## UNITED STATES: Financial Crisis Preparedness and Deposit Insurance (July 27, 2020)

## Source details

**Canonical URL:** [UNITED STATES: Financial Crisis Preparedness and Deposit Insurance (July 27, 2020)](https://www.imf.org/-/media/files/publications/cr/2020/english/1usaea2020005.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2020/english/1usaea2020005.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2020/english/1usaea2020005.pdf.json)

---

### Executive summary — key findings
- U.S. resolution regime and DIS provide a strong foundation for crisis preparedness; after a decade of resolution planning the regime is more advanced than in other major economies.
- RRP under DFA Title I has materially improved the resiliency and resolvability of the largest and most complex BHCs; OLA and the OLF remain important backstops under DFA Title II.
- Deposit insurance by the FDIC is an effective tool to limit damage from IDI failures; P&A transactions typically provide access to insured—and often uninsured—deposits within one business day.
- DIF status at end-2019:
  - DIF balance: US$110 billion
  - Reserve ratio: 1.41 percent of insured deposits
  - Public backstops: over US$200 billion
- Regulatory changes since 2015 reduced RRP coverage and frequency:
  - EGRRCPA raised mandatory Title I threshold from US$50 billion to US$250 billion; FRB discretion applied to BHCs with assets between US$100 billion and US$250 billion.
  - 2019 rule changes: 74 financial companies subject to resolution planning follow longer two- or three-year cycles, alternating full and targeted plans or reduced plans.
  - FRB recovery planning requirements continue to apply to only the eight U.S. GSIBs.
- Key policy considerations:
  - FBAs should actively use discretion to keep a wider array of firms subject to recovery and resolution planning and ensure complementarity between recovery and resolution plans.
  - Consider LAC additional to regular capital requirements for some non-GSIB U.S. financial companies to improve resolvability and reduce DIF exposure.
  - Cross-border resolution gaps warrant attention: OLA does not cover FBOs’ U.S. branches; no specific statutory mechanism exists to give prompt legal effect to foreign resolution measures in the United States; depositor preference rules discriminate by jurisdiction where deposits are payable.

### Background, scope, and standards
- Note sets out analysis and detailed recommendations of the 2020 FSAP; mission conducted February–March 2020; analysis based on regimes and practices as of March 10, 2020.
- Focus: large financial companies, IDIs, and the largest credit unions.
- International standards informing analysis: Key Attributes of Effective Resolution Regimes for Financial Institutions (KAs) and Core Principles for Effective Deposit Insurance Systems (CPs).

### Domestic organization, statutory framework, and roles
- Statutory pillars:
  - DFA is particularly relevant for certain large BHCs.
  - FDI Act applies to IDIs and is the only statutory basis for IDI resolution.
  - International Banking Act (IBA) applies to federally licensed U.S. branches of FBOs; state banking laws apply for state-licensed branches.
- Treasury Secretary’s decision role (selected):
  - Orderly Liquidation Authority: Secretary decides to make OLA available to the FDIC, in consultation with the U.S. President, on a recommendation of two-thirds of the members of both the FRB and the FDIC Board (or, in certain cases, the SEC or FIO).
  - Orderly Liquidation Fund: Secretary decides whether to acquire any FDIC obligations issued under the OLF and, jointly with the FDIC and in consultation with the FSOC, sets the maximum amount for these OLF obligations.
  - FDIC guarantees and systemic risk exception: Secretary approves determinations and actions described in the DFA and the FDI Act and consults with the U.S. President and Congress as required.
- Interagency roles:
  - FDIC, FRB, and OCC are the three FBAs; FSOC is a collaborative body under UST chairmanship with a small staff of 14 and five committees including a “regulation and resolution” committee.

### Firms’ resiliency, recoverability, and resolvability
- RRP effects and coverage:
  - DFA Title I “living wills” and related RRP have led firms to reconfigure structures and assess business decisions through a “resolution lens.”
  - Recent reductions in RRP requirements (EGRRCPA and 2019 rule changes) reduced frequency/coverage of plan submissions; FBAs retain discretion to require more comprehensive and frequent RRP for institutions with assets above US$100 billion.
- Recovery planning:
  - FRB recovery planning guidance applies to the eight GSIBs only.
  - FDIC elements of formal recovery are part of regular supervisory risk management; IDIs with assets over US$50 billion are subject to IDI Rule resolution planning.
- Recommendations (selected):
  - Continue annual FBA resolution planning and resolvability assessments at least once a year and discuss RRPs and assessments in CMGs.
  - Ensure all BHCs and IDIs subject to resolution plan requirements are also subject to recovery plan requirements; other firms should adopt credible enhanced contingency funding plans.
  - Any increase in the US$50 billion threshold for IDI resolution plans should be very limited.
  - FBAs should adopt staff policies to identify material changes and loss of integration between RRP and firms’ BAU activities.

### Loss-absorbing capacity (LAC) and TLAC regime
- U.S. TLAC regime (key quantitative and structural elements):
  - External TLAC requirement for covered BHCs: 18 percent of risk-weighted assets and 7.5 percent of total leverage exposures (in each case, not including applicable U.S. Basel III regulatory capital buffers).
  - Covered IHC variants: non-resolution covered IHCs have lower minimum TLAC requirement (16 percent of RWAs); resolution covered IHCs subject to 18 percent of RWAs.
- Internal TLAC calibration:
  - Authorities are considering calibrating internal TLAC toward the lower end of the FSB-prescribed 75–90 percent range.
  - For most covered IHCs, the RWA component is calibrated at 16 percent RWA (16/18 percent = 88.9 percent internal), placing U.S. internal TLAC toward the high end of the 75 percent–90 percent range.
  - Recommendation: calibration should balance home and host interests and support the group’s resolution strategy.
- Crossholdings and disclosures:
  - FBAs are proposing TLAC disclosure and crossholding rules; proposed deduction of some investments in unsecured debt securities from regulatory capital.
  - Recommendation: restrict crossholdings of TLAC instruments between financial firms and holdings by retail investors to reduce contagion risks.
- LAC for non-GSIBs:
  - Observation: U.S. focus to date has been on TLAC for GSIBs.
  - Recommendation: consider LAC additional to regular capital requirements (e.g., subordinated debt) for some non-GSIB financial companies—prioritizing firms subject to resolution planning or with a large regional presence—to improve resolvability and reduce DIF exposure.

### Cross-border resolution and recognition issues
- Coverage gaps and statutory limitations:
  - OLA does not cover FBOs’ U.S. branches; DFA does not apply to U.S. branches of FBOs.
  - No specific statutory mechanism exists to give prompt and predictable legal effect in the U.S. to foreign resolution measures; reliance is on Chapter 15 and comity which have limitations (Chapter 15 excludes FBOs with U.S. branches or agencies).
  - Depositor preference: FDIC clarification (2013) treats a foreign branch deposit as a “deposit liability” only if it is a “dually payable deposit” (payable at both the foreign branch and at a U.S. office); this creates differential treatment inconsistent with KA7.4.
- Recommendations:
  - Extend OLA powers to cover U.S. branches of FBOs (U.S. Congress).
  - Introduce statutory provisions to give prompt legal effect in the U.S. to foreign resolution measures (U.S. Congress).
  - Ensure equal depositor preference ranking for overseas branch deposits with domestic deposits (U.S. Congress, FDIC).
  - Bring FBOs with U.S. branches or agencies within the scope of the U.S. Bankruptcy Code and introduce express recognition provisions.

