The Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board (FRB), recently provided the determinations and firm-specific feedback on the 2015 resolution plans submitted by eight systemically important, domestic banking institutions.1 The resolution plan, more commonly known as “Living Wills,” is a statutory standard established under the Dodd-Frank Act, to monitor and limit the risk that systematically important financial institutions (SIFIs) could pose to the US economy and financial system.2

The resolution planning process enables the joint agencies to assess whether a firm could be resolved under bankruptcy without severe and adverse consequences for the financial system or the US economy. Each covered firm subject to the requirement must submit its plan for rapid and orderly resolution under bankruptcy, in the event of material financial distress or failure. Although the determination process, is firm and issue specific, and independently reviewed by both the FRB, the resolution plans are collectively evaluated across 7 key elements (see below).3

Element Key Requirements
I. Capital
  • Minimum amount of Total Loss Absorbing Capital (TLAC) – Internal/External
  • Resolution Capital Execution Needs (RCEN)
  • Analysis supporting positioning
II. Liquidity
  • Liquidity to execute resolution strategy
  • Resolution Liquidity Adequacy and Positioning (RLAP), Resolution Liquidity Execution Needs (RLEN) metrics
  • Conduct Liquidity Stress Testing
III. Governance Mechanisms
  • Governance structure with pre-action triggers capable of identifying the onset
  • Governance playbook detailing actions to facilitate firm’s preferred strategy
IV. Operational Capabilities
  • Playbook – Payment, Clearing and Settlement
  • Capabilities – manage, identify and value collateral (SR 14-1)
  • Engage in regular contingency planning
V. Legal Entity Rationalization
  • Development of legal entity rationalization criteria to achieve and maintain a structure that facilitates orderly resolution and protects insured depository institutions
VI. Derivatives and Trading Activities


  • Transparency with strong system capabilities
  • Passive/Active Wind-Down Analysis
VII. Responsiveness


  • Incorporate agency guidance in developing future plans
View the image. Source: Accenture, analysis based upon publicly available documents.
View the image. Source: Accenture, analysis based upon publicly available documents.

Raising the Bar

With the current political discourse rife with “Too Big To Fail”, the agencies seem to have stepped up their expectations of large banking units in improving their resolvability. In contrast to 2014 filings where none of the plans were jointly deemed “non-credible” (though FDIC’s own assessment tagged all to be not credible), five of the eight plans were handed the dubious verdict, two by at least one agency while only one of the banks  met the joint regulatory expectations for a credible plan. The five plans jointly graded as “non-credible” will be required to remediate highlighted “deficiencies” by October 2016. “Shortcomings,” however, were identified in all the plans but the institutions will have till the next filing (July 2017) to close such identified gaps.4

There appears to be an increased sense of transparency and clarity around the regulators’ assessment criteria and the effort to apply these in a consistent manner across the submitted plans. Additionally, the agencies seem to be sending a clear message that their feedback and findings need to be actioned and incorporated into subsequent plans. In multiple cases deficiencies were related to either a lack of responsiveness to prior regulatory feedback or insufficient progress in implementing previously agreed upon plans.  Although the lack of responsiveness was not cited as a direct deficiency or shortcoming requiring remediation (see below), regulators have raised issue with lack of progress in incorporating feedback in other areas of assessment.

Making an Impact

The failing marks at five of the eight largest US banks reveal the significant challenges that large and complex institutions contend with in proposing a sound plan for rapid and orderly resolution. The feedback on the plans point to three themes the agencies seem to be focusing on and that are expected to impact how banking organizations approach resolution and recovery exercises.

Strategic decisions and business as usual activities should take into account resolution and recovery

It is evident from the feedback that regulators want banks to become less complex.  In assessing the banks’ Legal Entity Rationalization Criteria the agencies have focused on how well defined the criteria for legal entity rationalization is and how much impact resolution and recovery considerations have on strategic decisions around defining corporate structure. As per regulatory requirements, clearly defined and actionable policies and procedures will need to be enacted (or existing policies/procedures reviewed). These should govern how the legal structure of the banking entities are shaped, at the same time demonstrating the ability to wind-down in case of bankruptcy.

From a business Operations Capabilities perspective, beyond having sound infrastructure and processes, there seems to be an increased focus on how well “shared operating functions” (such as IT, Operations ) are identified and mapped to core business functions or lines of business( LOBs). The agencies highlighted the need for service-level agreements (SLAs) that in a time of resolution would maintain continued operations in the event such business units were acquired by a new party. Banks should embark on robust exercises to identify what core functions are shared across their business lines and define the interconnectedness and dependencies across each of them so as to establish the appropriate SLAs.

Board of Directors and Senior Management oversight is much more scripted and prescriptive

The feedback from regulators indicates a much higher expectation as to how senior management and in particular the board of directors (BoD) will orchestrate Governance Mechanisms in a period of stress or resolution. The BoD Playbook is expected to have a very detailed level of triggers that would activate some sequence of decisions to be taken. Such triggers and actions would require developing BoD policies and procedures covering a wide scope, high degree of traceability (i.e. any given trigger could require an action or vice versa) and specificity (e.g. how much capital or liquidity to inject).

Level of sophistication and rigor for models/estimation techniques is expected to be higher

While there were no explicit or direct objections to the levels of Capital and Liquidity required during periods of resolution included in any of the plans, deficiencies were highlighted in the level of sophistication for assumptions and processes used for estimation. The agencies clearly expect the banks to simulate close-to-real scenarios and take into account any and all intricacies that could impact a bank’s liquidity and capital profile in a period of stress and resolution. Addressing the agencies’ expectations would require banks to not only have sophisticated forecasting techniques in place, but take into consideration scenarios and capital and liquidity forecasts in their business as usual decision-making processes (such as policies and procedures).

How Accenture Can Help

Accenture has a wealth of experience working with a broad range of financial services firms across the globe to help them shape business strategy and global business operating models and deliver complex solutions.

Though living wills are in theory a response to a regulatory requirement, it is Accenture’s view that these should be used by firms as a platform to review their strategy and business models, while  seeking to gain some return from the significant investment made to meet the minimum requirements.

It is expected that in many cases firms will want to instigate major projects to address some of the issues arising from the regulatory work. Accenture with its track record of delivering client projects and broad understanding of the global and local regulatory agendas driving changes across the industry can provide support for a wide range of initiatives across the enterprise, across functions and across regions.


  1. “Agencies Announce Determinations and Provide Feedback on Resolution Plans of Eight Systemically Important, Domestic Banking Institutions,” Board of Governors of the Federal Reserve System, Press release, April 13, 2016. Access at:
  2. “Guidance for 2013 §165 (d) Annual Resolution Plan Submissions by Domestic Covered Companies that Submitted Initial Resolution Plans in 2012,” Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System. Access at:
  3. “Resolution Plan Assessment Framework and Firm Determinations (2016),” Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, April 13, 2016. Access at:
  4. Ibid

Newsletter Author: Sitwat Kazmi, Michael Kim

Newsletter Contact Person: Samantha Regan

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