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2015 Annual Report

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I. Management’s Discussion and Analysis

The Year in Review


Complex Financial Institutions Program

The FDIC is committed to addressing the unique challenges associated with the supervision, insurance, and potential resolution of large and complex financial institutions. The FDIC’s ability to analyze and respond to risks in these institutions is particularly important, as they comprise a significant share of banking industry assets and deposits. The FDIC’s programs related to complex financial institutions provide for a consistent approach to large bank supervision nationwide, allow for the identification and analysis of industry-wide and institution-specific risks and emerging issues, and enable a quick response to these risks. Given the concentration of risk in these institutions, the FDIC has expanded its activities at the nation’s largest and most complex institutions through additional and enhanced on-site and off-site monitoring and supervision as well as close coordination with other federal agencies.

The Dodd-Frank Act expanded the FDIC’s responsibilities pertaining to systemically important financial institutions (SIFIs) and non-bank financial companies designated by the Financial Stability Oversight Council (FSOC). With regard to the largest, most complex SIFIs, the FDIC’s Complex Financial Institutions (CFI) program activities include ongoing risk monitoring, backup supervision of their related IDIs, and evaluation of required resolution plans. CFI program activities related to FSOC-designated non-bank companies also include ongoing risk monitoring and evaluation of required resolution plans. In addition, the CFI program performs other analyses that support the FDIC’s role as an FSOC member.

Risk Monitoring Activities for Systemically Important Financial Institutions

The FDIC monitors risks related to SIFIs at both the individual company level and industry wide to inform supervisory attention and response, policy and guidance considerations, and resolution planning efforts. To do this, the FDIC analyzes each company’s risk profile, governance and risk management capabilities, structure and interdependencies, business operation and activities, management information system capabilities, and recovery and resolution capabilities.

The FDIC continues to work closely with other federal regulators to analyze institution-specific and industry-wide conditions and trends, emerging risks and outliers, risk management and the potential risk posed to financial stability by SIFIs and non-bank financial companies. In 2015, FDIC staff participated in 70 examinations with the FRB and OCC, including, but not limited to, engagement in Comprehensive Capital Analysis and Reviews (CCAR)/Dodd-Frank Act Stress Testing (DFAST), Comprehensive Liquidity Analysis and Reviews (CLAR), and the Shared National Credit (SNC) Reviews. Additionally, the FDIC added resources with quantitative modeling expertise, which supported many of the aforementioned efforts and additional activities that included Basel qualification reviews, quantitative model reviews, model validation reviews, and internal training. Also, in 2015, the FDIC participated in the FRB’s Supervisory Assessment of Recovery and Resolution Preparedness program in an effort to assess firms’ management information system capabilities related to recovery and resolution. Lastly, the FDIC collaborated with the FRB on Dodd-Frank Act Title I resolution plan assessments.

To support risk monitoring that informs supervisory and resolution planning efforts, the FDIC developed systems and reports that make extensive use of structured and unstructured data. SIFI monitoring reports are prepared on a routine and ad-hoc basis and cover a variety of aspects that include risk component, business line and activity, market trends, and product analysis. Additionally, the FDIC has implemented and continues to expand upon various systems, including the Systemic Monitoring System (SMS). The SMS provides an individual risk profile and assessment for each SIFI by evaluating the level and change in metrics that serve as important barometers of overall risk. The SMS supports the identification of emerging risks within individual firms and the prioritization of supervisory and monitoring activities. The SMS also serves as an early warning system of financial vulnerability by gauging a firm’s proximity and speed to resolution event. Information from FDIC-prepared reports and systems are used to prioritize activities relating to SIFIs and coordinate and communicate with the FRB and OCC.

The FDIC also conducted semi-annual “Day of Risk” meetings to present, discuss, and prioritize the review of emerging risks. For each major risk, executive management discussed the nature of the risk, exposures of SIFIs, and planned supervisory efforts.

Backup Supervision Activities for IDIs of Systemically Important Financial Institutions

Risk monitoring is enhanced by the FDIC’s backup supervision activities. In the FDIC’s backup supervisory role, as outlined in Sections 8 and 10 of the FDI Act, the FDIC has expanded resources and developed and implemented policies and procedures to guide backup supervisory activities. These activities include performing analyses of industry conditions and trends, insurance pricing support, participating in supervisory activities with other regulatory agencies, and exercising examination and enforcement authorities when necessary. At institutions where the FDIC is not the primary federal regulator (PFR), staff works closely with other financial institution regulatory authorities to identify emerging risk and assess the overall risk profile of large and complex institutions. The FDIC, the FRB, and the OCC operate under a Memorandum of Understanding (MOU) that establishes guidelines for coordination and cooperation to carry out their respective responsibilities, including the FDIC’s role as insurer and supervisor. Under this agreement, the FDIC has assigned dedicated staff to systemically important and large, complex regional banking organizations to enhance risk identification capabilities and facilitate the communication of supervisory information. These individuals work closely with PFR staff in the ongoing monitoring of risk at their assigned institutions.

