Resolution Plan Assessment Framework and Firm Determinations (2016)
PrintAppendix A: Summaries of Firm-Specific Feedback Letters
This appendix provides a summary of the deficiencies identified by the Federal Reserve Board (Board) and the Federal Deposit Insurance Corporation (FDIC) for each firm in the letters to the firms and summaries of the specific actions that must be taken to address them.
A deficiency is an aspect of a firm's resolution plan that the agencies jointly determine presents a weakness that individually or in conjunction with other aspects could undermine the feasibility of the firm's plan. In this year's assessments of firms' plans, a lack of demonstrable progress in an area highlighted in the agencies' 2014 letter could also be the basis for a deficiency. If a deficiency has been identified, the firm must correct the identified weakness to avoid being subject to more stringent regulatory requirements or restrictions, as described in the statute.
A shortcoming is a weakness or gap that raises questions about the feasibility of a firm's plan, but does not rise to the level of a deficiency for both agencies. In some instances, a weakness that only one agency considers a deficiency is a shortcoming for purposes of the letters. A shortcoming may require additional analysis from the firm or additional work by the firm, or both. If the issue is not satisfactorily explained or addressed, it may be found to be a deficiency in the firm's next resolution plan.
The deficiencies and shortcomings reflect weaknesses that the agencies consider to be important; all must ultimately be addressed by the firms.
Bank of America, Bank of New York Mellon, JPMorgan Chase, State Street, Wells Fargo
In this Section:
Bank of America Corporation (BAC)
The agencies jointly determined that BAC's 2015 plan was not credible or would not facilitate an orderly resolution in bankruptcy and jointly identified the deficiencies described below to be remedied by October 2016.
BAC has identified improvements that need to be made to address weaknesses that could undermine the feasibility of its plan. While progress has been made in a range of areas, some resolution project plans, for instance related to liquidity, are not yet complete.
Deficiency: Liquidity
- Inadequate model and process for estimating and maintaining sufficient and readily available liquidity at material entities
Inadequate model and process for estimating the liquidity needed at material entities to fund resolution
Required remediation: To address this deficiency, BAC's 2016 submission must demonstrate that the firm has developed and implemented an acceptable model that is enhanced to ensure appropriate resource positioning in resolution. In addition, BAC must provide an enhanced model and process for estimating the minimum operating liquidity needed to fund material entities in resolution to ensure that material entities could continue operating consistent with regulatory requirements, market expectations, and BAC's post-failure strategy.
Deficiency: Governance mechanisms
Insufficiently developed triggers, particularly related to the down-streaming of resources to material entities and the timely filing of bankruptcy and related pre-filing actions
Required remediation: To address this deficiency, the firm must present a detailed project plan for establishing governance mechanisms to facilitate its proposed recapitalization and funding in resolution.
The agencies also identified several shortcomings in BAC's resolution plan that are described in its feedback letter. The agencies expect BAC to address these shortcomings by the time of its 2017 resolution plan submission.
Bank of New York Mellon (BNYM)
The agencies jointly determined that BNYM's 2015 plan was not credible or would not facilitate an orderly resolution in bankruptcy. The agencies jointly identified the deficiencies described below to be remedied by October 2016.
BNYM has made progress in a range of areas. However, the firm's preferred strategy and the continuity of critical operations were not fully supported.
Deficiency: Operational
Insufficient progress in identifying shared services and establishing contingency arrangements
Required remediation: By the 2016 submission, BNYM must identify all critical services; maintain a mapping of how/where these services support its core business lines and critical operations; and incorporate such mapping into its legal entity rationalization criteria and implementation efforts. Additionally, the 2016 submission must include detailed analysis addressing any operational continuity related risks and associated mitigants for these critical services.
Deficiency: Operational
Problematic assumptions and insufficient supporting analysis regarding its bridge bank strategy
Required remediation: BNYM may address the issues underlying this deficiency by presenting an alternative strategy or by remediating each of the three concerns identified. In the 2016 submission, BNYM should explain how these concerns have been resolved or describe any alternative strategy it intends to present in its 2017 plan, as well as an action plan for achieving an executable strategy by July 2017, consistent with the guidance provided in the letter.
Deficiency: Legal entity rationalization
Lack of progress in implementing its legal entity rationalization criteria across all material entities
Required remediation: By the 2016 submission, BNYM must meet the deadlines provided in the project plan submitted to the agencies to align legal entity structure with legal entity rationalization criteria. BNYM must demonstrate the existence of a governance process regarding legal entity rationalization that is intended to ensure the legal entity rationalization criteria are applied and adhered to on an ongoing basis, including with respect to decisions regarding new legal entities and business activities.
