The Federal Deposit Insurance Corp. (FDIC) took aim at the nation's largest banks with the issuance of a new final rule and the proposal of a new rule aimed at determining the financial health of the mega-institutions.
The FDIC approved a final rule requiring an insured depository institution with $50 billion or more in total assets to submit to the FDIC periodic contingency plans for resolution in the event of the institution's failure. According to the regulatory agency, these resolution plans will inform the FDIC's ability, as receiver, to resolve the institution in a manner that ensures that depositors receive access to their insured deposits within one business day of the institution's failure – or two business days if the failure occurs on a day other than a Friday.
The final rule, adopted by the FDIC's board of directors under the Federal Deposit Insurance Act, is a complement to separate joint rulemaking with the Federal Reserve that the FDIC Board approved in September 2011 under Section 165(d) of the Dodd-Frank Act. Currently, 37 FDIC-insured depository institutions are covered by the final rule. Those institutions held approximately $4.14 trillion in insured deposits, or nearly 61% of all insured deposits, as of Sept. 30, 2011.
Separately, the FDIC approved a notice of proposed rulemaking (NPR) that would require certain large insured depository institutions to conduct annual capital-adequacy stress tests. The proposal, to implement Section 165(i)(2) of the Dodd-Frank Act, would apply to FDIC-insured state nonmember banks and FDIC-insured state-chartered savings associations with total consolidated assets of more than $10 billion. The FDIC regulated 23 state nonmember banks with total assets of more than $10 billion as of Sept. 30, 2011.
The FDIC says that the stress tests would provide forward-looking information that would assist the regulatory agency in assessing the capital adequacy of the banks covered by the rule. The banks that would be required to conduct the stress tests also are expected to benefit from improved internal assessments of capital adequacy and overall capital planning.
The NPR defines ‘stress test’ as a process to assess the potential impact of economic and financial conditions on the consolidated earnings, losses and capital of the bank over a set planning horizon, taking into account the current condition of the bank and its risks, exposures, strategies and activities. The NPR describes the content of the reports institutions are required to publish, as well as the time line for conducting the stress tests and producing the required reports.
‘Both the FDIC and the institutions being tested will benefit from the forward-looking results that the stress tests will provide,’ says FDIC Acting Chairman Martin J. Gruenberg. ‘The results will assist in ensuring an institution's financial stability by helping determine whether it has sufficient capital levels to withstand a period of economic stress.’
The FDIC's proposal will be published in the Federal Register with a 60-day public comment period.