BPI Responds to FDIC Resolution and Assessments Proposals

Washington, D.C. - The Bank Policy Institute filed two comment letters today on pending Federal Deposit Insurance Corporation proposals. The assessments proposal would revise deposit insurance assessment rates, which is appropriate in light of the overall balance and trajectory of the deposit insurance fund, and would create a new adjustment to assessment rates for banks that demonstrate certain resolution-related capabilities. The proposed approach to the "resolution readiness adjustment" raises potential cybersecurity and privacy issues. The resolution proposal would resolve many of the significant flaws in the current methodology by focusing attention and resources on the most useful information the FDIC needs to carry out a rapid resolution.

"We support the FDIC's work to improve its processes for executing its statutory mission: insuring deposits and resolving failed banks. While we support the FDIC's goal of preparing to receive timely access to accurate and relevant information, we are concerned that aspects of the proposed approach would put banks' cybersecurity and data at risk. The details of both proposals are important, and we look forward to engaging with the FDIC on how it can get the information it needs to resolve banks without creating new risks or inefficiencies for the banking system." - Tabitha Edgens, BPI Executive Vice President and Co-Head of Regulatory Affairs

Assessments. BPI's comments on the FDIC's assessments proposal expressed significant concerns about the approach for evaluating resolution readiness. The FDIC funds its Deposit Insurance Fund, which helps absorb the costs of bank failures, by charging banks assessments, similar to insurance premiums.

• This recent proposal would reduce deposit insurance assessment rate schedules across the board and establish a resolution readiness adjustment - a measure that lowers fees for banks if they demonstrate preparedness for an orderly wind-down. BPI expressed support for the decrease in assessment rate schedules, which is warranted considering the DIF's robust position.

• However, BPI expressed significant concern about the resolution readiness adjustment. This measure, which would reward banks for participating in testing exercises that involve granting the FDIC access to bank systems, could present major cybersecurity and data privacy risks.

Key Recommendations. Among other changes to clarify and improve the proposed RRA, BPI recommended the following:

1. The proposed data access component of the RRA, which poses cybersecurity and privacy risks, should not be adopted. Banks, particularly larger banks, can demonstrate their resolution preparedness through other mechanisms.

1. The "virtual data room" part of the RRA duplicates statutory requirements that apply to large banks' holding companies. Therefore, those banks should not be required to undergo a separate, duplicative FDIC test applied to their insured bank subsidiary.

1. The virtual data room testing component should be revised to improve security, including by allowing banks to host the testing on their own platforms. The proposed requirement, designed to test how quickly a bank can provide information to market itself in a failure, would pose heightened security and privacy risks if information is sent to external platforms rather than housed on bank systems.

Resolution. BPI's letter welcomed proposed revisions to the FDIC's resolution requirements. This proposal aims to streamline and rationalize the resolution planning rule for insured depository institutions, focusing on information that would improve the FDIC's ability to market and resolve a failed bank.

Notable Changes. The proposal would make several sensible changes, such as:

• Increasing the threshold for applicability of the rule from $50 billion to $100 billion and indexing the threshold to inflation.

• Streamlining the content requirements and removing requirements to engage in hypothetical resolution-related analysis.

Recommended Improvements. While the proposal would resolve many pressing issues with the current rule, certain issues would remain, and some proposed additions to the content requirement are overly broad or unclear. The letter recommends additional improvements, such as:

• The FDIC should exempt the IDI subsidiaries of Title I plan filers from the additional obligation to file a separate, uncoordinated resolution submission under the IDI Rule.
• The FDIC should further refine several content requirements that would not significantly enhance the resolvability of a covered bank and whose costs would outweigh their benefits.

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About Bank Policy Institute

The Bank Policy Institute is a nonpartisan public policy, research and advocacy group that represents universal banks, regional banks and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud and other information security issues.

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Bank Policy Institute
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