The agencies also identified several shortcomings in BNYM's resolution plan that are described in its feedback letter. The agencies expect BNYM to address these shortcomings by the time of its 2017 resolution plan submission.
JPMorgan Chase (JPMC)
The agencies jointly determined that JPMC's 2015 plan was not credible or would not facilitate an orderly resolution in bankruptcy. The agencies jointly identified the deficiencies described below to be remedied by October 2016.
JPMC has made notable progress in a range of areas. However, particularly related to liquidity and legal entity rationalization, the firm has key vulnerabilities that could undermine the feasibility of the plan.
Deficiency: Liquidity
- Inadequate model and process for estimating and maintaining sufficient and readily available liquidity at material entities
Inadequate model and process for estimating the liquidity needed at material entities to fund resolution
Required remediation: To address this deficiency, JPMC must demonstrate in the 2016 submission that the firm has developed and implemented an appropriate model for resolution liquidity adequacy and positioning. JPMC also must provide in the 2016 submission an enhanced model and process for estimating the minimum liquidity needed to fund material entities in resolution to ensure that material entities could continue operating consistent with regulatory requirements, market expectations, and JPMC's post-failure strategy.
Deficiency: Legal entity rationalization
- Inadequate legal entity rationalization criteria
Inadequate divestiture options and insufficient actionability of cited options
Required remediation: To address this deficiency, JPMC's 2016 submission should establish criteria that (i) are clear and actionable and promote the best alignment of legal entities and business lines to improve the firm's resolvability, and (ii) include the facilitation of the recapitalization of material entities prior to parent's bankruptcy filing. The 2016 submission should also include divestiture options that enable meaningful optionality and include detailed, business line specific analysis of the full range of obstacles to divestiture and associated mitigants, as well as an identification of potential buyers.
Deficiency: Derivatives and trading activities
Insufficient support for the firm's "shrink" strategy and lack of a contingency plan
Required remediation: The 2016 submission should address this deficiency by including an analysis and rating agency playbook for maintaining, reestablishing or establishing investment grade ratings for relevant material entities, and estimating the financial resources required to support an orderly active wind-down of the derivatives portfolio in the event that investment-grade ratings for the trading entities fail to be maintained, or reestablished post-bankruptcy filing and a passive wind-down strategy is suboptimal.
Deficiency: Governance mechanisms
Insufficiently developed triggers, particularly given reliance on the timely filing of bankruptcy to facilitate an orderly "shrink" strategy
Required remediation: To address this deficiency, the 2016 submission must amend, or include a project plan to amend, the board of directors' playbooks submitted in the 2015 plan. The amended playbooks must include clearly identified triggers linked to specific resolution-related actions; the triggers should incorporate JPMC's methodologies for forecasting the liquidity and capital needed to operate following a bankruptcy filing.
The agencies also identified several shortcomings in JPMC's resolution plan that are described in its feedback letter. The agencies expect JPMC to address these shortcomings by the time of its 2017 resolution plan submission.
State Street Corporation (STT)
The agencies jointly determined that STT's 2015 plan was not credible or would not facilitate an orderly resolution in bankruptcy. The agencies jointly identified the deficiencies described below to be remedied by October 2016.
STT has made progress in some areas. However, the plan contained notable weaknesses in areas related to operational (shared services) and liquidity methodology.
Deficiency: Operational
Insufficient progress in identifying shared services and establishing contingency arrangements
Required remediation: To address this deficiency, by the 2016 submission STT must identify all critical services necessary to support material entities; maintain a mapping of how/where these services support its core business lines and critical operations; and incorporate such mapping into its legal entity rationalization criteria and implementation efforts (i.e., stating all critical services are provided in the bank chain does not suffice).
Deficiency: Legal entity rationalization
Underdeveloped legal entity rationalization criteria
Remediation required: To address this deficiency, STT's 2016 submission must establish criteria that (i) are clear and actionable and promote the best alignment of legal entities and business lines to improve the firm's resolvability, and (ii) include the facilitation of the recapitalization of material entities prior to the resolution period. The 2016 submission also should reflect that STT has established governance procedures to ensure its revised legal entity rationalization criteria are applied on an ongoing basis.