### Deposit insurance arrangements and operational effectiveness
- P&A transactions and recordkeeping:
  - FDIC’s preferred method: purchase and assumption (P&A) transactions; typically provide access to insured—and often uninsured—deposits within one business day.
  - FDIC uses the claims administration system (CAS) and recordkeeping rules (12 C.F.R. Part 370; 12 C.F.R. §360.9) for timely deposit insurance determination.
  - As of end-2019, 30 IDIs are either subject to or voluntarily comply with the Timely Deposit Insurance Determination Rule; of these 30 IDIs, 14 have over 5 million deposit accounts each.
  - As of May 1, 2020, the Large‐Bank Deposit Insurance Determination Modernization Rule applies to 148 IDIs with more than US$2 billion in deposits and at least either 250,000 deposit accounts or US$20 billion in total assets for two consecutive quarters.
- DIF timeline and status:
  - Fully depleted by 2009Q3
  - Restoration plan completed by 2018Q3
  - End-2019 DIF balance: US$110 billion
  - End-2019 reserve ratio: 1.41 percent of insured deposits
  - Public backstops: over US$200 billion (includes US$100 billion from the UST subject to congressional consultation on terms)
  - DIF long-term target: 2 percent of insured deposits; FDIC determined 2-percent long-term target is the minimum level needed to withstand future crises of the magnitude of past crises.
  - FSAP estimate: extrapolating recent performance, DIF could meet 2-percent target in about six years, but this is unlikely due to one-time factors.
- Credit union DIS:
  - At end-2019, NCUA insured around US$1.2 trillion in deposits for over 120 million depositors.
  - NCUSIF balance at end-2019: US$16.7 billion.
  - NCUSIF cap and procyclicality: NCUSIF capped at 1.5 percent; only 0.5 percent could at most be paid in under the cap; first 1 percent of NCUSIF balance is not paid-in but booked as deposits from credit union members.
  - Recommendation: legislative reform to remove the cap, target a significantly higher level of paid-in funds, and make membership mandatory for all credit unions.

### Contingency planning, crisis governance, and FSOC role
- Crisis preparedness findings:
  - CIGFO and FDIC OIG repeatedly identified readiness for financial crises as a top challenge.
  - FDIC OIG (April 2020) found critical shortcomings: lack of documented agency-wide crisis readiness procedures, lack of overarching framework, and absence of a common planning template; OIG made 11 recommendations to be implemented by end-March 2022.
  - FDIC planned corrective actions include a corporate-wide crisis readiness directive, assignment of oversight to the Operating Committee, development of procedures, engagement of a crisis readiness consulting firm, training, and a central repository for readiness plans.
- FSOC responsibilities and gaps:
  - FSOC has limited activity on traditional crisis preparedness; none of the five FSOC committees is responsible for crisis preparedness.
  - FSOC should prioritize interagency contingency planning, national financial crisis communications, and operationalizing UST–FBA interaction modalities.
- Recommendations (selected, high-priority):
  - Intensify interagency preparedness for national crisis communications and DFA Title II without prior Title I planning (FSOC, FBAs).
  - Operationalize, document, and regularly test UST–FBA interaction modalities (FSOC, FBAs).
  - Plan to mitigate simultaneous recovery/contingency funding actions by several firms (FSOC, FBAs).
  - Continue active use of agency discretion to subject a wider array of firms to recovery and resolution planning (FBAs).
  - Implement all FDIC OIG recommendations in its 2020 “crisis readiness report” (FDIC).
  - Test the increased role of the Treasury Secretary under the DFA through drills and exercises.

### Staffing, experience, and surge capacity
- FDIC’s Division of Complex Institution Supervision and Resolution (CISR):
  - Responsible for IDIs with assets greater than US$100 billion for which the FDIC is not the primary federal regulator.
  - CISR budgeted to have 275 staff members; filled mostly from existing FDIC divisions.
- Staffing risks:
  - FDIC OIG (February 2020) warned of “significant risks regarding retirement eligibility in key Divisions involved in crises readiness efforts [and] a significant number of employees responsible for ensuring the safety and soundness of institutions and protecting consumers are also eligible to retire.”
  - OIG noted retirement eligibility by 2024 of two-thirds of FDIC staff responsible for resolutions and receiverships, and 35 percent of the CISR Division.
  - In March 2020, FDIC announced a buyout and early-retirement offer to 20 percent of its staff (program suspended until further notice due to the COVID-19 pandemic).
- Recommendation: Authorities should ensure staffing levels and expertise are commensurate with their mandates and that surge staffing with adequate training is possible in times of distress.

### Key statistics and factual highlights
- Mission timing and data cutoff: practices employed as of March 10, 2020; report date: July 27, 2020.
- 74 financial companies subject to resolution planning after 2019 rule changes.
- 8 U.S. GSIBs subject to FRB recovery planning requirements.
- 489 IDI failures managed by the FDIC during the GFC.
- DIF timeline and balances:
  - Fully depleted by 2009Q3
  - Restoration plan completed by 2018Q3
  - End-2019 DIF balance: US$110 billion
  - End-2019 reserve ratio: 1.41 percent of insured deposits
  - Public backstops: over US$200 billion
- FBO branch statistics (end-June 2019):
  - 173 FBO branches held total U.S. assets of about US$2.3 trillion, of which about US$1.8 trillion was held by state-licensed branches.
  - The two largest federally licensed branches had assets of about US$134 and US$123 billion.
  - The six largest state-licensed branches were New York licensed; the three largest branches held assets ranging from US$101 billion to US$175 billion.
  - Since December 19, 1991, foreign firms cannot establish insured branches in the United States; certain insured branches operating on that date were grandfathered, 10 of which are still in business.
  - At end-June 2019, the largest two of the six insured state-licensed branches had assets over US$10 billion each; the largest of the four insured federally licensed branches had assets of about US$51 billion.

*International Monetary Fund — United States: Financial crisis preparedness and deposit insurance (FSAP), July 27, 2020.*

### 2020. It was led by Ms. Michaela Erbenová. It

### UNITED STATES: Financial Crisis Preparedness and Deposit Insurance (July 27, 2020)

### Executive summary — key findings
- U.S. resolution regime and DIS provide a strong foundation for crisis preparedness; after a decade of resolution planning the regime is more advanced than in other major economies.
- RRP under DFA Title I has materially improved the resiliency and resolvability of the largest and most complex BHCs; OLA and the OLF remain important backstops under DFA Title II.
- Deposit insurance by the FDIC is an effective tool to limit damage from IDI failures; P&A transactions typically provide access to insured—and often uninsured—deposits within one business day.
- By 2009Q3 the DIF was fully depleted; by 2018Q3 the DIF completed a multi-year restoration plan. At end-2019:
  - DIF balance: US$110 billion
  - Reserve ratio: 1.41 percent of insured deposits
  - Public backstops: over US$200 billion
- Requirements for RRP were reduced since the 2015 FSAP:
  - EGRRCPA raised mandatory Title I threshold from US$50 billion to US$250 billion; FRB discretion applied to BHCs with assets between US$100 billion and US$250 billion.
  - Rule changes in 2019: 74 financial companies subject to resolution planning follow longer two- or three-year cycles, alternating full and targeted plans or reduced plans.
  - FRB recovery planning requirements continue to apply to only the eight U.S. GSIBs.
- The FBAs should actively exercise discretion to keep a wider array of firms subject to recovery and resolution planning and ensure complementarity between recovery and resolution plans.
- Consideration should be given to LAC additional to regular capital requirements for some non-GSIB U.S. financial companies to improve resolvability and reduce DIF exposure.
- Cross-border resolution gaps warrant attention: OLA does not cover FBOs’ U.S. branches; no specific statutory mechanism exists to give prompt legal effect to foreign resolution measures in the United States; depositor preference rules discriminate by jurisdiction where deposits are payable.

