure 
that it remains available to utilize in resolution? Which entity in a 
large banking organization's corporate structure would be the ideal 
issuer of long-term debt externally to the market? What would be the 
costs of a long-term debt requirement for large banking organizations 
or their customers? What alternative approaches are available to 
address possible concerns about the resolvability of large banking 
organizations or their insured depository institutions?
    Question 2: The agencies invite comment on alternative approaches 
for determining the appropriate scope of application of a potential 
long-term debt requirement to the population of large banking 
organizations. In particular, what criteria would be relevant to 
determine whether a large banking organization should be subject to the 
requirement? Should all Category II and,

[[Page 64174]]

Category III firms (including SLHCs, which are not subject to 
resolution planning requirements) be subject to a long-term debt 
requirement? Why or why not? What additional factors--for example, the 
presence of significant non-bank operations, critical operations, 
critical services outside the bank chain, cross-border operations, or 
extent of reliance on uninsured deposits--should the agencies consider 
when determining the scope of application of any long-term debt 
requirement to large banking organizations? Given the practical and 
market limitations for selling large insured depository institutions, 
especially during a crisis, what is the appropriate scope of 
application for a loss absorbing debt requirement to expand the range 
of strategies available to the FDIC? How should IDIs that are not part 
of a group under a BHC be considered?
    Question 3: The agencies invite comment on how any new requirements 
should be applied to the U.S. subsidiaries of foreign banking 
organizations. Top-tier U.S. intermediate holding company (IHC) \12\ 
subsidiaries of foreign GSIBs are currently subject to long-term debt 
requirements. To what extent should those top-tier U.S. holding 
companies of foreign firms or their insured depository institutions 
that have a similar risk profile to the domestic large banking 
organizations that might be subject to any long-term debt requirement 
considered in this ANPR, be subject to any new requirements in line 
with those applied to domestic large banking organizations?
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    \12\ 12 CFR 252.153(a).
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    Question 4: The agencies invite comment on the appropriateness of 
recognizing debt issued by various legal entities within a holding 
company structure in determining compliance with any long-term debt 
requirement imposed on the top tier holding company. Specifically, to 
what extent should the Board consider whether a large banking 
organization's resolution strategy is an SPOE or MPOE strategy, whether 
the long-term debt is issued by the parent holding company or the 
insured depository institution, or other factors in determining the 
requirement?
    The current long-term debt calibration for U.S. GSIBs requires that 
firms maintain long-term debt at least equal to the greater of (i) 6% 
of risk-weighted assets, plus a firm-specific surcharge applicable to 
each GSIB or (ii) 4.5% of total leverage exposure. This calibration is 
intended to ensure U.S. GSIBs maintain enough loss-absorbing capacity 
to fully recapitalize material subsidiaries quickly for continuous 
operation. The current long-term debt requirement for intermediate 
holding companies of foreign GSIBs is calibrated at the greater of 6% 
of risk-weighted assets or 2.5% of total leverage exposure.
    Question 5: The agencies invite comment on the appropriate 
calibration of a long-term debt requirement for large banking 
organizations. Should the agencies establish the same calibration as is 
currently in effect for intermediate holding companies of foreign GSIBs 
or establish a different calibration? What are the advantages and 
disadvantages of applying a calibration designed to require sufficient 
resources to recapitalize a large banking organization's subsidiaries 
in the event equity capital is fully depleted, in order to continue 
operations either under an SPOE or MPOE resolution strategy? How should 
the agencies weigh the burden of additional requirements against the 
potential benefit to financial stability? What other factors should the 
agencies consider to calibrate a long-term debt requirement for large 
banking organizations or insured depository institutions that would 
provide sufficient optionality to address material distress or failure 
in a manner that limits risk to financial stability over time? How 
should the agencies consider competitive equality in calibrating any 
long-term debt requirements for large banking organizations relative to 
existing requirements for GSIBs and top tier IHC holding companies of 
foreign banking organizations? What data should be considered to 
support calibration determinations?
    Question 6: The agencies invite comment on the potential effect of 
a long-term debt requirement on large banking organizations in 
different tiering categories (for example, Category II and Category 
III) and on the capacity of these firms to issue such debt into the 
market throughout an economic cycle. What are the potential effects of 
a long-term debt requirement on these firms' funding model and funding 
costs, including any associated effect on market discipline and overall 
firm resiliency? What, if any, are the potential effects of a long-term 
debt requirement on the cost and availability of credit?
    Under the TLAC rule applicable to GSIBs, only debt instruments that 
meet certain requirements \13\ may be included in a GSIB's outstanding 
external TLAC amount. The general purpose of these requirements, 
certain of which are discussed below, is to ensure the ability of 
eligible long-term debt instruments to readily absorb losses in an SPOE 
resolution. The agencies are evaluating whether certain components of 
the eligibility requirements that must be satisfied for long-term debt 
to qualify as ``eligible long-term debt'' under the existing TLAC rule 
that applies to U.S. GSIBs would be relevant to improve the 
resolvability of large banking organizations. These components and 
their applications to GSIBs are listed below:
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    \13\ See 12 CFR 252.61--Eligible debt security.
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1. Issuance by the Top-Tier Holding Company

