Final Tailoring Rules
The Federal Reserve Board (FRB), Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) approved two final rules that together establish a framework to tailor prudential standards and capital and liquidity requirements for large domestic banking organizations (including non-insurance, non-commercial savings and loan holding companies (SLHCs) with $100 billion or more in total consolidated assets) and foreign banking organizations (FBOs) based on multiple factors of risk and complexity, including asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure.
The two final rules, collectively the Tailoring Rules, are comprised of:
Except for the following key changes, the structure of the proposed framework, including the calibration and calculation of the thresholds and risk-based indicators for determining each category as well as the enhanced prudential standards and capital and liquidity requirements, remains largely unchanged.
U.S. BHCs, covered U.S. SLHCs, and U.S. IHCs must determine the category of standards that applies to them on the effective date of the Tailoring Rules using data from the FR Y-15 and FR Y-9LP reports as of March 31, 2019; June 30, 2019; September 30, 2019, and December 31, 2019. Certain specific requirements are identified for U.S. IHCs.
FBOs will be required to determine the category of standards that applies to their combined U.S. operations on the submission date of the FR Y-15 following the June 30, 2020 as-of date. As such, FBOs will be required to comply with the category standards applied to their U.S. operations beginning October 1, 2020.
Final resolution planning requirement
The FRB and the FDIC adopted a joint final rule that amends their resolution planning requirements. The final rule is largely unchanged from the agencies’ proposed rule in terms of scope of application, filing frequency, and plan content (please refer to KPMG’s earlier Regulatory Alert here for a more detailed outline of these requirements) but does contain certain modifications.
Requirements for covered companies’ initial resolution plans will be determined based on their categorization under the Tailoring Rules on October 1, 2020 as follows:
|Standards category||Size or risk indicators||Content and frequency||Initial filing date|
|Category I||G-SIB||Biennial filer – Resolution plan to be filed every two years, alternating between a “full” plan and a “targeted” plan, beginning with a targeted plan||July 1, 2021|
|Category II and III||
Domestic firms and
|Triennial full filer - Resolution plan to be filed every three years, alternating between a “full” plan and a “targeted” plan, beginning with a targeted plan (originally proposed to be a full plan)||July 1, 2021|
|Other FBOs – ≥250b global consolidated assets that are not subject to Category II or Category III||Triennial reduced filer – “Reduced” resolution plan to be filed every three years||July 1, 2022|
The agencies clarify that a firm’s total consolidated assets are determined on the basis of total consolidated assets as reported on each of its four most recent quarterly reports or two most recent annual reports.
The agencies individually addressed the requirements for firms that would have been required to file a resolution plan in 2019 or 2020 by extending the due date or limiting required submissions, as appropriate.
Proposed amendments to the assessment of fees
The FRB separately approved a proposed rule that would amend its Regulation TT (Supervision and Regulation Assessments of Fees) to:
Comments will be accepted by the FRB through December 9, 2019.
The Tailoring Rules do not modify regulatory capital or liquidity requirements for firms subject to Category I and II standards. Similarly, Category I firms will continue to submit resolution plans every two years, as they have been recently required to do. The agencies emphasize that the final rules retain the most stringent requirements for the largest and most complex firms while imposing less burden on firms that pose less risk.
FBOs must consider the potential outcome that the use of the risk indicators, including cross-jurisdictional activity, nonbank assets, wSTWF, and off-balance exposures, could result in assignments to different standards categories for the determination of their separate prudential, capital, and liquidity requirements and may also be different than the category that would have been assigned if based solely on asset size.
With regard to the resolution planning requirements, the intent to reduce burden both on filers and regulators will need to be met with well-documented and automated processes in order to maintain continuity of knowledge and processes between the extended filing periods. As such, it is vital that resolution plan filers maintain detailed policies and procedures covering this process as well as integrate the effort with other operational processes.