Getting Down to Brass Tacks: Required Disclosures under the Dodd-Frank Act’s Resolution Authority Provisions
Section 165(d) of the Dodd-Frank Act lays out certain reporting requirements for nonbank financial companies supervised by the Federal Reserve Board (“the Board”) and for bank holding companies with assets of $50 billion or more (including certain foreign banks). These entities will be required to report periodically to the Board, the FDIC, and the Financial Stability Oversight Council (“the Council”) the following information: (i) their plan for a rapid and orderly resolution in the event of their material financial distress or failure; and (ii) the nature and extent of their credit exposures to other significant financial companies.
Timing. The proposed rules issued by the Board and FDIC on April 12, 2011, spell out the minimum disclosures a company must include in its resolution plan. That plan must be submitted within 180 days after the final rule’s effective date, and at least annually thereafter.
Outline. The resolution plan must include:
- An executive summary;
- A strategic analysis of the plan’s components;
- A description of the company’s corporate governance structure for resolution planning;
- Information regarding the company’s overall organizational structure and related information;
- Information regarding the company’s management information systems;
- A description of interconnections and interdependencies among the company and its material entities; and
- Supervisory and regulatory information.
Strategic Analysis. The strategic analysis should describe how the company could be resolved under the Bankruptcy Code. It should include the analytical support for the plan, its key assumptions, including any assumptions concerning then-existing economic or financial conditions. The strategic analysis must also identify the range of specific actions to be taken to facilitate a rapid and orderly resolution of the company, its material entities, critical operations, and core business lines. Funding, liquidity, support functions, and other resources (including capital resources) should be identified and mapped. The analytical mapping of the core business lines and critical operations should demonstrate how those business lines and operations could be resolved and transferred to potential acquirers.
Corporate Governance. The description of the company’s corporate governance structure for resolution planning should include information regarding how resolution planning is integrated into the company’s corporate governance structure and processes. It should also identify the senior management official responsible for overseeing the development, maintenance, implementation, and filing of the resolution plan and for compliance with the rule.
Overall Organization. The description of the company’s overall organization(s) and structure should include an unconsolidated balance sheet for the company and a consolidating schedule for all entities subject to consolidation. The resolution plan should include information regarding material assets, liabilities, derivatives, hedges, capital and funding sources, and major counterparties.
Credit Exposure Report. The proposed rule requires each company to submit to the Board and the FDIC a Credit Exposure Report on a quarterly basis. Because the precise data to be included in the Credit Exposure Report will overlap with other Dodd-Frank provisions, the Board and FDIC anticipate issuing a proposal providing further details, and requesting comment, later.
The proposed rule also contains provisions for the review and resubmission of inadequate resolution plans.
Comments should be submitted on or before June 10, 2011. View the text of the proposed rule here.