The Office of the Comptroller of the Currency wants to expand its enforceable guidelines on recovery planning to banks with at least $100 billion in assets, expanding their current application from banks with $250 billion or more.
With its proposal — the text of which gives a nod to the bank failures of 2023 — the OCC aims to make sure large banks are prepared to respond to severe financial stress in a way that reduces contagion.
“In March 2023, several insured depository institutions (IDIs) with total consolidated assets of $100 billion or more experienced significant withdrawals of uninsured deposits in response to underlying weaknesses in their financial position and failed. These institutions were not subject to recovery planning, which would likely have bolstered their resilience,” Acting Comptroller of the Currency Michael Hsu wrote Monday in the notice of proposed rulemaking.
Silicon Valley Bank, which failed in March 2023, had $209 billion in assets. Signature Bank, which followed, had over $110 billion; and First Republic, which came in May, had more than $229 billion.
“The events, coupled with the OCC’s supervisory experience, made clear the importance of ensuring that banks in this size range are adequately prepared and have developed a plan to respond to the financial effects of severe stress, particularly in light of the contagion effects and systemic risks they may pose,” Hsu wrote.
The regulator is looking to incorporate a testing standard for recovery plans as well as clarify the role of non-financial risk — such as operational and strategic risk — in banks’ recovery plans.
“Under the proposed testing provision, a covered bank should test its overall recovery plan, and each element of the plan, to ensure that it will be an effective tool during periods of severe stress,” Hsu wrote. “To meet this standard, a covered bank may simulate severe financial and non-financial stress scenarios, such as the scenarios used to develop the plan, to confirm that the plan is likely to work as intended when the covered bank is experiencing severe stress.”
The proposal is open for public comment through July 24.
