Skip to content

U.S. Federal Reserve and FDIC Report Deficiencies in Credit Suisse Resolution Plan, Shortcomings in BNP Paribas Plan

The U.S. Federal Reserve (Fed) and the Federal Deposit Insurance Corporation (FDIC) recently identified deficiencies in Credit Suisse’s “living will” resolution plan, detailing how the firm would be unwound in the event of bankruptcy related to its U.S. governance and cash flow forecasting.

In a similar fashion, the regulators also determined a shortcoming in BNP Paribas’ resolution plan with regards to continuity in resolution of its securities repurchase agreement activity for its U.S. operations – which is not as severe as a deficiency.

These reports by the Fed and FDIC come on the heels of a similar review conducted last month on Citigroup Inc., with banking regulators asking the firm to remediate its living will plan, citing concerns that problems with the bank’s data governance could adversely affect its ability to produce timely and accurate data in the face of financial stress.

The findings of these recent regulatory reviews highlight the importance of well-maintained governance structures and resolutions plans for financial institutions operating in the U.S. and internationally, especially at a time when the banking industry continues to be closely monitored by the government despite recent, post-pandemic economic recovery. These reports have raised questions about the long-term strategies that financial firms have in place to handle potential bankruptcy scenarios, in addition to potential risks associated with continuity of their services during periods of financial distress.

Although the Fed and FDIC have recommended credit improvements for Credit Suisse and BNP Paribas’ resolution plans, these two firms must also adhere to other requirements set out by the agencies, such as adhering to standards for resolvability and maintaining sufficient liquidity levels. Additionally, both firms must now undergo further scrutiny by regulators to ensure their plans are compliant with the latest resolution requirements.

The reports by the Fed and FDIC underscore the need for a robust and comprehensive resolution plan among financial institutions operating in the U.S. and globally in order to protect against potential risks associated with financial instability. Bankruptcy should be seen as a last resort and banks must consider all necessary steps to improve their preparedness for various scenarios, from data governance to liquidity levels. It is vital for firms to update these plans regularly, in order to remain compliant with the latest regulatory requirements and to maintain adequate safeguards for customers and shareholders alike.