### Background and scope
- Note sets out analysis and detailed recommendations of the 2020 FSAP on financial crisis preparedness and deposit insurance; mission conducted February–March 2020; analysis based on regimes and practices as of March 10, 2020.
- Focus: large financial companies, IDIs, and the largest credit unions. Other FSAP notes cover insurers, securities firms, FMIs, and liquidity in resolution.
- International standards informing analysis: Key Attributes of Effective Resolution Regimes for Financial Institutions (KAs) and Core Principles for Effective Deposit Insurance Systems (CPs).

### Domestic organization and supervisory posture
- RRP for the largest BHCs under DFA is the centerpiece of orderly resolution; BHCs have reconfigured financial, legal, and operational structures and assess business decisions through a “resolution lens.”
- FDIC’s preferred resolution method for failed IDIs: purchase and assumption (P&A) transactions, time-tested and cost-effective.
- Since 2012 FDIC requires large IDIs to submit annual resolution plans under the FDI Act.
- Staffing: the FBAs should ensure staffing levels and expertise are commensurate with mandates and that surge staffing with adequate training is possible in times of distress.

### Firms’ resiliency, recoverability, and resolvability
- RRP has become integrated into BAU activities of BHCs, increasing resiliency and deepening FBAs’ understanding of business models and RRP capabilities.
- Recent reductions in RRP requirements (EGRRCPA and 2019 rule changes) reduced the frequency/coverage of plan submissions; FBAs retain discretion to require more comprehensive and frequent RRP for institutions with assets above US$100 billion.
- Recommendations include:
  - Continue annual FBA resolution planning and resolvability assessments at least once a year and discuss RRPs and assessments in CMGs.
  - Ensure all BHCs and IDIs subject to resolution plan requirements are also subject to recovery plan requirements; other firms should adopt credible enhanced contingency funding plans.
  - Any increase in the US$50 billion threshold for IDI resolution plans should be very limited.
- Loss-absorbing capacity (LAC):
  - U.S. focus to date has been on TLAC for GSIBs.
  - Simultaneous failures of smaller firms can affect regional stability; Title II OLF funds used for liquidity cannot be used for capital and must be repaid.
  - Consider adopting LAC additional to regular capital requirements (e.g., subordinated debt) for some non-GSIB financial companies to improve resolvability and reduce DIF exposure.
  - Restrict crossholdings of TLAC instruments between financial firms and holdings by retail investors to reduce contagion risks.

### Global cooperation and cross-border issues
- Areas needing attention:
  - Extend OLA powers to FBOs’ U.S. branches (currently not covered).
  - Adopt specific statutory provisions to give prompt and predictable legal effect in the U.S. to foreign resolution measures.
  - Ensure equal depositor preference ranking for overseas branch deposits with domestic deposits.
  - Address risks of ring-fencing assets of U.S. branches of foreign institutions that may undermine cross-border cooperation.
- Judicial recognition of foreign resolution measures may be possible under comity, but no specific statutory mechanism exists.

### Deposit insurance arrangements
- FDIC P&A transactions, supported by effective IDI recordkeeping, enable fast deposit access; historically managed 489 IDI failures during the GFC.
- DIF restoration completed by 2018Q3 after full depletion by 2009Q3.
- FDIC should assess public awareness outreach effectiveness on deposit insurance (survey focus examples: complex trust account holders, depositors with low financial and limited language skills).
- Credit union DIS reform recommended: remove the cap, target a significantly higher level of paid-in funds, and make membership mandatory for all credit unions (legislative action required).

### Contingency planning and crisis governance
- FSOC has focused less on full-blown crisis interagency cooperation; it should:
  - Intensify interagency preparedness for crises requiring more than individual agencies’ planning (examples: national crisis communications; DFA Title II resolution without prior Title I planning).
  - Operationalize, document, and regularly test modalities for UST–FBA interactions under DFA and the FDI Act.
  - Plan mitigating actions for simultaneous recovery/contingency funding actions by several firms.
  - Prepare modalities for interactions between UST and FBAs; operationalize, document, and test them regularly.
- FDIC should implement all FDIC OIG recommendations in its 2020 “crisis readiness report.”

### Key statistics and factual highlights
- Mission timing and data cutoff: practices employed as of March 10, 2020; report date: July 27, 2020.
- 74 financial companies subject to resolution planning after 2019 rule changes.
- 8 U.S. GSIBs subject to FRB recovery planning requirements.
- 489 IDI failures managed by the FDIC during the GFC.
- DIF timeline and balances:
  - Fully depleted by 2009Q3
  - Restoration plan completed by 2018Q3
  - End-2019 DIF balance: US$110 billion
  - End-2019 reserve ratio: 1.41 percent of insured deposits
  - Public backstops: over US$200 billion

### Recommendations on crisis preparedness and deposit insurance (selected from Table 1)
- High-priority (I; H)
  - Intensify interagency preparedness for national crisis communications and DFA Title II without prior Title I planning (FSOC, FBAs).
  - Operationalize, document, and regularly test UST–FBA interaction modalities (FSOC, FBAs).
  - Plan to mitigate simultaneous recovery/contingency funding actions by several firms (FSOC, FBAs).
  - Continue active use of agency discretion to subject a wider array of firms to recovery and resolution planning (FBAs).
  - Continue using targeted DFA Title I plan requirements to strengthen firms’ resiliency between full submissions (FBAs).
  - Continue DFA Title II planning and resolvability assessments at least once a year and discuss RRPs in CMGs (FRB, FDIC).
  - Adopt policies for FBA staff to identify material changes and loss of integration between RRP and firms’ BAU (FBAs).
  - Implement all FDIC OIG recommendations in its 2020 “crisis readiness report” (FDIC).
- Medium-term, high priority (MT; H)
  - Extend OLA powers to FBOs’ U.S. branches (U.S. Congress).
  - Introduce statutory provisions to give prompt legal effect in the U.S. to foreign resolution measures (U.S. Congress).
  - Ensure equal depositor preference ranking for overseas branch deposits with domestic deposits (U.S. Congress, FDIC).
- Other medium and short-term recommendations (selected)
  - Ensure staffing levels and surge capacity for FDIC and FRB (I; M).
  - Restrict crossholdings of TLAC instruments and retail holdings to reduce contagion risks (ST; M).
  - Adopt methodologies to determine which non-GSIBs can be subject to LAC additional to regular capital (MT; M).
  - Assess public awareness outreach on deposit insurance via survey (MT; M).
  - Reform credit union DIS (U.S. Congress) — remove the cap, target higher paid-in funds, make membership mandatory (MT; L).
  - Amend DFA and FDI Act for greater consistency with the Key Attributes (MT; L).

