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The Road Ahead: An Overview of the Final IDI Requirements

Learn about the FDIC’s final IDI rule and how your Group A or Group B IDI can meet the requirements.
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On June 20, 2024, the FDIC approved in a 3 to 2 vote the revised 12 CFR 360.10. While there are some notable changes in the final rule versus the proposed rule, the scope of the proposed rule remains largely intact and will impact insured depository institutions (IDI) greater than $50 billion. In addition, the requirement for an IDI to demonstrate capabilities to execute on a resolution strategy in support of prong two of the credibility standard is also largely unchanged. The final rule will go into effect on October 1, 2024, and IDIs have started to be notified by the FDIC on what the required date of their first full filing will be.

Notable Changes From the Proposal

There were a few changes to the final rule where IDIs can expect some relief. The first is that Group A (IDIs with greater than $100 billion in assets) non-U.S. G-SIB filers will only be required to complete a full filing every three years with supplemental filings required during interim periods. Similarly, Group B IDIs (those with assets between $50 to $100 billion) will submit an informational filing every three years with supplemental filings during interim periods. This change allows for better engagement and feedback between the FDIC and the IDI, and also aligns with the filing requirements in Section 165(d) of the Dodd-Frank Act.

Another area of significant change is related to demonstration of franchise separability. In the proposed rule, Group A IDIs need to demonstrate separability of their franchise components to support their resolution strategy. This would require IDIs to test and evidence these capabilities likely through the development of playbooks detailing how they could carve out each franchise component. The final rule requires that IDIs only identify franchise components that are currently separable. This change may be the FDIC’s way of showing some understanding of the herculean effort involved in breaking an IDI down to the ultimate franchise component level. Given this level of granularity was not required previously, organizations will still need time to develop the capabilities necessary to drill down to the franchise component level.

The FDIC has also introduced the concept of a “significant finding,” which is an adoption of practices from the Federal Reserve Board’s evaluation and feedback of Dodd-Frank §165(d) plans. This new finding will be more severe than that of an informal observation, but it will not have the immediate effect of a material weakness. Although, significant findings can be upgraded to a material weakness if not remediated. This new category of finding is to better help delineate which deficiencies warrant more immediate attention for remediation.

What Remains

Both Group A and Group B IDIs have the same requirements for prong two of the credibility standard. The nuance is that Group A IDIs, which are those with assets greater than $100 billion, will need to both design and demonstrate capabilities to execute a multi-acquirer resolution strategy under a wide range of scenarios. Group B IDIs will only have requirements to demonstrate the operational elements, such as deposit structure, forecast, and service continuity requirement capabilities. However, the build-out of these capabilities is the bulk of the effort for implementation. In other words, the impact to Group B IDIs remains just as significant.

A Single Standard Emerges

While there are differences between what is required for Group A and Group B, what remains consistent for both groups is the FDIC’s move from “tell me how” to “show me how,” with significant emphasis on being able to react effectively to a range of different scenarios and assumptions. This is consistent with having to navigate deteriorating market conditions.

Below is a summary of the final IDI rule. As mentioned previously, Group B IDIs are still responsible for all deposit structure, forecast, and service continuity requirements (although Group B IDIs aren’t on the hook for all the strategy capabilities like Group A IDIs).

