The Federal Reserve Board has released additional guidance for the nation's largest banks regarding its expectations for their “living wills,” the worst-case-scenario resolution plans demanded of them under the Dodd-Frank Act.

The new supervisory guidance, issued to eight domestic bank holding companies (Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street, and Wells Fargo), cites “the importance of robust systems to manage collateral, information, and payments, clearing, and settlement activities” and stresses the importance of adequate liquidity and funding arrangements during times of stress. These expectations will be incorporated into the Fed's ongoing supervisory assessments of recovery and resolution preparedness.

Specifically, a bank holding company subject to this guidance should have: 

Effective processes for managing, identifying, and valuing collateral it receives from and posts to external parties and affiliates.

A comprehensive understanding of obligations and exposures associated with payment, clearing, and settlement activities.

The ability to analyze funding sources, uses, and risks of each material entity and critical operation, including how these entities and operations may be affected under stress.

Demonstrated management information systems capabilities for producing key data on a legal entity basis that is readily retrievable and has controls in place to ensure data integrity and reliability.

Robust arrangements in place for the continued provision of shared or outsourced services needed to maintain critical operations that are documented and supported by legal and operational frameworks.

Bank holding companies with assets of $50 billion or more, and non-bank financial firms designated by the Financial Stability Oversight Council for supervision, are required to submit resolution plans to the Fed and the Federal Deposit Insurance Corporation on an annual basis. They must describe the company's strategy for a rapid and orderly wind-down during times of extreme financial distress.

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