As the Office of the Comptroller of the Currency (OCC) considers changes to banks' recovery planning requirements, it should tailor such requirements to banks' distinctive business models and risk profiles, according to a letter filed today by the Bank Policy Institute (BPI) and the American Bankers Association (ABA).
“When the OCC first adopted its recovery planning Guidelines in 2016, the OCC stated that ‘a covered bank may tailor its recovery plan to its unique size, risk profile, activities, and complexity,’” stated BPI and ABA in their letter. “As the OCC now proposes to expand the Guidelines by reducing the asset threshold to $100 billion and introducing a testing standard, we urge the OCC to reiterate that all aspects of the Guidelines are designed to, and will be, implemented in a tailored manner.”
Currently, national banks with more than $250 billion in assets are required to maintain "recovery plans" for stabilizing their businesses during crises. These plans aim to prevent banks from entering resolution. The OCC has proposed extending these requirements to national banks with assets between $100 billion and $250 billion as a response to banking turmoil in 2023. Additionally, a new testing standard would apply to all banks subject to these requirements.
The proposal also seeks to treat financial risks and non-financial risks—such as reputational damage and operational failures—as equal factors triggering recovery plans. However, BPI and ABA argue that these risks should be clearly distinguished from one another.
"As the OCC expands substantive requirements and extends them to more banks, it should draw clear lines between financial risk and non-financial risk," emphasized BPI and ABA. They also recommended replacing the proposed "validation" testing standard with a flexible "capabilities assessment" standard. This would allow banks to demonstrate their ability to execute recovery plan steps if needed without having to simulate actual crisis conditions.
Furthermore, BPI and ABA suggested that non-financial risks should be considered in recovery planning but not treated on par with financial risks. Triggers based solely on non-financial risks should not automatically activate a recovery plan.
The letter also noted that various aspects of compliance timelines need revision for clarity.
Despite requests from industry groups for an extension of the 30-day comment period due to time constraints imposed by publication during July 4th week celebrations, the OCC denied this request. BPI and ABA offered ongoing engagement with the OCC as guidelines are developed given limited time for comment.
"The banking agencies have increasingly eyed large-bank requirements for larger regional banks following 2023 bank failures," concluded BPI and ABA. They urged regulatory tailoring ensuring such requirements fit regional banks’ actual risk levels.
To access a copy of the letter, please click here.
The Bank Policy Institute is a nonpartisan public policy group representing universal banks, regional banks, and major foreign banks operating in the United States. It conducts academic research on regulatory issues while representing financial services regarding cybersecurity and other information security matters.
For further information:
Tara Payne
Bank Policy Institute
tara.payne@bpi.com
Josh Britton
American Bankers Association
jbritton@aba.com