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Growth & Resiliency

Expanding regulatory scrutiny of “too big to manage” including M&A activity, liquidity management, resolution planning


Regulators are responding to frequent changes in the interest rate environment combined  with market turmoil in early 2023 by heightening the rigor of supervisory and regulatory  reviews related to liquidity risks and effective liquidity risk management for firms in all  sectors (banking, capital markets, insurance) and of all sizes.

In 2024, firms should anticipate increasing supervisory attention to:

  • Funding Plans: Regulators will assess whether firms’ contingency funding plans:
    • Are actionable over a range of possible stress scenarios.
    • Provide for stability and a range of funding sources that can be accessed in adverse  circumstances.
    • Consider the FRB discount window as a funding source, and if so, whether operational  readiness to borrow has been established and maintained.
  • Liquidity Risk Management: Regulators will increase expectations around:
    • Models (e.g., strength, exposures), uninsured deposits, and held-to-maturity  securities.
    • Liquidity management and reporting (e.g., shortened windows for daily and intraday  capabilities, expanded information reporting).
    • Long-term debt requirements (including an interagency proposal to expand required  holdings of long-term debt to certain banks and holding companies (e.g., $100+  billion)).
    • Transactions with affiliates (and compliance with Regulation W) impacting capital and  liquidity positions.
  • Interest Rate Risk Management: Ongoing supervisory focus on interest rate risk  management amid a changing interest rate environment, credit tightening, and quality  and concentration risks, including stress testing and scenario analysis.


Along with heightened attention to liquidity risks, multiple regulators are revisiting/  enhancing expectations for the preparation and submission of resolution plans, especially  among larger firms, with an eye towards effecting more orderly resolutions. Supervisory  and regulatory attention will continue to focus on:

  • Planning: Multiple regulators will expand expectations to require more firms under  their supervisory authority (e.g., $50+ billion banks, Category II and III banking  organizations, SEC-registered clearing agencies) to engage formal, detailed resolution  planning and plan submissions (i.e., inclusive of the planning process, execution  strategy, and consideration of areas of “potential vulnerability” to resolvability).
  • Bridging: Banking regulators will focus on operational resiliency bridge planning,  including the strategy for formation and stabilization of the bridge depository institution,  as well as how operations could continue through resolution or separation from parent  and/or affiliates and any associated activities.

Too Big to Manage

As large firms, especially banking organizations, continue to grow, both organically and through M&A  activities, regulators are saying it is increasingly difficult to affect an orderly resolution owing in part  to their large size as well as to complexities associated with their operations, assets, liabilities, and  services which fall outside of the core business chain. Regulators also suggest that it is this size and  complexity that can lead to “persistent weaknesses”, “repeat offenses”, and supervisory action (See  02—Risk Standards) as “effective management is not infinitely scalable.”

Firms should anticipate that regulators will be considering:

  • M&A: Continuing scrutiny of anticompetitive M&A activity, as well as a potentially expanded scope  of bank merger reviews (e.g., to include nonbank entities such as fintechs) and more timely reviews  (e.g., shortened timeframes). Deal activity in 2024 will be dictated largely by macroeconomic  conditions, including interest rates and inflation and tight lending standards, in both banking and  capital markets.
  • Tech and Operational Resiliency: Evolving and growing focus on elements of tech and operational  resiliency, including deployment of new technologies (e.g., automated systems, predictive analytics,  cloud); data governance (e.g., privacy, use, sharing); identification of critical operations/core business  lines/material entities and business continuity planning; threat detection/risk monitoring including third  party relationships; concentrations and interdependencies; accountability (e.g., roles, responsibilities,  escalation protocols).
  • Examination Scrutiny: Deficiencies identified by regulators, coupled with perceived repeat offenses  or failures to remediate them, will drive close examination of the size and complexity of firms and  evaluation of whether management has reached its “limits.”
  • Remediation: Consideration and prescription of escalating options for “remediation” of supervisory  concerns and identified deficiencies (e.g., enforcement actions, changing management, implementing  action plans, imposing fines, capping growth, divesting business lines/activities) with the intent of  simplifying and “meaningfully changing business incentives.”

What to Watch

Regulatory actions to watch in 2024 will include:

  • Long-Term Debt RequirementsInteragency (FRB, FDIC, OCC) proposal to impose long-term debt requirements on certain large banks and holding companies  with assets of $100+ billion; perceived benefits include improved resolvability,  reduced costs to the Deposit Insurance Fund, and mitigated financial stability and  contagion risks.
  • Resolutions and Living Wills: FDIC rule proposal requiring banks with assets of $50+ billion to periodically submit resolution plans, and joint FDIC/FRB guidance  proposal on the development of resolution plans for Category II and III banking  organizations ($250+ billion).
  • Merger Review: Ongoing developments to DOJ/FTC Merger Guidelines and bank  regulator consideration of updates to the Bank Merger Policy.
  • Resilience: Evolving regulatory expectations for third parties providing “critical  activities” to financial services firms (e.g., cloud services, IT support), including  evolving focus on resilience risk standards and testing tools (e.g., resilience,  scenario, cyber).


Call to Action…

  • Strengthen risk management and governance:
    • Review and optimize capital requirements, including consideration of unrealized gains  and losses on available for sale securities.
    • Review and update resolution and recovery plans, including consideration of personnel  and retention plans, critical third-party and shared services, payments and trading  activities, and communications systems; franchise components for separation or sale.
    • Improve governance processes, such as board and senior management reporting, skill  sets, incentive compensation, and responsiveness to supervisory direction.
  • Prepare for increased supervisory reviews and examinations: Anticipate and adapt to  increased regulatory reporting frequency and level of detail. Address identified issues and  monitor progress against plans proactively and efficiently. Evaluate potential impacts of  alternative deposit insurance options (limited coverage, unlimited coverage, and targeted  coverage) on the company's risk profile and operations.
  • Evaluate and adjust to financial stability risks: Analyze the impact of potential financial  and nonfinancial risks and vulnerabilities that may contribute to these risks. Implement  changes as necessary to stay ahead of potential policy approaches or regulatory actions.

Dive into our thinking:

Ten Key Regulatory Challenges of 2024

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