*International Monetary Fund — United States: Financial crisis preparedness and deposit insurance (FSAP), July 27, 2020.*

### 4.      The international standards identify several preconditions for effective resolution and

### 1usaea2020005 - 4.      The international standards identify several preconditions for effective resolution and

### Developments since the 2015 FSAP
- 2015 FSAP identified gaps vis-à-vis international standards, with recommendations focused on:
  - coverage of foreign banks’ U.S. branches;
  - cross-border cooperation, including prompt effect in the United States for foreign resolution decisions, effects of U.S. resolution decisions on financial stability abroad, and depositor preference for overseas deposits;
  - removing impediments to resolution and triggering resolution at a sufficiently early stage.
- 2015 FSAP also recommended:
  - reforming the DIS for credit unions;
  - expediting the timetable for the long-term DIF target;
  - FSOC assuming responsibility for crisis preparedness and management cooperation.
- Authorities have addressed several 2015 FSAP recommendations (Appendix 1). Some recommendations were overtaken by clarifications in the final KA Assessment Methodology and subsequent Financial Stability Board guidance.
- Authorities emphasized the DFA as the primary means the United States adheres to the Key Attributes, with the FSAP team noting merit in codifying good practice in statute; the Key Attributes often explicitly require statutory provisions.

### Statutory framework and interaction of DFA and FDI Act
- The FSAP takes a holistic view of statutes underpinning the U.S. bank resolution regime:
  - DFA is particularly relevant for certain large BHCs.
  - FDI Act applies to IDIs and is the only statutory basis for IDI resolution.
  - International Banking Act (IBA) applies to federally licensed U.S. branches of FBOs; state banking laws apply for state-licensed branches.
- The DFA and the FDI Act are the main pillars of the resolution regime; IDI resolution under the FDI Act complements—and is a backstop to—BHC resolution under the DFA.
- FSAP recommendation: When the opportunity presents itself, Congress should bring both the FDI Act and the DFA into closer alignment with the Key Attributes.

### Past resolution experience and failure statistics
- Despite the FDIC’s demonstrated ability to resolve IDIs without cost to the U.S. taxpayer, no financial company has been resolved yet under the DFA (OLA has not been tested).
- In the last 20 years:
  - 558 FDIC-insured IDIs failed;
  - 489 of these failures were during the GFC.
- In 2018, no IDI failed—a first since 2006.
- Since the enactment of the DFA, 270 IDIs failed; none of these were resolved at the BHC level under OLA—they were resolved under the FDI Act.

### Risk analysis findings
- FSAP risk analysis identified pockets of vulnerabilities, particularly among U.S. non-GSIBs.
- While the banking system has solid capital buffers against simulated shocks in an adverse scenario, capital depletion would be relatively high:
  - Several banks’ capital would fall below the minimum level for Common Equity Tier 1 Capital (4.5 percent)—or even fall below 2 percent.
  - U.S. non-GSIBs with lower initial capital buffers and higher loan exposures would need additional capital buffers.

### Regulatory changes: EGRRCPA, CARES Act, and consequences for planning
- 2018 EGRRCPA materially reduced the scope and application of DFA requirements:
  - raised asset threshold for mandatory DFA title I resolution plan requirement from US$50 billion to US$250 billion;
  - FRB discretion to apply requirement to BHCs with assets between US$100 billion and US$250 billion (discretion exercised).
- Related FBAs actions exempted some BHCs and FBOs from the resolution plan requirement; regulatory capital and liquidity requirements and stress testing were also scaled down.
- CARES Act (response to COVID-19) authorized the FDIC to create a widely available program guaranteeing obligations of solvent IDIs, BHCs, and any affiliates thereof; FDIC has not exercised this authority and any program is required to expire by end-2020.
- FSAP recommendation: To reduce delays due to political processes, Congress should remove the approval requirement or extend the deadline for the current preauthorization until the economic implications of the COVID-19 pandemic have been mitigated.

### Changes to resolution and recovery planning requirements (Box 1 and subsequent rules)
- 2019 joint FRB-FDIC final rule specified DFA Title I resolution plan requirements under EGRRCPA:
  - 8 U.S. GSIBs must submit resolution plans every 2 years, alternating full and less extensive targeted plans;
  - 13 larger U.S. BHCs and FBOs follow a 3-year cycle, alternating full and targeted plans;
  - 53 FBOs with over US$250 billion global assets must submit reduced plans every 3 years.
- Financial companies with assets under US$100 billion are not required to submit resolution plans.
- OCC increased asset threshold for its recovery planning guidelines from US$50 billion to US$250 billion, reducing number of national banks to which guidelines apply from 25 to 8.
- FRB recovery planning requirements continue to apply to only the eight GSIBs (including the BHC parents of four banks subject to OCC guidelines).
- For other institutions, regular supervision includes oversight of recovery capabilities (contingency planning and capital management) without formal enhanced “recovery planning” requirements.

### Crisis preparedness and oversight
- Crisis preparedness remains a high priority challenge:
  - CIGFO has repeatedly identified readiness for financial crises among top challenges for financial regulatory organizations.
  - FDIC Office of Inspector General (OIG) listed “crisis readiness” among FDIC’s top challenges and in September/October 2018 initiated an overall assessment of FDIC’s crisis readiness planning efforts; the FDIC OIG assessment was finalized during the FSAP and informed the FSAP assessment.
  - FDIC OIG is also assessing FDIC’s enterprise risk management framework.
- Congressional oversight committees urged the FDIC “to act immediately to establish robust crisis readiness” in light of the coronavirus pandemic (letter dated April 13, 2020).

### Domestic organization, interagency cooperation, and roles
- Three FBAs responsible for dealing with (potentially) failing banks (each bank subject to supervision by a primary federal banking supervisor):
  - FDIC: state-chartered banks and savings associations not members of the Federal Reserve System; administers the DIF and has backup supervisory authority for all IDIs.
  - FRB: state-chartered banks that are members of the Federal Reserve System; BHCs and savings and loan holding companies; U.S. operations of FBOs, including state-licensed branches.
  - OCC: national banks, federal savings associations, and federally licensed branches of FBOs.
- The Treasury Secretary’s role has been strengthened under the DFA:
  - Secretary’s agreement required for triggering Title II resolution (OLA powers and OLF funding), establishing an FDIC guarantee program for IDI obligations, and giving FRB liquidity support to nonbanks.
  - Under the FDI Act, the Secretary decides on backstopping the DIF and invoking the systemic risk exception to the least-cost test for FDIC resolution measures.
- Interagency cooperation:
  - FBAs have enhanced coordination and established formal and informal mechanisms for information sharing and supervisory cooperation, particularly FRB and FDIC on DFA Title I resolution plans and feedback letters.
  - FDIC has sole authority on DFA Title II resolution planning, with input from FRB and OCC.
  - The “three keys process” for triggering OLA under DFA Title II requires a recommendation of two-thirds of the members of both the FRB and the FDIC Board and agreement of the Treasury Secretary, in consultation with the U.S. President; in certain cases, a recommendation from the SEC or the Federal Insurance Office is needed instead of the FDIC.
  - Decisions subject to immediate, though limited, judicial review.
  - Authorities regularly refresh responsibilities and pursue readiness through interagency operational exercises, meetings, and teach-ins.

