USA Law and Practice Contributed by: Edward P. O’Keefe, Neil T. Bloomfield, John A. Stoker and Kathryn (Kate) G. Wellman, Moore & Van Allen, PLLC
specify an identified strategy, address failure scenarios and describe their valuation analysis. The Federal Reserve Board and FDIC must review the credibility of each BHC’s plan and may make, jointly, a determination that the plan is not credible. If the firm fails to address the deficiencies, it may be subjected to more strin - gent capital, leverage or liquidity requirements or limits on its growth, activities or operations. The agencies may order divestiture of assets or operations if the BHC is ultimately unable to address the deficiencies. The FDIC may also find a material weakness in an IDI’s submission under the FDIC’s resolution planning rule, and the IDI’s failure to address these weaknesses could lead to enforcement action. The Federal Reserve Board requires each GSIB to maintain a minimum amount of total loss-absorbing capacity (TLAC) made up of a minimum amount of long-term debt and Tier 1 Capital and to maintain a buffer above the TLAC minimum. Falling below the buffer may result in limitations on the ability to make capital distribu - tions and certain discretionary bonus payments. GSIBs must also hold a minimum amount of long-term debt (LTD) to absorb losses and sup - port their resolution. Following the 2023 banking crisis, the agencies issued a proposed rule that would expand the number of institutions subject to the LTD requirements (to IDIs and their holding companies with total assets of USD100 billion or more), prohibit covered companies from entering into transactions that could impede their orderly resolution and limit the amount of their liabilities that are not LTD. Under the OCC’s current guidelines, national banks with USD250 billion or more in total assets must also develop recovery plans detailing actions the bank could take to remain a going
concern when experiencing financial stress, but resolution is not imminent. GSIBs are sub - ject to similar requirements under the Federal Reserve Board’s recovery planning guidance. These requirements were recently increased in response to the 2023 bank failures, with the OCC issuing a final rule that lowers the threshold for the recovery planning requirement to banks with USD100 billion or more in average total assets and adds requirements for testing and consideration of non-financial risks. The revi - sions become effective in January 2025, with staggered compliance dates. Recent regulatory developments in the United States addressing environmental, social, and governance (ESG) issues have focused on cli - mate-related risks and legislative responses by some states to counter the actual or perceived implementation of ESG principles by financial institutions. Climate In Spring 2022, the SEC issued a proposed rule requiring registrants to include climate-related disclosures in their registration statements and periodic reports and to disclose the registrant’s greenhouse gas emissions. The proposal was subject to extensive public comment, and the SEC issued a final rule in March 2024. The rule applies to all publicly traded companies and requires, among other things, disclosures addressing: • climate-related risks that have had or that are reasonably likely to have a material impact on the company’s business; 9. ESG 9.1 ESG Requirements
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