Letter to the FDIC and Fed on the Resolution-Related Resource Requirements ANPR

Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Attention: Ann E. Misback, Secretary

Federal Deposit Insurance Corporation
550 17th Street NW
Washington, DC 20429
Attention: James P. Sheesley,
Assistant Executive Secretary

Dear Ms. Misback and Mr. Sheesley:

The American Bankers Association (ABA) is pleased to submit our response to the Advance Notice of Proposed Rulemaking (ANPR) issued by the Board of Governors of the Federal Reserve System (Board) and the Federal Deposit Insurance Corporation (FDIC, and together with the Board, the Agencies) concerning resolution resource requirements for certain large banking organizations. The ANPR raises a number of questions concerning potential new requirements that would be imposed on "large banking organizations" that are not "global systemically important banking organizations" (G-SIBs). Specifically, the questions raised in the ANPR concern domestic large banking organizations in Categories II and III under the Board’s tiering framework for enhanced prudential standards, and which generally exceed a threshold of $250 billion in total consolidated assets.

ABA has long acknowledged that the financial crisis of 2007-2008 made clear the need for effective resolution strategies and techniques, both to maintain financial stability generally and to minimize the cost of bank failures to bank customers, public, and the Deposit Insurance Fund.

We are also aware of the great progress in assuring financial stability that has occurred in the years since, both to reduce the likelihood of failure, e.g., strengthened capital and liquidity requirements, and to limit the damage and cost of failures that occur, e.g., comprehensive resolution planning for the largest banking organizations. In light of that progress and the strong capital and liquidity positions that non-G-SIB LBOs have achieved and maintained since the financial crisis, ABA is concerned that adding additional resolution measures, including an extra layer of loss-absorbing capacity (which is akin to an extra layer of capital), will not result in meaningful, cost-effective benefits to the financial system or the public. Moreover, it is unclear how the possible additional measures that the ANPR contemplates will improve on the well-developed resolution plans that non-G-SIB LBOs have developed in close coordination with (and with the approval of) the Agencies. In addition, as discussed in detail below, the Agencies have long recognized that non-G-SIB LBOs do not present systemic risk. It follows that resolution techniques and resources for these institutions are different from those that may be appropriate for G-SIBs.

Finally, ABA notes that the historical regulatory record indicates the Agencies have adopted all of the needed prudential tools to ensure the safety, soundness, and resolvability of banks as required under the Dodd-Frank Act. In 2018 Congress directed the Agencies to review their post crisis enhanced regulations under the Dodd-Frank Act to tailor them appropriately, based on institution size and complexity. The Agencies have implemented a tailoring framework finalized in 2019 that addresses growth if certain asset thresholds are crossed, and the Agencies should let that framework work as intended. The Agencies must demonstrate that any additional actions along the lines suggested in the ANPR would be appropriately tailored according to Congressional direction. Consistent with the Agencies' statutory obligation to tailor regulations to the relevant risks and also as required by broader principles of administrative law, the Agencies need to demonstrate the benefits of imposing additional resolution resource requirements on non-G-SIB LBOs and how these benefits outweigh costs.

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