### Treasury Secretary’s specific roles (Box 2)
- Orderly Liquidation Authority:
  - Treasury Secretary decides to make OLA available to the FDIC, in consultation with the U.S. President, on a recommendation of two-thirds of the members of both the FRB and the FDIC Board (or, in certain cases, the SEC or FIO).
- Orderly Liquidation Fund:
  - Treasury Secretary decides whether to acquire any FDIC obligations issued under the OLF and, jointly with the FDIC and in consultation with the FSOC, sets the maximum amount for these OLF obligations; Secretary’s agreement needed for OLF policies, procedures, terms, and conditions.
- FDIC Guarantees for Banks’ Obligations:
  - Treasury Secretary approves determination of a liquidity event (based on a recommendation—at the Secretary’s request—by two-thirds of the members of both the FRB and the FDIC Board);
  - approves policies, procedures, terms, and conditions of any program;
  - decides on the amount of outstanding guaranteed debt, in consultation with the U.S. President, and on a recommendation—at the Secretary’s request—of two-thirds of the members of both the FRB and the FDIC Board.
  - FDIC may issue guarantees after approval by both chambers of the U.S. Congress upon a request from the U.S. President, giving the President and Congress a veto.
- Systemic Risk Exception to the FDIC’s Least-Cost Test:
  - Treasury Secretary decides, in consultation with the U.S. President, and on a recommendation of two-thirds of the members of both the FRB and the FDIC Board.
- Backstop for DIF:
  - Treasury Secretary approves lending to the FDIC up to the statutory limit, subject to terms agreed to by the Secretary and the FDIC Board after congressional consultations on repayments, schedules, and special assessments on banks.

### FSOC and coordination
- FSOC is a collaborative body under UST chairmanship with collective responsibility for identifying systemic risks and responding to emerging threats to financial stability.
- FSOC has a small staff of 14.
- Of FSOC’s five committees, the “regulation and resolution” committee supports FSOC on resolution plan requirements and OLA rules and regulations (e.g., discussing joint FRB and FDIC feedback on DFA Title I plans, and RRP rule and guidance changes).

*IMF staff report excerpt (1usaea2020005 - section 4)*

### 19.      Mid-2019, the FDIC centralized its supervision and resolution activities for the largest

### 19.      Mid-2019, the FDIC centralized its supervision and resolution activities for the largest

### CISR, staffing, and crisis readiness
- The new Division of Complex Institution Supervision and Resolution (CISR) is responsible for IDIs with assets greater than US$100 billion, for which the FDIC is not the primary federal regulator.
- CISR plans and will execute resolution for these IDIs—and for other firms, if so decided by the FSOC.
- CISR is budgeted to have 275 staff members, which it has filled mostly with staff from the Division of Risk Management Supervision, the Division of Resolutions and Receiverships, and the former Office of Complex Financial Institutions.
- Staffing challenges identified:
  - CIGFO highlighted staffing challenges in 2019, reiterating 2018 findings, particularly at the FRB and the FDIC.
  - Regular staff attrition combined with a low number of bank failures has diminished staff with first-hand experience in bank resolution and financial crises.
  - FDIC OIG (February 2020) warned of “significant risks regarding retirement eligibility in key Divisions involved in crises readiness efforts [and] a significant number of employees responsible for ensuring the safety and soundness of institutions and protecting consumers are also eligible to retire.”
  - The OIG noted retirement eligibility by 2024 of two-thirds of FDIC staff responsible for resolutions and receiverships, and 35 percent of the CISR Division.
- FDIC response:
  - In March 2020, the FDIC announced a buyout and early-retirement offer to 20 percent of its staff (program suspended until further notice due to the COVID-19 pandemic).
- Recommendation:
  - Authorities should ensure staffing levels and expertise are commensurate with their mandates.

### Firms’ resiliency — Early intervention
- Background on PCA:
  - PCA framework introduced in 1991 after the savings and loan crisis to prevent DIF losses by prescribing mandatory supervisory action at capital thresholds and earlier discretionary actions.
  - Initial low PCA capital thresholds did not trigger sufficiently early intervention.
  - During the GFC, the PCA did not prevent large DIF losses; the Fund’s total assets fell from US$52.4 billion at end-2007 to minus US$20.9 billion less than two years later.
- Reforms and current view:
  - FBAs have increased PCA capital thresholds and re-emphasized forward-looking supervisory guidance.
  - Complementing PCA capital thresholds with mandatory policy action in response to other bank soundness dimensions (e.g., concentration and interest rate risks) could enhance early intervention effectiveness.
- Recommendation:
  - Enhance the early intervention framework by broadening mandatory policy actions beyond capital thresholds.

### Recovery and Resolution Planning (RRP)
- Objectives:
  - Supervision aims to reduce the probability and impact of bank failures; Basel Core Principle 15 prescribes comprehensive management processes and contingency arrangements, including recovery plans.
  - KA11.1 and KA11.5 prescribe recovery and resolution planning for domestically incorporated systemically significant or critical firms and for all firms subject to RRP, respectively.
- FBA-specific recovery planning frameworks:
  - FDIC: elements of a formal recovery are part of regular supervisory risk management requirements; IDIs with assets over US$50 billion are subject to IDI Rule resolution planning.
  - FRB: recovery planning guidance applies to the eight GSIBs and not to the three other financial companies in the FRB’s LISCC portfolio, nor other large banking organizations (assets over US$100 billion) or large FBOs (U.S. assets over US$50 billion), all of which are subject to DFA Title I resolution planning and enhanced prudential standards (EPS).
  - OCC: recovery planning guidance applies to eight national banks with assets over US$250 billion, which are all subject to IDI Rule resolution planning and include subsidiaries of holding companies: four U.S. GSIBs, one foreign GSIB, and three other U.S. BHCs.
- Existing resolution planning requirements:
  - DFA Title I (165(d) Rule): Certain BHCs submit “living wills” to the FRB and the FDIC describing resolution under the U.S. Bankruptcy Code.
  - DFA Title II (OLA): Administrative FDIC receivership procedure; FDIC uses firms’ Title I plans to develop DFA Title II plans if Bankruptcy Code resolution is not feasible.
  - IDI Rule: IDIs with US$50 billion or more in total assets must submit resolution plans enabling FDIC to resolve an IDI so depositors receive access to insured deposits within one business day (or two business days if failure occurs on a non-Friday), maximize net present value return from asset disposition, and minimize creditor losses.
- Evolution and coverage:
  - DFA Title I planning has led firms to reconfigure structures and assess decisions through a “resolution lens”; capabilities testing has improved FBAs’ understanding of business models and RRP capabilities.
  - Recently, coverage and frequency of BHCs’ DFA Title I and recovery plans were reduced due to DFA amendments through the EGRRCPA and subsequent FBA rule/guidance changes; the FDIC announced it is considering an IDI Rule change (April 2019).
- KA requirements and expectations:
  - KAs prescribe annual RRP updates, resolvability assessments, and evaluation of resolution strategies’ feasibility and credibility (KAs 10.1, 11.3, 11.10).
  - Top officials of home and host resolution authorities review firm-specific resolution strategies and operational resolution plans annually (KA11.11).
  - RRP covers firms that could be systemically significant or critical if they fail (KAs 11.1, 11.2); recovery planning required for all firms subject to resolution planning (KA11.5).
- Policy recommendations:
  - Ensure firms’ focus on resiliency does not weaken and that DFA Title II resolution planning by the FDIC remains KA-consistent.
  - Use targeted plans between full submissions (every four or six years) to preserve firms’ resiliency.
  - FBAs should adopt staff policies to identify material changes and loss of integration between RRP and firms’ BAU activities.
  - Any increase of the IDI Rule threshold (from US$50 billion) should be very limited.
  - FDIC should continue DFA Title II planning and resolvability assessments at least once a year or sooner for material changes.
  - CMGs for U.S. GSIBs should discuss at least annually firms’ recovery plans, resolution strategy, Title I and II plans, and supporting resolvability assessments.
  - Subject a wider array of firms to RRP planning requirements: FBAs should require recovery plans from all institutions subject to EPS and resolution planning under both the DFA and the FDI Act.
  - All BHCs and IDIs subject to resolution plan requirements should also be subject to recovery plan requirements (KA11); other firms, including firms with assets under US$100 billion, should adopt credible, enhanced contingency funding plans emulating recovery plans and be subject to critical supervisory assessment.

