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- Key insight: Gould says Covered Insured Depository Institution resolution plans, or CIDI plans, are not founded in statute and outsource regulators’ core mission, while big-bank 165(d) plans are more clearly mandated by Congress.
- Supporting data: Major firms like Silicon Valley Bank failed in 2023 despite the existence of these plans, he notes.
- Forward look: Comptroller Gould called for reducing the frequency of filings and ensuring guidance isn’t binding.
Comptroller of the Currency Jonathan Gould Friday made the case for eliminating a requirement that banks with more than $50 billion of assets produce detailed resolution plans, arguing the plans are not explicitly required by the Dodd-Frank Act or any other law.
Delivering a speech to the American Bar Association’s Banking Law Committee, Gould — who, as Comptroller, sits on the Federal Deposit Insurance Corp. Board of Directors — argued the resolution plans required under the FDIC’s Covered Insured Depository Institutions rule, or CIDI rule, does not have an explicit basis in statute. What is more, the requirement that banks develop these plans effectively outsources one of the FDIC’s core responsibilities to the institutions it is meant to oversee.
Gould also suggested reducing the frequency of broader, bankruptcy-oriented resolution plans that large bank holding companies submit under Dodd-Frank, as well as shifting responsibility for failure resolution to the agencies, rather than the private sector.
“The business of banking does not include planning for one’s failure,” Gould said. “Encouraging or requiring banks, particularly the smaller covered banks, to structure themselves to fail is just another facet of too low a risk tolerance for our banking system, and such structures can hinder banks’ efficient delivery of services to their customers.”
Gould argued bank resolution planning has become an expensive overly process-driven exercise, but failed to reduce the cost of resolution in a meaningful way. While he makes clear he is not against pushing boundaries when the law is unclear, Gould argues the FDIC clearly exceeded its statutory authority with CIDI plans.
“As a general matter, I think agencies may (and in some cases perhaps should) explore the limits of their statutory authority to achieve the clarity that a statute may on its face lack; we have courts to tell them when they overstep,” Gould said. “But I believe it is harmful to the legitimacy of any agency and the rule of law to clearly exceed the agency’s statutory authority… we have an obligation to correct it now to reduce such harms (sic).”
The plans, he argues, effectively outsource the agency’s statutory authority to act as a receiver when banks fail and failed to prevent the 2023 failures of Silicon Valley Bank and First Republic or the subsequent losses to the Deposit Insurance Fund. The plans give regulators influence over banks’ internal operations and governance, he argues.
Unlike CIDI Plans, 165(d) Plans are more prescriptively mandated by Congress. Gould says it makes sense for bank management to be involved in 165(d) Plans because they operate under the U.S. Bankruptcy Code, where management historically prepares and presents a plan for court approval.
While 165(d) plans cannot be eliminated entirely, Gould criticizes the use of agency guidance, which can influence when and how a bank enters bankruptcy.
“If there is little incremental value to be gained in additional resolution plan submissions, as I suspect, then one submission every five to ten years, refreshing the information in plans to the extent it has changed seems perfectly reasonable to me,” Gould said. “Taking a hard look at resolution planning ‘guidance,’ identifying effectively binding requirements, and either rescinding those requirements or proposing them in an actual binding rule would also seem like an initial — and potentially legally obligatory — step toward rationalizing 165(d) resolution planning.”
Since the financial crisis, Gould says resolution exercises have created jobs and consulting opportunities for regulators, banks, and outside advisers, sometimes at the expense of actual agency performance or banks’ ability to serve customers.
“The goal of bank regulation is not to create agency jobs and bureaucracies, or opportunities for consultants and lawyers to navigate and feed them, but to promote the safety and soundness of the system,” Gould said. “Under Chairman Hill’s leadership, the FDIC has already taken steps to move in the right direction, including rationalizing CIDI Plans. I look forward to working with him to continue the agency’s shift away from CIDI Plans and toward improving internal capabilities to resolve banks.”