OCC Guidelines Establishing Standards for Recovery Planning by Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches

<RULE> DEPARTMENT OF THE TREASURY <SUBAGY>Office of the Comptroller of the Currency</SUBAGY> <CFR>12 CFR Part 30</CFR> <DEPDOC>[Docket ID OCC-2024-0008]</DEPDOC> <RIN>RIN 1557-AF27</RIN> <SUBJECT>OCC Guidelines Establishing Standards for Recovery Planning by Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Office of the Comptroller of the Currency, Treasury. <HD SOURCE="HED">ACTION:</HD> Final guidelines. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Office of the Comptroller of the Currency is amending its enforceable recovery planning guidelines to apply them to insured national banks, insured Federal savings associations, and insured Federal branches of foreign banks with average total consolidated assets of $100 billion or more; incorporate a testing standard; and clarify the role of non-financial (including operational and strategic) risk in recovery planning. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> The final guidelines are effective on January 1, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Kimberly Jameson, Lead Expert, Market Risk, (202) 322-8527; Andra Shuster, Senior Counsel, Karen McSweeney, Special Counsel, or Priscilla Benner, Counsel, Chief Counsel's Office, (202) 649-5490; 400 7th Street SW, Washington, DC 20219. If you are deaf or hard of hearing or have a speech disability, please dial 7-1-1 to access telecommunications relay services. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> Large-scale financial crises have demonstrated the destabilizing effect that severe stress can have on financial entities, capital markets, the Federal banking system, and the U.S. and global economies. This is particularly true when a crisis places severe stress on large, complex financial institutions due to the systemic and contagion risks that they pose. For example, during the 2008 crisis, the Office of the Comptroller of the Currency (OCC) observed that many financial institutions were not prepared to respond effectively to the financial effects of severe stress. The lack of or inadequate planning threatened the viability of some financial institutions, and many were forced to take significant actions without the benefit of a well-developed plan for recovery. For the OCC, this experience highlighted the importance of large, complex banks having strong risk governance frameworks, including plans for how to respond quickly and effectively to, and recover from, the financial effects of severe stress. The agency recognized that this type of advance planning would reduce a bank's risk of failure and increase the likelihood that it would return to a position of financial strength and viability following severe stress. On September 29, 2016, the OCC issued Guidelines Establishing Standards for Recovery Planning by Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches (Guidelines). <SU>1</SU> <FTREF/> Under the Guidelines, an insured national bank, insured Federal savings association, or insured Federal branch (bank) subject to the standards (covered bank) should have a recovery plan that includes (1) quantitative or qualitative indicators of the risk or existence of severe stress that reflect its particular vulnerabilities; (2) a wide range of credible options that it could undertake in response to the stress to restore its financial strength and viability; and (3) an assessment and description of how these options would affect it. The Guidelines provide that a recovery plan should also address (1) the covered bank's overall organizational and legal entity structure and its interconnections and interdependencies; (2) procedures for escalating decision-making to senior management or the board of directors or an appropriate committee thereof (board); (3) management reports; (4) communication procedures; and (5) any other information the OCC communicates in writing. The Guidelines also set forth the responsibilities of management and the board with respect to the covered bank's recovery plan. <FTNT> <SU>1</SU>  81 FR 66791. The Guidelines are codified at 12 CFR part 30, appendix E. They were issued pursuant to section 39 of the Federal Deposit Insurance Act, 12 U.S.C. 1831p-1, which authorizes the OCC to prescribe enforceable safety and soundness standards. </FTNT> The 2016 Guidelines applied to banks with total consolidated assets of $50 billion or more. In 2018, the OCC amended the Guidelines to raise the threshold to $250 billion based on its view, at that time, that these larger, more complex, and potentially more interconnected banks presented greater systemic risk to the financial system and would benefit most from recovery planning. <SU>2</SU> <FTREF/> <FTNT> <SU>2</SU>  83 FR 66604 (Dec. 27, 2018). </FTNT> In March 2023, several insured depository institutions (IDIs) with total