### Loss-absorbing capacity and the U.S. TLAC regime
- As per January 2019, all covered BHCs and intermediate holding companies (IHCs) comply with the 2016 U.S. regime for external TLAC.
- U.S. TLAC rule scope:
  - Establishes minimum requirements for:
    - the external TLAC amount that each U.S. top-tier BHC (covered BHC) identified as a U.S. GSIB must issue; and
    - the internal TLAC amount that must be issued by each top-tier U.S. IHC (covered IHC) of a foreign GSIB with at least US$50 billion in U.S. non-branch assets.
  - The external TLAC requirement applies uniformly to each U.S. GSIB’s covered BHC, consistent with a groupwide SPOE resolution strategy.
- Box 3 — Key quantitative and structural elements:
  - All covered BHCs are subject to an external TLAC requirement of 18 percent of risk-weighted assets and 7.5 percent of total leverage exposures (in each case, not including applicable U.S. Basel III regulatory capital buffers, which must be met in addition to the minimum TLAC amount).
  - The U.S. TLAC rules do not provide an alternative calibration for the external TLAC requirement.
  - The rules do not impose requirements on the allocation of internal loss absorbency among subsidiaries of covered BHCs and IHCs, but left open the possibility for a future proposal.
  - U.S. banks have pre-positioned liquidity and capital in certain subsidiaries based on estimates for:
    - Resolution Liquidity Execution Need,
    - Resolution Liquidity Adequacy and Positioning,
    - Resolution Capital Adequacy and Positioning, and
    - Resolution Capital Execution Need.
  - The rules established “clean holding company requirements” restricting covered BHCs or covered IHCs from issuing certain liabilities and entering certain arrangements to preserve structural subordination in a parent company-focused resolution.
  - Footnote on covered IHC variants:
    - Covered IHCs with foreign parents that have identified a single-point-of-entry (SPOE) resolution strategy for the group resolution (“non-resolution covered IHC”) would have a lower minimum TLAC requirement (16 percent of RWAs) and may issue only internal TLAC to their foreign parent (or another foreign affiliate).
    - Resolution covered IHCs with foreign parents that have identified a multiple-point-of-entry resolution strategy for the group resolution are subject to a higher minimum TLAC requirement (18 percent of RWAs) and may satisfy their internal TLAC requirement with a combination of internal and external TLAC instruments.

*Source: 1usaea2020005 - 19.*

### 31.      The authorities are considering calibrating internal TLAC toward the lower end of the

### 1usaea2020005 - 31.      The authorities are considering calibrating internal TLAC toward the lower end of the

### Internal TLAC calibration and current U.S. approach
- The authorities are considering calibrating internal TLAC toward the lower end of the FSB-prescribed 75–90 percent range.
- The FSB observed that the United States fixed internal TLAC by regulation, constraining flexibility to calibrate internal TLAC based on CMG discussions and the FSB resolvability assessment process.
- For most covered IHCs, the risk-weighted assets (RWA) component of the minimum internal TLAC requirement is calibrated at 16 percent RWA (16/18 percent = 88.9 percent internal).
- Consequently, the U.S. internal TLAC calibration is on the high-end of the 75 percent–90 percent range.
- Interagency discussions to calibrate the requirement closer to 75 percent are ongoing.
- Recommendation: The calibration should balance home and host interests and support the group’s resolution strategy.

### TLAC disclosures and crossholdings rules (FBAs proposals)
- The FBAs are working on rules for TLAC disclosures and crossholdings among financial institutions; a public consultation started in April 2019.
- Under the proposed rules, certain banking organizations would need to deduct (from regulatory capital) some investments in unsecured debt securities—irrespective whether they qualify as TLAC—issued by U.S. and foreign GSIBs.
- The proposed deduction would be implemented by revising the existing deduction framework for certain investments in regulatory capital instruments under U.S. Basel III capital rules.
- Authorities have not undertaken a comprehensive TLAC holding survey and do not consider this a priority, but expect the new rule would help ensure that the largest U.S. banking firms will hold no more than a de minimis amount of TLAC instruments issued by GSIBs.
- Based on SEC disclosures and third-party information, the authorities estimate that the majority of TLAC holdings are non-retail holdings, including high-wealth clients.
- Recommendation: Ensure that restrictions on crossholdings between financial companies and on retail holdings adequately reduce contagion risk.
- The proposals would also require that BHCs and IHCs disclose information on long-term debt and TLAC instruments to demonstrate compliance with the U.S. TLAC rules.

### LAC for non-GSIB U.S. financial companies
- Observation: So far, the United States has focused on GSIBs’ TLAC.
- Risk noted: The simultaneous failure of smaller or less complex financial companies could impact financial stability, at least at the regional level; historical evidence includes the large number of failures during the GFC (with heavy DIF losses).
- In a DFA Title II resolution, OLF funds deployed to provide liquidity cannot be used for capital and would need to be repaid.
- Recommendation: Consider LAC additional to regular capital requirements for some non-GSIB U.S. financial companies—prioritizing firms subject to resolution planning or with a large regional presence—potentially in the form of subordinated debt or otherwise.
- Comparative practice: This is the practice in other major jurisdictions, such as the European Union and the United Kingdom; it is consistent with KA10 and KA11, would improve resolvability, and reduce the DIF’s exposure.
- Recommendation: Authorities should adopt policies and methodologies to determine which financial companies’ resolvability would benefit from enhanced LAC.

### Global cooperation and U.S. role
- The United States has taken a leadership role in developing and applying international standards on resolution planning and deposit insurance, leveraging the FDIC’s decades-long experience.
- The FRB and the FDIC jointly chair the CMGs for the eight U.S. GSIBs; U.S. agencies participate in several other CMGs as the United States hosts many foreign GSIBs.
- The FDIC actively reaches out to host jurisdictions where U.S. GSIBs and other internationally active U.S. banks have a systemic presence; these exchanges are supported by MOUs or similar arrangements.
- The FDIC engages on request in high-level discussions with non-CMG hosts on resolution strategies, and challenges and opportunities for cooperation; these engagements are broadly in line with pertinent FSB guidance.

### FBO branches at home (coverage and OLA powers)
- Extending OLA powers to cover U.S. branches of FBOs could help protect U.S. financial stability.
- Resolution of FBO branches is subject to:
  - the FDI Act for federally and state-licensed federally insured branches,
  - the IBA for uninsured federally licensed branches,
  - and state banking laws for uninsured state-licensed branches.
- KA 1.1(iii) explicitly requires that the resolution regime cover foreign branches unless certain exceptions apply under EN(1)(e)—the United States does not meet these exceptions.
- EC 7.5 prescribes that the resolution regime enable the resolution authority to take resolution action against FBO branches to support a foreign resolution or where the home authority is not acting, or is acting in a manner that does not take sufficient account of the need to preserve financial stability in the host jurisdiction.
- Recommendation: The DFA should be amended, as recommended by the 2015 FSAP, to subject FBO branches to a Title II regime similar to that for other “covered financial companies.”

