Resolution Plan Assessment Framework and Firm Determinations (2016)
PrintObjectives of the Resolution Planning Process
The goal of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) resolution planning process is to help ensure that a firm's failure would not have serious adverse effects on financial stability in the United States. The Dodd-Frank Act requires the Federal Reserve Board and the Federal Deposit Insurance Corporation to review resolution plans. If the agencies jointly determine that a company's plan is not credible or would not facilitate orderly resolution under the U.S. Bankruptcy Code, the firm must take steps to remedy the specific deficiencies in its plan as jointly identified by the agencies.
Specifically, the resolution planning process requires firms to demonstrate that they have adequately assessed the challenges that their structure and business activities pose to resolution and that they have taken action to address those issues. They must also confront the resolution consequences of their day-to-day management decisions on a continual basis, particularly those related to structure, business activities, capital and liquidity allocation, and governance. Firms are also expected to create a meaningful set of options for selling operations and business lines to generate resources and to allow for restructuring under stress, including through the sale or wind-down of discrete businesses that could further minimize the direct impact of distress or failure on the broader financial system.
The resolution planning process does not focus narrowly on simplistic measures such as size or business type. Nor is it focused on a single solution for all firms. Instead, it is a company-specific process that requires firms to confront the details of their potential resolution in advance. The process works largely by requiring firms to make resolution planning an ongoing institutional aim. The development of resolution plans compels firms to rationalize their structures, create resolution strategies and mechanisms for their successful implementation, identify and marshal necessary resources, and consider resolvability as part of day-to-day decisionmaking. While these measures cannot guarantee that a firm's resolution would be simple or smoothly executed, the preparations can help ensure that the firm could be resolved under bankruptcy without government support or imperiling the broader financial system. The agencies' assessment of each firm's plan and the subsequent feedback and guidance are intended to facilitate development of the firm's plan. However, the responsibility for assessing the challenges to an orderly resolution presented by its unique operations and structure, and for developing a plan that would facilitate rapid and orderly resolution under bankruptcy, remains with the firm itself.