consolidated assets of $100 billion or more experienced significant withdrawals of uninsured deposits in response to underlying weaknesses in their financial position and failed. These events highlighted the risk, complexity, and interconnectedness of banks with average total consolidated assets between $100 billion and $250 billion and underscored that it is important for banks in this size range (which are not covered by the current Guidelines) to develop and maintain recovery plans to respond to the financial effects of severe stress. In addition, since the issuance of the Guidelines in 2016, the agency has examined covered banks' recovery planning processes and reviewed numerous recovery plans. Based on this experience, the OCC has identified areas where the current Guidelines should be strengthened. To address these issues, on July 3, 2024, the OCC published a proposal to expand the Guidelines to apply to banks with average total consolidated assets of $100 billion or more; incorporate a testing standard; and clarify the role of non-financial (including operational and strategic) risk in recovery planning. <SU>3</SU> <FTREF/> The OCC received five comments on the proposal. Two comments were from banks, one was from an individual, one was from two trade associations, and one was from a non-profit organization. <SU>4</SU> <FTREF/> These comments are addressed in detail in the next section. <FTNT> <SU>3</SU>  89 FR 55114. </FTNT> <FTNT> <SU>4</SU>  The OCC also received a comment letter from three trade associations requesting that the agency extend the comment period by 30 days. The OCC denied this request on July 25, 2024. <E T="03">https://www.regulations.gov/document/OCC-2024-0008-0004.</E> </FTNT> <HD SOURCE="HD1">II. Description of the Proposal, Comments, and Final Guidelines</HD> <HD SOURCE="HD2">A. Covered Bank Threshold</HD> <E T="03">Definition of covered bank.</E> The current Guidelines generally apply to banks with average total consolidated assets of $250 billion or more. Based on the OCC's observations during the IDI failures in 2023, the agency proposed to expand the Guidelines to apply to banks with average total consolidated assets of $100 billion or more. <SU>5</SU> <FTREF/> To make this change, the OCC proposed to revise the definition of “covered bank” in paragraph I.E.3. of the current Guidelines. <FTNT> <SU>5</SU>  In addition, the Federal Deposit Insurance Corporation (FDIC) recently amended its resolution planning rule to require covered IDIs with $100 billion or more in total assets to submit comprehensive resolution plans. 89 FR 56620 (July 9, 2024). </FTNT> The OCC received several comments on this proposed change. While one commenter supported the proposed $100 billion threshold, another commenter suggested a $150 billion threshold. Commenters also recommended that the OCC include metrics in addition to asset size in its definition of covered bank, periodically adjust the threshold for inflation, notify covered banks when they become subject to the Guidelines, and tailor the Guidelines based on covered banks' size and complexity. The OCC continues to believe that the $100 billion threshold is appropriate. As noted above, the agency has observed that banks at or above this size generally have a level of risk, complexity, and interconnectedness at which recovery planning is most beneficial. Narrowing the threshold to $150 billion would exclude some of these banks. With respect to additional metrics, the reservation of authority in paragraph I.C. of the Guidelines provides the OCC with sufficient flexibility to determine, based on factors other than asset size, that a bank is highly complex or otherwise presents a heightened risk and, thus, should be subject to the Guidelines. <SU>6</SU> <FTREF/> <FTNT> <SU>6</SU>  The OCC also has authority to determine that a covered bank is no longer highly complex or no longer presents a heightened risk and thus should not be subject to the Guidelines. </FTNT> Regarding an inflation adjustment, the OCC has determined that it does not need to include this provision in the Guidelines, as the agency can revisit and amend the threshold through the rulemaking process as appropriate. The OCC has also concluded that it is not necessary to notify a bank when it becomes a covered bank because this is determined based on a bank's own Consolidated Reports of Condition and Income (Call Report) data. <SU>7</SU> <FTREF/> Finally, the current Guidelines specifically state that each covered bank's recovery plan should be “appropriate for its individual size, risk profile, activities, and complexity,” and thus, they are inherently tailored. <SU>8</SU> <FTREF/> <FTNT> <SU>7</SU>  For banks that become subject to the Guidelines through the OCC's reservation of authority, the agency has alre ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 53k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━