Financial institutions planning to draft self-composed recovery plans for potential breakdown scenarios
In a move aimed at ensuring the stability of the banking system, the Federal Deposit Insurance Corporation (FDIC) has proposed a rule that would require banks with more than $10 billion in assets to conduct annual stress tests. This rule is not a new policy, but a proposed one that is subject to further review and potential changes before it is finalized.
The FDIC's stress test rule is not limited to banks based in the United States. It applies to any bank, regardless of location, that holds more than $10 billion in assets. This rule does not apply to individuals or specific brands, such as Nordstrom.
Meanwhile, the Securities and Exchange Commission (SEC) has fined Barclays $361 million for selling unregistered securities worth $17.7 billion. The unregistered securities were structured financial instruments offered for sale by Barclays between 2019 and March 2021. The SEC's fine against Barclays is the largest ever for unregistered securities. It's important to note that this fine is not related to the FDIC's stress test rule or the legal battle over the Stoli and Stolichnaya trademarks.
The SEC's charges against Barclays stem from a clerical mistake. The securities in question were not authorized for trade by Barclays. This fine is also not related to President Trump's tweet about Ivanka Trump and Nordstrom.
Large banks in the United States are already required by federal regulation to submit "living wills," officially called resolution plans, that outline how they could be wound down in an orderly manner if they face material financial distress or failure. These resolution plans are mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act and must be submitted periodically, with major recent deadlines such as July 1, 2025.
The FDIC's ruling does not specify the exact format or content of the "living wills" that banks must create. However, it's clear that these plans are intended to provide a framework for resolving systemically important financial institutions without sparking wider financial instability or requiring taxpayer bailouts. The Federal Reserve and the FDIC jointly oversee and review these plans to assess their feasibility.
Annual stress tests factor into these requirements by providing forward-looking assessments of the bank's capital adequacy under adverse economic scenarios. Stress tests help ensure the banks can maintain sufficient capital buffers and liquidity to survive financial shocks. The outcome of stress tests can influence the content and assumptions of the living wills, since they provide crucial data on potential losses and capital shortfalls that the resolution plan must address.
In summary, the FDIC's stress test rule is intended to ensure the stability of the banking system in the face of economic downturns. The Securities and Exchange Commission (SEC) has fined Barclays $361 million for selling unregistered securities, a move unrelated to the FDIC's stress test rule or the legal battle over the Stoli and Stolichnaya trademarks. The SEC's charges against Barclays stem from a clerical mistake, and the fine is not related to President Trump's tweet about Ivanka Trump and Nordstrom.
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