IDI Final Rule Requirements Summary

Group A Group B
Strategy Executive Summary Requirement A public executive summary describing the resolution’s plan key elements is required. This includes concepts newly introduced in the rule such as strategy, franchise component overview, material changes, and/or actions taken to improve resolvability since the last plan. Required Not Required
Resolution Strategy Banks must select a resolution strategy that ensures timely access to insured deposits, maximizing value of assets, minimizing losses, and addressing potential risks of adverse effects on U.S. economic conditions. This strategy must contemplate a multi-acquirer sale, which takes place outside of a resolution weekend. Required Not Required
Failure Scenario A forecast that includes a severely adverse scenario and/or lack of market confidence in the financial condition of the CIDI. Required Not Required
Franchise Component (FC) Valuation The IDI must be broken apart into a FC, e.g., a business segment, regional branch network, major asset, or asset pool, that can be separated, valued, and marketed in a timely manner. Each FC must have several pieces of information, e.g., financial metrics, assumptions, valuation support, that can be populated to a virtual data room. Required Not Required
Deposit Structure Key Depositor Information Banks must have the criteria established to identify "key depositors" (whether in one account or in multiple accounts whose balances represent a material threshold to the core business lines). Key pieces of information required include name, geography, line of business where their assets are held, key characteristics, e.g., insured/uninsured, retail, commercial, domestic/foreign, and mapping to core business lines, among others. Required Required
Forecast, Governance, & Infrastructure Liquidity Dynamic liquidity need calculation and timely reporting capabilities are required to evaluate the funding, liquidity, and capital needs for material entities. A description of the current reporting capabilities and associated timelines must be included in the submission. Required Required
Capital Firms should demonstrate a deep understanding of their sources and potential uses of capital to provide stability in a resolution scenario. This should include a full balance sheet review of unsecured non-deposit liabilities and a determination of disposition for each potential source of capital. Required Required
Infrastructure Forecast infrastructure must be flexible and dynamic to multiple changes for assumptions and scenarios. Required Required
Governance The final rule requires a rigorous BAU governance process to be in place to support the ongoing submissions. A description of these governing processes and controls and the associated senior management owner need to be included in the plan. Required Required
Service Continuity Service Catalog The final rule made explicit the requirement to demonstrate capabilities to ensure continuity of critical services while in resolution. The basis of this is typically a comprehensive service catalog that defines all resolution critical services, identifies the legal entity owner(s), and is utilized in populating service-level agreements. The methodology used to determine critical services must be provided in the plan. Required Required
Interdependency Mapping The final rule requires critical services to be mapped to material entities that provide those services directly or indirectly through third parties, material entities, core business lines, and franchise components (if applicable) supported by those critical services. Required Required
Contracts The final rule requires the bank to provide information about its process to collect and monitor the contractual terms governing critical services. This typically includes inventorying all contracts in the firm (including financial market utilities (FMUs) and exchanges), noting where the contracts contain resolution critical terms, and producing a list of resolution critical contracts and terms in a timely manner, i.e., usually within 48 to 72 hours. Required Required
Service Level Agreements For resolution-critical services provided internally, service level agreements must be timely established and reported. Service level agreements should define arm’s length pricing, performance measures, service continuity contractual terms, and legal entities party to the agreement. Required Required
Key Personnel The bank must identify personnel who are key to resolution with timely reporting capabilities that allow the list to be refreshed in a stress event, i.e., likely within 48 to 72 hours. Required Required
Management Information Systems The bank must maintain a list of key systems, applications, and reports critical to resolution planning. This list should include physical location, description, and personnel required to operate (among others). Required Required
Other Capabilities Virtual Data Room Banks must establish the capability to populate a virtual data room where information can be posted in a timely manner, i.e., likely within 48 to 72 hours, for potential bidders upon resolution. Financial statements, key depositor data, material contracts, and critical services information must be available for the virtual data room (among others). Required Required
Capabilities Testing Capabilities testing may be required, at the discretion of the FDIC. The bank should be prepared to provide the information, data, and analysis underlying the full resolution submission on a timely basis and be prepared to conduct their own testing and tabletop exercises at least annually for each capability to ensure preparedness. Required Required
Material Entity Designation The IDI must provide details of the methodology used to identify material entities. It should include quantitative measure, e.g., percent of assets, revenue, and non-quantitative measures e.g., interdependencies. Required Required

Demonstrated Preparedness for Tomorrow

While there was some relief granted in the final rule, the spirit of the proposal remains and organizations will need to demonstrate enhanced capabilities in all areas critical to resolution planning. In addition, relief granted for franchise separability will likely be short-lived, as there may be an implicit expectation that IDIs continue to mature their capabilities to eventually allow for separability at the ultimate franchise component level. Whether your organization is a Group A or Group B IDI, meeting the final IDI rule will require significant investment in resources and technology to meet both the expected increase in operational capabilities and the more aggressive regulatory engagement timeline. For more information or assistance, please reach out to a professional at Forvis Mazars.

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