    To ensure that a debt instrument can be used to absorb losses 
incurred anywhere in the banking organization, the GSIB TLAC rule 
specifies that eligible long-term debt must be issued by the top-tier 
holding company of a banking organization.\14\ Debt externally issued 
by a subsidiary generally is only available to absorb losses in a 
resolution of that particular subsidiary.
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    \14\ In their resolution planning, U.S. GSIBs and U.S. 
intermediate holding companies of foreign GSIBs determine what 
portion of those resources are pre-positioned at various material 
entities, including the insured depository institution, based upon 
their individual methodologies.
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2. Clean Holding Company Requirements

    In addition, the top-tier holding companies of the GSIBs are also 
subject to specified ``clean holding company'' requirements. These 
requirements include prohibitions on issuance of short-term debt to 
external investors and on entry into derivatives and certain other 
types of financial contracts and arrangements that would create 
obstacles to an orderly resolution.
    The agencies are interested in whether these holding company 
requirements can or should be adapted to support the resolution of 
large banking organizations and how to create a layer of gone-concern 
loss-absorbing capacity that can most effectively be used to absorb 
losses in various scenarios.
    In addition, the agencies are interested in whether any of the 
eligibility requirements to be treated as ``eligible long-term debt'' 
under the existing TLAC rule can or should be adapted to support the 
resolution of large banking organizations.
    Question 7: The Board invites comment on the pros and cons of 
permitting eligible long-term debt issued externally by a large banking 
organization's principal insured depository institution subsidiary to 
count toward a requirement at the top-

[[Page 64175]]

tier holding company. In what situations might requiring issuance at 
the holding company level be most beneficial? What range of 
approaches--other than requiring issuance by the top-tier holding 
company--may be available to ensure that eligible long-term debt will 
be available to absorb losses incurred at appropriate legal entities 
within a given large banking organization's corporate group?
    Question 8: The agencies invite comment on whether requirements on 
governance mechanics should be put in place to ensure that entry into 
resolution will occur at a time when the eligible long-term debt will 
be available at the insured depository institution and/or the holding 
company level to absorb losses? Should such requirements include 
whether the loss absorbing capacity can absorb losses incurred at 
appropriate legal entities within a given large banking organization's 
corporate group? To what extent should such mechanics be aligned with 
internal recovery planning frameworks to coordinate resolution 
preparation actions with recovery actions?
    Question 9: The agencies invite comment on whether subjecting the 
operations of the top-tier holding company of large banking 
organizations to ``clean holding company'' limitations similar to the 
ones imposed on GSIBs would further enhance the resolvability of a 
large banking organization. Why or why not?
    Question 10: Among the other requirements that must be satisfied 
under the existing GSIB TLAC rule in order for debt issued by the 
parent company to qualify as eligible long-term debt (for example, 
relating to ``plain vanilla'' characteristics, minimum remaining 
maturity, governing law), which requirements would remain essential in 
order for long-term debt instruments issued by large banking 
organizations to properly function as a loss-absorbing resource in 
resolution? What modifications of such requirements, if any, should the 
agencies consider in the large banking organization context with 
respect to loss absorbing debt at insured depository institutions and/
or holding companies?

Disclosure

    Under the TLAC rule applicable to GSIBs, firms are required to 
provide the LTD debtholders a description of the financial consequences 
that could occur if the GSIB entered into a resolution proceeding as 
well as a summary table of the location of the disclosures (e.g., on 
the GSIB's website, in public financial reports or public regulatory 
reports). Where it is necessary to bail-in the LTD, the value of the 
debtholder's note may be significantly or completely depleted.
    Question 11: The agencies invite comment on the appropriate form 
and content of the disclosure large banking organizations should be 
required to provide to their long-term debt investors with respect to 
the potential treatment of such debt in resolution. If LTD requirements 
are imposed on large banking organizations, what, if any, adaptations 
should be made relative to the disclosure requirements that apply to 
GSIBs?

Separability

    The agencies are also evaluating whether they should, for some or 
all large banking organizations, establish separability requirements in 
the recovery or resolution contexts.
    When a large banking organization encounters internal or external 
stresses or ultimately enters resolution the identification of 
executable ``separability options,'' such as the sale, transfer, or 
disposal of significant assets, portfolios, legal entities or business 
lines on a discrete product line or regional basis could provide 
alternatives to a wholesale acquisition of a large banking 
organization's operations by a larger institution such as an existing 
GSIB.
    Question 12: Should the agencies impose any separability 
requirements for recovery or resolution on all large banking 
organizations, including GSIBs? To what extent would imposing new 
separability requirements add net benefits against the backdrop of 
other existing requirements? In what fashion can or should these 
requirements be harmonized to promote their effectiveness?

    By order of the Board of Governors of the Federal Reserve 
System.
Michele Taylor Fennell,
Deputy Associate Secretary of the Board.
Federal Deposit Insurance Corporation.

    By order of the Board of Directors.
    Dated at Washington, DC, on October 18, 2022.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2022-23003 Filed 10-21-22; 8:45 am]
BILLING CODE 6210-01-P