OCC Proposes Recovery Plan Rule for Banks with $100 Billion or More in Assets

The proposed regulations, published on July 3 in Federal Register, would require about 19 additional mid-sized banks to create detailed turnaround plans that could be implemented in times of severe financial stress or failure.

The OCC’s current recovery planning guidance applies to large banks with assets greater than $250 billion, or banks with assets less than $250 billion if they are highly complex or if the agency believes they involve heightened risk.

The OCC is considering expanding the requirements to more banks after several midsize banks failed in 2023, including Silicon Valley Bank, Signature Bank and First Republic Bank. Acting Comptroller of the Currency Michael Hsu said in a speech in May that the banks could have been saved or at least closed in a more orderly manner if they had better turnaround plans.

“These events, combined with the OCC’s supervisory experience, have clearly demonstrated the importance of ensuring that banks of this size are adequately prepared and have a plan in place to respond to the financial consequences of severe stress, especially in light of the contagion effects and systemic risk they could pose,” the proposed rule reads.

In addition to changing the threshold that would apply to banks with $100 billion or more in assets, the rule would also include a testing standard “that would help covered banks proactively identify and address any weaknesses or deficiencies in their recovery plans before they experience significant stress.” Such testing should be “risk-based and reflective of the covered bank’s size, risk profile, operations, and complexity,” the proposed rule added.

Some banks “are undergoing rapid and significant change to innovate, digitize, and meet growing consumer demands; optimize risk management practices; and respond to external factors, such as economic and environmental uncertainty and financial pressures. These risks can lead to significant nonfinancial stresses that impact a bank’s financial strength and profitability,” the proposed rule states. The rule would require banks to explain the role of nonfinancial risks (including operational and strategic risks) in recovery planning.

Comments on the plan must be submitted to the OCC by August 2.