Deficiency: Capital
Questionable assumptions regarding capital levels needed to execute the resolution strategy
Required remediation: To address the deficiency, the 2016 submission must include a revised capital projection in resolution that meets or exceeds the prompt corrective action well-capitalized standard for total risk-based capital and tier 1 leverage.
Deficiency: Liquidity
Inadequate analysis and modelling of liquidity needed to support all material entities in resolution
Required remediation: To address this deficiency, in the 2016 submission STT must provide an enhanced model and process for estimating the minimum liquidity needed to fund material entities in resolution to ensure that material entities can continue operating consistent with regulatory requirements, market expectations, and STT's post-failure strategy and supporting the provision of payment, clearing and settlement services to clients.
The agencies also identified several shortcomings in STT's resolution plan that are described in its feedback letter. The agencies expect STT to address these shortcomings by the time of its 2017 resolution plan submission.
Wells Fargo Corporation (WFC)
In November 2014, the agencies only identified shortcomings that were required to be, but were not sufficiently addressed, in the 2015 plan. The agencies jointly determined that WFC's 2015 plan was not credible or would not facilitate an orderly resolution in bankruptcy. The agencies jointly identified the deficiencies described below to be remedied by October 2016.
The firm's 2015 plan exhibited a lack of governance and certain operational capabilities necessary to execute the firm's resolution strategy.
Deficiency: Governance
Material errors in plan that undermine confidence in resolution planning preparedness
Required remediation: To address this deficiency, WFC must demonstrate in its 2016 submission that it has implemented a robust process to ensure quality control and accuracy regarding its resolution plan submissions and the consistency of financial and other information reported for material legal entities and other elements of its resolution plan.
Deficiency: Operational
- Insufficient progress toward identifying shared services and establishing contingency arrangements
Insufficient progress in addressing operational capabilities required to execute WFC's divestiture and regional segment plan
Required remediation: By the 2016 submission, WFC must identify all critical services necessary to support its material entities and regional segments identified for disposition; a mapping of how/where these services support the firm's core business lines, critical operations, and regional units that the firm plans to dispose of as part of its resolution strategy; and incorporation of such mapping into its legal entity rationalization criteria and implementation efforts (i.e., stating all critical services are provided in the bank chain does not suffice).
Deficiency: Legal entity rationalization
Underdeveloped legal entity rationalization criteria
Required remediation: To address this deficiency, WFC's 2016 submission must establish legal entity rationalization criteria that (i) are clear, actionable, and promote the best alignment of legal entities and business lines to improve the firm's resolvability, and (ii) govern the firm's corporate structure and arrangements between legal entities in a way that facilitates the firm's resolvability as its activities, technology, business models, or geographic footprint change over time. The 2016 submission also must demonstrate that the regional separation in its 2015 plan is sufficiently actionable by including detailed information for each regional unit.
Citigroup, Goldman Sachs, Morgan Stanley
In this Section:
Citigroup, Inc. (Citi)
The agencies jointly identified shortcomings, however, neither agency identified deficiencies with regard to Citi's 2015 plan.
Citi has made notable progress in a number of areas, including legal entity rationalization and separability, liquidity positioning, and operational (shared services). While the agencies found weaknesses, particularly with regards to governance triggers, none of those rose to the level of a deficiency.
The shortcomings must be addressed in the firm's July 2017 plan.
Goldman Sachs (GS)
The agencies jointly identified weaknesses with regard to the 2015 plan of GS but did not make a joint determination regarding the plan and its deficiencies. The FDIC found that the plan submitted by GS was not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code and identified deficiencies.
GS has made notable progress in a range of areas, including legal entity rationalization and liquidity position. However, the firm exhibited particular weaknesses, specifically related to derivatives and liquidity methodology (post resolution).
Because the agencies did not make joint findings regarding the plan and its deficiencies, the identified weaknesses constitute shortcomings required to be addressed in the July 2017 resolution plan.
Morgan Stanley (MS)
The agencies jointly identified weaknesses with regard to the 2015 plan of MS but did not make a joint determination regarding the plan and its deficiency. The Board identified one deficiency in the plan submitted by MS and found that the plan was not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code.
The firm provided a plan that analyzed in detail several key vulnerabilities associated with its strategy. Notable progress was made with the firm's liquidity methodology (post-resolution) and its governance mechanisms. However, the firm exhibited a particular weakness related to its resolution-related liquidity position.
Because the agencies did not make joint findings regarding the plan and its deficiencies, the identified weakness constitutes a shortcoming required to be addressed in the July 2017 resolution plan.
