(Bloomberg) – Travis Hill, acting chairman of Federal Deposit Insurance, said the agency would abandon the bank’s so-called life will requirements, so they no longer build around a hypothetical failure.
Instead, regulators will look for a focus on the update resolution plan “more specifically, providing the FDIC with the information needed to quickly promote the agency and operating the agency for a short period of time if needed,” Hill said in a notes for the American Bankers Association event on Tuesday.
The agency will also emphasize less on how a collapsed lender transitions to FDIC-authorized Bridge Bank, which will operate the company until the acquirer is determined. New guidance will arrive in the coming days and the will of life will expire this fall.
Hill said changes are needed to avoid a considerable deposit run that occurred after the collapse of Silicon Valley banks in March 2023. Similarly, less than half of the deposits signed in the same month were less than half of the bank’s deposits at the time of failure, he said.
In both cases, the loss of deposits reduces the value of the institution and increases the cost of the deposit insurance fund, Hill said.
“Given that many clients and counterparties will always question whether it is worth continuing to operate with institutions that just failed and without a highly uncertain future, the ‘melt ice’ issue is a common feature of bridge banks and conservation facilities,” he said. “In addition, prolonged unrest may instability the banking industry and the broader economy.”
Hill said the FDIC’s goal should be to increase the likelihood of a good solution, which is usually weekend sales.
He said a rapid acquisition of a failed company is not always possible, and in which case the institution should be prepared to sell the bank part as soon as possible.
In July 2024, the FDIC and the Fed adopted the final guide to ensure smooth and rapid disbanding of U.S. lenders after any collapse. This is part of the regulator’s response to the rapid failure of SVB and signature banks.
Hill said the program did not address all the courses in failure, such as the cost of operating the Bridge Bank on the first weekend of the lender’s collapse.
“In general, if a large bank fails in the future and can solve it in a more cost-effective way, we want to be prepared.”
– Assisted with Christopher Condon.
More stories like this are available Bloomberg.com
