OCC scraps bank-recovery plans | American Banker

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• Key insight: The Office of the Comptroller of the Currency is pulling a requirement that banks above $100 billion in assets provide detailed recovery plans.

• Supporting data: The agency argues the plans were too “scenario-dependant” and not worth the regulatory burden.

• Forward look: Other bank wind-down requirements such as resolution planning remain, but eliminating recovery planning is just the latest effort by the administration to reduce regulatory requirements on the banking sector.  

The Office of the Comptroller of the Currency on Tuesday finalized a rule eliminating the requirements that banks above $100 billion in assets submit detailed strategies for rebuilding the institution in times of stress. 

The agency says the decision to rescind recovery planning is part of its broader effort to simplify the regulation of banks, saying the recovery planning hasn’t prevented bank failures and hamstrings management in times of stress. The move would not alter the OCC’s stance on the submission of resolution plans — a similar but distinct requirement that banks submit detailed plans for how to resolve the bank should it fail.

“The OCC has determined that the guidelines do not materially improve risk management at covered banks because much of the recovery planning documentation is, by its nature, scenario dependent or otherwise conjectural and, therefore, is likely to be irrelevant or of limited utility when a covered bank faces stress,” the OCC’s final rule notes. “Proper risk management should be a dynamic process … bank management is best positioned to assess the risks unique to their institution and should have the freedom to pursue the risk management strategy that best suits their bank’s business model, complexities and risks under the facts and circumstances.”

Following the 2008 financial crisis, the Dodd-Frank Act directed the Federal Reserve and Federal Deposit Insurance Corp. to require banks to file detailed plans for dismantling themselves in the event of a crisis. These so-called living wills, finalized in 2016, originally applied to all banks with $50 billion or more in assets. Under Trump’s first term, the agency raised the threshold to $250 billion, arguing the larger banks benefitted most from the planning.

During the Biden administration, bank regulators moved to expand the recovery planning requirements, lowering the threshold to banks with $100 billion of assets or more. The decision came after a number of banks with assets below $250 billion in assets experienced significant instability in March 2023. For example, Silicon Valley Bank’s failure in March 2023 was the second largest bank failure in U.S. history, and the bank had just over $200 billion in assets at the time of its failure, costing the FDIC’s Deposit Insurance Fund an estimated $16 billion.

The second Trump administration has made deregulating the financial sector a priority, arguing that reducing the regulatory burden on banks can help promote economic growth. President Trump’s Executive Order 14192, titled ”Unleashing Prosperity Through Deregulation,” directs agencies to rescind at least ten regulations for every new proposed rule that could impose costs on regulated entities.

The OCC first proposed rescinding the recovery plans this past fall, and Tuesday’s move officially repeals the recovery planning guidelines at OCC. Institutions will no longer be required to establish recovery plans, as a part of the agency’s “ongoing assessment of its supervisory framework to identify and eliminate unnecessary regulatory burden,” according to the final rule.

Consumer advocates like Phillip Basil, Director of Economic Growth and Financial Stability at Better Markets have opposed the move, saying recovery planning helps prepare banks for instability and that removing it weakens protections against failures.

“The purpose of the process is to enhance the preparedness of banking organizations to address stressful situations more generally and to build the ‘skillset’ a banking organization needs to do so effectively,” Basil wrote in a comment letter opposing the OCC’s proposed rule.  “Requiring large banks to take reasonable ex ante actions to reduce the likelihood of their collapse…is a sensible requirement that promotes a more stable and resilient financial system and protects US taxpayers from the costs of massive bailouts.”