Title I Resolution Plans

The Dodd-Frank Act requires that certain large banking organizations and nonbank financial companies designated by the FSOC for supervision by the FRB periodically submit resolution plans to the FRB and the FDIC. Each Title I resolution plan, commonly known as a living will, must describe the company’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company. Twelve large and complex banking organizations must file resolution plans in July and the remaining firms file plans in December.

July Filers

The 12 firms filing in July are Bank of America Corporation, Bank of New York Mellon Corporation, Barclays PLC, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group, Inc., JPMorgan Chase & Co., Morgan Stanley, State Street Corporation, UBS AG, and Wells Fargo & Company.

As a follow-up to the specific feedback the FRB and the FDIC provided to these firms in August 2014, the agencies initiated measures to improve communication with the firms regarding expectations for the July 1, 2015, resolution plan submissions. In fourth quarter 2014, the agencies provided the 12 firms with the opportunity to submit a preview of the key aspects of their planned July 2015 Title I resolution plan submissions.

Almost all firms submitted preview documents to the agencies by year-end 2014, and the agencies provided written feedback on the documents to the firms in February. In addition, the agencies held a joint meeting with the firms on February 25, 2015, to answer questions and communicate industry-wide issues regarding resolution plans. The agencies’ staff also met with the firms individually, on several occasions, during the first and second quarters of 2015 to discuss their upcoming submissions. The FDIC and the FRB are now reviewing the 2015 plan submissions from the 12 firms.

December Filers

By December 31, 2014, the December filers had submitted their second resolution plans. In July 2015, after reviewing those plans, the FDIC and the FRB provided the 119 firms with guidance, clarification, and direction for their 2015 submissions based on the relative size and scope of each firm’s U.S. operations. Plan requirements were tiered, with less complex firms filing more streamlined plans as follows:

In July 2015, the agencies also released an updated tailored resolution plan template for the December filers’ plans. The optional template, which is intended to facilitate the preparation of tailored resolution plans, focuses on the nonbanking operations of the company and on the interconnections and interdependencies between its nonbanking and banking operations.

By December 31, 2015, 122 December filers had submitted plans to the agencies. The FDIC and the FRB are reviewing those plans.

Nonbank Firms

On July 28, 2015, the FRB and the FDIC provided feedback by joint letter to American International Group, Inc. (AIG), General Electric Capital Corporation, Inc. (GECC), and Prudential, Inc., regarding their initial resolution plans and guidance for their year-end 2015 filings. The agencies tailored their feedback to account for each company’s unique business, structure, and operations. In addition to the specific guidance given to each company, the letters included some common themes that the firms should address. Those areas included the need for more detailed information on, and analysis of, obstacles to resolvability, including global cooperation, interconnectedness, and adequate funding and liquidity. Further, the agencies instructed the firms to describe in their resolution plans the progress they are making, and the steps remaining, to be more resolvable. Finally, the agencies directed the firms to strengthen the public portions of the firms’ 2015 resolution plans.

The three nonbank firms submitted the second version of their annual resolution plans in December 2015. The FRB and the FDIC are currently reviewing those plans.

On March 26, 2015, the agencies permanently adjusted the annual resolution plan filing deadline for nonbank financial companies—AIG, GECC, MetLife, Inc., and Prudential, Inc.—from July 1 to December 31, beginning in 2016. The agencies had temporarily extended the 2015 resolution plan deadlines for the nonbank firms to December 31st. In addition, MetLife was designated as systemically important on December 18, 2014, and will submit its first resolution plan by December 31, 2016.

Insured Depository Institution Resolution Plans

Section 360.10 of the FDIC Rules and Regulations requires all IDIs with assets greater than $50 billion to submit resolution plans to the FDIC (IDI Rule). The IDI Rule requires each IDI meeting the criteria to provide a resolution plan that should allow the FDIC as receiver to resolve the IDI in an orderly manner that enables prompt access of insured deposits, maximizes the return from the failed IDI’s assets, and minimizes losses realized by creditors and the DIF.

Based upon a review of IDI plans submitted before and during 2014, the FDIC issued guidance in December 2014 for resolution plans required by the IDI Rule. Under the guidance, a covered IDI must provide a fully developed discussion and analysis of a range of realistic resolution strategies. To assist IDIs in writing their plans, the guidance includes direction regarding the elements that should be discussed in a fully developed resolution strategy and the cost analysis, clarification regarding assumptions made in the plan, and a list of significant obstacles to an orderly and least costly resolution that IDIs should address. The guidance applies to the resolution plans of 36 IDIs covered by the IDI Rule, as well as any new IDI meeting the threshold, commencing with the 2015 resolution plan submissions. The FDIC is reviewing the 10 IDI resolution plans that were submitted by September 1, 2015, and the 26 remaining IDI resolution plans that were submitted by December 31, 2015. The FDIC is conducting a review focused on the insolvency scenario, strategy and funding, readiness, and corporate governance.

