Photographer: John Taggart/Bloomberg

Wall Street Banks Must Map Out New Strategies to Dodge Failure

Updated on
  • OCC to require plans on how lenders would survive a crisis
  • Plans due next year would be in addition to living wills

The same big U.S. banks that have been required to plot their hypothetical failures for years will now have to submit formal plans that show how they’d avoid ever reaching that level of catastrophe.

“Recent large-scale events, such as destructive cyber attacks, demonstrate the need for institutions to plan how to respond,” the Office of the Comptroller of the Currency said in industry guidelines published Thursday. The document highlights how the 2008 financial crisis forced many banks to take “significant actions quickly without the benefit of a well-developed plan.”

The Federal Reserve set the stage in 2014 with a similar recovery-planning system for eight of the biggest bank holding companies, but that agency has been more focused on lenders so-called living wills -- the documents that set out how lenders could be safely resurrected in a bankruptcy. The Fed and Federal Deposit Insurance Corp. have to manage the banks’ living wills, which were required by the Dodd-Frank Act.

By July 1, banks with more than $750 billion in assets must meet the OCC’s new mandate to produce blueprints for how they’d withstand a crisis and maintain their businesses without failing, and management will have to update them every year. Banks with assets between $100 billion and $750 billion would have to produce recovery plans by the end of 2017 and banks with less than $100 million assets have until the middle of 2018.

Banks will be subject to enforcement actions if the OCC isn’t satisfied with their plans. While writing the documents will involve a lot of costly work for more than two dozen firms, the submissions aren’t expected to rival the thousands of pages filed in the industry’s living wills.

“The OCC does not have any expectations regarding a plan’s length or detail, nor does it expect that recovery plans will mirror the length or detail of resolution plans,” the agency said. Each will include a detailed overview of the bank’s structure, an identification of what might trigger its vulnerabilities and a range of “credible options” for coming back from the brink.

The American Bankers Association said in a February letter to the agency that the initial proposal “would require significant effort to consolidate and synthesize the information that is already developed as part of other routines.” Other commentators said it’s difficult for banks and their regulators to predict disasters that will cause them to fail, the OCC said.

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