### Recognition and support for foreign resolution measures (statutory gaps)
- International standards prescribe speedy, transparent, and predictable procedures to give effect to foreign resolution measures (Cross-Border Principles).
- The U.S. regime for recognition and support for foreign resolution measures comprises mainly court-based processes and supervisory measures.
- Chapter 15 of the U.S. Bankruptcy Code is the primary legal basis for recognition of foreign insolvency proceedings for FBOs, including GSIBs, with any U.S. branches or agencies; the general doctrine of comity offers another avenue.
- The DFA and the FDI Act lack a specific mechanism that would give prompt and predictable legal effect to foreign resolution measures by way of recognition or support.
  - Under the DFA—but not the FDI Act—the FDIC, as receiver for a failed BHC, is required to “coordinate” with foreign financial authorities, but any possible support under the DFA is only available after activating Title II and the FDIC being appointed as receiver for the failed BHC, which requires political decision-making and could delay support measures.
  - DFA does not apply to U.S. branches of FBOs.
- Chapter 15 and the doctrine of comity do not meet the expectations set by KA7.5:
  - Chapter 15 does not explicitly refer to foreign resolution decisions and excludes FBOs, including GSIBs, with any U.S. branch or agency from its scope.
  - U.S. courts could recognize a foreign proceeding pursuant to comity, but standards for such recognition are unclear where entities are excluded under Chapter 15; the doctrine’s effectiveness in resolving a large and complex financial company is untested.
- Recommendation: Statutory changes are needed to ensure giving prompt and predictable legal effect in the U.S. to foreign resolution measures through an administrative and/or judicial framework.
  - Introducing express provisions on support measures—and possibly also recognition processes—in both the DFA and the FDIC Act would help.
  - Extending OLA powers to cover U.S. branches of FBOs would help.
  - Bringing FBOs with U.S. branches or agencies within the scope of the U.S. Bankruptcy Code, and introducing therein express provisions on the recognition of foreign resolution decisions, would further improve the current recognition and support regime.

### Depositor preference for foreign branch deposits
- 2015 FSAP recommendation: extend the depositor preference rule to depositors of U.S. branches abroad, irrespective of where the deposits are payable.
- FDIC clarification (2013): the term “deposit liability” includes a foreign branch deposit only if it is a “dually payable deposit”; i.e., payable at both the foreign branch and at a U.S. office of the failed IDI.
- Dually payable deposits enjoy depositor preference, though only as an uninsured deposit.
- Consequence: National depositor preference in the United States discriminates based on the jurisdiction where deposits are payable, which is inconsistent with KA7.4.
- The FDIC’s clarification has not been tested in courts.
- Recommendation: A statutory provision giving equal ranking to foreign branch deposits and domestic deposits would provide greater certainty and could reduce contagion risk from loss of depositor confidence at U.S. banks’ branches abroad.

### Key statistics and factual figures (Box 4 and other points)
- At end-June 2019, 173 FBO branches held total U.S. assets of about US$2.3 trillion, of which about US$1.8 trillion was held by state-licensed branches.
- The two largest federally licensed branches had assets of about US$134 and US$123 billion.
- The six largest state-licensed branches were New York licensed; the three largest branches held assets ranging from US$101 billion to US$175 billion.
- Since December 19, 1991, foreign firms cannot establish insured branches in the United States; certain insured branches operating on that date were grandfathered, 10 of which are still in business.
- At end-June 2019, the largest two of the six insured state-licensed branches had assets over US$10 billion each; the largest of the four insured federally licensed branches had assets of about US$51 billion.
- Under state law (example: New York), a receiver may sell assets of a branch, other than real estate, with a value of up to US$50,000 without court approval.

*International Monetary Fund — United States: selected extracts on TLAC calibration, cross-border resolution, and related stability measures*

### 42.      Operational effectiveness of the U.S. DIS remained impressive during the 2008–2013

### Operational effectiveness of the U.S. DIS remained impressive during the 2008–2013 surge in failures

### P&A transactions and depositor access
- For failed IDIs, the FDIC’s preferred resolution method is a P&A transaction.
- P&A transactions are described as time-tested and cost-effective.
- Supported by effective recordkeeping by IDIs for timely deposit insurance determination (see Box 5), P&A transactions have provided access to insured—and often also uninsured—deposits within typically one business day.
- During the GFC the FDIC managed 489 IDI failures; the ability to ensure access to deposits in practice within one business day maintained the FDIC’s high standing for depositor protection.
- P&A transactions require several months of preparation by the FDIC—prior to the so-called “resolution weekend”—including marketing the troubled IDI to healthy IDIs and due diligence by prospective bidders.
- The bridge bank option is rarely used but remains an important resolution tool, particularly for large financial companies and in system-wide crises.

Box 5 — FDIC Recordkeeping Rules for IDIs (key points)
- The FDIC uses the claims administration system (CAS) to identify insured and uninsured deposits in failing and failed IDIs; CAS is mission-critical for prompt and accurate payments and for estimating uninsured deposits.
- Recordkeeping for Timely Deposit Insurance Determination Rule (12 C.F.R. Part 370): as of end-2019, 30 IDIs are either subject to or voluntarily comply with this Rule. These IDIs have either more than 2 million deposit accounts for two consecutive quarters or are affiliated with a qualifying IDI and have chosen to opt into the Rule. Of these 30 IDIs, 14 have over 5 million deposit accounts each.
- Large‐Bank Deposit Insurance Determination Modernization Rule (12 C.F.R. §360.9): as of May 1, 2020, this Rule applies to 148 IDIs with more than US$2 billion in deposits and at least either 250,000 deposit accounts or US$20 billion in total assets for two consecutive quarters.
- The remaining more than 3,000 IDIs are subject to a standard data request; FDIC staff works with these IDIs to ensure technical compliance and proper processing of the data.

### Deposit Insurance Fund (DIF) status and prospects
- The DIF is above its statutory minimum level (1.35 percent) and is progressing toward its long-term target (2 percent).
- By 2009Q3, the FDIC-administered DIF was fully depleted; by 2018Q3, the DIF completed a multi-year restoration plan.
- At end-2019, the DIF balance stood at US$110 billion and the reserve ratio at 1.41 percent of insured deposits, the highest level since 1999, and well above the 1.35 percent minimum level set by the DFA.
- The DIF also has over US$200 billion in public backstops and the ability to collect prepaid premiums from IDIs. The backstops include US$100 billion from the UST, which requires consultation with committees of each chamber of the U.S. Congress on the terms for repayment schemes and any special assessments on banks that are needed.
- The FDIC determined that a 2-percent long-term target is the minimum level needed to withstand future crises of the magnitude of past crises.
- Extrapolating its performance over the last six years, the FSAP team estimates that the DIF could meet this target in about six years, but this is unlikely due to a number of one-time factors over the last 5–6 years, including one-time assessment surcharges, a higher assessment rate schedule than currently in place, and low bank failure rates.

### Credit union DIS: funding structure and recommendations
- At end-2019, the NCUA insured around US$1.2 trillion in deposits for over 120 million depositors.
- The NCUSIF balance stood at US$16.7 billion at end-2019.
- Its largest member had over US$112 billion in assets at end-2019—up from around US$50 billion in 2015; the second largest members had over US$41 billion in assets at end-2019.
- The NCUSIF funding structure is highly procyclical: the first 1 percent of the NCUSIF balance is not paid-in but booked as deposits from credit union members, which become impaired on credit union balance sheets when the NCUSIF balance falls below 1 percent.
- The NCUSIF remains capped at 1.5 percent, and, as a result, only 0.5 percent could at most be paid in.
- Recommendation: legislative reform is needed, including mandatory membership for all credit unions (to ensure consistency with principle 8 of the Core Principles for Effective Deposit Insurance Systems) and targeting a much higher level of paid-in funds not constrained by a cap.