Title II Resolution Strategy Development

Under the Dodd-Frank Act, failed or failing financial companies are expected to file for reorganization or liquidation under the U.S. Bankruptcy Code, just as any failed or failing nonfinancial company would file. If resolution under the Bankruptcy Code would result in serious adverse effects to U.S. financial stability, the Orderly Liquidation Authority (OLA) set out in Title II of the Dodd-Frank Act provides a backup authority to the bankruptcy process. There are strict parameters on its use, however, and it can only be invoked under a statutorily prescribed recommendation and determination process, coupled with an expedited judicial review process.

The FDIC has been developing strategies, including an approach referred to as “Single Point of Entry,” to carry out its orderly liquidation authorities. Firm-specific resolution strategies for each SIFI continue to be developed and refined. In addition, preliminary work has begun with respect to developing resolution strategies for the nonbank firms and systemically important financial market utilities, particularly central counterparties (CCP).

To evaluate the requirements for carrying out a Title II resolution, and to identify areas of further development, the FDIC conducted an operational exercise in 2015. This exercise included senior FDIC managers and staff representing areas within the organization that would be responsible for executing a resolution under Title II of the Dodd-Frank Act. Participants discussed the primary actions that would occur during the initial appointment of the FDIC as receiver of a SIFI and the stabilization phase immediately following appointment. The exercise validated the current Title II planning efforts and enhanced organizational cooperation and awareness, in addition to identifying areas for further work.

Cross-Border Efforts

Advance planning and cross-border coordination for the resolution of G-SIFIs will be essential to minimizing disruptions to global financial markets. Recognizing that G-SIFIs create complex international legal and operational concerns, the FDIC continues to reach out to foreign regulators to establish frameworks for effective cross-border cooperation.

During 2015, the FDIC continued to coordinate with representatives from European authorities to discuss issues of mutual interest, including the resolution of European G-SIFIs and harmonization of receivership actions. The FDIC and the European Commission (EC) continued their engagement through the joint Working Group, which is composed of FDIC and EC senior executives who meet to focus on both resolution and deposit insurance issues. The Working Group meets twice a year with other interim interchanges, including the exchanging of staff members. Discussions were held in 2015 concerning cross-border bank resolution and CCP resolution, among other topics. The FDIC also continued its deep cooperation with the Single Resolution Board on technical aspects of resolution, including through staff level exchanges. .

The FDIC continued its relationships with other jurisdictions that regulate G-SIFIs, including the United Kingdom (U.K.), Switzerland, Germany, France, and Japan. In 2015, the FDIC had significant principal and staff-level engagements with these countries to discuss cross-border issues and potential impediments that would affect the resolution of a G-SIFI. This included hosting a delegation from Japan in February to discuss cross-border issues related to resolution in both respective jurisdictions. Similar staff-level engagements took place with the U.K. and Switzerland, such as the U.K.-U.S. Financial Market Infrastructure working group, which meets to discuss resolvability considerations and develop common approaches concerning financial market infrastructures in the United Kingdom and the United States. This work will continue in 2016 with plans to host tabletop exercises with regulatory staff from certain of these jurisdictions.

Systemic Resolution Advisory Committee

In 2011, the FDIC Board approved the creation of the Systemic Resolution Advisory Committee (SRAC). The SRAC provides important advice to the FDIC regarding systemic resolutions and advises the FDIC on a variety of issues, including the following:

Members of the SRAC have a wide range of experience, including managing complex firms; administering bankruptcies; and working in the legal system, accounting field, and academia. The last meeting of the SRAC was held in December 2014. The SRAC discussed, among other topics, resolution plans and bankruptcy, resolution plan transparency, international developments, International Swaps and Derivatives Association protocol, and orderly liquidation updates. In 2015, the charter of the SRAC was renewed. The next meeting is scheduled to be held in 2016.

Financial Stability Oversight Council

The FSOC was created by the Dodd-Frank Act in July 2010 to promote the financial stability of the United States. It is composed of ten voting members, including the Chairperson of the FDIC, and five non-voting members.

The FSOC’s responsibilities include the following:

In 2015, the FSOC issued its fifth annual report. Generally, at each of its meetings, the FSOC discusses various risk issues. In 2015, the FSOC meetings addressed, among other topics, U.S. fiscal issues, interest rate risk, credit risk, cybersecurity, and nonbank financial company designations.


2 Notice entitled, “Resolution of Systemically Important Financial Institutions: The Single Point of Entry Strategy,” 78 Fed. Reg. 76614 (Dec. 18, 2013).


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