### Contingency planning, FDIC crisis readiness, and planned corrective actions
- Since the 2015 FSAP, authorities have continued financial crisis preparedness efforts including tabletop and playbook exercises at principals’ level and staff-level exercises on bridge banks, large bank failures, and mid-day liquidity failures.
- The FDIC developed a surge staffing plan for its Division of Resolutions and Receiverships and maintains an alumni network to quickly employ a qualified pool of former staff; it regularly recruits former bankers and improves access to contracting resources (lawyers, auditors).
- The FDIC OIG (report: “The FDIC’s Readiness for Crises,” April 2020) found several critical shortcomings in the FDIC governance framework for crisis readiness:
  - FDIC personnel could not identify documented crisis readiness planning procedures beyond a 2015 “Draft Procedure for Identification and Planning for External Risk Events,” which was never finalized and had not been updated since 2015.
  - The OIG concluded the FDIC does not have documented procedures to provide for a consistent crisis readiness planning process, lacks an overarching framework to integrate and coordinate crisis readiness activities across Divisions and Offices, and lacks a holistic Agency-wide approach and a common planning template.
  - The OIG made 11 recommendations, which the FDIC agreed to implement by end-March 2022, prioritizing agency-wide crisis preparedness and assigning responsibility to its Operating Committee for overseeing crisis readiness planning efforts.
- Box 6 — Planned FDIC Action to Improve Crisis Preparedness (summary of planned corrective actions):
  - Develop a corporate-wide crisis readiness directive that establishes policy for crisis planning and readiness, defines roles and responsibilities, and sets expectations for basic information that readiness plans should address.
  - Assign responsibility to the Operating Committee for overseeing crisis readiness planning efforts.
  - Develop crisis readiness procedures that expand on the policy, discuss methods of response, communicate roles and responsibilities, define expectations for readiness plan content and testing, and raise FDIC employee awareness.
  - Engage a crisis readiness consulting firm to advise on improving the crisis planning framework and implement agency-wide readiness plan(s).
  - Develop criteria for when agency-wide hazard-specific plans are needed and expand plans meeting the criteria.
  - Require readiness plans to state specialized training needs and increase training opportunities for staff to operate in stressful environments.
  - Establish criteria for tracking priority recommendations from plan exercises and require periodic certification by division and office directors that plans are up-to-date.
  - Ensure readiness plans are readily available and explore maintaining a central repository.
  - Develop a process for periodically assessing and reporting on the state of the FDIC’s agency-wide readiness.

### FSOC role and systemic crisis considerations
- The FSOC has had limited activity on traditional crisis preparedness; none of the five FSOC committees is responsible for crisis preparedness.
- The FSOC has focused less on how interagency cooperation would function in contingencies where risk reduction has not succeeded and a crisis has materialized; the FSOC’s design constrains its operations.
- Recommendation: the FSOC should more actively oversee and engage in crisis preparedness work, including advance collective crisis preparation and fine-tuning governance to ensure decisive and coordinated responses from the entire FSOC community as per a national crisis management plan.
- Authorities should consider how a future systemic financial crisis extending beyond the banking system would best be handled; the COVID-19 pandemic may be an example of such a scenario.
- Past crisis experience: the GFC began in the investment banking sector but spilled over into other sectors; crisis management actions were largely within the FRB and the FDIC when they interpreted mandates broadly and received urgent congressional funding. Future crises may originate in new types of failure and may involve agencies beyond the FBAs, requiring broader preparedness and coordination.

*Source: IMF Financial Sector Assessment Program chapter excerpt (1usaea2020005 - 42).*

### 49.      The FSOC should devote greater attention to preparing the modalities for crisis

### 1usaea2020005 - 49.      The FSOC should devote greater attention to preparing the modalities for crisis

### Crisis coordination and preparedness: findings
- The FSOC should devote greater attention to preparing the modalities for crisis coordination that could be activated at the time of a next financial crisis.
- Such modalities would not substitute for the FBAs’ statutory responsibilities, which they should continue to exercise autonomously.
- Interagency contingency planning is a fruitful role for the FSOC, particularly where crisis responses would require far more than individual agencies’ regular planning, such as national financial crisis communications, and in the rare possibility of a DFA Title II resolution without prior Title I planning. 75
- The FSOC should ensure that all member agencies and the UST have comprehensive and complementary organization-wide crisis preparedness plans to support the FSOC mandate and to decisively respond to system-wide contingencies.
- The FBAs should assess and put in place potential mitigating actions for a case in which several (larger) institutions will need to simultaneously activate their recovery or contingency funding plans.
- The increased role of the Treasury Secretary, as mandated by the DFA for activating several important crisis response tools, has not yet been tested in an actual crisis.
- Modalities for the interactions between the UST and the FBAs need to be operationalized, documented, and regularly reviewed and tested.
- A national financial crisis management communications plan should support actions of the FBAs and the UST, help strike the right tone of voice to transmit confidence—without overpromising—to prevent or end creditor runs, reduce variances in communications of the several agencies and UST, and ensure that, collectively, they speak with one voice to financial markets and the general public, and that all senior officials are using the same facts and assumptions. 76
- This work should be prioritized under the auspices of the FSOC.

### Policy recommendations and operational priorities
- Prioritize interagency contingency planning under FSOC auspices, focusing on:
  - National financial crisis communications.
  - Operationalized, documented, and regularly tested interaction modalities between the UST and FBAs.
  - Complementary organization-wide crisis preparedness plans across all FSOC member agencies and the UST.
- FBAs should:
  - Assess and prepare mitigating actions for scenarios where several larger institutions must simultaneously activate recovery or contingency funding plans.
  - Ensure their statutory responsibilities continue to be exercised autonomously while coordinating on system-wide contingencies.
- Develop and maintain a national financial crisis management communications plan that:
  - Supports FBAs and UST actions.
  - Seeks to prevent or end creditor runs by transmitting confidence without overpromising.
  - Reduces intra-government communication variances and ensures a unified public posture.
- Test the increased role of the Treasury Secretary under DFA through drills and exercises to validate decision-making procedures for crisis tools prior to an actual crisis.

### Relevant implementation status and context from 2015 FSAP recommendations (selected)
- Recommendation 20 (FSSA, ¶72): Assign formal crisis preparedness and management coordinating role to FSOC.
  - Implementation status: The FSOC has not assumed a crisis preparedness and management role under its existing statutory mandate to identifying risks to U.S. financial stability, to respond to emerging risks, and to facilitate close collaboration between the agencies whose heads sit on the FSOC. The FSOC was an informal forum for emerging issues, such as, Brexit, Hurricane Sandy, and MF Global’s bankruptcy.
- Recommendation 21 (FSSA, ¶77): Consider raising assessments, as bank profitability recovers, to reach the two percent deposit insurance fund target sooner.
  - Implementation status: The Deposit Insurance Fund grew from 1.09 percent in 2015Q3 (US$72.6 billion at end-2015) to 1.41 percent in 2019Q3 (US$110.3 billion at end-2019). The long-term goal stands at 2 percent.
- Recommendation 22 (FSSA, ¶78): With some credit unions potentially becoming systemic, enhance the deposit insurance regime by removing the cap, targeting a significantly higher level of paid-in funds, and making membership mandatory for all credit unions.
  - Implementation status: The deposit insurance system for credit unions was not changed on these points.

*Source: IMF staff summary of the chapter “The FSOC should devote greater attention to preparing the modalities for crisis coordination” from the provided PDF content.*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1usaea2020005.pdf_